SME Times News Bureau | 20 Mar, 2018
decision to ban letters of undertaking (LoU) for trade finance in the
wake of the Punjab National Bank fraud will severely impact at
least in the immediate term on the capital goods industry, as
small businesses would require higher working capital, said
Plant and Machinery Association of India (PPMAI).
the apex body of capital goods manufacturerâs Industry.
"RBIâs banning of these
instruments would result into increasing working capital requirement
of industries as per their trade cycle and will disrupt trade,
services and industry particularly MSMEs whose working capital is
based as per their trade cycle, will require higher working capital
or else suffer irreparable losses,â said Mr Yatinder Pal
Singh suri , chairman, PPMAI.
Goods industry mostly depends on imports and exports of goods, the
industry which has been
conducting business through these two instruments will now have to
necessarily shift their transactions to Letters of Credit (LoCs) and
bank guarantees," said Suri.
"RBI moves looks like more of
punishment to entire industry for fraud of select few and
corruption in banking system. This Move will also raise the
cost of borrowing especially for small importers, slow the pace of
imports. Capital good importers are already hurt by various anti
dumping duties put by the government on various in put products
including stainless steel," he said.
will lead to undue stress on the working capital management and moves
contrary to the stated objective of achieving ease of doing
business. With an output of INR 2,50,000/- crores contributing
2% of the GDP and generating 10 million jobs, this capital goods
sector is on the cusp of expansion. Recognizing the same, the
Government of India has mandated the Capital Goods Policy with
an aim to increase the output to INR 7,50,000/- generation of 30
million jobs by 2025. As such, the banning of LOU is
contrary to all the aforesaid and creates hurdles in achieving the
stated objectives," said Suri.
urges RBI and ministry of Finance to immediately lift the ban and
allow Capital goods industry back bone of Indian economy to survive
and prosper," he added.