Export incentives unlikely this financial year

The government is unlikely to extend any more incentives to exporters this financial year, with the export growth rate at an impressive 36.3 per cent in December, even as they complain of a high interest rate eating away competitiveness.

The ministry of commerce and industry has, however, not ruled out some minor tweaking for sectors left out or not able to take full benefit of the financial stimulus.

Exports registered their highest growth in 33 months, topping $22.5 billion in December, giving government the much needed relief from concern regarding the Current Account Deficit (CAD) in the backdrop of dwindling foreign capital inflows.

While exports had been rising steadily since October last year, the department of commerce will only take a call after the numbers for January are obtained.

“Exports are mostly doing good. However, we have identified certain areas that may need little assistance. So, there will be more of fine-tuning done now and not a big splash,” a senior commerce department official told Business Standard.

But exporters say a rise in cost of credit will be a setback for the manufacturing sector, which showed just 2.3 per cent growth in November 2010.

According to the Federation of Indian Export Organisations (Fieo), export credit in India is much above the international benchmark, which affects competitiveness of our exports.

“The liquidity crunch and the credit offtake had put pressure on the interest rates, thereby increasing the cost of credit for the export sector, which would be impacted adversely given the fragile growth in the developed economies post recession and an appreciating rupee,” said Ramu S Deora, president, FIEO.

Last month, Commerce and Industry Minister Anand Sharma had said the government might extend a few beneficial measures for some export-oriented sectors, especially those which have high labour content. The ministry had concluded a sectoral review in December to identify ailing sectors and the impact of measures announced in the review of the Foreign Trade Policy and the budget.

Earlier this week, Reserve Bank of India (RBI) had raised the rate at which banks borrow from it to 6.50 per cent from 6.25 per cent and the reverse the rate at which it borrows money from banks to 5.50 per cent from 5.25 per cent.

“Growth in exports might help in improving the CAD in the third quarter of 2010-2011 ... Export growth in the recent months had been encouraging,” RBI governor D Subbaro said while unveiling the third quarter monetary policy review.

Total exports in this financial year have reached $164.7 billion, up 29.5 per cent compared to the same period last year, according to the initial numbers released by Commerce Secretary Rahul Khullar earlier this month.

“The saving grace for the economy shall come from exports, which are bouncing back smartly. Global economic recovery of fourth quarter of 2010 and subsequent market rallies coupled with a strengthening dollar against the rupee will help increase export growth further. We believe the IT services sector, besides textiles, gems and jewellery and manufactured goods, have all witnessed a growth,” said Kislay Kanth, Head of Research, MAPE Securities.

Trade deficit in December narrowed to $2.6 billion from $8.9 billion in November, which was the lowest in last three years. Total trade deficit during the April-December period reached $82.4 billion.