Textiles and garment imports, as percentage of such exports, surged from just about 13% in FY14 to a record 25% in the first eight months of this fiscal.
The government has decided to scrap incentives for the garment and made-ups sector under a key programme — the Merchandise Exports from India Scheme (MEIS) — retrospectively from March 7, 2019, dealing a deadly blow to cash-starved exporters, who warn that the already-faltering outbound shipments of apparels could plunge further to around 10% in the last quarter of the fiscal, against a 0.8% rise in the April-December period.
Exporters decry the retrospective withdrawal.
Exporters say prior to the decision, the government had blocked the release of benefits worth over Rs 5,000 crore for the garments and made-ups sector under both the MEIS and the Rebate of State and Central Taxes & Levies (RoSCTL), meant for compensating them for various state and central government imposts. Under MEIS, the government used to provide garment and made-up firms incentives worth 4% of the freight-on-board (FoB) value of exports.
The latest order by the textile ministry, dated January 14, means the government would release only about 60% of the total held-up benefits up to December 2019. While MEIS gains were held up since August 2019, benefits under the RoSCTL, which replaced the erstwhile Remission of State Levies (RoSL) scheme, were never extended since its introduction on March 7, 2019.
Exporters say the MEIS withdrawal will worsen a liquidity squeeze for them, as they typically factor in such incentives while firming up deals. It will also hurt their ability to honour fresh contracts. Since 80% of the garment exporters are MSMEs, with very limited ability to raise resources, the decisions will hit them very hard, they say.
However, to offer some relief to the exporters from the retrospective move, the order states that if the RoSCTL benefit between March 7 and December 31, 2019, is lower than the combined incentives under the MEIS and RoSL (which they were enjoying until the RoSCTL roll-out), the government would provide an “additional ad-hoc incentive” of up to 1% of FoB value of exported products, with a cap of `600 crore, for this period.
Citing a decision of the expenditure finance committee, the ministry said the MEIS benefit for garments and made-ups ‘stands withdrawn” from March 7, 2019, the day it had notified the RoSCTL. But, compounding exporters’ woes, it has asked those who had availed of the MEIS benefits between March 7 and July 31, 2019, (after which MEIS benefits were blocked to them), to return the incentives, or the amount can be suitably adjusted against their future benefits. Exporters said even with the extra incentive, the total benefit will be lower than what they used to get in March 2019 by over two percentage points.
A senior government official had earlier told FE that 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 was learnt to have been backing the garment exporters’ claims and wanted both the MEIS and RoSCTL to co-exist.
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 infrastructural bottlenecks, including exorbitantly high logistics costs.
The latest move 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 a fifth straight month through December. It will further weigh on the overall textiles and garments trade, which is already witnessing an unusual trend of brisk imports in times of slowing exports.
Textiles and garment imports, as percentage of such exports, surged from just about 13% in FY14 to a record 25% in the first eight months of this fiscal. Similarly, at 1.7%, the share of textiles and garments in the country’s overall imports in the April-November period was the highest in recent memory. On the other hand, the labour-intensive sector’s share in the overall merchandise exports has been sliding consistently in recent years, having dropped from as much as 13.7% in FY16 to just 10.27% this fiscal (up to November), the lowest in at least a decade.