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Coronavirus to hit Indian exporters hard, defaults may rise

Near lock down and quarantine in many advanced economies has given a jolt to the demand and added to the rising uncertainties with looming recessions in large number of economies with consequent fallouts

twitter-logo Joe C Mathew        Last Updated: March 18, 2020  | 17:05 IST
Coronavirus to hit Indian exporters hard, defaults may rise
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The Federation of Indian Export Organisations (FIEO) has cautioned the government over the possibility of higher defaults in the export business sector due to novel coronavirus (COVID 19) outbreak linked cancellations and reduction in orders. The exporters wanted to apprise the government there would be delay in declaration of company accounts. Also, it warned lack of business, coupled with fixed costs, would soon make many accounts technically NPAs .

"The spread of Covid 19 to over 144 countries points to the most challenging times for the exports sector. Near lock down and quarantine in many advanced economies has given a jolt to the demand and added to the rising uncertainties with looming recessions in large number of economies with consequent fallouts", Sharad Kumar Saraf, President, FIEO says.

The MSMEs particularly in employment intensive sectors like carpets, handicrafts, apparels, footwear, gems and jewellery, marine and perishable with their major market in Europe and the USA are likely to be worst affected, particularly in first quarter of FY 2020-2021, as per the current trend, FIEO estimates.

"The export sector has started feeling the pinch with many requests from buyers to hold back shipments till further instructions. We feel that a significant number of such requests may eventually lead to cancellation of orders. Even in cases where Indian exporters are adhering to the terms of contract, the force majeure clause are likely to be invoked by buyers to deny claim/liability raised by exporter", Saraf says.

Stating that all businesses (with few exceptions) will take a hit in revenue and margins, with fixed cost remaining the same, FIEO wanted the government to enhance the existing working credit limits of exporters with the banks automatically by 25%. The apex exporters' body wanted collateral free lending upto Rs 2 crore to be implemented in its 'true spirit' and cap the collateral requirement beyond Rs 2 crore lending at 35-40%.

The agency called for continution of all existing export promotion schemes till at least 31 March, 2021.

FIEO called for immediate release of all  benefits that are due to exporters to ease liquidity issues. It wanted release of dues to even risky exporters after taking bonds from them.

According to FIEO, the export obligation period under Advance Authorisation and EPCG needs to be extended by 1 year in the forth coming Foreign Trade Policy (FTP). The policy should also provide automatic revalidation to all duty-free authorisations by 1 year to   enable the industry to import inputs at the right price, the exporters' body said.

The exporters' wishlist included extension of remittance period from 9 months to 15 months, extension of exemption from caution listing of exporters from March 31, by another year; both to be done by the Reserve Bank of India.

Saraf said that if situation improves rapidly in the second quarter of the next fiscal, Indian exporters may gain in some products so as to offset the losses. However, at this point of time, survival of many MSME exporting units looks challenging, he added.

Also read: Coronavirus in India Live updates: Noida, Bengaluru report new COVID-19 positive cases; tally crosses 150

Also read: Mumbai woman praises quarantine centre for cleanliness, BMC elated

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Tags: Exports | FIEO
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