The government is weighing a proposal to extend by three months the validity of the Merchandise Exports From India Scheme (MEIS) to March 31, 2021. Any such extension will allow it to complete an exhaustive exercise for rolling out the proposed Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, which is supposed to replace the MEIS, and offer more time to exporters to prepare themselves for the transition, sources told FE.
Moreover, it makes sense to operationalise the new scheme along with the launch of the next foreign trade policy, which will remain in effect for five years from April 1, 2021. “A final decision on such an extension will be made soon,” said an official source.
The government had earlier announced that it will roll out the RoDTEP scheme from January 2021 to make the outbound shipments zero-rated. The scheme is essentially aimed at reimbursing even embedded taxes (that are not subsumed by the GST) paid on inputs consumed in exports.
It had set up a committee late July under former commerce secretary GK Pillai to suggest RoDTEP benefit rates. However, given that firming up the rates of benefits for thousands of products across various industries is a lengthy exercise, the government may need more time to finalise the incentive structure, said one of the sources. Allowing the MEIS to continue until the new scheme is fully operational is crucial to supporting the exporters as they struggling in the wake of the pandemic, exporters said.
MEIS came under tighter government scrutiny in recent months, especially in the wake of Covid, and the resource-starved revenue department slashed its allocation under the scheme to just Rs 15,555 crore for the April-December period, which is just about 40% of the outlay for the entire last fiscal. Some key wings of the government, such as the revenue department and Niti Aayog, have termed the MEIS an inefficient programme that only drains the exchequer. For their part, exporters flag several structural bottlenecks, including embedded taxes and elevated logistics costs, to highlight the need for sustained benefits.
Already, merchandise exports have witnessed a loss of momentum since the 6% expansion in September, the first since February. India’s outbound shipments faltered by 5.1% in October and, according to preliminary estimates, the contraction just exacerbated to 9.1% in November. As FE has reported, India has emerged as the worst performer among key developing economies in Asia in merchandise exports in the aftermath of the Covid-19 outbreak, trailing not just the usual stars China and South Korea but also Vietnam, Indonesia, Malaysia and even Bangladesh.