While they have always played a pivotal role in balancing India’s burgeoning merchandise trade deficit, Indian services exporters have been an ignored lot. Although the new Foreign Trade Policy released in April has given them their much deserved due, services exports from India continuing to head lower month after month means much more needs to be done before the incentive scheme for services exports – SEIS – starts making a difference

The Dollar Business Bureau | July 2015 Issue

Travel agents, tour operators and tourist guides catering to foreigners are eligible for 5% duty credit scrips under SEIS. Maybe, this has played a role in the surge of foreign tourists to India in the last few months

If one has to identify the key takeaway from the new Foreign Trade Policy (FTP) 2015-2020, it has to be the fact that duty credit scrips provided to services exporters are now transferable. A long-standing demand of the industry, the introduction of the Services Exports from India Scheme (SEIS), which is otherwise just a rechristened version of the erstwhile Served from India Scheme (SFIS), not only redefines who/what is a services exporter, but gives them the much needed equality with their merchandise exporting peers. It’s worth mentioning that as per the last FTP, duty credit scrips provided to services exporters were not transferable and were allowed to be used only for the payment of import duty. So, for services exporters, without the need for imports in the future, they were virtually useless. But SEIS not only makes it fully transferable, but also allows them to be used to pay service tax and excise duty as well. Explaining the changes to The Dollar Business after the release of the new FTP, Pravir Kumar, Director General, DGFT, had said, “The scrips (under SEIS) can be used for excise duty payment, or for payment of service tax. The scrips can be used for a wider purpose and carry real value. So, if service exporters are availing services from others in India for final delivery of their own services, they can pay service tax using SEIS scrips or they can simply encash them. They will get good value from the scrips.”

So, while on one hand, a services exporter eligible for incentives is now any “service provider located in India” instead of “Indian service providers”, on the other hand, they are also allowed to sell the duty credit scrips they are entitled to, instead of being allowed to use them to pay import duty only, as was the case earlier under FTP 2009-14.

Equality

Welcoming the changes, James J. Nedumpara, Executive Director, Centre for International Trade and Economics Laws, Jindal Global Law School, says, “I feel that such a scheme is an incentive for academicians and global-oriented professional universities to welcome students from abroad for educational opportunities or conduct training or capacity building programmes. A number of institutions, including ours, provide professional and vocational training in areas such as law, diplomacy and government policy for nationals of other countries. The SEIS scheme could be potentially useful to such institutions.” On similar lines, Maulik Sharma, Managing Director, XPAT IP Services, a National Capital Region (NCR)-based Legal Process Outsourcing firm, says, “Since we are an Indian Service provider majorly based in India, we are likely to derive benefits by transferring the duty credit scrips. This might be a relief since except for a few benefits there were no real forex benefits we were deriving until now.”

The interesting part about making duty scrips provided to services exporters transferable is that being a new provision, the industry is yet to fully capitalise on it. Although it’s been a quarter, most services exporters The Dollar Business spoke to are yet to figure out the proper channel to monetise the scrips. And Jindal Global School is no different. “We have not realised the benefits on foreign exchange earnings in the recent SEIS scheme,” Nedumpara tells The Dollar Business. When asked whether his firm monetised its duty scrips in the last three months, Sharma replies, “Not so far, but we surely will in the future.”

Need for more

Data released by Reserve Bank of India (RBI) reveal that in the month of April, 2015 – the first month since the release of the new FTP – India’s services exports fell 4.5% y-o-y to $13.01 billion. In fact, if one takes a look at RBI data since the beginning of the year, India’s services exports have constantly been falling from $14.25 billion in January to $14.09 billion in February, $14.04 billion in March and now $13.01 billion in April. Maybe, this downtrend in services exports, which have been playing a big role in balancing India’s merchandise trade deficits, had prompted the government to make duty credit scrips provided to services exporters transferable. But although there’s not enough data point yet to arrive at a conclusion, one can say with reasonable confidence that the government’s move hasn’t really enthused services exporters enough to go one gear up. Hence, the need of the hour, probably, is for the government to not only educate more services exporters on how to benefit from transferability, but also help them monetise the same. Otherwise, the downtrend in India’s services exports will continue and probably, even accelerate.