Centre announces 320-million-dollar package for exporters hit by rupee hike

The Centre has announced a 320-million-dollar relief package for exporters hit by rising rupee, including cuts in bank lending rates for the worst-affected sectors and increased tax breaks.

New Delhi, July 13 : The Centre has announced a 320-million-dollar relief package for exporters hit by rising rupee, including cuts in bank lending rates for the worst-affected sectors and increased tax breaks.

The rupee has gained more than nine percent against the dollar since the start of the year, and touched a nine-year high of 40.28 rupees per dollar in late May.

Its surge triggered complaints from small and medium-sized exporters, who account for 45 percent of the country's exports.

"There has been some unanticipated appreciation in recent weeks. Because of that, exports in certain sectors were affected," Finance Secretary D. Subba Rao told reporters on Thursday.

On Thursday, the rupee tumbled about one percent to 40.75 per dollar as the Reserve Bank of India (RBI) stepped in to sell rupees, but it was back at 40.50 by market close.

Rao, however, added the rupee appreciation with respect to other currencies like the Euro was relatively stable.

"As much as the rupee has appreciated in nominal terms, it must also be noted that the appreciation has been with reference to the dollar," he said.

Rao said exchange rate was just one of the several factors affecting trade.

"The exchange rate has an impact on exports, but the exchange rate is not the sole determinant of export performance. There are other factors, notably, the demand elsewhere, the inflation, the real effect of exchange rate, exchange rate with respect to other major currencies," he said.

Banks will now have to reduce lending rates by 200 basis points for firms exporting textiles, ready-made garments, leather products, engineering goods, sports gear and processed foods.

Those exporters will now be able to borrow at 450 basis points below the benchmark prime lending rate, which ranges from 12-14 percent depending on the bank.

The government also raised tax refund rates for a wide range of exports. Taken together the measures will cost the government 13 billion rupees.

On Wednesday, India's second-largest software services exporter Infosys Technologies Ltd., which gets about 60 percent of its revenue from the United States, said the rising rupee was squeezing its operating margins.

Its chief financial officer V. Balakrishnan expected the rupee to continue to be volatile in the short term and said Infosys had already hedged 925 million dollars at 40.58 per dollar and might increase its hedging.

However, the Thursday's measures do not apply to the software sector.

Rao said the government expects to meet its 160 billion dollars export target for 2007-08 despite the stronger rupee.

The RBI has raised interest rates and bank reserves sharply in the past six months to help curb inflation and strong credit growth. Exporters say the tightening has increased the cost of export credit by 2.5 to 3 percent points.

ANI