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New Foreign Trade Policy - Overview

Madhukar N Hiregange 
on 17 June 2015

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INTRODUCTION & OVERVIEW ON NEW FTP

Introduction

Foreign Trade Policy, 2015-2020 (“FTP”) was unveiled on April 1, 2015 at the Vigyan Bhawan, Delhi, thus laying down a road map for India’s global trade engagement in the coming years. The new 5 year FTP provides a framework for increasing exports of goods and services, generation of employment and increasing value addition in the Country, in congruence with the “Make in India” vision of the Hon’ble Prime Minister. The focus of the new policy is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’.

What is Foreign Trade Policy

To understand the meaning of Foreign Trade Policy, one should know what is ‘Foreign Trade’ and what is ‘Policy’. The term ‘Foreign Trade’ means trade between different countries of the world. This includes the exchange of goods and services between the citizens of two countries/ nations. The dictionary meaning of “Policy” is the basic principles by which a government is guided or the declared objectives that a government or party seeks to achieve and preserve in the interest of national community.

In India, Foreign Trade Policy (FTP) is regulated by the Government of India by way of the Foreign Trade (Development & Regulation) Act, 1992. This Act is concerned with the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. This Act authorises the Government

a. to make provisions for facilitating and controlling foreign trade;

b. to prohibit, restrict and regulate exports and imports, in all or specified cases as well as subject them to exemptions;

c. to formulate and announce an export and import policy and also amend the same from time to time, by notification in the Official Gazette;

d. to appoint a 'Director General of Foreign Trade' for the purpose of the Act, including formulation and implementation of the export-import policy

FTP is a set of guidelines and instructions formulated by the Central Government on regular basis (five years) by virtue of the power given under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992. Such guidelines are established by the Director General of Foreign Trade in matters related to the export and/ or import of goods in India. FTP has replaced the nomenclature ‘Export-Import Policy’ (EXIM policy). FTP contains various incentives which are focused on reducing the tax incidences in the production of goods to be exported. This is based on the principle that ‘goods must be exported and not taxes.’

Department of Commerce (DOC)

The basic role of the Department of Commerce is to facilitate the creation of an enabling environment and infrastructure for accelerated growth of exports. The authorization of the Department is the regulation, development and promotion of India’s international trade and commerce through the formulation and implementation of appropriate international trade and commercial policy.

Directorate General of Foreign Trade (DGFT)

Directorate General of Foreign Trade (DGFT) is an attached office of the Department of Commerce, Ministry of Commerce and Industry. DGFT has four Zonal offices located at Delhi, Mumbai, Kolkata and Chennai and it’s headquarter is in Udyog Bhavan, New Delhi.  All the Zonal Offices are headed by Additional Director General of Foreign Trade. There are 36 Regional Authorities (RAs) all over the country, including the 4 Zonal Offices, which are also RAs.

The DGFT is committed to the following:

i. to facilitate international trade in goods & services,

ii. to stimulate sustained national economic growth,

iii. to coordinate the efforts of the Union and the State Governments,

iv. to provide a trade environment that is transparent, equitable, proactive

DGFT is basically authorised to formulate and implement Foreign Trade Policy of the Government of India for delivery of efficient and quality services to all producers and consumers of goods and services in general and exporters and importers in particular. DGFT is also committed to provide integrated Electronic Data Interchange (EDI) platform for trade.

Regional Authority

The term "Regional Authority" has been specifically defined under Chapter 9 of the FTP 2009-14. As per the said definition, Regional Authority means authority competent to grant an Authorisation under the Act / Order. Earlier term Regional Authority has substituted the term Regional Licensing Authority (RLA). Regional Authority has been established at various locations under the Joint Director General of Foreign Trade. Address of Regional Authorities, their phone numbers and e-mail addresses are given in Appendix 1 of HBP Vol. 1 Part II.

