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2011

Accompanied by the grace of: Prof. Jharna Kalra

EXPORT INCENTIVES
AND

Compiled by: Sufyan Saboowala Monish Mithani

EXPORT PROMOTION MEASURES IN INDIA

Export Incentives and Export Promotion Measures in India 2011

DECLARATION
We, the below mentioned students of Sydenham college of commerce and economics of Foreign Trade (Year 1) hereby declare that we have completed this project report on Export incentives and Export promotion measures in India in the academic year 2010-2011. The information submitted is true and original to the best of our knowledge.

SUFYAN SABOOWALA

MONISH MITHANI

ii Diploma In Foreign Trade

Export Incentives and Export Promotion Measures in India 2011

CERTIFICATE
I, Prof. Jharna Kalra hereby certify that MONISH MITHANI and SUFYAN SABOOWALA of Sydenham college of commerce and economics of Foreign Trade (Year 1) have completed this project report on EXPORT INCENTIVES AND EXPORT PROMOTION MEASURES IN INDIA in the academic year 20102011. The information submitted is true and original to the best of my knowledge.

Signature of Project Co-ordinator

Signature of the Principal

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Export Incentives and Export Promotion Measures in India 2011

Executive summary
India is fast emerging as a global leader, what with its vast, natural resources, and huge base of skilled manpower. Combined with cutting edge technology, Indian trade market is making its presence felt all across the world. Indian products and services are seen as of international standards and globally competitive. Trade in India has made good progress on liberalizing trade regimes and cutting tariffs since the recent times, when most of the countries started with reforms. Until quite recently, considerable protection levels reflected in the significant tariff peaks and dispersed protection levels were seen in India. Serious constraints to private activity in infrastructure, economic governance, financial impeded export competitiveness too. Insufficient and unreliable power supply, inhibiting red tape is a few of the many examples of these constraints. The Indian government provides various incentives to the exporters in order to overcome such trade issues. This paper is an attempt to discuss in brief all such export incentives and export promotion measures provided by the Indian government in order to bring significant increment in Indian exports.

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Export Incentives and Export Promotion Measures in India 2011

Table of Contents
i. ii. iii. iv. v. Cover Page Declaration Certificate Executive Summary Index

I. II. III. IV.

Exports Importance of Exports Export Incentives Types of Export Incentives and Promotion Measures A. Incentives through Directorate General of Foreign Trade (DGFT):
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Export Promotion Capital Goods (EPCG) Scheme Advance License/ Duty Exemption Entitlement Scheme (DEEC) Duty Free Replenishment Certificate (DFRC) Duty Entitlement Passbook Scheme (DEPB) Free Trade Zones (FTZ) Electronic Hardware Technology Park / Software Technology Parks Town Of Export Excellence Export Promotion Schemes for Diamond Gem & Jewellery Deemed Exports Manufacture under Bond Vishesh Krishi Gram and Upaj Yojana (VKGUY) Focus Product Scheme (FPS) Focus Market Scheme (FMS)

B. Incentives through Ministry of Finance (MOF)


1. 2. 3. 4. 5. 6. 7. 8. 9. Duty Drawback Scheme Export Credit Guarantee Corporation ASIDE Marketing Development Assistance Market Access Initiative Income Tax Exemption (under Sections 80HHC, 10A, 10B) Loan Guarantees Trade Finance by Commercial Banks Export insurance

V. VI.

Role of Incentives in Export Promotion Conclusion Bibliography

VII.

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Export Incentives and Export Promotion Measures in India 2011

EXPORTS
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in home country to other markets. It includes a product or good or information being mailed, hand-delivered, shipped by air, shipped by boat, uploaded to an internet site, or downloaded from an internet site. Exports also include the distribution of information that can be sent in the form of an email, an email attachment, a fax or can be shared during a telephone conversation. Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import. The advent of small trades over the internet, such as through Amazon and e-Bay, have largely bypassed the involvement of Customs in many countries because of the low individual values of these trades. Nonetheless, these small exports are still subject to legal restrictions applied by the country of export. An export's counterpart is an import.

IMPORTANCE OF EXPORTS
Export growth is important because of its effect on internal trade and economic stability. Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth. Growth of an economy is directly related to exports. If exports increase at a faster pace as compared to imports, nothing can stop an economy from being a developed one. On the other hand, the instability in exports can adversely affects the process of economic development. Lower exports mean low foreign exchange and lower foreign exchange in turn means a small purchasing capacity of a nation in the international market. Fluctuations in export earnings introduce uncertainties in an economy. These

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Export Incentives and Export Promotion Measures in India 2011

uncertainties influence economic behavior by adversely affecting the level and efficiency of investment and in turn have a negative effect on growth. In addition to the above factors, export growth is also important because of its effect on internal trade and economic stability. Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth. The concept of trade stability or instability may be based either on a countrys aggregate trade in comparison with the cost of the world or on a binary country pair comparison. Such binary pairs may be large depending upon the number of trading allies. Export instabilities have been claimed to affect economic growth both positively and negatively. Fluctuation in exports earnings introduces uncertainties in the economy. The other side of the picture is that a greater amount of uncertainty on export proceeds also brings about risk aversion. People tend to invest more in their own country and the economy starts improving gradually. But this is not much observed these days. Export fluctuations, on an average, act as a hindrance to the stability and growth of the under developed countries. A high degree of export instability may be expected to deter investment on a number of grounds. It is also expected to raise borrowing costs, because export fluctuations tend to cause balance of payment complexities. This ultimately leads to low confidence of people in the process of maintenance of the exchange rate. Export instability stimulates inflation. The simple rule of the thumb is that as inflation rises in a country, the products and services tend to be costlier, with minor exceptions, of course.

