The finance ministry is adamant that at a time of soaring oil and fertiliser subsidies, it won’t be able to meet the demand of exporters.

The exporters are planning to meet commerce minister Kamal Nath and finance minister P. Chidambaram soon over the restoration of the subsidy at least till March 2009, as announced earlier.

Nath and his ministry are keen to help the exporters, but the finance ministry, facing an unprecedented oil subsidy bill of Rs 100,000 crore and a fertiliser subsidy bill over Rs 70,000 crore, does not want to extend their payouts any more on any count.

Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO) and trade policy analyst, said, "So far, the exporters have been able to withstand the rising cost of production in manufacturing because of the interest subvention (subsidy). However, with the government planning to discontinue the relief from September-end, it will be a daunting task for the exporters to meet the trade target set for this fiscal."

In April, the government had extended the sop till March 31, 2009 to help exporters to tide themselves over the sharp appreciation of the rupee.

However, the Reserve Bank of India (RBI) on Friday had notified the closure of the interest rate subvention scheme on export credit with effect from September 30. It has asked banks to inform the exporters of the notification, so that the exporters would get adequate time to make the necessary adjustments.

The incentives were announced in 2007 to counter the appreciation of the rupee against the dollar, which led to the reduction in profits of the exporters.

According to the scheme, exporters will get 2 percent relief on pre-shipment and post-shipment credit in various sectors, especially the employment-intensive ones such as handicrafts, textiles, leather and leather products, carpets and marine products.

The central bank has decided to withdraw the scheme as the rupee has been depreciating against the dollar. The Indian currency has depreciated by over 7 percent since January 2008 and is expected to weaken further.

In its reaction to the notification, FIEO said that in the last six months, the benchmark lending rate of banks has gone up between 3 percent and 4 percent, but the subvention scheme was providing the necessary relief. With the withdrawal of this scheme, the export credit rate, which is directly linked with the prime lending rate of banks, will go up by 3-4 percent.

Trade data for June showed that exports grew at 23.5 percent on a year-on-year basis to $14.66 billion with petroleum products contributing to the bulk of growth.

Analysts are divided over the prospect of exports. A section believes that traditional items such as textiles and leather have not grown much because of the global economic slowdown, inflation and higher production cost in the country.

However, D.K. Joshi, principal economist with credit rating agency CRISIL, said the weakening of the rupee against the dollar and improved competitiveness had helped exporters.

He said the rupee was expected to remain weak for some time but was likely to appreciate by the end of the year and stabilise at around Rs 42 a dollar.

The exporters are worried that the RBI, in its bid to control inflation, has increased the lending rates for small and medium enterprises and made inputs costlier.

With the withdrawal of the interest subvention scheme, the exporters would find it difficult to match global competitors in terms of price.

The government has set an ambitious export target of $200 billion for 2008-09. In the previous fiscal, exports were around $155 billion.