Status quo on MEIS benefits: Finance and Commerce ministries yet to come to a conclusion

Worsening the hardships of exporters who are facing a delay in payouts of benefits committed under the Merchandise Exports from India Scheme (MEIS), both Commerce and Finance ministries have yet to reach a conclusion.

Senior Finance Ministry sources have told CNBC-TV18 that “the revenue department is yet to hear from commerce ministry with clarity on sectors that should avail of these MEIS benefits and until this detailed list is shared with the revenue department the pay-outs cannot be cleared.”

The Directorate General of Foreign Trade (DGFT), on July 23, blocked the MEIS module from accepting new applications for shipping bills with let export order (LEO) beginning April 1, 2020, to limit the issuance of any more scrips. This was being done as the Finance Ministry had informed commerce ministry that funds can be released only to select exporters.

The government has decided to cap benefits under the Merchandise Exports from India Scheme (MEIS) scheme at Rs 9,000 crore. The DGFT has said that scrips worth Rs 422 crore issued from April through July have been put on hold. And no new scrips will be issued until the “issue” is resolved between Finance and Commerce ministries.

When checked with the Finance Ministry, sources quoted above added that “ the revenue department committed to these pay-outs but the clearances can be given only once the commerce ministry reverts with details of sectors that should get these benefits.”

Finance Ministry sources further added that both,  Finance Ministry and NITI Aayog, were in favour of replacing the inefficient MEIS funds with focused Production linked incentive schemes and MEIS benefits will not be extended to those sectors where these incentive schemes have been initiated.”

Post series of discussions, the department of commerce was requested to review the coverage of MEIS tariff lines and rates so that MEIS incentive for this fiscally is brought down to the level of Rs 9,000 crore.

“The MEIS savings shall be used for supporting the sectors that have potential to grow and contribute towards AtmaNirbhar Bharat and has higher potential for exports,” sources said.

The idea of reviewing the MEIS, according to finance ministry was to ensure that resources are optimally used and in a targeted way.

Finance Ministry is of a view that the “wide coverage of MEIS meant that resources are spread across a number of tariff lines without focus. Additionally, liabilities on accounts of MEIS grow faster than the rate of growth of exports. 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.”

Accordingly, realizing that MEIS had miserably failed to deliver, in terms of exports performance, the Government has envisioned a new roadmap for incentivizing and fully supporting a few identified sectors where India has competitive strength and assist companies to enhance their size and scale so that India can create and nurture global champions.

The government did highlight that the vision to enhance sectors with core competitiveness would need to bring in size and scale to manufacturing and to ensure efficiency and economies of scale, making Indian companies and manufacturers globally competitive so that they can penetrate global markets.

Accordingly, sector-specific production linked incentive (PLI) schemes have been introduced for electronics, pharma, medical equipment was launched.

The government has also announced that the MEIS scheme will be wound up by December 31, 2020, and it will be replaced with the Remission of Duty or Taxes on Export Products (RoDTEP) scheme.

It is only in the interim, that the department of revenue restricted pay-outs to ensure that the scheme promotes exports instead of spreading incentives in a manner that does not yield the desired result.

Experts are of a view that post-COVID, the government is facing serious fiscal constraint and the limited resources are to be used optimally.

Thus, the idea of re-directing the resources to thought through the PLI Scheme and other Schemes under AtmaNirbhar Bharat became the immediate need.

Meanwhile, Federation of Indian Export Organisations (FIEO), DG & CEO, Ajay Sahai says, " We urge the government to soon sort out the issue as delays in release of MEIS are affecting the liquidity of exporters, especially those who have already shipped their export consignments. We must note that exporters have already passed on the benefits that they were assured of under the MEIS scheme to remain competitive in the market. "

"The issue here is that the pay-out is stuck for an exporter where the deal is done, consignment has been exported and the exporter is awaiting to claim they already factored in benefits to close the deal. Thus, we have urged the government to release the payments at the earliest for those where exports have been made and also to help exporters to quote for new orders, the government should soon come up with the rates of Remission of Duties or Taxes on Export Products (RoDTEP) scheme, as RoDTEP will replace the current MEIS in a phased manner,” he added.