AGAINSTthe backdrop of the country crossing the US$ 50-billion-mark in merchandise exports in fiscal 2002-03, Indian federal government has announced a comprehensive new Export & Import (EXIM) Policy 2003 within the broad parameters of Five Year export-import policy(2002-07). The new policy aims at consolidating and accelerating India’s export growth by capitalising on the areas of its core competence and giving a massive thrust to services and agro exports identified as the important engines of growth. A major boost is being given to non-traditional service areas such as health care, entertainment and professional services as well as traditional areas like tourism; major initiatives on agro-exports with the basic aim of reaching the benefits of globalisation to farmers and rural sectors including facilitating association of corporates in the implementation of Agri Export Zones (AEZs); a more flexible and attractive Export Promotion Capital Goods (EPCG) Scheme in order to expand the manufacturing base for India’s exports including the small scale sector; incentives to status holders with premium on high growth; removal of restrictions on exports; measures to facilitate investments in Special Economic Zones (SEZs); reoriented export cluster development scheme and procedural simplification aimed at drastic reduction of transaction costs in order to make India globally competitive. The DEPB (Duty Entitlement Pass Book) Scheme is being continued and a facility for provisional DEPB rate has been introduced to encourage diversification and promote exports of new products.

"We shall strive to sustain the present rate of growth and to accelerate it through the initiatives and strategy in the Exim Policy 2003-04", so says the federal Commerce minister Arun Jaitley. Provisional figures for the period April-February 2002-03 indicate that India’s exports have grown by as much as 16.76% in US$ terms (and 18.8 percent in rupee terms) over the same period of last year. Apart from software, a host of other services now provided unprecedented opportunities in global trade and with abundant skilled manpower, India today is uniquely placed to take full advantage of the growing opportunities of services exports which was clearly an important engine of growth for the economy. To facilitate and promote export of services from other sectors, import of consumables, office and professional equipments, spares etc., would be allowed up to 10 percent of the average foreign exchange export earnings in the previous three years. Since many of the sectors had not even made a beginning in the direction of exports, the facility would be extended to new comers also against bank guarantee to the extent of to the revenue sacrificed, subject to actual condition.

India has to strive a lot to fully exploit the tourism sector. To ensure that, under the new EXIM policy the benefits of the advance licence scheme has been extended by allowing recognised hotels of three-star category and above and other registered service providers in this sector duty-free import of consumables and spares up to 5 percent of their average foreign exchange earnings of the previous three years, subject to actual user condition. (However, imports of agricultural and dairy products would not be allowed for imports against this entitlement). Indian tourism sector already enjoys the benefit of the EPCG Scheme.

India’s entertainment industry was singularly handicapped by lack of investment but had tremendous opportunities for exports. Indian government has decided to promote investment in Venture Capital Fund for the entertainment industry through suitable tax incentives in consultation with the federal Finance ministry. Sector-specific Working Groups would be set up with representatives of the federal ministry of Finance, the administrative ministries concerned, state governments, financial institutions and the industry to work towards a common goal by framing Action Plans to be implemented within specified time frame.

In view of the paramount importance of agriculture and allied products as an area of India’s core competence the corporate sector with proven credentials would be encouraged to sponsor Agri Export Zones (AEZs) for boosting agro exports. Appropriate incentives are being planned in consultation with the federal Finance ministry to enable investments by these corporates in infrastructure, processing, packaging, storage, R&D, agricultural extension and other facilities relating to exports in the approved AEZs. As many as 45 AEZs have been notified so far in different parts of the country. Besides, fixation of DEPB rates for selected agro products would factor in the cost of inputs such as fertilisers, pesticides and seeds. This would help the farmers to use the required inputs in a scientific manner to boost productivity and quality.

