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Spotlight | October 2019

RoDTEP to replace MEIS among sops for export

As part of her third stimulus package for the economy, Finance Minister Nirmala Sitharaman unveiled a set of stimulus measures to boost exports and the housing sector. The new package of measures for exports sector came in six different silos and covered steps that would address comprehensively tax and duties refunds for exporters; improve credit flow to the export sector and launch of a special free trade agreement (FTA) utilisation mission. India will also now host annual mega shopping festivals in four places.

Sitharaman announced the introduction of a new attractive scheme for remission of duties or taxes on export product (RoDTEP) to replace the existing Merchandise Exports from India Scheme (MEIS) from January 1 next year and revised priority sector lending norms for export credit that will release an additional Rs 36,000 crore to Rs 68,000 crore as export credit under priority sector. Sitharaman made it clear that RoDTEP would span all the sectors and the revenue foregone could be about Rs 50,000 crore. It is very difficult to put an exact number on this as the duty remission will vary from sector-to-sector, she explained. “With the introduction of RoDTEP, all the uncertainty over continuation of MEIS is over”, she said.

Finance Minister announced a number of other measures to boost dipping exports including early extension of priority sector lending (PSL) norms for export credit, a fully automated electronic refund route for input tax credits (ITC) in GST and reducing the turnaround time for exports at ports and airports. The new export incentive scheme will “more than adequately” incentivise exporters as compared with all existing schemes put together, and it will be implemented from January 1, 2020, Sitharaman said.

The revenue foregone for the new scheme is estimated at up to Rs 50,000 crore per annum. While some exporters are optimistic about the new scheme, others are skeptical. “The new scheme looks attractive as it will neutralise all duties and levies suffered by export products,” Sharad Saraf, President, Fieo, expressed hopes. Giving three months lead time till December 31 to the existing MEIS will remove the uncertainty creeping in the minds of the exporters and will greatly help to finalise their export orders, he added.

“On the face of it, this just seems to be a replacement of MEIS and other existing export benefits. The most critical issue will be how the RoDTEP will be calculated,” Sanjay Jain from the Confederation of Indian Textiles Industries (CITI), pointed out. Most exporters, however, are positive about the announcement that PSL norms for export credit have been examined and enabling guidelines are under consideration of the RBI, which will release an additional Rs. 36,000 crore to Rs 68,000 crore as export credit under priority sector.

The promise of bringing down the turnaround time for shipments at Indian ports and airports and make them comparable to the very best existing in places such as Shanghai and Boston, has also enthused exporters.

“Committing more credit to exporters, bringing down the turnaround time at the ports at par with global standards and making the tax rebate schemes WTO-compliant with particular focus on labour-intensive sectors like textile and handicraft would lift the sentiment in the export sector,” said ASSOCHAM President BK Goenka.

Saraf expressed hopes that expanding the scope of Export Credit Insurance Scheme (ESIC) by ECGC will enable reduction in overall cost of export credit including interest rates especially for MSMEs. India’s exports contracted by 6 per cent in August 2019 to $26.13 billion with major sectors including gems and jewellery, petroleum, ready-made garments and engineering goods posting a fall. The overall exports in the April-August 2019-20 periods are also lower by 1.54 per cent to $133 billion.

The measures would give confidence to the struggling Tirupur knitwear export sector, said Tirupur Exporter’s Association (TEA) President Raja M Shanmugham and hoped that the pending amount would be reimbursed expediently. TEA also thanked the Finance Minister for announcing revised priority sector lending norms for exporters, which will release an additional funding of Rs 36,000 crore to Rs 68,000 crore to them. He welcomed the announcement that leverage of technology would be used to reduce time to export or turnaround time, which would give a cushion to export units and help meet delivery schedules and also reduce logistics costs.

Sitharaman’s promise of higher export credit, electronic refund of ITC, lower turnaround time at ports has been welcomed. Ending uncertainty for exporters, the government has announced a new scheme for reimbursing input duties and taxes to replace the popular MEIS, which is not compliant with world trade rules. Some exporters, however, are awaiting more details on the new scheme, as they are unsure if it would offer them higher incentives than what they are getting at present. Most export sectors, such as garments and textiles, leather and engineering goods have been demanding higher sops to combat a fall in exports in the on-going fiscal.

Impact hinges on global economy pick-up, rupee volatility

India’s exports have witnessed sustained moderation in the growth in the past couple of years. During FY03-FY12, India’s export growth averaged above 20 per cent. However, since FY13, exports have turned adverse having grown at mere average of 1.5 per cent during FY13-FY19, with certain years indicating contraction in the growth.

During the first five months of ongoing fiscal year 2019-20 (April-August), exports have contracted by 1.5 per cent as against the 15.7 per cent growth registered in the corresponding period last year. The export growth during this period was impacted on account of slowing global demand amidst uncertainties surrounding trade along with volatility in the Rupee.