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Export Incentives and Export Promotion Measures in India 2011

EXPORT INCENTIVES
Export Incentives plays an important role in International Trade. As these incentives impart cost competitiveness to exports, thereby facilitating greater market penetration. In order to promote exports and to obtain foreign exchange, the Government of India had framed several schemes. These schemes grant incentive and other benefits. Under schemes, raw material and other components can be imported without payment of customs duty for use in goods to be exported. Export Credits Export incentives take the form of cash assistance or cash compensatory support on exports of certain items, duty drawback, i.e., a refund of central excise and customs duties levied on raw materials and components used in the manufacture of exports, import replenishment to replace imported raw materials and components used in the manufacture of exports, airfreight subsidy on the export of certain products, special treatment for export-oriented units for import of raw materials, and credit facilities from approved financial institutions at pre-shipment and post-shipment stages.

TYPES OF EXPORT INCENTIVES AND PROMOTION MEASURES


Like many governments elsewhere, GOI too has been giving several export incentives to Indian exporters to promote exports from the country. Export incentives are given by GOI through several institutions/agencies and under various Acts. Export incentives are primarily given by Ministry of Commerce through its Directorate General of Foreign Trade (DGFT), and through Ministry of Finance. One possible way of classifying export incentives is in terms of agency/ministry that provides such incentives. Another way could be in terms of location of units i.e., incentives to exporting units inside or outside domestic tariff area. In this paper we adopt the former classification i.e., by agency providing export incentives.

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A. Incentives through Directorate General of Foreign Trade (DGFT):


Most of the export incentives are given through DGFT (of the Ministry of Commerce) under Foreign Trade (Development and Regulation) Act 1992. The Foreign Trade Act authorises the Central government to issue notifications regarding export and import policy. These are summarised in Export and Import policy document issued every five years and updated every year through the annual amendments. Below is the list of major incentives given by DGFT to exporters: 1.

Export Promotion Capital Goods (EPCG) Scheme: The scheme


allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 5% Customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfilled over a period of 8 years reckoned from the date of issuance of license. Capital goods would be allowed at 0% duty for exports of agricultural products and their value added variants.
Customs Duty Rate 10% Export Obligation 4 times exports (on FOB basis) of CIF value of machinery. Nil in case CIF value is Rs200mn or more. 6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on Nil in case CIF value is Rs50mn or more for agriculture, aquaculture, animal husbandry, floriculture, horticulture, poultry and sericulture. (NFE) basis of CIF value of 8 years machinery. 6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery. 8 years Time 5 years

However, in respect of EPCG licenses with a duty saved of Rs.100 crore or more, the same export obligation shall be required to be fulfilled over a period of 12 years.

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In case CVD is paid in cash on imports under EPCG, the incidence of CVD would not be taken for computation of net duty saved provided the same is not Cenvated. The capital goods shall include spares (including refurbished/ reconditioned spares), tools, jigs, fixtures, dies and moulds. EPCG license may also be issued for import of components of such capital goods required for assembly or manufacturer of capital goods by the license holder. Second hand capital goods without any restriction on age may also be imported under the EPCG scheme. Spares (including refurbished/ reconditioned spares), tools, refractories, catalyst and consumable for the existing and new plant and machinery may also be imported under the EPCG scheme. However, import of motor cars, sports utility vehicles/ all purpose vehicles shall be allowed only to hotels, travel agents, tour operators or tour transport operators whose total foreign exchange earning in current and preceding three licensing years is Rs 1.5 crores. However, the parts of motor cars, sports utility vehicles/ all purpose vehicles such as chassis etc cannot be imported under the EPCG Scheme.

Registration Under EPCG: The eligible persons who desire to operate under the EPCG Scheme should make an application in the form given in Appendix 10 A of the Hand Book alongwith documents prescribed therein too the Director General of foreign Trade (DGFT) or to the regional Licensing authorities along with necessary information/documents to obtain an Import license. Licenses are issued, under this scheme by the director general of foreign trade or his regional officers depending upon the value of the license subject to execution of legal undertaking and bank guarantee by them undertaking among other things to fulfill their export obligation within the specified period. The import licenses issued under this scheme shall be deemed to be valid for the goods already shipped/ arrived provided, the customs duty has not been paid for the goods have not been cleared from the customs. Regarding licenses of Rs 100cr or more, the export obligation has to be fulfilled as per following arrangement

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Export Incentives and Export Promotion Measures in India 2011

Sr. no 1 2 3 4

Period of date of issue of license Proportion of total obligation Block of 1st and 5th year Block of 6th and 8th year Block of 9
th

nil 15% 35% 50%

and 10

th th

year year

Block of 11

th

and 12

2.

Advance License/ Duty Exemption Entitlement Scheme (DEEC): Advance License is issued under Duty Exemption Scheme to allow
import of inputs which are physically incorporated in the export product. Import of raw material is on the basis of quantity based advance license. The quantity of raw materials is determined on the basis of government provided Standard Input-Output Norms (SIONs). These norms specify the proportion of inputs used in the production of final product. Both the quantity and the value of inputs allowed to be imported are specified in the license as well as the overall value of the license depending on the value of exports commitment that an exporter undertakes. If the quantity for a particular description cannot be imported in the specified value then its value can be adjusted within the overall value fixed in the license. Advance License can be issued for physical exports, intermediate supplies or deemed exports. Advance License is issued for duty free import of inputs and is subject to actual user condition. Such licenses (other than Advance License for deemed exports) are exempted from payment of Basic Customs Duty, Additional Customs Duty, Anti Dumping Duty and Safeguard Duty.

3.

Duty Free Replenishment Certificate (DFRC): Both Duty Free


Replenishment Certificate (DFRC) and Duty Entitlement Passbook (DEPB) Scheme are duty remission schemes. These schemes allow drawback of import charges on inputs used in the export product. Under DFRC, merchant-exporter or manufacturer-exporter obtains, after completion of exports, transferable duty free replenishment certificate for importing inputs used in the export products as per SIONs. The scheme was introduced in April 2000 and allows imports of inputs used in the manufacture

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of goods without payment of Basic Customs Duty, Special Additional Duty (and also Surcharge, if any). However, such inputs shall be subject to the payment of Additional Customs Duty equal to the Excise Duty and Antidumping /Safeguard duty at the time of import (since a certificate or the material imported against it is freely transferable). DFRC are issued only in respect of export products covered under the SIONs as notified by DGFT. DFRC is issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as those used in the end product and as indicated in the shipping bills. The validity of such licenses is 18 months. DFRC or the material imported against it is freely transferable. Minimum value addition of 33% is required under DFRC Scheme.

