Exporters in India are actively seeking an extension of the Interest Equalisation Scheme (IES), which provides subsidies on interest rates for pre and post-shipment export credit. The scheme, initially launched in April 2015, aims to enhance the competitiveness of Indian exporters by offering financial support during challenging economic conditions.

Current Status of The Interest Equalisation Scheme

The IES lapsed on December 31, 2024, after a series of extensions that included a notable one during the COVID-19 pandemic. The scheme has been crucial for Micro, Small, and Medium Enterprises (MSMEs), which contribute significantly to India's export economy, accounting for about 45% of total exports. The Federation of Indian Export Organisations (FIEO) has emphasized that the current cap of ₹50 lakh per Import Export Code (IEC) is insufficient for many MSMEs, especially given rising inflation and logistical challenges exacerbated by global events such as the Red Sea crisis.

Demand For Extension

In their pre-Budget consultations with the government, exporters have urged for a five-month extension of the IES in a modified format that specifically benefits MSMEs. This request comes amid concerns from the Finance Ministry that larger exporters have disproportionately benefited from the scheme. The Commerce Ministry is reportedly negotiating with the Finance Ministry to refine the scheme to better serve MSMEs without increasing its overall budget allocation, which currently stands at ₹3,000 crore.

The backdrop for this demand includes a decline in export credit availability between March 2022 and March 2024, despite an increasing need for credit due to longer shipping times and rising costs. Exporters have pointed out that buyers are now seeking longer credit periods—up to 150 days—compared to the previous 30-60 days, which further complicates liquidity challenges.

With Finance Minister Nirmala Sitharaman's budget announcement on February 1, 2025, exporters are hopeful that their requests will be addressed. The FIEO has indicated that extending the IES could significantly aid in securing competitive rates for orders with thin profit margins. As discussions continue between the Commerce and Finance Ministries, stakeholders await clarity on how the IES will evolve to support India's export sector effectively.

PTI