Continue concessional export credit regime: FIEO .

New Delhi, June 21 The Federation of Indian Export Organisations (FIEO), the apex body for exporters, has sought the Finance Minister, Mr Pranab Mukherjee's intervention to continue the existing concessional export credit under the base rate regime, which will be operational from July 1.

FIEO is concerned that the cost of export credit will increase in the base rate regime, making exports less competitive, especially at the time of the ongoing Euro zone debt crisis where there are many cases of delayed payments to Indian exporters.

In a letter to Mr Mukherjee, the FIEO President, Mr Sakthivel, said, “We would request you to suggest to the Reserve Bank of India to continue with the concessional export credit facility even after the adoption of base rate in lieu of prime lending rate from July 1.”

Mr Sakthivel said the RBI has now decided to deregulate the interest on export credit allowing banks to decide the lending rate of export credit. “Exporters are apprehensive that the deregulation of export credit will further increase the cost of credit making exports uncompetitive to some extent,” he said.

Liquidity crisis

The FIEO President said the situation has further compounded due to the liquidity crisis, particularly in the Euro zone, and buyers are asking for longer period of credit.

“The payments, which used to be realised between 3 and 4 months from the shipment, are now being realised between 6 and 9 months of shipment. This itself necessitates availability of credit at a lower rate for longer duration,” Mr Sakthivel wrote to the Finance Minister.

The RBI introduced the export financing scheme in 1967 to make short-term working capital finance available to exporters at internationally comparable interest rates, he pointed out. Under this, RBI fixes the ceiling rate of interest for export credit, leaving it open to banks to charge lesser rate of interest than the ceiling rate prescribed by the RBI.

“This kind of regulation has helped exporters to get the credit at reasonable rate though much above the international bench mark,” Mr Sakthivel said.

With the base rate regime set to replace the Prime Lending Rate, the existing export financing scheme will undergo a change. Mr Sakthivel, however, said the RBI should continue to regulate export credit to ensure that the cost of export credit does not increase under base rate regime.

Expressing concern over the RBI's decision to deregulate the interest on export credit from July 1, allowing banks to decide the lending rate of export credit, Mr Sakthivel said, FIEO has requested the Ministries of Finance and Commerce to continue with concessional export credit facility even after adoption of base rate regime.

As it is, the cost of export credit in India is much above the international benchmark and about 4-5 per cent over the rate at which the competitors are getting credit, FIEO said.

Source : Business Line