With a few exceptions (Table AIII.1), exporters must register with the Directorate General of Foreign Trade (DGFT) and obtain an importer‑exporter code (IEC) number to be able to export.138 In addition to the IEC, exporters also need to obtain a business identification number from the DGFT to be allowed to file the shipping bill. The shipping bill may be processed manually or through the electronic data interchange (EDI) system. For manual submission, supporting documents (e.g. invoice, and packing list) must be filed along with the shipping bill. Under the EDI system, exporters must file only a declaration or shipping bill; no supporting documents are required.139 However, the supporting documents must be submitted to Customs at the time of grant of the "let export" order.140 The shipping bill may be filed seven days in advance of the presentation of goods to Customs (15 days for exports by sea). About 96% of export documents are processed electronically.141
Once the shipping bill has been processed, goods are examined by Customs before they are given a "let export" order.142 Goods subject to export restrictions and quotas must also be accompanied by licences from the DGFT (section (v)(b) below). If goods are to be exported under an export promotion scheme (section (vii)(b) below), this must be declared on the shipping bill.143 A risk management system (RMS), already implemented for import procedures (section (2)(i)), and expected to be operational for exports by June 2009144, had not been implemented as at February 2011. It will be implemented in a phased manner.
The average time for the completion of export procedures is 17 days (down from 27 days in 2007), which includes 8 days for documents preparation and 2 days for customs clearance and technical inspections. According to World Bank information, export procedures cost on average US$945 per container, including documents preparation (US$350) and customs clearance (US$120).145
Quality control and preshipment inspection
Since 2007, India's quality control and preshipment inspection measures for exports have remained broadly unchanged. Under the Export (Quality Control and Inspection) Act 1963, the Export Inspection Council of India (EIC) carries out quality control and preshipment inspection to ensure minimum standards for exports of products notified under the Export (Quality Control and Inspection) Act 1963 and non‑notified products.146 The Act empowers the Central Government to notify commodities and specify the minimum standards for their export. According to the authorities, there are currently over 800 notified products (no products have been notified since 2007).147 The authorities noted that quality control and preshipment inspection measures were simplified during the review period. They currently apply to basmati rice, black pepper, dairy, eggs, fish and fish products, honey, meat and meat products, and processed food products containing red chillies.148 Under the Export Policy Schedule (Foreign Trade Policy 2009‑14), it appears that preshipment inspection also applies to exports of canned meat products and marine species (except those contained in the Wild Life (Protection) Act 1972).149
Export certification is through inspection of consignments or a "systems approach" inspection. The systems approach includes in‑process quality control throughout the production process, self‑certification, and food safety management systems certification (FSMSC). The FSMSC, which is based on international standards, applies to fish and fishery products, eggs, and dairy products, which accounted for around 81% of India's certified exports150(by value) in 2008/09 (latest available data).151 The EIC charges 0.4% and 0.2% of the f.o.b. value of the exports for consignment and systems approach inspections, respectively. Testing of samples is generally free of charge.152 Other EIC export certificates include health certificates (for fishery products), authenticity certificates (basmati rice), residue certificates (dairy, poultry, and eggs products), preferential certificates of origin, and non‑GMO certificates.153 EIC certification has been recognized for a range of food and non‑food products by Australia, Brazil, China, the EU, Italy154, Japan, the Kingdom of Saudi Arabia, Korea, Rep. of, Russia, Singapore, Sri Lanka, Turkey, the United States, and Viet Nam.
Export taxes, charges, and levies
Export taxes are used as a policy instrument to, inter alia, ensure domestic supply of raw materials for higher‑value‑added industries, promote further processing of natural resources, ensure an "adequate" domestic price, and preserve natural resources. Export taxes for tanned and untanned hides, skins, and leathers (except manufactures of leather) have remained in place since the last Review of India in 2007. Export taxes for iron ores and concentrates (including iron ore fines)155, chromium ores and concentrates, and products of iron and steel (including ferrous waste and scrap, flat rolled products, and tubes and pipes) were introduced in 2009 (Table III.15). Export taxes are sometimes used with other measures to attain short‑term goals. For instance, in April 2010 India introduced export licensing/EARCs for raw cotton and cotton waste in addition to export taxes for six months to ensure an adequate domestic supply and to contain an increase in the price of cotton in the domestic market (section (v) below) (Table III.15).
