ECONOMICS II
Foreign Trade An Analysis 3/9/2009
Foreign Trade of India: An Analysis
Post Liberalization Exim Policy (1991-01)
India’s Export Performance in the post liberalisation period i.e., 1991-2001 has been much better than the pre-reform period. From a level of (–) 1.5% growth rate during 1991-92 the the valu valuee of expo export rtss in doll dollar ar term termss witn witnes esse sed d a grow growth th rate rate of 21% 21% in 2000 2000-0 -01. 1. Consequently, India’s share in world exports increased from 0.41% in 1992-93 to 0.67% in 2000-01. In terms of openness of Indian economy, that is trade measured as percentage of value of GDP, the degree of openness, has almost doubled from a level of 13% in 1990-91 to 22% in 2000-01. The highest export growth rate for the decade was achieved in 2000-01 at 21%. Such a commendable performance on the export front could be attributed to the favourable favourable international international economic environment, the domestic reforms undertaken undertaken during the last few years and the responsiveness of the exporters to the market trends. A compositional change has been witnessed in the export basket of India with the opening up of the economy. economy. During the last 10 years there has been a significant significant shift in the composition of the export basket . The share of manufactured goods in total export of India has increased increased from 76% in 1991-92 1991-92 to 83% in 2000-200 2000-2001. 1. Chemic Chemicals als & related related products, products, Engi En gine neer erin ing g Gems
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Another Another import important ant sector sector is that that of Petrole Petroleum um product productss export export in which which the share has risen from a level of 2.58% to 4.10%. 4.10%. Destination-wise Destination-wise,, the share of India’s exports exports to Asia & Oceania region has improved significantly over the decade from 30% in 1990-91 to 37.48% in 2000-01. Similarly, North America’s share has increased substantially from 16% to 24.73% and Africa’s share has more than doubled from 2.61% to 5.3%. However, the West European region has slipped from its top position as India’s main export destination to the second position with its share falling from 33.64% in 1990-91 to 27.7% in 2000-01. Another important important trading partner of India whose share has fallen substantially substantially is that of East European region. India’s India’s exports to this region have declined from a level of 17.87% in 1990-91 to 2.95% at the end of the decade. In terms of growth performance, high growth rates have been recorded in the case of Asia & Oceania, Africa, America and Latin American Countries (LAC). Low growth rates have been seen in our exports to West Europe and East Europe. Country-wise, share of Hong Kong in India’s total exports has shown an increase from 3.29% 3.29% to 5.94% in the decade.Th decade.Thee share of India’s exports exports to China to the total has also increased from 0.10% to 1.87%. Other countries to which India’s exports during the last decade have increased are Bangladesh, Sri Lanka, Indonesia and Malaysia. The countries that have declined in importance in this region are Japan, Australia and Singapore. Among countries other than ESCAP region in Asia & Oceania, the share of India’s exports to UAE has more than doubled. The substantial substantial fall in the share of Western Europe can be attributed to decline in the share of India’s exports to Germany, Germany, U.K., Italy, Belgium, Switzerland Switzerland and Finland. The East European story is largely explained by the fall in the share of India’s exports to CIS countries. Review of Past Export Strategies
In the past, the Ministry of Commerce had formulated several export strategies that identified growth markets and products. The essential assumption behind such strategies is that since resources are limited, concentration on selected products and market segments would would provide provide better return in terms terms of increme incremental ntal export expansio expansion n compare compared d to the strategy where the limited resources are distributed thinly over a large spectrum of products and markets. The Extreme Focus Product Strategy was introduced in 1992 with the objective of
giving a focussed attention to products that have high production capacity in India and potential for export competitiveness. The target for the Focus Products was to induce growth 3 | Page
of 30% volume/value in the medium term and stabilise growth in the subsequent subsequent period. The success of this strategy has been mixed. The 15X15 Matrix Strategy was first launched in the year 1995. The objective of this
strat strategy egy was was to ident identif ify y marke markett divers diversifi ifica cati tion on and commo commodit dity y diver diversif sific icat ation ion.. An examination of the effectiveness of the strategy shows that the share of the total top 15 product groups exported to the top 15 market destinations declinesd declinesd from 71% in 1996-97 to 66% in 2000-01 in respect of the total export of these 15 product groups for all destinations taken together. There has thus been a market derivsification for these product groups. The top three items of India’s exports contained in the Matrix continue to remain the same during 2000 - 01 i.e. Gems and Jewellery, RMG Cotton including accessories and Cotton Yarn, Fabrics and Made Ups. The top three destinations changed from US, UK and Japan to US, Hong Kong and UAE.The UAE.The ranking of other countries has also changed. These developments developments need to be factored into the new strategy. another strateg strategy y launche launched d in 1997 with the objective objective of boostin boosting g Focus Focus LAC was another exports exports of select select items items like Textil Textiles es includin including g RMG, RMG, Enginee Engineering ring goods goods and Chemical Chemical products to Latin American Region. The highest ever growth rate of exports to this region was achieved in the year 2000-01 when the value of exports touched an all time high of US$ 982 million. Although Although the current volume of trade between LAC and India is still low, there is scope for enhancing two-way trade between India and the LAC region. It is obvious that the overall export strategy must include regional focus wherever potentialities are identified. The main lesson that we learn from the export strategies of the last decade is that the composition, composition, competitiveness competitiveness and complexion complexion of world merchandise merchandise trade are changing very fast and a dynamic approach with a built in institutional mechanism for constant review is essential for any medium term export strategy in order to achieve a higher share of global exports on a sustainable basis. The focus of the past strategies was on the existing export products of India; what is additionally necessary is to review the import baskets of our current and potential markets and also to examine our export competitiveness, both revealed and real based on our potentialities. While the overall medium term strategy would have to be necessarily evolved on the basis of the perspective of a longer time frame, there would also be need for short term response to unforeseen situations like the slowdown in world economy witnessed from the begining of 2001 and aggravated by the September 11, 2001 event.
