Interest subvention scheme to get extension

In a move to boost exports, the government is likely to extend the interest subvention on export-related loans by nine more months to December 31, 2009. An announcement on the extension of this key export sop is likely before the end of February, government sources said.

“The proposal is at the highest level of the government,” the sources said.

If approved, the move will meet some of the key demands of exporters. The exporting community had, in a meeting with the government on January 21, asked for an extension of the export sop as well as a fixed interest rate of 7 per cent on export-related loans. The sop, which was to expire on March 31, 2009, can be availed by exporters from seven broad sectors, including textiles (including handloom), handicrafts, leather, gems and jewellery, carpets, marine products as well as Small and Medium Enterprises (SMEs).

Interest rate subvention on export credit allows an exporter to source cheaper loans for manufacturing goods for overseas clients. This adds to the price competitiveness of Indian goods, which is essential to garner or maintain market share in overseas markets at a time when global demand for goods is dwindling due to the ongoing global economic crisis.

Indian exports have dipped for three consecutive months, ending December 2008. In fact, initial estimates available with the commerce ministry suggest that the sale of Indian goods in overseas markets is set to shrink in January 2009 as well.

At present, the export sop offers 2 per cent interest subvention on export-related credit. This means that exporters can get loans at two percentage points cheaper than the prevailing rate — Prime Lending Rate (PLR) — at which loans are offered. Exporters, however, claim that this is not enough as the prime lending rates are high and they vary from bank to bank.

Government officials say that the PLRs of banks are expected to drop in the coming months, and hence there is no need to provide export-related loans at 7 per cent. “The subvention on interest rate will take care of their needs,” an official said.

The export sop was first offered in mid-2007, as a rapidly appreciating rupee against the dollar shaved off exporters’ earnings. In mid-2008, the scheme was extended to March 31, 2009, but subsequently the benefits were withdrawn from September 2008 as the rupee started depreciating against the greenback.

However, after the global economic crisis lead to a slump in India’s exports, the interest subsidy scheme was reintroduced in the first batch of the stimulus package announced in December 2008.