The Reserve Bank of India (RBI) on Friday unleashed a series of relaxations for exporters and importers, including higher export credit, more time to pay for import orders and increased flexibility in repaying loans. The measures are expected to give the sector more time and liquidity to tackle the ongoing coronavirus crisis. But while exporters have lauded the measures as timely, their call for more government support and a detailed package continues.
The rare intervention in foreign trade norms by the RBI came after the central bank took note of the deepening contraction in global activity and trade, and agreed that the impact on India's foreign trade is substantial. India’s exports contracted by a record 60.28 per cent in April, following a fall of 34.5 per cent in March as the Covid-19-induced lockdown took its toll on trade with other countries. The latest drop in outbound trade was the most since at least April 1, 1995.
"The measures would ease exporters' distress, but the problem is far greater, posing existential crisis for the sector. Exporters would need direct fiscal support for staying alive in business. These measures can be in the form of waiver of electricity-user charges, reduction of levies at the ports, freight support and wage support for workers," said Engineering Export Promotion Council Chairman Ravi Sehgal.
In a major move, the RBI boosted the coffers of the Export-Import Bank of India by extending a line of credit worth Rs 15,000 crore for a period of 90 days (with a rollover of up to one year) so as to enable it to avail a dollar-swap facility. This is expected to help in leveraging long term and project exports as a “marketing tool” as buyers would be more willing to buy products from the seller, according to the Federation of Indian Export Organisations (FIEO).
For exporters, the maximum permissible period of pre and post-shipment export credit sanctioned by banks has also been raised. As opposed to the current 12 months, this will now be 15 months, for disbursements made up to July 31 this year.
While the measures would usher in an era of very competitive credit rates to help manufacturing and overall economy, they would also ensure that inflation remains within the target range, said Sharad Kumar Saraf, President of FIEO. "But RBI’s assessment of the economic revival during the first half remains bleak, with signs of revival to be only seen during the second half of the financial year. We again urge the government to immediately announce an export package covering all export sectors," he added.
In a speech, RBI governor Shaktikanta Das also pointed out that investment demand has stopped as imports of capital goods fell 27 per cent in March, before plunging by 57.5 per cent in April. Domestic production of capital goods declined by 36 per cent in March, spiralling downwards for the 14th straight month, despite the government’s efforts to open up even more sectors to easier foreign direct investment flows last year.
The RBI also extended the current loan moratorium by another three months. "The RBI should also consider extending this moratorium to NBFCs for their repayment to banks, without which the NBFCs sector is facing acute distress. One-time restructuring of loans to relieve stressed businesses may also be allowed," the Confederation of Indian Industry said.
Over the past two months, exporters had repeatedly pointed out the issue of massive chunks of export orders getting cancelled or postponed, and the subsequent delay in realization of bills. Now, the RBI has permitted an increase in the period of realization and repatriation of export proceeds to India from nine months to 15 months. This will be valid from the date of export for shipments sent out till July 31, 2020. RBI should continuously monitor the delicate economic situation and make pragmatic announcements after every two months interval.
For inbound shipments that arrive till the same date, importers will now get 6 more months to complete outward remittances. Currently, importers get 6 months to send remittances. The new facility, however, will not be available for import of gold, diamonds and precious stones or jewellery. The Gems and Jewellery Export Promotion Council said these items needed to be covered since liquidity has hit exporters in the sector and bank loans to jewellers have dried up since the Nirav Modi controversy.
The RBI has also suggested that the government reassess import duties for various items and crucially pulses. "Among the pressure points, the elevated level of pulses inflation is worrisome, and warrants timely and swift supply management interventions, including a reappraisal of import duties," Das said.