Indian export incentive schemes

Overview

Exports play a major role in the economic development of any country. A developed economy is the one, which exports more than it imports. Higher exports draw more foreign remittances, create more jobs and lower the current account deficit; hence, improve the overall economic growth of the country. India is still a developing country and ranked 18th on the list of the top exporting countries worldwide in 2019. While the pandemic affected the country’s trade, September 2020 recorded a growth in exports. From April 2020 to October 2020, exports dipped 19.05% to US$ 150.07 billion. After a staggering six straight months, India's exports rose 5.99% to US$ 27.58 billion in September 2020, but shrunk in October 2020 by 5.4% to US$ 24.82 billion, due to a decline in shipments of petroleum products, gems & jewellery, leather and engineering goods.

The President of Federation of Indian Export Organisations (FIEO), Mr. Sharad Kumar Saraf, was optimistic over the scenario and commented that exports are likely to revive post the US election process, followed by Christmas and New Year holiday seasons. He stated that exporters have been continuously receiving numerous order enquiries.

Mr. Mohit Singla, Founder & Chairman, Trade Promotion Council of India (TPCI), also pointed out that the bumper crops harvested in India, during the pandemic, will help the country slay the downtime even with slip-ups in demand for other traditional products.

Export Schemes in India

The government provides export incentives to not only motivate exporters—who bring in foreign exchange—but also to compensate them for costs incurred while exporting. These incentives are in line with the government’s ‘Aatmanirbhar’ and ‘Make in India’ initiatives to attain self-sufficiency and ensure higher reach of local products. India’s Foreign Trade Policy (FTP) 2015-20 advocates various export incentives that are offered by the government through the Directorate General of Foreign Trade (DGFT). A list of key incentives provided by the government to achieve its goal are as follows:

India Exports Scheme

Merchandise Exports from India Scheme (MEIS)

The MEIS rewards exporters by offsetting the infrastructural inefficiencies and associated costs. This scheme provides incentives to exporters in the form of duty credit scrips to refund losses on paid duties. Under the MEIS, an incentive of 2-5% of the ‘Free On Board’ (FOB) value of exports is provided to all exporters, irrespective of their annual turnover. However, MEIS will be soon replaced with the new Rebate of Duties & Taxes on Exported Products (RoDTEP scheme), as MEIS is not WTO-compliant.

Rebate of Duties & Taxes on Exported Products (RoDTEP Scheme)

The RoDTEP scheme will replace the old MEIS in a phased manner from December 2020. The RoDTEP scheme aims to refund all hidden taxes, which were earlier not refunded under any export incentive scheme, such as the central and state taxes on the fuel used for transportation of export products, duties levied on electricity used for manufacturing, mandi tax levied by APMCs, toll tax & stamp duty on the import-export documentation and others.

Service Exports from India Scheme (SEIS)

The objective of ‘Service Exports from India Scheme’ (SEIS) is to motivate traders who export notified services. Service Exports also bring in foreign exchange to the country and is hence encouraged. Under SEIS, an incentive of 3-7% of the net foreign exchange earnings is provided to the service exporters. It requires the service providers to have an active Import–Export Code (IEC Code) with a minimum net foreign exchange earnings worth US$ 15,000 to be eligible for a claim under the scheme.

Duty Exemption/Remission Schemes

Advance Authorisation Scheme (AAS)

Advance Authorisation Scheme allows duty-free imports of raw materials, which are required to produce export goods. It allows traders to import raw materials at 0% import duty if those raw materials will be used to manufacture export products.

Duty Free Import Authorisation (DFIA Scheme)

The purpose of this scheme is the same as the Advance Authorisation Scheme, i.e., to allow duty-free imports of raw materials. However, this scheme is applicable post exports; this means that duty-free imports will only be allowed once exports are completed.

Duty Drawback Scheme (DBK Scheme)

Under Duty Drawback Scheme (DBK), exporters are given compensation on customs and central excise duties incurred on materials used in the manufacture of exported goods.

The Rebate on State & Central Taxes and Levies Scheme (RoSCTL Scheme)

The old RoSL scheme was replaced by the new RoSCTL scheme in 2019. RoSCTL scheme is only applicable to the apparel and made-up industry, covering Chapters 61-63 of the ITC (HS). It grants refund on taxes such as VAT on transportation fuel, captive power, ‘mandi’ tax and electricity duty. This scheme will be soon merged with the RoDTEP scheme in all sectors.

Export Promotion Capital Goods Scheme (EPCG Scheme)

EPCG scheme facilitates the imports of capital goods to produce goods and services by manufacturers. Under this scheme, exporters can partner with a manufacturer and import the required capital goods to produce export goods at 0% duty. This scheme also helps reduce the service exporter’s capital costs. Service exporters such as hotels, travel & tour operators, taxi operators, logistics companies and construction companies are some beneficiaries under this scheme.

