StrategyPaper

8/7/2019 StrategyPaper

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STRATEGY FOR DOUBLING EXPORTSIN NEXT THREE YEARS

(2011-12 to 2013-14)

Government of India

Ministry of Commerce & Industry

Department of Commerce


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STRATEGY FOR DOUBLING EXPORTS

IN NEXT THREE YEARS (2011-12 to 2013-14)

The mandate of the Department of Commerce (DoC) is regulation,development and promotion of Indias international trade and commerce. Goals arerealized through the formulation of appropriate international trade and commercialpolicy and its effective implementation.. The long-term vision of the Department is tomake India a major player in world trade by 2020, and assume a role of leadership ininternational trade organizations commensurate with Indias growing importance.

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2. The Department formulates, implements and monitors the Foreign TradePolicy (FTP) which provides the basic framework of a medium term strategy to befollowed for promoting exports and trade.

3. The world has faced an unprecedented economic slow-down since 2008.In the wake of the financial crisis, economies and markets world-wide were inturmoil. International trade contracted sharply, as did global investment flows.

Unemployment rose, rendering over 50 million people jobless. The crisis whicherupted from the heart of the capitalist world spread like a contagion, affecting allcountries big and small. Most of all, it created a crisis of confidence, forcing manydeveloped countries to resort to protectionist measures, adversely impacting thevulnerable and developing economies.

4. India`s FTP 2009-14 was announced on 27th August 2009 in the backdropof this economic turmoil, just as the Great Recession had taken roots. The ForeignTrade Policy 2009-14 sets out a goal of doubling Indias exports of goods andservices by 2014, with the long term objective of doubling Indias share in globaltrade by the end of 2020 through appropriate policy support.

5. The short term objective of the FTP was to arrest and reverse the trend ofdecline in exports and provide additional support to those sectors that had beenbadly hit by the Great Recession. Specifically, the target was to achieve exports ofUS $ 200 billion by 2010-11, and resume a high growth path in the last three years ofthe policy. We are on track to exceed the $ 200 billion export target in the currentfinancial year.

6. To attain the policy objectives, it was decided to use a mix of policyinstruments including fiscal incentives, institutional changes, proceduralrationalization, obtaining enhanced market access across the world, and

diversification of export markets. Improvement in infrastructure related to exports,


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reducing transaction costs, and providing full refund of all indirect taxes and levies,were three crucial pillars of the policy.

7. The recovery of the world economy so far has been slow and fragile. Therehas been some improvement in a few of the developed economies like US, UK and

Japan. Germany has fared the best amongst the developed countries. However,serious concerns subsist as regards the fiscal position of several high-incomecountries in Europe. Sovereign indebtedness is a serious problem in manydeveloped economies; in Europe there is now concern that some countries are notmerely facing a liquidity problem but a more serious solvency crisis. Prospects of arobust economic recovery in the immediate future seem remote. With thesesurrounding uncertainties, developed countries are naturally going to aim at realisingeconomic recovery through both fiscal consolidation and export-led growth. This willpose a challenge to our exporters in accessing overseas markets. This is why wepersevered with the multi-pronged strategy delineated in August 2009. The AnnualSupplement to FTP which was released on 23.08.2010 essentially carried the

strategy forward with some minor rationalisation.

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8. Annual data on merchandise exports, imports and the balance of trade

from 2003-04 to 2009-10 are set out in Table 1.

Table 1Exports, Imports & Balance of Trade

(Values in US $ Billions)

9. In the Tenth Plan period (2002-07), merchandise exports grew at an average

annual growth rate of 23.7%. Merchandise imports increased by 29.6% annuallyduring this period, reflecting a buoyant economy. India`s exports increased nearly

Year Merchandise Exports GrowthRate(%)

Merchandise Imports GrowthRate(%)

Balanceof Trade

2003-04 63.8 21.1 78.1 27.2 -14.3

2004-05 83.5 30.9 111.5 42.8 -28

2005-06 103.1 23.5 149.2 33.8 -46.1

2006-07 126.4 22.6 185.7 24.5 -59.3

2007-08 163.1 29.0 251.6 35.5 -88.5

2008-09 185.3 13.6 303.6 20.7 -118.3

2009-10 178.6 -3.6 286.8 -5.5 -108.2

Source: DGCI&S


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three times during the five year period 2003-04 to 2008-09 but declined by 3.6% in2009-10. This was the outcome of the deepening global economic slowdown fromSeptember 2008 onwards. The downward trend was arrested from October, 2009onwards and exports ended up US $ 178.6 billion in 2009-10 against the highestever US $ 185.3 billion posted in 2008-09.

10. During the Tenth Plan period (2002-07), growth in world trade and outputwitnessed a significant upswing. The subsequent years in the middle of the EleventhPlan were characterized by a downturn, a product of the Great Recession. Growth intrade during the period since 2002-03 is thus, a fair and representative average toproject the growth for the immediate future.

11. Despite the robust growth of exports, Indias merchandise trade deficit hasrisen, and continues to rise, as import growth has regularly outpaced export growth.The trade deficit has increased from a meagre US $ 8.6 billion at the beginning ofthe Tenth Plan in 2002-03 to US $ 118.3 billion in 2008-09. After a marginal decline

to US $ 108.2 billion in 2009-10, the trade deficit is at US $ 89 billion after the first 10months of 2010-11. It is likely that the merchandise deficit for 2010-11 will end up inthe range of US $ 110-115 billion.

