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Exporters to make fresh plea to Centre to raise interest subsidy rates

Exporters are planning to make fresh representations to the Commerce and Finance Ministries seeking higher subsidy rates under the interest equalisation scheme (IES) for identified sectors to keep pace with the increase in interest rates on credit over the last year.

While the government’s recent decision to extend the (IES) for identified sectors till June 2024 and earmark more funds for it has come as a relief to most as it could lead to more stability in the present “uncertain” times, there is disappointment that the subsidy rates have not been raised. “The extension of the IES has provided a stable ecosystem for exports to help exporters to take a long-term position and provide the most competitive prices for exports factoring the benefits under IES. However, looking into the hike in interest rates in last one year or so, crossing the pre-Covid level , we urge the government to hike the subventions to take it to 5 per cent for manufacturer MSMEs and 3 per cent for others,” said Ajay Sahai, Director General, Federation of Indian Export Organisations (FIEO).

FIEO plans to soon approach the Finance Ministry and the Commerce & Industry Ministry making a fresh case for an increase in subvention rates, Sahai said.

Under the IES, first implemented in April 2015, exporters are extended credit by banks at a reduced rate (the rate of interest subsidy is determined by the government). The banks are later reimbursed by the government for their lower interest earnings. 

Additional allocation

Last week, the Union Cabinet approved an additional allocation of ₹2,500 crore for continuation of IES till June 30, 2024. The scheme would continue for all the targetted beneficiaries which include merchant exporters of the identified 410 tariff lines and all manufacturer exporters from MSME sectors. The rates of subsidy were, however, unchanged at 3 per cent for MSME sectors and 2 per cent for the rest.

Given the global headwinds faced by the export sector, exporters from various sectors have been demanding a higher subsidy rate.  “Considering the tough time the exporting community faces, it has to be ensured that trade finance is available at a competitive rate. We have been urging the government to restore the interest equalisation rate back to 5 per cent from the current 3 per cent (for MSMEs),” pointed out EEPC India head Arun Garodia in a recent statement.

The RBI has raised the repo rate by 250 basis points since May 2022 mainly to keep inflation in check. Earlier this month, the RBI Monetary Policy Committee decided to keep the repo rate unchanged at 6.5 per cent the fifth time in a row.

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