Exporters urge government to extend interest equalisation scheme

Exporters have urged the government to extend the interest equalisation scheme (IES) that is set to expire on June 30, to offer a lifeline to small exporters grappling with high interest rates and faltering exports.

Through the IES, banks provide loans to exporters at reduced interest rates, and the lenders are thereafter compensated by the government. IES was launched close to a decade ago to reduce stress among exporters, particularly in labour-intensive industries as well as micro, small and medium enterprises (MSMEs).

However, before deciding on the extension of the scheme, the government has begun the assessment of how the scheme is helping exports.

In a statement, the apex body for exporters, Federation of Indian Export Organisations (FIEO), on Monday said that the scheme provides competitiveness to Indian exports, particularly to MSMEs, as the interest costs in India are much higher than in other countries.

“The bank rate in India is 6.5 per cent, whereas the bank rate in many of our Asian economies is around 3.5 per cent. With a higher spread, the credit cost in India is generally over 5 to 6 per cent as compared to such countries,” FIEO President Ashwani Kumar said, adding that the scheme is more relevant now since exporters are looking for larger credit due to a huge increase in sea and air freight.

“The interest subvention rates may also be enhanced from 3 per cent to 5 per cent for manufacturers and MSMEs, and from 2 per cent to 3 per cent for 410 tariff lines. When the subvention was reduced, the repo rate was 4.4 per cent. It has currently gone up to 6.5 per cent. This justifies the restoration of the interest subvention to the original level of five per cent and three per cent respectively to provide necessary competitiveness to our exports,” he said.

Right now, the rate of interest equalisation is 2 per cent for some manufacturers and merchant exporters for 410 identified products and three per cent for MSME manufacturers.

A budgetary outlay of Rs 9,538 crore was allocated to the scheme. However, the amount was not enough to cover the scheme until March 31. The government thereafter made an additional outlay of Rs 2,500 crore earlier this year.