Millennium Post

Fieo writes to RBI, FinMin for reintroduction of LoUs

Mumbai: The apex exporters lobby Federation of Indian Export Organisations (Fieo) has written to the Reserve Bank and finance ministry seeking lifting the blanket ban on letter of undertakings (LoUs) saying it will further hurt exports by making them more uncompetitive.
The Fieo, promoted by the Commerce Ministry and industry, has written to Reserve Bank Governor Urjit Patel and finance ministry seeking reintroduction of the crucial trade finance instruments, but feels that the government will have to take the lead to end the stalemate, a top Fieo official has said.
"The LoUs were in operation for many years, so at the drop of a hat you cannot abolish such instruments...look at the utility of it. Such instruments are used globally, why deprive our exporters or importers of it?" Fieo director general Ajay Sahay said.
Admitting that the lobby has so far underplayed the impact of the mid-March move by the RBI, Sahay said earlier Fieo felt that only the gems & jewellery sector used the instrument, but it has later transpired that others, including the employment-intensive textiles and leather industry, are also using LoUs.
When asked if the ban will impact exports, he said, "absolutely" and adding while the gems & jewellery sector will be the worst impacted, others will also be hit.
He pointed out that gems & jewellery exports have contracted by a massive 36 per cent following the regulatory actions, which employs 5 million.
He explained that the alternatives for LoUs like bank guarantees increase the cost by 1-3 per cent, hence making exports uncompetitive globally.
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