Merchandise Export From India Scheme: Auto, pharma firms to be hit hard by cap on MEIS benefits
October 5, 2020
However, exporters have highlighted that these 2% exporters account for a substantial chnuk of the exports covered under the MEIS.
The government’s decision to cap benefits under a key scheme at just Rs 2 crore per exporter during the September-December period of this fiscal will likely hit the pharma and auto industries hard, as some of the large companies in these sectors have generally been among the biggest beneficiaries, raking in export benefits of hundreds of crores of rupees each.
While company-wise data aren’t available in the public domain, sources told FE that firms that received maximum benefits under the Merchandise Export From India Scheme (MEIS) in FY18 included JSW Steel (Rs 302 crore), Ford India (Rs 273 crore), Bajaj Auto (Rs 247 crore), Dr Reddy’s (Rs 241 crore), Aurobindo Pharma (Rs 211 crore), Mylan Lab (`193 crore), Hyundai Motor India (Rs 189 crore), Vedanta (Rs 180 crore), Lupin (Rs 155 crore), and Nissan Motor India (Rs 150 crore). Tata Motors, Maruti Suzuki India, Hindalco and Reliance Industries, too, have received sizeable amount, the sources said.
It’s possible that some of these companies may have been out of the list of top 10 beneficiaries recently but they still corner a sizeable chunk of benefits, the sources added.
A questionnaire sent to the commerce ministry on September 23 remained unanswered until the paper went to the press on Sunday. Queries sent to JSW Steel, Bajaj Auto, Aurobindo Pharma, Lupin and Vedanta didn’t elicit any response either. Maruti Suzuki India said it wouldn’t like to comment on the matter, while Dr Reddy’s sought more time to respond.
Sources said in a meeting with commerce and industry minister Piyush Goyal last month, top representatives of various export promotion councils and other trade bodies expressed concerns over the capping of the MEIS benefits, highlighting that medium and large exporters who are primarily responsible for driving growth are badly hit by the move.
Exporters are also upset that even this limit can be revised down, as the government has limited the overall outgo under the MEIS to just Rs 5,000 crore between September and December.
Earlier this fiscal, starved of resources following the Covid-19 outbreak, the revenue department “suddenly” capped the outlay for the MEIS at just Rs 9,000 crore for the April-December period, which meant that exporters may be deprived of over two-thirds of the benefits they usually get under this scheme. This forced the commerce ministry to block the online module for claiming the MEIS benefits since July 23. However, the online module has been reactivated since September 1.
The MEIS outgo was about Rs 40,000 crore in FY19 and Rs 43,500 crore in FY20.
According to a commerce ministry estimate, about 98% of the exporters who claim MEIS will remain unaffected by the changes and less than 2% are likely to be impacted as per analysis of claims in the relevant period of 2018-19. However, exporters have highlighted that these 2% exporters account for a substantial chnuk of the exports covered under the MEIS.
Exporters have said they typically firm up deals after factoring in the MEIS scrips, which range from 2% to 5% of the export turnover, depending on the products or shipment destinations. So, any abrupt or premature withdrawal of or reduction in benefits by the government will, therefore, erode exporters’ margins proportionately, at a time when they are already bruised by a Covid-induced cancellation of orders.
Merchandise exports witnessed a record 60% year-on-year crash in April, though the pace of contraction has since narrowed. The exports grew 5.3% on year in September, the first rise since February. However, risks from external headwinds still remain quite strong.
Calling the MEIS an inefficient scheme, NITI Aayog recently said while liabilities under the programme grew as much as 32.2% y-o-y in FY19, exports of the MEIS-covered items rose by only 10.4%. In FY18, the MEIS covered 47.8% of Indian exports but 85.6% of total exporters, mainly because the scheme encompasses many labour-intensive sectors filled with small and medium businesses.
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