A complicated gestation or a low-risk mission? March 2018 issue

A complicated gestation or a low-risk mission?

Steven Philip Warner President (VMPL) & Editor-in-Chief | December 2017 Issue | The Dollar Business

Asimple yet important question to begin with: There is a certain chapter missing in the Harmonised Commodity Description and Coding System (popularly called HS codes; the international system of names and numbers to classify merchandise in foreign trade). Which is it?

Now that the question is known, you will dig around on Google and do a quick job with educating yourself – but that’s not the point. The point here is whether ALL masterminds who worked hard on formulating the revised Foreign Trade Policy (FTP) and in turn took a shot at deciding the future of millions of exporters and importers in India know the answer. Hopefully, they ALL do.

Next, the revision.

Delays in its release did lead us to assume that FTP 2.0 has endured a good degree of complicated gestation. The eventual release however makes it look more like FTP 1.1; still a notch better than the initial format released in April 2015.

Improved rates under MEIS to accommodate labour-intensive and MSME-driven industries, expansion of the ambit of SEIS (by increasing the incentive by 2% and making the scrips transferable), increase in validity of duty scrips to 24 months from the present 18, shifting of capital goods allowed from one unit of EPCG holder to another and clubbing of EPCG authorisation, relaxation in rules governing imports of second-hand goods for repair works, conditional empowerment of RAs to issue Advance Authorisations, etc., indicate the government's intent to attend to urgent needs of India’s export community. But it’s still a mixed bag.

"The revised policy draft can be considered an improvement over the previous FTP. But while the changes made are incremental, the bundle is still a mixed bag."


The concept of the e-wallet (to address the capital blockage issue of exporters) is known and more than the date of its implementation, exporters are worried about its effectiveness. Payment of GST with duty scrips is a subject still avoided by the government. Nothing has been done to relax the burden of IGST payment for inputs imported under AA despite other markets like EU and other GST-governed countries giving 100% duty exemption on imports of inputs used for re-exports. And how does the government decide on an across the board 2% rate increase? There clearly has to be some science to justify how two very different products, with very unique supply chain and manpower involvement in manufacturing, and which have fared very differently in export demand since the last policy was announced, are given the same treatment.

Let me quickly mention a problem indicated by an exporter. Para 4.29(iv) of the revised FTP states that wherever SION permits use of an input, “the specific input together with quantity which has been used in manufacturing the export product] should be indicated/endorsed in the relevant Shipping Bill/Bill of Export/Tax invoice for supply prescribed under GST rules. And “only such inputs may be permitted for import in the authorisation in proportion to the quantity of these inputs actually used/consumed in production, within overall quantity against such generic input/alternative input.” So, if a biscuit manufacturer plans to export orange-flavoured biscuits and import chocolate flavour duty-free under DFIA, he won't be allowed to. How does this encourage Ease of Doing Business?

It’s not that no effort has been put into the new draft by the government think tanks. But while some changes are practical, much of it seem to be ad hoc experimental shots. All in all, the revision looks like a low-risk mission of the government to keep its word of releasing an FTP 2.0.

It remains version 1.1 still.