New foreign trade policy to give more thrust to services exports.

NEW DELHI: The new five-year foreign trade policy will offer greater incentives for services exports while refocusing schemes for merchandise exports to make them more effective, according to top commerce department officials.

The commerce ministry is expected to announce the foreign trade policy 2014-19 after the budget, which is likely in July. Officials said the department of commerce is expected to expand the scope of the 'Serve for India Scheme' (SFIS) in the new policy by making duty credit scrips tradable.

Exporters are given credits for exports that can be used for payment of inputs used in imports. These credits go waste if an exporter does not use imported inputs. But if the credits are made tradable, the exporter can monetise these incentives by selling them in the open market.

"We want to make SFIS scrips tradable. Hotels are using it since they can import liquor and other things, tour operators import cars and vehicles, but what about others? The scheme is not of any use to them. If you are not able to use it, one must be allowed to sell it," a commerce department official said on condition of anonymity. SFIS is the only incentive available to services exporters.

Under the scheme, duty credit scrips equivalent to 10 per cent of free foreign exchange earned are issued. But since it is on an actual user basis, not many services exporters other than hotels and tour operator are able to utilise the benefit.

Making it tradable will help exporters from other sectors like education, healthcare, consultancy and real estate that do not import much. If the commerce department has its way, SFIS scrips may even be made adjustable against 12 per cent service tax. The department may also increase the overall amount of the scheme.

"The scrips should be used to pay service tax and the amount should be increased. The SFIS scrips should be allowed to adjust 12 per cent service tax," said the official quoted earlier. However, much will depend on the amount the finance ministry will be willing to allocate for such incentives.

India's services exports hover around $145 billion, against merchandise exports of over $300 billion. The department of commerce is working on the five-year trade policy looking for ways to give a thrust to services exports, besides going big on branding initiatives.

To give a push to merchandise exports, the department may retain the duty drawback scheme as it is, but the number of markets and products listed under focus product and focus market schemes, which are extended duty credit scrips, will be pruned.

"About 150 markets of the total 190 countries are put in the focus market list. There needs to be fewer markets on which we should actually 'focus'. We are working on a shorter list where incentives will help increase exporters' competitiveness. Same goes for focus products," the official said.

The objective of the focus products scheme is to promote exports of products that have high export intensity and employment potential, so as to offset infrastructural inefficiencies and other associated costs involved in the marketing of these products.

Focus products scheme covers over 1,000 products and the focus markets scheme covers Africa, Latin America and large parts of Oceania. Last year, the government had included 158 hi-tech products from sectors like engineering and electronics in the list, entitled to a 2 per cent duty credit scrip.

Focus market scheme helps offset high freight costs and other externalities to select international markets to enhance India's export competitiveness.

Source : economictimes.indiatimes.com