Niryat Prothsahan Export Credit Framework: Analyzing New Interest Subvention and Collateral Support Interventions
1. Executive Summary
The landscape of Indian export finance has undergone a fundamental transformation with the notification of the Export Promotion Mission (EPM). Approved by the Union Cabinet on November 12, 2025, with a staggering outlay of INR 25,060 crore (spanning FY 2025-26 to FY 2030-31), the EPM represents the Government of India’s most ambitious attempt to formalize and digitize export support.
Under the flagship sub-scheme NIRYAT PROTHSAHAN, the Ministry of Commerce & Industry, through the Directorate General of Foreign Trade (DGFT), recently released Trade Notice Nos. 20/2025-26, 21/2025-26, and 22/2025-26. These notices provide draft guidelines for two critical financial pillars:
1. Interest Subvention Support for Pre- and Post-Shipment Export Credit
2. Collateral Support for Export Credit (CSEC)
This update provides a comprehensive analysis of these schemes, their legal underpinnings, operational guidelines, and the compliance framework that exporters and financial institutions must now navigate.
2. The Macro-Economic and Legislative Context
For decades, Indian MSME exporters have struggled with a “cost of capital” disadvantage. While peer economies in Southeast Asia and Europe benefit from historically lower interest rates, Indian exporters often face double-digit borrowing costs. Furthermore, the “collateral crunch”—where banks require asset backing of 100% to 150% of the loan value—has effectively barred smaller players from scaling.
The EPM, and specifically the Niryat Prothsahan sub-scheme, is designed as a rules-based, transparent, and digitally-driven response to these structural bottlenecks. Unlike previous ad-hoc schemes, the EPM is integrated into the Foreign Trade Policy (FTP) 2023 framework under Paragraph 1.07A, ensuring that support is not merely a subsidy but a strategic tool for enhancing global value chain (GVC) integration.
The Mission is structured into two distinct but complementary paths:
- Niryat Prothsahan: Focused on the “supply side” of finance (cost and access).
- Niryat Disha: Focused on the “demand side” (market access, branding, and standards).
3. Detailed Analysis: Interest Subvention Support (Component I)
The Interest Subvention intervention aims to provide immediate liquidity by reducing the effective interest rate on Rupee-denominated export credit.
3.1 Rate of Subvention and Coverage
The government has notified a fixed rate of 2.75% per annum. This is applicable to both:
- Pre-Shipment Rupee Export Credit: Often referred to as Packing Credit, used for purchasing raw materials, processing, and packing.
- Post-Shipment Rupee Export Credit: Used to bridge the gap between shipping the goods and receiving payment from the foreign buyer.
3.2 Eligibility Criteria
The scheme is strictly targeted at MSME manufacturer and merchant exporters. Eligibility is contingent upon:
- Valid IEC & Udyam: An active Importer-Exporter Code (not in the Denied Entity List) and a valid MSME Udyam Registration.
- The Positive List (HSN Codes): Benefits are restricted to a “Positive List” of 4,139 tariff lines at the HSN six-digit level. This list was curated based on labor intensity, MSME concentration, and value addition. It notably includes strategic sectors like Leather, Footwear, and SCOMET items, while excluding waste, scrap, and prohibited items.
3.3 The Unique Identification Number (UIN) Mechanism
A major shift in this scheme is the upfront delivery of benefits. Exporters must now:
1. Log onto the DGFT portal and file a Declaration of Intent.
2. Generate a UIN specific to their lending bank.
3. The lending bank verifies this UIN and applies the 2.75% discount directly to the interest rate charged.
4. Banks then claim reimbursement from the Reserve Bank of India (RBI) on a monthly revolving fund basis.
3.4 Key Legal Restrictions and Graduations
- The Annual Cap: Each MSME entity (per IEC) is capped at a total benefit of INR 50 Lakh per financial year.
- Graduation Grace Period: In a move to encourage growth, if an MSME “graduates” (exceeds the investment/turnover threshold of a Medium enterprise) during a financial year, they remain eligible for the subvention for three years from the date of re-classification.
- NPA Clause: If an account turns into a Non-Performing Asset (NPA), the subvention is withdrawn for that cycle.
4. Detailed Analysis: Collateral Support for Export Credit (Component II)
The Collateral Support for Export Credit (CSEC) scheme is perhaps the most significant intervention for “credit-starved” MSMEs. It operates as a credit guarantee rather than a direct cash incentive.
