|India's Foreign Trade|
initiatives the Indian federal government has taken since it announced
the five-year ( 2004-09) foreign
trade policy have started paying rich dividend. The sustained high growth rate of merchandise exports
at more than 20 percent during the last four years is more than twice
the current growth of Gross Domestic Product (GDP). “This has been possible
as a result of stable policy framework provided by the Trade Policy
and a continuous, conscious & concerted effort by the Government
to reduce trade barriers, bring down transaction costs and facilitate
a favorable international environment”, said the federal of Commerce
& Industry's annual report released recently. After crossing the landmark figure of $ 100 billion in 2005-06,
exports surged to $124 billion. During the last few years, the rising
competitiveness of some of the sectors like engineering goods (auto
parts) and high commodity prices (petroleum and metals) have been the
driving force for high sustained growth of exports, the report pointed
Press Information Bureau)
The Annual Report mentions the several benefits that accrue from the Special Economic Zones (SEZs). The SEZ policy aims at generating greater economic activity and employment by providing a stable, transparent and efficient policy framework for establishment and running of SEZs. The main objectives of the SEZ Act are; generation of additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities and, development of infrastructure facilities.
So far, formal approval has been granted to 234 SEZ proposals and in-principle approval to 162 SEZ proposals. Investment of the order of Rs.1,00,000 crore including FDI of $ 5-6 billion is expected by end of December 2007 leading to creation of direct employment of 5 lakh jobs. Out of the 234 formal approvals, notifications have already been issued in respect of 63 SEZs. IN the 63 notified SEZs which have come up after 10th February 2006, investment of Rs.13,435 crore has already been made in less than one year. These SEZs have, so far, provided direct employment to 18457 persons.
With a view to ensuring healthy growth and improved productively in the plantation sector, the Government has initiated a number of measures during the year. A Special Purpose Tea Fund (SPTF) has been set up under the Tea Board for funding replantation and rejuvenation of old tea bushes with the goal of long-term development of tea industry. The proposal is to cover an area of 2.1 lakh hectares for rejuvenation and replantation activities over a period of 15 years. To begin with, the scheme would be implemented till the end of 11th Plan (including the remaining period of 2006-07) with an estimated outlay of Rs.567.10 crore covering an area of 85044 hectares. Under the SPTF, the Government would be providing a subsidy of 25 percent of the cost, the report said.
On multilateral trade, throughout the negotiations, India has continued to pursue its national interests across all the areas under the Doha Work Programme. It continued to work constructively with its coalition partners, particularly, the G-20 and the G-33 in the agriculture, NAMA-11 and other developing country groupings including the African Group, ACP countries, CARICOM, and LDCs in order to secure its development imperatives.
The Doha Round, which was launched in November 2001, achieved an important milestone with the Declaration issued at Sixth Ministerial Conference of the WTO held in Hong Kong in December 2005 with WTO members agreeing to establish modalities for negotiating agriculture access and Non-Agricultural market Access (NAMA) and to conclude the negotiations across all areas of the Doha Round by 2006 end. Intensive discussions through January to July 2006 had focused mainly on the triangular issues of domestic support, Agricultural Market Access (AMA) and NAMA. Negotiations under the Doha Round in the WTO have been stalemated primarily over agricultural trade. As the gap remained too wide, the formal meeting of the Trade Negotiating Committee (TNC) held on 24th July 2006 recommended for suspension of the negotiations across the Round as a whole. The WTO General Council at its meeting held on 27th July 2006 supported this recommendation for suspension of the Doha Round negotiations as a whole. A soft resumption of negotiations across the board was agreed on the basis of TNC decision held on 16th November 2006. Full-scale resumption of the negotiations across the board was reported by the negotiations across the board was reported by the Chairman of the TNC in the meeting of the General Council held on 7th February 2007. India has welcomed the soft resumption and the subsequent full-scale resumption of the negotiations.
The 7th India-EU Summit was held in Helsinki in October 2006. The Summit agreed that both sides move towards negotiations for a broad-based Trade and Investment Agreement. The European Commission is currently seeking a mandate from its Council of Ministers for the launch of negotiations for such an Agreement.
During the year, a review of the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) was undertaken and fruitful discussions took place for smooth and purposeful implementation of the Agreement. Negotiations for conclusion of the Free Trade Agreement with ASEAN are well underway. Both sides have shown flexibility to conclude the agreement as early as possible and against this backdrop, three meetings of India-ASEAN Trade Negotiating Committee were held during the year. It is hoped to conclude the FTA with ASEAN by July 2007. A Trade and Economic Framework (TEF) Agreement has also been signed with Australia for enhancing bilateral trade and investment on a comprehensive basis.
