Simpler sops to help hit $900-bn export target
Multiple incentive schemes brought under two umbrellas as policy gets more in sync with WTO norms; greater focus on e-commerce; benefits to cover SEZsThe government on Wednesday unveiled a forward-looking and contemporary Foreign Trade Policy (FTP) for 2015-2020, seeking to strengthen merchandise and services exports with a targeted value of $900 billion by 2020.
In a drastic change of stance in keeping with global trading norms under the World Trade Organization (WTO), the new FTP sought to consolidate all previous export incentive schemes under two: Merchandise Exports From India Scheme (MEIS) and Services Exports From India Scheme (SEIS).
“The current WTO rules as well as those under negotiations envisage the eventual phasing out of export subsidies,” Nirmala Sitharaman, minister of state (independent charge) for commerce and industry, said while releasing the FTP. “Export-promotion measures have to move towards a more fundamental systemic measure rather than incentivising and depending on subsidies alone. There is, therefore, a need to ensure that our exports and services are internationally competitive. We must focus on quality and standards and produce zero-defect products. Brand India must be synonymous with reliability and quality,” she said.
The MEIS will be targeted for export of specified goods to specified markets and SEIS is meant for export of notified services in place of a plethora of schemes earlier.
The MEIS has replaced five existing schemes: Focus Products Scheme, Market-linked Focus Products Scheme, Focus Market Scheme, Agriculture Infrastrucutre Incentive Scrips and Vishesh Krishi Grameen Udyog Yojana (VKGUY).
On the other hand, SEIS has replaced the existing Served From India Scheme (SFIS). The rates of rewards under MEIS will now range from 2 per cent to 5 per cent, from the 2-7 per cent range earlier. On the other hand, under SEIS these will be from 3 per cent to 5 per cent, from the 5-10 per cent range earlier, according to commerce secretary Rajeev Kher.
In a big relief for exporters, all scrips issued under MEIS and SEIS and the goods imported against these scrips will be fully transferable. This means that scrips issued under export from India schemes can now be used for payment of customs duty for import of goods, payment of excise duty on domestic procurement of inputs or goods, and payment of service tax.
The minister said, “We must now aim higher. India must assume a position of leadership in the international trade discourse.”
“Our biggest challenge is to address constraints not so much externally but internally such as infrastructure bottlenecks, high transaction costs, complex procedures and constraints in manufacturing. This policy is a framework for increasing export of goods and services as well as generation of employment in keeping with the vision of Make in India."
In an effort to push the domestic content requirement, measures have been adopted to encourage procurement of capital goods from indigenous manufacturers under the EPCG scheme by reducing specific export obligation to 75 per cent of the normal export obligation.
"The Agreement on Subsidies and the Countervailing Measures of the WTO envisages the eventual phasing out of export subsidies. In the case of India, some sectors may be affected and require rationalisation of support over a period of time. The phasing out and eventual elimination of agricultural subsidies is also one of the key elements of the Doha Development Agenda," underscored the FTP statement.
As far as the coverage of the 3 per cent interest subvention scheme is concerned, which was a long-pending demand of exporters, the government has said it is in the process of identifying the sectors to which the same will be given during the current financial year, for which the Budget has allocated Rs 1,625 crore.
"The Budget has allocated Rs 1,625 crore. It will be given to specific sectors at a rate of 3 per cent. We are yet to identify the sectors," commerce secretary Rajeev Kher told reporters.
The FTP also introduced a concept of import appraisal mechanism which will be done on a quarterly basis by the commerce department. In a view to boost exports from Special Economic Zones (SEZs) the government also expanded the benefits under MEIS and SEIS to the units located inside the tax-free zones. "It is now proposed to extend the Chapter 3 incentives (MEIS & SEIS) to units located in SEZs also," said director general of foreign trade (DGFT) Pravir Kumar.
On the issue of imposition of MAT and DDT, Sitharaman said the proposal to remove those was still lying with the finance ministry. Breaking away from tradition, the Modi-led government did away with annual revisions of the policy. The FTP from now on will have a mid-term review after two and a half years, except for exigencies. In an attempt to achieve greater policy coherence and mainstreaming of all export incentive schemes, the commerce department will now direct state governments to prepare their own export strategies based on the new FTP.
SIGNIFICANT ANNOUNCEMENTS
- Merchandise Export from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) launched. MEIS & SEIS incentives to be available to SEZs, too
- FTP to be aligned to Make in India, Digital India and Skills India initiatives
- Duty credit scrips to be freely transferable and usable for payment of custom duty, excise duty and service tax
- Trade facilitation and ease of doing business by way of online filing of documents and emphasis on paperless trade
- Employment creation in both manufacturing and services
- Zero-defect products with a focus on quality and standards
- A stable agriculture trade policy
- A focus on higher value-addition and technology infusion
- Investment in agriculture overseas to produce raw material for Indian industry
- Lower tariffs on inputs and raw materials
- Development of trade infrastructure and provision of production and export incentive documents
analysis
On Wednesday, the Union ministry of commerce released the new Foreign Trade Policy, or FTP, with the objective of boosting India's exports in the coming five years. Much was expected from it, because the government's stated intention to turn India into a manufacturing powerhouse cannot happen unless exports take off. And yet the numbers for exports since the government took office have not been encouraging. Clearly, a major push was needed.
