By 2025, India wants to be a $5 trillion economy. If it wants to meet this goal, one of the conditions it must meet is to treble its exports to $1 trillion by the same year. Getting to that milestone will be primarily determined by how the government supports its export community, which is largely accomplished through a variety of financial and non-financial incentives. We look at 25 important government programmes aimed at growing India’s global trade footprint in this article. Continue reading to learn more:
Export incentives in India are consistent with the government’s flagship “Make in India” and “Atmanirbhar Bharat” (Self-sufficient India) initiatives. The former seeks to turn India into a manufacturing powerhouse, whereas the latter argues for self-sufficiency. The international trade strategy, which is a set of instructions and strategies for the import and export of products and services, highlights these incentives. The policy is in place for a five-year term. The present one is in effect till March 31st. From April 1, a new one will take effect.
Export incentives are benefits provided by the government to exporters in exchange for bringing in foreign cash and compensating them for the costs of moving products and services outside the country. The following are examples of export incentives:
1. Subsidies that reduce the cost of exports.
2. Duty exemptions (which allow duty-free import of inputs for export production) and duty remissions are examples of tax breaks (which enable post-export replenishment of duty on inputs used in export products).
3. Low-cost loans, for example, are credit facilities.
4. Provisions for failed loans, for example, are financial guarantees.
The Directorate General of International Trade (DGFT) of India’s Ministry of Commerce and Industry formulates and implements the country’s foreign trade policy, as well as many of the export incentives it promotes. Then there’s the Central Board of Indirect Taxes and Customs (CBIC), which sets policy for customs duty, central excise charges, and the Goods and Services Tax (GST) (GST). The Directorate General of Export Promotion (DGEP) is one of its arms, and it handles with “export refund concerns,” “policy issues connected to export promotion schemes,” and advises modifications to customs-related procedures and rules. The Reserve Bank of India, the country’s central bank, also implements some financial incentives.
Export incentives in one country may be viewed as unfair trade practises in another. The World Commerce Organisation settles disputes between countries over the extent of government participation in international trade (WTO). Government incentives are generally discouraged (if not outright prohibited) by the WTO, with the exception of those imposed by least-developed nations.
Cross-border trade benefits from export incentives. How? On an export product, the government collects less tax, lowering its price and making it more globally competitive. As a result, the product has a greater market reach on the international stage. The availability of commodities might affect export incentives. If there is an excess of products, the government may grant an export incentive to prevent the goods from going to waste.
China’s export success is due to its manufacturers obtaining a variety of government incentives (including large tax rebates) to produce virtually entirely for overseas markets. The following are some examples of how to export incentives assist countries and exporters:
They are in charge of bringing in foreign currency. Countries require foreign exchange reserves to facilitate international trade, pay for imports, repay foreign loans, and protect against economic collapse, currency depreciation, and other similar events, among other things.
They create jobs by assisting businesses in expanding and growing their staff.
They result in increased salaries (especially for skilled, experienced, and urban workers in India, as per this World Bank report) They reduce a country’s current account imbalance, which occurs when it imports more than it exports. In the last decade, India’s current account deficit has averaged 2.2 percent of GDP (approximately $15 billion in July-September 2020).
They promote self-sufficiency by lowering reliance on imported items.
As a result, export incentives help to boost overall economic growth.
RoDTEP: The Remission of Duty or Taxes on Export Products (RoDTEP) scheme reimburses exporters for previously unreimbursed embedded central, state, and local taxes and tariffs. Refunds are credited to an exporter’s customs ledger account and can be used to pay import customs tax or transferred to other importers. Exporters that want to take advantage of the refund must specify it in their shipping bill. The scheme took effect on January 1, 2021, and it replaces the Merchandise Exports from India Scheme (MEIS), whose provisions were found illegal by the World Trade Organization (WTO) for violating its export subsidy standards. Exports to Special Economic Zones (SEZs), Export Oriented Units (EOUs), and Jobbing Units (which process raw materials or semi-finished items) are not eligible for
RoDTEP advantages, as export have done against Advance Authorization (more on
this later). The scheme’s rates and the criteria under which it can be used
have yet to be announced. The following taxes and duties are included:
Exporters of qualifying services receive incentives in the form of duty credit scrips at a rate of 3 percent -7 percent of the net foreign exchange earned under the Service Exports from India Scheme (SEIS). These scrips can be used to pay customs duties on inputs imported and central excise levies on inputs purchased locally. They can also be transferred (can be passed on to another trader). An exporter must have an active Importer-Exporter Code (IEC) and net foreign exchange earnings of at least $15,000 to file a SEIS claim. The DGFT allows you to submit an application online
Merchandise Exports from India Scheme (MEIS): Under this scheme, exporters of notified items to notified markets obtain transferable duty credit scrips in free foreign exchange at rates ranging from 2% to 7% on the realised Free On Board (FOB) value of the shipment. Customs and central excise duties on inputs can be paid with the scrips. Rewards are also available for e-commerce exports sent through courier or foreign post. Because it broke WTO standards, the MEIS was withdrawn on January 1st. The RoDTEP scheme has taken its place. The government has set a limit of Rs 2 crore per exporter for shipments done between September 1, 2020, and December 31, 2020. Furthermore, no MEIS claims for IECs obtained on or after September 1, 2020, would be considered.
