Cap on export benefit to hit auto, steel firms

The cap imposed on export benefits under the Merchandise Export from India Scheme ( MEIS) at Rs 2 crore for individual exporter will affect large exporters who account for more than 30 per cent of the total shipments from the country.

The government has late Tuesday notified that the total reward availed of by any exporter under MEIS cannot exceed Rs 2 crore during the SeptemberDecember period. The ceiling may be subject to further downward revision to ensure that the total claim under the scheme for the four- month period does not exceed Rs 5,000 crore allocated for the scheme.

“Though the number of exporters affected by the cap is less, they account for more than 30 per cent of the exports. These are large automobile companies, steel companies and commodity exporters,” said Ajay Sahai, director general and CEO of Federation of Indian Export Organisations.

According to Sahai, exporters would have already contracted the orders for the next four months and would have factored in the MEIS benefits into their pricing. This will hurt their profitability and in turn affect the exports from the country. Further, there is also no certainty about the Rs 2 crore refund. If the total allocation of Rs 5,000 crore exhausts, the cap will be further lowered.

“The cap of Rs 2 crore may have significant impact for large exporters currently claiming MEIS benefits of over Rs 2 crore per quarter. As some of these benefits are typically factored by businesses in their costs/ pricing, businesses may need to revisit these aspects with this new embargo,” said Abhishek Jain, tax partner, EY.

“Exports have started picking up. Now that the margins will get affected with the MEIS cap, companies will have to do cost cutting wherever possible and defer purchases so that they still remain competitive in terms of pricing,” said R. V. Ramanandan, an exim expert.

In 2018- 19, the government had refunded Rs 36,615 crore under the MEIS scheme and in 201920 refunds amounted to Rs 40,934 crore. This year the total allocation under MEIS between April and December 2020 is just Rs 9,000 crore. Exporters have not yet received the refunds under MEIS for the five- month period.