Will it be a 'policy revision' worth the wait and expectations? March 2018 issue

Will it be a 'policy revision' worth the wait and expectations?

India's exporters got little from this year's Union Budget. The recently implemented Goods and Services Tax (GST) further left them confused. They now can't wait to learn what 'happy surprises' the mid-term review of the Foreign Trade Policy has in store for them. And not to say, their expectations from the mid-term review have changed in the past weeks. [It's just getting bigger!] The Dollar Business reaches out to India's EXIM community to learn what it desires from the FTP revision and how GST has impacted its wishlist.

TDB INTELLIGENT UNIT | August 2017 Issue | The Dollar Business

The good news is that over the last few months, exports from India are on the rise. The not so good news is that while exports moved up y-o-y by 5.33% to $276.28 billion in FY2017, it is still way below the $314 billion mark touched in FY2014 and a far cry from the $900 billion target that FTP 2015-2020 had set for FY2020.

While there is no doubt that the Foreign Trade Policy (FTP) 2015-2020 went a long way in simplifying procedures and improving ease of doing business, its impact on the growth of India's exports has been at best limited. And the government, not blind to this fact, is presently undertaking a midterm review of FTP, which, following deliberations with all stakeholders, is expected to be unveiled in September this year. And high time too! Between the beginning of the deliberations on the review and now, the 'biggest tax reform' in India – the Goods and Services Tax (GST) – was implemented on July 1, 2017. And it brought forth many new challenges for the exporters. So much so that when The Dollar Business questioned exporters on issues even unrelated to the new tax regime, they replied saying most of their present challenges emanate from the GST and more than anything else, that is what they want addressed in the review. Sure there are other long pending demands related to Advanced Authorisation Scheme, changes to SION and the usual suspects like increasing the rates of incentives and remissions, but challenges that have arisen due to the GST seem to be bothering exporters the most.

The GST conundrum

Back in May 2015, after FTP 2015-2020 was released with much fanfare, the-then Director General of Foreign Trade, Pravir Kumar, had told The Dollar Business, “We have removed all the confusion and overlapping that existed in FTP 2009-2014. We have clubbed together various schemes; and most importantly, the new policy has liberalised the utilisation of duty credit scrips.” Well, implementation of the GST seems to have brought back the confusion and managed to deliberalise the utilisation of duty scrips at one fell swoop.

Let us first talk about the limitations that the implementation of GST has imposed on the usage of duty scrips, because that seems to be a pain point that all Export Promotion Council (EPC) heads that The Dollar Business spoke to share. For the uninitiated, duty scrips are incentives offered to exporters by The Directorate General of Foreign Trade (DGFT) under export promotion schemes – Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) – which can be used to offset various taxes that exporters need to pay. Earlier the scrips could have been utilised to pay customs duties, excise duties and service tax. Now, with the implementation of GST the only avenue for utilisation of the scrips is to offset basic customs duty (BCD) as the other duties have been subsumed under GST.

The scrips cannot be used for payment of Integrated GST (IGST) and GST Compensation Cess which is levied on imports, and Central GST (CGST), State GST (SGST), IGST and GST Compensation Cess on domestic procurements. The concern therefore is that exporters may not be able to completely use the scrips within the validity period of 24 months. Agreeing to the fact, Satish W. Wagh, Chairman, Basic Chemicals, Cosmetics & Dyes Export Promotion Council (CHEMEXCIL) says, “We would like the government to lift the limitation on utilisation of duty credit scrips in the upcoming Midterm Review.”



Will it be a 'policy revision' worth the wait and expectations?
Although India's exports has been rising over the last few months, the target of $900 billion in exports by FY2020 still seems like a pipe dream. 


Giving an example of how the limitation on the utilisation of scrips will impact exporters, Ajay Sahai, CEO & Director General of Federation of Indian Export Organisations (FIEO) tells The Dollar Business, "With a BCD of 5% and other duties like CVD and ACD of 18%, the exporters could utilise the scrip within a period of one year. Now, the same exporters would require four years time to utilise the scrips." In a situation like this, exporters will be compelled to sell or transfer their scrips in the open market, and herein lies another major obstacle since the GST on sale of scrips will now attract a duty of 18%, as they fall under the residual category [the DGFT in a tweet though has said that scrips under Chapter 3 of the FTP will attract 12% duty under HSN classification 4907, subject to clarification by the Tax Research Unit (TRU). The question is who will get the clarification issued – the DGFT or individual exporters?] against the earlier VAT incidence of 4%.

"Limitations on scrip utilisation will result in a decline in scrip premiums"

Scrips are typically traded at a discount. So if we take the discounted market value of a Rs.100 scrip to be Rs.92, in the VAT regime the buyer would have paid a total of Rs.95.68 (Rs 92 plus Rs.3.68 as VAT), while in the GST regime, the buyer of the scrip will end up paying Rs.108.56 (Rs.92 plus Rs.16.56 as GST). The second situation is clearly less attractive. Also, purchase of duty scrips will become a viable option for the buyers only if they can claim the Input Tax Credit (equivalent to GST paid while procuring the scrip). All such complications with tradability of scrips could further pull down the premium (read price) of the scrips. 



Will it be a 'policy revision' worth the wait and expectations?Most exporters are not happy with the Advance Authorisation Scheme as
they believe that the Standard Input Output Norms are completely flawed.


FIEO's Sahai estimates that under this situation a Rs.100 scrip is likely to sell for Rs.80 in open market. O. P. Prahladka, Chairman, Export Promotion Council for Handicrafts (EPCH), agreeing with the estimates says, “GST will compromise at least 20% of the premium on MEIS scrips." Clearly, this will put exporters at a disadvantage as without more avenues for offsetting the scrips, exporters will have to sell their scrips at a deep discount. This in turn, will significantly eat into the charm of MEIS and SEIS, the flagship schemes promulgated in the FTP 2015-2020. Exporters in such a situation will also be forced to pass on the costs to buyers, which is then likely to hurt the competitiveness of their products in global markets, and ultimately result in a decline in exports from India.

Will it be a 'policy revision' worth the wait and expectations?Several EPCs have requested the government to increase the avenues for utilisation of the scrips and increase their validity period. In fact, FIEO has also requested that trading of scrips be exempt from GST or at the most attract 5% GST. The other suggestion that has been offered to the government is that trading of scrips be treated in the same way that trading of securities are treated. Exporters hope that the review will consider these suggestions and give exporters a solution that will not suck the lives out of flagship schemes of the current FTP.

