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Government may offer credit subsidy to exporters in `15-16

New Delhi March 22, 2015

The government is considering offering subsidised credit for exporters in the next fiscal when fresh funds become available, a development that comes in the wake of contraction of India`s exports for the third month running in February because of the sharp appreciation of rupee against euro and yen, decline in commodity prices and restrictions on Basmati import imposed by Iran.

"Exporters are facing the heat on several accounts. We are assessing those factors. We are also considering providing interest subvention support independent of the foreign trade policy (FTP). The allocation for that has already been made in the budget," said a government official.
 
FTP has been due for nearly a year. The 3 per cent interest subvention scheme for exports lapsed in April last year, affecting working capital and margins of Indian exporters. The interest subvention scheme was expanded to 3 per cent from 2 per cent in 2013-14 for sectors, including readymade garments, carpets, handlooms, handicrafts, toys and some engineering products. Currency appreciation has been the biggest factor in exports losing their edge, a concern voiced by the RBI governor Raghuram Rajan as well.
 
Rupee has appreciated 22.4 per cent against the euro in the current financial year, making India`s exports expensive in the single currency union. European Union accounts for close to 18 per cent of Indian exports. Rupee has also appreciated about 10 per cent against the Japanese yen over the past one year. Earlier this month, Rajan had said "excessively strong rupee` is undesirable.
 
"The sharp depreciation of euro against rupee has not only affected our exports to EU but also to Africa. There has been a sharp decline from November onwards," said Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations.
 
Government may offer credit subsidy to exporters in `15-16
 
"We have asked the government to give support for exports to EU," he added. India`s exports to Japan fell 18.6 per cent in the first 10 months of the fiscal till January while that to Europe were down 2.41 per cent.
 
"The weak rupee will help exports and RBI has indicated that it will not let rupee appreciate much. In the short term, the interest subvention scheme will help exporters with their working capital requirement," said Soumya Kanti Ghosh, chief economic adviser, State Bank of India. Engineering goods, which held up export basket till last month, posted a contraction of 0.76 per cent compared to 9 per cent growth in the previous month.
 
"In order to maintain cost effectiveness for Indian exports it is deemed appropriate to extend interest subvention scheme, as global demand conditions remain muted. It is expected to bolster exports from India," said Shubhada Rao, chief economist, YES Bank. "RBI is not primarily designed to employ currency as a tool in its monetary policy. Studies show that the global demand conditions have a larger bearing on export performance, and currency is secondary. Though currency is a big concern right now, interest subvention as a channel would be more effective to impart cost effectiveness to our exports," said Rao.
Source : The Economic Times
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