4.

Duty Entitlement Passbook Scheme (DEPB): The Pass Book


Scheme came into force on May 30, 1995 and remained in force till March 31, 1997. After the Pass Book Scheme was terminated, DEPB came into effect from on April 7, 1997. DEPB is of two types: on pre-export basis and postexport basis. Since there were very few takers of the DEPB on pre-export basis the scheme was withdrawn subsequently. Now of these two schemes, the scheme on post-export basis only is allowed. DEPB is an optional facility given to exporters who are not interested in going through the licensing route. The DEPB is meant to neutralise the incidence of customs duty on the import content of the export product. The neutralisation is effected by way of grant of duty credit against the export product. This credit can be utilised for payment of customs duty on imported goods. The scheme is available to exporting producers or merchant-exporters. Under the Scheme, an exporter may apply for credit, depending on the value of exports. The credit is available against such export products and at such rates as specified by the DGFT for import of raw materials, intermediates, components, parts, packaging material etc. Currently, DEPB rates are announced for over 2,000 items. For items on which DEPB rates are more than 15 percent, value caps are fixed on the basis of average export price. The DEPB is valid for a period of 12 months from the date of issue, and the DEPB or the items imported against it are freely transferable. The exports made under the DEPB Scheme are not entitled for drawback.

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5.

Free Trade Zones (FTZ): Several FTZs have been established at


various places in India like Kandla, Noida, Cochin, etc. No excise duties are payable on goods manufactured in these zones provided they are made for export purpose. Goods being brought in these zones from different parts of the country are brought without the payment of any excise duty. Moreover, no customs duties are payable on imported raw material and components used in the manufacture of such goods being exported. If entire production is not sold outside the country, the unit has the provision of selling 25% of their production in India. On such sale, the excise duty is payable at 50% of basic plus additional customs or normal excise duty payable if the goods were produced elsewhere in India, whichever is higher.

6.

Electronic

Hardware

Technology

Park

Software

Technology Parks: This scheme is just like FTZ scheme, but it is


restricted to units in the electronics and computer hardware and software sector. For the purpose of customs and excise these units are considered as outside domestic tariff area. These units or units located in these zones produce primarily for export market. However, they are allowed to sell certain percentage of their product in domestic tariff region as well after payment of excise, subject to their fulfillment of their export obligation. The export obligation is in terms of minimum Net Foreign Exchange Earning as a percentage of Exports and Export performance. The difference in schemes for these zones/units/parks is in terms of their export obligation, sale in domestic tariff area, and other procedural details. Broadly, benefits accorded to units located in EHTPs/STPs are: i. suspension of collection of duties due on purchases of capital goods used in production of exports during the period of bonding ii. exemption of customs duties due on purchases of raw materials and consumables iii. iv. exemption from excise duty on indigenous goods, and Reimbursement of central sales taxes.

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7.

Town Of Export Excellence: A number of towns in specific geographical locations have emerged as dynamic industrial locations and handsomely contributing to Indias exports. These industrial cluster-towns have been recognized with a view to maximizing their export profiles and help in upgrading them to move up the higher value markets. A beginning is being made to consider industrial cluster towns such as Tripura for Hosiery, Panipat for Woolen Blankets and Ludhiana for Woolen knitwear. Common service providers in these areas shall be entitled for EPCG Scheme, funds under the MAI scheme for creating focused technological services, priority assistance for identified critical infrastructural gaps from the Scheme on Central Assistance to States. Units in these notified areas would be eligible for availing all the Exim Policy Scheme. Sr. No
1 2 3 4 5 6 7 8 9 10 11 12

Town of Export Excellence


Tripura Ludhiana Panipat Kanoor Karur Madurai AEKK (Aroor, Ezhupunna, Kodanthuruthu & Kuthiathodu) Jodhpur Kekhra Dewas Alleppey Kollam (Quilon)

State
Tamil Nadu Punjab Haryana Kerala Tamil Nadu Tamil Nadu Kerala Rajasthan Uttar Pradesh Madhya Pradesh Kerala Kerala

Product Category
Hosiery Woolen Knitwear Woolen Blanket Handlooms Handlooms Handlooms Seafood Handicraft Handlooms Pharmaceuticals Coir Products Cashew Products

The government plans to give recognition to selected towns producing goods of Rs 750cr or more to be called as Town of Export Excellence (TEE). It is not a uniform criterion for all types of business because agriculture, handicraft, handloom and fisheries sector need to give a performance of Rs 150cr to be recognized as TEE. Facilities enjoyed by TEE: i. Performance of Rs 5cr will entitle the industrial hub to be recognized as TEE ii. iii. TEE where as for others the recognition mark is Rs 20cr EPCG scheme will be extended to all units in TEE

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8.

Export Promotion Schemes for Diamond Gem & Jewellery:


Prior to April 1, 2001, import of raw diamonds was on the restricted list, meaning that import of diamonds meant for exports was allowed at zero percent duty to diamond exporters. However, this situation changed thereafter. Raw diamonds are no longer a restricted item. Anybody can imports raw diamonds after paying 5 per cent customs. However, for export purposes a license is issued to exporters, which entitles them to import raw diamonds without paying any customs. Similarly, for the import of gold and other precious metal. Customs for the import of gold is 250 rupees per 10gms. Since the scheme only entitles exporters to import of raw diamonds and other precious metals without paying any duty, there is no question of subsidy and hence no problem of countervailability of the scheme. Till the last amendment to EXIM Policy, incentives in the form of Special Import License (SIL) used to be given to exporters for import of goods that are otherwise restricted, by paying normal customs duties. SIL benefit was provided to recognized export and trading houses on the basis of their export performance as well as to direct exporters who exported goods worth Rs. 5cr and above or who exported average of Rs. 2cr of goods during the preceding three years. Recognised export and trading houses were entitled for a SIL ranging between 6 per cent and 12 per cent of FOB basis or 7.5 and 15 per cent on NFE basis. Other exporters were provided SIL at the rate of 4 per cent. SIL are freely transferable. SIL is dead with the removal of all QRs by April 1, 2001. No SIL was issued after March 31, 2000. However, imports under SIL issued prior to this date were allowed to continue till March 31, 2001 beyond which all the licenses became invalid. Even though SIL no longer exists, CVDs can be imposed against exports that availed of SIL issued before March 2000 if the investigation period falls before March 2000.

