Through the SEIS, the government offers domestic exporters duty credit scrips at 5-7% of the net foreign exchange earned, depending on the nature of services.
The government will likely rethink its position and grant exporters benefits under the Service Exports From India Scheme (SEIS) for some more time to help them tide over the pandemic impact, an official source told FE. It may also use incentives under the scheme to promote sectors like tourism, battered by coronavirus pandemic, he added.
Through the SEIS, the government offers domestic exporters duty credit scrips at 5-7% of the net foreign exchange earned, depending on the nature of services. Trade analysts say the actual outgo under the SEIS could be around Rs 3,000-4,000 crore a year, although latest official data are not available.
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Before the Covid-19 spread, commerce and industry minister Piyush Goyal had in February warned of abolishing the SEIS, saying the scheme hadn’t contributed to a rise in services exports and that a few players were cornering a major chunk of the incentives. Recently, when the commerce ministry extended the validity of the foreign trade policy (FTP) for 2015-20 by a year through March 2021, benefits under a similar scheme for merchandise exporters — MEIS — were allowed to continue. But it said a call on whether to extend the SEIS validity would be taken soon.
However, given that the US and the EU, India’s top two services export markets, have been hammered by the pandemic, the government is contemplating easing its stance temporarily, possibly with tougher riders, according to the source cited earlier. A senior commerce ministry official, however, said a decision on this matter would be finalised soon.
India’s services exports rose just over 4% year-on-year in FY20 to $214 billion, while merchandise exports contracted by close to 5% to $314 billion, according to a quick estimate by the commerce ministry. While merchandise trade witnessed a deficit of $153 billion in FY20, the surplus in services trade was to the tune of $83 billion, which narrowed the overall trade deficit to $70 billion.
A recent RBI survey suggested the US (and Canada) and Europe made up for 61.2% and 25.6%, respectively, of India’s exports of software and ITeS — the largest services segment — worth $118 billion in FY19.
Highlighting that industry has to get out of the mindset of subsidies, as these are detrimental to the country’s long-term interests, Goyal had in February made a case for discontinuing the SEIS at the earliest possible opportunity: “For example, we now give subsidies on services exports. I have gone through the list in great details, barely 2,200 companies take that subsidy. Some of them are such large names, making 1000s of crores of rupees of profit, that there is no business of giving them a subsidy,” he said. However, given the changed scenario, services exporters need continued support to survive.
Analysts say the government must come out with a revamped SEIS, if it so desires, only when it announces the next FTP. Until then, any decision to continue with the current policy will be good, as it will lend stability and predictability in the policy regime for these exporters.
After a mid-term review of the current FTP, the government had in December 2017 announced additional incentives worth Rs 8,450 crore a year to boost both merchandise and services exports.
The higher incentive under the SEIS for services like business, legal accounting, architecture, engineering, education, hospital, hotels and restaurants would cost the exchequer Rs 1,140 crore a year, the commerce ministry had said.