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The Changing Landscape of Export Incentives

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On Sep 1st 2020, Government has capped the benefits under the Merchandise Export from India Scheme (MEIS) at ₹ 2 crore per exporter on exports made between September 1, 2020 to December 31.

What is Merchandise Export from India Scheme (MEIS)? 

Before that, let’s understand What are Export Incentives ?

It is the Government ‘s way of encouraging exporters who are bringing in Foreign trade and also to compensate for some of the obstacles they might face because of infrastructure inefficiencies we have & additional cost involved to overcome them.  

Now coming back to MEIS, launched in 2015, it has replaced various export incentives schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS), Vishesh Krishi Gramin Udyog Yojana (VKGUY), Market Linked Focus Product Scheme (MLFPS) and Agri Infrastructure incentive scheme.

The Changing Landscape of Export Incentives

Through the MEIS scheme, the Government provides incentives for the Exporters in the form of Duty credit scripts which can be used for the payment of Customs duty. The incentives can vary from 2-5% of the products.

So now, because of budget constraints the government had decided to keep a cap of 5,000 Cr and 2Cr per exporter from Sep 2020 to Dec 2020. To put the numbers in perspective, the MEIS outgo was about Rs 40,000 crore in FY19 and Rs 42,500 crore in FY20. 

For how long ? 

  • As of now, it’s only from Sep 2020 to Dec 2020. As per the Government, the incentives will be back to normal from Jan 1st 2021.

Who will get impacted ? 

  • Following sectors are included in MEIS:
    • Foods
    • Textiles
    • Pharmaceuticals
    • Industrial machinery
    • Automobiles / Auto components
    • Rubber
    • Chemicals
    • Ceramics
    • Paper
    • Iron, Steel & base metals

Following is the list of companies which are having high exports & are getting benefited because of MEIS scheme.

The Changing Landscape of Export Incentives

Click to enlarge

It’s not over yet. 

As per recent developments, the Government proposed to come up with a new scheme called Remission of Duties or Taxes on Export Products’ (RoDTEP) to replace the present MEIS.

What is RoDTEP ?

It is a new WTO complaint scheme to replace current MEIS to incentives exports & reimburse taxes & duties which are not getting benefited in current MEIS scheme. This scheme is proposed to cost 50,000 Cr compared to 42,500 Cr for MEIS in FY20.

The Changing Landscape of Export Incentives

Additional benefits from RoDTEP:

The Changing Landscape of Export Incentives

Finally,

On the face of it RoDTEP is a well structured scheme compared to MEIS. But we have to wait for the incentive rates to be released to get more clarity on the positive impact on the exporters.


This article is for informational purposes and should not be considered as a recommendation to buy or sell any stocks.