In News:

• Launched in April 2015, the Interest Equalisation Scheme (IES) offers subsidised interest rates on pre- and post-shipment export credit to Indian exporters, particularly MSMEs.
• The Commerce Ministry has sought a Rs 3,000 crore extension of the scheme beyond December 2024, with emphasis on supporting MSME exporters amidst global economic challenges.

Objectives of IES:

• Reduce Cost of Credit: Offers 3% to 5% interest subvention to make export credit affordable.
• Boost Export Competitiveness: Enables Indian exporters, especially MSMEs, to match international pricing.
• Encourage Export Diversification: Supports MSMEs in exploring new markets and products.
• Enhance Financial Inclusion: Promotes access to formal credit systems for small exporters.

Key Features:

• Interest Subsidy:
  • 3% for MSME manufacturer exporters.
  • 2% for merchant and manufacturer exporters of 410 specified tariff lines.
• Coverage: Initially limited to select products, later extended to all MSME exporters.
• Implementation:
  • Managed by the RBI, in coordination with DGFT and authorized banks.
  • Subsidy reimbursed to banks offering export credit at reduced rates.
  • Banks exceeding Repo Rate + 4% are excluded.

Need for Extension:

• The scheme expired in December 2024, but exporters are demanding continuation due to:
  • Rising global inflation and logistics disruptions (e.g., Red Sea crisis).
  • Increase in credit duration demands from foreign buyers (120–150 days).
  • Decline in export credit availability despite higher demand.
  • FIEO reports a drop in outstanding export credit from ?2.27 lakh crore (2023) to ?2.17 lakh crore (2024).
  • MSMEs operate on thin margins, and the subvention can make or break deals.

Significance for MSMEs:

• MSMEs contribute ~45% to India’s total exports and often struggle with high borrowing costs and limited financial access.
• Affordable credit via IES allows MSMEs to:
  • Remain price competitive.
  • Take larger and longer-term orders.
  • Invest in product innovation and value addition.
  • Improve market diversification and resilience.

Challenges in Accessing Credit:

• Stringent eligibility norms and collateral requirements.
• Complex administrative procedures for availing benefits.
• Limited awareness among small enterprises about the scheme.
• Slow disbursal and inconsistent application by banks.

Policy Implications and the Way Forward:

• A revamped, MSME-focused IES can ensure inclusive growth and boost India’s export-led development.
• Calls for:
  • Simplification of procedural norms.
  • Higher interest subvention limits or removal of caps (e.g., ?50 lakh per IEC holder).
  • Longer validity (multi-year horizon) for predictability and planning.
• Aligns with the broader goals of Atmanirbhar Bharat, Make in India, and achieving $1 trillion in exports by 2030.