Scheme’s in­ten­tion stymied on ground


In 2015, the cen­tral govern­ment re­named the ear­lier in­ter­est sub­ven­tion scheme an in­ter­est equal­i­sa­tion scheme. And, de­cided to give a re­bate of three per cent on the in­ter­est rates for pre-ship­ment and post-ship­ment credit.

The scheme cov­ered all ex­port of mi­cro, small and medium en­ter­prises (MSMEs) and by all man­u­fac­tur­ers of items cov­ered un­der 416 tar­iff lines (mostly labour-in­ten­sive and job-gen­er­at­ing sec­tors). How­ever, the scheme was not avail­able to mer­chant ex­porters.

Last Novem­ber, it raised the in­ter­est equal­i­sa­tion to five per cent of all MSMEs’ ex­port. Last month, mer­chant ex­porters were also ex­tended the three per cent in­ter­est equal­i­sa­tion. The Re­serve Bank of In­dia (RBI) is­sued the needed in­struc­tions to banks from time to time. The idea be­hind the scheme is to help MSME ex­porters and those of the spec­i­fied items to get credit at lower rates, for com­pet­ing bet­ter with en­ti­ties across the world which get credit at very low in­ter­est.

Re­cently, some con­cerns have sur­faced re­gard­ing ef­fec­tive ad­min­is­tra­tion of the scheme. Ravi Se­h­gal, chair­man of the Engi­neer­ing Ex­port Pro­mo­tion Coun­cil, says: “A look at the lat­est RBI data up to end-Oc­to­ber 2018 con­veys the is­sues be­ing faced when it comes to credit. Against gross credit de­ploy­ment of Rs 434 bil­lion till end- Oc­to­ber 2017, the fig­ures dropped (a year af­ter) by 54.6 per cent to Rs 197 bn. While there might be sev­eral global fac­tors such as a trade war be­tween the United States and China or un­cer­tain­ties over Brexit (the United King­dom’s exit from the Euro­pean Union) hit­ting ex­port de­mand, the cost of credit re­mains a big con­cern for us.”

He said the sub­dued flow of credit was seen in the engi­neer­ing seg­ment as well. Year-on-year growth of bank credit to the engi­neer­ing sec­tor grew by only 4.6 per cent as on end-Oc­to­ber. Credit is the life­line of the in­dus­try and ex­porters and the sit­u­a­tion needs to be ad­dressed, says Se­h­gal.

RBI has asked banks to grant ex­port pack­ing credit to man­u­fac­turer-sup­pli­ers with­out ex­port or­ders or let­ters of credit in their own name and where goods are ex­ported through State Trad­ing Corporation, MMTC or other ex­port houses or agen­cies. The in­struc­tion recog­nises that in most cases, the mer­chants hold­ing ex­port or­ders de­ploy their funds only af­ter the man­u­fac­turer has despatched the goods or af­ter the lat­ter are shipped and doc­u­ments ne­go­ti­ated. Till then, the man­u­fac­turer has to de­ploy own funds to pro­cure raw ma­te­ri­als and meet the pro­cess­ing costs and over­heads. If un­able to get funds at lower in­ter­est rates, his com­pet­i­tive­ness gets eroded. Even so, some bankers are deny­ing the ben­e­fit of in­ter­est equal­i­sa­tion to man­u­fac­tur­ers who ex­port their goods through mer­chant ex­porters. Their rea­son­ing is that these sales to mer­chant ex­porters are do­mes­tic sales, not ex­port that bring in for­eign ex­change.

Thus, well-in­tended schemes are not be­ing fully im­ple­mented in let­ter and spirit at op­er­at­ing lev­els. It is for the govern­ment and RBI to en­sure enough credit to ex­porters and trans­mis­sion of in­ter­est equal­i­sa­tion ben­e­fits as in­tended.

E-mail: tncra­[email protected]

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