Exporters want more interest rate relief
Since their expenses have increased since the Red Sea crisis and because of the continued lackluster demand in important countries, exporters have asked for a rise in interest subvention on loans under the Interest Equalization Scheme (IES).
The Commerce Ministry is anticipated to request an extension of the program for a further five years when it expires on June 30. Bank interest rates for pre-shipment and post-shipment loans are lowered upfront under the interest equalization plan. Under the program, exporters who are Micro, Small, and Medium-Sized Enterprises (MSMEs) get a 3% loan refund. For exports of 410 designated items, merchant exporters who purchase goods from other manufacturers and others get a 2% incentive. The government reimburses banks for the discount they grant on loans to exporters.
An increase in the interest refund to 5% for MSME manufacturer exporters and 3% for other exporters has been requested by the Federation of Indian Export Organizations (FIEO). These tariffs were in place throughout the scheme’s first five-year rollout in April 2015. October 2021 saw a reduction in the subsidies.
Due to a downturn in demand and offtake from the shelves, consumers are now requesting longer loan terms, making the Interest Equalization Scheme even more relevant. Since prices have increased, particularly for air and sea freight since the Red Sea crisis, exporters are also seeking for greater financing, according to FIEO President Ashwani Kumar.
“India’s interest rates are much higher than those of our rivals. While the bank rate in many of our Asian markets is around 3.5%, it is 6.5% in India. In comparison to these nations, the loan cost in India is often more than 5-6% due to a larger margin,” he said.
The Repo Rate was 4% when IES rates were lowered in October 2021, and by February 2023, it had increased to 6.5%.
The government pays over Rs 3200 crore for the programme annually. The program cost Rs 3700 crore in 2023–2024. An approximate of Rs 1700 crore has been allocated in the 2024–25 interim budget.
