The Government recently announced an extension of the Interest Equalisation Scheme for pre and post-shipment rupee export credit until June 30, 2024. According to a notification by the Reserve Bank of India, this extension provides crucial support to various categories of exporters. Specifically, Manufacturers and Merchant Exporters dealing with specified 410 HS lines will benefit from a 2 per cent interest equalisation rate. Furthermore, MSME manufacturers exporting under any HS line will receive a higher rate of 3 per cent. Consequently, these measures aim to enhance the competitiveness of Indian products in the global market.
Historical Context and Timeline of the Programme
The Government originally inaugurated the Interest Equalisation Scheme on April 1, 2015. Initially, the authorities slated the programme for a five-year duration until March 31, 2020. However, the scheme has since received multiple extensions to ensure continued support for the trade sector. For instance, the Government provided a one-year extension during the Covid-19 pandemic. In addition to these timeline shifts, the programme has seen multiple fund allocations to meet the evolving needs of the export industry.
New Lending Restrictions for Financial Institutions
Starting from the financial year 2023-24, specific restrictions apply to how banks price loans under the programme. Specifically, banks that price loans at an average interest rate higher than the Repo rate plus 4 per cent will face penalties. Because the Government aims to keep export credit affordable, these restrictions prevent financial institutions from overcharging beneficiaries. Therefore, banks must ensure their pricing aligns with these new regulatory benchmarks to remain compliant.
Cap on Annual Net Subvention for Exporters
The Government recently introduced another important modification involving a cap on the annual net subvention amount. Specifically, the annual net subvention amount now has a limit of Rs 10 crore per Importer-Exporter Code (IEC) in a given financial year. This cap applies to all disbursements made from April 1, 2023, onwards. Consequently, this measure ensures a more equitable distribution of funds across the exporting community.
Implementing the Interest Equalisation Scheme Modifications
These modifications represent a strategic shift towards a more regulated and sustainable support framework. By imposing limits on both bank interest rates and individual subvention amounts, the Government protects the fiscal health of the programme. Furthermore, the extension until June 30, 2024, provides exporters with the necessary stability to plan their international trade activities. Overall, the Interest Equalisation Scheme continues to serve as a vital lifeline for small and large-scale exporters across India.
Courtesy: business-standard.com