EPCG Scheme (Export Promotion Capital Goods): According to the DGFT, the goal of this plan is to “improve India’s manufacturing competitiveness by facilitating the import of capital goods [goods needed to make other goods] for generating quality goods and services.” Capital goods for pre-production, production, and post-production can be imported duty-free under EPCG, which is also known as Zero Duty EPCG. Integrated GST (IGST) and compensating cess are likewise exempt from duty. The scheme comes with an export requirement: the goods/services exported must be worth six times the amount saved in duty and must be delivered within six years of the exporter’s EPCG licence being obtained. Domestic capital goods procurement is permitted with a 25% reduction in export obligations. Exporters of engineering and electronic items, basic chemicals and pharmaceuticals, apparel and textiles, plastics, handicrafts, chemicals and allied products, and leather and leather products will benefit the most from this scheme. Hotels, travel operators, taxi companies, logistics companies, and construction companies are all eligible for rewards.
Advance Authorisation (AA): It allows duty-free import of raw materials/inputs physically incorporated in export-ready products, as long as the final product adds at least 15% value. The plan applies to any fuel, catalyst, or packaging material used in the manufacturing process. The quantity of inputs varies by-product (see the DGFT’s Standard Input-Output Norms or SION; for products not covered by SION, a self-declaration by the exporter is permitted). There is a provision for some waste during the manufacturing process. The inputs must be imported within 12 months of the advance authorisation being granted, and the finished product must be shipped within 18 months. On the DGFT website, you can apply for an AA licence.
Exporters can also request advance permission on an annual required basis under the AA programme. Only exporters having a “status holder” certificate (more on this later) or a track record of successful exports are eligible. Only goods that have been alerted by SION are protected.
DFIA (Duty-Free Import Authorisation): This method, like AA, provides duty-free import of inputs. Unlike AA, however, imports under DFIA can only be made after the export has been completed, the scheme only applies to SION-covered products, there is a 20% value-added requirement, and it is only free from paying basic customs duty. A DFIA licence is transferrable and valid for 12 months. Within 12 months of the date of export, an application for one can be filed with the port’s concerned regional body.
The Department of Revenue’s Duty Drawback (DBK) programme reimburses exporters for customs and central excise charges paid on inputs. Refunds are available under the All India Rate (AIR) or the Brand Rate (for products without an AIR or if the AIR is judged insufficient). Within two months of the shipment date, refunds are credited to the exporter’s bank account.
RoSCTL (Refund of State and Central Levies and Taxes) Scheme: Exporters of ready-made garments and made-up items (curtains, bed linen, carpets, and so on) are eligible for transferable and sellable duty credit scrips based on the export FOB value under the agreement. The maximum reimbursement rate for apparel is 6.05 per cent, and for made-ups, it is 8.2 per cent. An exporter must fill out an online ANF 4R form and submit it to the DGFT with a digital signature to be eligible for a rebate. The programme will be integrated with the RoDTEP programme, which covers all industries. The following federal and state taxes/duties are covered by the RoSCTL scheme:
1. Fuel used for transportation is subject to a central excise levy and a value-added tax.
2. The cost of electricity.
3. Mandi tax is a type of tax that is imposed on
4. Stamp duty on export paperwork.
5. CGST/SGST on manufacturing and transportation inputs, as well as coal.
Enterprises seeking to export 100 per cent of their inventory (goods and services) can be set up under the Export Oriented Unit (EOU), Electronics Hardware Technology Park (EHTP), Software Technology Park (STP), and Bio-Technology Park (BTP) schemes. Certain tax and compliance waivers and concessions will be available to these units, including duty-free import or domestic procurement of commodities essential for their operations and the establishment of a central location
Under the GST framework, exporters are entitled to the following refunds and benefits:
IGST refund – IGST is levied on all exports and can be returned by filing a refund claim with the customs department.
LUT Bond Scheme – By submitting a Letter of Undertaking (LUT) bond, exporters can avoid paying GST on their goods and services. To submit the document, an exporter having a GST registration can log in to their profile on the GST website. This system saves traders the time and effort of filing a refund claim.
