Concerned over export contraction in May and June, the government on Wednesday announced  a hike in interest subsidy to engineering goods, textiles and related segments to three per cent from the current two per cent, taking a hit of Rs 450 crore in remaining seven months of the financial year.

The higher interest benefits would be available from Thursday. This means when exporters borrow from banks, the government will pay them  subsidy equivalent to three per cent of the interest payment, effectively reducing their interest burden.

The government will also clear claims of exporters on interest subvention for 2012-13, which will dent the government kitty by another Rs 1,550 crore. Announcing this, Commerce and Industry Minister Anand Sharma promised more export sops to reverse fall in outbound shipments, which are targeted to touch $325 billion (Rs 19.71 lakh crore today) in 2013-14, compared with around $300 billion last financial year.

The minister has convened a board of trade meeting on August 27, which may witness some export incentive measures being announced, including expanding interest subvention to other sectors as well as increasing the corpus of the market access initiative (MAI), market development assistance and central assistance to states for developing export infrastructure and other allied activities (ASIDE) schemes.

Interest subsidy is given to certain engineering goods, textiles, handicraft, carpets, toys, sports goods, processed agricultural products and readymade garments.  "The move will help in reducing the cost of credit and adding to competitiveness of exports," said M Rafeeque Ahmed, president, Federation of Indian Export Organisations. 

Sharma said the directorate general of foreign trade was identifying sectors which could be given interest subvention.

The commerce department did not specify how much the exchequer would be hit by giving increased interest subvention.

The minister also announced that pending claims of exporters on interest subvention were being expeditiously cleared.
 
"The government is making available the required resources to clear all claims of the exporters...And the provisions are being made to ensure that claims of the all the exporters are settled forthwith",  he said.   
 
Pulled down by subdued demand overseas, India's exports declined 1.41% at $72.45 billion in the first quarter of 2012-13 against $73.49 billion in the previous year. Sharma stuck to the target of $325 billion dollars for the current year, which represents 8.12% growth over the previous year.  India's exports declined 1.76% to $300.5 billion in 2012-13 against $305.96 billion a year ago.