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Exports from India: Opportunities and Challenges for Foreign Business

International trade leads to the economic development of the country. We know countries where exports have played an important role in economic development. These countries are Japan, China, South Korea, Thailand and Malaysia. These countries are examples of how exports play a crucial role in economic development. The larger the exports, the larger will be the inward foreign remittance, more job opportunities and employment will be generated and the current account deficits will be lower. Considering that India is one of the largest economies in the world, its export contribution to global trade is only 1.6%. The reasons behind fewer exports from India are rising protectionism and de-globalization, lack of basic infrastructure and low market penetration. However, for the past two years, India has witnessed rapid growth in exports. In the fiscal year 2022, manufacturing exports reached USD 418 billion. Additionally, the Indian government is taking steps to promote exports from India. If you’re a foreign business willing to participate in the business of exports from India, then you’re at the right place! This blog discusses the opportunities and challenges for foreign businesses involved in exports from India.

Government Initiatives to boost investment in India

1. Advances authorization scheme

In this scheme, the government allows businesses to import inputs without paying any duty, subject to the condition that such inputs should be utilized for the production of an item that is to be exported.

2. Advance authorization for annual requirement

In this scheme, the import of inputs is made duty-free, subject to an export obligation. The exporters who have had excellent export performance in two previous years can avail the benefit of this scheme.

3. Customs, central excise and export duty drawback scheme

In this scheme, the exporters can avail refund of all or any duty and taxes paid for the inputs of the exported products. The duty drawback is the term used for refunds received by the exporter. The brand rate as per the duty drawback scheme can be obtained from the tax authorities.

4. Duty-free import authorization

This scheme allows the exporter to get free imports of certain products. This scheme is provided by the Government of India in a clubbed manner with the Duty Exemption Entitlement Certificate (DEFC) (Advance License) and Duty-Free Replenishment Certificate (DFRC).

5. GST Tax rebate

If the output services for export goods are specified, then the Government of India offers a rebate on GST to the exporters.

6. Export Promotion Capital Goods (EPCG) zero duty scheme

This scheme applies to exporters who deal in electronic goods. If the export value is six times or more of the duty saved on the import of capital goods for production, pre-production and post-production, then zero percent customs duty is required to be paid by the exporter. The value of export duty is required to be confirmed by the exporter within six years from the issue date.

7. Town of Exports Excellence (TEE)

The towns which produce and export goods beyond a particular value in an identified sector are given the town of export excellence (TEE) status. The status is given based on performance and potentiality of exports, to enable the identified exporters to enter into new markets.

8. EPCG Duty credit scrip scheme

Under this scheme, exporters get an EPCG license where they directly pay customs officials if they are unsure about paying the export obligation. If the exports satisfy the export obligations, then the government will refund the tax paid by the exporter earlier.

9. Market Access Initiative Scheme

Under this scheme, financial advice is provided to agencies who are directly or indirectly involved in the marketing activities such as market research, branding, capacity building and compliance in importing markets.

10. Scheme related to Merchandise Exports

Under this scheme, benefits arising from the exports are payable as a percentage of realized Freight on Board (FOB) value. The applicability of this scheme is limited to certain goods of particular markets.

11. Marketing Development Assistance (MDA) scheme

This scheme aims to encourage export activities abroad, help export promotion councils to promote their products and take any other marketing measures at the international level.

12. Rebate on State Levies

Under this scheme, the exporter can claim a refund from the central government for all levies and duties paid by the exporter at the state level.

13. Freight Assistance to Exporters

The Transport and Market Assistance scheme was introduced to enhance the export of agricultural products by prescribing a definite amount of freight charges as reimbursement and providing help to the exporters for marketing agricultural products.

14. Remission of Duties and Taxes on Exported Products (RoDTEP) scheme

This scheme is based on a globally accepted principle that taxes and duties shouldn’t be exported. Any taxes or levies borne by the exporter on the exported products should either be exempted or remitted to exporters.

15. Common Digital Platform

A common digital platform has been launched. On this platform, a Certificate of Origin is generated, which facilitated trade and increases the Free Trade Agreement (FTA)^[1] utilization by exporters.

Opportunities for foreign business in exports from India

• Several sectors of manufacturing are moving out of China

The industrial workforce in China is shrinking, pushing labour-intensive industries out of China. This is expected to continue for at least a decade. Meanwhile, India is emerging as one of the emerging destinations for labour-intensive industries. To promote exports from India, the Union as well as the State government are continuously taking steps to ease doing business in India.

• Access to cheaper capital

Cheaper capital will allow the foreign business to target larger products, investments in R&D, capacity, etc.

• Growth in specific sectors

Growth in the chemical industry with more than a billion dollars in investment in market capitalization. The high price of chemicals led to the growth of the chemical sector.

• Launch of Districts as Export Hubs

Districts have been launched as export hubs by identifying products with export potential in each district. This addressed the difficulty in exporting these products and also supports the local exporters or manufacturers in generating employment in their district. This has facilitated an overall growth in exports at the rate of 13.84% during the fiscal year 2022-23 as compared to the fiscal year 2021-22.

• Ease of doing business in India

The Indian government has taken several steps to ease doing business in India. The government measures have made India one of the fasted developing countries in the world. Despite the global heatwinds, India is still expected to see a rise in its gross domestic product (GDP).

Challenges for foreign businesses in exports from India

1. Inadequate Infrastructure

Despite the exponential infrastructure development, India s still not at par with most of the major countries. So Infrastructure becomes one of the weak spots of India. Congestion at ports, roads, and railways and lack of connectivity in land-locked states make it difficult for timely shipment as it takes longer than in other countries. The export of agricultural produce suffers from India’s poorly built roads connecting farmlands with main roads.

2. Low credit access

India still suffers from a low credit scheme due to a lack of access to trade and export credit. The cost of finance is high as the bankers and lenders have to pay high prices for various financial security rules like KYC, Anti Money Laundering and Combating Financing of Terrorism. MSMEs account for almost half of India’s total exports. The requirement for collateral is high making it difficult for MSMEs to avail finance.

3. Document-heavy process

Exports involve complexities in dealing with unfamiliar buyers in foreign lands and different trade laws and practices. The complex and lengthy procedures add to the difficulty of engaging in exports from India.

4. Trade Barriers

In India there prevails tariff inconsistencies which makes it difficult for importers who import inputs, to keep up with the frequent rate adjustment. Additionally, there are non-tariff barriers such as safety and quality standards, certifications, packaging, labelling, etc. Certain goods are restricted goods and can be exported only through State Trading Enterprises. Trading in such goods requires special licenses and fulfilling certain criteria.

Conclusion

At last, it can be said that the business of exports from India has high potential. This is so because of the rapid development in India as well due to the constant effort made by the government to ease doing business in India. The Indian government has taken the initiative to reduce the low credit access and reduced the cost involved in exports by providing a refund for the cost of inputs subject to the obligation for exports. Further, the number of documents have also been reduced to three i.e. Bill of lading, Commercial Invoice cum packing list and Shipping Bill. The exposure to trade has increased and India has secured a major marker share.

Read our Article: Assessing India’s Economic Landscape: Opportunities and Challenges for Foreign Investors