The Modi government has capped the interest subsidy to Rs 2.5 crore per quarter for an exporter from Rs 10 crore annually even as the sector grapples with higher shipment costs because of the Red Sea crisis.
Analysts said the quarterly cap for individual export units in identified sectors and MSMEs against the higher annual cap previously would be a hurdle as the export cycle does not follow a quarterly pattern. The subsidy is valid for the first quarter of next fiscal.
Despite the demand made by exporters to increase the subsidy rates, the government is not yet ready to consider the proposal.
In its latest monthly economic report, the finance ministry has itself admitted the exporters may need to diversify trade routes and transportation options because of the attack on ships on the Red Sea by Houthi rebels.
"That would increase transit costs and affect the price competitiveness of Indian merchandise exports. We have to see if it impacts the value of merchandise exports in 2024-25.”
The DGFT under the commerce ministry said a cap of Rs 2.50 crore per interest equalisation scheme (IES) is imposed for three months till June 30, 2024.
Last May, the government introduced a cap of Rs 10 crore per importer-exporter code (IEC) on the annual net subvention amount.
All disbursements made from April 1, 2023, were counted towards IEC for the current financial year.
As the extension of the scheme is till the first quarter of 2024-25, the cap has been calibrated accordingly, a commerce ministry official said.
“Although exporters have been making a case for increased rate of subvention, due to low global demand owing to economic slowdown and geopolitical problems, an immediate increase seems unlikely,” the official said.
Under this extension, manufacturers and merchant exporters dealing with specified 410 HS lines will benefit from a 2 per cent interest equalization rate.
Under the IES scheme, exporters are extended credit by banks at a reduced rate, with the rate of interest subsidy determined by the government.
