International Marketing Export Incentives

2011
Accompanied by the grace of:

Prof. Jharna Kalra

Compiled by:
Sufyan Saboowala
Monish Mithani

EXPORT INCENTIVES
AND
EXPORT PROMOTION
MEASURES IN INDIA

Export Incentives and Export Promotion Measures in India 2011

ii
Diploma In Foreign Trade

DECLARATION

We, the below mentioned students of Sydenham college of commerce and
economics of Foreign Trade (Year 1) hereby declare that we have
completed this project report on Export incentives and Export promotion
measures in India in the academic year 2010-2011.
The information submitted is true and original to the best of our
knowledge.

SUFYAN SABOOWALA MONISH MITHANI


iii

CERTIFICATE

I, Prof. Jharna Kalra hereby certify that MONISH MITHANI and SUFYAN
SABOOWALA of Sydenham college of commerce and economics of Foreign
Trade (Year 1) have completed this project report on EXPORT INCENTIVES
AND EXPORT PROMOTION MEASURES IN INDIA in the academic year 2010-
2011.
The information submitted is true and original to the best of my knowledge.

Signature of Project Co-ordinator Signature of the Principal


iv

Executive summary
India is fast emerging as a global leader, what with its vast, natural resources, and
huge base of skilled manpower. Combined with cutting edge technology, Indian
trade market is making its presence felt all across the world. Indian products and
services are seen as of international standards and globally competitive. Trade in
India has made good progress on liberalizing trade regimes and cutting tariffs
since the recent times, when most of the countries started with reforms.
Until quite recently, considerable protection levels reflected in the significant tariff
peaks and dispersed protection levels were seen in India. Serious constraints to
private activity in infrastructure, economic governance, financial impeded export
competitiveness too. Insufficient and unreliable power supply, inhibiting red tape is
a few of the many examples of these constraints. The Indian government provides
various incentives to the exporters in order to overcome such trade issues.
This paper is an attempt to discuss in brief all such export incentives and export
promotion measures provided by the Indian government in order to bring
significant increment in Indian exports.

v

Table of Contents
i. Cover Page
ii. Declaration
iii. Certificate
iv. Executive Summary
v. Index

I. Exports
II. Importance of Exports
III. Export Incentives
IV. Types of Export Incentives and Promotion Measures
A. Incentives through Directorate General of Foreign Trade (DGFT):
1. Export Promotion Capital Goods (EPCG) Scheme
2. Advance License/ Duty Exemption Entitlement Scheme (DEEC)
3. Duty Free Replenishment Certificate (DFRC)
4. Duty Entitlement Passbook Scheme (DEPB)
5. Free Trade Zones (FTZ)
6. Electronic Hardware Technology Park / Software Technology Parks
7. Town Of Export Excellence
8. Export Promotion Schemes for Diamond Gem & Jewellery
9. Deemed Exports
10. Manufacture under Bond
11. Vishesh Krishi Gram and Upaj Yojana (VKGUY)
12. Focus Product Scheme (FPS)
13. Focus Market Scheme (FMS)
B. Incentives through Ministry of Finance (MOF)
1. Duty Drawback Scheme
2. Export Credit Guarantee Corporation
3. ASIDE
4. Marketing Development Assistance
5. Market Access Initiative
6. Income Tax Exemption (under Sections 80HHC, 10A, 10B)
7. Loan Guarantees
8. Trade Finance by Commercial Banks
9. Export insurance
V. Role of Incentives in Export Promotion
VI. Conclusion
VII. Bibliography

1

EXPORTS
The term export is derived from the conceptual meaning as to ship the goods and
services out of the port of a country. The seller of such goods and services is
referred to as an "exporter" who is based in the country of export whereas the
overseas based buyer is referred to as an "importer". In International Trade,
"exports" refers to selling goods and services produced in home country to other
markets.
It includes a product or good or information being mailed, hand-delivered, shipped
by air, shipped by boat, uploaded to an internet site, or downloaded from an
internet site. Exports also include the distribution of information that can be sent
in the form of an email, an email attachment, a fax or can be shared during a
telephone conversation.
Export of commercial quantities of goods normally requires involvement of the
customs authorities in both the country of export and the country of import. The
advent of small trades over the internet, such as through Amazon and e-Bay, have
largely bypassed the involvement of Customs in many countries because of the
low individual values of these trades. Nonetheless, these small exports are still
subject to legal restrictions applied by the country of export. An export's
counterpart is an import.
IMPORTANCE OF EXPORTS
Export growth is important because of its effect on internal trade and economic
stability. Even more, the rate of economic growth and the distribution of income
and wealth in a country are closely related to export growth.
Growth of an economy is directly related to exports. If exports increase at a faster
pace as compared to imports, nothing can stop an economy from being a
developed one. On the other hand, the instability in exports can adversely affects
the process of economic development.
Lower exports mean low foreign exchange and lower foreign exchange in turn
means a small purchasing capacity of a nation in the international market.
Fluctuations in export earnings introduce uncertainties in an economy. These

2

uncertainties influence economic behavior by adversely affecting the level and
efficiency of investment and in turn have a negative effect on growth.
In addition to the above factors, export growth is also important because of its
effect on internal trade and economic stability. Even more, the rate of economic
growth and the distribution of income and wealth in a country are closely related
to export growth.
The concept of trade stability or instability may be based either on a countrys
aggregate trade in comparison with the cost of the world or on a binary country
pair comparison. Such binary pairs may be large depending upon the number of
trading allies.
Export instabilities have been claimed to affect economic growth both positively
and negatively. Fluctuation in exports earnings introduces uncertainties in the
economy.
The other side of the picture is that a greater amount of uncertainty on export
proceeds also brings about risk aversion. People tend to invest more in their own
country and the economy starts improving gradually. But this is not much
observed these days.
Export fluctuations, on an average, act as a hindrance to the stability and growth
of the under developed countries. A high degree of export instability may be
expected to deter investment on a number of grounds.
It is also expected to raise borrowing costs, because export fluctuations tend to
cause balance of payment complexities. This ultimately leads to low confidence of
people in the process of maintenance of the exchange rate.
Export instability stimulates inflation. The simple rule of the thumb is that as
inflation rises in a country, the products and services tend to be costlier, with
minor exceptions, of course.


