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Commerce min for cheaper forex loans
February, 03rd 2010

In a bid to consolidate the nascent export recovery, the commerce & industry ministry is pushing for cheaper forex loans for exporters. Since liquidity has improved significantly since the financial sector meltdown, the ministry feels that there is a strong case for reducing the interest charged on foreign exchange loans.

Banks now charge 350 basis points above Libor on loans extended to exporters in foreign currencies like dollar. The commerce & industry ministry wants this rate to be brought down to Libor plus 100 basis points. We are urging the finance ministry and the Reserve Bank to nudge banks to bring down the cost of foreign currency loans, a highly-placed commerce & industry ministry official said on condition of anonymity.

The ministry is pushing for this concession since it is felt that the 2010 Budget may not leave much scope for new export incentives.

For exporters using rupee loans, a provision of Rs 600 crore has been proposed so that the 2% interest subvention available to labour-intensive sectors can continue. Though negative growth in exports have been arrested since November 2009, the commerce & industry ministry feels that the sector needs incentives since the rupee is strengthening.

According to industry estimates, the rupee is likely to appreciate further during 2010 and this could dent export profits further. The rupee appreciation is seen by the industry as a double whammy since demand in key markets like the US, Europe and Japan has not revived.

Exporters fear that the dollar might depreciate to Rs 42 per dollar, said Ajay Sahai, director general of the Federation of Indian Export Organisations (FIEO). Rival exporters in Asian countries are getting new incentives to be competitive in the global market place, he added.

Interestingly, the export sector is hopeful of its incentives remaining intact while India Inc is gearing up for a tough budget in 2010 as the government seeks to roll back stimulus measures. Exporters feel that some new incentives for labour-intensive sectors could materialise since commerce & industry minister Anand Sharma is pushing hard to ensure that the green shoots turn into buoyant growth. Mr Sharma is on record saying that stimulus measures should not be rolled back in a hurry.

The commerce & industry ministry has also proposed that there should be no cut in allocation for export promotion schemes like duty drawback. Along with other popular schemes like advance licence and duty entitlement pass book (DEPB) schemes, the allocation for export refund is likely to be around Rs 75,000 crore for 2010-11 . Exports during 2009-10 is likely to touch $175 billion, compared with $185 billion in 08-09 .

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