New Delhi, Feb. 25 Due to the global financial crisis, India's export credit as a percentage of net banking credit has shown a declining trend, in turn impacting the country's trade, the Economic Survey has showed.
Export credit as a percentage of net banking credit fell from 5.5 per cent as on March 28, 2008 to 4.6 per cent as on March 27, 2009 and further to 4.1 per cent as on January 15, 2010, it said.
The outstanding export credit as on March 28, 2008 was Rs 129,983 crore, a growth of 23.9 per cent over the previous year. But from then on the downward trend started.
The export credit as on March 27, 2009 was Rs 1,28,940 crore, a fall of 0.8 per cent from the previous year. On January 15, 2010, it was Rs 1,24,360 crore, a decline of 3.6 from the March 2009 figure.
Credit inflows
The survey noted that SMEs and exporters faced the greatest difficulties in accessing affordable credit. The World Bank estimates that the shortage in trade finance in the market would have accounted for 10-15 per cent of the decline in global trade, it said.
However, the survey said the various policy initiatives taken by the Government and the RBI helped ease the pressure on trade financing.
This is corroborated by the increase in share of short-term trade credit (both inflows and outflows) in the overall gross capital flows.
The share in short-term trade credit inflows in the overall gross capital flows increased from 10.9 per cent in 2007-08 to 13.4 per cent in 2008-09.
The share in outflows also increased from 9.6 per cent to 14.3 per cent. This shows that the impact of global financial crisis on trade credit was less when compared to other forms of capital flows such as portfolio investment and external commercial borrowings, the survey said.
Due to the difficult financing conditions prevailing in the international credit markets and increased risk aversion by the lending counterparties, gross inflows of short-term trade credit to India declined in 2008-09 and this trend continued in 2009-10.
During the first half of 2009-10, the gross inflow of short-term trade credit stood at $21.7 billion, lower by 9.2 per cent than that in the corresponding period in 2008-09. The outflows at $22.3 billion were higher by 17.5 per cent, resulting in a net outflow of $0.6 billion (inclusive of suppliers' credit up to 180 days) compared to a net inflow of $4.9billion during the corresponding period of the previous year.
However, as the gap between the inflows and outflows of short-term trade credit to India were limited to a net outflow of only $1.9 billion during 2008-09 and $0.6 billion the first half of 2009-10, financing of short-term trade credit did not pose much of a problem, the survey said.
Although the higher net outflows during the second half of 2008-09 and in the first half of 2009-10 suggest some challenges in rolling over maturing trade credits, the continuing trend in inflows indicates no significant problem in servicing short-term debt.
Source : Business Line