“I want to tell the people of the whole world: Come, make in India. Come and manufacture in India. Go and sell in any country of the world, but manufacture here. We have the skill, talent, discipline and the desire to do something. We want to give the world an opportunity that come make in India,”
— Mr Narendra Modi, Prime Minister of India, Independence Day speech, Red Fort, August 15, 2014.
Introduction:
The Foreign Trade Policy Statement explains the vision, goals and objectives underpinning the Foreign Trade Policy for 2015-2020. It describes the market and product strategy envisaged and the measures required not just for export promotion but also for enhancing the entire trade ecosystem.
Vision, Mission and Objectives:
The vision is to make India a significant participant in world trade by the year 2020 and to enable the country to assume a leadership position in the international trade discourse. Accordingly, the government aims to increase India’s merchandise and services exports from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20 and raise India’s share in world exports from 2 per cent to 3.5 per cent.
The FTP for 2015-2020 seeks to provide a stable and sustainable policy environment for foreign trade in merchandise and services; link rules, procedures and incentives for exports and imports with other initiatives such as “Make in India”, “Digital India”, and “Skills India” to create an “Export Promotion Mission”; promote the diversification of India's export basket by helping various sectors of the Indian economy to gain global competitiveness; create an architecture for India’s global trade engagement to expand its markets and better integrate with major regions, thereby increasing the demand for India’s products and contributing to the “Make in India” initiative; and to provide a mechanism for regular appraisal to rationalise imports and reduce the trade imbalance.
Salient Features of the FTP 2015-2020:
1. Merchandise Export from India Scheme (MEIS): The six different schemes of the earlier FTP (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agriculture Infrastructure Incentive Scrip, Vishesh Krishi and Gram Udyog Yojana and Incremental Export Incentive Scheme) which had varying sector-specific or actual user only conditions attached to their use have been merged into a single scheme, namely the Merchandise Export from India Scheme (MEIS). Notified goods exported to notified markets will be incentivised on realised FOB value of exports. Countries have been grouped into three categories-namely Category A: traditional markets, Category B: emerging & focus markets and Category C: other markets for grant of incentives. The government has expanded the coverage of the MEIS on 29 October 2015 by adding 110 new items. The incentive rate/country coverage of 2228 items has been enhanced.
2. Service Export from India Scheme (SEIS): The Served from India Scheme (SFIS) has been replaced with the Service Export from India Scheme (SEIS). The SEIS applies to 'service providers located in India' instead of 'Indian service providers'. Thus it provides incentives to all service providers of notified services who are providing services from India, regardless of the constitution or profile of the service provider. The rates of incentivisation under the SEIS are based on net foreign exchange earned. The incentive issued as a duty credit scrip will no longer carry an actual user condition. It will no longer be restricted to usage for specified goods but be freely transferable and usable for all types of goods and service tax debits on procurement of services/goods.
3. Incentives (MEIS & SEIS) to be available for SEZs: FTP 2015-20 extends the benefits of the MEIS and SEIS to SEZ (special economic zones), which will give a new impetus to the development and growth of SEZs.
4. Duty credit scrips are freely transferable and usable for payment of customs duty, excise duty and service tax: All scrips issued under MElS and SEIS and the goods imported against these scrips are fully transferable. Scrips issued under these schemes can be used for the following:
a) Payment of customs duty on import of inputs/goods including capital goods, except items listed in Appendix 3A.
b) Payment of excise duty on domestic procurement of inputs or goods, including capital goods, as per notification of DoR (Department of Revenue).
c) Payment of service tax on procurement of services as per DoR notification. Basic customs duty paid in cash or through debit under duty credit scrip can be taken back as a duty drawback as per DoR rules if imported inputs are used for exports.
Other measures:
a) Under the Export Promotion Capital Goods (EPCG) scheme if capital goods are procured from indigenous manufacturers, the specific export obligation has been reduced to 75 per cent. This is designed to help the indigenous capital goods manufacturing industry.
b) Under the MEIS, export items with high domestic content and value addition have generally been provided higher levels of incentives.
c) Hard copies of applications and specified documents required to be submitted earlier for incentive schemes and duty exemption schemes have now been dispensed.
d) Landing documents of export consignments as proof for the notified market can now be digitally uploaded as specified.
e) There will be no need to repeatedly submit copies of permanent records/ documents with each application once the same is uploaded in the exporter/importer profile.
f) Dedicated e-mail addresses have been provided for faster and paperless communication with various Directorate General of Foreign Trade (DGFT) committees. E.g. Norms Committee and Exim Facilitation Committee.
