Import, Export, Trade for MSMEs: To reduce the stress on MSMEs as a result of the tightening RBI monetary policy, the centre is examining increasing the interest subsidy benefit to small and medium exporters in the annual budget 2023-2, as per a report by Mint.
Currently, Indian exporters are going through a tough time owing to a slowdown in demand in key markets and the threat of a global recession. “Exporters are facing the burden of high interest rates and slowing international demand, and therefore, we are looking into the proposal of hiking the interest subsidy rates,” mentioned the report, citing a government official.
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In this regard, the central government is analysing the cost to the exchequer if the interest subsidy is increased from three per cent to five per cent for micro, small and medium manufacturers. For manufacturer-exporters and merchant-exporters exporting under 410 tariff lines, the centre is examining a hike from two per cent to three per cent, the report said.
The department of commerce has discussed the proposal with the finance ministry regarding the concerns raised by exporters, it added.
“The department of commerce is calculating the cost of the exercise. We are considering the demand to restore the Interest equalisation rates of five per cent for MSME exporters and three per cent for those dealing in 410 specified tariff lines,” said another government official.
Notably, the monetary policy committee led by the Reserve Bank of India (RBI) on December 7 increased the repo rate by 35 basis points (bps) to 6.25 per cent. It was the fifth raise in FY23 which took the policy rate to its highest since August 2018.
Further, for many MSME exporters, the credit rate has already gone over the double-digit mark and is currently between 11 per cent and 13 per cent, the report added.
“We expect interest rates to go up further in the next few months or so. Therefore, there is an urgent need to restore the interest equalization benefit of five per cent to manufacturer MSMEs and three per cent to all 410 tariff lines as existed prior to October 2021 as cost of credit has crossed the pre-covid level and is impacting exporters. The interest equalization benefits may be extended to all service exporters and all merchant exporters,” said Ajay Sahai, Director General and chief executive officer of the trade promotion organisation, Federation of Indian Export Organisations (FIEO).
The Interest Equalization Scheme, covers primarily sectors in labour intensive sectors such as apparel, toys, auto parts and allows exporters to get access to capital at a reduced cost. Due to the interest rate hikes, exporters are pushing the government to restore the interest equalization benefits.
In the last two years, the government had reduced the interest equalization benefit to three per cent from five per cent for MSME manufacturers as overall interest rates had come down and MSMEs were getting loans at 7-7.5 per cent interest.
On the other hand, the exporters said that MSMEs are being charged nearly 10 per cent interest for loans, which is even higher than the pre-covid level. Expressing concerns over high interest rates, exporters said that the interest burden is only expected to rise.
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Meanwhile, the government has allotted Rs 2,621 crore for the Interest Equalization Scheme for FY23 budget as compared to Rs 3,151 crore for FY22 in the revised budget. In March, the central bank extended the interest equalisation scheme for pre and post shipment rupee credit for MSME exporters till March 2024.
The Geneva-based multilateral trade body, the World Trade Organization (WTO) has projected that the global trade would grow by only one per cent in 2023, down sharply from the earlier forecast of 3.4 per cent amid global uncertainty.