Small profit margins and unpredictable demand are common challenges for Indian exporters competing internationally. Having access to affordable financing is a key part of staying competitive. The Indian government developed the Interest Equalisation Scheme (IES) in April 2015 to deal with this problem. For those wondering what is interest equalisation scheme it is a policy that lowers the cost of borrowing money for exporters, which lets them offer better prices in foreign markets and keeps India’s export sector growing.

What is Interest Equalisation Scheme?

The Interest Equalisation Scheme (IES), which is also called interest subsidy, lets exporters receive money at lower interest rates. The plan lowers the interest rate banks charge on rupee export credit before and after shipping. The government pays for this.

Exporters pay less interest on loans because the government pays the difference back to the banks. This mechanism ensures that exporters, especially small and medium businesses, can remain competitive globally despite high domestic borrowing costs.

Why the Scheme Was Started

The plan starts with a number of specific objectives in mind.

Boost competition

When the cost of borrowing money goes down, exporters can offer better deals to customers abroad.

Support MSMEs

It can be hard for small businesses to get the money they need, so interest support helps them progress.

Export manufacturing

The initiative boosts India’s manufacturing industry by boosting exports.

Support steady export growth.

This protects exporters from changes in world markets by lowering their financial stress.

Key Features of the Scheme 

Start Date

April 1, 2015, was officially launched.

Application

Rupee export credit is accepted for pre- and post-shipment coverage.

Eligibility

• All Micro, Small, and Medium Enterprises (MSMEs) exporters.
• Exported goods from the specified tariff lines defined by HS codes (including approximately 410 varieties).

Rates for Interest Subventions

• All exporters in eligible product categories will receive a 3% interest equalisation.
• 5% interest equalisation specifically for micro, small, and medium-sized enterprises (MSMEs).

Implementation

Scheduled Commercial Banks (but not Regional Rural Banks or co-operative banks) give exporters advantages and then ask the Reserve Bank of India to reimburse them.

How Does the Scheme Work?

The Interest Equalisation Scheme works in this order. This flow makes sure that exporters get lower interest rates right away, without having to go through a lot of complicated steps.

• An exporter asks a bank qualified for rupee credit before or after shipping.
• After taking out the aid rate, which is either 3% or 5%, the bank charges a lower interest rate.
• Less interest paid by the exporter means fewer financing costs.
• Later, the bank gets the discounted amount from the RBI with the help of a certificate from an outside auditor.

Also Read This: How Indian MSMEs Can Master Foreign Trade Policy?

Significance for MSMEs

India’s exports depend on its Micro, Small, and Medium Enterprises (MSMEs). However, MSMEs often have to pay more to borrow money and can’t get as much foreign financing as they would by giving everyone the same interest rate of 5% under the scheme.

Improving liquidity for small exporters.

• Helps them take on more business from other countries.
• Decreases the possibility of defaults brought on by costly loans.
• Promotes the creation of employment by helping businesses grow.

This program provides a vital support system for numerous micro, small, and medium-sized enterprises (MSMEs) to compete with larger exporters and global participants.

Updates on Scheme Extensions

Since it started, the plan has been extended several times to keep helping exporters. It was initially set for five years, but has been extended several times after parties approved. The plan is still in effect as of the most recent updates, and it is still an important policy tool for financing exports.

• The scheme has stayed in place because exporting companies have kept asking for it.
• More product groups and industries are now covered by it.
• Overall, it still fits India’s Foreign Trade Policy goals of increasing exports.

Benefits of the Scheme

Exporters pay a lot less in interest, which makes their finances more manageable.

• This makes India more competitive on an international level and lets its producers set prices that are more reasonable.
• Minority and small companies (MSMEs) are helped by a special 5% subsidy.
• With sustainable export growth, growth can continue even when the world market slows down.
• It’s easier to get credit, which makes working capital processes go more easily. 

What are the problems with the Scheme?

Interest Equalisation Scheme has had an effect; however, it isn’t without problems.

• Few people know about the perks; many small exporters still don’t know what they are.
• Certain kinds of products and MSMEs are the only ones that are eligible for coverage.
• When banks take too long to pass on the benefits, exporters may have to wait.
• Some people are worried about the long-term viability of handouts because the government has to pay a lot for them. 

Wrapping It Up

An important tool for helping Indian exports, especially small and medium-sized businesses, deal with their financial challenges is the Interest Equalisation Scheme. For those asking what is interest equalisation scheme, it is a government initiative that reduces the cost of export loans, making Indian products more competitive abroad. The plan not only makes India stronger internationally by lowering borrowing costs, but also helps the Indian economy grow and create jobs. India wants to get a bigger piece of the world’s export market, so schemes like IES will remain very important for deciding how trade develops.

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