Declining bank credit to exporters is set to be a key issue when traders meet Commerce and Industry Minister Piyush Goyal on Sept. 11, industry sources said Sunday.
While exports increased by 15% in rupee terms between 2021-22 and 2023-24, credit to the sector fell by 5% in March 2024 compared to the same month in 2022, according to exporters.
The Federation of Indian Export Organisations (FIEO) said the growth in export credit is not keeping pace with the rising value of exports.
"We have seen a decline in export credit between March 2022 and March 2024 despite the need for more credit for longer durations due to hikes in commodity prices, increased freight costs, and the Red Sea crisis leading to longer voyage times and delayed payments," FIEO Director General Ajay Sahai told PTI.
The value of outstanding export credit dropped to ₹2.17 trillion in the March 2024 quarter from ₹2.27 trillion a year earlier, according to FIEO.
Sahai said the issue will be raised during the upcoming meeting with the minister, urging the Reserve Bank of India to prescribe a sub-target for export credit within the 40% priority sector lending (PSL) target.
Despite exports being classified under PSL, the flow of credit has not improved, Sahai said. Export credit stood at ₹11,721 crore on June 28, 2024, down from ₹19,861 crore on July 1, 2022.
FIEO has called for the availability of pre- and post-shipment credit in foreign currencies at competitive prices through the International Financial Services Centre (IFSC) Banking Units (IBUs).
"This would help reduce the cost difference between Indian exporters and their overseas competitors, such as those in China and ASEAN, and boost the pricing power of Indian exporters," Sahai said.
Indian exporters, he noted, are securing new orders due to the geopolitical situation and multinational companies adopting a "China plus one" strategy. However, fulfilling these orders requires additional working capital, with credit risk assessments posing challenges for banks in extending credit.
India's exports could reach $2 trillion by 2030 if sufficient export credit is made available, he said.
India also lags behind advanced economies in terms of access to non-recourse and collateral-free export credit. The Export Credit Guarantee Corporation (ECGC) could play a crucial role by extending insurance cover to banks, allowing this to substitute for collateral and reduce credit risk concerns.
"We request ECGC to increase coverage to 90% for all sectors, with specific stipulations on a case-by-case basis," an exporter said.
Sahai also suggested that the government promote the Gold Card scheme, launched by the RBI to facilitate easy access to credit for exporters with a proven track record. However, banks have not actively promoted the scheme, Sahai noted, and should be required to issue Gold Cards automatically to eligible exporters.
FIEO President Ashwani Kumar highlighted the need to address concerns regarding the interest equalisation scheme, which provides subsidies to reduce borrowing costs for exporters.
"Each bank applies its own rules and discretion in offering interest equalisation benefits," Kumar said. "While RBI advises banks not to insist on security for export finance, most banks still do."
Kumar suggested raising the interest subvention rate to 4-5%, from the current 2-3%. He said the subvention was cut in 2022 due to lower interest rates, but with the RBI's repo rate now at 6.5%, an increase in subvention is needed to keep borrowing costs competitive.
The cap of ₹10 crore on annual subvention for each Importer-Exporter Code (IEC) has also posed challenges for exporters, including some SMEs, by making their exports uncompetitive, Kumar added.
FIEO also raised concerns about the exclusion of exporters availing of production-linked incentive (PLI) schemes from the interest equalisation scheme, which has impacted some companies.
Moreover, exporters have faced difficulties in clearing outstanding entries in the Export Data Processing and Monitoring System (EDPMS) despite generating Bank Realisation Certificates (BRC) through the Directorate General of Foreign Trade (DGFT) module.
"A mechanism needs to be developed to automatically update EDPMS as soon as eBRCs are issued," Sahai said.
Mumbai-based exporter Sharad Kumar Saraf, chairman and founder of Technocraft, expressed concerns over global export growth due to ongoing geopolitical tensions, including the Red Sea crisis.
"We are concerned about export growth in the coming months," Saraf said.
India’s exports rose 4.15% to $144.12 billion in April-July, while imports grew 7.57% to $229.7 billion. The country is aiming to achieve $2 trillion in goods and services exports by 2030.
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