The bulk of allocation for the Export Promotion Mission (EPM) announced in the budget will be used for designing schemes for addressing export credit requirements of micro, small and medium enterprises (MSMEs) and promoting use of alternate financing instruments like factoring.
“The allocation for the mission for this year has been lept at Rs 2250 crore of which Rs 200 crore is for Market Access Initiative (MAI) and Rs 50 crore is for lab grown diamonds. Rest of the amount is for designing schemes around export credit, cross border factoring and support to MSMEs to tackle non-tariff barriers (NTBs),” director general of foreign trade Santosh Kumar Sarangi said.
The schemes will be designed by the Ministry of Finance and Ministry of Commerce. Earlier the government had a scheme for interest subsidy for export credit that came to an end on December 31, 2024. “Format of assistance to exporters will change. It will not necessarily be in the form of interest subvention,” he said.
For export financing the government is looking at addressing the problem of high collateral many of the exporters face. “Four out of five MSMEs face issues regarding collateral and many of them are not able to avail credit because of this demand. We are thinking of a mechanism to increase export credit without giving collateral or giving partial collateral,” Sarangi said.
Total export credit requirement for exports of $ 437 billion in 2023-24 is $ 284 billion but only $ 124.7 billion is provided. Total export credit requirement is estimated at $ 650 billion in 2030 for exports of $ 1 trillion.
The collateral support per exporter would be capped. The government is also looking to promote factoring services, which are big outside India. It enables exporters to sell his export receivables to a factoring service provider at a discount. For the fee, the service provider accepts the risk of collection of the payment.
The government is thinking of filling a part of the gap between the value of the export receivable and the price at which it is acquired by factoring service providers. Factoring is big outside India. India has 11 factoring companies as compared to China’s 2000.
Global cross border factoring is estimated to be $ 758 billion but in India it is only $ 1 billion.
The cross-border factoring should attain a certain scale to reach about 3% of merchandise exports (in line with the global average), Sarangi said
To help MSMEs deal with NTBs the mission will consider reimbursing additional costs incurred by them for conformity assessment compliance relating to registration, testing, certification and inspection for organic, halal, electric goods, energy audit, European Union’s carbon tax and deforestation regulations. Support will also be provided for procurement of plant and machinery for complying with NTMs and supply chain diversification like Procurement of alternative inputs to comply with the global standards like permissible antibiotics and pesticides for farmers and fishermen.