3

EXPORT INCENTIVES
Export Incentives plays an important role in International Trade. As these
incentives impart cost competitiveness to exports, thereby facilitating greater
market penetration.
In order to promote exports and to obtain foreign exchange, the Government of
India had framed several schemes. These schemes grant incentive and other
benefits. Under schemes, raw material and other components can be imported
without payment of customs duty for use in goods to be exported. Export Credits
Export incentives take the form of cash assistance or cash compensatory support
on exports of certain items, duty drawback, i.e., a refund of central excise and
customs duties levied on raw materials and components used in the manufacture
of exports, import replenishment to replace imported raw materials and
components used in the manufacture of exports, airfreight subsidy on the export
of certain products, special treatment for export-oriented units for import of raw
materials, and credit facilities from approved financial institutions at pre-shipment
and post-shipment stages.
TYPES OF EXPORT INCENTIVES AND PROMOTION
MEASURES
Like many governments elsewhere, GOI too has been giving several export
incentives to Indian exporters to promote exports from the country. Export
incentives are given by GOI through several institutions/agencies and under
various Acts. Export incentives are primarily given by Ministry of Commerce
through its Directorate General of Foreign Trade (DGFT), and through Ministry of
Finance. One possible way of classifying export incentives is in terms of
agency/ministry that provides such incentives. Another way could be in terms of
location of units i.e., incentives to exporting units inside or outside domestic tariff
area. In this paper we adopt the former classification i.e., by agency providing
export incentives.


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A. Incentives through Directorate General of Foreign Trade
(DGFT):
Most of the export incentives are given through DGFT (of the Ministry of
Commerce) under Foreign Trade (Development and Regulation) Act 1992. The
Foreign Trade Act authorises the Central government to issue notifications
regarding export and import policy. These are summarised in Export and Import
policy document issued every five years and updated every year through the
annual amendments. Below is the list of major incentives given by DGFT to
exporters:
1. Export Promotion Capital Goods (EPCG) Scheme: The scheme
allows import of capital goods for pre production, production and post
production (including CKD/SKD thereof as well as computer software
systems) at 5% Customs duty subject to an export obligation equivalent to 8
times of duty saved on capital goods imported under EPCG scheme to be
fulfilled over a period of 8 years reckoned from the date of issuance of
license. Capital goods would be allowed at 0% duty for exports of agricultural
products and their value added variants.
Customs Duty Rate Export Obligation Time
10% 4 times exports (on FOB basis) of CIF
value of machinery.
5 years
Nil in case CIF value is Rs200mn or more. 6 times exports (on FOB basis) of CIF
value of machinery or 5 times exports
on (NFE) basis of CIF value of
machinery.
8 years
Nil in case CIF value is Rs50mn or more
for agriculture, aquaculture, animal
husbandry, floriculture, horticulture,
poultry and sericulture.
6 times exports (on FOB basis) of CIF
value of machinery or 5 times exports
on (NFE) basis of CIF value of
machinery.
8 years

However, in respect of EPCG licenses with a duty saved of Rs.100 crore or
more, the same export obligation shall be required to be fulfilled over a period
of 12 years.


5

In case CVD is paid in cash on imports under EPCG, the incidence of CVD
would not be taken for computation of net duty saved provided the same is
not Cenvated.
The capital goods shall include spares (including refurbished/ reconditioned
spares), tools, jigs, fixtures, dies and moulds. EPCG license may also be
issued for import of components of such capital goods required for assembly
or manufacturer of capital goods by the license holder.
Second hand capital goods without any restriction on age may also be
imported under the EPCG scheme.
Spares (including refurbished/ reconditioned spares), tools, refractories,
catalyst and consumable for the existing and new plant and machinery may
also be imported under the EPCG scheme.
However, import of motor cars, sports utility vehicles/ all purpose vehicles
shall be allowed only to hotels, travel agents, tour operators or tour transport
operators whose total foreign exchange earning in current and preceding
three licensing years is Rs 1.5 crores. However, the parts of motor cars,
sports utility vehicles/ all purpose vehicles such as chassis etc cannot be
imported under the EPCG Scheme.

Registration Under EPCG:
The eligible persons who desire to operate under the EPCG Scheme should
make an application in the form given in Appendix 10 A of the Hand Book
alongwith documents prescribed therein too the Director General of foreign
Trade (DGFT) or to the regional Licensing authorities along with necessary
information/documents to obtain an Import license. Licenses are issued,
under this scheme by the director general of foreign trade or his regional
officers depending upon the value of the license subject to execution of legal
undertaking and bank guarantee by them undertaking among other things to
fulfill their export obligation within the specified period. The import licenses
issued under this scheme shall be deemed to be valid for the goods already
shipped/ arrived provided, the customs duty has not been paid for the goods
have not been cleared from the customs.
Regarding licenses of Rs 100cr or more, the export obligation has to be
fulfilled as per following arrangement


6

Sr. no Period of date of issue of license Proportion of total obligation
1 Block of 1
st
and 5
th
year nil
2 Block of 6
th
and 8
th
year 15%
3 Block of 9
th
and 10
th
year 35%
4 Block of 11
th
and 12
th
year 50%

2. Advance License/ Duty Exemption Entitlement Scheme
(DEEC): Advance License is issued under Duty Exemption Scheme to allow
import of inputs which are physically incorporated in the export product.
Import of raw material is on the basis of quantity based advance license. The
quantity of raw materials is determined on the basis of government provided
Standard Input-Output Norms (SIONs). These norms specify the proportion of
inputs used in the production of final product. Both the quantity and the value
of inputs allowed to be imported are specified in the license as well as the
overall value of the license depending on the value of exports commitment
that an exporter undertakes. If the quantity for a particular description cannot
be imported in the specified value then its value can be adjusted within the
overall value fixed in the license.
Advance License can be issued for physical exports, intermediate supplies or
deemed exports. Advance License is issued for duty free import of inputs and
is subject to actual user condition. Such licenses (other than Advance License
for deemed exports) are exempted from payment of Basic Customs Duty,
Additional Customs Duty, Anti Dumping Duty and Safeguard Duty.

