Export Promotion Measures of India
Export promotion strategies are a crucial part of an economy’s Foreign Trade Policy. These strategies are implemented via certain measures like schemes and incentives that facilitate domestic production and exports of that produce to foreign countries.
Export promotion measures have been defined as “those public policy measures which actually or potentially enhance exporting activity at the company, industry, or national level.” Therefore, export promotion measures are used to enhance the trading potential of a particular industry. These measures strengthen economic growth, by improving ‘ease of doing business’.
In order to provide policy stability during the pandemic period, Foreign Trade Policy (FTP) 2015-20 was extended for the year 2021-22 i.e. up to 30th September 2022.
In this fourth article in the Export Series, we discuss eight export promotion measures and analyze the ways in which these schemes strengthen Indian exports and the economy.
Government is committed to promoting Indian exports in international markets and suitable interventions are done from time to time. The key schemes/interventions taken are:
Export Promotion Measures
- Merchandise Exports from India Scheme (MEIS):
Introduced through the Foreign Trade Policy 2015-20, the Merchandise Exports from India Scheme (MEIS) seeks to promote export of notified goods manufactured/produced in India. It is designed to provide rewards to exporters to offset infrastructural inefficiencies and associated costs involved in export of goods which have high export intensity and employment potential. Duty Credit Scrips are granted as rewards to exporters under this scheme. These duty credit scrips can be used for the payment of customs duties on imports of goods, for the payment of excise duties on domestic procurement of goods, including capital goods and for the payment of service tax on procurement of services. Rewards under MEIS are payable as a percentage (2,3 or 5%) of realized Free-on-Board value of covered exports, by way of the duty credit scrips.
- Service Exports from India Scheme (SEIS)
As an incentive to service exporters, under the Service Exports from India Scheme (SEIS), service exporters are granted benefits in the nature of transferable Duty Credit Scrips as a percentage (3% – 5%) of Net Foreign Exchange earned on export of the eligible services in a financial year. These scrips can be used for payment of various taxes, like Customs Duty and Excise Duty, levied on goods and services. They are also freely transferable and can be easily sold to another assessee.
- Focus Market Scheme (FMS)
Introduced in 2009, the Focus Market Scheme (FMS) was launched with a vision to support exporters in competing with foreign export markets against high freight cost and other externalities. The scheme incentivizes exports to certain Latin American, African, Commonwealth of Independent States countries. It offers 3% of previous year’s exports in the form of duty credit scrips. The objective of the scheme is to offset high freight costs and other externalities to select international markets with a view to enhance India’s export competitiveness in these markets.
- Focus Product Scheme (FPS)
The Focus Product Scheme (FPS) aims at giving a thrust to manufacture and export of certain industrial products which can generate large-scale employment per unit of investment as compared to other products. It incentivizes exports of certain items of rural and semi-urban origin. The scheme allows duty credit scrips at 2.5% of the FOB value of exports on 50 % of the export turnover of notified products.
- Vishesh Krishi and Gram Udyog Yojana (VKGUY)
Envisioned to promote exports of agricultural commodities, the Vishesh Krishi and Gram Udyog Yojana (VKGUY) aims to compensate for high transportation costs and offset other disadvantages. The scheme offers a duty credit scrip equivalent to 3%-5% of previous year’s exports of certain agricultural and its allied products.
- Served from India Scheme (SFIS)
Aimed at accelerating growth in export of services to create a powerful and unique ‘Served from India’ brand, the Served from India Scheme (SFIS) provides exporters with duty credit scrips which have a value of 10% of the foreign exchange earned from export of services in the previous year. These scrips can be used for duty-free procurement of any capital goods or consumables related to any service sector business of the scrip holder, from international, as well as domestic sources.
- Status Holder Incentive Scrip (SHIS)
With the objective of promoting investments in upgradation of technology, the Status Holders Incentive Scrip (SHIS) grants its recipients incentive scrips at the rate of 1% of FOB value of exports. The scheme is applicable to sectors like the leather sector (excluding finished leather), textile and jute sector, handicrafts sector and the engineering sector (excluding Iron & Steel).
- Incremental Export Incentivisation Scheme (IEIS)
To incentivize incremental exports, an exporter will be entitled to a duty credit scrip at % on the incremental growth (as achieved by the exporter) on the FOB value of exports to the USA, Europe and Asia (except Singapore, UAE and Hong Kong)
What are Scrips?
A Duty Credit Scrip is a scrip which can be used for the payment of Customs Duty (were earlier allowed to be used for the payment of Service Tax & Excise as well.) These scrips are issued to both the exporters of goods as well as exporters of services under the various schemes mentioned in the Foreign Trade Policy.
Duty Credit Scrip is issued by the Director General of Foreign Trade (DGFT) and can be used to pay various duties/taxes to the Central Govt. The value of scrip varies from scheme to scheme, product to product and country to country. However, the scrip value in most of the cases is in the range of 2% to 5% of the realized FOB Value (in free foreign exchange).