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In the past, the export strategies had basically concentrated on existing products and existing markets of India’s export sector. What is additionally necessary, necessary, and what has been addressed in the present strategy document, is identification of export opportunities after examining the import basket of major importing economies of the world and identifying potential items of exports in which India is competitive vis-à-vis some of the major exporting countries of these products at present. The existing products and markets have also been analyse analysed. d. Focus Focus markets markets have further further been identifi identified ed based based on differen differentt criteri criteria. a. Another Another additionality additionality in the current document is that some of the key strategic policy issues that have a bearing on India’s competitive advantage in opportunity areas have been brought in one place so that policy measures that are necessary to enhance the competitive edge of our exporting community gets appropriate focus. Sector-wise strategies have also been examined. The strategy document further fully takes into account the international developments and the complexities arising in the New World Trade Order under the WTO. SECTOR-WISE STRATEGIES
For the identified potential sectors, indicative sector-wise strategies have been given based on the detailed strategy paper prepared by the Export Promotion Councils/Commodity Boards and detailed discussions held with exporters. The main sectors covered are the following: Enginee Engineering ring (includi (including ng instrum instruments ents and items items of repairs repairs), ), Textil Textiles, es, Gems Gems & Jeweller Jewellery, y, Chemicals & Allied, Agriculture, and Allied (including Marine and Plantations), Leather & Footwear items and Other items. These Th ese strat strategi egies es need need to be opera operati tiona onali lised sed by Gover Governm nment ent for for achie achievin ving g the maximum results.Some of the major strategies suggested for the different sectors are as follows: Engineering/Electronic/Electrical Engineering/Electronic/Electrical and allied
The strategies for this sector include support for SMEs to modernise, modernise, accreditation of testing laboratories in India by overseas agencies, R&D, other measures to effectively counter NTBs in the form of TBT conditions, conditions, furthering joint ventures, ventures, brand promotion, promotion, support to industry to fight anti-dumping cases, providing warehousing facilities in overseas markets, exploring exploring possibilities possibilities of promoting promoting exports of Indian made economy vehicles in developing developing countries and middle and low income groups in developed countries, promoting export of automobiles automobiles with the help of FDI, MRAs with respect to recognition recognition of testing agencies agencies and infrastructural and logistic support for automobiles exports, a three pronged export marketing 5 | Page
strat strategy egy for autom automobi obile le compon component ent expor exports ts (i) export export throug through h Origi Original nal Eq Equi uipm pment ent Manuf Manufac actu turer rers(O s(OEM EMs) s) for their their globa globall sourci sourcing ng requi requirem rement ents, s, (ii) (ii) export export to tier tier 1 manufacturers as a part of their international supply chain and (iii) direct export to aftermarket, focussing on auto sector in some SEZs and automobile component centres, setting up construction equipment banks and adoption of consortium approach by Indian construction companies to increase project exports, the 3 key mantras to promote electronics hardware, namely (i) hardware-software combination, (ii) integrating local and export production and (iii) massive investments. We need to make all out efforts to develop India as an off-shore product production ion centre centre for electro electronic nic compone components/ nts/equi equipmen pments ts require required d for MNCs MNCs through through clusterisation, low-duties, and combine all this with an appropriate thrust on service exports. Textiles sector
Thee main Th main strate strategi gies es for this this sector sector includ includee incre increase ased d invest investme ment nt in key areas areas,, infrastructure infrastructure development by setting up ‘Apparel ‘Apparel Parks’ and Textiles Textiles Centres Infrastructure Infrastructure Development Schemes, restructuring EPCs, Brand Promotion and market assistance schemes, restructuring labour laws and smoothening existing schemes. Gems & jewellery
The main strategies for this sector include forging strategic alliances with producers of roughs and retailers of jewellery and efforts to make India a grading/trading centre for processed diamonds, forward integration into gem stone jewellery, moving towards exports of jewellery, etc. Chemicals and allied sector
The main strategies for this sector include setting up of Comprehensive Chemicals Estates(CCEs), enhancing awareness of Indian herbal items, focussing on branded generic pharmaceutical products out of patent regime, promoting exports of cement by lowering input costs like import duties, customs examination examination charges by railways, state levies, freight rates by railways etc. Agriculture & allied sector
Thee main Th main stra strate tegi gies es for for this this sect sector or incl includ udee esta establ blis ishi hing ng Agri Agri.E .Exp xpor ortt Zo Zone nes, s, establishing a supply chain management and export certification programme for basmati rice, setti setting ng up a nod nodal al SPS SPS point point in the Depart Departme ment nt of Comm Commerc erce, e, cold cold chain chain syste system m and innovative packaging for floriculture exports, packhouses/value added centres for mangoes, 6 | Page
market oriented approach for tea and shift in focus from bulk tea exports to value-added packaged tea exports, focus on export of value added forms of natural rubber and export of rubber wood, judicious mix of strategy relating relating to export of Arabica Arabica coffee vis-à-vis vis-à-vis Robusta depending on market preference, promoting tobacco exports by production of quality tobacco of FCV and Burley types, pursuing with USA for higher TRQ (Tariff Rate Quota) allocations and promoting exports to Japan, China, Russia, Tunisia, Morocco, etc. through bilateral negotiations, construction of drying yards and promoting exports of value added kernels in consumer packs, promoting exports of value added and organic spices and determining minimum residue level for pesticide residues in the case of spices, promoting use of better handling techniques on fishing vessels and adoption of food safety and quality systems in the case of marine exports, utilisation utilisation of under-exploited under-exploited commercially commercially important varieties in the case of capture shrimps and logo schemes for marketing marine products.
