The Finance Ministry may consider extending the popular interest equalisation scheme on pre- and post-shipment rupee export credit beyond the year-end if the Commerce Department suitably revamps it. It has to be “more convincingly” established that the scheme is serving the objective of promotion of exports of labour-intensive items and actually benefitting MSMEs, sources have said.
“The Directorate General of Foreign Trade is looking at ways to tweak and revamp the scheme to make the interest equalisation scheme more acceptable to the Finance Ministry in terms of its usefulness,” a source tracking the matter told businessline.
The scheme, first implemented in April 2015 for five years, allowed exporters of around 410 identified items and all MSMEs access to bank credit at a subsidised interest rate. The banks are reimbursed for their lower interest earnings by the government.
After 2020, the interest equalisation scheme has been extended several times for smaller periods. In August 2024, the fund-limited scheme was extended only for MSME manufacturer exporters till September 30, 2024 following which it was given another three months extension till December 31, 2024. The fiscal benefits of each MSME, on aggregate, will be restricted to ₹50 lakh for 2024-25 till December 2024.
“The Finance Ministry wants the Commerce Department to go with a revamped scheme which puts forth more convincingly that due diligence regarding labour intensiveness has been done, the benefit is being passed on properly to MSMEs and it is serving the objective that was outlined for the scheme,’ the source said.
No major scope
The scope of revamping the scheme is not too wide, the source pointed out. “The variables include the kind of products it will cover and the rates. These are actually the only major ones. The scope of revamping is less. But since the Finance Ministry has said that it wants a revamp, it has to be done and we will go back with something that will hopefully be satisfactory,” the source added.
The Finance Ministry seems to be under the impression for long that the interest equalisation scheme is only putting some extra money into the hands of some exporters and is not actually helping in promoting exports, a Delhi-based exporter pointed out.
“In today’s competitive global market, exporters are operating with wafer thin margins. The interest subsidy acts as a much needed support that helps Indian exporters retain there competitiveness against exporters from other countries who have access to cheaper finance. If the scheme is withdrawn, many MSME exporters may decide to shut down operations,” the exporter said.
In April-September 2024-25, India’s goods exports grew by 1 per cent to $213.22 billion, while imports increased by 6.16 per cent to $350.66 billion.