Interest Equalisation Scheme (IES)

Interest Equalisation Scheme (IES): The Commerce and Industry Ministry has requested an extension of the Rs 3,000 crore Interest Equalisation Scheme (IES) ahead of the Union Budget 2025-26, focusing on MSMEs involved in exports.

• About: IES is a government program that reduces the interest rates that banks charge exporters on export-related credit. The scheme was introduced on April 1, 2015.
• The IES scheme lapsed on December 31 (2024), and discussions are ongoing between the Finance and Commerce Ministries to modify it.
• Concerns were raised that large exporters, especially non-MSMEs, were benefiting the most from the scheme. A revision will prioritize MSMEs, which contribute 45% to India's total exports.
• Exporters had demanded an extension in pre-Budget consultations, as they need subsidized interest loans due to rising inflation and logistical challenges, such as the Red Sea crisis.
• Export credit declined between March 2022 and March 2024, despite rising demand. FIEO highlighted liquidity challenges due to high inflation and longer credit durations.
• IES subsidy is critical for exporters with low profit margins, helping them secure competitive export orders by reducing credit costs.
• The IES scheme, launched in April 2015, provides interest subsidies on export credit ranging from 3-5%, making Indian exports more competitive.