FIEO urges RBI to open Libor-linked forex loans for exporters

FIEO president Ramu S Deora pointed out that amid the subdued global environment following the sovereign debt downgrades of the US and Japan and the debt crises in the Eurozone area, there is little to look forward to as far as exports from the MSME sector are concerned

Mumbai: The Federation of Indian Export Organisations (FIEO) has called on the Reserve Bank of India (RBI) to open a Libor-linked forex loan facility for exporters, especially small and medium businesses, to help them overcome a fund crunch, reports PTI.

Quoting the latest RBI data, FIEO president Ramu S Deora said rising interest rates have impacted credit offtake by 2 percentage points, with the credit growth rate slowing to 18.5%.

Mr Deora also pointed out that in spite of repeated hikes in policy rates by RBI, inflation is again gravitating toward double-digit levels.

The RBI has hiked short-term lending rates by a whopping 475 basis points since March, 2010 to tame inflation, which has been hovering above 9% since last December.

Mr Deora pointed out that amid the subdued global environment following the sovereign debt downgrades of the US and Japan and the worsening debt crises in the Eurozone area, there is little to look forward to as far as exports from the MSME sector are concerned.

Mr Deora also warned that going forward, export growth will slow down while imports are likely to remain at the same level, further widening the already high trade deficit.

In these circumstances, he urged the government to cap interest rates for MSME exports at 7% with the introduction of interest subvention for exports, besides monitoring of credit offtake for exports and providing information on the same in its monetary policy review regularly.

He also called for apportioning more funds to the Export Credit Guarantee Corporation, besides increasing the interest on Exchange Earner’s Foreign Currency Accounts to offset rising borrowing and input and raw materials costs.

It is understood that the ongoing dollar supply crunch in Europe is pushing up the cost of obtaining the American currency through the swap market in Asian financial centres, impacting MSMEs that are looking for dollar loans.

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Govt may face hurdles in achieving FY11-12 borrowing target: RBI

The tight liquidity conditions would make market borrowing difficult for the government. Also, the private sector might face some problems, as there would be less funds available in the market for them

New Delhi: The government could face difficulties in managing its borrowing programme for the current fiscal amid the prevailing tight liquidity conditions as banks hold a higher proportion of government securities, reports PTI quoting the Reserve Bank of India (RBI).

“Notwithstanding the relatively lower budgeted market borrowings of the central government in 2011-12, managing the borrowing programme would be a challenge in view of tight liquidity conditions and the high level of excess Statutory Liquidity Ratio (SLR) holdings of the banks,” the Reserve Bank said in its Annual Report.

Gross government borrowings in the current fiscal (2011-12) are pegged at Rs4.17 lakh crore, down from Rs4.37 crore in 2010-11.

Of this, the government is scheduled to borrow Rs2.50 lakh crore in the first half, as against Rs2.84 lakh crore in the corresponding April-September period last year.

The tight liquidity conditions would make market borrowing difficult for the government. Also, the private sector might face some problems, as there would be less funds available in the market for them.

Moreover, the higher SLR of banks would restrict them from buying bonds floated by the government.

The apex bank also said that the government’s ability to rein in the fiscal deficit would influence the conduct of the market borrowing programme in the current fiscal.

The government has estimated the fiscal deficit target at 4.6% in the current fiscal, down from 4.7% last year.

“The conduct of the market borrowing programme will be influenced by the ability of the government to rein in the fiscal deficit and its financing by way of market borrowings,” the report added.

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Inflation to fall to 6% by March 2012: Goldman Sachs

“Demand continues to weaken and core inflation, as measured by the non-food manufacturing inflation, is trending lower in sequential terms. Going forward, we expect year-on-year headline inflation to slow to 6% by March 2012,” Goldman Sachs Global Economics, Commodities and Strategy Research said

New Delhi: Global banking and research giant Goldman Sachs has said India’s headline inflation will fall to 6% by March 2012 due to weakening of demand, reports PTI.

“Demand continues to weaken and core inflation, as measured by the non-food manufacturing inflation, is trending lower in sequential terms. We believe this fall in inflation is observed to stay... Going forward, we expect year-on-year headline inflation to slow to 6% by March 2012,” Goldman Sachs Global Economics, Commodities and Strategy Research said.

In its latest issue of ‘Asia Economics Data Flash’, it said this is likely to be the case even after factoring in a revision of the July Wholesale Price Index (WPI) number.

Headline inflation fell to an eight-month low of 9.22% in July. However, experts have said the numbers are likely to be revised upwards.

The government has revised the inflation figure for April to 9.74% from the provisional 8.66%.

Similarly, the May number was revised to 9.56% from the provisional 9.06%.

“The July data suggests that sequentially, inflation continues to come off sharply. We think that the year-on-year numbers are misleading and do not capture the decline in inflationary pressures since a big spike in first quarter of 2011,” Goldman Sachs said.

Goldman’s projection is in contrast to forecasts made by the Reserve Bank of India (RBI) and the Prime Minister's Economic Advisory Council (PMEAC).

In its Annual Report for 2010-11 released last week, the RBI had said inflation is likely to remain elevated till the third quarter of the current fiscal and then moderate to around 7% by March 2012.

The PMEAC, in its Economic Outlook for 2011-12, projected inflation to remain high at around 9% till October, before falling to 6.5% by the end of the fiscal.

“There is a slowdown in economic activity in India which is being exacerbated by rising interest rates and headwinds from the global economic environment,” Goldman said.

The RBI has hiked key policy rates 11 times since March 2010 to curb inflation. India Inc had said the repeated rate hikes have made the costs of borrowing expensive and reduced fresh investments and industrial production.

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