While addressing a meeting of Indian Merchants Chamber (IMC) last week, RBI Governor Bimal Jalan had said it would be difficult to reduce the export credit rate. ``Does it mean that the RBI and the ministries have different viewpoints? It seems the finance and commerce ministries have overruled the RBI proposal against cut in export credit rate,'' said an exporter who preferred anonymity.

The special package to reverse the 8 per cent fall in exports in the first quarter follows the failed Exim policy which last April had promised an export growth of 20 per cent. The key element of Wednesday's package is a reduction by 200basis points in the interest rate on export credit. The temporary concession, to end at the close of the current fiscal, is a mitigatory measure.

``Even if the central bank announces a 7 per cent refinance, as is widely expected, the banks will still stand to lose. At present, banks are not availing of the Reserve Bank's refinance window owing to excess liquidity with them. With the lowering of the export credit rate to 9 per cent, it will no more be feasible for banks to lend from their own funds. The banks will be forced to avail of the refinance window in order to lend at 9 per cent,'' said a banker.

Calling the new policy as `damp squib', the All India Importers' & Exporters' Association president Mahan Nihalani said: "The changes announced are trivial and not in the area of creative policy initiatives required for kick-starting exports. The lowering of interest rates to 9 per cent and that upto March 1999 is a case of too little and too late."

``The special package lacks drive. It does not addressthe problem of loss of competitiveness, reflected in the fall in exports of readymade garments, manmade fabrics by 35 per cent, transport equipment (trucks, cars, two-wheelers) by 20 per cent and hardware electronics by 60 per cent. The finance and commerce ministers appear have no clue as to how to reduce the quarterly trade deficit of $ 2100 million, up 50 per cent from the first quarter of last year,'' says an exporter.

The announcement by the Centre is seen as a `refurbished' version of the June 11 announcement made by the Reserve Bank. The central bank had announced a concessional export credit at 6.5 per cent to incremental exports over and above the export value achieved by a company in 1997-98.

The central bank was, however, forced to call off the measure on July 18, a little over a month after the announcement, following protests from the bankers and exporters regarding the impracticality of the measures. They had said that it is difficult to calculate the incremental growth on exports and it iseasy for companies to manipulate the incremental export figures by floating new companies. The present concessional interest rate at 9 per cent is applicable for all exports.

Bankers add that without RBI's refinance, the proposal will not take off as banks will find some way or other not to extend credit at 9 per cent. Commercial banks are expecting a refinance offer at 6.5-7 per cent from the RBI so as to implement the 9 per cent export credit.

The expectation of a seven per cent refinance offer originates from the assumption that the new announcement is a corrective measure on the failed RBI attempt of June, 11 to offer 6.5 per cent concessional credit to incremental exports this year. At that time, the Reserve Bank had offered a refinance rate of 4 per cent, which had ensured a 2.5 per cent spread for banks.