While the commerce ministry has sought a review of the revenue
department’s decision to cap benefits under the Merchandise Export from
India Scheme (MEIS) at just Rs 9,000 crore for the April-December period,
the finance ministry apparently feels the massive cut is justified, as the
scheme has been a “miserable failure”.
Government sources argue that while the scope of the MEIS continued to
widen over the last five years, leading to a higher liability, it didn’t result in
any tangible growth in exports. They added that sector-specific
performance-linked incentives (PLIs) was a more appropriate strategy to
promote exports.
The sources said that the revenue department has requested the commerce
department that MEIS incentives should be re-calibrated so that it
promotes exports, instead of the wide-ranging incentive structure it has
come to acquire. “Post-covid, the government faces a serious fiscal
constraint and the limited resources are to be used optimally. Re-directing
the resources to well-thought-out PLI Scheme and other schemes under
Atmanirbhar Bharat is the immediate need,” an official said.
On their part,
exporters argue that
they firm up contracts,
factoring in MEIS
benefits, and any
retrospective
suspension or
reduction of the
incentives will only
erode their cash flows
at a time when they are
battered by the
pandemic. As such,
any retrospective order
adds to policy uncertainties. Also, subdued export growth is a result of the
absence of both structural reforms and adequate incentives to improve
competitiveness, they contend.
As FE reported, the revenue department has asked the commerce ministry
to review and cap the outlay MEIS at Rs 9,000 crore for the April-December
period, depriving exporters of over two-thirds of the duty remission benefits
they are entitled to. MEIS scheme was introduced in 2015 and would be
wound up on December 31 this year.
Merchandise exports have been contracting since March. They witnessed a
record 60% crash year-on-year in April, although the contraction narrowed
to 37% in May and 12% in June, as lockdown curbs were lifted last month.
MEIS has already been replaced by PLI schemes for a few identified sectors
where India has competitive strength and assist companies to enhance their
size and scale to create ‘global champions’, another official said. “Sectorspecific PLI schemes have been introduced for electronics, pharma, medical
equipment and more PLIs are in pipelines for few other sectors also,” the
official added.
Further, the remission of embedded taxes and other levies on exports would
be allowed through a new scheme Remission of Duty or Taxes on Export
Products (RoDTEP) scheme.
At the time of its launch, the MEIS replaced five similar incentive schemes.
However, while MEIS initially covered 4,914 tariff lines with rates of 2%, 3%
or 5% on exports which were divided over 3 sets of export countries for a
market focus of the scheme, it now covers 8,059 tariff lines. “This means
75% of total tariff lines are now covered under MEIS. Over a period of time,
MEIS was given at the rates varying from 2% to 20%,” another official
dealing with the matter said.
However, the scheme failed to perform as MEIS liability continued to grow
to Rs 45,000 crore in FY20 from Rs 20,000 crore but the exports flatlined
to $313 billion in FY20 compared with $310 billion in FY 15.
“This is despite the fact that during the same period rupee had devalued by
about 20%, giving as much additional gains to Indian exporters under MEIS
scheme,” the official quoted above said.
Wide coverage of MEIS meant that resources are spread across a number of
tariff lines without focus.
Additionally, liabilities on accounts of MEIS have grown faster than the
exports growth rate (see chart). Apart from the inefficiencies that have crept
into the MEIS scheme, India has also faced hurdles at the WTO in respect
of the continuation of MEIS, sources said.
“The idea of reviewing the MEIS has been to use resource optimally and in
a targeted way. NITI Aayog has also echoed the need for replacing the
inefficient MEIS with focused and efficient schemes like PLIs,” one of the
officials quoted above said.
Source: The Financial Express, India Thursday, 30 July 2020