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Interest subsidy scheme widened, rates hiked to 3 per cent



Updated On - Monday, 26 August 2013

1August 2013

NEW DELHI: The government on July 31 raised and widened the interest subsidy scheme for exporters in a bid to check the country's flagging merchandise shipments and contain its current account deficit.

Commerce and industry minister Anand Sharma said the rate of interest subvention has been raised to 3 per cent from 2 per cent with immediate effect and that the scheme will now include more businesses.

Under the scheme, state-run banks offer loans to exporters of select goods, and micro, small and medium enterprises at a discount to the prevailing rate of interest. The government then reimburses the difference to these banks.

"The rate of interest subvention from tomorrow, which would be available to exporters, would be enhanced to 3 per cent...that is deepening of the benefit," Sharma told a news conference.

He also said the scheme will now cover handlooms, handicraft, toys, carpets, sports goods, processed foods and readymade garments, besides 235 tariff lines in engineering and six tariff lines in textile sectors.

The measures come at a time when India is battling a sharp contraction in exports despite a steep fall in its currency, which has resulted in further widening of the country's current account deficit.

Exports contracted 4.6 per cent to $23.79 billion in June, the second straight month of decline. With India's current account deficit widening to an all-time high of 4.8 per cent of the GDP in 2012-13, boosting exports is seen as a long-term solution. The government has set an export target of $325 billion for this fiscal.

"We are also considering how to widen the coverage (of the scheme)," Sharma said, adding that the commerce secretary and the director general of foreign trade are in the process of identifying the sectors and tariff lines which should be included in the scheme. The minister also said that all pending claims of exporters will be settled immediately.

"The government is making available the required resources to clear all claims of the exporters...and the provisions are being made to ensure that claims of all the exporters are settled forthwith," Sharma said. TheFederation of Indian Export Organisations said the move will help improve liquidity of exporters.

"Delays in grant of export benefits have affected the liquidity of exporters and announcement to settle all pending claims forthwith will help the export sector tide over liquidity problems to some extent," Fieo president M Rafeeque Ahmed said.

A Sakthivel, chairman of the Apparel Export Promotion Council, said the hike in interest subsidy will ensure that exporters get capital at lower rates. "The move will help all SME exporters as the availability of capital at low interest is a critical component. This will improve the liquidity condition and help in boosting apparel exports," Sakthivel said.

Published by: The Economic Times

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