Importance of Foreign Trade Policy

Being an era of globalization, foreign trade has become the lifeline of the economy.  Its primary objective is not the mere earning of foreign exchange, but also to enhance economic activity. Additionally, it enables a nation to specialize in its goods and also to consume more than its production capacity. Foreign trade also enlarges potential markets in an economy.

The importance of FTP can be summarized as follows:

1. Foreign Trade Policy ensures growth in the employment opportunities: Foreign trade increases the mobility of labour and resources, thus generating employment opportunities i.e direct employment in import/export sector and indirect employment in other sectors of the economy, like, industry and service sector (insurance, banking, transport, communication, etc.)

2. Maintains Balance of Payments (BOP) position: Every country has to maintain its balance of payment position. It depicts the balance between imports, which results in outflow of foreign exchange, and exports, which leads to the inflow of foreign exchange.

3. Facilitate economic development: When a country imports capital goods and technology, a country can grow in all sectors of the economy, including service sector. Also, exports can generate foreign exchange for the exporting country, thus, facilitating economic development.

4. Enhances reputation and builds goodwill: A country which is involved in exports earns goodwill in the international market. For example, Japan earned goodwill in foreign market due to its export of quality electronic goods.

5. Promotes world peace:  Foreign trade brings countries closer. It facilitates transfer of technology and other assistance from developed countries to developing countries thereby brings the countries closer. Thus, it creates a friendly atmosphere for avoiding wars and conflicts.    

6. Equality of prices: Prices can be stabilized by foreign trade. It helps to keep the demand and supply position stable, which in turn stabilizes the prices, making allowance for transport and other marketing expenses.

7. Division of labour and specialization: Foreign trade leads to division of labour and specialization at the world level. Some countries have abundant natural resources which could export raw materials and import finished goods from other countries. This could benefit all the countries.

8. Optimum allocation and utilization of resources: Due to specialization, unproductive lines can be eliminated and wastage of resources can be avoided. Thus, resources are channelized for the production of only those goods which would give highest returns. Thus, there is rational allocation and utilization of resources at international level.

9. Ensures quality and standard goods: Foreign trade is highly competitive. To maintain and increase the demand for goods, the exporting countries have to keep up the quality of goods. Thus, quality and standardized goods are produced.

10. Helps during natural calamities: During natural calamities such as earthquakes, floods etc.., the affected countries face the problem of shortage of essential goods. Foreign trade enables a country to import food grains & medicines from other countries to help the affected people.

11. Raises standard of living of people: Imports can facilitate standard of living of people. This is because people can have choice of new and better varieties of goods and services. By consuming new and variety of goods, people can improve their standard of living.

Key Features of FTP 2015-20

FTP 2015-20 provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the “Make in India” vision of Prime Minister.

• Special emphasis on improving the ‘ease of doing business’.

• FTP2015-20. introduces two new schemes, namely

i. “Merchandise Exports from India Scheme (MEIS)” for export of specified goods to specified markets and
ii. “Services Exports from India Scheme (SEIS)” for increasing exports of notified services,
iii. in place of a plethora of schemes earlier, with different conditions for eligibility and usage.

• Measures have been adopted to nudge procurement of capital goods from indigenous manufacturers under the EPCG scheme by reducing specific export obligation to 75% of the normal export obligation. This will promote the domestic capital goods manufacturing industry.

• Measures have been taken to give a boost to exports of defense and hi-tech items.At the same time e-Commerce exports of handloom products, books/periodicals, leather footwear, toys and customized fashion garments through courier or foreign post office would also be able to get benefit of MEIS (for values upto 25,000 INR).These measures would not only capitalize on India's strength in these areas and increase exports but also provide employment.

• In order to give a boost to exports from SEZs, government has now decided to extend benefits of both the reward schemes (MEIS and SEIS) to units located in SEZs.It is hoped that this measure will give a new impetus to development and growth of SEZs in the country.

• Trade facilitation and enhancing the ease of doing business are the other major focus areas in this new FTP.

• One of the major objective of new FTPisto move towards paperless working in 24x7 environment.

