Jul 7, 2013

Foreign Trade Policy of India - Chapter 3 - Part 2

I had covered the Part 1 of chapter 3 of FTP of India, here. The first part covered the promotional measures run by the Department of Commerce. The second part here would cover the promotional measures being run by the Directorate General of Foreign Trade (DGFT). 

A small rejoinder is in order at this point. The promotional measures run by DGFT in this chapter are mostly the incentive schemes that directly benefit exporters. Most of these measures incentivise exports through what is called 'duty credit scrip'. The duty credit scrips can be used to pay customs duty for imports, pay central excise duties or to pay service taxes (from the current year). The duty credit scrip is usually a small percentage of the total value of exports. No direct cash is given as incentives under this chapter. Some of these duty credit scrips are of transferable nature, that is, they can be sold to a third party who can use them for the stated purpose of paying duties/taxes. In this way, the exporter can make money, if he finds that he cannot consume the duty credit scrips earned by exporting. 

The various promotional schemes are discussed below:

Served from India Scheme (SFIS): The stated objective of this scheme is to accelerate growth in exports of services from India, so as to create a powerful 'served from India' brand across the world. The eligible services under this scheme are mentioned at this link. The amount of duty credit script provided is equal to 10% of net foreign exchange earned during the financial years. SFIS scrip is non transferable, except within group companies. This scrip can be used to import capital goods including office equipment, furniture, professional equipment, spares, vehicles that are used as professional equipment etc. Some musings on SFIS by me can be found here

Vishesh Krishi aur Gram Udyog Yojana (VKGUY): This translates to special agricultural and village industry scheme. 
Objective of VKGUY is to compensate high transport costs and offset other disadvantages to promote exports of the following products :
(i) Agricultural Produce and their value added products;
(ii) Minor Forest Produce and their value added variants;
(iii) Gram Udyog Products;
(iv) Forest Based Products; and
(v) Other Products, as notified from time to time.
The products currently eligible under this scheme can be viewed at this link. There are around 800 products listed under this scheme. The exports of these items are incentivised at the rate of 5% of the total export value (FOB=Free on board value). 

Focus Market Scheme (FMS): The stated objective of this scheme is to offset high freight cost and other externalities to select international markets, in order improve India's export competitiveness in these markets. This scheme helps to develop new markets where it would be difficult to reach without additional support. Once the markets are developed, the listed country can be taken off the list. This scheme has helped our exporters reach deeper African, Latin American countries, CIS and eastern European countries. Such diversification is important to reduce the dependence on US and EU. This list of countries/markets covered under this scheme can be found at this link. Exporters get a duty credit scrip of 3 to 4% of total value of exports. Certain type of exports such as services export, gems and jewelry exports etc are ineligible for the benefits. 

Focus Product Scheme (FPS): The stated objective of FPS is to promote exports of products which have high export intensity or employment potential. The incentive is provided to offset infrastructural inefficiencies and other related costs in marketing of these products. The list of eligible products and the associated value of credit scrip (from 2 to 7% of value of exports) can be found at this link

A hybrid scheme called Market Linked Focus Product Scheme (MLFPS), which is similar to above schemes of FMS/FPS is also administered by DGFT. The products and associated markets under this scheme can be found under Table 2 of this link.  

Status Holders: Depending upon export performance, exporters are eligible to be classified as Status Holders. Being a status holder confers some additional benefits which will be discussed later in the post. The status category depends on the export performance (FOB value of exports) of the current plus previous three financial years. Double weightage is given for small scale industries and some special categories, so they need to reach only half of the value indicated. The table, taken from FTP,  is shown below:


The privileges to status holders is quoted from FTP below:
(a) Authorization and Customs Clearances for both imports and exports on self-declaration basis;
(b) Fixation of Input-Output norms on priority within 60 days;
(c) Exemption from compulsory negotiation of documents through banks. Remittance / receipts, however, would be received through banking channels;
(d) Exemption from furnishing of Band Gurantee in Schemes under FTP;
(e) SEHs and above shall be permitted to establish Export Warehouses, as per Dept. of Revenue guidelines.
(f) For status holders, a decision on conferring of Accredited Client Program Status shall be communicated by Customs within 30 days from receipt of application with Customs.
(g) As an option, for Premier Trading House (PTH), the average level of exports under EPCG Scheme shall be the arithmetic mean of export performance in last 5 years, instead of 3 years.
(h) Status Holders of specified sectors shall be eligible for Status Holder Incentive Scrip.
(i) Status Holders of Agri. Sector (Chapter 1 to 24 ) shall be eligible for Agri. Infrastructure Incentive Scrip under VKGUY.
Agricultural Infrastructure Incentive Scrip (AIIS) is a scheme for status holders who export products that fall under chapter 1 to 24 of ITC-HS. A 10% scrip is given for import of capital goods involved in storage and transportation of these products. 

Status Holders Incentive Scrip (SHIS): The objective is to promote investment in upgradation of technology. A 1% duty credit scrip, over and above other incentives, is given under this scheme for status holders. The scrip is limited in transferability and can only be transferred to other status holder. This scheme has been discontinued since 2013. 

An exporter can claim only one of the above scrips and the schemes are thus exclusive.