An export cess is collected for the development of a specific industry; it is consequently levied on certain exports for the development of that industry. As at 2011, a cess applies to exports of shellac and lac‑based products, manganese ore, chrome ore, mica products, and iron ore (Table III.16). The Spices Cess Act 1986 and the Tobacco Cess Act 1975 were repealed by the Cess Laws (Repealing and Amending) Act 2006. The additional export cess, under the Agricultural Produce Cess Act 1940, which applied to both of these products, was also repealed in 2006.156
Export taxes, 2011
Tanned and untanned hides, skins, and leathers (except manufactures of leather)
10%‑25% of the f.o.b. value
Iron ores and concentrates, including iron ore fines
20% of the f.o.b. value for iron ores and concentrates
5% of the f.o.b. value for iron ore fines
Chromium ores and concentrates
Rs 3,000 per tonne
1 March 2007/in force
Ferrous waste and scrap, and remelting scrap ingots of iron or steel
15% of the f.o.b. value
1 March 2007/in force
Rs 2,500 per tonne
April 2010/removed in October 2010
3% of the f.o.b. value
April 2010/removed in October 2010
Source: CBEC online information, "Customs Tariff 2009‑10: Part III: The Second Schedule: Export Tariff and Corresponding Exemption Notifications". Viewed at: http://www.cbec.gov.in/customs/cst-0910/cst-main.htm; Government of India Press Information Bureau, Press Release, "FM Announces Fresh Additional Relief Package in His Reply to the Debate on Finance Bill 2010", 29 April 2010; and information provided by the Indian authorities.
Export cess, 2011
Shellac and lac based products
Rs 2.30 per quintal
Rs 4 per tonne
Rs 6 per tonne
3.5% of the f.o.b. value
Rs 1 per tonne
Note: The cess on manganese ore, chrome ore, and iron ore is levied under the Iron Ore Mines, Manganese Ore Mines, and Chrome Ore Mines Labour Welfare Cess Act 1976.
Source: CBEC online information, "Customs Tariff 2009‑10: Part III: The Second Schedule: Export Tariff and Corresponding Exemption Notifications". Viewed at: http://www.cbec.gov.in/customs/cst‑0910/cst‑main.htm.
Minimum export prices
Under the Export Policy Schedule (Foreign Trade Policy 2009‑14), India maintains minimum prices on exports of onions and basmati rice. It maintains minimum prices for onions exported by state trading enterprises. At present, MEPs for onions are revised and fixed by an Inter‑Ministerial Review Committee at the Department of Commerce (Table II.4). Bangalore rose onions and Krishnapuram onions are subject to export licensing and to a minimum export price of US$600/tonne.157 The minimum price for exports of basmati rice, which is set by the DGFT, was initially US$1,100/tonne of the f.o.b. value; it was reduced to US$900/tonne in September 2009.158 The authorities have indicated that Basmati rice is subject to a minimum export price to ensure prices and availability in the domestic market.
Although exports of non‑basmati rice were prohibited at the time of India's last Review, exports of the PUSA‑1211, a variety of non‑basmati rice, were allowed, subject to a minimum price of US$1,200/tonne of the f.o.b. value until 1 April 2008.159 Exports of non‑basmati rice are currently prohibited (Table AIII.5), except for certain varieties subject to quotas and MEPs.160
Export prohibitions, restrictions, and licensing
Export prohibitions apply mainly for environmental, food‑security, marketing, pricing, and domestic supply reasons; and to comply with international treaties. Since 2007, additional products have been subject to export prohibitions, including non‑basmati rice, wheat, pulses, and edible oils (Table AIII.5).
Although exports of non‑basmati rice and wheat are prohibited, the ban does not apply to exports of organic non‑basmati rice and organic wheat certified by the Agricultural and Processed Food Products Export Development Authority (APEDA). These products are subject to an export quota of 10,000 tonnes and 5,000 tonnes per year, respectively.161
Export prohibitions and export quotas are notified on an annual basis; they are usually in place for a specific period, during which they may be subject to changes. These changes diminish the predictability of the regime. For instance, exports of edible oils were initially prohibited in 2008, and thereafter extended until 30 September 2011, due to a lack of supply to meet domestic demand.162 However, this prohibition has been relaxed for branded consumer packs of oil of up to 5 kg since 2008, which have since been subject to an export quota of 10,000 tonnes.163 Customs are in charge of monitoring the quota. Also, the prohibition on exports of shavings of shed antlers of Chital and Sambhar (including manufactured articles) was relaxed from 8 to 30 September 2009164; it was a one‑time relaxation and exports have been prohibited since October 2009. Exports of pulses have been prohibited since 2006 and will remain prohibited until up to 31 March 2012.165 According to the authorities, the prohibition is in place to ensure domestic supply. Under the Foreign Trade Policy 2004‑09, exports of cement were prohibited as of April 2008, except for exports from the domestic tariff area (DTA) to special economic zones (SEZs) for use in SEZs.166 However, exports of cement were liberalized by December 2008.