3. Duty Free Replenishment Certificate (DFRC): Both Duty Free
Replenishment Certificate (DFRC) and Duty Entitlement Passbook (DEPB)
Scheme are duty remission schemes. These schemes allow drawback of
import charges on inputs used in the export product.
Under DFRC, merchant-exporter or manufacturer-exporter obtains, after
completion of exports, transferable duty free replenishment certificate for
importing inputs used in the export products as per SIONs. The scheme was
introduced in April 2000 and allows imports of inputs used in the manufacture

7

of goods without payment of Basic Customs Duty, Special Additional Duty
(and also Surcharge, if any). However, such inputs shall be subject to the
payment of Additional Customs Duty equal to the Excise Duty and Anti-
dumping /Safeguard duty at the time of import (since a certificate or the
material imported against it is freely transferable).
DFRC are issued only in respect of export products covered under the SIONs
as notified by DGFT. DFRC is issued for import of inputs, as per SION, having
same quality, technical characteristics and specifications as those used in the
end product and as indicated in the shipping bills. The validity of such licenses
is 18 months. DFRC or the material imported against it is freely transferable.
Minimum value addition of 33% is required under DFRC Scheme.

4. Duty Entitlement Passbook Scheme (DEPB): The Pass Book
Scheme came into force on May 30, 1995 and remained in force till March 31,
1997. After the Pass Book Scheme was terminated, DEPB came into effect
from on April 7, 1997. DEPB is of two types: on pre-export basis and post-
export basis. Since there were very few takers of the DEPB on pre-export
basis the scheme was withdrawn subsequently. Now of these two schemes,
the scheme on post-export basis only is allowed.
DEPB is an optional facility given to exporters who are not interested in going
through the licensing route. The DEPB is meant to neutralise the incidence of
customs duty on the import content of the export product. The neutralisation
is effected by way of grant of duty credit against the export product. This
credit can be utilised for payment of customs duty on imported goods. The
scheme is available to exporting producers or merchant-exporters.
Under the Scheme, an exporter may apply for credit, depending on the value
of exports. The credit is available against such export products and at such
rates as specified by the DGFT for import of raw materials, intermediates,
components, parts, packaging material etc. Currently, DEPB rates are
announced for over 2,000 items. For items on which DEPB rates are more
than 15 percent, value caps are fixed on the basis of average export price.
The DEPB is valid for a period of 12 months from the date of issue, and the
DEPB or the items imported against it are freely transferable. The exports
made under the DEPB Scheme are not entitled for drawback.

8

5. Free Trade Zones (FTZ): Several FTZs have been established at
various places in India like Kandla, Noida, Cochin, etc. No excise duties are
payable on goods manufactured in these zones provided they are made for
export purpose. Goods being brought in these zones from different parts of
the country are brought without the payment of any excise duty. Moreover,
no customs duties are payable on imported raw material and components
used in the manufacture of such goods being exported. If entire production is
not sold outside the country, the unit has the provision of selling 25% of their
production in India. On such sale, the excise duty is payable at 50% of basic
plus additional customs or normal excise duty payable if the goods were
produced elsewhere in India, whichever is higher.

6. Electronic Hardware Technology Park / Software
Technology Parks: This scheme is just like FTZ scheme, but it is
restricted to units in the electronics and computer hardware and software
sector. For the purpose of customs and excise these units are considered as
outside domestic tariff area. These units or units located in these zones
produce primarily for export market. However, they are allowed to sell certain
percentage of their product in domestic tariff region as well after payment of
excise, subject to their fulfillment of their export obligation. The export
obligation is in terms of minimum Net Foreign Exchange Earning as a
percentage of Exports and Export performance.
The difference in schemes for these zones/units/parks is in terms of their
export obligation, sale in domestic tariff area, and other procedural details.
Broadly, benefits accorded to units located in EHTPs/STPs are:
i. suspension of collection of duties due on purchases of capital goods used in
production of exports during the period of bonding
ii. exemption of customs duties due on purchases of raw materials and
consumables
iii. exemption from excise duty on indigenous goods, and
iv. Reimbursement of central sales taxes.

9

7. Town Of Export Excellence: A number of towns in specific geographical
locations have emerged as dynamic industrial locations and handsomely
contributing to Indias exports. These industrial cluster-towns have been
recognized with a view to maximizing their export profiles and help in
upgrading them to move up the higher value markets. A beginning is being
made to consider industrial cluster towns such as Tripura for Hosiery, Panipat
for Woolen Blankets and Ludhiana for Woolen knitwear. Common service
providers in these areas shall be entitled for EPCG Scheme, funds under the
MAI scheme for creating focused technological services, priority assistance for
identified critical infrastructural gaps from the Scheme on Central Assistance
to States. Units in these notified areas would be eligible for availing all the
Exim Policy Scheme.
Sr. No Town of Export Excellence State Product Category
1 Tripura Tamil Nadu Hosiery
2 Ludhiana Punjab Woolen Knitwear
3 Panipat Haryana Woolen Blanket
4 Kanoor Kerala Handlooms
5 Karur Tamil Nadu Handlooms
6 Madurai Tamil Nadu Handlooms
7
AEKK (Aroor, Ezhupunna,
Kodanthuruthu & Kuthiathodu)
Kerala Seafood
8 Jodhpur Rajasthan Handicraft
9 Kekhra
Uttar
Pradesh
Handlooms
10 Dewas
Madhya
Pradesh
Pharmaceuticals
11 Alleppey Kerala Coir Products
12 Kollam (Quilon) Kerala Cashew Products
The government plans to give recognition to selected towns producing goods
of Rs 750cr or more to be called as Town of Export Excellence (TEE). It is not
a uniform criterion for all types of business because agriculture, handicraft,
handloom and fisheries sector need to give a performance of Rs 150cr to be
recognized as TEE.
Facilities enjoyed by TEE:
i. Performance of Rs 5cr will entitle the industrial hub to be recognized as TEE
ii. TEE where as for others the recognition mark is Rs 20cr
iii. EPCG scheme will be extended to all units in TEE

