Recommendation also for relaxing credit norms
By R Chandrasekaran
CHENNAI: It looks like that exporters to India will be offered more incentives in an effort to not only address the current account deficit issue but also bump up the sector that has witnessed a significant contraction in the fiscal year ended March last.
The major recommendations by the technical committee on services/facilities of the Reserve Bank of India calls for increased incentives besides relaxing credit norms for the exporters. This apart, the central bank committee headed by its Executive Director G. Padmanabhan, advised for providing export credit the status of priority sector lending to all commercial and foreign banks for three to five years’ time.
Last month, India’s Commerce and Industry Minister Anand Sharma announced incentives to stimulate exports. His announcement came on the heels of exports recording a 1.76 percent drop to $300.6 billion in the just concluded financial year thereby resulting in a trade deficit of $190.91 billion. India had set an export target of $350 billion and the actual figure was sharply lower.
As part of the efforts to lift exports, one of the most attractive export incentives announced by the Commerce Minister was extending of Export Promotion Capital Goods or EPCG scheme beyond March 2013. This offers zero duty import of capital goods cutting across the sectors. Besides this, the scheme offers enlarging the subvention idea for the textile and engineering sectors, permission to transfer the status holder incentive, and use duty credit scrip past duty free imports.
The minister also allowed more operational flexibility to the Special Economic Zones or SEZs set up around the country. The revised flexibility allows requirement areas for all SEZs to half and done away with the requirement of minimum area for IT.
Last week, the RBI wanted the government to take more steps to stimulate economic growth. Higher imports bill due to oil price and gold in the absence of matching exports have only contributed to the widening of the current account deficit to reach a high of 6.7 percent of the economy in December quarter. The RBI governor Dr. D Subbarao has cited that the current account deficit could pose serious risk to the economy.
Given these comments and the steps announced so far by the government, the recommendations of the RBI committee, which has representation from trade bodies, select banks, Indian Banks Association, foreign exchange dealers association of India apart from senior officials from the department of banking operations and development, assumes significance.
The committee called for broadening the room for interest subvention or lower rate of interest on rupee export credits. It has also advised for adequate credit without any hassle to exporters working capital, capital expenditure apart from other needs of the sector, especially SME units; for improving financial assistance from different sources such as factoring, export advance from the outside sources to observe the special needs of exporting units situated in Special Economic Zone, and trade requirements of merchants.
Meanwhile, Oriental Bank of Commerce chairman and managing director S L Bansal has told CNBC-TV 18 that if the recommendations of priority sector lending are accepted, exporters will stand to benefit by 2 percent.
Earlier, the Commerce Minister had indicated that he will not mind in announcing more sops to exporters if the current situations fail to improve.
For improving the current account deficit, export performance is crucial and incentives to bump up exports have become imperative for the government to tide over the situation. Improving exports is much better option than controlling the imports of gold. Therefore, more incentives to exporters will be on the cards.