Recently, the Commerce Ministry has requested the Finance Ministry to extend the ₹3,000 crore Interest Equalisation Scheme, prioritizing MSMEs involved in exports.

About Interest Equalisation Scheme (IES)

• Introduction:
  • Launched in 2015 to provide financial support to exporters through subsidized export credit.
  • Offers pre- and post-shipment export credit to exporters in Indian rupees.
  • Initially valid for five years, the scheme has been extended multiple times.
• Implementing Agency:
  • Implemented by the Reserve Bank of India (RBI) through Public and Non-Public Sector banks that provide pre- and post-shipment credit to exporters.
  • Jointly monitored by the Directorate General of Foreign Trade (DGFT) and the RBI through a consultative mechanism.

Enroll now for UPSC Online Classes

• Coverage:
  • Initially covered non-MSME exporters in 410 identified tariff lines.
  • Extended to all exporters from the MSME sector.
• Subsidy Rate:
  • 2% interest equalization for merchant and manufacturer exporters of 410 identified tariff lines.
  • 3% interest equalization for all MSME manufacturer exporters.
• Mechanism:
  • Export credit is provided by banks at a subsidized interest rate.
  • The government compensates banks for the reduced interest charged to beneficiaries.
  • Banks charging an average rate above Repo + 4% are excluded from the scheme.

What is MSME?

• Definition: MSME stands for Micro, Small, and Medium Enterprises, which are businesses involved in producing, processing, and preserving goods and commodities.
• Classification: Classified based on investment in plant and machinery or equipment and annual turnover.

Classification of MSMEs as per Indian Government

Check Out UPSC NCERT Textbooks From PW Store

Need for Interest Equalisation Scheme (IES) for MSMEs

• Support Export Growth: Helps MSMEs access affordable credit, ensuring competitiveness in global markets.
• High Contribution to Exports: MSMEs contribute approximately 45% to India’s total exports, highlighting the importance of the sector.
• Inflation and Logistics Challenges: Rising inflation and logistical issues, such as the Red Sea crisis, have increased export costs.
• Longer Credit Durations: Buyers are demanding extended credit periods (120–150 days), raising the cost of financing.
• Liquidity Challenges: High inflation and slower inventory off-take create financial stress for MSMEs.
• Wafer-Thin Margins: Interest subvention of 3% enables MSMEs to remain competitive in price-sensitive markets.
• Addressing High Credit Costs: IES mitigates the impact of India’s relatively higher credit costs compared to global competitors.