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GEA President disappointed as RBI hikes REPO rate

28 Jul '11
3 min read

Mr Rakesh Vaid, President, GARMENTS EXPORTERS ASSOCIATION (GEA) has expressed disappointment on the RBI decision to again increase the Repo rate by 50 basis point which will further hike the interest rates.

Mr Vaid has called for an overall reduction in interest rates and extension of interest rate subvention facility on export credit to labours intensive small scale apparel exporters. He pointed out that interest rate subvention was earlier granted to labour intensive garment sector but subsequently withdrawn. The withdrawal of the interest subsidy along with steep and frequent hike in the interest rate has increased the rate of pre and post shipment on export finance by over 70 per cent.

The export credit as a percentage of net banking credit has also declined. GEA has expressed the fear that rising interest rate would make the garment exports uncompetitive in overseas markets which are already suffering from worldwide recession. The interest subvention is the only effective way to soften the adverse impact of high interest rate, said Mr Vaid.

Mr Vaid pointed out that the problem of finance is comparatively more acute for the small scale garment exporting sector. It is therefore, essential that adequate facilities of Bank Credit both in terms of long term requirement and working capital should be provided to the exporters. The interest rate for export credit should be lowered substantially as high interest rate increase production as well as transaction costs of exporters.

Mr Vaid further pointed out that the declining trend in the growth rate of garment exports would continue and apparel exports would remain below our potential and expectations because of various factors; more importantly the shrinking demand in both the major world markets like the US and the EU.

Apart from this, there have been a number of indigenous factors, particularly high transaction costs, increasing input cost, tight credit policy, high interest rate, severe liquidity crunch, rigid and outdated labour laws, poor infrastructure, high power cost and frequent power cuts, increasing cost of wages and steep hikes in fabric prices adversely affecting the competitive strength and performance of Indian Apparel Industry. Mr Vaid pointed out that GEA had drawn the attention of the concerned authorities regarding difficulties being faced by Garments Exporters because of global economic slowdown, adverse fiscal and trade policies of the Government and withdrawal of some of the export sops which were earlier granted to exporters.

Mr Vaid also stressed the need to increase the current duty drawback rates by increasing the scope and coverage of Duty Drawback Scheme so as to ensure full reimbursement of excise duties, custom duties, service tax, education cess and various state level taxes so as to provide exporters with the level playing field to remain competitive in the international market.

We hope the policy-makers will wake up to the new realities soon and take some action so that we can take on competition from China, Bangladesh, Vietnam and others. We want a pro-active approach by various government departments to streamline procedures and make fiscal corrections, said Mr Vaid.

GARMENTS EXPORTERS ASSOCIATION (GEA)

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