In addition, India bans exports of some products to the Democratic People's Republic of Korea, Iran, and Iraq, under UN resolutions; and of rough diamonds to the Bolivarian Republic of Venezuela, under the Kimberly process.167
Export licensing and quotas
Under the current Export Policy Schedule, some 167 lines (171 lines in 2007) at the HS eight‑digit level, excluding products of special chemicals, organisms, materials, equipment, and technologies (SCOMET), are currently subject to restrictions.168 Products may be exported only if a licence is issued by the DGFT.
Export licensing is sometimes used as a policy tool to ensure the domestic supply of certain products. For example, exports of cotton (HS 5201, 5202, and 5203), excluding cotton yarn (HS 5205, 5206, and 5207), were restricted (i.e. subject to an export licence) from 21 May 2010 to 30 September 2010.169 Cotton yarn was subject to a restriction from December 2010 to March 2011.170 In addition, exports of cotton and cotton yarn require an export authorization registration certificate (EARCs). EARCs are issued by the Directorate General of Foreign Trade (as of December 2010171) only when the domestic supply of cotton is ensured (Table II.4). For instance, no EARCs were granted from 19 April 2010 to 21 May 2010172; this decision to suspend exports was aimed at lowering domestic prices and ensuring a stock of 5 million bales of cotton for the domestic garment and handloom sectors up to the start of the next cotton season (in October).173
Exports of brown seaweeds and sandalwood oil are subject to export quotas set by the DGFT. The quota is determined on the basis of domestic demand and anticipated production. Only exports of wheat products (HS 1001) are subject to a ceiling. Exports of sugar (by state‑trading enterprises) are subject to quota under preferential regimes (Table III.17). In addition to this quota, the system of "export release order" for sugar exports was reintroduced in 2009.174 Under this system, based on domestic demand and supply estimates, the Sugar Directory determines annually the amount of sugar that can be exported subject to a "release order".175
State trading of exports has the stated purpose of ensuring better marketing and prices of agricultural and minor forest products, grown by small‑scale farmers, as well as to prevent fluctuations in domestic prices; and to ensure supply of kerosene and liquefied petroleum gas (used as domestic fuels), and conservation and proper use of some metal ores.176 Since 2007, exports through state‑trading have also included all varieties of onions (prohibited for exports from December 2010 to February 2011 (Table II.4)), manganese ores (above 46% manganese (Mn)), and beneficated chrome ore fines/concentrates (Table III.17).
As for imports, state‑trading enterprises (STEs) are granted special privileges to export but must act in accordance with commercial considerations and in a non‑discriminatory manner. The exclusive right to export is granted to an enterprise by the DGFT under the provisions of the Foreign Trade Policy (Paragraph 2.11). However, if STEs are not interested in exporting, other exporters may approach the DGFT for permission to export.177
Exports subject to state trading, 2007‑11
National Agricultural Cooperative Marketing Federation of India (NAFED) Ltd.; Maharashtra State Agricultural Marketing Board; Gujarat Agro Industries Corporation Ltd.; Spices Trading Corporation Ltd.; A.P. State Trading Corporation; Karnataka State Cooperative Marketing Federation Ltd.; National Cooperative Consumers Federation of India Ltd.; North Karnataka Onion Growers Co‑operative Society; West Bengal Essential Commodities Supply Corporation Ltd.; M.P. State Agro Industries Development Corporation; Karnataka State Produce Processing and Export Corporation; Madhya Pradesh State Co‑operative Oil Seeds Growers Federation Ltd.; and Andhra Pradesh Marketing Federation
Onion (all varieties), including Bangalore rose onions and Krishnapuram onionsa
0703 10 10
0712 20 00
Tribal Cooperative Marketing Development Federation of India Ltd.
Indian Sugar Exim Corporation
Kudremukh Iron Ore Company Ltd.
