On July 23, the Directorate General of Foreign Trade (DGFT), without any notice, blocked the facility of electronically filing the applications for duty credit scrips under the Merchandise Exports from India Scheme (MEIS) for exports made from April 1 this year. The applicants got a message: “The online module would be accepting MEIS
applications for shipping bills with Let Export Date from 01.04.2020 after adequate funds are available”. The exporters were taken by surprise and now face uncertainty regarding continuation of the scheme.
In April 2015, the MEIS
replaced five different better targeted but messy schemes such as Focus Product Scheme, Focus Market Scheme etc. Under MEIS, transferable duty credits are given to exporters at notified percentage of FOB value of exports. The duty credits can be utilised to pay the customs duties on imported goods.
The stated objective of MEIS
is to help exporters offset infrastructural inefficiencies and associated costs but through an opaque process, the DGFT was giving more benefits arbitrarily to a number of products. For example, exporters of dairy products earn duty credit at 20 per cent of FOB value of exports. The number of export products earning MEIS duty credits went up from 4,914 items to 8,015 in the past five years.
The Finance Ministry is irked that the outlay under MEIS has steadily gone up to about Rs 45,000 crore in 2019-20 but the exports have remained stagnant at $310 billion since 2014-15. It has capped the allocations under MEIS to Rs 9,000 crore for the current year and wants the commerce ministry to make the MEIS more focussed, sector-specific, and performance-linked.
Last year, a panel at the World Trade Organisation (WTO) asked India to withdraw the MEIS as it amounted to prohibited export subsidy. India’s appeal against the panel ruling is pending before a dysfunctional appellate forum at the WTO. Last July, the government announced that the MEIS scheme would be withdrawn and replaced with a new Refund of Duties and Taxes on Export Products (RoDTEP) scheme. That has not happened so far.
Many exporters have factored in the MEIS and other export incentives in their prices. Non-receipt of the benefits or inordinate delay in receipt of the benefits can hurt their profitability as well as cash flow. The commerce ministry has asked the finance ministry to hike the allocations under MEIS and stop registering the already issued MEIS duty credit scrips at the Customs. At some Customs stations, the field formations have started delaying the registration of MEIS duty credits scrips. Given the uncertainty, few are ready to buy the duty credit scrips from exporters. That has hurt the cash flow of the exporters. There are also reports of delays in disbursement of duty drawback and refunds of goods and services tax (GST).
The commerce minister has assured the exporters that the sudden suspension of facility to claim duty credits under MEIS is only a temporary cash flow issue that will be resolved soon. Many exporters hope that will happen but few are betting on that. They understand the financial constraints of the government and expect the Commerce Ministry to severely curtail the benefits under the MEIS. So, many have stopped factoring the MEIS benefits in their prices, even if it means losing some orders.