High cost of credit worries exporters as growth space shrinks

As global trade forecasts increasingly hold out dimmer prospects of growth, irritants such as the high cost of credit, continuing liquidity crunch, and operational difficulties remained among the top complaints of exporters at the last Board of Trade meet of the current regime.

The Board of Trade is a periodic meet of senior officials of key ministries including finance and agriculture, all major trade and industry bodies, export promotion councils (EPCs) and industrialists to evaluate the exports sector.

According to the World Trade Organization, global trade entered a tough phase in the second half of 2018 and is expected to slow further in 2019.

Oil prices are expected to remain below $60 a barrel while prices of metal are expected to weaken, reducing overall trade growth. 

Multiple EPCs pointed out this coincided with the recent Reserve Bank of India data showing a credit decline of over 50 per cent, underlining severe gaps in export credit. As compared to China and South Korea, where the cost of credit is 3.7-4 per cent, Indian exporters have to pay a cost of 6-7 per cent, said Sanjay Budhia, chairman of the Confederation of Indian Industry's National Committee on EXIM. 

Budhia called for interest subvention to be extended across the board to all exporters and not just micro, small and medium enterprises (MSMEs) and the tax rate should be in the range of 4-5 per cent.

On the other hand, tariffs introduced since the beginning of 2018 have affected about 12 per cent of imports of US goods, 6.5 per cent of imports of Chinese goods, and about 2.5 per cent of the global goods trade, the Federation of Indian Export Organisations (FIEO) said. 

The interest equalisation scheme may be extended to all sectors and at least to all agri commodities, FIEO President Ganesh Kumar Gupta said.

While in the April-December period of the current financial year, exports to the US grew by over 11 per cent and those to China rose by 35 per cent, contraction in global imports is expected to affect India’s exports performance, he added.

Operational hurdles

Exporters reiterated their demand for the e-wallet mechanism, which is being planned since the goods and services tax kicked in, and want it to go online on April 1. Or else, exporters should be provided an exemption from the GST on domestic procurement as was available in the pre-GST regime, they said. 

Exporters said the input tax credit refund mechanism should be made online to save transaction time and cost.

“The single-biggest reason we are not able to export more is that the high domestic steel price is making our products uncompetitive in global markets. It is ironical that the second-largest steel maker in the world, at 106 million tonnes, finds it difficult to provide just 1 per cent, or, 1 million tonne, to the MSME sector at international prices,” Engineering Exports Promotion Council Chairman Ravi Sehgal said.

Sehgal expressed concern about arbitrary freight charges by shipping lines. Outbound shipments are carried by foreign registered shipping lines, which charge extra fees to the extent of ~2-3 per dollar on ocean freight. 

Thus, a regulatory framework is needed, Sehgal said.

The retrospective effect of pre-import conditions, withdrawing zero duty benefits by the US under the Generalised System of Preferences Scheme, as well as the availability of incentives for exports to neighbouring countries and India's slipping chances of seizing the Iranian market were key issues raised by exporters.