Iron ores concentrate prepared by beneficiation and/or concentration of low‑grade iron ore containing 40% or less of irond
Iron ore pelletse
Minerals and Metals Trading Corporation
Iron ore other than those which are free
Manganese ores other than lumpy/blended manganese ore above 46% Mn
Beneficated chrome ore fines/concentrates (maximum feed grade to be less than 42% Cr2O3)
Chrome ore lumps with Cr2O3 not exceeding 40%
Low silica, friable ore with Cr2O3 not exceeding 52% and silica exceeding 4%
Low silica friable/fine chromite ore with Cr2O3 in the range of 52‑54% and silica not exceeding 4%
Manganese Ore India Ltd.
Manganese ores other than lumpy/blended manganese ore above 46% Mn
Table III.17 (cont'd)
Indian Oil Corporation
.. Not available.
a No quantitative ceilings apply. Exports are subject to conditions of quality laid out by the National Agricultural Cooperative Marketing Federation of India from time to time. STEs may issue "no objection certificates" and charge shippers a uniform rate of 1% of the export value; they are not allowed to levy other charges. Exports are subject to minimum prices fixed by NAFED.
b Exports have been free since November 2010.
c Subject to preferential tariff‑rate quotas.
d Produced by Kudremukh Iron Ore Company Ltd.
e Manufactured by Kudremukh Iron Ore Company Ltd. out of own production of concentrates.
Note: Exports of onions, except Bangalore rose onions and Krishnapuram onions, which are restricted subject to minimum export prices, were prohibited in December 2010 for two months until 18 February 2011.
Source: WTO document G/STR/N/8/IND, G/STR/N/9/IND, G/STR/N/10/IND, and G/STR/N/11/IND, 6 May 2010; Department of Commerce (2010), "Schedule 2: Export Policy", Foreign Trade Policy 2009‑14, incorporating Annual Supplement, 23 August. Viewed at: http://dgft.gov.in; DGFT online information, "Notifications". Viewed at: http://dgft.gov.in; and information provided by the Indian authorities.
India's latest notification to the WTO Committee on Subsidies and Countervailing Measures dates from 2010.179 The tax incentives notified were those provided under the Income Tax Act 1961 to free‑trade zones (Section 10A), and to export‑oriented units (EOUs) (Section 10B). The tax deductions for exporters on their profits under section 80HHC of the Income Tax Act 1961, notified previously by India have been phased out180; no deduction under this section has been available since 2005/06.181
India is an Annex VII (b) Member under the SCM Agreement and as such may maintain these export promotion schemes until its per capita gross national product (GNP) reaches US$1,000 in constant 1990 dollars for three consecutive years.182 In the last three years for which data are available (2006‑08), the country's gross national income (GNI)183 has remained below US$1,000 in constant 1990 dollars.184
Free‑trade zones and export‑oriented units (EOUs)
Exports are encouraged through the establishment of special economic zones (SEZs) and export‑oriented units (EOUs).
Special economic zones (SEZs)
SEZs may be set up by the central or state governments or by private developers (including foreigners) as joint ventures with the State or fully private.185 The legal framework regulating SEZs at the central government level is the SEZ Act 2005 and Rules 2006. Also, some states have enacted their own laws and rules to regulate SEZs.186 State SEZ legislation follows the lines of the SEZ Act 2005.187 All SEZs are under the administrative control of the SEZ Development Commissioner.
Firms established in an SEZ benefit from several incentives subject to generating net foreign exchange earnings within five years of operation (Table III.18). SEZ units are exempt from various taxes, including income tax, central sales tax, minimum alternate tax, dividend distribution tax, service tax, and from a series of state taxes (i.e. sales tax, stamp duty, and electricity duty) (Table III.18).188 SEZ units may import all types of goods (including new and second‑hand capital goods) duty free both from abroad and from the domestic tariff area (DTA).189 Imports and exports into/from the SEZ are not subject to routine customs examination; for instance, "let export" orders are granted on the basis of self‑certification by the SEZ.190 Also, exports of products manufactured in SEZs are not subject to compulsory preshipment inspection.191 State trading does not apply to SEZs (except for iron ore).192 However, other export measures do apply to exports from the SEZs, but with exceptions. For instance, minimum export prices apply to exports from SEZs only when raw materials procured indigenously are exported unprocessed.193
There is no quantitative limit on the amount of SEZs exports into the DTA. However, sales into the DTA attract all the same duties and charges as any other import.
