Claiming that such a move could make export promotion schemes WTO-compliant and shipments competitive, EEPC India, the engineering exporters’ body, has said that the exchange value of remittances to exporters should reflect the real effective rate of the rupee.
‘’In particular, it needs to be seen whether the exporters can be paid (the exchange value) on the basis of RBI’s real effective exchange rate (REER), or if that is not possible a thumb rule should be followed to ensure that the deviation of the nominal exchange rate should not be more than 15 per cent of the RBI’s six country REER,” EEPC India Chairman, Mr Ravi Sehgal, said in a statement.
According to Mr Sehgal, keeping the currency a bit muted for export promotion has not been appreciated enough. “While some of the existing schemes may come under the World Trade Organization (WTO) scanner, keeping a close watch on the domestic currency and allowing the benefit for exporters cannot be treated as an export subsidy in WTO norms, as the impact is for the entire economy in de facto terms,” he added.
He observed that a stable and slightly undervalued currency works both as an export subsidy and import tariff in a WTO consistent manner.
He said that as the pressure on WTO mounts from several competing and developed countries, the protection under SMC (Agreement on Subsidies and Countervailing Measures) would have to be realigned in a manner that Indian exports do not suffer.
“We should continue with the current Foreign Trade Policy provisions till 2020 as that is the life of the current policy and based on that the long-term contracts have been signed, particularly in the engineering sector.
“Thereafter, we can move to a fresh set of WTO-compatible measures once out of Annex VII provisions,” the EEPC India chief said.
Other suggestions by the body include differential rate of around 15 per cent of income tax on export income, said a release.