The government on Thursday approved a fresh package of Rs 500 crore in interest subsidies for exporters battling a sharp appreciation of the rupee over the past year.
Exporters would be eligible for an interest subsidy of two per cent, subject to the condition that interest rate does not fall below 7 per cent, in sectors that are severely hit by rupee appreciation such as leather and leather products, handicrafts, textiles and carpets.
The decision taken at a meeting of the Cabinet Committee of Economic Affairs on Thursday comes on top of several bailout packages — worth Rs 5,200 crore — for exporters that the government had earlier announced. Several business grouping welcomed the move.
The latest package "will ensure mitigation of the effect of rupee appreciation across the export sectors, make them internationally competitive and will also enable them achieve export targets,” a government spokeswoman said.
The rupee rose about 12 per cent against the US dollar through 2007 and that has dented profits at many of India's exporting firms and even forced some of them to lay off workers and cut down production.
Nearly 70 per cent of India’s external trade is invoiced in dollars forcing many to believe that the export target of $160 billion for this year was unlikely to be met.
A recent internal government survey, according to officials, has shown that labour intensive industries such as textiles, handicrafts and food and agro products have been badly hit in the last 12 months.
According to Commerce Ministry data, textiles, garments, electronics, handicraft, machinery, bi-cycle, chemicals, processed foods, carpets, auto components and medical instruments are the sectors that constitute around 50 per cent of India’s total exports.
“Export prices of Indian products in these 11 sectors have become uncompetitive to the extent of 10 to 12 per cent on average vis-à-vis competing countries due to rupee appreciation,” the note said.