FIEO seeks 5-year extension of interest subvention scheme

“If there is no interest equalisation scheme, then we will lose some markets and some orders,” FIEO Director General Ajay Sahai told reporters, according to a PTI report. The scheme was extended last month by DGFT till September 30 for MSME manufacturing exporters.

Started in April 2015 and initially valid for five years till March 2020, the scheme provides an interest equalisation benefit at the rate of 2 per cent on pre and post-shipment rupee export credit to merchant and manufacturer exporters of the identified 410 tariff lines and 3 per cent to all MSME manufacturer exporters. Moreover, last week DGFT had imposed an interest subvention cap of Rs 5 crore per IEC (import-export code) for MSME manufacturers till September 30, 2024, for the current fiscal. DGFT also clarified that the cap was Rs 2.5 crore for manufacturer exporters and merchant exporters till June 30, 2024.

In December last year, the Union Cabinet had approved an additional allocation of Rs 2,500 crore for the continuation of the scheme till June 30, 2024. 

Importantly, according to FIEO, the export credit growth is struggling to keep pace with the country’s rising exports. In a separate statement on partnering with the UK-based export finance company Stenn for its expansion in India, FIEO said between March 2022 and March 2024, there has been a decline in export credit even as the need for longer-duration credit has increased. 

This is due to rising commodity prices, sharp spikes in sea and air freight costs, and the Red Sea crisis, which has extended voyage times and delayed payments.

Moreover, since the current geopolitical developments, along with the ‘China plus one’ strategy of multinational companies, have allowed Indian exporters to secure additional or new export orders from both new and existing buyers, fulfilling these orders requires additional working capital in the form of pre-shipment and post-shipment export credit.  However, due to the credit risk assessment conducted by banks, exporters may struggle to secure the necessary export credit. With sufficient availability of export credit, India’s exports could potentially reach $2 trillion by 2030, FIEO said.