Reacting to the increase in the Repo Rate by 25 basis points with immediate effect to 6.5 percent, FIEO President, Dr A Sakthivel said this increase is in line with the ongoing initiative and effort of the Reserve Bank of India to contain inflation and the flight of capital looking at such a volatile and challenging global scenario. Recently the US Fed also hiked its rate by 25 basis points and the Bank of England by 50 basis points.
The FIEO President said that global foreign trade is passing through a difficult phase owing to rising inflation, reducing the purchasing power, and countries entering into recession and high volatility in currencies. In the given scenario, we have to ensure that further increase in export credit rates should not blunt our competitive edge as we are losing out to our competitors in countries with reduced rates of interest and deep depreciation of their currencies.
Dr Sakthivel urged the Government to increase interest subvention under the Interest Equalization Scheme (IES) from 3% and 2% respectively to 5% (to all MSME manufacturers) and 3% (to all other eligible categories) as interest rates are at a much higher level than the pre-covid times besides extending of tenure of Pre-shipment Credit in Foreign Currency (PCFC) from 180 days to 365 days will further provide headroom for the exporting community. At the same time, FIEO Chief has advised the exporters to opt for foreign currency denominated credit which is available at LIBOR+150-200 basis points and provide a comfort, during the extreme volatility in dollar, without any hedging cost.
FIEO Chief also requested RBI to extend “Export Refinance Facility” to banks. Under such a mechanism, banks may be encouraged to provide export credit in Rupee to exporters and the same amount can be refinanced by the RBI at the Repo Rate. Such a mechanism will bring down the interest cost for export credit providing much needed competitiveness to our exports amidst global headwinds.