CHAPTER 4

EXPORT PROMOTION MEASURES

Foreign Trade Policy

All goods may be exported without any restriction except to the extent such

exports are regulated by ITC (HS) or any other provision of this Policy. The Handbook of Procedures of FTP 09-14 outlines details of Export of Samples, passenger baggage, gifts, spares, third party exports, imported goods, replacement goods, repaired goods, Private Bonded warehouse for exports, etc.

Other export promotional measures in a nutshell are :

* New or second hand CG can be imported without licence on 'Import on

export basis'.

* Reimport of CG, components, etc., repaired abroad.

* Export of gifts, upto Rs. 5 L, in a licensing year without licence.

* Private Bonded warehouses for exports in DTA

* Other various promotional measures such as

ASIDE, MAI, MDA, Star Trading Houses, Served from India Scheme, Visesh
Krishi Upaj Yojana, and Gram Udyog Yojana.

Free Trade and Warehousing Zones

BTP (Bio Technology Parks)

Deemed Exports
Full details can be had from Handbook of Procedures, Vol I & II, FTP 09-14.

EXPORT PROMOTIONAL SCHEMES

Brief points are given. For details, please refer to FT Policy.

* Duty Exemption and Remission Schemes
Advance Authorisation Scheme is a duty exemption scheme by which duty free imports of inputs required for export production are carried out.

• DFRC

Duty free replenishment certificate allows duty free import replenishments of

inputs. DFRC is used by merchant exporter / mfr. exporter. This is issued only for products covered under the SION (Standard Input Output Norms) of DGFT.

* Duty Drawback Scheme

The DEPB scheme has been withdrawn by the Government of India from September 30, 2011. The items under DEPB have now been merged with the Duty Drawback Scheme. The new duty drawback scheme announced by the Finance Ministry on Friday brings down the curtain on the Duty Entitlement Pass Book (DEPB) scheme from September 30.

The new scheme will cover nearly 4,000 items, including 1,100 new ones. The minimum rate of drawback will be 1 per cent and the maximum for some items (such as manmade textiles) could be over 10 per cent.

The items that were earlier under DEPB would suffer a modest reduction in the existing DEPB rates to the extent of 1-3 per cent. The new rates have been computed after reducing the ad-hoc elements, including decrease in Custom duty.


To ensure that exporters working under DEPB do not suffer much, the Government has decided that the drawback rate be capped at 5.5 per cent for many items. However, this cap will not be applicable for 340 items. Those items transferred from DEPB to the duty drawback scheme would get less benefit, but even the ones that were already covered under the duty drawback schedule would suffer a minor reduction.

There will be no value cap on items where the drawback rate is up to 3 per cent. This means the duty will be refunded as a percentage of the total value and there would be no ceiling on the absolute amount.

Engineering goods (including automobiles), chemicals (including pharma) and synthetic yarn are the three sectors that have gained most from the DEPB scheme. These three account for up to 60 per cent of the total benefits under the DEPB.

EXPORT PROMOTION CAPITAL GOODS SCHEME

Condition for fulfilment of Export Obligation

Export proceeds shall be realised in freely convertible currency except for deemed exports under paragrah 5.7.3. However, in case of exports against irrevocable letter of credit or if the bill of exchange is unconditionally availed/ co-accepted/ guaranteed by a bank and the same is confirmed by the exporters bank, realisation of export proceeds need not be insisted for fulfilment of export obligation provided the final receipts are in free foreign exchange (Please see Paragraph 5.7.2 of the Handbook of Procedures (Vol 1)).

However, the transfer of capital goods would be permitted to the group companies or managed hotels under intimation to the Regional Licencing Authority. This is a new facility which will help the companies and hotels to move their capital goods for optimum utilisation of the same. (Please see Paragrah 5.7.6 of the Handbook of Procedures (Vol 1)).

