Break from the past: NDA seeks to overhaul India's foreign trade with new policy

Modi's Make in India programme seems to be the backbone of the trade policy

FP Editors April 02, 2015 10:18:02 IST
Break from the past: NDA seeks to overhaul India's foreign trade with new policy

The Narendra Modi-led NDA government's first foreign trade policy is being hailed as an attempt to overhaul India's exports by integrating the prime minister's Make in India and Digital India initiatives. The underlying theme of the policy is also improving the ease of doing business in the country, experts have said.

The five-year policy announced yesterday aims to nearly double the country's exports of goods and services to $900 billion by 2020. Towards this end, the government has proposed several incentives for exporters and units in the special economic zones.

As part of the overhaul, the government seeks to introduce Merchandise Exports from India Scheme (MEIS) by clubbing five of the earlier schemes into one and also launch Services Exports from India Scheme (SEIS) to boost services. SEIS is a replacement of the Served From India Scheme currently in place.

The policy has also incentivised exports of agriculture products.

Break from the past NDA seeks to overhaul Indias foreign trade with new policy

Reuters

Export promotion

"FTP lays down a roadmap for India's global trade engagement in the coming years... India (will become) a significant participant in world trade by 2020," Sitharaman said.

"The government aims to increase India's exports of merchandise and services from $465.9 billion in 2013-14 to approximately $900 billion by 2019-20 and to raise India's share in world exports from 2 percent to 3.5 percent," commerce secretary Rajeev Kher said.

The FTP also seeks to establish an Export Promotion Mission to provide an institutional framework to work with state governments to boost India's exports.

"Senior officials have been appointed as designated focal points for exports and imports in several Central government departments," said a release on the FTP.

Unlike the annual reviews of the past, the FTP will be reviewed after two-and-half years to ensure continuity in the trade policy.

Sitharaman said that export obligation would be reduced by 25 percent and incentives available under the MEIS and SEIS would be extend to the units in the SEZs to make them more attractive for investors.

SEZs has lost their sheen after imposition of the minimum alternate tax (MAT) and dividend distribution tax (DDT) in 2012.

The duty credit scrips would be made freely transferable and usable for payment of customs duty, excise duty and service tax, she said, adding "debits against scrips would be eligible for CENVAT credit or drawback."

Further business services, hotel and restaurants would get rewards scrips under SEIS at the rate of 3 percent and other specified services at the rate of 5 percent.

SEIS would be applied to 'Service Providers located in India' instead of 'Indian Service Providers'. Under MEIS, the main sectors to be provided support includes processed, packaged agricultural and food items, agricultural and village industry goods.

"These schemes (MEIS and SEIS) replace multiple schemes earlier in place, each with different conditions for eligibility and usage. Benefits from both these schemes will be extended to units located in SEZs," the minister added

What analysts say

Experts have hailed the trade policy initiatives proposed by the NDA government.

“The foreign trade policy 2015–20 has the desired directional clarity and is an outcome of closer coordination between the Commerce and Finance Ministries," said R Muralidharan, senior director of Deloitte in India.

He said aim of the new policy is to boost exports and create jobs while supporting the 'Make In India' and ‘ease of doing business’ initiatives of the government.

"Overall the FTP focusses on exports of both goods and services by encouraging domestic manufacturing and reduction in the transaction costs," he said in a statement.

According to a report in the Mint newspaper, the clubbing together of schemes under MEIS and SEIS is an indication of the government's intent to phase out subsidies to comply with the World Trade Organisation's rules.

“This is a pointer to the direction that export promotion efforts will have to take in future, i.e, towards more fundamental systemic measures rather than incentives and subsidies alone,” the report said quoting from the policy statement.

Muralidharan has said the initiatives rationalise the multiple reward schemes for exporters with differing conditions and varying benefits into two clear schemes of MEIS andSEIS.

"SEIS offers the much desired relief by providing the benefits to all service providers located in India and clarifying that the duty credit scrip will no longer be subject to actual user condition," he said.

Himanshu Tewari, partner, indirect tax, BMR and Associates Llp, quoted in the Mint report also is of the same view. "The changes are beneficial to the exporting community, with special focus on services exporters," he has said.

"Numerous measures have been announced towards trade facilitation and ease of doing business by way of online filing of documents, simplification of procedures, processes etc," Muralidharan said.

Modi's Make in India programme seems to be the backbone of the trade policy.

"The ‘Make in India’ initiatives have got a boost by way of reduced export obligation for domestic procurement under EPCG (export promotion credit guarantee) scheme and higher level of rewards under MEIS for export items with high domestic content and value addition," Muralidharan has said.

With inputs from PTI

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