The Cabinet Committee on Economic Affairs today approved provision of Rs. 404 crore and also approved an addition amount of Rs. 996 crore (after adjustment of Rs.404 crore from the requirement of Rs. 1400 crore as advised by Department of Financial Services) for meeting pending interest subvention claims of banks, as requested by RBI.

The measure will mitigate the effects of global melt down across labour intensive export sectors and help them to be internationally competitive and achieve their export targets. 

Background: 

The interest subvention scheme was introduced in July 2007 vide RBI notification dated 13.7.2007 on the advice of Ministry of Finance to help exporters offset the losses on account of global recession. In this scheme, which is operated by the Reserve Bank of India, Government provides interest subvention of 2 percentage points per annum to all scheduled commercial banks in respect of rupee export credit to the specified categories of exporters. The scheme covered the following sectors viz. Textiles (including Handlooms), Readymade Garments, Leather Products, Handicrafts, Engineering Products, Processed Agricultural Products, Marine Products., Sports Goods and Toys. Subsequently, the scheme was extended up to 31.03.2008 and two new sectors were included viz. Solvent Extracted De-oiled cake and Plastics & Linoleum. Subsequently, the scheme was extended upto 31.3.2010 on pre and post shipment rupee export credit for the following employment oriented export sectors viz. Textiles (including Handloom); Handicrafts; Carpets; Leather; Gems & Jewellery; Marine products and Small & Medium Enterprises Thereafter, Government decided to extend the scheme w.e.f April 1, 2010 to March 31, 2011 on pre and post shipment rupee credit to employment oriented sectors viz. Handicrafts; Carpets; Handlooms; Small & Medium Enterprises (SME). 

Under the first scheme of subvention, Reserve Bank of India had originally estimated the requirement of an amount of Rs.1350 crore for the period from July 1, 2007 to September 30, 2008. As regards the second scheme of subvention from December 1, 2008 to March 30, 2010, the RBI estimated the requirement of an amount Rs.1250 crore. CCEA approved release of Rs.800 crore and Rs.450 crore in its meetings dated 21.2.2008 and 23.2.2009 respectively for interest subvention. The balance amount to be released to Reserve Bank of India is Rs. 1400 crore (rounded off). 

In the meanwhile, Government decided to extend the scheme on the same terms and conditions from 1.4.2010 to 31.3.2011 to certain additional sectors/sub-sectors in addition to the employment oriented export sectors, namely, Leather and leather manufactures, Jute manufacturing including Floor Covering, Engineering Goods and Textiles, for which Rs. 404 crore has been provided to Department of Commerce in the 1st Batch of Supplementary Demand for Grants for the year 2010-11.  Interest subvention for rupee export credit reimburses banks to sustain exporters' competitiveness amid global downturn. Government approved additional budgetary allocations to meet pending claims under the Interest Subvention scheme for rupee export credit administered by the central bank, which reimburses scheduled commercial banks for a two percentage point concession on pre and post shipment export credit to eligible, employment oriented exporter sectors. The scheme's sectoral scope and successive temporal extensions are noted, and recent supplementary funds were provided to cover outstanding liabilities and to include further export sub sectors within the scheme.