EXPORT PROMOTION SCHEMES

U.KALPANADEVI II-MBA

MICHAEL INSTITUTE OF MANAGEMENT

Fact of Foreign Trade Policy

On a per capita income basis, India ranked 140th by nominal GDP and 129th by GDP (PPP) in 2011.

India is the nineteenth largest exporter and tenth largest importer in the world.

Economic growth rate stood at around 6.5% for the 2011–12 fiscal year.

How Foreign Trade Affects

The Indian Markets?

Foreign trade affects the domestic trade and markets of a country and India.

India is a part of the globalization and any effect, positive or negative, on the global trade is bound to affect the Indian markets.

It was until 1991 that India followed a socialist-democratic approach which kept it uncommitted to the foreign countries.

India, like other countries participating in globalization, has been exporting and importing products and services to and from other countries.

Steps Taken Objectives Set

The Indian Foreign Trade Policy of 2009-2014 has added 26 new markets to its aim of achieving the export target of US$ 200 billion and export growth target of 15 percent for the first two years.

Other aims of the policy are to double India’s export of goods and services by 2016 and to double India’s share in global merchandise trade by 2020.

Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person.

Second Hand Goods

• Import of second hand capital goods, including refurbished / re-conditioned spares shall be allowed freely.

• However, second hand personal computers / laptops, photocopier machines, air conditioners, diesel generating sets will only be allowed against a licence.

•

Exemption from Service Tax on Services

For all goods and services exported from India, services received

/ rendered abroad, where ever possible, shall be received abroad

exempted from service tax.

Export Import Data Analysis

The improvement in export growth of 35.1 per cent in rupee terms in 2010-11.

High growth of exports in volume terms is a positive sign and is mainly due to the growth in machinery and transport equipment (85.1 per cent).

In 2010-11, the growth of unit value index of exports declined to - 5.1 per cent, mainly due to decline in machinery and transport equipment (-18.2 per cent) and beverages and tobacco (-11.1per cent).

The increase in growth of imports in rupee terms in 2010-11 was due to growth in both volume and unit value indices.

The volume index witnessed a growth of 10.1 per cent in 2010-11, due to the high growth of manufactured goods.

The unit value index of imports registered a growth of 11.2 per cent mainly due to growth in unit values

• Top six states in terms of allocation in 2011-12 are Maharashtra and Gujarat followed by Tamil Nadu, Karnataka, Uttar Pradesh and Andhra Pradesh.

• In the North East region, Assam is the only state with significant share.

Impact of Foreign Trade Policy

2008-2009

• The new Foreign Trade Policy failed to cheer investors.

• Consumer durables shares, however, cheered the new trade policy and rallied.

• Export-oriented Gitanjali Gems gained 4.65 per cent, while Rajesh Exports was up 8.58 per cent.

• Videocon was up 8.51 per cent and Titan Ind 3.21 per cent.

• IT major Wipro was up 2.01 per cent, followed by Tata Power at 1.70 per cent, L&T at 1.56 per cent,

Sterlite are 1.45 per cent, BHEL at 1.34 per cent and Mah&Mah at 1.20 per cent.

• Sensex stock Bharti Airtel, India’s largest mobile phone company, jumped 2.74 per cent on reports.

• While select blue-chips such as Bharti Airtel and Wipro attracted buying, Tata Steel and Tata Motors

came under selling pressure.

• Among other major losers, Tata Motor was down 2.55 per cent, Hindustan Unilever 2.32 per cent, Hero

Honda 1.77 per cent, DLF 1.68 per cent and REL Comm 1.50 per cent.

•Exports of India's are broadly classified into following four categories.

• During 2011-12, India's overall exports grew 21%.

• Engineering goods exports have seen almost steady rise in share from 1999-2000 to the first

half of the 2010- 11 and high growth rates of 84% and 43.6 % in 2010-11 and in the first

half of the 2011-12.

• With the highest growth rate among manufacturers at 58.4 % in the first half of 2011-12,

gems and jewellery, the second major export item retained its share around 16-17 % since

2000-01.

• The share of chemicals and related products and textiles has fallen marginally over the years.

• Sudden rise in the share of gold and silver imports from 9.3% in 2000-01 to 13.3% in the first half

of the 2011-12 and fall in the share of the pearls.

• Precious and semi-precious stones from 9.6% in 2000-01 to 6.0% in the first half of the 2011-12.

• The share of POL imports which fell from 31.3% in 2000-01 to 28.6% in 2010-11 rose again to

31.4% in the first half of the 2011-12 due to high prices of crude oil.

• If we look at the trade deficit of India we found that the Indian trade deficit is widening due to

huge imports of oil and gold

• Import of oil is seen to be relatively inelastic to changes in international prices.

Challenges

• Some are due to the current emerging global situation and some are systemic and long term in nature.

• A lot more needs to be done on diversification of India’s export basket as its export presence is

limited in the top items of world trade.

• India requires 8 export documents to be cleared and China 5 with good practice economies like

France at 2.

