Union Cabinet approves allocation of Rs 2,500 crore for Interest Equalisation Scheme

The Union Cabinet chaired by Prime Minister Narendra Modi has approved an additional allocation of Rs 2,500 crore for the continuation of the Interest Equalisation Scheme till June 30, 2024, said a press release issued by the Commerce and Industry ministry.

This would help exporters from identified sectors and all MSME manufacturer exporters to avail of pre and post-shipment Rupee export credit at competitive rates.

The benefit shall be continued till 30.06.2024 to manufacturer and merchant exporters of the identified 410 tariff lines and to all manufacturer exporters from MSME sectors at rates, as specified below: For Manufacturer and Merchant Exporters exporting products listed in the 410 tariff lines, the Rate of interest Equalisation is 2 per cent; for MSME exporters of all tariff lines, the Rate of interest Equalisation is 3 per cent.

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

Availability of pre and post-shipment packing credit at competitive rates is important for the export sector to compete internationally.

The effect of the Interest Equalisation Scheme has been beneficial for the export growth of the country as per the study conducted by IIM Kashipur.

The MSME sector is vital for employment generation. The scheme is primarily meant for the labour-intensive sectors.

The present proposal is meant for exports by merchants and manufacturer exporters of identified tariff lines and MSME Sector manufacturer exporters. An increase in exports from these employment-intensive sectors and MSMEs would lead to the generation of employment in the country.

The additional outlay of Rs 2,500 Crore, over and above the current outlay of Rs 9,538 crore under the Scheme, is made available to bridge the funding gap to continue the Scheme up to 30.06.2024. The estimated annual expenditure under the Scheme is approximately Rs 2,500 crore.

The intended target beneficiaries include all MSME manufacturer exporters and non-MSME exporters of certain identified sectors belonging to 410 tariff lines at the four-digit level.
The Scheme was started on April 1, 2015, and was initially valid for 5 years up to 31.3.2020.

The Scheme has been continued thereafter, including a one-year extension during COVID, and with further extensions and fund allocations.

Currently, the Scheme provides an interest equalisation benefit at the rate of 2% on pre and post-shipment Rupee export credit to merchant and manufacturer exporters of 410 identified tariff lines at 4 digit level and 3% to all MSME manufacturer exporters.

The Scheme was not fund-limited and extended the benefit without any limit to all exporters.

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

In addition, the banks that lend to exporters at an average rate of more than Repo + 4% would be debarred under the Scheme.