India’s cumulative value of exports for first nine months of the current fiscal year (April- December, 2008) stood at $ 131990 million (Rs.585594 crore) as against $ 112737 million (Rs. 454997) registering a growth of 17.1 per cent in terms of Dollar and 28.7 per cent in terms of Rupee over the same period last year. Exports during December, 2008 were valued at $ 12690 million which was 1.1 per cent lower than the level of $ 12825 million during December, 2007. In terms of rupee, exports touched Rs. 61715 crore, which was 22 per cent higher than the value of exports during December, 2007.
India’s Imports during December, 2008 were valued at $ 20256 million representing an increase of 8.8 per cent over the level of imports valued at $ 18610 million in December, 2007. In terms of Rupee, imports increased by 34.2 per cent. Cumulative value of imports for the period April- December, 2008 was $ 225809 million (Rs. 1003947 crore) as against $ 171718 million (Rs. 693445 crore) registering a growth of 31.5 per cent in terms of Dollar and 44.8 per cent in terms of Rupee over the same period last year.
Oil imports during December, 2008 were valued at $ 4712 million which was 30.9 per cent lower than oil imports valued at $ 6824 million in the corresponding period last year. Oil imports during April- December, 2008 were valued at $ 78827 million which was 44.8 per cent higher than the oil imports of $ 54421 million in the corresponding period last year.
Non-oil imports during December, 2008 were estimated at $ 15544 million which was 31.9 per cent higher than non-oil imports of $ 11786 million in December, 2007. Non-oil imports during April- December, 2008 were valued at $ 146982 million which was 25.3 per cent higher than the level of such imports valued at $ 117297 million in April- December, 2007.
The trade deficit for April- December, 2008 was estimated at $ 93819
million which was higher than the deficit at $ 58981 million during
April- December, 2007. (Source:
Federal ministry of Commerce, Government of India)
The Annual Supplement (2006) introduced two new schemes to give a push to employment generation, particularly in semi-urban and rural areas – a key objective of the Foreign Trade Policy. These 2 schemes are: the “Focus Product Scheme” to give a thrust to the manufacture and export of certain industrial products which could generate large employment per unit of investment compared to other products; and the “Focus Market Scheme” to penetrate markets to which India’s exports were comparatively low and which Indian exporters had perhaps been neglecting due to high freight costs and undeveloped networks but which were markets of the future.
The Focus Product Scheme would allow duty-credit facility at 2.5 percent of the FOB value of exports on 50 percent of the export turnover of notified products, such as value added fish and leather products, stationery items, fireworks, sports goods and toys, and handloom & handicraft items. The Focus Market Scheme, on the other hand, allows duty credit facility at 2.5 percent of the FOB value of exports of all products to the notified countries. The scrip and the items imported against it for both these schemes would be freely transferable. These two Schemes has replaced the Target Plus Scheme.
In order to take the benefits of foreign trade further to rural areas, the Krishi Vishesh Upaj Yojana was being expanded to include village and cottage industries and was being renamed as the Vishi Krishi Upaj Aur Gram Udyog Yojana. Thus, it had been decided to incentivise export of village and cottage industry products by awarding a duty-free scrip at the rate of 5% of FOB value of exports under the expanded scheme.
The incidence of unrebated Service Tax and Fringe Benefit Tax on exports would be factored in the various duty neutralisation and remission schemes, adding that details of this were being worked out and would be announced separately.
In order to promote services exports which account for 52% of India’s GDP, and provide jobs to a large number of urban educated youth, a number of features were being added in the Served from India Scheme to promote services exports. “The Scheme will now allow transfer of both the scrip and the imported input to the Group Service Company, whereas earlier transfer of imported material only was allowed”, the minister said.
A slew of measures has been initiated to exploit India’s potential to become an international hub for gems & jewellery. The measures include allowing import of precious metal scrap and used jewellery for melting, refining and re-export of jewellery; and reduction in value-addition norm on export of gold and silver jewellery from 7 percent to 4.5 percent in view of the increase of gold & silver prices in the international market in recent years which had made the present value-addition norms unrealistic. “The diamond trade, which was concentrated in Antwerp, is moving out – to Dubai, to Tel Aviv. I want Mumbai be right up there, and not lose out to its fellow Asian cities. This Supplement now introduces a number of measures for facilitating export of value added products catering to changing needs of the market and facilitating easier product movement across the borders and allowing import of precious metal scrap for refining, ” the minister maintained.
