Indian exporters seek extension of interest subvention

17 May '12

2 min read

In view of the increasing costs of credits for the export sector, the Indian Government allowed a two percent interest subvention, i.e. a two percent subsidy to all exporters of the MSME segment and certain labor intensive sectors like handicrafts, handlooms and carpets. However, this scheme ended on March 31, 2012.

Now, the exporters are seeking extension of the scheme in view of the high interest rates currently prevailing in the country.

“We have made a plea to the Commerce Minister to decide on the extension of the interest subvention scheme in the upcoming Foreign Trade Policy (FTP) review. It is only after the Commerce Ministry's approval that the grant will be at the disposal of the RBI, which will use the fund for refinancing different banks that are providing 2 percent export credit to the exporters,” Mr. Ajay Sahai, Director General of Federation of Indian Exporters Organizations (FIEO) told fibre2fashion.

Mr. Sahai hopes the demand would be accepted because the cost of credit in the last one and a half year for the exports sector has moved upwards from 7 percent to around 11.5-12 percent, which is a very steep increase and has made exports uncompetitive.

“At least two percent interest subvention should be provided by the Government to exporters. It would not provide them the equal benchmark rates of interest with competing Southeast Asian countries, where the rate of interest for exports is around six percent. But, it would bring down the minimum export credit rate in the range of 9-10 percent, thus giving some respite to the exporters,” says Mr. Sahai.

Briefing about other demands of the exporters, he says, “We are also demanding that there should be some stability in the exchange rate. The buyer is also aware that the rupee which was 45 to a dollar earlier has moved to 54. So, instead of putting the price of a product which was earlier USD 1, he is asking the exporter to reduce it to 90 cents, which is a cause of concern.”

“So, we would like the value of the rupee to remain in the limited band of +\- 5 percent. Rupee depreciation of 10-15 percent will interest only a speculator and not an exporter,” he avers.

Fibre2fashion News Desk - India

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