Modified Norms of Interest Equalization Scheme for MSME exporters
Modified Norms of Interest Equalization Scheme for MSME Exporters
The Reserve Bank of India (RBI) has extended the interest equalization scheme for pre and post-shipment rupee credit for MSME exporters till March 2024, intending to boost outbound shipments. RBI, on March 8, 2022, also issued modified norms on Interest Equalization Scheme for export credit after the extension of the scheme. The present article briefs the modified norms of the Interest Equalization Scheme.
Extension of Interest Equalization Scheme
The RBI, vide a Notification dated March 8, 2022, has informed banks that the Government has approved the extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit Scheme up to March 31, 2024, or till further review, whichever is earlier.
The extension takes effect from 01-10- 2021 and ends on 31-03- 2024. Revised interest equalization rates under Scheme will now be 3 % for MSME manufacturer exporters exporting under any HS lines and 2 % for exporters exporting under 410 HS lines.
On account of the lockdown in India for the COVID-19 pandemic and to provide relief to exporters, RBI extends the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit for a further period of three months, i.e., up to September 30, 2021
Interest Equalization Scheme for Pre and Post-Shipment Export Credit
The Interest Equalization Scheme (IES) was first implemented on 1st April 2015 to provide pre and post-shipment export credit to exporters in rupees. An eligible exporter has to submit a certification from the external auditor to the concerned bank to claim this benefit. Banks provide Interest Equalization Scheme benefits to the eligible exporters and claim a reimbursement from the Reserve Bank of India based on the external auditor certification furnished by the exporter. The scheme helps the identified export sectors to be internationally competitive and to achieve a higher level of export performance.
Interest Subsidy Scheme Extension
In April 2021, the RBI first extended the scheme until June and later till September 2021. It revised the interest equalization rates under the scheme to 2% and 3% for specified categories of MSME manufacturer exporters.
Now, the government approved extending the ‘Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit’ until 31 March 31, 2024, or until further review, whichever is earlier. The extension is effective from 1 October 2021 and ends on 31 March 2024.
In April last year, the scheme was first extended till June end and later till September 2021.
Modified Norms on Interest Equalization Scheme
Modified norms on Interest Equalization Scheme (IES) are explained in detail below:
Revised interest equalization rates
At the time of the scheme’s introduction, the subvention rate was fixed at 3%, and the rates for MSME sectors have been increased to 5% since 2nd November 2018. The rate for prominent manufacturers and Merchant exporters remains at 3%.
Revised interest equalization rates under the scheme will now be 3% for MSME manufacturer exporters exporting under any HS lines and 2% for exporting under any HS lines and two percent for manufacturer exporters and merchant exporters exporting under 410 HS lines.
Have a look at the below table for a better understanding of the eligible category and revised equalization rate of the Interest Equalization Scheme:
|Rate of Equalization
|Revised Rate of Equalization
|The 416 four-digit tariff lines listed in the scheme
|Large sector manufactures from 01.02.2015 and Merchant exporters from 02.01.2019
|3% per annum
|All tariff lines
|MSME units Manufacture
|5% per annum
Interest Equalization Scheme for Pre and Post-Shipment Export Credit is available to following exporters:
- Manufacturer exporters who fall under the identified 416 four-digit tariff line
- Merchant exporters who fall under the identified 416 four-digit tariff line
- All Micro, Small & Medium Enterprises (MSMEs) exporters
As mentioned above the Interest Equalization Scheme was implemented in 2015 for 5 years. The benefit of the scheme was available for Manufacturer exporters who fall under the identified 416 four-digit tariff line and all MSME exporters. Afterwards from 02.01 2019, Merchant exporters have also been included under the equalization scheme, this applicable to exporters who fall under 416 four-digit tariff line.
Note: Merchant exporters who do not fall under 416 tariff lines are not eligible for this scheme.
