The Federation of Indian Export Organisations (FIEO) has called on the Reserve Bank of India to open a LIBOR-linked forex loan facility for exporters, especially small and medium businesses, to help them overcome a fund crunch.

Quoting the latest RBI data, the FIEO President, Mr Ramu S. Deora, said rising interest rates have impacted credit offtake by 2 percentage points, with the credit growth rate slowing to 18.5 per cent.

Mr Deora also pointed out that in spite of repeated hikes in policy rates by RBI, inflation is again gravitating toward double-digit levels.

The RBI has hiked short-term lending rates by 475 basis points since March 2010, to tame inflation, which has been hovering above 9 per cent since last December.

Mr Deora pointed out that amid the subdued global environment following the sovereign debt downgrades of the US and Japan and the worsening debt crises in the eurozone area, there is little to look forward to as far as exports from the MSME sector are concerned.

He also warned that going forward, export growth will slow down, while imports are likely to remain at the same level, further widening the already high trade deficit.

In these circumstances, the FIEO President urged the Government to cap the interest rates for MSME exports at 7 per cent with the introduction of interest subvention for exports, besides monitoring of credit offtake for exports and providing information on the same in its monetary policy review regularly.

He also called for apportioning more funds to the Export Credit Guarantee Corporation, besides increasing the interest on Exchange Earner’s Foreign Currency Accounts to offset the rising borrowing and input and raw materials costs.

It is understood that the ongoing dollar supply crunch in Europe is pushing up the cost of obtaining the American currency through the swap market in Asian financial centres, impacting MSMEs that are looking for dollar loans.

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