The Ministry of Finance calls for vigilance as Houthi attacks on cargo ships disrupt trade in the Red Sea.
The Ministry of Finance has reached out to the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (Irdai), requesting heightened surveillance on export credit accessibility and insurance premium fluctuations.
This move comes in response to the disruptions faced by Indian exporters due to Houthi attacks on cargo vessels traversing the Red Sea. According to a recent report, the finance ministry dispatched letters to the RBI, Irdai, and the state-owned export finance institution Exim Bank last month, highlighting the concerns raised by exporters to the Ministry of Commerce and Industry regarding potential disruptions impacting India’s export costs.
Additionally, banks have been instructed to consider developments while sanctioning fresh credit limits to exporters and other enterprises. A source revealed that the increase in freight expenses and insurance premiums is being factored in while approving new credit limits. “We are factoring that in,” the source confirmed.
The disruption in the Red Sea has led to significant ramifications for global trade, as evidenced by data from the International Monetary Fund (IMF) indicating a 50 percent decrease in Suez Canal trade and a 32 percent decline in Panama Canal trade in January and February compared to the previous year. These disruptions have caused ripple effects across supply chains and impacted crucial macroeconomic indicators.
Despite these challenges, officials maintain that India’s exports have experienced minimal disruptions, with shipments remaining unaffected due to rerouting of vessels through the Cape of Good Hope, ensuring uninterrupted trade flow from the country.
