Despite a robust export growth close to $50 billion during the first two months of the current fiscal in the face of halting recovery of the global economy, the apex export organisation is not sanguine about sustaining this frenetic pace in the coming months unless the persistent cost disabilities and high transaction costs plaguing the exporters are addressed.
Talking to Business Line here, the Federation of Indian Export Organisation (FIEO) President, Mr Ramu S. Deora, voiced serious concern over the gyrations in interest rates as the apex bank has been tightening the monetary screws.
He said in the face of the country's widening trade deficit, as indicated in the first two months, and the slowdown in manufacturing demand, there should be “a pause in monetary tightening”.
He said in the last 15 months, the key policy rates have been raised 10 times from 3.25 per cent to 7.5 per cent resulting in deceleration in the growth impulses.
Sooner or later banks would push the cost of credit which might touch 11.5 per cent for exporters as against 7.1 per cent in July 2010, a jump of over 60 per cent in the last one year.
This would make it really difficult for Indian exporters to compete with contiguous countries where interest rates range from 1-5 per cent.
He cautioned that higher interest rates and their widening differentials (that is more arbitrage opportunities and increased FDI inflows) might lead to the appreciation of the rupee, both of which would hurt the country's export competitiveness in the short-to-medium term.
Since the interest subvention for small and labour-intensive exporters have been withdrawn, Mr Deora made a pitch for reintroduction of the interest subvention scheme with retrospective effect from April 1, 2011.
He also underlined the need to maintain distinction between exports and domestic finance and extend export credit to marginal, small and medium exporters at 7 per cent and to others at 9 per cent in order to sustain export momentum.
Mr Deora said with the wild swings in international crude oil prices, the Government had been left with no option but to increase domestic petroleum product prices which would make the cost of production of all manufacturing goods including for export production costlier.
In this setting, he said, the Panel on Exports and FDI in the Planning Commission should consider drawing up “a package consistent with the requirements of trade and the emerging economic realities” to help trade and industry surmount the cost disabilities.
While lauding the Finance Minister for extending the duty-neutralisation Duty Entitlement Passbook (DEPB) Scheme, Mr Deora said the notification for the same should be issued immediately to end the uncertainty concerning extension and help exporters book orders for the third and final quarters of the current fiscal.
While welcoming the decision to replace DEPB scheme with duty drawback rates, he urged the Government to bring all products under the All Industry Duty Drawback Scheme and also involve industry bodies in fixing the rates for “accuracy of data and transparency so that the high tempo of export growth is sustained”.
Simultaneously, Mr Deora said the ball is in “our court and we need to justify the all-industry drawback rates by providing supportive data”.
He said that the Chairpersons of all Export Promotion Councils/Commodity Boards were all apprised of the need to provide the updated inputs in the prescribed format so that the apex organisation would supplement their efforts.
Finally, Mr Deora said that even as an interesting debate is raging over export of foodgrains, he said the Government should take a call, keeping in view the stakeholders' interests.
Export regulation, he said, should only be through export cess or duty, as this mechanism is WTO-compatible and would also ensure generation of adequate revenue for the authorities.
He said overseas markets are difficult to develop and could be easily lost if “we are termed a non-reliable supplier” and it makes sense at times to “allow exports and import at the same time to provide equilibrium in prices” without resorting to outright export ban.