Govt to continue export sops slug -- Move on to reduce transaction cost

Govt to continue export sops slug -- Move on to reduce transaction cost

AUG 26: The government on Saturday said it would continue the existing income-tax concessions to exporters and ask Reserve Bank of India (RBI) to find ways to reduce cost of transaction of exporters to encourage exports.

The RBI issued guidelines of converting 50 per cent of funds in EEFC accounts into rupees on August 14 in a bid to arrest currency depreciation below 46 a dollar. "It is a temporary measure," Dayal assured exporters.

RBI chief general manager P K Biswas said "considering the market conditions, the objectives (of EEFC conversion) have been achieved." He did not elaborate on the amount recovered so far but bankers estimate it around $850 million which is close to central bank's target of one billion dollars.

The RBI will issue fresh guidelines to bankers on all export and import-related transactions, including external commercial borrowings, next week, Biswas said.

FIEO president Navratan Samdria said the time limit of converting the EEFC accounts was very short and has affected exporters. On the export credit, the banking secretary admitted that some banks were jittery in lending exporters without collaterals and said "one should rather depend on the viability of the projects and not on collaterals."

Despite RBI stipulation to banks of lending 12 of their net credit to exporters, banks have not been able to provide enough credit, he said. Diluting claims of exporters that the cost of funds was high in India, Dayal said "considering the deposit and inflation rates, it is not high."

He asked exporters to come up with alternative measures in order to reduce cost of operations mainly on account of power. Samdria pointing to the penalty clauses in the recently enacted Foreign Exchange Management Act (FEMA), said exporters may find it difficult to comply with the penalties.

Biswas said the central bank would despatch directives about FEMA regulations to banks next week in order to remove confusions.

Stating that FEMA was more "export-friendly" than FERA (Foreign Exchange Regulation Act, 1973), Biswas said that the enforcement directorate would investigate cases only if they were reported to it. Further a sunset clause had been introduced in FEMA whereby all previous FERA cases would have to commence before May 30, 2002, he added.

Earlier, Samdria noted that FEMA had some provisions which he said would like to be moderated. For instance, the penalty imposed under the Act was quite heavy which he feared that many exporters would find it difficult to comply with as the amount had to be paid at the time of adjudication. FEMA had, however, some features as well, he stated.

Exports of services had been defined and brought under FEMA, he said adding that a threshold limit of $ 5,000 a year for travel abroad by exporters and others and beyond this amount, RBI's permission was required.

Dayal said that the net export credit to net bank credit was 12.5 per cent in 1993-94, 13.5 per cent in 1994-95, 13.6 per cent in 1995-96, but it declined to 11.01 per cent in 1996-97 and further to 10.7 per cent in 1999-2000.