Government has been monitoring the situation arising out of the appreciation of rupee. The appreciation of the rupee is a reflection, in part, of the growing strength of the economy and has positive economic benefits by way of cheaper imports and subdued impact on prices. However, the rapid appreciation of rupee in recent weeks has adversely affected exporters who had contracted export orders earlier.   In July 2007, government had announced a set of measures aimed at providing relief to exporters.  These related to accelerated reimbursement of dues to exporters, reduction in the interest rate on pre-shipment and post-shipment credit, and revision in drawback rates and DEPB rates. The total financial relief of these measures was estimated at Rs.1400 crore.  On 17/9/2007, Government had announced refund of service tax to exporters in respect of four services (Port Services, Transport of Goods, Transport by Railways, and other port service) for export purposes.  

In order to provide further relief to exporters, Government has taken the following measures which will come into effect immediately. 

1. Increasing the number of Services for refund/exemption of Service Tax in respect of Exports:

The list is being expanded to include three new services (general insurance service, technical testing and analysis service, technical inspection and certification service).  Exporting community would be exempted from paying service tax for these services.

2.   Provision to pay of Interest on EEFC balances:

At present Exchange Earners Foreign Currency (EEFC) accounts are non-interest-bearing accounts.  It has now been decided to allow interest to be paid on these EEFC accounts subject to:

o    Interest should be permissible on outstanding balances to the extent of US$ 1 million per exporter.

o    Rate of interest may be determined by the banks.

o    This measure would be valid upto 31/10/2008.

o    Such accounts should be in the form of term deposits with a maturity of upto one year.

 Interest on pre-shipment and post-shipment credit (extension of period & widening of coverage of sectors):

The applicable interest rate on pre-shipment credit upto 180 days and post-shipment credit upto 90 days was BPLR minus 2.5%.  In July 2007, government   had announced a reduction of this maximum rate to BPLR minus 4.5% in respect of the outstanding amount for the period April 01, 2007 to December 31, 2007.  Government had agreed to provide the requisite interest subvention of 2% points to scheduled commercial banks.  This dispensation was made available to following sectors:

I. Sectors:

ii. Textiles (including handlooms)

iii. Readymade Garments

II. Leather Products

III. Handicrafts

IV. Engineering Products

V. Processed Agricultural Products

VI. Marine products

VII. Sports Goods

VIII. Toys  

II. All exporters from the SME Sector.

Now, it has been decided that the coverage would be expanded.  The new list would be as follows:

I. Sectors:  

i. Textiles (including handlooms, jute and carpets)

ii. Readymade Garments

iii. Leather Products

iv. Handicrafts

v. Engineering Products

vi. Processed Agricultural Products (including processed cashew, coffee and tea)

vii. Marine products

viii. Sports Goods

ix. Toys

x. Solvent Extracted De-oiled cake

xi. Plastics & Linoleum  

II. All exporters from the SME Sector.

(The additions have been indicated above in bold letters.)

The period for which the reduction in the interest rate is applicable, is now extended from 31/12/2007 to 31/3/2008.  The amount of subvention will be calculated on the amount of export credit from the date of disbursement upto the date of repayment or upto the date beyond which the outstanding export credit becomes overdue i.e., for pre-shipment credit upto 180 days and post-shipment credit upto 90 days, whichever is earlier.

4.  Rs 300 Crore more for Vishesh Krishi and Gram Udyog Yojana (VKGUY):

The product coverage under VKGUY, which is a scheme to promote export of agricultural and village industry products, is being expanded to include additional products.  For this purpose, the revenue ceiling fixed for 2007-08 is being raised by Rs.300 crore (from Rs.200 crore to Rs.500 crore).

Exporter relief measures expand service-tax refunds and interest subvention, extending sectoral coverage and credit interest concessions. Government expanded exporter relief by adding specified services to the list eligible for service-tax refund/exemption and permitting interest on EEFC accounts subject to per-exporter balance limits, bank-determined rates, term-deposit form and temporal validity. It also widened interest subvention for pre- and post-shipment export credit by extending sectoral coverage to additional manufacturing and processed agricultural items and to all SME exporters, and extended the subsidy period; subvention is calculated from disbursement until repayment or until the credit becomes overdue within prescribed limits.