Export Performance and the Foreign Trade Policy (FTP)
In the wake of global economic slowdown, India’s merchandise exports faced significant adverse impact. Exports, which had grown by 48.1% during April to September, 2008, suffered a decline during the next 12 months from October, 2008 to September, 2009, due to the shrinkage of the demand worldwide and particularly the contraction in demand in the traditional markets of our exports. In May, 2009, the exports declined by as high as 34.2% in US$ terms. The downward trend was arrested from October, 2009 onwards and our exports ended up with an export figure of US$ 178.75 billion in 2009-10 against US$ 185.30 billion in 2008-09, which indicates an overall decline of 3.5% in dollar terms. The growth in exports since October, 2009 can be attributed to growth in some sectors, but is primarily due to the lower base effect of the exports in the corresponding months of previous financial year. This year, exports have registered a growth of about 27% in US$ terms and it is expected that we exceed the merchandise export target of US$ 200 billion by the end of 2010-11.
Foreign Trade Policy, 2009-14
The Foreign Trade Policy (FTP), 2009-14 was announced on 27th August, 2009 in the backdrop of a fall in India’s exports due to global slowdown. The immediate and the short term objective of the policy was to arrest and reverse the declining trend of exports as well as to provide additional support especially to those sectors which were hit badly by recession in the developed world. The Policy envisaged an annual export growth of 15 per cent with an annual export target of US $ 200 billion by March 2011 and to come back on the high export growth path of around 25 per cent per annum in the remaining three years of this Foreign Trade Policy i.e. up to 2014. The long term policy objective for the Government is to double India’s share in global trade by 2020.
As an immediate relief, the Government provided a policy environment through a mix of measures including fiscal incentives, institutional changes, procedural rationalization, and efforts for enhanced market access across the world and diversification of export markets. Towards achieving these objectives, several steps were announced in the Policy. Some of the important steps included addition of new markets under the Focus Market Scheme, coverage of Africa, Latin America and large part of Oceania under Focus Market Scheme (FMS) and the Market Linked Focus Product Scheme (MLFPS), increase in incentives available under the Focus Market Scheme from 2.5% to 3% and for Focus Product Scheme (FPS) and MLFPS from 1.25% to 2%, introduction of EPCG Scheme at zero duty for specified sectors, and the grant of additional duty credit scrip to status holders.
Hon’ble Minister for Commerce and Industry, Shri Anand Sharma chairing the Second Meeting of the reconstituted Board of Trade, in New Delhi on November 25, 2010. The Minister of State for Commerce and Industry, Shri Jyotiraditya Scindia and the Commerce Secretary, Shri Rahul Khullar are also seen.
Thereafter, as promised in FTP, to continue regular interaction with stakeholders to maintain a close watch on the performance of the policy in the field, a number of interactions were held with members of Board of Trade, Open Houses with exporters and sectoral reviews with EPCs. Constant dialogues were held with all key stakeholders in industry and the exporting community for sectoral assessment of exports at regular intervals. The first review was undertaken in December 2009 and thereafter in February 2010, which demonstrated that some sectors were still facing difficulties. Need-based additional support measures were announced in January, 2010, March, 2010 and on 11th February, 2011 for certain product groups / products.
The recovery has been fragile and economies around the world are still emerging out of the shadows of a grim recessionary period. The IMF projections indicate that the world economy is recovering at varying speeds for different regions. Though, there had been marginal improvement in some of the developed economies like US, UK, Germany, France, Japan etc., the nervousness continued in the markets about the fiscal situation and sovereign indebtedness in several high income countries of Europe. In this setting, it was expected that the developed countries would aim at economic recovery through consolidation and export led growth, which would pose a challenge to Indian exporters in accessing overseas markets for their products. The uncertainty surrounding Indian exporters’ prospects, therefore, continued to linger. Though the exports growth moved towards the positive trajectory from October, 2009 onwards, our exports were not yet out of the woods.
Under this global situation of slow recovery, it was necessitated to take stock of the situation so as to make mid course corrections. Accordingly, sectoral reviews were continued in the current financial year 2010-11, and the first such review for 2010-11 was undertaken in July 2010. It was observed that despite the measures announced in the FTP and additional support extended in January and March, 2010, some sectors continued to face difficulties. It was also realized that there was a shroud of uncertainty continuing over the fragile nature of global economic recovery. Even as global economic rebalancing had been proceeding apace, it was not going to be an easy patch for Indian exporters. In view of resource constraints, it was not simply possible to sustain support to all sectors and there was need to calibrate the support measures appropriately. On the other hand, exports of certain products had been placed under restriction in view of domestic situation i.e. inflationary pressures and unemployment. It was also essential to be conscious of the need for and the inevitability of fiscal consolidation. Keeping all these factors in mind and based on the sectoral review held in July, 2010, need based additional initiatives were undertaken in the Annual Supplement 2010-11 to FTP 2009-14, announced on 23rd August, 2010. While emphasis on stability of policy regime was continued, additional measures were announced to support exports particularly for the labour intensive sectors. In order to promote technological upgradation, zero duty EPCG and Status Holder Incentive Schemes were expanded and validity extended. It will add to expansion and modernization of production base at a time when investment is drying up in export industry.
The Commerce Secretary, Dr. Rahul Khullar briefing the press after releasing the Strategy Paper for the growth of Auto and Auto Component Exports: 2010-2014, in New Delhi on April 28, 2010.
A new facility of Annual EPCG authorization was introduced.
While exports have shown a rising trend during the last few months, certain sectors are still not out of woods. Further, fragile economic recovery and consequent slower demand growth in the developed markets has necessitated greater emphasis on improving the competitiveness of our exports. To access the export performance of various sectors, second sectoral performance review was conducted during November-December, 2010. Accordingly, to enhance competitiveness for products which are labour intensive, technology intensive and value added, further export incentives were undertaken on 11th February, 2011 for more than 600 products for sectors viz. Agriculture, Chemicals, Carpets, Engineering, electronics and plastics. In addition, as a continuing endeavor for procedural simplification and trade facilitation, a few measures were taken.
