The finance ministry has written to the banking and insurance regulators to monitor export credit availability and insurance premium increases to help Indian exporters deal with trade disruptions in the Red Sea due to Houthi attacks on cargo ships.
In a letter, which was also addressed to state-run export finance institution Exim Bank, the finance ministry last month told the RBI and Insurance Regulatory and Development Authority of India (IRDAI) to monitor and look into the concerns raised by exporters with the commerce ministry about these disruptions potentially inflating India’s export costs, officials said.
“After our deliberations with the commerce ministry and other stakeholders, including exporters, it was decided that sectoral regulators will keep a watch and take necessary action wherever possible,” a government official said. Banks have also been briefed separately to factor in such hikes while sanctioning fresh credit limits to exporters and other businesses, the official said.
In February, financial services secretary Vivek Joshi said the government has asked state-run banks and insurers to deal with trade financing and insurance with sensitivity in view of the crisis.
An email sent to RBI, IRDAI and India Exim Bank did not elicit any response until press time Tuesday. A bank executive said they are already factoring in the increase in freight costs and insurance premiums while sanctioning new credit limits. “We are taking that into consideration,” he added. According to an IMF blog, in the first two months of 2024, Suez Canal trade dropped by 50% from a year earlier while trade through the Panama Canal fell by 32%, disrupting supply chains and distorting key macroeconomic indicators. Officials said India’s exports have not been impacted much by the Red Sea crisis. Exports from India are continuing as the sailings of ships carrying containers from the country have been diverted via the Cape of Good Hope route.
Industry representatives said Red Sea is hardly being used and while shipping freight to the Far East countries and the east coast of the US has declined, it has risen in case of the US west coast.