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12. What if exports and imports grow as they have in the recent past? Is itsustainable? An attempt has been made to forecast the merchandise trade trendsover the next three years, based on the Compound Annual Average Growth Rate(CAGR) during 2002-03 to 2009-10. The projections for exports and imports for theperiod 2010-11 to 2013-14 are presented in Table 2.

Table 2: Projections for Exports, Imports and Balance of Trade for 2010-14`Business as Usual Scenario`

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13. In this scenario, imports in 2013-14 are projected to be about US$ 658billion, against exports of about US $ 379 billion. The highest Balance of Trade(BOT) deficit so far has been US$ 118 billion in 2008-09. As per these projections,the BOT deficit will increase by nearly two and a half times to US$ 278 billion in2013-14. This is unprecedentedly large, not just in absolute terms but also as a

percentage of Gross Domestic Product (GDP). Table 4 below estimates theprojected BOT as a percentage of the estimated GDP over the next three years.


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Table 3: Exports, Imports as % of GDP, 2002-03 to 2009-10

Table 3: Exports, Imports as % of GDP( in US $ billions)

Year GDP atMarketPrice

Exports Imports BOT X as % ofGDP

M as % ofGDP

BOT as %of GDP

2002-03595.4

52.7 61.4 -8.68.8 10.3 -1.4

2003-04690.3

63.8 78.1 -14.39.2 11.3 -2.1

2004-05809.7

83.5 111.5 -28.010.3 13.8 -3.5

2005-06908.0

103.1 149.2 -46.111.3 16.4 -5.1

2006-071151.6

126.4 185.7 -59.311.0 16.1 -5.1

2007-081260.6

163.1 251.6 -88.512.9 20.0 -7.0

2008-091236.9

185.3 303.6 -118.315.0 24.5 -9.5

2009-101430.0

178.6 286.8 -108.212.5 20.1 -7.6

Source : GDPmp from IMF database , and Exports, Imports from DGCIS

Table 4: Projected Exports, Imports and Balance of Trade as % of GDP

Business as Usual Scenario

Table 4: Projections of Exports, Imports as % of GDP

( in US $ billions)

Year GDP atMarketPrice

Exports Imports BOT X as % ofGDP

M as %of GDP

BOT as % ofGDP

2010-11 1598.4 **3+ /++ -115.0 14.1 21.3 -7.2

2011-12 1762.3 *5A, /*A -155.9 15.2 24.0 -8.8

2012-13 1955.2 .:, 3*:. -209.2 16.3 27.0 -10.7

2013-14 2174.4 A,5 53:* -278.5 17.5 30.3 -12.8

(GDPmp projection from IMF World Economic Outlook, October 2010;Trade projectionsbased on CAGR for last eight years of 19.05% and 24.63% for exports and importsrespectively with base level as currently expected)

14. According per the projections, the proportion of merchandise trade to GDP is

expected to increase from close to 35% to nearly 48% in 2013-14. This is plausibleas the Indian economy is expected to progressively integrate with the globaleconomy. However, the BOT deficit is projected to increase from 7.2% of GDP in2010-11 to nearly 13% of GDP in 2013-14.

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15. There is no hard and fast rule to determine the numerical size of asustainable Balance of Trade (BoT) deficit. For economies with large remittanceearnings and positive net services earnings plus large invisible flows, even a 10%deficit on the merchandise account can be managed. Equally, however, economieswith lower invisible earnings, including net services and smaller remittances may not

be in a position to even sustain a 5% BoT deficit. The real point is that sustainabilityis best gauged with respect to the Current Account Deficit (CAD). The projected BoT


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deficit on merchandise account of 13% is clearly cause for serious concern becauseit can lead to an unsustainable CAD. Services earnings will most certainly grow overthe next few years. However, it is unlikely that even their growth can sustain aballooning of the BoT deficit to the size of 13% of GDP.

16. The Indian economy is back on a high growth path, and aiming to maintainGDP growth rates of around 9%, if not more. It we want to maintain a growth rate of9% over the medium term, and ease domestic supply constraints, a relatively highgrowth of imports is going to be unavoidable. The demand for major items of bulkimports such as petroleum ($ 96 billion in 2009) is likely to keep rising. We have,therefore, no option but to focus on higher export growth, and devise a strategy forrapidly increasing merchandise exports to ensure that the BoT and CAD remainwithin manageable limits.

17. It is possible to simulate a more optimistic scenario. In this, we assume thatthe export growth trend would be 22% that was maintained in the immediate recent

past before the Great Recession. The projections below are based on a growth rateof 22% for exports and 25% for imports for the next three years, and are set out inTable 5.

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18. Even in this more optimistic scenario, we still end up with a trade deficit of

over $ 255 billion in 2013-14, which works out to nearly 12% of GDP.

19. Clearly, business as usual growth rates of exports will just not suffice; these

can lead to an unacceptable widening of the BOT deficit in the range of 12-13% ofGDP. As indicated by the Balance of Payments Summary (Table 6 below), thecurrent account has been in deficit since 2004-05, and the deficit has been wideningsince. Even if we expect a rebound in services exports and invisible earnings rise,the CAD would widen substantially at the projected level of BOT deficit. The largegrowth in the size of the BoT deficit on merchandise account will result in asignificant expansion of the CAD, in turn, leading to a reliance on foreign capitalinflows to finance the deficit. Foreign portfolio investment is still a major part ofcapital inflows and past experience suggests that such flows are indeed volatile.Hence, a large widening of the trade deficit can potentially result in paymentsdifficulties. And, such a situation is simply unacceptable because it may jeopardize

the entire growth process. It is, therefore, of paramount importance that the BoTdeficit be kept within manageable bounds.


