The Commerce Minsitry is considering a recast of export incentives and is expected to roll back the Merchandise Exports from India Scheme (MEIS). Apparel exporters are concerned about the move, which could be a part of a new export-import policy as the current policy is expiring in 2020.
A four per cent incentive is given to garments exporters under MEIS. Industry insiders said the move, if implemented, will “kill” the sector, which is the second largest employment generator after agriculture.
MEIS has helped exporters take on competition from Bangladesh and Vietnam as it provides duty credit to address infrastructure issues. Under World Trade Organisation (WTO) rules, a country can't offer export subsidies if its per capita Gross National Income (GNI) remains above $1,000 for three years in a row. In 2017, the WTO notified that India’s GNI had crossed $1,000 in 2014, 2015 and 2016.
After the US challenged India's eligibility to extend export subsidies at the WTO, the government has been reportedly working on recasting its entire export incentive policy. Industry sources said they fear that the government is planning to withdraw MEIS from August 1, 2019 itself.
“The move will kill the industry and lead to a major disaster because the industry operates at a very low margin. Withdrawal of the incentive will turn the margin negative," said Rahul Mehta, president, Clothing Manufacturers Association of India (CMAI).
Raja M Shanmugham, president, Tirupur Exporters Association added that MEIS has been a lifeline for the industry and its withdrawal would impact the industry very badly and end up claiming thousands of jobs, especially in medium and small enterprises.
For example, the knitwear hub of Tirupur used to get a benefit to the tune of around Rs 1,040 crore every year through MEIS. While the quantum may appear small for a town that exports apparel worth Rs 26,000 crore annually, but for small businesses it is big money especially at a time when the odds are stacked against them -- scarce capital, lack of infrastructure and tough competition with peers outside the country.
Garments being exported to European Union (EU) from Bangladesh do not attract any duty, while those from India face a levy of around 7 per cent. These countries also enjoy lower power, labour and interest costs as their governments see the sector as critical for employment generation.
These factors contribute to the 15 per cent price difference between Indian products and those made in Bangladesh or Vietnam.
Shanmugham says it is important to come out with an alternative policy compatible with WTO rules that extends benefits equivalent of MEIS for the growth of industry. He stresses that it's also important to provide infrastructure facilities apart from inking free trade agreements with the EU, the United Kingdom, Australia, Canada etc.
Meanwhile, benefits of the Rebate of State and Central Taxes and Levies on Export of Garments and Made-ups (RoSCTL) scheme are yet to be realised by exporters. Authorities cite technical issues with the scheme as the reason. A Sakthivel, vice-chairman, Apparel export promotion council said the government needs to immediately resolve the problems plagueing the scheme.
Manu Kapur, CEO of GHCL's textile business says that the MEIS scheme, floated with the objective of offsetting infrastructural inefficiencies and the costs associated with exporting products made in India, should be in place at least till the end of the current financial year.
In a challenging retail environment, with the average wallet spend on textiles decreasing and several retailers going under, this scheme is vital for making India’s products more competitive on the global stage.