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Export Incentives and Export Promotion Measures in India 2011

9. Deemed Exports:
Meaning Deemed Exports as defined in the Export and Import Policy, 1997-2002 means those transactions in which the goods supplied do not leave the country and the supplier in India receives the payment for the goods. It means the goods supplied need not go out of India to treat them as Deemed Export. When the goods do not physically cross the border of the exporting country, nevertheless the government considers this as export for some perks or other benefits, it is called deemed export. Meaning not export practically but considered as one. For Example any supply to a factory in SEZ is deemed Import. Any sale from SEZ is Deemed Export. Different categories of supplies regarded as DEEMED EXPORTS The following categories of supply of goods manufactured in India shall be regarded as deemed Exports under the Export and Import Policy i. ii. Supply of goods against licenses issued under the Duty exemption Scheme: Supply of goods to Units located in Export Processing Zones (EPZs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or Export Oriented Units (EOUs) iii. Supply of Capital goods to holders of licenses issued under the Export Promotion Capital Goods (EPCG) Scheme; iv. Supply of goods to Projects financed by Multilateral or Bilateral agencies/funds as notified by the Department of Economic Affairs, Ministry of Finance under international competitive bidding or under limited tender system in accordance with the procedure of those agencies/funds, where the legal agreements provide for tender evaluation without including the Customs duty v. Supply of capital goods and spares to fertilizer plants if the supply is made under the procedure of international competitive bidding. Supply of goods to any Project or purpose in respect of which the Ministry of Finance, by; a notification permits the import of such goods at zero customs duty coupled with the extension of benefits to domestic supplies;

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vi.

Supply of goods to such projects in the Power, Oil and Gas sectors in respect of which the Ministry of Finance, by Notification, extends the benefits to domestic supplies.

vii.

Supply of Marine Freight Containers by 100% EOU (Domestic freight containers-manufacturers) to shipping companies including Shipping Corporation of India provided the said containers are exported out of India within 6 months or such further period as permitted by customs. Benefits available under Deemed Exports Deemed Exports shall be eligible for the following benefits in respect of manufacture and supply of goods qualifying as Deemed Exports:

i. ii.

Special Imp rest License/Advance Intermediate License; Deemed Exports Drawback Scheme i.e., on the Deemed Exports, Drawback at the rate fixed by the Ministry of Finance for the DGFT or his regional Officers pay the goods physically exported.

iii.

Refund of terminal excise duty i.e., Central Excise duty, if paid any, on the goods supplied under Deemed Exports is refunded by the DGFT or his regional Officers

iv.

If the supplier has made the supplies against Advance Release Order(ARO) or Back to Back Letter of Credit, he shall be entitled for the benefits of Deemed Exports Drawback Scheme, Refund or terminal excise duty and Special Imprest License

v.

In respect of supply of capital goods to EPCG license holder, the supplier shall be entitled to the benefits stated above except, however, that the benefit of Special Imprest License or Deemed Export Drawback Scheme shall be available only in case of supplies made to Zero duty EPCG license holder. Procedure for claiming the benefits of DEEMED EXPORTS The Suppliers under Deemed Exports should make application to the regional licensing authority concerned claiming the benefits of Deemed Exports. The applications should be made in the forms given in Appendix 17 of Hand Book of Procedures of export and Import Policy along-with documents prescribed therein.

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Export Incentives and Export Promotion Measures in India 2011

10. Manufacture under Bond: This scheme furnishes a bond with the manufacturer of adequate amount to undertake the export of his production. Against this the manufacturer is allowed to import goods without paying any customs duty, even if he obtains it from the domestic market without excise duty. The production is made under the supervision of customs or excise authority.

11. Vishesh Krishi Gram and Upaj Yojana (VKGUY): The objective of the Vishesh Krishi Gram Upaj Yojana (VKGUY) is to promote exports of: i. Agricultural produce and their Value added products; ii. iii. iv. Minor Forest Produce and their value added variants; Gram Udyog Products; Forest Based Products Duty scrip benefits are granted with aim to compensate high transport costs. Exporters of notified products shall be entitled for duty credit scrip equivalent to 5.00% of the FOB value of exports. The scrip and the items imported against it would be freely transferable. All Status Holders shall be incentivised with duty credit script equal to 10% of FOB value of agricultural exports which can be used for duty free import / procurement of capital goods related to infrastructure meant for agro-processing to promote agricultural exports. The Duty Credit may be used for import of inputs or goods including capital goods, provided the same is freely importable under ITC (HS). Exporters shall have the option to apply for benefit either under the Focus Market Scheme or under the Focus Product Scheme or under Vishesh Krishi and Gram Udyog Yojana in respect of the same exported product/s.

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Export Incentives and Export Promotion Measures in India 2011

12. Focus Product Scheme (FPS): The objective of the Focus Product Scheme is to incentivise export of such products which have high employment intensity in rural and semi urban areas so as to offset the inherent infrastructure inefficiencies and other associated costs involved in marketing of these products. Exports of notified products to all countries shall be entitled for duty credit scrip equivalent to 1.25% of the FOB value of exports for each licensing year commencing from 1st April, 2006. The scrip and the items imported against it would be freely transferable. The Duty Credit may be used for import of inputs or goods including capital goods, provided the same is freely importable under ITC (HS). Exporters shall have the option to apply for benefit either under the Focus Market Scheme or under the Focus Product Scheme or under Vishesh Krishi and Gram Udyog Yojana in respect of the same exported product/s.

