Interest Subvention Scheme: GTRI Calls for Beneficiary Identification

New Delhi, Dec 9 (PTI) It is crucial for the government to identify real beneficiaries of the interest subvention scheme provided to various export sectors, think tank GTRI said on Saturday.

The Union Cabinet on Friday approved an additional allocation of Rs 2,500 crore for the continuation of interest equalisation or subsidy scheme on pre- and post-shipment rupee export credit up to June 30 next year.

Launched on April 1, 2015, the scheme was initially valid for five years up to March 31, 2020. It has been continued thereafter, with a one-year extension during COVID, and further extensions and fund allocations.

"No detailed study of the scheme has been done yet. It is important for the government to identify the actual beneficiaries. Considering the low spending, it is possible that a few large entities, rather than MSMEs, are reaping the most benefits," the Global Trade Research Initiative (GTRI) said.

It is also necessary to find out which product groups receive the most
credit and the effectiveness of banks in assisting small firms through this scheme should be examined, it added.

"A thorough study might provide insights on whether to exclude certain items, like low-volume, high-value goods, such as diamonds and gold jewellery, which are susceptible to misuse. Only a detailed study can reveal the full truth," GTRI co-founder Ajay Srivastava said.

The scheme costs about Rs 3,000 crore on average. There are over 50,000 MSMEs exporting various products from India, plus over a lakh of other exporters for products covered under the scheme.

It said that despite the high value of these exports, the scheme's low expenditure suggests it is underused.

Given that Indian MSMEs struggle with credit access and this scheme eases the burden, the government might think about making it permanent, similar to the drawback scheme, the think-tank suggested.

"Alternatively, extending it for another five years could be considered. Annual extensions lead to uncertainty, making it hard for exporters to include this in their cost calculations," Srivastava said.

The pre and post-shipment rupee export credit, known as packing credit, assists exporters in covering production and packing costs, with credit accessible upon presenting a confirmed export order.

The credit rate is usually the bank's rate plus 2-3 per cent, averaging about 8 per cent.

"The scheme offers additional discounts - 3 per cent for MSME exporters on all products and 2 per cent for select products for all exporters. Thus, with this scheme, MSMEs can access credit at 5 per cent and others at 6 per cent," Srivastava said.

He added that these rates are comparable with prevailing global interest rates like 5.5 per cent in the US, 3.5 per cent in China, and 5.3 per cent in the UK.

"Thus the scheme lowers the cost of capital for Indian exporters, benefiting MSMEs in particular," he said, adding that "however, despite its potential, there is a lack of comprehensive analysis on its utilisation and impact, especially concerning its actual beneficiaries and effectiveness in reaching the intended MSME sector".

Manufacturer and merchant exporters shipping specified 410 products will get a 2 per cent subsidy and all the MSME exporters will get 3 per cent.

These sectors include handicrafts, leather, certain fabrics, carpets and readymade garments.

The benefit to individual exporters has been capped at Rs 10 crore per annum per IEC (Import Export Code).

So far this fiscal till November 30, the government has disbursed Rs 2,641.28 crore against the allocated budget of Rs 2,932 under the scheme. Rs 3,118 crore was disbursed in 2022-23 and Rs 3,488 crore in 2021-22.

Cumulatively, exports during the April-October period this fiscal contracted by 7 per cent to USD 244.89 billion, while imports fell 8.95 per cent to USD 391.96 billion.

The trade deficit during the seven-month period was USD 147.07 billion against USD 167.14 billion in the corresponding period last year.