Given paucity of funds with govt, exporters to borrow at repo rate against MEIS entitlement
The commerce ministry is weighing a mechanism to help cash-strapped exporters, who have been awaiting the release of benefits worth tens of thousands of crores under a key official scheme, tide over the current Covid-induced liquidity crunch.
As per the mechanism being explored, the government could give an undertaking to exporters against their entitlement under the Merchandise Export from India Scheme (MEIS). Banks could then be impressed upon to lend to exporters (up to the entitlement) against the undertaking at the repo rate of just 4%. While exporters have to bear the interest costs, such a move will help them cope with the liquidity woes until the government finally clears the dues, sources told FE.
The issue of MEIS dues was raised by export bodies at a meeting chaired by commerce and industry minister Piyush Goyal on Tuesday. Goyal asked senior officials of his ministry to explore the proposal, among others, and help resolve the issue at the earliest, said a source present in the meeting. The commerce ministry could soon firm up a formal proposal to this effect and submit it with the finance ministry for clearance.
Trade sources had last month said exporters were awaiting the release of scrips worth at least Rs 35,000 crore against their MEIS entitlement for FY20 and FY21. Inordinate delay in release could accentuate the current liquidity woe, limiting exporters’ capacity to ramp up supplies just when demand from key markets appears to be improving, according to the sources.
Exporters have also asked the government to urgently announce refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, which replaced the MEIS from January 1, 2021, but is yet to be operational.
At the meeting with Goyal this week, Sharad Kumar Saraf, president of the exporters’ body FIEO, said while the official export target of $400 billion for FY22 was achievable, the timely release of “benefits” under the MEIS, duty drawback scheme and RoDTEP, and the adequate flow of loans to exporters remained critical. “This will help in making exports profitable. Otherwise, with the delay in refund, exporters profitability is wiped out with increasing interest burden,” Saraf said.
Under the MEIS, the government has already approved Rs 39,097 crore for FY20 and Rs 15,555 crore for the first three quarters of FY21 (before it was replaced with RoDTEP). But a bulk of this amount is yet to released, ostensibly due to the pandemic hitting the Centre’s resource mobilisation and the requirement of higher healthcare spending and other stimulus measures, exporters said. The government has budgeted only Rs 13,000 crore for the RoDTEP scheme for FY22 but the actual outgo could be much higher.
A senior official last month said the government would soon start processing the MEIS benefits. Even RoDTEP rates will be announced shortly. The delay in the clearance of MEIS benefits is nothing unusual, though. In earlier years, such benefits were often delayed for reasons, including faulty claims or wrong paperwork by exporters, the official had explained. This time around, the pandemic has mostly contributed to the delay, he had said.
Under MEIS, most exporters were getting scrips amounting to 2-5% of the freight-on-board value of the shipment.
While exports have witnessed a roller-coaster ride in FY21 due to the pandemic, the government has kept a record export target of $400 billion for FY22, compared with $291 billion last fiscal and $330 billion in FY20, as outbound shipments rose considerably over the past two months, defying the Covid blues. Exports stood at $34 billion in March and $30 billion in April, up 3% and 16% from even the same months of 2019 (well before the pandemic struck). However, for the sustenance of the growth momentum over the medium term, exporters’ liquidity issue needs to be sorted out urgently.