Fulfillment of Export Obligation

The licence holder under the EPCG scheme will fulfil the export obligation over the specified period in the following proportions:


Period from the date of
Issue of licence
Minimum export
obligation to be fulfilled

Block of 1st to 6th year 50%
Block of 7th and 8th year 50%

(Please see Paragrah 5.8 of the Handbook of Procedures (Vol.1))

In respect of licences, on which the value of duty saved is Rs.100 crore or more, the export obligation shall be fulfilled over a period of 12 years in the following proportion:-

Period from the date of Issue of licence Minimum export obligation to be fulfilled

Block of 1st to 10th year 50%
Block of 11th and 12th year 50%

The four block of periods has now been reduced to two only though the total obligation up to 6th year/10th year remains the same. (Please see Paragragh 5.8.1 of the Handbook of Procedures (Vol. 1)).

* Deemed Exports

"Deemed Exports" refers to those transactions in which the goods supplied do not leave the country and the payment for such supplies is received either in Indian rupees or in free foreign exchange.

* Category of Supply

The following categories of supply of goods by the main/sub-contractors shall be regarded as "Deemed Exports" under this Policy, provided the goods are manufactured in India :

(a) Supply of goods against Advance Licence / Advance Licence for annual requirement / DFRC under the Duty Exemption / Remission Scheme;

(b) Supply of goods to Export Oriented Units (EOUs) or Software Techno- -logy Parks (STPs) or Electronic Hardware Technology Parks(EHTPs) or Bio Technology Parks (BTP);

(c) Supply of capital goods to holders of licences under the Export Promo tion Capital Goods (EPCG) scheme;

(d) Supply of goods to projects financed by multilateral or bilateral agencies / funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accor- dance with the procedures of those agencies / funds, where the legal
agreements provide for tender evaluation without including the customs duty;
(e) Supply of capital goods, including in unassembled / disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of commercial production and spares to the extent of 10 percent of the FOR value to fertiliser plants.
(f) Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty.

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

(h) Supply of marine freight containers by 100 percent EOU (Domestic freight containers-manufacturers) provided the said containers are ex ported out of India within 6 months or such further period as permitted by the Customs; and
(i) Supply to projects funded by UN agencies.
(j) Supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding. The benefits of deemed exports shall be available under paragraph (d), (e),(f) and (g) only if the supply is made under the procedure of International
Competitive Bidding (ICB). * Benefits of Deemed Exports


Deemed exports shall be eligible for any / all of the following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to the terms and conditions as given in Handbook (Vol. 1) :-

(a) Advance Licence for intermediate supply / deemed export / DFRC / DFRC for intermediate supplies.
(b) Deemed Export Drawback.
(c) Exemption from terminal-excise duty where supplies are made against International Competitive Bidding. In other cases, refund to terminal excise duty will be given.

For further details, please refer to Policy Book.s * ASIDE - Assistance to States for Infrastructure Development of Exports.

Please log on to

http://commerce.nic.in

* MDA - Market Development Assistance is intended to provide financing assistance for export promotion activities. Each EPC's Website will give such details, including financial assistance for participation in Trade Fairs
abroad.

Revised Marketing development assistance (MDA) guidelines

Exporting companies with an f.o.b value of exports of upto Rs.15 crore (as per earlier guidelines this was Rs.10 crore) in the preceding year will be eligible for MDA assistance for participation in trade delegations/BSMs/fairs/exhibitions abroad to explore new markets for export of their specific product(s) and commodities from India in the initial phase. This will be subject to the condition that the exporter is having complete 12 months membeship with concerned EPC etc, and filing of returns with concerned EPC/organisation regularly. However, this condition would not apply in case of a new EPC for a period of 5 years from the date of its inception.

• Assistance would be permissible on travel expenses by air, in economy excur sion class fair and /or charges of the built up furnished stall. This would, how ever, be subject to an upper ceiling mentioned in the table per tour.

• For priority sectors, having large employment generation potential, viz.

agriculture including food items, handicrafts, handlooms, carpets, leather & minor forest produce including LAC, 2 (two) participations in general areas would be admissible with the assistance of Rs.1,50,000 for each participation. The exporters availing of assistance under this provision would, however, be in addition to these participations, and are eligible for only any two focus areas

participations.

