To enable importers better manage their operating cycles in times of the pandemic, the central bank has decided to extend the period for the completion of outward remittances against normal imports into India from six months to twelve months.
As external trade growth hit a 30-year trough in April in the wake of the pandemic, the central bank on Friday stepped in to soften the blow by easing rules governing shipment credit as well as payment for imports, and also extend a Rs 15,000-crore line of credit to Exim Bank.
Exporters will also benefit from the decisions to extend a repayment moratorium by three months up to end-August and a cut in the benchmark lending rate by 40 basis points amid a renewed push for its transmission. Reserve Bank of India (RBI) governor Shaktikanta Das said the credit line to Exim Bank will be for a period of 90 days, with rollover up to one year, to enable it to avail of a dollar swap facility. This will help Exim Bank meet its foreign currency resource requirements and also aid the so-called project exports.
Similarly, acceding to exporters’ request, the RBI has raised the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing 12 months to 15 months, for disbursements made up to July 31, 2020. This is aimed at alleviating “genuine difficulties being faced by exporters in their production and realisation cycles”.
Inadequate credit flow to exporters has been a nagging issue for the past two years. Export credit as of March 27 grew just 3.5% year-on-year even on a hugely favourable base (it had contracted 45% a year earlier), while overall priority-sector loans grew 5.8%.
To enable importers better manage their operating cycles in times of the pandemic, the central bank has decided to extend the period for the completion of outward remittances against normal imports into India from six months to twelve months. This will be applicable from the date of shipment for such imports made on or before July 31. However, such relief won’t be extended for imports of gold, diamonds and precious stones and jewellery.
Importantly, the move will not just boost imports but also help exporters who purchase a lot of raw materials from overseas for local value addition and susbequent outbound shipments. Sharad Kumar Saraf, president of the Federation of the Indian Export Organisations, said the decisions will provide some respite, as it will allow more liquidity in the hands of the exporters. However, he also urged the government “for an immediate announcement of an export package, covering all the sectors and implementation of the economic measures announced at the ground level for quick and early starting of trade”.
India’s merchandise exports contracted by 60.3% year-on-year in April while imports crashed by 58.6%, dragging down trade deficit to $6.8 billion last month, the lowest since June 2016. As such, goods exports had contracted by 1.5% y-o-y up to February, but the spread of the Covid-19 since March only accentuated the slowdown. Consequently, exports dropped by almost 5% y-o-y in the last fiscal to $314 billion. With around a half of their earlier orders cancelled since April, exporters have been seeking an urgent relief package at the earliest, both from the government and the central bank, to tide over the massive losses.
The World Trade Organization has already warned of a massive slide in world trade volume by 13-32% in 2020, which will weigh on Indian exports as well. UNCTAD data show global trade value already contracted by 3% in the March quarter.