The other major issue that has emanated from the implementation of GST is the withdrawal of exemptions under Advance Authorisation (AA) and Duty Free Import Authorisation (DFIA) schemes. Under the GST regime, while exemption from payment of import duties, including BCD, anti-dumping duty, safeguard duties and customs cesses continue, there is no exemption from payment of IGST and GST Compensation Cess for imports under AA and DFIA. Previously, an exporter need not have funded the tax portion of imports for production of the goods. That will be necessary under GST. While the government has said that 90% of refund/ credit on these taxes paid will be issued within seven days of filing all necessary documents, exporters fear that this is impractical. "Under GST regime, only BCD will be exempted and IGST will have to be paid. This would make Advance Authorisation completely unviable as duties will be paid upfront at the time of import. We have suggested the new norm be waived off. Otherwise exports will drop," says T. S. Bhasin, Chairman, Engineering Exports Promotion Council (EEPC).

What's more? The Advance Release Order (ARO) facility available for domestic procurement of inputs under AA has been restricted only to certain inputs [listed in the Fourth Schedule of Central Excise Act, 1944 (CE Act)] such as tobacco and petroleum products. Therefore, AA cannot be used for domestic procurement of other inputs. What will therefore happen is that a significant portion of an exporter's working capital will remain blocked with the government, thus raising his cost of capital. With cost of capital already high in India, when compared to other exporting nations, this could have a negative effect on the competitiveness of Indian goods and services in the international marketplace.

The treatment for EPCG is similar. EPCG scheme was formulated to encourage manufacturer exporters to import capital goods including spares for pre-production, production and post-production activities at zero duty subject to an export obligation (EO) of six times of duty saved on capital goods imported under the EPCG scheme, to be fulfilled in six years from the authorisation issue date. This was expected to give a boost to exports of high-value and value-added products from India, something that the government has been trying to promote. Under GST, the exemption from import duties under EPCG does not extend to IGST and is restricted to only BCD. Further, the ARO facility for domestic procurement of capital goods has been discontinued. EPCG scheme now, sounds less sweeter than EPCG scheme then!

Will it be a 'policy revision' worth the wait and expectations?

Not only have these schemes been severely restricted, there is immense disparity between what the FTP allows and what DGFT notifications mean. Under the FTP 2015-2020 the facility of domestic procurement continues to be available under EPCG and AA via the invalidation letter route. While GST is payable on such deemed exports against invalidation letters, according to DGFT the customs portion of the duty drawback can be claimed back. Interestingly, the FTP does not allow this benefit for supplies against invalidation letters, opening up the issue to interpretations and litigation.

Export Oriented Units (EOUs) have also been at the receiving end of the fall-out from the implementation of GST. In GST regime, though exemption has been given to imports from customs duty, IGST and compensation cess is payable on these imports. GST is also payable on domestic procurement (of goods covered uder GST), which was earlier exempted ab initio. Only procurement of goods covered under Fourth Schedule of the Central Excise Act will continue to enjoy the ab initio exemption from central excise duty. Further, the transfer/ supply of goods from one unit of EOU/ EHTP/ STP/ BTP to another has been made liable to GST, as these constitute “supply” under the GST law. Quite a body blow to EOUs!



Will it be a 'policy revision' worth the wait and expectations?

The pay-first-take-refund-later system under GST regime is bound to
create a cash flow crisis for small and medium sized exporters.


Deemed exports too have not been able to escape the wrath of GST. Deemed Export Drawback benefits have been restricted to refund of BCD only under the GST regime. Terminal Excise Duty (TED) refund has been made available only for goods covered under Fourth Schedule of the Central Excise Act, subject to eligibility of the supply of such products as deemed exports, thus significantly reducing the scope of the scheme.

Will it be a 'policy revision' worth the wait and expectations?

The Duty Drawback Scheme has also been dealt a body blow. While drawback was earlier calculated based on all taxes suffered, since GST has subsumed all taxes other than customs duty, drawbacks will now be available on just BCD. The government however has provided a transition period of three months, starting July 1, 2017, during which exporters can claim higher rate of duty drawback (composite AIR) subject to conditions that no input tax credit of CGST/ IGST is claimed, no refund of IGST paid on export goods is claimed and no CENVAT credit is carried forward.

This was initially subject to a no objection certificate issued by a jurisdictional GST officer. This clause has however been removed and now exporters can avail the old rates of duty drawback through self certification. But from October 1, 2017, drawback will only be available on the BCD component. Exporters naturally are up in arms against this ruling. Their contention is that they also consume goods and services that are not within the ambit of GST and hence drawbacks should be calculated taking these inputs into consideration. Exporters in fact, want the ambit of drawback to be extended to inputs procured even domestically.

While EPCs and individual exporters have welcomed GST with open arms and agree that the GST regime will result in more transparency and ease of doing business, their concerns with respect to issues arising out of the implementation of GST are real and can have far reaching implications on India's exports. If the mid-term review of the FTP does not address these issues, it is more than likely that the momentum gained by exporters in the last few months will be impacted and India's exports growth will suffer a reversal in the medium term.

The usual suspects

Every time the Foreign Trade Policy is revised or reviewed, the recurring demand from exporters is to increase incentives. Exporters have extolled the FTP 2015-2020 predominantly because of two schemes that it had introduced; Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS). Both the schemes have either merged or replaced several schemes that were earlier mentioned under FTP 2009-2014 with the intent to simplify the process and give exports a boost. In fact, for the first time, MEIS was extended to special economic zones (SEZs) and SEIS incentives were made available for both domestic and international companies operating and based out of India.

"Under GST, The Duty Drawback Scheme has also been dealt a body blow"


The benefits under MEIS were initially divided into three brackets 2%, 3% and 5%, based on country group-wise destination. However, the country group-wise division was withdrawn in May 2016, making the incentives equal for every country. Similarly, SEIS incentives are divided into two brackets, 3% (offered to services from hotels, restaurants, etc.) and 5% (offered to R&D, hospital services, professional services, etc.).

While exporters have requested the DGFT to consider higher rates of incentives, the terrifying truth about MEIS and SEIS is that India must soon phase out the export-related incentives that clash with World Trade Organisation (WTO) regime. Mukesh Bhatnagar, Professor, Centre for WTO Studies, Indian Institute of Foreign Trade (IIFT) explains, “Incentives will eventually phase out in India and the government has been gradually sensitising the exporters about this reality. But, there can be other incentives, say production subsidy and continue to subsidise the exporters.” We would agree.

This probably is then the hour to maximise and expand the incentive umbrella – while we still can. During the last two and a half years, MEIS has gone through several changes which includes expansion of tariff lines as well as equalisation of incentives across countries. But with the changes GST has introduced and the not-so-pleasant global economy, EPCs are almost duty-bound to demand higher rates of incentives and further expansion of tariff lines eligible for MEIS.

While Narain Agarwal, Chairman of Synthetic and Rayon Export Promotion Council (SRTEPC), says, “Man-made fibre is a major contributor of revenue to the national exchequer and we want this to be included under MEIS. This will not only help us increase employment generation, but will add to our exports revenue.” Ramesh Kumar Mittal, Chairman of Chemicals & Allied Products Export Promotion Council (CAPEXIL), wants the government to extend MEIS benefits to cement exports. Mukhtarul Amin, Chairman, Council for Leather Exports (CLE), too argues in favour of higher incentives for his sector. "We want the MEIS benefits to be increased for finished leather and leather products & footwear to 3% and 5% – from 2% and 3% – respectively. The duty credit for leather garments and safety footwear must also be increased to 6% from 3%," says Amin.

