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RBI extension for IES export credit to benefit pharma MSMEs

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RBI has extended IES export credit to March 31, 2021, and it is applicable on pre and post-shipment rupees export credit

The recent move by Reserve Bank of India (RBI) to extend the Interest Equalisation Scheme (IES) on pre and post-shipment rupees export credit for one year, up to March 31, 2021, has found favour with pharma sector, especially MSMEs.

The RBI has issued a circular communicating about a year extension of IES on pre and post-shipment rupees export credit to all Scheduled Commercial Banks (excluding regional rural banks (RRBs), Small Finance Banks, Primary (Urban) Cooperative Banks and EXIM Bank.

Commenting on RBI’s move, Viranchi Shah, National Vice President, IDMA-GSB, said, “It is a welcome step by the government. It helps to give subsidy on interest for pharma manufacturers and exporters, thereby making them more competitive in international markets.”

Bhavin Mehta, Director, Kilitch Drugs commented, “It is a good move by the government. With this, all the MSMEs will be benefited as they will get three per cent interest subvention, which was one of the provisions in the Foreign Trade Policy. Hence, the interest burden to the tune of three per cent will be reduced and more funds which will be available for working capital.”

SV Veeramani, Chairman and Managing Director, Fourrts Laboratories explained, “It is a welcome step and appreciated by the industry. It will be beneficial for those who are having rupee account for pre and post-shipment credit as the scheme is now extended for one more year. They will continue to get three to five per cent interest subsidy for exports of selected products. However, this is not applicable to those who are having foreign currency accounts.”

Suresh Pareek, Managing Director, Ideal Cures opined, “It is a very good step initiated by the Government, and this move is in favour of smaller-sized companies. However, rupee transactions are mainly done in Nepal and Iran, in view of this, a year of extension is not much beneficial to the larger spectrum of the industry. In fact, a similar step needs to be initiated for exports dealing in dollars and euros. Then, it would extend help as well as benefit the industry in such a crisis phase.

Venkata Reddy Alla, Chairman and Managing Director, Lee Pharma said, “This scheme is beneficial to small and medium pharma exporters who are exporting to Nepal, Bhutan and Sri Lanka in Indian currency. It will reduce the burden on bank interest. Further, we request the Government for an extension of interest equalisation scheme on pre and post packing credit on other currencies too for all pharma exports.”

He further elaborated, “Now the world is looking at India for pharma products. This crisis situation is also an opportunity. To take advantage of it, the Government can extend the Merchant Export Incentive Scheme (MEIS) by minimum seven per cent on all exports of APIs as well as finished formulations, irrespective of the countries. This will boost the Indian pharma industry and help it capture a big share of the global pharma market.

The aforementioned scheme is being implemented by the Directorate General of Foreign Trade Directorate (DGFT) through commercial banks. It came into effect from April 1, 2015, for a period of five years. (The scheme was earlier called as ‘interest subvention scheme’. It existed from August 2010 to March 31, 2015.)

The COVID-19 pandemic has hit all sectors adversely. Pharma exports performance too has been affected significantly. Considering, the impact of this crisis on exports data from March and April 2020 various industry stakeholders have been making representations to the government with a request to extend the IES for quite some time.

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