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Table 6: Summary Balance of Payments, 2002-03 to 2009-10 (US $ billions)

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20. To address these challenges, we need to build upon the gains from thesuccessful implementation of the Foreign Trade Policy in its first two years, and aimhigher. We, therefore, propose a strategy to double merchandise exports in the nextthree years i.e. 2011-12 to 2013-14. As against the export target for 2010-11 of US $200 billion, we expect to achieve $ 225 billion. Taking this $ 225 billion in 2010-11 asthe baseline, we must aim for a doubling of exports in three years to US$ 450 billion.This target requires exports to grow at a compound average growth rate of 26 % perannum. This is achievable, with a determined effort. More importantly, we cannotafford any less than this. Even with the achievement of an export target of US $ 450billion in 2013-14, the BOT deficit is still likely to be over 9% of GDP, around the

same as at present, which may be regarded as just about manageable.

21. From a longer term perspective, accelerating growth in merchandise exportswould build up the manufacturing strength of the economy. Production of goodsmeeting international standards requires awareness of how frontiers of technologyare widening, how innovation is opening up uncharted territories, and howconsumers preferences are taking shape. It is vitally important that entrepreneursare exposed to such competitive environs. With increasing integration of the Indianeconomy with the rest of the world, we cannot bask in the comfort of our largedomestic market. Production has to tailor itself to the more demanding standards ofthe international market. The strategy for doubling of exports in three years to reachat least an export level of US$ 450 billion by 2013-14 would help accelerate thisprocess, which would be in the long term interests of the country.


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1. Our target is to double the countrys merchandise exports in dollar termsover the next three years (2011-12 to 2013-14) from US $ 225 billion in

2010-11 to US$ 450 billion in 2013-14. To realize this, exports have togrow at a compound average growth of 26 % per annum. The overallstrategy to realize this goal is articulated below.

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2. From a medium term perspective we need to build on our strength in

certain critical industries, namely, engineering and chemicals. Ifmanufacturing is to occupy a larger share of GDP and absorb the

increasing numbers of the labour force, the engineering and chemicalindustries are the way to the future. Within engineering, we need to moveup the value chain both in terms of domestic production and exports.Similarly, our basic chemical industries and organic and inorganicchemical industries hold out great promise for the future. Thepharmaceutical industry (including biotech) has done really well inestablishing a global reputation for quality products. There is anopportunity for India to become a pharmacy of the world. So far, ourexports have been dominated by generics. And, prospects for expansionin this segment are very good. Developed economies are facing fiscalproblems and wherever public health is a major charge on the national

exchequer, solutions will have to be found, an integral piece of which willbe increasing reliance on high quality generics instead of patented orbrand-named drugs. This is an opportunity we cannot miss.

3. Aggressively promoting export growth of high value products that have astrong domestic manufacturing base will be the lynchpin of our overallexport growth strategy. Most important in this category are exports ofengineering goods, which now account for over 20% of our total exportbasket. Increasing exports of engineering goods has to be a major goal inany strategy for doubling exports in three years. Machinery and transportequipment is the dominant sector of world export and accounts for morethan one-third of world exports, but Indias share of this sector was only0.3% during the period 2003-07. There is thus huge potential for growth.

4. Similarly, based on domestic manufacturing capabilities and potentialdemand, exports of drugs and pharmaceuticals, chemicals and theelectronic sector (all high value products reliant on our manufacturingbase) would need to grow significantly to realize the overall growth targets,and these sectors would be prioritized accordingly.


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5. Another important category that needs to grow is that of exports based onlight manufacturing sectors, i.e. leather products and textiles. These areimportant because they generate employment, have high domestic valueaddition, and have historically been areas of strength in our exportmarkets. In leather, the product basket must be diversified; instead of

exporting finished leather, we must move into value-added products,especially high-end shoes and leather garments. In textiles, we need torealize more effectively the scope for growth made possible since thedismantling of the quota regime. Product diversification in garments isessential; we must break into womens garments, value-added cottonproducts, and a large thrust on synthetic textiles. In both these sectors,scaling up operations and increasing export growth rates will be aimed at.

6. Another important labour intensive export sector that must be encouragedis that of gems & jewellery. This sector has relatively low value added, butcontributes to a high volume of exports and employment and is therefore

important.

7. There is also potential in the category of natural resource based exports.This category covers agriculture, plantation crops, marine products andiron-ore exports. Revitalizing plantations, enabling a less controlledregime for agriculture, and aiming at greater value addition and processedproducts would help increase value of exports. For instance, processedfoods and vegetables, organic agricultural produce, and fresh agriculturalproduce for retail in supermarkets, holds out greater promise. In the caseof iron-ore, efforts at increasing value-addition within the country would berequired, so that, unlike as at present, more finished products based oniron ore rather than raw material are exported e.g. pelletization of iron orefines.

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8. A market diversification strategy based on the changing dynamics of

growth in the world economy is necessary to ensure sustained growth ofexports. The demand in the traditional markets of the developed westernworld, North America and Europe, is projected to be relatively sluggish due

to slowing output expansion in these economies. Against this, emergingeconomies are expected to grow at about 6.4% to 6.7%.

9. The core of the market strategy must therefore be:(a) Retain presence and market share in our old developed country markets;(b) Move up the value chain in providing products in these old developed country

markets; and(c) Open up new vistas, both in terms of markets and new products in these new

markets.

10. We would have to focus on markets in Asia (including ASEAN), Africa andLatin America. We must establish new beachheads and strengthen ourpresence in newly opened up markets. At the same time, we aim to


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deepen engagement in the older markets, by increasing volumes, bytargeting increased shares for our exports in the import baskets of largeimporters of our export products, and by diversifying the product basket ofexports.

