Interest Equalisation Schemes

Interest Equalisation Schemes

The Interest equalisation Scheme, announced in April 2015, gives subsidy on interest provided on pre-and post-shipment export credit varying between 3% and 5% to exporters in Indian currency. The RBI has extended the Interest Equalization Scheme for exporters for three more months till June 30, 2021.

During that time, exporters were facing increasing credit costs in their export cycles due to the dullness of global demand and extended credit periods. After the introduction of this scheme, the government expected that the exporters would be able to make correction in their pricing and improve the competitiveness of their products.

Under the IES Scheme, the government recognizes the eligible exporters and passes on the entitled interest equalization amount directly to them. 

For IES, the government had reserved Rs. 2,500 cr annually, with the actual cost to revenue depending on the claims made by the exporters. It covered labour-intensive products that had a promise of employment generation.

These are some of the sectors IES covers:

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

The following products if manufactured by MSME, were also eligible:

• Auto machinery parts
• Optical frames, lenses and sunglasses
• Medical and scientific instruments
• Industrial, electrical and engineering machinery & items.

The non-plan fund of the Department of Commerce funded the scheme. Also, the department was to provide in advance the month’s fund to the RBI, with reimbursement made on monthly basis through a revolving fund mechanism. The RBI was in charge of providing operational instructions related to IES.

Following can avail Interest Equalisation Scheme:

1. MSME Exports: Interest Subvention Scheme

Interest Equalisation Scheme is made readily available to all MSME exporters. It is also available to exporters i.e., manufacturer for exports in the specific 416, 4-digit tariff lines. At the time of the inclusion, merchant exporters accounted for nearly 35% of the country’s exports and generally operated at a low margin of 2-4%.

2. Merchant Exporters: Interest Subvention Scheme

Merchant exporters have a critical role in growth of export and in facilitating export by MSME manufacturers, both directly and indirectly. Including them in the IES gets the fulfilment of their constantly maintained demand and lowering of their credit costs.

3. Requirements for eligibility:

To fulfil the eligibility requirements, the goods exported must meet the criteria of minimum processing in order to qualify as ‘originating from India’. These are laid down in of the Foreign Trade Policy (FTP) 2015-20. As per the rules:

• The goods should be produced by the exporter as far as the definition of ‘manufacture’ of the FTP is concerned.
• The export products would be classified as originating from India only if they undergo significant processing as far as the case of the use of imported inputs is concerned.
• The export of telecom products falls under this scheme only if it is subjected to minimum value addition as mentioned by the Department of Telecommunications.

Provision of IES to exporters:

Since its introduction, the assistance of IES were given to eligible exporters in the form of account deposits. This procedure was continued until the banks did identification of the eligible exporters and credited their accounts.

From the December of 2015, banks started charging a lower rate of interest from eligible exporters to transfer the rate of interest equalization on to them. The banks would claim refund of the amount handout from the RBI in turn. Such claims had to be followed by an external auditor’s certificate claiming that the IES claims were made available in compliance with the guidelines of the scheme.

Until present day, banks pass on the benefit of IES to exporters straightforward and then submits claim to the RBI. These benefits are available to eligible exporters for the time frame between the date of disbursing and date of repayment or up to the date of export credit overdue.