The Aryavarth Express
Agency(New Delhi): In a move that might impact the Indian export sector, the Modi administration has introduced a cap on the interest subsidy available to exporters, reducing it to Rs 2.5 crore per quarter from the previous annual cap of Rs 10 crore. This adjustment comes at a time when exporters are already facing heightened shipment costs due to the ongoing crisis in the Red Sea.
The decision, effective for the first quarter of the next fiscal year, was announced by the Directorate General of Foreign Trade (DGFT) under the commerce ministry. This temporary measure, valid until June 30, 2024, aims to modulate the financial support provided to individual export units across specified sectors and Micro, Small, and Medium Enterprises (MSMEs). The revision of the subsidy cap to a quarterly basis from an annual one is seen as a potential obstacle for the export sector, given the mismatch between the export cycle and the quarterly financial calendar.
Despite calls from exporters for an enhancement of the subsidy rates to counteract the effects of global economic slowdown and geopolitical tensions, the government remains hesitant. The finance ministry, in its recent monthly economic report, acknowledged the challenges faced by exporters, particularly the need to diversify trade routes and transportation methods in light of attacks on ships in the Red Sea by Houthi rebels. This situation, the ministry noted, could elevate transit costs and undermine the competitiveness of Indian merchandise exports, with potential implications for export values in the 2024-25 fiscal year.
The modification of the subsidy cap follows the government’s earlier initiative in May of the previous year, which established a cap of Rs 10 crore per importer-exporter code (IEC) on the annual net subvention amount, including all disbursements from April 1, 2023, for the current financial year. With the scheme’s extension into the first quarter of 2024-25, the cap has been accordingly adjusted.
Manufacturers and merchant exporters engaged with the specified 410 Harmonized System (HS) lines will benefit from a 2 percent interest equalization rate under this extension. The Interest Equalisation Scheme (IES) facilitates reduced-rate credit from banks to exporters, with the subsidy rate determined by the government. This policy adjustment reflects the government’s balancing act between supporting exporters and managing fiscal constraints amid global economic pressures.
