India’s Export Schemes

  • November 22, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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India’s Export Schemes

Subject : Economy

Section: External Sector

Context: India faces ongoing challenges with export promotion schemes, as major trade partners like the EU and US impose counter vailing duties, viewing them as subsidies

Challenges:

  1. WTO Incompatibility: India faces challenges with export promotion schemes as major trade partners impose countervailing duties, viewing them as subsidies. The replacement of MEIS by RoDTEP hasn’t resolved WTO incompatibility issues.
  2. High Customs Duties: India’s high customs duties (e.g., 14.7% on industrial products) necessitate export schemes for competitiveness, leading to disputes with trading partners.
  3. Countervailing Duties: Major trade partners, including the EU and the US, impose countervailing duties, neutralizing the advantages India provides to exporters.

Recommendations:

  1. Improve Export Scheme Structure:
    • Advance Authorisation Scheme (AAS):
      • Implement robust systems to trace raw materials.
      • Refine norms to avoid excess benefits and link imports to final exports.
      • Redefine subsidy calculations to align with international standards.
    • Export Promotion Capital Goods Scheme (EPCGS):
      • Reduce import duties on select capital goods.
      • Complement with low GST rates.
    • Duty Drawback Scheme (DDS):
      • Establish an effective system for verifying actual input use.
      • Link drawback rates directly to actual duties paid on materials.
    • Remission of Duties and Taxes on Exported Products (RoDTEP):
      • Conduct regular checks based on actual inputs.
      • Ensure compliance with WTO rules and prevent excess payments.
  2. Use Offence as Defence:
    • Develop a professional setup for trade disputes similar to the US Trade Representative.
  3. Resist Premature Scheme Withdrawal:
    • Consider the continuity of effective schemes, like MEIS, to support exporters.
  4. Examine Customs Duty Structure:
    • Evaluate and possibly reduce high customs duties on inputs and capital goods.
    • Aim to lessen the need for multiple export schemes by creating a more favorable customs duty structure.

Trade Infrastructure for Export Scheme (TIES):

  • Objective: TIES aims to develop and upgrade export-related infrastructure and provide assistance for setting up and upgrading infrastructure projects with an export link.
  • Focus Areas: The scheme emphasizes addressing the issues related to the export value chain, including the creation of quality infrastructure, capacity building, and modernization of infrastructure.
  • Implementation: TIES is implemented by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry.

Market Access Initiatives (MAI) Scheme:

  • Objective: MAI Scheme is designed to assist exporters and export organizations in accessing and expanding their markets.
  • Focus Areas: It primarily focuses on market studies, market entry expenses, and other export promotion activities to facilitate market access for Indian products.
  • Implementation: The scheme is implemented by the Department of Commerce, Government of India, to promote India’s exports.

About MEIS:

  • Objective: The Merchandise Exports from India Scheme (MEIS) is a part of the Foreign Trade Policy (FTP) of India 2015-20. It aims to offset infrastructural inefficiencies and associated costs involved in the export of goods/products manufactured in India, particularly those with high export intensity and employment potential, thereby enhancing India’s export competitiveness.
  • Implementation: The scheme is notified by the Directorate General of Foreign Trade (DGFT) and implemented by the Ministry of Commerce and Industry.
  • Incentives: MEIS provides rewards in the form of duty credit scrips to exporters, allowing them to import inputs or goods without paying duty. These scrips can be used to pay various duties, including the basic customs duty.
  • Replaced Schemes: MEIS replaced several other incentive schemes from the previous Foreign Trade Policy 2009-14, including the Focus Product Scheme (FPS), Focus Market Scheme (FMS), Market Linked Focus Product Scheme (MLFPS), Infrastructure Incentive Scheme, and Vishesh Krishi Gramin Upaj Yojana (VKGUY).

Service Exports from India Scheme (SEIS): Overview

SEIS aims to promote the export of services from India by providing incentives in the form of duty credit scrips to eligible service providers.