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11. Rapidly changing technology requires us to adapt production and exportstrategies to provide products that meet consumer/ producer demands inour exporting markets. The areas that hold out promise and wherestrategy must focus are:

Pharmaceuticals: Entering in a big way in the formulations market andexpanding the generics base as more drugs come off-patent.

Electronics: Establishing at least one fabrication facility in the next three years,which, in turn, will spawn a large growth in the domestic electronics industry. Automobiles: Upgrading auto-component production to higher value-addition,

and progressively expanding it from the small, to the medium car segment, bybecoming internationally competitive.

Computer and software based smart engineering. Environmental products; green technology and high-value engineering products High end areas in electronics, aerospace, and engineering products.

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12. To establish greater credibility and acceptance of our critical export

products and sectors in foreign markets, we would strengthen efforts tobuild up a brand image for important Indian exports, and promote a thrustfor quality upgradation. Domestic standards for export related productswould be raised, assurances put in place of quality enforcement throughappropriate agencies, such as BIS, EIC, etc., and expanded certification ofexport products encouraged, where needed. To back up these efforts, aBrand India promotion campaign for key export products would besupported.

13. To achieve the export target of US $ 450 billion for 2013-14 requiresdifferentiated strategies for different product groups. These differentiatedstrategic initiatives have been formulated on the basis of the criticalassessment of strengths, weaknesses, opportunities and challengesfacing the Indian economy and the export sector, following discussionswithin the Department, analysis of expected trends of growth in worldeconomy and trade and consultation with stake holders i.e. premierindustry organizations and Export Promotion Councils. Accordingly,detailed sectoral action plans for achieving the desired targets in differentproduct export sectors have been worked out and presented in thefollowing chapters of this document. A summary statement of the

projected 2013-14 targets for different sectors is set out below (Table 7).


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14. Complementary measures to rein in import growth through domestic policy

are needed as follows: Agriculture: We have large agricultural imports both in terms of pulses, edibleoils and other commodities. An aggressive policy reform package withmedium term objectives to increase yields and domestic production needs tobe put in place immediately. This will ensure stability in our export regime,give a boost to domestic exporters and gradually reduce reliance on importedsupplies.

Fertilizers: Rationalise fertilizer pricing and production policy to encourageefficiency in use, consumption and production; a by-product will be reduceddependence on imports.

Electronics: Electronic machinery and electronic goods imports will balloon

unless we establish a domestic fabrication facility and dramatically expanddomestic production of down-stream industries from the fab facility. Priorityattention is necessary if we are to check the huge growth in imports on thisaccount.

Pharmaceutical Industries: Resuscitation and resurgence of domesticproduction of Active Pharmaceutical Ingredients (API). This is essential toensure quality assurance of our generics and formulation exports, control andcurtail dependence on imports.

Engineering: An across-the-board focus on electronics, automotive andmetals (ferrous and non-ferrous) industries is imperative to upgrade quality,expand production, and reduce import reliance.

Coal: Domestic policy reform is essential to provide adequate domesticsupplies of coal for thermal power and other uses; without this coreinfrastructure requirements will become heavily import-dependent in a matterof few years.

Petroleum: Rationalized pricing to promote efficiency in use, promoteconservation, and temper the growth in demand for petroleum products.

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15. Essential policy support needed to realize the ambitious export targets for

2013-14 and beyond is: Stable policy environment: Continuation of existing incentive schemes Preferential access to new markets: putting in place conducive trading

arrangements

Reduction in transaction costs: Implementation of recommendations of TaskForce

Substantial step up in overall Plan support Priority strengthening of trade related infrastructure

16. These are spelt out further in the section on Essential Support & Policy

Directions (Annexure I).


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Table 7: Exports: Strategic targets for 2013-2014

Exports Exports

2009-

2010

% of

total

Exp

Exports

2010-

2011

Projcted

Exports

2013-2014

% of total

projected

Exports

Gems and Jewellery 29.08 16.27 32.00 64.00 14.22

Engineering Goods 32.55 18.21 51.50 108.00 24.00

Textiles 18.38 10.28 20.10 36.50 8.11

Cotton Yarn Madeups 3.70 5.70 11.00

Manmade Yarn

Madeups

3.97 3.90 7.50

RMG 10.71 10.50 18.00

Other Textiles 0.93 0.52 1.55 3.50 0.78

Carpets 0.73 1.10 2.50

Jute

Manufactures

0.20 0.45 1.00

Drugs, Pharma & Fine Chemicals 8.97 5.02 10.00 22.00 4.89

Other Basic Chemicals 12.07 6.75 8.00 18.00 4.00

Electronic Goods 5.62 3.14 7.50 15.00 3.33

Leather & Leather Manufactures 3.37 1.88 3.75 8.50 1.89

Plastic & Linoleum 3.37 1.88 4.20 9.00 2.00

Iron Ore 6.03 3.37 5.00 10.00 2.22

Mica and Other Ore 2.70 1.51 3.10 5.00 1.11

Marine Products 2.10 1.17 2.75 5.00 1.11

Agricultural Products 12.61 7.09 12.00 22.50 5.00

Petroleum products 28.19 15.77 35.50 73.00 16.22

Miscellaneous 12.78 7.15 25.00 50.00 11.11

Total: 178.75 222.05 450.00


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Indias Engineering Exports have witnessed a Compound Annual Growth

Rate (CAGR) of 31% over the period 2003-2008. There was a break in this growthpath in the year 2009-10 due to the global economic crisis. In the current fiscal year,Engineering Exports have grown by 61% for the period April-December 2010 andhave reached USD 38.80 billion over USD 24.08 billion in April-December 2009.