Export Oriented Units (EOU)

EOU scheme was introduced in 1981 and aims to increase exports by providing a favourable ecosystem to companies, which are 100% exporters. This scheme allows certain waivers and concessions in compliance and taxation matters.

Others

GST Refund for Exporters

Under the GST Act, exporters are eligible for the following schemes:

• LUT Bond Scheme – Exporters can export goods without paying any GST by obtaining a ‘Letter of Undertaking’ (LUT) bond.

• IGST Refund – Exporters can export goods on payments of ‘Integrated GST’ and later, claim the refund for the same from the Customs Department.
• 1% GST Benefit for Merchant Exporters – Merchants can procure the export goods from domestic suppliers at 0.1% concessional GST rate.

Transport and Marketing Assistance Scheme (TMA Scheme)

This scheme is applicable for agricultural exports and came into effect in 2019. Under the TMA scheme, freight costs up of to a certain amount will be reimbursed by the government to make Indian agricultural products competitive in the global space.

Deemed Export Benefit Scheme

‘Deemed Exports’ refers to those transactions in which the supplied goods do not leave the country and the payment for such supplies is received either in Indian rupee or in free foreign exchange. This scheme provides a level-playing field to the domestic manufacturers in certain specified situations, as may be decided by the government from time to time.

Star Export House/Status Holder Certificate

This scheme provides recognition to the eligible exporters. Status holders are regarded as business leaders who have successfully contributed to India’s foreign trade. Exporters are given star ratings based on the volume and value of exports completed. Eligible holders receive privileges such as faster customs clearance, exemption from compulsory negotiation of documents through banks, exemption from furnishing bank guarantee required for various export promotion schemes, GR waiver, preference in payments of import duties and other benefits.

Market Access Initiative (MAI) Scheme

Launched in 2018, the Market Access Initiative (MAI) scheme plays a catalytic role in promoting exports by exploring new markets and supporting all export promotion activities in those new markets. The scope of this scheme is to provide financial support to eligible agencies to undertake market access initiatives such as marketing, market research, promotion and branding in new markets; taking care of statutory compliance costs in importing country.

Towns of Export Excellence (TEE)

Towns with high export potential and exporting goods worth >Rs. 750 crore (US$ 101.29 million) are considered as towns of export excellence (TEE). Recognised associations in those towns are provided with financial assistance as per the guidelines provided by the market access initiative (MAI scheme). In this scheme, there are a total of 37 TEEs across the country; does not offer any direct benefit to individual exporters.

Interest Equalisation Scheme (IES)

IES provides pre- and post-shipment export credits to exporters in Indian rupee. This scheme provides 5% interest support to all manufacturers in the MSME sector and 3% support to all exporters in the identified 416 tariff lines. This scheme is implemented and governed by the RBI and respective banks, wherein banks pass on the benefit of reduced interest directly to exporters and then reimburse the same from the RBI.

NIRVIK Scheme

The Export Credit Guarantee Corporation of India (ECGC) introduced the NIRVIK scheme, which provides high insurance cover, reduced premium for small exporters and a simplified claim settlement process. It is primarily an insurance cover guarantee scheme that provides a cover of up to 90% of the principal and interest, as against the current credit guarantee of only up to 60% loss.

Recent Government Initiatives

Production-Linked Incentive (PLI) Scheme to Boost Exports

On November 20, 2020, the cabinet approved production-linked incentive (PLI) scheme for 10 high-potential sectors, including auto, battery cell, pharma, telecom networking, food and textiles. This scheme, estimated to provide benefits worth Rs 1.46 lakh crore (US$ 19.72 billion) over a five-year period, will set the bar high for businesses to avail these incentives. The initiative re-establishes the government’s ‘Make in India’ goal and clears a long-standing MSME bias.

Finance Minister, Mrs. Nirmala Sitharaman, assures that this scheme will make manufacturers worldwide competitive, attract investments in key sectors, increase exports, promote self-reliance and boost employment. Mr. Sharad Kumar Saraf, President of the exporter’s body, FIEO, said, “By helping the manufacturing sector to ensure economies of scale with modern and high-end technology, the scheme will boost investment, attract FDI, scale up domestic capacity and enhance exports in a big way.”

Revamp Services Export from India Scheme (SEIS) for Services Sector

In September 2020, the government announced plans to revamp the ‘Services Export from India Scheme’ (SEIS), which caters to the services sector, which has been hit the hardest by the pandemic. The proposed revamp widens the scheme to cover more sectors. At present, this scheme covers nine broad sectors and offers duty credit scrips, which enable the holder to import all goods that are freely importable without payment of basic customs duty.