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8. Export Promotion Schemes for Diamond Gem & Jewellery:
Prior to April 1, 2001, import of raw diamonds was on the restricted list,
meaning that import of diamonds meant for exports was allowed at zero
percent duty to diamond exporters. However, this situation changed
thereafter. Raw diamonds are no longer a restricted item. Anybody can
imports raw diamonds after paying 5 per cent customs. However, for export
purposes a license is issued to exporters, which entitles them to import raw
diamonds without paying any customs. Similarly, for the import of gold and
other precious metal. Customs for the import of gold is 250 rupees per
10gms.
Since the scheme only entitles exporters to import of raw diamonds and other
precious metals without paying any duty, there is no question of subsidy and
hence no problem of countervailability of the scheme.
Till the last amendment to EXIM Policy, incentives in the form of Special
Import License (SIL) used to be given to exporters for import of goods that
are otherwise restricted, by paying normal customs duties. SIL benefit was
provided to recognized export and trading houses on the basis of their export
performance as well as to direct exporters who exported goods worth Rs. 5cr
and above or who exported average of Rs. 2cr of goods during the preceding
three years. Recognised export and trading houses were entitled for a SIL
ranging between 6 per cent and 12 per cent of FOB basis or 7.5 and 15 per
cent on NFE basis. Other exporters were provided SIL at the rate of 4 per
cent. SIL are freely transferable.
SIL is dead with the removal of all QRs by April 1, 2001. No SIL was issued
after March 31, 2000. However, imports under SIL issued prior to this date
were allowed to continue till March 31, 2001 beyond which all the licenses
became invalid. Even though SIL no longer exists, CVDs can be imposed
against exports that availed of SIL issued before March 2000 if the
investigation period falls before March 2000.


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9. Deemed Exports:
Meaning
Deemed Exports as defined in the Export and Import Policy, 1997-2002
means those transactions in which the goods supplied do not leave the
country and the supplier in India receives the payment for the goods. It
means the goods supplied need not go out of India to treat them as Deemed
Export.
When the goods do not physically cross the border of the exporting country,
nevertheless the government considers this as export for some perks or other
benefits, it is called deemed export. Meaning not export practically but
considered as one.
For Example any supply to a factory in SEZ is deemed Import. Any sale from
SEZ is Deemed Export.
Different categories of supplies regarded as DEEMED EXPORTS
The following categories of supply of goods manufactured in India shall be
regarded as deemed Exports under the Export and Import Policy
i. Supply of goods against licenses issued under the Duty exemption Scheme:
ii. Supply of goods to Units located in Export Processing Zones (EPZs) or
Software Technology Parks (STPs) or Electronic Hardware Technology Parks
(EHTPs) or Export Oriented Units (EOUs)
iii. Supply of Capital goods to holders of licenses issued under the Export
Promotion Capital Goods (EPCG) Scheme;
iv. Supply of goods to Projects financed by Multilateral or Bilateral
agencies/funds as notified by the Department of Economic Affairs, Ministry
of Finance under international competitive bidding or under limited tender
system in accordance with the procedure of those agencies/funds, where
the legal agreements provide for tender evaluation without including the
Customs duty
v. Supply of capital goods and spares to fertilizer plants if the supply is made
under the procedure of international competitive bidding.
Supply of goods to any Project or purpose in respect of which the Ministry
of Finance, by; a notification permits the import of such goods at zero
customs duty coupled with the extension of benefits to domestic supplies;

12

vi. Supply of goods to such projects in the Power, Oil and Gas sectors in
respect of which the Ministry of Finance, by Notification, extends the
benefits to domestic supplies.
vii. Supply of Marine Freight Containers by 100% EOU (Domestic freight
containers-manufacturers) to shipping companies including Shipping
Corporation of India provided the said containers are exported out of
India within 6 months or such further period as permitted by customs.
Benefits available under Deemed Exports
Deemed Exports shall be eligible for the following benefits in respect of
manufacture and supply of goods qualifying as Deemed Exports:
i. Special Imp rest License/Advance Intermediate License;
ii. Deemed Exports Drawback Scheme i.e., on the Deemed Exports, Drawback
at the rate fixed by the Ministry of Finance for the DGFT or his regional
Officers pay the goods physically exported.
iii. Refund of terminal excise duty i.e., Central Excise duty, if paid any, on the
goods supplied under Deemed Exports is refunded by the DGFT or his
regional Officers
iv. If the supplier has made the supplies against Advance Release Order(ARO)
or Back to Back Letter of Credit, he shall be entitled for the benefits of
Deemed Exports Drawback Scheme, Refund or terminal excise duty and
Special Imprest License
v. In respect of supply of capital goods to EPCG license holder, the supplier
shall be entitled to the benefits stated above except, however, that the
benefit of Special Imprest License or Deemed Export Drawback Scheme
shall be available only in case of supplies made to Zero duty EPCG license
holder.
Procedure for claiming the benefits of DEEMED EXPORTS
The Suppliers under Deemed Exports should make application to the regional
licensing authority concerned claiming the benefits of Deemed Exports. The
applications should be made in the forms given in Appendix 17 of Hand Book
of Procedures of export and Import Policy along-with documents prescribed
therein.


13

10. Manufacture under Bond: This scheme furnishes a bond with the
manufacturer of adequate amount to undertake the export of his production.
Against this the manufacturer is allowed to import goods without paying any
customs duty, even if he obtains it from the domestic market without excise
duty. The production is made under the supervision of customs or excise
authority.

11. Vishesh Krishi Gram and Upaj Yojana (VKGUY): The objective of
the Vishesh Krishi Gram Upaj Yojana (VKGUY) is to promote exports of:
i. Agricultural produce and their Value added products;
ii. Minor Forest Produce and their value added variants;
iii. Gram Udyog Products;
iv. Forest Based Products
Duty scrip benefits are granted with aim to compensate high transport
costs. Exporters of notified products shall be entitled for duty credit
scrip equivalent to 5.00% of the FOB value of exports. The scrip and
the items imported against it would be freely transferable.
All Status Holders shall be incentivised with duty credit script equal to
10% of FOB value of agricultural exports which can be used for duty
free import / procurement of capital goods related to infrastructure
meant for agro-processing to promote agricultural exports.
The Duty Credit may be used for import of inputs or goods including
capital goods, provided the same is freely importable under ITC (HS).
Exporters shall have the option to apply for benefit either under the
Focus Market Scheme or under the Focus Product Scheme or under
Vishesh Krishi and Gram Udyog Yojana in respect of the same exported
product/s.


