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New Delhi: The government on Wednesday revamped the export subsidy regime and indicated its intention to phase out subsidies for overseas shipments in compliance with rules of the World Trade Organization (WTO) while setting an ambitious export target of $900 billion to be met by 2019-20.

Unveiling the long-delayed five-yearly foreign trade policy (2015-20), commerce minister Nirmala Sitharaman said the policy will no longer be revisited annually and will only be reviewed after two-and-a-half years to provide a stable policy framework.

The new policy merged all subsidy schemes for merchandise exports and service exports into two separate schemes to simplify the export subsidy regime, and for the first time included units within export-oriented special economic zones (SEZs) under the ambit of such incentives.

In the process, the government hacked through a plethora of schemes that had been targeted at specific products and specific markets, complicating the subsidy regime.

E-commerce also received a boost, with the government adding to the export subsidy regime exports of up to 25,000 through courier services for items such as handlooms, books, leather footwear, toys and customized fashion garments from Delhi, Mumbai and Chennai airports.

On 22 October, Mint had reported about planned incentives for e-commerce, and on 30 March on the consolidation of merchandise export subsidy schemes under the new trade policy.

The $900 billion target for exports is more than twice the $466 billion India earned from overseas shipments in 2013-14. If the target is met, India would grab a share of 3.5% of world exports, up from 2% in 2013-14.

The new policy lays down a fresh approach to the export of goods and services from India, said Himanshu Tewari, partner, indirect tax, BMR and Associates Llp. “The changes are beneficial to the exporting community, with special focus on services exporters. Simplification of procedures will go a long way in integrating India in the global value chain, improving India’s ranking in ease of doing business index and reducing the transaction cost in international trade," he added.

In simplifying the subsidy regime, the trade policy said the current WTO rules as well as those under negotiation envisage the eventual phasing out of export subsidies.

“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 new policy said.

A long-term branding strategy has been put in place to enable India to hold its own in a highly competitive global market and to ensure that “Brand India" becomes synonymous with high quality, the policy document said.

The new service incentive scheme will be applicable to both domestic and foreign-owned service providers who are providing services from India.

“Earlier, only domestically owned hotels such as Taj Group used to get such incentives while foreign-owned hotel chains such as Marriott were not eligible for such benefits. Now all of them will be eligible for such incentives," said Pravir Kumar, director general of foreign trade in the commerce ministry.

The duty credit scrips available to both service and merchandise exporters as part of such schemes will now be freely transferable and can be used for payment of customs duty, excise duty and service tax.

Sitharaman said the new policy provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the Make in India initiative of Prime Minister Narendra Modi to attract foreign manufacturers to the country.

“The focus of the government is to support both the manufacturing and services sectors, with a special emphasis on improving the ease of doing business," she added.

To boost domestic manufacturing under the Make in India scheme, the commerce ministry reduced the export obligation for domestic procurement under the export promotion capital goods programme.

In case capital goods are procured from indigenous manufacturers, export obligation has been reduced from 90% of the normal exports to 75%, to promote the domestic capital goods manufacturing industry.

“It is proposed to give higher level of rewards to products with high domestic content and value addition, as compared to products with high import content and less value addition," the trade policy said.

Kumar said out of 11,500 export product lines that India has, except for 5,500 product lines whose contribution to exports is $1 billion, most other items have been incentivized other than petroleum products and gold.

Commerce secretary Rajeev Kher said that two institutional mechanisms are being put in place for regular communication with stakeholders—the board of trade, which is an advisory body and needs to be reconstituted, and a Council for Trade Development and Promotion, which will have representation from state and union territory governments.

The new policy said India’s future bilateral and regional trade engagements will be with regions and countries that are not only promising markets but also major suppliers of critical inputs and have complementarities with the Indian economy.

“The focus of India’s future trade relationship with its traditional markets in the developed world would be on exporting products with a higher value addition, supplying high quality inputs for the manufacturing sector in these markets and optimizing applied customs duties on inputs for India’s manufacturing sector," it said.

The new policy provides greater predictability because it would not be changed frequently while the focus on building ‘Brand India’, through different sets of incentives for merchandise and services exports, would help Indian exports become competitive in the world market, Engineering Export Promotion Council chairman Anupam Shah said.

He added that the downside is that export benefits for engineering tariff lines have been reduced and no transition period has been allowed.

“At least six months of transition period should have given so that the exporters could adjust to the new framework. Further, the interest subvention scheme has also not materialized. This will impact adversely on the exports of engineering goods to some extent," he added.

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Updated: 02 Apr 2015, 07:49 PM IST
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