MSMEs Set to Get a Boost: Government Plots Interest-ing Comeback!

Unknown Apr 02, 2026 1,050 Views

The Indian government is seriously contemplating restoring interest subsidies on export credit for MSMEs. This action, in the form of the proposed Export Promotion Mission, is set to assist MSMEs in braving global tariff volatility and improving their competitiveness in global markets. The initiative follows the scrapping of the earlier interest equalisation scheme in December 2024, which had offered crucial assistance to MSME exporters dealing with hefty borrowing rates and weakened demand globally.

Background: Earlier Interest Subsidy Scheme

The interest equalisation scheme, launched in 2015, enabled qualifying exporters-majorly MSMEs-to avail rupee export credit at subsidised rates, often getting a 3% interest subsidy.
The scheme was shut down in December 2024, cutting the government's allotment from ₹3,700 crore in FY24 to ₹2,482 crore in FY25.
Around 85% of the scheme's beneficiaries were MSMEs, underlining its significance for the sector.

Current Proposal: Targeted Interest Support

The government is now considering a more focused and targeted interest subsidy, i.e., to MSME exporters, under the newly announced Export Promotion Mission with an outlay of ₹2,250 crore in the FY26 budget.
The commerce ministry has reasoned that MSMEs are not able to compete abroad unless with such support, since they are paying higher credit costs-typically 8–12% interest-rather than their foreign counterparts.
The scheme is intended to redress these imbalances and is being discussed between the commerce and expenditure ministries.

Rationale and Industry Demand

Export organizations have urged renewed support to offset global demand slowdowns and uncertainties arising from recent US tariff actions.
Continued support is also requested to enable MSMEs to take advantage of new trade agreements, including the recent one with the UK and possible agreements with the US.
The World Trade Organization recently projected a 0.2% decline in global goods trade volume for 2025, emphasizing the need for government intervention to maintain export momentum.

Complementary Government Initiatives

The Export Promotion Mission is designed as an umbrella scheme to consolidate various export initiatives and will complement other manufacturing support missions announced in the latest budget.
The Union Budget 2025-26 has also brought in steps to increase access to credit, facilitate first-time entrepreneurs, and encourage labour-intensive industries in MSMEs.
More incentives are higher credit limits, digitalization, and longer tax benefits for MSMEs.

MSME Export Performance and Sectoral Impact

MSMEs have remained resilient, and their contribution to India's total exports has improved to 45.79% in 2024-25.
Yet India's merchandise exports went flat at $437 billion during the last fiscal, mirroring weak global demand and underlining the necessity of renewed support.
The industry directly employs more than 25 crore workers and is crucial to India's economic growth and employment generation.

Next Steps

A final call on the design and rollout of the new interest subsidy is awaiting inter-departmental consultations.

The government will make detailed guidelines in the coming months, which will give timely relief to MSME exporters and strengthen India's position in international trade.

Sources: Economic Times, PIB, NEXT IAS, Bajaj Finserv

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