As at end 2010, India had 374 SEZs with 3,245 units producing manufactured goods and providing services and warehousing for a total investment of US$43 billion and 644,073 employees. During the period under review, exports from SEZs increased from some US$15 billion to US$49 billion, in value, accounting for 17% of total exports in 2009/10, compared with 9.08% in 2007/08.194 Major exports from SEZs include chemicals and pharmaceuticals, computer and electronic software, and gems and jewellery (Table III.19). Taxes forgone as a result of the benefits granted to SEZs have more than doubled between 2007/08 and 2009/10 (from Rs 18 billion to Rs 39.9 billion).195
Incentives granted to SEZ units, 2011
Duty‑free imports/domestic procurement of goods for development, operation, and maintenance of SEZ units
100% income tax exemption for SEZ units for the first five years, 50% for the next five years, and 50% of the ploughed‑back export profit for the next five years
Exemption from minimum alternate tax
Exemption from the central sales tax
Exemption from the service tax
Exemption from the state sales tax and other levies (e.g. stamp duty and electricity duty) as extended by the respective state government
External commercial borrowing by SEZ units up to US$500 million in one year without any maturity restriction through recognized banking channels
100% FDI investment through automatic route
Single‑window clearance for central and state level approval procedures
Source: Department of Industrial Policy and Promotion (2010), National Manufacturing Policy: A Discussion Paper. Viewed at: http://dipp.nic.in/NMP_DiscussionPaper/NMP_DiscussionPaper_2010.pdf; SEZ Rules 2006, as amended; SEZ Act 2005; and SEZ online information, "About SEZs: facilities and incentives". Viewed at: http://sezindia.nic.in/about‑fi.asp.
Exports from SEZs, 2007‑10
(US$ billion, unless otherwise specified)
Gems and jewellery
Chemicals and pharmaceuticals
Plastic and rubber
Leather, footwear, and sports goods
Food and agri‑industry
Textiles and garments
Trading and services
Percentage share of SEZs exports of India's total exports
Source: Information provided by the Indian authorities.
As a result of the development of SEZs, concerns have emerged regarding the acquisition of agricultural land for the establishment of SEZs, taxes forgone, and the conversion of DTA industries into SEZ units.196 According to the authorities, the acquisition of waste and barren land would be the first priority to establish SEZs; single‑ or double‑crop agricultural land may be acquired only if deemed necessary.197
Export‑oriented units (EOUs)
The Export Oriented Units (EOUs) Scheme, introduced in early 1981, complements the SEZ scheme.198 EOUs are regulated by the Foreign Trade Policy. As in the case of the EPZs, the main objectives of the EOU Scheme is to increase exports and foreign exchange revenues, promote the transfer of latest technologies, stimulate direct foreign investment, and generate additional employment. EOUs are similar to EPZs but may be located anywhere in the country.199 Initially, EOUs were concentrated mainly in manufacturing (e.g. textiles, food processing, and electronics) but currently agri‑businesses and firms supplying services also operate under the EOU Scheme.
The minimum investment in an EOU is Rs 10 million. EOUs are licensed to manufacture or provide services for export for an initial period of five years, which may be extended; they may benefit from tax and other incentives, subject to export performance. Sector‑specific requirements are stipulated in the provisions of the EXIM Policy, and vary from sector to sector.200 EOUs must also generate net foreign exchange earnings within five years of starting operations. If the unit is not NFEE positive, the Development Commissioner is required to inform the Central Excise authorities for recovery of the proportionate duty.201
As in the case of the SEZs, EOUs are exempt from various taxes, including income tax, until 31 March 2011 (Table III.20).202 EOUs may import all types of goods (including new and second‑hand capital goods) duty free from the DTA and abroad, and are exempt from routine customs procedures both when importing and exporting. Manufacturing EOUs are exempt from the state trading regime with the exception of chrome ore/chrome concentrate.
In principle, EOUs are established to export their entire production; however, subject to certain conditions, a specific percentage may be sold in the DTA upon payment of duties (including anti‑dumping duties) and taxes, with some exceptions.203 In general, EOUs may sell in the DTA goods and services for up to 50% of the f.o.b. value of exports, with the exception of producers of gems and jewellery who may sell up to 10% of the f.o.b. value of exports. Sales into the DTA are allowed only with the approval from the Development Commissioner; if similar goods are exported; and if the NFEE conditions have been fulfilled. Sales into the DTA are subject to the payment of a 25% basic customs duty and a 100% additional customs duty, with the exception of pepper and marble, which may not be exported to the DTA even upon payment of full duty.204 Goods made of indigenous raw materials are subject to the payment of excise duties.
