The manufacturing and exporting sector represented by the Engineering Exports Promotion Council on Wednesday reiterated its request for a cushion from the government to tide over the shocks coming from penal tariffs imposed by the United States.
But the Council extended a welcome to the cautious approach of the Reserve Bank of India which kept the Repo Rate unchanged at 5.5 per cent. EEPC Chairman, Pankaj Chadha said that a cautious approach was the need of the hour given the prevailing macroeconomic conditions. At the same time, he also expressed the optimism that the rate could be brought down during the remain part of the fiscal 2025-26, so that credit becomes cheaper for borrowers in India.
Ongoing trade policy uncertainties stemming primarily from the US pose downside risks to exports. The engineering goods sector has already started feeling the pinch of the tariffs, and said on a month-on-month basis, India’s engineering exports declined by around 5% in August. Though high base in July and other factors caused the blip in exports during this period, it also partly reflected the impact of the US tariff.
Which is why, Chadha said, the engineering exports sector, especially MSMEs need a cushion to withstand the new challenges. “Lower borrowing costs at this point will significantly help the sector. We have urged the government to reinstate the Interest Equalisation Scheme (IES) to ensure affordable export finance,” he said extending a cautious welcome to the RBI decision.
Leading chamber, FICCI, too expected Repo Rate cut in the next policy statement. FICCI President, Harsha Vardhan Aggarwal said that the chamber was encouraged by the upward revision of the country’s growth outlook that reflects the economy’s resilience and the positive impact of recent policy initiatives, in particular, the rationalisation of GST regime.
Aggarwal said FICCI also welcomed the additional measures announced by the RBI to strengthen the banking system, enhance credit flows, improve the ease of doing business for exporters, and advance the internationalisation of the Rupee. “These are timely and forward-looking and will give a further boost to business confidence,” he said.
The chamber representing largely the MSMEs, the PHDCCI, lauded the slew of steps aimed at increasing ease of doing business and making the banking sector more efficient. PHDCCI President Hemant Jain said, “The announcement of package of 22 additional measures included under ease of doing business — resilience and competitiveness of the banking sector, credit flow, simplify foreign exchange management, consumer satisfaction, and internationalisation of Indian Rupee — are the steps in right direction at the right time.”
To strengthen the resilience and competitiveness of the banking sector, a draft of the Standardised Approach for Credit Risk has been proposed with lower risk weights on certain segments, which are expected to reduce the overall capital requirements, particularly for MSMEs and residential real estate (including home loans), Jain said.
His colleague and PHDCCI CEO and Secretary General, Ranjeet Mehta said, “The RBI’s commitment to remain “proactive, objective and consistent” in its communication while backing it up with credible actions provides confidence in the policy framework’s adaptability to evolving conditions.”
