The government is preparing to launch a revamped interest subvention scheme aimed specifically at micro, small, and medium enterprises (MSMEs), offering them a 3% interest subsidy on export credit. The move comes as part of a broader support package for exporters struggling under the weight of steep tariffs imposed by the United States on a wide range of Indian goods.
According to officials, the Cabinet is expected to soon consider the proposal, which may cover a five-year period under the government’s export support plan. The scheme is being redesigned to prioritise labour-intensive and MSME-dominated sectors — including textiles, garments, gems and jewellery, handicrafts, leather, footwear, furniture and toys — all of which have been hit particularly hard by the US’s 50% import tariffs.
“The Cabinet will soon take up the proposal to provide interest subvention to MSME exporters,” an official told Financial Express. “The focus is on supporting sectors facing cost pressures and liquidity constraints following the new tariffs.”
The revamped scheme will offer a 3% interest subsidy on pre- and post-shipment rupee export credit, lowering the effective borrowing cost for smaller exporters who face limited access to cheap credit. The plan is to help MSMEs manage working capital requirements and encourage fresh investments in export-linked production.
The earlier version — the Interest Equalisation Scheme (IES) — was introduced on 1 April 2015 and initially extended to all exporters, including MSMEs. It offered a 3% interest subsidy, which effectively reduced bank lending rates to 5–7%, down from typical rates of 9–12%, making Indian exporters more competitive globally.
The IES was credited with boosting export volumes before it ended in December 2024. During its operation, the scheme’s annual cost averaged around ₹3,700 crore. In FY24, spending stood at ₹3,699 crore, declining to ₹2,482 crore in FY25 as the scheme ran for only three quarters that year.
Exporters argue that reinstating the scheme is critical, as credit costs in India remain 8–12%, compared with 2–3% in competitor economies such as Vietnam, Thailand and China. “The cost of funds gap is crippling MSME competitiveness,” one industry representative said.
The new version of the scheme is expected to be more selective in its coverage. Officials said that large exporters, who often have stronger balance sheets and access to low-cost finance, are unlikely to be included this time.
“It has been suggested that the interest subvention be limited to MSMEs,” an official confirmed, noting that most ministries agreed that smaller players face greater strain amid the current headwinds. Large exporters typically have greater bargaining power with buyers, access to foreign exchange reserves, and better hedging mechanisms, reducing their immediate need for subsidised credit.
The government’s focus, officials said, is to make the scheme more robust for labour-intensive exporters who are directly exposed to US tariffs.
The scheme is likely to be introduced as part of the upcoming Export Promotion Mission (EPM), which is in its final stages of preparation. The EPM, announced in the FY26 Union Budget with an outlay of ₹2,250 crore, seeks to consolidate multiple export-related initiatives, including the Lab-Grown Diamonds (LGD) and Market Access Initiative (MAI) programmes.
While it remains unclear whether the new interest subvention will be formally rolled out under the EPM umbrella, the mission shares the same goal — to lower export credit costs through policy and financial innovation. This may also involve expanding India’s factoring market and developing new financial instruments for exporters.
Export organisations, however, are urging the government to go further. The Federation of Indian Export Organisations (FIEO) has called for a 5% interest subsidy across all exporters, arguing that the current global environment demands a more inclusive safety net.
Officials insist that the narrower scope of the new scheme reflects a pragmatic balance between targeted relief and fiscal discipline. Covering all exporters, as in the previous version, would cost the exchequer upwards of ₹3,700 crore annually — a burden difficult to sustain in a year of subdued revenue growth and increased social spending commitments.
By focusing on MSMEs and labour-intensive sectors, the government hopes to deliver maximum impact with limited expenditure, ensuring that the most vulnerable exporters stay afloat amid rising protectionism.
As the US tariffs disrupt trade flows, policymakers see the interest subvention as a timely bridge — one that cushions small exporters until the broader benefits of the Export Promotion Mission and GST 2.0 reforms begin to take effect.