In the wake of sharply rising trade barriers, Indian exporters are confronted with an overwhelming squeeze on margins and cash flows. A confluence of external shocks, notably punitive tariffs by the United States, and domestic pressures such as currency volatility and high interest burdens has moved industry bodies to seek urgent relief from the Reserve Bank of India (RBI).

Among the measures sought are a moratorium on loan repayments and a more favorable rupee‐conversion mechanism for export proceeds. This article examines the rationale behind these demands, the macro-economic and sectoral context, potential risks and benefits, and how such relief fits into India’s broader export strategy.

The External Shock: Tariffs, Market Losses, and Export Stress

The immediate spark for this lobbying came from the imposition of high U.S. tariffs on Indian goods. In August 2025, the U.S. raised effective duty rates on many Indian exports, across textiles, gems and jewellery, chemicals, fisheries—by as much as 50 percent. This escalation jolted India’s exporters, especially those heavily dependent on U.S. demand, who suddenly found their competitiveness severely undermined.

As orders dropped and payment cycles stretched, firms have struggled to service debt, maintain working capital, or pivot quickly to alternate markets. The downturn is particularly acute for labor-intensive sectors in smaller towns and clusters, where margins are thin and liquidity buffers limited.

At the same time, exporters have lobbied for a mechanism that allows them to partially offset the tariff downslide: a pegged or favorable conversion rate when remitting U.S. dollar proceeds. Specifically, exporters are pressing for temporary conversion at a rupee rate about 15 % lower than the prevailing market rate, aiming to recoup some competitiveness lost to tariff headwinds.

Beyond the U.S., exporters also contend with rising logistical costs, regulatory uncertainty, and global supply chain disruptions. The combined pressure has precipitated calls for immediate liquidity relief and structural support.

What Exporters Are Requesting from the RBI

In a closed-door meeting with the RBI Governor on September 11, 2025, representatives from export promotion bodies formally placed several demands. The three key relief requests are:

A 12-month moratorium on both interest and principal payments on working capital and term loans.
Preferential rupee conversion for U.S. dollar export proceeds — effectively allowing exporters to convert receipts at a “shadow rate” more favorable than market rate.
Automatic enhancement of credit limits (e.g., a 30 % uptick) for exporters as working capital support.

These demands are backed by the argument that without such relief, many exporters could default, triggering broader distress in the banking and export ecosystem. At the same time, they argue that the RBI is uniquely placed to deliver such support in a calibrated way.

Economic and Export Performance Context

To assess the validity and potential consequences of these requests, one must situate them within India’s export and macro-economic realities.

In FY 2023–24, India’s merchandise exports were valued at about US $437 billion, representing a decline of 3.10 % over the previous year. However, non-petroleum and non-gems & jewellery exports showed resilience, growing by 1.45 % in that same period. On the import side, sizeably higher levels resulted in a narrower trade deficit relative to the previous year.

Services exports have remained a more stable pillar. In FY 2023–24, India earned approximately US $341 billion through services trade, showing a growth of 4.84 % year over year.

Meanwhile, global trade tensions, volatile commodity prices, and fragmented supply chains mean that exporters face both external headwinds and intensifying competition from peers in Southeast Asia, Africa, and Eastern Europe.

Table: Key Export Metrics (Merchandise & Services)

Below is a comparative snapshot of India’s export performance in recent years, highlighting trends in growth, composition, and resilience.

Metric / Segment	FY 2021–22	FY 2022–23	FY 2023–24	Trend / Notes
Merchandise exports (US $ bn)	~ 422	~ 451	~ 437	Dip in 2023–24 after earlier growth
Growth (Merchandise)	+44.6 % YoY	+6.9 %	–3.10 %	High volatility due to external shocks
Non-petroleum & non-gems exports (US $ bn)	—	~ 315.64	~ 320.21	Resilience amid overall downturn
Services exports (US $ bn)	~ 325	~ 336.9	~ 341	Steady upward trajectory
Growth (Services)	—	+3.6 %	+4.84 %	More stable compared to merchandise

Data derived from government and trade reports for FY 2021–24.

From this table, one sees that while merchandise exports have been volatile and vulnerable to trade policies, services exports have provided more dependable anchor. The diversification of India’s export basket over time has helped cushion some of the shocks.

However, the recent tariff escalation threatens gains made by labor-intensive sectors and increases urgency for immediate intervention.

Potential Impacts: Pros and Risks of the Requested Relief

Granting exporters a moratorium or more favorable rupee conversion rate is not without trade-offs. The RBI and government must balance short-term relief with longer-term stability.

