A delay in the government’s decision on extending the interest equalisation scheme on rupee-export credit for exporters, which expires on December 31, 2024, has turned exporters jittery. Uncertainty over whether they will continue to have access to subsidised credit has affected their ability to take an informed position on export contracts, they said.

The Commerce Department made a strong pitch before the Finance Ministry for the continuation of the scheme, at present available to only MSME units, but there is no assurance yet on whether it would be continued beyond Tuesday and in what form, an official tracking the matter told businessline.

“Revamping the scheme to more effectively benefit labour intensive sectors and MSMEs, as suggested by the FinMin, is possible only to a limited extent as there are not too many variables in the scheme”, the official said.

Advance planning

Exporters, who have been steadily making a case for continuation of the interest equalisation scheme under which eligible exporters are extended credit by banks at a subsidised rate, are exasperated by the piecemeal extension of the scheme after the initial five years of implementation and the suspense over its extension.

“Exporters need to do advance planning. If we don’t know whether the scheme will continue well in time before it expires, it affects important decisions including pricing and we find it difficult to take a position on contracts,” a Delhi-based exporter said.

The interest equalisation scheme, first implemented in April 2015 for five years, included exporters of about 410 identified products and all exporters from the MSME sector. Eligible exporters were offered export credit by banks at a subsidy of 3 per cent and the banks were later compensated for it.

The MSMEs later were offered a higher subsidy rate of 5 per cent, but the interest equalisation rate was subsequently lowered to 2 per cent for non-MSME exporters and 3 per cent for MSME exporters.

After 2020, the Interest equalisation scheme has been extended several times for smaller periods. In August 2024, the fund-limited scheme was extended only for MSME manufacturer exporters till September 30 2024 following which it was given another three months extension till December 31 2024. The fiscal benefits of each MSME, on aggregate, are restricted to ₹50 lakh for 2024-25 till December 2024.

Exporters’ body FIEO had a meeting with the Finance Minister to point out the usefulness of the scheme especially with high global competition. “The cost of credit in India, as compared to competing countries, is close to 4-5 per cent higher. Where exporters are already operating on wafer thin margins, interest equalisation plays a very important role in ensuring that they stay in business,” an official from FIEO said. 

“We have requested not only for continuation of the interest equalisation scheme but also for enhancement of the interest equalisation rate to 5 per cent to offset high cost of capital,” according to Sudhir Sekhri, Chairman, Apparel Export Promotion Council.