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12. Focus Product Scheme (FPS): The objective of the Focus Product
Scheme is to incentivise export of such products which have high employment
intensity in rural and semi urban areas so as to offset the inherent
infrastructure inefficiencies and other associated costs involved in marketing
of these products.
Exports of notified products to all countries shall be entitled for duty credit
scrip equivalent to 1.25% of the FOB value of exports for each licensing year
commencing from 1st April, 2006. The scrip and the items imported against it
would be freely transferable.
The Duty Credit may be used for import of inputs or goods including capital
goods, provided the same is freely importable under ITC (HS).
Exporters shall have the option to apply for benefit either under the Focus
Market Scheme or under the Focus Product Scheme or under Vishesh Krishi
and Gram Udyog Yojana in respect of the same exported product/s.

13. Focus Market Scheme (FMS): The objective of the Focus Market
Scheme is to offset the high freight cost and other disabilities to select
international markets with a view to enhance our export competitiveness to
these countries.
Exports of all products to the notified countries shall be entitled for duty
credit scrip equivalent to 2.5% of the FOB value of exports for each licensing
year commencing from 1st April, 2006. The scrip and the items imported
against it would be freely transferable.
Under the Scheme, export to all countries as specified in the Handbook of
Procedures (Vol. I) shall qualify for export benefits with certain exceptions as
outlined.
The Duty Credit may be used for import of inputs or goods including capital
goods, provided the same is freely importable under ITC (HS).
Exporters shall have the option to apply for benefit either under the Focus
Market Scheme or under the Focus Product Scheme or under Vishesh Krishi
and Gram Udyog Yojana in respect of the same exported product/s.


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B. Incentives through Ministry of Finance (MOF):

1. Duty Drawback Scheme: Exporters or processors, who are unable to avail
of various schemes like EOUs/EPZs or to obtain refund of duties paid on
inputs, can avail duty drawback. Under Duty Drawback excise duty and
customs duty paid on inputs is refunded to the exporter of finished products.
Section 75 of the Customs Act (CA) 1962 allows for the reimbursement to
exporters of the duties of Customs and Central excise borne by imported and
indigenous raw materials used in the production of exports. State levies and
octroi, however, are not included in this. The Central Board of Excise and
Customs administers the Duty Drawback Scheme under Section 75 of the CA,
1962 and Section 37 of the Central Excise and Salt Act, 1944. Under these
Acts, Central government has made Customs and Central Excise Duties
Drawback Rules, 1995 have been made. Duty Drawbacks are made on the
basis of either All Industry Rates or Brand Rates.
All Industry rates are fixed for broad categories of products and these rates
represent average incidence of duty. These rates are revised annually after
taking into account the changes made in the budget and the data furnished
by Export Promotion Councils. These rates are standard rates revised every
year 90 days after (i.e., June 1st) the general budget is announced which is
normally on February 28.
Brand Rate of Drawback is determined on the actual input utilisation basis
depending on the data furnished by an exporter manufacturer (and not on the
basis of SION) and its verification. These rates are decided on a case by case
basis and are therefore exporter-and-shipment specific. The brand rates are
fixed for products for which there are no industry rates or for which the All
Industry Rates provides substantially lower benefits than actual incidence of
duty.


16

Procedure for claiming advance against duty drawback credit
i. The exporter should get himself registered with the authorized bank and
obtain a reference number from it for identification.
ii. The exporter should endorse the shipping bill relating to goods for which
one advance is desired to be obtained to the following effect.
iii. Please pay Rs. ...Being the amount of drawback admissible to me in
respect of the shipment covered by the shipping bill to M/s
....................(Name of the bank) through RBI quoting the reference
number............allotted to us by the authorized bank.
iv. The customs authorities will scrutinize the drawback claim on the basis of
the declared description of the goods and endorse the shipping bill.
v. After the actual exportation of goods, the exporter shall submit the copy of
shipping bill duly endorsed by custom authorities to his bank for obtaining
the advance under the scheme.
vi. After necessary satisfaction of the bank, the bank will allow the advance
within the limits earlier sanctioned by it.
vii. The customs authorities will process the claim for drawback and arrange for
the payment of amount to the RBI for crediting the same to the concerned
bank.
viii. The government of India has introduced a new simplified procedure of
disbursement .DBK claim is passed within 24 hrs of presentation of papers.
Within the next 15 days the amount is transferred to exporters bank
account

2. Export Credit Guarantee Corporation: Export Credit Guarantee
Corporation of India (ECGC) limited is the only agency that provides credit
guarantee to India exports. Formed in July 1957 as Export Risks Insurance
Corporation, it was converted into Export Credit & Guarantee Corporation
Limited in 1964 and later to ECGC in 1983. ECGC is fully owned by GOI, and
functions under the Ministry of Commerce.
Broadly, ECGC provides four types of services or schemes. (a) standard
protection to exporters against payment risks involved in exports on short-

17

term credit (b) specific protection to Indian firms against payment risks
involved in exports on deferred terms of payment, services rendered to
foreign clients, and turnkey projects taken abroad (c) financial guarantee to
Indian banks to protect them against risks in extending financial support to
exporters both at pre and post-shipment, and (d) special covers such as
Transfer guarantee, insurance for buyers credit, overseas investment
insurance, and exchange risk fluctuation. Schemes (a) and (b) are for the
exporters whereas (c) and (d) are for the banks. Schemes (a) and (c) are for
a short term whereas those under (b) and (d) are for long-term.
Subsidy occurs where premium rate at which credit guarantee is given is
inadequate to cover long-term operating costs and losses. Long-term financial
picture of ECGC shows the viability of ECGC operations. Total premium
collected by ECGC from 1957 to March 2000 has been Rs. 2118.38cr. The
premium plus recoveries are higher than the claims of Rs. 1928.24cr. paid by
ECGC over the same period. ECGC has thus been maintaining its financial
viability. Its profit during 1997-98, 1998-99 and 1999-2000 has been Rs.
4.24cr, 23.14cr, and 33.3cr. respectively. ECGC has been making positive
profits overall on its operations. However, there is an element of cross-
subsidy across the 4 schemes mention above. In particular, schemes (a) and
(c) mentioned above are profit making on yearly basis for the last 6 years
that have been considered. It is appropriate to examine these two schemes
on a yearly basis since these are essentially short term in nature. However,
schemes (b) and (d) being long term in nature have been loss making on
yearly basis as well as on a long term basis. The SCM Agreement is not very
clear on the issue of cross-subsidy across the schemes. The same has so far
not been taken up in the countervailing duties imposed on Indias exports,
but it may be considered countervailable by a Member country.
3. ASIDE
Introduction
Exports have come to be regarded as an engine of economic growth in the
wake of liberalization and structural reforms in the economy. A sustained
growth in exports is, however, not possible in the absence of proper and
adequate infrastructure as adequate and reliable infrastructure is essential to

