Understanding Export Incentives & Foreign Trade Policy in India

Export incentive schemes, or export promotion schemes, are government-backed programmes that encourage the growth and global expansion of Indian businesses. These programmes offer monetary incentives, tax deductions, and infrastructure development to foster exports. They also solve real-world problems of export-oriented businesses, including complex bureaucracy, high input costs, and long payment cycles.

Governments around the world encourage their businesses to export more goods and services. Exports can improve a country’s GDP, lower unemployment, balance inflation, boost foreign currency reserves and offer a host of other benefits. As the Indian Government wants Indian businesses to increase their export share, it offers a range of export incentive schemes.

There are three main categories of export promotion schemes in India:

Duty Exemption Schemes: These schemes allow exporters to get duty-free imports of raw materials used to produce export goods.

Remission Schemes: These eliminate duties and other taxes on exported goods that are not covered by any other government incentive schemes.

Schemes Offering Other Financial Incentives: These may provide direct funds, low-cost financing, GST exemption, tax rebates, refunds, interest rate equalisation, or other benefits.

Export promotion/incentive schemes are designed to benefit both the country and businesses by solving operational inefficiencies and kickstarting new industrial sectors. Let’s learn about the objectives and benefits of these schemes below:

Objectives and Benefits for Country

Boosting Export Competitiveness: Indian businesses often find it difficult to compete against export-oriented countries with high-quality infrastructure and investments. The export promotion schemes help offset these disadvantages.

Encouraging Market Competition: By offering incentives and lowering input costs, the government encourages new players to join the market, boosting the competitiveness of the Indian market.

Improving the Trade Balance: Excessive imports and low exports can lead to high trade deficits, which cause high inflation, lower currency value and unemployment. Exports growth helps to balance the trade deficit by bringing in foreign currencies.

Creating Jobs and Increasing Wages: By creating new businesses and helping existing companies expand, the export schemes directly lead to job creation across different industries. The resulting demand for workers improves salaries and working conditions for both skilled and unskilled employees.

Promoting Specific Sectors: Using export promotion schemes, the government can support strategic sectors, such as agriculture, dairy, defence, IT, manufacturing, etc. This ensures the safety and stability of the country while promoting economic growth.

Objectives and Benefits for Businesses

Access to Global Markets: Export schemes help bring the products and services of Indian businesses to the global market. For businesses, international expansion brings significant opportunities, as they can find markets with very high demand and affluent customers.

Diversification of Business Income: The export schemes boost exports, which directly lead to geographical diversification of the income of Indian businesses. With both a domestic and global customer base, businesses can easily bear economic downturns as losses in one region are offset by gains from other sources.

Increased Profitability: The export incentives boost profitability by lowering input costs and losses from taxation. As businesses mature and expand their operations, they gain access to a new set of customers and gain multiple revenue streams. The increased sales lead to increased profits.

Mitigating Business Risks: Export promotion schemes mitigate the initial investment risk and costs for businesses looking to expand globally. This encourages the global growth of Indian businesses that wouldn’t otherwise take the high risks.

Increased Cost Savings: Different incentive schemes offer different cost-saving benefits, such as tax refunds, GST exemptions, duty exemption on inputs, etc. These not only give direct cost savings but also lead to per-unit cost reductions as businesses scale up production.

Here are some of the most popular export incentive/promotion schemes in India:

Rebate of Duties and Taxes on Exported Products (RoDTEP)

In 2021, the RoDTEP scheme replaced the older Merchandise Exports from India Scheme (MEIS). It offers refunds of taxes not covered by other export promotion schemes. It covers central, state and local taxes on various input costs, such as electricity, transportation, legal registrations, etc. RoDTEP not only applies to direct costs but also indirect taxes, levies and duties imposed on previous stages.

Export Promotion Capital Goods (EPCG) Scheme

The Export Promotion Capital Goods Scheme (EPCG full form) allows duty-free imports of capital goods used for exports. Under this scheme, exporters that partner with manufacturers can import capital goods with zero duty provided that they reach their export target.

The export obligation is equal to 6 times the value of duties in 6 years, or 25% lower for goods that are indigenously sourced. The scheme is made for exporters aiming to scale globally.

Advance Authorisation (AA) Scheme

The Advance Authorisation Scheme permits businesses to import raw materials and components with zero duties if they are used to manufacture export products. Besides raw materials, oil, fuel and catalyst are also exempted from duties, compensation cess and IGST (integrated Goods and Services Tax). To avail this scheme, manufacturers must ensure at least 15% value addition (25% for spices and 50% for tea).

