Interest equalisation scheme provides much needed competitiveness to exports: FIEO

Exporters’ body FIEO has said the interest equalisation scheme provides “much needed” competitiveness to exports. It also made a case for higher subvention rates arguing that interest rate in India was much higher than the rates in competitor countries.

“The interest subvention/equalisation scheme provides much needed competitiveness to our exports, particularly to MSMEs, as the interest cost in India is much above that in our competitor countries. The bank rate in India is 6.5 per cent, whereas the bank rate in many of the other Asian economies is around 3.5 per cent. With a higher spread, the credit cost in India is generally over 5-6 per cent as compared to such countries,” said Ashwani Kumar, President, FIEO, in a statement issued on Monday.

FIEO’s statement is significant in the light of an analysis being carried out by the Commerce Department on the usefulness of the interest equalisation scheme in promotion of exports, per information shared by some officials tracking the matter.

The relevance of the interest equalisation scheme is much more today as buyers are asking for longer period of credit, with a slowdown in demand and off-take from the shelves, whereas exporters are also looking for larger credit due to huge hike in sea and air freight (owing largely to the Red Sea crisis), the statement added. 

The interest equalisation scheme, first implemented in April 2015 for five years, allows exporters of  410 identified products and all exporters from the MSME sector, to get bank credit at a subsidised interest rate determined by the government. The banks are later reimbursed by the government for their lower interest earnings. The scheme has since got a number of extensions and the last one is set to lapse on June 30 2024.

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

COMMENT NOW