Garment exporters in Tiruppur have urged the government and the Reserve Bank of India (RBI) to come out with an “Export Refinance Scheme” for banks to augment export credit.

A. Sakthivel, president of Federation of Indian Export Organisations (FIEO), said the increase in the repo rate by 25 basis points with immediate effect to 6.5% is in line with the ongoing effort of the RBI to contain inflation and flight of capital. Recently, the US Fed also hiked its rate by 25 basis points and the Bank of England by 50 basis points.

Global trade is passing through a difficult phase due to rising inflation, declining purchasing power, countries entering into recession, and high volatility in currencies. “In the given scenario, we have to ensure that further increase in export credit rates do not blunt our competitive edge as we are losing out to our competitors in countries with reduced rates of interest and deep depreciation of their currencies,” he said.

The RBI should extend “Export Refinance Facility” to banks so that the banks are encouraged to provide export credit in Rupee to exporters and the same amount can be refinanced by the RBI at the repo rate. Such a mechanism will bring down the interest cost for export credit.

K.M. Subramanian, president of Tiruppur Exporters’ Association, said such a positive step will bring down the interest cost for export credit providing much-needed competitiveness to our exports.

Mr. Sakthivel added that the government should increase interest subvention under the Interest Equalisation Scheme (IES) from 3% and 2% respectively to 5% (to all MSME manufacturers) and 3% (to all other eligible categories) as interest rates are at a higher level than the pre-COVID period. Further, it should extend the tenure of pre-shipment credit in foreign currency (PCFC) from 180 days to 365 days.

Mr. Subramanian said increase in repo rates may lead banks to hike the lending rates, which will directly impact the financial performance of Tirupur exporting units. He urged the exporters to opt for foreign currency denominated credit which is available at LIBOR+150-200 basis points and provide a comfort, during the extreme volatility in dollar, without any hedging cost.

Published On : 09-02-2023

Source : The Hindu