Salient features of measures undertaken in FTP, 2009-14 and subsequent to it are given in FTP
Trade Policy Measures taken under Foreign Trade Policy 2009-14
A. Market and product diversification and expansion of markets:
I. Measures undertaken in FTP 2009-14, January / March, 2010 and in Annual Supplement, 2010-11:
- 27 new markets added under Focus Market Scheme (FMS) with incentive of duty credit scrip @ 3% of exports.
- Market Linked Focus Product Scheme (MLFPS) with incentive of duty credit scrip @ 2%, has been significantly broadened by inclusion of a large number of products linked to their markets.
- Full Africa, Latin America and large part of Oceania covered under FMS & MLFPS (13 countries added in MLFPS at the time of release of FTP, 2009-14 in August, 2009 and 2 countries added in January, 2010).
- The incentive available under FMS has been raised from 2.5% to 3%; and for Focus Product Scheme (FPS) & MLFPS from 1.25% to 2%; and Special Focus Products Scheme @ 5%.
- Additional benefit of 2% bonus, over and above the existing benefits of 5% / 2% under FPS, allowed for about 135 existing products, which had suffered due to recession in exports. Major sectors include all Handicrafts items, Silk Carpets, Toys and Sports Goods (all of which were earlier eligible for 5% benefits), Leather Products and Leather Footwear, Handloom Products and some of the Engineering Items including Bicycle parts and Grinding Media Balls (all of which were earlier eligible for 2% benefit).
- 256 new products added under FPS (at 8 digit level), which became entitled for benefits @ 2% of FOB value of exports to all markets. Major Sectors / Product Groups covered are Engineering, Electronics, Rubber & Rubber Products, Other Oil Meals, Finished Leather, Packaged Coconut Water and Coconut Shell worked items.
- Instant Tea and CSNL Cardinol included for benefits under Vishesh Krishi and Gram Udyog Yojana (VKGUY) @ 5% of FOB value of exports.
- Nearly 300 products (at 8 digit level) from the readymade garment sector incentivised under MLFPS for further 6 months from October, 2010 to March, 2011 for exports to 27 EU countries.
II. Additional measures announced on 11th February, 2011:
- Under Market Linked Focus Product Scheme (MLFPS):-
1. 335 New Products incentivised under MLFPS at 8 digit level, eligible for benefits @ 2% of FOB value of exports to 15 specified markets like Agricultural Tractors of more than 1800 cc, all inorganic chemicals and inorganic / organic compounds of metals, Flexible Intermediate Bulk Containers and Narrow Woven Fabrics;
2. 71 new products of Chapter 63 (Textile Made ups) at 8 digit level for exports to EU (27 Countries).
1. 147 products incentivised for Bonus Benefits (additional 2%) under FPS at 8 digit level, henceforth eligible for benefits @ 4% or 7% of FOB value of exports to all markets. These includes Engineering items, Electronic items, Stationery items, Handmade carpets and other Floor Coverings under Chapter 57 (7%);
2. 57 New products incentivised under FPS at 8 digit level, eligible for benefits @ 2% of FOB value of exports to all markets. These include products from Sectors viz. Engineering, Chemical, paper products etc.
- Under Special Focus Products Scheme (SFPS), Egg powder included for benefit @ 5% of FOB value of exports.
- Under Vishesh Krishi and Gram Udyog Yojana (VKGUY), 6 New products (Castor Oil Meal – Defatted Variety and Instant Coffee) incentivised under VKGUY at 8 digit level, eligible for benefits @ 5% of FOB value of exports to all markets.
B. Support for Technological up-gradation
Zero duty Export Promotion Capital Goods (EPCG) scheme and Status Holder Incentive Scrip (SHIS) scheme introduced in 2009 for limited sectors and valid for only 2 years initially, extended by one more year till 31.3.2012 and the benefit of the scheme expanded to additional sectors.
3 Additional Towns of Export Excellence (TEEs) announced, bringing the list upto 24.
C. Availability of concessional Export Credit:
Interest subvention of 2 per cent extended upto March 2011 for certain labour-intensive sectors of exports namely handloom, handicrafts, carpet, SMEs and a few products from the sectors namely engineering, textiles, leather and jute.
Interest rates on export credit in foreign currency reduced to LIBOR + 200 basis points in February 2010 from the earlier LIBOR+350 basis points.
D. EOUs / STPIs:
- Section 10A and 10B (Sunset clauses for STPI and EOU schemes respectively), extended for the financial year 2010-2011. Anomaly removed in Section 10AA relating to taxation benefit of ‘unit vis-à-vis assessee’.
Duty Entitlement Passbook (DEPB) scheme extended beyond 31.12.2010 till 30.06.2011.
Time period of export realization for non-status holder exporters increased to 12 months, at par with the Status holders. This facility has been extended upto 31.3.2011.
Advance Authorization for Annual Requirement now exempted from payment of Anti-dumping & Safeguard duty. The Scheme has been made more flexible for import of required inputs.
Value limit on duty free import of commercial samples enhanced from Rs. 1 lakh to Rs. 3 lakh per annum.
DEPB and Freely Transferable Incentive Schemes provisionally allowed without awaiting receipt of Bank Realisation Certificate (BRC).
Export Obligation Period under Advance Authorization Scheme enhanced from 24 months to 36 months without payment of composition fee.
To facilitate tracing and tracking of pharmaceutical products and hence to provide assurance about the quality of Indian pharma products to prospective importers, requirement of affixing bar codes has been made mandatory w.e.f. 01.07.11.
