Merchandise Export from India Scheme (MEIS), a key incentive scheme for exports, will be wound up by December 31, 2020 as the government has found it to have failed to deliver and not yield the desired result of boosting exports which have hovered around $300 billion in the last five years despite its liberal application across sectors.
Government sources said the liability under MEIS ballooned from Rs 20,000 crore to about Rs 45,000 crore in FY20 “reaching an unsustainable level”.
The department of revenue has asked the department of commerce to review the coverage of MEIS tariff lines and rates to bring down the incentive level to Rs 9,000 crore this year as post Covid-19, the government faces a fiscal constraint and the limited resources are to be used optimally.
The commerce department has blocked the online system for exporters to apply for tax incentives under the scheme from July 23.
The scheme, which is not compliant with the World Trade Organisation (WTO), will be replaced by Production Linked Incentive Schemes for select sectors, and the Remission of Duties and Taxes on Exported Products (RoDTEP).
While the liability under the scheme increased, government sources said India’s exports remained range bound. In 2014-15 Indian exports were $310 billion and in 2019-20 the export figure was $313 billion.
“The scheme did not yield the desired result. Even with liberal application of scheme across sectors and ever-increasing incentives under MEIS, the exports remained nearly stagnant during this period,” said the source.
The government’s grouse is compounded by the fact that the scheme failed despite the rupee having devalued by about 20 per cent in the last five years, giving as much additional gains to Indian exporters.
MEIS came into being in 2015 when it covered 4,914 tariff lines with rates of 2 per cent, 3 per cent or 5 per cent on exports which were divided over three sets of export countries for a market focus of the scheme. With the country differentiation removed later, MEIS now covers 8,059 tariff lines which is 75 per cent of the total tariff lines.
“Over a period of time, MEIS was given at the rates varying from 2-20 per cent,” the source said, adding that liabilities on account of MEIS grew faster than the exports as inefficiencies crept into the scheme.