Review of services export scheme in 6 months

The Centre’s new export incentive scheme for services, targeted at a larger number of beneficiaries through its flexible approach, comes with a catch.

The benefits under the new scheme announced in the five-year Foreign Trade Policy last week are valid only for the next six months, following which there will be a review.

“In case it is found that there is a huge amount of revenue outgo on account of certain sectors, the benefits could be slashed,” an official in the Commerce Ministry told BusinessLine .

The new FTP announced last week gave a big boost to the services sector by introducing an incentive scheme with inbuilt flexibility to ensure that all those eligible benefit from it.

The earlier scheme had incentives in the form of duty free scrips that could be used only to pay customs duty for imports of inputs by the actual user. This rendered the scheme ineffective for most services sectors that did not import any input.

The duty free scrips in the new ‘Services Export from India Scheme’ (SEIS) are freely transferrable to other users and can be used to pay customs duty, excise and service tax.

“The duty free scrips are as good as cash incentive now, so we have to carefully monitor how it is being used,” the official said.

The Finance Ministry had reservations about making the duty free scrips fully transferrable as the Government has no idea of the extent to which it would be used by sectors that earn a lot of foreign exchange such as hotels and tourism.

It was because of the uncertainty that the rate of benefits under the new scheme was kept at a low 2 per cent, 3 per cent and 5 per cent (depending on the sector) of the value of foreign exchange earned, compared to 10 per cent in the previous ‘Served from India Scheme’, the official added.

“We thought that it is better to keep rates of incentives low to begin with, rather than slash them later. But we would of course slash them further if it is found in the review that particular sectors were benefitting more than warranted. The sectors not using the scheme to their advantage could also get higher rates,” the official said.

Interestingly, the review for the SEIS has been scheduled in six months, while the other schemes would be reviewed only after two-and-a-half years to build in predictability in policy making.

Services exports in 2014-15 are at an estimated $151 billion, which is almost half of merchandise exports pegged at $314 billion. It is expected to grow at a faster rate than goods exports in the next five years, according to Commerce Secretary Rajeev Kher.

COMMENT NOW