India to Withdraw Export Subsidies and Phase Out Merchandise Exports from India Scheme (MEIS)

Narendra Kumar

20 Aug, 2019

To phase out the flagship Merchandise Exports from India Scheme (MEIS). The commerce ministry has circulated a Cabinet note and move to a more WTO – Compatible regime, as countries like the US have challenged India’s export “subsidy” programs. The scheme will be monitored by the Ministry of Commerce and Finance^[1] (Department of revenue).

As reported by FE, Exporters will be refunded levies that are not reimbursed through freely transferable scrips. Further, the new scheme will refund both state and central levies on inputs consumed in exports and various sectors will be covered in phases. The rate of scrips for various products will fix by the duty drawback panel under the finance ministry. The main motive behind the scheme is-

• To keep exports zero-rated by following the best global practices.
• Ensuring that all our schemes remain fully WTO-compliant.

What is MEIS?

Two schemes were introduced in Foreign Trade Policy of India 2015-20under Foreign Trade Policy of India (FTP 2015-20), as a part of Exports from India Scheme. They are-

1. SEIS-Service Exports from India Scheme.
2. MEIS-Merchandise Exports from India Scheme.

MEIS scheme provides an incentive in the form of duty credit scrip to the exporter to compensate for his loss on payment of duties with the only aim in making India’s products more competitive in the global markets. The countries have been segregated into three groups to determine the quantity of incentive. Additionally, Incentives on export depend on the group in which its destination country belongs which is represented by the 8-digit level (ITC HS codes).

The countries are essentially segregated into 3 groups mentioned below

• Group A – Termed as Traditional market. India’s traditional destinations such as the EU countries and the USA.
• Group B – Group B termed as Emerging and focus market covers the maximum number of countries and almost all of India’s major export destinations globally and has the highest quantum of incentive.
• Group C – Group C which covers another market has no incentive at all and Group C is divided into-SAARC, Australia and New Zealand, some EU and African countries.

What is Duty Credit Scrips?

Under MEIS scrips, the incentives are awarded to exporters in the form of Duty Credit Scrips which are freely transferable can be easily sold to anyone and can be used for the payment of customs duty.

Reason of Discontinuance of MEIS

Cabinet note was issued by the Commerce Ministry to discontinue the MEIS (Merchandise Exports from India Scheme) because countries like the United States challenged India’s export “subsidy” programs and challenged India’s eligibility to extend export subsidies at the WTO (World Trade Organization).

The motive was to recast the export incentives which as a result could be a part of the new Import-Export Policy as the current policy will expire in 2020.

Highlights of the Scheme

1. A refund will be provided with regards to inputs utilized in exports as well as various sectors on both the state as well as central levies in phases and refund.
2. The scheme will be monitored by the ministries of commerce and finance i.e. Revenue department.
3. The government will provide exporters specifically to exporters belonging to the labor-intensive sectors with duty credit scrip at 2%-5% depending on their export turnover based on shipment destinations and products.
4. With the new scheme, the plan is to refund levies which are not reimbursed via freely transferable scrips. The rate of scrips for several products will be fixed by the duty drawback panel, along with the inter-ministerial representation.
5. The Foreign Trade Policy (FTP) which is set to go live starting from April 2020, might bring in reconditioning of various export schemes.
6. In FY 19, with regards to the remission of state levies the government has allocated Rs 3,664 crore concerning garment and made-up exports. 
7. Though the GST regime has subsumed a plethora of levies, some remain (petroleum and electricity) are still outside the GST ambit, while other levies like mandi tax, stamp duty, embedded central GST and compensation cess, etc. remain unrelated).
8. Additionally, taking into consideration the new scheme, the government has clarified that the potential revenue loss due to such schemes (inclusive of duty drawback and MEIS) will not qualify to be export subsidies.

Further, the move to phase MEIS will lead to a major disaster and kill the industry because the industry operates at a very low margin and Withdrawal of the incentive by phasing out the MEIS will turn the margin negative. For the growth of the industry, it is of utmost importance to come out with an alternative policy that extends benefits equivalent of MEIS compatible with WTO rules for the growth of the industry. It is important to provide infrastructure facilities apart from contracting free trade agreements with the EU, the United Kingdom, Australia, Canada.

Also, Read: Section 194N – A Complete Overview of Newly Introduced Section.