Export Promotion
Government of India has liberalized the schemes for export oriented units and export processing Zones. Agriculture, Horticulture, poultry, fisheries and dairies have been included in the export oriented units. Export processing zones have been allowed to export through trading and star trading houses and can have equipment on lease. These units have been allowed cent percent participation in foreign equities.
Export Promotion Schemes
Foreign Trade Policy 2015-20 and other schemes provide promotional measures to boost India’s exports with the objective to offset infrastructural inefficiencies and associated costs involved to provide exporters a level playing field. Brief of these measures are as under:
A. Exports from India Scheme
i. Merchandise Exports from India Scheme (MEIS)
Under this scheme, exports of notified goods/ products to notified markets as listed in Appendix 3B of Handbook of Procedures, are granted freely transferable duty credit scrips on realized FOB value of exports in free foreign exchange at specified rate (2-5%). Such duty credit scrips can be used for payment of custom duties for import of inputs or goods, payment of excise duty on domestic procurement, payment of service tax and payment of custom duties in case of EO default.
Exports of notified goods of FOB value upto Rs 25, 000 per consignment, through courier or foreign post office using e-commerce shall be entitled for MEIS benefit.
ii. Service Exports from India Scheme (SEIS)
Service providers of notified services as per Appendix 3E are eligible for freely transferable duty credit scrip @ 5% of net foreign exchange earned.
B. Export Houses, trading houses and star trading houses:
To increase the marketable efficiency of exporters, the government introduced the concept of export houses, trading house and star trading houses. Those registered exporters who have shown good performance over the past few years have been given the status of export houses and trading houses.
Since 1994n a new category of golden super star trading house was added by the government which has the highest average annual foreign exchange earnings.
C. Duty Exemption & Remission Schemes
These schemes enable duty free import of inputs for export production with export obligation. This scheme consists of:-
i. Advance Authorization Scheme
Under this scheme, duty free import of inputs are allowed, that are physically incorporated in the export product (after making normal allowance for wastage) with minimum 15% value addition. Advance Authorization (AA) is issued for inputs in relation to resultant products as per SION or on the basis of self declaration, as per procedures of FTP. AA normally have a validity period of 12 months for the purpose of making imports and a period of 18 months for fulfillment of Export Obligation (EO) from the date of issue. AA is issued either to a manufacturer exporter or merchant exporter tied to a supporting manufacturer(s).
ii. Advance Authorization for annual requirement
Exporters having past export performance (in at least preceding two financial years) shall be entitled for Advance Authorization for Annual requirement. This shall only be issued for items having SION.
iii. Duty Free Import Authorization (DFIA) Scheme
DFIA is issued to allow duty free import of inputs, with a minimum value addition requirement of 20%. DFIA shall be exempted only from the payment of basic customs duty. DFIA shall be issued on post export basis for products for which SION has been notified. Separate schemes exist for gems and jewellery sector for which FTP may be referred.
iv.Duty Drawback of Customs/Central Excise Duties/Service Tax
The scheme is administered by Department of Revenue. Under this scheme products made out of duty paid inputs are first exported and thereafter refund of duty is claimed in two ways:
i) All Industry Rates : As per Schedule
ii) Brand Rate : As per application on the basis of data/documents
v.Rebate of Service tax through all industry rates
Refund of service tax paid on specified output services used for export of goods is available at specified all industry rates.
D. Export promotion Capital Goods (EPCG) Scheme
i. Zero duty EPCG scheme
Under this scheme import of capital goods at zero custom duty is allowed for producing quality goods and services to enhance India’s export competitiveness. Import under EPCG shall be subject to export obligation equivalent to six times of duty saved in six years. Scheme also allows indigenous sourcing of capital goods with 25% less export obligation.
i. Post Export EPCG Duty Credit Scrip Scheme
A Post Export EPCG Duty Credit Scrip Scheme shall be available for exporters who intend to import capital goods on full payment of applicable duty in cash.