• Recently, the government has reduced the number of mandatory documents required for exports and imports to three, which is comparable with international benchmarks. [Notification 114/ (RE-2013)/2009-2014]

• Now, a facility has been created to upload documents in exporter/importer profile and the exporters will not be required to submit documents repeatedly.

• Attention has also been paid to simplify various ‘Aayat Niryat’ Forms, bringing in clarity in different provisions, removing ambiguities and enhancing electronic governance.

• Manufacturers, who are also status holders, will now be enabled to self certify their manufactured goods in phases, as originating from India with a view to qualifying for preferential treatment under various forms of bilateral and regional trade agreements. This “Approved Exporter System” will help these manufacturer exporters considerably in getting fast access to international markets. [Approved Exporter Scheme yet to be notified]

• Considering the strategic significance of small and medium scale enterprise in the manufacturing sector and in employment generation, ‘MSME clusters’ 108 have been identified for focused interventions to boost exports. Accordingly, ‘Niryat Bandhu Scheme’ has been galvanized and repositioned to achieve the objectives of ‘Skill India’.

• Outreach activities will be organized in a structured way at these clusters with the help of EPCs and other willing “Industry Partners” and “Knowledge Partners”.

Vision, Goal & Objectives

The vision underpinning the Foreign Trade Policy for 2015-2020 is to make India a significant participant in world trade by the year 2020 and to enable the country to assume a position of leadership in the international trade discourse.

Government aims to increase India’s exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20 and to raise India’s share in world exports from 2 percent to 3.5 percent.

The FTP for 2015-2020 seeks to achieve the following objectives:

• To provide a stable and sustainable policy environment for foreign trade in merchandise and services;

• To link rules, procedures and incentives for exports and imports with other initiatives such as ‘Make in India’, ‘Digital India’ and ‘Skills India’ to create an ‘Export Promotion Mission’ for India;

• To promote the diversification of India’s export basket by helping various sectors of the Indian economy to gain global competitiveness with a view to promoting exports;

• To create an architecture for India’s global trade engagement with a view to expanding its markets and better integrating with major regions, thereby increasing the demand for India’s products and contributing to the government's flagship ‘Make in India’ initiative;

• To provide a mechanism for regular appraisal in order to rationalise imports and reduce the trade imbalance.

Overview of Major Changes

Simplification & Merger of Reward Schemes

• Five different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri Infrastructure Incentive Scrip, VKGUY) merged into single unconditional scheme named as Merchandise Export from India Scheme (“MEIS”). Further, Rewards for export of notified goods to notified markets under MEIS shall be payable as percentage of realized FOB value (in free foreign exchange). The debits towards Basic Customs duty along with existing additional duty of customs / excise duty / service tax is also allowed adjustment as duty drawback;

• Serve from India Scheme (SFIS) has been replaced by Service Exports from India Scheme (“SEIS”) so as to allow benefits to all services providers located in India, instead of Indian Service Providers. Further, the rate of reward under SEIS would be based on net foreign exchange earned.

• For grant of rewards under MEIS, the countries have been categorized into 3 Groups, whereas the rates of rewards under MEIS range from 2% to 5%. Under SEIS the selected services would be rewarded at the rates of 3% and 5%;

• There would be no conditionality attached to any scrips issued under these schemes. Duty credit scrips issued under MEIS and SEIS and the goods imported against these scrips are fully transferable and usable for payment of Custom duty, Excise duty and Service tax.

