DGFT Seeks Insights on Trade Finance to Enhance Export Competitiveness

The Directorate General of Foreign Trade (DGFT) is gathering information from various export bodies to evaluate the effectiveness of the government’s interest equalization scheme for exporters and explore ways to enhance trade finance. This initiative aims to determine if the scheme is achieving its intended results and to identify improvements in the trade finance landscape.

A representative from a Delhi-based export body shared with BusinessLine, “The DGFT has been asked by the Finance Ministry to demonstrate that the interest equalization scheme is producing positive outcomes. We have already provided the necessary details for a study on trade finance being conducted by the DGFT. Once all export bodies submit their information, a comprehensive report will be compiled.”

First introduced in April 2015 for a five-year period, the interest equalization scheme allows exporters of 410 identified products and all exporters from the MSME sector to receive bank credit at a subsidized interest rate set by the government. The government reimburses banks for the reduced interest earnings. The scheme’s current extension is set to expire on June 30, 2024.

Study Objective

“The purpose of the DGFT’s study is to identify current challenges faced by institutions across the entire trade finance supply chain. The study aims to help the department assess key gaps and make recommendations to ensure seamless facilitation of trade finance in India,” according to an internal document circulated to export body members.

The Federation of Indian Export Organizations (FIEO) highlights that the interest equalization scheme has been crucial in enhancing the competitiveness of Indian exports, especially for MSMEs, given that interest rates in India are significantly higher than in competing countries.

Ajay Sahai, Director General of FIEO, emphasized the scheme’s importance: “We not only want the interest equalization scheme to continue, but we also want the rates to be restored to previous levels. We have communicated this to the DGFT. The rates were reduced when the repo rate was brought down to 4.4 percent. Now, it has increased to 6.5 percent. Therefore, a 2 percent enhancement in subvention is necessary.”

Currently, MSMEs receive a subvention of 3 percent, while other eligible sectors receive 2 percent. With the scheme’s validity ending on June 30, a decision on its extension is expected to be made by the new government at the Center.

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