A high-powered committee constituted by Prime Minister Manmohan Singh to look into the problems faced by exporters due to the demand slowdown in the US and Europe met on Tuesday and considered a slew of proposals from the directorate general of foreign trade (DGFT), several export sectors and from India Inc to help the exporters tide over the crisis.
The committee comprises Planning Commission members, secretaries of the departments of commerce, industry, finance, banking and economic affairs.
Among the suggestions are asking banks to give exports credit in dollars, instead of rupees, especially to small and medium exporters. This ?dollar financing?, or dollar-denominated credit at Libor+100 basis points, will help reduce transaction cost involved in conversion of currency. Repayments in dollars would also mean exporters had to pay lesser for the inputs they had imported, they said.
Federation of Indian Export Organisations president G K Gupta has asked the government to increase the allocation to Market Development Assistance scheme from Rs 100 crore to Rs 500 crore in order to support the small and medium exporters by organising fairs abroad and buyers from existing and new markets.
A drastic fall in demand in the US and European Union is forcing buyers abroad to stop or delay payment and ask for massive discounts, that too at the last minute when goods from India reach their ports. This, in turn, is leaving exporters without any safety net and unable to repay credit to domestic banks. Industry sources said due to defaults by exporters, Indian banks have started imposing penal interest on them and have even begun to stop extending fresh credit.
Banks in the country are also refusing to accept letters of credit (LCs) issued by lesser-known foreign banks and those banks abroad that have lost credibility after being hit by the global financial crisis. This is leading to fall in production in several export sectors and consequent job loses.
On incentives to exporters to focus on new markets abroad, instead of recession-hit US and EU, DGFT RS Gujral had said ?11 new markets had been added in the focus market scheme (FMS) at the time of the policy announcement in April this year. We have also announced a market linked focus product scheme.?
Certain products like auto items which are not focus product scheme and new markets which are not in FMS will be added to the market linked focus product scheme, he said.
Another suggestion is asking the RBI to ensure that banks give 50% of the total rupee finance ? that is both pre-shipment and post-shipment credit ? to SME exporters.
Among the likely recommendations is the demand that the Export Credit Guarantee Corporation of India (ECGC) should give the single-buyer policy to exporters who are targeting buyers in new markets, that is those other than in US and in EU. According to exporters, some insurance companies are not too keen on extending cover to the export sector due to reports of foreign buyers unable to make their payments on time.