The Department of Revenue has asked its commerce counterpart to review the coverage of export incentive scheme MEIS, so that the fiscal benefits under this programme can be brought down to Rs 9,000 crore this fiscal as it has not yielded "desired" results, sources said. The liability under the Merchandise Export from India Scheme (MEIS) ballooned to about Rs 45,000 crore in 2019-20, which is an "unsustainable" level, according to the finance ministry sources.
"The Department of Commerce has accordingly been requested to review the coverage of MEIS tariff lines and rates, so that the MEIS incentive for this fiscal is brought down to the level of Rs 9,000 crore," one of the sources said.
This saving shall be used for supporting the sectors that have potential to grow and contribute towards the Atmanirbhar Bharat and has higher potential for exports, they added.
The idea of reviewing the MEIS has been to use resource optimally and in a targeted way.
It has also requested the commerce department that MEIS incentives should be targeted and need calibration in a manner that it promotes exports instead of spreading incentives in a manner that does not yield the desired result, they said.
"Post COVID-19 pandemic, the government faces a serious fiscal constraint, and the limited resources are to be used optimally. Re-directing the resources to thought through the PLI (production-linked incentive) scheme and other schemes under the Atmanirbhar Bharat is the immediate need," another source said.
Explaining further, they said that over a period of time, MEIS was given at the rates varying from 2 per cent to 20 per cent and with such attractive investment, it was anticipated that exports would grow substantially and capture new markets.
However, the MEIS liability continued to grow all these years as its coverage grew.
The liability under the scheme ballooned to about Rs 45,000 crore in 2019-20, however, exports remained range bound. In 2014-15, the exports were USD 310 billion and in 2019-20, the figure was USD 313 billion.
"The scheme did not yield the desired result. Even with liberal application of the scheme across sectors and ever-increasing incentives under MEIS, the exports remained nearly stagnant during this period. This is despite the fact that during the same period, the rupee had devalued by about 20 per cent, giving as much additional gains to Indian exporters under the scheme," the sources added.
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 and MEIS duty credit scrip can be transferred or used for payment of a number of duties, including the basic customs duty.
The MEIS scheme, introduced in April 2015, will be wound up by December 31, 2020, and the government has already announced the Remission of Duty or Taxes on Export Products (RoDTEP) scheme to replace MEIS.
Under RoDTEP, the remission of embedded taxes and other levies on exports shall be allowed.
The commerce ministry has blocked the online system for exporters to apply for availing tax incentives under the MEIS scheme from July 23 as the Department of Revenue decided to limit the benefits under the scheme at Rs 9,000 crore for April-December 2020.
According to an office memorandum of the Directorate General of Foreign Trade (DGFT), the Department of Revenue in May had conveyed that it may not be feasible to exceed MEIS allocation beyond Rs 9,000 crore for 2020-21 (up to December 2020).
The commerce department has requested its revenue counterpart to reconsider its decision, and a communication has also been sent by Commerce and Industry Minister Piyush Goyal to Finance Minister Nirmala Sitharaman on July 21.