• Member exporters of EPCs etc. would also be eligible for MDA assistance for participation in events organised by ITPO abroad. Their applications/claims would be routed/reimbursed through concerned EPC etc.

S.No. Area/Sector No. of Visits Maximum financial ceiling per event

1. Focus LAC 1 Rs.1,80,000
2. Focus Africa 1 Rs.1,50,000
(including WANA
countries)

3. Focus CIS 1 Rs.1,50,000

4. Focus ASEAN + 2 1 Rs.1,50,000

5. General Areas 1 Rs.80,000 (no. travel grant is permissible for visit to General areas)

Total 5

* EPC can assist in meeting legal expenses for trade related matters.

* Selected towns producing goods of Rs. 1000 Cr. or more will be notified as "Towns of Excellence" - on the basis of potential for growth in exports. Common service providers in these areas shall be entitled for the facility of EPCG. The towns are :

State
Tirupur TN
Ludhiana Punjab
Panipat Haryana
Kannoor Kerala
Karur TN
Madurai TN
Aekk
(Aroor, Ezhupunna, Kodanthuruthi and Kuthiathodu)
Kerala
Jodhpur Rajasthan
Kethdra U.P.

* Served from India Scheme

The objective is to accelerate the growth in export of services so as to create a powerful and unique `Served from India' brand, instantly recognised and respected in the world over. Details can be had from DGFT Offices.

* Vishesh Krishi Upaj Yojana (VKUJ)

The objective is to promote export of fruits, vegetables, flowers, minor forest produce, and their value added products. Exporters of such products shall be entitled for duty credit script equivalent to 5 percent of fob value of exports for each licensing year from 1-4-04. The script and the items imported against it would be freely transferable.

Vishesh Krishi and Gram Udyog Yojana are being expanded to:

To drive up exports of agri commodities and create opportunities for employment generation in rural areas. The Vishesh Krishi and Gram Udyog Yojana (VKGUY) is being expanded to include coconut oil, soyabean oil, potato flakes, meals & flours, cardamon, food preparations like soups,

pasta & bakery products, artistic wooden furniture, herbal extracts of forest products, malt and minor forest produces. With this, exporters of these products are eligible to claim duty credit slip equivalent of 5% of the FOB value of exports. Benefits under VKGUY has also been extended to agri-processing EOUs, which do not avail of direct tax benefits.

Adding to it, a special incentive scheme for the food processing industry has been introduced in the 2007-08 annual supplement to the FTP. Under the scheme, agri-processing units are entitled to get duty credit slips equivalent of 10% of the FOB value of exports, provided the incentive is being used for duty redemption on imports of cold storage, pack houses and reefer vans.

The duty credit may be used for import of inputs or goods including capital goods, as may be notified, provided the same is freely importable under ITC (HS). Additional customs duty / excise duty paid in cash or through debit under VKUJ shall be adjusted as CENVAT Credit or Duty Drawback as per Dept. of Revenue's rules.

* Star Export Houses are categorised as below :

Category Performance Criteria in Rs. Cr.
Star Export House 20
Export House 100
Trading House 500
Star Trading House 2500
Premier Trading House 5000

The following are privileges of Star Trading Houses :

  • Licence / certificate / permissions and Customs clearances for both imports and exports on self-declaration basis.

  • Fixation of Input-Output norms on priority within 60 days;
  • Exemption from compulsory negotiation of documents through banks. The remittance, however, would continue to be received through banking channels;
  • 100 percent of foreign exchange in EEFC account;
  • Enhancement in normal repatriation period from 180 days to 360 days;
  • Entitlement for consideration under the Target Plus Scheme;
  • Exemption from furnishing of Bank Guarantee in Schemes under this Policy.

Services Exports

Services include all the 161 tradeable services covered under GATT where payment for such services is received in free foreign exchange.

For proper guidance, an EPC for services shall be set up.

