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An Alternative of SEIS: Should Service Export Sectors Rejoice?

The SEIS or Service Export from India Scheme was an incentive given by the government of India through the Director-General of Foreign Trades (DGFT) for service exporters based in India with the main objective to boost service exports. SEIS was introduced on 1st April 2015 for 5 years under the Foreign Trade policy of India 2015-2020. This scheme was formerly known as the SFIS scheme for 2009-2014. Under SEIS, selected service sectors from India enjoyed 5-7% incentive on the Net Foreign Exchange earned in the form of Duty Credit Scrips valid for 24 months.

The New Scheme in Works:

In 2019, World Trade Organization (WTO) ruled against the Indian government for providing direct subsidies to industries in the form of export promotions schemes like SEIS and MEIS against the prohibitions of the international body’s global rules. Which the government and the office of Foreign Trade Policy had decided to completely implement within 2020 and the relevant parties were informed to claim their dues within December 31, 2021.

While the government developed and implemented a successor scheme for Merchandise exports, called RoDTEP, no such incentive schemes were introduced for service sectors like hotel and tourism, which constitutes a substantial percentage of service exports till now.

In a recent interview, Manech Davar, Chairman of SPEC told that the situation is being worked on, and an alternative of SEIS is soon to be approved and announced by the government of India. 

After the elimination of SEIS, service sectors lost a significant benefit of the financial support which the export scheme offered in the form of duty credit scrips. This new development is expected to bring a smile to the sector as it was estimated that the travel and tourism industry lost $21 billion due to the pandemic.

How SEIS impacted the overall service export can be assessed with the fact that in the 2018-19 fiscal year, a total of Rs.4262 Crore were distributed to service exporters as scrips under SEIS, which provided a 5-7% refund in scrips.

Davar also raised the need for a production-linked incentive (PLI) scheme for service sectors as well, which should ensure specific programmes for each sector like hotel and education, as one of the conditions for PLI scheme is capital-expenditure-based investments; which are also being made by service sectors like tourism and information technology to acquire more clients.

What Does It Mean for the Service Sectors:

The DGFT imposed a cap on the total entitlement under SEIS at Rs.5 Crore per exporter for shipments in fiscal 2019-20 to help smaller businesses whose entitlements were expected to be much less than Rs.5 Crore. Which was imposed after the proposal of SEPC to cap the entitlements further to ensure the survival of SEIS. 

As cloistered the service export sectors are, the new announcement of introducing the new scheme could be the lifeline that they needed. A scheme rivalling the RoDTEP will be needed to revive the service export sectors like legal and taxation, engineering, veterinary, radio and television, advertising, packaging, and printing.

But there seems to be no hope of a new scheme for Information Technology – the largest chunk of India’s service sectors. A Senior Confederation of Indian Industry Official even blamed the NITI Aayog for spreading the misconception that the sector doesn’t require any substantial investments to benefit from any incentives.

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