What is MEIS?

Objectives of MEIS

MEIS was established with four main objectives:

• Enhance Export Competitiveness: Reduce the cost disadvantages arising from logistical gaps, infrastructural bottlenecks, and high input costs to make Indian exports more competitive in global markets.
• Address Infrastructural Inefficiencies: Provide reimbursements to exporters to offset India-specific challenges such as expensive logistics, high power tariffs, and regulatory costs.
• Promote Export Diversification: Support expansion into new and emerging markets, helping India move beyond traditional export destinations.
• Boost Employment and Value Addition: Encourage export-led manufacturing in labour-intensive sectors like textiles, agro-products, and electronics to create jobs and enhance value addition.

How Does MEIS Work?

Under MEIS, exporters of products listed in Appendix 3B to specified markets were rewarded with duty credit scrips. These scrips typically amounted to 2-5% of the FOB value of exports, with certain items eligible for up to 7%.

The duty credit scrips could be used to pay Basic Customs Duty, Additional Customs Duty, excise duty, and service tax (prior to the rollout of GST).

In addition, the scrips were freely tradable, enabling exporters to sell them in the open market. This flexibility allowed non-importing exporters to benefit from the incentives, thereby improving liquidity and strengthening cash flows.

Eligible Goods and Markets

MEIS embraced diverse products and markets, providing incentives suited to different industries and export markets, with certain exclusions.

• Eligible Products: More than 4,500 lines of products were covered under MEIS, crossing sectors like textiles, agriculture, electronics, chemicals, engineering goods, pharmaceuticals and others. These products were categorised under ITC (HS) codes enumerated in Appendix 3B of the FTP handbook.
• Eligible Markets: The incentive rates were custom-made for three categories of export destinations: advanced, emerging and focus markets. There was a prescribed incentive rate for each product-market combination, meant to deepen India's penetration into focused regions.
• Exclusions: Certain products were out of the purview of MEIS, such as goods subject to transhipment, specified minerals and exports under schemes such as Advance Authorisation or DFIA.

MEIS Rewards Structure

Benefits under MEIS ranged between 2%-5% of the export's FOB price. The incentives differed based on the product and market destination, with pharma and handicrafts providing as much as a 7% incentive. For instance, if the exporter exported textiles valued at $1,000 to the US, the exporter would be given a duty credit scrip of $50 based on the incentive rate.

Process for Availing MEIS

In order to avail MEIS benefits, exporters undertook the following procedures:

• Pre-Requisites: Exporters should be registered with the Directorate General of Foreign Trade (DGFT) and possess a valid Importer-Exporter Code (IEC).
• Procedural Steps:
• Indicate the desire to avail MEIS at the customs clearance stage through the shipping bill.
• Export proceeds must be realised in USD or EUR foreign exchange.
• Submit online through DGFT's Form ANF 3A, supporting documents like the E-Bank Realisation Certificate (e-BRC) and the shipping bill.
• Evaluation: After verification of the application, the DGFT sanctioned a duty credit script, which was transferable or utilisable.

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MEIS vs. RoDTEP (Current Scenario)

MEIS was withdrawn for exports shipped after December 31, 2020, because of difficulty at the World Trade Organisation (WTO) with regard to its WTO compliance. It was substituted with the Remission of Duties and Taxes on Export Products (RoDTEP) scheme from January 2021.

Advantages of MEIS (When Operational)

MEIS offered several benefits to exporters, ranging from financial incentives to improved market presence. Key advantages included:

• Boost to Exporters' Income: Direct financial support by MEIS greatly enhanced the liquidity of the exporters, particularly the small and medium-sized enterprises (SMEs).
• Reduction of Trade Deficit: With the increased volume of exports, India was able to reverse its increasing trade deficit.
• Increased Global Competitiveness: By compensating for the cost of logistics and operations, Indian products gained competitiveness in global markets.

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Criticisms and Limitations

Although the MEIS scheme provided advantages, it also had a few weaknesses, such as issues with administration and long-term viability concerns.

• WTO Complaints: MEIS was in trouble with the WTO-prohibited subsidy per the 2019 ruling.
• Dependence on Subsidy: Certain industries became dependent on subsidies and not on long-term competitiveness.
• Delay in Processing Claims: There was a delay in processing claims, which affected the timeliness of incentives.
• Budgetary Ceiling: In the final year of MEIS, the government put a ceiling on the overall benefit that a firm could avail in light of budget limitations.

Conclusion

The Merchandise Exports from India Scheme was instrumental in boosting India's merchandise exports between 2015 and 2020. Through its focused export incentives, the scheme enabled Indian exporters to compete on the global stage, curtail trade deficits and explore new markets. While it has since been replaced by RoDTEP, MEIS continues to have a lasting influence on India's export profile. The shift to RoDTEP marks a transition towards a more WTO-friendly, tax refund mechanism, promoting long-term efficiency gains in exporters