Conclusion:
In the mid-term FTP review released on 5th December 2017, some additional measures have been taken to help India’s trade sector. Besides, on 15th December 2017, a special package for employment generation in the leather and footwear sector was approved by the government, likely to help exports from this sector.
Reading List:
1. Foreign Trade Policy of India. India Brand Equity Foundation. URL: https://www.ibef.org/economy/trade-and-external-sector.
2. Foreign Trade Policy (2015-20) (as of 31 March 2019). Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industries, Govt. of India. URL1: https://dgft.gov.in/sites/default/files/ft17-051217.pdf. URL2: https://dgft.gov.in/foreigns-trade-policy-2015-20-.
Additional Notes:
Make in India: Make in India is a major new national programme of the Government of India designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best in class manufacturing infrastructure in the country. The primary objective of this initiative is to attract investments from across the globe and strengthen India’s manufacturing sector. It is being led by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India. The Make in India programme is crucial for India's economic growth. It aims to utilise the existing Indian talent base, create additional employment opportunities, and empower the secondary and tertiary sectors. The programme also aims at improving India’s rank on the Ease of Doing Business index by eliminating unnecessary laws and regulations, making bureaucratic processes easier, making the government more transparent, responsive and accountable.
“I want to tell the people of the whole world: Come, make in India. Come and manufacture in India. Go and sell in any country of the world, but manufacture here. We have the skill, talent, discipline and the desire to do something. We want to give the world an opportunity that come make in India,” Prime Minister of India, Mr Narendra Modi, said while introducing the programme in his maiden Independence Day speech from the ramparts of the Red Fort in August 15, 2014. The initiative was formally introduced on September 25, 2014, by Mr Modi at Vigyan Bhawan, New Delhi, in the presence of business giants from India.
The focus of the Make in India programme is on 25 sectors. These include automobiles, aviation, chemicals, IT & BPM, pharmaceuticals, construction, defence manufacturing, electrical machinery, food processing, textiles and garments, ports, leather, media and entertainment, wellness, mining, tourism and hospitality, railways, automobile components, renewable energy, biotechnology, space, thermal power, roads and highways and electronics systems.
Digital India: The Digital India programme is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. Digital India aimed at ensuring that the Government's services are made available to citizens electronically by improved online infrastructure and by increasing Internet connectivity or by making the country digitally empowered in technology. The initiative includes plans to connect rural areas with high-speed internet networks. Digital India consists of three core components: developing secure and stable digital infrastructure, delivering government services digitally, and universal digital literacy.
Launched on 1 July 2015 by Indian Prime Minister Narendra Modi, it is both enabler and beneficiary of other key Government of India schemes, such as BharatNet, Make in India, Startup India and Standup India, industrial corridors, Bharatmala, Sagarmala, dedicated freight corridors, UDAN-RCS and E-Kranti.
As of 31 December 2018, India had a population of 130 crore people (1.3 billion), 123 crore (1.23 billion) Aadhaar digital biometric identity cards, 121 crore (1.21 billion) mobile phones, 44.6 crore (446 million) smartphones, 56 crore (560 million) internet users up from 481 million people (35% of the country's total population) in December 2017, and 51 per cent growth in e-commerce.
Skill India: Skill India is a campaign launched by Prime Minister Narendra Modi on 15 July 2015, aiming to train over 40 crore people in India in different skills by 2022. It includes various initiatives of the government like "National Skill Development Mission", "National Policy for Skill Development and Entrepreneurship, 2015", "Pradhan Mantri Kaushal Vikas Yojana (PMKVY)" and the "Skill Loan scheme".
Export Promotion Mission: As announced in the budget of 2014-15, the Export Promotion Mission aims to prepare a comprehensive policy for promoting foreign trade, which will include deeper involvement of States in achieving targets to be fixed under the Foreign Trade Policy.
Focus Product Scheme: EXIM Policy has introduced several measures to improve export turnover from the country. An important strategy on the export promotion front is diversification of export basket and export market. This diversification will help to reduce the risk of depending on few commodities and few markets. For diversifying the export basket or the type of exported commodities, Focus Product Scheme was introduced in 2006.
