The popular interest equalisation scheme for exporters, that lapsed last month-end for all beneficiaries except for the MSME sector, may get extended for all. The Directorate General of Foreign Trade, under the Commerce Department, is moving a proposal to retain the scheme in its earlier form and will soon present it to the Expenditure Finance Committee (EFC) for its approval, official sources have said.

“Once the EFC agrees to the proposal of retaining the interest equalisation scheme for all beneficiaries and decides on the time period for which the scheme should be extended, it will be sent to the Union Cabinet for clearance,” an official told businessline.

Extension of the scheme

The interest equalisation scheme, first implemented in April 2015 for five years, allows exporters of 410 identified products and all exporters from the MSME sector, access to bank credit at a subsidised interest rate determined by the government. The government then reimburses the banks for their lower interest earnings. 

After the initial five years of the scheme, it was extended several times for smaller period of time. The last extension lapsed on June 30, 2024, following which it was extended for two more months just for the MSME sector.

“The two-month extension of the scheme for the MSME sector was to give breathing time to the Commerce & Industry Ministry to formulate a fresh proposal for its extension and get the relevant clearance. MSME exporters are the most vulnerable, so they needed protection. Hopefully, the EFC will agree to extend the scheme with retrospective effect for all exporters from July 1, 2024,” the official said.

Boost competitiveness

The DGFT has proposed that the scheme should be extended as it was providing an interest equalisation benefit at the rate of 2 per cent on pre and post shipment rupee export credit to merchant and manufacturer exporters of the 410 identified tariff lines and 3 per cent to all MSME manufacturer exporters.

“Export bodies had made a case for higher subvention rates but the Commerce Department is proposing extension of the scheme at the rates that were in place when the scheme lapsed on June 30, 2024,” the official said.

The EFC is chaired by the Revenue Secretary so the scheme will get clearance if the Finance Ministry is on board. The Finance Ministry wants it to be firmly established that the scheme has been delivering results in terms of increasing exports, but a definite co-relationship is difficult to prove, the official said.

“The logic that the Commerce & Industry Ministry is pushing is that if peer countries, like East Asian countries and developed nations, have lower interest rate, then we are making our exporters uncompetitive because of our own policies. Our monetary policy is affecting them. So, the idea is to bring interest rates at par or at least lower them a little so that the country’s exporters become more export competitive,” the official explained.

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