However, the case of project exports from India is peculiar as project exports do not fall under any particular HS Code classification. Sandip Baran Das, Chairman, Project Exports Promotion Council (PEPC), explains, "Since project exports do not have a specific chapter or HS Code; project exporters have to file each product and service under its respective chapter and HS code. A project generally comprises of numerous products and services and therefore the process of claiming incentives under it is a tedious task which entails significant cost and time. As a result, a lot of project exporters forgo these incentives since the cost outweighs the benefits." He suggests that the government should decide on a fixed rate of incentives for projects based on net foreign exchange earned. With project exports facing a difficult global economy, this suggestion can possibly give the much-needed boost to exports from this sector.

With the impact of GST already becoming a burden for exporters, the midterm review probably should consider these suggestions with generosity.

The SION story

Another issue that exporters want the government to revisit during this midterm review is the way Standard Input Output Norms (SION) are formulated and updated. For instance, Ashok G. Rajani, Chairman, Apparel Export Promotion Council (AEPC), says that SION is an area of concern because it’s outdated. “We want SION to be updated and include new products and categories which have come up since the norms were formulated,” adds Rajani. And he is right in saying that. There are many products for which no such norms have been designed – a case in point could be cars. Then, in many cases, several key elements are missing from the very list of ingredients mentioned in SION – for instance, as per current SION, sugar is not a part of ingredients that goes into the making of fruit juice and instant coffee, and PVC/PU leather cloth is the only input that goes into the making of soccer balls.

Duty Drawback and Advance Authorisation schemes are entirely dependent on All India Rates (AIR), which are nothing but HS Code-wise drawback percentages with caps based on SION. Hence, the authorities need to update SION, if they really want the EXIM community to believe in the 'Make in India' concept. Pradip Thakkar, Chairman, Plastics Exports Promotion Council (PLEXCONCIL), further explains, “Manufacturer exporters in our sector use additional materials to improve the quality of the products or add value to them. But these materials are not covered under SION. Hence, every time the exporters have to use the tedious Brand Rate mechanism to claim back the refund of the duty suffered while importing the materials.”

Sanjiv Sawla, Chairman, Indian Oilseeds and Produce Export Promotion Council (IOPEPC), echoes a similar opinion and says, "We aren’t happy with the Advance Authorisation Scheme because the SION is completely flawed. We have been asking the government for the last two years to change the norms, but there has been no progress."

Hence, it goes without saying that the mid-term review of the FTP while adding new materials to SION should also come up with a simplified procedure for regular updation of SION.

Inverted structure

While the government has left no stone unturned to promote the 'Make in India' initiative, the ground reality remains that our duty structure is not supportive of the initiative. Across sectors, be it automobiles or electronics, chemicals or tyres, the present duty structure in India promotes the imports of finished products rather than that of raw materials or intermediate goods, essentially putting to ground any chances of making in India a reality. Mittal of CAPEXIL elaborates, "The FTP 2015-2020 mid-term review should address the inverted duty structure prevalent in the auto tyres and tubes product panel. Imports of natural rubber that is used for manufacturing of auto tyres attracts 25% duty, whereas imports of finished auto tyres is taxed at 7%."

That's not the only case. This anomaly is prevalent across sectors and product categories. In fact, this seems like a case of the left hand not knowing what the right hand is up to! The mid-term review needs to urgently address this issue or India can kiss its dream of being the next manufacturing hub goodbye.

Work cut out

Of course, this is not the complete wishlist of the exporting community. There is the long-pending demand of rescinding of DGFT Public Notice 35. According to exporters, the notice directly contradicts the provisions of FTP. The notice also seeks to implement its effect with retrospect by enforcing the conditions of DGFT Notification No. 31, dated August 1, 2013, which said “the name/ description of the input used (or to be used) in the Authorisation must match exactly the name/ description endorsed in the shipping bill,” and “at the time of redemption, Regional Authorities (RA) shall allow only those inputs which have been specifically indicated in the shipping bill.” (by itself a rather impractical requirement) even on DFIA licences issued prior to the issuance of Notification No. 31/(RE-2013). The issuance of guidance with retrospective effect goes against the character of natural justice, and in this case it is a case of justice delayed and denied. Some exporters have been so frustrated about the lack of progress on this issue that they have given up hope of any resolution. This is not the only case, there are multiple ongoing litigations between exporters and the DGFT because of a lack of clarity in notifications and circulars.

There is also the issue of Rebate of State Levies (RoSL) scheme, which was launched with much fanfare last year but whose scrip value has been now reduced to 10% of its pre-GST value. RoSL seeks to refund levies imposed by the state government and exporters are at a loss to understand why the incentive rate has been so drastically reduced as they will still be paying duties on important inputs like petroleum and electricity which are beyond the purview of GST.

Hopeful

We understand that enumerating the wishlist of exporters would take more than just a few pages, but it is imperative that the government understands that a double-trouble issue like a limitation on utilisation of scrips and tax imposed on the same, have in effect nullified the impact of the flagship schemes of the FTP 2015-2020. And, while exporters understand that GST will bring in transparency, the fact remains that the pay-first-get-refund-later method of GST can wreck havoc on their cash flows.

At a time when the global economy is increasingly turning protectionist, we can't afford to leave our exporters to their fates without arming them. It is our hope and belief that the revised FTP will give enough ammunition to our exporters to go out and conquer world trade.


Manish Karajia

Chairman, Jute Products Development & Export Promotion Council (JPDEPC)

Will it be a 'policy revision' worth the wait and expectations?

As scrip utilisation will go down, we believe most exporters will have to invest 15-20% extra working capital in the business. And, there is a lot of uncertainty in the refund process as of now. I think the reverse charge mechanism under GST is unnecessary. Add to that the fact that an exporter is now liable to pay taxes on the supply of goods and services from unregistered suppliers. Since job work is quite extensive in our sector, a 5% GST on job work that has been imposed on items from yarn to fabric has put us at a disadvantage. One must keep in mind that almost 60% of the job work in our sector is done by the unorganised cottage industry players and hence exporters would now end up paying the taxes for the job work. We believe, 4% of the capital will have to be spent on paying taxes on job work. Another issue we are currently facing is that the jute shopping bag has been clubbed in the 18% GST slab with luxury handbag. We want the FTP to revisit these issues.


 Will it be a 'policy revision' worth the wait and expectations?

