Govt mulls higher 5 % rate for interest equalisation scheme

Cost of export incentives could go up to ~1 trillion

Less than a week after the Budget spoke of leveraging India’s small- and mediumscale industry, the commerce ministry has suggested improvement in an export promotion scheme.

Commerce and Industry Minister Suresh Prabhu on Thursday said the cost of export incentives might lie somewhere between ~700 billion and ~1 trillion in 2018-19.

The commerce ministry has proposed to its finance counterpart that the prescribed rates under the interest equalisation scheme be revised upwards from 3 per cent to 5 per cent. The scheme allows small and medium exporters in labourintensive sectors to avail loans from banks at a lower rate of 3 per cent.

Originally announced as a measure to boost exports for five years, the interest equalisation scheme on pre- and postshipment rupee export credit was revived in 2015 at a rate of 3 per cent for 416 tariff lines. The sectors covered are mostly labour intensive and include agriculture or food items, auto components, handicraft, electrical engineering items, and telecom equipment. The scheme is, however, not available for merchant exporters. The last Budget had allocated ~25 billion for the interest equalisation scheme.

“This is a welcome move and should be done, provided the condition that interest rate after subvention will not fall below 7 per cent, is also removed. Until the condition is in place, benefits of 5 per cent will not materialise for exporters on ground,” Ajay Sahai, director-general of the Federation of Indian Exports Organizations, said, adding merchant exporters and those on the services side should also be included in the interest equalisation scheme.

Agriculture, which is a mainstay of the Indian economy, and also a major source of livelihood of people, have been given an important thrust, Prabhu said.

On the agriculture export policy, he said existing incentives for exporters would continue to be valid, but the government would be exploring newer ways to boost the sector.

On the Budget raising the minimum support price (MSP) for crops to 1.5 times of the cost of production, the minister said higher rates of MSP would not lower the prospects for agri exports. “The presumption that international prices are lower than MSP is not necessarily true.”