Sub-prime crisis could 'moderate' demand for Indian exports: Chidambaram
24 Nov 2007
New Delhi: Finance Minister P Chidambaram has expressed concerns regarding possible moderation in exports demand, arising out of the US sub-prime crisis, even though India remains largely unaffected by the turbulence witness by financial markets worldwide following the crisis.
Chidambaram expressed hope that India would be able to manage the huge capital inflows that have resulted in rupee''s appreciation by over 10 per cent this year, going against the interests of exporters. He said that the fallout of the sub-prime crisis for India could be some moderation in the demand for exports from India.
The finance minister said that India could ill-afford shocks and major turbulences in its markets, referring to the sub-prime crisis, citing that as the reason for a "cautious and calibrated" opening up of India''s capital and financial markets.
The finance minister expressed optimism that India would be able to master the first-time situation of massive capital inflows into the country, which had seen the rupee appreciate by over 10 per cent during the year.
Consequently, export growth has more than halved since last year, with exports for April-September 2007 increasing to $72.28 billion from $60.98 billion in the corresponding period last year, displaying a growth rate of just about 18.52 per cent.
The commerce ministry has been cajoling North Block to loosen its purse strings in the interest of pushing exports, as they are widely expected to fall short of this year''s $160 billion target. Textiles secretary AK Singh too had advocated that the sector should be provided a helping hand.
The rising rupee is expected to make exporters cut around 2.5 lakh jobs to control their costs. Of these, one lakh workers would be rendered jobless in the textile sector alone.
The finance ministry, on its part, is clear in its stance that exporters need to fend for themselves, and learn to live with an appreciating rupee, though the government had announced incentives including higher tax refunds and subsidised credit that were collectively estimated to be worth over Rs5,000 crore.
The finance minister''s colleague in North Block, junior minister S S Palanimanickam, advised Parliament the government did plan to provide anymore incentives or relief to exporters.
Sources indicate that finance ministry officials are of the view that the government had offered concessions to help exporters to deal with volatility of the appreciation, and now that things were stabilising, further support was not necessary. Moreover, argues the ministry, the Centre has offered a host of tax concessions and refunds, which are collectively estimated at almost Rs54,000 crore in the financial year 2006-07.
Exporters in India are demanding an exemption from the payment of service tax on a host of inputs, including air travel. The commerce ministry had earlier proposed that the government should consider refunding all state levies, a move that was shot down by the finance ministry, which is also fighting against the refund of tax on other services, citing a widespread scope for misuse of the gesture, saying that any travel by an exporter can be claimed as work-related. Commerce ministry officials consider the relief package offered so far as mere pittance.
