Calling for extension of Interest Equalisation Scheme (IES) for pre- and post- shipment export credit for another five years, the commerce and industry ministry has sought to retain the subsidy at the levels that existed before its expiry in June this year.
“At a time we ask for a five year extension. Last time too the scheme ran for five years. The rates of subsidy will be the same as they were in the previous scheme,” a senior official said.
Till June the interest equalisation scheme provided upfront reduction in interest rates on per-shipment and post shipment export credit by banks. The exporters from Micro Small and Medium Enterprises exporters got a rebate of 3% on loans under the scheme. The merchant exporters who source goods for exports from other manufacturers and others use to get 2% benefit for exports of 410 identified products. The discount given by banks is reimbursed by the government.
When the scheme expired in June, it was extended for two months but only for MSME exporters with an allocation of Rs 750 crore. The exporters have demanded that the scheme be extended to other sectors covered by it in its earlier form. They also want the subsidy amount to be raised to 5% for MSMEs and 3% for merchant exporters.
“The approval for the extension of the scheme will take some time. It is yet to be considered by the Expenditure Finance Committee,” the official said.
The EFC is an appraisal body in the Ministry of Finance that considers proposals. The EFC is one of several appraisal bodies that recommend proposals to the Cabinet or Cabinet Committees.
The scheme was initially launched on April 1, 2015 for a five-year period till March 2020. Due to COVID it got a one-year extension in 2020. Later more extensions were accorded and the latest one is to end on June 30.
When the scheme was launched it offered a rebate of 5% to MSME exporters and 3 % manufacturers and merchant exporters and they were reduced to the current levels in October 2021. The exporters have requested for restoration of the earlier interest equalisation citing increase in interest rates.
The exporters say that repo rates have gone up from 4% in October 2021 to 6.50% in February, 2023. They say higher interest rates are a major disadvantage for them as they have to compete with suppliers in other countries who pay 2-3% on loans. Higher subsidy will offset some of the disadvantages they face.
The scheme costs the government around Rs 3200 crore a year. In 2023-24, Rs 3700 crore were spent on the scheme. Around Rs 1700 crore has been provided for the scheme in the budget for 2024-25.
“The allocation for the scheme in the budget is for the current liabilities. For extension of the scheme additional allocation will be required,” the official added.
From: financialexpress
Financial News