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ANALYSIS OF FOREIGN POLICY 1997-2002 NDA REGIME
Highlights of Exim Policy
The new 5-year Export and Import policy for the period 1997-2002 aims at giving a major thrust to acceleration of India's exports through restructuring and revamping of various export promotion schemes and wide ranging measures for simplification of procedures with a view to making them more transparent and easy to administer. Gems & Jewellery Scheme To promote export of gold jewellery, it is proposed to increase the number of nominated agencies permitted to stock gold. At present only HHEC, SBI, MMTC and STC are doing this. This improvement will make available adequate quantity of gold to exporters on replenishment basis or on outright purchase. Moreover, the EOU/EPZ units are being permitted to sell 10% of their output in the DTA against against SIL on paymen paymentt of duty. duty. Duty Duty Exempt Exemption ion Scheme Scheme Signifi Significant cant changes have been made to reduce the multiplicity of schemes, improve their attractiveness and to make them simple and easy to administer. The quantity based advance license has been continued. It has restructured restructured various export promotion schemes and has replaced Value Based Advance License and the Passbook Scheme by a new scheme called Duty Entitlement Passbook Scheme. Under this scheme, an exporter, on the basis of notified entitlement rates, will be granted duty credits which will allow them to import inputs duty free. He can make use of this to import any free importable item. The credit can be transferred to another person but the transfer will be valid within the same port. Under the Advance Licensing Scheme, the procedure has been further simplified. The Export Obligation Obligation period of 12 months has now been extended to 18 months. Further extension for 6 months will be granted on payment of 1% of the value of unfulfilled exports. This will reduce considerable paper work and harassment to the exporter. 8 | Page
Softwar Softwaree Softwar Softwaree units units can undertake undertake exports exports using a data communic communicatio ation n link or in the form of physical exports through a courier service also. They will be permitted on-line data communication for DTA sales, use of the computer system for commercial training and import of goods on loan from clients for a specified period. Agro Sector Import of equipment of Rs 5 crores and above under the Zero Duty EPCG Scheme will be permitted for this sector. Double Double weighta weightage ge will will be given given to agro exports exports in calculat calculating ing the eligibili eligibility ty of Export Export Houses, Trading Houses, etc. An additional 1% Special Import License on the total value of exports will be given for export of fruits, vegetables, floriculture and horticulture products. EOU/EPZ EOU/EPZ units will be permitted to sell 50% of their output in the DTA on payment of duty without insistence on value addition. Special Special Incentiv Incentives es for Export Export of SSI product/ product/Prod Products ucts from North Eastern Eastern States/ States/New New Markets An additional Special Import Licence of 1% on total value of exports has been given to EH/TH, etc., where such exports of products from North Eastern States constitute 10% or more of the total exports made. Double weightage on such exports has been given for recognition as EH/TH/STH/SSTH. Additional SIL has also been given for exploration of new markets. SIL on export of SSI products has been increased from 1% to 2%. In case of small scale exporters holding ISO 9000 series or IS/ISO 9000 series quality certification, the FOB value of export will now be Rs. 1 crores and above during the preceding three licensing years instead of the limit of Rs. 5 crore and Rs. 2 crore respectively prescribed for others. Export /Trading /Star Trading /Super Star Trading Houses Earlier eligibility criterion for recognition of Export House/Trading House/Star Trading House/Super Star Trading House based on the average annual export performance of the preceding 3 licensing years was Rs 10 crores, 50 crores, 250 crores and 750 crores respectively. Keeping in mind the export target growth to be reached by the turn of the century and the fact that such status holders contribute between 60-70% of the country's total exports this has now been revised to Rs 20 crores, 100 crores, 500 crores and 1500 crores respectively. Incentives to improve Quality of Export Products The SIL entitlement of exporters holding IS/ISO 9000 series has been increased from 2% of FOB to 5% of FOB.
