The Hindu Business Line : `Strong rupee squeezing exporters' margins'

THE appreciation of the rupee against the US dollar is "a bit of concern to our exporters, though the situation is improving now," according to the Commerce Secretary, Mr Dipak Chatterjee.

Mr Chatterjee, who is leaving Udyog Bhavan shortly to take up the office of the first Chairman of the newly set up Competition Commission, told Business Line here in an interview that "as everything for exporters is in dollars, they are getting less in rupees and their margins are squeezed."

"It is a paradoxical situation. Banks have reduced exposure to exports as they do not have dollars to give to exporters or they are reluctant to do so. While RBI rules permit the banks to finance Indian exporters' dollar credit at LIBOR (London Interbank Offer Rate) plus 0.75 basis, banks could make LIBOR plus 3 percentage points from others. So they prefer to give others than exporters. This is something very strange, denying the exporters finance - at least remedy the situation," Mr Chatterjee noted.

Mr Chatterjee hastened to add that the exporters are not blaming the Government as they realise that rupee is going to strengthen in the medium term. They are not asking for devaluation but demanding only the dollar credit by way of export financing, he added.

Asked about other constraints, he said, "Unfortunately what is hampering exports now is the congestion in ports and this is assuming alarming proportions in JNPT in Mumbai. Containers have to wait which is creating a huge problem as the cost is going up. Because of the congestion and the low turnaround time of ships in all the major ports, the shipping rates have gone up. We are trying our level best in reducing the port congestion and we are talking to the Shipping Ministry almost daily."

Mr Chatterjee noted that compounding this are State levies and barriers to inter-State movement of goods that need to be factored into exporters' cost calculations, which further squeeze their margins. He, however, noted that States are aware of the need to assist exports but they have their own revenue considerations and "where to find a proper mix is the question."

On the oft-repeated claims of the Revenue Department that duty neutralisation and export incentives are actually duty foregone, Mr Chatterjee quipped, "The more our export gets a share in the domestic product, the more will be the revenue for the government. Nowhere in the world are exports taxed. Even now the duty which has been lost is less than the average Customs and excise duty." He said that while the Customs has its own concerns, the principle is that "you don't make draconian procedures just to detect small cases and every time a measure comes to plug the loophole, it is made further complicated" at the Customs level.

Moreover, each port has its own procedures and format for documentation. Once the Electronic Data Interchange (EDI) comes into operation before the end of this year, 23 major ports and airports encompassing 80 per cent of foreign trade would be duly linked in a seamless network, reducing drastically the transaction cost, Mr Chatterjee hoped.

He said India's medium-term export strategy target announced in 2002 would be feasible as is evident in the buoyant export trends in automobiles and components, agricultural products and with the Agreement on Textiles and Clothing (ATC) going, textile exports would do well. He said the fear expressed by certain industry segment on the increasing free trade agreement India has been concluding with trading partners was unwarranted. "FTAs have both complementary and competing implications and competition should make our exporters sit up and take notice". He urged the exporters to explore new markets and ensure export of quality products.

"Exporters must also realise that exports are necessary in order to counterbalance any swings which may take place in domestic demand. If you are assured of exports you have reasonable chance of staying in business when domestic demand lasts," Mr Chatterjee said, adding that he was glad that many exporters in the country have taken the world as a market.

To a specific query about the delay in the Central legislation for the Special Economic Zones (SEZ) owing to differences between Commerce and Revenue departments, he said, "Once the government has taken the concept of the SEZ at the highest level, everyone should work because such legislation would impart a stable policy framework enabling the units to be sure about the benefits and constraints. Nobody wants to invest unless one is sure that the investment would yield returns over a period of time. The proposed Act is designed to give this assurance through a single authority for all clearances."

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