The government’s decision to withdraw the Merchandise Exports from India Scheme (MEIS) with retrospective effect is likely to erode profit margins of textile players. It will also impact exports and fresh investment in the sector.

The government has removed the benefit of 4 per cent MEIS on exports of made ups and garments with retrospective effect, that is, from March 7. Moreover, the MEIS that had been granted to exporters of made-ups and garments till July 31 will be recovered, said a government notification.

“Withdrawal of 4 per cent MEIS with retrospective effect has caused an extremely serious situation for the exporters of made ups and has indeed come as a shock to the industry,” said K V Srinivasan, chairman, The Cotton Textiles Export Promotion Council (Texprocil).

“Exporters of made ups are facing serious working capital problems, affecting their day-to-day business,” added Srinivasan.

Exporters of cotton made ups were already passing through a tough situation financially due to the non-implementation of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme even after its announcement 10 months ago. This scheme, announced for export of made ups and garments, is yet to be operationalised.

Also, MEIS of 4 per cent was also frozen for made ups and garments from August 1, 2019. The textiles industry also faces some pending claims under the erstwhile Rebate of State Levies (ROSL).

“How can the government withdraw any incentive scheme of which the benefits have been passed on to consumers,” asked an industry leader. India’s exports of made ups and garments have declined severely in the last one year due to the global economic slowdown.

With countries like Pakistan, Bangladesh, Vietnam and Turkey enjoying benefits of the generalised system of preferences with developed countries, India has been left behind. Thus, India’s exports of made ups and garments became beneficial only through incentives like the MEIS.

Exporters are working against tough competition from countries like Bangladesh, Sri Lanka, Vietnam and Pakistan. This is combined by high import duties in leading export markets like the US, European Union and China.

Meanwhile, exporters have already factored in the availability of 4 per cent MEIS along with the RoSCTL scheme which is expected to be to the tune of 8.2 per cent while quoting export prices to foreign buyers.

M Senthilkumar, managing director of BKS Textiles, believes that the withdrawal of MEIS with retrospective effect would erode profit margins of textile companies.

“The MEIS benefit has already been passed on to consumers. Hence, exporters would have to pay it back to the government from their profits which would have an impact on their balance sheet,” Kumar added.

Many exporters have also paid advance tax on these export receivables as required under the I-T Act which has further aggravated the problem. All exporters have been badly affected by this decision, especially the MSME sector where bulk of the made ups meant for exports are being manufactured.

Srinivasan urged the government to restore the benefit of 4 per cent MEIS on exports of made ups and garments.

Published On : 25-01-2020

Source : Business Standard