Puran Dawar

President, Agra Footwear Manufacturers & Exporters Chamber (AFMEC)


Exports from the footwear sector is already under pressure, and as such it has huge expectations from the FTP review. We hope the review relieves the sector from some of the GST related compliance and teething issues. As for drawbacks, I believe, we were already under incentivised. Before GST, utilising AIR norms, we used to get 9.5% duty drawback – of which about 50% could be said to be our actual costs and 50% would be incentives. But now, we are paid only for the actual. To cover GST-related compliance costs, we need at least 2% increment in benefits under MEIS. Also under the FTP review, deemed duties should be generously taken care of because in many of our products the share of deemed duties is quite significant.


 Will it be a 'policy revision' worth the wait and expectations?

Sanjeev Agarwal 

CEO, Gitanjali Export Corporation Ltd.

Because of the GST, the working capital requirement of jewellery exporters has gone up by 3%. Earlier, the exporters used to get gold on consignment from the bank for a period of 180 days. The gold rate and the 1% VAT used to be fixed. That way, the exporters were not shouldering any gold price risk. However, after the introduction of GST, banks have to pay 3% GST at the time of import and the bank straightaway charges that 3% GST to the exporter at the time of lending the gold. This will adversely affect the sector which is extremely capital intensive. Secondly, the interest rate on lending of gold in dollar terms in India is 6-7% and in rupee term is 9-10%. Whereas Chinese exporters, our competitors, get gold loan at 2-3% interest rate. We need lower interest rates if we want to remain competitive.


 Will it be a 'policy revision' worth the wait and expectations?

D. K. SAREEN

Executive Director, Electronics and Computer Software, Export Promotion Council (ESC)

While we believe that the government is proactively trying to undo some of the irritants like inverted duty structure etc., we wish that FTP review encourages more investment into the sector to build capacities. There are many global majors such as Apple, Foxconn and LeEco that are keenly exploring the possibility of setting up manufacturing base in India. Thus, the FTP should leverage the FDI policy framework to capitalise on this renewed interest in the Indian electronics sector. India enjoys a strategic advantage being equidistant from the West and the East, and can supply products and services to both regions efficiently.

 


 

“We need government support to tide over the GST impact”

Will it be a 'policy revision' worth the wait and expectations?

Ashok G. Rajani, Chairman, Apparel Export Promotion Council (AEPC)

 

TDB: What suggestions has AEPC given to the government with respect to the FTP mid-term review? 

Ashok G. Rajani (AGR): AEPC have requested the government to revise the MEIS rates and increase the incentives to 5%. This can help exporters offset the compliance burden arising out of GST. We have also asked the government to increase the Rebate of State Levies (RoSL) rate to 5% as GST will lead to an increase in transaction cost. As RoSL is not a part of the FTP, we are taking the matter of continuation of RoSL with the relevant authorities as its continuation is critical for the growth of the industry. Post GST, MEIS srips can be used only for payment of Basic Customs Duty. We hope the FTP mid-term review will help change the policy so that the scrip can be used to off-set other export-related expenditure that are not presently under the refund-route in the GST scheme – like import duty on capital goods, construction of new units in apparel parks, etc. The sectors biggest concerns are presently related to GST.

TDB: Would you want any change in SION?

AGR: Standard Input Output Norms (SION) is an area of concern. We want SION to be updated to include new products and categories which have come up since they were formulated. 

TDB: Does the export target of $900 billion by FY2020 seem feasible at all at this time? 

AGR: After two years of stagnation, India’s exports in FY2017 clocked a positive growth of 2.9%. Schemes like RoSL, interest subvention, duty drawback and extension of EPCG scheme, have helped our sector. Speaking about the export target for the apparel industry, the target is $35 billion by 2018, which is steep. But, the industry has reacted very positively to the special package, and has grown at a rate of over 30% last year. Though the industry will need a lot of support to tide over the impact of GST, nothing is unachievable.

TDB: What would be the impact of GST on the sector? 

AGR: Calculations based on pre- and post-GST rates suggest that t-shirts, shirts, trousers, dresses and blouses would be cheaper under GST – provided they are branded and are priced above Rs.1,000. But, in case of unbranded garments there will be no change because the GST rate is 5%, the same as the erstwhile VAT. Raw cotton will be a little cheaper, but cotton yarn will be more expensive since it falls under 5% GST. Similarly, exports of cotton yarn will be a little expensive. Since the input tax credit is available, composite mills will benefit.


 

 

“There is an urgent need to relax value addition norms”

Will it be a 'policy revision' worth the wait and expectations?

Pradip Thakkar, Chairman, The Plastics Export Promotion Council (PLEXCONCIL)

 

TDB: What are the key expectations of plastics exporters from the mid-term review of FTP 2015-2020?

Pradip Thakkar (PT): Implementation of Goods and Services Tax (GST), with applicable tax rates of 18% and 28% on plastic products, will create unnecessary fund blockage. Although the government has promised to refund 90% of the IGST within a week, it will add to the cost in terms of the interest on the working capital loans. Further, we also want the government to relax the limitations it has imposed on the utilisation of duty credit scrips granted as rewards under MEIS.

TDB: Would you also want any change in the value addition norms under Advance Authorisation and DFIA schemes?

PT: Many a time there is a high turnover of products which have lower value-addition, but these products can’t be ignored as the volumes are phenomenal. As long as the exporters are adding value on a regular basis, they should be allowed to avail the Advance Authorisation scheme. In sectors like chemicals and fabrics, there are many products with minimal value addition. For example, in our sector, the process of converting the plastic granules into film or sheets is not very capital intensive and the value addition achieved is also low. But these products are important to our export basket. Hence, the value addition clause needs to be relaxed.

 

"We've argued for a zero GST rate on transfer and sale of scrips"

Will it be a 'policy revision' worth the wait and expectations?

Ajay Sahai, Director General & CEO, Federation of Indian Export Organisations (FIEO)

 

TDB: What are your expectations from the FTP 2015-2020 mid-term review?

Ajay Sahai (AS): The mid-term review is being done at a time when the global situation looks very uncertain. Emerging economies are facing a downturn, advanced economies are embracing protectionism and there is extreme volatility in currencies. On the domestic front, while GST has come as a harbinger of new India, the new regime has posed many challenges for exporters. Export growth has been good in last nine months or so, but we are still far from the $300 billion that we achieved in FY2012. Also, recently, there has been an upsurge in imports increasing our trade deficit by over 100% in the first quarter of this fiscal year. India has ratified the Trade Facilitation Agreement which has come into operation this year. So, with these in the background, exporters are expecting a lot from the mid-term review. I think the government must adjust the exports target based on the state of the global economy and India’s manufacturing growth rate. Also, many of the schemes introduced in the FTP 2015-2020, with the solitary exception of SEZ, have lost their charm with the imposition of IGST on imports. The mid-term review of the policy must address the concerns of exporters emanating from the GST regime.

TDB: Exporters are concerned about how GST has limited the avenues for utilisation of duty credit scrips. How do you see this impacting the exporting fraternity?