• In order to give a boost to exports from SEZs, Government has now decided to extend benefits of both the reward schemes (MEIS and SEIS) to units located in SEZs;

The Nomenclature and Export Performance for recognition of Status Holders (SH) has been changed as follows

Earlier

Present

Status Category

Export Performance FOB/FOR Value (Rs. in Crores)

Status Category

Export Performance

FOB / FOR (as converted)

Value (in US $ million) during current and previous two years

Export House (EH)

20

One Star Export House

3 (19 cr)

Star Export House (SHE)

100

Two Star Export House

25(150 Cr)

Trading House (TH)

500

Three Star Export House

100 ( 600 Cr)

Star Trading House (STH)

2500

Four Star Export House

500 ( 3000Cr)

Premier Trading House

7500

Five Star Export House

2000 (12000 Cr)

< > HoldersBusiness leaders who have excelled in international trade and have successfully contributed to country’s foreign trade are proposed to be recognized as ‘Status Holders’ and given special treatment and privileges to facilitate their trade transactions, in order to reduce their transaction costs and time.

The nomenclature of Export House, Star Export House, Trading House, Star Trading House, Premier Trading House certificate has been changed to One, Two, Three, Four, Five Star Export House. Further, the criteria for export performance for recognition of status holder have been changed from Rupees to US dollar earnings.

• Online filing of documents/ applications and Paperless trade in 24×7 environment:

• Forthcoming e-Governance Initiatives:

Goods falling in the category of handloom products, books/periodicals, leather footwear, toys and customized fashion garments, having FOB value up to Rs.25000 per consignment (finalized using e-commerce platform) shall be eligible for benefits under FTP.

Export of such goods under courier regulations shall allowed manually on pilot basis through Airports at Delhi, Mumbai and Chennai as appropriate amendments in regulations to be made by DoR.

Government has already recognized 33 towns as export excellence towns (TEEs). It has been decided to add Vishakhapatnam and Bhimavaram in Andhra Pradesh as towns of export excellence (Product Category– Seafood).

Transition Provisions

With the introduction of the new FTP 2015-20 various questions or doubts may arise in the minds of exporters/ importers with regard to their licenses or scrips which they have already been issued or are entitled to be issued under the old FTP 2009-14. For example, an exporter had exported the goods before the introduction of FTP 2015-20, but has not applied for the issuance of duty scrips. Now, in respect of these goods whether he is entitled for the duty credit scrip? Therefore, to understand this we need to have a clear understanding of the transition provisions.

The transition provisions with regards to the beneficial schemes which were prevailing under erstwhile chapter 3 (such as FMS, FPS, VKGUY, etc.) is specifically given under para 1.05 and para 3.14 of the FTP 2015-20, under the para heading “Transitional Arrangement”.

License / Authorisation / Certificate / Scrip / any instrument issued before commencement of FTP 2015-20:

Para 1.05 provides that any License / Authorisation / Certificate / Scrip / any instrument bestowing financial or fiscal benefit issued before commencement of FTP 2015-20 shall continue to be valid for the purpose and duration for which such License/ Authorisation/ Certificate / Scrip / any instrument bestowing financial or fiscal benefit Authorisation was issued, unless otherwise stipulated. In other words, the exporter would be eligible for the benefits for which he was entitled under the FTP 2009-14, subject to the conditions stipulated in the FTP 2009-14.

Scrip applied or issued on or after FTP 2015-20:

Para 3.14 specified the transition provisions for the goods which are already exported or services already rendered upto 1.04.2015, which were otherwise eligible for issuance of scrips under erstwhile Chapter 3 of the earlier Foreign Trade Policy(ies). In such cases, the exporter can apply/ may be issued the scrip on or after 1.04.2015 against such export of goods or services rendered and such scrips shall be governed by the then prevailing policy and procedure (under erstwhile FTP and HBP) regarding eligibility, entitlement, transferability, usage of scrip and any other condition in force at the time of export of goods or rendering of the services, shall be applicable to such scrips.

Apart from the above, there may be certain scenarios where the new FTP 2015-20 has imposed some restrictions or regulation for import or export of goods/ services, which were permitted freely under erstwhile FTP provision. So again there may be a question in mind that whether can the exporter or importer go ahead in exporting or importing the said goods/ services. In this regard, the clarification is given under para 3.14(b). In such cases, export or import will ordinarily be permitted, notwithstanding such restriction or regulation, unless otherwise stipulated. However, this shall be subject to the condition that the shipment of export or import is made within the original validity period of an irrevocable commercial letter of credit, established before the date of imposition of such restriction and it shall be restricted to the balance value and quantity available and time period of such irrevocable letter of credit. For operationalising such irrevocable letter of credit, the applicant shall have to register the Letter of Credit with jurisdictional Regional Authority (RA) against computerized receipt, within 15 days of the imposition of any such restriction or regulation.   

