Extension of Interest Equalization Scheme – COVID 19

On account of the prevailing lockdown in India for the COVID-19 pandemic, the Government of India has provided several benefits to exporters, especially MSME sector exporters. One such vital benefit to exporters is the extension of the Interest Equalization Scheme for Pre and Post-Shipment Export Credit. This scheme was implemented in the year 2015 for five years. As a trade facilitation measure, the Directorate General of Foreign Trade (DGFT) has issued a trade notification for extending the Interest Equalization Scheme for one more year, up to March 31, 2021.

Interest Equalization Scheme for Pre and Post-Shipment Export Credit

As part of this scheme, a rebate of interest is provided to exporters on pre and post-shipment export credit like packing credit. 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. Consequently, the extent of operational instructions issued by the Reserve Bank of India under the scheme will continue to remain in force upto March 31, 2021.

Eligibility for Interest Equalization Scheme

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.

Rate of Equalization

At the time introduction of the scheme the rate of subvention was fixed at 3% and the rates for MSME sectors have been increased to 5% with effect from 2nd November 2018. The rate for a large manufacturer and Merchant exporters remains at 3%. Have a look at the below-table to a better understanding of the eligible category and equalization rate of the Interest Equalization Scheme:

Sl.No	Export Items	Eligible Category	Rate of Equalization
1	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
2	All tariff lines	MSME units Manufacture	5% per annum

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. [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/05/Interest-Subvention-Scheme-6-37-2.pdf" title="Interest Subvention Scheme-6-37 (2)"]

Eligible Industries

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

Operational Procedure for Claiming Reimbursement

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. 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: [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/05/CLAIM-FORM.pdf" title="CLAIM FORM"]

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