The government will soon unveil a revamped interest subvention scheme for exporters, under which it may extend a 3% interest subsidy to micro, small, and medium enterprises (MSMEs), instead of all exporters, sources told FE. 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 Cabinet will soon take up the proposal to provide interest subvention to MSME exporters,” an official said. 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. Working capital and fresh investments by the MSMEs in these sectors will be enabled by the interest subvention.
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).
The interest equalisation scheme has been credited with enhancing export volumes by reducing effective bank interest rates to 5-7% from 9-12%. It ended in December 2024.
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 asay 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 2482 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.
“It has been suggested that the interest subvention may be provided to only MSME exporters in the revamped scheme,” an official said.
Since large exporters usually have cash balances and have bargaining power with their buyers, it was felt by many departments participating in the consultation. It is MSMEs who may have some challenges in the current headwinds due to higher US tariffs.
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%.
While the MSME exporters may get a relief, the revamped scheme will leave other exporters disappointed. Export organisations led by Federation of Indian Export Organisations (FIEO) have been seeking the interest subsidy of 5% for all exporters since 50% tariffs by the US came into force late August.
It is not clear whether the interest subvention scheme would be announced as part of the Export Promotion Mission (EPM), which is also in final stages of preparation.
The EPM was announced in the budget with an outlay of Rs 2,250 crore. Schemes like Lab Grown Diamonds (LGD) and Market Access Initiative (MAI) have been subsumed in the EPM.
Another objective of the EPM is to lower the cost of credit to exporters. This is likely to be attempted through other means like deepening the factoring market and use of other innovative financial products.