Government's Big Boost to the Exporters

Overview:
Exports are crucial for global trade and a country's overall economic growth. Higher exports attract foreign investments, create job opportunities and reduce the trade imbalance—all these contribute to a country’s economic growth and per capita income. India is still a developing country and ranked 20th on the list of top exporting countries worldwide in 2021. Global trade uncertainties amid the pandemic have significantly affected merchandise trade in 2020, causing India's exports to drop by 6.8% (amounting to US$ 291.8 billion) in FY 2020-21. Key exported items during this period were gems & precious metals and mineral fuels (including oil), which accounted for 18% of the total merchandise exports. On the other hand, imports declined >16% (amounting to US$ 394 billion), with gems & precious metals, mineral fuels (including oil) and electrical machinery being the most imported items.


 

Recent Trends in Exports
Although India's exports rose for the 10th month in a row—22.5% YoY to US$ 33.79 billion—in September 2021, the trade deficit widened with increased imports of gold and petroleum products. Increase in India’s YoY exports (in September 2021) was primarily driven by a rise in exports of products such as coffee, cashew, petroleum products, cotton & handloom items, engineering goods and organic & inorganic chemicals.

India’s Merchandise Exports in the Last 12 Months (in US$ billion):


Government Export Incentive Schemes:
Export incentives are government-provided benefits in the form of compensation for costs associated with exporting goods and services outside the country. Export incentives can be subsidies that lower export price, tax concessions such as duty exemptions (duty-free imports of inputs for export production) and duty remissions (post-export replenishment of duty on inputs used in export products), financial guarantees (provisions covering bad loans) and credit facilities (such as low-cost loans). The Government of India constituted various programmes including the Foreign Trade Policy (2015-20) to enhance exports and offset costs and inefficiencies for exporters. Some of the government schemes are listed below:

Exports from India Scheme
Remission of Duties and Taxes on Exported Products (RODTEP):
The RODTEP scheme replaced the old MEIS scheme from January 1, 2021. Under this scheme, merchandise exporters are entitled to a refund on all hidden taxes, which were not refunded earlier under any export incentive schemes. Some of the taxes entitled for refund include the Central Excise Duty/VAT, GST, toll taxes and stamp duty on all import & export documents.

Service Exports from India Scheme (SEIS):
Under this scheme, service providers in India will be compensated for exporting services. Under the SEIS, an incentive of 3-7% of the net foreign exchange earnings is provided to the exporter. It requires service providers to have a minimum net foreign exchange earnings worth US$ 15,000 to be eligible for refund. In September 2020, the government announced plans to revamp the SEIS. The proposed revamp widens the scheme coverage to more sectors. Currently, the scheme caters to nine sectors and offers duty credit scrips, which allow the exporter to freely import raw materials without paying customs duty.

Duty Exemption and Remission Scheme
Advance Authorisation (AA) Scheme:
Duty-free imports of raw materials that are physically incorporated into the export product (with a minimum 15% value addition) are permitted under this scheme. It can be awarded to either a manufacturer exporter or a merchandise exporter linked to a supporting manufacturer.

Advance Authorisation (AA) for annual requirement:
Exporters having a past export experience, with at least two preceding years, are entitled to avail refund under this scheme.

Duty free Import Authorisation (DFIA) Scheme:
This scheme allows duty-free import of raw materials, with a minimum value addition requirement of 20%. It is exempted only from the payment of basic customs duty and is compensated on post-export basis.

Duty Drawback of Customs (DBK):
Under this scheme, exporters are entitled to receive compensation on customs and central excise duties incurred for acquiring inputs for the exported products. This scheme is issued on post-export basis.

Rebate on State and Central Taxes and Levies Scheme (ROSCTL)
The ROSCTL scheme came into effect in March 2019. It provides rebate to all state and central taxes for the garments and made-up industry. This scheme replaced the previous Rebate on State Levies Scheme (RSLS) that provided rebates only on state taxes. State taxes such as VAT on transportation fuel, electricity duty, stamp duty on all export documents and SGST and central taxes such as central excise duty on fuel used in transportation, CGST and duty on coals used in production of electricity are included under this scheme.

