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From the President’s Desk…..
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My Dear Fellow Exporters,
Recently, I had the opportunity to address the leaders of the developing world at the 2nd IBSA Business Summit at Johannesburg. IBSA’s evolving trade and investment focus has induced some changes in the quality, quantity and direction of international trade. Each of the three countries has displayed strong comparative advantages and specialization in specific areas. While Brazil is regard as an "agricultural powerhouse", South Africa has a combination of strengths in agriculture, manufacturing and services, and India has displayed good strength in Services Sector. These countries have become important suppliers for global sourcing of goods and services. There is some overlapping, but it is mostly complementary. The trends indicate that intra-IBSA trade is close to $10 billion target set for this year.
The Monetary & Credit Policy announced by the RBI is highly disappointing. No significant measures have been announced to reduce the cost of credit to the SMEs in view of the fact that the appreciating rupee is severely eroding their profitability and competitiveness. On the contrary, an increase in the CRR by 50 basis points has been announced. This would restrict the flow of credit to the SME sector and would create a liquidity crunch adversely affecting trade and industry. Our export efforts are bound to get a jerk as these SMEs contribute to almost 65% of our total exports, directly or indirectly. The Federation was hoping that with inflation coming down to 3.2% and industrial production picking up to 13.2% in August from 7.6%, the Central Bank would seize the opportunity to cut the cost of credit, but we are highly disappointed to know that our policy makers did not take our concerns into account while announcing the policy.
Though there is substantial liquidity in the system due to an inflow of 16 billion dollars (Rs.64, 000 crore) of FII money, 4.7 billion dollars of which was received in September itself, the lendable funds available for SME sector is still low and the cost of credit is much higher compared to international market rates. And this would continue to fetter our export efforts.
Our banks are also not ready to cooperate. Very few exporters have been granted Gold Card status under the Scheme launched in April 2004. Moreover, there is no effective reduction in the cost of credit to exporters. Though 2% subvention has been provided for select sectors and enterprises having turnovers below Rs.10 crore, the net reduction in the cost of credit is not more than 25 to 50 basis points. Nor has the waiver of collateral securities been enforced as per the guidelines issued by our Central Bank.
Given the recessionary trend in the United States, a further cut is expected in the interest rate by the Federal Reserve on 1st November 2007 which will aggravate the situation causing the rupee to appreciate further. If the government is reluctant to take monetary measures to check appreciation of rupee, then it should invent other ways to compensate the exporters.
Yours sincerely,
Ganesh Kumar Gupta
PRESIDENT
