Effect of Monetary Policy on Indian Economy Post Reform Period

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EXPORT CREDIT
Export credit policy refers to the measures influencing the level and composition of exports of a country. India‘s export policy has been primarily that of promoting exports. One of the important measures being adopted for export promotion in India is concessionary export credit. 252

Some of the policy measures related with export credit are given below: 1992-93 i) In order to make dollar-dominated export credit scheme more attractive, the rate of interest on refinance under this scheme was reduced from 7.5 per cent to 5.5 per cent per annum with effect from April 22, 1992. ii) In order to facilitate an environment for promotion of exports, effective October 9,1992, interest rates on export credit (rupee) provided by banks were reduced by one percentage point across the board. Thus, the basic lending rate on export credit was reduced from 15 per cent to 14 per cent per annum. iii) Effective March 1, 1993, the interest rates on export credit (rupee) provided by banks were again reduced by one percentage point across- the- board. Thus, the basic lending rate on export credit was reduced to 13 per annum. 1993-94

i) With a view to ease the burden on the export sector, the Union Budget 1993-94 exempted payment of interest tax on export credit by banks from April 1, 1993 thereby reducing the effective interest rate on export credit by about one-half of one percentage points. ii) Following reduction in the MLR for advances of above Rs.2 lack by one percentage point to 16 per cent effective from June 24, 1993, the interest rates in respect of usance bills for periods beyond 90 days and up to six months and beyond six months were reduced from 17 per cent to 16 per cent and from 22 per cent to 21 per cent, respectively. 1994-95

There were no new policy measures during 1994-95.
253
1995-96
i) Considering the increase in the US dollar LIBOR rate, the interest rate on post- shipment credit denominated in US dollars (PSCFC) was increased from 6.5 per cent to 7.5 per cent per annum effective from April 18, 1995. ii) With a view to rationalize the interest rates on PSCFC and encourage a quick turnaround of credit, interest rate on PSCFC in respect of usance bill for period beyond 90 days and up to six months from the date of shipment was enhanced from 7.5 per cent to 9.5 per cent per annum, and the interest rate on export credit, not otherwise specified for PSCFC, which was 9.5 per cent per annum, was freed effective from October 31, 1995. iii) With a view to facilitate a faster turnover of credit under the PSCFC scheme, effective from January 16, 1996, a rate of interest of 9.5 per cent per annum was prescribed on PSCFC for a total period of up to 90 days as against 7.5 per cent per annum earlier, and for credit of over 90 days banks were given freedom to fix their own interest rates. iv) With a view to remove the distortion in the effective interest rates on the PSCFC facility that was significantly lower than under Foreign Currency Post-Shipment Credit, the PSCFC was terminated effective from February 8, 1996. v) The interest rate on post-shipment export (rupee) credit for 90 days and up to 180 days was deregulated effective from February 8, 1996. 1996-97

i) Effective from October 21, 1996, interest rates on post-shipment export (rupee) credit were rationalized and banks were advised to charge interest rate of 15 per cent for the period beyond 90 days and up to 6 months and not from the date of advance. 1997-98

i) Effective from April 16, 1997, the interest rate, post-shipment export (rupee) credit for a period up to 90 days was changed from 13 per cent per annum to ‗not exceeding 13 per cent per annum‘. 254

ii) As a measure to boost exports, effective from June 26, 1997, the interest rate on post-shipment export (rupee) credit was reduced by one percentage point i.e. for the period up to 90 days to ‗not exceeding 12 per cent per annum‘ and for the period beyond 90 days and up to 6 months, the rate was reduced to...
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