The new EXIM policy has also removed quantitative restrictions on export of five items, namely, paddy (except basmati), cotton linters, rare earth, silk cocoons, etc. Special focus would be given to certain sectors having potential for accelerated export growth, such as textiles (especially garments), auto components, gems & jewellery, chemicals, drugs & pharmaceuticals and electronic hardware. Stating that in order to be a significant player in world trade, the country’s manufacturing base would have to be built up quickly in order to sustain a high rate of export growth and that the EPCG scheme had contributed significant to exports by facilitating expansion of the country’s manufacturing base at a comparatively lower capital investment. A series of steps are taken to make the EPCG scheme more flexible and attractive so that even the small scale sector could set up and expand its manufacturing base for exports. These include allowing import of capital goods for pre-production and post-production facilities also; rationalisation of export obligation by linking it to the duty saved. (Export obligation would now be 8 times the duty saved); allowing import of spares to facilitate upgradation of existing plant and machinery; dispensing with the existing condition of imposing an additional export obligation of 50% for products in the higher value chain; greater flexibility for fulfillment of export obligation under the scheme by allowing export of any other product manufactured by the exporter, thereby taking care of the dynamics of the international market; allowing capital goods up to 10 years old also under this scheme; and counting royalty payments received from abroad etc., for discharge of export obligation under the EPCG scheme.

The status holders would continue to play a significant role in boosting exports especially from the small scale sector, as most of the small units were not in a position to directly access the international market. A duty-free entitlement would be given to them for import of capital goods, spares, office equipments and consumables. This would be available to the status holders achieving a growth rate of 25 percent or more in the current year with a minimum export performance of Rs.25 crore. They would also be given duty-free entitlement of 10 percent of the incremental growth in exports during the current year subject to the actual user condition.

In recognition of the importance of the SEZ Scheme in the country, strategy for accelerated export growth and the contribution of 100% Export Oriented Units (EOUs), a major step has been taken for the simplification and codification of rules, regulations and procedures applicable to SEZ and EOU units and all these rules and regulations were being put in one place which would greatly facilitate both potential investors as well as the existing units. Sales from Domestic Tariff Area (DTA) to SEZs would be treated as exports and this would now entitle domestic suppliers to drawback/DEPB benefits etc. Further, agriculture/horticulture processing SEZ units would be allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries, which would help in promoting SEZs specialising in agro exports.

Additionally, special steps were being taken to promote exports of gems & jewellery and electronic hardware from the SEZs and a comprehensive legislation on SEZs was on the anvil. Simultaneously, to enable exporters access to funds at international rates, a suitable fiscal package for offshore banking units set up in SEZs was being worked out. The Minister said that though notified greenfield SEZ projects were yet to get off the ground due to delay in land acquisition, the first new SEZ at Indore was ready for operation. 18 SEZs have been approved and Greater NOIDA and Navi Mumbai SEZ were under active consideration.

The federal Commerce ministry is  gearing itself to provide online approvals to exporters where exports had been effected from 23 EDI ports in the country. DGFT had already achieved a high degree of computerization. As part of the effort to reduce transaction cost, annual advance licence facility has been introduced for status holders so that they could plan for imports of raw materials and components on an annual basis and take advantage of bulk purchases.

In addition to the 7 countries already included in "Focus: Africa", the programme would now be extended to the remaining 11 countries of the sub-Saharan region where India had diplomatic missions namely, Angola, Botswana, Ivory-Coast, Zambia, Zimbabwe and six countries of North Africa namely, Egypt, Sudan, Algeria, Libya, Morocco and Tunisia.

FOREIGN TRADE POLICY (2004-09) Annual Supplement 2005 The Annual Supplement 2005 focuses on making manufacturing sector more competitive through concrete policy measures. It contains packages for export-oriented units, agriculture, gems and jewellery, marine, handloom, tea and service sectors. To engage the states in task of export promotion, it proposes the formulation of Inter-State Trade Council. It proposes to remove export cess on export of all agricultural and plantation commodities levied under various Commodity Board Acts. AS announces that the Government would develop a trademark for Handloom on lines of ‘Woolmark’ and ‘Silkmark’ to promote quality products. The AS contains a number of initiatives for modernizing the marine sector which inter alia allows duty free import of specified inputs based on past export performance. Addressing the port congestion problem in a unique way, the new initiative aims at reducing congestion at the major ports. Thus, facility for export obligation in rupee payment under EPCG has been extended to the minor ports, ICDs and CFS also. It contains a number of major initiatives towards reduced paper transactions through Procedural simplification.

