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Export credit as a percentage of net banking credit has gradually fallen to 4.1 per cent as on December 31, 2010, from 4.3 per cent as on March 26, 2010, 4.6 per cent on March 27, 2009, and 5.5 per cent as on March 28, 2008, according to the Economic Survey 2010-11.
However, export credit, in itself, has grown by 11.3 per cent as on December 31, 2010 to Rs 153,794 crore from Rs 138,143 crore as on March 26, 2010, it pointed out.
The survey said the RBI's policy initiatives “through a hike in the all-in-cost ceiling for improving the trade credit mechanism, enhancement of the limit on overseas borrowings by banks, extending the line of credit as well as swap facility to Exim Bank, have helped in easing the pressure on trade financing.”
“This is further corroborated by the increase in share of short-term trade credit (both inflows and outflows) in overall gross capital flows — while share of inflows increased from 10.9 per cent in 2007-08 to 15.6 per cent in 2009-10, share in outflows increased from 9.6 per cent to 15.8 per cent during the same period,” the survey added.
Meanwhile, Mr Ramu S. Deora, President, Federation of Indian Export Organisations (FIEO), said in a statement that in order to sustain exports, low cost credit would be an imperative.
RBI directive
Therefore, he said, the RBI should issue directives stating 12 per cent of the lendable resources of the bank be earmarked for exports. Besides, each bank should be asked to inform the RBI periodically of the export credit disbursed against such funds, he said, adding that this information also needs to be made available to apex chambers such as FIEO so that members can be advised to approach banks that have a shortfall in their targets.
“This would also address the larger issue of misreporting to priority sector lending funds performance by banks which has already been flagged by the RBI,” he said.
Further, given the inflation/increase in fuel costs which may further spiral with the Egypt crisis spreading to West Asia , the RBI could adopt a more pro-active stance and arrange for a corpus of funds of approximately 50 per cent of India's exports (around $100 billion) through the External Commercial Borrowings window, he said.
Previous budget
The Centre, in its 2010-11 Budget, had extended interest rate subvention of 2 per cent on pre and post shipment rupee export credit for certain employment-oriented export sectors such as handicrafts, carpets, handlooms, and small and medium enterprises up to March 31, 2011.
On August 9, 2010, the interest rate subvention scheme was further extended to leather and leather manufacturers, jute manufacturing including floor covering, engineering goods, and textiles for the period from April 1, 2010 to March 31, 2011.
But with the introduction of a base rate, the lending rates charged on rupee export credit were deregulated with effect from July 1, 2010. However, the RBI has stipulated that banks may reduce the interest rate chargeable as per the base rate in the sectors specified above by the subvention available, even if the interest rate charged to exporters goes below the base rate, subject to a ceiling of 7 per cent.
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