New Delhi: The Federation of Indian Export Organizations (FIEO) believes that the focus of government should be on initiatives that provide exporters with affordable credit and improve the availability of raw materials for their businesses.
Additionally, in upcoming Union Budget 2025-26 there is a strong need to increase significant investment in not only research and development to help India perform better in exports in the future but also in Production Linked Incentive (PLI) kind of scheme should be given to more sectors. Industry believes that this would not only boost exports but also create significant job growth.
Director General of FIEO Ajay Sahai in an exclusive interview with ETV Bharat discussed the Budget in detail. During the discussion, he highlighted the urgent need for an improved liquidity management system. He emphasised that exporters are currently facing a serious liquidity crunch and this issue can be solved by RBI but Budget is an opportunity before the Finance Ministry to give good schemes a shape, so that other institutions can follow the path. FIEO has also urged the Finance Minister to explore the option of collateral-free lending to help reduce the cost of borrowing.
Ajay Sahai also called for the extension of the Interest Equalization Scheme (IES) for another five more years, urging the government to continue the interest subvention to help increase credit flow in the sector and boost the country’s exports.
The scheme, which helps exporters related to the key sectors and all MSME (micro, small, and medium enterprises) manufacturers, offers competitive rupee export credit rates at a time when the global economy is struggling. Exporters benefit from subsidies under the Interest Equalization Scheme for both pre- and post-shipment rupee export credit.
Scheme was launched on April 1, 2015 and was initially valid for five years until March 31, 2020. It has since been extended multiple times, including a one-year extension during the COVID pandemic, with additional fund allocations.
Capacity Building
FIEO has also recognised that the government's shipbuilding measures are good and much needed steps for the export sector but Ajay Sahai emphasised the need for a self-reliant shipping line and improved container availability. He said that this is not only going to create jobs in good numbers but also reduce logistics costs by making exports more competitive compared to other nations. Also this will make Indian logistic cost more competitive to the GDP.
Impact of Rupee depreciation
He further added that the depreciation of the rupee is also one of the main concerns for exporters these days. While many believe that a stronger dollar or a weaker rupee automatically benefits exporters, Sahai explained to ETV Bharat that this isn’t necessarily true. He clarified that exporters gain when the depreciation of the Indian rupee is comparable to, or greater than, the currency depreciation of competing countries. If the rupee weakens by, say, 2%, but the currencies of other nations fall by a greater margin—like 4% or more—then exporters do not see the expected benefit.
By providing data he explains that in the last five months, the rupee has fallen by 2.4 percent against the dollar. In comparison, the Malaysian Ringgit fell by 3.1, the Philippine Peso by 3.4, the South Korean Won by 4.8, the Singapore Dollar by 4.9, and the Japanese Yen by 7.3 percent. In such cases, the depreciation of the Indian currency rupee does not benefit exporters. Besides this, globalisation means that imports play a significant role in exports, so a stronger dollar resulting from exports makes imports more expensive when the rupee weakens, which ultimately doesn't result in any benefits.
More Focus on R&D
Regarding the need for research and development (R&D), Ajay Sahai stressed that there has been significant government investment research in the country in the past few years, but private sector investment is also needed as it is not on par with the government spending. He also added that businesses tend to avoid investing in areas like these as there is high uncertainty, as the results of R&D often take years to materialise.
He also emphasised that if the government collaborates with the private sector to invest in key focus areas for R&D, it would make it easier for businesses to progress in these fields. Without adequate R&D, boosting India's exports to a significant scale will always remain challenging.
Ahead of the Budget 2025-26 on behalf of exporter organisations he also pointed out that the government has introduced the PLI scheme in various sectors in the past. And the PLI schemes had not only benefited industries to grow but also added significant numbers to the job growth of the country. He recommended expanding this scheme to include more MSMEs and SMEs, particularly in sectors like biotechnology, education, toys, and furniture. Increasing government support via PLI of schemes of this kind will be able to provide more investments in these traditional sectors, not only would exports rise, but there would also be a significant boost in job creation.
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