Exports plunge, exporters face severe financial crunch

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Bikky Khosla | 04 Nov, 2008
The recent steps taken by RBI has indicated that the focus is now on growth - this is good news. Credit availability of Small and Medium Enterprises (SMEs) was getting costlier and the reduction in Repo Rate and CRR and SLR, is a move on right path.

I think SMEs should be getting the good news soon about banks reducing interest rates. The recent RBI move will also ensure that enough liquidity comes into the market to help Indian Inc. expand, diversify and modify its plans.

The government needs to take steps to restore overall business confidence and inflation management monetary policies need to take a backseat.

When it comes to SMEs, I always feel that the government should promote cluster-based financing. This will help lower the interest cost to SMEs.

Even industry body, FICCI, has said 'the government must give emphasis on reviving large, medium and small industry, giving a boost to exporters, meeting the genuine credit needs of trade and business.'

However, things seem to remain gloomy for exporters in the coming months with falling demand from key markets. Several exporters I met recently have expressed displeasure about LCs and international credit lines not being accepted as a result of which they were going through a severe financial crunch.

Already export growth had slumped to the lowest level in 18 months in September and there are indications that this figure might drop further in the days to come.

I strongly believe that to ease this pressure the government has to consider continuing the interest rate subvention scheme on export credit at least up to March 31, 2009.

Restoring duty drawback rates to the level existing before September 1 can be another move that can instill some amount of confidence in the exim sector, particularly in the SME sector.

Only time will tell whether the government is serious about providing relief to the exporters or not. To announce rate cuts is one thing, to translate the same into reduction in cost of credit for SME exports is quite another.