The new foreign trade policy, unveiled by the minister of commerce, has been formulated around the Narendra Modi government’s dream projects—Make in India, Digital India and improving the ease of doing business in the country. The government has recognised the need to boost exports in light of falling demand and currency fluctuations. The focus is on providing higher incentives and benefits around creating a brand image for India in the global market, by promoting domestic value-addition and exports of value-added products. The policy also focuses on sectors like defence, pharmaceuticals, hi-tech products, green goods, e-commerce and project exports. Amendments have been made to bring more simplicity and clarity in the various provisions of the policy.

The incentive schemes, under Chapter 3 of the policy, have been consolidated into two primary schemes—the Merchandise Export from India Scheme (MEIS) and the Service Exports from India Scheme (SEIS). The MEIS has been introduced for export of goods and replaces five different schemes—the Focus Product Scheme, Focus Market Scheme, Agri-Infrastructure Incentive Scrip, Vishesh Krishi and Gram Udyog Yojana. Under the scheme, notified goods exported to notified markets would be rewarded on realised FOB value of exports. The rate of MEIS ranges from 2% to 5%. There is now no conditionality attached either to the end-use or to the transferability of the scrip. Higher incentives have been provided to agricultural and village industry products, value-added and packaged products, eco-friendly and green products, labour-intensive products and products with large number of producers and/or exporters, industrial products from potential winning sectors and hi-tech products with high-earning export potential. The duty paid by using the MEIS would be available as CENVAT credit/drawback.

The SEIS scheme replaces the earlier Served From India Scheme (SFIS) and is applicable to “service-providers located in India” as opposed to “Indian service-providers”. This replaces the earlier thinking of the government whereby the benefit of the scheme to a ‘foreign’ brand was being disputed and is under litigation at present. Amendments have also been made to the definition of ‘service-provider’. At present, the benefit is available to “supply of a ‘service’ from India to any other country (Model: cross-border trade)” and “Supply of a ‘service’ from India to service consumer(s) of any other country (Model-2: Consumption abroad)”. The words ‘in India’ appearing at the end of Model 2 have been omitted. Whether there is an impact of this amendment on benefit for services rendered in India to foreign consumers would have to be seen, which largely depends upon how the word ‘consumption abroad’ is interpreted by DGFT. Also, part (iv) of the definition i.e. “Supply of ‘service’ in India relating to exports paid in free foreign exchange or in Indian rupees which are otherwise considered as having been paid for in free foreign exchange by RBI” has been omitted. Separately, the policy provides for benefits to notified services where amounts would be deemed to be received by RBI in convertible foreign exchange. The list is yet to be notified and it would be interesting to see how the new definition plays out vis-a-vis the eligibility under SEIS.

The rate under SEIS ranges from 3% to 5%, as opposed to the current 10%. The benefit would be available if net foreign exchange earned by the service provider exceeds $15,000 (earlier it was R10 lakh) in the preceding financial year. This amendment is in line with the date of periodicity of filing the application. Further, the scrip or the goods imported under SEIS are freely transferable and the end-use conditions have been done away with. The definition of ‘group company’ has consequently been deleted. This would enable the services sector to effectively utilise the benefit. A list of services for which SEIS is available has also been issued. For prior period exports, the earlier provisions would apply. While the commerce minister had announced opening up the SEIS to SEZs, in the text of the policy, SEZs still appear in the restricted list. Also, there is a willingness to exempt services availed for export of goods and services, whether availed in India or outside India. However, consequential amendments in the Revenue Ministry Notification need to come through.

Amendments have been made under Chapter 4 of the policy whereby, the Duty-Free Import Authorisation scheme is been made a post-export scheme. Exemption would be available only from basic customs duty on imports and the countervailing duty/special additional duty would have to be paid and availed as CENVAT credit or, in the case of exports, as duty drawback. The DFIA license is freely transferable, as earlier. The Advance Authorisation Scheme, however, remains a pre-export scheme with end-use conditions.

The Export Promotion Capital Goods (EPCG), under Chapter 5 of the policy, has been amended to provide more clarity with respect to permissible imports. Amendment has been made to the definition of ‘supporting manufacturer’, specifically for EPCG scheme, providing that the ‘supporting manufacturer’ shall be the one in whose premises/factory the capital goods imported/procured is installed. Under the erstwhile policy, there was no specific provision in this regard. For indigenous sourcing of capital goods, the specific EO shall be 75% of the actual EO as opposed to 90% provided earlier. This would give a boost to the domestic manufacturing industry.

Certain amendments have been made under Chapter 6, i.e. to the EOU, STPI and EHTP schemes, the important ones being the initial validity to commence production being reduced to 2 years with provision for further extension, expedited approvals, fast-track debonding, provision for realisation of export proceeds in 9 months as opposed to earlier permissible 12 months, sharing of infrastructural facilities between EOU, STPs, SEZs, etc, and the possibility of one-year extension for fulfilling Net Foreign Exchange.

Under the deemed export scheme, the benefit of drawback would be available under the all-industry rate of drawback schedule only if no CENVAT credit or rebate on inputs/input services have been availed. If the aforesaid CENVAT/rebate benefits have been availed, the basic customs duty paid can be claimed as brand rate drawback.

In addition, amendments have been made to bring about simplicity in filing applications, obtaining IEC, filing supporting documents, applying for redemption, eBRCs, etc, and the entire process is proposed to be digitalised, making it completely paperless. A list of forthcoming government initiatives have also been laid down.

Internal constraints, infrastructure bottlenecks, transaction costs and non-digitisation has been identified by the government as the key areas which need to be addressed to make India a significant participant in the global value-chain by 2020. Significant amendments have been made to this end. It, however, needs to be seen as to how the efforts of the government get implemented at a practical level.

Kanabar is CEO, Dhruva Advisors LLP, and Kanodia is Partner, Dhruva Vox.

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