Exporters to Receive 3% Interest Subsidy for 5 yrs

Falling exports likely to get a leg-up as CCEA clears Interest Equalisation Scheme on preand postshipment rupee export credit with effect from April 1

India's falling exports got a booster shot on Wednesday with the Cabinet Committee on Economic Affairs (CCEA) approving a scheme to provide cheaper credit to exporters for five years.

Prime Minister Narendra Modi-headed CCEA approved the Interest Equalisation Scheme (earlier called Interest Subvention Scheme) on preand postshipment rupee export credit with effect from April 1, 2015, for five years. The scheme will be evaluated after three years.

This is the third major announcement for exports in the last fortnight. On October 30, the government expanded support to various products under the Merchandise Exports from India Scheme (MEIS), followed by a revision of the duty drawback rates for exporters two days ago.

“The rate of interest equalisation would be 3%. The scheme would be available to all exports of MSME and 416 tariff lines,“ said an official release, adding that “the scheme will help the identified export sectors to be internationally competitive and achieve higher level of export performance“.

The scheme covers labour intensive and employment generating sectors like auto components, processed agriculturefood items, handicrafts, handloom products, fabrics and leather goods.

Though the financial implication of the proposed scheme is estimated to be Rs.2,5002,700 crore per year, the actual effect will depend on the level of exports and claims iled by exporters with the banks.

The previous 3% interest subvention scheme was available up to March 31, 2015, for sectors including apparel, carpets, handlooms, sports goods, handicrafts, toys, and some engineering products. The rate offered under the scheme in 2013-14 was 2%.

The commerce department said it has funds worth Rs.1,625 crore under the nonPlan head that would be made available to RBI during 2015-16. The restructured scheme would be funded from Plan side from 2016-17 onwards.

“This is a very good move by the government and it is reassuring that the scheme is for a five-year period. This will improve the competitiveness of our exports. All kind of fiscal support has been given by the government and the only issue that remains to be addressed is of transaction costs,“ said Ajay Sahai, director-general, Federation of Indian Export Organisations.

India's exports declined for the 11th month running in October, highlighting the stiff competition faced by the country in a weak global economy.

As per data released earlier this week, exports fell 17.5% year-on-year in October at $21.35 billion and outward shipments declined in 20 out of the 30 industries, led by iron ore.

Sluggish global demand, an overvalued rupee, declining imports from China and devaluation of the Chinese currency have deterred India's exports from growing despite the commerce department expanding export incentive schemes for various products and markets.

Exports in the first seven months of the year were about $154.2 billion. In 2014-15, India's exports had totalled $310.5 billion.

Business Standard, New Delhi, 19th Nov. 2015