Up Against Rupee
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Mr. Ganesh Kumar Gupta, President, FIEO (5th from left) addressing the press meet organised by FIEO after the meeting with Commerce Minister. On his left are Mr. O P Garg, Immediate Past President, FIEO; Mr. Sanjeev Saran, Chairman, SRTEPC; Mr. S.K. Saraf, Chairman, FIEO(WR); Mr. T.V. Maruthi, Chairman, Indian Silk EPC; and Mr. M.S. Mathivanan, Chairman, Powerloom Dev. & EPC, On Mr. Gupta’s right are, Mr. Navratan Samdria, Past President, FIEO; Mr. Rakesh Vaid, Sr. Vice President, AEPC; Shri Prem Malik, Chairman, Cotton Textiles EPC; & Mr. Ajay Sahai, DG, FIEO. |
In a meeting called by the Commerce Minister on 13th June at New Delhi, FIEO President submitted a memorandum to him on behalf of all export promotion councils apprising him of the magnitude of losses suffered by the exporters and suggesting measures to neutralize the impact of rising rupee on them.
The rupee keeps rising further and has touched a new high. From Rs.47.04 a dollar in July 2006, it has appreciated by more than 14%. More than half of this appreciation has come over the past two months alone, sending shivers to the exporting community. The appreciation has squeezed profitability of all exporters across the board but the worst hit are those who deal in traditional items with no or negligible import content.
FIEO proposes that a formula for reimbursement assuming 14% loss due to appreciation should be worked out for different export products based on net foreign exchange earned criteria.
To minimize the impact of fluctuations due to dollar movement, FIEO suggests that Rupee should be pegged to the basket of currencies of competitor countries such as Chinese Yuan, Thai Baht, Pakistani Rupee, Sri Lankan Rupee, Bangladeshi Taka, Vietnam Dong and Indonesian Rupiah, so as to obviate the impact of the depreciating dollar. Also the pegged rupee may be allowed to operate in a ‘band’ to avoid undue fluctuation of rupee vis-ŕ-vis rest of the currencies.
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FIEO has long been pushing for internationally comparable interest rate of export credit to provide Indian exporters a level-playing field. Conversely, due to recent hikes in CRR and repo rates, the cost of export credit has gone up by 2.5 to 3%. The Federation says that now it has become an immediate task of the Central Bank to bring down the rate of export credit in the wake of rising rupee. FIEO suggests that export credit should be provided at bank rate uniformly for 360 days to all exporters, including non-status holders.
At this juncture when exporters are feeling high and dry, FIEO is once again pitching for restoration of benefits to exporters under Section 80-HHC of Income Tax Act. FIEO says, with the appreciation of rupee, the cost of local inputs has increased substantially, reducing export margins further and thus the exporters deserve relief on income tax front. Along with this, FIEO seeks restoration of benefits under Section 35 (B) of the Act which earlier provided weighted deduction of 133% against export promotion expenses such as product development, quality up-gradation or market development. Alternatively, suggests FIEO, ‘export profit reserve’ scheme should be reintroduced to offset the rising cost of local inputs and exporters should be allowed to maintain reserves upto 50% of their annual gross profit.
As an immediate measure, FIEO suggests that all Central and State levies should be refunded to exporters within a stipulated timeframe of 30 days to enhance their cash flow, failing which, they should be paid an interest @15% for the delayed period. To make export growth sustainable for long, FIEO desires suitable modifications in MDA Scheme to make all exporters eligible for the grant without any threshold criteria and restriction on number of visits for participating in trade events.
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Mr. R S Gujral, a 1976
batch IAS officer of Haryana Cadre, has taken over as the new Director |
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| Dr. R. K. Dhawan, Chairman (Northern Region), FIEO (2nd from left) along with Mr. Ajay Sahai, Director General, FIEO (3rd from left) and Mr. Subhash Goyal, Member, Managing Committee (extreme left) welcoming the new DGFT. |
Coir Board claims that many exporters of coir products have lost their orders due to rising rupee and if immediate corrective measures are not taken then around 4.5 lakh workers, comprising mostly of women, would become jobless. Coir industry is currently employing around 6.2 lakh workers of which more than 80% are women. The industry is labour intensive and the suppliers are mostly household and tiny units which manufacture mats, mattings, carpets, rugs. These units have been severely hit by the rupee moving north.
The measures suggested by the Board include allowing export financing in foreign currency; checking escalating ocean and inland freight rates; restoring packing credit to the old rate of 7.5% (now 10%); withdrawing recent increase in the rate of pre-shipment and post shipment credit by banks; factoring unrebated service tax and fringe benefit tax into DEPB rates; continuing Duty Entitlement Pass Book scheme for another five Years, etc.
As a long term measure, the Board suggests improved export infrastructure in terms of port facilities, highways, and availability of power at cheaper rates. "We face the problem of only feeder vessels calling at Kochi Port. Only recently, medium sized mainline vessels have started calling at the Port. However, the periodicity of the mainline vessel’s calling should be increased so as to save on costs and turnaround time." The Board suggests specifically.
Export Promotion Council for EOUs & SEZ units is more concerned with the rising rupee as, unlike DTA units, its member units cannot divert their sales to local market to evade the impact of rising rupee. The Council says that the profits of 100% EOU have been eroded by 5.9% due to appreciation of rupee as per the RBI Report.
According to the Council, the EOUs, alongwith other export units, are burdened with high incidence of direct and indirect taxes in the manufacture of goods which include sales tax, octroi, tax paid on locally purchased inputs, service tax, fringe benefit tax, cess on water & electricity, entry tax and a range of other taxes. The cumulative burden of these taxes is estimated at 5.8%.