A new facility of Input combination for pharma products manufactured trough Non-Infringing process, allowing actual quantum of duty free inputs required for manufacturing such export product, has been introduced. This will facilitate pharma manufacturers to work towards getting a major share of exports of such products to potential regulated markets such as US or EU.
Facilitation of Trade through various Electronic Data Interchange (EDI) initiatives taken on online message exchange facility.
Additional facility of filing “online” application for obtaining IEC introduced.
Trade Policy Measures
Trade policy measures taken by the Government and the RBI this year focused on mitigating the adverse impact of the global recession on the Indian economy and on checking inflation. In addition to the three stimulus packages announced in 2008-09, measures by the RBI and the Government in the Union Budget 2009-10 and 2010-11 and the Foreign Trade Policy (FTP), 2009-14, announcements made in January, 2010, additional measures were taken in March, 2010, the Annual Supplement to FTP released in August, 2010 and the measures announced on 11th February, 2011, to help the export sector in general and the employment intensive sectors affected by the world recession, in particular.
The Union Minister of Commerce & Industry, Shri Anand Sharma releasing the Foreign Trade Policy, in New Delhi on August 23, 2010. The Minister of State for Commerce & Industry, Shri Jyotiraditya M. Scindia, and the Commerce Secretary, Shri Rahul Khullar are also seen.
Government followed a mix of policy measures including fiscal incentives, institutional changes, procedural rationalization, enhanced market access across the world and diversification of export markets. Improvement in infrastructure related to exports; bringing down transaction costs, and providing full refund of all indirect taxes and levies, became the three pillars, which would support to achieve the objectives of exports.
Duty neutralization / remission schemes are based on the principle and the commitment of the Government that “Goods and Services are to be exported and not the Taxes and Levies”. Purpose is to allow duty free import / procurement of inputs or to allow replenishment either for the inputs used or the duty component on inputs used. There are two categories of these schemes namely, pre-export schemes and the post-export schemes. Brief of these schemes alongwith the amendments carried out during the current year are given below.
Pre Export Schemes
Advance Authorisation Scheme
Scheme allows duty free import of Inputs, along with Fuel, Oil, Catalyst etc., required for manufacturing the export product. Inputs are allowed either as per Standard Input Output Norms (SION) or on adhoc Norms basis under Actual User condition. Norms are fixed by Technical Committee i.e., Norms Committee. This facility is available for physical exports (also including supplies to SEZ units & SEZ Developers) and deemed exports including intermediate supplies. Minimum value addition prescribed is 15%, except for certain items. Exporter has to fulfil the export obligation over a specified time period, both quantity and value wise.
A number of initiatives have been undertaken in the current year. Some of them are listed below:
In its endeavour to keep upto the commitment on the underlying principle that goods and services should be exported and not the taxes and levies, imports under Advance Authorization for Annual Requirement has been also exempted from payment of Anti-dumping & Safeguard duty. Exporters shall now have the flexibility to Club Advance authorisation with Advance Authorisation for Annual Requirement for the purpose of account closure.
Adhoc Norms ratified under Advance Authorisation scheme shall henceforth apply to all cases for the same export product upto one year not only prospectively but also retrospectively.
Chartered Engineer Certificate for Advance Authorisation on self declared basis, has been dispensed with. This will reduce documentation and the transaction cost.
Value addition norms requirement for petroleum products have been reduced to 8% from the earlier 15%, as per actuals.
Duty Free Import Authorisation (DFIA)
DFIA Scheme has been made operational from 01.05.2006. One of the objective of the scheme is to facilitate transfer of the authorisation or the inputs imported as per SION, once export is completed. Provisions of DFIA Scheme are similar to Advance Authorisation scheme. A minimum value addition of 20% is required under the scheme.
Schemes for Gems & Jewellery Sector
Gems & Jewellery exports constitute a major proportion of our total merchandise exports. It is an employment oriented sector. Exports from this sector suffered significantly on account of the global economic slowdown.
Duty free import / procurement of precious metal (Gold / Silver / Platinum) from the nominated agencies is allowed either in advance or as replenishment. In addition, exporters of Gems & Jewellery items are allowed access to duty Free Import of consumables for export production upto a certain specified percentage of FOB value of previous years’ export. List of items allowed for duty free import by Gems & Jewellery sector has been expanded by inclusion of additional items such as Tags and labels, Security censor on card, Staple wire, Poly bag. This will reduce the cost of the product to some extent.
Post Export Schemes
Duty Entitlement Pass Book (DEPB) Scheme
DEPB scheme neutralises the basic customs duty on inputs with the assumption that all inputs, mentioned in the SION for a product are imported. Duty credit Scrips are allowed at a notified rate of FOB value of Exports. These scrips are freely transferable and are valid for imports within 24 months of its issuance. These scrips can be used for payment of customs duty for clearance of import consignment or for payment of customs duty in case of default in fulfillment of export obligation under various schemes. DEPB benefit is available on physical exports with realisation in free foreign exchange or supplies to SEZ units / SEZ developers.
In its constant endeavor to provide a stable Foreign Trade Policy and to remove uncertainty about the future of the most popular exporter friendly scheme i.e., the DEPB scheme, Government extended the validity of the scheme till 30th June, 2011.
Duty Drawback Scheme
Duty Drawback scheme allows refund of customs duty and the excise duty on the inputs used in the manufacture of the export product at a specified percentage of FOB value of exports. Service Tax on the input services has also been factored in the All Industry rate of Duty Drawback. Duty drawback scheme for physical exports is being administered by the Department of Revenue and that of deemed exports, by the DGFT.
Duty drawback rates for a number of products have been reduced on account of reduction in tariff and roll back of adhoc increase affected earlier.
Vishesh Krishi And Gram Udyog Yojana
(Special Agriculture And Village Industry Scheme) [VKGUY]
Keeping in view the objective of Foreign Trade Policy 2009-14 to promote employment generation in rural and semi urban areas, Vishesh Krishi And Gram Udyog Yojana has been expanded to include export of Agricultural Produce and their value added products; Minor Forest Produce and their value added variants; Gram Udyog Products; and Other Products, as notified from time to time.
