FOREIGN TRADE POLICY OF INDIA SINCE 1980

INTRODUCTION

Traditionally, the main objective of the Indian ForeignTradePolicy has been to protect its market from foreign competition. Upuntil the 1980s, India was not interested in exporting its goods andservices abroad and not ready to open its economy to foreigninvestments. The aim of its economic policy was to ensure thecountry’s independent development (the swadeshi principle). At theend of the 1980s, India was one of the most closed economies in theworld. Its bilateral trade policy, heavily skewed toward the formercommunist countries, was full of grand statements about technologytransfer, mutually advantageous relations and partnership for development to very little purpose.

Import Policy Prior to 1991In the pre-reform period Indian import policy had two constituents: Import Restrictions: In the initial phases of development, India had

to import capital equipment, machinery, spare parts, industrial raw material, etc. From time to time it had to import food grains too, but because of stagnant exports, government had to decide to import curtail. High import tariffs were used to control import.

Import substitution :means reducing the dependability on imports, i.e., produce goods that we are importing. Two broad objectives of the programme of import substitution in India were:

(i) To save scarce foreign currency for the import of more important goods,

(ii) (ii) To achieve self-reliance in the production of as many goods as possible.

EXIM POLICY OF INDIAIn order to maintain the balance of payments and to avoid trade deficit the

government of India has announced a trade policy for imports and exports. After every five years the government of India reviews the import and export policy in view of the changing international economic situation. The policy relates to promotion of exports and regulation of imports so as to promote economic growth and overcome trade deficit.

Accordingly, the export-and import policies (EXIM Policy) were announced by the government first in 1985 and then in 1988 which was again revised in 1990. All these policies made necessary provision for extension of import liberalisation measures. All these policies made necessary provision for import of capital goods and raw materials for industrialisation, utilisation and liberalisation of REP (Registered Exporters Policy) licences, liberal import of technology and policy for export and trading houses. The government announced its new EXIM policy for 2002-2007 which is mainly a continuation of the EXIM policy of 1997-2002.

The new export-import policy for 2002-2007 aims at pushing up growth of exports to 12 per cent a year as compared to about 1.56 per cent achieved during the financial year 2001-2002.

NEW TRADE POLICY 1991

1. Free Import and Export :Import of OGL capital goods, non-

OGL capital goods and restricted goods would be allowed without a specific license, provided clearance was given by the RBI and foreign exchange, because their imports are fully covered by foreign equity.

2. Rationalisation Of Tariff StructureOn the recommendation of Chelliah Committee,

import duty was drastically reduced to establish parity in prices of goods produced domestically and internationally. The 1993-94 Budget reduced the maximum rate of duty on all goods from 110% to 85%, except for few goods, which was further reduced to 40% in 1998-99 and further to 35% in 2000-01

3. DecanalisationThe new trade policy aimed at progressive

decanalisation. The government decontrolled 116 items allowing their exports without any licensing formalities.

Another 29 items were shifted to OGL. It also decanalised 16 export items and 20 import items including new print, non ferrous metals, natural rubber, intermediate and raw material for fertilizers. However, eight items (petroleum products, fertilisers, etc.) remained canalised

4. Devaluation and Convertibility of Rupee on Current Account

The government made a two- step downward adjustment of 18-19 per cent in the exchange rate of the rupee on July 1 and July 3, 1991. This was followed by the introduction of LERMS i.e., partial convertibility of rupee in 1992-93, full convertibility on the trade account in 1993-94 and full convertibility on the current account in August 1994.

Substantial capital account liberalisation measures have also been announced. The exchange rate of the rupee is now market-determined. Thus, exchange rate policy in India has evolved from the rupee being pegged to a market related system (since March 1993).

5. Trading HousesThe 1991 policy allowed export

houses and trading houses to import a wide range of items. The government also permitted the setting up of trading houses with 51 per cent foreign equity for the purpose of promoting exports.

6. Phased Manufacturing Programme

PMP, according to which organisations were required to substitute all the imported parts with Indian parts in a specified period, was abolished

7. Export Oriented Units, (EOUs), Electronic Hardware Parks (EHTP), Software Technology Parks

(STPs) and Bio-Technology Parks (BTPs)The units undertaking to export their entire

production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods, including repair, re-making, reconditioning, reengineering and rendering of services. Trading units are not covered under these schemes.