Service Exports from India Scheme (SEIS)

The SEIS scheme rewards service providers, such as IT firms, consultants, and SaaS companies, for obtaining foreign currency via exports. It offers duty credit scrips that are freely transferable (sellable) and equivalent to 5% of net foreign currency earned. SEIS aims to boost service sector exports and increase our country’s forex reserves. The company must have an active Importer-Exporter Code (IEC) and at least $15,000 in foreign earnings.

Duty Drawback Scheme (DBK)

The Duty Drawback Scheme allows companies to avail rebates on customs and excise duties on goods manufactured in India and shipped overseas. The scheme has three categories under which the rebate is granted. This includes the All India Rate (AIR), which is based on average duties in the country, Brand Rate, a specialised rate based on the company’s application and Drawback on Re-export of Imported Goods.

Production-Linked Incentive Scheme (PLI)

The Production-linked Incentive Scheme is a GOI initiative to boost domestic manufacturing, especially large-scale manufacturing. It provides production-linked incentives, i.e., monetary payments of 4% to 6% of incremental sales of goods produced in India for 4-6 years to eligible companies. The PLI scheme covers 14 key sectors, including mobile phones, technology products, automobiles, medical devices, Active Pharmaceutical Ingredients, and more.

Rebate of State and Central Levies and Taxes (RoSCTL)

The RoSCTL is an export incentive scheme that provides rebates on various taxes on the export of garments and readymade apparel. The scheme refunds central and state taxes and levies, such as VAT, mandi tax, fuel expenses, electricity bill, etc., in the form of sellable scrips and transferable duty credits.

Niryat Rin Vikas Yojana (NIRVIK)

The Export Credit Guarantee Corporation of India (ECGC full form) introduced the NIRVIK scheme in 2020. It offers up to 90% insurance cover on export financing, including both principal and interest, affordable premiums, and simplified claim processing. Furthermore, by providing a payment guarantee, ECGC lowers the interest rate for export financing.

However, this insurance only covers non-payment of export credit and not the goods and shipments. To cover these risks, exporters will need marine insurance in India with sufficient coverage for their goods. The TATA AIG Marine Insurance Policy offers customisable coverage options across 130+ countries with premiums starting as low as ₹591.

India’s Foreign Trade Policy, 2023, is a five-year (2023-2028) framework of objectives and procedures to promote and regulate international trade that came into force from 1st April 2023. The legal framework is based on the Foreign Trade (Development and Regulations) Act, 1992 and other laws, including the Customs Act, 1962 and the FEMA (Foreign Exchange Management) Act, 1999.

The FTP 2023 aims to support Indian exporters by moving away from a pure incentive-based system to a highly developed and supportive ecosystem. To achieve this, the government offers various export incentives and promotes infrastructure development, district-level initiatives, automation and simplified guidelines. Its main philosophy is ‘Atmanibhar Bharat’ and ‘Local Goes Global’.

Here are some of the main objectives of FTP 2023:

• Provide incentives for remissions, export promotions, and e-initiatives

• Move away from physical to digital interfaces

• Reduce fee structures for MSMEs

• Recognise new towns as ‘Towns of Export Excellence’

• Increase courier-based e-commerce exports

• Promote the ‘Make In India’ project

• Increase total Indian exports to $2 trillion by 2030

Here are some of the most important export and import policy changes as per India’s Foreign Trade Policy, 2023:

• All exports and imports are free and unrestricted, other than specific categories of goods labelled ‘restricted’, ‘prohibited’ or ‘exclusive to State Trade Enterprises (STEs)’.

• Authorisations are no longer required to import technical and trade samples of restricted goods except new drugs, defence items, bees and seeds. Exporters can import samples worth up to ₹3 lakh with zero duties.

• All goods imported into India need to carry a Bureau of Indian Standards (BIS) certification, except for a few conditions. However, inputs used for export production are exempt under the Advance Authorisation (AA) scheme.

• Import of items as gifts without paying the appropriate duties is not allowed, except for life-saving medicines and Rakhi (worth less than ₹100). Gifts of up to ₹5 lakh can be exported.

• Exporters will receive an automatic rating called Status House Category based on their export performance for the current and previous three years. Exporters can receive one to five stars and be eligible for various non-financial benefits.

As the Indian Government continues to support the export industry with a dynamic and ambitious foreign trade policy in India, it’s a good time to start exporting. However, to avail the export incentives, your business must meet the eligibility criteria, reach performance targets and submit complete documentation. Also, ensure to check the application details on the official government website.

Businesses stepping into export-imports must learn about the many risks involved, including currency fluctuations, default risks, and international norms. To deal with transport risks and failed deliveries, marine cargo insurance is the perfect solution. You can get marine and indemnity coverage with the all-inclusive TATA AIG Commercial Insurance for swift and reliable claim settlement.