Export and Import Policy in India

Economic Environment of Business

2015

Submitted by-

Saurabh Wadhwa

UM14163

Section-C

Submitted to-

Prof. S.P. Das

Table of Contents

Introduction .................................................................................................................................................. 2

General Objectives of the Exim Policy .......................................................................................................... 2

Objectives of the Export- Import Policy 1997-2002 ...................................................................................... 4

Implications of the Exim Policy 1997 - 2002 ............................................................................................. 4

Objectives of Export- Import Policy 2002 - 2007 .......................................................................................... 7

Implications of Export- Import Policy 2002- 07 ........................................................................................ 7

Objectives of the Export- Import Policy 2009-2014 .................................................................................... 11

Implications of Export-Import Policy 2009-14 ........................................................................................ 11

Conclusion ................................................................................................................................................... 15

Introduction

Trade policy governs exports from and imports into a country. It is one of the various policy instruments used by a country to attain her goals of economic development. This policy is thus, formulated keeping in view, the national priorities for economic development and the international commitments made by the country. It is essential that the entrepreneurs and the export managers understand the trade policy as it provides the vital inputs for the formulation of their business growth strategies. In India, the trade policy i.e., export-import policy is formulated by the Ministry of Commerce, Government of India in terms of section 5 of the Foreign Trade (Development and Regulation) Act,1992.

Meaning The foreign trade of India is guided by the Export-Import (Exim) Policy of the government of India arid is regulated by the Foreign Trade (Development and Regulation) Act, 1992. Exim Policy contains various policy decisions taken by the government in the sphere of foreign trade, i.e., with respect to imports and exports from the country and more especially export promotion measures, policies and procedures related thereto. It is prepared and announced by the Central Government (Ministry of Commerce). India’s EXIM policy, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favourable balance of payments position.

This Act has replaced the earlier law namely, the imports and Exports (Control) Act1947. A comparison of the nomenclature of the two Acts makes it very dear that there is a shift in the focus of the law from control to development of foreign trade. This shift in the focus is the outcome of the emphasis on liberalisation and globalisation as a part of the process of economic reforms initiated in India since June 1991.

General Objectives of the Exim Policy

Government control import of non-essential items through an import policy. At the same time, all-out efforts are made to promote exports. Thus, there are two aspects of trade policy; the import policy which is concerned with regulation and management of imports and the export policy which is concerned with exports not only promotion but also regulation. The main objective of the Government policy is to promote exports to the maximum extent. Exports should be promoted in such a manner that the economy of the country is not affected by unregulated exports of items specially needed within the

country. Export control is, therefore, exercised in respect of a limited number of items whose supply position demands that their exports should be regulated in the larger interests of the country. In other words, the policy aims at

i. Promoting exports and augmenting foreign exchange earnings; and ii. Regulating exports wherever it is necessary for the purposes of either avoiding competition among

the Indian exporters or ensuring domestic availability of essential items of mass consumption at reasonable prices.

The government of India announced sweeping changes in the trade policy during the year 1991. As a result, the new Export- Import policy came into force from April I, 1992. This was an important step towards the economic reforms of India. In order to bring stability and continuity, the policy was made for the duration of 5 years. In this policy import was liberalised and export promotion measures were strengthened. The steps were also taken to boost the domestic industrial production.

The new Exim Policy 1997-2002 aims at consolidating the gains made so far, restructuring the schemes to achieve further liberalisation and increased transparency in the changed trading environment. It focusses on the strengthening the domestic industrial growth and exports and enabling higher level of employment with due recognition of the key role played by the SSI sector. It recognises the fact that there is no substitute for growth, which creates jobs and generates income. Such trade activities also help in stimulating expansion and diversification of production in the country. The policy has focused on the need to let exporters concentrate on the manufacturing and marketing of their products globally and operate in a hassle free environment. The effort has been made to simplify and streamline the procedure.

The objectives will be achieved through the coordinated efforts of all the departments of the government in general and the ministry of Commerce and the Directorate General of Foreign Trade and its network of Regional Offices in particular. Further it will be achieved with a shared vision and commitment and in the, best spirit of facilitation in the interest of export.