13. Focus Market Scheme (FMS): The objective of the Focus Market Scheme is to offset the high freight cost and other disabilities to select international markets with a view to enhance our export competitiveness to these countries. Exports of all products to the notified countries shall be entitled for duty credit scrip equivalent to 2.5% of the FOB value of exports for each licensing year commencing from 1st April, 2006. The scrip and the items imported against it would be freely transferable. Under the Scheme, export to all countries as specified in the Handbook of Procedures (Vol. I) shall qualify for export benefits with certain exceptions as outlined. The Duty Credit may be used for import of inputs or goods including capital goods, provided the same is freely importable under ITC (HS). Exporters shall have the option to apply for benefit either under the Focus Market Scheme or under the Focus Product Scheme or under Vishesh Krishi and Gram Udyog Yojana in respect of the same exported product/s.

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Export Incentives and Export Promotion Measures in India 2011

B. Incentives through Ministry of Finance (MOF):

1.

Duty Drawback Scheme: Exporters or processors, who are unable to avail of various schemes like EOUs/EPZs or to obtain refund of duties paid on inputs, can avail duty drawback. Under Duty Drawback excise duty and customs duty paid on inputs is refunded to the exporter of finished products. Section 75 of the Customs Act (CA) 1962 allows for the reimbursement to exporters of the duties of Customs and Central excise borne by imported and indigenous raw materials used in the production of exports. State levies and octroi, however, are not included in this. The Central Board of Excise and Customs administers the Duty Drawback Scheme under Section 75 of the CA, 1962 and Section 37 of the Central Excise and Salt Act, 1944. Under these Acts, Central government has made Customs and Central Excise Duties Drawback Rules, 1995 have been made. Duty Drawbacks are made on the basis of either All Industry Rates or Brand Rates. All Industry rates are fixed for broad categories of products and these rates represent average incidence of duty. These rates are revised annually after taking into account the changes made in the budget and the data furnished by Export Promotion Councils. These rates are standard rates revised every year 90 days after (i.e., June 1st) the general budget is announced which is normally on February 28. Brand Rate of Drawback is determined on the actual input utilisation basis depending on the data furnished by an exporter manufacturer (and not on the basis of SION) and its verification. These rates are decided on a case by case basis and are therefore exporter-and-shipment specific. The brand rates are fixed for products for which there are no industry rates or for which the All Industry Rates provides substantially lower benefits than actual incidence of duty.

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i.

Procedure for claiming advance against duty drawback credit The exporter should get himself registered with the authorized bank and obtain a reference number from it for identification.

ii.

The exporter should endorse the shipping bill relating to goods for which one advance is desired to be obtained to the following effect.

iii.

Please pay Rs. ...Being the amount of drawback admissible to me in respect of the shipment covered by the shipping bill to M/s ....................(Name of the bank) through RBI quoting the reference number............allotted to us by the authorized bank.

iv.

The customs authorities will scrutinize the drawback claim on the basis of the declared description of the goods and endorse the shipping bill.

v.

After the actual exportation of goods, the exporter shall submit the copy of shipping bill duly endorsed by custom authorities to his bank for obtaining the advance under the scheme.

vi.

After necessary satisfaction of the bank, the bank will allow the advance within the limits earlier sanctioned by it.

vii.

The customs authorities will process the claim for drawback and arrange for the payment of amount to the RBI for crediting the same to the concerned bank.

viii.

The government of India has introduced a new simplified procedure of disbursement .DBK claim is passed within 24 hrs of presentation of papers. Within the next 15 days the amount is transferred to exporters bank account

2.

Export

Credit

Guarantee

Corporation:

Export

Credit

Guarantee

Corporation of India (ECGC) limited is the only agency that provides credit guarantee to India exports. Formed in July 1957 as Export Risks Insurance Corporation, it was converted into Export Credit & Guarantee Corporation Limited in 1964 and later to ECGC in 1983. ECGC is fully owned by GOI, and functions under the Ministry of Commerce. Broadly, ECGC provides four types of services or schemes. (a) standard protection to exporters against payment risks involved in exports on short-

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Export Incentives and Export Promotion Measures in India 2011

term credit (b) specific protection to Indian firms against payment risks involved in exports on deferred terms of payment, services rendered to foreign clients, and turnkey projects taken abroad (c) financial guarantee to Indian banks to protect them against risks in extending financial support to exporters both at pre and post-shipment, and (d) special covers such as Transfer guarantee, insurance for buyers credit, overseas investment insurance, and exchange risk fluctuation. Schemes (a) and (b) are for the exporters whereas (c) and (d) are for the banks. Schemes (a) and (c) are for a short term whereas those under (b) and (d) are for long-term. Subsidy occurs where premium rate at which credit guarantee is given is inadequate to cover long-term operating costs and losses. Long-term financial picture of ECGC shows the viability of ECGC operations. Total premium collected by ECGC from 1957 to March 2000 has been Rs. 2118.38cr. The premium plus recoveries are higher than the claims of Rs. 1928.24cr. paid by ECGC over the same period. ECGC has thus been maintaining its financial viability. Its profit during 1997-98, 1998-99 and 1999-2000 has been Rs. 4.24cr, 23.14cr, and 33.3cr. respectively. ECGC has been making positive profits overall on its operations. However, there is an element of crosssubsidy across the 4 schemes mention above. In particular, schemes (a) and (c) mentioned above are profit making on yearly basis for the last 6 years that have been considered. It is appropriate to examine these two schemes on a yearly basis since these are essentially short term in nature. However, schemes (b) and (d) being long term in nature have been loss making on yearly basis as well as on a long term basis. The SCM Agreement is not very clear on the issue of cross-subsidy across the schemes. The same has so far not been taken up in the countervailing duties imposed on Indias exports, but it may be considered countervailable by a Member country. 3. ASIDE Introduction Exports have come to be regarded as an engine of economic growth in the wake of liberalization and structural reforms in the economy. A sustained growth in exports is, however, not possible in the absence of proper and adequate infrastructure as adequate and reliable infrastructure is essential to

