2% interest subsidy for export credit

To cover rupee-denominated credit for SMEs, others.

To cushion the global slowdown’s impact on exporters, the Reserve Bank on Tuesday announced a two per cent interest subsidy on rupee export credit for handicrafts, handlooms, carpets and small and medium enterprises (SMEs).

Exporters in these segments would be eligible for the interest subvention to be available up to March 31, 2012, the RBI said.

Banks may reduce the interest rate for export credit according to the base rate system by the amount of subvention available, subject to a minimum rate of seven per cent. Banks must ensure the the scheme’s benefits are passed on completely to the eligible exporters. The subvention will provide some relief to exporters suffering from a demand slowdown. They are also facing the adverse effects of an interest rate rise of 200-250 basis points in the past 14 months. Rising input costs due to rupee depreciation and high commodity prices have also hurt.

An Allahabad Bank executive said to begin with, the RBI had extended the subsidy benefit to only four sectors. But, looking at the widespread effects of weak demand, industry bodies may seek coverage of more sectors.

In 2010-11, the interest subsidy benefit on rupee export credit was extended to leather, jute, engineering goods and textiles. The decision to help exporters was announced on a day when the high-level Board of Trade (BoT) met in New Delhi to review the situation arising out of renewed worries over the US economy and the debt crisis in Europe.

The BoT, headed by commerce and industry minister Anand Sharma and comprised of well-known industrialists, discussed issues such as currency volatility, availability of dollar credit and high credit cost.

Although India’s exports grew 54 per cent in he April-August, the time ahead is seen full of challenges.

“I am apprehensive about the rollout of the next seven months. I hope we should be able to achieve $280 billion exports this fiscal,” minister of state for commerce and industry Jyotiraditya Scindia said.

Exporters’ body FIEO welcomed the interest subsidy but sought more. “We were expecting three per cent and also for sectors like textiles, gems and jewellery and engineering," it said in a statement.