The commerce ministry is expected to seek extension of the Interest Equalisation Scheme for exporters for a block of five years instead for a few months when the period of current extension expires on June 30 as it has been of great help in the era of high interest rates, a senior official said.
The interest equalisation scheme provides upfront reduction in interest rates on per-shipment and post shipment credit by banks. The exporters from Micro Small and Medium Enterprises (MSMEs) get a rebate of 3% on loans under the scheme. The merchant exporters who source goods for exports from other manufacturers and others get 2% benefit for exports of 410 identified products. The discount given by banks is reimbursed by the government.
“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.
When the scheme was initially launched on April 1, 2015 it was to run for a five-year period till March 2020. Due to COVID it got a one-year extension in 2020. Later more extensions were accorded and the latest one is to end on June 30.
When the scheme was launched it offered a rebate of 5% to MSME exporters and 3 % manufacturers and merchant exporters and they were reduced to the current levels in October 2021. The exporters have requested for restoration of the earlier interest equalisation citing increase in interest rates. The repo rates have gone up from 4% in October 2021 to 6.50% in February, 2023. Higher interest rates are a major disadvantage for exporters who have to compete with suppliers in other countries who pay 2-3% on loans.
The scheme costs the government around Rs 3200 crore a year. In 2023-24 Rs 3700 crore were spent on the scheme. Around Rs 1700 crore has been provided in the interim budget for 2024-25.