To support the export industry amid a difficult economic scenario, the government has been requested to utilise IFSC platform at the GIFT City to enable various international financial services at competitive cost, senior officials said. Banking units and stock exchanges at IFSC, among other institutions, can play an important role towards this goal, the officials said.
IFSC wrote a letter to the Commerce Ministry earlier this month and suggested several measures for export financing and export credit that need to be taken to support the industry amid nationwide lockdown to tackle the coronavirus pandemic, they said.
The proposal has been made in reply to suggestions sought by the ministry from the International Financial Services Centre (IFSC) in order to support exporters. The officials said the current COVID-19 situation would have an impact on global trade.
Apart from this, they said there are other challenges which the Indian exporters face, including pressure from the WTO and international community to bring down incentives for exports.
Volatility in exchange rate and increased vigilance measures from the USFDA added to uncertainty about growth of Indian pharma exports – particularly to the US, they added.
In the letter, the avenues suggested for competitive funding include permitting Indian exporters to avail rupee denominated External Commercial Borrowings (ECBs)from IFSC banking units (IBU). The move can help Indian exporters mitigate the currency risk, officials said.
IBUs should be permitted to provide rupee denominated ECBs to Indian exporters. Currently, foreign banks are allowed to provide such a facility.
Further, it has been suggested that the government should promote Indian exporters and importers to use IFSC exchanges for their fund-raising programme through issuance and listing of foreign currency bonds or any other offshore instruments.
IFSC exchanges can provide access to international capital markets. There are already USD 48 billion of bonds, including masala bonds, listed at such exchanges.
Besides, the government has reduced withholding tax to 4 per cent from 5 per cent on the interest payment of the bonds listed on IFSC exchanges.
In addition, export financing provided by IFSC banking units should be eligible under prime sector lending (PSL), the officials said.
The IFSC has suggested further that the export lending by its banking units under PSL can be restricted to borrowers with turnover upto Rs 500 crore to ensure that the benefit is spread out to a larger number of mid and small corporates.
Besides, interest equalisation scheme on pre and post shipment rupee export credit, which was available to exporters till March 2020, should be extended and enable pre-shipment financing, which is required by exporters primarily to fund the inventory and work-in-progress, through IFSC.
Currently, Indian exporters are permitted to avail post-shipment financing from offshore as well as onshore lenders. However, pre-shipment financing can be availed only from onshore lenders.
Also, it has been recommended to allow SEZ units to avail International financial services through IFSC banking units, which can provide competitive pricing and products for Indian exporters.
At present, SEZ units are not permitted to avail banking services from IFSC banking units in SEZ IFSC.
Due to the prevailing COVID-19 situation, it is important to facilitate SEZ units which are mainly export units to avail full fledged banking services from SEZ IFSC.
The main objective of SEZ units is to promote exports which require various international banking services – bank guarantee, pre-shipment financing and corporate banking services for their international financial needs. These services are provided in a limited way by Indian banks.
It is important that such services are permitted to be availed from IFSC banking entities by all SEZ units in the country.