After the removal of benefit under Section 10-B of Income Tax Act, says the Council, 100% EOUs would become almost at par with DTA units and thus no additional incentive will be left for a fresh investor to join the EOU scheme which binds a unit by certain unique obligations. The Council believes that any relief measure announced by the government to address the concerns of rising rupee should be applicable to EOUs as well.
Synthetic & Rayon Textiles Export Promotion Council represents units whose exports are generally invoiced in dollar. "Over 80% exports of MMF (man-made fibre) textiles are directed to the dollar payment areas such as US (16%), Gulf and Middle East (34%), Asia (17%) and Africa (8%), whereas less than 20% of the trade quoted in other currencies such as Euro is directed to EU." says the Council. Member exporters have reported reduced level of current bookings and also termination of contracts signed before the currency crisis, the Council claims.
According to the Council, Indian exporters of MMF textiles are at a greater disadvantage also because their major competitors (except those from China) enjoy depreciation in their currencies vis-ŕ-vis dollar. And in respect of China also, the appreciation of Yuan is considerably lower at 4% than Indian Rupee at 11%.
The Council further records that its member exporters are becoming less competitive due to rising prices of basic raw materials. Internationally also, says the Council, prices of the basic raw materials for man-made textiles like DMT, PTA, MEG, Paraxylene, etc. are continuously rising and the average price of these products has gone up from US$1.25 to US$ 1.45. Similar is the situation in case of Viscose. The industry feels that by end June, the prices will further shoot by another 20%. The Council’s worries are compounded by the rising ocean freight charges.
Northern India Textile Mills’ Association endorses FIEO’s viewpoint of pegging rupee to the basket of currencies of competitor countries. Meanwhile, it calls for evolving a mechanism for reimbursing transaction costs, including levies borne by exporters such as state levies, octroi and other municipal charges that are not CENVATable. "Such transaction costs and levies account for 12% of the FOB value of exports, according to the DGFT and the Board of Trade." The Association points out.
The Association stresses improving efficiency of delivery within the infrastructure sector to ensure quality supply of power, roads, rail and port services at costs that may enhance global competitiveness of textile and clothing industry.
Wool & Woollens Export Promotion Council seeks upward revision of Duty Drawback and DEPB rates. As a measure to mitigate the impact of rising rupee, the Council suggests reintroduction of duel exchange rate mechanism. The Council also calls for subsidized loan at 5% interest rate to exporters and treating EEFC Account on par with interest bearing FCNR account.
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A view of the media persons attending the Press Meet. |
Pharmaceutical Export Promotion Council also pushes for bringing down rate of export credit to 5% by way of a Special Purpose Vehicle (SPV) through the Ministry of Commerce & Industry. It further suggests that the Central Bank should give a higher rate while purchasing currency from the exporters after they realize their proceeds.
As regards time period for realization of export proceeds, the Council says that given the high competition in international market where exporters are asked for longer credits, they should get be given post shipment credit upto 360 days at 5%.
The Council also suggests that the exporters should be allowed to raise External Commercial Borrowings (ECBs) against their further exports so that they are able to bring down the cost of funds for raw materials, packing materials etc.
The Council firmly endorses the view of the Council for EOUs and SEZ units and vouches for extension of income tax exemptions to EOUs upto March 31, 2014 under Section 10A and 10B of the I.T. Act. As per Sunset Clause of the Act, the exemption will expire on March 31, 2009.
Carpet Export Promotion Council is also feverishly concerned at rising rupee as most of its member units are lablour intensive and based in rural areas spread over several districts of Uttar Pradesh, Rajasthan and Jammu & Kashmir. The carpet industry is feeling the greater heat of appreciation as exporters from this industry are generally small and work in cottage sector who can not afford to book orders at loss. "50% carpet looms and lakhs of workers have been rendered idle and unemployed by the appreciating rupee," says the Council.
As per the Council’s data, 30 lakh artisans are currently employed in carpet industry and the appreciation in rupee has virtually threatened the survival of these artisans, especially when they are also bearing the brunt of high inflation in essential commodities. The Council warns that if corrective measures are not taken on time then many of these artisans may flock to urban areas adding further pressure to the already drained infrastructure of cities like Delhi and Mumbai.
The Council seeks RBI intervention to arrest and reverse rupee appreciation and looks for special support from government to compensate for their losses on this account. As a long term measure, the Council demands restoration of tax exemption under Section 80 HHC of the Income Tax Act.
Cashew Export Promotion Council says that as almost all of India’s cashew exports are denominated in US dollar, cashew exporters are losing 11% on account of rupee appreciation. "The Indian cashew industry has been reeling under the impact of unremunerative export prices for the last five years and a further 11% reduction in realization of export proceeds would spoil the performance of the industry in the international cashew kernel markets." The Council points out. In employment terms, it says, about 5 lakh workers, mainly women from rural areas, would face the hardship.
To make the matter worse, all shipping lines are charging about 20-25% on freight as CAF (currency adjustment factor) which is much higher than any increase in foreign exchange rate. Even for spot sales, no buyers are willing to pay more. On the other hand, the export contracts entered into were based on the price of raw material, existing processing charges and the then prevailing exchange rate of Rs. 44.50 per US$. Due to then prevailing stability of the dollar against INR, exporters have not covered the exchange risk. The Council informs.
The Indian cashew crop is harvested from February to May every year. Exports from cashew kernels processed out of local raw nuts have become unviable by more than 11% on account of the rupee appreciation. On the other hand, input costs like labour, packing material, interest on working capital, power and other consumables have gone up. Interest rate on packing credit has also gone up by almost 2% and this again has hurt exporters.