Objectives of the Export- Import Policy 1997-2002

The principal objectives of the EXIM Policy 1997 -2002 are as under: - a) To accelerate the economy from low level of economic activities to high level of economic activities

by making it a globally oriented vibrant economy and to derive maximum benefits from expanding global market opportunities.

b) To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components,’ consumables and capital goods required for augmenting production.

c) To enhance the technoloca1 strength and efficiency of Indian agriculture, industry and services, thereby, improving their competitiveness.

d) To generate new employment. Opportunities and encourage the attainment of internationally accepted standards of quality.

e) To provide quality consumer products at reasonable prices.

Implications of the Exim Policy 1997 - 2002

The major implications of the EXIM Policy 1997-2002 are:- a) Globalisation of Indian Economy :-

· The EXIM policy 1997-02 proposed to prepare a framework for globalisation of Indian economy. This is evident from the very first objective of the policy, which states “To accelerate the economy from low level of economic activities to- high level of economic activities by making it a globally oriented vibrant economy and to derive maximum benefits from expanding global market opportunities.” The Indian economy has been exposed to more foreign competition. The regime of high protection is gradually’ vanishing. It means, in order to survive, Indian companies will have to pay due attention to cost reduction, improvement in quality, delivery schedules and after sales service. At the same time, Indian industries have also been given an opportunity to globalise their business by allowing them to import machineries and raw materials from abroad on liberal terms.

b) Impact on the Indian Industry :- In the EXIM policy 1997-02, a series of reform measures have been introduced in order to give

boost to India’s industrial growth and generate employment opportunities in non-agricultural sector.

The reduction of duty from 15% to 10% under EPCG scheme will enable Indian firms to import capital goods. This will improve the quality and productivity of the Indian industry.

However, liberalisation of imports by transferring 542' items from restricted list to OGL and SIL list would adversely affect the growth of, consumer goods industry in India, as most of .these items are consumer goods items.

c) Impact on Agriculture

Double weightage ‘will be given for agro exports in calculating the eligibility for export houses and all forms of trading houses.

Additional SIL of 1 % has been declared for export of agro products. EOUs and units in EPZs in agriculture and allied sectors can sell 50% of their output in the

domestic tariff area (DT1) on payment of duty. Double weightage for agro exports while calculating the eligibility for export houses and all forms

of trading houses. Additional SIL of 1 % for export of agro products. EOUs’ and units in EPZs in agriculture and allied sectors can sell 50% of their output in the

domestic tariff area (DTA) on payment of duty. Under the zero duty EPCG Scheme, the threshold level has been reduced from Rs. 20 crore to

Rs. 5 crore for agriculture and allied sectors. d) Impact on. Foreign Investment

In order to encourage foreign investment in India, the EXIM policy 1997-02 has permitted 100% foreign equity participation in the case of 100% EOUs, and units set up in EPZs.

Due to liberalisation of procedural formalities, foreign companies may bee attracted to set up manufacturing units in India.

Full Convertibility of Indian Rupee on revenue account would also give a fillip to foreign investment in India.

e) Impact on Quality Upgradation The SIL entitlement of exporters holding ISO 9000 certification has been increased from 2% to

5% of the FOB value of exports. This would encourage Indian industries to undertake research and development programmers

and upgrade the quality of their products. Liberalisation of EPCG scheme would encourage Indian industries to import capital goods and

improve quality and increase productivity of goods. f) Impact on Self-reliance

One of the long-term objectives of the Indian planning is to become self- reliant. This objective is well reflected in the EXIM Policy 1997-02.

The policy aims at encouraging domestic sourcing of raw materials, so as to build up a strong domestic production base.

In order to achieve this the policy has also extended the benefits given to exporters to deemed exporters. This would lead to import substitution.

Oil, power and natural gas sectors have also been brought under the purview of deemed exports.

However, the globalisation policy of the government may harm the interests of SSls and cottage industries, as they may not be able to compete with MNCs.

