The DGFT, an arm of the commerce ministry, announced on Monday that it had advised banks and financial institutions to offer e-commerce exporters pre-shipment and post-shipment export credit in foreign currency in accordance with RBI standards. The Directorate General of Foreign Trade (DGFT) may be notified by banks or e-commerce exporters of any problems with obtaining such loans.
What is export credit?
Export credit is a loan that is provided to exporters by banks or financial institutions. The loan is used to finance the production, marketing, and transportation of goods and services for export. Export credit might be given in the local currency of the exporter or in a foreign currency. The terms of the export contract and the exporter’s preferences determine the currency to be used.
This gains important because the new Foreign Trade Policy 2023 also seeks to encourage exports via the online marketplace.
In a trade notice, the DGFT stated that discussions on open issues relating to exports through e-commerce were held with industry representatives, exporters, and nodal departments. The absence of pre-shipment and post-shipment export credit for e-commerce exports was one point raised, and the RBI was consulted about it, it said.
It is made clear that the master circular “Rupee/Foreign Currency Export Credit and Customer Service to Exporters” provides a thorough framework and allows all qualified exporters access to pre- and post-shipment export credits as well as Packing Credit in Foreign Currency (PCFC), which does not exclude exporters who conduct business online.
“Banking and financial institutions concerned are therefore encouraged to extend pre-shipment and post-shipment Export Credit and Packing PCFC to e-commerce exports based on the extant guidelines issued by RBI,” it added. The promotion of e-commerce exports must be supported and carried out, according to the Foreign Trade Policy 2023.
What are the benefits of the proposal?
The proposal has several benefits for e-commerce exporters. These benefits include:
- E-commerce exporters will be better able to meet the payment requirements of their export contracts, which are frequently denominated in foreign currencies, if they have access to financing in foreign currencies.
- Competitive interest rates: The suggested plan will offer loans at competitive interest rates to e-commerce exporters. They will be able to lower their financing costs as a result.
- Longer payback time: The proposed scheme will offer loans with a repayment duration of up to 180 days to e-commerce exporters. They will have extra time to pay back the debts as a result.
Why is it important for e-commerce exporters?
Exporters that use e-commerce frequently have trouble getting financing. This is so because they are frequently startups with no prior experience. Exporters who use export credit have access to the capital they need to expand their enterprises, which can help them overcome these difficulties.
According to a report by the Global Trade Research Initiative (GTRI), India should aim for USD 350 billion in commodities exports via e-commerce by 2030. To achieve this goal, the government must solve the sector’s problems by adopting efforts including drafting a specific strategy.
The amount of e-commerce exports from India currently still falls well short of its potential. Currently, less than 0.5% of the entire value of the country’s exports of goods, or USD 2 billion, come through e-commerce.
The proposal from the Commerce Ministry is to give e-commerce exporters export credit in foreign currencies via the Exim Bank of India. A government-owned financial entity called the Exim Bank offers export financing to Indian exporters. The suggested plan will offer competitively priced loans in foreign currency to e-commerce exporters. The loans are going to be offered for up to 180 days.
Click here to read notification -> Pre-shipment and Post-shipment Export Credit and Packing Credit in Foreign Currency (PCFC) for E-Commerce Exports -reg
The proposal from the Commerce Ministry is a positive step. Through e-commerce, it will assist increase exports and generate jobs.
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Commerce Ministry Proposal for E-commerce Exporters to Provide Export Credit in Foreign Currency