Exports - an opportunity to fix the economy

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Bikky Khosla | 01 Oct, 2013
Small exporters always lose out when it comes to bank lending. First of all, credit availability for them is very poor, and even when available, the interest rates are very high -- around 9 percent to 11 percent now. Considering this, bringing exports under priority sector lending has remained a long-standing demand of our exporters, but nothing much has changed till date. Last week, Finance Minister P Chidambaram said that the government was talking on this to the RBI, which had only recently expressed reservations on further expanding the list. I hope something substantial would come out from the consultation this time.

Official statistics show that export credit by banks as percentage of total exports has come down to 11.36 percent in 2012-13 from 19.82 percent in 2007-08. In addition, in terms of export credit given by banks at present as a percentage of net bank credit has also decreased to 3.7 percent last financial year from 9.8 percent in 1999-2000. These statistics clearly show the need to enhance credit flow to the sector. I think bringing exports under priority lending might not result in any significant change in interest rates, but it would certainly address the credit availability problem to some extent.

Another recent development on which my eyes are resting is the selective stimulus talks. Some newspapers have reported that the Finance Ministry and the RBI are in talks to arrive at a mechanism to provide a direct line of credit to some industrial sectors, including micro, small and medium enterprises (MSMEs), engineering goods, and commercial vehicles. Under this mechanism, the RBI could set up a special window to buy commercial papers from companies in the chosen sectors at preferential rates. I think this is a welcome step as such a mechanism, if implemented effectively, can provide respite to some sectors.

Recently, the government rationalised the rates of duty drawback and expanded the list of items under the tax refund scheme for exporters, and this, according to me, is a welcome step that would help the export sector to increase its competitiveness. Particularly, increasing the rates for sectors like silk garments, fabrics and yarn, gold and silver jewellery, and bringing new products like dairy under drawback is a very good step. However, the sharp cut in rates for the engineering sector, which has just managed to climb out of the negative zone in August, is unfortunate.

Our exports posted double-digit growth in July and August, and what is even more positive is that this trend, according to a FIEO study based on order book estimates until December, is likely to continue in the coming months. This is encouraging, but at the same time I think the RBI and the Government, instead of being complacent, should take this as an opportunity to fix the economy. According to data released yesterday, our current account deficit rose at a slower-than-expected rate in the quarter ended June, but I think the government still has a long battle ahead against the current economic challenges of which I think we can export our way out.

I invite your opinion on these issues.