Duty Credit Scrip benefits are granted with an aim to compensate high transport costs, and to offset other disadvantages. Exporters, of products notified in Appendix 37A of Hand Book of Procedures Vol.1, shall be entitled for Duty Credit Scrip equivalent to 5% of FOB value of exports (in free foreign exchange) for exports made from 27.8.2009 onwards. However, reduced rate of 3% is applicable in such cases where exporter has also availed benefits of Drawback, at rates higher than 1%; or Specific DEPB rate (i.e. other than Miscellaneous Category – Sr.Nos. 22D & 22C of Product Group 90); or Advance Authorization or Duty Free Import Authorization for import of inputs (other than catalysts, consumables and packing materials) for the exported product for which Duty Credit Scrip under VKGUY is being claimed. Additional 2% rate, over and above the 5% or 3%, is admissible for products specified in Table 2, Appendix 37A of Hand Book of Procedures Vol.1 (like Flowers, Grapes, Marine products, etc).
Higher Incentive for Status Holders is available in the form of duty credit scrip equal to 10% of FOB value of agricultural exports, limited to Rs. 100 crore per annum, for products covered under ITC HS Chapters 1 to 24, to permit import of Capital Goods/equipments like Cold Storage Units; Pre-cooling Units and Reefer Van/Containers etc. For import of Cold Chain Equipment, this Incentive Scrip shall be freely transferable amongst Status Holders as well as to Units in the Food Parks.
Focus Market Scheme [FMS]
For offsetting high freight cost and other externalities to select international markets with a view to enhance India’s export competitiveness in these countries, “Focus Market Scheme” has been launched w.e.f. 1.4.2006. Exporters of all products to notified countries (as in Appendix 37C of HBPv1) shall be entitled for Duty Credit Scrip equivalent to 3% of FOB value of exports. So far, the Scheme covers a total of 110 markets.
Focus Product Scheme [FPS]
To incentivise export of such products which have high export intensity / employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products, a Scheme called Focus Products Scheme, has been introduced w.e.f. 1.4.2006.
Exports of notified products (as in Appendix 37D of HBPv1) to all countries (including SEZ units) shall be entitled for Duty Credit Scrip equivalent to 2% of FOB value of exports (in free foreign exchange) for exports made from 27.8.2009 onwards. However, Special Focus Product (s), covered under Table 2 and Table 5 of Appendix 37D, shall be granted Duty Credit Scrip equivalent to 5% of FOB value of exports. Further, Bonus Benefits @2% of FOB value of exports is given over and above the existing benefit for products covered under Table 7 of Appendix 37D for exports made from 1.4.2010 onwards. So far, over 1000 products have been covered at 8 digit level under the Scheme, which include leather products and footwear, handloom products, handmade carpets and other textile floor covering, handicrafts, coir and jute products, technical textiles, engineering products, green technology products, electronic products, etc.
Market Linked Focus Products Scrip [MLFPS]
To give significant boost to market penetration of specific product in specified markets, a variant under Focus Product Scheme called Market Linked Focus Products Scrip has been introduced from 1.4.2008. Export of products / sectors of high export intensity / employment potential (which are not covered under present FPS List) would be incentivised at 2% of FOB value of exports (in free foreign exchange) under FPS when exported to the Linked Markets (countries), which are not covered in the present FMS List, as notified in Appendix 37D of HBPv1, for exports made from 27.8.2009 onwards.
Presently the products covered under the scheme include motor vehicles, auto-components, bicycles and parts, apparels, knitted and crocheted fabrics, pharma products, value added plastic and rubber goods, glass products, dyes and chemicals, household articles, machine tools, earth moving equipments, transmission towers, electrical and power equipments, steel tubes, pipes and galvanized sheets, compressors, iron and steel structures, auto components, Three wheelers and cotton woven fabrics etc. The countries covered under the Scheme include Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Australia, New Zealand, Cambodia, Vietnam, Japan and China. There are over 3500 products so far covered at 8 digit level.
Served From India Scheme [SFIS]
The objective of the Scheme is to accelerate growth in export of services so as to create a powerful and unique ‘Served From India’ brand, instantly recognized and respected the world over. Indian Service Providers, of services listed in Appendix 41 of HBPv1, who have free foreign exchange earning of at least Rs.10 lakhs in preceding financially year / current financial year shall qualify for Duty Credit Scrip. For Individual Indian Service Providers, minimum free foreign exchange earnings would be Rs. 5 lakhs. Service Providers of services listed in Appendix 41 of HBPv1 are entitled to Duty Credit Scrip @10% of the free foreign exchange earned in the current financial year. However, Services and Service Providers listed in Para 3.6.1 of HBPv1 are not eligible. Import are allowed with actual user condition for import of capital goods, office equipments, office furniture, consumables, vehicles which are in the nature of professional equipment to the service provider.
Status Holders Incentive Scrip (SHIS)
With an objective to promote investment in upgradation of technology of some specified sectors such as leather, textiles, Jute, handicrafts, plastics, basic Chemicals, rubber products, glass and glassware, paper and books, paints and allied products, plywood and allied products, electronics products, sports goods and toys, engineering products viz. iron and steel, pipes and tubes, ferro-alloys etc., Status Holders shall be entitled to incentive scrip @ 1% of FOB value of exports made during 2009-10 for six sectors, viz: Leather Sectors (excluding finished leather); Textiles and Jute Sector; Handicrafts; Engineering Sector (excluding Iron & Steel, Non-ferrous Metals in primary or intermediate forms, Automobiles & two wheelers, nuclear reactors & parts and Ships, Boats and Floating Structures); Plastics; and Basic Chemicals (excluding Pharma Products), and expanded for exports in 2010-11 and 2011-12 of additional sectors listed in para 3.10.8 of Hand Book of Procedures vol.1, in the form of duty credit [subject to prescribed exclusions as specified in Policy] for procurement of capital goods for technology upgradation, with actual user condition. This shall be over and above any duty credit scrip claimed/availed under Chapter-3 of FTP. This facility is available upto 31st March, 2012.
