The RBI may consider exporters’ demand for a sub-target for export credit within the existing 40 per cent target for priority sector lending (PSL) to ensure improved credit flow to the sector suffering a cash crunch due to disruptions caused by the Red Sea crisis.

Exporters body Federation of Indian Export Organisations (FIEO) has proposed to the Commerce Department that about 5-6 per cent should be earmarked for the export sector within priority sector lending prescribed to banks to help them meet the increased need for credit because of longer shipping times and payment delays.

This could be in line with the 7.5 per cent sub-target set for MSMEs, within the 40 per cent of PSL, pointed out Ashwani Kumar, President, FIEO, in a media interaction on Thursday.

Credit Crunch

“With longer voyage time on account of diversion of cargo through the Cape of Good Hope (because of Houthi attacks in the Red Sea triggered by Israel’s war on Palestine) coupled with slow offtake, buyers are delaying payments, necessitating higher credit for a longer period. This requires additional flow at most competitive rates,” he said.

While exports are already included in the PSL list, it does not guarantee more credit flow, another industry source pointed out. “Under PSL, 40 per cent of bank credit has to go to certain specified sectors. So, assuming that by allocating higher resources to education, a bank is meeting its target, it is not inclined to lend to exporters. That is why we want about 5-6 per cent should be earmarked for the export sector,” the source said. 

Rate Subvention

Exporters also made a case for an increase in the rate of interest subvention or subsidy under the interest equalisation scheme as bank rates had increased. “To provide competitive interest rates, the interest subvention may be restored to 3 per cent for 410 tariff lines (from 2 per cent) and 5 per cent for MSME manufacturers (from 3 per cent),” Kumar said.

The Commerce Department understands the predicament exporters are facing with a 30-45 days  increase in voyage time to Europe and delayed payments drying up coffers, but the final decision on the matter has to come from the Finance Ministry and the RBI, the source added.