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  • Foreign Trade Policy Review: Modi government gives exporters Rs 8,450 cr package

    Dec 6th, 2017

    The government on Tuesday announced additional incentives worth Rs 8,450 crore a year to boost both merchandise and services exports as part of its mid-term review of the foreign trade policy (FTP) for 2015-20, with specific focus on micro, small and medium enterprises (MSMEs) and labour-intensive sectors to boost job creation. The benefits, which represent a 34% annual rise from earlier, came in the form of an enhancement of the duty credit scrips under two flagship export schemes — Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) — by 2 percentage points. The MEIS is the most important export promotion scheme under which the government provides exporters duty credit scrip at 2%, 3% or 5% of their export turnover, depending upon products and shipment destinations. Before Tuesday’s announcement, the potential revenue forgone by the government on account of the scheme was estimated at Rs 22,000-23,500 crore a year. While a key request by the commerce ministry to allow exporters to use MEIS scrip to pay their goods and services tax (GST) liabilities doesn’t seem to have been accommodated by the finance ministry yet, exporters have been given some relief in this respect. The validity of duty credit scrips has been increased from 18 months to 24 months to enhance their utility in the GST framework. Similarly, the GST rate for the transfer and sale of scrips has been reduced to zero from 12% announced earlier. To ease pains of exporters, revenue secretary Hasmukh Adhia said refunds will be expedited and urged them to fill up the refund forms correctly to enable the government to clear them. The revenue department has said the quantum of IGST refund claims, as filed through shipping bills from July to October, is around Rs 6,500 crore and the quantum of refund of unutilised credit on inputs or input services, as per the RFD 01A applications filed on GSTN portal, is to the tune of Rs 30 crore.

    Refunds to the tune of Rs 451 crore have been granted to exporters against July IGST claims, said a government official. As such, the government will introduce a virtual duty payment system (e-wallet facility) for exporters from April next year. Hailing the decision to raise the MEIS incentives, some exporters, however, said restricting the usage of the scrip to the payment of just basic customs duty, and not IGST, is unfair (they used to pay various indirect taxes using the scrip before the GST regime). Similarly, the recalibration of duty drawbacks with the new taxes (GST) is far from over. Some of them said compared with the pre-GST era, the benefits are still negative for textile exporters. Commerce and industry minister Suresh Prabhu said focus is on data driven policy, identifying new products, doubling farmers income, enhancing partnership with other countries in providing services. He said the FTP will leverage the long term advantages of historic reform of GST in terms of reduced compliance and logistics costs. The MEIS incentive for ready-made garments and made- ups, which was hiked just recently by 2 percentage points, also was clubbed with incentives for other sectors under the MEIS. The potential annual revenue foregone by the government due to this move is estimated at Rs 2,743 crore. Similarly, the increased benefits under the MEIS for exports by MSMEs and other labour-incentive industries such as agriculture, leather, carpets, hand tools, marine products, rubber products, ceramics, sports goods, medical and scientific products and electronic and telecom components would cost the government Rs 4,567 crore a year. The higher incentive under the SEIS for services like business, legal accounting, architecture, engineering, education, hospital, hotels and restaurants will cost the exchequer Rs 1,140 crore a year.

    Goods that are freely importable are now allowed to be re-exported, except for certain prohibited items. In the EPCG scheme, procedures have been simplified for export obligation period extension and installation of machinery, while the shifting of capital goods has been allowed. Similarly, imports of second-hand goods for the purpose of repair or refurbishing have been allowed, thereby facilitating generation of employment in the repair services sector. The review of the FTP has stepped up focuses on improving the ease of trading across borders for exporters and importers. A new logistics division will be created in the commerce ministry to promote integrated development of the logistics sector. Similarly, a state-of-the-art trade analytics division is being set up in the Directorate General of Foreign Trade for data-based policy actions. The commerce ministry is also in the process of formulating a new agricultural exports policy to focus on increasing exports of value-added farm products. Similarly, a new services division will be set up in DGFT to examine Exim policies and procedures to push services exports. Supplies of goods and services to special economic zones will be treated as zero rated under the GST regime. As far as the policy direction is concerned, greater focus will be laid on exploring new markets and products, while raising share in traditional markets and products. Pratik Jain, leader (indirect tax) at PwC India, said: “The foreign trade policy review, as expected, did not have any big-bang announcements but increase in MEIS/SEIS by 2%, increased financial support to employment generating sectors, simplification and relaxation of import processes and licences are a step in right direction.” Self certification based importation with post import audit in select cases to Authorised Economic Operators (AEO) holders will incentivise more companies to opt for this scheme, he added. Welcoming the review, Ganesh Kumar Gupta, president of FIEO, said that the increased MEIS rates will provide much needed respite to these sectors which are facing huge competitiveness from other countries. “The trust based system for the grant of advance authorisation for no norms cases for exporters registered as AEO marks a new beginning of reliance on trade and will encourage exporters to apply for AEO scheme which facilitates customs clearance both in India as well as abroad,” he added. While exporters will be happy with the direction, they would look forward to some quick and long-term solution to working capital blockage with respect to input GST. It requires continuous monitoring of the situation on the ground and flexibility in approach, which GST council has shown in last few months.”