The Foreign Trade Policy 2009-2014 aims to double India’s share in global trade by 2020.
The commerce minister has laid down a mix of policy measures including fiscal incentives, institutional changes, enhanced market access and procedural rationalisation.
The objective apparently seems to boost the declining exports, bringing down transaction costs and achieve full refund of all indirect taxes and levies.
The much hyped Duty Entitlement Passbook Scheme has been extended up to December 31, 2010, as a measure towards imparting greater stability and continuity of the erstwhile
Foreign Trade Policy.
With this the government has given a new lease of life to this much controversial export incentive scheme.
Status Holder Incentive Scrip
One of the prominent features of the policy has been introduction of the Status Holder Incentive Scrip (SHIC) which entitles the status holders such as trading houses, star trading houses etc for additional duty scrip @ 1% of the FOB value of exports.
This measure is to incentivise the exporting community to upgrade their technology and enhance exports.
The SHIC can be used for procurement of capital goods subject to the actual user condition and is restricted to sectors such as leather, textiles, jute, plastics, chemicals etc.
A zero duty Export Promotion Capital Goods
A zero duty Export Promotion Capital Goods scheme for specified sectors like engineering, electronic products, basic chemicals & pharmaceuticals, apparels & textiles has been introduced.
This scheme shall be operational till March 31, 2011. In addition, as against existing export obligation of 8 times the value of duty saved to be fulfilled in 8 years, the zero duty EPCG allows an importer to fulfill the export obligation in 6 years with an export obligation of 6 times the value of duty saved.
This benefit is not available to metals, specified machinery, fertilisers, base metals etc, and also not to exporters availing benefits under technological upgradation fund and SHIC.
Further, the existing EPCG licence holder who had imported plant and machinery, export obligation on further import of spares, moulds etc. has been reduced to 50% of the normally specified export obligation (i.e. exports equal to 4 times of duty saved in 8 years).
With the developed economies showing no signs of recovery, it was important to take steps for diversification of our export market by giving new emerging markets a special focus.
Focus Market Scheme
The policy, to an extent, has been able to achieve that. The Focus Market Scheme (FMS), in addition to increasing the value of benefit from 2.5% to 3% of the f.o.b. value, has added a list of 26 new emerging markets of Africa, Latin America, CIS countries etc.
The benefit shall be available to exports affected from August 27, 2009 onwards. This will help Indian exporters make their exports competitive in the emerging markets.
To achieve a diversification of the exported products, the incentive available under the Focus Product Scheme (FPS), has also been raised from 1.25% to 2%.
Further, a large number of products from various sectors have also been added including engineering products, plastics, jute, green technology products and certain electronic items.
Market Linked Focus Product Scheme
The Market Linked Focus Product Scheme (MLFPS) has also been expanded by including over 150 products including pharmaceuticals, synthetic textile fabrics, glass products etc.
The benefit of duty scrip of 2% of the f.o.b. value of exports is available only if the exports are made to 13 identified markets including Australia, New Zealand, South Africa, Mexico, Brazil etc.
What is significant is that even the developed economies like Australia and New Zealand have been included which should significantly boost export of the identified products.
Advance Authorisation Scheme
To put the Advance Authorisation Scheme aligned with the Duty Free Import Authorisation (DFIA) scheme, the condition of a minimum value addition of 15% has been prescribed.
In addition, various other benefits have been accorded to Tea, Agriculture, Marine, Leather sectors either by way of procedural simplifications or by way of fiscal incentives.
An export oriented unit (EOU) manufacturing multiple products has been granted the flexibility to clear any single product up to 90% of its FOB value of exports in the DTA subject to maintaining the overall DTA clearance limit of 50%.
Additionally, an EOU has also been allowed to procure a finished product from the DTA up to 5% of its FOB value of exports for consolidation with the manufactured goods.
This should help EOU units maintain their export obligations which were unable to manufacture the finished product themselves.
Apart from the fiscal benefits, the commerce minister has also attempted to simplify the current procedural formalities, documentation and to an extent has attempted to grant some operational flexibility.
The government is committed to implement the e-trade project in a time bound manner. The application fee for availing incentives such as SFIS, FMS, FPS, etc has been completely waived and reduced for availing other export benefits. An exporter who was earlier only required to pay cash for any unfulfilled export obligation can now bridge that shortfall by way of debit in the duty credit scrip.
Advance Authorisation benefit has been extended to second stage supplier also and the time period for conversion of shipping bill from one promotional scheme to another has been extended from one month to three months.
Whilst framing the above policies the commerce minister is cautious of the current state of affairs of the economy and has therefore put forth the above benefits for two years to be subsequently reviewed.
We hope the policy measures would help reversing the declining trend of the exports. The success of the policy measures undertaken by the Foreign Trade Policy to make the Indian exporters globally competitive would indeed depend a lot on how the finance ministry and the commerce ministry translates the promotional measures into actions.
Menon is executive director, PricewaterhouseCoopers