AS: The premium on the scrips has already declined and there are question marks over the utilisation of the scrips. On a BCD of 5% and additional duties of 18%, the exporters could utilise the scrip within a period of one year. Now, the same exporters would require four years time to utilise the same. The validity being two years, the exporter has no other option but to sell/ transfer the scrip. The rate of GST on such transfer is expected to be 18%. But, we have argued for a zero GST rate on transfer/sale of scrip or at best at 5%. If the premium on the scrip comes down, it will be a loss to the exporter. Assuming that the premium comes down to 80%, the exporter will get 80% of the due while the final importer will get 100%. This is not a fair situation for exporters. We, therefore, urge that the government to allow utilisation of the scrip for payment of CGST, if states are not agreeing for payment of IGST. Moreover, DGFT should look for new avenues for utilisation of the scrip while simultaneously extending its validity to a period of at least three years. If exporters are forced to go for distress sale of scrips it may bring down the premium further.

 

“FTP must consider introducing more liberal borrowing schemes”

Will it be a 'policy revision' worth the wait and expectations?

    Mukesh Bhatnagar, Professor, Indian Institute of Foreign Trade (IIFT)

 

TDB: What are the key issues that the FTP 2015-2020 mid-term review must revisit?

Mukesh Bhatnagar (MB): The dictum of exports is ‘export goods and not taxes’. So, any tax incurred during the production of goods or during exports must be rebated through a simple, transparent and acceptable procedure. Speaking of GST, the pay-first-and-get-a-refund-later mechanism under GST is creating a hassle because exporters don’t know if the refund will happen as promised. I believe FEIO has been raising the issue with the government for some time and there has been an emphasis on developing a mechanism to give exporters some form of a rebate. If we look at other countries and their experiences, we will find that they have a system of refund of taxes which go into the production of goods and there is a system whereby, if they are under a VAT regime, the goods that are taxed at the input stage are refunded. This is what we should do in India too. But the bigger problem is the availability of export credit at a competitive rate. Indian exporters have a disadvantage in the international market because the cost of borrowing is high. And, when the high borrowing cost is coupled with the lack of infrastructure and the high turnaround time, exporters lose competitiveness. The FTP needs to consider introducing more competitive and more liberal borrowing schemes.

TDB: The export incentives will eventually be phased out. What would you suggest?

MB: This is an obligation which is eventually going to come to India. The government has been gradually sensitising the exporters that export subsidies are not going to be there forever. But, there can be other incentives, say production subsidy with which the government can continue to subsidise the exporters.

 

 

"The government must support value-added manufacturing"

Will it be a 'policy revision' worth the wait and expectations?

Ramesh Kumar Mittal, Chairman, Chemical and Allied Export Promotion Council of India


TDB: CAPEXIL had concerns over unavailability of duty scrips under MEIS for some products like cement that are widely exported to our neighbouring countries. Is the Council expecting this to be revisited during the mid-term review?

Ramesh Kumar Mittal (RKM): Yes, this is one of our key concerns and we are hoping that the issue will be resolved during the mid-term review. Exports of these products to countries like Bangladesh, Pakistan, Sri Lanka, etc., have been growing over the years – and at a much faster pace than to other countries. And, since these markets are evolving, we need the MEIS incentives to remain competitive. Cement is exported in large volumes to Sri Lanka, Nepal and Maldives, but exporters do not enjoy any incentives on the product. In fact, total exports of cement was close to $300 million in the last fiscal.

TBD: There have been concerns raised by the members about Advance Authorisation scheme. Can you please elaborate?

RKM: The plywood products segment has issues with regards to value-addition. Exports of the product have to achieve 30% value-addition to be eligible for the Advance Authorisation scheme, whereas for most of the other products the eligibility criteria is only 15%. So, we have been requesting the government to align this segment with the rest.

TDB: What other issues do you think the government must address in the mid-term review?

RKM: The FTP 2015-2020 mid-term review should address the inverted duty structure prevalent across product categories. For instance, imports of natural rubber that is used for manufacturing of auto tyres attracts 25% duty, whereas imports of finished auto tyres is taxed at 7%. Alongside, the government must think of ways to support value-added manufacturing – say by incentivising or giving remissions for imports of capital goods to manufacturers to set up production units. And that way, we can truly introduce ease of doing business in the country and get an upper hand in the global market.

Also, in the revised FTP 2015-2020, we need provisions to set off all duties and taxes incurred during the production process. The government must also think of ways to subsidise the interest rate for exporters because it is very high at the moment. The Market Development Assistance (MDA) scheme should be standardised to help even the small exporters – in order to comply with the rules and regulations, they sometimes miss out on various global events and exhibitions.

 

"The FTP needs to revisit the incentive structure"

 

Will it be a 'policy revision' worth the wait and expectations?

     O.P.Prahladka, Chairman, Export Promotion Council for Handicrafts (EPCH)


TDB: What are the expectations of the handicrafts sector from the mid-term review of FTP2015-2020?

O. P. Prahladka (OP): One of the major issues in the FTP 2015-2020 is that the residual entry for export products has been removed. The FTP 2015-2020 has various provisions for handicraft exports which include the benefit of MEIS, EPCG and DFIA, but they have reduced the percentage of credit scrips. We want the FTP to revisit the incentive structure.

Under the Interest Equalisation Scheme, merchant exporters have been ignored. The government is considerate towards the artisans and manufacturers, but not towards traders. But since it is the traders who buy from the artisans and manufacturers, the government must give them equal importance.

TDB: Is there anything related to GST that the government needs to address in the review?

OPP: The cost of production will increase because we went from tax-free to tax-on-all-products regime. There is a huge price difference between industrial and handmade products. Now that artisans will add the GST to the production cost, prices are bound to go up. We fear that customers will shift to industrial products. The new tax could also result in a lowering of premium on MEIS scrips by at least 20%. It would be nice if the government can increase the MEIS incentive or expand the avenues for its utilisation.

TDB: Have you requested for any change in DFIA?

OPP: Duty Free Import Authorisation (DFIA) helps us produce unique products because there are many raw materials that are either unavailable or rarely available in India. Even if they are available, the quality is not upto the mark and the prices are uncompetitive. So, we have been requesting the government to increase the number of products under the scheme. For instance, wires that we use for making lamps or fashion accessories are all imported from China because the prices of the domestic product isn’t competitive.

TDB: What in your opinion can boost the sector’s exports?

OPP: An export-oriented country must increase its capacity building too. The government must provide assistance for the development of skill, design, training, etc. Finally, the FTP 2015-2020 is only a generic document because each sector faces a dissimilar problem. So, if the DGFT can look at each sector carefully, only then will our exports grow.

 

"Exporters have raised several concerns on GST Implementation"

Will it be a 'policy revision' worth the wait and expectations?

T. S. Bhasin, Chairman, Engineering Export Promotion Council (EEPC) 


TDB: What are the key issues that EEPC wants the government to address during the mid-term review?