4.1 Implementation via CGTMSE
The scheme is operationalized through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). It functions on a “Pilot Basis,” allowing the government to refine the risk-weightage models based on real-time data.
4.2 Guarantee Percentages
The risk-sharing model is tiered:
- Micro & Small Enterprises: Coverage up to 85%. This is typically a hybrid model where existing CGTMSE funds and EPM funds are pooled.
- Medium Enterprises: Coverage up to 65%, provided exclusively from the EPM corpus.
This means for a Small enterprise, the bank only carries a 15% risk on the principal, significantly lowering the barrier for collateral-free lending.
4.3 Financial Ceilings and The “Aggregate” Rule
The maximum outstanding guaranteed exposure for a single borrower is capped at INR 10 Crore. Critically, this is an aggregate limit. If a borrower already has a guarantee of INR 2 Crore under the standard CGTMSE scheme, they can only avail an additional INR 8 Crore under the CSEC EPM scheme.
4.4 Nature of Facilities
The guarantee applies only to export-linked working capital. It cannot be used for domestic working capital or term loans unrelated to export cycles. The intent is to ensure that the liquidity is strictly utilized for foreign trade.
5. Compliance Framework and Procedural Safeguards
The Trade Notices introduce several “checkpoints” to prevent the misuse of funds and ensure the Mission’s goals are met.
5.1 The January 02, 2026 Cut-off
A vital point for legal compliance: For FY 2025-26, interest subvention and collateral support are only available for credit facilities sanctioned on or after January 02, 2026. Extensions or renewals of older facilities sanctioned prior to this date do not qualify for the revised 2.75% rate under this specific mission.
5.2 Exporter’s Responsibility on Aggregate Claims
When an exporter deals with multiple Member Lending Institutions (MLIs), the onus of compliance regarding the INR 50 Lakh subvention cap and the INR 10 Crore guarantee cap rests solely on the exporter. If an exporter inadvertently (or otherwise) claims subvention exceeding INR 50 Lakh across different banks, the excess is recoverable with interest and may lead to “Denied Entity List” (DEL) status.
5.3 Audit and Verification
Banks are required to submit monthly claims to the RBI, which must be duly certified by an External Auditor. The DGFT reserves the right to conduct post-clearance audits on exporters to verify the “Positive List” compliance of the goods actually exported.
6. Strategic Implications for MSME Exporters
For our clients, these notifications offer three strategic advantages:
1. Lowering the Break-Even Point: A 2.75% reduction in interest, combined with upfront application, allows for more aggressive pricing in competitive markets like the EU and the US.
2. Asset-Light Growth: By utilizing the CSEC (up to INR 10 Crore), MSMEs can conserve their immovable assets (land/building) for long-term expansion while using the guarantee for their day-to-day export cycles.
3. Predictability: The transition to a “Rules-Based” framework means that as long as the HSN code is in the positive list and the Udyam is valid, the benefit is an entitlement rather than a discretionary grant.
7. Comparison with the Interest Equalization Scheme (IES)
It is important to note that the Niryat Prothsahan interventions are designed to eventually replace or consolidate the older Interest Equalization Scheme (IES). While IES was often extended for short durations (3-6 months), Niryat Prothsahan is backed by a 6-year budgetary outlay, providing the policy stability that long-term export contracts require.
8. Stakeholder Consultation and Pilot Phase
It must be emphasized that these guidelines are currently in a Pilot Phase. Per Paragraph 1.07A of the FTP 2023, the DGFT has invited comments and suggestions from stakeholders.
9. Conclusion: The Path Forward
The Niryat Prothsahan mission is a landmark shift toward a “Viksit Bharat” export strategy. By de-risking the MSME sector through the CSEC and lowering credit costs via subvention, the Government is providing the “fuel” for India’s target of reaching USD 2 Trillion in exports by 2030.
Clients are advised to:
- Immediately verify if their products fall within the 4,139 HSN lines in the Positive List.
- Ensure Udyam and IEC linkage is seamless on the DGFT portal.
- Coordinate with their bankers to ensure the UIN is generated before the next credit cycle begins.
As the guidelines are “refined and thereafter formalised” following the 30-day consultation window, we expect further clarifications regarding the inclusion of emerging markets and potential enhancements for “Status Holders.”
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This Trade Finance update is intended for general guidance only and does not constitute legal advice. For more information, please reach out to Shubham Sharma at 2636@cnlu.ac.in.
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