What is Interest Equalization Scheme (IES)?
The Interest Equalisation Scheme (IES) was established on April 1, 2015, to give exporters pre and post-shipment export credit in rupees. Exporters were suffering rising borrowing costs in their export cycles at the time as a result of global demand stagnation and prolonged credit terms.
The government anticipated that by instituting this plan, exporters would be able to fix their pricing and improve the competitiveness of their products.
The government identifies qualifying exporters and passes on the interest equalisation amount they are entitled to directly to them under the IES/Interest Subvention concept. This scheme, also known as the interest subvention export scheme for exporters, was created to aid the MSME sector in particular. It was initially introduced for a five-year period.
What IES offers
IES proposed a 3% interest equalisation rate in order to reverse the negative trend in exports. With effect from November 2, 2018, this was increased to 5%, however, the rate for major manufacturers and merchant exporters remained at 3%.
The government had set aside Rs. 2,500 crore for IES each year, with the actual cost to revenue based on the claims made by exporters. It encompassed labour-intensive products with the potential to create jobs.
Here are a few sectors covered by IES:
- Processed agricultural and food items
- Handicrafts and handloom products
- Handmade carpets (including silk carpets)
- Coir and coir products
- Raw jute and yarn
- Readymade garments and fabrics
- Toys and sports items
- Paper and stationery
- Cosmetics and toiletries
- Leather goods, including footwear
- Ceramic products
- Glass and glassware
The scheme was supported by the Department of Commerce’s non-plan money; the department was to supply the RBI with a month’s fund in advance, with monthly reimbursements provided through a revolving fund structure. The RBI was also in charge of issuing operational guidelines for the plan.
Who can use IES and how does it work?
- Interest Subvention Program for MSME Exports
All MSME exporters have access to IES. Since January 2019, it has also been offered to manufacturer exporters for exports in the 416 four-digit tariff line. Merchant exporters accounted for approximately 35 percent of the country’s exports at the time of inclusion and often operated at a modest margin of 2-4 percent.
- Scheme of Interest Subvention for Merchant Exporters
Merchant exporters play a key role in both direct and indirect export growth and facilitation of export by MSME manufacturers. Their membership in the IES results in the fulfilment of their sustained demand as well as the reduction of their credit expenses.
- The items must be made by the exporter in accordance with the FTP’s definition of “manufacturing.”
- When imported inputs are used, export outputs will be classified as originating in India only if they go through considerable processing or operation (described in detail in the Handbook of Procedures).
- Telecom product exports are eligible under the plan, subject to a minimum value addition as determined by the Department of Telecommunications.
- Previously, it was only authorised to engage on import/export activities with the agreement of both Customs and ATA Carnet, but with the revised para 2.63 of HBP, 2015-20, this has been replaced by either of them/one of them/any of them.