T. S. Bhasin (TSB): The MEIS and SEIS scrips should be utilisable for border taxes, customs duties as well as Goods and Services Tax (GST) paid for domestic procurement of inputs and goods, including capital goods. They should also cover payment of duties that are mentioned under Para 3.18 of the FTP 2015-2020. Also, MEIS and SEIS scrips, which used to attract 5% VAT now attract 18% GST because the scrips fall under the residual category. This issue must be addressed, otherwise GST will sharply reduce the incentive aspect of these scrips.

Further, European Union (EU) has struck down some products from the Generalised Scheme of Preferences (GSP) list. Thus, the government must increase the MEIS rates for all engineering products that are no longer a part of EU GSP.

TDB: How has GST impacted your sector's growth?

TSB: The sector’s growth in FY2017 was about 5-6%. But ever since the implementation of GST, both merchant exporters and service providers have been raising several concerns – and because of this, we are not forecasting any growth for the next quarter. In fact, the industrial production growth decreased 3.1% y-o-y in April this year due to sluggish output from the manufacturing, mining and power sectors.

TDB: What has been the sector’s reaction on impact of GST on Advance Authorisation scheme?

TSB: It is not good! Till now, imports under Advance Authorisation scheme were exempted from all duties including BCD, CVD, AED, AD and/ or Safeguard Duty as the advance authorisation of import is subject to the actual user condition. But under the GST regime, only BCD will be exempted and IGST will have to be paid. This would make Advance Authorisation scheme completely unviable as duties will be paid upfront at the time of import. We have suggested the new norm be waived off – otherwise exports will drop.

  

"Limitations on utilisation of duty credit scrips must be lifted"

Will it be a 'policy revision' worth the wait and expectations?

Satish W. Wagh, Chairman, CHEMEXCIL


TDB: What schemes mentioned in FTP 2015-2020 should the government necessarily revisit in the mid-term review?

Satish W. Wagh (SWW): In my opinion, the Advance Authorisation scheme needs to be streamlined. There is a need for faster fixation of norms. At the moment, due to delays, exporters are unable to get the Export Obligation Discharge Certificate (EODC) and are therefore placed in the Denied Entities List (DEL) even when they are not at fault. Moreover, the incentives under Chapter 3 have come down from 3-5% to 2% on most products. Unless the government addresses these issue, we will continue to see a negative impact on the sector.

TDB: What other crucial issues does Chemexcil want the government to address during the review?

SWW: We have requested the government to increase the benefits under MEIS. It will help us in making our products more competitive in the global market. And, this is one issue that exporters in the sector are really hopeful that the government will consider with generosity. In addition, we have requested the government to allow us to import technical pesticides from unregistered sources against Advance Authorisation. Faster fixation of SION, smooth functioning of IceGate and DGFT servers, expansion of Interest Equalisation Scheme, etc., will also help the industry. We have also urged the government to lift the limitation on utilisation of duty credit scrips in the upcoming mid-term review.

TDB: How has implementation of Goods and Services Tax (GST) impacted the sector?

SWW: The GST rate for most chemical products is 18%, with the exception of select items falling under Chapter 15, 28, 33, 34, 38, etc. However, the main worry is that the exemptions that were earlier available under excise are not available under GST. Exporters believe that this will impact their liquidity and add to their costs. In addition, the lack of clarity on export procedures has been a hassle and is impacting our exports.

 

 

"We want FTP mid-term review to revisit the replenishment scheme"

Will it be a 'policy revision' worth the wait and expectations?

Praveen Shankar Pandya, Chairman, Gem Jewellery Export Promotion Council (GJEPC)

 

TDB: What key issues does GJEPC want the government to address in the mid-term review of FTP 2015-2020?

Praveen Shankar Pandya (PSP): Well, there are many. To begin with, as per the FTP 2015-2020 provisions, jewellery exporters are entitled to procure duty-free precious metals for jewellery exports. However, it is difficult to establish a one-to-one correlation between the procured precious metals and the exported jewellery made from those imported metals as required by CBEC as per Circular No.27/2016 issued on June 10, 2016. Hence, we have suggested some necessary amendments in the Para 4.41 of the FTP 2015-2020.
Also, Para 4.45 of the FTP 2015-2020 and Para 4.77 of the Handbook of Procedures (HBoP) 2015-2020 allow foreign buyers to supply gold, silver, platinum, etc., in advance to manufacture and export jewellery to nominated agencies, status holders and exporters of three years standing with an annual average turnover of Rs.5 crore in the last three financial years without any duties. So, we have requested the government to allow us to use raw materials from our stock without any duty, manufacture and export, after which the buyer can send us the raw material to replenish our stocks.

TDB: What other measures can be included in the FTP to boost exports from the sector?

PSP: We want imports of gold, silver and platinum from an Organisation for Economic Cooperation and Development (OECD) compliant refinery or the London Bullion Market (LBMA)-accredited refinery to be made mandatory. This is because all international jewellery players seek to ensure responsible global sourcing practices by setting due diligence principles and processes for international bullion companies. Also, we want the inclusion of Gemological Institute of America (GIA) laboratories in Japan and Israel in the list of overseas accredited laboratories to export cut and polished diamonds for certification/ grading and duty-free re-import of the same – overseas buyers insist on grading of diamonds from specific international 
laboratories.

In addition, the facility to export for certification or grading and re-import the same should be extended to precious and semi-precious gemstones and pearls since India is regarded as a prominent international market for these products. 

Given the sluggish global economy, there is a strong need to aggressively promote gems and jewellery exports. However, the upper limit of the value of gems and jewellery allowed to be carried for participating in overseas exhibitions has been stipulated at $5 million. We would like the cap to be increased to $15 million to aggressively promote exports from our sector.

TDB: Has the Council requested the government to extend the replenishment scheme to consignment exports? Any comments on the sector's omission from MEIS? 

PSP: Para 4.80 of the HBoP 2015-2020 talks about replenishment scheme for exports of gems and jewellery through overseas exhibitions, export promotion tours and branded jewellery. Meanwhile, in the case of consignment exports, exporters usually use their own stock to manufacture and export precious metals to be sold in foreign market on a consignment basis. When you look at these two procedures, they are very similar. So, the replenishment scheme as mentioned in Para 4.82 must be allowed for consignment exports. As of now, the sector is omitted from MEIS. We need interest subvention and MEIS on value-added products to remain competitive.

 

“Limit under DFIS for leather garments must be raised to 5%”

Will it be a 'policy revision' worth the wait and expectations?

Mukhtarul Amin, Chairman, Council for Leather Exports (CLE)

 

TDB: Can you share the Council’s expectation from the FTP 2015-2020 mid-term review? 

Mukhtarul Amin (MA): We want the MEIS benefits to be increased for finished leather and leather products & footwear to 3% and 5%, from 2% and 3%, respectively. The duty credit for leather garments and safety footwear must also be increased to 6% from 3%. We also want the government to increase the interest subvention to 5%, as against the current 3%, for at least six months – from July to December 2017. Most importantly, since the industry depends a lot on Duty Free Import Scheme (DFIS) to import products that are crucial for the industry, the duty-free limit under DFIS for leather garments must be increased to 5% from 3%.