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PERFORMANCE OF EXPORTS AND IMPORTS
Year 199899 199900 200001 200102 200203
Exports as percentage of Imports 78.36617538 74.13330412 88.17445579 85.24348616 85.84529075
During the last decade of reforms, India’s exports have performed well. Positive policy meas measur ures es comb combin ined ed with with robu robust st grow growth th of worl world d trad tradee have have led led to this this impr improv oved ed perf perform orman ance. ce. Compar Compared ed to pre-li pre-liber beral aliza izatio tion n perio period, d, India India’s ’s expor exportt to GDP GDP ratio ratio has increased from 5.8% in 1991-92 to 10.1% in 2000-01 and the export growth rate has increased from -1.5% in 1991-92 to 21% in 2000-01. The export growth rate, however, has not been steady during this decade; the rate was high during 1993-94, 1994-95 and 1995-96 at 20%, 18.4% and 20.8% respectively, respectively, but declined sharply in 1996-97 to 5.3% and became negative in 1998-99 on account of South East Asian crisis and worldwide recession. recession. It again recovered to 10.8% in 1999-00 and reached the highest growth for the decade at 21% in 2000-01. However, However, the global economic slowdown and the events of September 11 have led to a steep fall in the rate of growth of exports during 2001-02. Liberalisation Liberalisation & trade reforms have also led to a compositional change in India’s export basket. Analysis of our export bask basket et indic indicat ates es an increa increase se in the share share of manuf manufact acture ured d goo goods ds along along with with an overal overalll widening and diversification of exports. 10 | P a g e
India’s export performance has been commendable and exports have risen from USD 18 billion in 1991-92 to a leval of USD 44.56 billion in 2000-01. The trend starts from a negative export growth in 1991-92, the year when liberalisation efforts started in full swing and can be divided into 3 distinct time periods (refer Annexure table 2.1) In the first five years i.e. 1991-92 to 1995-96, the export growth rate averaged around 12.28% with the highest of 20.8% achieved in 1995-96. The good performance could be attributed to the favorable international international economic situation and domestic reforms. In the next three years, however, export growth rate sharply declined with growth rate at 5.3% in 1996-97 and becoming negative in 1998-99 on account of the South East Asian crisis.
India’s Exports as a percentage of World Exports Export Growth Rate of India and World Year
World’s Export Growth Rate
1995 1996 1997 1998 1999 2000
19.67 5.28 3.55 (-)1.63 3.95 12.4
India’s Export Growth Rate 22.41 8.10 5.75 (-)4.48 8.61 16.46
Source: WTO International trade statistics 2001
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Source: Indiastat
PERFORMANCE OF IMPORTS
Source: Indiastat
MAJORT COMMODITIES IN IMPORTS Percentage share to total imports
Petrole Petroleum um crude crude & product productss Pearls precious & semi Machinery Organic & Inorganic chemicals Electronic Goods Gold & Silver
1994-95
2000-01
20.69 20.69 5.72 15.03 7.46 4.29 2.49
31.53 31.53 9.69 8.24 4.91 7.06 8.92
It is seen that during the second half of the 1990s, there has been a shift in the commodity composition composition of major items of imports. The proportion of imports of items that are related to 12 | P a g e
export production has increased. The rise in the percentage of imports of Pearls, Precious & semi-precious stones, and Electronic goods to the total imports are pointers in this case. It is also important to note that the share of the value of import of Petroleum crude to the total imports has gone up by nearly 10% mostly on account of the rise in oil prices. Structural Changes in Indian Exports
As already noted earlier, there has been a compositional change in the export basket of India. The share of manufactured goods in the total exports of India have increased from 75% in 1991-92 to 79% in 2000-01. If we include Petroleum products being exported from the country, country, the share of manufactured goods has risen from a level of 76% in 1991-92 to 83% in 2000-01. On the contrary, the share of Agricultural and allied products has declined from 18% in 1991-92 to 13% in 2000-01. Similarly, Similarly, the share of exports of Ores and Minerals Minerals has declined from 5.2% in 1991-92 to 2.60% in 2000-01. This is an evidence of India’s exports moving away from Resource based products to Technology based products in the postliberalisation period.
