Thread: Interest rate subvention for export credit to go

The Reserve Bank of India (RBI) today notified the closure of the interest rate subvention on the export credit with effect from September 30. Banks have been asked to bring this move to the notice of exporters in order to give them adequate time to make the necessary adjustments. Earlier in April this year, the scheme had been extended for one more year to March 31, 2009.

The incentives were announced in 2007 to counter the appreciation in the rupee. As nearly 70 per cent of India’s export orders are dollar denominated, exporters suffered losses while converting their dollar earnings to rupees, when it was appreciating.

The interest rate subvention has now been rolled back in the wake of the rupee depreciating against the dollar. The rupee had depreciated by over 7 per cent since January 2008 and is expected to weaken further.

The Federation of Indian Exporters Organisations (FIEO) had opposed the move on the grounds that the depreciation in the rupee has not benefited exporters as they had covered their exposures in the forward market.

While the interest rate subvention on pre- and post-export credit has been rolled back, the enhanced duty drawback and Duty Entitlement Passbook Scheme (DEPB) rates may also be rolled back to the level that existed before the export sops. However, service tax exemption to export-related services is expected to continue.

In July 2007, interest rate subvention was given to export credit by 2 per cent for all small and medium enterprises as well as nine sectors. Subsequently, the validity period was extended till March 31, 2009, and an additional subvention of 2 per cent was given to four sectors, including textiles and leather.

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