The government of India approves the extension of the Interest Equalisation Scheme (IES) for pre and post-shipment rupee export credit for three months. The extension will take effect from 1st July 2021 to 30th September 2021. The scheme was effective from 1st April 2015 for five years. However, as part of the relief measures announced during the COVID-19 lockdown, the government has extended the interest equalisation scheme for the interest rate on pre and post-shipment rupee export credit.
The government provides this subsidy to help the exporters facing the increase in the cost of credit due to the slowdown of global demand and extended credit periods. The extension of the interest equalisation scheme for Pre & Post Shipment Rupee Export Credit stays still with the same scope and coverage.
The scheme covers mostly labour-intensive and employment-generating sectors such as handmade carpets (including silk), processed agriculture/food items, handicrafts, coir and coir manufacture, handloom products, cosmetics and toiletries, and auto manufacturing components/parts, etc.
The scheme aims to boost the MSME sector in particular. Under the interest equalisation scheme, the government directly passes on the interest subvention amount to the identified eligible exporters. India’s merchandise exports in May 2021 was US$ 32.21 billion, an increase of 67.39% exports in May 2020.
The interest equalisation scheme offered a 3% rate of equalisation. However, with effect from 2nd November 2018, the equalisation rate was increased to 5%, although the rate remained at 3% for merchant exporters and large manufacturers.
The RBI and respective banks govern this scheme, wherein banks pass on the benefit of reduced interest directly to exporters, based on their eligibility and norms. Then they reimburse the same from the RBI. The exporter has to submit the certification of the external auditor to claim the benefit of the scheme.
The scheme will benefit the exporters by enabling them to improve the competitiveness of their products and correct their pricing.
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