The exporters have pitched for an increase in interest subvention on loans under the Interest Equalisation Scheme (IES) as their costs have gone up post Red Sea crisis and they continue to face tepid demand in key markets.
The scheme will expire on June 30 and the Commerce Ministry is expected to seek its extension for a further period of five years. The interest equalisation scheme provides upfront reduction in interest rates on per-shipment and post shipment credit by banks. The exporters from Micro Small and Medium Enterprises (MSMEs) get a rebate of 3% on loans under the scheme. The merchant exporters who source goods for exports from other manufacturers and others get 2% benefit for exports of 410 identified products. The discount given by banks on loans to exporters is reimbursed by the government.
The Federation of Indian Export Organisations (FIEO) has asked for an increase in interest rebate for MSME manufacturer exporters to 5% and for others to 3%. These rates existed in the past when the scheme was first introduced in April 2015 for five years. The subsidy was reduced in October 2021.
“The relevance of the Interest Equalisation Scheme is much more today as buyers are asking for longer periods of credit due to slowdown in demand and offtake from the the shelves. Exporters are also looking for larger credit due to increase in costs, especially of sea and air freight post the Red Sea crisis,” president of FIEO Ashwani Kumar said.
“Interest costs in India are much higher than in our competitors’ countries. The bank rate in India is 6.5% whereas the bank rate in many of our Asian economies is around 3.5%. With a higher spread, the credit cost in India is generally over 5-6% as compared to such countries,” he added.
When rates under IES were reduced in October 2021 the Repo Rate was 4% and by February 2023 it had touched 6.5%.
The scheme costs the government around Rs 3200 crore a year. In 2023-24 Rs 3700 crore were spent on the scheme. Around Rs 1700 crore has been provided in the interim budget for 2024-25.