Under this new cap on incentives at Rs. 2 crores per exporter for four months till December 31, the government is regulating the Merchandise Export from India Scheme (MEIS). This cap is said to be affecting 700 exporters of varied goods like textile, oil and gas, pharmaceuticals, chemicals, automobiles, and engineering items. The scheme also largely benefitted other industries of cereals, spices, vegetables, fruits, processed food, marine products, and dairy. The outgo in the fiscal year 2020 was Rs. 45,000 that went to the top 50 exporters from these sectors who also account for 20% of all the benefits under the scheme. There are more than 35,000 beneficiaries in export under the MEIS.
What does the cap mean?
The government introduced a cap on the benefits under the MEIS at Rs. 2 crores per exporter on all exports made in September 1 to December 31, 2020, earlier this month. This cap does not change the coverage of the scheme and the applicable rates. Exporters have expressed their concern over this sudden alteration and as per an official, “There are around 700-750 exporters who will get impacted by the ceiling on incentives.“
According to the government, the cap is essential because MEIS has not been able to deliver the desired results of promoting exports, despite costing $300 billion in the last five years.
The unaffected exporters
The government claims that 98% of the exporters who avail the scheme under MEIS will stay unaffected in reference to an analysis of claims from 2018-19. The statement also suggests that the new Import Export Code (IEC) possessed on or after September 1 will be ineligible to submit any MEIS claim for exports. The cap will also be subjected to a downward revision so that the total claim does not exceed the allocated Rs. 5,000 crore for the period. “Unaffected exporters who have already factored in MEIS in the pricing of their products do not face any change or uncertainty since neither coverage of products nor rates of MEIS will be changed,” another official said.
What are the exporters and experts thinking?
The exporters and the experts are worried that this step will “seriously affect” their business as there will be uncertainty if the scheme will be removed before December 2020 or even after that. Exporters urged the government to extend the MEIS till March 31, 2021, in accordance with the present Foreign Trade Policy. The Confederation of Indian Industry (CII) wrote a letter to the ministries of finance, and commerce and industry, mentioning, “The large exporters which have high-value exports would get adversely impacted. We also fear that this might act as a disincentive for exporters to become large.” The chamber calculates a 60% shortfall in the allocation and has also suggested that the MEIS benefits can be extended with a rider that the balance of 60% funds will be reimbursed when the government’s finance improves.
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What need to do?
- As the MEIS covered large domains of products, exporters believe that Rs. 5000 crores will not be enough.
- To compete with global giants, trade policies should be simpler and boosted by the government.
- At such times of great uncertainties, any decision directly impacting the trade policies should be avoided as they make the companies very uncertain too, about their manufacturing and pricing.