Asserting that the right value of Indian rupee is 59-60 to a US dollar,Finance Minister P Chidambaram today said that government will make all efforts,including extending priority sector status to export credit,to boost shipments.
“We think that based on the REER (real effective exchange rate) value,that (59-60) is the right level of the rupee and it should not overshoot its mark.
“But even at 59-60,I think it is extremely competitive to export to many markets,” the Minister told a gathering of exporters lobbies led by the Federation of Indian Exporters Organisation here.
“I think the rupee has to find its level. We think the level,not only I,but a large number of people,think that the right level of the rupee is between 59 and 60. But that is not something that I am willing to pronounce on.
The rupee,which had plunged to a life-time low of 68.85 on August 28 against the dollar,today settled at 62.51,down 44 paise from the previous close.
Speaking to the exporters on their their demand for “priority sector” treatment to export credit,he said his ministry supports this view and it is talking to the Reserve Bank on the matter.
“The Ministry of Finance supports the idea that export credit should be put in the priority sector list,but it is a matter on which we are talking with the Reserve Bank,” Chidamabaram told a gathering of exporters lobbies led by the Federation of Indian Exporters Organisation (Fieo) here late this afternoon.
Apart from the Minister,the high-level meeting was attended by Commerce Secretary S R Rao,DGFT Anoop Pujari,and Revenue Secretary Sumit Bose,among others.
However,cautioning that there are some issues to be resolved before extending the priority sector lending (PSL) status to exporters,he said: “The fear is that if you put export credit to the priority sector,some other elements of the priority sector may get affected. We are in talks with the RBI (to resolve this).”
Chidambaram also noted that the Padmanabhan committee (of the RBI) has already made a number of recommendations on export credit,one is,of course,the cost of credit and the quantity of credit.
It can be noted that currently priority sector lending,which comes at a cheaper rate and that without much hassles,is limited to agriculture and allied sector lending and the MSME sector. The RBI mandates domestic banks to set aside as much as 42 per cent of their total loan book towards PSL.
When exporters complained that there is no level-playing field for them when it comes to competing with China due to the high cost of credit here,Chidambaram said,there cannot be any comparison between the two nations as the two economies are very different.
“It is simply not possible that the cost of money in China and cost of money in our country will be the same. Interest rates cannot be equated,it’s a factor cost. All factor costs all over the world are not the same.
“Interest rates are decided by the policy rates of the RBI,the cost of money to the banks and the bankers lending rate,which is why the Commerce Ministry gives subvention to certain sectors to make exports competitive,” Chidambaram told exporters.
On the issue of multiple taxes that exporters and manufacturers face,the Minister said it cannot be helped as that is the nature of the Federal system.
“The states can’t collect taxes and so the Centre refund. When the GST comes,then it subsumes three taxes– excise,service and VAT. Perhaps,there is a possibility that the three taxes will be rebated for exporters. But we can’t rebate you other local taxes,” he said.
On a request to roll back the recent duty implementation on export of iron ore,Chidambaram said: “The margins with which the segment works and the international prices are high and hence there is no issue of rolling back the duty.” Recently,the government had imposed a 30 per cent duty on iron ore exports in its bid to partially offset the trade deficit as steel imports have been on the rise of late.
For the second month in a row,outward shipments rose 12.97 per cent to USD 26.14 billion and imports dipped 0.68 per cent to USD 37 billion,in August.
During April-August,exports were up by 3.89 per cent at USD 124.42 billion,while imports too grew by 1.72 per cent to USD 197.79 billion,leaving a trade deficit of USD 73.36 billion.
The rupee’s trouble began after the US central bank hinted in late May that it would stop its USD 85 billion bond buyback programme sooner than expected,which led to a flight of capital back to the US shores,as the statement had led to spike in bond yields there.
As a result,FIIs pulled out close to USD 13 billion from domestic markets,primarily debt,between end May and August.
However,within the first fortnight of the new RBI Governor Raghuram Rajan taking charge,the rupee regained more than 10 per cent of its lost value,though since then it had shed some,following the 25 bps repo rate hike on September 20.