Exporting From India Series: Identifying Export Incentives and Schemes Offered By Government of India

The Indian government provides numerous export incentives and schemes to promote international trade and enhance the competitiveness of Indian exporters in global markets. These incentives aim to reduce costs, mitigate risks, and increase profitability for exporters, ensuring they remain viable and competitive internationally.

Understanding these schemes and strategically applying for them can significantly impact your export business by improving margins and reducing financial risks. Below is a detailed explanation of key export incentives and how they benefit exporters.

1. MEIS/RODTEP Schemes: Refunds on Duties and Taxes

A. Merchandise Exports from India Scheme (MEIS)

• What It Was: MEIS was a flagship export incentive program under the Foreign Trade Policy 2015-2020. It provided rewards to exporters for eligible goods based on their destination markets.
• Why It Was Replaced: The World Trade Organization (WTO) ruled it incompatible with global trade rules.

B. Remission of Duties and Taxes on Exported Products (RODTEP)

• What It Is: RODTEP replaced MEIS in January 2021 and is a WTO-compliant scheme that refunds embedded taxes and duties incurred during production and export but not refunded under any other mechanism.
  • Examples: Taxes on fuel, electricity duties, and municipal levies.

How RODTEP Works

1. Eligibility: All exporters, regardless of product type or size, are eligible. Certain restricted categories (e.g., steel, pharmaceuticals) may not qualify.
2. Benefit Calculation: RODTEP refunds are calculated as a percentage of the FOB (Free on Board) value of the exported goods. Rates vary based on the product and its HS (Harmonized System) code.
3. Refund Mechanism:
   • Refunds are issued as duty credit scrips, which can be used to pay customs duties or transferred in the market.
   • Refunds are credited electronically to the exporter’s ledger on the ICEGATE portal.

Benefits for Exporters

• Reduces export costs by reimbursing previously non-refundable duties and taxes.
• Improves product competitiveness in international markets.

2. Export Credit Guarantee Corporation (ECGC)

What It Is

The Export Credit Guarantee Corporation of India (ECGC) provides insurance coverage to exporters against non-payment risks by international buyers. These risks can arise due to buyer insolvency, political instability, or other unforeseen events.

Services Offered by ECGC

• Export Credit Insurance: Protects against buyer defaults.
• Guarantees to Banks: Ensures that banks provide pre- and post-shipment credit to exporters.
• Export Factoring: Covers short-term receivables for small and medium exporters.

How It Benefits Exporters

1. Risk Mitigation: Protects against the financial loss of non-payment.
2. Improved Credit Access: Encourages banks to extend working capital loans to exporters with reduced risk.
3. Market Expansion: Enables exporters to confidently enter new or high-risk international markets.

How to Apply

• Register on the ECGC website (www.ecgc.in).
• Choose an appropriate policy based on your export business size and risk exposure.
• Submit documents, including IEC details, export records, and buyer information.

3. Other Key Export Incentive Schemes

A. Duty Drawback Scheme

• What It Is: Refunds customs and excise duties paid on imported raw materials used for export production.
• How It Works: The exporter files a claim for a refund on duties paid, either as a fixed percentage of the FOB value or based on actual duty incidence.
• Benefit: Reduces the overall cost of production, increasing profitability.

B. Advance Authorization Scheme (AAS)

• What It Is: Allows duty-free import of inputs required for export production, provided the exporter meets the export obligation within a specific timeframe.
• Who It’s For: Exporters of products with high input duties, such as textiles, chemicals, and electronics.
• Benefit: Significant cost savings by avoiding upfront duty payments.

C. EPCG (Export Promotion Capital Goods) Scheme

• What It Is: Enables exporters to import capital goods (e.g., machinery) at zero customs duty for producing export goods.
• Conditions: Export obligation must be met, typically six times the duty saved, within six years.
• Benefit: Reduces upfront capital investment costs for export businesses.

D. SEIS (Service Exports from India Scheme)

• What It Is: Offers duty credit scrips to service exporters (e.g., IT, tourism, education).
• Eligibility: Applies to service exporters earning foreign exchange.

4. Research and Apply for Relevant Schemes

To maximize benefits from export incentives, exporters must proactively identify and apply for schemes suited to their business type and product category.

How to Identify Relevant Schemes

1. Consult Export Promotion Councils (EPCs): Councils like FIEO, APEDA, and GJEPC provide detailed guidance on applicable schemes.
2. DGFT Website: Regularly review updates and notifications on the Directorate General of Foreign Trade (DGFT) portal.
3. Chambers of Commerce: Engage with industry-specific chambers for expert advice.

Steps to Apply for Export Incentives

1. Register with ICEGATE: Exporters must register on the Indian Customs EDI Gateway (ICEGATE) portal for claiming RODTEP and other export benefits.
2. Maintain Accurate Records: Keep detailed documentation of export transactions, shipping bills, and tax payments.
3. Submit Applications: Apply through the relevant portal (e.g., DGFT, ECGC) with required supporting documents like:
   • Shipping bills.
   • Proof of duty payments.
   • Product classification under HS codes.

Proactive Monitoring

• Track policy changes as export incentive programs evolve regularly based on WTO rulings and government trade policies.

5. Benefits of Export Incentives

1. Cost Reduction: Minimized costs on duties, taxes, and capital investments.
2. Improved Cash Flow: Refunds and exemptions ensure working capital remains available.
3. Market Competitiveness: Lower costs translate to better pricing and competitiveness globally.
4. Risk Mitigation: Programs like ECGC reduce the financial risks of entering new markets.
5. Profitability Boost: Combined savings and incentives enhance overall profitability for exporters.

Conclusion

Export incentives and schemes are designed to support exporters by reducing operational costs, mitigating risks, and promoting global competitiveness. Programs like RODTEP, ECGC insurance, and duty drawback refunds ensure that Indian exporters remain competitive in global markets while improving their profitability. By identifying and strategically applying for relevant schemes, exporters can significantly enhance their growth potential and achieve long-term success in international trade.