Indian exporters are grappling with unprecedented challenges due to steep US tariffs, prompting urgent appeals to the Reserve Bank of India (RBI) for a one-year moratorium on loan repayments. This measure aims to prevent defaults and stabilize the export sector, which is critical to India’s economy. Below, we explore the reasons behind this request, its potential impact, and the broader implications for Indian exporters.
Why Exporters Are Seeking a Loan Repayment Break
The recent imposition of a 50% tariff by the US on Indian exports has severely disrupted key sectors such as textiles, gems and jewellery, leather, and footwear. These labor-intensive industries, which employ millions, are facing reduced orders and extended payment cycles, threatening their financial stability. The Federation of Indian Export Organisations (FIEO) has highlighted that without immediate relief, exporters risk defaults, which could lead to job losses and broader economic repercussions.
In a meeting with RBI Governor Sanjay Malhotra on September 11, 2025, exporters, represented by FIEO and other industry bodies, requested a 12-month moratorium on both principal and interest repayments. This break would allow businesses to redirect resources toward market diversification and manage cash flow amidst declining competitiveness in the US, India’s largest export market.
Challenges Driving the Request
- High US Tariffs: The US tariffs, which escalated to 50% from an initial 25%, have made Indian goods less competitive compared to those from countries like Vietnam and Bangladesh. This is particularly detrimental for sectors like gems and jewellery, which send 30% of their exports (approximately $10 billion annually) to the US.
- Rising Interest Costs: Banks are currently charging a spread of 2–3.5% above the RBI’s policy repo rate, increasing borrowing costs and eroding exporters’ price competitiveness. Exporters have urged the RBI to reinstate the Interest Equalisation Scheme (IES) or introduce interim tools to cushion these costs.
- Extended Payment Cycles: The tariff-induced slowdown has led to longer payment cycles, straining exporters’ working capital. FIEO has emphasized the need for flexible credit solutions and extended credit periods to help exporters meet contractual obligations without financial distress.
- Risk of Non-Performing Assets (NPAs): Exporters are also seeking relaxed NPA classification norms for export loans, proposing a 180-day period before loans are classified as NPAs. This would provide breathing room to manage delayed payments without immediate penalties.
Additional Relief Measures Proposed
Beyond the moratorium, exporters have proposed several measures to bolster their resilience:
- Collateral-Free Credit: A sovereign-guarantee window of up to ₹25 crore per exporter to facilitate entry into new markets without collateral requirements.
- Interest Subvention Schemes: Reintroduction of interest subsidies to reduce borrowing costs, similar to the COVID-era Emergency Credit Line Guarantee Scheme (ECLGS).
- Dedicated Export Credit Target: A 2.0–2.5% sub-target within the 40% priority sector lending (PSL) quota to improve financial access for small and medium exporters.
- Favorable Exchange Rate: A request for a real effective exchange rate (REER) of 103 for US transactions to bridge the gap with the current rate of 88, enhancing export competitiveness.
- Streamlined Compliance: FIEO has urged the RBI to designate the Export Data Processing and Monitoring System (EDPMS) as the authoritative source for realization monitoring to reduce compliance burdens.
Potential Impact of the Moratorium
A one-year loan repayment moratorium could provide significant relief by:
- Preventing Defaults: Allowing exporters to stabilize operations and avoid NPAs, which could otherwise strain banks’ balance sheets. Banks are already reviewing their exposure to export-heavy sectors like gems and jewellery (₹83,040 crore as of February 2025) due to default risks.
- Supporting Jobs: Protecting millions of jobs in labor-intensive sectors, particularly in hubs like Jaipur, Mumbai, and Gujarat, where 175,000 workers are at risk due to potential disruptions.
- Facilitating Market Diversification: Giving exporters time to explore alternative markets, reducing reliance on the US, which accounts for a significant share of India’s exports.
However, banks have expressed concerns about deferred repayments, citing potential impacts on their bottom lines due to loan loss provisioning. Despite this, some banks are prepared to support a fiscal package for exporters, provided it aligns with RBI guidelines.
RBI’s Response and Outlook
RBI Governor Sanjay Malhotra has acknowledged the global headwinds affecting exports and indicated the central bank’s readiness to implement supportive measures. Recent actions, such as a 100-basis-point repo rate cut and increased liquidity, reflect the RBI’s efforts to bolster the economy. However, the central bank is also exploring diplomatic negotiations with the US to mitigate tariff impacts, which could influence the extent of relief measures.
While the RBI has not yet confirmed the moratorium, consultations with exporters and industry bodies are ongoing. The central bank’s upcoming policy review in April 2026 is expected to address the tariff impact and may include targeted interventions for affected sectors.
Conclusion
Indian exporters are at a critical juncture, facing unprecedented challenges from US tariffs. The proposed one-year loan repayment moratorium, coupled with other relief measures, could provide a lifeline to prevent defaults and sustain economic contributions from key export sectors. As the RBI continues consultations, exporters and banks alike await decisive action to navigate this crisis. For the latest updates on RBI policies and export relief measures, stay tuned to trusted financial news sources. The Hindu Business Line
