Exploring Incentives for Indian Agricultural Exports

India holds enormous potential as an agricultural exporting nation. With the world’s second-largest arable land area and a diverse agri-produce base, one would expect it to dominate global farm trade. Yet, India’s total agricultural exports account for just over 2.15% of world agricultural trade – a figure that reflects how much untapped potential still exists. To close this gap, the Government of India, through its EXIM Policy and the Foreign Trade Policy (FTP) 2015-2020, rolled out a set of targeted incentives aimed at reducing costs, improving global competitiveness, and boosting the export of value-added agricultural products. Understanding these incentives – and why results have been mixed – is key to appreciating the policy landscape for Indian agri-exports.

What the Foreign Trade Policy 2015-2020 set out to do 🔗

Announced on April 1, 2015, by the Ministry of Commerce and Industry, the FTP 2015-2020 was crafted with a dual objective: to enhance India’s export performance and to link export incentives with broader national programs like Make in India. For the agricultural sector specifically, the policy focused on four goals – increasing the volume and value of farm exports, reducing the cost burden on exporters, improving price competitiveness of Indian agri-produce in global markets, and encouraging exports of processed and value-added products over raw commodities.

Several key schemes and instruments were introduced or restructured under this policy to serve these goals. Some of these had precedents in earlier trade policies but were significantly refined or consolidated during the 2015-2020 period.

Key incentives for agricultural exports 🔗

Vishesh Krishi and Gram Udyog Yojana (VKGUY) 🔗

VKGUY, which translates to the “Special Agriculture and Village Industry Scheme,” was one of the most important instruments for promoting agri-exports before it was subsumed into a larger scheme. It specifically targeted the export of agricultural and village industry products, including fruits, vegetables, flowers, forest produce, and related value-added goods. Under VKGUY, exporters of specified agricultural products qualified for a duty-free credit equivalent to five percent of their FOB (Free on Board) export value. This credit was freely transferable and could be used to import a variety of inputs and capital goods, directly reducing production costs for exporters and making their shipments more price-competitive in international markets. If an exporter also availed of other benefits like Drawback or DEPB, the duty credit scrip rate was reduced to 3% as specified in the Foreign Trade Policy.

Merchandise Exports from India Scheme (MEIS) 🔗

A landmark structural change in FTP 2015-2020 was the consolidation of five separate export reward schemes – the Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri Infrastructure Incentive Scrip, and VKGUY – into a single unified framework called the Merchandise Exports from India Scheme (MEIS). Under MEIS, there were no conditionalities attached to the scrips issued, and rewards were payable as a percentage of the realized FOB value in free foreign exchange.

The basic objective of MEIS was to offset infrastructural inefficiencies and associated costs involved in exporting products made in India, particularly from sectors like agriculture where logistics costs are high. Reward rates under MEIS ranged from 2% to 5% depending on the product and destination country. Countries were categorized into three groups: traditional markets (EU, USA, Canada), emerging and focus markets (Africa, Latin America, ASEAN, CIS), and other markets – with incentives calibrated accordingly to push Indian exports into new geographies.

Additionally, all MEIS scrips were freely transferable and could be used to pay customs duty, excise duty, and service tax, giving exporters significant financial flexibility beyond just import duty savings.

Transport and Marketing Assistance (TMA) scheme 🔗

Introduced on March 1, 2019, as part of the FTP 2015-2020 implementation plan, the Transport and Marketing Assistance (TMA) scheme addressed one of the most persistent cost pressures on agricultural exporters – freight. The TMA scheme aimed to provide assistance for the international component of freight and marketing of agricultural produce, mitigating the disadvantage of higher transportation costs due to trans-shipment, and promoting brand recognition for Indian agricultural products in specified overseas markets.

Under TMA, freight costs up to a specified limit were reimbursed by the government, making Indian agricultural products more competitive in the global market. The scheme also provided benefits for marketing of agricultural products, helping promote brand recognition for Indian agri-produce in overseas markets. TMA covered both sea and air freight – including refrigerated cargo – and was targeted at export destinations in Europe and North America, regions where Indian farm products faced tough price competition. In a subsequent revision, dairy products were added to the eligible list, and assistance rates were increased by 50% for sea exports and by 100% for air exports, reflecting the government’s intent to continuously strengthen the scheme.

Single window system for perishable agricultural produce 🔗

Recognizing that time is critical for perishable farm produce, the FTP 2015-2020 also introduced a single window system to facilitate the export of perishable agricultural commodities. The system involved the creation of multi-functional nodal agencies to be accredited by APEDA (Agricultural and Processed Food Products Export Development Authority) to reduce transaction and handling costs. This was a practical step to cut down delays at ports and minimize post-harvest losses, which had long been a significant drain on the competitiveness of Indian agri-exports.