A study(1) reveals that during 1980-96 the growth of Indian export earnings earnings turned out to be above the world average for all the broad categories of Extended-Manufacturing (E-Mfg) exports including double digit growth rates in labour and scale intensive products. However, Indonesia, Malaysia and Thailand posted much higher and more stable growth rates than India. A better export performance performance than India in technologically more sophisticated sophisticated products by South Korea and Taiwan requires to be underlined. During the period 1980-96, the highest growth has been achieved in the export of labour-intensive labour-intensive exports at 12% by India which is higher than the world export of labour-intensive products at 9%. As far as changes in the commodity composition of country specific export basket is concerned, India improved the share of Extended-Manufacturing significantly from 56% (1980-86) to 71% (1987-90) in total exports but only marginally further to 75% during 1993-96. The first period 1980-1990 was marked by the rise in the share of scale intensive exports. Share of labour intensive exports remained constant at around 41%.The scale intensive product exports improved their average share from 26% in 1980-86 to 36% in 1993-96. On the other hand, the Resource Intensive export items items witnessed a decline in their share to the total exports from 11% during 1980-86 to about 6% in 1993-96. The other early trade liberalising and rapidly growing economies economies changed their export basket increasingly towards differentiated differentiated and science based products. This diversification achieved by them helped in reducing their vulnerability to
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volatile world trading environment in resource intensive exports and slower growing world exports of labour intensive products. The critical factor in these countries has been not the state of the international trading environment environment but the functioning functioning of the domestic main springs of the growth process such as the the ince incent ntiv ivee stru struct ctur uree for for inno innova vati tion ons, s, reli reliab able le and and cost cost effe effect ctiv ivee tran transp spor ortt and and communication facility and stable macroeconomic management - all this has been driven by a proactive proactive approach. India had a headlong start in industrialisation industrialisation in the 1950s well ahead of these countries, but the persistently inward looking character of Indian industrialisation not only made it internationally non-competitive non-competitive but led to wastage wastage of scarce capital and foreign exchange, thereby slowing down the rate of economic economic growth. Possibly realising realising the limited limited size of their domestic markets at lower levels of per capita incomes, these East Asian countries had switched from import substitution to export-orientation fairly early in their development process. India was the first in initiating industrialisation but the last in trade liberalisation. Region and country-wise trends
Analysis of trends in the share of India’s major export destinations during 1990 shows certain trend trendss (refe (referr table table 2.3 2.3 in annexu annexure) re):A :Asia sia and and Ocean Oceania ia regio region n has has impro improved ved its its share share significantly significantly over the decade from 30% in1990-01 to 37.5% in 2000-01.The West European region has slipped from its top position as India’s main export destination to the 2nd position with its share falling from 33.6% to 25.35% over the same period. America’s share increased substantially from 16% to 25% mainly due to increase in share of North America (USA & Canada) from 15.6% to 22.41%. Exports to Africa have displayed a 17% growth rate and share increased from 2.6% to 5.3% over the decade. Nigeria and South Africa have shown an increase from 0.35% to 0.86% and 0% to 0.7% respectively. respectively. However, one of the important important trading partners, East European region’s share has fallen substantially from 17.87% in 1992 to just 2.95% in 2000.
Major Export Destinations Trend
In the West Europe region, Belgium, France, Italy and Netherlands have more or less maintained maintained their respective respective shares while there there is a marginal fall in the share of Germany Germany and UK. 14 | P a g e
In the Asia & Oceania region, among the major partners, Hong Kong’s share improved from 3.3% to 6%, while that of Japan fell to 4.04% from 9.3%. The share of UAE has increased from 2.42% in 1990-91 to 5.8% in 2000-01. In the American region, USA’s share of India’s exports has increased substantially, from 14.7% in 1990-91 to 20.94% in 2000-01. In the case of South American countries, Brazil’s share has increased from 0.08% to 0.5% in 2000-01. CIS a major trading partner of India having a share of 16% in 1990-91, lost its share drastically to a mere 2.38% in 2000-01.
EXIM POLICY 2004-2009 UPA REGIME
The policy contains special focus initiatives for agriculture, handicrafts & handlooms, gems & jewellery, and leather and footwear sectors. The special attention to agriculture is particularly noteworthy because export promotion policies so far have focussed mainly on the manufacturing sector. The agricultural sector had not received the attention it deserves in a country where the vast majority of population is engaged in agriculture related activities. India has taken big strides in increasing agricultural productivity and has achieved food security. security. A concerted concerted boost is now required to be given to promotion of agricultural exports, especially high value commercial items and value added agricultural products. 15 | P a g e
The new policy contains a number of initiatives for achieving a quantum jump in export of agricultural products. The Vishesh Krishi Upaj Yojana will boost exports of fruits, vegetabl vegetables, es, flowers, flowers, minor forest forest produce, produce, and other other value value added added products products.. The special special package for agriculture also includes policy measures like duty free import of capital goods, liberalized import of seeds, planting materials, etc and liberalized export of medicinal and herbal products. The focus on agricultural agricultural sector in the new foreign trade policy will, among other things, enhance employment in some of the poorest regions of the country.
While policies for promoting exports of above mentioned agricultural products are a step in the right direction, I would request the Hon'ble Minister to also come out with a proactive policy on grain exports. It is an area with tremendous potential and a long-term policy would help Indian grain exporters capture larger market share.
