29 November 2017:
Bowing to the pressure from the exporters, the Directorate General of Foreign Trade (DGFT) had an order few days ago by which rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry that is readymade garments and made ups have been enhanced from two percent to four percent of value of exports.
Though the notification will be for the period of 01 November 2017 till 30 June 2018, it has certainly initiated the much needed debate on exporters-centric policies than government-dictated ones.
The Commerce Ministry strongly believes that until issues concerning exports are addressed a mid-term review of the foreign trade policy (FTP) will be meaningless. Commerce Minister Suresh Prabhu has written to Finance Minister Arun Jaitley raising concerns and seeking quick remedies.
The five-year FTP (2015-2020) had laid down a stiff target of $900 billion of annual exports by 2020 but lack-lustre performance in the last two-and-a-half years, will compel the government to bring it down drastically.
Prabhu in that letter, which could be clearly stated as forecast, has stressed on improving usability of the scrips earned under the MEIS — the most popular incentive scheme for exporters covering more than 7,000 items — as post-GST the scrips can be used for payment of only customs duties.
This has reduced the premium on the scrips (valued at 2-5 per cent of export amount) as earlier it could be used for payment of all input taxes such as central excise duty and service tax.
The Commerce Minister proposed that the MEIS scrips should be allowed to be used for payment of GST.
He also proposed that the rate of MEIS be increased from 5 per cent to 7 per cent for labour-intensive sectors such as leather, footwear, handloom, handicraft, Ayush, marine products, electronic components and the MSME sector, which suffer the most during a downturn.
However, exporters feel that the government should also incorporate the embedded tax and announce the revised ROSL and Duty Drawback rates as this lifeline support are desperately needed to bring back the exports growth and boost the confidence of garment exporters to take up fresh orders and sustain in the global business.
Industry sources said that the government should first hold discussions with the industry on duty drawbacks, take into account the actual duties paid and ‘only then work out the drawback rates’. For instance, for processed fabric, GST for the fabric is 5%. But, input tax rates are higher. So, there is accumulation of input tax credit that is not refunded. This is not covered under the drawback either.
With exports falling, there is concern around debt levels. In the case of yarn, monthly exports have fallen to 90 million-100 million kg compared with 120 million kg-140 million kg seen in 2014. Though a chunk of this went to China, about 30 million kg reached markets such as Latin America. Now, exports to China are declining and ‘there is barely any export to new markets’.