Electronic Hardware Technology Parks (EHTPs)

Software Technology Parks (STPs)

Biotechnology Parks (BTPs)

  • The Policy for these Parks is given in detail in FT Policy.
  • These can be set up by Private / Public Sector undertakings also.
  • These should be positive net foreign exchange earners.
  • Positive NFE = A - B >0
Where,

A is fob value of exports, B is the cif value of all imported inputs and the cif value of all imported goods, and the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on externalborrowings / high seals sale

during the first five year period or any other charges. "Inputs" means raw

materials, intermediates, components, consumables, parts and packing materials. Full details of Policy can be had from Handbook of Procedures, in 33 sub paras

* Free Trade and Warehousing Zone

The purpose to promote international trade can be achieved by establishing

Free Trade and Warehousing Zone. The scheme envisages all types of state-of-art facilities to support FTWZ as `international trading' hub.

These zones will be set up in areas proximate to seaports, airports or dry ports.

These zones will have SEZ status.

These zones will be awarded the following concessions :

IT benefit as per Section IA of IT Act

Exemption from Service Tax.

Permission to undertake free foreign currency transactions

Other benefits as per formula applicable to SEZ units.

NFE criteria

Units in FTWZs shall be net foreign exchange earners. It shall be calculated cumulatively for every block of five years from the commencement date as per formula applicable to SEZ units.

Policy gives thrust to export of hi-tech products and agri-products by introducing new incentives and expanding existing ones. Policy extends export promotion capital goods scheme to spares and parts. FTP introduces flexibility in meeting export obligations under the EPCG scheme and expands focus product and focus market schemes. The policy also reiterates the budgetary announcement of exempting service tax on services related to exports rendered abroad.

* SION

Standard Input / Output Norms are established for a majority of export items, by which the quanitity of items which can be imprted against export is fixed by Govt. Where, for an export product, the SION is not fixed, it can be done so by applying to Govt., seeking the help of the concerned EPC.

Established SION is published in Book Form (Handbook of Procedures Vol II) This is illustrated giving an example.

If Rayon Tyre Cord is exported, some input materials can be imported through Advance Licence.

S. No. A 1852

Export Item                :                 Rayon Tyre Cord

Export Qty                :                 1 kg

Import Item :

1.                 Wood pulp rayon grade                 1.152 kg

2.                 Caustic soda                                1.029 kg

3.                 Zinc electrolyte                             0.02 kg

The current FTP offers Export Incentives many of which are summarised briefly below:

The specific export incentives for the following products are being reproduced in the respective syllabus:

Agriculture

Gems & Jewellery

Handicrafts

Handloom

Marine

For full details, please refer to current Foreign Trade Policy concerned Export Promotion Council / Commodity Board.

¨ All export contracts and invoices can be denominated in either freely convertible currency or Indian rupees.

¨ Free movement of export goods will be allowed.

¨ No disruption in export manufacture due to seizure of stocks.

¨ Fiscal incentives are provided to promote EDI initiative and adoption.

¨ For all goods and services exported from units in DTA and in units in EOU/EHTP/STP/BTP, remission of service tax will be allowed; units in SEZ can be exempted from Service Tax.

¨ Financial assistance is available to :-

Commodity Boards, industry and trade associations; it is also available to exporters with annual export turnover up to Rs.5 crore. These include participation in trade fairs and buyer/seller meets.

¨ Regional offices of DGFT will receive quality complaints from foreign buyers for redressal.

Exporters are requested to take care of updation of these schemes by referring to various Public Notices issued from time to time by DGFT - website - http://dgft.gov.nic.

Safeguard in export oreinted schemes

The export promotion schemes have various in-built safeguards to prevent their misuse. Some of these are as follows:

¨ Licenses issued under Advance Licensing Scheme are subject to actual user condition and are non-transferable.

¨ Capital goods imported under export promotion captial goods scheme are subject to actual user condition till fulfilment of export obligation.

¨ A nexus is specified for duty free import under duty free replenishment certificate scheme.

¨ Value caps are specified to prevent unintended benefits to importers and exporters in respect of duty entitlement passbook scheme.

Duty free import authorisation (DFIA) scheme

This is in place of the previous scheme, duty free replenishment certificate valid till 31st March 06.

