Industry upset with rupee export credit extension

Representatives feel the approach should have been more sector-specific.

The Central government has extended the rupee export credit interest subvention up to March 31, 2012 for the handicrafts, handlooms, carpets and small and medium enterprises (SME) sectors. However, representatives of some industries, such as textiles and leather, are disappointed with the decision, which according to them is not sector-focused.

They feel that only 40 per cent of SMEs will benefit and the scheme should be sector-specific.

The Centre recently approved the release of around Rs 1,250 crore towards reimbursement of interest subvention claims, which amount to Rs 3,892 crore.

The Cabinet Committee on Economic Affairs recently approved the proposal of the department of commerce for additional funds under the interest subvention scheme to the tune of Rs 2,050 crore — Rs 1,250 crore for the period up to March 2011 (based on a Reserve Bank of India projection) and Rs 800 crore for the period April 1, 2011 to March 31, 2012 (as indicated by the department of financial services).

This budget provision for balance funds under the Scheme of Rupee Export Credit Interest Subvention was released to the scheduled commercial banks.

According to the ministry, so far, Rs 1,654 crore has been released to RBI for reimbursement of interest subvention claims, whereas the total requirement projected by RBI for the period up to March 2011 is Rs 3,892 crore.

Hence, the balance of Rs 2,238 crore is pending, out of which the department of commerce has approval of CCEA for Rs 996 crore, leaving around Rs 1,250 crore for which approval was recently given. Around Rs 996 crore will be released to RBI as and when the funds are made available to the department of commerce under the relevant head.

Meanwhile, the department of financial services had indicated an additional financial implication of Rs 800 crore in view of the Central government’s decision to extend the scheme from April 1, 2011 to March 31, 2012 for the handicrafts, handlooms, carpets and SME sectors.

Reacting to this, A Sakthivel, president of the Tirupur Exporters Association, representing the Rs 11,000 crore knitwear industry of Tirupur, said that his industry was disappointed, since the garment and knitwear sector was not included. He says only 40 per cent of the industry will benefit.

Echoing his view, Rafeeque Ahmed, chairman of the Council for Leather Exporters, said that he was disappointed, since the scheme is focused on a few-labour intensive sectors, leaving out industries such as leather, which has 80 per cent of its units located in rural and semi-urban areas.

“Forty per cent of the units in the sector will not come under the SME category, as per the government’s definition. They (the government) should be sector-specific, instead of using categories like SMEs,” said Ahmed.

The interest subvention scheme was introduced in July 2007 by a RBI notification, on the advice of the ministry of finance to help exporters offset losses on account of the global recession.

In this scheme, which is operated by RBI, the government provides an interest subvention of two percentage points per annum to all scheduled commercial banks in respect of rupee export credit to specified categories of exporters.