• Time to export is 16 days for India, 21 for China, and 5 for Denmark.

• Numbers of import documents that need clearance are 9 in India, 5 in China, and 2 in France.

• Time to import is 20 days in India, 24 in China, and 4 in Singapore.

•The various incentives/exemptions available to exporters in India :

Sales Tax/VAT Exemption

Excise Exemption

Duty Drawback

Income Tax Concessions

Import Concessions

Special Economic Zones

Free Trade & Warehousing Zones

Star Export Houses

EOUs(Export Oriented Units), Electronic Hardware Technology Parks(EHTPs), Software

Technology Parks(STPs),Bio-Technology Parks(BTPs)

Deemed Exports

Sales Tax/VAT Exemption

VAT at zero rate and full credit of input tax is also available to a dealer directly selling to an exporter provided the same goods are actually exported.

- The exporter needs to provide the following documents as evidence of goods exported:

• Copy of export contract or order from a foreign buyer

• Copy of the customs clearance certificate

• Copy of the commercial invoice issued to the foreign buyer

• Copy of Bill of Lading/Air-Way Bill

• Proof of payment from the foreign purchaser or letter of credit

‘ H ’ form

The exporter can make use of 'H Forms' supplied by the CST (Central Sales Tax) authorities that are being continued even now in the VAT regime.

- The application has to be supported by the following

documents:

• Copy of Customs Certified Shipping Bill

• Copy of Customs Certified Invoice

• Copy of Letter of Credit

• Copy of Confirmed Export Order

The supplier, on the other hand, can submit the following documents with his VAT return to justify zero rating of his particular sale to the exporter:

• Purchase order from exporter.

• Form 'H'.

• Copy of Bill of Lading/Air-Way Bill

Excise Exemption

Excise is a tax on production or manufacture of goods. It is a duty levied on the production of goods and the liability of payment of excise duty arises immediately upon manufacture of goods. In India, excise duty is governed by the provisions of the Central Excise Act, 1944.

- Exporters can avail excise clearance in the following ways:

• Exports under Claim of Excise Rebate

• Export under Bond

Procedure for Filing the Rebate Claim and its Sanction

1. Application in the prescribed form 2. Duplicate copy of ARE-I/ARE-II in sealed cover received from Customs Officer 3. Duly attested copy of Bill and Lading4. Duly attested copy of shipping bill (export promotion copy)5. Original copy of duly ARE-I/ARE-II duly endorsed by the Customs Officer certifying the export of

the consignment 6. disclaimer certificate in case where the claimant is other than the exporter.

- Export under Bond

Under Rule 19 of Central Excise Rules, an exporter is permitted to remove excisable goods for export without payment of excise duty by executing a bond (legal undertaking) in favor of the excise authorities for the amount of the excise duty payable.

Duty Drawback

Duty drawback is an incentive given to the exporters of different categories of goods under the “ Customs and Central Excise Duty Drawback Rules, 1995” The duty drawback scheme is administered by the Directorate of Duty Drawback in the Ministry of Finance, Government of India.

-There are two types of drawback rates:

• All Industry Rates

• Brand/Special Brand Rates

Income Tax Concessions

• Under Section 10A of the Income Tax Act, 1961 undertaking operating from a Special Economic Zone (SEZ ) that manufactures articles/things or computer software are eligible for deduction of export profits. For undertaking commencing operation from the notified Special Economic Zones (SEZs) on or after 1st April, 2002, the tax holiday is available for a total period of seven assessment years, comprising of a deduction of 100% of export for five years followed by deduction of 50% of export profits for subsequent two years.

Import Concessions

The Government of India has several schemes in place that allow the exporters to import inputs/ capital goods at concessional rates of import duty. The schemes are discussed below:

• Export Promotion Capital Goods Scheme (EPCG)

• Duty Free Import Authorization Scheme

• Duty Exemption Passbook Scheme (DEPB)

Export Promotion of Capital Goods Scheme (EPCG)

what are capital goods?Capital goods are the things you need ,in order to manufacture your products or give your

services.(including spares for pre production, production and post production)Examples: Textile machines, big agro-harvesting vehicles, expensive lab instruments for medicines,

printing press for magazine/newspaper, sophisticated computer-server for your call center etc.

What is Export Promotion Capital Goods Scheme? (EPCG)• Under EPCG scheme, you can import these instruments (capital goods) at only 5% customs duty (some

times zero duty). But it is subject to an export obligation ranging from 6 to 8 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 to 8 years reckoned from Authorization issue-date.

• This EPCG is part of India’s EXIM policy (Export-import)

Duty Free Import Authorization Scheme

This scheme is the latest improvement announced in the Annual Supplement 2006 to the FTP 2004-09. The new scheme seeks to clubs the Advance Licensing scheme and the Duty Free Replenishment Certificate and were to come into effect from May 1, 2006.

