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The Reserve Bank of India's decision to cut the refinance facility for exporters has not gone down well, at a time when outbound shipments have been hit by a slowing in demand abroad.
RBI has cut the export credit refinance (ECR) facility from 32 per cent of banks' eligible export credit to 15 per cent, with effect from October 10. This is the second time it has done so this financial year; it had reduced it from 50 per cent in the June review.
"A second-time reduction in the current year does not augur well for exports and might affect both the flow and cost of credit to the sector, affecting micro and small companies the most," said Rafeeque Ahmed, president of the Federation of Indian Export Organisations.
EEPC India, the engineering exporters body, said RBI hadn't given the sector a good deal. Said Anupam Shah, chairman," It is a paradox that RBI Governor Raghuram Rajan acknowledged the role of the export sector in boosting industrial and economic growth but (has) reduced the ECR."
Exports grew at a five-month low of 2.35 per cent in August, to $26.95 billion.
Ahmed said the month's data showed a moderation and the micro, small and medium export sector was also under the shadow of a tapering in the US Federal Reserve's quantitative easing, which could impact their performance.
"This is a concern that RBI also shares and their effort to consolidate in case of any such eventuality needs to be complemented by retaining export refinance to the existing levels," he said.
RBI explained its move as due to an easing of liquidity conditions. This had resulted in reduction in the recourse to ECR, to about a tenth of the export credit due and eligible for refinance. Shah said the pick-up in export refinance was not encouraging by itself, due to high rates for borrowing. A signal for a pro-export bias should have gone out, especially when we could take advantage of the recovery in the US, with more of working capital need.
Ahmed also pressed for re-introduction of the interest subvention without delay. It was discontinued in April.
