Industry And Cluster | News & Insights

Move to cap incentives may impact about 700 exporters.

Published: September 19, 2020

Around 700 exporters of engineering items, automobiles, chemicals, pharmaceuticals, oil and gas, and textiles are likely to get impacted by the government’s move to cap incentives under the Merchandise Exports from India Scheme (MEIS) at Rs 2 crore per exporter for four months till December 31.

Besides these industries, marine products, dairy and processed foods and fruit, vegetables, spices and cereals are the largest beneficiaries of the scheme. The top 50 exporters from these sectors account for around 20% of the benefits under the scheme, the outgo under which was Rs 45,000 crore in fiscal 2020.
“There are around 700-750 exporters who will get impacted by the ceiling on incentives,” said an official. More than 35,000 exporters claim benefit under the MEIS.

The cap was introduced as the government found MEIS to have failed to deliver the desired result of boosting exports, which have hovered around $300 billion in the last five years despite its liberal application across sectors.
The government has said that 98% of the exporters who claim MEIS would be unaffected by the changes as per an analysis of claims in the same period of 2018-19.

It also said the new Import Export Code obtained on or after September 1 would be ineligible to submit any MEIS claim for exports, and the ceiling would be subject to a downward revision to ensure that the total claim didn’t exceed the allocated Rs 5,000 crore for the period.
“Unaffected exporters who have already factored in MEIS in the pricing of their products do not face any change or uncertainty since neither coverage of products nor rates of MEIS will be changed,” said another official.

However, industry said though the allocation might cover 98% of beneficiary exporters in numbers, in terms of value of exports covered, the percentage would be much less.

“The large exporters which have high-value exports would get adversely impacted. We also fear that this might act as a disincentive for exporters to become large,” the Confederation of Indian Industry (CII) said in a letter to the ministries of finance, and commerce and industry.

Companies of only above a particular size and capabilities can cater to global giants who have stringent requirements for vendor qualification, it said.

As per the letter, the Rs 5,000 crore allocation would be insufficient given the large coverage of products under the scheme.

“In our calculation there is almost a 60% shortfall in the allocation provided for this period,” it said, adding that Indian exports would have suffered more had there been no MEIS amid the highly competitive global environment. India’s exports were $314.3 billion in FY20.

The chamber has suggested that the MEIS benefits be extended up to December 31 with a rider that the balance 60% funds would be disbursed later within a fixed time-period as and when the government’s finances improve, and that exporters be allowed to use this deferred MEIS disbursement as a collateral to secure loans from commercial banks to address short-term liquidity problem.

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