The commerce ministry is anticipated to request a five-year extension for the Interest Equalisation Scheme for exporters, rather than a short-term extension when the current period expires on 30 June. According to a senior official, the scheme has been particularly beneficial during periods of high interest rates.
Under the interest equalisation scheme, exporters receive an upfront reduction in interest rates on pre-shipment and post-shipment credit provided by banks. Micro, Small and Medium Enterprises (MSMEs) exporters receive a 3 per cent rebate on loans, while merchant exporters and manufacturers sourcing goods for exportation receive a 2 per cent benefit on 410 identified products. The government reimburses the discounts provided by banks.
“We would propose an extension of the scheme for five years. The scheme is doing good and it is helping the exporters,” the official stated.
Initially launched on 1 April 2015, the scheme was intended to run for a five-year period until March 2020. Due to the COVID-19 pandemic, it received a one-year extension in 2020, with subsequent extensions following. The most recent extension is set to expire on 30 June.
When initially launched, the scheme offered a 5 per cent rebate to MSME exporters and 3 per cent to manufacturers and merchant exporters, which was subsequently reduced to the current levels in October 2021. Exporters have requested the restoration of the previous interest equalisation rates due to the increase in interest rates. Repo rates rose from 4 per cent in October 2021 to 6.50 per cent in February 2023. Higher interest rates pose a significant challenge for exporters competing with suppliers in other countries who benefit from lower loan rates of 2-3 per cent.
The scheme incurs an annual cost to the government of approximately Rs 3200 crore. In the fiscal year 2023-24, Rs 3700 crore was spent on the scheme, with Rs 1700 crore allocated in the interim budget for 2024-25.
