Export credit: Key interest subsidy scheme to be extended

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August 23, 2021 4:45 AM

The scheme, introduced in 2015, was initially valid up to March 2020. Its validity was then extended periodically, along with that of the foreign trade policy, up to September 2021.

exporters,The government has budgeted Rs 1,900 crore for the scheme for FY22, compared with Rs 1,600 crore (revised estimate) for FY21.

The government is considering a proposal to extend the validity of the interest equalisation scheme for exporters by 2-3 years from the September 30 deadline, a senior official told FE.

Any such move will lend predictability to the policy regime and continue to support Covid-hit exporters with cheaper credit at a time when they are striving to reap benefits of a resurgence in global demand for merchandise.

Under the scheme, large manufacturing and merchant exporters get an interest subsidy of 3% on pre- and post-shipment rupee credit for the outbound shipment of 416 products (tariff lines). However, manufacturing MSMEs get a 5% subsidy on such credit to ship out any product.

The government has budgeted Rs 1,900 crore for the scheme for FY22, compared with Rs 1,600 crore (revised estimate) for FY21.

“The commerce ministry is in talks with the finance ministry on this issue. A Cabinet note will be floated very soon,” the official said.

However, the government may reduce the subvention rates to suit current realities, given that interest rates have declined substantially from the levels when the scheme was rolled out.

The scheme, introduced in 2015, was initially valid up to March 2020. Its validity was then extended periodically, along with that of the foreign trade policy, up to September 2021.

The scheme has been an effective instrument for exporters, especially the small ones, struggling to cope with a cash crunch in the aftermath of the Covid-19 outbreak. Having witnessed a 7% year-on-year drop in FY21, the country’s goods exports have staged a rebound this fiscal. Exports in the first four months of this fiscal rose to $130.8 billion, recording a jump of 75% year on year and 22% from the pre-pandemic level (same period in 2019), as orders from key western markets poured in and global commodity prices remained elevated.

Of course, export growth was subdued even before the pandemic – outbound shipments rose about 9% in 2018-19 but again shrank by 5% in 2019-20. So only a sustained uptick over the next 2-3 years would help recapture the lost heights. Sustained credit push will help exporters benefit from a rise in external demand.

However, inadequate credit flow to exporters has been a nagging issue for the past three years before the recent pick-up. Export credit under the priority sector grew 18.3% as of June 19 from a year before, driven by a favourable base and growing demand in light of the latest surge in exports.

Ajay Sahai, director-general and chief executive at apex exporters’ body FIEO, said the interest equalisation scheme has immensely benefited the exporters, especially the small ones, as it has made credit available at reasonable costs.

The International Monetary Fund last month revised up its predictions of global trade volume growth by a sharp 130 basis points for 2021 to 9.7% and 50 basis points for 2022 to 7%. India is set to benefit from the expected rise in global trade prospects once its supply side gains traction.

The government has already set an ambitious merchandise export target of $400 billion for FY22, against $291 billion last fiscal. Keeping up the flow of cheaper credit remains critical to materialising the target, exporters say.

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