Export Promotion: Is the proposed replacement of MEIS with RoDTEP enough?

February 14,2020
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Sachin Shenvi, Associate Director-Mazars India LLP
Akshay Deokule, Consultant-Mazars India LLP

Background:

After recording a reasonable growth over the past two financial years, India’s exports are facing a reversal in fortunes. Country’s exports contracted for the fifth month in a row by 1.8% in December 2019. During April-December 2019-20, exports slipped 1.96% to USD 239.39 billion[1]. It clearly suggests that exports have been in negative territory for the past 5 months. These trends indicate that export figures at the end of the financial year 2019-20 would not be significantly higher than USD 300 billion, a level last seen in 2011–12. It is clear from the trends witnessed over the past few months, that desperate measures are needed to bring exports back on track.

Moreover, in October 2019, based on a complaint filed by the US, the World Trade Organization (WTO) panel report[2] ruled that India’s export subsidy schemes flouted rules as the country’s Gross National Income (GNI) had exceeded the per capita USD 1000 annual threshold above which members were banned from subsidizing its exports. The ruling held that India should do away with benefits granted under the contentious schemes i.e. Merchandise Export from India Scheme (MEIS), Export Oriented Unit (EOU) /Electronics and Hardware Technology Park (EHTP), Export Promotion of Capital Goods (EPCG), Duty-Free Import Scheme (DFIS) and Special Economic Zone (SEZ). Although India has appealed against the said decision, the Appellate Body of the WTO is presently non-functional as the appointment of members on the panel is stalled. Given this state of the Appellate Body, the dispute settlement process is likely to drag on. For the time being, India is spared the trouble of needing to immediately restructure some of its contentious export incentive schemes. According to the WTO rules, unless appeals are heard and settled, the findings of the panel report is not binding on the losing party[3]

The exporters fraternity in India is of the view that the Government should not be in a hurry to discontinue the contentious export incentive schemes, till such time that it brings out an alternative WTO compliant scheme which adequately incentivizes exporters.

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