Export Promotion Capital Goods (EPCG) Scheme
At present, there are two EPCG Schemes, that is, 3% concessional duty EPCG scheme and Zero duty concessional EPCG Scheme. The salient features of 3% concessional duty scheme are as under:
The Scheme was initially introduced in the Import and Export Policy 1990-93 for import of Capital Goods at a concessional rate of Customs Duty @ 25%. The concessional rate of duty has been reduced gradually to 3% since 1st April, 2008.
The scheme allows import of capital goods for pre-production, production and post production as well as for computer software systems subject to an export obligation equivalent to 8 times of duty saved amount ( 50% of Export Obligation in case of import of spares), to be fulfilled in 8 years reckoned from Authorization issue-date.
The scheme also requires maintenance of average level of exports achieved by the exporter in the preceding three licensing years for the same and similar products within the overall export obligation period including extended period, except for categories mentioned in para 5.7.6 of Hand Book of Procedure.
To encourage exports from the tiny and cottage sector, an export obligation period of 12 years is granted for fulfillment of export obligation.
(v) Issue of EPCG authorization for import of spares, tools, refractory for initial lining & Catalyst for initial charge is also allowed for existing imported plant and machinery (imported earlier under EPCG Scheme or otherwise).
In case of agro units, the export obligation is equivalent to 6 times duty saved on imported capital goods to be completed within a period of 12 years.
In case of SSI Units, the EO is equivalent to 6 times duty saved to be fulfilled over a period of 8 years provided the cif value of such imported capital goods does not exceed Rs.50 lakh and total investment in plant and machinery after such imports does not exceed the SSI limits.
For EPCG authorizations with a duty saved amount of Rs.100 crore or more, the export obligation period is 12 years.
Import of second hand capital goods is allowed without any age restriction.
Import of motor car, sports utility vehicles/all purpose vehicles is allowed only to hotels, travel agents, tour operators or tour transport operators and companies owning / operating golf resorts whose total foreign exchange earning from their respective sectors in the current and preceding three licensing years is Rs.1.5 crore or more.
Vehicles imported under EPCG Scheme are to be so registered that the vehicles are used for tourist purpose only. Parts of cars, such as chassis, cannot be imported under EPCG Scheme.
EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports notified by the Central Board of Excise and Customs under S. No.441 of Customs Exemption Notification No.21/2002 dated 01.03.2002. Export obligation for such EPCG authorizations would be eight times of duty saved. Duty saved would be the difference between the effective duty under aforesaid Customs Notification and concessional duty under the EPCG Scheme.
The scope of the EPCG scheme has been extended to Common Service Providers (CSP) who are designated / certified as a Common service Providers by the DGFT, Department of Commerce or State Infrastructural Corporation in a Town of Export Excellence.
A person holding an EPCG licence may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying CG to EPCG authorization holder shall be eligible for deemed export benefits under Para 8.3 of the Policy.
EPCG licence may be issued for retail sector for import of capital goods required by the retailer to create modern infrastructure in the retail sector.
EPCG Authorizations holders can opt for Technological up-gradation of existing Capital goods imported under EPCG authorizations’ subject to conditions stipulated in para 5.8 (i) to (v) of FTP
EPCG authorization for annual requirement
EPCG Authorization can also be issued for annual requirement to Status Certificate Holders and all other categories of exporters having past export performance (in preceding two years), both under zero duty and 3% duty Schemes. The annual entitlement in terms of duty saved amount shall be upto 50% of FOB value of Physical Export and / or FOR value of Deemed Export, in preceding licensing year
Export Obligation (EO) conditions under EPCG Scheme
EO to be fulfilled by export of goods manufactured/service rendered by applicant.
Upto 50% of EO may be fulfilled by exports of other goods manufactured or services provided by the same firm/ company/ group companies.
Exports shall be physical exports. Certain deemed exports will also be counted towards fulfillment of EO.
The export obligation under the Scheme shall be over and above, the average level of exports achieved by the EPCG authorization holder in the preceding three licensing years for the same and similar products within the overall export obligation period including extended period, other than the categories exempted for this purpose.
No average EO condition for certain sectors like handicraft, handlooms, cottage, tiny sector, agriculture, aqua-culture, animal husbandry, floriculture, horticulture, pisciculture, poultry and sericulture.
Extension in EO period may be granted for a period of 2 years + 2 years subject to certain conditions specified in Para 5.11 of HBP.
For BIFR units, EO period may be extended as per BIFR package or 12 years, if not specified by BIFR. Import of Capital Goods shall be subject to Actual User Condition till EO is completed.
Capital Goods imported (excepting tools) for manufacturing of export products relating to handicraft, handlooms, cottage, tiny sector, agriculture, aqua-culture, animal husbandry, floriculture, horticulture, pisciculture, poultry and sericulture are not transferable for a period of five years from date of import even if EO is fulfilled. However, transfer of capital goods is allowed within group companies within five years from the date of import after fulfillment of EO under intimation to RA and jurisdictional Central Excise Authority.
Zero Duty EPCG Scheme
The scheme has been introduced in the new Foreign Trade Policy 2009-14 for specified sectors, viz for exporters of engineering & electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied products and leather & leather products; subject to exclusions as provided in HBP vol. I. New sectors included under zero duty EPCG Scheme w.e.f 23.08.2010 are paper & paperboard and articles thereof, ceramic products, refractories, glass & glassware, rubber & articles thereof, plywood and allied products, marine products, sports goods and toys added.
