Govt to give 5-yr extension for export credit scheme amid economic slowdown

In the upcoming Budget 2024, there may be a five-year extension of the scheme for pre- and post-shipment rupee export credit

The Centre is considering extending a crucial support scheme for export credit to boost India’s export sector competitiveness, which has been affected by slowdowns in developed countries, according to a report by The Economic Times.

In the upcoming Budget 2024, analysts are expecting a five-year extension of the scheme for pre- and post-shipment rupee export credit, the report cited sources as saying.

The Ministry of Commerce and Industry has recommended extending the interest equalisation scheme beyond its sunset date of June 30. Under this proposal, micro, small, and medium enterprises (MSMEs) in manufacturing would receive a 3 per cent benefit, while exporters of 410 identified tariff lines would receive a 2 per cent incentive.

 

The report quoted a source as saying, “The scheme is in place till June 30. There could be some small changes but the broad contours will remain the same.”

Since 2021-22, the government has allocated Rs 9,538 crore to the scheme, with an additional Rs 2,500 crore provided in December last year, the report said.

Under the scheme, individual exporters can access bank credit at a subsidised interest rate, capped at Rs 10 crore per annum per import-export code. Banks initially provide the subsidy, later reimbursed by the government for their reduced interest earnings. Exporters utilise the scheme to lower their credit costs, enhancing their competitiveness, the report said.

Despite industry calls for increased incentive rates of 5 per cent for MSMEs and 3 per cent for exporters of 410 specific products, the current benefits are unlikely to change, the report said, quoting the source.

What is a credit export scheme?
 

In 1967, the Reserve Bank of India (RBI) introduced the export financing scheme to facilitate access to short-term working capital for exporters at competitive international interest rates.

Export credit is available in both rupee and foreign currency, covering pre-shipment and post-shipment stages. ‘Pre-shipment/ packing credit’ refers to financial assistance provided by banks to exporters for purchasing, processing, manufacturing, or packing goods before shipment, or for working capital needs related to service provision under a letter of credit.

‘Post-shipment Credit’ includes financial support extended by banks to exporters after the shipment or service delivery from India until the realisation of export proceeds, including loans secured against duty drawbacks sanctioned periodically by the government