Under the scheme, the inputs required for export production are exempt from basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty. The scheme is similar to advance license scheme with certain differences. One significant difference is that unlike the Advance License scheme where the value addition requirement is only positive value addition, under the new scheme minimum value addition requirement is 20% (except for items in gems & jewellery sector). Another vital difference is that under the new scheme once the export obligation is fulfilled, the license or the inputs imported (other than fuel) against it can be transferred /sold. The exporter shall be required to give declaration with regard to technical characteristics, quality and specifications in the shipping bill. Notification No. 40/2006- customs dated 1.5.2006 has been issued to operationlise the DFIA scheme.

The current FTP, offers export incentives, many of which are summarised briefly below:

The specific export incentives for the following products are being reproduced in the respective syllabus:

Agriculture, Gems & Jewelry, Handicrafts, Handloom, Marine.

For full details, please refer to current FTP concerned Export Promotion Council/Commodity Board.

¨ All export contracts and invoices can be denominated in either freely convertile currency or Indian rupees.

¨ Free movement of export goods will be allowed.

¨ No disruption in export manufacture due to seizure of stocks.

¨ Fiscal incentives are provided to promote EDI initiative adn adoption.

¨ For all goods and services exported from units in DTA, and in units in EOU/EHTP/STP/BTP, remission of service tax will be allowed; units in SEZ can be exempted from Service Tax.

Served from India Scheme (SFIS)

Focus Market Scheme (FMS)

Exports of all products to notified countries shall be entitled for duty credit script of 2.5% of fob value.

Focus Products Scheme (FPS) Duty credit eligibility is 1.25 Percent duty credit scrip available for export of FPS products.

High Tech Product Export Promotion Scheme (HTPEPS)

Duty credit scrip of 1.25 percent available.

For full details refer to FTP Handbook of Procedures 09-14.

As per RBI directive, bankers have extended two percent interest subvention to exporters of employment oreinted sectos - textiles (including handloom), handicrafts, carpets, leather, gems and jewellery, marine products and small and medium enterprises.

A BOOSTER DOSE as on Feb 2011

  • 335 new products under Market Linked Focus Product Scheme(MLFPS) for exports to 15 markets including Egypt, South Africa, Brazil, Australia, China and Japan (Benefits @ 2% of f.o.b. value)

    Items include tractors, inorganic chemicals, bulk containers and fabrics.

  • 71 new products of textile made-ups for exports to EU under MLFPS. (Benefits @ 2 % of FOB value)
  • 147 products get additional 2% benefit under Focus Product Scheme (FPS) for exports to all markets.

    Items include those from engineering, electronics, stationary, textile and handmade carpets sectors

  • 57 new products under FPS for exports to all markets( Benefits @ 2 % of f.o.b.value)

    Items include those from engineering, electronics, chemical, paper, rubber, plastic, leather, textile and human hair.

  • Export of egg powder to all markets under Special FPS (Benefits @ 5% of f.o.b. value)
  • Exports of Six new products including castor oil meal and instant coffee to all markets under Vishesh Krishi and Gram udyoug Yojana Scheme (Benefits @ 5% of f.o.b. value)

Procedural Simplifications

- Facility to file online application to get IEC

- scope of advance authorization for annual requirement enlarged. To be useful for engineering, textiles and chemicals sectors.

Quality improvement

-Pharma exports required to affix barcodes from July 1, 2011 as per global norms to track products

Curtains for DEPB Scheme

It seems curtains for the most popular export incentive scheme, the duty entitlement passbook scheme or DEPB.

The commerce ministry has sought an extension for this scheme from the finance ministry. `The finance ministry is of the view that exports growth gives the room for a shift to a more transparently managed scheme such as duty drawback. The finance ministry wants exporters to shift to duty drawback in place of DEPB.

The centre has announced the extension of the Duty Entitlement Passbook (DEPB) scheme, till September 30, 2011, but said the duty neutralization scheme would not be continued any further than that. The 14-year-old scheme was to end by June 30, 2011.