Exporters hope for interest subvention scheme to help MSMEs counter coronavirus crisis

Indian exporters are looking to the government to provide some financial support to counter the COVID-19 impact on the global economy.

Export associations believe the government should provide interest subvention schemes in lending export-oriented MSMEs.

MSMEs form a part of nearly 65 percent of the value of exports in India. Several sectors such as textile, jewellery, handicrafts and gems have been severely impacted due to the ongoing crisis, experiencing nearly 50 percent fall in orders.

"An interest subvention scheme will reduce the cost of funding. It will directly benefit exporters and help them resume operations once the lockdown is lifted," said Sharad Kumar Saraf, President, Federation of Indian Export Organisations (FIEO).

In Charts | Economic impact of lockdown on Centre and states

Out of the  Rs 1.5 lakh crores relief package expected from the government, the export association hopes to see a dedicated fund to provide for this subvention.

The government has an interest equalisation scheme in place. This scheme has been designed to aid manufacturing and merchant exporters with an interest subsidy of 3 percent on pre-and-post-shipment rupee credit for exports of 416 products (tariff lines).

To boost MSME sector exports, the Reserve Bank of India in November hiked the interest subsidy on the post- and pre-shipment export credit to 5 percent from 3 percent.

Exporters are estimated to have received Rs 2,868 crore under the equalisation scheme in FY20.

However, according to an industry expert, recovery becomes difficult in certain cases due to lack of collateral with MSMEs. The government provides reimbursement in case of bad loans and full cover is not available in most categories. Usually, the cover ranges from 65-75 percent of the loan, thus the balance turns into losses for banks.

The commerce ministry on March 31 announced an extension of the foreign trade policy for 2015-20 by a year until March 2021.

"Since there is complete lockdown from 24th March and no export is taking place, several orders of the exporters have been rejected. A large quantity of material to be exported is idle lying with exporters. Many commitments of delivery have been failed," said Praveen Khandelwal, National Secretary General of the Confederation of All India Traders (CAIT).

The lockdown has brought domestic production is at standstill due to closure of units. Most exporters procure goods from these units. This is further expected to dampen business, as they fear that orders in hand would have to be revalidated. And because the whole world is dealing with the crisis, there is no surety on which orders would be revalidated, if at all.

"If India government allows exports but much would depend upon the conditions of the country where the goods would be exported. As of now nobody knows how global economy would behave post Covid . Therefore, exporters are confused," Khandelwal added.

The sector also contributes about 25 percent to the country's gross domestic product from service activities and over 33 percent to the manufacturing output of India.

Some trade experts believe that there is an immediate need for some kind of an incentive package for exporters.

"It has to be remembered that to begin production, they'll need labour, most of whom are migrants and have gone back. Without financial assistance, things look bleak," a trade expert said on condition of anonymity.

Industry body Confederation of Indian Industry (CII) has asked the government to release dues to MSMEs immediately. It has also requested enhanced working capital, moratorium extension along with wage support. The apex body has further asked the government to provide additional funding through Mudra Bank and other MSME-focussed banks.

It has also set up a CII Covid Rehabilitation and Relief Fund (CRR) to assist small enterprises or MSMEs.

Follow our full coverage of the coronavirus outbreak here