Dear Shri Ajay Sahai
Sub: Meeting with Hon’ble Commerce and Industry Minister to discuss impact of Rupee Appreciation.
I refer to your letter under reference no. D.O. No. FIEO.Banking/2007 dated 7th June 2007 on the subject matter with regard to the meeting of the Chairpersons of all EPCs with the Hon’ble Commerce & Industries Minister on 13th June 2007.
In this connection, our suggestions with regard to the impact of Rupee Appreciation are as follows:
· Packing Credit (pre & post shipment): The rate of interest on pre and post shipment packing credit should be 5% p.a. for all Domestic Tariff Area Exporters with immediate effect. This can be implemented by way of a Special Purpose Vehicle (SPV) through the Ministry of Commerce & Industries by the leading Nationalized Banks.
· Differential rate of buying Currency from exporters: The Reserve Bank of India should give a higher rate while purchasing currency on export realizations from the exporters so as to adequately compensate for the appreciating Indian Rupee.
· Extension of I.T. exemptions to EOUs: Income Tax exemptions granted to the Export Oriented Units (EOUs) is expiring on 31st March 2009. This is creating problems for investments in EOUs. Therefore, it is suggested that the exemptions granted under Section 10A & 10B of the I.T. Act be further extended up to 31st March 2014. · Time period for realization of export proceeds: At present the export proceeds have to be realized within a period of 180 days and thereafter penal interest would be charged on the post shipment export credit. At present, there is keen competition in the international market where the exporters are required to extend credit periods upto 360 days. It is therefore suggested that the post shipment packing credit upto 360 days should be permitted at the interest rate of 5% p.a. · Monetization of future earnings of exporters: The exporters should be allowed to raise External Commercial Borrowings (ECBs) against their further exports. This will enable them to bring down the cost of funds for Raw Materials, Packing materials etc. borrowed through ECBs.
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· VAT integrated DEPB System: The exporters should be permitted to utilize the DEPB script for raising the credit in CENVAT account as an option. This should be made possible in case of all other entitlements working on the same principle.
· Hike in DEPB rates: There are very high transactions costs involved in the export activity. As per the study conducted by FIEO, Board of Trade, EXIM Bank etc the incidence of high transaction cost is to be extent of around 7% of the FOB value. Consumables like electricity, furnace oil etc are subject to high rate of taxes in various States. Therefore on this account itself a general consideration the DEPB rates should be increased across the board by 1.5% at the minimum.
· Interest on EEFC account: The exporters are not paid interest on their balances in EEFC account. It is suggested that exporters should be paid interest at the LIBOR rate.
The above suggestions needs implementation on war footing in view of the alarming situation created by the strengthening of the Indian Rupee vis-à-vis US Dollars. The situation has not gone out of control at present. However, if urgent remedial measures are not undertaken then there will wide ramifications on the employment scenario as well as future growth.
With kind regards
Yours sincerely
D B Mody
Shri Ajay Sahai
Director General
Federation of Indian Export Organisations
Niryat Bhavan, Rao Tula Ram Marg
New Delhi – 100 057.
Copy to:
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Shri B S Meena, IAS, Director General of Foreign Trade, New Delhi.
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Shri P K Dash, IAS, Joint Secretary, Department of Commerce, New Delhi.
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