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India’s Foreign Trade Policy Offers Rs 8,450 Crore Additional Export Incentives

India’s commerce ministry today released the mid-term review of its foreign trade policy focussed on boosting the country’s micro, small and medium enterprises, labour intensive sectors and the agricultural sector.

The revisions in the trade policy are expected to aid exports and generate employment too, said Alok Chaturvedi, the Directorate General of Foreign Trade said in the media presentation.

The mid-year review was slated to be released on July 1. It was deferred as the government sought to factor in feedback from exporters following implementation of the Goods and Services Tax. The five-year policy, announced in 2015, aims to nearly triple India’s exports to $900 billion by 2020 and increase the nation’s share of global exports to 3.5 percent from 2 percent then.

Here are the highlights from the foreign trade policy review.

India’s Foreign Trade Policy Offers Rs 8,450 Crore Additional Export Incentives

Incentives

The government will provide additional incentives for merchandise and services exports to the tune of Rs 8,450 crore annually. This is an increase of 34 percent from the existing sops.

Incentives in the Merchandise Exports From India scheme have been increased by 2 percentage points to 4 percent for all labour-intensive sectors. The additional annual incentives for labour intensive and MSME sectors would be Rs 4,567 crore.

  • Leather Sector: Rs 749 crore
  • Handmade carpets: Rs 921 crore
  • Agricultural products: Rs 1,354 crore
  • Marine products: Rs 759 crore
  • Telecom and electronic components: Rs 369 crore
  • Medical Equipment: Rs 193 crore.

The MEIS incentives for the two sub-sectors of textiles – readymade garments and made ups – will get additional incentives of Rs 2,743 crore

Incentives for services exports have been increased 2 percent for certain notified sectors. The estimated additional annual incentive is around Rs 1,140 crore. The notified areas include business, legal, accounting, architecture, engineering, education, hospitals and restaurants.

The validity period for duty credit scrips too has been increased to 24 months, from 18 months earlier. This is to “enhance their utility” in the GST framework. The GST rate for the transfer and sale of such scrips has been reduced to zero from 12 percent earlier.

“These announcements are expected to help the exporters in this moment of crisis,” said Abhishek Rastogi, Partner at Khaitan & Co., in an emailed media statement.

While incentivising the MSME and labour-intensive sector, the government did not ignore agriculture and defence and a large proportion of incentive has been allocated to promote exports in this sector as well. Going forward, the Export Promotion Mission is going to play a critical role in providing institutional framework in close collaboration with the States.
Abhishek A Rastogi, Partner, Khaitan & Co

GST Reforms

The new indirect tax regime has led to many teething issues for exporters, leaving them with a working capital crunch. Exporters have to pay Integrated GST while exporting goods, and could not claim refunds because of frequent changes made by the government in return filing procedures.

The review said that the issue of working capital blockage due to upfront payment has been addressed. It reiterated earlier announcements made by the GST Council in this regard.

  • Exporters can now import raw material or capital goods, as well as source them from domestic suppliers, without the upfront payment of GST. Additionally, an e-wallet service would be launched from April 1, 2018 to make these schemes operational.
  • Merchant exports will have to pay a nominal tax of 0.1 percent for procuring goods from domestic suppliers for exports.
  • Gold too can now be imported without paying IGST

Focus On New Markets

  • The mid-year review said there will be increased focus on increasing Indian exports to under-tapped and un-tapped markets in “high potential regions” like Africa.
  • There will also be more engagement in the Latin America and Caribbean region by boosting exports through easy access to credit facilities.
  • The focus areas include agro-processing, manufacturing, mining, textiles, consumer goods, infrastructure development and construction

Duty Free Import Of Raw Material

The review has also allowed duty free imports of raw material for producing export goods. It has introduced a new “trust based” self-ratification scheme where exporters will declare what they have imported to use as raw materials. This will lead to “immense ease of trading”, said Chaturvedi.

New Agricultural Export Policy

The policy will also focus on increasing shipments of “agricultural value added products” through “stable and open” exports.

  • This includes “effective handling” of technical barriers to trade issues and sanitary standards in domestic and target markets.
  • It will also focus on creating cold chains and transport logistics facilities from farms to ports and airports.
  • Policy interventions will be used to promote organic exports.

Boost To SEZ Suppliers

Supply of goods and services to Special Economic Zones will be treated as zero rate under GST. Suppliers would get tax refunds based on the pattern of actual exports. Earlier, the tax refunds were dependent on the states.

Analytics And Help Centre

The DGFT has set up a “contact” portal on its website for complaints, resolution, queries and feedback on foreign trade and exports. Each request will be assigned a reference number so that it can be monitored.

The review also facilitates setting up of a new analytics division under the DGFT for data-based policy actions. The team will process trade information from the various trade data sources and “identify specific actions” to address export interests of India.

New Logistics Division

A new division will be set up under the commerce ministry to develop an action plan for the logistics sector, which was recently granted infrastructure status by the government.

  • The division will look at improving existing procedures, identify bottlenecks and gaps for the integration of technology in the sector.
  • It also proposed to create a National Logistics Information Portal to be an online marketplace for bringing together logistics service providers with buyers and government agencies on a single platform.
  • This is expected to bring down overall costs and increase the speed of the movement of goods.

Other Highlights

  • PAN card to work as Import Export Code.
  • Regional offices empowered to take a call on extending benefits.
  • Exporter can shift capital goods within facilities.
  • Export Promotion Capital Goods permissions can be clubbed.
  • No customs duties, Integrated Tax & GST Compensation Cess on imports from specific warehouses and exhibitions held in India.
  • Motor cars, liquor, books and tea can be sold from domestic tariff areas.
  • Export benefits can be transferred within units with applicable duties & taxes.
  • Customs to clear damaged goods can be taken back for replacement.
  • Second-hand goods imported for repair exempted from taxes.
  • Replacement Goods to be issued export licence.