Fresh trouble for exporters, as govt caps MEIS benefits

Fresh troubles are brewing for exporters, as the government has decided to cap benefits under the Merchandise Exports from India Scheme (MEIS) scheme at Rs 9,000 crore.

The Directorate General of Foreign Trade (DGFT), on July 23, blocked the MEIS module from accepting new applications for shipping bills with let export order (LEO) beginning April 1, 2020, to limit the issuance of any more scrips.

The DGFT has said that scrips worth Rs 422 crore issued from April through July have been put on hold. And no new scrips will be issued until the “issue” is resolved between Finance and Commerce ministry.

MEIS scheme is effective until December 2020. The scheme provides incentives in the form of duty credit scrip to the exporters to compensate for their loss on payment of duties. The incentive is paid as percentage of the realised Free on Board (FOB) value (in free foreign exchange) for notified goods going to notified markets.

Meanwhile, senior finance ministry sources told CNBCTV18 that “finance ministry has asked Commerce ministry to identify champion exporters who can benefit from MEIS schemes.”

On the other hand, Commerce and Industry Ministry has urged North block to “re-consider” its decision to stick to the Rs 9,000-crore allocation.

While discussing the issue with commerce ministry, finance ministry highlighted that MEIS funds have increased from Rs15,000 crore in FY215-16 to around Rs 50,000 crore in FY20. However the total amount of exports remains the same -- around $350 billion.

“Finance ministry is thus, of the view that increased MEIS allocation did not lead to proportionate advantage for India's exports.”

“MEIS allocations increased to almost three times but exports are not growing in the same proportion, which is worrisome,” finance ministry sources added.

According to the detailed discussion between the two government departments, Finance ministry also flagged the issue, “Limited funds should be used to make a maximum use of the scheme.

Sectors like pharma, mobile and electronics should be incentivised through production-linked incentives schemes and not through MEIS.

To ensure that deserving lot gets the benefits, department of commerce is closing working with finance ministry. There cannot be endless amount of funds available in the revenue kitty and any surge beyond Rs 9,000 crore for MEIS will put additional burden on taxpayer’s money. Thus, Finance ministry is not in favour of using more than Rs 9,000 crore for the MEIS scheme.”

Having said that, exporters have not taken this move easily. Pushing their case, they are urging the government to re-consider the cap.

Exporters body FIEO’s president SK Saraf told CNBCTV18 that they have sought the intervention of the government to resolve the MEIS issue, “as MEIS benefits were already factored by exporters in the prices while negotiating the deals and a sudden capping will impact them. MEIS benefits help in easing the liquidity of exporters which is impacted due to Covid19”.

Meanwhile, automobile sector too has expressed concerns. “A sudden halt on the online module on 23rd July has created a serious issue. Auto companies with higher export volumes including Bajaj auto, TVS, Mahindra, Tata Motors and Hyundai are likely to be impacted and have sought clarity from the government,” auto industry sources said.

However, a final decision is yet to emerge on the issue.