Interest Equalisation Scheme explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Interest Equalisation Scheme reduced the effective interest rate on pre-shipment and post-shipment rupee export credit, with government bearing a percentage of the interest and banks claiming reimbursement from RBI. Its eligibility, rate, tariff line coverage and per-IEC cap changed with each extension, so the applicable notification must be checked for the relevant period.
What the Scheme Did
Indian exporters compete against suppliers in economies where working capital is structurally cheaper. The Interest Equalisation Scheme addressed that directly: rather than granting a cash incentive linked to export value, it reduced the cost of the credit itself.
Mechanically it is simple. The bank charges the exporter interest at a rate reduced by the notified percentage. The bank then claims that percentage from the Reserve Bank. The exporter applies for nothing; the benefit appears as a lower rate on the facility.
Because the benefit is delivered through the banking channel, the practical questions for an exporter are eligibility, whether the bank has correctly identified the account as eligible, and whether the reduced rate has actually been applied.
The Scheme's Moving Parts
| Element | What varied across notifications |
|---|---|
| Rate of equalisation | Different percentages applied to different exporter categories at different times |
| Eligible exporters | Progressively narrowed, with MSME manufacturer exporters retained longest |
| Covered tariff lines | A specified list of tariff lines for some categories; all lines for others |
| Credit covered | Rupee pre-shipment and post-shipment credit |
| Per-IEC annual cap | Introduced and then reduced in later periods |
| Period of operation | Extended repeatedly by notification, and allowed to lapse at points |
That table is the important point about this scheme. Almost every parameter has changed at least once. A statement of "the rate" without a date is not usable, and advice given for one financial year has repeatedly been wrong for the next.
Checking the Position for Your Period
- Identify the borrowing period for which you are testing eligibility.
- Find the DGFT trade notice or notification and the RBI circular operative for that period. Both matter: DGFT sets scheme parameters, RBI instructs banks on operation and claims.
- Check your category — manufacturer exporter, merchant exporter, MSME status — against the eligibility in force then.
- Check your tariff lines against the covered list, if the notification applied one to your category.
- Check the cap per IEC for that year and how much of it you had already used.
- Confirm with your bank whether the account was flagged as eligible and the reduced rate applied.
Conditions That Consistently Applied
Across versions of the scheme, certain conditions recurred and are worth knowing:
- Rupee credit only. The scheme applied to rupee export credit, not to foreign currency credit such as PCFC, which is priced off an international benchmark.
- Valid IEC and, where applicable, valid Udyam registration for MSME categories.
- Not available alongside certain other benefits for the same credit, to prevent double subsidy.
- Not available where the account is irregular — the benefit does not run on overdue or restructured advances.
- Bank-level certification and reporting, with the exporter's declaration on record.
Verifying Pass-Through
The most common practical failure is not denial but under-pass-through. An eligible exporter's account is not correctly flagged, and interest is charged at the full rate for months before anyone notices. To catch it:
- Take the notified benchmark and spread from your sanction letter for each period.
- Compute what the interest should have been, before and after the equalisation percentage.
- Compare against the interest actually debited on the statement, period by period.
- Where there is a gap, write to the bank citing the notification, your eligibility and the affected periods.
- Keep the correspondence; retrospective credits are usually given where eligibility is demonstrable, but they are not given automatically.
How to Plan Around Scheme Uncertainty
- Do not price long-dated orders assuming the benefit. If the scheme lapses mid-order, the margin absorbs it.
- Model your working capital cost both ways — with and without the benefit — when quoting.
- Watch the cap. Where a per-IEC cap applies, the benefit is exhausted partway through the year for larger exporters, so the effective rate rises in the second half.
- Compare against PCFC. The choice between rupee credit with a subvention and foreign currency credit without one changes as the scheme parameters and the two rate cycles move.
- Keep MSME registration current if your eligibility depends on it. A lapsed Udyam registration silently ends the benefit.
Practical Tips
- Ask your bank in writing, once a year, to confirm your eligibility status and the rate being applied under any subvention in force.
- Retain the notification text applicable to each year with your loan file; reconstructing the position later is much harder.
- Where you operate multiple IECs in a group, track the cap per IEC — it is not a group limit.
- Treat any advice about "the current rate" that does not cite a dated notification as unreliable.