Government Plans to Scrap Incentives to Service Exporters

The government has decided to scrap the incentives provided to service exporters under the Services Exports from India Scheme (SEIS). Official and trade sources stated that the next Foreign Trade Policy (FTP) would not include a scheme replacing the SEIS. The expectation is that FTP will be unveiled in March 2023 and implemented in the next fiscal year.

The government may refrain from providing exporters SEIS benefits for FY22 and FY21. A source stated that the withdrawal of incentives for exporters is based on a cost-benefit analysis. The service exporters are doing well even without the scheme incentives. Thus, support should be provided to those sectors or players who require help. 

However, the government may assist in marketing selected services overseas to service exporters in the next FTP to help them grab orders. Under the SEIS, the government provided domestic exporters duty credit scrips at 3-5% in FY20 of the net foreign exchange earned, depending on the nature of services. The government offered higher incentives at 5-7% in FY19.

Last year, the government announced assistance of Rs.10,002 crore for clearing all the dues under the SEIS. Trade analysts predict that the actual outgo under the SEIS could be about Rs.4,000 crore a year, although there is no official data on this.

The RoDTEP scheme replaced the Merchandise Exports from India Scheme (MEIS) in January 2021, but there is no such replacement for service exporters. The plan for not extending the incentives has come at a period when services exports perform better than goods, despite a slowdown in developed markets.

India’s services exports increased 23% year-on-year to USD 254 billion. An official source stated that software services accounted for over 60% of the services exports. Companies in the software sector hardly need government support for exports. 

The overall services exports increased by 28% to USD 150 billion in the first half of this fiscal year. The merchandise exports increased by 17% to USD 232 billion due to decent expansion in the first quarter, and the growth slowed to just 4.8% in September.

A recent RBI survey stated that the US and Europe made up 61.2% and 25.6% of India’s ITeS and software exports, worth USD 118 billion in FY19. After a mid-term FTP review in December 201, the government announced additional incentives of Rs.8,450 crore a year to boost services and merchandise exports.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@clear.in