18

facilitate unhindered production, cut down the cost of production and make
our exports internationally competitive.
While the responsibility for promotion of exports and creating the necessary
specialised infrastructure has largely been undertaken by the Central
Government so far, it is increasingly felt that the States have to play an
equally important role in this endeavour. The role of the State Governments
is critical from the point of view of boosting production of exportable surplus,
providing the infrastructural facilities such as land, power, water, roads,
connectivity, pollution control measures and a conducive regulatory
environment for production of goods and services. It is, therefore, felt that
coordinated efforts by the Central Government in cooperation with the State
Governments are necessary for development of infrastructure for exports
promotion.
Department of Commerce currently implements, through its agencies,
schemes for promotion and facilitation of export commodities and creation of
infrastructure attendant thereto. The Export Promotion Industrial Parks
Scheme (EPIP), Export Promotion Zones scheme (EPZ), and the Critical
Infrastructure Balancing Scheme (CIB) are also implemented to help create
infrastructure for exports in specific locations and to meet specific objectives.
However, the general needs of infrastructure improvement for exports are not
met by such schemes. With a view, therefore, to optimizing the utilization of
resources and to achieve the objectives of export growth through a
coordinated effort of the Central Government and the States this scheme has
been drawn up. The features of the Scheme and the Guidelines for
consideration of proposals in respect of the Scheme are given below.

Objective
The objective of the scheme is to involve the states in the export effort by
providing assistance to the State Governments for creating appropriate
infrastructure for the development and growth of exports.
States do not perceive direct gains from the growth in exports from the State.
Moreover, the States do not often have adequate resources to participate in
funding of infrastructure for exports. The proposed scheme, therefore,
intends to establish a mechanism for seeking the involvement of the State
Governments in such efforts through assistance linked to export performance.

19

Scheme
The scheme shall provide an outlay for development of export infrastructure
which will be distributed to the States according to pre-defined criteria. The
existing EPIP, EPZ and CIB schemes shall be merged with the new scheme.
The scheme for Export Development Fund (EDF) for the North East and
Sikkim (implemented since 2000-2001) shall also stand merged with the new
scheme. After the merger of the schemes in respect of EPIP,EPZ,CIB and EDF
for NER and Sikkim with the new scheme, the ongoing projects under the
schemes shall be funded by the States from the resources provided under the
new scheme.
Approved purposes for the scheme
The activities aimed at development of infrastructure for exports can be
funded from the scheme provided such activities have an overwhelming
export content and their linkage with exports is fully established. The specific
purposes for which the funds allocated under the Scheme can be sanctioned
and utilised are as follows:
i. Creation of new Export Promotion Industrial Parks/Zones (including Special
Economic Zones (SEZs)/Agri-Business Zones) and augmenting facilities in
the existing ones.
ii. Setting up of electronic and other related infrastructure in export conclave.
iii. Equity participation in infrastructure projects including setting up of SEZs.
iv. Meeting requirements of capital outlay of EPIPs/EPZs/SEZs
v. Development of complementary infrastructure such as roads connecting the
production centres with the ports, setting up of Inland Container Depots
and Container Freight Stations,
vi. Stabilising power supply through additional transformers and islanding of
export production centres etc.
vii. Development of minor ports and jetties of a particular specification to serve
export purpose.
viii. Assistance for setting up common effluent treatment
ix. Projects of national and regional importance.
x. Activities permitted as per EDF in relation to North East and Sikkim

20

Criteria for State-wise allocation
The State Component will be allocated to the States in two tranches of 50%
each. The inter-se allocation of the first tranche of 50% to the States shall be
made on the basis of export performance. This shall be calculated on the
basis of the share of the State in the total exports. The second tranche of the
remaining 50% will be allocated inter-se on the basis of share of the States in
the average of the growth rate of exports over the previous year. The
allocations will be based on the data of exports of goods alone and the export
of services will not be taken into account.
As full and reliable data about the exports from the States is not likely to be
available during the year 2001-2002, the State-wise allocations will be made
on the basis of the project proposals received from the State Governments.
A minimum of 10% of the Scheme outlay will be reserved for expenditure in
the NER and Sikkim. The funding of Export Development Fund for NER and
Sikkim will be made out of this earmarked outlay and the balance amount will
be distributed inter-se among the States on the basis of the export
performance criteria as laid down.
The export performance and growth of exports from the State will be
assessed on the basis of the information available from the office of the
Director General of Commercial Intelligence & Statistics (DGCIS). The office
of the DGCIS will compile the State-wise data of exports from the Shipping
Bills submitted by the exporter. The Shipping Bill form provides a column in
which the exporter will enter the name of the State/UT from where the export
goods have originated. Filling up of this column is mandatory with effect from
15.6.2001 under the FT (D&R) Act. Each State/UT Government would
periodically interact with the exporters to guide and motivate them to make
proper entries in the Shipping Bills so that State of Origin of the exported
goods is entered correctly. The States may set up appropriate mechanisms at
the field level in cooperation with the trade and industry associations to
disseminate this information amongst exporters.
Release of Funds
The release of the funds to the States shall be subject to the limit of the
entitlement worked out on the basis of the laid down criteria. On receipt of
the pre-receipt bill from the Nodal Agency nominated by the State
Government funds will be directly disbursed to it. The unutilised funds, if any,
out of the allotted funds will be counted against allocations for the next year

21

and suitable deductions for equivalent amounts may be made from the
allocations next year.
50% of allocation shall be released in the first quarter of financial year.
Balance amount shall be released in third quarter based on utilisation of funds
and adherence of the State to guidelines of the scheme. States would be
advised to take up projects for utilising full amount in the beginning of the
year. They would also be advised to identify such projects in advance.

