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What does Union Budget 2025 have in store for India's trade policy?

Since the IES expired on December 31, the commerce department is seeking approval for a slightly modified version of the scheme to cover at least MSMEs

import, export, trade, US trade, tariff

During the pre-Budget meeting with the finance minister in North Block last month, exporters also expressed a desire for the IES to continue. | Bloomberg

Shreya Nandi New Delhi

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In the upcoming Union Budget, the finance ministry may take steps to revive export-boosting schemes, such as the Interest Equalisation Scheme (IES), offer financial support to exporters, and enable flexibility for certain service sector units in special economic zones (SEZs).
 
Since the IES expired on December 31, the commerce department is seeking approval for a slightly modified version of the scheme to cover at least micro, small, and medium enterprises (MSMEs).
 
The IES is an interest-subvention scheme under which exporters are given benefits in the interest rates charged by banks on their pre- and post-shipment rupee export credits. Lenders are subsequently compensated by the government. The scheme was launched in 2015 for five years to reduce stress among exporters, especially in labour-intensive sectors and MSMEs.
 
 
Previously, the scheme applied to 416 identified tariff lines and MSME manufacturer-exporters for all export lines. However, last year, the government extended the IES until September 30 for MSME exporters, while other exporters, covering 410 tariff lines, were excluded. The scheme was then extended for another three months, but fiscal benefits were reduced. 
 
The commerce department is hoping for approval of the IES and an announcement on it as early as possible. If the finance ministry agrees, it could be included in the Budget documents.
 
The department has been in discussions with the finance ministry to take steps to ensure that service sector units, particularly IT/ITeS, are able to claim income tax exemptions. This could be achieved by allowing service sector companies to reinvest their export profits in the additional employment of workers, rather than in plant and machinery.
 
Union Budget 2025: Collateral-free loans for MSMEs
 
Moreover, according to reports, the Budget may announce collateral-free loans for exporters and MSMEs.
 
These measures are being sought at a time when exporters are grappling with global economic uncertainties, with export growth slowing.
 
During the pre-Budget meeting with the finance minister in North Block last month, exporters also expressed a desire for the IES to continue. 
 
The Federation of Indian Export Organisations (FIEO) has sought additional funds for marketing and trade promotion of certain export items, particularly for the United States (US) export market. As research and development (R&D) and product innovation are key to sustaining exports, FIEO has requested that the government introduce a tax deduction of 200-250 per cent for R&D spending under section 35(2AB) of the Income Tax Act.
 
The Apparel Export Promotion Council (AEPC) has proposed the extension of the concessional tax rate of 15 per cent under section 115AB of the Income Tax Act for new manufacturing units to encourage the setting up of new garment units.
 
AEPC has also demanded the removal of section 43B(H) of the Income Tax Act in the upcoming Budget. This section relates to payments to MSME companies, which must be made within a maximum of 45 days to claim any deduction in tax. This has increased tax liabilities and disrupted the cash flow of exporters.

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First Published: Jan 29 2025 | 9:39 AM IST

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