Government extends relief to exporters hit by rising rupee

Mumbai: The government has announced further relief measures for exporters hit by a rising rupee and increased the number of sectors eligible for lower bank lending rates.

A finance ministry notification issued today said the government has broadened the list for exemption of service tax to three additional taxable services:

(i) General insurance services provided to an exporter in relation to insurance of export goods;

(ii)Technical testing and analysis agency services in relation to technical testing and analysis of export goods; and

(iii) Inspection and certification agency services in relation to inspection and certification of export goods.

The service tax paid by exporters on these three additional taxable services are not in the nature of "input services" but could be linked to export of goods, the notification said.

Service tax paid by exporters on input services used for export goods is neutralised under various existing schemes. The issue of providing refund of service tax paid on taxable services, which are not "input services" but could be attributable to export of goods was examined in consultation with the stakeholders.

It was decided to refund service tax paid on taxable services which could be linked to exports even if they are not in the nature of input services, the notification said.

The government has added industries like jute and carpets, processed cashew, coffee and tea, solvent extracted de-oiled cake, plastics and linoleum to the list of sectors eligible for lower lending rates from banks.

The government also announced payment of interest on the Exchange Earners Foreign Currency accounts for exporters. The interest rates would, however, be determined by individual banks.

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

The government had last month issued a notification providing refund of service tax paid on port services provided for export, other port services provide for export, services of transport of goods by road from ICD to port of export provided by goods transport agency and services of transport of export goods in containers by rail from ICD to port of export.

India has set a target of $160 billion in exports in fiscal 2008 and analysts say the surge in the value of the rupee would moderate export growth in the months ahead.

The rupee hit 39.36 per dollar, its strongest since March 1998, gaining one per cent this week alone.

It is up more than 2.5 per cent since the US Federal Reserve cut rates last month and has risen 12 per cent in 2007.

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

"The government has been monitoring the situation arising out of the appreciation of the rupee," the statement said.

"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," it added.