DGFT taps export bodies for inputs on efficacy of interest equalisation scheme

The DGFT has sought information from various export bodies on the trade finance eco system in India and related challenges to assess if the government’s interest equalisation scheme for exporters is yielding results and how trade finance can be improved.

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“The DGFT has been asked by the Finance Ministry to show that the interest equalisation scheme is yielding results. It has asked us for certain details for a study on trade finance it is carrying out. We have already provided those details to the DGFT. Once all export bodies give their submission, a report would be put together,” a representative of a Delhi-based export body told businessline.

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, to get bank credit at a subsidised interest rate determined by the government. The banks are reimbursed by the government for their lower interest earnings.

 The last extension given to the scheme is set to lapse on June 30 2024.

The objective

“The objective of the study being carried out by DGFT is to identify the current challenges faced by the institutions across the entire trade finance supply chain. The study is to help the department to assess the key gaps and make necessary recommendations to ensure seamless facilitation of Trade Finance in India,” per an internal document circulated to its members by an export body.

According to exporters body FIEO, the interest equalisation scheme has served an important purpose as it has provided much-needed competitiveness to Indian exports, particularly to MSMEs, as the interest costs in India is much above that in competitors’ countries. 

“We not only want the interest equalisation scheme to continue, we want the rates to be increased to the previous levels and have communicated as much to the DGFT. The rates were reduced when repo rate was brought down to 4.4 per cent. Again it has increased to 6.5 per cent. That’s why 2 per cent enhancement in subvention should happen,” said Ajay Sahai, DG, FIEO.

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At present, MSMEs are provided a subvention of 3 per cent and the other eligible sectors 2 per cent. As the interest equalisation scheme is valid till June 30, a decision on its extension is likely to be taken by the new government at the Centre.