To help Indian exporters retain competitiveness amidst growing global uncertainties and rising costs, the Centre is considering raising the rates of the interest equalisation scheme so that credit is available at a cheaper interest rate to MSME exporters and other select sectors.
“The Commerce and Industry Ministry is considering increasing interest equalisation rates from existing 3 per cent for MSME manufacturers exporting any product and 2 per cent for others exporting 410 identified products to 5 per cent and 3 per cent, respectively. The additional expenditure will need to be calculated before seeking the nod of the Expenditure Finance Committee and a team is working on it,” an official tracking the matter told businessline.
Lower interest rate
Under the interest equalisation scheme, banks provide credit at a lower interest rate to exporters (the interest subsidy is equivalent to the equalisation rates determined by the government) and are later reimbursed by the government for the same.
In March this year, the RBI brought out a notification stating that the government had approved the extension of interest equalisation scheme for pre and post shipment rupee export credit, taking effect from October 1, 2021 up to March 31, 2024.
The rates under the interest equalisation scheme were, however, revised downwards to 3 per cent for MSMEs from 5 per cent offered under the earlier edition of the scheme that had lapsed. For non-MSME exporters, the list of labour-intensive items covered under the interest equalisation scheme was pruned to 410 items from the earlier list of 416 items and the rate was brought down to 2 per cent from the earlier 3 per cent. The excluded items were all telecom-related products.
“There has been a strong demand from exporters for restoration of the interest equalisation rates to the levels that were offered prior to when the government decided to pare the rates. They have been arguing that not only has the global demand position worsened leading to increased competition, but also the higher cost of borrowing was making the situation grimmer for them,” the source said.
This fiscal, the RBI has already increased repo rate four times in a row in an attempt to check inflation. The last increase was on September 30 when the repo rate was pushed up by 50 basis points to 5.9 per cent with immediate effect. Since May this year, the benchmark rate has been increased by 1.90 per cent.
While Indian exports have shown marginal increase since July this year, the world trade outlook, too, appears to be grim. The WTO has forecast a slowdown in growth in world trade to 1 per cent in 2023, down from the previous estimate of 3.4 per cent, due to global uncertainties.