Foreign%20Trade%20Policy%20and%20Promotional%20Measures

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Foreign Trade Policy and Promotional Measures

• Dr. Raj Agrawal

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Trade Policies in India

• Exim Policies
• Streamlined trade procedures
• Liberalised import regime
• Thrust on export orientation
• Medium Term Export Strategy, 2002
• 1 share in global exports by 2007
• Foreign Trade Policy 2004-2009
• To double Indias share in global merchandise
  trade by 2009

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Story So Far

• In 1990s
• QRs on hundreds of items
• high levels of customs duties (22 ad-valorem
  rates with peak basic rate of 300
• 2005
• QRs removed
• Peak rate of Custom duty for most
  non-agricultural products 15
• EXIM Policy
• targets 12 export growth for next 5 years
• incentives for Special Economic Zones
  export-oriented clusters
• procedural simplifications to reduce transaction
  costs

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Where Does India Stand Globally?

• Indias share in global merchandise exports 0.8
  (2003)

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Indias Export Performance
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Indias Import Performance
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Reduction in Peak Duties
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Indias Services Exports
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New Trade Policy 2004-09

• Highlights of New Foreign Trade Policy 2004-09
• Special Focus Initiatives for Agriculture,
  Handicrafts, Handloom, Gems Jewellery, Leather
  Footwear
• Import of 2nd hand capital goods allowed without
  any restrictions
• Separate Export Promotion Council established
  for promoting Services Exports
• New Scheme to establish Free Trade Warehousing
  Zones to make India a global trading hub -
  trade transactions in free currency allowed in
  these zones
• 100 FDI permitted in development
  establishment of these zones and their
  infrastructure facilities
• Policy introduced to accord 100 EOU Status to
  Biotech Parks
• New and Comprehensive SEZ Policy soon

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Foreign Trade Policy 2004-09

• Objectives
• To double Indias percentage share of global
  trade within five years
• To act as an effective instrument of growth to
  by giving a thrust to employment generation
• Strategies
• Unshackling controls
• Simplifying procedures and reducing
  transactions cost
• Neutralizing incidence of all levies and duties
  used in export products
• Nurturing different focus areas

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Foreign Trade Policy 2004-09

• Facilitating development of India as global hub
  for manufacturing, trading and services
• Identifying and initiating special focus areas
  which would generate employment
• Facilitating Technological and infrastructure
  upgradation
• Avoiding inverted duty structure
• Revitalising the Board of Trade

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Foreign Trade Policy 2004-09

• Special Focus Initiatives
• Agriculture
• Handicrafts
• Handlooms
• Gems and Jewellery
• Leather and Footwear sectors

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Foreign Trade Policy 2004-09

• Thrust on agricultural exports
• - Quantitative restrictions on export of almost
  all agricultural products have been removed.
• - Twenty Agricultural Export Zones have been
  identified for encouraging export of agricultural
  products.

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Foreign Trade Policy 2004-09

• Special package for agriculture
• Duty free imports of capital goods
• Will lower production cost and hence improve
  profitability
• Exports of medicinal plants herbal products
  facilitated
• Global imports of medicinal plants US 1 bn
  (2001)
• India second largest exporter after China
• Potential to increase export to Rs. 1750 crore by
  2006-07 and more than Rs. 2500 crore by 2009-10.
• Global market for Herbal products US 80 bn
• Indias exports of Herbal products US 280 mn
  (2002-03)

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Foreign Trade Policy 2004-09

• Export Promotion Schemes
• Target Plus scheme introduced
• Will further boost exports from the successful
  exporters
• Vishesh Krishi Upaj Yojana to boost horticulture
  exports
• Global trade in horticulture US 79 bn (1999)
• Indias exports US Rs. 1830 cr (1999-2000)
• Success of AEZs for horticulture depend on the
  ability of the states to overcome existing
  shortcomings in infrastructure, institutional
  mechanism and policy and programme support to
  achieve desired export orientation

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Foreign Trade Policy 2004-09

• Textile sector incentives
• Duty free entitlement for garments handicrafts
  increased from 3 to 5
• Will help exporters to move up the value chain
• However, further incentives required to
  consolidate Indias position in the post-MFA era
• Handicraft Special Economic Zone to be
  established
• Will contribute to strong growth in handicraft
  exports
• Will generate employment opportunities

