News Excerpt: 

The Union Cabinet has approved an additional allocation of Rs 2500 Cr for continuation of the Interest Equalisation Scheme till 30th June 2024.

About the Interest Equalisation Scheme

The government of India had announced the Interest Equalisation Scheme on Pre and Post-Shipment Rupee Export Credit to eligible exporters.  The Scheme started on April 1, 2015, and was initially valid for 5 years.

• The rate of interest equalisation @ 3% per annum was available on Pre Shipment Rupee Export Credit and Post Shipment Rupee Export Credit.
• The scheme would not be available to merchant exporters. Government, however, reserves the right to modify/amend the Scheme at any time.
• Banks are required to completely pass on the benefit of interest equalisation, as applicable, to the eligible exporters upfront and submit the claims to RBI for reimbursement, duly certified by the external auditor.
• The Scheme was not fund-limited and extended the benefit without any limit to all exporters. 

Recent Extensions in the Scheme:

• The government of India has approved the extension of the Interest Equalization Scheme for Pre and Post-Shipment Rupee Export Credit (‘Scheme’) up to March 31, 2024, or till further review, whichever is earlier.
• Currently, the Scheme provides an interest equalisation benefit at the rate of 2% on pre and post-shipment Rupee export credit to merchant and manufacturer exporters of 410 identified tariff lines at 4 digit level and 3% to all MSME manufacturer exporters.
• The Scheme has now been made fund-limited, and benefits to individual exporters have been capped at Rs 10 Cr per annum per IEC (Import Export Code).
• The scheme shall be implemented by RBI through various Public and non-public Sector banks that provide pre and post-shipment credit to the exporters.
• The Scheme is jointly monitored by DGFT (Directorate General of Foreign Trade) and RBI through a consultative mechanism.

Benefits of the Scheme

• The availability of pre- and post-shipment packing credit at competitive rates is essential for the export sector's international competitiveness.
• According to a study undertaken by IIM Kashipur, the effect of the Interest Equalisation Scheme has been helpful to the country's export growth.
• The MSME sector is essential for job creation. The scheme is primarily intended for labour-intensive industries.
• The current proposal is intended for exports by recognised tariff line merchants and manufacturer exporters, as well as MSME Sector manufacturer exporters. Increased exports from these labour-intensive sectors and MSMEs will result in job creation in the country.

Conclusion:

This scheme would help exporters from identified sectors and all MSME manufacturer exporters to avail of pre and post-shipment Rupee export credit at competitive rates. When there is an increase in exports from these employment-intensive sectors and MSMEs then it would lead to generation of employment in the country.