The main objective of this scheme is to incentivize the export of certain products, which have high employment intensity and other advantages. In addition, FPS aims to promote these products in the international market. The scheme was launched in 2006. Later several amendments were made to the scheme by adding more products eligible for export incentives and giving different rates of duty credit scrip concessions.
Market Linked Focus Product Scheme: To significantly boost market penetration of specific products in specified markets, a variant under the Focus Product Scheme called Market Linked Focus Products Scrip has been introduced. The market-linked focus product scheme aims to incentivise the export of products that have high employment intensity in rural and semi-urban areas to offset infrastructure inefficiencies and other associated costs involved in the marketing of these products.
Focus Market Scheme: FMS is an export promotion scheme of the government. Focus Market Scheme is designed to encourage exports to selected markets given certain disadvantages while exporting to these markets. The scheme compensates for or offsets high freight costs and other disadvantages to select international markets to enhance the country’s export competitiveness in these countries. The scheme was launched on 1st April 2006. It was merged with MEIS as per the 2015 trade policy.
Agriculture Infrastructure Incentive Scrip: All Status Holders (having status recognition for the current year) exporting products covered under ITC HS Chapters 1 to 24 shall be incentivized with duty credit scrip equal to 10% of FOB value of agricultural exports (including VKGUY benefits entitled under Policy Para 3.13.2) provided that the total benefits for all status holders put together does not exceed Rs 100 Cr (i.e. Rs 50 Cr for each half-year) and the specified conditions are satisfied, for exports made during a particular year.
Vishesh Krishi and Gram Udyog Yojana (VKGUY): Vishesh Krishi and Gram Udyog Yojana (VKGUY) compensates the high transport costs (from village to port/airport for export) and offset other disadvantages to promote exports of the following products: Agricultural Produce and their value-added products; Minor Forest Produce and their value-added variants; Gram Udyog Products; Forest Based Products; and other such products notified. In this scheme, the government returns the 5 % of FOB value of exports (in free foreign exchange) as the so-called Duty Credit Scrip. In the case of Flowers, Fruits, Vegetables, this is 2%.
Incremental Export Incentive Scheme: The objective of the Scheme is to incentivize incremental exports. The duty credit scrip will be freely transferable and shall also be eligible for domestic sourcing. An exporter would be entitled to a duty credit scrip @ 2% on the incremental growth (achieved by the exporter) on the FOB value of exports. Incremental growth shall be in respect of each exporter (IEC holder) without any scope for combining the exports for Group Company.
Freight On Board (FOB): FOB means Freight On Board or Free On Board. If terms of delivery of a transaction are on FOB means, the cost of movement of goods on board of Airlines or on board of ship is borne by the seller. The rest of all expenses to arrive at the goods at the buyer's premises must be met by the buyer. FOB is an IncoTerm which means the seller (exporter) will pay for all associated costs involved to get the products loaded on board the vessel for export. After this point, all associated costs, charges, and risks will be passed on to the buyer (importer).
Special Economic Zone (SEZ): A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI). In addition, a company's benefits by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive. However, in some countries, the zones have been criticized for being little more than labour camps, with workers denied fundamental labour rights.
SEZs were introduced to India in 2000, following the already successful SEZ model used in China. Before their introduction, India relied on export processing zones (EPZs) which failed to impact foreign investors. By 2005, all EPZs had been converted to SEZs. As of 2017, there are 221 SEZs in operation, with a further 194 approved for 2018. For developers to establish an SEZ in India, applications can be made to the Indian Board of Approval. Companies, partner firms, and individuals may also apply by completing Form-A on the Department of Commerce's website. There are four types of SEZs in India, which are categorised according to size: Multi-sector (1,000+ hectares); Sector-specific (100+ hectares); Free Trade & Warehousing Zone (FTWZ) (40+ hectares); and Tech, handicraft, non-conventional energy, gems & jewellery (10+ hectares).
A free-trade zone (FTZ) is a class of special economic zone. It is a geographic area where goods may be landed, stored, handled, manufactured or reconfigured and re-exported under specific customs regulations and generally not subject to customs duty. Free trade zones are generally organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
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