Commerce Ministry may seek 5-year extension of interest equalisation scheme for exporters

The commerce ministry is likely to seek further extension of the interest equalisation scheme on pre- and post-shipment rupee export credit for another five years to promote the country's outbound shipments, an official has said. The scheme will end on June 30 this year.

"The ministry will do revamping of some schemes like interest equalisation scheme. We would propose an extension of the scheme for five years. The scheme is doing good, and it is helping the exporters," the official said.

On December 8, 2023, the Union Cabinet approved an additional allocation of Rs 2,500 crore for the continuation of the scheme up to June 30.

The scheme helps exporters from identified sectors and all MSME manufacturer exporters to avail of rupee export credit at competitive rates at a time when the global economy is facing headwinds. Exporters get subsidies under the 'Interest Equalisation Scheme for pre and post-shipment rupee export credit.

The additional outlay of Rs 2,500 crore, over and above the current outlay of Rs 9,538 crore under the scheme, was made available to bridge the funding gap to continue the plan up to June 2024.

The scheme was started on April 1, 2015, and was initially valid for five years up to March 31, 2020. It has been continued thereafter, including a one-year extension during COVID-19, and with further extensions and fund allocations.

Currently, the scheme provides an interest equalisation benefit at the rate of 2 per cent on pre and post-shipment rupee export credit to merchant and manufacturer exporters of 410 identified tariff lines at 4 digit level and 3 per cent to all MSME manufacturer exporters. These sectors include handicrafts, leather, certain fabrics, carpets and readymade garments.

The scheme has now been made fund-limited, and benefits to individual exporters are capped at Rs 10 crore per annum per IEC (Import Export Code).

According to a statement of the commerce ministry, the banks that lend to exporters at an average rate of more than Repo +4 per cent would be debarred under the scheme.

The scheme is implemented by the RBI through various public and non-public sector banks that provide pre and post-shipment credit to the exporters. It is jointly monitored by the Directorate General of Foreign Trade (DGFT) and RBI through a consultative mechanism.

From April 2023 - November 30, 2024, the government has disbursed Rs 2,641.28 crore against the allocated budget of Rs 2,932 under the scheme. Rs 3,118 crore was disbursed in 2022-23 and Rs 3,488 crore in 2021-22. Exporters said that the scheme is helping them in the current turbulent times.

Federation of Indian Export Organisation (FIEO) President Ashwani Kumar said the support measures under the scheme help in increasing the competitiveness of Indian exporters in the international markets.

"In China, the rate of interest is 2-3 per cent and that helps their exporters immensely. The government here should positively consider extending the scheme," Kumar said.

India recorded the highest monthly exports in February, registering an 11.9 per cent growth to USD 41.4 billion, mainly driven by increased shipments of engineering goods, electronic items and pharma products.

During April-February 2023-24, exports have declined to USD 395 billion compared to 409.11 billion in the same period of 2022-23.