Foreign Trade Policy 2015-20

Export promotion being a constant endeavour of the government, export performance is constantly monitored and export strategy and export policies are formulated. In the Foreign Trade Policy for the years 2015-20 announced in April 2015, the Government spelt out a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in line with the ‘Make in India’ and “Digital India” programme.

Salient Features

Objective

The policy seeks to make India a bigger player in global trade by doubling the overseas sales to $900 billion by 2019-20, while integrating the foreign trade with “Make in India” and “Digital India Programme”.

MEIS and SEIS schemes

Five existing schemes to promote merchandize exports have been merged into a single Merchandise Exports from India Scheme (MEIS). In this scheme, the incentives are to be provided in the form of duty scrips as % of FOB {free on board} value of exports.  One scheme for services exports called Served from India Scheme (SFIS) have been replaced in one scheme called Service Exports from India Scheme (SEIS). The benefits of this scheme will be only for India based service providers and will be based on net foreign exchange earned. The benefits of MEIS and SEIS have been extended to the SEZ units also.

Transferable Duty Scrips

A scrip literally means a “chit” and refers to a form of credit. The Duty free scrips are provided to the exporters under various export promotion schemes of the government s. Under these schemes, the exporters get incentives at a certain percentage of the export value and these incentives can also be used to reimburse duties on imported inputs. The scrips may be transferable or non-transferable. If they are transferable the holder of these scrips can sell them in market at discount. If the scrips are non-transferable, they come with actual user condition and the holder can use it to import inputs or capital goods duty free.

The foreign Trade Policy 2015 makes all duty free scrips freely transferable. These scrips can be used for payment of custom duty, excise duty and service tax also.

Status Holders

Merchant as well as Manufacturer Exporters, Service Providers, Export Oriented Units (EOUs) and Units located in Special Economic Zones (SEZs), Agri. Export Zones (AEZs), Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) are recognized as various status holders as follows:

Status Business in million US dollars
One Star Export House 3
Two Star Export House 25
Three Star Export House 100
Four Star Export House 500
Five Star Export House 2000

A status holder is eligible for many benefits such as self declaration during custom clearances; exception from some documents and receipts various incentives. In the foreign Trade Policy 2015-20, the government says promises to reduce transaction costs of the status holders.

Make in India

To integrate the FTP with Make in India, the government has reduced export obligation for capital goods purchased from Indian suppliers under the EPCG {Export Promotion of Capital Goods} scheme. The exporters who export with high level of domestic content get higher level rewards.

Trade facilitation and ease of doing business

The policy calls for online filing of documents/ applications and paperless trade in 24×7 environments; online inter-ministerial consultations and simplification of procedures/processes, digitisation and e-governance

Other measures include

  • Measures to facilitate & encourage export of defence goods
  • e-Commerce Exports: Benefits of foreign trade policy to export of items up to Rs. 25,000 per consignment
  • Benefit available to handloom products, books / periodicals, leather footwear, toys and customized fashion garments
  • New initiatives for EOUs {Export Oriented Units}, EHTPs {Electronic Hardware Technology Parks} and STPs {Software Technology Parks}. They can share infrastructure & inter-unit transfer of goods allowed.

Prohibited Items

India’s Foreign Trade Policy prohibits the following:

  • Import & Exports trade in “arms and related material ” with Iraq
  • Any defense related equipment from North Korea
  • Any content which might enhance the nuclear energy adventures of Iran
  • Import of Charcoal from Somalia. We note here that UNSC Resolution 2036 had banned all exports from Somalia and India honours this resolution. Charcoal exports from Somalia are a significant revenue source for Al-Shabaab.

Merchandise Export from India Scheme

The six different schemes of the earlier FTP (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agriculture Infrastructure Incentive Scrip, Vishesh Krishi and Gram Udyog Yojana and Incremental Export Incentive Scheme) which had varying sector-specific or actual user only conditions attached to their use have been merged into a single scheme, namely the Merchandise Export from India Scheme (MEIS). Notified goods exported to notified markets will be incentivized on realized FOB value of exports. For the purpose of granting incentibes, the countries have been grouped into three categories as follows:

  • Category A: traditional markets
  • Category B: emerging & focus markets
  • Category C: other markets

Government has expanded the coverage of the MEIS on 29 October 2015 by adding 110 new items. The incentive rate/country coverage of 2228 items has been enhanced.

Service Export from India Scheme

The Served from India Scheme (SFIS) has been replaced with the Service Export from India Scheme (SEIS). The SEIS applies to ‘service providers located in India’ instead of ‘Indian service providers’. Thus, it provides for incentives to all service providers of notified services who are providing services from India, regardless of the constitution or profile of the service provider. The rates of incentivization under the SEIS are based on net foreign exchange earned. The incentive issued as duty credit scrip, will no longer carry an actual user condition and will no longer be restricted to usage for specified types of goods but be freely transferable and usable for all types of goods and service tax debits on procurement of services/goods.

Comment on FTP-2015-20

The new foreign trade policy aims to double India’s exports to $900 billion by 2020. To achieve this target, the exports need to grow at about 14% every year. This growth is a function of global recovery, which seems to be distant at present. However, the policy must be lauded for its recognition that exports cannot be made competitive just by throwing sops for exporters. The government has made the duty free scrips freely transferable as per the global norms. This would be used by exporters to pay indirect taxes and duties and will be available to SEZs too. Further, the Export obligation under the Export Promotion Capital Goods Scheme has also been reduced, ostensibly to give a boost to “Make in India”. All these are efforts towards making exports more competitive. What India needs to do is to raise the share of manufacturing in its economy and promote exports of manufactured goods. Towards this direction, the government needs to slash and rationalize import duties further.

Last Updated: March 10, 2016

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