E. EOU/EHTP/STP & BTP Schemes
Units undertaking to export their entire production of goods and services may be set up under this scheme for import/ procurement domestically without payment of duties. For details of the scheme and benefits available therein FTP may be required.
F. Other Schemes
i. Towns of Export Excellence (TEE)
Selected towns producing goods of Rs. 750 crores or more are notified as TEE on potential for growth in exports and provide financial assistance under MAI Scheme to recognized Associations.
ii. Rebate of duty on “export goods” and “material” used in manufacture of such goods
Rebate of duty paid on excisable goods exported or duty paid on the material used in manufacture of such export goods may be claimed under Rule of 18 of Central Excise Rules, 2002.
iii. Export of goods under Bond i.e. without payment of excise duty
Rule 19 of Central Excise Rules 2002 provides clearance of excisable goods for exports without payment of central excise duty from the approved factory, warehouse and other premises.
iv. Market Access Initiative (MAI) Scheme
Under the Scheme, financial assistance is provided for export promotion activities on focus country, focus product basis to EPCs, Industry & Trade Associations, etc. The activities are like market studies/surveys, setting up showroom/warehouse, participation in international trade fairs, publicity campaigns, brand promotion, reimbursement of registration charges for pharmaceuticals, testing charges for engineering products abroad, etc. Details of the Scheme is available at www.commerce.nic.in
v. Marketing Development Assistance (MDA) Scheme
Financial assistance is available for exporters having an annual export turnover upto Rs. 30 crores for trade fairs, buyer seller meets organized by EPC’s/ Trade promotion organizations. MDA guidelines available at www.commerce.nic.in
vi. Status Holder Scheme
Upon achieving prescribed export performance, status recognition as one star Export House, two Star Export House, three star export house, four star export house and five star export house is accorded to the eligible applicants as per their export performance. Such Status Holders are eligible for various non-fiscal privileges as prescribed in the Foreign Trade Policy.
In addition to the above schemes, facilities like 24X7 customs clearance, single window in customs, self assessment of customs duty, prior filing facility of shipping bills etc are available to facilitate exports.
Import substitution
Import substitution is an aggressive economic policy employed by emerging economies to promote domestic production and self-sufficiency in many sector. It is also seen as a means to reduce dependency on developed nations. IS seeks to provide added protection to domestic industries via tariffs, import quotas, government loans at subsidized rates of interest. This encourages people to start new production units. The boost to domestic manufacturing sector leads to employment opportunities being created and considerably lowers the demand for foreign exchange. The economies adopt this policy to protect its budding industry from international competition that has easily attained economies of scale due to large-scale production.
Import substitution gained widespread prominence and adopted by many countries after World War II to bolster domestic industry and growth. This was also done to reduce dependence on other countries. India too had resorted to import substitution which was later reversed during 1991 currency crisis. Indian industry could not be expanded to its full potential due to severe lack of sophisticated basic infrastructure.
Import substitution although can prove beneficial for certain sectors of economy for some specific phases in economic conditions but if the policy is stretched over the entire industrial sector as a long term policy can eventually lead to less competitive production which will gradually start to decline. Thus the output will also dip and so will the job creation avenues as the incentive to produce more will fade due to absence of global competition. It is thus, different from the theory of comparative advantage in which countries engage in production of specialized goods and then enter global markets to bravely fight international competition.
The phenomenon has again gained limelight due to ‘Make in India’ campaign being promoted by the Government of India. The idea is to make India a favored investment destination and attain a considerable level of output from 16% to 25% by 2022. It has been cautioned that India’s ‘Make in India’ campaign should not be seen as the strategy for import substitution as that will lead to reduction in domestic competition, production inefficient and thereby leading increase in commodity prices. Such increased prices shrink demand for products. Thus, over protectionism can lead to dynamic inefficiency as domestic players replace foreign producers. This often leads to poor allocation of resources as there is no incentive for domestic producers for innovation. There is a fine line between the two phenomena and the government has to carefully walk the talk.