Liquidity hit! Benefits to garment exporters held up

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New Delhi | Updated: December 16, 2019 4:55:36 PM

The matter is now being considered by the Prime Minister’s Office.

The textile ministry is learnt to be backing the garment exporters’ claims and wants both the MEIS and RoSCTL to co-exist.

The government has held up the release of benefits worth thousands of crores to garment and made-up exporters under two major schemes — the Merchandise Export from India Scheme (MEIS) and the Rebate of State and Central Taxes & Levies (RoSCTL) — at a critical juncture when exports are slipping.

While MEIS gains have been held up since August, benefits under the RoSCTL, meant for compensating garment/made-up exporters for various state and central government imposts, have never been extended since its introduction in March, exporters told FE.

This has exacerbated a liquidity squeeze for the exporters, who typically factor in such incentives while firming up deals, and hurt their ability to honour fresh contracts on time ahead of Christmas, the most critical season for western apparrel buyers,  said Ajay Sahai, director general and chief executive at exporters’ body FIEO.

Benefits worth Rs 5,000 crore are stuck under both the schemes at a time when the flow of bank credit remains muted and exports have dropped for months, according to Gautam Nair, managing director at Matrix Clothing, one of the country’s largest garment exporters. Since 80% of the garment exporters are MSMEs, with very limited ability to raise resources, they have been hit very hard, he added.

A senior government official said the resource-strapped revenue department felt that since garment/made-up exporters were to get the RoSCTL benefits (which are not extended to other exporters), they shouldn’t be simultaneously granted the MEIS benefits, which, in any case, had come under the WTO scrutiny.

However, the textile ministry is learnt to be backing the garment exporters’ claims and wants both the MEIS and RoSCTL to co-exist. At least one of them must be extended urgently to contain a fall in exports until a final decision is made, said a commerce ministry official. The matter is now being considered by the Prime Minister’s Office.

Exporters said the problem started in March when the textile ministry, after a Cabinet decision, notified the RoSCTL scheme for garments and made-up exporters to replace an earlier scheme that was reimbursing them for only the state levies. But while the earlier scheme — called the remission of state levies (RoSL) — was scrapped in March, the benefits under the new one (RoSCTL) were never granted. The problems got compounded when the revenue department asked the directorate general of foreign trade (DGFT) to stop the release of MEIS benefits to garments/made-up exporters from August 1. Thus, these exporters were stripped of “legitimate benefits” worth 8-10% (4% on account of MEIS and another 4-6% due to RoSCTL, depending on the nature of garments) of the freight-on-board value of shipments, they said.

Exporters claim the MEIS and the RoSCTL are totally different schemes and must run simultaneously. “The RoSCTL is aimed at keeping exports zero-rated, as per best international practices, while the MEIS is intended to help exporters deal with several infrastructual bottlenecks, including exorbitantly high logistics costs. Garment, in any case, deserves a special treatment because it’s the most labour-intensive sector after agriculture and 80% of the exporters are MSMEs,” Matrix Clothing’s Nair said, pitching for benefits under both the schemes.

The stand-off comes at a time when outbound shipments of textiles and garments have shrunk (even on a favourable base), aiding a decline in overall exports that have contracted for four months in a row through November. Unless the issue gets resolved expeditiously, exports in the labour-intensive sector would only worsen and businesses will go to new competitors like Vietnam, Cambodia and Poland etc, warned the exporters.

One of the sources, however, said since the textile and garment sector has achieved “global competitiveness” (with a share of more than 3.25% in international trade for three consecutive years), offering incentives to the exporters would be in violation of the WTO rules. Countries like the US have already dragged India to the WTO over export subsidies, both for textiles/garments and other sectors. While India recently appealed against a ruling by the dispute settlement body of the WTO against its overall export subsidies, the dole-outs for our textiles/garment sector were supposed to have been abolished even earlier in accordance with the “global competitiveness” criterion.

Exporters, however, argue that since the WTO’s appellate body has been paralysed due to the US’ blocking of the appointment of judges, the government should focus more on removing domestic bottlenecks to exports. “Along with RoSCTL, we must get something for logistics costs that remain very high due to the absence of reforms by the government,” said one of the garment exporters.

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