Govt will have to extend benefits of its stimulus packages

NEW DELHI: With a steady fall in industrial production and exports over the last few months, the new UPA government will have to extend many benefits of its previous two economic stimulus packages and weigh the need for a new one, as it looks to shepherd the economy out of its troubles.

The outgoing government announced two stimulus packages in the last fiscal year to help industry deal with the global economic slowdown, and a number of measures in these are slated to lapse over the next few months.

Industry is expected to push strongly for extending the 4% cut in excise duty that is valid until June 30. However, as the move will have revenue implications, the new government will have to decide on its importance.

Another important measure ending on June 30 is removal of interest rate caps on external commercial borrowings. The government had given industry complete freedom to take dollar loans from foreign banks and export credit agencies, doing away with the earlier borrowing cap of Libor plus three percentage points. The relaxation helped industry in accessing dollar loans easily, especially when the dollar firmed against the rupee.

The earlier stimulus package had allowed non-banking financial corporations, which play a major role in disbursing credit to industry as they do not seek collateral, the freedom to borrow from overseas multilateral agencies and development financial institutions. As industry continues to face a credit crunch, there will be pressure on the new government to continue with this policy.

The new government will also have to decide whether the interest rate subvention or a discount of 2% given to exporters of identified labour-intensive sectors should continue beyond 2009. It has to also decide whether its full budget should include higher reimbursement rates for DEPB, a popular input duty reimbursement scheme for exporters.

Another item on the industry wish list is an extension of tax sops for software technology parks (STPIs) and 100% export oriented units, which end on March 31 next year.

Exporters are looking for the government to do much more than what it has already done.

���What the government has given us so far is peanuts and has proved to be a failure. We want constructive steps to give exports a boost,��� said Delhi Exporters Association (DEA) president SP Agarwal.

According to Federation of Indian Exporters Organisation director-general Ajay Sahai, countries such as China, Vietnam as well as South Korea have given much more support to their industry and exporters compared to India.

���We are preparing a memorandum highlighting areas where the new government can help exporters,��� Mr Sahai said.

There is also a lot of unfinished work in the area of trade agreements. The government will have to work with other countries to settle numerous contentious issues to conclude the ongoing Doha negotiations of the World Trade Organisation (WTO). The proposed Indo-Asean free trade agreement, which the UPA government missed signing by a whisker the last time around, also needs to be ironed out and implemented.

A liberal grant under the market development assistance scheme, new schemes to incentivise exporters to explore alternate markets like South America, as well as providing export credit at nominal interest rates are proposals high up on the association���s priority list.