Incentives granted to EOUs, 2011
Inputs are exempt from customs duty
Exemption from customs and central excise duties on import/local procurement of capital goods, raw materials, consumables, spares, packing material, etc.
Reimbursement of central sales tax
Corporate/income tax holiday until 31 March 2011
Reimbursement of duty paid on fuels procured from domestic oil companies as per the rate of drawback
No import licences are required
Import of second‑hand capital goods are allowed
Supplies from the DTA to EOUs are deemed exports and are exempt from payment of the excise duty
50% of production may be sold in the domestic market on payment of duty, generally 25%, plus a 100% additional customs duty
100% FDI investment through automatic route
Source: Department of Industrial Policy and Promotion (2010), National Manufacturing Policy: A Discussion Paper. Viewed at: http://dipp.nic.in/NMP_DiscussionPaper/NMP_DiscussionPaper_2010.pdf; and Export Promotion Council for EOUs and SEZs, Circular No. 77, 6 July 2009.
A special licence granted by the Board of Approvals is necessary to set up an EOU to manufacture arms and ammunition, explosives and defence equipment, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, cigarettes/cigars and manufactured tobacco substitutes. Up to 100% of FDI is allowed in EOUs under the automatic route (Chapter II(4)(ii)) in areas where no FDI prohibition applies.205
In 2009/10, India had 2,553 EOUs, manufacturing goods and providing services, excluding trading, which is not allowed.206 During the period under review, exports from EOUs decreased in value from some US$42 billion to US$18 billion, accounting for 10% of total exports in 2009/10, compared with 26% in 2007/08 (Table III.21).207 This decline was due to some enterprises leaving the EOUs regime. Exports of chemicals and pharmaceuticals, the most important products exported by EOUs, declined from US$24 billion in 2007/08 to US$4.7 billion in 2009/10. Taxes forgone as a result of the EOU scheme decreased from Rs 105 billion in 2007/08 to Rs 70 billion in 2009/10.
Exports from EOUs, 2007‑10
(US$ billion, unless otherwise specified)
Textiles and garments, yarn
Chemicals and pharmaceuticals
Leather and sports goods
Gems and jewellery
Plastic, rubber, and synthetic
Foods and agri and forest products
Table III.21 (cont'd)
Percentage share of EOUs exports of India's total exports
Note: The figures do not include the export performance of Software Technology Park of India (STPI) units.
Source: Information provided by the authorities.
The Customs Act 1962 (Sections 74‑76), and the Customs and Central Excise Duties and Service Tax Drawback Rules 1995 continue to regulate the drawback system in India. Under the drawback system, exporters are entitled to a refund of: the customs duties (including additional duties) on imported goods that are exported without transformation (Section 74); or customs duties, central excise duties, and the service tax levied on materials imported or procured locally to manufacture export products (Section 75). There are two types of drawback: the "all industry rate" and the "brand rate" for which the refund may be negotiated.