A significant percentage of agricultural production in India is damaged or lost due to poor storage, deterioration during transit, rodent infestation, etc. Many of India's perishable agro products products often often run into into quality quality problems problems which which create create buy buyer er resistan resistance ce in foreign foreign markets. There is an urgent need to strengthen the storage and transportation infrastructure for such products. The new policy addresses this issue to a great extent. There is a scheme to establish Free Trade & Warehousing Zones to create trade related infrastructure to facilitate import and export of goods and services. services. Foreign Direct Investment would be permitted permitted upto 100 per cent in the development and establishment of the zones and their infrastructural facilities. The central aim of this scheme is to make India a global trading hub. The world class warehousing and other infrastructure will also meet the special needs of agricultural products.
While announcing the new policy, a very important observation observation was made that while increase in exports is of vital importance, we have also to facilitate those imports which are required to stimulate our economy. This central thread runs throughout the new policy. In all the the expo export rt thru thrust st sect sector orss ther theree is a poli policy cy of allo allowi wing ng seve severa rall duty duty free free impo import rtss for for neutralizing the incidence of levies and duties on inputs used in export products. This will make export inputs available at international rates and will enhance the competitiveness of Indian products in world markets. There are several other features in the new policy like setting-up of an exclusive Services Export Promotion Council and setting-up of Bio Technology Parks which are path 16 | P a g e
breaking policy initiatives and will have long term impact in strengthening the country's foreign trade. In conclu conclusio sion n I woul would d like like to reite reiterat ratee the the sugges suggesti tion on towar towards ds urgent urgent need need for improving our export related infrastructure like transportation, port facilities etc so that the concept of total export chain focus mooted by our dynamic Minister can be implemented speedily. FOREIGN TRADE POLICY 2004-2009 HIGHLIGHTS 1. Strategy:
(a) It is for the first time that a comprehensive Foreign Trade Policy is being notified. The Foreign Trade Policy takes an integrated view of the overall development of India’s foreign trade. (b) The objective of the Foreign Trade Policy is two-fold: i.
To double India’s percentage share of global merchandise trade by 2009; and
ii. To act act as an effe effect ctiv ivee inst instru rume ment nt of econ econom omic ic grow growth th by givi giving ng a thru thrust st to
employment generation, especially in semi-urban and rural areas. (c) The key strategies are: i. Unsh Unshac ackl klin ing g of of cont contro rols ls;; ii. Creati Creating ng an atmosphe atmosphere re of trust trust and transp transpare arency ncy;; 1. Simplif Simplifyin ying g procedures procedures and and bringing bringing down down transact transaction ion costs; costs; 2. Adop Adopti ting ng the the fund fundam amen enta tall prin princi cipl plee that that duti duties es and and levi levies es shou should ld not not be exported; 3. Iden Identi tify fyin ing g and and nurt nurtur urin ing g diff differ eren entt spec specia iall focu focuss area areass to faci facili lita tate te development of India as a global hub for manufacturing, trading and services. 2. Special Focus Initiatives:
(a) (a) Secto Sectors rs with with signif signific icant ant expor exportt prospe prospect ctss coupl coupled ed with with poten potenti tial al for empl employ oyme ment nt generation in semi-urban and rural areas have been identified as thrust sectors, and specific sectoral strategies have been prepared.
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(b) Further sectoral initiatives in other sectors will be announced from time to time. For the present, Special have been been prepa prepared red for Agric Agricul ultur ture, e, Handic Handicra rafts fts,, Special Focus Focus Initiat Initiatives ives have Handlooms, Gems & Jewellery and Leather & Footwear sectors. (c) The threshold limit of designated designated “Towns of Export Excellence Excellence ” is reduced from Rs.1000 crores to Rs.250 crores in these thrust sectors. 3. Package for Agriculture:
The Special Focus Initiative for Agriculture includes: (a) A new scheme called Vishesh Krishi Upaj Yojana has been introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products. (b) Duty free import of capital goods under EPCG scheme. (c) Capital goods imported under EPCG for agriculture permitted to be installed anywhere in the Agri Export Zone. (d) ASIDE funds to be utilized for development for Agri Export Zones also. (e) Import of seeds, bulbs, tubers and planting material has been liberalized. (f) Export of plant portions, derivatives and extracts has been liberalized with a view to promote export of medicinal plants and herbal products.
4. Gems & Jewellery:
(a) Duty free import of consumables for metals other than gold and platinum allowed up to 2% of FOB value of exports. (b) Duty free re-import entitlement entitlement for rejected rejected jewellery allowed up to 2% of FOB value of exports. (c) Duty free import of commercial samples of jewellery increased to Rs.1 lakh. (d) Import of gold of 18 carat and above shall be allowed under the replenishment scheme. 5. Handlooms & Handicrafts:
(a) Duty free import of trimmings and embellishments embellishments for Handlooms & Handicrafts Handicrafts sectors increased to 5% of FOB value of exports. (b) Import of trimmings and embellishments and samples shall be exempt from CVD.
