According to Sahai, the RoDTEP scheme is on a “firm basis” and is in line with best global practises, so the government need not be concerned about a WTO challenge.
According to trade reports, the government is withholding export benefits worth at least Rs 35,000 crore under the Merchandise Export from India Scheme (MEIS), including significant funds traceable to FY20. They added that an excessive lag in the release of these funds might exacerbate a Covid-induced liquidity shortage, restricting exporters’ ability to ramp up supplies even as demand from key markets has strengthened.
Refund prices under the Remission of Duties and Taxes on Exported Products (RoDTEP) programme, which took over from the MEIS on January 1, 2021, are also yet to be announced. Lack of clarification regarding RoDTEP prices is contributing to exporters’ woes, they said, since they usually factor in tax remission under key programmes while negotiating contracts. Of course, after the prices are announced, they can receive refunds retroactively (from January).
According to a senior government official, the MEIS benefits will be processed shortly. Even the RoDTEP rates will be released soon.
However, the delay in the approval of MEIS benefits is not unprecedented. Previously, such incentives were often postponed for a variety of reasons, including faulty statements or incorrect documentation by exporters, according to the official. This cycle, the pandemic has played a major role in the wait. “Because this is an extraordinary crisis, any lag is inevitable. “However, the government is well aware of the situation,” he said.
Most exporters earned scrips ranging from 2 to 5% of the shipment’s freight-on-board value under MEIS.
Importantly, the United States recently asked India to clarify the RoDTEP policy and its function at the World Trade Organization (WTO). However, former commerce secretary GK Pillai, who led a committee that recommended the RoDTEP prices, told FE that the current system is “compliant” with WTO standards.
“RoDTEP is a scheme that only reimburses duty on goods that are exported. This is something that most nations do. This isn’t a programme to encourage exports. Such questions are often raised at the WTO, and the problem is quickly resolved,” Pillai said.
The Pillai committee submitted its report in March, just 7-8 months after it was established, after an exhaustive exercise involving a review of embedded levies on 8,000-9,000 tariff lines. The report is currently being reviewed by the tax agency. Various embedded levies (not covered by the GST) paid on commodities consumed in exports are expected to be reimbursed under the scheme.
The US had previously successfully opposed the MEIS and other export programmes, arguing that they were in violation of international trade norms. India has filed an appeal against the WTO’s dispute settlement body’s decision, and a decision is expected soon. Nonetheless, India has substituted the RoDTEP system for the MEIS.
The RoDTEP scheme has a budget of just Rs 13,000 crore for FY22, but the real cost could be much higher.
“Export orders from main markets (such as the United States and the European Union) are coming in, but the supply side is the bigger challenge,” said Ajay Sahai, director general and chief executive of the Federation of Indian Export Organizations (FIEO). Exporters will ramp up supplies if MEIS incentives are cleared quickly and RoDTEP prices stay reasonable and are reported quickly, he said. Of necessity, any restrictions imposed as a result of the second round of Covid-19 may have an effect on exports.
According to Sahai, the RoDTEP scheme is on a “firm basis” and is in line with best global practises, so the government need not be concerned about a WTO challenge.
The Pillai committee has had a herculean task deciding the RoDTEP prices because many exporters do not have fool-proof data or even full knowledge of all levies found in their exported goods. According to Pillai, the exercise was carried out as thoroughly as possible in accordance with the idea that taxes are not intended to be exported. He predicted that as exporters submit more details, the scheme will improve and stabilise in the next two to three years.
The system is intended to pay levies not covered by the GST (petroleum and electricity are still outside the GST ambit, while other imposts like mandi tax, stamp duty, embedded central GST and compensation cess, etc, remain unrebated).
Although exports have been on a roller coaster in FY21 due to the pandemic, outbound shipments are expected to skyrocket in the coming months due to favourable base impact.
Also in absolute terms, exports in March hit a new high of $34 billion, compared to about $33 billion in the same month last year (before the pandemic struck). However, in order to keep the growth momentum going in the medium term, exporters’ liquidity issues must be resolved quickly.
