To promote India’s outbound shipments amid challenging global economic conditions, the government has extended the Interest Equalisation Scheme on Pre- and Post-shipment Rupee Export Credit for another three months, up to December 31, 2024. The scheme, which ended on September 30, 2024, provides crucial interest subsidies to exporters, helping them access credit at competitive rates.

In a trade notice, the Directorate General of Foreign Trade (DGFT) announced the extension, stating:

“Trade and Industry is now informed that the Interest Equalisation Scheme for Pre and Post shipment Rupee Export Credit, which had earlier been extended till September 30, 2024, has been further extended by three months up to December 31, 2024.”

MSME Fiscal Benefits Capped at Rs 50 Lakh

A key update to the scheme is the Rs 50 lakh cap on fiscal benefits for MSME manufacturers for the fiscal year 2024-25, applicable until December 2024. The DGFT notice clarified that MSME manufacturers who have already claimed equalisation benefits amounting to Rs 50 lakh or more by September 30, 2024, will not be eligible for further benefits during the extended period.

“This extension shall be valid for three months or until a revised approval is received before the lapse of the extension,” the DGFT added. This revision limits the financial support MSMEs can avail during this crucial period of trade turbulence.

Additional Fund Allocation of Rs 2,500 Crore

The scheme, which has been in place since April 1, 2015, and was initially valid for five years, continues to receive strong financial backing from the government. On December 8, 2023, the Union Cabinet approved an additional allocation of Rs 2,500 crore, on top of the Rs 9,538 crore already budgeted, to extend the scheme till June 30, 2024.

This extra fund allocation ensures the continuation of the scheme, which is critical as exporters face global economic headwinds. Exporters from identified sectors and MSMEs benefit from subsidies on rupee export credit for pre- and post-shipment.

Impact on India’s Export Sector

The extension comes at a time when India’s export sector is grappling with a sharp decline in shipments. In August 2024, the country recorded its steepest export drop in 13 months, with exports falling by 9.3% to USD 34.71 billion, largely due to global economic uncertainties. Meanwhile, the trade deficit soared to a 10-month high of USD 29.65 billion.

Between April and August 2024, India’s exports saw a modest growth of 1.14%, reaching USD 178.68 billion, while imports increased by 7% to USD 295.32 billion.

Industry Feedback: Call for Long-Term Extension

The Federation of Indian Export Organisations (FIEO), led by Director General Ajay Sahai, welcomed the extension but urged the government to consider a long-term extension of the scheme. The FIEO has specifically requested that the scheme cover all exporters in employment-intensive sectors. Additionally, they’ve raised concerns over the Rs 50 lakh cap, suggesting that this limitation may severely impact MSME exporters who are already navigating turbulent market conditions.

Sahai stated that MSMEs are facing one of the most challenging periods due to global trade headwinds and further constraints on fiscal support could hinder their competitiveness.

Scheme’s Role in Supporting Exporters

The Interest Equalisation Scheme has played a pivotal role in supporting Indian exporters by providing them with access to competitive interest rates on rupee export credit. This is particularly important for MSME manufacturer exporters, who often struggle to secure affordable credit in a competitive international market.

The government’s continuous support through the scheme, despite the economic challenges posed by global uncertainties, is aimed at bolstering India’s export sector and helping businesses navigate difficult trade conditions.

Conclusion

With the recent three-month extension of the Interest Equalisation Scheme, the government reiterates its commitment to supporting exporters during turbulent times. However, the cap on fiscal benefits may present new challenges for MSMEs, prompting industry leaders to call for a more inclusive, long-term approach to ensure sustained growth in the sector.

As global economic conditions continue to fluctuate, this scheme provides a lifeline to Indian exporters, allowing them to access critical financial resources at subsidized rates, helping them remain competitive in the international market. The additional Rs 2,500 crore fund allocation further highlights the importance of export-driven growth in India’s broader economic strategy.