SBI chairman Rajnish Kumar on Thursday called for simplifying the interest equalisation scheme for exporters.
State Bank of India (SBI) chairman Rajnish Kumar on Thursday called for simplifying the interest equalisation scheme for exporters. Under the scheme, banks provide a rebate to exporters of up to 5% on pre- and post-shipment credits. Banks can then avail reimbursement of the subsidised interest from the Reserve Bank of India (RBI). Kumar said that procedures under the scheme are “unnecessarily complicated” and need further simplification. The lender may take up the matter with the RBI after further consulting exporters.
Kumar’s first suggestion was that exporters should avail the interest subvention only on post-shipment basis. “In EPC (export packing credit), the entire complication is coming on account of interest subvention. If there is an MSME unit, or for that matter any unit — whether it is manufacturing for the home or domestic market or exporting the same product, what is the difference? The raw material is the same, processing time is the same and finished good is the same. I think the interest subvention should be available and should be made use of only at the receivables discounting,” Kumar said. EPC is one form of pre-shipment credit. In comparison, receivable discounting or receivable factoring is a process by which banks provide credit against trade receivables, including invoices. Kumar said he has written to RBI to facilitate the use of block-chain technology for handling import- and export-related documents.
Kumar also suggested that there should be no distinction on interest subvention available between domestic goods and goods for export. In 2018, the government had announced an interest subvention of 2% on fresh or incremental loans for all GST-registered domestic MSMEs. In comparison, exporters can avail interest subsidy benefit of up to 5%. “At the EPC level, let there be no distinction between domestic and goods related to export… it is again an idea to simplify the procedures. We will have to discuss this with exporters, they should agree with this before with we take it up with the RBI,” Kumar told reporters.
Exporters were not satisfied with the suggestions made by SBI. They said Kumar’s suggestion of availing interest subvention only at a post-shipment basis could increase cost of funds and reduce competitiveness. “When it comes to exports, India is competing with countries where interest rates are pretty low. If we pay 10-11% interest, we will not survive in the export market. We do not agree with the view that it (interest subsidy) should be given at a post-export stage. Government realises that if exporters are not given the credit (at pre-export stage), we will not have a level-playing field with competitors,” said Ajay Sahai, director general, Federation of Indian Exports Organisation. He added that bringing parity in the rate of interest subvention between MSMEs who produce for domestic consumption and those that export is not required, since there is no competitive disadvantage to MSMEs in the domestic market.
Rajnish said exporters must expand the market and ensure quality and competitiveness of products and services. India’s merchandise exports has seen negative growth in the past six months, falling 1.6% year-on-year in January to $25.97 billion.