As slowdown in the global economy continues to weigh on the demand for Indian goods, export financing has also seen a sharp decline at around 28 per cent during the first seven months of the current fiscal.
According to the recent RBI data, export credit has fallen from Rs 23,330 crore as on March 25, 2022 to Rs 16,909 crore as on October 21, 2022. It had dropped by 6.8 per cent to Rs 22,584 crore as on October 22, 2021 from Rs 24,231 crore as on March 26, 2021.
Banking sources said that export credit has further fallen in November and December in the wake of slowdown in the global economy, especially the US. In the last one month, there has been a fall of around 5 per cent in the outstanding export credit but it is likely to dip by 10-15 per cent over the next few months, bankers said. The RBI will release the export credit data for November by the end of this month. The country’s export growth has been sluggish on slowing demand due to fear of recession in advanced countries, tight monetary and financial conditions across the globe and also on uncertainty around the Russia-Ukraine war.
“The utilisation (of export credit) has come down very drastically because of multiple reasons. One of the major factors is that the recessionary fears are coming into picture in the US, UK and Europe,” said a banker.
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PremiumDue to this uncertainty, exporters are either delaying their shipment orders or are not extending the terms of the contract, and looking to sell their products in the domestic market, he said.
Export financing may be denominated either in Indian rupees or in foreign currency. Bankers said due to higher rates, the cost of availing export credit in foreign currency is very high and so exporters are going for rupee loans.
During April-October 2022, the merchandise exports grew by 12.55 per cent to $263.35 billion. This compares with a growth of 55.13 per cent in the same period of previous fiscal. For the first time in many months, the merchandise exports contracted by 16.65 per cent to $29.78 billion in October 2022. In November, it grew by 0.6 per cent to $31.99 billion. The rebound largely reflects the reversal of the effect of fewer working days, owing to Diwali in October this year versus November last year, Nomura said in a recent report.
Weak growth in exports will mean decline in inflows into the country which will have an impact on the current account deficit (CAD) and the rupee, bankers said. “The rupee inflow will come down which will weaken the domestic currency. We will see higher imported inflation as you are importing all the materials for manufacturing but you are not exporting to that extent. Therefore, there will be a negative impact on your current account balance,” said another banker. According to Nomura’s report, a global slowdown serves as a double-edged sword for the external sector.
“On the one hand, the domestic slowdown and lower global commodity prices should result in lower imports. On the other, the current account would be under pressure from lower exports, and the capital account would face outflows from investment, trade credit and external commercial borrowings, reflecting tighter lending standards by commercial banks globally,” it said. “On the whole, we expect the current account deficit to narrow to 2.5 per cent of GDP in 2023 from 3 per cent in 2022 but, at nearly $100 billion, funding this deficit will still require large debt and equity inflows,” the report had said.