- Advance License can be issued for the following:

• Physical exports

• Intermediate supplies

• Deemed exports

- An Advance License contains:

1. The names and description of items to be imported and exported/supplied.

2. The quantity of each item to be imported or wherever the quantity cannot be indicated, the value of the item shall be indicated

3. The aggregate CIF value of imports.

4. The FOB/FOR value and quantity of exports/supplies.

Duty Entitlement Passbook (DEPB) Scheme

• Under DEPB (Duty Entitlement Passbook) Scheme, exporters are allowed to claim customs duty credit as a specified percentage of FOB value of exports made in freely convertible currency. The objective of DEPB is to neutralize the incidence of Customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit against the export product.

• The scheme launched in 1997 is likely to be replaced by some superior alternative that is being worked out through a dialogue with the export community. Under the DEPB.

• The DEPB is valid for a period of 24 months from the date of issue.

Information Technology

• Strong telecommunication backbone

• A unique work environment that powers the city

• Optic-fiber cable network

• On-site sub-station for failsafe power

• Rail station onsite to provide for easy cost effective transport options

• Pollution-free, clean and green environment

Special Economic Zones

• In order to create an internationally competitive and smooth working environment for

exports in India, the Government of India formulated the Special Economic Zone policy on

1/4/2000. Under the current foreign trade policy, Special Economic Zone (SEZ) is defined as a

specifically delineated duty free enclave that is deemed to be foreign territory for the purposes

of trade operations and duties and tariffs. Goods and services going into the SEZ area from

DTA (Domestic Tariff Area) are to be treated as exports and goods coming from the SEZ area

into DTA are to be treated as imports.

The following facilities/incentives are available to units in SEZs:

No license required for import.

Exemption from customs duty on import of capital goods, raw materials, consumables, spares etc.

Supplies from DTA (Domestic Tariff Area) to SEZ units treated as deemed exports.

Reimbursement of Central Sales Tax paid on domestic purchases.

100% income tax exemption for a block of five years, 50% tax exemptions for two years and up to 50% of

the profits ploughed back for the next three years under Section 10-A of Income Tax Act.

SEZ units may be for manufacturing, trading or service activity.

SEZ unit to be positive net foreign exchange earner within three years.

100% Foreign Direct Investment in manufacturing sector allowed through automatic route, barring a few

sectors.

Facility to realize and repatriate export proceeds within 12 months.

cCont…

Facility to retain 100% foreign exchange receipts in EEFC(exchange earner’s foreign currency) Account.

Re-export imported goods found defective, goods imported from foreign suppliers on loan basis etc.

Domestic Sales on full duty subject to import policy in force.

No fixed wastage norms.

Full freedom for sub-contracting including sub-contracting abroad.

Job work on behalf of domestic exporters for direct export allowed.

No routine examination by Customs of export and import cargo.

No separate documentation required for Customs and Exim Policy.

In-house customs clearance.

Support services like banking, post office clearing agents etc.

Free Trade and Warehousing Zones

The units functioning out of such zones will be extended from:

• Income Tax Exemption as per Section 80-IA of the Income Tax Act

• Exemption from Service Tax

• Free foreign exchange currency transactions

• Other benefits as applicable to units in Special Economic Zones

Star Export Houses

-Under the current foreign trade policy Merchants as well as Manufacturer exporters, service providers, Export Oriented Units (EOUs),and Units located in Special Economic Zones(SEZs), Agri Export Zone(AEZs), Electronic Hardware Technology Parks(EHTPs), Software Technology Parks(STPs),Bio-Technology Parks(BTPs) are eligible for applying for status as Star Export Houses.

• They are allowed license/certificate/permissions and Customs clearances for both imports and exports on self-declaration basis.

• Fixation of Input-Output norms on priority within 60 days.

• They are allowed exemption from compulsory negotiation of documents through banks. The remittance, however, needs to be received through banking channels.

• 100% retention of foreign exchange in EEFC account.

• They are permitted enhancement in normal repatriation period from180 days to 360 days.

• They are entitled for consideration under the Target Plus Scheme.

• They enjoy exemption from furnishing of Bank Guarantee in schemes under the foreign trade policy.

Deemed Exports

Supply of goods against Advance License/Advance License for annual requirement.

Supply of goods to Export Oriented Units.

Supply of capital goods to holders of licenses under the Export Promotion Capital Goods (EPCG) scheme.

Supply of goods to projects financed by multilateral or bilateral agencies.

Supply of capital goods, including in unassembled/disassembled condition as well as plants, machinery, accessories, tools, dyes.

Supply of goods to any project or purpose in respect of which the Ministry of Finance.

Supply of goods to the power projects and refineries not covered in (vi) above.

Supply of marine freight containers by 100% EOU.

Supply to projects funded by UN agencies.

Supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding.

Cont….

Deemed exports are allowed with the following privileges:

• Advance License for intermediate supply/deemed export / DFRC (Duty Free Replenishment Certificate) / DFRC for intermediate supplies

• Deemed Export Drawback

• Exemption from terminal excise duty where supplies are made against International Competitive Bidding. In other cases, refund of terminal excise duty will be given.

THANK YOU FOR UR ATTENTION