Interest sops for exporters may be extended

The government is likely to extend interest subvention for some export-oriented sectors for another year to sustain the current growth in exports. This will be announced during the coming Union Budget for 2011-2012.

The scheme, which provides an interest subvention of two per cent on export credit for labour-intensive sectors, is scheduled to expire on March 31. The government planned to extend the scheme till March 31, 2012, officials in the commerce and industry ministry told Business Standard.

The commerce and industry ministry has urged the finance ministry to allow extension of the scheme, particularly for the labour-intensive clusters such as handloom and carpets and some additional sectors, particularly small and medium enterprises (SMEs).

“This scheme had been extremely beneficial for exporters. However, I feel it should be extended not for six months or so but for a longer period, may be a whole year, to give some stability,” said Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations.

Last year, too, the government had extended the scheme till March 2010 from September 30, 2009, for handicrafts, textiles, carpets, leather, gems and jewellery, marine products and SMEs, as these were adversely affected due to falling demand from the US, EU and Japan.

The interest subvention on export-related credit enables traders to get a loan at two percentage points less than the prime lending rate. It was introduced in 2007, as a rapidly appreciating rupee against the dollar reduced exporters’ earnings. The government subsequently withdrew the scheme but later re-introduced it in the wake of the global slowdown, as part of its first stimulus package.

Total exports in this financial year so far have reached $164.7 billion, up 29.5 per cent compared to the same period last year, according to initial numbers released by Commerce Secretary Rahul Khullar earlier this month. The government also hopes to exceed the $200-bn target of exports in this financial year.

During the current financial year, the government had periodically given a series of incentives to help boost growth in exports and to sustain the high rate of growth through the finance budget, foreign trade policy and other stimulus measures. Some of the significant ones were the interest subvention on export loans, additional allocation for some export promotional schemes, doubling of credit guarantee schemes and diversification to new markets with newer products. All these have pushed the growth rate of exports significantly.