In choppy waters

New Delhi, July 28: Exports will take a hit if the Reserve Bank of India tightens up on its monetary act tomorrow.

According to Ganesh Gupta, president of the Federation of Indian Export Organisations, “An increase in the cash reserve ratio and/or a repo rate hike is anticipated in the monetary policy tomorrow. While one will make less funds available in the market, the other will further increase lending rates.”

Already, exporters have been bruised by rising interest rates and a slowdown in manufacturing. Gupta said the anticipated monetary tightening might choke credit at a time of currency volatility and increase the cost of production.

Manufacturing, which accounts for 15.5 per cent in the gross domestic product, witnessed a slowdown to 5.3 per cent in April-May this fiscal compared with 12.7 per cent in the same period last year.

Exporters want special treatment as they have to compete with Chinese and Southeast Asian firms who have access to cheap loans. “A high interest regime makes us uncompetitive against them,” said Gupta.

To make matters worse, the government has decided to do away with a host of tax and interest subsidy sops from October 1. The relief was given to protect exporters from the sharp appreciation of the rupee.

“So far the exporters have been able to withstand the rising cost of production due to the interest subvention. However, with the government planning to discontinue it from September-end, it will be a daunting task for the exporters to meet the trade target set for this fiscal,” Ajay Sahai, director-general, Fieo, and trade policy analyst, said.

Exporters were getting a 2 per cent interest relief on pre-shipment and post-shipment credit. This was meant especially for employment-intensive industries such as handicrafts, textiles, leather and leather products, carpets and marine products.

“The depreciation in the rupee has not benefited exporters as they had covered their exposures in the forward market. The rupee has depreciated more than it was expected. Removal of sops will hit us,” Gupta said.