Cut in export benefits: In talks with finance ministry to resolve MEIS issue early, says Piyush Goyal

The finance ministry, tackling a difficult fiscal situation, is believed to hold the view that while the scope of MEIS continued to widen over the last five years, leading to higher outgo from the exchequer, it hasn’t resulted in any tangible growth in exports.

Commerce and industry minister Piyush Goyal on Thursday said he is in talks with the finance ministry for an “early resolution” of the issue of a massive cut in benefits under the Merchandise Export From India scheme (MEIS) by the revenue department. Speaking at a CII webinar, Goyal said: “We are in dialogue with the requisite authorities. MEIS is not going anywhere. It is a cash flow issue. We are trying for an early resolution which is a win-win for everyone.” He was responding to a request by CII president-designate and Tata Steel chief executive TV Narendran to see if “something can be done about it”.

The revenue department has capped the outlay for the MEIS at just Rs 9,000 crore for the April-December period, which means exporters may be deprived of over two-thirds of the benefits they usually get under this scheme. The MEIS outgo was about Rs 40,000 crore in FY19 and Rs 45,000 crore in FY20. For this fiscal, the Budgetary allocation was to the tune of Rs 27,000-30,000 crore, according to industry sources, although there is no official word on it.

The finance ministry, tackling a difficult fiscal situation, is believed to hold the view that while the scope of MEIS continued to widen over the last five years, leading to higher outgo from the exchequer, it hasn’t resulted in any tangible growth in exports.

For their part, exporters argue that they firm up contracts, factoring in MEIS benefits, and any retrospective suspension or reduction of the incentives will only erode their cash flows at a time when they are battered by the pandemic. As such, any retrospective order adds to policy uncertainties. Also, subdued export growth is a result of the absence of both structural reforms and adequate incentives to improve competitiveness, they contend.

Fearing a shortage of funds following the revenue department’s decision, the commerce ministry has, for the time being, blocked the online module for claiming such benefits since July 23. Already, in a letter to finance minister Nirmala Sitharaman on July 21, Goyal sought a review of the revenue department’s decision.

Goyal also said exports, so far in July, are down only 12% from a year before and a contraction in imports have narrowed to 25%. However, services exports have more or less held up, despite the pandemic, he added.

Merchandise exports witnessed a record 60% crash year-on-year in April, although the contraction narrowed to 37% in May and 12% in June, as lockdown curbs were lifted last month. However, in June, imports were still down by almost 48%.

“Business is bouncing back,” Goyal said, adding that the export restrictions on ventilators will soon be done away with. He also highlighted that the Centre is working with states for easier labour law, soft launch of land bank portal and a real single-window clearance for investments.

The MEIS would remain valid until December this year and is to be replaced with a more WTO-compatible scheme, RoDTEP, which reimburses all levies (that are not subsumed by GST) paid on inputs consumed in exports.