Withdrawal of additional export benefit to hit shipments of farm, marine, leather products

strap: A DGFT notification has said the additional 2 per cent incentive under MEIS would lapse on December 31

The government’s decision to withdraw by the year-end the additional 2 per cent incentive given to exporters under the popular Merchandise Export from India Scheme, is likely to hit shipments of agricultural goods, marine products, carpets, leather, handicrafts, electronics, as well as engineering goods.

"The withdrawal of additional benefit under MEIS doesn't augur well for a situation where exports are already down because of low global demand and intense competition from countries such as Bangladesh and Vietnam. As this will hit labour-intensive sectors such as farm and marine products, carpets and handicrafts, leather goods, as well as electronics and engineering items, it may also result in more job losses in the country," a Delhi-based industry official told BusinessLine .

Last week, a notification issued by the Directorate-General of Foreign Trade (DGFT) stated that the additional 2 per cent MEIS announced for various products last May and August, will be available only till December 31, 2019, except for garments and made-ups.

“The main problem with the sudden withdrawal of the additional incentive is that exporters have orders in the pipeline, the prices for which have been finalised factoring in the benefit. It may not be possible for exporters to ship all the orders by December 31. If there is a delay beyond the stipulated date, they will lose the additional benefit and may have to suffer losses,” the official said.

Exporters of electronics have already reached out to the finance, IT and Commerce Ministries, pointing out the problem they would face because of the government’s sudden move. They also warned of possible job losses as companies may have to lower their manpower.

“Electronics exporters have an additional problem with the MEIS withdrawal as the replacement scheme that is being planned by the government will not fetch them an incentive higher than 2 per cent, as there is hardly any electricity consumption or other such expenditure of the sector, which could be compensated through the new scheme,” the official said.

The DGFT’s notification, however, did not mention discontinuation of the regular MEIS scheme under which incentives of 2 per cent, 3 per cent and 5 per cent of the export value is provided to various sectors. The Finance Ministry had earlier said the MEIS scheme, which is not compatible with WTO norms, will be replaced by Remission of Duties or Taxes on Export Products (RoDTEP) from January 1, 2020.

“We think the MEIS will continue at least till the end of the current fiscal. The new scheme may be part of the new Foreign Trade Policy that is expected from April 1, 2020,” the official said.

In April-October 2019-20, exports fell 2.39 per cent to $185.95 billion, while imports declined 8.37 per cent to $280.67 billion.

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