Context: Ongoing Fund crunch has forced the commerce ministry to cap export incentives under Merchandise Exports from India Scheme (MEIS) at Rs. 2 crore per exporter on outbound shipments made during September-December, 2020.
Key Points
About the Decision

• The ceiling would be subject to a downward revision to ensure that the total claim doesn’t exceed the allocated Rs. 5,000 crore for the period.
• The new Import Export Code (IEC) obtained on or after 1st September will be ineligible to submit any MEIS claim for exports.
• Import Export Code: It is issued by the DGFT (Director General of Foreign Trade - Ministry of Commerce and Industry).
• IEC is a 10-digit code which has a lifetime validity. Predominantly importers cannot import goods without the Import Export Code and similarly, the exporter merchant cannot avail benefits from DGFT for the export scheme, etc. without IEC.

Reasons for Government Decision

• MEIS is not World Trade Organisation (WTO) compliant and rolling back of the MEIS scheme will pave the way for a new scheme in place. 
• The Indian government has announced a new WTO-compliant scheme called Remission of Duties or Taxes On Export Product (RoDTEP) which will replace MEIS starting 1st January 2021.

Merchandise Export from India Scheme (MEIS)

• MEIS was designed to provide exporters with sops to offset infrastructure inefficiencies and associate costs.
• Under MEIS, the government provides duty benefits depending on product and country.
• Rewards under the scheme are payable as percentage of realised free-on-board value (of 2%, 3% and 5%) and MEIS duty credit scrip can be transferred or used for payment of a number of duties including the basic customs duty.
• The scheme will come to an end by December 2020 following India losing a case at the World Trade Organisation (WTO) after a challenge by the US.
• The Indian government has announced a new WTO-compliant scheme called Remission of Duties or Taxes On Export Product (RoDTEP).

Remission of Duties or Taxes On Export Product (RoDTEP)

• The new scheme will be implemented from 1st January 2021 and create a fully automated route for Input Tax Credit (ITC) in the GST to help increase exports in India.
• It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.
• The Ministry of Finance has set up a committee under the chairmanship of former commerce and home secretary GK Pillai to finalise the rates under RoDTEP that will allow reimbursement of all embedded taxes including local levies paid on inputs by exporters.

Concerns

• Lack of data for new scheme to replace MEIS: The RoDTEP committee has started the work, but the industry is facing challenges in providing the data due to frequent local lockdowns, non-availability of transport and non-functioning of auditors.
• The Federation of Indian Export Organisations (FIEO) is of the view that exports during September-December are based on orders that had been negotiated earlier after factoring in the existing Merchant Export from India Scheme (MEIS) benefit.
• These benefits are part of the export competitiveness and therefore the sudden change will affect exporters’ financially as buyers are not going to revise their prices upwards.

Federation of Indian Export Organisations

• The Federation of Indian Export Organisations represents the Indian entrepreneurs spirit of enterprise in the global market. It was set up in 1965.
• It is an Apex body of the export promotion councils, community boards and development authorities in India.
• It provides the crucial interface between the international trading community of India & the Central and State Governments, financial institutions, ports, railways and all engaged in export trade facilitation.

Road Ahead

• The extension in the MEIS Scheme till March 2021 will help in a smooth rolling of the RoDTEP scheme.
• The sudden imposition of a cap of Rs. 2 crore per IEC (Import Export Code), on MEIS benefit of exports made during 1st September to 31st December, 2020, is going to seriously affect exporters, whose numbers may not be very large, but their contribution to exports warrant a revisit to the imposition of the cap.