High rates, declining finance impacting exporters' competitiveness: CII

Indian exporters are grappling with significant liquidity challenges due to high interest rates and a decline in export finance, which are undermining their competitiveness, according to Sanjay Budhia, Chairman of the CII National Committee on EXIM.

To address these issues, he said, the government and banks must work together to provide effective solutions.

Budhia suggested the government extend the interest equalisation scheme, which ended on December 31, 2024, for three years for all manufacturing exporters, including MSMEs (micro, small and medium enterprises).

The longer period extension of the scheme would be a crucial step, as its limited extension leaves Indian manufacturers at a disadvantage, he added.

 

"Exporters are indeed facing significant challenges on the liquidity front, with high interest rates and declining export finance impacting their competitiveness," he told PTI.

MSME exporters, who form the backbone of India's export ecosystem, would benefit greatly from increasing the interest subsidy for pre- and post-shipment credit from 3 per cent to 5 per cent, particularly in key sectors such as leather, engineering, apparel, and gems and jewellery.

Apex exporters body Federation of Indian Export Organisations (FIEO) too has demanded that the government extend the scheme for five years in the forthcoming Budget, which is scheduled to be presented by Finance Minister Nirmala Sitharaman on February 1.

Further, he said that expanding Letter of Credit facilities for large overseas projects could provide much-needed support to exporters.

"Banks and financial institutions should work towards broadening the coverage under export credit guarantee programmes," Budhia, who is also MD of PATTON Group, said.

He noted that the Export Credit Guarantee Corporation of India (ECGC) currently provides 90 per cent insurance cover for exporters with a credit limit of up to Rs 50 crore.

"This coverage could be extended to Rs 100 crore, and more banks could be brought into the fold to ensure better access to credit, he said.

According to FIEO, there is a decline of 5 per cent in export credit between March 2022 (Rs 2,27,452 crore) and March 2024 (Rs 2,17,406 crore).

Export credit under PSL (priority sector lending) on July 1, 2022, was Rs 19,861 crore and it declined to Rs 11,721 crore on June 28 this year, which is a dip of over 40 per cent, FIEO has said.

Budhi also asked the government to streamline the implementation of the Remission of Duties and Taxes on Export Products (RoDTEP) scheme by transferring benefits directly to exporters' bank accounts, rather than through credit scrips, as it can reduce administrative delays and enhance efficiency.

"Government should validate the RoDTEP scheme for 3 years to provide long-term visibility to exporters to secure business," he said, adding that easy access to affordable credit remains crucial.

When asked about the impact of US President-elect Donald Trump's threat to impose reciprocal tariffs on Indian goods, Budhia said it could provide both challenges and opportunities for domestic exporters.

While such measures could disrupt specific trade flows, they also offer a unique chance for India to position itself strategically in the global supply chain, he said, adding that these reciprocal tariffs could lead to higher costs for Indian goods in the US market, particularly in price-sensitive sectors such as engineering, textiles, garments, and automotive components.

"This might reduce competitiveness, especially when compared to lower-cost producers or nations with preferential trade agreements. Additionally, any escalation in trade tensions could slow down overall demand, particularly in developed markets, further complicating growth prospects for Indian exporters," he said.

However, he said that these challenges also come with potential opportunities as well.

Tariffs imposed on competitors like China could create space for Indian exporters to gain market share in the US market, he said, adding that sectors such as consumer electronics, mobile phones, televisions and electrical equipment are well-positioned to fill supply chain gaps.

India's goods and services exports stood at USD 778 billion in 2023-24 and it is expected to cross USD 800 billion in 2024-25. The country is aiming to take the shipments to USD 2 trillion by 2030.

Commenting on the country's exports prospects this year, Hi-Tech Gears Chairman Deep Kapuria said that with the new administration assuming power under Trump in the US, the trade outlook in 2025 would be clouded by potential US policy shifts, including threat to increase tariffs that could disrupt global value chains and impact key trading partners.

According to UNCTAD's latest monthly trade update, countries with trade surpluses and higher tariffs could be more exposed to US trade policy shifts and India ticks both the boxes as per Trump, he said.

"Such unilateral measures are bound to invite retaliatory action and trigger ripple effects, impacting global trade adversely. Indian industry will have to factor this likely emerging scenario on the global trading landscape while making its trade strategy as prolonged geopolitical turbulence is already taking a toll on global trade," Kapuria said.