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From the President’s Desk…..
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My Dear Fellow Exporters,
US dollar has touched a nine year low and has fallen below the 40 rupee mark. Recent cut in US Federal rate by 50 basis points without any corresponding reduction in domestic interest rate is said to be further weakening the greenback in our market due to its massive inflow from overseas. Speculations are galore that the US may go for another cut in October. At the moment, exporters are trying to brave the tide by cutting their margins. But if the dollar is allowed to decline unabated, then probably most exporters would be forced to run for cover in domestic market, and this would have serious macro-economic ramifications. Latest official data already reflects a slowdown in export growth to 18.07% in May 2007 from 23.06% in April 2007. Though official data is not available on manpower reduction in export industry in the face of weakening dollar, trade analysts are assessing the impact to be dramatic and severe. Many exporters are in a fix to finalize their contracts for the coming festive season abroad which they are supposed to do in current months. They are said to be losing their buyers to China, Thailand, Pakistan, Sri Lanka and Bangladesh.
The Federation requests the RBI to immediately intervene by cutting domestic interest rate to arrest any further decline of US dollar. With inflation coming down to comfort level, the situation is conducive for our Central Bank to intervene in the forex market without fears of extra money supply stoking price rise. The reduction in interest rate will help the banks to lower their PLR which will eventually bring down export credit rates. The increase in PLR by about 2-2.5% has offset the advantage accrued to exporting community on account of extension of pre-shipment and post shipment credit at 4.5% below PLR.
Meanwhile, the North Block should also take a rational view of the situation by immediately implementing the relief package announced for exporters by our Hon’ble Commerce & Industry Minister Mr. Kamal Nath in June this year. Most parts of the package remain on paper and have yet not reached to exporters. Arrears of increased DEPB, drawback, interest rate benefits on export credit have not been given to exporters. On the other hand, service tax relief just touches the tip of the iceberg as many of the important services have been left out from the purview of refund mechanism. The recent announcement by the Finance Ministry on service tax refund is not only half-hearted but half-baked as well. Else, why would there be no service tax relief on transport of goods from factory to ICD, when there is a relief on transportation of goods from ICD to gateway ports! A host of important services such as foreign sales commission, foreign travelling expenses, bank charges, professional fees, payment to CHAs and courier companies etc. should be brought under the purview of the above notification. Though, ideally, exporters should be granted complete exemption from taxes on all services used by them in the course of export, as it is no secret that the refund process breeds corruption without brining any extra revenue to the national exchequer.
Yours sincerely,
Ganesh Kumar Gupta
PRESIDENT