Moreover, another reason why these duty credit scrips are issued is to offset the infrastructural inefficiencies and associated costs involved in the export of goods/products which are produced/ manufactured in India.
These Duty Credit Scrips have a validity period. These are freely transferable and there is no conditionality attached with these. If the holder of the does not intend to use these for any of the above mentioned purposes or is not able to use the duty credit scrips during the validity period, he may sell them to any other person interested in using them for any of the above mentioned purposes.
The above table shows the number of scrips issued under each scheme and the value those schemes hold during the years 2019-20 and 2020-21 from the Annual Report, 2021-22 of the Ministry of Commerce.
To understand the data on a deeper level, the rate of growth is calculated for the value and number of scrips shown in percentage terms. The deepest fall in the number of scrips issued was witnessed in the Focused Market Scheme by 87.46%; followed by the SFIS by 86.11%; under VKGUY by 78.13%; IEIS saw a decline of 74.29%; Focus Product Scheme registered a decline of 72.55%; MEIS registered a decline of 59.93%; SEIS saw a decline of 26.35%.
Only SHIS registered an increase in the number of scrips issued by 7.14%, while the value of scrips too increased by 160%.
While the value of scrips have declined majorly for the rest of the schemes. Starting with VKGUY that had a fall of 100%; Focus Market Scheme registered a decline of 88.64%; MEIS’s value of scripts went down by 63.11%; followed by the IEIS which decreased by 58.33%; Focus Product Scheme, SEIS, and SFIS by 47.14%, 33.37%, and 30% respectively.
Other Export Promotion Measures
- Remission of Duties and Taxes on Exported Products (RoDTEP)
The Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi, has approved the introduction of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) in March, 2020.
RoDTEP scheme is WTO compliant, will reimburse taxes/duties/levies at the central, state and local level, which are currently not being refunded under other schemes. In line with “Digital India” refund under the Scheme, in the form of transferable duty credit/electronic scrip will be issued to the exporters and maintained in an electronic ledger. The Scheme will be implemented with end to end digitisation.
The RoDTEP scheme has been operationalized for exports with effect from 01.01.2021. Moreover, it has been decided to extend the Rebate of State and Central Levies and Taxes (RoSCTL) Scheme for apparel and made-up exports till March 2024.
- Interest Equalisation Scheme
The Scheme was approved on 18.11.2015 for 5 years w.e.f. 1st April, 2015. Operational guidelines for the scheme were issued by RBI on 4th December 2015.
The scheme provides for interest equalisation at 3% per annum on Pre-Shipment and Post-Shipment Rupee Export Credit. The scheme is available to all exports under 416 specified tariff lines and to all exports made by Micro, Small & Medium Enterprises (MSMEs).
- Export Promotion Capital Goods (EPCG) Scheme
The Scheme allows import of capital goods (with few exceptions) for pre-production, production and post-production at zero customs duty.
Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duties, taxes and cess saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of Authorisation.
Enterprises with the purpose of exporting their entire production of goods and services be set up under any of the following to access ease of doing business environment :
- Export Oriented Unit (EOU) Scheme
- Electronics Hardware Technology Park (EHTP) Scheme
- Software Technology Park(STP) Scheme
- Bio-Technology Park (BTP) Scheme
Additionally, the following facilities are provided and can be availed by the exporters. Such as, free passage of Export consignment, 24 X 7 Customs clearance, Single Window Interface for Facilitating trade (SWIFT), and self-assessment of Customs Duty.
- Transport and Marketing Assistance (TMA)
It is a scheme for specified agricultural products that provides assistance for the international component of freight and marketing of agricultural produce and to promote brand recognition for Indian agricultural products in the specified overseas markets.
- Certificate of Origin
A common digital platform for Certificate of Origin (CoO) has been launched to increase Free Trade Agreement (FTA) utilization by exporters.
- Districts as Export Hubs
In order to leverage the full export potential of our vast country, Districts are being promoted as Exports Hubs by identifying products and services with export potential in each district, addressing bottlenecks for exporting these products/services and supporting such local exporters/manufactures through institutional and strategic interventions. District specific export action plans for 478 districts have been prepared.
An institutional mechanism has been set up in each District in the form of District Export Promotion Committees (DEPCs). The primary function of the DEPC is to prepare and act on District Specific Export Action Plans in collaboration with all the relevant stakeholders.
- Production Linked Incentive
To make domestic manufacturing globally competitive and to create global champions in manufacturing, Production Linked Incentive (PLI) Schemes in 13 sectors are being implemented. The Government has initiated a review of some of the existing Free Trade Agreements (FTAs) to maximize its export potential to benefit domestic industry as well as to make them more user friendly, simple and trade facilitative. In addition, bilateral trade negotiations have been initiated with a number of countries.