The additional 2,500 crore requested by the commerce ministry is intended to pay off arrears associated with its interest rate equalisation programme, which seeks to reduce exporters’ stress by making up a portion of the interest they pay on loans. The action attempts to lessen the difficulties that small exporters encounter as a result of increased borrowing rates and declining exports.
Exporters said that the majority of MSMEs’ borrowing rates have already surpassed the double-digit threshold.
“We requested an additional 2,500 crore from the finance ministry since we ran out of money for the interest equalisation scheme. Finance has approved the plan, but the cabinet will make the final decision, a government official said on the condition of anonymity.
Queries Messages sent to the ministries of business, industry, and finance went unanswered.
If the cabinet approves the additional requirement of 2,500 crore for the scheme in FY23, the government will spend a record-breaking 4,876 crore, nearly twice the amount allocated for the year. The government increased the amount allotted in FY23 ($2,376 crore) by roughly one-fourth to ($2,932 crore) in FY24 for the interest equalisation plan.
Before deciding to take a break in April, the Reserve Bank of India (RBI) had increased its key policy rates six times in a row to combat inflation. Since May 2022, the central bank has increased the repo rate by a total of 250 basis points (bps), bringing it to 6.5%.
The budget set aside for interest equalisation programme was already drastically hiked to 2,376 crore from 1,900 crore in FY22 and 1,600 crore in FY21 as the conflict in the Ukraine and the avian influenza epidemic forced central banks worldwide to raise borrowing costs to halt record-high inflation.
In April, India’s exports of goods decreased by the most in three years as a result of weaker global demand and falling commodity prices. From $39.70 billion in April of last year, exports fell by over 13% to $34.66 billion in April of this year. Additionally, from $58.06 billion a year earlier to $49.90 billion in the month, product imports decreased by 14%.
FISME’s Animesh Saxena explained the advantage of the interest equalisation system by stating that exporters receive a rebate on interest rates under the scheme.
If there is a Some banks will charge 8% of whatever I have borrowed and every three months, they will give me the 3% back. For example, if I borrow a bank’s working capital limit and the bank charges me 8% and the subsidy is 3%. After compensating for the subsidies, some banks only charge 5% up front,” Saxena said.
He continued by saying that the programme is essential for exporters because borrowing rates abroad are around 4-5%.
“Indian companies’ products were getting more expensive while they were borrowing at 8–9%. Therefore, to provide them with some respite, the government introduced this programme so that Indian exporters would not experience unusually high pricing, he continued.
Saxena claimed that this programme aids exporters in maintaining their competitiveness despite the need for more funding, but the demand scenario For India’s exports to increase at a healthy rate, conditions must improve.
With the exception of four nations, exports to all top main destinations fell in April of this year compared to April of last, by 4% to 43%.
Outbound shipments to the Netherlands, UK, Saudi Arabia, and Italy increased by 23%, 20.7%, 8.38%, and 3.59%, respectively, all fueled by exports of petroleum products.
While this was going on, the overall exports of petro-products decreased by 1.38% due to a dramatic drop in crude oil prices. Exports in this sector totaled $6.48 billion in April 2018 against $7.86 billion in April 2022.
