CAD fears prompt govt to strengthen priority-sector lending

By: | Published: October 10, 2018 4:53 AM

The move comes at a time when export credit has collapsed by over a half as of end-August from a year before, while exports grew over 19% for the month.

The growth in exports has slowed for a third straight month through July.

As a worsening current account deficit stokes fresh concerns, the government is considering strengthening priority-sector lending for exports to enable greater flow of credit to the sector, acceding to a long-pending demand by exporters.

Currently, incremental export credit (over corresponding date of the preceding year) up to just 2% of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure of domestic commercial banks, whichever is higher, is considered part of their priority-sector lending obligation. This limit may be raised.

The move comes at a time when export credit has collapsed by over a half as of end-August from a year before, while exports grew over 19% for the month.

This is despite the fact that total non-food credit grew 12.4% in August, latest data from the Reserve Bank of India showed.

The current credit limit under priority sector lending is too tiny to satiate the rising appetite of exporters, said Ajay Sahai, director general of Federation of Indian Export Organisations. “Declaring priority sector status for export credit in the true sense of the term will be a good step to improve exports, especially by MSME exporters who account for roughly 40% of the country’s outbound shipments,” Sahai said.

Also, export units having a turnover of up to Rs 100 crore can avail of a maximum credit of · 25 crore.

“This will enable affordable and easy availability of credit to exporters,” a senior government official told FE. The proposal can be taken up by the Cabinet committee on economic affairs as early as Wednesday, said the official. The government is learnt to be discussing the proposal with the Reserve Bank of India.

The persistent decline in export credit, especially to small players in the current year so far has raised fresh concerns about adequate financial support to exporters. The growth in exports has slowed for a third straight month through July.

Exports in 2017-18 came in at $303.5 billion, an increase of 10% over the previous year. Between April and August, exports have totalled $136.1 billion, up over 16% from a year before. But trade deficit continued to widen and touched a massive $80 billion, which has exerted pressure on CAD and the rupee.

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