Thus, more than doubling of engineering exports from USD 51.5 billion in2010-11 (estimated) to USD 108 billion in 2013-14 implies a CAGR of 28%, which islower than the 31% witnessed during the pre-crisis period of 2003-2008. While undernormal conditions, this seems an achievable target, but given that most economiesof the world are coming out of the crisis coupled with unwinding of the stimulus insome of the important markets in Europe, it is felt that the possibility of achieving thetarget of USD 108 billion for the engineering sector goes up substantially if thesupportive measures that have been outlined in the strategic action plan areimplemented. Widening of Indias engineering markets, reduction in transaction costsand moving up the value chain are a combination of measures which will give amajor thrust to achieve the target of USD 108 billion for the engineering sector and isin line with the trend rate of growth.

Sub-sector targets for the engineering product exports are indicated in theTable below:-

SECTOR TARGETS: ENGINEERING GOODS

Estimates of Engineering Goods Exports in 2010-2011 and 2013-14

Exports in USD Billion

S.No. Engineering ProductsAchievements2009-10

EstimatedAchievements2010-11

Targetsfor2013-14

1Iron & Steel and Products made of Iron &Steel 6.17 11.12 23.32

2Non-Ferrous Metals and Products made ofNon Ferrous Metals 3.43 4.93 10.34

3 Industrial Machinery 5.25 8.01 16.79

4 Electric Machinery and Equipment 3.46 5.30 11.11

5 Auto and Auto Components 5.77 8.03 16.84

6 Aircrafts, Spacecraft and Parts 1.03 1.75 3.67

7 Ships, Boats and Floating Structures. 2.55 4.38 9.18

8 Miscellaneous 4.91 7.99 16.76

Total Exports 32.57 51.50 108.00


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ENGINEERING GOODS: ACTION PLAN TO ACHIEVE THE TARGETS

1. Formulate a Technology Upgradation Fund Scheme for the MSMEEngineering Industry

The Main Problem/Issue: In spite of huge growth of Indian engineering sectors inthe last few decades, the industry is suffering from severe technologicalobsolescence and lack of economies of scale. This is because 40% of Indiasengineering exports are in the MSME sector which is exporting low value addedproducts. There is need to concentrate on exports of higher value-added items sothat the contribution of value added items in Indias engineering exports increasesfrom current level to about 20% to 25% in near future.

For this purpose it is important for the MSME sector to upgrade its technology toenable it to move up the value chain. Thus, a Technological Upgradation Schemefor the Engineering Industry catering to the Low Value Added MSME sectorneeds to be formulated to provide the necessary policy wherewithal formodernization of the MSME units.

What is the benefit? Technology upgradation would involve induction of state-of-the-art technology in the MSME which would improve productivity, and/or quality ofproducts. It would also bring about use of environmental friendly or green technologythat would substantially improve the working environment.

How do you do it? It is suggested that a corpus of Rs 500 crores be created in a

phased manner with contributions from both industry and Government. In the firstyear the funds to be provided could be Rs 100 crore to be enhanced to Rs 200 croreeach in the second and third year.

2: Provide Credit at Low cost for investment in Capital Goods/Equipment

The Main Problem/Issue: The interest rate on the term loans to buy capitalequipment is very high in India. For instance the Indian Banks have a base rate inthe range of 8%-9%, which implies term loans to purchase capital equipment couldbe as high as 12% for exporters.

It is therefore suggested that credit in the form of term loans at low interestrates may be provided and the following steps may be considered:

(i) The RBI may allow Term Loans in Foreign Currency at Libor plus a certainspread, say between 3.5%-5%, for such long term credit allowing exporters toinvest in capital equipment at low cost of finance. The RBI may providesafeguards to ensure that the term loans are used for capital equipmentpurchase by exporters and not for any other use. ( It may be mentioned thatthe RBI allows exporters to take Foreign Currency Export Credit whichisfor ashorter duration and for which the rates prescribed by RBI is Libor plus 3.5%).

RBI could consider the following safeguards to prevent misuse:

a) Pledging of Receivables


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b) Bank Guarantees

(i) The other option could be that Rupee Term Loans for investment in capitalequipment by exporters registered with Export Promotion Councils beincluded in priority sector lending by banks. Further, the rate of interest

should be at the base rate and no premium may be charged on such termloans over the base rate in the range of 8%-9%.

(ii) Continue with the Interest Subvention Scheme on Rupee Export Credittill 2013-14

At present, the RBI provides a subsidy of 2%, which is called interestsubvention for Rupee export credit. This Scheme is to lapse on March 31,2011. With the RBI tightening its credit policy, it is suggested that this interestsubvention scheme on Rupee export credit be extended for another threeyears, which is till 2013-14, the period for which the doubling of exports isrequired.

3. Skill Development Fund for Engineering Industry

The Main Problem/Issue: At present Engineering industry and particularlymanufacturer-exporters in engineering sector are facing serious problem of skilledmanpower. The plant and machinery are becoming more and more high-tech andthe required level of skill is badly missing.

What is the benefit? This will meet the acute shortage that the general engineeringsector is facing. Further, as the industry becomes more capital intensive, the needfor skill development will become an indispensable pre-requisite.

How do you do it? In the case of textile industry, which also faced the samesituation, with Government support, they have established so far 58 Apparel Trainingand Design Centres across the country.

