Over Rs 35,000-crore export aid held up amid trade recovery

The government is holding back export benefits worth at least Rs 35,000 crore under the Merchandise Export from India Scheme (MEIS), including sizeable funds traceable to FY20, according to trade sources. Inordinate delay in release of these funds could accentuate a Covid-induced liquidity crunch, limiting exporters’ capacity to ramp up supplies even as demand from key markets has improved, they added.

Similarly, refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, which replaced the MEIS from January 1, 2021, are yet to be notified. Since exporters typically factor in tax remission under key programmes while firming up contracts, lack of clarity about RoDTEP rates is adding to their woes, they said. Of course, they will get the refunds retrospectively (from January) once the rates are notified.

Under the MEIS, which ceased to exist on January 1, the government has already approved Rs 39,097 crore for FY20 and Rs 15,555 crore for the first three quarters of FY21. But a bulk of this amount is yet to released, ostensibly due to the pandemic hitting the Centre’s resource mobilisation, exporters said. At best Rs 20,000 crore was released, mostly against claims for FY20 (although some applications pertained to FY19 as well) but no amount has been transferred against FY21 claims, some exporters said.

A senior official said the government will soon start processing the MEIS benefits. Even RoDTEP rates will be announced shortly.

The delay in the clearance of MEIS benefits is nothing unusual, though. In earlier years, such benefits were often delayed for reasons, including faulty claims or wrong paperwork by exporters, the official explained. This time around, the pandemic has mostly contributed to the delay. “This is an unprecedented crisis, so some amount of delay is unavoidable. But the government is fully seized of the matter,” he added.

Under MEIS, most exporters were getting scrips amounting to 2-5% of the freight-on-board value of the shipment.

Importantly, at the World Trade Organization (WTO), the US recently asked India to explain the RoDTEP programme and its structure. But former commerce secretary GK Pillai, who headed a committee tasked with recommending the RoDTEP rates, told FE that the new scheme is “compliant” with the WTO norms.

“RoDTEP is a scheme for only the reimbursement of duties on exported products. Other countries do this. This is not an export incentive scheme. Such queries are usually posed at the WTO and the issue can be addressed easily,” Pillai said.

After an exhaustive exercise involving a scrutiny of embedded levies on 8,000-9,000 tariff lines, the Pillai committee had submitted its report in March within just 7-8 months of its formation. The revenue department is now vetting the report. The scheme is supposed to reimburse various embedded levies (not subsumed by the GST) paid on inputs consumed in exports.

Earlier, the US had successfully challenged the MEIS and some other export schemes, claiming these were inconsistent with global trade norms. India has appealed against the ruling of the WTO’s dispute body and a verdict is yet to come. Still, India has replaced the MEIS with RoDTEP scheme.

The government has budgeted only Rs 13,000 crore for the RoDTEP scheme for FY22 but the actual outgo could be much higher.

“Export orders from key markets (like the US and the EU) are flowing in but the bigger challenge is on the supply side,” said Ajay Sahai, director general and chief executive at the Federation of Indian Export Organisations (FIEO). If the MEIS benefits are cleared fast and RoDTEP rates remain fair and are announced swiftly, exporters can step up supplies, he indicated. Of course, any restriction resulting from the second wave of Covid-19 can potentially weigh on exports.

The RoDTEP scheme is on a “solid-footing” and is in sync with best global practices, so the government shouldn’t worry about any challenge at the WTO, Sahai asserted.

Since in many cases exporters themselves have no fool-proof data or even complete knowledge of all levies embedded in the exported products, the Pillai committee has had a herculean task of determining the RoDTEP rates. The exercise has been done in a manner as comprehensive as possible in keeping with principle that taxes are not meant to be exported, according to Pillai. He expected that, with greater submission of data by exporters, the scheme will get better and could stabilise in 2-3 years.

The scheme is proposed to cover levies that are not subsumed by the GST (petroleum and electricity are still outside the GST ambit, while other imposts like mandi tax, stamp duty, embedded central GST and compensation cess, etc, remain unrebated).

While exports have witnessed a roller-coaster ride in FY21 due to the pandemic, given the favourable base effects, outbound shipments are going to record impressive surge in the coming months. Of course, even in absolute term, exports in March stood at a record of $34 billion, against about $33 billion in the same month in 2019 (before the pandemic struck). However, for sustenance of the growth momentum over the medium term, exporters’ liquidity issue needs to be sorted out urgently.