HIGHLIGHTS OF EXIM POLICY 2002-07 (as amended upto 31.3.2003)

Service Exports
Duty free import facility for service sector having a minimum foreign exchange earning of Rs.10 lakhs. The duty free entitlement shall be 10% of the average foreign exchange earned in the preceding three licensing years. However, for hotels, the same shall be 5% of the average foreign exchange earned in the preceding three licensing years. This entitlement can be used for import of office equipments, professional equipments, spares and consumables. However, imports of agriculture and dairy products shall not be allowed for imports against the entitlement. The entitlement and the goods imported against such entitlement shall be non-transferable.

Agro Exports
Corporate sector with proven credential will be encouraged to sponsor Agri Export Zone for boosting agro exports. The corporates to provide services such as provision of pre/post harvest treatment and operations, plant protection, processing, packaging, storage and related R&D.

DEPB rate for selected agro products to factor in the cost of pre-production inputs such as fertiliser, pesticides and seeds.

Status Holders
Duty-free import entitlement for status holders having incremental growth of more than 25% in FOB value of exports (in free foreign exchange). This facility shall however be available to status holders having a minimum export turnover of Rs.25 crore (in free foreign exchange). The duty free entitlement shall be 10% of the incremental growth in exports and can be used for import of capital goods, office equipment and inputs for their own factory or the factory of the associate/supporting manufacturer/job worker. The entitlement/ goods shall not be transferable. This facility shall be available on the exports made from 1.4.2003. Annual Advance Licence facility for status holders to be introduced to enable them to plan for their imports of raw material and components on an annual basis and take advantage of bulk purchases. The Input-Output norms for status holders to be fixed on priority basis within a period of 60 days.  Status holders in STPI shall be permitted free movement of professional equipments like laptop/computer.

To give a boost to electronic hardware industry, supplies of all 217 ITA-1 items from EHTP units to DTA shall qualify for fulfillment of export obligation. To promote growth of exports in embedded software, hardware shall be admissible for duty free import for testing and development purposes. Hardware upto a value of US$ 10,000 shall be allowed to be disposed off subject to STPI certification. 100% depreciation to be available over a period of 3 years to computer and computer peripherals for units in EOU/EHTP/STP/SEZ.

Gem & Jewellery Sector
Diamond & Jewellery Dollar Account for exporters dealing in purchase/sale of diamonds and diamond studded jewellery. Nominated agencies to accept payment in dollars for cost of import of precious metals from EEFC account of exporter. Gem & Jewellery units in SEZ and EOUs can receive precious metal i.e. Gold/Silver/Platinum prior to exports or post exports equivalent to value of jewellery exported. This means that they can bring export proceeds in kind against the present provision of bringing in cash only.

Export Clusters
Upgradation of infrastructure in existing clusters/industrial locations under the Department of Industrial Policy & Promotion (DIPP) scheme to increase overall competitiveness of the export clusters. Supplemental efforts to be made under the ASIDE scheme and similar schemes of other Ministries to bridge technology and productivity gaps in identified clusters.

10 such clusters with high growth potential to be reinvigorated based on a participatory approach.

Rehabilitation of Sick Units. For revival of sick units, extension of export obligation period to be allowed to such units based on BIFR rehabilitation schemes. This facility shall also be available to units outside the purview of BIFR but operating under the State rehabilitation programme.

Removal of Quantitative Restrictions
Import of 69 items covering animal products, vegetables and spices, antibiotics and films removed from restricted list. Export of 5 items namely paddy except basmati, cotton linters, rare earth, silk cocoons, family planning devices except condoms removed from restricted list.

Special Economic Zones Scheme
Sales from Domestic Tariff Area (DTA) to SEZs to be treated as export. This would now entitle domestic suppliers to Drawback/DEPB benefits, CST exemption and Service Tax exemption.

Agriculture/Horticulture processing SEZ units will now be allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries. This is expected to integrate the production and processing and help in promoting SEZs specialising in agro exports. Foreign bound passengers will now be allowed to take goods from SEZs to promote trade, tourism and exports. Domestic sales by SEZ units will now be exempt from SAD.

