He further pointed out that rate of capital inflows and a sustained spurt in software exports were complicating exchange rate management. According to him, large capital inflows may result in overvaluation of India's currency and erode competitiveness of traditional and goods sectors in the long term”.
Dr V. Krishnamurthy, Chairman of the National Manufacturing Competitiveness Council, has also expressed concerns over the impact of appreciating rupee in the manufacturing sector, especially with reference to the small and medium enterprises. He pointed out that the rupee has appreciated by around 10 per cent in past 12 months, which is hurting the manufacturing sector, especially the SMEs. He added that though the Government was looking into the issue, measures needed to be taken quickly to provide relief to the SME sector.
In this context it may be noted that the withdrawal of 100% exemption to export earnings under Section 80 HHC of the Income Tax Act and other exemptions by the Ministry of Finance has adversely affected the export performance and consequently reduced the profit margin and competitiveness of Indian Garment Exporters in International Market. The hardening of Rupee during the last nine months has added fuel to the fire, further aggravating the present crisis being faced by Garment Exporters.
As the present international garment scenario does not reveal a rosy picture for the Indian Apparel Industry, the Finance Ministry should take immediate steps in line with the recommendations of the Ministry of Commerce to exempt exports from Service Tax and grant adequate fiscal relief including higher duty drawback rates and need based funds at reasonable rate of interest to compensate exporters for the financial hardships suffered on account of upward movement of rupee against the dollar.
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