The government may offer 2-3.5% interest subvention to micro, small, and medium enterprises (MSMEs) exporters in a targetted manner, under a revamped interest subvention scheme in the works. The support levels will vary across sectors, depending on the needs of each being assessed.
After the 50% additional tariff in the US, many labour-intensive, MSME-populated sectors have been facing relative tariff disadvantages of around 30% in shipments to the country. In a recent meeting wih the prime ministers, these exporters have said they could manage a 15% disadvantage by their own business reorientation, pricing powers and cost reduction but will require government succuor for addressing the balance 15%.
In this background, the government may soon unveil a revamped interest subvention scheme, specifically for MSME exporters, instead of all exporters, the sources said.
This will be a key element of the support package for exporters in the wake of hefty tariffs on most Indian goods imposed by the US, the largest export market for the country. The ministry of commerce is also working on export diversification to insulate the exporters from tariff-related headwinds.
The scheme may run for the next five years. Labour-intensive and MSME-dominated sectors like textiles and garments, gems and jewellery, handicrafts, leather, footwear, furniture and toys are among the worst hit by the US tariffs.
The earlier version of the Interest Equalisation Scheme (IES), referred to as an interest subvention scheme, provided a 3% interest subsidy to all exporters, including MSMEs. The subsidised interest rates on pre- and post-shipment rupee export credit for exporters were initially launched on April 1, 2015, for an initial five-year period. It has been extended multiple times with benefits capped at Rs 50 lakh per exporter per Import Export Code (IEC). It ended in December 2024.
The interest equalisation scheme has helped to some extent enhance export volumes by reducing effective bank interest rates to 5-7% from 9-12%. The credit costs of Indian exporters range between 8-12% while the export credit in countries they are competing with is priced at 2-3%. Exporters say the scheme is needed urgently again to bridge the gap in cost of funds.
When the scheme covered almost all exporters it used to cost around Rs 3,700 crore a year. In 2023-24, Rs 3,699 crore were spent on the scheme which came down to Rs 2,482 crore in 2024-25 as the scheme ran only for three quarters that year.
Recently, inter-ministerial consultations were held on the extension of the scheme as part of the export promotion mission announced in the budget for FY26.
Officials said the government’s focus is on making the scheme more robust for labour-intensive and MSME sectors facing US tariffs up to 50%.