Key Components:

  1. Duty Credit Scrip:
    • Issued by the Director General of Foreign Trade (DGFT).
    • Functions as a credit certificate that can be utilized to pay various duties and taxes to the Central Government.
  2. Eligibility Criteria:
    • Service providers of eligible services qualify for duty credit scrips.
    • Entitled to duty credit at notified rates based on the net foreign exchange earned.
  3. Usage of Duty Credit Scrips:
    • Can be used for the payment of:
      • Custom duties.
      • Excise duties.
      • Goods and Services Tax (GST) on procurement of services, etc.
  1. Transferability:
    • Duty credit scrips and goods imported using them are freely transferable.
    • Provides flexibility for businesses to leverage these benefits effectively.
  2. Validity Period:
    • Duty credit scrips remain valid for a period of 18 months from the date of issue.

Implementation and Administration:

  • Governed by the Ministry of Commerce and Industry, Government of India.
  • Administered by the Directorate General of Foreign Trade (DGFT).

Benefits:

  • Encourages service providers to enhance foreign exchange earnings.
  • Facilitates the payment of various duties and taxes, contributing to cost savings.
  • Promotes the growth of the services sector in India.

Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme:

The RoDTEP scheme, introduced to replace the Merchandise Export from India Scheme (MEIS), has been notified by the Government of India, outlining rates and norms to support exporters.

Objective: To refund embedded central, state, and local duties or taxes that were not previously rebated, addressing the non-compliance issues with the World Trade Organization (WTO) rules.

Key Features:

  1. Scope:
    • Covers 8,555 tariff lines, constituting around 75% of traded items and 65% of India’s exports.
    • Budgetary allocation of ₹12,454 crore for the fiscal year 2021-22.
  2. Zero Rating of Exports:
    • Aims to achieve zero rating of exports by ensuring that domestic taxes are not exported.
  3. Refund Mechanism:
    • Refunds encompass all taxes, including those levied by states and local bodies.
    • Refund rates, considered WTO-compliant, range from 0.5% to 4.3% of the Free On Board (FOB) value of outbound consignments.
  4. Rate Variation:
    • Rates vary based on the product category. For example:
      • Lowest rates for items like chocolates, toffees, and sugar confectionery.
      • Highest rates for yarns and fibers.
      • Exclusion of certain sectors like steel, pharma, and chemicals.
  1. International Standards and Automatic Refunds:
    • Enables Indian exporters to meet international standards for exports.
    • Provides affordable testing and certification within the country, reducing dependence on international organizations.
    • Facilitates automatic tax assessment and refunds for GST, streamlining the process for exporters.

The RoDTEP scheme aligns with India’s efforts to facilitate a conducive environment for exporters, promoting economic growth and enhancing the country’s position in the global market.

Foreign Trade Policy (FTP):

The Ministry of Commerce and Industry launched the Foreign Trade Policy 2023, which will come into effect from April 1, 2023.

The Foreign Trade Policy (FTP) 2023 is a comprehensive framework aimed at facilitating exports and trade, fostering partnerships with exporters, and streamlining processes for businesses.

It is built on the principles of trust and partnership, promoting a responsive and agile environment for trade. Some key details of the FTP 2023 include:

