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Interest equalisation scheme for exporters likely to be extended

Amiti Sen New Delhi | Updated on February 11, 2021

Mending needed Policymakers must redesign the Interest Equalisation Scheme to make it more effective S.SIVA SARAVANAN

₹1,900-crore budgetary provisionleads to hope among exporters

The government is likely to extend the interest equalisation scheme for exporters, which is to lapse on March 31, 2021, by at least another year, to help them deal better with the disruptions caused by the Covid-19 pandemic.

“The interest equalisation scheme was announced for a period of five years in the Foreign Trade Policy (2015-20). Its validity was extended by a year last fiscal as the government deferred the announcement of a new five-year Foreign Trade Policy due to the pandemic. It is likely that the government would extend the scheme at least by a year as exporters need continued support to get back to their feet,” an industry source said.

Exporters are also drawing encouragement from the fact that the Union Budget has made a provision of ₹1,900 crore for the interest equalisation scheme for 2021-22, which indicates that the government plans to extend it at least by another year.

“Although the final word on the extension of the scheme will come only when the RBI issues the relevant notification, there are indications that this will happen and the existing rates of reimbursement would continue,” the source added.

Exporters get a subsidy on interest provided on pre- and post-shipment export credit ranging between 3 per cent and 5 per cent. The banks provide credit at the lower interest rate to exporters and are later reimbursed by the government. While the scheme is available to MSME exporters of all items, other exporters get it for 416 identified products.

To be part of FTP policy?

There is, however, no clarity yet on whether the scheme would be woven into the new FTP policy, to be announced on April 1, 2021, and made available for the next five years.

“Some experts are of the view that the interest equalisation scheme could be challenged at the WTO as it may also qualify as an export subsidy. Although India could defend it at the forum, it hasn’t come to that yet since it is not among the schemes that the WTO panel has already ruled against. There is certainly a window available to extend it for some time. But whether the government would want to extend it for five years is to be seen,” the source said.

The Commerce and Industry Ministry has already done away with the popular Merchandise Export from India Scheme (MEIS) as a WTO panel had ruled that it was not in sync with multilateral trade rules. There is, however, a possibility that the Export Promotion Capital Goods scheme, also ruled as WTO incompatible, may continue for a while, an official had earlier said.

With Indian exports taking a beating this fiscal due to the pandemic, the government is looking at all options for support despite the fiscal constraint. During April-January 2020-21, exports were down 13.66 per cent at $228.04 billion compared with the same period last fiscal. However, in January 2021, exports posted a growth of 5.37 per cent, raising hopes amongst exporters of better performance in the months to come.

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Published on February 11, 2021
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