Eligibility Criteria for IES
The interest equalization scheme covers mostly labor-intensive and employment generating sectors. Among the leading foreign exchange earners covered under the scheme are:
- Processed agriculture/food items
- Handicrafts, handmade carpet and handloom products
- Coir and coir-based manufacturers, yarn and other jute manufacturers
- Readymade garments
- Fabrics of of all types
- Toys, sports goods, paper and stationery
- Cosmetics and toiletries, leather goods and footwear enterprises
- Ceramics and allied products industry, glass and glassware
- Medical and scientific instruments, optical frames, lenses, sunglasses
- Auto components, bicycles and parts thereof
Criteria for Exports Products
Criteria for Exports Products
All eligible exports under the interest equalization scheme need to meet the criteria of minimum processing for the goods. The goods originating from India will be qualified for the scheme and benefits.
To get the benefits of the interest equalization scheme, the goods must be manufactured by the exporter as per the definition of ‘manufacture’ of the Foreign Trade Policy.
- If imported products (Duty Paid or Duty-Free) have been used for the production of export products, then such products will be considered as originating in India (Non-Preferential).
- In the case of the use of imported inputs, the export products will be classified as originating in India only if they undergo significant processing or operation (described in detail in the Handbook of Procedures).
- Simple operations consisting of removal of dust, sorting, classifying, washing, painting and cutting
- Changes of packing, breaking up of products and assembly of consignments
- Simple cutting, slicing, repacking or placing in bottles, flasks, boxes, fixing on boards, and all other simple packing operations;
- Operations to ensure the preservation of products in good condition during the transport and storage (such as drying, freezing, ventilation, spreading out, chilling, sulfur dioxide or other aqueous solutions)
- Affixing of labels or distinguishing signs on the products or their packaging
- Mixing of products
- Simple assembly of parts of products to constitute a complete product
- Disassembly of parts of products
- The export of telecom products is eligible for the interest equalization scheme, subject to minimum value addition as notified by the Department of Telecommunications.
Kindly find the attachment to know more about the List of exports (416 HS lines) covered under the Interest Equalization Scheme on Pre and Post Shipment Rupee Export Credit.Interest Subvention Scheme-6-37 (2)
The interest equalization scheme covers mostly labour-intensive and employment generating sectors:
- Processed agriculture/food items sectors
- Handicrafts, handmade carpet and handloom products sector
- Coir and coir manufactures, yarn and other jute manufactures
- Readymade garments sectors
- Fabrics of all types, toys, sports goods, paper, and stationary sectors
- Cosmetics and Toiletries, Leather Goods and footwear enterprises
- Ceramics and Allied Products Industry, Glass and Glassware
- Medical and Scientific Instruments, Optical Frames, Lenses, Sunglasses units
- Auto Components, Bicycle and Parts, Articles of Iron or Steel enterprises
- Articles of base metals, Industrial Machinery, Electrical and Engineering items
The validity of Interest Equalization Benefit:
The interest equalization benefit will be valid from the date of disbursement of credit and up to the date of repayment or up to the date beyond which the outstanding export credit becomes overdue.
Banks need to submit the claims to RBI for reimbursement, duly certified by the external auditor. Ministry of Commerce and Industry will place funds in advance with RBI for a requirement of one month and reimbursement would be made every month through a revolving fund system.
The application form for claiming the reimbursement under the Interest Equalization Scheme is as follows:CLAIM FORM
Procedure for Claiming Reimbursement
The general practice is that an eligible exporter has to submit a certification from the external auditor to the bank concerned to claim this benefit. Banks provide benefits to the exporters and claim reimbursement from the Reserve Bank of India based on the external auditor’s certification furnished by the exporter.
According to the Interest Equalization Scheme, the banks will identify the eligible exporters and credit the beneficiaries’ accounts with the eligible amount of interest equalization. After that, concerned banks will reduce the interest rate charged to the eligible exporters on advances by the rate of interest equalization provided by the Government.
DGFT online IT Module for Interest Equalisation Scheme
To capture granular data about the scheme’s beneficiaries and effective monitoring, the Directorate General of Foreign Trade has introduced the DGFT online IT Module for Interest Equalization Scheme vides a Trade notification dated 15th March 2022.
All exporters seeking benefits under Interest Equalization Scheme must apply online through the DGFT new Online Module for Interest Equalization Scheme.