Credit limits in India have been significantly reduced: exports are expected to decline

Credit limits in India have been significantly reduced: exports are expected to decline

According to diamond exports, the banks' stance on the credit limit is hurting Indian industry, as the resulting liquidity crunch may cause exports to reduce .

By June 2018, India exported gems and jewellery worth $32 billion, but according to diamond exports, the banks' stance on the credit limit is hurting Indian industry, as the resulting liquidity crunch may cause exports to reduce .

The reduction in credit limits is triggering worried reactions from Indian diamond exporters, who say the move is already affecting businesses, and they argue that the reduction will reduce exports from India in 2019 by 5-10 percent .

The liquidity crisis comes at a time when the Indian industry sees strong demand from the US, which accounts for about 50 percent of India's diamond exports, according to diamond exporters, export is expected to drop compared with 2018 or may remain flat .

Banks are now asking for a 100 percent collateral for small and medium-sized cutting and polishing units, mainly located in Surat. They argue that the banks have been tightening their liquidity ratios since the beginning of the current financial year, and the market is now feeling its influence. If this continues, the exporters will be significantly hurt .

Exporters, for their part, argue that since the recent failure in India has not been blamed for business failures and because there is a favorable growth and strong demand, Indian banks need to change their outlook on the sector to “neutral”. They add that banks should establish a long-term credit risk investigation team track, monitor and provide intelligence information about trade members to make informed credit decisions. According to exporters, banks should assess the limit in dollar terms to isolate the exporter from exchange fluctuation in line with Reserve Bank of India .

In the first two months of the current situation, gems and jewelry exports were down by 13.51 percent from the year-ago period. Rough diamond imports declined too, falling by 7.69 per cent in volume to 323.29 lakh carats compared with 350.23 lakh carats during April-May 2017 .

While liquidity remains a big concern of the industry in India, the rise in the price of rough diamonds adds to the industry's troubles. The price of rough rose by 3-4 percent globally, although polished diamond prices did not rise at the same time. "The margins of India's manufacturing industry are under pressure," the exporters say .