FTP now in the service of Indian services exporters

 Vanita Peter D’souza | The Dollar Business The world’s top three countries in terms of merchandise trade deficit – USA, UK and India – have one thing in common. All three run services trade surpluses! But while the governments of USA and UK have always treated their services exporters at par with those exporting merchandise, the same has never been the case in India. Not only have Indian service exporters been forced to run from pillar to post to get even service tax refunds, but erstwhile FTPs had never really paid more than lip service to the services industry. This, despite India’s services exports growing over 6x in the last decade, something that merchandise exports cannot boast of. Putting an end to this step-motherly treatment, the new FTP, which was released on Wednesday has taken two major steps to bring the country’s services exporters on par with their merchandise peers. Firstly, unlike the incentive scrips that India’s services exporters were getting under the Served from India Scheme (SFIS), those under the new Service Exports from India Scheme (SEIS) are fully transferable. This means that while in the past, a services exporter, with no need for imports, used to let the scrips expire, now, they can be sold off to the highest bidder. For example, let’s take the case of a high-end restaurant in Mumbai. Let’s say it earns $1 million from its foreign patrons during a year. Now, while earlier, the $30,000 worth of scrips that it would have got under SFIS could have been used to pay only customs duty while importing cheese and wine (say) or else would have become worthless, now, they could be sold off in return of cash.  Just how big a step this is can be gauged from the fact that assuming an average incentive rate of 4% (SEIS incentive rates are either 3% or 5%), this means over $6 billion worth of transferable duty scrips (at last year’s services exports of $151.4 billion) in the hands of services exporters! And it’s anybody’s guess just how much this additional money will help them grow. The second big step the new FTP has taken to bring services exports on par with merchandise exports is that it has made all ‘service providers located in India’ eligible for incentives instead of only ‘Indian service providers’. This means as long as one provides services from India, one becomes eligible for incentives irrespective of which country the ‘one’ belongs to. A clear offshoot of ‘Make in India’, this move confirms that finally, in the eyes of Government of India, there is absolutely no distinction between merchandise and services exporters.    

This article was published on April 2, 2015.