Export sector seeks extra care from RBI

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Saurabh Gupta | 20 Dec, 2013
The central bank's status quo on the policy interest rates would give some relief to the Indian industry, but the country's exporters feel that the RBI Governor Dr Raghuram Rajan should have given a special attention to exports, which is playing in country's quest for a sustainable rapid economic growth.

Apex exporters body and export promotion councils, in their media statements, have urged the RBI Governor to bring down the interest rate for exports sector, increasing credit flow and have asked for separate chapter for exports in the banking sector.

"There is urgent need to increase the flow of credit to exports sector, which has come down from 19.8 percent of total exports in 2007-08 to 11.3 percent in 2012-13 in a short span of 5 years. Coverage of exports under priority sector will not only increase the flow of credit but will also bring down the interest rate for exports sector," said M Rafeeque Ahmed, President Federation of Indian Export Organisations (FIEO).

He said that increasing interest rates impacted both PMI and IIP - the latter being more inclusive and impacted growth and GDP. Domestic demand and GCF fell dismally. "The rising interest rates have affected exports competitiveness as even after factoring 3 percent interest subvention for eligible sectors, the cost of credit is 4-5 percent over international benchmark," he added.

Since march 2010 policy rates had been hiked 13 times before bringing in some moderation but had little effect on inflation.

India's central bank Wednesday kept key policy rates unchanged in a bid not to weaken growth, but warned it will act swiftly if the situation does not improve. While commenting on the RBI's decision to keep the repo rate unchanged after two successive increases, Ahmed said that status quo in key rates good for industry but exports required priority sector coverage.

Though export of India has increased but its growth rate is less. The value of export of India is less than the value of import of India. According to data released by the commerce and industry ministry recently, the value of merchandise exports in November grew by 5.86 percent at USD 24.61 billion from the USD 23.25 billion worth of goods shipped-out in the corresponding period of 2012.

Country's trade deficit shrunk to USD 9.21 billion in November, as import of gold and silver declined sharply, government data showed Wednesday.

However, the export growth was the slowest in the last five months, as there was a reduction in petroleum and pharmaceutical exports from the country. Country's trade deficit shrunk to USD 9.21 billion in November.

According to a media report, the chief of engineering exporters' body, EEPC India Anupam Shah also said that the RBI should had given a special dispensation of interest rates to exports, which was key to maintaining stability on the external sector parameters like current account deficit.

As clearly pointed out by RBI the outlook for global growth remains uneven and modest. Under these circumstances, it becomes extremely difficult for exporters to stay competitive in the face of weak demand, report added.

According to industry body EEPC India, country's engineering goods exports registered a sharp month-on-month decline of 14.60 percent in November, 2013.

The nodal agency for the textiles exports, Apparel Export Promotion Council (AEPC), also expressed its concern. Chairman of AEPC, Dr A. Sakthivel said, "AEPC has already requested for separate chapter for pre/ post packing credit rate of 7.5 percent. Even the Padmanabhan committee constituted by RBI has recommended this sector to be covered under the priority sector lending. RBI should consider this favorably so that momentum of garment export growth is not lost."

"The textiles exporters were not very happy with the announcement made by RBI," he added.

Further, increase with rupee strengthening over dollar. Chairman AEPC said, "With the inflation hovering at 14 month high of 7.52 percent and slow manufacturing growth of 1.8 percent for the month of October, industry was expecting some relief in terms of lowering of interest rate. The import being all time low after March 2011 provided fiscal room for RBI to reduce the interest rate."

This job critical industry is suffering from high input cost leading to reduced profit margins. "Majority of our factories are SME's and an employment generating sector, and due to adverse consequences of not lowering interest rates, it might lead to the loss of jobs and further slowing of manufacturing activity," Sakthivel added.