In order to help India emerge as a hub of auto components, import of new vehicles by auto component manufacturers for R&D purposes would now be allowed without homologation (i.e. testing for fitness on Indian roads required for import of new models of cars) so as to give the sector easier access to latest technologies.
In order to tap the business opportunity in supplies of stores (food, beverages and other supplies) and refueling of long distance flights, it has been decided to treat such supplies on an equal footing with other exports, making them eligible for benefits under various export promotion schemes. This would enable India to offer competitive fuel prices and attract mid-route stops of international flights. Currently, most airlines replenish supplies or refuel at Thailand, Malaysia or Singapore since these supplies were not treated as exports in India.
Further, the salient features of the Advance Licensing Scheme (which allows imports of inputs before exports) and Duty Free Replenishment Certificate (which allows transfer of import entitlements) have been clubbed to launch a new scheme called “Duty Free Import Authorisation Scheme”. The rationale is that export production requires use of many inputs in small quantities as per the standard input-output norms, and though such inputs were allowed to be imported duty-free under the Advance Licence Scheme, exporters generally were not importing such items because of lack of economies of scale and were forced to source them locally at a higher price. The new scheme addresses the issue by offering the facility to import the required inputs before exports and allows the transfer of scrip once the export obligation is complete. The scheme is made effective from May 1, 2006. Simultaneously, the DFRC scheme would be phased out and shall be available only for exports effected upto 30th April, 2006.
The Supplement introduces certain flexibilities in the conditions relating to maintenance of average export performance under the Export Promotion Capital Goods (EPCG) scheme as in a number of situations exporters were finding it difficult to maintain average export performance and undertake additional export obligations either because of sickness or international market dynamics or technology changes. Further, as an export facilitation measure, it has been decided to extend the period of export obligation fulfillment by a further period of two years based on certain condition.
As a trade facilitative measure, it has been decided that interest on delayed payment of refunds would be paid by the government to ensure accountability and cut delays. Further, fast track clearance procedures are put in place for units of Export Oriented Units (EOUs) having turnover of Rs.15 crore.
To simplify procedures relating to international trade and putting in place an exporter friendly regime for obtaining import authorizations and disbursement of export linked incentives, number of steps have been taken. A web based online system of filing import & export applications is functional. Requests for obtaining authorizations relating to Advance Licence, EPCG Licence and DEPB are to be filed on the DGFT website with a digital signature and payment of licence fee through the Electronic Fund Transfer mode. No manual applications and supporting documents are required to be submitted. All EDI applications are processed within one working day. We propose to take more EDI initiatives in the next six months to take the process further”.
A report Towards an Employment Oriented Export Strategies: Some Explorations prepared by RIS (Research & Information System for Developing Countries) revealed that exports have emerged as an increasingly important source of job creation in the Indian economy. In 2004-05, the export sector is reported to have generated incremental direct employment of 1.4 million (i.e.14.85 lakh) over the previous year, bringing the total employment generated by the export sector in India to 9 million (i.e., 90.06 lakh) jobs, corresponding to exports amounting to nearly US $ 80 billion achieved during the year. This is besides the export-related indirect jobs created through backward linkages and in logistics and related sectors which are estimated to add up to another 6.9 million (i.e. 69.66 lakh) jobs. In all, merchandise export activity seems to sustain nearly sixteen million jobs currently.
Referring to the target of doubling exports to $ 150 bn by 2009-10, the report says that “achievement of this target of exports is likely to generate 136 lakh new jobs (81.57 lakh direct and 54.61 lakh indirect) in the economy in the next five years”. The report further says that If India is able to exploit export opportunities in labour intensive goods and follow labour intensive modes of production, India’s merchandise exports in 2009-10 could reach US $ 165 bn which would generate 21 million (i.e. 210 lakh) new jobs (directly and indirectly). The report identifies the following 12 export sectors as employment intensive: Textiles & garments; Leather goods; Gems & jewellery; Cereal exports; Horticulture exports; Flowers, fruits and vegetables; Dairy products; Processed foods; Toys & sports goods; Pharmaceutical industry; Automobiles and auto components; Consumer electronics and electronic hardware.
Updated on February 6, 2009