New Delhi, Feb. 26 In a relief to certain export sectors worst-affected by the global financial crisis, the Government on Friday proposed to extend the two per cent interest subsidy on pre-shipment export credit for one more year till March 31, 2011. The other main measure that would benefit export sectors at large is the retention of service tax at 10 per cent.
However, export sectors would be impacted by partial rollback of stimulus measures such as the increase in Central Excise duties from 8 per cent to 10 per cent. The move to hike the basic duty on crude petroleum, diesel and petrol as well as the enhancement of Central Excise duty on petrol and diesel by Re1 a litre each would also have a cascading effect on exports.
Presenting the Budget, the Finance Minister, Mr Pranab Mukherjee, said, “I propose to extend the interest subvention of two per cent for one more year (till March 31, 2011) for exports covering handicrafts, carpets, handlooms and small and medium enterprises.”
To insulate the employment-intensive export sectors from the global meltdown, the Government had earlier extended the interest subvention of two per cent on pre-shipment credit for seven sectors — textiles including handlooms, handicrafts, carpets, leather, gems and jewellery, marine products and small and medium exporters - from September 30, 2009 to March 31, 2010.
Leather, textiles
Mr A Sakthivel, President, Federation of Indian Export Organisations (FIEO), said the exclusion of textiles, leather, marine and gems and jewellery from the extension of the interest subsidy scheme will add to the woes of these sectors. Leather and textile sectors are still in the red, while the growth exhibited by marine as well as gems and jewellery are on a very low base, Mr Sakthivel said. He added that the FIEO would ask the Government to soon include these sectors as well in the scheme.
On the increase in excise duties, Mr Sakthivel said the duty draw back rates of sectors such as garments and leather, which are still struggling, need to be increased by around two per cent. This is because the excise duty hike and the increase in prices of raw material would add to their costs making them less competitive in global markets, he said.
January exports
The Finance Minister said there are signs of a turnaround in the merchandise exports with a positive growth in November (18.2 per cent) and December 2009 (9.3 per cent) after a decline of about 12 successive months. “Export figures for January are also encouraging,” he added. Exports in January 2010 have recorded an 11.5 per cent growth, thanks to the demand revival in traditional destinations such as the US and the European Union. The Prime Minister's Economic Advisory Council had projected that the country's exports in the second half of 2009-10 would grow at 12 per cent to $88 billion. Exports in the first six months of 2009-10 were $81 billion.
The Finance Minister reiterated the Government's commitment to ensuring continued growth of special economic zones to draw investments as well as boost exports and employment. Turning to micro, small and medium enterprises, which contribute to 40 per cent of the country's exports, Mr Mukherjee proposed to raise the allocation for the sector from Rs 1,794 crore to Rs 2,400 crore for 2010-11.
Pointing out that gems and jewellery is a traditional item in the country's export basket, Mr Mukherjee proposed to reduce the basic customs duty on rhodium - a precious metal used for polishing jewellery – from 10 per cent to 2 per cent.
The increase in the rate of minimum alternate tax from the 15 per cent to 18 per cent of book profits would also have adversely impact export companies.
Mr Sakthivel said non-extension of tax holiday beyond March 2011 for export-oriented units will put pressure on such units as they are already facing fierce competition from low cost economies and are struggling to manage exchange rates.
Source : Business Line