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Credit support to prop up exporters

Commerce dept is looking at ways in which exporters can be provided credit for a longer period and cheaper rates.

, ET Bureau|
Oct 25, 2008, 04.11 AM IST
NEW DELHI: The bugles may not have sounded yet, but preparations have started on a war-footing in the government to tackle the impending payment crisis looming large on exporters. With the global financial meltdown affecting the financial health of buyers in the US and the EU, exporters can no longer make do with the short-term credit being provided by banks.

The commerce department is looking at ways in which exporters can be provided credit for a longer period and cheaper rates so that they don���t have to shut shop. Insurance companies, which could now find insuring export transactions a high risk area, may also be incentivised to stand by exporters and banks.

The reason behind an impending slowdown in exports is not only a decline in orders from buyers in the US and the EU, but also inability by exporters to provide long term credit. ���Buyers who had earlier been comfortable with a 90-day credit are now asking for 180 days credit. Our banks are, however, providing credit for only 90 days,��� the official said.

The commerce department has started meeting export promotion councils to identify areas in which the government could help exporters. Once it shapes out its strategy, it is going to hold meetings with the finance ministry and the Prime Minister���s Office (PMO) to see what all could be implemented. However, time is short. ���We need to take measures by November this year. Or else, it might be too late to make a difference,��� the official said.

To begin with, the government could persuade banks to give credit to exporters for 180 days instead of 90 days. Since the 14% interest charged on such loans could cripple exporters if they have to pay it for double the usual period, banks might also be persuaded to lower their rates. ���All this needs to be discussed with the finance ministry, the RBI and banks and we are going to do so soon,��� the source said.

With the risk of defaults by buyers going up, banks may not be comfortable giving credit without adequate insurance. ���We would also like to encourage insurance agencies by giving some incentives to keep supporting exporters. It is essential to boost confidence and keep morale high,��� the official added.

The government is also advising exporters to look beyond the EU and the US which together constitute about half of India���s export market. Exporters have also been asked to target the domestic market which is still vibrant and growing.
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