New Delhi, Feb. 21 The Federation of Indian Export Organisations (FIEO), the apex body for the country's exporters, has demanded that the interest rate banks charge on foreign currency loans to exporters be reduced to the pre-liquidity-crisis level.
The Reserve Bank of India had on Friday lowered the foreign currency export credit rate to 200 basis points above the international short-term interest rate benchmark known as London Interbank Offered Rate or LIBOR, from the ceiling rate of LIBOR plus 350 basis points. Welcoming this move, FIEO said a further reduction will add to the competiveness of Indian exports.
The FIEO President, Mr A. Sakthivel, said the rate must be further reduced to those levels that existed prior to the liquidity crisis, which was LIBOR plus 100 basis points.
This will also help the micro, small and medium exporters to give longer period of credit to woo international customers, he said in a statement.
The RBI had cut the maximum interest rate on foreign currency export credit subject to the express condition that the banks will not levy any other charges including service charge and management charge except for recovery of expenses incurred.
Continuation of Stimulus
Similar changes may be effected in interest rates in cases where EURO LIBOR has been used as the benchmark, it said. RBI said the revision in the rates of interest would be applicable only to fresh advances.
FIEO has asked for continuation of stimulus measures for exporters, including cheaper foreign currency credit, till they recover fully from the global financial crisis-related demand slowdown in markets abroad.
Pointing to the resilience of Indian exporters, FIEO said the country will be able to achieve an annual export growth of over 20 per cent growth in 2010-11 to touch around $200 billion, which will in turn enable the GDP to grow at over 8 per cent.
Low-base effect
On the recommendation of the Prime Minister's Economic Advisory Council regarding a gradual withdrawal of stimulus, Mr Sakthivel said while corrective measures to adjust expenditure are needed, the Government needs to balance them out so that growth is not impacted.
The FIEO President was of the view that stimulus for export sector needs to be continued as positive growth in exports in the last three months was largely due to the low-base effect. Besides, the Government needs to take into account that many export sectors are labour-intensive and therefore need stimulus measures to provide jobs to those who had lost them during the worst phase of the financial crisis.
Mr Sakthivel said the traditional sectors of exports will continue to be under pressure due to moderate growth in advanced economies. Measures aimed at diversifying the export base in the form of export promotional schemes and interest subvention schemes should, therefore, continue till the global economy fully recovers from the slowdown, he added.
Source : Business Line