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Commerce ministry wants supplier credit eased

business Updated: Jan 10, 2015 01:08 IST
Narendra Modi

In order to promote the Narendra Modi government’s signature ‘Make in India’ campaign, the commerce ministry has asked the finance ministry to provide policy guidance to financial institutions such as Exim Bank, to help them extend “supplier credit” to manufacturers. The move aims at providing capital at globally-competitive rates to domestic manufacturers.

Supplier credit is provided to export-oriented manufacturers by Exim Bank, but the line of credit of the bank is limited.

“Today, Exim Bank has an equity of Rs 2,500 crore, and as per the RBI guidelines it can leverage it to a maximum of 1:10 ratio that is a maximum of $5 billion (Rs 31,000 crore)... In the past trend, 60% of this credit was dedicated to Africa, and the remaining in small denominations to the rest of the world; commerce ministry wants this limitation to go,” said a commerce ministry source. “Commerce ministry is looking at extending it to at least $10 billion (Rs 62,000 crore), which will help manufacturers to get a competitive edge.”

“It also becomes of great help in the current volatility of the rupee-dollar fluctuations, which is a major concern for exporters. Also, importers can roll over the liability of the suppliers credit to gain extended period of credit,” the source added.

Manufacturers recently cited capital constraints as a primary reason behind poor growth numbers. It was especially pointed out that the sector is witnessing significant imports across generation and transmission and distribution (T&D). “Several challenges across the value chain need to be addressed to improve share of indigenous manufacturing,” said Boston Consulting Group (BCG) in a recent presentation to the Prime Minister on December 29. Providing policy guidance to financial institutions (such as Exim Bank) to extend ‘supplier credit’ to Indian manufacturers similar to Chinese/US model is one of the suggestions made by BCG.

“We are currently actively involved in project exports and have done a total of $25-billion worth transactions so far. We hope to treble this in five years,” said Yaduvendra Mathur, chairman, Exim Bank India. “Under the scheme, Exim Bank of India lends credit to overseas buyers on the condition that the buyer will source 75% of his total project requirements from an Indian company.” This is done by most countries, including China and the US, to boost local companies.