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(c) Handicraft Export Promotion Council authorised to import trimmings, embellishments and samples for small manufacturers. (d) A new Handicraft Special Economic Zone shall be established. 6. Leather & Footwear:
(a) Duty free entitlements of import trimmings, embellishments and footwear components for leather industry increased to 3% of FOB value of exports. (b) Duty free import of specified items for leather sector increased to 5% of FOB value of exports. (c) Machinery and equipment for Effluent Treatment Plants for leather industry shall be exempt from Customs Duty. 7. Export Promotion Schemes: (a) Target Plus:
A new scheme to accelerate growth of exports called “Target Plus ” has been introduced. Exporters who have achieved a quantum growth in exports would be entitled to duty free credit based on incremental incremental exports substantially higher than the general actual export target fixed fixed.. (Sin (Since ce the the targe targett fixed fixed for 200 2004-0 4-05 5 is 16%, 16%, the the lower lower limi limitt of perfor performa mance nce for qualifying for rewards is pegged at 20% for the current year). Rewards will be granted based on a tiered approach. For incremental growth of over 20%, 25% and 100%, the duty free credits would be 5%, 10% and 15% of FOB value of incremental exports. (b) Vishesh Krishi Upaj Yojana:
Another Another new scheme scheme called called Vishesh (Special Agricultural Agricultural Produce Vishesh Krishi Krishi Upaj Yojana Yojana (Special Scheme) has been introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products. Export of these products shall qualify for duty free credit entitlement equivalent to 5% of FOB value of exports. The entitlement is freely transferable and can be used for import of a variety of inputs and goods. (c) Served from India Scheme:
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To accelerate growth in export of services so as to create a powerful and unique “Served from India” brand instantly recognized and respected the world over, the earlier DFEC
scheme for services has been revamped and re-cast into the “Served from India” scheme. Individual service providers who earn foreign exchange of at least Rs.5 lakhs, and other service providers who earn foreign exchange of at least Rs.10 lakhs will be eligible for a duty credit entitlement of 10% of total foreign exchange earned by them. In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of hotels, it shall be 5%. Hotels and Restaurants can use their duty credit entitlement for import of food items and alcoholic beverages. (d) EPCG:
(i) Additional flexibility for fulfillment of export obligation under EPCG scheme in order to reduce difficulties of exporters of goods and services. (ii) Technological upgradation under EPCG scheme has been facilitated and incentivised. (iii) Transfer of capital goods to group companies and managed hotels now permitted under EPCG. (iv) In case of movable capital goods in the service sector, the requirement of installation certificate from Central Excise has been done away with. (v) Export obligation for specified projects shall be calculated based on concessional duty permitted to them. This would improve the viability of such projects. (e) DFRC:
Import of fuel under DFRC entitlement shall be allowed to be transferred to marketing agencies authorized by the Ministry of Petroleum and Natural Gas. (f) DEPB:
The DEPB scheme would be continued until replaced by a new scheme to be drawn up in consultation with exporters. 8. New Status Holder Categorization:
(a) A new rationalized scheme of categorization of status holders as Star Export Houses has been introduced as under: Category Total performance over three years 20 | P a g e
One Star Export House 15 crores Two Star Export House 100 crores Three Star Export House 500 crores Four Star Export House 1500 crores Five Star Export House 5000 crores (b) Star Export Houses shall be eligible for a number of privileges including fast-track clear clearanc ancee proced procedure ures, s, exemp exempti tion on from from furnis furnishi hing ng of Bank Bank Guara Guarante ntee, e, eligi eligibil bilit ity y for consideration under Target Plus Scheme etc. 9. EOUs:
(a) EOUs shall be exempted from Service Tax in proportion to their exported goods and services. (b) EOUs shall be permitted to retain 100% of export earnings in EEFC accounts. (c) Income Tax benefits on plant and machinery shall be extended to DTA units which convert to EOUs. (d) Import of capital goods shall be on self-certification basis for EOUs. (e) For EOUs engaged in Textile & Garments manufacture leftover materials and fabrics upto 2% of CIF value or quantity of import shall be allowed to be disposed of on payment of duty on transaction value only. (f) Minimum investment criteria shall not apply to Brass Hardware and Hand-made Jewellery EOUs (this facility already exists for Handicrafts, Agriculture, Floriculture, Aquaculture, Animal Husbandry, IT and Services). 10. Free Trade and Warehousing Zone:
(i) A new scheme to establish Free Trade and Warehousing Zone has been introduced 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. This is aimed at making India into a global trading-hub. (ii) FDI would be permitted up to 100% in the development and establishment of the zones and their infrastructural facilities. (iii) Each zone would have minimum outlay of Rs.100 crores and Five Lakh sq. mts. built up area 21 | P a g e
(iv) Units in the FTWZs would qualify for all other benefits as applicable for SEZ units. 11. Import of Second Hand Capital Goods:
a. Import of second-hand capital goods shall be permitted without any age restrictions. b. Minimum depreciated value for plant and machinery to be re-located into India has been reduced from Rs.50 crores to Rs.25 crores. 12. Services Export Promotion Council:
An exclusive Services Export Promotion Council shall be set up in order to map opportunities for key services services in key markets, and develop strategic strategic market access programmes, including including brand building, in co-ordination with sectoral players and recognized nodal bodies of the services industry.
