Trade Promotion Schemes — Economic Framework

Economic Framework

Trade Promotion Schemes are government initiatives designed to boost a nation's exports by enhancing the competitiveness of its goods and services in international markets. These schemes primarily operate through financial incentives, duty exemptions, and procedural simplifications.

Historically, India's approach evolved from direct subsidies in the pre-liberalization era to more WTO-compliant indirect incentives post-1991. Key schemes under the Foreign Trade Policy 2015-20 included the Merchandise Exports from India Scheme (MEIS) for goods and the Service Exports from India Scheme (SEIS) for services, both offering duty credit scrips as rewards.

Other crucial schemes include the Export Promotion Capital Goods (EPCG) scheme, which allows duty-free import of capital goods against an export obligation, and the Advance Authorization and Duty Free Import Authorization (DFIA) schemes, which permit duty-free import of inputs for export production.

The Directorate General of Foreign Trade (DGFT) is the nodal agency for their implementation. A significant challenge for these schemes has been compliance with WTO rules, particularly the Agreement on Subsidies and Countervailing Measures (ASCM).

India's status as a developing country for subsidy purposes changed, leading to a WTO ruling against MEIS, SEIS, and other schemes. This necessitated the introduction of the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, a WTO-compliant mechanism that remits embedded taxes and duties not otherwise refunded.

The overall objective of these schemes is to increase foreign exchange earnings, generate employment, and integrate India into global value chains, while continuously adapting to global trade norms and domestic economic priorities.

Important Differences

vs Service Exports from India Scheme (SEIS)

Aspect	This Topic	Service Exports from India Scheme (SEIS)
Objective	To offset infrastructural inefficiencies and associated costs for merchandise exports.	To promote the export of notified services from India.
Beneficiary	Exporters of goods (merchandise).	Service providers earning foreign exchange.
Incentive Type	Duty credit scrips as a percentage of FOB value of exports.	Duty credit scrips as a percentage of net foreign exchange earned.
Coverage	Wide range of products and markets specified in the FTP.	Notified services listed in the FTP.
WTO Compliance	Deemed a prohibited export subsidy; discontinued.	Deemed a prohibited export subsidy; discontinued.
Replacement	Primarily replaced by RoDTEP for goods.	No direct replacement for services, but broader policy support continues.

MEIS and SEIS were both flagship incentive schemes under FTP 2015-20, designed to reward exporters with transferable duty credit scrips. The critical distinction lay in their scope: MEIS targeted merchandise exports, aiming to make Indian goods more competitive, while SEIS focused on boosting India's service exports. Both schemes, however, faced similar challenges regarding WTO compliance, as they were deemed prohibited export subsidies. Consequently, both have been discontinued, with RoDTEP emerging as a WTO-compliant successor for goods, while the services sector continues to seek new avenues for promotion.

vs Remission of Duties and Taxes on Exported Products (RoDTEP)

Aspect	This Topic	Remission of Duties and Taxes on Exported Products (RoDTEP)
Objective	To provide rewards/incentives for export performance (goods).	To remit/refund embedded taxes and duties not otherwise rebated (goods).
Mechanism	Duty credit scrips based on FOB value of exports.	Refund of specific central, state, and local taxes/duties via transferable duty credit scrips.
Basis of Benefit	Incentive for achieving export targets/performance.	Neutralization of actual tax/duty burden on inputs/processes for exports.
WTO Compliance	Non-compliant; considered a prohibited export subsidy.	Designed to be WTO-compliant as it only remits actual taxes/duties.
Fiscal Impact	Revenue foregone as an incentive.	Revenue foregone as a refund/remission of taxes.
Coverage	Broad coverage of merchandise exports.	Covers most merchandise exports, with rates determined by a committee.

The transition from MEIS to RoDTEP represents a fundamental shift in India's export promotion philosophy, driven by WTO compliance. MEIS was an incentive-based scheme, rewarding exporters with duty credit scrips as a percentage of their export value, which the WTO deemed a prohibited export subsidy. RoDTEP, on the other hand, is a tax-remission scheme. Its core purpose is to neutralize the embedded taxes and duties (like electricity duty, fuel taxes, mandi tax) that are not refunded under other existing mechanisms (like GST refunds or customs duty drawback). This makes RoDTEP WTO-compliant as it merely removes the domestic tax burden from exports, ensuring a level playing field without providing an 'export subsidy.'