The Commerce industry is planning to withdraw the Merchandise Exports from India Scheme (MEIS) incentive in the new export-import policy, which will be applied in 2020 as the current policy expires.
Under MEIS, a 4 per cent incentive is given to the garment exporters to address infrastructure issues, which helps them remain competitive with countries like Bangladesh and Vietnam. Under World Trade Organisation (WTO) rules, a country cannot offer subsidies if its per capita Gross National Income (GNI) exceeds $1000 for three consecutive years. In 2017, WTO notified that India’s GNI has crossed $1000 in 2014, 2015 and 2016.
After United States opposed India’s eligibility to extend export subsidies at WTO, the government has been working on reshaping its entire export incentive policy and is planning to withdraw MEIS from August 1, 2019.
According to Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI), this move will kill the garment sector as the industry already operates at a very low margin and the withdrawal will turn the margin into negative.
Tirupur Exporters Association’s President, Raja M Shanmugham says that garments being exported to European Union (EU) from Bangladesh does not attract any duty, while those from India face a levy of around 7 per cent. These countries also enjoy lower power, labour and interest costs as their governments see the sector as critical for employment generation. These factors contribute to the 15 per cent price difference between Indian products and those made in Bangladesh or Vietnam.
Shanmugham adds that it is important to come out with an alternative policy compatible with WTO rules that extends benefits equivalent to MEIS for the growth of the industry. It’s also important to provide infrastructure facilities apart from inking free trade agreements with the EU, the United Kingdom, Australia, Canada, etc.