Export Promotion Capital Goods (EPCG) scheme and SEZ incentives 🔗

The FTP also provided incentives under the Export Promotion Capital Goods (EPCG) scheme, which allowed exporters to import capital goods at reduced or zero customs duty, subject to fulfilling export obligations. To further boost manufacturing-led exports, the policy proposed extending MEIS and SEIS incentives to units located in Special Economic Zones (SEZs), which was a new development given that SEZ units had previously been excluded from such Chapter 3 incentives.

Status Holders and Export Houses 🔗

The policy also recognized high-performing exporters through a revised Status Holder framework. Business leaders who had excelled in international trade were recognized as Status Holders and granted special privileges to reduce their transaction costs and time, incentivizing consistent export performance. The nomenclature for Export Houses was also simplified into a star-based rating system – One to Five Star Export House – with criteria measured in US dollar earnings rather than rupees.

The role of APEDA in implementing these incentives 🔗

No discussion of agricultural export incentives is complete without acknowledging the central role of the Agricultural and Processed Food Products Export Development Authority (APEDA). APEDA is responsible for promoting the export of scheduled products and ensures quality standards, provides financial assistance to exporters, and supports market diversification by helping Indian agriculture remain competitive globally.

APEDA’s Financial Assistance Scheme (FAS) provides support to agri-exporters under three broad components: infrastructure development, quality development, and market development. This includes assistance for setting up packhouse facilities, pre-cooling units, cold storage, refrigerated transportation, lab testing equipment for meeting Maximum Residue Level (MRL) standards, and participation in international trade fairs. As a result of these initiatives, India’s fruit and vegetable exports grew by 47.3% in volume and 41.5% in value over a five-year period, with exports now reaching 123 countries.

Challenges that continue to limit agri-export growth 🔗

Despite the array of well-designed incentives, achieving consistently high growth in agricultural exports remains a challenge. Several structural and systemic issues persist.

Infrastructure gaps 🔗

Inadequate infrastructure for storage, transportation, and processing continues to lead to post-harvest losses, reducing the competitiveness of Indian agricultural exports. Cold chain networks remain underdeveloped in many producing regions, and connectivity from farm to port is uneven across states. Post-harvest infrastructure has a direct relationship with export volumes – better handling reduces wastage, increases marketable surplus, and assures quality for distant markets.

Quality and compliance standards 🔗

Meeting international quality requirements is a persistent hurdle, especially for small and medium exporters. Compliance with international standards and certification processes is particularly challenging for small and medium enterprises, who often lack the resources for sophisticated testing and food safety systems. Developed importing nations set very low Maximum Residue Levels (MRLs) for pesticides, and meeting them requires high-precision laboratory equipment that many exporters cannot easily access.

Restrictive export policies and price controls 🔗

A deeper structural tension also comes from domestic policy priorities. Restrictive export policies that favor domestic consumers at the expense of farmers are considered a major reason for the failure to meet export targets. Instruments like Minimum Export Prices (MEPs) and periodic export bans – used to control domestic food inflation – send unpredictable signals to international buyers and undermine India’s reliability as a consistent supplier.

Fragmented supply chains and state-level barriers 🔗

Different states continue to charge different fees on mandi procurement, and uniformity of mandi taxes for largely exported agricultural products is needed to create a transparent supply chain that empowers the farmer and enables free trade across the country. Without harmonized state-level policies, the benefits of central government incentives are partially diluted at the ground level.

Competition and market access 🔗

Despite positive gains, challenges like high logistics costs, stringent phytosanitary requirements, and delays in market access persist. Competing agricultural exporters from countries with better cold chain infrastructure, lower logistics costs, and more predictable policy environments continue to pose stiff competition for Indian produce in key markets.

The path forward 🔗

The incentive architecture under FTP 2015-2020 laid a meaningful foundation. The consolidation of fragmented schemes into MEIS, the introduction of TMA to address freight disadvantages, the single-window system for perishables, and APEDA’s financial assistance programs collectively reflect a policy ecosystem that is serious about export promotion. Experts and industry stakeholders emphasize that the need to develop infrastructure and Sanitary and Phytosanitary standards at par with international norms, along with greater synergy between the Union Government, state governments, and industry, is critical to realizing India’s agri-export potential.

The Agriculture Export Policy of 2018 – which ran alongside the FTP – set an ambitious target of doubling agricultural exports to USD 60 billion by 2022. While that target was not fully met, the policy direction it established – linking export promotion with farmer welfare, encouraging cluster-based production, and integrating Indian agriculture with global value chains – remains the right framework to build upon.

What do you think? Given India’s vast agricultural diversity, which types of products – fresh produce, processed foods, or organic commodities – do you think hold the most untapped export potential? And do you think simplifying export policies and reducing state-level trade barriers would have a greater impact on agri-export growth than adding new financial incentive schemes?

References

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