Exports require stability on exchange rate, FIEO tells RBI

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SME Times News Bureau | 06 Apr, 2010
In a pre-policy meeting with RBI Governor D. Subbarao, FIEO President A. Sakthivel said urgent measures are required to bolster the exports sector, which has been severally affected by the global economic slowdown and currency fluctuation.

Fixed value of dollar for export purposes, status quo on interest rates, availability of Export Credit particularly in foreign currency, allocation of 15 % of priority sector lending to MSME sector, relaxation in working capital/term Loans and transaction costs in banking channel are among the several suggestions made by the Federation of Indian Export Organisations (FIEO) for the Reserve Bank of India’s forthcoming Credit Policy.

Sakthivel observed that the indications are there that after fiscal crisis, the world is entering the currency crisis and RBI should safeguard against it.President FIEO raised a bunch of points concerning exporters and urged the Governor to intervene positively and expeditiously.

FIEO Chief stated that export credit as a percentage of net banking credit has fallen from 5.5 percent as on March 28, 2008 to 4.6 percent as on March 27, 2009 and further to 4.1 percent as on January 15, 2010.The outstanding export credit as on March 28, 2008 was Rs. 1,29,983 crore, a growth of 23.9 percent over the previous year.

The export credit as on March 27, 2009 was Rs. 1,28,940 crore, a fall of 0.8 per cent from the previous year.On January 15, 2010, it was Rs. 1,24,360 crore, a decline of 3.6 from the March 2009 figure.

FIEO Chief elaborated that the hike in interest rates to contain inflationary pressure and Government borrowings of Rs. 2.9 lakh crores between April-October this fiscal may further impact credit costs not to mention the volatility exhibited by the rupee due to the influx of dollar by the FII’s into equities (which in turn may require RBI to sterilize dollar in flows and then suck out such liquidity).

Besides, the appreciation of the rupee due to the aforementioned factor has on the other hand taken the MSME export sector by surprise eating into their operating margins and de-stabilizing export pricing.Studies indicate that every ten paisa appreciation in rupee negates 1$ upward movement in international prices.