Unfortunately in the engineering sector we only have ITIs, which hardly have therequired expertise to train skilled manpower required at present. Accordingly, thefollowing option may be considered:

The National Skill Development Corporation of India be requested to promotegeneral engineering skill development. It may be noted that NSDC priority areasdo not include general engineering except the Auto and Auto Components. Thus,

NSDC may be requested to fund projects relating to the general engineeringindustry as well.

4. Need for a National Shipping Regulator

The Main Problem/Issue: Freight constitutes a substantial portion of the cost ofengineering exports. In many cases it accounts for between 20-25% of the total costof exports. In India, the main problem faced by the user groups like the engineeringexporter members of EEPC India, with respect to freight rate fixation at conferencesare the following:

o

Freight rates are decided unilaterally which leads to considerable uncertainty,especially when there is a pick-up in world trade;


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o Shipping Liners have a tendency to impose other extraneous charges duringpeak time such as rollover charges like peak season surcharge, fuelsurcharge, etc, which are generally over the reasonable increase in freightrates that can be expected when demand increases more than supply;

o Given that India has only one national carrier, the Shipping Corporation ofIndia (SCI), which account for about 2% of total sea cargo from India, theability of the national carrier to set the competitive rates like the case ofCOSCO of China, is rather limited, thereby creating substantial monopolyprofits for the cartelized shipping liners.

What is the benefit?: The curtailment of the current nature of oligopolistic freightfixation by a cartel of shipping companies will create competitive conditions in theshipping industry leading to competitive exports and general all round welfare gains.

How do you do it?: The time has come to set up a National Shipping Regulatorin lines of the Electricity Regulator or the Telecom Regulator or the InsuranceRegulator to provide a level playing field and fair competition.

5. Existing FTP Instruments Further improvements:

Align MLFPS and FPS to Big, Niche and Tough Markets

There is a greater need to align MLFPS and FPS benefit to tough and big markets toencourage exporters to target high potential markets. Also these benefits may beprovided to those tariff lines where the growth in world trade is lower in relativeterms.


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The exports under the sector for the period from April to Dec., 2010 were tothe extent of 5.85 US Billion Dollars as against 4.88 US Billion Dollars for thecorresponding period in the previous year; thus registering a growth of about 20%.

As it has been observed in the past, exports in Chemical Sector are higherduring the last quarter of the year and thus the same would cross the growth rate of33% for the whole year.

The doubling of other basic chemicals exports given below from USD 8.00Billion in 2010-11 estimated to USD 18 billion in 2013-14 implies a CAGR of 31%.

Out of total export of chemicals, 60% is through Small and Medium Sectors

and 40% is through Large Sector. The empowerment of Small and Medium Sectorsas well as the implementation of Action Plan suggested for Chemical Sector shouldsubstantially enable industry in achieving this target.

Figures in Billion USD

S.No. Panel Achievements2009-10


Targets2013-14

1. Dyes, Dye Intermediates,Pigments

2.41 2.57 5.79

2. Inorganic Chemicals 0.85 0.90 2.033. Organic Chemicals 1.80 1.91 4.304. Agrochemicals 0.95 1.02 2.295. Cosmetics, Toiletries 0.70 0.75 1.696. Essential Oils, Perfumes and

Caster Oil0.80 0.85 1.03

Grand Total 7.51 8.00 18.02

OTHER BASIC CHEMICALS: ACTION PLAN TO ACHIEVE THE TARGETS

1. INDIAN CHEMICAL INVENTORY:-

Problem:-

India does not have her own Chemical Inventory and Chemical ManagementProgramme although India is supplier of quality chemicals at most competitive price

in the world.


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Why:-

To make India the preferred destination for sourcing the world class chemicalsmanufactured in the state-of-art facilities at most competitive prices, situated infriendly Export Environment with Focus on Green Chemistry, which would increase

flow of Foreign Direct Investment in to India.

Benefits:-

Chemical Inventory is a listing of industrial chemicals in commercemanufactured or imported by a country.

It is primarily use to distinguish between new & existing chemicals. It is a data base created from information submitted to government authorities

by manufacturer, processor, users, & or importers. This will helps us for preparing draft on Indias chemical management

programme.

Also help in implementing other regulatory compliances.

How would we do it:-

This activity may be undertaken with the help of Chemexcil, Central Excise,Customs, Ministry of Chemicals and Fertilizers and Ministry of Environment &Forests under MAI. Although this activity may not be completed in next three yearsbut this would be a continuous process.

2. CHEMICAL MANAGEMENT PROGRAMME (CMP):-

Benefits:-

It would be Science-based and specifically designed to protect humanhealth and the environment.

This will support SAICM (Strategic Approach for International ChemicalManagement). SAICM is a policy framework to promote chemical safetyaround the world. Its overall objective is the achievement of the soundmanagement of chemicals throughout their life cycle so that, by2020, chemicals are produced and used in ways that minimizesignificant adverse impacts on human health and the environment.


Establish a centralized database of chemicals, their hazard, exposurescenario, risk assessment and risk mitigation and management, etc.

Government can be the data holder which can be made available to publicselectively creating transparency.

This activity may be undertaken with the help of Chemexcil, Ministry ofEnvironment & Forests, various research institutes, and experts in this fieldacross the globe.

Our Indias Chemical Management Programme will be in line with Canada's

Chemical Management programme and European Unions REACHcompliance.


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This activity will also not be completed in the next three years. This wouldcontinue beyond that period.

3. UPGRADATION OF SKILLS OF SMES OF MANUFACTERES/EXPORTERS

OF CHEMICALS:-

Why?-

Today the SME sector especially in chemical industry needs to upgrade theirknowledge, skill about the product, export and upcoming legislations.

