The Government of India aims to achieve new heights in global trade through its National Foreign Trade Policy. But, the interest rate structure of exportfinance in the country is not a motivating one for the small and medium scale exporters. The question that arises here is about the coordination of theinterest rate structure for export credit and the government's foreign trade policy objectives.

The National Foreign Trade Policy of the new government has two main objectives of doubling India's global merchandise trade within the next five years and reduce the transaction cost for exports.

This article highlights the very high interest rates charged to small and medium exporters by commercial banks, whereas government and large corporations are borrowing below 6%.

The Reserve Bank of India directive stipulates that for exporting, credit in foreign currency (pre-shipment and post-shipment) has to be charged at LIBOR +75 basis points and banks can further charge 0.25% as service charges. The total cost of foreign currency borrowing is about 3%, whereas the RBI does not stipulate any restrictions on interest rates in export credit in rupees. The interest rates of leading foreign banks, public sector banks and private sector banks for pre-shipment (PCL) and post-shipment (PSL) are furnished in Table 1. (Data from RBI website).

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