Exporters are yet to receive Rs 25,000-30,000 crore worth of tax refund under the erstwhile Merchandise Exports from India Scheme (MEIS), even as they wait for clarity on a new tax benefit scheme, according to apex exporters body the Federation of Indian Export Organisations (FIEO).
FIEO and other export promotion councils have warned the government that the ensuing liquidity crisis may severely affect outbound trade in the current quarter, Moneycontrol has learnt.
The commerce department has been apprised that crucial export sectors such as engineering goods, chemicals, leather and leather goods, heavy industries and key micro, small and medium enterprises (MSME) run sectors such as handicraft and carpet exports would see their business being majorly hit in the January-March quarter, considered to be a prime export season.
"Even if the government acknowledges the gamut of claims that are pending with it, many banks would be able to lend out to exporters against the receivables. We have told the Centre that assuming you have a problem with the fund, at least allow the exporters to file the claims and accept that as receivables so that some loan may be taken against that," FIEO Director General Ajay Sahai said.
The hugely popular MEIS scheme introduced in 2015 allowed exporters to earn duty credits at fixed rates depending on their exports and destination. These could be used to pay for import duties.
The scheme was discontinued by the government after the World Trade Organization (WTO) ruled against it in November, 2019. The United States had lodged a case against India at the top court for international trade disputes and argued MSME was 'trade distorting' and provided direct subsidies to exporters, prohibited under WTO rules.
Also, the NITI Aayog pointed out that the mega scheme did little to boost India's exports. "Public tax liability under the MEIS ballooned from Rs 20,232 crore in 2015-16 to Rs 39,000 crore in 2019-20, becoming unsustainable. However, exports remained stuck at $313 billion in 2019-20 against $310 billion in 2014-15," a senior Commerce Department official said. Currently, the government is in the process of diverting MEIS funds into specific performance linked incentive schemes, he added.
But its alternative, the new scheme, introduced in the latest Budget with an initial allocation of Rs 13,000 crore has fallen short of expectations of exporters. The finance ministry had in 2020 promised an outlay of Rs 50,000 crore, along with a similar formula as MEIS. But exporters remain especially irked at the government for not announcing the rate of tax benefits under RoDTEP, more than 18 months after it was announced initially. "All MEIS benefits have been cut off from January 1, but the government is yet to announce tax refund rates for even a single export item under RoDTEP, a scheme initially brought to help remove export uncertainty," added Sahai.
India's exports in the April-January period of 2020-21 was $228 billion, 13.5 percent lower than the corresponding period of the previous financial year.
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