FIEO Demands Interest Subvention of 3 percent, Export Refinance at RBI Repo Rate

[FIEO Press Release/07.12.2022]

Responding to the increase in the Repo Rate by 35 basis points, FIEO President, Dr A Sakthivel said that such an increase to contain inflation and the flight of capital is on expected lines with further fears of Fed rate hike in the US.

The FIEO President said that global trade is passing through a difficult phase owing to rising inflation, reducing the purchasing power, and countries entering into recession and high volatility in currencies. In the given scenario, 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 (IES) 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 by a high margin when the Interest Equalization Scheme was 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.