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MEIS incentive rollback to hit T&A Sector Hard’

MEIS scheme and appealed to the Govt of India that it should be rolled back for the benefit of apparel sector. The industry strongly feels that is the scheme is discontinued from August 1 it will hit the sector very hard, especially since the overall economy is facing a slowdown.

Textile and apparel industry have recently expressed their unhappiness over discontinuation of MEIS scheme and appealed to the Govt of India that it should be rolled back for the benefit of apparel sector. The industry strongly feels that is the scheme is discontinued from August 1 it will hit the sector very hard, especially since the overall economy is facing a slowdown. They have urged that the existing scheme should continue until an alternative plan, which is under consideration, is finalised. “Businesses and governments are intent on aligning with WTO, but if MEIS is abruptly withdrawn, there will be long-term, adverse effects on the workforce comprising five to six lakh personnel in the state,” said DurgeshBuch, GCCI president.

MEIS, which replaced the Duty Drawback Scheme after the rollout of the Goods and Services Tax (GST), provides up to 4% rebate on exports. The World Trade Organization (WTO) has asked that such schemes be discontinued.

After Effects
MEIS was introduced after roll out of GST in lieu of duty drawback scheme
Indian exporters to lose edge against competitors from Bangladesh, Pakistan, Vietnam and Sri Lanka
Export loss to hit close to six lakh workers in state

As Government is considering to replace Merchandise Exports from India Scheme (MEIS) with a new duty refund scheme called Rebate of State and Central Taxes and Levies (RoSCTL), GEMA, which is north India’s biggest apparel association has sent a representation to the Government appealing not to discontinue MEIS. In a representation sent, the Garment Exporters & Manufacturers Association (GEMA) said that the consideration of RoSCTL as a substitute to MEIS is unjustifiable. The two should be seen independent of each other.

It may be noted that ROSCTL, which is a reimbursement of taxes already paid by the industry, is not similar in scope or role of MEIS and hence should not be considered as a replacement of the same, said GEMA. Also, with ROSCTL yet to be rolled out and backlogs of more than 8 months is being reported by a lot of smaller players. There is already a working capital crunch in the industry, it added.

‘A discontinuation would aggravate these challenges for Indian exporters and render them competitive. I strongly request the Government to continue the MEIS Scheme as the apparel sector has recently recovered from a long spell of stagnation, said AnimeshSaxena, General Secretary of GEMA.

Requesting Government that MEIS for Garments (HS Code 61 & 62) should be continued with the existing rate of 4% until such time alternative WTO complaint scheme is formulated and implemented, he said RoSCTL scheme was introduced to provide reimbursement of Central and State Taxes to ensure that the taxes are not exported along with the products. RoSCTL is not an export subsidy Scheme. Therefore, introduction of RoSCTL should not trigger withdrawal of MEIS, rather alternate Scheme should be devised which is WTO complaint, he added. The association reiterated that MEIS helps Indian exporters retain the level playing field in the competitive export market and overcome certain challenges and inefficiencies which continue to be faced by them.

With over 15% cost disadvantage on account input cost differentials, logistic disabilities and market access disadvantage vis-a-vis competitors, the rationale for continuation of MEIS is strong. Not only will dilution of the MEIS support jeopardize the present order book positions, but it will lead to India losing out to Bangladesh and Vietnam in several competing categories, it added.

HklMagu, Chairman, AEPC too started a petition at official website of APPAREL EXPORT PROMOTION COUNIL to safeguard the future of exports and continue the MEIS scheme. Diluting MEIS will kill the revival prospects of the apparel exports. “On behalf of all the small and medium exporters of Apparel Export Promotion Council, I strongly request the Government to continue the MEIS Scheme as the apparel sector has recently recovered from a long spell of stagnation. The industry has been showing strong signs of revival with exports growing continuously since Oct 2018 (only June 2019 has shown a decline) and production index for apparel also recording growth since Nov 2018,” said Chairman.

All the associations strongly feel that the withdrawal of MEIS will derail this growth. There is a need to continue the MEIS or formulate alternate scheme as the industry continues to suffer on account of following:

A. Transaction cost of export is very high (8 to 10% of FOB value) compared to other countries on account of high cost of infrastructural inefficiencies.

B. High cost of working capital due to high cost of borrowing compared to competitors.

C. 9.6% import duty for India’s apparel export to European Union (EU) compared to ‘Nil’ rate for competing countries like Bangladesh and Pakistan

D. Countries like China handle similar issues and continue to provide export subsidies upto 17% by way of VAT rebate.

E. Logistic cost is presently around 14% of total cost, as against a global benchmark of 10%

F. The sector is also disadvantaged due to higher REER With over 15% cost disadvantage on account input cost differentials, logistic disabilities and market access disadvantage vis-a-vis competitors, the rationale for continuation of MEIS is strong.

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