PM to discuss slowdown with exporters this week

Prime Minister Manmohan Singh is likely to meet leading exporters this week to assess the slowdown in exports due to the global financial crisis.

“Till now, the meeting has not been finalised, but is likely this week,” said a senior government official. Union Commerce Minister Kamal Nath and Finance Minister P Chidambaram will also attend the meeting.

The pace of exports in September is likely to slow significantly due to a host of factors, including lesser orders, high cost of export credit as well as Indian banks not accepting Letter of Credit (LC) of foreign banks, trade analysts said.

If this continues, India may miss its export target of $200 billion in the current fiscal, leading to a larger current account deficit and further pressure on the Indian rupee.

The slowdown in exports is taking place in spite of the rupee depreciating against the dollar by around 20 per cent since April this year. A depreciating rupee is supposed to increase rupee earnings of Indian exporters, but the downsides have outweighed the trend.

“This is a vicious circle. When the rupee appreciated, we took lesser orders. But when it started to depreciate, we wanted to take more orders. But the financial crisis has changed things,” said SP Agarwal, president of the Delhi Export Association. Agreed GK Gupta, president of the Federation of Indian Export Organisations (FIEO). “High cost of finance is taking a toll on my business,” he said.

Indian exporters transact with their foreign clients through advance payments, letter of credits or delayed credits for periods ranging between 30 to 180 days. Trade analysts say that payments from all these modes have slowed down. “LC of lesser known foreign banks is not being Indian banks, as they are unsure about the financial health of the foreign banks,” said a Delhi-based trade expert.

Exporters point out that they are not getting dollar denominated credit through the pre- and post-shipment foreign currency export finance route, where the cost of borrowing is 100 basis point over Libor. “Dollar credit has dried up, and we have to take rupee loans, where the interest rate is around 14 per cent,” said Gupta.

Moreover, orders have also become less. “The September-October period is crucial for exports from the country, as it meets the Christmas season demand in Western markets,” the trade analyst added.

Sectors that have felt the brunt of the lesser number of orders from key markets include textiles, handicrafts and leather.