Under zero duty EPCG Scheme, export obligation equivalent to 6 times of duty saved amount on capital goods is required to be fulfilled in 6 years from authorization issue date.
The validity period for import of capital goods under zero duty EPCG Scheme is nine months;
Export obligation period of 6 years can be extended for a maximum period of 2 years only.
All other provisions pertaining to 3% duty EPCG scheme, to the extent they are not inconsistent with the above provisions of zero duty EPCG Scheme, are applicable to the zero duty EPCG Scheme also. The zero duty EPCG Scheme will be in operation till 31.3.2012.
Export Oriented Units
Appendix 14-II has been deleted. This Appendix carried constitution of Unit Approval Committee for SEZs. Unit Approval Committee for SEZ has been separately notified by DOC.
In Appendix ANF 8, a format of disclaimer certificate has been incorporated.
Earlier, monitoring in the EOUs was done by Development Commissioners and Commissioners of Customs/Central Excise. With the constitution of Unit Approval Committee for EOUs as well, joint monitoring of EOUs will be done.
Members have the option to depute a nominee on their behalf for attending Unit Approval Committee meetings
Para 8.3.1(i) of the HBP amended to read as “An application in ANF 8 along with prescribed documents, shall be made by Registered office or Head office or a branch office or manufacturing unit of supplier to RA concerned. Where applicant is branch office or manufacturing unit of a supplier, it shall furnish self certified copy of valid RCMC. Recipient may also claim benefits on production of a suitable disclaimer form supplier in the format given in Annexure III of ANF 8 along with a self-declaration in the format given in Annexure II of ANF 8 regarding non-availament of CENVAT credit in addition to prescribed documents.
Appendix 13, which prescribes names of agencies, funding by whom are entitled for deemed export benefits, has been amended by replacing the existing entries, with new entries, as per Department of Economic Affairs Public Notice 1(FT)/DEA/2010 dated 5th May, 2010. Reference to Japan Bank for International Cooperation (JBIC) against S.No. 5 of the existing entry has been replaced by Japan International Cooperation Agency (JICA).
Format of certificate of payment issued by Project Authority (Appendix 22 C) and format of Project Authority Certificate (Appendix 27) have been amended to cover all power projects. Previously these formats covered only mega power project. It is only a procedural amendment.
DEPB Scheme is completely online. The message exchange between DGFT and Customs for Advance Authorization and EPCG licenses has been implemented for all EDI Ports.
Modalities for message exchange for Chapter 3 schemes and variants of Advance Authorization i.e. Annual Advance Authorization & DFIA discussed with Customs. Exchange Formats have been frozen. Software for Chapter 3 Schemes is being finalized at NIC-Customs end. Test messages for Annual Advance Authorization (AAA) and Duty Free Import Authorization (DFIA) have been accepted by Customs. These message exchanges may go live on successfully completion of text messages.
e-BRC project has been finalized with IBA. Data maintenance and security issues have also been discussed with NIC and IBA to take the project forward. Technical aspects of message exchange format are being discussed by NIC and IBA to initiate implementation.
Some live shipping bill data for software testing purpose has been provided to IBA. DGFT would be to entering into an agreement with IBA on aspects of data integrity, security and protection, confidentially, ownership and sharing of data.
Link on DGFT’s website for e-RCMC project has been provided on DGFT’s server and transmission of RCMC data by EPC’s has started in August, 2010.
Two additional Certifying Authorities i.e. M/s. 3 i Infotech Consumer Services Ltd (Brand Name –eMundhra) and M/s. TCS Ltd have been permitted to issue Digital Signature Certificates to the users of DGFT system. M/s. 3 i Infotech Consumer Services Ltd has since signed MOU to initiate this activity.
Indian Bank has also been included for Electronic Fund Transfer (EFT) facility for DGFT users.
An offline data entry module has been provided for Advance Authorization and EPCG applications in August, 2010 to provide flexibility in filing applications by exporters, and reducing online server time which would improve efficiency and reduce cost.
Grievance Redressal Committee (GRC)
A Grievance Committee headed by DGFT in Headquarters and by the Jt. DGFT’s i.e. Regional Authorities at all the regional offices is constituted as per provision of the para 2.49 of FTP 2009-2014 and para 9.9 of the Handbook of Procedures Volume-I. These committees can be approached for redressal of the grievances of Trade & Industry.
Besides these committees, a Grievance Redressal Committee (GRC) headed by the Additional Secretary, Department of Commerce has also been set up to facilitate speedy redressal of grievances of trade and industry particularly to exporters and importers. The Exporters may send their grievance to the Committee in Electronic form, besides all other normal mode. Representations to the Committee can be forwarded by post addressed to the Chairman of the Committee. The application of the aggrieved party must contain the name of the applicant, IEC No., address (with contact Nos, and e-mail ID), the details of reference earlier made to DGFT, if any and the grounds in support of grievance, in brief.
Any decision relating to Foreign Trade Policy i.e. decision of ALC,EPCG,PIC,PRC,EPZ/EOU etc. i.e. all non-statutory matters relating to Foreign Trade Policy which has caused grievances to the exporter/importer will be heard by the Committee. An opportunity for a personal hearing with GRC is also available. During the period April-2010 to December 2010, the meetings of GRC were held in April, 2010 and November 2010. In these meetings 37 cases were considered.
Amendments/ Changes made in item-wise import policy during the year 2010 – 11
Import policy of worn clothing and other worn articles amended to withdraw the exemption allowed to units in Special Economic Zones to sell worn clothings in the Domestic Tariff Area. (Notification No. 43, dated 19.5.2010)
Import of radial tyres (Code : 4011 20 10) and articles of iron and steel (Code : 7326 90 99) made free. (Notification No. 47, dated 26.5.2010 and Notification No. 52 dated 8.7.2010)
Import of Multichannel GSM/CDMA receivers, transmitters and transreceivers capable of receiving or transmitting or both in two or more frequencies simultaneously made restricted.