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Export Incentives and Export Promotion Measures in India 2011

facilitate unhindered production, cut down the cost of production and make our exports internationally competitive. While the responsibility for promotion of exports and creating the necessary specialised infrastructure has largely been undertaken by the Central Government so far, it is increasingly felt that the States have to play an equally important role in this endeavour. The role of the State Governments is critical from the point of view of boosting production of exportable surplus, providing the infrastructural facilities such as land, power, water, roads, connectivity, pollution control measures and a conducive regulatory environment for production of goods and services. It is, therefore, felt that coordinated efforts by the Central Government in cooperation with the State Governments are necessary for development of infrastructure for exports promotion. Department of Commerce currently implements, through its agencies, schemes for promotion and facilitation of export commodities and creation of infrastructure attendant thereto. The Export Promotion Industrial Parks Scheme (EPIP), Export Promotion Zones scheme (EPZ), and the Critical Infrastructure Balancing Scheme (CIB) are also implemented to help create infrastructure for exports in specific locations and to meet specific objectives. However, the general needs of infrastructure improvement for exports are not met by such schemes. With a view, therefore, to optimizing the utilization of resources and to achieve the objectives of export growth through a coordinated effort of the Central Government and the States this scheme has been drawn up. The features of the Scheme and the Guidelines for consideration of proposals in respect of the Scheme are given below. Objective The objective of the scheme is to involve the states in the export effort by providing assistance to the State Governments for creating appropriate infrastructure for the development and growth of exports. States do not perceive direct gains from the growth in exports from the State. Moreover, the States do not often have adequate resources to participate in funding of infrastructure for exports. The proposed scheme, therefore, intends to establish a mechanism for seeking the involvement of the State Governments in such efforts through assistance linked to export performance.

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Export Incentives and Export Promotion Measures in India 2011

Scheme The scheme shall provide an outlay for development of export infrastructure which will be distributed to the States according to pre-defined criteria. The existing EPIP, EPZ and CIB schemes shall be merged with the new scheme. The scheme for Export Development Fund (EDF) for the North East and Sikkim (implemented since 2000-2001) shall also stand merged with the new scheme. After the merger of the schemes in respect of EPIP,EPZ,CIB and EDF for NER and Sikkim with the new scheme, the ongoing projects under the schemes shall be funded by the States from the resources provided under the new scheme. Approved purposes for the scheme The activities aimed at development of infrastructure for exports can be funded from the scheme provided such activities have an overwhelming export content and their linkage with exports is fully established. The specific purposes for which the funds allocated under the Scheme can be sanctioned and utilised are as follows: i. Creation of new Export Promotion Industrial Parks/Zones (including Special Economic Zones (SEZs)/Agri-Business Zones) and augmenting facilities in the existing ones. ii. iii. iv. v. Setting up of electronic and other related infrastructure in export conclave. Equity participation in infrastructure projects including setting up of SEZs. Meeting requirements of capital outlay of EPIPs/EPZs/SEZs Development of complementary infrastructure such as roads connecting the production centres with the ports, setting up of Inland Container Depots and Container Freight Stations, vi. Stabilising power supply through additional transformers and islanding of export production centres etc. vii. Development of minor ports and jetties of a particular specification to serve export purpose. viii. ix. x. Assistance for setting up common effluent treatment Projects of national and regional importance. Activities permitted as per EDF in relation to North East and Sikkim

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Export Incentives and Export Promotion Measures in India 2011

Criteria for State-wise allocation The State Component will be allocated to the States in two tranches of 50% each. The inter-se allocation of the first tranche of 50% to the States shall be made on the basis of export performance. This shall be calculated on the basis of the share of the State in the total exports. The second tranche of the remaining 50% will be allocated inter-se on the basis of share of the States in the average of the growth rate of exports over the previous year. The allocations will be based on the data of exports of goods alone and the export of services will not be taken into account. As full and reliable data about the exports from the States is not likely to be available during the year 2001-2002, the State-wise allocations will be made on the basis of the project proposals received from the State Governments. A minimum of 10% of the Scheme outlay will be reserved for expenditure in the NER and Sikkim. The funding of Export Development Fund for NER and Sikkim will be made out of this earmarked outlay and the balance amount will be distributed inter-se among the States on the basis of the export performance criteria as laid down. The export performance and growth of exports from the State will be assessed on the basis of the information available from the office of the Director General of Commercial Intelligence & Statistics (DGCIS). The office of the DGCIS will compile the State-wise data of exports from the Shipping Bills submitted by the exporter. The Shipping Bill form provides a column in which the exporter will enter the name of the State/UT from where the export goods have originated. Filling up of this column is mandatory with effect from 15.6.2001 under the FT (D&R) Act. Each State/UT Government would periodically interact with the exporters to guide and motivate them to make proper entries in the Shipping Bills so that State of Origin of the exported goods is entered correctly. The States may set up appropriate mechanisms at the field level in cooperation with the trade and industry associations to disseminate this information amongst exporters. Release of Funds The release of the funds to the States shall be subject to the limit of the entitlement worked out on the basis of the laid down criteria. On receipt of the pre-receipt bill from the Nodal Agency nominated by the State Government funds will be directly disbursed to it. The unutilised funds, if any, out of the allotted funds will be counted against allocations for the next year

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Export Incentives and Export Promotion Measures in India 2011

and suitable deductions for equivalent amounts may be made from the allocations next year. 50% of allocation shall be released in the first quarter of financial year. Balance amount shall be released in third quarter based on utilisation of funds and adherence of the State to guidelines of the scheme. States would be advised to take up projects for utilising full amount in the beginning of the year. They would also be advised to identify such projects in advance. Eligible Agencies Under the scheme, funds for the approved projects may be sanctioned to: i. ii. iii. iv. Public Sector undertakings of Central/ State Governments Other agencies of Central/ State Governments Export Promotion Councils/ Commodity Boards Apex Trade bodies recognised under the EXIM policy of Government of India and other apex bodies recognised for this purpose by the Empowered Committee set up under para v. Individual Production/ Service Units dedicated to exports. Administrative expenses All administrative expenses connected with the implementation of the scheme will be met by the concerned State Governments from out of their own budget and no part of the scheme funds shall be used to meet such expenditure. Evaluation There may be a mid-term evaluation of the scheme at the end of three years. It is expected that, after implementation of this scheme, States will benefit from the cumulative impact of improved infrastructure for exports and the impact of increased exports in their economy on employment and overall prosperity. The evaluation would also be the basis for carrying out mid-term corrections in the scheme, if any.