8. Free Trade & Warehousing ZonesThe Free Trade & Warehousing Zones

(FTWZ) shall be a special category of Special Economic Zones with a focus on trading and warehousing. The objective of FTWZ is to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency. These Zones would be established in the nearby areas to seaports, airports or dry ports so as to offer easy access by rail and road.

9. Deemed ExportsDeemed Exports refer to those transactions in which goods

supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Following categories of supply of goods by main/subcontractors shall be regarded as Deemed Exports under FTP, provided goods are manufactured in India:

1) Supply of goods against Advance Authorisation /Advance Authorisation for annual requrrement/DFIA;

2) Supply of goods to EOU/STP/EHTP/BTP;3) Supply of captial goods to EPCG Authorisation holders 4) Supply to projects funded by UN Agencies

• Besides all these, various concessions and exemptions were granted during the nineties to liberalise imports and promote exports. Liberalisation also allowed FDI in many sectors. Foreign companies are allowed to open branch offices, foreign technology agreements were allowed, and the Foreign Investment Promotion Board (FIPB) was established to process and give speedy approvals for foreign investment proposals. Automatic approval was allowed for technical collaboration and foreign equity participation up to 51% in Indian companies in 34% high priority industries.

The Highlights of the India’s Foreign Trade Policy 2004-2009The new United Progressive Alliance (UPA) Government at the Centre

changed the name of EXIM Policy and called it Foreign Trade Policy (FTP). Consequently, on August 31, 2004, the Commerce and Industry Minister, Mr. Kamal Nath, announced the five year (2004-09) FTP.

The policy aims at doubling India’s percentage share of global merchandise trade to 1.5 per cent by 2009 from 0.7 per cent in 2003, besides serving as an effective tool to generate employment, especially in semi-urban and rural areas.

Exporters of all goods and services, including those from Domestic Tariff Area (DTA), were exempted from service tax. Also exporters with minimum turnover of Rs. 5 crore and a sound track record have been exempted from furnishing bank guarantees in any of the export schemes. So as to reduce their high transaction cost and tax burden.

Incentives and Promotions for Export

1. Export Promotion Capital Goods Scheme (EPCG):

To reduce the price of goods produced for export to compete in the international market, this scheme was introduced. Under the EPCG scheme, capital goods imported for manufacture were charged low imports duties subject to all export obligation to be fulfilled over a period of time.

2. Duty Entitlement Passbook Scheme (DEPB):• This is a scheme available for a manufacturer, exporter,

Export House, Trading House, Star Trading House and Super Star Trading House. The aim of the scheme was to streamline the import procedures for exporters by providing duty-free access to imported inputs for exporters or manufacturers. Imports used for export production were exempted from customs duty as well as from additional duties on imports for an exporter holding Import Export Pass book including import license. The passbook is applicable only to registered manufactured exporters.

3. Duty Draw Back System

• The Duty Drawback system reimburses exporters for the tariffs paid on the imported materials and intermediates and central excise duties paid on domestically produced inputs which enter into export production.

4. Replenishment and Imprest Licenses

• These licenses were given to the exporter to have an access to otherwise restrict material, (even imports) or canalized, that too of good quality, for the purpose of exports, or to be used as a raw material to produce export goods. The objective of this license is to ensure the availability of qualitative raw material in sufficient quantity and at the right time at competitive prices for export growth.

5. Advance License

Advance license is granted for the duty- free imports of raw material, components, intermediates, consumables, parts, spares, etc. Advance license may be either value-based or quantity-based.

6. Tax Benefit To promote exports, government exempts

the export profits from tax under 80 HHC provision of the IT Act.

7. Finance Facility

Credit facility is made available to the exporters for purchase, manufacture and packaging prior to the shipment, as also post-shipment, credit facilities. Medium and long-term credits are also made available for the export of capital equipment.

8. Subsidies on Domestic Raw Material

• In case the domestic price of material used for exports is higher than international price, then there was the provision of giving subsidy to the extent of difference of price. This scheme was introduced in 1981 in steel and was called the International Price Reimbursement Schemes’ (IPRS), which later included other imported raw materials such as aluminium and copper.

9. Blanket Exchange Permit Scheme:

• Under this scheme, exporters are allowed, barring a few products, to utilize 5-10% of their foreign exchange earning for undertaking export promotion activities.

