Govt to clamp down on large firms dodging Rs 2 cr cap on MEIS claims

Worry over major exporters filing separate export benefit applications through subsidiaries to work around the cap

Anticipating a move by some companies to divide their claims for benefits under the Merchandise Exports of India Scheme (MEIS) to work around the new Rs 2-crore cap, the commerce department has decided to keep a close watch on filings.

Earlier this month, the department capped MEIS claims at Rs 2 crore for every exporter on transactions made between September 1 to December 31. It also announced the scheme will finally be stopped on January 1, 2021. According to industry analysts, this will impact large exporters such as two-wheeler makers Bajaj Auto and TVS Motor apart from major engineering goods exporters.

The government is now preparing to weed out MEIS claims that are filed by large companies through their subsidiaries to beat the cap. “As it is, only the biggest 2 per cent of retailers would be affected. There are reports of major exporters planning to claim benefits by filing applications through subsidiaries. That is not allowed and would be clamped down on,” a senior official said. This should not be difficult to do since the number of such exporters is low and the data is almost entirely on the digital mainframe now, he added.

However, export organisations have since then asked the government to reassess its order, postpone it, or provide other benefits. The Federation of Indian Export Organisations (FIEO) said exports made during September-December are based on orders that have already been negotiated much earlier, factoring in the MEIS benefit.

“These benefits are part of the export competitiveness and, therefore, the sudden change will affect the exporters financially as buyers are not going to revise their prices upward,” said FIEO President Sharad Kumar Saraf. The Engineering Export Promotion Council of India also termed the blockage of MEIS Scheme as a “matter of serious concern”. 

However, the government is standing firm. “There has been confusion till now about the end of the scheme but we have announced that it will finally stop in advance. The  latest notice of four months provides ample certainty for future pricing decisions,” another official said.

Diminishing returns

Introduced in 2015 under the Foreign Trade Policy, MEIS was created by merging five reward schemes. It incentivises merchandise exports of over 8,000 items and is the biggest scheme of its kind. Exporters earn duty credits at fixed rates of 2 per cent, 3 per cent, and 5 per cent, depending on the product and country exported to.

The Rs 43,500-crore scheme has repeatedly been opposed by the finance ministry and the NITI Aayog, which are now drawing up plans to redirect scarce financial resources towards the new Production-Linked Incentive (PLI) schemes in select sectors with core competency and potential for global exports. 

The revenue department has long argued against continuing MEIS, calling it inefficient and wasteful. In May, it asked the Directorate General of Foreign Trade to rein in MEIS allocation to Rs 9,000 crore till December 31, 2020.

With the Prime Minister’s Office also putting its weight behind an umbrella scheme of targeted benefits to certain sectors with high growth potential, the fate of MEIS’s successor scheme, Remission of Duties or Taxes on Export Products (RoDTEP), is also in doubt.