In a significant move to bolster India's micro, small, and medium enterprises (MSMEs), the Commerce Department announced two major financial support schemes on Friday. The initiatives are squarely aimed at tackling the perennial challenges of high credit costs and lack of collateral that have long hampered small businesses, especially those involved in exports.
Two-Pronged Financial Support for Exporters
The government has rolled out a comprehensive package featuring an interest subsidy mechanism and a separate loan guarantee corpus. The interest subsidy scheme has an allocation of nearly Rs 5,181 crore, which will be spread over a period of six years starting from the current financial year. Alongside, a collateral support scheme with a corpus of Rs 2,114 crore, also spanning six years, has been established to guarantee loans for exporting MSMEs.
Details of the Interest Subsidy Scheme
The newly unveiled interest subsidy scheme is designed to provide direct relief on borrowing costs for MSME exporters. Officials stated that the scheme will offer a subsidy of 2.75% on loans, with the rate subject to a reset every six months. This reset will be linked to the Reserve Bank of India's repo rate as well as interest rates prevailing in other competing economies.
Learning from past experiences, the Directorate General of Foreign Trade (DGFT) has introduced prudent caps. The annual interest subsidy assistance is capped at Rs 50 lakh per business. Furthermore, the benefit will be available for 75% of product lines, with a special focus on labour-intensive sectors. Currently, small businesses often borrow at rates between 9% and 12% to meet export credit needs, and this subsidy is expected to provide substantial relief.
How the Loan Guarantee Corpus Works
The second pillar of the announcement is the Export Credit Guarantee Scheme. With its Rs 2,114 crore corpus, the government aims to leverage the fund 30 to 35 times to facilitate a total loan flow of Rs 60,000 to Rs 65,000 crore to the MSME sector. An official expressed confidence, noting that the delinquency rate in such schemes is currently a manageable 3-4% and appears to have peaked, allowing for greater leverage.
The guarantee cover provided will vary based on the size of the enterprise. Micro and small businesses will receive a guarantee cover of up to 85% of the loan amount. For medium enterprises, the cover will be capped at a lower rate of 65%.
Broader Impact and Industry Response
The schemes also include plans for an incentive aimed at exporters who tap into new and emerging markets. The finer details of this incentive, along with initiatives to develop other financial tools like factoring, are slated to be announced in the coming weeks.
Industry leaders have welcomed the move. SC Ralhan, President of the Federation of Indian Export Organisations (FIEO), stated that the launch of interest support for pre- and post-shipment export credit and the collateral guarantee mechanism marks a decisive step towards addressing two of the biggest challenges faced by MSME exporters. For years, Indian businesses have cited lack of access to affordable credit as a major impediment to growth and global competitiveness.
This dual initiative represents a targeted effort by the government to strengthen the backbone of the Indian economy by empowering its vast MSME sector, particularly in the export domain.