(Notification No. 53, dated 15.7.2010)
Import of Fish Body Oil made restricted instead of prohibited.
(Notification No. 8, dated 8.10.2010)
The prohibition on import of milk and milk products from China extended for a period of one year with effect from 24.12.2010.
(Notification No. 16, dated 3.1.2011)
Commodity Specific Measures – Exports
The export of following agricultural products (Box. 3.3) which are sensitive in nature due to their direct impact on the public as well as domestic trade and industry are monitored regularly by the Government and suitable modifications are made from time-to-time in order to ensure adequate availability for domestic consumption and to keep the prices under check.
Box: 3. 3
Commodity Specific Measures – Exports
The policy provisions as on 26.11.2010 are as under:-
(i) Edible oil
- Export of edible oils prohibited w.e.f. 17.3.08.
- Vide Notification No. 7 dated 30.09.2010, ban on export of Edible Oil has been extended up to 30.9.2011.
- With effect from 20th November, 2008, export of edible oils was permitted in branded consumer packs of up to 5kgs. subject to a limit of 10,000 tons during the period from 20.11.2008 to 30.9.2010 from Customs EDI Ports which was further extended for export during the period from 1.11.2009 to 31.10.2010 with a fresh limit of 10,000 tons. The same dispensation has been further extended till 31.10.2011 vide Notification No. 9(RE-2010)/2009-14 dated 01.11.2010.
- Export of non-basmati rice was initially prohibited vide Notification No. 38 dated 15.10.2007 and was completely prohibited vide Notification No. 93 dated 1st April, 2008. However, export of PUSA-1121 variety of non-basmati rice was allowed w.e.f. 3.9.08. With effect from 5th November, 2008, PUSA-1121 variety of non-basmati rice was categorized as ‘Basmati rice’ and it became exportable as basmati rice subject to applicable Minimum Export Price (MEP) and other conditions.
- MEP for export of Basmati rice was reduced from US$ 1100 PMT to US $ 900 per ton or Rs. 41,400/- per ton FOB vide Notification No. 5 dated 7.9.2009.
- Grain length of 6.61 mm and length to breadth(L/B) ratio of 3.5 mm has been notified for export of Basmati rice vide Notification No. 57/2009-14 dated 17.08.2010.
- Vide notification No. 15 (RE-2006)/2004-2009 dated 27th June, 2006 export of pulses had been prohibited initially for a period of six months but extended till 31.3.2007 vide Notification No. 17 dated 3.7.2006.
- Export of pulses except Kabuli Chana is prohibited till 31.3.2011 (Vide Notification No.35 dated 30.03.2010)
- Export of wheat and wheat products was prohibited vide Notification No. 33 dated 8th October, 2007.
- Vide Notification No. 116 dated 3.7.2009 export of Wheat Flour (Maida), Semolina (Rava/Sirgi), Wholemeal Atta and resultant tta has been permitted freely subject to a limit of 6,50,000 MTs upto 31st March, 2010; export is allowed only from Customs EDI Ports. This permission has been extended upto 31.3.2011 vide Notification No. 41 dated 18.05.2010.
(v) Cotton Yarn
Vide Notification No. 38 dated 9.4.2010 contracts for exports of cotton yarn was subjected to registration with the Textile Commissioner prior to shipment.
In the current year, since the office of the Textile Commissioner had already registered the export contracts for 720 million Kgs of cotton yarn, further registration of contracts was suspended by them. Thereafter, it was decided to place the export of cotton yarn on “Restricted” list and for the present only 720 million Kgs would be allowed for export during the year 2010-11(i.e. upto 31.03.2010).
Accordingly, DGFT issued Notification No. 14 dated 22.12.2010 restricting the export of Cotton Yarn (Tariff code 5205, 5206 & 5207). Modalities for filing of applications and grant of licence by DGFT are under finalization and the same will be issued once the firm data of export of cotton yarn w.e.f. 01.04.2010 to 30.11.2010 are finalized.
Vide Notification No.44 dated 21.5.2010 export of raw cotton of all types has been restricted. Vide Notification No. 46/2009-14 dated 24.5.2010, it was notified that the transitional arrangements under para 1.5 of Foreign Trade Policy shall not be allowed. However, keeping in view the relations with the neighbouring countries, export of raw cotton only to Bangladesh and Pakistan was allowed initially against the registered but un shipped contracts with the Textile Commissioner prior to imposition of restriction.
Export of raw cotton to other countries was allowed for approximately 5 lakh bales of registered but unshipped quantity against the contracts revalidated by the Textile Commissioner.
Vide Notification No. 58 dated 17.8.2010 export of raw cotton of all types (Tariff Codes 5201, 5202 & 5203) was allowed to be freely exportable w.e.f. 01.10.2010 subject to registration of contracts with Textile Commissioner, which has subsequently been modified to allow free exports w.e.f. 01.11.2010 vide Notification No. 6 dated 30.9.2010.
The office of Textile Commissioner, Mumbai had registered export contract for 55 lakh bales and therefore further registration was stopped. Textiles Commissioner had allowed exports of raw cotton on the basis of EARC till 15.12.2010 ( 45 days period given by the Textile Commissioner to the exporters for effecting exports).
It was decided that the export contracts for cotton will now be registered by the DGFT instead of Textile Commissioner. Accordingly, Notification No. 12 dated 16.12.2010 has been issued through which DGFT will be the registering authority for export of cotton (Tariff code 5201, 5202 & 5203).
Task Force on Transaction Cost
The Department of Commerce had constituted a Task Force on Transaction Cost with a mandate to identify and suggest ways to achieve significant improvement in efficiency of our export processes. The Task Force had a broad based composition with representatives of FICCI, FIEO & CII in addition to Government officials. The Task Force chose to adopt a quantitative approach so that important issues and initiatives could be objectively prioritized.
