Trade policy extended by six months to September 30

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April 01, 2021 1:15 AM

The validity of the FTP for 2015-20 was already extended by a year through March 31, 2021 in the wake of the Covid-19 pandemic, mainly to maintain policy stability and soften the blow to exporters.

Exports in April last year had plunged by a record 60.28 per cent due to the COVID-19 pandemic induced lockdown.Exports in April last year had plunged by a record 60.28 per cent due to the COVID-19 pandemic induced lockdown.

The government on Wednesday further extended the validity of the current foreign trade policy (FTP), which provides a road map for boosting external commerce in goods and services, by six months through September 30.

The latest move will enable exporters to continue to get incentives under a clutch of extant programmes — including the Remission of Duties and Taxes on Exported Products (which replaced the flagship Merchandise Exports From India Scheme, or MEIS, from January 1), interest equalisation scheme and transport subsidy scheme (for farm exports) — without any hiccups.

The validity of the FTP for 2015-20 was already extended by a year through March 31, 2021 in the wake of the Covid-19 pandemic, mainly to maintain policy stability and soften the blow to exporters.

Exemption from the payment of IGST and compensation cess on the imports made under the advance/EPCG authorisations and by the export-oriented units has also been extended by six months through September 30. Similarly, the validity of “status holder” certificates for exporters will also be extended up to end-September. Such a certificate suggests an entity is recognised by the government as export house/trading house or star trading House. A statement by the commerce ministry suggested that the extension is aimed at providing “continuity in the policy regime” in view of the unprecedented situation arising out of the pandemic.

The government has budgeted Rs 13,000 crore for the RoDTEP scheme for FY22. But the actual outgo will likely far exceed the budgetary allocation, exporters have said. Similarly, under the interest equalisation scheme, the government has budgeted `1,900 crore for FY22, against Rs 1,600 crore (RE) for FY21. This scheme usually allows manufacturing and merchant exporters an interest subsidy of 3% on pre-and-post-shipment rupee credit for exports of 416 products (tariff lines).

The incentives are crucial to keep exports from sliding further in the aftermath of the pandemic, as supply chains have been hit and demand from key markets, too, has faltered. Goods exports in February grew by 0.7% on-year, although the contraction in the first 11 months of this fiscal was still to the tune of 12%.

FE had first reported on March 21 that the announcement of a new FTP could be delayed, thanks to not just Covid-induced disruptions but also a policy dilemma over the continuation of certain key export programmes that have been challenged successfully by the US at the World Trade Organisation (WTO).

Washington had claimed that these schemes were inconsistent with global trade rules and that “thousands of Indian companies are receiving benefits totalling over $7 billion annually from these programmes”.

India had appealed against the ruling of the WTO’s dispute body in response to the US plea in November 2019. But with the WTO’s appellate body remaining dysfunctional for over a year now, ironically due to the US’ blocking of the appointment of judges, the fate of India’s appeal remains uncertain.

The programmes that have been challenged include the MEIS and those relating to special economic zones, export-oriented units, electronics hardware technology parks, capital goods and duty-free imports for re-exports.

While India has already replaced the MEIS, the biggest scheme, with a WTO-compliant tax refund programme from January 1, others still continue. New Delhi believes that it has a strong case and the verdict of the appellate body, when it comes, should go in its favour. Unless a decision is made by the appellate tribunal on the appeal, the findings of the WTO’s dispute panel can’t be binding on India.

The pandemic has also forced the government to undertake a comprehensive review of its FTP architecture for the next five years, given the country now needs fresh policy responses to counter the massive damage caused by the pandemic.

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