"All industry" drawback
Under the "all industry" drawback rate, the amount refunded (i.e. "drawback rate") is usually a percentage of the f.o.b. value of exports or a specific per‑unit value. For certain products, there is a cap or maximum amount that may be refunded. Drawback rates are based on different parameters including the prevailing price of inputs, standard input‑output norms published by the DGFT, share of imports in total inputs, and the applied rates of duty.208 The "drawback rates" and caps are listed in the drawback schedule, which is reviewed and revised every year taking into account changes in the tariff duty rates.209 Customs Notification No. 84/2010 (17 September 2010) introduced the All Industry Rates of Duty Drawback Schedule for 2010‑11. It includes two rates per item depending on whether the exporter has already received a refund of the central excise duty and the service tax under the Central Value Added Tax (CENVAT) Credit Rules 2004.210
Under the All Industry Rates of Duty Drawback Schedule 2010‑11, drawback rates on, inter alia, leather and leather articles (HS chapters 41, 42, and 64), textiles and textile articles (HS chapters 50‑63), base metals and article of base metals (HS chapters 72‑83), bicycles and bicycle parts (HS chapter 87), sports goods (HS chapter 95), and writing instruments (HS chapter 96), have decreased compared with those in force in 2009‑10.211 To discourage exports, and in line with measures taken by the authorities to contain increases in the domestic price of cotton, exports of cotton yarn (HS 5205, 5206, and 5207) have not been covered by the drawback schedule since April 2010.212 Drawback on gold jewellery and parts thereof (HS 7113.01 and HS 7113.02) may only be granted to exports by airfreight, post parcel or authorized courier going through 13 designated customs stations, and after examination. In addition, consignments exported through authorized courier are subject to a maximum f.o.b. value of Rs 2 million.213
"Brand rate" drawback
For all products on which the All Industry Rates of Duty Drawback Schedule indicates a drawback rate of "nil", the exporter may claim a "brand rate" drawback. The exporter must apply in writing to the Commissioner of Central Excise or to the Commissioner of Customs and Central Excise, for the determination of the amount or rate of drawback, stating the proportion in which materials/components/inputs were used in the production or manufacture of goods, and the duties paid on such materials/components, or the tax paid on input services, in accordance with the Customs, Central Excise Duties and Service Tax Drawback Rules 1995 (Rule 6).214 If the exporter deems that the drawback level is too low, e.g. if the amount refunded is less than four fifths of the duties and taxes paid on the imported materials used for the manufacture of export products, the drawback rate may be adjusted upon request (Customs, Central Excise, and Service Tax Drawback Rules 1995 (Rule 7)). According to the authorities, the "brand rate" drawback is determined on the basis of the actual duty incidence on the inputs used to manufacture the goods exported.
Drawback is not allowed for some specific products: at present these are casein, cement, cotton yarn, milk and milk products, and rice; or if the market price is less than the amount of the drawback; if the drawback due is less than Rs 50; or if the exported products have benefited from other incentives (Box III.2).215 The authorities noted that the drawback is not provided for specific export products as a matter of overall policy.
Box III.2: Drawback
Instances in which drawback may not be applied:
products have been manufactured partly or wholly in a warehouse as defined under the Customs Act 1962 (Section 65);
products are manufactured or exported in discharge of export obligations against Advance or Duty‑free Import Authorizations issued under the Duty Exemption Scheme (Table AIII.6);
products are manufactured or exported by 100% export‑oriented units (EOUs);
products are manufactured or exported by units in free‑trade zones or export processing zones or special economic zones;
products are manufactured or exported availing the benefit of Customs Notification No. 32/1997, 1 April 1997, which provides exemption from customs duty for materials when imported into India to produce exports; and
products are exported under the Duty Entitlement Pass Book Scheme (Table AIII.6).
In addition, exports of gold jewellery and parts thereof (HS 7113.01) and articles of gold jewellery and parts thereof (HS 7113.02) subject to other export incentives schemes (Table AIII.6), are not entitled to drawback.
Source: Customs Notification No. 84/2010, 17 September 2010.
If the drawback is not paid within three months from the date of filing a claim, the exporter receives interest in addition to the drawback (Customs Act 1962, Section 75A).
Other duty and tax concessions
In addition to the SEZs and EOUs regimes and the duty drawback system, India has a number of export incentive schemes, some of which are contingent on value addition and export obligations. India's exports concession schemes include: (i) duty exemption schemes, which allow exporters to import inputs (including fuel and oil) duty free; (ii) duty remission schemes, entitling exporters to a refund of customs duty on the inputs used to produce exports (post export replenishment/remission of duty paid on inputs); (iii) reward schemes granting exporters duty credits; and (iv) the Export Promotion Capital Goods Scheme, which allows exporters to import capital goods, at concessional or zero duty rates, subject to an export obligation. Special schemes are also in place for gems and jewellery, and for export and trading houses (Table AIII.6). Income forgone as a result of these schemes totalled Rs 312,922 million in FY 2009/10 (Table AIII.7).
The product coverage and the level of concession under these schemes changed during the period under review and new schemes were implemented. Amendments included: (i) introduction of a zero duty rate under the Export Promotion Capital Goods Scheme; (ii) increase of the duty credit to from 1.25% to 2% of the f.o.b. value of exports under the Focus Product Scheme, and from 2.5% to 3% of the f.o.b. value of exports under the Focus Market Scheme; (iii) reduction of the minimum value added required to receive benefits for gems and jewellery from 2%‑6.5% to 1.5%‑5%; and (iv) the introduction of a 15% minimum value added requirement under the Advance Authorization Scheme. Since 2007 two new export incentive schemes have been introduced, the Status Holder Incentive Scheme and the Agri Infrastructure Incentive Scheme (Table AIII.6).
