This initiative aims to determine if the scheme is
achieving its intended results and to identify improvements in the trade
finance landscape.
According to a representative from a Delhi-based export
body “The DGFT has been asked by the Finance Ministry to demonstrate that the
interest equalization scheme is producing positive outcomes. We have already
provided the necessary details for a study on trade finance being conducted by
the DGFT. Once all export bodies submit their information, a comprehensive
report will be compiled.”
First introduced in April 2015 for a five-year period,
the interest equalization scheme allows exporters of 410 identified products
and all exporters from the MSME sector to receive bank credit at a subsidized
interest rate set by the government. The government reimburses banks for the
reduced interest earnings. The scheme’s
current extension is set to expire on June 30, 2024.
“The purpose of the DGFT’s study is to identify current challenges faced by
institutions across the entire trade finance supply chain. The study aims
to help the department assess key gaps and make recommendations to ensure
seamless facilitation of trade finance in India,” according to an internal
document circulated to export body members.
The Federation of Indian Export Organizations (FIEO)
highlights that the interest equalization scheme has been crucial in enhancing
the competitiveness of Indian exports, especially for MSMEs, given that
interest rates in India are significantly higher than in competing countries.
Ajay Sahai, Director General of FIEO, emphasized the
scheme’s importance: “We not only want
the interest equalization scheme to continue, but we also want the rates to be
restored to previous levels. We have communicated this to the DGFT. The
rates were reduced when the repo rate was brought down to 4.4 percent. Now, it
has increased to 6.5 percent. Therefore, a 2 percent enhancement in subvention
is necessary.”
Currently, MSMEs receive a subvention of 3 percent,
while other eligible sectors receive 2 percent. With the scheme’s validity ending
on June 30, a decision on its extension is expected to be made by the new
government at the Center.