Exporters may not get much help from RODTEP

Severe financial crisis has forced the government to prune the benefits under the Merchandise Exports from India Scheme (MEIS) for exports made during September-december this year. The move will hurt the large exporters and exporters extending longer credit to the buyers abroad.

The commerce ministry has retained the rates of entitlement under MEIS but capped the benefits to ~2 crore for each exporter for exports made during the period. This means the exporters earning MEIS duty credits at 2 per cent will get no benefits for exports beyond ~100 crore made during this period. Similarly, exporters earning MEIS at 4 per cent can get the benefits only for the first ~50 crore exports during the period. The Federation of Indian Export Organisations (FIEO) says the sudden imposition of the cap will affect exporters, whose numbers may not be very large but whose contribution is significant. The FIEO wants the government to revisit its decision to cap the benefits.

The government has restricted the allocation for MEIS benefits to ~5,000 crore for September-december period. In FY20, the Centre granted ~43,500 crore of MEIS benefits.

So, an estimate for four months puts the entitlements at ~14,000 crore. Thus, the allocation will be only about 35 per cent of the entitlement.

So, the exporters have to rush their MEIS applications and obtain their entitlements before the allocation gets exhausted. They will have to get the payments from the buyers quickly, as the applications can be filed only after realisation of export proceeds.

To discourage exporters routing their exports through others, the government has denied MEIS benefits for entities that have not made any exports in the last one year. Still, some large exporters may try to export their goods through small exporters who have exported during the last one year. The government may try to stop that through more restrictions.

Meanwhile, the exporters are still unable to file their MEIS applications for exports made since April 1, 2020. The benefits under Rebate of State and Central Taxes and Levies on export of garments and made-ups are also held up.

The government intends to replace the MEIS with Refund of Duties and Taxes on Export Products (RODTEP) scheme from January next year. Much, however, depends on how quickly the government is able to work out and notify the rates under the new scheme. Right now, the exporters are struggling to give the necessary data duly certified by their auditors. The FIEO has asked the government to continue the MEIS scheme till the end of March next year.

The exporters must now reconcile to the new reality of government’s inability to support exports through fiscal benefits. The RODTEP scheme is unlikely to give them much benefit. In August 2019, Finance Minister Nirmala Sitharaman had announced that RODTEP scheme would give ~50,000 crore benefit to the exporters. Actually, the outlay under the scheme may amount to less than 25 per cent of that amount. Also the NITI Aayog wants the policy to shift towards supporting only some champion sectors through investment subsidies and production-linked incentives.

The government has cut the entitlements under the MEIS scheme when the rupee has appreciated to around ~73.50 to a US dollar. So, a quick revival of exports growth, stagnant for the past six years, looks highly unlikely.