Judged from that viewpoint, the new policy has announced several significant steps. The commerce ministry is to be congratulated for having worked to try and streamline several onerous procedures. For example, the introduction of two schemes (Merchandise Exports from India Scheme and Service Exports from India Scheme) to replace many other existing schemes will go a long way in making export promotion policy simpler and easier to navigate. The introduction of a simplified import duty exemption certificate for all exports under the two schemes is expected to further streamline the foreign trade policy regime, making incentives more transparent and non-discretionary. Now, the certificates, the value of which would be determined at two to five per cent of export earnings, can be freely traded, making it simpler for exporters without past performance acquire them for duty-free imports. Another similar simplification that is likely to be widely welcomed is the reduction in the specific export obligation under the Export Promotion Capital Goods, or EPCG, scheme. In this scheme, exporters are allowed to import capital goods without duty, subject to their fulfilling an export obligation equivalent to 90 per cent of the total value of imports over a period of five years. Such export obligation has now been reduced to 75 per cent. Export obligations were hard to monitor; and compliance wasn't easy, either. The dilution suggests the government has recognised that. Another positive sign is that the revenue secretary was present for the unveiling of the foreign trade policy. This suggests that the government's claim that all proposals with fiscal implications have already been approved by the revenue department should be believed. This comes as a big relief: many schemes in the past have fallen prey to internal differences between Udyog Bhavan and North Block.
But, in the end, India needs to evolve beyond tax breaks for manufacturers. The only way to ensure that India becomes an export powerhouse is to slot it into global supply chains. This doesn't require tax breaks; it requires freer trade and a realistic exchange-rate policy - and, of course, better infrastructure. The government at least recognises the need for infrastructure; its push to improve road, rail and ports is worthy of approval. But export competitiveness also needs to have a rupee that is not overvalued by 24 per cent, when judged according to the real effective exchange rate. The government needs a bigger-picture take on what holds back Indian exports - it cannot rely only on tweaking the availability of export credits, and simplifying and rationalising export promotion schemes. These schemes have not failed just because they are complex. They have failed because Indian exports are not competitive. To force competitiveness on Indian companies, freer trade is a must - which means the free-trade agreement with the European Union, for example, should not be on the back-burner. And a more realistic exchange-rate policy that reflects the rupee's strength is essential. Until those constraints are tackled, it is debatable if the policy, whatever its many positive features, will be able to achieve its goal of promoting exports.
Judged from that viewpoint, the new policy has announced several significant steps. The commerce ministry is to be congratulated for having worked to try and streamline several onerous procedures. For example, the introduction of two schemes (Merchandise Exports from India Scheme and Service Exports from India Scheme) to replace many other existing schemes will go a long way in making export promotion policy simpler and easier to navigate. The introduction of a simplified import duty exemption certificate for all exports under the two schemes is expected to further streamline the foreign trade policy regime, making incentives more transparent and non-discretionary. Now, the certificates, the value of which would be determined at two to five per cent of export earnings, can be freely traded, making it simpler for exporters without past performance acquire them for duty-free imports. Another similar simplification that is likely to be widely welcomed is the reduction in the specific export obligation under the Export Promotion Capital Goods, or EPCG, scheme. In this scheme, exporters are allowed to import capital goods without duty, subject to their fulfilling an export obligation equivalent to 90 per cent of the total value of imports over a period of five years. Such export obligation has now been reduced to 75 per cent. Export obligations were hard to monitor; and compliance wasn't easy, either. The dilution suggests the government has recognised that. Another positive sign is that the revenue secretary was present for the unveiling of the foreign trade policy. This suggests that the government's claim that all proposals with fiscal implications have already been approved by the revenue department should be believed. This comes as a big relief: many schemes in the past have fallen prey to internal differences between Udyog Bhavan and North Block.
But, in the end, India needs to evolve beyond tax breaks for manufacturers. The only way to ensure that India becomes an export powerhouse is to slot it into global supply chains. This doesn't require tax breaks; it requires freer trade and a realistic exchange-rate policy - and, of course, better infrastructure. The government at least recognises the need for infrastructure; its push to improve road, rail and ports is worthy of approval. But export competitiveness also needs to have a rupee that is not overvalued by 24 per cent, when judged according to the real effective exchange rate. The government needs a bigger-picture take on what holds back Indian exports - it cannot rely only on tweaking the availability of export credits, and simplifying and rationalising export promotion schemes. These schemes have not failed just because they are complex. They have failed because Indian exports are not competitive. To force competitiveness on Indian companies, freer trade is a must - which means the free-trade agreement with the European Union, for example, should not be on the back-burner. And a more realistic exchange-rate policy that reflects the rupee's strength is essential. Until those constraints are tackled, it is debatable if the policy, whatever its many positive features, will be able to achieve its goal of promoting exports.
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