Objectives of Export- Import Policy 2002 - 2007

The export-import policy 1997-2002 carried forward the process of liberalization and globalization set in motion by the process of economic reforms initiated since June, 1991. These reforms had aimed at restructuring the Indian economy to increase the productivity and competitiveness of foreign trade enterprises in order to achieve a higher rate of growth in exports. It also enabled the foreign trade grow in an environment of liberalization from licensing procedures, quantitative restrictions, discretionary bureaucratic controls and cumbersome documentation procedures. Implications of Export- Import Policy 2002- 07

All-round Development of Indian Economy:

The Exim 2002-07 emphasises all-round development of Indian economy by giving due weightage to different sectors of the economy. That is why the policy has been described as

Employment Oriented. Technology Oriented. Growth Oriented. .

a) Implications on Agricultural Sector : Agriculture being the backbone of Indian economy, the EXIM policy has initiated a series of measures

for its growth and development, especially for promotion of exports from agricultural sector. Removal ‘of quantitative and packaging restrictions on certain agricultural products and on export of

all cultivated varieties of seed would give a major boost to the export of these items. Identification of 20 “Agricultural Export Zones would help in development of specific geographical

areas for export of specific products. Extension of export obligation fulfilment period from 8 years to 12 years in respect of units in

Agricultural Export Zones. Other measures such as transport subsidy, 3% special DEPB rate, would definitely give a fillip to

exports from agricultural sector. b) Implications on Development of Cottage Industries :

The small scale sector, along with the cottage and handicraft sector, has been contributing to more than half of the total exports of the country. In recognition of the export performance of these sectors and to further increase their competitiveness, the following facilities have been extended to this sector:-

Incentives such as Market Access Initiative (MAl), duty free imports upto 3% of FOB value of exports, EPCG facility, etc.

Entitlement for Export House Status at Rs. 5 crore instead of Rs.15crore for others. These steps would encourage units in cottage industries to develop their export potentiality.

c) Implications on Small Scale Industry : With a view to encourage further development of centres of economic and export excellence as Tripura

for hosiery, woolen blankets in Panipat, woolen knitwear in Ludhiana, the following benefits have been made available to the small scale sector :- Common service providers in these areas shall be entitled for facility of EPGC Scheme. . Availability of Market Access Initiative Scheme for creating focused technological services and

marketing abroad. Entitlement for Export House Status at Rs. 5 crore instead of Rs.15 crore for others. These steps would lead to development of new centres of economic and export excellence. d) Implications on Gem and Jewellery Industry : Having already achieved leadership position in diamonds, the Exim. Policy 2002-07 aims at achieving a quantum jump on jewellery exports as well. In order to achieve this, the following steps have been taken in the new Exim Policy Import of rough diamonds is allowed freely at 0% custom duty. Abolition of licensing regime for rough diamonds would help the country emerge as a major

international centre for diamonds. Value addition norms for export of plain jewellery reduced to 7% and for all merchandised

unstudded jewellery to 3% Personal carriage of jewellery allowed through Hyderabad and Jaipur airports as well. e) Implications on Industrial Sector Liberalisation of EPCG scheme would help Indian industries to promote quality up gradation and

would also enable sick units to revive. Extension of repatriation period for realisation of export proceeds from180 days to 360' days -

would help Indian industries to be more competitive in offering liberal payment terms to foreign importers.

Licence, certificate, permissions and customs clearances for both imports and exports onself-declaration basis, priority finance for medium and long term capital’ requirement and 100% retention

of foreign exchange in Exchange Earner’s Foreign Currency (EEFC) account would definitely benefit Indian industries and would encourage Indian producers to enter the export field.

Exemption from compulsory negotiation of documents through banks would help exporters to save bank charges.

Transport subsidy for exports from units located in North East, Sikkim and Jammu and Kashmir would offset the disadvantage of being far from ports.

f) Diversification of Indian Industrial Sector : In order to promote Indian industries to diversify their business and markets, the following measures

have been taken in the Exim Policy 2002-07 Setting up of “Business Centre” in Indian missions abroad would enable India exporters and

businessmen to visit abroad. Launching of Focus LAC (Latin American Countries) in Novernber 1997 has greatly accelerated

Indian trade with Latin American countries. Extension of this programme upto March 2003 would enable Indian exporters to consolidate the gains of this programme.

There is a tremendous potential for trade with the Sub- Saharan African region. Launching of Focus Africa programme would help exporters to diversify their exports to these markets.

Permission granted to External. Commercial Borrowings (ECBs) for tenure of less than three years in SEZs would provide opportunities for accessing working capital loan for these units at internationally competitive rates.

g) Implications on Technology Upgradation : Liberalisation of import and export of samples would encourage product upgradation. Liberalisation of EPCG scheme would encourage Indian industries to import capital goods and

improve quality and increase productivity of goods. This would also encourage Indian industries to undertake research and development programmes

and upgrade the quality of their products.

Note on Special Economic Zones (SEZs) Special Economic Zones (SEZs) Scheme in India was conceived by the Commerce and Industries Minister Murosoli Maran during a visit to Special Economic Zones in China in 1999. The scheme was announced at the time of annual review of EXIM Policy effective from 1.4.2000. The basic idea is to

establish the zones as areas where export production could take place free from all roles and regulations governing imports and exports and to give them operational flexibility.

Special Economic Zone (SEZ) is a specifically delineated duty free enclave, which shall be deemed to be a foreign territory for the purposes of trade operations and duties and tariffs. .

Note on Agriculture Export Zones (AEZs) Agricultural Export Zones (AEZs) have been set up by the Ministry of Commerce, GOI, with a view to promote agricultural exports from the country and provide remunerative returns to the farming community in a substantial manner.

A Note on Counter Trade Counter trade is a form of international trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments. Counter trade helps government offices or other local institutions by facilitating the introduction of investments, technology transfer, research and development, specialized training/skills and related activities without additional cost to the government. Forms of Counter Trade

Barter: Barter refers to direct exchange of goods against goods of equal value, with no money and no third party involved in it.

Compensation Deal: Under this arrangement, the seller receives a part of the payment in cash and the rest in products.

Buy Back: Under the buyback agreement, the supplier of plant, equipment or technology agrees to purchase goods manufactured with that equipment or technology.

Counter purchase: Under the counter purchase agreement, the seller receives the full payment in cash but agrees to spend an equivalent amount of money in that country within a specified period.

Trade-for-Debt or Debt-for-Goods. A loan or credit obtained by the government is paid for (fully or partially) in goods or services of the debtor country.

Offset. Foreign suppliers commit to introduce investments, technology transfer, training and skills upgrade, research and development that will promote the industrial and economic growth of the country.

Objectives of the Export- Import Policy 2009-2014 Achieving an annual export growth of 15% with an annual export target of US$ 200 billion by

March 2011. The country should be able to come back on the high export growth path of around 25% per

annum by 2014. Double India’s exports of goods and services by 2014 The long term policy objective for the Government is to double India’s share in global trade by

2020

The policy aims at developing export potential, improving export performance, boosting foreign trade and earning valuable foreign exchange. FTP assumes great significance this year as India’s exports have been battered by the global recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in large-scale unemployment.

Following are the three pillars which will support in achieving this target

Improvement in infrastructure related to exports Bringing down transaction costs Providing full refund of all indirect taxes and levies.

Implications of Export-Import Policy 2009-14

a) Market Diversification

Weaker demand in developed economies, triggered by falling asset prices and increased economic uncertainty has pulled down the growth of India’s exports to developed countries. There are no clear signals as to when the markets in developed countries would revive.

To insulate Indian exports from the decline in demand from developed countries, in this Policy focus is on diversification of Indian exports to other markets, especially those located in Latin America, Africa, parts of Asia and Oceania.

b) Technological Upgradation To usher in the next phase of export growth, India needs to move up in the value chain of export

goods. This objective is sought to be achieved by encouraging technological upgradation of our

export sector. A number of initiatives have been taken in this Policy to focus on technological upgradation; such initiatives include:

EPCG Scheme at zero duty has been introduced for certain engineering products, electronic products, basic chemicals and pharmaceuticals, apparel and textiles, plastics, handicrafts, chemicals and allied products and leather and leather products.

The existing 3 % EPCG Scheme has been considerably simplified, to ease its usage by the exporters.

To encourage value added manufacture export, a minimum 15 % value addition on imported inputs under Advance Authorisation Scheme has been stipulated.

A number of products including automobiles and other engineering products have been included for incentives under Focus Product, and Market Linked Focus Product Schemes.

c) Support to status holders The Government recognized ‘Status Holders’ contribute approx. 60% of India’s goods exports. To incentivise and encourage the status holders, as well as to encourage Technological

upgradation of export production, additional duty credit scrip @ 1 % of the FOB of past export shall be granted for specified product groups including leather, specific sub sectors in engineering, textiles, plastics, handicrafts and jute.

