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Interest subsidy Scheme for exporters extended till March 2024 : RBI

INTEREST SUBSIDY SCHEME FOR EXPORTERS EXTENDED TILL MARCH 2024 : RBI

What is the news :

  • The Reserve Bank on Tuesday extended the interest equalisation scheme for pre and post shipment rupee credit for MSME exporters till March 2024 with the objective of boosting outbound shipments.
  • The government has approved the extension of Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit up to March 31, 2024 or till further review, whichever is earlier.

About the extension :

  • The extension takes effect from October 1, 2021 and ends on March 31, 2024.
  • The scheme will not apply to telecom instruments and entities availing benefits under the Production Linked Incentive (PLI) scheme of the government.
  • While issuing approval to the exporter, the bank will be required to furnish the prevailing interest rate, the interest subvention being provided, and the net rate being charged to each exporter, so as to ensure transparency and greater accountability in the operation of the scheme.
  • from April 1, 2022, banks shall reduce the interest rate charged to the eligible exporters upfront as per the guidelines and submit the claims in original within 15 days from the end of the respective month in the prescribed format.
  • for the October 1, 2021 to March 31, 2022 period, banks shall identify the eligible exporters as per the scheme, credit their accounts with the eligible amount of interest equalisation and submit sector-wise consolidated reimbursement claim for the period to the Reserve Bank by April 30, 2022.

What is Interest Equalisation Scheme?

  • The Interest Equalisation Scheme (IES) was implemented on 1st April 2015 to provide pre and post-shipment export credit to exporters in rupees.
  • At the time, exporters were facing increasing credit costs in their export cycles due to the stagnation of global demand and extended credit periods.
  • By introducing this scheme, the government expected that the exporters would be able to correct their pricing and improve the competitiveness of their products.
  • Under the IES/Interest Subvention meaning, the government identifies eligible exporters and passes on the interest equalization amount they are entitled to directly to them. This scheme, which is also referred to as interest subvention export scheme for exporters, was designed to benefit the MSME segment in particular. It was originally implemented for five years.

What does IES offer?

  • Intended to stem the downward trend in exports, IES offered a 3% rate of interest equalisation. With effect from 2nd November 2018, this was increased to 5%, although the rate remained at 3% for large manufacturers and merchant exporters.
  • The government had earmarked Rs. 2,500 crore annually for IES, with the actual cost to revenue depending on the claims made by the exporters. It covered labor-intensive products that had a promise of employment generation.

These are some of the sectors it covered:

  • Processed agricultural and food items
  • Handicrafts and handloom products
  • Handmade carpets (including silk carpets)
  • Coir and coir products
  • Raw jute and yarn
  • Readymade garments and fabrics
  • Toys and sports items
  • Paper and stationery
  • Cosmetics and toiletries
  • Leather goods, including footwear
  • Ceramic products
  • Glass and glassware

About RBI:

  • The Reserve Bank of India(RBI) is India’s central bank and regulatory body and is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
  • It also manages the country’s main payment systems and works to promote its economic development.
  • Established : 1 April 1935
  • Governor: Shaktikanta Das
  • Deputy governors (4): Rabi Sankar, M. Rajeshwar Rao, Dr. M. D. Patra, M. K. Jain