FIEO seeks govt intervention to settle derivative losses

NEW DELHI: Export organisation FIEO has sought government intervention for amicable settlement of thousands of crore of losses suffered by exporters on account of derivatives trade.

"The government needs to instruct banks through RBI to solve this issue on the basis of no-profit no-loss basis," it said adding, "Wherein the exporters would be made to pay back whatever profits, if any, accrued to them through the forward contract and further the banks should not claim any loss out of it".

This could be made valid for those forward contracts entered into between April 2007 and June 2008, Federation of Indian Export Organisations (FIEO) said in a letter to Finance Minister Pranab Mukherjee.

Many exporters lost substantially in derivatives products offered by financial institutions as they hedged their risk in the wake of appreciation of rupee, it said.

"The loss suffered by small and medium enterprises itself is over Rs 2,000 crore," it said adding many exporters are on the verge of closing their businesses.

Exporters had booked forward contract expecting that rupee would appreciate in 2008, as economists, political leaders and everyone were of the view that the domestic unit would touch Rs 38 a dollar by the end of December 2007, it said.

However, in calendar year 2008, the rupee started depreciating sharply, crossing Rs 50 to the dollar mark, FIEO said.

FIEO also demanded a two-year moratorium on term loans, exemption from service tax on services exclusively used for exports and increase in sops like duty drawback rate.

It has urged Mukherjee, who presented the Interim Budget on February 16, to consider FIEO's proposals to arrest the negative trend in exports and subsequent loss in employment as "presentation of regular budget will at least take four months".

After an impressive expansion in exports of over 30 per cent in the first six months of 2008-09, the growth has turned negative with the result that the total shipments this fiscal would fall short of the 200-billion-dollar target.

Commerce Secretary G K Pillai had said that due to global downturn about 15 lakh people employed in the exporting sector would be out of job by March this year.