Interest Equalization Scheme with reduced interest rates extended till March 2024 or till further review

[Today, RBI clarifies about Government order on Production Linked Incentive (PLI)]

Updated on 31.05.2022

In the RBI circular dated March 8, 2022, it was stated that the extended IES would not be available to those beneficiaries who were availing of the benefit under any Production Linked Incentive (PLI) scheme of the Government. In this regard, RBI has issued a clarification today that the extended IES will also be available to such beneficiaries for segments other than for which they have availed of PLI benefits. However, applicants have to submit a self-declaration that they are not availing of benefits under the Production Linked Incentive (PLI) scheme of the Government of India in the segment/sector for which this application is for pre/post-shipment credit under the Interest Equalization Scheme (IES) has been made.
The other unchanged details of the RBI circular dated March 8, 2022, are as under:

The government of India 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 modified scheme takes effect from October 1, 2021, and ends on March 31, 2024. The following are the modification made by the Government to the Scheme.

1. Under the modified scheme, the Telecom Instruments’ sector having six HS lines shall be out of the purview of the Scheme, except for MSME manufacturer exporters.
2. Revised interest equalisation rates under the Scheme will now be 3 per cent for MSME manufacturer exporters exporting under any HS lines, and 2 per cent for manufacturer exporters and merchant exporters exporting under 410 HS lines (after excluding 6 HS lines pertaining to Telecom Sector as mentioned above).

Reserve Bank vide its circular no. RBI/2018-19/81/DBR.Dir.BC.No.09/04.02.001/2018-19 dated November 29, 2018, announced that with effect from November 02, 2018, Interest Equalisation rate from 3% to 5% in respect of exports by the Micro, Small & Medium Enterprises (MSME) sector manufacturers under the Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit. According to the above said circular benefit of the scheme is provided to all eligible MSME Exporters. From January 2, 2019 merchant exporters also have been included under the scheme for export of products covered under 416 tariff lines identified under the scheme.

The scheme is beneficial to labour intensive and employment generating manufacturing sectors like sectors such as textiles, engineering, and leather that do exports of their goods. The manufacturing activities like processed agriculture/food items, handicrafts, handmade carpet (including silk), handloom products, coir and coir manufacture jute raw and yarn, readymade garments, Fabrics of all types, toys, sports goods, paper and stationery, cosmetics, toiletries, leather goods and footwear, ceramics, glass and glassware, medical and scientific instruments, optical frames, lenses, sunglasses, auto components industrial machinery, electrical and engineering items, etc. manufactured by SMEs are covered under the scheme.

Under the scheme, Banks are required to reduce the interest rate charged to the eligible exporters as per RBI’s extant guidelines on interest rates on advances by the rate of interest equalisation provided by the Government of India.   Banks, while issuing approval to the exporter, will necessarily furnish i) the prevailing interest rate, ii) the interest subvention being provided, and iii) the net rate being charged to each exporter, so as to ensure transparency and greater accountability in the operation of the Scheme.