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Export Incentives and Export Promotion Measures in India 2011

4.

Marketing Development Assistance: As part of the comprehensive policy package for promotion and development of SSIs announced on 30th August 2000, it was decided that the Small Industries Development Organisation should have a Market Development Assistance (MDA) scheme similar to the one obtaining in the Ministry of Commerce. It should be a Plan Scheme aimed at encouraging exporters to access and develop overseas markets. The scheme offers funding for participation in international fairs, study tours abroad, trade delegations, publicity, etc. Direct assistance under MDA for small scale units is given for individual sales-cum-study tours, participation in fairs/exhibitions and publicity. Exporters Eligible for Assistance: y Exporting unit must be registered as SSI / SSSBE
y y

Exporting unit must be a member of FIEO / EPC Exporting units with aggregate exports of Rs. 2cr and above over the last three financial years (Rs. 1 crore for ISO 9000 certified exporters) are eligible for assistance from the Ministry of Commerce through EPCs / other grantee organisations. SSI units with aggregate exports less than this limit would now be eligible for direct assistance from the Office of DC(SSI) under this scheme. SSI units which have not yet commenced exports are not eligible for assistance.

An exporting unit would be eligible for assistance under SSI-MDA only once in a financial year.

PURPOSE y to participate in trade fairs and exhibition


y y y y y

to sponsor trade delegation and study teams to conduct market research, commodity research to undertake advertising campaign abroad to establish branches and offices abroad to secure samples and technical information

The rate of information varies from 25-60.

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Export Incentives and Export Promotion Measures in India 2011

5.

Market Access Initiative: Market Access Initiative (MAI) Scheme is an Export Promotion Scheme envisaged to act as a catalyst to promote India's exports on a sustained basis. The scheme is formulated on focus productfocus country approach to evolve specific market and specific product through market studies/survey. Assistance would be provided to Export Promotion Organizations/Trade Promotion Organizations/ National Level Institutions/ Research Institutions/ of Universities/ through Laboratories, accessing new Exporters markets or etc., for enhancement exports through

increasing the share in the existing markets. Under the Scheme the level of assistance for each eligible activity has been fixed. PURPOSE Conducting marketing studies Establishing showrooms and warehousing facility in target markets Participating in international trade fairs, seminars, sales promotion campaign etc iv. Transport subsidy for select agricultural

i. ii. iii.

6.

Income Tax Exemption (under Sections 80HHC, 10A, 10B): MOF tax exempts export profits. The Income Tax Act 1961 is the legal basis under which the Income tax exemption scheme operates. The Act is amended yearly by the Finance Act. Under the Act, profits from exports are exempted from income tax. The sections of the Income Tax Act under which export income from manufactures is exempted are section 10A, 10B, and 80HHC. Under section 10A profits that a firm in Export Processing Zone makes is exempted from income tax. Similarly, section 10B exempts Export Oriented Units from paying income tax on its profits. Any firm in Domestic Tariff Area (DTA) exporting goods can claim exemption from income tax on the profits it makes from exports under the section 80 HHC. However, the GOI has announced the gradual phasing out of the income tax benefit given to the exporters. Accordingly section 80HHC has been amended so as to phase out the deduction over a five-year period. Under the phase out plan each year beginning 2000-01 income on which tax exemption is allowed (80 per cent in 2000- 2001, 60 per cent in 2001-2002 and so on) will

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Export Incentives and Export Promotion Measures in India 2011

decrease by 20 percentage points, making profits fully taxable (in five year period) by 2004-2005. However, on the request from exporters to backloading of the phase out so that the burden of income tax falls towards the end of the five year phase out period, the plan has been revised. According to the revised plan, percentage of export income will now be taxed as per the following schedule: Phase Out Period 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Percentage of Export Income that will be Taxed 20 30 50 70 100

Similarly, exemption of export profits under section 10A is given to units in FTZ/EPZs/EHTPs/STPs that export at least 75 per cent of total turnover. Such units are not allowed to carry forward allowances on account of depreciation, investments etc beyond holiday period. The phase out plan is as follows: units set up before April 1, 2000 will be allowed 100 percent deductions for the unexpired period of 10 consecutive assessment years. For units set up after April 1, 2000, income exemption is to be allowed for first 5 years. Export income on which tax exemption is allowed is as given in the above table (that is, 80 per cent in the first year, 70 per cent in the second year and so on). By the end of 5th no income exemption is to be allowed. No income tax benefit will be allowed to units that come up after April 1, 2005. Exemption of export profits under section 10B is given to EOUs that export at least 75 per cent of total turnover (from 1995-96). The phase out plan is the same as that given to those in section 10A.

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Export Incentives and Export Promotion Measures in India 2011

7.

Loan Guarantees: The Ministry of Finance provides loan guarantees primarily to public sector industries on ad hoc basis. This loan guarantee is not necessarily on the basis of either export performance or on the use of domestic over imported goods. For example, Steel Authority of India (SAIL) received loan guarantees on several of its outstanding long-term foreign loans from the government and the State Bank of India.

8.

