Exporters in India are planning to approach the Commerce and Finance Ministries to request higher subsidy rates under the interest equalization scheme (IES) for identified sectors. The move aims to help exporters cope with the surge in interest rates on credit over the past year. While the recent extension of the IES till June 2024 and the allocation of additional funds have brought some relief during uncertain times, exporters are disappointed that the subsidy rates remain unchanged.
Ajay Sahai, Director General of the Federation of Indian Export Organisations (FIEO), emphasized higher subvention rates. Sahai called for a rate of 5% for manufacturer MSMEs and 3% for others. FIEO plans to present its case to the Finance Ministry and the Commerce & Industry Ministry shortly.
The IES, first introduced in April 2015, gives exporters credit from banks at reduced rates. The government determines the rate of interest subsidy, which banks are later reimbursed for by the government. Last week, the Union Cabinet approved an additional allocation of ₹2,500 crore to extend the IES until June 2024, but subsidy rates remained at 3% for MSME sectors and 2% for others.
Facing challenging global headwinds, exporters have long advocated for higher subsidy rates. Arun Garodia, head of EEPC India, highlighted the need to ensure competitive trade finance rates in light of the current circumstances. The Reserve Bank of India (RBI) has raised the repo rate by 250 basis points since May 2022 to curb inflation. In its latest decision, the RBI Monetary Policy Committee maintained the repo rate at 6.5% for the fifth consecutive time.
The exporters’ plea for higher subsidy rates reflects their desire to maintain competitiveness and sustain growth amid rising interest rates.
