Stung by a persistently rising rupee and eroding competitiveness, textile exporters on Thursday met Finance Minister P Chidambaram demanding an interest rate subsidy of at least 2 per cent to tide over the crisis.
Powerloom Development and Export Promotion Council chairman MS Mathivanan said exporters have demanded that export credit should be provided at 6 per cent. "We want an interest rate subvention for export credit. We have demanded that export credit should be provided at 6 per cent, which is equivalent to the bank rate," Mathivanan said.
Public sector bankers, who attended the meeting, felt that interest rates are likely to remain benign in the near future due to low inflation and high liquidity.
"Interest rates are expected to remain stable to down," SBI chairman O.P. Bhatt said.
Canara Bank chairman M.B.N Rao said that a comprehensive approach was required to address the problem of a strong rupee on the competitivenessof exports. "Financial measures are one aspect, though a more comprehensive approach is needed. I am sure the finance ministry is aware of the situation in the sector, and the government would take all possible measures for the textile sector," Rao said.
Rao also felt that interest rates would remain benign in the short term. "I do not see any reason for interest rates to go up," he said.
Powerloom exporters argued that a 1 per cent appreciation in the rupee resulted in 1.2 per cent erosion of profitability.
The commerce ministry is preparing a sector-specific relief-package for exporters hit by the rupee impact.
The government has already given three relief packages to exporters aggregating Rs 5,200 crore as the $160-billion export target for 2007-08 appears increasingly unattainable in the wake of an erosion of earnings, although the finance minister was optimistic about achieving the target.
In July, the government had announced a Rs 1,400-crore package that included cheaper bank credit, increased rate of tax refunds and faster reimbursement claims.
The government also announced concessional pre-shipment and post-shipment credit by banks for small and medium exporters and those enterprises exporting textiles.