Red Sea Crisis: Finance Ministry writes to RBI and IRDAI to mitigate impact on Indian exports

In response to the persistent Houthi attacks on cargo ships in Red Sea, the Finance Ministry has written to the Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (IRDAI) to monitor the export credit availability, and insurance premium's riseto help Indian exporters deal with the trade disruptions.

Help to Indian exporters

As per The Economic Times, the finance ministry last month had written the RBI, Irdai, and the state-run export finance institution Exim Bank urging them to closely monitor and address the issues flagged by exporters to the Ministry of Commerce and Industry regarding disruptions that could potentially drive up India's export expenses.

Also Read: Crisis in Red Sea: This is why there's a red light for ships in the region now

Business Standard quoted a government official and said that all the stakeholders including exporters and commerce ministry had decided that sectoral regulators will keep a watch and take necessary action, wherever possible.

"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 told The Economic Times.

The official further added that banks have been briefed separately to factor in hikes while sanctioning fresh credit limits to exporters and other businesses. Meanwhile in February, financial services secretary Vivek Joshi said the government had asked state-run banks and insurers to deal with trade financing and insurance with sensitivity in view of the crisis.

The Economic Times quoting a source said that the banks are taking into consideration the increase in freight costs and insurance premiums while sanctioning new credit limits.

Red Sea Crisis

The International Monetary Fund noted that in January and February this year the trade in Suez Canal dropped 50% from a year earlier. Likewise the trade in Panama Canal fell by 32%. The fall in trade has disrupted the supply chain and has distorted key macroeconomic indicators.

The Business Standard quoting officials mentioned that the Red Sea crisis has had a minimum impact on Indian exports as vessels transporting containers from the country have been rerouted through the Cape of Good Hope. This ensures uninterrupting trade flow.

The Houthis earlier had been attacking only ships associated with Israel. However later they expanded their attacks on vessels of countries supporting Israel. Following this major shipping firms are rerouting their ships from the Suez Canal to the Cape of Good Hope. However, this has lead to an increased freight and transportation costs.