Promotion of foreign trade: export incentives, product and marketing assistance, import facilities for exporters, EXIM Bank and ECGC

1. Why promote exports

Exports earn the foreign exchange needed for imports of oil, machinery and technology; create employment; allow economies of scale; and reduce the trade deficit. Indian exporters also face handicaps — high logistics cost, embedded taxes on fuel and electricity, costly credit — that promotion schemes try to offset, within the limits of the WTO Agreement on Subsidies and Countervailing Measures.

2. Export incentives (fiscal)

1. Zero-rating under GST: exports are zero-rated supplies (section 16 of the IGST Act, 2017). The exporter either exports under a Letter of Undertaking without paying IGST and claims refund of input tax credit, or pays IGST and claims a refund.
2. Duty drawback (section 75 of the Customs Act, 1962): refund of customs and central excise duty paid on inputs used in export goods, at All Industry Rates fixed by the government or at a brand rate for a particular exporter.
3. RoDTEP (Remission of Duties and Taxes on Exported Products), from 1 January 2021: refunds taxes embedded in exports that are not otherwise refunded (state levies, duty on fuel used in transport, mandi tax, electricity duty), given as transferable electronic duty credit scrips. It replaced the Merchandise Exports from India Scheme (MEIS) after a WTO panel found MEIS to be an export subsidy.
4. RoSCTL (Rebate of State and Central Taxes and Levies) for apparel and made-ups.
5. Tax benefits for SEZ units and developers (see the note on SEZs).

3. Import facilities for exporters

These let an exporter import inputs and machinery without duty, so that Indian exports are not burdened by import duties.

• Advance Authorisation: duty-free import of inputs physically incorporated in the export product (with normal wastage), against an export obligation to be met usually within 18 months.
• Duty Free Import Authorisation (DFIA): similar, but issued after export and transferable once the obligation is met.
• EPCG (Export Promotion Capital Goods): import of capital goods at zero customs duty, against an export obligation of six times the duty saved, to be fulfilled in six years.
• Special Advance Authorisation for apparel and clothing.
• EOU and SEZ units may import all inputs and capital goods duty-free.
• Status holders get faster clearance and other privileges.

4. Product assistance and facilities

• Quality control and pre-shipment inspection under the Export (Quality Control and Inspection) Act, 1963, through the Export Inspection Council, so that Indian goods meet importers’ standards.
• Commodity boards and development authorities: the Tea Board, Coffee Board, Spices Board, Rubber Board, APEDA (agricultural and processed food), MPEDA (marine products) — research, quality improvement, packaging and certification.
• Indian Institute of Packaging for export packaging.
• Trade infrastructure: the Trade Infrastructure for Export Scheme (TIES), inland container depots, air cargo complexes, the National Logistics Policy.
• Towns of Export Excellence and Districts as Export Hubs: common facilities in clusters such as Tiruppur (knitwear) and Moradabad (brassware).

5. Marketing assistance

• Market Access Initiative (MAI) scheme: financial help to EPCs and exporters for trade fairs, buyer–seller meets, market studies and promotion abroad.
• India Trade Promotion Organisation (ITPO): organises trade fairs (India International Trade Fair at Bharat Mandapam, New Delhi) and Indian participation in fairs abroad.
• Indian missions abroad: commercial wings give market information and contacts.
• Export Promotion Councils (EEPC India for engineering, Pharmexcil, AEPC for apparel, GJEPC for gems and jewellery) and the Federation of Indian Export Organisations (FIEO).
• Indian Institute of Foreign Trade (1963): training and research.
• Brand promotion through the India Brand Equity Foundation.

6. Export finance and insurance

• Pre-shipment and post-shipment credit by commercial banks in rupees or foreign currency, under RBI directions.
• ECGC Ltd. (set up in 1957 as the Export Risks Insurance Corporation, now ECGC Ltd., wholly owned by the Government of India): insures exporters against commercial risk (buyer’s insolvency or default) and political risk (war, transfer restrictions), and gives guarantees to banks lending to exporters.
• EXIM Bank: below.

7. The Export-Import Bank of India

Established under the Export-Import Bank of India Act, 1981, it began operations on 1 January 1982 and is wholly owned by the Government of India, with its head office in Mumbai. It took over the export-finance work earlier done by IDBI.

Objectives

Section 3 of the Act sets it up for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services, with a view to promoting India’s international trade.

Functions

1. Export credit: term loans to exporters, especially for capital goods and project exports on deferred payment.
2. Buyer’s credit: loans to foreign buyers to purchase Indian goods and services.
3. Lines of credit: to foreign governments and banks, including Government of India-supported lines for developing countries in Africa and Asia, which finance Indian exports and projects.
4. Project exports: finance and guarantees for Indian contractors building overseas projects (turnkey, civil construction).
5. Overseas investment finance: loans to Indian companies setting up or acquiring ventures abroad.
6. Import finance for import of technology and capital goods.
7. Refinance and rediscounting of export credit given by banks.
8. Guarantees: performance and advance-payment guarantees for exporters.
9. Advisory and research: export marketing services, country studies, and research papers on trade.
10. Small exporters: help to MSMEs and grassroots exporters to reach foreign markets.

How this is examined

The export-promotion essay: why promotion is needed, then sections 2 to 6 as sub-headings with current scheme names and an example each. Do not write MEIS as a current scheme; write RoDTEP and add that it replaced MEIS. The EXIM Bank essay: Act, date, ownership, the section 3 objective, then the ten functions. The trade-law side of subsidies is in the note on subsidies and countervailing measures.