DGFT plans to extend the lapsed interest equalisation scheme for all exporters to boost competitiveness.
The popular interest equalisation scheme for exporters, which lapsed last month for all beneficiaries except the MSME sector, may be extended for all. The Directorate General of Foreign Trade (DGFT), under the Commerce Department, is moving a proposal to retain the scheme in its earlier form and will soon present it to the Expenditure Finance Committee (EFC) for approval, according to official sources.
“Once the EFC agrees to the proposal of retaining the interest equalisation scheme for all beneficiaries and decides on the time period for which the scheme should be extended, it will be sent to the Union Cabinet for clearance,” an official said.
First implemented in April 2015 for five years, the scheme allows exporters of 410 identified products and all MSME sector exporters access to bank credit at a subsidised interest rate. The government then reimburses the banks for their lower interest earnings. After the initial five years, it was extended several times for shorter periods. The last extension lapsed on June 30, 2024, followed by a two-month extension for the MSME sector.
“The two-month extension for the MSME sector was to give the Commerce & Industry Ministry time to formulate a fresh proposal for its extension and get the relevant clearance. MSME exporters are the most vulnerable, so they needed protection. Hopefully, the EFC will agree to extend the scheme with retrospective effect for all exporters from July 1, 2024,” the official added.
The DGFT has proposed that the scheme should be extended, providing an interest equalisation benefit at the rate of 2 percent on pre- and post-shipment rupee export credit to merchant and manufacturer exporters of the 410 identified tariff lines and 3 percent to all MSME manufacturer exporters.
“Export bodies had made a case for higher subvention rates, but the Commerce Department is proposing an extension of the scheme at the rates that were in place when the scheme lapsed on June 30, 2024,” the official said.
The EFC, chaired by the Revenue Secretary, will clear the scheme if the Finance Ministry is on board. The Finance Ministry wants to ensure that the scheme has been effective in increasing exports, but a definite co-relationship is difficult to prove, the official noted.
“The logic that the Commerce & Industry Ministry is pushing is that if peer countries, like East Asian countries and developed nations, have lower interest rates, then we are making our exporters uncompetitive because of our own policies. Our monetary policy is affecting them. So, the idea is to bring interest rates at par or at least lower them a little so that the country’s exporters become more competitive,” the official explained.