Benefits / Upside

Breathing space for exporters: A moratorium would free up cash flow, allowing firms to retool, explore new markets, or manage order backlogs without immediate insolvency pressure.
Job preservation: Labor-intensive export clusters in regions like Gujarat, Rajasthan, Tamil Nadu, and West Bengal could avoid layoffs during a fragile period.
Improved competitiveness: A preferential conversion rate can restore some of the lost margin due to tariffs, making Indian goods relatively more competitive in global markets.
Avoidance of systemic defaults: Preventing widespread non-performing assets in banks tied to export sectors could stabilize financial institutions.
Signaling support to industry: A timely RBI intervention sends a strong signal of government resolve to back exports in crisis moments.

Risks / Downsides

Moral hazard: Firms might expect similar treatment in future disruptions, reducing their incentive for prudent financial management or hedging risks.
Distortion in currency markets: Allowing a parallel “shadow rate” for exports may create arbitrage or distort exchange dynamics.
Fiscal and monetary spillovers: Extended moratoria might lead banks to reclassify exposures, affecting capital buffers or credit growth. Also, it may restrain the RBI’s flexibility on interest rates.
Unequal advantage: Larger exporters or well-connected firms may disproportionately benefit, raising equity and fairness concerns.
Budgetary burden & inflation: If the costs are ultimately borne by public coffers, it could exacerbate fiscal stress; further, boosting export competitiveness artificially may encourage overexpansion in weak segments, sowing inefficiencies.

Hence, any relief needs careful calibration, temporal boundaries, and clear conditions.

Implementation Challenges & Institutional Options

If the RBI or government decides to accede (fully or partially) to exporters’ requests, certain institutional and operational hurdles must be addressed.

Defining eligibility and scope
Who qualifies for the moratorium? Should small and medium exporters get priority? What are the sectoral cutoffs? Clear eligibility criteria are essential to avoid broad ambiguity or misuse.
Duration and tapering
A strict 12-month horizon might be overly simplistic; a phased taper or conditional release based on performance or order flow may work better.
Accounting and regulatory treatment
Accounting norms must define how banks recognize income accruals, loan classification, and provisioning in relation to moratorium schemes. Uniform guidelines are needed to avoid uneven treatment across lenders.
Currency conversion mechanism
Establishing a “shadow rate” or window for preferential conversion would require an institutional arrangement — e.g. a special window at the RBI or designated banks. Monitoring and audit would be essential.
Integration with existing export finance schemes
Relief measures should dovetail with RBI’s export credit frameworks, such as pre-shipment credit in foreign currency (PCFC) and export credit refinance schemes.
Disbursement and oversight mechanisms
A clear mechanism to lodge and process moratorium requests, monitor compliance, and exit strategies must be designed to prevent lapses or fraud.
Fiscal implications
While much relief may be via regulatory forbearance, some support (e.g. interest subvention or budgetary transfers) may require additional budgetary allocations.

Strategic Alternatives & Complementary Measures

Rather than relying solely on financial relief, exporters and policymakers should consider structural and strategic measures to strengthen resilience:

Market diversification
Reducing dependence on the U.S. by penetrating African, Latin American, Southeast Asian, and European markets. India’s recent trade agreement with EFTA countries (effective October 2025) is a step in this direction.
Strengthening export incentive schemes
The government revived the RoDTEP (Remission of Duties and Taxes on Export Products) benefits for Special Economic Zones, Export Oriented Units, and Advance Authorization units beginning June 2025.

A stable, long-horizon incentive framework reassures exporters of predictable support.
Boosting infrastructure & reducing logistics cost
Investments in port connectivity, cold chains, trade hubs, and digital customs clearance can meaningfully reduce exporters’ cost burden. These are also emphasized under Budget 2025’s Export Promotion Mission.
Export credit support & risk mitigation
Strengthening credit windows for exporters, including faster disbursal, interest subvention, and credit guarantee mechanisms, can support liquidity. The Export-Import Bank of India has stepped up its credit support to exporters facing tariff headwinds.
Technical support & quality compliance
Many global markets impose strict standards on sustainability, environmental norms, product safety, and traceability. Assisting exporters in meeting these standards can open new markets and buffer tariff risks.
Encouraging value addition and moving up the value chain
Encouraging industries to shift from low-margin primary exports to higher-value processing, branding, design, and niche manufacturing can improve resilience to external shocks.

Conclusion

Indian exporters face a moment of acute stress. The simultaneous shocks of punitive external trade actions and domestic cost pressures have squeezed margins, disrupted cash flows, and raised the specter of widespread defaults. In this context, the exporters’ plea for a 12-month moratorium and a more favorable rupee conversion mechanism appears understandable and potentially stabilizing.

Yet relief cannot be open-ended or unconditional. It must be carefully designed with clear eligibility, duration, exit strategies, and safeguards against abuse. Moreover, policy support should be layered: combining liquidity relief with structural reforms, incentive stability, and export diversification. Only by marrying short-term rescue with long-run competitiveness can India’s export sector emerge more resilient and globally competitive in a volatile world.

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