MUMBAI: Hit by a dollar liquidity crunch and depreciation of the local unit, the apex body of the local gems and jewellery sector has asked the government to facilitate bank lending at a cheaper cost to its exporters, while extending credit limits sanctioned on April 1, 2008, up to the end of the fiscal 2011, as part of its budget wish-list.
In the light of the difficulty in securing dollar funds, the Gems & Jewellery Export Promotion Council (GJEPC) has recommended that the government make $3-4 billion from its forex kitty available to Indian gems and jewellery exporters to tide over the liquidity crisis. The body also said such loans should be made available to exporters at one percentage point over Libor up to December 2011, against the Reserve Bank of India stipulated 3.5% above Libor in order to make exports competitive.
“While the industry transacts (buys and sells) in dollars, credit limits are sanctioned in the rupee terms,” said GJEPC chairman Vasant Mehta. “Apart from 3.5 percentage points above Libor funding, there are a myriad other charges which takes our overall cost of funds to 6-7%. We expect banks to extend credit limits sanctioned on April 1, 2008, up to March 31, 2011, if we are to effectively compete with rivals like China.”
As per latest the GJEPC data, net exports of gems and jewellery are down by 26% at $2.9 billion in the first two months of the current fiscal from the same period last year. GJEPC has also recommended an extension of 2% interest subvention scheme on the rupee finance to the dollar finance, too.
GJEPC has repeated its demand of a turnover tax for diamond exporters in place of the benign assessment procedure for assessees declaring a profit of 6% or more of turnover. “Rather than this, the government should tax export profits at a flat 1% on total turnover, which will work out to as good as 34% tax corporates have to pay,” said GJEPC ED Sabyasachi Ray.
Source : The Economic Times