TDB: What are the implications of GST on the sector and how will it impact exports? 

MA: CLE wholeheartedly welcomes GST, but there are issues that we want the government to resolve during the FTP 2015-2020 mid-term review. For instance, prior to GST, finished leather was exempted from both excise duty and import duty. But now it attracts 12% GST, which is a burden. We have requested the government to reduce the tax to 5% to help the industry and also to avoid product classification problem – because crust leather (semi-finished leather) falls under 5% whereas finished leather is taxed 12% GST.

Adding to these concerns is the existing All Industry Rates of duty drawback, which is available only for three months – from July to September. Going forward from October, the drawback will be restricted only to Basic Customs Duty portion. 

The industry is also not happy because all duty credit scrips issued under the FTP 2015-2020, including MEIS, EPCG and Advance Authorisation scheme, will be taxable. 

The higher rate of GST and upfront payment of tax will block money for exporters for at least 2-3 months. This will cause immense financial strain on the exporters and will lead to loss of price competitiveness, and an eventual decline in exports.

TDB: Many EPCs have spoken against the limitations imposed on utilisation of duty credit scrips and the pay-first-and-get-refund-later mechanism under GST. Do you expect the review to address these issues? 

MA: MEIS, EPCG and DFIS under FTP 2015-2020 have certainly increased price competitiveness of the leather industry. At present, most of the leather products receive 3% scrip under MEIS, while most categories under finished leather receive 2% scrip. But, the fact that GST exempts only the Basic Customs Duty, exporters will be unable to utilise the scrips within the stipulated time and will face a lower sale value on transferability. The FTP hence, must reconsider enhancing the scrip value and grant IGST exemption. And alternately, the scrips can be divided into Customs Portion and Virtual Credit Ledger for payment of GST.

As for the EPCG scheme, procurement of machinery used in leather and footwear sector under this scheme now attracts 18% GST. Earlier under the scheme, both Basic Customs Duty plus CVD and SAD were exempted on imports and Central Excise duty was exempted on domestic purchase. The value of machinery used in the sector is usually high, so upfront payment of such a huge GST incidence on machinery will significantly affect the industry. Instead of paying tax and then applying for a refund, upfront exemption on GST may be considered for the schemes under FTP.

 

  

 

 

"Standard Input Output Norms are flawed"

Will it be a 'policy revision' worth the wait and expectations?

Sanjiv Sawla, Chairman, Indian Oilseeds & Produce Export Promotion Council (IOPEPC)

 

TDB: Currently, the sector is not in sync with ‘Make in India’ because of various restrictions. What are your thoughts?

Sanjiv Sawla (SS): In that sense, we are at the bottom of the pyramid. We have been requesting the government to liberalise the imports of oil seeds because, at this point of time, the duty structure is inverted – in the sense, the duty on oils is lower than on oilseeds, which does not make sense. So, if we really have to ‘Make in India’, the import duty on oil seeds has to be reconsidered. We should import the seeds and make the oil and other finished product locally. This is a logical request and will give a big boost to ‘Make in India’.

TDB: We are now more than two years into the FTP 2015-2020. Has it helped the sector?

SS: Yes, it has. It has brought in considerable ease in doing business and processes are being now streamlined to a certain extent. But then, the request to further liberalise the infrastructure schemes hasn’t been realised and the incentives remain restricted only for manufacturers – whereas most people in the agri sector are small merchant-exporters and not manufacturers.

TDB: What are your thoughts on the current exports target of $900 billion by 2020? 

SS: It would be practical and realistic to lower the target during the mid-term review of the Foreign Trade Policy. There are a lot of anomalies and distortions in India, and we need to put our house in order first. Issues with regards to infrastructure, ease of doing business, red tapism, etc., must be addressed first. A 10-15% year-on-year growth is healthy and realistic for any industry, anything above that would be an anomaly.

TDB: What issues would the Council want to be addressed in the mid-term review of the FTP?

SS: Issues such as liberalising of oilseeds imports and SION must be given a second thought. We are in talks with the government with regards to imports from some least developed countries (LDCs) and have requested them to include oilseeds to the list of products which can come in duty-free. As far as our industry is concerned, if that happens, it will be very helpful for us and do away with advanced licensing and SION norms, etc. We aren’t happy with the Advance Authorisation Scheme because the norms are completely flawed. Also, we have been asking the government for the last two years to change the norms, but there has been no progress.

 

 

"WE need a lower GST rate"

Will it be a 'policy revision' worth the wait and expectations?

Pulak Sen, Founder Secretary General, MRO Association of India

 

TDB: What’s your take on FTP 2015-2020?

Pulak Sen (PS): The current foreign trade policy allows 100% foreign direct investment (FDI) in maintenance, repair and overhaul (MRO) industry through the direct route. And, this is a welcome move for the industry. However, the tax structure in the country is not conducive to attract foreign MRO players to set up base in India. While in the past some foreign MROs have entered into joint ventures with their Indian counterparts, there was no progress at the ground level.

TDB: Are you implying that GST will harm your sector? 

PS: Yes. And frankly speaking, Goods and Services Tax has put the MRO industry into a big problem. Earlier, the industry had to pay a 15% Service Tax and Octroi (wherever applicable). But, the sector now has to pay 18% GST on labour and 18% GST on spare parts. In addition, the higher imports duty coupled with IGST is adding to the cost of inputs – almost all the inputs in the sector have to be imported. For example, if aircraft spares are imported under HSN 8803, the Dustoms Duty is zero. But, 5% GST is being additionally levied. On the import of paints, varnish and thinners, the import duty is 28% and IGST is 5%. On the import of other consumables like adhesives etc, 18% duty is levied along with 5% GST. Surely, this will impact our competitiveness.

 

 

"Government must allow SEZ units to perform job work for DTA units"

Will it be a 'policy revision' worth the wait and expectations?

Rahul Gupta, Chairman, Export Promotion Council for EOUs and SEZs (EPCES)

 

TDB: What are your expectations from the FTP 2015-2020 mid-term review? 

Rahul Gupta (RG): We have a few pending demands. For instance, there is confusion amongst stakeholders on exports from DTA units to SEZ units, particularly in the case of services. We want the procedures to be simplified in the mid-term review. Also, measures such as withdrawal or reduction of minimum alternate tax (MAT) and dividend distribution tax (DDT) rates for SEZs will bolster the units. Alternatively, surplus lying unutilised in MAT account should be refunded, concessional rate of duty equivalent to the lowest rate of FTA on DTA sales by SEZs charged, and contract manufacturing in SEZs for DTA market allowed to strengthen the concept of ‘Make in India’. These should be the focal points of any future government policy. And, in order to ensure optimum utilisation of installed capacity in SEZs, I further request the government to allow SEZ units to perform job work for DTA units.