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Foreign Trade Policy 2004-09

• Export Promotion Schemes
• Services Export Promotion Council to be set up
• Served from India scheme Service providers who
  earn forex of at least Rs. 5 lakhs will be
  eligible for duty credit entitlement
• Will help small scale service providers
• Will enhance Indias share in global exports of
  services (1.4 in 2003)

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Foreign Trade Policy 2004-09

• Export Oriented Units
• Exemption from service tax
• EOUs permitted to retain 100 of export earnings
  in EEFC accounts
• Income tax benefits to DTA units which convert to
  EOUs
• All these should considerably increase export
  growth from the EOUs

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Foreign Trade Policy 2004-09

• Import of second hand capital goods allowed
  without age restrictions
• No outdated technology should be imported
• Special Focus Initiatives
• Could be extended to other sectors of high export
  orientation like chemicals pharmaceuticals
• Export orientation of FDI should be increased

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Foreign Trade Policy 2004-09

• Simplifying procedures and bringing down
  transaction costs
• Transaction costs are incurred at the pre and
  post-production stages, and arise out from
  several procedural complexities associated with
  administrative processes, availability of finance
  and transportation problems.
• For enhancing the growth of exports it is
  important to reduce the transaction costs
  involved.

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Ex-Im Bank Study on Transaction costs-

• Findings of Exim Banks Study

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Foreign Trade Policy 2004-09

• Transaction Costs International Experience
• Simplified and less stringent bureaucratic
  procedures like single window clearance and
  business friendly approach
• Better technology due to higher levels of foreign
  investment, faster loading/unloading methods
• Flexible labour laws
• Cheap availability of power and raw materials,
• Freight incentives by the Government,
• Lower ocean freight rates due to greater
  availability of vessels

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Studies Transaction Costs

• Reduction in costs OECD study , cost poor border
  transaction procedures vary between 2 to 15,
  while average post-Uruguay tariffs on Industrial
  goods amounts to 3.8s
• UNCTAD, Direct and Indirect transaction costs
• ( banking and insurance,customs,business
  information,transport and logistics) 10 of the
  total value of world trade (US 400)
• Improving performance (below global average
  countries) Port Efficiency Global trade will
  increase by US 117 billion,
• Improvement in custom procedures 22billion

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Foreign Trade Policy 2004-09

• Quantum Jump in Merchandise Exports Required
• Enhance exports of major export
• commodities
• Identify potential export commodities
• Diversify export destinations
• Increasing Export competitiveness in global
  market

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Foreign Trade Policy 2004-09

• Exim Bank Study Strategy for Quantum Jump in
  Exports Focus on Africa, Latin America and
  China
• India could aim to achieve
• US 18 billion in Africas Imports by 2007 from
  US 3.8 bn in 2003-04
• US 4 bn in Chinas imports by 2007 (in 64
  identified groups) from US 0.86 bn in 2000
• US 1.8 bn in LACs imports by 2007 (in 100
  identified groups) from US 0.6 bn in 2000
• Share in Indias Exports in 2003-04 Africa
  (6) Latin America (1.8) China (4.7)

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Export Competitiveness and FDI

• Export as a proportion of sales among
• sample of 450-odd (FDI) controlled firm
• in India was just 11.6 percent.
• 40 percent went into acquisition of gross fixed
  assets such as plant and machienery
• More tariff jumping and market seeking than
  efficiency seeking (that is export driven)

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Low share of FDI in major export sectors
Sector Share in FDI ()
Transportation industry 7.50
Computer software industry 6.46
Chemicals pharmaceuticals 5.70
Textiles 1.20
Leather leather goods 0.20
Services (incl. Hotels Tourism) 8.37
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Some Suggestions

• Export margins thinning
• Exporters wants Single Window announcements
• EDI or electronic data interchange is yet to
  function as a seamless network
• EOUs versus SEZs
• Specific incentives to Pharma industry

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Some Suggestions

• Need of implementing all export procedures
  online
• Various export incentives cost the government
  about Rs 40,000 crore. But are they really needed
  ?
• Need of creating adequate infrastructure
• Issue of delayed payment of legitimate dues or
  rebates for tax borne

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