Centre urged to raise support for EXIM bank to at least Rs 1500 cr from Rs 700 cr .

NEW DELHI: The National Manufacturing Competitiveness Council has made a proposal to the finance ministry to increase the government's financial aid to the Export-Import Bank of India to make the trade financier more powerful and provide greater support to exports.

The proposal is to increase the central government's financial allocation to the EXIM Bank from Rs 700 crore this fiscal year to at least Rs 1,500 crore next year, and follow it up with more systemic year-on-year increases over the next five years to substantially expand the lending base of the bank. This is aimed at helping the bank match the lending terms of the EXIM banks of other countries, a senior government official told ET.

After the finance ministry considers the proposal and gives its approval, the council will work out the modalities for the funding, this official said. "Additional financial support from the government will strengthen the bank and enable it to support project exports in a big way," he said.

Set up in 1982, the EXIM Bank of India has lent about $12 billion in the past two decades, much lower compared with the EXIM banks in counties such as China, the US, Germany, Korea and France.

Because of its small size, the Indian bank is often unable to match the lending rates as well as the tenure vis-a-vis its peers.

"The move will be very helpful for India's project exports. The EXIM Bank will also be able to lend to LDCs (least developed countries) and also African nations to import engineering and project goods from India," said M Rafeeque Ahmed, chairman of the Federation of Indian Export Organisations (FIEO).

"Though the EXIM Bank's lines of credit are available for African countries, the interest rates are very high. Exporters from China and other countries are able to offer cheaper financing for a longer period resulting into loss of order (for Indian exporters)," Ahmed added.

India's high-level trade and economic relations committee chaired by the prime minister in November mandated the commerce department to develop a comprehensive strategy to expand trade with Africa.

India's engineering exports have grown by 5.41% from a year earlier during the April to October period. However, project exports in which companies take up contracts to set up projects such as factories in foreign locations have fallen by 73% during the same period.

Another government official earlier involved in the exercise said there was an urgent need for a pronounced intent from the government to support the EXIM Bank and make it large. "The proposal is to increase the financial allocation to the bank from Rs 700 crore per annum this year to Rs 1,500 crore next year and scale this up eventually over next five years," the second official, who also did not wish to be named, added.

Lending to the capital goods sector constitutes a huge proportion of business for all EXIM banks.

"India does not have the manufacturing scale in most sectors including capital goods and increased exposure of the EXIM Bank to these sectors will strengthen the manufacturing base of the country," the official said. The EXIM Bank is also looking at helping exporters get orders, a step over just financing exporters. A bulk of the EXIM Bank of India's lending is to countries overseas either through line of credit or long-term buyers credit.

While lending under line of credit is backed by the ministry of external affairs and constitutes $8 billion of the total committed lending, there is an in-principle commitment of $4.5 billion under long-term buyers credit, which is supported by the National Insurance Export Account of the ministry of commerce.

Source : economictimes.indiatimes.com