Money & Banking

Tirupur exporters fret over investments, say LoU ban ‘Tughlaq-like governance’

LN Revathy Coimbatore | Updated on March 25, 2018

Fund flows hit Conversion of an LoU into a loan will add another 10% to the project cost and make life difficult for the business community, say members of the industry

Exporters in Tirupur say that only importers of capital goods will be affected because of the RBI’s ban on LoUs. Knitwear exporters largely bank on getting limits sanctioned by the bank to cover exports. Yet the decision to scrap all LoUs (Letters of Undertaking) is “unwarranted”, they say.

Calling it a “knee jerk” reaction and a totally unwarranted stand because of the fraud committed by Nirav Modi, the President of Tirupur Exporters’ Association Raja M Shanmugham said: “this is more like Tughlaq governance.”

The knitwear exporting community’s exposure to LoUs “is not much, excepting those that have invested in capital goods,” he said.

He further said that the cost of funds was only 2 per cent on the ₹5.60 lakh crore capital investments (on power infrastructure and capital goods) across the country. “This will shoot up now and this is bound to have a cascading effect.

“Project promoters would not have factored this cost. Now conversion of the LoU into a loan will add another 10 per cent load to the project cost and make life difficult for the business community,” he said.

Exporters feel that the Centre should step in and resolve the issue instead of remaining silent.

The industry is already bleeding as the GST refund claims have not been settled yet, barring few units that have managed to get the refund.

The government should take the industry stakeholders into confidence, discuss and debate before taking major decisions, as it has started to impact the trade adversely, TEA president said, voicing concern over the present state of affairs.

Published on March 24, 2018

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