Immediate re-introduction of interest subvention will help exporters get credit at competitive rate: FIEO
Updated: Sep 29, 2015 05:05:17pm
New Delhi, Sept 29 (KNN) The Federation of India Export Organizations (FIEO) today said that immediate re-introduction of interest subvention for all sectors of exports at this stage will help exporters get credit at competitive rate. FIEO President S C Ralhan said the move will help the exporters manage their competitiveness which has also been eroded due to steep depreciation of currencies.
He stated that the dismal policy transmission prompted RBI to appeal to banks and issue draft guidelines that require banks to use the ‘marginal cost of funds’ method for base rate computation which would be implemented only from April 1, 2016, and even with this a cap on the spread on loans needs to be announced so that the base rate effectively reflects the floor rate.
Commenting on the rate cut by 50 basis points to 6.75 per cent, Ralhan stated that this would stimulate credit off-take which had fallen to levels of 8.6 per cent from 12.6 per cent in the corresponding period last year and also reflect on IIP data which had shown traction (4.2 per cent), provided policy transmission flows down to the industry and banks comply with the same.
This has unfortunately not been the experience in the present calendar year when interest rates were reduced thrice by RBI in January, March and June by 25 basis points each, till April 2015 there was no transmission of these rate cuts and only in May 2015, the average base rate declined marginally, he said.
President FIEO stated that while exports are down for a consecutive 9 months, a relatively weaker currency has not led to any rise in export volumes and several explanations for this phenomenon have been given including the quantitative easing activities in the US, Europe and Japan have served to boost asset values much more than consumer demand, an analysis that is reinforced by the anaemic wage growth of the US middle class due to which the REER (Real Effective Exchange Rate) elasticity of gross real exports fell in absolute value from an average of 1.1 at the beginning of the period to 0.6 at the end of the period. (KNN Bureau)
He stated that the dismal policy transmission prompted RBI to appeal to banks and issue draft guidelines that require banks to use the ‘marginal cost of funds’ method for base rate computation which would be implemented only from April 1, 2016, and even with this a cap on the spread on loans needs to be announced so that the base rate effectively reflects the floor rate.
Commenting on the rate cut by 50 basis points to 6.75 per cent, Ralhan stated that this would stimulate credit off-take which had fallen to levels of 8.6 per cent from 12.6 per cent in the corresponding period last year and also reflect on IIP data which had shown traction (4.2 per cent), provided policy transmission flows down to the industry and banks comply with the same.
This has unfortunately not been the experience in the present calendar year when interest rates were reduced thrice by RBI in January, March and June by 25 basis points each, till April 2015 there was no transmission of these rate cuts and only in May 2015, the average base rate declined marginally, he said.
President FIEO stated that while exports are down for a consecutive 9 months, a relatively weaker currency has not led to any rise in export volumes and several explanations for this phenomenon have been given including the quantitative easing activities in the US, Europe and Japan have served to boost asset values much more than consumer demand, an analysis that is reinforced by the anaemic wage growth of the US middle class due to which the REER (Real Effective Exchange Rate) elasticity of gross real exports fell in absolute value from an average of 1.1 at the beginning of the period to 0.6 at the end of the period. (KNN Bureau)
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