In this article, we take a look at some of the schemes introduced by the government of India to boost the startu-up and MSME industries.
For a national economy, exports Schemes are a very important source of revenue. It not only creates more wealth within the country but also strengthens the currency of the country as products from that country come to be in demand. With the launch of government initiatives such as ‘Make in India’ and ‘Start-up India’ the government naturally offered a good level of incentives for businesses that engaged in export of goods.
In the year 2020, the revenue generated from exports alone added up to a whopping $660.5 billion, a 32.3% increase from 2019. And this was despite the COVID-19 pandemic. So can we effectively say that the export schemes opened up for the start-ups and the Micro, Small and Medium Enterprises (MSME) have played an important role in this growth? Let us take a lok at some more figures
Around 40% of India’s export is contributed by SMEs. Indian government strongly feels SMEs have immense scope in making exports of plastic, processed packaged food, fine chemicals, etc. to countries like West Asia, Africa, and Latin America. These regions are emerging economies and can offer a striking customer base. Government has also taken initiatives to set up trade promotional bodies in 15 countries to boost exports from SMEs.
How do these Export Schemes work?
The export schemes are basically divided into two types.
Type 1: Duty exemption schemes. These schemes tend to exempt export oriented entities from taxes, duties and cesses on raw materials and other components required to manufacture the goods for export. The intent behind this kind of scheme is that if the manufacturing costs are reduced, then the goods can be offered in the global market at a competitive rate. This includes the ‘Advance Authorisation Scheme’ (AAS) and the ‘Duty Free Import Authorisation Scheme’ (DFIA) both of which exempt customs duty on import of raw materials that are meant for the manufacture of goods solely for export. This certification is usually given to 100% export oriented units (EoUs)
Type 2: Duty Remission schemes. These schemes allow the export oriented units to claim refund on taxes they might have paid on exported goods. This can be said to be a corollary to the previous scheme. The reason to have these two different schemes is that the remission scheme works better for companies which operate on a domestic and international level. A 100% export oriented unit knows in advance that all the raw material being purchased is for exports. And hence they can be exempted from taxes from the beginning. But for a company that operates domestically and internationally, it is hard to assess how much of the raw material being imported is for the domestic market and how much of it is for the export market. So it is easier for them to assess the tax cost of manufacturing goods for export only at the end fo the year and apply for a rebate or a refund of those taxes and duties. The two main schemes under this type are the ‘Duty Drawback Scheme’ (DBK) and the ‘Rebate on State and Central Taxes and Levies’ (RoSTCL)
Export Schemes for MSMEs
Here are some of the Special Export schemes introduced by the Government to boost Entrepreneurs and MSMEs for smooth financing:
- In September 2018, Government launched a 59 minute Loan portal for a sanction of the loan value for MSME sector from INR 1 Lakhs up to INR 1 Crore. The small and micro enterprises can easily access credit and get their loan approved under this scheme in less than an hour.
- Under the Pradhan Mantri Mudra Yojana Scheme, small manufacturing units and service sectors units can avail loans from financial institutions up to INR 10 Lakhs without giving any collateral deposit.
- According to the Foreign Trade Policy of India (FTP 2015-20), Government has widened the scope and raised the reward incentives under MEIS (Merchandise Exports from India Scheme) and SEIS (Service Exports from India Scheme)by 2%.
- Under the Zero Defect Zero Effect (ZED) model, which is launched by the government, the SMEs and exporters are eligible to get rebates and concessions. This initiative was taken so that the exports are made in adherence to particular standards and are certified. Thus, do not get rejected and returned back to India.
- As per the Credit Guarantee Scheme, banks and financial institutions can extend to each borrowing unit a loan capacity of INR 200 Lakhs.
- Introduced the platform of Trade Receivable Discounting System(TReDS) to finance the Trade Receivables. For SMEs financial assistance is very important as the funds are limited. This shall ease their monetary crisis.
- To boost exports, enhance the trader’s liquidity situation and scout the new global markets, the government hiked the interest subsidy of 3% to 5% for MSMEs on receiving credits at pre and post-shipment.
- For all those MSMEs registered under GST shall receive an interest subvention of 2% up to 1 crore for every fresh or incremental loan.
- Make in India project was undertaken to ensure infrastructural and technological advancements in the economy. The plan behind this idea was to repair and reform the out-dated processes with best class systems so that SMEs can explore more export opportunities.
- The government created an online portal called Government e-MarketPlace (GeM) for their procurement of common use items through one place.
Some of the other popular export promotion schemes that have helped SMEs to grow and make their place in different parts of the world are-
- Export Promotion Capital Goods Scheme (EPCG),
- Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS),
- Mini Tools Room & Training Center Scheme,
- Financial Assistance on International Participation,
- Start up India Scheme,
- Women Entrepreneurship,
- Quality Management Standards & Quality Technology tools
- Grievance Monitoring System
SMEs play a significant role in the Indian economy. With the government’s help and public sector interference, SMEs has the potential to take India to new heights. By providing the right quality of products and satisfying the end customers, it is expected that SMEs may one day overtake China in its volume. It is the right time when India SMEs should reap the advantages of such schemes and earn recognition worldwide. If you are an SME or a startup and have anymore queries regarding export schemes for small businesses, get in touch with us and our team of legal experts will get in touch with you to understand your requirements so that they can assist you in your requirements.