Further Analysis Exports
Textiles
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The textile has been among the major exports of India since independence but as we have seen that in the recent years the percentage share of Textile in the total export has decreased considerably from 28.30 to 16.60%. The major reasons which can be attributed to this downfall is that we have not considerably invested into this sector where as our competitors have surpassed us in both labour cost and technology.
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Leather
Leather again as evident from the graph has shown constant increment in the past few years but still the measures that are done in terms of providing leather products manufacturing SEZ and other EOU’s are not fully harnessed. The industry is in a going good but can be improved by addressing the labour issues as it is a labour intensive industry.
Agriculture
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Agriculture which is the major occupation of people in India has not seen any technological developenment developenment since the last green revolution. revolution. Still old practices practices of farming are used and the farm productivity is very low as compared to the developed countries. In 1991 agriculture was contributing contributing to about 17 % to the exports which has come down to around 12% in 200708. So it shows that the steps that were taken to increase the productiviity of this sector has not successfully frutified. frutified. The various agro export zones that were set are yet to show results and private initiatives of the kind of E-chaupal are playing important role in educating and creating awareness among the farmers which may also help in inceasing the productivity in long run.
Recent Dvelopements
The tarde equation of India has taken a bad hit in the last few months owing to the global turmoil situation prevailing in the world. As USA the biggest consumer of the world is worst hit by this recession the effect is seen through out the world and we are facing the heat slowlyin some of the sectors as we are highly dependent on US for our exports.
Exports in the last few months are a bit on down side as major export sectors Textile, Gems and Jewellery and a few other labour intensive sectors like Leather are worst hit. According to ASSOCHAM analysis
Indian exports are likely to witness a shortfall of about 20%.
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Projected US$ 200 billion, Expected shortfall US$ 40 billion.
Fluctuation in rupee dollar exchange rate.
Improve in Pharma and chemicals, heavy engineering, metal and marine products.
The composition of the export basket has changed and now new sectors like engineering goods and petroleum products are also playing important roles where as sectors like Leather and manufacturing has taken a beating.
Commodity
Apr-Sep 200 2007 7 Apr-Sep 20 2008(P 08(P)) %Growth %Share are 434.1 585.43 34.86 0.62
A)
PLANTAT ION
B) C)
AGRI & ALLIED PRDTS MARINE PRODUCT S
5,318.01 854.07
8,302.16 767.85
56.11 -10.09
8.75 0.81
D) E)
ORES & MINERALS LEATHER & MNFRS
3,487.91 1,713.75
4,415.03 1,972.53
26.58 15.1
4.65 2.08
F) G)
GEMS & JEWELLERY SPORTS GOODS
9,579.32 66.83
10,029.90 82.72
4.7 23.79
10.57 0.09
H)
10,115.26
12,748.95
26.04
13.43
I) J)
CHEMICALS & RELATED RELAT ED PRODUCTS ENGINEERING GOODS ELECTRONIC GOODS
15,486.38 1,593.27
22,122.09 2,331.17
42.85 46.31
23.31 2.46
K)
PROJECT GOODS
80.8
88.77
9.86
0.09
L)
TEXTILES
8,854.17
9,559.20
7.96
10.07
M) N)
HANDICRAF TS CARPET S
263.59 446.49
157.06 414.89
-40.42 -7.08
0.17 0.44
O) P) Q)
COTT ON RAW INCL WASTE PET ROLEUM PRODUCTS UNCL ASSIFIED EXPORTS
250.49 12,700.12 2,031.02
386.9 18,494.51 2,462.37
54.46 45.62 21.24
0.41 19.48 2.59
Tot al
73,275.55
94,921.52
29.54
100
Export Basket of India: 2008 Source: DOC, Govt. of India.
Sectors like Gems and Jewellery and Leather have been badly hit in this recession.
Growth rate of sectors in October
Textile : -13%
Chemical : -20%
Gems & Jewellery : -21%
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Handicraft & Handloom : -64%
Major Exports to:
Hongkong (27%), USA (22%), UAE (20%)
Reasons:
High commodity prices
Global economic slowdown
Rupee appreciation
Rise in the crude and food prices last year have increased our import budget which has raised our fiscal deficit to around 10% of GDP.
Crude Oil (in Rs. Billion) and GDP Growth Rate
Exports post September 2008
Current Scenario in India ✔
Slow Down in US, Europe & Western World
✔
Export Restrictions in Domestic Markets
✔
Credit Crunch
✔
Surge in Ocean Freight Rate
✔
Slackness in construction Industry
✔
Labour intensive firms worst hit
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References
Exim policy 2002-07 Exim policy 2004-09
www.Indiastat.com
www.commerce.nic.in
www.textile.nic.in
http://commerce.nic.in/medium_term/contents.htm
CMIE
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SPEECH BY COMMERCE & INDUSTRY MINISTER ON RELEASE OF ANNUAL SUPPLEMENT TO FOREIGN TRADE POLICY 2004-09
International Business & Economics Research Journal – March 2006, Volume 5, Number 3
ANNUAL SUPPLEMENT 2008 TO FOREIGN TRADE POLICY 2004-09
Economic Times
Business Line
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