TDB: Both Customs Act and SEZ Act are being made GST-compliant. What are your expectations?

RG: The announcement of zero-rating of supplies to SEZ has been a great help – though the implementation on the ground would be very critical. In my opinion, the overall implementation of the refund procedure to suppliers to SEZ would now be the deciding factor on whether or not GST gets a thumbs up from the exporting fraternity. 

TDB: You have recently expressed displeasure with regards to limitations on utilisation of duty scrips under GST. Can you share your concerns with us?

RG: GST has narrowed the ambit of duty credit scrip only to payment of Basic Customs Duty, whilst earlier manufacturing exporters who imported raw material for the purpose of exports were allowed to utilise the scrip for payment of customs, excise duty and service tax. This is one of the issues that will have wide ramifications on exporters. In my view, the market prices of duty scrip will be reduced drastically if the scrip utilisation does not get integrated with GST.

TDB: So far, EoUs remain quite neglected. Do you think this will be revisited during the mid-term review?

RG: Sadly, compared to SEZs, EOUs have always remained under-supported. We would like to request the DGFT to help EOUs under Chapter 6, through simplified procedures.

 

 

"Rebate of State Levies (RoSL) need an urgent revisit"

Will it be a 'policy revision' worth the wait and expectations?

Ujwal R. Lahoti, Chairman, The Cotton Textiles Export Promotion Council (Texprocil)


TDB: What sectoral concerns does TEXPROCIL want being addressed in the FTP 2015-2020 mid-term review?

Ujwal R. Lahoti (URL): The Council is responsible for exports of cotton textile, which covers yarn, cotton fabrics and made-ups. India’s current annual exports of cotton textiles is about $30-40 billion, but it has been declining year-on-year because of the gloomy global economy. When the policy was introduced the global economy was in a much better shape.

Recently, the government had asked for our suggestions for the new policy and we communicated the same to them. Further, there are issues such as anti-dumping duties that have been instated by some countries against Indian exports and also certain tariff-related concerns. We have already flagged these issues and presented them to the government.

Moreover, Indian exporters do not get a level-playing field in the global market due to the high-interest rates in India. Hence, we have requested the government to give exporters some interest subvention. China is a potential destination for India, but Indian cotton fabrics attract around 8-10% tariff in China – whereas exports from some of our neighbouring countries attract zero tariff. We have raised the issue with the government to perhaps discuss a bilateral trade agreement – or at least a lower tariff rate. And, I think the government will take this up through the Regional Comprehensive Economic Partnership (RCEP) that is being discussed.

TDB: How has the Star Export House classification helped the sector. Would you want any change in that?

URL: The Star Export House classification has definitely had a positive impact. Exporters under the classification get benefits such as self-certification. While being classified as Star Export Houses has benefitted our sector to a great extent, we would like the government to liberalise the classifications. This will allow smaller and newer exporters, who previously did not fall within the limits to be classified as Star Export Houses.

TDB: Do you want any change in SION?

URL: We have suggested that there is a need to fix SION for technical textiles so that exporters can avail the benefits of the Advance Authorization scheme. There are also no separate HS codes for some products and that needs to be addressed.

TDB: The RoSL scheme was introduced post the FTP 2015-2020. Do you hope to see any changes in this scheme?

URL: Rebate of State Levies (RoSL) need an urgent revisit. Earlier, the refund was around 3.9%, which is now cut to a mere 0.39%. This drastic cut is because many items now fall under GST. But the textile industry still uses many items that do not fall under GST – such as petroleum products, electricity, etc. We have urged the government to refund such taxes paid for these items through RoSL as exports are zero rated and the taxes must be refunded.

TDB: Apart from the mid-term review, do you feel the FTP needs to be reviewed more often?

URL: TEXPROCIL is constantly in touch with the Ministry of Commerce through the Ministry of Textiles and communicates its suggestions and grievances – from time to time. The Ministry has been quite proactive when it comes to responding to our suggestions. We are hopeful that in the upcoming review they will implement most of our suggestions. And, of course, frequent reviews can be helpful.

 

 

 

"Projects cannot be treated like products or services"

Will it be a 'policy revision' worth the wait and expectations?

Sandip Baran Das, Chairman, Project Exports Promotion Council of India (PEPC)


TDB: What kind of challenges does the sector face while claiming the benefits under SEIS and MEIS?

Sandip Baran Das (SBD): Since ‘Project Exports’ do not have a specific chapter or HS Code; project exporters have to file each product and service under its respective chapter and HS code. A project generally comprises of numerous products and services and therefore the process of claiming incentives under is a tedious task which entails significant cost and time. As a result, a lot of project exporters forego these incentives since the cost outweighs the benefits.

Projects cannot be treated like products or services as it is not always possible to segregate and bill products and services separately. Moreover, under SEIS scheme, if an export entails both products and services then the SEIS benefit is given on net foreign exchange earned during a financial year. Therefore, a company that is working on a high value overseas projects in progressive years would not be able to take benefits since it would have to employ the funds first and the returns would be accrued in account only on completion of projects. Considering the long-term contract period, the company would not able to avail this benefit. In light of the issues faced in claiming benefits it would be advisable that project exports be given a fixed rate benefit on the total foreign exchange earned.

TBD: What changes does the sector want in the FTP?

SBD: The main sectoral concerns emanate from the fact that project exports differ vastly from other merchandise exports, in terms of process of securing and executing export contracts. The complete execution of project exports is done on foreign soil and project exporters have to comply with several foreign and Indian regulations. The foreign exchange is realised gradually during the period of execution. Project exports are also an exception to basic framework of the FTP which deals with products and services separately. In some of the norms committee cases, the fixation of adhoc norms takes more than a year. Also, in the absence of ratification, exporters are unable to take any proactive decision on payment of duty while importing. We want these issues addressed in the review. There has been some progress in the right direction in the last FTP, but a lot remains to be done if we want exports to go up.

TDB: While exporting merchandise goods, how in-sync is the HS Code 9801 for the sector?

SBD: MEIS rewards have been extended for export of goods towards the execution of power project falling under HS code 98010013. But the Customs EDI system does not permit filing of shipping bills under 98010013. Project exporters are also facing problems because correct ITC for export goods is 9801, whereas tariff head for claiming the duty drawback is covered in a separate chapter. Hence, there is a mismatch in product while filing application for incentives and remissions.

The government must also recognise that export orders for heavy equipment for certain core sectors like fertiliser, power, oil & gas, etc., are secured under stiff global competitive bidding process and because of the complexity and stringent technical requirements of the equipment to be exported, total manufacturing cycle varies from 16 to 20 months. Further, contractual deliveries in such exports are governed by site schedule and logistics. In such cases it is suggested that Advance Authorisations may be allowed to be issued with EOP valid up to contractual delivery period as provided in the categories of Turnkey Projects under Para 4.22 (iii) of FTP 2015-20.