10. Free Trade Zone and Export Oriented Units

The government has set up free trade zone to give push to exports. The objective behind this is that in these zones, capital goods can be imported freely and there will be minimum red-tapism. These zones are treated differently from Domestic Tariff Area (DTA) and have a right to import all their requirements, including capital goods and spare parts as well as raw material, free of import licensing controls and import duties. The first EPZ was established in Kandla. Now, India has eleven functioning SEZs of which seven are set up by the center and four are promoted by the private/joint stake—Kandla, Cochin, Surat, Santa Cruz, Falta, Chennai, Vishakhapatnam, Noida, Indore, Salt Lake (Calcutta) and Jaipur. Approval has already been given for 35 new SEZs in private/state sector.

11. Vishesh Krishi Upaj YojnaThe objective of this Yojna is to encourage the

exports of fruits, vegetables, flowers, minor forest produce and their value-added products. Exporters of these products will get duty free credit.

12. Town of Export Excellence: The limit to become the Town of Export

Excellence have been reduced to 250 crore from Rs.1000 crore. FTP gave several benefits to become the Town of Export Excellence. It includes exemption from service tax in proportion to their exported goods and services and permission to retain 100 percent earnings in exchange earner's Foreign currency account.

13. Served from IndiaTo facilitate the exporter of various type of services, the

government of India has introduced ‘Served from India Scheme’ as a brand. Under this scheme, service providers of more than 100 services like Professional Services, Computer-related services, Hotels, Restaurants, Educational Services, Research and Development Services, Communication Services, Construction and related Engineering Services, Distribution Service, Environment-related Services, Tourism and Transport-related Services, Health-related Social Service, Recreational, Cultural and Sporting Services, etc., are entitled for Duty Credit Scrip. Service providers with a total foreign exchange earning of at least Rs. 10 Lakhs in preceding or current financial year shall qualify for the Duty Credit Scrip. For Individual Service Providers, the criterion is reduced to Rs. 5 Lakhs of foreign exchange earnings.

14. Service Export Promotion Council

In order to provide proper direction, guidance and encouragement to the Services Sector, this exclusive council was set up by the government of India. Its main objectives were to tap the opportunities in key service areas and develop strategic market access programmes, including brand building in coordination with sectoral players and recognized nodal bodies of the services industry.

15.Common Facility Center The Common Facility Centers shall be promoted by the

government for use by the home-based service providers, particularly in the areas like engineering and architectural design, multimedia operations, software developers, etc., at the state and district levels, to draw-in a vast multitude of home-based professionals into the service-export arena.

NEW FOREIGN TRADE POLICY 2009-2014

The Hon’ble Union Commerce & Industry Minister Mr.Anand Sharma announced the new Foreign Trade Policy 2009 - 2014 in New Delhi on 27th August, 2009.Mr.Jyothiraditya Madhavrao Scindia, Minister of State for Commerce;Dr. Rahul Khullar, Commerce Secretary, Ministry of Commerce & Industry and other dignitaries were present on the occasion.

Various Suggestions of the Federation have been considered in the New

Foreign Trade Policy like - Continuation of DEPB scheme; Enhancement of incentives under promotional schemes; Benefits to Status Holders; Zero duty EPCG Scheme; Rationalization of additional export obligation under EPCG; Additional markets under focus market scheme; Additional products under Focus Product Scheme; Flexibility in import of items against Duty Credit Scrips issued under earstwhile in Target Plus/DFCE Schemes; Removal of Handloom Mark under Focus Product Scheme; Issues relating to transaction costs; Tangible benefits to town of export excellence; Technology Fund, etc.

HIGHLIGHTS OF THE NEW FOREIGN TRADE POLICY ARE AS UNDER:

Higher Support for Market and Product Diversification

• Incentive schemes have been expanded by way of addition of new products and markets.

• 26 new markets have been added under Focus Market Scheme. These include 16 new

markets in Latin America and 10 in Asia-Oceania. • The incentive available under Focus Market Scheme(FMS) has been raised from 2.5%

to 3%. • The incentive available under Focus Product Scheme (FPS) has been raised from 1.25%

to 2%. • A large number of products from various sectors have been included for benefits under

FPS. These include, Engineering products (agricultural machinery, parts of trailers, sewing machines, hand tools, garden tools,musical instruments, clocks and watches, railway locomotives etc.), Plastic (value added products), Jute and Sisal products, Technical Textiles, Green Technology products (wind mills, wind turbines, electric operated vehicles etc.), Project goods, vegetable textiles and certain Electronic items.

