Govt puts Rs 2 crore cap on exports promotion scheme, sparks protests

Exporters fume as notification by Commerce Department confirms January 1, 2021 as end date for scheme

The government has capped benefits under its biggest exports promotion scheme at Rs 2 crore for each business on trade done between September 1 and December 31, sparking protests against the "unilateral step".

A notification issued by the Commerce Department also said benefits under the Merchandise Exports of India Scheme (MEIS) would be stopped from January 1, 2021, effectively confirming the end date of the scheme. The department has argued that the advance notice of four months provides certainty for future pricing decisions.

Exporters and industry insiders don’t agree with the government view. Bajaj Auto, the largest exporter of motorcycles and three wheelers, will take a hit due to the notification, said Rakesh Sharma, executive director at the firm. With the 2 per cent benefit gone, Bajaj will be forced to pass it on to its customers, said Sharma. He added that the company may see a loss of Rs 120 crore for six months due to the cap on incentive.

According to Sharad Kumar Saraf, President, Federation of Indian Export Organisations (FIEO), exports which will be made during September-December are based on orders which have already been negotiated much earlier factoring the existing MEIS benefit. "These benefits are part of the export competitiveness and therefore the sudden change will affect the exporters financially as buyers are not going to revise their prices upward," Saraf stressed.

The Rs 43,500-crore MEIS scheme — the biggest export incentive measure - had been opposed by the Finance Ministry and NITI Aayog, who are now drawing up plans for putting scarce financial resources into new Production-Linked Incentive (PLI) schemes in select sectors with core competency and potential for global exports. But while the Commerce Department had earlier resisted the move, it has now proposed a new mechanism by which New Importer Exporter Codes (IECs) obtained on or after the date of the notification will be ineligible to submit any MEIS claim for exports made with effect from September 1.

The government claims that 98 per cent of the exporters currently claiming MEIS benefits will remain unaffected by the changes. This is based on the analysis of claims in the relevant period of 2018-19.

(With inputs from Shally-Seth-Mohile)