Eligible Agencies
Under the scheme, funds for the approved projects may be sanctioned to: -
i. Public Sector undertakings of Central/ State Governments
ii. Other agencies of Central/ State Governments
iii. Export Promotion Councils/ Commodity Boards
iv. Apex Trade bodies recognised under the EXIM policy of Government of India
and other apex bodies recognised for this purpose by the Empowered
Committee set up under para
v. Individual Production/ Service Units dedicated to exports.
Administrative expenses
All administrative expenses connected with the implementation of the scheme
will be met by the concerned State Governments from out of their own
budget and no part of the scheme funds shall be used to meet such
expenditure.
Evaluation
There may be a mid-term evaluation of the scheme at the end of three years.
It is expected that, after implementation of this scheme, States will benefit
from the cumulative impact of improved infrastructure for exports and the
impact of increased exports in their economy on employment and overall
prosperity. The evaluation would also be the basis for carrying out mid-term
corrections in the scheme, if any.


22

4. Marketing Development Assistance: As part of the comprehensive policy
package for promotion and development of SSIs announced on 30th August
2000, it was decided that the Small Industries Development Organisation
should have a Market Development Assistance (MDA) scheme similar to the
one obtaining in the Ministry of Commerce. It should be a Plan Scheme aimed
at encouraging exporters to access and develop overseas markets. The
scheme offers funding for participation in international fairs, study tours
abroad, trade delegations, publicity, etc. Direct assistance under MDA for
small scale units is given for individual sales-cum-study tours, participation in
fairs/exhibitions and publicity.
Exporters Eligible for Assistance:
Exporting unit must be registered as SSI / SSSBE
Exporting unit must be a member of FIEO / EPC
Exporting units with aggregate exports of Rs. 2cr and above over the last
three financial years (Rs. 1 crore for ISO 9000 certified exporters) are
eligible for assistance from the Ministry of Commerce through EPCs / other
grantee organisations. SSI units with aggregate exports less than this limit
would now be eligible for direct assistance from the Office of DC(SSI) under
this scheme. SSI units which have not yet commenced exports are not
eligible for assistance.
An exporting unit would be eligible for assistance under SSI-MDA only once
in a financial year.
PURPOSE
to participate in trade fairs and exhibition
to sponsor trade delegation and study teams
to conduct market research, commodity research
to undertake advertising campaign abroad
to establish branches and offices abroad
to secure samples and technical information
The rate of information varies from 25-60.


23

5. Market Access Initiative: Market Access Initiative (MAI) Scheme is an
Export Promotion Scheme envisaged to act as a catalyst to promote India's
exports on a sustained basis. The scheme is formulated on focus product-
focus country approach to evolve specific market and specific product through
market studies/survey. Assistance would be provided to Export Promotion
Organizations/Trade Promotion Organizations/ National Level Institutions/
Research Institutions/ Universities/ Laboratories, Exporters etc., for
enhancement of exports through accessing new markets or through
increasing the share in the existing markets. Under the Scheme the level of
assistance for each eligible activity has been fixed.

PURPOSE
i. Conducting marketing studies
ii. Establishing showrooms and warehousing facility in target markets
iii. Participating in international trade fairs, seminars, sales promotion
campaign etc
iv. Transport subsidy for select agricultural

6. Income Tax Exemption (under Sections 80HHC, 10A, 10B): MOF tax
exempts export profits. The Income Tax Act 1961 is the legal basis under
which the Income tax exemption scheme operates. The Act is amended yearly
by the Finance Act. Under the Act, profits from exports are exempted from
income tax. The sections of the Income Tax Act under which export income
from manufactures is exempted are section 10A, 10B, and 80HHC. Under
section 10A profits that a firm in Export Processing Zone makes is exempted
from income tax. Similarly, section 10B exempts Export Oriented Units from
paying income tax on its profits. Any firm in Domestic Tariff Area (DTA)
exporting goods can claim exemption from income tax on the profits it makes
from exports under the section 80 HHC.
However, the GOI has announced the gradual phasing out of the income tax
benefit given to the exporters. Accordingly section 80HHC has been amended
so as to phase out the deduction over a five-year period. Under the phase out
plan each year beginning 2000-01 income on which tax exemption is allowed
(80 per cent in 2000- 2001, 60 per cent in 2001-2002 and so on) will

24

decrease by 20 percentage points, making profits fully taxable (in five year
period) by 2004-2005. However, on the request from exporters to
backloading of the phase out so that the burden of income tax falls towards
the end of the five year phase out period, the plan has been revised.
According to the revised plan, percentage of export income will now be taxed
as per the following schedule:

Phase Out Period Percentage of Export Income that will be Taxed
2000-2001 20
2001-2002 30
2002-2003 50
2003-2004 70
2004-2005 100

Similarly, exemption of export profits under section 10A is given to units in
FTZ/EPZs/EHTPs/STPs that export at least 75 per cent of total turnover. Such
units are not allowed to carry forward allowances on account of depreciation,
investments etc beyond holiday period. The phase out plan is as follows: units
set up before April 1, 2000 will be allowed 100 percent deductions for the
unexpired period of 10 consecutive assessment years. For units set up after
April 1, 2000, income exemption is to be allowed for first 5 years. Export
income on which tax exemption is allowed is as given in the above table (that
is, 80 per cent in the first year, 70 per cent in the second year and so on). By
the end of 5th no income exemption is to be allowed. No income tax benefit
will be allowed to units that come up after April 1, 2005.

Exemption of export profits under section 10B is given to EOUs that export at
least 75 per cent of total turnover (from 1995-96). The phase out plan is the
same as that given to those in section 10A.


