Trade policy focuses on services

New Delhi: With international demand for goods from India facing headwinds, the government on Wednesday announced a major change in policy by bringing incentives for services exports on par with merchandise exports. Moving away from the past practice, the foreign trade policy for the next five years has focused on overall exports from India and not just merchandise exports, setting the target of $900 billion exports by 2019-20, from $466 billion in 2013-14.

This would require an annual growth of 11.5 per cent and much of it will have to be delivered by the services sector as goods exports have been languishing at around $300 billion for the past three years. In another departure from the past practice, the government will not be coming out with annual supplements for the policy for amendments.

“The policy is for five years. There will be a review of it after two-and-a-half years,” commerce and industry minister said Nirmala Sitharaman. In the recent years, the most popular schemes of incentives among exporters of goods have been the ones that rewarded shipments of certain specified products or to newer markets.

The five schemes that provided these incentives have been struck down and replaced with a single ‘Merchandise Exports fr­om India Scheme’ (ME­IS). The benefits given under the earlier schemes in the form of ‘scrips’ or tax credits came with host of conditions. Under the new policy, the exporters would be free to use these scrips as they like.

Now the goods exporters will be able to use them for payment of import duties, excise duties and service tax. They will also be allowed to sell those credits or goods imported or domestically procured against them. The value of scrips would be between two per cent to five per cent of the value of exports depending on the country where they are shipped.

A similar scheme has been worked out for the services sector. The scheme that was operational earlier for the sector also provided duty credits under the ‘Served from India Scheme’ but they could not be traded freely or used for payment of taxes. With the new Services Exports from India Scheme (SEIS), all these conditions have been waived and under the schemes export of selected services would be rewarded at the rate of three per cent to five per cent of the total value of exports depending on the location of the buyer.

The SEIS will also cover foreign companies operating in India, whereas the earlier scheme covered only Indian companies. MEIS and SEIS benefits have also been extended to units operating in special economic zones. “Reduction in conditions attached to export benefits would have a real-time impact on the bottom line of many export oriented businesses,” said Rajeev Dimri, leader - indirect tax, BMR & Associates.

The government has also decided to incentivise exports through e-commerce platforms of products like books, periodicals, handicrafts, leather footwear, toys and customised fashion garments. The goods shipped through courier or foreign post office will be eligible for benefits under MEIS scheme for shipments of up to Rs 25,000.

“Boost to e-commerce and services exports are well-timed and take into account the unfolding shift in the paradigm of businesses,” chairman and managing director of Yes Bank said Rana Kapoor.

To give a boost to local manufacturing of machinery, the government has scaled down export obligation under the ‘Export Promotion Capital Goods Scheme’. Under the scheme, exporters are allowed to import capital goods without paying any custom duty but have to export six times the amount of duty saved in six years.

This benefit is also available if capital goods were procured locally without paying excise and the export obligation was 90 per cent of those for imported capital goods. Now this has been scaled down further to 75 per cent. The policy also announced higher level of rewards under the MEIS for export items with high domestic content and value addition.

“These will encourage domestic as well as foreign players to manufacture their products in India, providing a welcome fillip to the ‘make In India’ initiative,” said country president and managing director of Schneider Electric India Anil Chaudhry. For boosting defence, aerospace and nuclear exports, the policy has relaxed conditions for the sector under the ‘advance authorisation scheme’.

The scheme allows for duty-free import of inputs for items to be exported. For these sectors the finished goods can now be exported in 24 months instead of 18 months at present. The policy also announced reduction in paperwork for exporters and number of clearances required. The industry has supported simplification of schemes. “The policy sounds very positive. It will reduce the headache for exporters,” said Ajay S Shriram chairman and managing director of DCM Shriram.

He said only monetary incentives alone cannot boost business easier rules and procedure also provide a big push. said Commerce Secretary Rajeev Kher the government will also be coming out with details of the scheme for interest subsidy for exporters of certain products that are labour intensive. Next year’s budget has provided Rs 1,625 crore for it, he added.