{"id":151948,"date":"2025-01-18T19:26:58","date_gmt":"2025-01-18T13:56:58","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=151948"},"modified":"2025-02-13T15:57:38","modified_gmt":"2025-02-13T10:27:38","slug":"interest-equalisation-scheme","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/interest-equalisation-scheme","title":{"rendered":"Interest Equalisation Scheme"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Recently, the Commerce Ministry has requested the <\/span><b>Finance Ministry <\/b><span style=\"font-weight: 400;\">to extend the <\/span><b>\u20b93,000 crore Interest Equalisation Scheme<\/b><span style=\"font-weight: 400;\">, prioritizing <\/span><b>MSMEs involved in exports.<\/b><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About Interest Equalisation Scheme (IES)<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Introduction<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Launched in 2015 <\/b><span style=\"font-weight: 400;\">to provide financial support to exporters through subsidized export credit.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Offers<\/span><b> pre- and post-shipment export credit<\/b><span style=\"font-weight: 400;\"> to exporters in Indian rupees.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Initially valid for<\/span><b> five years, <\/b><span style=\"font-weight: 400;\">the scheme has been<\/span><b> extended multiple times.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Implementing Agency<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Implemented by the <\/span><b>Reserve Bank of India (RBI)<\/b><span style=\"font-weight: 400;\"> through Public and Non-Public Sector banks that provide pre- and post-shipment credit to exporters.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Jointly monitored by the<\/span><b> Directorate General of Foreign Trade (DGFT)<\/b><span style=\"font-weight: 400;\"> and the RBI through a consultative mechanism.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc\/pw-only-ias?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Classes<\/a><\/span><\/p>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.7992%;\">\n<tbody>\n<tr>\n<th style=\"width: 100%; border-style: solid; border-color: #000000; background-color: rgba(184, 165, 217, 0.53); text-align: left; vertical-align: middle;\">\n<h2><span style=\"font-size: 18pt; color: #000000;\"><b>Ministry of Micro, Small &#038; Medium Enterprises<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"color: #000000;\"><b>Formation<\/b><span style=\"font-weight: 400;\">: Established in 2007 through the merger of the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries.<\/span><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"color: #000000;\"><b>Governance<\/b><span style=\"font-weight: 400;\">: Operates under the <\/span><b>Micro, Small, and Medium Enterprises Development Act, 2006<\/b><span style=\"font-weight: 400;\">, which provides a legal framework for MSME development.<\/span><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"color: #000000;\"><b>Mandate<\/b><span style=\"font-weight: 400;\">: Addresses issues affecting MSMEs, defines the concept of &#8220;enterprise,&#8221; and empowers the Central Government to improve their competitiveness.<\/span><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"color: #000000;\"><b>Functions<\/b><span style=\"font-weight: 400;\">: Implements policies, programs, and schemes to promote and support MSME growth across sectors.<\/span><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"color: #000000;\"><b>Key Initiatives<\/b><span style=\"font-weight: 400;\">: Provides financial aid, technology support, and skill development programs for MSMEs to enhance their contribution to India&#8217;s GDP and exports.<\/span><\/span><\/li>\n<\/ul>\n<\/th>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Coverage<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Initially covered<\/span><b> non-MSME exporters in 410 identified tariff lines.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Extended to <\/span><b>all exporters from the MSME sector.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Subsidy Rate<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>2% interest equalization<\/b><span style=\"font-weight: 400;\"> for merchant and manufacturer exporters of<\/span><b> 410 identified tariff lines.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>3% interest equalization<\/b><span style=\"font-weight: 400;\"> for <\/span><b>all MSME manufacturer exporters.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Mechanism<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Export credit<\/b><span style=\"font-weight: 400;\"> is provided by banks at a subsidized interest rate.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The<\/span><b> government compensates banks<\/b><span style=\"font-weight: 400;\"> for the reduced interest charged to beneficiaries.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Banks charging an average rate above Repo + 4%<\/b><span style=\"font-weight: 400;\"> are <\/span><b>excluded<\/b><span style=\"font-weight: 400;\"> from the scheme.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>What is MSME?<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Definition<\/b><span style=\"font-weight: 400;\">: MSME stands for Micro, Small, and Medium Enterprises, which are businesses involved in producing, processing, and preserving goods and commodities.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Classification<\/b><span style=\"font-weight: 400;\">: Classified based on investment in plant and machinery or equipment and annual turnover.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Classification of MSMEs as per Indian Government<\/b><\/span><\/h2>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.7717%;\">\n<tbody>\n<tr>\n<td style=\"width: 23.8256%; text-align: center;\"><b>Type of Enterprise<\/b><\/td>\n<td style=\"width: 49.0226%; text-align: center;\"><b>Investment in Plant and Machinery\/Equipment<\/b><\/td>\n<td style=\"width: 46.0226%; text-align: center;\"><b>Annual Turnover<\/b><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 23.8256%;\"><b>Micro<\/b><\/td>\n<td style=\"width: 49.0226%;\"><span style=\"font-weight: 400;\">Up to \u20b91 crore<\/span><\/td>\n<td style=\"width: 46.0226%;\"><span style=\"font-weight: 400;\">Up to \u20b95 crore<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 23.8256%;\"><b>Small<\/b><\/td>\n<td style=\"width: 49.0226%;\"><span style=\"font-weight: 400;\">Up to \u20b910 crore<\/span><\/td>\n<td style=\"width: 46.0226%;\"><span style=\"font-weight: 400;\">Up to \u20b950 crore<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 23.8256%;\"><b>Medium<\/b><\/td>\n<td style=\"width: 49.0226%;\"><span style=\"font-weight: 400;\">Up to \u20b950 crore<\/span><\/td>\n<td style=\"width: 46.0226%;\"><span style=\"font-weight: 400;\">Up to \u20b9250 crore<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-textbooks?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Textbooks\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Check Out UPSC NCERT Textbooks From PW Store<\/span><\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Need for Interest Equalisation Scheme (IES) for MSMEs<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Support Export Growth<\/b><span style=\"font-weight: 400;\">: Helps MSMEs access affordable credit, ensuring competitiveness in global markets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>High Contribution to Exports: <\/b><span style=\"font-weight: 400;\">MSMEs contribute <\/span><b>approximately 45% to India&#8217;s total exports, <\/b><span style=\"font-weight: 400;\">highlighting the importance of the sector.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Inflation and Logistics Challenges<\/b><span style=\"font-weight: 400;\">: Rising inflation and logistical issues, such as the Red Sea crisis, have increased export costs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Longer Credit Durations:<\/b><span style=\"font-weight: 400;\"> Buyers are demanding <\/span><b>extended credit periods (120\u2013150 days)<\/b><span style=\"font-weight: 400;\">, raising the cost of financing.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Liquidity Challenges:<\/b><span style=\"font-weight: 400;\"> High inflation and slower inventory off-take create financial stress for MSMEs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Wafer-Thin Margins:<\/b><span style=\"font-weight: 400;\"> Interest subvention of 3% enables MSMEs to remain competitive in price-sensitive markets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Addressing High Credit Costs:<\/b><span style=\"font-weight: 400;\"> IES mitigates the impact of <\/span><b>India&#8217;s relatively higher credit costs <\/b><span style=\"font-weight: 400;\">compared to global competitors.<\/span><\/li>\n<\/ul>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.6375%;\">\n<tbody>\n<tr>\n<td style=\"width: 111.19%; 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