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India may push for services exports under new foreign trade policy |
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NEW DELHI: In order to spur India's services exports, the government is likely expand the scope of the existing tax incentive scheme to make it more usable and effective under the new five-year foreign trade policy to be unveiled on Wednesday. The government aims to give a push to services exports from sectors like entertainment, logistics, architecture, accounting and health care.
Commerce and industry minister Nirmala Sitharaman is set to unveil on April 1, after a one-year delay, the 2015-2020 foreign trade policy, which will be in line with the Make in India and Digital India initiatives. The policy is also expected to give a direction to the trade agreements and list opportunities for traders in different markets.
India's exports are facing headwinds due to falling demand in traditional markets and sharp appreciation of rupee against currencies such as the euro and yen. Outbound shipments contracted for the third straight month in February by 15.02 per cent, and will need to expand by at least 9 per cent in March to touch last year exports of $312 billion.
Better benefits for services
The 'Served from India Scheme' (SFIS), the incentive schemes for services sector, is likely to allow exporters to trade the tax incentives, which are in the form of duty credit scrips that can be used to pay customs duty on input import of capital goods or consumables.
Services exporters usually do not need imports, as a result of which these benefits go waste. Under the new system the exporters could monetise these benefits by trading them. They may even be allowed to offset 14 per cent service tax using the SFIS scrips. This will particularly benefit sectors such as education, health care, consultancy and architecture that do not import much to sell these in market and encash some of the benefits.
"The idea is to make SFIS more effective. As of now, most sectors are not able to utilise the scheme as there are many conditions attached. Therefore, they should be allowed to sell it in the market. It will be a great relief for the exporters," said a government official.
India's services exports stand at around $145 billion, about half of the merchandise exports of over $300 billion.
At present, duty credit scrips equivalent to 10 per cent of free foreign exchange earned are issued and are on actual user basis. This time, there may be differential rates instead of a flat 10 per cent, with potential or focus sectors getting 10 per cent while others will get a much lower rate.
The revenue outgo of SFIS stood atRs 1,000 crore in 2013-14.
In order to limit the outgo, the scheme will be strictly for Indian brands and not foreign companies operating through India. "We are clear that we want to promote Indian brands," said the official.
Package for merchandise exports
For merchandise exports, the government is expected to consolidate the existing promotional schemes like 'focus products' and 'focus market' to just market linked focus product scheme, wherein exporters get incentives to export specific products to targeted markets. The thrust will be on engineering, electronics and labour incentive sectors such as textiles, leather, and gems and jewellery.
"We will be targeting only specific markets, which will improve India's competitiveness where it is required, resulting in higher shipments," said the official.
Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations, said that the government must encourage procurement of capital goods from India, through lesser export obligation under the under Export Promotion Capital Goods (EPCG) scheme. "This will support the Make in India campaign," said Sahai. The current export obligation of six times of duty saved on capital goods imported at zero duty may be lowered in case of goods purchased from domestic sources.
The government is likely to reintroduce interest subvention benefit to certain sectors, to be announced separately, for which an allocation of Rs 1,650 crore has been made. It is also likely to announce a roadmap for digitisation of trade formalities to facilitate paperless exports and imports.
Source : economictimes.indiatimes.com
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