Highlights of Annual Supplement to Foreign Trade Policy 2009-14

The Government of India has announced several measures in Foreign Trade Policy (‘FTP’) for FY 2013-14.  Few of the measures have been notified through Notifications effective from April 18, 2013.  However, the complete text of the FTP and Handbook of Procedure is yet to be released.  These measures aim to achieve the following key objectives:    

1.     Increasing the technology intensity of exports from India through revamp of Export Promotion Capital Goods (‘EPCG’) scheme;

2.     Diversification of markets and products for export through changes in Focus Market Scheme (‘FMS’) and Focus Product Scheme (‘FPS’);

3.     Renewal of investor’s interest in Special Economic Zone (‘SEZ’) by reduction in minimum land requirement criteria for setting up of SEZ unit and allowing sale of existing units;

4.     Incentivising incremental export performance in the current financial year;

5.     Expanding avenues of utilization of duty credit scrip to include payment of services tax and application fees under various FTP schemes;

6.     Reduction in trade deficit of India and to boost export way beyond the current performance of USD 300 billion.

To meet the above objective, the following changes, supplemented by other policy initiatives, have been announced as part of the policy reforms in the FTP supplement:

Revamping the EPCG Scheme

·       Zero percent EPCG scheme has been expanded to all industries and sunset clause (of March 31, 2013) for the Zero percent EPCG scheme has been removed;

·       Import of cars and other vehicles will not be allowed under the new zero duty scheme.  However, hotel and travel industry will be allowed to import motor cars under Served From India Scheme (‘SFIS’);

·       Export Obligation (‘EO’) has been reduced from eight times to six times of duty saved;

·       Period of EO has been reduced to 6 years, irrespective of the amount of duty saved;

·       EO allowed to be reduced further by 10% in cases where capital goods are sourced domestically;   

·       Going forward, second hand capital goods cannot be procured under EPCG Scheme;

·       For EPCG licenses issued after April 2013, clubbing of EPCG licenses is allowed; this facility was only available to Advance Authorizations;

·       Regularization of default in EO allowed subject to payment of customs duty and interest.  Customs duty component can be paid using duty credit scrip

Special Economic Zone (‘SEZ’)

·       Conditions for setting up SEZ units have been liberalized by reducing the minimum-land area requirement and allowing change in ownership; this is expected to review interest in SEZ units and make it more inclusive for Small and Medium Enterprises (‘SME’) sector;

·       For the purpose of illustration, the existing minimum land area requirement of 100 acres has been reduced by 50%;

·       To boost the information technology sector, the government has removed minimum land requirement for setting up IT/ ITES SEZ;

·       Clustering of similar units (ie sectoral broad-banding) is encouraged to achieve economies of scale in creating and operating common facilities, and generating external economies of scale to lower costs for the concentrated industry as a whole

Diversification of duty credit incentives to more products and markets

·       Scope of FMS and FPS has been expanded with addition of new markets and products.  This will aid in penetrating Latin American and European markets;

·       Specific duty credit scrips under Chapter 3 are now eligible for payment of service tax, application fee under FTP, composition fee and value-wise shortfall in export obligation;

·       Service tax exemption notifications have been issued to outline the mechanism of utilization of duty credit schemes.  This may further require change in service tax return formats also

·       Duty Credit Scrip issued under FMS, FPS and Vishesh Krishi Gramin Udyog Yojana (‘VKGUY’) can be utilized for payment of service tax also

Incremental Export Incentive Scheme

·       The scheme introduced last year to grant additional incentives of 2% to exports made to USA, EU and Asia between January 2013 to March 2013 has been extended for FY 2013-14 and (53) countries of Latin America and Africa have been added to the scheme

Amnesty scheme for export obligation defaulters under EPCG and Advance Authorization

One time window for regularization of pending default cases of EO under Advance Authorization and EPCG authorizations has been provided.  Importers would be given an option to pay customs duty and interest under the scheme; details and mechanism of the amnesty scheme is awaited.