India will offer exporters an interest subsidy scheme for a period of five years. The move is expected to provide relief to exporters after shipments contracted for the ninth consecutive month in August.

Labour-intensive exporting sectors such as handicrafts, handlooms, small and medium enterprises, readymade garments, processed agriculture goods, sports goods and toys, and many engineering items are likely to be provided a two to three percentage point interest subsidy per annum. With the Reserve Bank of India also reducing its benchmark lending rate, credit costs for exporters are expected to substantially come down, once banks transmit the rate cuts.

Exports contracted 20.7 per cent and imports shrank 9.95 per cent in August. In all, shipments of 23 out of 30 commodity groups contracted in August. Contraction in exports of engineering goods and readymade garments is particularly worrying as both had shown signs of a recovery in July with positive growth rates.

But there is a view that an interest subsidy for exports is not enough since high transaction costs and intermediary charges also contribute significantly to the cost of exporters, making them uncompetitive. In fact 2015 will mark the fourth consecutive year in which annual trade growth has fallen below three per cent. India wants to raise its share of world exports to 3.5 per cent by 2020 from two per cent now.