Carpet Exports Down 23% In First 5 Months

Voicing the concern over decelerated exports in the lucrative international markets, the Carpet Export Promotion Council attributed the setback to the high cost of export finance.

We are now losing ground to our competitors and neighbours China, Pakistan, Nepal, Turkey and Afghanistan, said O P Garg, chairman of Carpet Export Promotion Council. He said India was second only to Iran in the world carpet market. This is the first time carpet exports register a negative growth rate, and they will continue to drop unless the Reserve Bank of India comes out with a export-conducive credit policy, Garg said.

During April-August 1996, carpets worth Rs 616.98 crore were exported as against Rs 801.20 crore in the previous year.

Exporters are now paying over 22 per cent for credit beyond 90 days, which pushes up the end cost of our products by 10 per cent, making it uncompetitive in the international market, Garg said.

Garg asserted the RBI's credit policy had a unique negative impact on the export-oriented carpet industry and this impact could be undone only through lower interest rates on pre-shipment and post-shipment credit.

Elaborating on the unique impact, the Garg said with the RBI freeing interest rates on export finance beyond 90 days, banks were charging over 22 per cent on the entire term of loan even, if repayment overshot the 90-day stipulation by a single day.

On the other hand, carpet export was a slow process, with the entire business cycle taking as much as one year. This meant that exporters would more often than not be unable to meet the 90-day requirement.

Attributing this as the prime reason for curtailed exports, Garg urged the central bank to bring down the rates mandatorily and also increase the term of finance to 180 days.

He said both pre-shipment and post-shipment credit should be extended at international prime rates, in other words below seven per cent and penal rates beyond 180 days should be levied on the period by which repayment overshot the term.

Garg said carpet exports enjoyed special benefits under the credit policy between 1975 and 1985 and alleged that the government by gradually withdrawing those benefits, seemed to have lost sight of the reasons for that special treatment.

India's major exporting sectors are labour-intensive and not capital-intensive. So encouraging exports also meant encouraging employment generation, Garg said.

The dwindling fortunes of carpet exports threatened the livelihood of 20 lakh people employed in the sector. Similarly, carpet exporters were predominantly from the small sector and could not bear the burden of high cost finance.

With high transportation costs and infrastructure bottlenecks, particularly the inadequacy of port facilities, made it difficult for exporters not only to meet tight delivery schedules but also to repay their credits.

Banks had taken a stand that exports may be a national priority but were not a banking priority, Garg alleged.

Even the Export-Import Bank of India, he said, took an elitist stand and lent only to big borrowers leaving the small exporters high and dry.