Benefits:-

Provide a training institute (graduate level) which will createi. Human resources,

ii. upgrade the skills of existing resources for better understanding inbuilding national competence of global level and

iii. Also provide platform for consultative support on various technicalissues related to human health and environment

Create public awareness and thus create a platform for Sound ChemicalManagement

Indian expertise would be developed in Product safety and Regulatoryaffairs.

Provide various short and long duration courses to employees of thechemical industry on chemical regulation, exports and imports.

Indian chemical industry will be benefited by getting common testingfacility for physical-chemical, toxicological, eco toxicological testing underone roof at reasonable costs.


Putting up of centre of excellence in the chemical cluster and wherever ithas already put up continuously upgrade the facilities

i. By giving trainers training,ii. The common facility for upgrading skill development especially forthe already developed cluster facilities.

EXISTING FOREIGN TRADE POLICY INSTRUMENTS

1. Focus Product Scheme: The basic chemicals and specialty chemicals whichhave high potential growth may be included under Focus Product Scheme.

2. Incentives for new value added/innovative products such as bio pesticides

may be provided.


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3. The Export Promotion Council may also be consulted while finalising theForeign Trade Policy for providing incentives to the products/markets having highergrowth potential.


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The exports under this Sector for the period from April to December, 2010were approximately to the tune of 3.21 US Billion Dollars as compared to 2.36 US

Billion Dollars for the same period last year, thus, registering a growth of 35.94%.

Going by the trends of exports for the current calendar year, it is expected toreach exports of 4.2 US Billion Dollars in the current financial year 2010-11. Thetarget of achieving exports of 9 US Billion Dollars by the year 2013-14 implies aCAGR of 29% which appears possible given current trends. The initiatives beingsuggested in the Action Plan will greatly facilitate industry in achieving this target. Aproduct wise break-up of the proposed targets is indicated in the Table below:-

SECTOR TARGETS : PLASTIC & LINOLEUM

Product Achievements2009-10


Targets2013-2014

USD Bn USD Bn USD Bn

Plastic Raw materials 1.38 1.58 3.38

Moulded & Extruded goods 0.62 0.71 1.52

Plastic sheets, films, plates etc (including PETFilm)

0.58 0.67 1.43

Packaging materials 0.40 0.46 0.98

Other plastic items (Leather Cloth, Floorcoverings, electrical items, photo films etc.

0.22 0.26 0.55

Human Hair & Products thereof 0.19 0.22 0.47

All types of optical items (including opticalframes, lenses, sunglasses etc)

0.15 0.17 0.37

Stationery/Office & School Supplies (including

writing instruments)

0.12 0.14 0.30

TOTAL 3.66 4.21 9.00


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ACTION PLAN TO ACHIEVE THE TARGETS

1. To create a TECHONOLOGICAL UPGRADATION FUND for the plastics

sector

What is the Issue: The plastic process industry lacks economies of scale inproduction (present production volumes are low in comparison to fiercecompetition from Asian Tigers)

The Indian plastic industry, that commands a global import potential of over400 billion US Dollars per annum, is unable to get a respectable world share(which at present barely stands at 0.5%). In fact in some segments of theplastic industry, smaller countries like Thailand, Malaysia etc command amuch better world share than what India commands. The major cause for this

situation is that the plastic process industry (which adds value to the plasticraw materials) is mainly dominated by the small scale sector. This sectorlacks the economies of scales in production which is very necessary to beglobally competitive and the issue of obsolescence in machinery required toachieve the economies of scale in production also needs to be addressed.

What is the benefit: - This issue can be effectively addressed by creating aTechnological Upgradation Fund (TUF) that provides capital and/or interestsubsidy for upgradation of machinery etc. and make small scale sectorproducts more competitive by means of increase in productivity and use ofgreen technology. This initiative has been successfully applied to the textilesector that was facing a similar problem of obsolescence in machinery toachieve the economies of scale in production.

What is needed to be done: It is suggested that a corpus of Rs 150 croresbe created for this purpose in a phased manner with contribution fromGovernment and industry. In the first year the funds to be provided could beRs 40 crores which may be increased to Rs 50 crores and Rs 60 croresduring the next two years respectively.

2. Policy initiatives for creation of plastic processing parks

The Issue: Another key to attaining a respectable share in the global plasticimports is to create additional capacities in plastic processing. This couldeffectively be done by creating plastic processing parks which are alsohoused with common facilities like design and prototyping centres; tool roomsetc. The plastic processing parks will essentially be set up to attract freshinvestments in plastic processing both from within India and the overseas.These plastic processing parks may be set up preferably in the PCPIRcentres that are coming up or will come in future and the SEZs.

What is the benefit : The concept of plastic processing parks is bound to add

additional capacities in plastic processing to serve global markets


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competitively which in turn will facilitate Indian plastic process industry inachieving a respectable global share.

What is needed to be done: In order to put this concept into reality, apackaged scheme of incentives has to be evolved (mainly on the tax front as

has been done by many countries) so that developers are motivated intodeveloping such parks and investors are motivated to set up plasticprocessing units. In fact, it is understood that the Department of Chemicals &Petrochemicals is in the final stages of announcing a scheme for plasticprocessing parks.

3. To Set up common facility centres for design and prototyping of plasticitems

The Issue: There is an urgent requirement of development of prototypes,moulds and dies for plastic items particularly for the small scale sector. The

plastic sector is dominated by SMEs who are not in a position to invest largesums for this purpose.

The benefits: This will facilitate development of moulded and extruded itemsand subsequently manufacturing them with much shorter lead times toeffectively serve overseas markets and thus lead to rise in exports.