Last date of filing of application for Duty Credit Scrip under erstwhile schemes [2009-2014]

The new FTP 2015-20 has simplified various schemes which were prevailing under the erstwhile foreign trade policy. However, that does not mean that the exporters who have already exported the goods or rendered services are barred from obtaining the benefits of the erstwhile schemes, which they are otherwise eligible for. 

It is pertinent to note that the application for obtaining the duty credit scrips under various schemes under the erstwhile FTP could still be made by the exporter, subject to certain conditions (late cut fee). Chapter 9 of Handbook of Procedures provides that application may be considered after imposing a late cut in the following manner:

Sl no.

Condition

Late Cut

Eligible Benefit

1

Application received after the expiry of last date but within six months from the last date

2%

98%

2

Application received after six months from the prescribed date of submission but not later than one year from the prescribed date

5%

95%

3

Application received after 12 months from the prescribed date of submission but not later than 2 years from the prescribed date

10%

90%

Conclusion

The Foreign Trade Policy is primarily focused on accelerating exports. This is sought to be implemented through various schemes intended to exempt and remit indirect taxes on inputs physically incorporated in the export product, import capital goods at concessional duty, stimulate services exports and focus on specific markets and products. The Policy attempts to dovetail these schemes with the specific market access openings that India has achieved through negotiations with its trading partners for various bilateral and regional trading arrangements.

In this FTP, focus has been on simplicity and stability.  Further, the policy on one hand seeks to realign multiple schemes with the objective of reducing the complexities, on the other hand it wants to promote increased use of technology to reduce the transaction cost and manual compliances. By extending benefits under EPCG on domestic procurements and offering them to more products under MEIS, the policy seeks to further incentivise the exports. While the measures proposed in the policy are not radical, they appear to be in the right direction.

Assisted  By: CA. Monalisa Khuntia & Vinayaka Adiga

1. < > to “Make In India”To incentivise ‘Make in India’ theme the FTP proposes to reduce export obligations if Capital goods under EPCG Scheme are procured from indigenous manufacturers (only 75% in place of 90%);

2. Higher level of rewards under MEIS for export items with high domestic content and value addition.

Trade Facilitation & Ease Of Doing Business

• It has been decided to develop an online procedure to upload digitally signed documents by Chartered Accountant / Company Secretary / Cost Accountant to do away with present physical forms like annexure attached to ANF 3B, ANF 3C and ANF 3D etc;

• Hardcopies of certain applications and specified documents would not be required to be submitted to Regional Authorities (RA), saving paper as well as cost and time for the exporters. In this regard, to start with, applications under Chapter 3 & 4 of FTP are being covered. Applications under Chapter-5 would be taken up in the next phase;

• Landing documents of export consignment as proofs for notified market will be digitally uploaded;

• Online inter-ministerial consultations for approval of export of SCOMET items, Norms fixation, Import Authorisations, Export Authorisation, in a phased manner is proposed.

• Simplification of procedures/processes, digitisation and e-governance:

Facility has been created to upload documents in Exporter/Importer Profile, Online applications for refunds, Online message exchange with CBDT and MCA etc.,

• In this context, Directorate General of Foreign Trade (DGFT) is currently working on various Electronic Data Interchange initiatives like Message exchange with CBDT for PAN, Message exchange with Ministry of Corporate Affairs for CIN & DIN etc,.

Simplification of Procedures / Processes, digitization and e-governance

• Under EPCG scheme, obtaining and submitting a certificate from an independent Chartered Engineer, confirming the use of spares, tools, refractory and catalysts imported for final redemption of EPCG authorizations has been dispensed with.

