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NEW DELHI : The union government is contemplating to raise the interest subsidy from 3 per cent to 5 per cent for micro, small and medium manufacturers, and from 2 per cent to 3 per cent for manufacturer-exporters and merchant-exporters exporting under 410 tariff lines, as per a report by Mint. The subsidy would come across as a relief for the concerned exporters following the rising interest rates.
Indian exporters are currently witnessing the challenge of reduced demand in key markets led by the threat of global recession and high inflation and hence, this move would give some respite to the MSME manufacturers and exporters.
The Ministry of Commerce and Industry is analyzing the cost of the exercise and will further move the proposal to the Ministry of Finance, as per the report. The scheme helps exporters get access to capital at a reduced cost.
As a matter of fact, exporters have been pushing the government to restore the interest equalization benefits among a series of hikes in the interest rate by the Reserve Bank of India (RBI).
“We are considering the demand to restore the interest equalization rates of 5 per cent for MSME exporters and 3 per cent for those dealing in 410 specified tariff lines…we are calculating the additional cost burden for the exchequer. We will then move a proposal to the ministry of finance to consider it,” said a senior government official as per the report by Mint.
He further added, “exporters are facing the burden of high interest rates and slowing international demand, and therefore, we are considering the proposal of hiking the interest subsidy rates.”
Over the last two years, the Centre had reduced the interest equalization benefit to 3 per cent from 5 per cent for MSME manufacturers, as overall interest rates had come down and MSMEs were procuring loans at 7-7.5 per cent interest. However, the exporters are now alarmed by the increased rate of interest which is nearing 10 per cent for MSME loans and is higher than the pre-covid level. They have raised their concern that it will increase the interest burden on them.
Ajay Sahai, Director General and Chief Executive Officer of the apex body of India’s export promotion councils Federation of Indian Export Organizations (FIEO) said interest rates have already crossed pre-covid levels and may move further by December as the US Federal Reserve hikes rates, the report added.
“The interest subvention should be raised to 5 per cent and 3 per cent respectively to provide a helping hand to our MSMEs,” Sahai said.
Under the interest equalisation scheme, the government has allocated Rs 2,621.5 crore for fiscal year 2022-23. It was Rs 3151.15 crore in the revised budget for 2021-22.
RBI in March this year had extended the interest equalisation scheme for pre and post-shipment rupee credit for MSME exporters till March 2024.
The RBI’s Monetary Policy Committee had hiked the repo rate for the fourth time this year on 30 September by 50 basis points and economists expect another increase in December with inflation rising to over seven per cent.
The interest equalization scheme is applicable for sectors that are labour-intensive and employment generating such as readymade garments, toys, handicrafts, auto components and processed food.
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