What needs to be done: Grants under MAI Scheme could be effectivelyused to fund this initiative.`

4. Existing FTP Instruments Further improvements:

1. In order to encourage export of new products to the existing markets,to tap other overseas markets and to add high technology and high value-added products to the export basket, the Focus Product Scrip Scheme andMarket Linked Focus Product Scrip Scheme needs to be aligned. The list ofthese products/countries needs to be finalized in consultation with the ExportPromotion Council so that the concerned industry is able to make use of thesame for achieving the targets.


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Task Force Report prepared by Department of Commerce in December 2008

on strategy for increasing export of pharmaceutical products has laid out a roadmapfor increasing Indias global presence in pharmaceutical sector. Therecommendations of the Report were discussed at the highest level. The concerneddepartments viz., pharmaceuticals, Health and Family Welfare, Ayush have alreadyinitiated some actions on the recommendations. The fact that pharmaceuticalexports can be doubled is thus already flagged.

2. Department of Commerce has also taken a number of steps for putting thepharma sector on fast track. Some of the measures initiated are listed in Annexure-IV.

3. The details of category-wise exports of pharma products during the last three

years are indicated below:

In the current year, exports are expected to be US$ 10 billion. It may be noted thatexports during 2009 and 2010 have been more or less same as in 2008-09. In theglobal recession, the impact of global slowdown has not been noticed in the bulkdrugs and formulations. However, in herbals or life style drugs sector there has beena fall vis--vis 2008-09. It may also be noted that in the overall exports from thecountry, formulations segment comprise 58% while bulk drug are 41%. Herbals atpresent are only 1.34%. Keeping in view the interest in the herbal sector and with theanticipated improvement in the world market, this sector is expected to grow

substantially. The data for exports for the last 3 years also indicated that with theCAGR of 19.3% the exports would touch US$ 15.39 bn by 2013-14. Thus, a strategyhas to be evolved whereby the target of US$22bn is achieved.

Enhancing Indias market share in regions

4. Region-wise exports from 2007-08 along with percentage share is indicated atAppendix-I to this chapter. A detailed analysis of top 25 destinations of Indianpharmaceutical exports with values has been carried out by PHARMEXCIL(Appendix-II). Segment-wise viz., formulations, bulk drugs, being imported into top10 countries in Europe and Indias share therein has also been carried out. The

details are indicated in Appendix-III. It may be noted from the details enclosed thatIndias pharma exports growth is coming from North America and Africa. The growth

Category 2007-08 2008-09 2009-10 CAGR % Share 2013-14expectedgrowth atNormal rate

2013-14 (inUS$) @US$1=INR45/-targeted

Total Sector 29,824.02 40,415.60 42,448.76 19.30%

100.00%

71,172.98(15.8bn US$APPROX.)

15.8 bnUS$

Bulk Drugs 12,647.51 16,360.71 17,307.02 16.98% 40.77% 25,641.11 5.7 bn US$

Formulations 16,706.39 23,460.03 24,570.98 21.27% 57.88% 44,617.16 9.9 bn USHerbals 470.12 594.87 570.76 10.19% 1.34% 914.14 0.2bn US$


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rate however, is in single digit in the major markets of European Union, LAC andAsia. Any strategy to increase exports should therefore have two pronged approach.Firstly, efforts should be made to maintain and where possible enhance marketshare in markets where Indias presence is already robust such as the NorthAmerica, European Union and Africa. Secondly, even within groups of countries

such as European Union and Africa, identify those countries where the rate of growthand market share have been substantially low. It can be seen that in Europe,Germany, Turkey and Italy have shown less than 10% growth. Similarly, in Africamany countries except Kenya, Ghana and South Africa have shown less than 10%growth. Africa is a fast emerging market for generic medicines. Therefore, focusmust come on those countries. In Latin America, Mexico and Brazil offer hugepotential. Canada has seen a slow growth. Canada by itself is a generic producer.Therefore, special efforts need to be made to increase rate of growth of exports toCanada.

5. The second part of this approach would involve special emphasis on CIS

countries, South East Asia, Japan and countries like Egypt and other West Asianterritories. In CIS among top twenty five destinations (globally) only Ukraine andRussia have less than 10 % CAGR. They offer huge potential besides other CIScountries where substantial amount of work needs to be done to facilitate registrationprocesses and removing non-tariff barriers. South East Asia is a relatively lessexplored market for Indian pharma. Only Viet Nam and Thailand have shownreasonable growth, but there is a huge potential in Indonesia, Malaysia and someother similar South Eastern countries. These countries by themselves are not majorgeneric producers, but there is a strong stranglehold of large pharma in thesecountries. Special efforts are required to enter and propagate in these countries.Japan is a fast ageing society. Japanese requirement for medicines are increasingrapidly. In order to reduce their cost of healthcare, Japanese have shown interest inaccepting Indian generic pharma. In the recently concluded CEPA, Japan hasagreed to offer national treatment to Indian generic pharma. This is a hugeopportunity waiting for us. Industry would have to aggressively pursue Japanesemarket. It is reported that generic pharma has about 12% share in the Japanesemarket. Therefore, substitution potential is substantial and Indian industry mustexplore it. Government would have to help industry with marketing and regulatoryefforts.

6. Interestingly, CAGR in China over the last five years has been recorded at

6.44%. This is extremely embarrassing for the Indian industry. It is noteworthy that atone point of time in the recent past India produced more than 70% of its bulk drugs.Today, it produces only 30 to 40%. Most of its bulk drugs come from China. