Exporters Seek Interest Rate Discount Scheme.

NEW DELHI: Exporters have raised the pitch for re-introduction of interest rate discount scheme following the recent hike in key lending rates by the Reserve Bank of India . The government, however, says it will not happen immediately as it requires time to work on the funding requirement to sustain the high cost scheme. "We recognise that cost of export credit is going up and we have already started calculating our fund requirement for giving subvention," a commerce department official told ET.

The department, however, has to match the amount required with the funds the finance ministry can spare and prepare the list of beneficiaries based on that. "It (the need to give interest rate discount) is certainly on our radar, but it will take some time," the official added. Exporters say delay in taking such decisions affect product pricing and could lead to loss of potential buyers. Imperative to know our costs so that we could quote the most competitive rates." Agarwal said his association would meet the finance secretary soon to drive home the message and ask for an early announcement of a subvention scheme.

The recent increase by RBI of its key rates has spurned fears that cost of credit for exporters could touch 11.5% against 7.1% in July 2010. Interest rates for exporters are currently at 11%. "How are we expected to compete with countries with interest rates ranging between 1%-5%," said Ramu Deora, president , Federation of Indian Export Organisations. He said the government should immediately introduce interest subvention with retrospective effect from April 2011.

The government had extended a 2% interest rate subvention or discount to exporters from about eight sectors two years back to help them cope with shrinking demand triggered by the global financial crisis. Last year four sectors were excluded from the scheme. The scheme was allowed to lapse on March 31 this year, as the export sector had shown a healthy growth during 2010-11 and the government wanted to shed its additional cost burden. The scheme allows banks to extend credit to exporters from identified sectors at 2% less rate of interest, which is later reimbursed by the government.

India's exports increased at a record rate of 38% in 2010-11 leading to a significant fall in current account deficit. "The government doesn't understand that the market is so competitive that even a 1% difference in the price we quote and what our competition offers could cost us our customers," said S P Agarwal, president, Delhi Exporters Association. "It is imperative to know our costs so that we could quote the most competitive rates." Agarwal said his association would meet the finance secretary soon to drive home the message and ask for an early announcement of a subvention scheme. The recent increase by RBI of its key rates has spurned fears that cost of credit for exporters could touch 11.5% against 7.1% in July 2010.

Source : economictimes.indiatimes.com