As part of a wider plan to aid the Indian economy in the wake of the coronavirus, the Reserve Bank of India (RBI) has pledged to support struggling exporters and importers through a range of new measures.
According to a statement released on May 22 by India’s central bank governor, Shaktikanta Das, the country’s exports and imports have suffered their “worst slump” in 30 years in the face of “paralysed world production and demand”.
The latest trade figures from the country’s Ministry of Commerce and Industry show that goods exports for April dropped 60.3% from the levels seen 12 months prior, while imports contracted by 58.6%.
Much like in other countries around the world, international efforts to contain Covid-19 have disrupted global supply chains and caused a drop off in demand for the export of India’s goods and services.
In a bid to remedy the situation, in one move designed to help exporters specifically, the RBI has loosened export credit terms for disbursements that will be made up to July 31 this year, increasing the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from one year to 15 months.
The RBI has also acted to help the Export-Import Bank of India (Exim Bank) meet its foreign currency resource requirements. It has extended a line of credit of Rs5,000 to the Exim Bank for a period of 90 days, with a rollover of up to one year, “so as to enable it to avail a US dollar swap facility”.
With the US dollar continuing to dominate as the go-to currency for global trade, there have been concerns that coronavirus-induced US dollar liquidity issues could hurt trade in certain countries.
As part of its support measure, the RBI has also moved to provide greater flexibility to importers in managing their operating cycles.
The bank has extended the time period for the completion of outward remittances against normal imports into India from six to 12 months from the date of shipment.
This applies to imports made on or before July 31 this year, but excludes transactions involving gold, diamonds, precious stones or jewellery.
In his statement, the RBI’s governor announced a string of other measures to help India’s financial system and markets more broadly, including providing relief on debt servicing and improving access to working capital.
These measures follow cuts by the central bank to its key policy rate for the second time this year. It slashed the repo rate by 40 basis points to 4% at an emergency meeting held on May 22. In March, it initially knocked the rate down by 75 basis points in a bid to boost financing and liquidity in the face of the pandemic.
Meanwhile, earlier this month, Prime Minister Narendra Modi unveiled a US$266bn economic stimulus package – worth 10% of the country’s GDP – in an attempt to boost India’s flagging economy.
On the back of stringent containment measures announced by Prime Minister Modi in late March, India has seen its economy slow and the unemployment rate surge.
According to the Centre for Monitoring Indian Economy estimates, the national unemployment rate rose sharply to more than 20% within a week of the lockdown.
Speaking about the stimulus packages in a report last week, ratings agency Moody’s says: “The measures are unlikely to offset lower consumption and sluggish business activity resulting from the extended lockdown.”
It adds: “Even before the coronavirus outbreak, the economy had already been growing at its slowest pace in six years.”
Moody’s says that with Covid-19 compounding the situation, it now expects India’s real GDP to contract in the fiscal year ending March 2021, a revision of its earlier projection of zero growth.
Nevertheless, the authors of the report say they “expect the economy to see a recovery in fiscal 2021-22 somewhat stronger than our earlier forecast of 6.6% growth”.