Budget wish list: Electronics and tech industry urges FM to raise MEIS rate

Sector players say Commerce ministry move to halve MEIS to 2% goes against national goal to export 100 million handsets worth $110 billion every year by 2025

The electronics and technology industry is batting for reinstating the Merchandise Exports from India Scheme (MEIS) rate from the current 2 per cent to boost electronics exports from India. 

Industry bodies and companies discussed the issue with Finance Minister Nirmala Sitharaman on Monday, at a meeting held to understand their budget expectations. 

"Our main ask from the government is to restore MEIS. It is a very important incentive scheme for global value chains," said Pankaj Mohindroo, India Cellular and Electronics Association (ICEA) chairman. 

Hardware industry body MAIT's Chief Executive Officer George Paul, who was also present at the meeting with the FM, said, "Exports by the electronics industry will be highly dampened and have a negative impact on investments in this sector. Electronics exports will be hit hardest without MEIS. Reinstating the MEIS is the need of the hour for continued exports."

Introduced in 2015 under the Foreign Trade Policy, the mega MEIS was created out of a merger of five existing reward schemes. It incentivises merchandise exports of more than 8,000 items now and is the biggest of its kind. Exporters earn duty credits at fixed rates of 2 per cent, 3 per cent, and 5 per cent, depending upon the product and country.

According to ICEA earlier this year, handset exports in the current fiscal have crossed Rs 7,000 crore after total exports of Rs 11,200 crore in 2018-19.

"The current directive by Ministry of Commerce to reduce the MEIS from 4 per cent to 2 per cent is not in sync with the goals set in the National Policy for Electronics, 2019, to export 100 million handsets worth $110 billion every year by 2025...The mobile handset manufacturing industry has been interacting with the government on this issue and was awaiting an increase in the export incentive to 8 per cent to make India globally competitive and become a manufacturing hub," the Internet and Mobile Association of India said in a statement on Monday. 

As per IAMAI research, India today stands at a cost disability of 8-10 per cent compared to Vietnam and 18-20 per cent against China in electronics manufacturing. The disabilities arise out of multiple factors like higher cost of money, cost of land, corporate tax structure, lack of value chain infrastructure to name a few.

"Ease of Doing Business continues to remain a challenge with key ground level changes still missing. The area of classification in the electronics industry still needs to be worked on. Circulars and notifications by the government for the industry need to be forward looking and not retrospective for better alignment between the industry and the government to work towards a common vision," said MAIT's Paul.

Officials have said said the new Remission of Duties or Taxes on Export Product (RoDTEP), which is set to replace MEIS, would also be based on this method but the rates were yet to be decided. 

The current deadline for the MEIS to be disabled is December 31, 2019. But sustained complaints from specific sectors including electronics have led to officials now saying that government may extend benefits to exporters under the till March 31 next year, when the updated Foreign Trade Policy (FTP) 2020-2025 will go live.

The move to replace the MEIS was necessitated by the World Trade Organization (WTO)'s ruling against India in a crucial trade dispute with the US, ordering all export promotion schemes to be stopped by March, 2019. 

The US has also cornered India at the multilateral platform, stating WTO rules prohibit middle-income nations from providing market distorting export subsidies at all. A limited exception to this rule is for specified developing countries that may continue to provide subsidies temporarily until they reach a defined economic benchmark. India was initially within this group, but was informed by the WTO secretariat in 2017 that it had crossed the threshold back in 2015.

"The need of the hour is to bring in long term (5 to 7 year time frame) confirmed policies which work towards taking away the disabilities. The policies must move away from import substitution to export orientation and India has to invest in infrastructure to establish itself capably in the global value chain. The government cannot look at piecemeal measures, disconnected from the global realities that are present and must realise that the window of opportunity is not going to be open indefinitely," IAMAI said.