0.1 percent GST incentive for merchant exporters – Merchant exporters are permitted to purchase products for export at a 0.1 percent concessional GST rate from a domestic supplier.
The DGFT awards exporters who are regarded to have contributed to India’s overseas trade a one-, two-, three-, four-, or five-star export house certificate. Export performance in the current and previous three financial years is used to determine ratings. The certificate is valid for five years, or until March 31, 2021, whichever comes first (when the current foreign trade policy lapses). Non-financial benefits include expedited customs clearance, priority in payment of import duties, and exemptions from providing bank guarantees, mandatory bank document negotiation, and guaranteed remittance (GR) procedures. (The GR is a foreign exchange control tool used by the RBI.)
The Market Access Initiative (MAI) is a programme that intends to help companies discover new markets and promote their products there. Market research, public relations campaigns, brand promotion, the establishment of showrooms/warehouses, participation in international trade fairs, reimbursement of air fare for international events, and the refund of registration fees paid to the importing country in the case of pharmaceuticals, biotechnology, chemicals, farm and food products are all examples of activities. The Export Promotion Councils are in charge of allocating MAI benefits.
Towns of Export Excellence: This project, which does not directly benefit exporters, recognises towns that export items worth Rs 750 crore or more as towns of export excellence. It provides financial assistance to recognised associations in these towns in accordance with MAI rules in order to help them realise their export potential.
Deemed Export Benefit System: This DGFT-enacted scheme extends exporter benefits to domestically produced goods (services excluded) suppliers that contribute indirectly to exports or to government-specified infrastructure projects. The items do not leave the nation and are paid for in Indian or foreign money in a considered export transaction. Assumed exports include the following items:
Advance Authorisation, Advance Authorisation for Annual Requirement, and DFIA approved goods
EOU/STP/EHTP/BTP units are supplied with goods.
Goods provided to an EPCG licence holder in the form of capital goods.
Goods for UN projects, nuclear power projects, and bilateral/multilateral agency-funded projects.
As a result, considered exports are eligible for Advance Authorisation, DFIA, and Duty Drawback benefits, as well as a terminal excise duty exemption or full refund. Unlike exports, considered exports are subject to GST, albeit the tax can be recovered back in full.
Banks offer exporters with good track records a Gold Card that includes a three-year credit limit with automatic renewal, an additional 20% credit limit to meet unexpected expenses, reduced banking service charges, relaxed security and collateral norms, and preference in granting Packing Credit in Foreign Currency (PCFC), a type of pre-shipment finance.
Another RBI scheme, the Interest Equalisation Scheme (IES), provides pre- and post-shipment export credit (credit granted before and after the shipment of goods) at a 5% interest rate for MSME manufacturers and a 3% interest rate for all other exporters.
The Nirvik Scheme is an insurance programme run by India’s Export Credit Guarantee Corporation (ECGC). It offers up to 90% coverage of principal and interest, as well as lower premiums for small exporters and a faster claim processing process. It covers both the pre- and post-shipment stages of the export process.
TMA (Transport and Marketing Assistance): This DGFT scheme reimburses exporters a portion of their freight costs for agricultural exports (including marine and plantation items). The goal is to improve the competitiveness of Indian agricultural products. Direct bank transfers are used to process refunds.
PLI (Production-Linked Incentive) programme: The PLI scheme, one of the government’s most recent initiatives, aims to increase local production and improve competitiveness in ten high-potential areas. It provides a 4%-6% incentive on incremental sales of items manufactured in India for the next five years following the base year (2019-2020). The following industries are covered:
Products related to electronics and technology
Automobiles and their parts
Pharmaceuticals
Telecommunications and networking equipment
Products made of textiles
Products related to food
Modules for solar photovoltaics
Appliances that are white in colour (ACs & LED)
Chemistry has progressed.
Steel with a unique composition
Despite these benefits, exporting is a difficult business in India, particularly in the current global climate of significant supply chain disruptions due to Covid-19. Furthermore, in the last year, benefits under various plans have been severely decreased. Similarly, government spending on initiatives has decreased. According to the Commerce Ministry’s Demands for Grants 2021-2022, central government spending on the Duty Drawback Scheme is expected to be Rs 377 crore in Budget 2021-22, down from Rs 497 crore in the previous Budget. Similarly, the Market Access Initiative is budgeted for Rs 200 crore in 2021-22, which is greater than the Rs 180 crore set out in the previous Budget but still less than the Rs 325 crore invested in 2019-20. Exporters are now betting on the new foreign trade policy to open up additional overseas trade opportunities for them in this situation.
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