The export sector in India is imperative to the country’s economy as it constitutes substantial foreign exchange earnings and sources of employment. The Indian government has instituted various incentives to spur more exports and improve competitiveness in foreign markets. The Foreign Trade Policy (FTP) outlines these incentives and serves as a source of guidance for exporters. This throws light on the major export incentives available in India, their significance, and how they work in tandem towards the Foreign Trade Policy (FTP) policy goals.
The Importance of Export Incentives
The export incentives are designed in such a way that they would promote businesses to export across borders. This kind of incentive, thereby, creates a source of financial assistance besides reducing operating costs, which offsets the country’s infrastructural inefficiencies. Such an incentive increases the competitiveness of the Indian product in overseas markets. The government, by providing all these types of aid through tax exemption, duty drawback, and credit facilities, is trying to increase the volume of exports to a $5 trillion economy by 2025.
Key Objectives of Export Incentives
- Boosting Export Performance: It will boost the export performance by providing business finance support to expand export operations and penetrate new markets.
- Enhancing Competitiveness: This increases the competency of Indian products, which is effective in competing against foreign goods when set against the reduced costs associated with export.
- Promoting Specific Sectors: Some kinds of incentives are offered to promote specific sectors such as textiles, pharmaceuticals, and engineering goods so that these sectors become powerful sectors globally.
- Facilitating Foreign Exchange Earnings: The results from these incentives facilitate a higher accumulation of export proceeds, which consequently leads to increased foreign exchange earnings, thus helping maintain economic stability through higher foreign exchange reserves.
Overview of the Foreign Trade Policy (FTP)
The Foreign Trade Policy (FTP) 2023, launched by India’s Ministry of Commerce and Industry, aims to promote and regulate international trade. It focuses on achieving $2 trillion in goods and services exports by 2030. Effective from April 1, 2023, the policy emphasizes ease of doing business and collaboration among exporters, states, and districts. It also supports sectors like e-commerce. Notable changes include the internationalization of trade in Indian rupees and the creation of new towns of export excellence for specific industries. FTP 2023 aims to standardize procedures, reduce transaction costs, and strengthen India’s global position. It will remain dynamic and responsive to feedback and market needs.
Key Features of the FTP
- Five-Year Plan: The FTP is generally prepared for five years, with interim reviews to incorporate changing market conditions.
- Focus on Ease of Doing Business: The policy looks at streamlining the processes by making them digital, therefore leaving as few bureaucratic hurdles as feasible for exporters.
- Promotion of Make in India: Promotion of the “Make in India” project since it encourages domestic manufacture and more self-sufficiency.
Types of Export Incentives in India
India offers a range of export incentives through various schemes designed to support exporters across different sectors. Below are some key incentives available under the current FTP:
- Rebate of Duties and Taxes on Exported Products (RoDTEP)
The RoDTEP scheme provides refunding of the duties and taxes levied on the production process. In this respect, the scheme should reduce the costs involved in exporting goods and enhance competitiveness. The rebates to the exporters are now based on value-added rather than on sale price. This will make it easier for exporters to understand their status concerning duty refunds.
- Service Exports from India Scheme (SEIS)
The SEIS encourages service exports by granting duty credit scrips, which exporters can use to pay customs duties on imports. Travel, transport, construction, and IT-related services fall within its ambit. This initiative not only encourages the service providers but also adds to their foreign exchange earnings.
- Merchandise Exports from India Scheme (MEIS)
Although RoDTEP has replaced the MEIS for WTO compliance reasons, the latter had passed on duty credit scrips to exporters on their FOB realized value. So, this scheme is intended to balance the structural inadequacies of exporters.
- Export Promotion Capital Goods (EPCG) Scheme
The EPCG scheme allows importers to import capital goods duty-free if they meet the export obligations within a specified time frame. This would make them invest in modern equipment that enhances productivity and increases the level of exports.
- Duty Drawback Scheme
This scheme allows exporters to recover the customs duty paid on materials imported for producing the products being exported. It is a useful tool for reducing total costs and also exporting activities.
- Towns of Export Excellence (TEE)
The TEE scheme identifies specific villages with export growth potential based on their production strength. Registered units in these identified villages receive additional benefits under various schemes, such as financial support for export promotion activities.
- Interest Equalisation Scheme (IES)
Launched to provide support for small and medium-sized enterprises, the IES provides interest subsidies on pre- and post-shipment export credit. This would remove the financial burden from exporters’ shoulders while promoting growth in labor-intensive areas. USF- Ubharte Sitaare Fund
USF is meant to provide equity financing for small- and mid-size export-oriented enterprises, since this investment provides support to their competitiveness and internationalization.
How Export Incentives in India Work
Exporters must follow a systematic process to access export incentives. This includes an application process, eligibility criteria, and compliance requirements set by government authorities like the Directorate General of Foreign Trade (DGFT). Exporters need to ensure they meet all eligibility criteria to use these incentives effectively.
- Application Process: The process for application is by the exporter seeking specific schemes through specifically designated channels like the DGFT or relevant government bodies.
- Documentation: Exporters must maintain proper documentation to avail the benefits under the adopted schemes. They are responsible for preparing comprehensive records of transactions and ensuring the effective implementation of the rules and regulations.
- Monitoring: Authorities can frequently audit an exporter to ensure that exporters comply with the requirements of each incentive scheme.
Final Thoughts
Now that you understand the various export incentives under India’s foreign trade policy, you can enhance your export operations. Always review the eligibility criteria and process to optimize these benefits. Verify all export information, such as compliance requirements and documentation, to improve your operations. Stay updated on policy changes and new initiatives that could help your business navigate international trade more effectively.