With a view to provide an impetus to the export sector, the Finance Minister has announced various measures to support the export sector. These measures came over and above various measures which were announced earlier.

Key highlights of measures announced:

Incentive and taxation:

  • Introduction of RoDTEP:
  • This new scheme will replace all MEIS [1] to incentivise exporters.
  • Reimburse all taxes and duties paid on inputs consumed in exports in sync with WTO norms.
  • Textile will continue to be covered under MEIS till December 2019 thereafter will be moved to RoDTEP from January 2020.
  • The govt. is expected to forgo Rs. 50,000 crore with the implementation of this new scheme, which includes incentives given under MEIS in the budget.
  • For quick and automated refund of Input tax credit (ITC) in GST, fully electronic refund module will be implemented from September 2019. This will expedite the refunds in ITC.

Export finance:

  • Export credit insurance scheme (ECIS) will be extended by the Export Credit Guarantee Corporation (ECGC).
  • Higher insurance cover will be covered to banks who are lending working capital to exports.
  • Premium incidence for MSMEs will be moderated, enabling reduction in overall cost of export credit.
  • The government will provide Rs 1,700 crore for export guarantees and to cut credit cost for the exporters
  • Revised priority sector lending norms for export credit:
  • RBI will reconsider the guidelines for the PSL norms for export credit.
  • This is likely to release additional Rs 36,000 crore to Rs 68,000 crore as export credit under the priority sector.
  • Export finance data will be monitored by an Inter-Ministerial Working Group under the Department of Commerce.

Export facilitation:

  • Leverage technology to reduce time to export or turnaround time: Ongoing initiatives will be completed enabling leveraging of technology
  • All export clearances will be digitised to reduce time to export
  • Action plan to this effect in line with international standards will be implemented by December 2019.
  • Real-time data for actual turnaround time will be published
  • Annual mega shopping festivals will be organised in four places in March 2020 with focus on gems and jeweler, handicrafts/yoga/ tourism, textiles and leather).

FTAs:

  • Special FTA utilisation mission: Setting up FTA utilisation mission under the Department of Commerce.
  • Work in alignment with FIEO and export houses to utilise concessional tariffs in each FTA
  • It will aim to enhance awareness among MSMEs regarding preferential duty benefits,
  • Disseminate and facilitate compliance requirement under FTAs for importers and exporters
  • Effective FTA monitoring system will be put in place.
  • Launching online ‘Origin Management System’ for exporters to obtain certificates of origin. This will significantly improve ease of doing business for exporters.

Engineering:

  • Time bound adoption of mandatory technical standards:
  • Working group on standards will be set up to lay down roadmap for adoption of standards, time lines and enforcement
  • This will enable Indian products to overcome non-tariff barriers in exports
  • Affordable testing and certification infrastructure will be expanded and developed in PPP mode.
  • Enable exporters to get all internationally accepted tests and certification done within India.
  • This will reduce cost of adoption of standards and certification for Indian exporters to meet national standards of FTA partners.

Impact of measures

The announced measures are a positive and are expected to bode well for the exporters in the coming year. However, it will also depend upon the global economy pick up and currency volatility as our exports tend to depend on these two factors to a greater extent.

  • The duty benefits from RoDTEP will positively impact exporters and make their products more competitive. This will however pressurise the Budget further as the total drop in revenue would be higher than that under the MEIS. But as this would be WTO compliant it would be globally acceptable. The quick refunds from ITC will benefit the exporters as it will release the blocked funds of the exporters quickly in the hassle free manner.
  • Under the proposed priority sector lending for exports, the credit flow to the exports will improve. MSMEs will benefit from improved insurance coverage against any roadblocks with regard to exports. This is a big gain as banks have been less willing to lend to this sector.
  • The action plan for digitisation of export clearances is likely to reduce turnaround time by nearly 50 per cent from current three days of turnaround time for exports. This will save in cost and time.
  • The organisation of the shopping festivals will be beneficial as will boost demand for the identified products like gems and jewellery, textiles. There is definitely need to hard-sell exports of traditional goods in other countries and this move will definitely help the cause.
  • •The awareness regarding FTAs among exporters will enable them to reap benefits of such arrangements in the future. FTAs are the way to go given that there has been limited progress made in the WTO negotiations. India has not leveraged any significant such relationship and hence being open to such arrangements will help to deepen intra-regional trade with the concerned countries.

The MEIS, introduced in 2015 under the Foreign Trade Policy, incentivises merchandise exports of more than 5,000 items. Exporters earn duty credits at fixed rates of 2 per cent, 3 per cent and 5 per cent, depending upon the product and country.

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