Fugitive Jewelers Rob Indian Business of Trade Pricing Edge

(bloomberg.com) - Banks weren’t the only victims of fugitive jewelers Nirav Modi and Mehul Choksi, who allegedly orchestrated a $2 billion fraud. India’s trade may be an unsuspecting casualty. As the fraud unraveled, the central bank stepped in and banned short-term financing in foreign currency called Letters of Undertaking to limit the damage to the financial system. The result was the cost of funds for exporters and importers rose as the industry was forced to seek new credit tools, said Ajay Sahai, director general of the Federation of Indian Export Organisations in New Delhi. The worst hit are the smaller enterprises as the ban is eroding their margins and competitiveness. Trade credit is tough to secure after jeweler Modi used fake letters to obtain loans in banks abroad. That threatens to choke shipments of gems and jewelry -- the nation’s third-biggest export -- and widen the trade deficit, which is already the biggest in five years mainly on account of higher oil import bill.