EPCG Scheme
This scheme allows import of capital goods including spares for pre-production, production and post-production on 0% duty. This scheme gives exporters the liberty to partner with a manufacturer and freely import the desired capital goods without having to pay any duties. The scheme also covers service exporters certified as Common Services Provider (CSP).

Export-oriented Units (EOU)
The EoUs are units or enterprises that commit to export 100% of their produced goods. The EoUs have permits to procure raw materials or capital goods duty-free either through imports or domestic suppliers.

Other Schemes
Market Access Initiatives (MAI Scheme)
Under this scheme, financial assistance is provided for export-related promotion activities including market surveys, setting up showrooms or warehouses, participation in international trade fair, publicity campaigns, testing charges for engineering products and reimbursement of registration charges for pharmaceuticals.

Gold Card Scheme
This scheme was introduced by the Reserve Bank of India (RBI) in 2004. It provides credit to all eligible exporters including those in the small and medium-sized business. The scheme provides an additional 20% limit to meet the sudden needs of exporters in the form of additional orders and Pre-shipment Credit in Foreign Currency (PCFC).

Emergency Credit Line Guarantee Scheme (ECLGS)
This scheme was launched by the Government of India to extend emergency credit facilities to medium and small enterprises. The credit has a maximum tenure of four years from the date of disbursement and interest rate is capped at 9.25% for banks and 14% for NBFCs.

Production-Linked Incentives (PLI) Schemes
The central government announced this programme in March 2020. The initiatives promote Indian manufacturing companies to export products and boost the domestic manufacturing sector. Although the scheme invites foreign companies to establish manufacturing units in India, it also aims to encourage local manufacturers to set up or expand existing manufacturing units. This scheme was implemented by the Ministry of Electronics and Information Technology (MEIT) and the Department of Pharmaceuticals, with total funding worth Rs. 51,311 crore (US$ 7 billion) to be deployed between 2020 and 2025.

Recent Government Initiatives
In September 2021, the Union Commerce Minister, Mr. Piyush Goyal, announced funding of Rs. 56,027 crore (US$ 7.5 billion) for several export promotion schemes. The funds will be disbursed among 45,000 exporters, of which 98% will be small MSME exporters. Amounts of Rs. 12,454 crore (US$ 1.7 billion) for the RODTEP scheme and Rs. 6,946 crore (US$ 930 million) for the ROSCTL scheme have already been allocated for FY 2021-22. The remining funds will be disbursed to export schemes including MEIS, SEIS and Target Plus.

On September 30, 2021, the government stated that the Emergency Credit Line Guarantee Scheme (ECLGS) will be expanded by Rs. 4.5 lakh crore (US$ 60 billion) to help small and medium-sized businesses with funding shortages and stimulate exports. During the same period, the government announced Rs. 6,000 crore (US$ 800 million) under the Export Credit Guarantee Corporation (ECGC) for companies offering insurance cover to exporters and allocated Rs. 1,650 crore (US$ 221 million) to the National Export Insurance Account Trust.

The Government of Madhya Pradesh (MP) established a state-level export council on September 30, 2021, to assist exporters in identifying the suitable market for their products and improving product quality. The government aims to boost the state's contribution (to 5%) in the national exports. The state’s share in national exports stood at 2.2% in FY 2020-21.

Conclusion
The Government of India recently announced a fund of Rs. 56,027 crore (US$ 7.5 billion) to support and promote exports in the country. These funds are awarded to various programmes and schemes including RODTEP, ROSCTL, MEIS and SEIS. Apart from the booster fund, the government is assisting small and medium-sized businesses (affected by the pandemic) by extending emergency loans through the ECLGS initiatives and funding manufacturing companies under the PLI scheme. Such strong actions are aimed at boosting the country’s exports and helping it reach the target of US$ 400 billion in FY 2021-22, up from US$ 291.8 billion in FY 2020-21.