FIEO Chief requests RBI to Extend "Export Refinance Facility" to Banks

· Introduce "Export Refinance Scheme" to Insulate Export Credit from Hike in Interest Rates in view of Increasing Global Competition Coupled with Slowdown, says FIEO President

[FIEO Press Release dated 30 September 2022]

Commenting on the increase in the Repo Rate by 50 basis points, FIEO President, Dr A Sakthivel said that such an increase is on expected line to contain the rising inflation and the flight of capital, following the 75 basis points increase in the Fed rate in the US.

However, FIEO President said that global trade is passing through a difficult phase owing to rising inflation thereby reducing the purchasing power, countries entering into recession and high volatility in currencies. In the given situation, we have to ensure that further increase in export credit rates should not blunt our competitive edge as we are losing out to our competitors in countries with reduced rates of interest and deep depreciation of their currencies.

FIEO Chief requested RBI to extend "Export Refinance Facility" to banks. Under such a mechanism, banks may be encouraged to provide export credit in Rupee to exporters and the same amount can be refinanced by the RBI at the Repo Rate. Such a mechanism will bring down the interest cost for export credit providing much needed competitiveness to our exports amidst headwinds in the global economy.

Dr Sakthivel also requested the Government to increase interest subvention under the Interest Equalization Scheme from 3% and 2% respectively to 5% (to all MSME manufacturers) and 3% (to all other eligible categories) as interest rates have already crossed the pre-covid level when the Interest Equalization Scheme provided for 5% & 3% for subvention.

At the same time, FIEO advised exporters to opt for foreign currency denominated credit which is available at LIBOR+150-200 basis points and provide a comfort, during the extreme volatility in dollar, without any hedging cost.