INTERNATIONAL

BUSINESS ASSIGNMENT

GOVERNMENT
INCENTIVES FOR
EXPORTERS IN INDIA

BY: Abhinav Mahant 51

Kaajal Marwah 56
Rahul Mehra 58
Drishti Obhan 68
 Vicky Paryani 70

Exports are the major focus of India's trade policy and a thrust area is exports
involving higher value additions In order to promote exports and to obtain foreign
exchange, the Government of India had framed several schemes, which grant
incentives and other benefits.

Most items can be freely exported from India only a few items are subject to
export control in order to avoid shortages in the domestic market, to conserve
national resources and to protect the environment.

Export profits are exempt from income tax. Inputs required to be imported for
export production are exempted from the basic customs duty. Export Oriented
Units (EOUs) and Export Processing Zones (EPZs) enjoy special incentives such
as duty free import of capital goods and raw materials for the purpose of export
production.

Some of these incentive are briefly discussed below :-

Free Trade Zones : Several Free Trade Zones have been established in India at
various places such as Kandla, Noida, Cochin and Santa Cruz in Mumbai. No
excise duties are payable on goods manufactured in these free trade zones
provided the goods are exported. Goods brought into this zone from other parts
of the India are brought without payment of any excise duty. Similarly, no
customs duties are payable on imported raw material and components used in
the manufacture of goods exported. Since selling the entire production of units in
these free trade zones outside India may not be always possible, such units may
sell 25 % of their production in India. Excise duty is payable on such domestic
sale at 50 % of basic plus additional customs duty or normal excise duty payable
if they were produced elsewhere in India, whichever is higher.

100% Export Oriented Units (EOU): can import raw materials without payment
of any customs duty provided they export their products. Since selling the entire
production of units in these free trade zones outside India may not be always
possible, such units may sell 25 % of their production in India. If they sell their
product in India, duty equal to excise duty if the products were manufactured by
another person in India or 50% of custom duty, whichever is higher becomes
payable.

Electronic Hardware Technology Park / Software Technology Parks: This

scheme is similar to the Free trade Zone Scheme except that it is restricted to
units in the electronics and computer hardware and software sector.

Advance Licence / Duty Exemption Entitlement Scheme (DEEC): Under this

scheme, raw material and other components can be imported without payment of
customs duty for use in goods to be exported against advance licence. Such
licence may either be quantity based (Qbal) or value based (Vabal). i.e upto the
quantity or value specified in the licence, duty free imports of specified materials
can be made. Such licences are transferable at a price in the open market.
Quantity based inputs and output norms have been prescribed for various
products for acquiring a licence.

The exporter sometimes uses components manufactured in the domestic market.

The domestic manufacturer can get advance intermediate license for raw
materials required by him for manufacture and supply of intermediate products to
the exporter. Such exports are known as deemed exports i.e. though they are not
actual exports, they are treated as exports since they facilitate final exports. Such
a domestic manufacturer of intermediate products can get advance customs
release order on the basis of the licence of the final exporter. Besides, such a
domestic manufacturer can send intermediate goods to the final exporter without
payment of excise duty.

Export Promotion Capital Goods Scheme (EPCG): Under this scheme, a

domestic manufacturer can import machinery and plant without payment of
customs duty or at a concessional rate of customs duty. However, he has to give
an undertaking that he will undertake to export as follows:

Customs Duty Rate Export Obligation Time

10% 4 times exports (on FOB basis) 5 years
of CIF value of machinery.
Nil in case CIF value is Rs200mn or 6 times exports (on FOB basis) 8 years
more. of CIF value of machinery or 5
times exports on (NFE) basis of
CIF value of machinery.
Nil in case CIF value is Rs50mn or 6 times exports (on FOB basis) 8 years
more for agriculture, aquaculture, of CIF value of machinery or 5
animal husbandry, floriculture, times exports on (NFE) basis of
horticulture, poultry and sericulture. CIF value of machinery.
NFE stands for net foreign earnings, CIF stands for cost plus insurance plus
freight cost of the machinery, FOB stands for Free on Board i.e. export value
excluding cost of freight and insurance. Time is in years.

The exporter can also procure such machinery from India with payment of duty or
at concessional rate of duty.

Manufacture under Bond: Under this scheme, if the manufacturer furnishes a

bond of adequate amount and undertakes to export his production, he is allowed
to import goods without payment of any customs duty. Similarly, he can obtain
goods from the domestic market without excise duty. Production has to be under
the supervision of the customs or excise authority.

Duty Drawback: Drawback means rebate of duty chargeable on any imported

material or excisable material used in the manufacture of goods which are
manufactured in India and exported. An exporter is entitled to claim drawback or
refund of excise and customs duties paid by his suppliers. Drawback on material
used for manufacturer of export products can be claimed by the final exporter.
Rules have been framed for the purpose allowing drawback. Drawback is
allowed even in respect of goods, which are re imported.

Drawback is equal to:-

• Customs paid on imported inputs plus excise duty paid on indigenous

imports

• Duty paid on packing material

Drawback is allowable in case goods are re-exported from as such or after use
(eg goods brought into India for exhibitions, etc), provided the re-exported goods
are clearly be identifiable and are re-exported within 2 years from the date of
payment of duty when they were imported. After inspection, 98% of the customs
duty paid while importing the goods is allowable as drawback. The market value
of the goods re-exported must be more than or equal to the value of goods
imported.