  1. Process Re-Engineering and Automation:
    • Shift from an incentive-based regime to a facilitating regime, emphasizing technology interface and collaboration.
    • Reduction in fee structures and IT-based schemes for enhanced accessibility to export benefits, particularly for MSMEs.
    • Implementation of duty exemption schemes for export production through Regional Offices in a rule-based IT system environment, reducing manual intervention.
  2. Towns of Export Excellence (TEE):
    • Addition of four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, as TEEs, in addition to the existing 39 towns.
    • Priority access to export promotion funds under the MAI scheme and Common Service Provider (CSP) benefits under the EPCG Scheme for TEEs.
  3. Recognition of Exporters:
    • Exporter firms recognized with ‘status’ based on export performance will participate in capacity-building initiatives.
    • Encouragement for 2-star and above status holders to provide trade-related training based on a model curriculum.
  4. Promoting Export from the Districts:
    • Establishment of partnerships with State governments and the Districts as Export Hubs (DEH) initiative to boost exports at the grassroots level.
    • Introduction of State Export Promotion Committee and District Export Promotion Committee for addressing concerns at the district level.
  5. Streamlining SCOMET Policy:
    • Strengthening the “export control” regime with enhanced outreach and understanding of SCOMET among stakeholders.
    • Implementation of a robust export control system in India to facilitate controlled items/technologies under SCOMET.
  6. Facilitating E-Commerce Exports:
    • Development of e-commerce hubs and related elements such as payment reconciliation, book-keeping, and returns policy.
    • Increase in the consignment-wise cap on E-Commerce exports through courier from ₹5 Lakh to ₹10 Lakh in the FTP 2023.
  7. Facilitation under EPCG and Advance Authorization Scheme:
    • Rationalization of the EPCG Scheme with the addition of schemes like PM MITRA and exemptions for the dairy sector.
    • Inclusion of various green technology products under the reduced Export Obligation requirement under the EPCG Scheme.
    • Extension of the Special Advance Authorization Scheme to the apparel and clothing sector for prompt execution of export orders.
  8. Amnesty Scheme:
    • Launch of an online portal and a six-month window for exporters to avail the scheme.
    • Coverage of all pending cases of default in export obligation of authorizations, regularized on the payment of all customs duties exempted proportionally to unfulfilled export obligations.

 The previous foreign trade policy for 2015-2020 had targeted exports of USD 900 billion by 2020, which was extended till March 2023. However, it is expected that India will end 2022-23 with total exports of USD 760-770 billion, showing improvement from USD 676 billion in 2021-22.

National Export Insurance Account (NEIA):

  • Objective:
    • Facilitate medium and long-term exports that are commercially viable.
    • Address limitations of ECGC Limited in providing adequate cover on its own.
    • Provide credit risk cover for projects and high-value exports, aligning with national interest.
  • Purpose:
    • Ensure availability of credit risk cover for projects that ECGC may be unable to underwrite at competitive terms.

NIRVIK Scheme:

Introduced by ECGC to ease lending and enhance loan availability for exporters.

Insurance Cover:

Guarantees up to 90% of the principal and interest.

Aims to keep foreign and rupee export credit interest rates below 4% and 8%, respectively.

Cover Scope:

Encompasses both pre and post-shipment credit.

Higher premium rate for the gems, jewellery, and diamond (GJD) sector borrowers with limits over Rs 80 crore.

Premium Rates:

Premium rates moderated to 0.60 per annum for accounts below Rs 80 crore.

Premium rates set at 0.72 per annum for accounts exceeding Rs 80 crore.

Inspection Mandate:

Inspection of bank documents and records by ECGC officials mandated for losses exceeding Rs 10 crore.

 Payment Structure:

 Banks pay a monthly premium to ECGC on the principal and interest for the cover provided.

 Benefits:

  1. Enhances accessibility and affordability of credit for exporters.
  2. Boosts competitiveness of Indian exports.
  3. Makes ECGC procedures exporter-friendly.
  4. Expected to bring down the cost of credit, providing capital relief and liquidity.
  5. Ensures timely and adequate working capital for the export sector.

Export Credit Guarantee Corporation of India (ECGC):

  • Establishment:
    • Formed in 1957 as a fully government-owned company.
  • Objective:
    • Promote exports by providing credit insurance services.

Export Credit Insurance to Banks (ECIB):

  • Provides credit insurance to banks to protect against losses on export credit.
  • Covers pre and post-shipment stages to mitigate risks of insolvency or protracted default of exporter borrowers.
economy India’s Export Schemes