Dollar-based loans from abroad to help MSMEs: FIEO

Mobilizing dollar loans through public sector financial institutions may help industry - both corporate and MSMEs - and CAD at the macro level, but to make it successful an aggressive marketing  drive is necessary, said Federation of Indian Export Organsiations (FIEO) on Tuesday.

"Measures to attract dollars and  a sound marketing drive by institutions to attract investments in various sectors would create an enabling environment for both corporate India and MSMEs alike," FIEO president M Rafequee Ahmed said in a press statement.

Finance Minister P Chidambaram Tuesday announced measures to allow public sector financial institutions to raise dollar-based loans from abroad and raised taxes on precious metals and other non-essential items to give the Reserve Bank of India additional reserves to keep the rupee within 60 to a dollar. But the announcements failed to elicit the expected reaction from the currency markets and the rupee fell 39 paise to end at 61.27 against the US dollar.

On Tuesday, the government also raised the import duty on gold for the fourth time in more than one year to curb the inflow of the yellow metal and help narrow the widening current account deficit. 

Chidambaram on Monday sought to soothe nerves about its external finances by promising to contain the current account deficit at 3.8 percent of gross domestic product this fiscal year with a slew of measures including easing rules for raising loans abroad.

Although the current account deficit target would be below the record 4.8 percent in the fiscal year ended March, investors said the lack of details disappointed markets.

Last week, Chidambaram held a series of meetings on Friday with top officials to firm up additional steps to support the currency. The measures could include further relaxation of external commercial borrowing (ECB) norms for state-owned companies, curbs on import of non-essential goods and encouragement to exports.

Chidambaram had earlier said the government would be looking at "some compression in non-oil and non-gold imports, especially of non-essential goods." He had specifically cited the examples of coal and electronic hardware and said that the officials would be working out a list of imported items that could be compressed.

Complimenting the Tuesday announcements, FIEO viewed that this would not only help in stabilising the rupee but reduce cost of projects as domestic borrowing rates are heading northwards and liquidity is limited .  

The FIEO Chief elaborated that  availability of low cost loans could resurrect a declining IIP which contracted by  2.2% in June 2013 as per data released today.

Industrial output in June 2013 was dampened by the continued de-growth in year-on-year (y-o-y) terms in consumer durables (-10.5%; +9.1% in June 2012), capital goods (-6.6%; -27.7% in June 2012) and basic goods (-1.9% +3.6% in June 2012). While intermediate goods displayed a low growth of 1.1% in June 2013 (0.9% in June 2012), consumer-non-durables recorded a modest 5.0% expansion (-0.5% in June 2012).

He stated that manufacturing output was a cause of concern  with a decline  by 2.2% in June 2013 in y-o-y terms, as compared to the 3.2% de-growth in June 2012 and 13 of the 22 sub-sectors of the manufacturing sector (with a combined weight of 37% in the IIP Index) recorded a contraction in June 2013, highlighting the broad-based nature of the downturn in manufacturing.