Restriction of one year period for remittance of export proceeds removed for SEZ units.

Netting of export permitted for SEZ unit provided it is between same exporter and importer over a period of 12 months. SEZ units permitted to take job work abroad and exports goods from there only. SEZ units can capitalise import payables.

Wastage for subcontracting/exchange by gem and jewellery units in transactions between SEZ and DTA will now be allowed.

Export/import of all products through post parcel/courier by SEZ units will now be allowed.

The value of capital goods imported by SEZ units will now be amortised uniformly over 10 years.

SEZ units will now be allowed to sell all products including gems and jewellery through exhibitions and duty free shops or shops set up abroad.

Goods required for operation and maintenance of SEZ units will now be allowed duty free.

10. EOU Scheme. Agriculture/Horticulture processing EOUs will now be allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries. This is expected to integrate the production and processing and help in promoting agro exports. EOUs are now required to be only net positive foreign exchange earner and there will now be no export performance requirement. Foreign bound passengers will now be allowed to take goods from EOUs to promote trade, tourism and exports.

The value of capital goods imported by EOUs will now be amortized uniformly over 10 years.

Period of utilisation of raw materials prescribed for EOUs increased from 1 year to 3 years.

Gems and jewellery EOUs are now being permitted sub-contracting in DTA. Wastage for subcontracting/exchange by gem and jewellery units in transactions between EOUs and DTA will now be allowed as per norms. Export/import of all products through post parcel/courier by EOUs will now be allowed. EOUs will now be allowed to sell all products including gems and jewellery through exhibitions and duty free shops or shops set up abroad. Gems and jewellery EOUs will now be entitled to advance domestic sales.

EPCG scheme
The scheme shall now allow import of capital goods for pre-production and post-production facilities also. The Export Obligation under the scheme shall now be linked to the duty saved and shall be 8 times the duty saved. To facilitate upgradation of existing plant and machinery, import of spares shall also be allowed under the scheme. To promote higher value addition in exports, the existing condition of imposing an additional Export Obligation of 50% for products in the higher product chain to be done away with. Greater flexibility for fulfillment of export obligation under the scheme by allowing export of any other product manufactured by the exporter. This shall take care of the dynamics of international market.

Capital goods upto 10 years old shall also be allowed under the scheme.

To facilitate diversification into the software sector, existing manufacturer exporters will be allowed to fulfill export obligation arising out of import of capital goods under the scheme for setting up of software units through export of manufactured goods of the same company.

Royalty payments received from abroad and testing charges received in free foreign exchange to be counted for discharge of export obligation under EPCG scheme.

DEPB Scheme
Facility for provisional DEPB rate introduced to encourage diversification and promote export of new products. DEPB rates rationalised in line with general reduction in Customs duty.

Advance Licence Standard Input Output Norms for 403 new products notified.

Anti-dumping and safeguard duty exemption to advance licence for deemed exports for supplies to EOU/SEZ/EHTP/STP.

DFRC Scheme
Duty Free Replenishment Certificate scheme extended to deemed exports to provide a boost to domestic manufacturer. Value addition under DFRC scheme reduced from 33% to 25%.

Reduction of Transaction Cost
High priority being accorded to the EDI implementation programme covering all major community partners in order to minimise transaction cost, time and discretion. We are now gearing ourselves to provide on line approvals to exporters where exports have been effected from 23 EDI ports.

Online issuance of Importer-Exporter Code(IEC) number by linking the DGFT EDI network with the Income Tax PAN database is under progress. Applications filed electronically (through our website www.nic.in/ eximpol) shall have a 50% lower processing fee as compared to manual applications.

Miscellaneous
Actual user condition for import of second hand capital goods upto 10 years old dispensed with.

Reduction in penal interest rate from 24 percent to 15 percent for all old cases of default under Exim Policy.

Restriction on export of warranty spares removed.  IEC holder to furnish online return of imports/exports made on yearly basis. Export of free of cost goods for export promotion @ 2 percent of average annual exports in preceding three years subject to ceiling of Rs.5 lakh permitted.

Updated on April 12, 2005