Incentives granted under three schemes that were phased out in 2006 (i.e. the Duty Free Credit Entitlement Scheme for Status Holder, the Duty Free Replenishment Certificate Scheme, and the Target Plus Scheme) have been grandfathered (Table AIII.6).
As is the case with other measures, duty concessions are also used to attain short term objectives. For instance, as of April 2010, duty concessions granted under the Duty Entitlement Passbook Scheme to exporters of cotton yarn were suspended, for six months, to reduce exports in an attempt to control the domestic price of cotton.
Export promotion and marketing assistance
In addition to tariff concessions and export programmes, the Department of Commerce encourages exports indirectly, through a number of schemes. The Assistance to States for Development of Export Infrastructure and Allied Activities Scheme provides assistance for, inter alia, setting up new export promotion industrial parks/zones (including SEZs), and supporting infrastructure (e.g. road links to ports, inland container depots, container freight stations, and power supply). The Marketing Development Assistance Scheme supports export promotion activities through export promotion councils (EPCs); the Market Access Initiative Scheme supports EPCs and trade bodies (i.e. chambers of commerce and industries) that participate in export promotion activities. The Department of Commerce also provides support for trade facilitation (e.g. implementation of a single window for clearance of goods and e‑trading facilities).216 India's 20 EPCs and the five Commodity Boards continue to promote exports of specific products.217 Other bodies affiliated to the Ministry of Commerce and Industry are also actively involved in promoting exports through training, organizing trade fairs/exhibitions in India and abroad, and acting as arbitrators in commercial disputes.218
Export finance and insurance
Export finance is provided primarily by the Export‑Import Bank of India (Exim Bank)219, and through mandatory annual lending targets for foreign banks (see below). In order to promote trade and investment, the Exim Bank provides Indian exporters with export credits on a cost‑plus basis at market‑related interest rates. The Exim Bank also provides finance and export support for export‑oriented units (EOUs)220, and value‑added services (e.g. advice and marketing support aimed at evaluating international risks and export opportunities). The Bank coordinates the work of other institutions financing trade (exports and imports). The Exim Bank may also provide lines of credit to governments and to overseas financial institutions to enable buyers in those countries to purchase goods and services from India; the terms of these credits are negotiated between the Exim Bank and the overseas agency, based on market interest rates usually linked to the LIBOR.221
The Exim Bank also provides various export guarantee schemes and fee‑based services to support international trade and investment, and conducts related research.222
During 2009/10, the Exim Bank approved loans amounting to Rs 388.43 billion, up from Rs 267.62 billion in 2006/07.223 The main industrial sectors to which the bank has exposure remain textiles and clothing, metals and metal processing, and chemicals and petroleum (Chart III.5).
Under the current guidelines on lending to priority sectors, foreign banks operating in India must reserve 32% of their adjusted net bank credit (ANBC) or credit equivalent amount of off‑balance‑sheet exposure (OBSE) (whichever is higher) for priority sectors, of which 12% of ANBC/credit equivalent of OBSE must be loaned to the export sector. No target is fixed on lending to exporters for domestic (private and state‑owned) banks.224 The loans may be provided in domestic or foreign currency and are at concessional rates of interest. As at March 2010, 20.64% of net bank credit by foreign banks went to the export sector: out of 28 foreign banks 24 have achieved the 12% target.225
Insurance against export credit risk is provided by the Export Credit Guarantee Corporation of India Ltd. (ECGC). ECGC is a state‑owned company, under the administrative control of the Ministry of Commerce and Industry, registered as a non‑life insurance company under the Insurance Regulatory and Development Authority Act. It provides exporters insurance against commercial or country risks; it also grants guarantees to banks/financial institutions, which allows them to offer export credit facilities to exporters, on a more liberal basis.226 The ECGC also provides overseas investment insurance to Indian companies investing in joint ventures abroad through equity or loans.227 The ECGC holds 60% of India's total export credit risk market and covers exports to 193 countries.228 The authorities noted that the ECGC does not receive a subsidy from the Government.229 The ECGC also operates the National Export Insurance Account (NEIA), which covers export credit risk for large long‑ and medium‑term overseas projects that are commercially viable and of national interest (i.e. strategically important from an economic and political point of view) but fall beyond ECGC's underwriting capacity.230