As per World Bank doing business report, the magnitude of Transaction Cost ranges between 7 – 10% of the total exports. This comprises of infrastructural as well as procedural inefficiencies. Accordingly, the addressable transaction cost is estimated to be around US$ 6–7 billion.
The Task Force had identified 44 issues across 7 line Ministries viz. Agriculture, Commerce, Finance, Civil Aviation, Railways, Shipping and Environment for action. Extensive consultations were taken up with concerned Ministries and after this 21 issues have been implemented and another 2 issues are going to be implemented in next couple of months. Implementation of these 23 issues is likely to mitigate transaction cost by approximately Rs.2100 crores in perpetuity. The report of the Task Force is an example of our Government’s action –oriented approach to problem solving. Each recommendation is specific and in respect of many recommendations necessary Government orders have already been issued on the day of release of the Report.
Policy Announcements on 11th February, 2011
On 11th February 2011 export incentives were announced for more than 600 products (in respect of their exports with effect from 1/1/2011) in labour intensive and/or technology intensive sectors like agriculture, chemicals, carpets, engineering, electronics and plastics to enhance their competitiveness. The salient features of these incentives and the measures to simplify procedures are given below.
Market Linked Focus Product Scheme (MLFPS)
335 New Products under MLFPS at 8 digit level eligible for benefits @ 2% of FOB value of exports to 15 specified markets (Algeria, Egypt, Kenya, Nigeria, Tanzania, South Africa, Ukraine, Mexico, Brazil, Australia, New Zealand, Cambodia, Vietnam, China and Japan). Some examples are Agricultural Tractors of more than 1800 cc; all inorganic chemicals and inorganic/organic compounds of metals of Chapter 28; Flexible Intermediate Bulk Containers; and Narrow Woven Fabrics.
71 new products of Chapter 63 (Textile Made ups at 8 digit level) for exports to EU (27 Countries) under MLFPS for benefits @ 2% of FOB value of exports.
Focus Product Scheme (FPS)
147 products for Bonus Benefits (additional 2%: thus total benefit 4 % or 7 %) under FPS at 8 digit level for export to all markets. Some examples are: Engineering Items like Galvanized Flanges on Iron and Steel, Threaded Nuts (7%); Ferro & Silico Manganese; Electronic Items like co-axial cables and other co-axial electric conductors, Watches; Stationery items like Pencils, Pens; Textile Items like Silk (of Chapter 50), Grey Rayon Tyre Cord Fabric, and Handmade Carpets and other Floor Coverings under Chapter 57 (7%).
57 New products under FPS at 8 digit level eligible for benefits @ 2% of FOB value of exports to all markets.
Special Focus Products: 1 product (Egg powder) under Special Focus Product at 8 digit level eligible for benefits @ 5% of FOB value of exports to all markets.
Vishesh Krishi and Gram Udyog Yojana (VKGUY)
6 New products (Castor Oil Meal – Defatted Variety and Instant Coffee) under VKGUY at 8 digit level, eligible for benefits @ 5% of FOB value of exports to all markets.
The report of the Task Force on transaction costs has been released by Hon’ble Finance Minister on the 8th February 2011. Action on 23 issues by different line ministries is likely to reduce transaction cost to the tune of Rs. 2100 crores in perpetuity.
In order to make filing and issuance of IE Code hassle free with minimum human interface between the applicant and the Regional Offices, an additional facility of filing “on-line” application for obtaining IEC introduced.
The scope of Advance authorization for Annual Requirement enlarged to allow a maximum of five authorizations in a licensing year (instead of only one at present) for the product(s) falling within the same product group.
Technical characteristics / quality etc of certain specified items of imports shall be required to be declared at the time of clearance of import consignment and not at the time of filing application (current stipulation) for annual advance authorization to Regional authority. By this facility, the exporter shall have the flexibility to import the relevant inputs, without the need to approach the Regional authority of DGFT to amend the authorization for clearance of such consignment.
The period to fulfill the export obligation under advance authorization scheme 36 months from the date of issuance of the authorization. However this period is shorter for products being manufactured from certain duty free imported inputs, which are sensitive from domestic angle. In such cases, the period for fulfillment of export obligation is presently counted from the date of clearance of first import consignment even when a number of consignments have been cleared in different dates. Henceforth, with a view to provide greater flexibility, Export obligation period in such shorter EO period cases of advance authorizations shall be counted from the date of clearance of each consignment and not the first consignment. This will allow a more reasonable time period for EO fulfillment to exporters.
Improving Quality and deepening market access
Initiatives for pharma sector are as under:
Exporters of pharmaceutical products will be required to affix barcodes on their export products, with effect from 1st July 2011, as per GS 1 global standards, to facilitate tracing and tracking of their products. This will provide assurance about the quality of Indian pharma products to prospective importers.
We are providing a new facility of Input combination for pharma products manufactured through Non-Infringing process, allowing actual quantum of duty free inputs required for manufacturing such export product. This will facilitate our pharma manufacturers to work towards getting a major share of exports of such products to potential regulated markets such as US or EU.
Trends in Authorisations
Trends of authorizations issued under Export promotion & duty neutralization schemes of Foreign Trade Policy during the period April,2010- December,2010 are indicated below. During the period April 2010–December 2010, a total of 1,67,341 authorisations having CIF/Duty credit value of Rs. 2,42,804 Crore and FOB / Export Obligation of Rs. 6,15,326 Crore have been issued. This represents a growth of 13% in number, 155% in CIF/Duty credit value and 29% in FOB value / EO over the corresponding period of last year. A statement on total number of authorizations issued and their CIF/duty credit & FOB values during April,2010-December,2010 and during the corresponding period of last year is given in Table 3.1
Comparative picture of authorizations issued during the period April-December of the years 2009-10 & 2010-11 is depicted in Chart 3.1.