Technological Upgradation • To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has

been introduced. This Scheme will be available for engineering & electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied products and leather & leather products (subject to exclusions of current beneficiaries under Technological Upgradation Fund Schemes (TUFS), administered by Ministry of Textiles and beneficiaries of Status Holder Incentive Scheme in that particular year). The scheme shall be in operation till 31.3.2011.

• Jaipur, Srinagar and Anantnag have been recognised as ‘Towns of Export Excellence’ for handicrafts; Kanpur, Dewas and Ambur have been recognised as ‘Towns of Export Excellence’ for leather products; and Malihabad for horticultural products.

EPCG Scheme Relaxations • To increase the life of existing plant and machinery, export obligation on import of

spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.

• Taking into account the decline in exports, the facility of Re-fixation of Annual

Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14.

Gems & Jewellery Sector • To neutralize duty incidence on gold Jewellery exports, it has now

been decided to allow Duty Drawback on such exports.

 • In an endeavour to make India a diamond international trading hub,

it is planned to establish “Diamond Bourse (s)”.

 •  A new facility to allow import on consignment basis of cut &

polished diamonds for the purpose of grading/certification purposes has been introduced.

 • To promote export of Gems & Jewellery products, the value limits of

personal carriage have been increased from US$ 2 million to US$ 5 million in case of participation in overseas exhibitions. The limit in case of personal carriage, as samples, for export promotion tours, has also been increased from US$ 0.1 million to US$ 1 million.

Agriculture Sector • To reduce transaction and handling costs, a single window system

to facilitate export of perishable agricultural produce has been introduced.

Leather Sector • Leather sector shall be allowed re-export of unsold imported raw

hides and skins and semi finished leather from public bonded ware houses, subject to payment of 50% of the applicable export duty.

• Enhancement of FPS rate to 2%, would also significantly benefit

the leather sector.

Pharmaceutical Sector•

• Export Obligation Period for advance authorizations issued with 6-APA as input has been increased from the existing 6 months to 36 months, as is available for other products.

• Pharma sector extensively covered under MLFPS for countries in Africa and Latin

America; some countries in Oceania and Far East. • Handloom Sector • To simplify claims under FPS, requirement of ‘HandloomMark’ for availing

benefits under FPS has been removed. EOUs • EOUs have been allowed to sell products manufactured by them in DTA upto a

limit of 90% instead of existing 75%, without changing the criteria of ‘similar goods’, within the overall entitlement of 50% for DTA sale.

• To provide clarity to the customs field formations, DOR shall issue a clarification

to enable procurement of spares beyond 5% by granite sector EOUs.

• EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards.

• During this period of downturn, Board of Approvals (BOA)

to consider, extension of block period by one year for calculation of Net Foreign Exchange earning of EOUs.

• EOUs will now be allowed CENVAT Credit facility for the

component of SAD and Education Cess on DTA sale

Directorate of Trade Remedy MeasuresTo enable support to Indian industry and exporters,

especially the MSMEs, in availing their rights through trade remedy instruments, a Directorate of Trade Remedy Measures shall be set up.

SEZ in India Export-led economic growth has been an important part of the

economic strategy prescribed to developing countries for their progress and development especially since the 1970s. The first Export Processing Zone(EPZ) was set up in Ireland in 1959 and the first EPZ in Asia was established in India at Kandla in 1965.In later years, the concept EPZ has gradually been replaced by SEZ. Between 1975 and 2006, the number of Free Zones has shot up from 79 in 25 countries to 3500 in 130 countries. Over the last decade, many new zones have been developed in Africa. Eastern Europe and transitional economies. The idea behind SEZs was to promote and create hassle-free territorial production complexes that could be established to secure regional balance in development opportunities.

Importance/Contribution of SEZThe major contributions of SEZs for the development of the economy

are briefly accounted as follows; 1. The SEZs attract foreign and domestic investment in enclaves.

Because of the provision of facilities and amenities on the one hand and incentives on the other, the capital flows in.

2. The SEZs stimulate exports. This is the major purpose of the SEZs.

3. The SEZs cannot be counted as a solution to the unemployment problem, for they are a viable source of employment creation.

4. The creation of SEZ leads to balanced development of the region. Though it is good to develop all the regions simultaneously, such balanced development requires a lot of resources at a time. the regional development can be undertaken in stages. Thus, to develop certain areas as leading areas, SEZs is a solution.