Trade Finance by Commercial Banks: The Reserve Bank of India (RBI) under Sections 21 and 35A of the Banking Regulation Act, 1949 directs the commercial banks to provide export credit both at pre-shipment and postshipment stage. Pre-shipment credit, also known as packaging credit, is advanced by commercial banks to the exporters for the purchase of rawmaterial or the finished products upon the presentation of confirmed export order or letter of credit. The credit helps exporters meet a specific export obligation. Pre-shipping credit could be either in domestic currency or in foreign currency. Post-shipment finance, in contrast, is granted to an exporter after shipment of goods. This advance could be either against the shipping bills or against duty drawback. Also, the advance could be denominated either in rupees or in foreign currency, except that when the pre-shipping finance is in foreign currency then the post-shipment finance also is in the same currency. Post-shipment credit helps an exporter tide over the waiting period between shipping of goods and the receipt of payment. The RBI specifies the maximum rate that commercial banks can charge on export credit in rupee terms. The RBI in turn rediscounts part of the outstanding export credit that the commercial banks extend to the exporters. Till recently, the RBI prescribed specific interest rate that banks could charge on pre-shipment credit, and a ceiling rate on post-shipment credit. However, this has been changed in the credit policy for 2001-2002 announced by the RBI. The RBI has now linked both these rates to the Prime Lending Rates (PLRs) of banks. The rate that a bank can now charge on pre-shipment credit upto 180 days (which was early fixed at 10 per cent) cannot exceed the PLR of that bank minus 1.5 percentage points. Likewise the rate on pre-shipment credit beyond 180 days and up to 270 days (which was earlier fixed at 13 per cent) now cannot exceed PLR plus 1.5 percentage points. Beyond the 270th day, banks are free to charge appropriate commercial rate.33 Similarly is true

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Export Incentives and Export Promotion Measures in India 2011

of post-shipment credit which is given on demand bills and issuance bills. This rate on demand bills (which earlier could not exceed 10 percent) now cannot exceed PLR minus 1.5 percentage points. On issuance bills this rate on credit upto 90 days (which earlier could not exceed 10 percent) now cannot exceed PLR minus 1.5 percentage points, and on credit beyond 90 days and up to 6 months the rate (which could not exceed 12 percent) now cannot exceed PLR plus 1.5 percentage points. In case of export credit in foreign currency, the RBI allows the banks to charge internationally competitive rate, linked to London Inter-Bank Offer Rate (LIBOR). The RBI puts a cap on the spread around this internationally competitive rate that the banks can charge. According to the credit policy of 2001-2002, pre-shipment credit upto 180 days can be availed by the exporters at a revised (lower) ceiling rate of LIBOR plus 1.0 (which was earlier LIBOR plus 1.5) percentage points. For credit beyond 180 days and upto 360 days 2 percentage points get added to the rate charged for initial 180-day period. For post-shipment credit in foreign currency, ceiling rate for credit on demand bill (for transit period) is LIBOR+1 percent. On Usuance bills (for total period i.e., issuance period, transit period, and grace period) upto 6 months from the date of shipment the rate cannot exceed LIBOR+1 per cent. However, the rate charged on export bills (demand or issuance) realised after due date but upto date of crystalisation is 2 percentage points over the rate charged on the issuance bills. On export credit not otherwise specified banks are free to charge any rate.

9.

Export insurance: Insurance on an export consignment depends on the nature of export contract, that is, whether the contract is CIF or FOB. If it is CIF, in which case insurance is bought by the exporter himself, exporters in India have to buy insurance from one of the subsidiaries of General Insurance Corporation of India only. However, this scenario is all set to change with the entry of private insurance players in the Indian insurance market that has recently been opened to competition from private players.

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Export Incentives and Export Promotion Measures in India 2011

ROLE OF INCENTIVES IN EXPORT PROMOTION


1. 2. 3. 4. 5. 6. 7. 8. Make business financially attractive Increase profit in business Helps exporters to expand and diversify business It makes available expertise in the field of export marketing Improves competitive ability of exporters Facilitate repayment of loans Removes deficit in balance of payment Uses optimum use of available resources

9. Compensate for higher domestic cost of production 10. Helps to earn goodwill for country

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Export Incentives and Export Promotion Measures in India 2011

CONCLUSION
Export incentives make domestic exports competitive by providing a sort of kickback to the exporter. The government collects less tax in order to deflate the exported good's price, so the increased competitiveness of the product in the global market ensures that domestic goods have a wider reach. Undertaking considerable industrial deregulation and other structural reforms, trade in India recognizes that strong exports are critical for overall economic growth and poverty reduction. Export-led growth has thus become a key thrust for the trade in India. Integrating with the global economy, India has recorded strong export growth to the United States and the European Union markets. It is important to note that Indian government recognizes the need to implement additional reforms and address significant constraints to ensure that Indian trade supports growth and benefits the poor. The government of India provides various Export Incentives and undertakes many Export Promoting Measures for the exporters in order to achieve a robust economic growth and higher National Income. Continuing with trade reforms has become more complex because of concerns of how these reforms will affect employment, income distribution, poverty and vulnerability. India is focused on WTO negotiations on agricultural trade policies, and there is strong interest in services trade. India today stands at a over a trillion economy. Darjeeling tea, Indian khadi cotton, Bombay Duck, Kashmiri carpets, Indian spices and dry fruit are just a few of the famous gifts India has given to the world. The economic levels have improved in the urban and semi-urban areas. Literacy is penetrating deep in to even the far reach areas, thus creating awareness and to higher consumption patterns for all kinds of goods across all sections of the society. Promoting the availability of goods from different parts of the world has seen a rise in more trade with other countries. The country has realized that at the end of the day, maximizing use of ones own resources is what makes all the difference.

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Export Incentives and Export Promotion Measures in India 2011

BIBLIOGRAPHY
http://www.icrier.org/pdf/rajeev72try.PDF http://www.indianindustry.com/trade-information/export-incentives.html http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/130T_HBSE200910.pdf http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12821 http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistic s%20on%20Indian%20Economy http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12889 http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/197T_HBSE200910.pdf http://commerce.nic.in/tradestats/indiatrade_press.asp http://www.fieomail.org/uploads/files/1299737171r4iaf1v313f4i0gv098nn9ul43openwith. pdf http://en.wikipedia.org/wiki/Export http://www.investopedia.com/terms/e/export-incentives.asphttp://www.customsco.com/Duty_Drawback.html http://customsmangalore.gov.in/faq/faq-deemed.htm#deemedtop http://commerce.nic.in/trade/national_tpa_assistance.asp http://commerce.nic.in/trade/international_tpp_cis_6.asp http://tourism.indiabizclub.com/info/tourism/scheme_of_rural_tourism/scheme_for_mark et_development_assistance http://www.eximpolicy.info/clauses/epcg-scheme-5-1.html http://dgftcom.nic.in/exim/2000/policy/chap-05.htm http://www.dsir.gov.in/reports/techint/annex5.pdf

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