Foreign trade policy looks at small firms to boost exports

Looking to divert the headwinds faced by country's exports or foreign trade in general, the commerce ministry in its mid-term review of the Foreign Trade Policy (FTP) has extended incentives for labour-intensive and micro-small-and-medium-enterprise (MSME) sectors, along with announcing trade facilitation measures on Tuesday.

The revised FTP offers exporters, operating in the employment generating sectors, an increase of 2% in incentive under the Merchandise Export from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) to boost exports and job creation.

This would translate into additional relief of Rs 8,450 crore for these category of exporters.

Commerce minister Suresh Prabhu, while speaking to the media, specifically pointed out that these incentives should not be viewed as subsidies but as investments for driving exports to a higher level.

Exports have been subdued over the last few months treading into negative zone in October as they declined 1.12% in dollar terms, compared with the same month last year, and 3.6% in rupee terms. For the first seven months of the current fiscal, exports have grown 9.62% over the same period last year.

The government's Foreign Trade Promotion (2015-2020) statement has set a goal to push "India's exports of merchandise and services from $465.9 billion in 2013-14 to approximately $900 billion by 2019-20, and to raise India's share in world exports from 2% to 3.5%".

Besides the incentives, the commerce ministry has also come out with foreign trade facilitation measures to improve competitiveness of India's exporters. These include duty-free imports for exports on self-certification, validity for duty credit scripts increased to 24 months.

Exporters have been grappling with working capital issues with reportedly huge refunds on the newly- launched indirect levy goods and services tax (GST) stuck with the government.

Prabhu assuaged their fears by saying the government was working on clearing all refunds due till now and clarified that the refund amount was much smaller than reported in the media.

"No new legislation can be made perfect in one go. I ask exporters to please bear with us and be our partners in dealing with the problems," the minister said.

Customs experts said the announcement made were not big but they were steps in the right direction.

A tax consultant, who spoke off-the-record, said one of the factors that kept India's competitiveness ranking from moving above 100 was ease-of-global-trade. On this parameter, India's position was stagnant at 160 among 180 countries.

"We haven't seen too many large announcements but this is the step in the right direction. We will, perhaps, see more announcements soon," said analysts.

According to him, the self-certification for duty-free imports for exports should be extended to customs clearance too, to further improve ease-of-global-trade in the country.

"Larger expectation is, we will move to a situation where importers can clear goods without customs duty, which can be paid later. Today, it is paid before goods are removed from the ports which causes a lot of bottleneck at the port as goods are held up there. Whatever they have done on input facilitation should be extended to customs, possibly, in the Union Budget. That is why it has been for excise and GST, where the goods are self-assessed and removed first while the duty is paid later," he said.

Suresh Nandlal Rohira, partner, Grant Thornton India LLP, said the measures announced would benefit the services sector as allowing SEIS benefits to STP and EOU units without de-bonding the units was a "real good move".

Pratik Jain, leader- indirect tax, PwC India, said the FTP review did not have "big bang announcements", as expected but increase in MEIS and SEIS by 2% increased financial support to employment generating sectors.

"Self-certification based importation with post import audit in select cases to AEO holders will incentivise more companies to opt for this scheme," he said in a statement issued by PwC.

Jain, however, said the government should quickly come out with solutions to address exporter's working capital troubles in the wake of GST implementation.

"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," he said.

Abhishek A Rastogi, partner, Khaitan & Co, said the government has kept the focus of FTP on ease of trading.

"Incentives worth Rs8,450 crore were announced along with the promise of rolling out e-wallet facility for refunds giving the much-needed respite to exporters from working capital blockage. 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," he said.