Stung by the persistent contraction in exports, the government is planning to offer a higher interest subsidy to make cheaper loans available for beleaguered traders struggling to stay afloat in a shrinking world market.
Officials, who did not wish to be identified, said the government is considering an additional interest rate subsidy of additional one percentage points (in addition to the two percentage points offered earlier) in credit to leather manufacturers, marine products, textiles and handicrafts.
The textile industry, handicraft and gems and jewellery sectors, have been the hardest hit as two of the largest markets — the US and the European Union — slipped into a recession.
In March, the government had decided to extend the existing two per cent interest subsidy on rupee export credit to certain employment intensive sectors by another six months till September 30, 2009.
Under the scheme, banks are offered an interest subsidy of two per cent on pre and post shipment rupee export credit for employment-oriented export sectors, including textiles, handicrafts, carpets, leather, gems and jewellery, marine products, and small and medium enterprises.
The total subsidy to banks, however, is subject to the condition that interest rate payable by the exporter does not fall below 7 per cent, which is the applicable agriculture sector lending rate.
According to officials, the full budget for 2009-10 that will be presented in the first week of July is likely to contain details of the lower interest rate regime.
Officials also said that exporters may be exempted from paying tax on several more services. At present, exporters are exempted from paying tax on about 10 services, including those rendered by ports, road transport, railways and warehouses.