• The requirement of maintenance of records by EPCG Authorization holders has been reduced from 3 years to 2 years only, after redemption of authorization.

• Facility has been created to upload documents in Exporter/Importer profile and there will not be necessary to submit copies of permanent records/documents (e.g. IEC, Manufacturing licence, RCMC, PAN etc.) repeatedly with each application, once uploaded.

• Certain information, like mobile number, e-mail address etc. has been added as mandatory fields, in IEC data base for communication with Exporters/Importers.

• It has been decided to have an online message exchange with CBDT for PAN data and with MCA for CIN and DIN data.

• For faster and paperless communication with various committees of DGFT, dedicated e-mail addresses have been provided to each Norms Committee, Import Committee, and Pre-shipment Inspection Agency.

• Online filing of application for refund of TED is being introduced for which a ANF has been created.

< > e-governance Initiatives

Message exchange for transmission of
Export reward scrips from DGFT to Customs.

BOE (import details) from Customs to DGFT.

< >< >
MCA for CIN & DIN
CBDT for PAN
< >< >< >

New initiatives for EOUs, EHTPs and STPs

• The above units are allowed to share infrastructural facilities among themselves which enables to utilize in optimum way and avoids duplications of efforts and cost.

• IUT of goods and services have been allowed among EOUs, EHTPs, STPs and BTPs.

• EOUs have been allowed to set up Warehouse near the port export.

• STPs, EHTPs and software EOUs have been allowed the facility to use all duty free equipment/ goods for training purposes.

• 100% EOU units have been allowed facility of supply of spares/ components up to 2% of the value of the manufactured articles to a buyer in domestic market for the purpose of after sale services.

• If in case adverse market condition or any ground of genuine hardship, thenfor achieving positive NFE cumulatively by EOU units can be extended by 1 year in addition present period of 5 years.

• Time period for validity of LOP for EOUs/EHTP/ STPI/BTP Units has been revised for faster implementation and monitoring of projects. Now, LOP will have an initial validity of 2 years to enable the unit to construct the plant and install the machinery. Further extension can be granted by the Development Commissioner up to one year. Extension beyond 3 years of the validity of LOP, can be granted, in case unit has completed 2/3rd of activities, including the construction activities.

• At present, EOUs, EHTPs and STPs are permitted to transfer capital goods to other EOUs, EHTPs, STPs and SEZ units and now a facility has been provided that if transferred capital goods rejected by the recipient, then the same can be returned to the supplying unit without payment of duty.

• A simplified procedure will be provided to fast track the de-bonding / exit of the STP/ EHTP units which will saves time and transactions cost.

• EOUs having physical export turnover of Rs.10 crore and above, have been allowed the facility of fast track clearances of import and domestic procurement. They will be allowed fast tract clearances of goods, for export production, on the basis of pre-authenticated procurement certificate, issued by customs / central excise authorities. They will not have to seek procurement permission for every import consignment.

Facilitating & Encouraging Export of dual use items (SCOMET).

• Validity of SCOMET export authorization has been extended from the present 12 months to 24 months.

• Authorisation for repeat orders will be considered on automatic basis subject to certain conditions.

• Verification of End User Certificate (EUC) is being simplified if SCOMET item is being exported under Defence Export Offset Policy.

• Outreach programmes will be conducted at different locations to raise awareness among various stakeholders.

< > & Encouraging Export of Defense Exports

e-Commerce Exports
< > Exemption< > complaints and Trade Disputes

In order to resolve quality complaints and trade disputes, between exporters and importers a new chapter namely, Chapter on Quality Complaints and Trade Disputes has been incorporated in the FTP

For resolving such disputes at a faster pace, a Committee on Quality Complaints and Trade Disputes (CQCTD) is being constituted in 22 offices and would have members from EPCs/FIEOs/APEDA/EICs. 

CA Madhukar N. Hiregange


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