This duty credit scrip can be used for import of capital goods by these status holders. The imported capital goods shall be subject to actual user condition.

d) Agriculture and Village Industry

Vishesh Krishi and Gram Udyog Yojana Capital goods imported under EPCG will be permitted to be installed anywhere in AEZ. Import of restricted items, such as panels, are allowed under various export promotion schemes. Import of inputs such as pesticides are permitted under Advance Authorisation for agro exports. New towns of export excellence with a threshold limit of Rs 150 crore shall be notified. Certain specified flowers, fruits and vegetables are entitled to a special duty credit scrip, in

addition to the normal benefit under VKGUY.

e) Electronics and IT Hardware Manufacturing Industries Expeditious clearance of approvals required from DGFT shall be ensured. Exporters /Associations would be entitled to utilize MAI & MDA Schemes for promoting

Electronics and IT Hardware Manufacturing industry exports.

f) Green products and technologies India aims to become a hub for production and export of green products and technologies. To

achieve this objective, special initiative will be taken to promote development and manufacture of such products and technologies for exports.

To begin with, focus would be on items relating to transportation, solar and wind power generation and other products as may be notified which will be incentivized.

Exports, Imports and Trade Balance (US $ Million)

Year Exports

Imports

Trade Balance

Rate of Change

Export Import 1989-90 16612 21219 -4607 18.9 8.8 1990-91 18143 24075 -5932 9.22 13.46

1991-92 17865 19411 -1546 -1.53 -19.37

1992-93 18537 21882 -3345 3.76 12.73 1993-94 22238 23306 -1068 19.97 6.51 1994-95 26330 28654 -2324 18.40 22.95 1995-96 31797 36678 -4881 20.76 28.00 1996-97 33470 39133 -5663 5.26 6.69 1997-98 35006 41484 -6478 4.59 6.01 1998-99 33218 42389 -9171 -5.11 2.18 1999-00 36715 49738 -13023 10.53 17.34 2000-01 44076 49975 -5899 20.05 0.48 2001-02 43827 51413 -7586 -0.56 2.88

2002-03 52719 61412 -8693 20.29 19.45 2003-04 63843 78149 -14306 21.10 27.25 2004-05 83536 111517 -27981 30.85 42.70 2005-06 103091 149166 -46075 23.41 33.76 2006-07 126414 185735 -59321 22.62 24.52 2007-08 163132 251654 -88522 29.05 35.49 2008-09 185295 303696 -118401 13.59 20.68 2009-10 178751 288373 -109622 -3.53 -5.05 2010-11 251136 369769 -118633 40.49 28.23 2011-12 305964 489319 -183355 21.83 32.33 2012-13 300401 490737 -190336 -1.82 0.29

Every export-import policy aims at achieving the following- 1. Globalization of Indian Economy: The EXIM Policies proposed with an aim to prepare a framework for globalizations of Indian economy. This is evident from the very first objective of the policy, which states. "To accelerate the economy from low level of economic activities to- high level of economic activities by making it a globally oriented vibrant economy and to derive maximum benefits from expanding global market opportunities." 2. All-round Development of Indian Economy: The EXIM policy emphasizes all-round development of Indian economy by giving due weight age to different sectors of the economy. That is why. The policy has been described as:

Employment Oriented. Technology Oriented. Growth Oriented.

3. Impact on the Indian Industry: In the EXIM policies a series of reforms measures have been introduced in order to give boost to India's industrial growth and generate employment opportunities in nonagricultural sector. These include enabling Indian firms to import capital goods and is an important step in improving the quality and productivity of the Indian industry.

Conclusion The long-term vision of the Department of Commerce is to make India a major player in world trade by 2020, and assume a role of leadership in the international trade organizations commensurate with India’s growing economic and demographic profile. In consonance with its vision of ensuring sustained accelerated growth of exports and making India a major player of world trade, the Government announces a Foreign Trade Policy (FTP) every five years. FTP is annually reviewed to incorporate changes necessary to take care of emerging economic scenarios both domestically and globally. The underlined philosophy of supplement to Foreign Trade Policy is based on seven broad principles: a. Give a focused thrust to employment intensive industry. b. Encourage domestic manufacturing for inputs to export industry and reduce the dependence on

imports c. Promote technological up gradation of exports to retain a competitive edge in global markets d. Persist with a strong market diversification strategy to hedge the risks against global uncertainty e. Encourage exports from the North Eastern Region given its special place in India’s economy f. Provide incentives for manufacturing of green goods recognising the imperative of building capacities

for environmental sustainability g. Endeavour to reduce transaction cost through procedural simplification and reduction of human

interface