Commerce Ministry’s Budget pitch: ‘Prioritise MSMEs under Rs 3,000-crore Interest Equalisation Scheme’ | Business News

“We have not renewed IES. We (Commerce Ministry) are still negotiating with the Finance Ministry to allow it in a slightly modified format. But there have been a number of questions on IES. There are concerns about IES being cornered by non-MSMEs, so we have suggested that the scheme can be confined to MSME,” the person quoted above said.

“There are a number of different kinds of options. We are seeking extension of the scheme for five months in a slightly modified form for MSMEs seeking similar allocation. The present outgo of the scheme is Rs 3,000 crore. We are not suggesting an increase in the outgo. It is an ongoing scheme so it may not be part of the budget announcement. Any modification, revamping will happen through an Expenditure Finance Committee (EFC) route,” the person said.

Exporters had raised the demand for an extension of the IES scheme in their pre-Budget consultation meetings with the government. An extension of the scheme would be crucial for exporters to get bank loans at a subsidised interest rate. Exporters have argued that rising inflation and logistics challenges due to the Red Sea crisis are leading to a substantial jump in the requirement of export credit.

Export credit declined between March 2022 and March 2024 despite rising need for the same due to longer voyage time amid the Red Sea crisis. According to Federation of Indian Export Organisations (FIEO), the value of export credit outstanding has come down to Rs 2,17,406 crore in the March 2024 quarter from Rs 2,27,452 crore in the previous year. In its Budget proposal, FIEO had conveyed to the Finance Ministry that slow off take of inventories with lesser purchasing power, owing to high inflation, has led to liquidity challenges for the buyers. This has also resulted in demand for credit for longer duration.

“Buyers, who used to pay between 30-60 days, are now asking for credit between 120-150 days or even longer.  With increased credit demand for longer duration, the cost of credit has become all the more relevant. This has brought focus on the Interest Equalisation Scheme which currently is only available up to December 2024 and that too to manufacturers in MSME with an annual cap of Rs 50 lakh per IEC holder, which is insufficient for many MSMEs,” FIEO had said in its pre-Budget submission to the government.

A long-term IES will help the exporters to quickly conclude orders offering the most competitive rates to push exports, exporters said, adding that this is more relevant for orders in which the profit margins are wafer thin and availability of interest subvention of 3 per cent may help the exporters to clinch or lose the order.  The IES scheme, announced in April 2015, gives subsidies on interest provided on pre-and post-shipment export credit varying between 3 per cent and 5 per cent to exporters.

“While the subsidy provided by the IES is making exports competitive, in few cases, it may be adding to the profitability of exporters who have better profit margins due to value addition, branding etc. Since, the IES is addressing a disability of our economy, which is the high cost of credit, we have to look from the perspective of the majority of exporters,” FIEO said.