Cap on benefits: Export bodies seek review, say large exporters to be hit hard

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September 3, 2020 2:00 AM

They have also sought an extension of the MEIS by three months to make it co-terminus with the current foreign trade policy, the validity of which will continue up to March 31, 2021.

The MEIS outgo was about Rs 40,000 crore in FY19 and Rs 42,500 crore in FY20.The MEIS outgo was about Rs 40,000 crore in FY19 and Rs 42,500 crore in FY20.

A day after the government capped benefits under a key scheme at just Rs 2 crore per exporter for outbound shipment made during the September-December period, exporters’ bodies on Wednesday sought a review of the decision, saying medium and large exporters who are primarily responsible for driving growth will be badly hit by the move.

Exporters are also upset that even this limit can be revised down, as the government has limited the overall outgo under the Merchandise Export From India Scheme (MEIS) to just Rs 5,000 crore between September and December.

They have also sought an extension of the MEIS by three months to make it co-terminus with the current foreign trade policy, the validity of which will continue up to March 31, 2021.

Earlier, starved of resources following the Covid-19 outbreak, the revenue department had capped the outlay for the MEIS at just Rs 9,000 crore for the April-December period, which meant that exporters might be deprived of over two-thirds of the benefits they usually get under this scheme. This forced the commerce ministry to block the online module for claiming the MEIS benefits since July 23. With Tuesday’s notification on MEIS benefits, the online module has been reactivated.

The MEIS outgo was about Rs 40,000 crore in FY19 and Rs 42,500 crore in FY20.

According to a commerce ministry estimate, about 98% of the exporters who claim MEIS will remain unaffected by the changes and less than 2% are likely to be impacted as per analysis of claims in the relevant period of 2018-19.

Sharad Kumar Saraf, president, Federation of the Indian Export Organisation, said the “sudden imposition” of a cap is going to “seriously affect exporters, whose numbers may not be very large, but their contribution to exports warrant a revisit to the imposition of cap”.

Saraf said that the orders for exports to be made during the September-December period have already been negotiated earlier factoring the existing benefits. “These benefits are part of the export competitiveness and, therefore, the sudden change will affect the exporters financially, as buyers are not going to revise their prices upward,” he said.

Bhuvnesh Seth, vice-chairman, Export Promotion Council for Export-oriented Units and Special Economic Zones, said: “This sudden change in trade policies needs to be avoided at all costs as it brings uncertainties in decision-making and pricing policies of exporters.” The cap of Rs 5,000 crore “would create an uncertainty, as that means that scheme can be withdrawn even earlier than December 31, 2020”, he said.

The notification also suggests that there will be no change in the coverage of MEIS and the applicable rates (up to 5% of the consignment value). However, exporters obtaining new export-import codes on or after September 1 will be ineligible to submit any MEIS claim for exports made during the four months through December.

Merchandise exports witnessed a record 60% crash year-on-year in April, although the contraction narrowed to 37% in May, 12% in June and 10% in July, as lockdown curbs were lifted from June. However, risks to exports from external headwinds still remain very strong.

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