A technical glitch is denying Indian exporters the much needed benefit under the interest equalisation scheme (IES). IES was announced by the government in the Foreign Trade Policy (2015-20), the validity of which was extended by another year recently.
A directive from the Reserve Bank of India (RBI) is all that banks need to pass on the benefits to their exporter customers. The current circular, issued by RBI on February 21, 2019 had instructed banks to pass on the benefit of interest subvention under the scheme only till March 31, 2020 -- the date on which the FTP 2015-20 was due to expire. The extension of the Foreign Policy till March 31, 2021 was notified by the Director General of Foreign Trade on the March 31. However, RBI is yet to officially notify the change to the servicing banks.
Under IES scheme, large sector manufacturers and merchant exporters of 461 specified four-digit tariff lines are eligible for 3 per cent interest subvention per annum. The rate of equilisation is 5 per cent for MSME sector manufacturers across all tariff lines. The IES scheme for pre and post shipment rupee export credit is implemented by DGFT, while operational guidelines to the banks are issued by the RBI.
In 2018-19, the Union Budget had allocated Rs 2,500 to help exporters through interest subvention.
The exporters have already approached RBI through respective export promotion councils to look into the matter. In the absence of the circular issued by RBI for extension to the banks on the pre and post shipment IES availed by exporters from April 1, 2020, the banks are charging full interest at prime lending rate with no benefit passed on to the exporter.
The technical issue is adding to the liquidity problems of the exporters, already in trouble due to shipments that are held up due to restrictions associated with the country wide lock down.
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