25

7. Loan Guarantees: The Ministry of Finance provides loan guarantees
primarily to public sector industries on ad hoc basis. This loan guarantee is
not necessarily on the basis of either export performance or on the use of
domestic over imported goods. For example, Steel Authority of India (SAIL)
received loan guarantees on several of its outstanding long-term foreign loans
from the government and the State Bank of India.

8. Trade Finance by Commercial Banks: The Reserve Bank of India (RBI)
under Sections 21 and 35A of the Banking Regulation Act, 1949 directs the
commercial banks to provide export credit both at pre-shipment and post-
shipment stage. Pre-shipment credit, also known as packaging credit, is
advanced by commercial banks to the exporters for the purchase of raw-
material or the finished products upon the presentation of confirmed export
order or letter of credit. The credit helps exporters meet a specific export
obligation. Pre-shipping credit could be either in domestic currency or in
foreign currency. Post-shipment finance, in contrast, is granted to an exporter
after shipment of goods. This advance could be either against the shipping
bills or against duty drawback. Also, the advance could be denominated either
in rupees or in foreign currency, except that when the pre-shipping finance is
in foreign currency then the post-shipment finance also is in the same
currency. Post-shipment credit helps an exporter tide over the waiting period
between shipping of goods and the receipt of payment.
The RBI specifies the maximum rate that commercial banks can charge on
export credit in rupee terms. The RBI in turn rediscounts part of the
outstanding export credit that the commercial banks extend to the exporters.
Till recently, the RBI prescribed specific interest rate that banks could charge
on pre-shipment credit, and a ceiling rate on post-shipment credit. However,
this has been changed in the credit policy for 2001-2002 announced by the
RBI. The RBI has now linked both these rates to the Prime Lending Rates
(PLRs) of banks. The rate that a bank can now charge on pre-shipment credit
upto 180 days (which was early fixed at 10 per cent) cannot exceed the PLR
of that bank minus 1.5 percentage points. Likewise the rate on pre-shipment
credit beyond 180 days and up to 270 days (which was earlier fixed at 13 per
cent) now cannot exceed PLR plus 1.5 percentage points. Beyond the 270th
day, banks are free to charge appropriate commercial rate.33 Similarly is true

26

of post-shipment credit which is given on demand bills and issuance bills. This
rate on demand bills (which earlier could not exceed 10 percent) now cannot
exceed PLR minus 1.5 percentage points. On issuance bills this rate on credit
upto 90 days (which earlier could not exceed 10 percent) now cannot exceed
PLR minus 1.5 percentage points, and on credit beyond 90 days and up to 6
months the rate (which could not exceed 12 percent) now cannot exceed PLR
plus 1.5 percentage points.
In case of export credit in foreign currency, the RBI allows the banks to
charge internationally competitive rate, linked to London Inter-Bank Offer
Rate (LIBOR). The RBI puts a cap on the spread around this internationally
competitive rate that the banks can charge. According to the credit policy of
2001-2002, pre-shipment credit upto 180 days can be availed by the
exporters at a revised (lower) ceiling rate of LIBOR plus 1.0 (which was
earlier LIBOR plus 1.5) percentage points. For credit beyond 180 days and
upto 360 days 2 percentage points get added to the rate charged for initial
180-day period. For post-shipment credit in foreign currency, ceiling rate for
credit on demand bill (for transit period) is LIBOR+1 percent. On Usuance
bills (for total period i.e., issuance period, transit period, and grace period)
upto 6 months from the date of shipment the rate cannot exceed LIBOR+1
per cent. However, the rate charged on export bills (demand or issuance)
realised after due date but upto date of crystalisation is 2 percentage points
over the rate charged on the issuance bills. On export credit not otherwise
specified banks are free to charge any rate.

9. Export insurance: Insurance on an export consignment depends on the
nature of export contract, that is, whether the contract is CIF or FOB. If it is
CIF, in which case insurance is bought by the exporter himself, exporters in
India have to buy insurance from one of the subsidiaries of General Insurance
Corporation of India only. However, this scenario is all set to change with the
entry of private insurance players in the Indian insurance market that has
recently been opened to competition from private players.


27

ROLE OF INCENTIVES IN EXPORT PROMOTION
1. Make business financially attractive
2. Increase profit in business
3. Helps exporters to expand and diversify business
4. It makes available expertise in the field of export marketing
5. Improves competitive ability of exporters
6. Facilitate repayment of loans
7. Removes deficit in balance of payment
8. Uses optimum use of available resources
9. Compensate for higher domestic cost of production
10. Helps to earn goodwill for country


28

CONCLUSION

Export incentives make domestic exports competitive by providing a sort of
kickback to the exporter. The government collects less tax in order to deflate the
exported good's price, so the increased competitiveness of the product in the
global market ensures that domestic goods have a wider reach.
Undertaking considerable industrial deregulation and other structural reforms,
trade in India recognizes that strong exports are critical for overall economic
growth and poverty reduction. Export-led growth has thus become a key thrust for
the trade in India.
Integrating with the global economy, India has recorded strong export growth to
the United States and the European Union markets. It is important to note that
Indian government recognizes the need to implement additional reforms and
address significant constraints to ensure that Indian trade supports growth and
benefits the poor. The government of India provides various Export Incentives and
undertakes many Export Promoting Measures for the exporters in order to achieve
a robust economic growth and higher National Income. Continuing with trade
reforms has become more complex because of concerns of how these reforms will
affect employment, income distribution, poverty and vulnerability. India is focused
on WTO negotiations on agricultural trade policies, and there is strong interest in
services trade.
India today stands at a over a trillion economy. Darjeeling tea, Indian khadi
cotton, Bombay Duck, Kashmiri carpets, Indian spices and dry fruit are just a few
of the famous gifts India has given to the world. The economic levels have
improved in the urban and semi-urban areas. Literacy is penetrating deep in to
even the far reach areas, thus creating awareness and to higher consumption
patterns for all kinds of goods across all sections of the society. Promoting the
availability of goods from different parts of the world has seen a rise in more trade
with other countries.
The country has realized that at the end of the day, maximizing use of ones own
resources is what makes all the difference.


29

BIBLIOGRAPHY

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http://dgftcom.nic.in/exim/2000/policy/chap-05.htm
http://www.dsir.gov.in/reports/techint/annex5.pdf

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