Aug 26, 2022
How an incentive scheme is discouraging Indian garment exporters
Aug 26, 2022
Market is considered right platform to discover price of an item or commodity. But India’s garment exporters are being discouraged just due to tradable scrips issued to incentivise them. The scrips, issued under the Central government’s Rebate of State and Central Taxes and Levies (RoSCTL) scheme, are being traded at deep discount of up to 20 per cent.
Exporters are continuously urging the government to stop issuing scrips under RoSCTL and provide incentives so they can get full benefit and the incentive scheme is able to encourage them to earn more foreign currency for the country. The latest to raise a similar demand is the Garment Exporters Association of Rajasthan (GEAR).
Vimal Shah, president of GEAR, and other exports said recently in a press conference held in Jaipur that the scheme should be amended immediately. Current scrip system of incentivising exporters is actually discouraging them. Exporters feel that the scheme is not supporting them to face stiff competition from other exporting countries.
“The textile industry wants the government to restart cash reimbursement instead of these tradable scrips, as these scrips are trading at 20 per cent discount,” Shah told Fibre2Fashion. These scripts are sold by exporters to importers, who in turn can pay their import duty with these purchased scrips as an alternative to cash import duty payments. This is resulting in substantial cash transfer from exporters to importers.
Experts feel that there is a structural problem in the scrips system. Importers are free to pay import duty through the scrips or in cash. But exporters are not free to get incentive in cash or in scrips. Therefore, demand is lesser than supply which puts pressure on the price of the scrips. Large sized importers like oil marketing companies are not keen to purchase the scrips and they would have to bear additional liability if exporter’s payment gets stuck against the scrip. Actually, exporters can get the scrip just after shipment of export consignment. If there is a problem in payment, which comes 2-4 months after the shipment, the liability will rest with the holder of the scrip. Therefore, large importers do not prefer to buy scrip from small exporters.
Shah says that brokers are also involved in scrip trading. Normally, they purchase blank scrips at discount as high as 25 per cent. They are free to resell the scrip at a price which they like. So, there is ambiguity about brokerage expense and actual discount at importers. He said that small exporters are facing serious problem because they have to bear an additional cost of professional help which they need to generate the scrip.
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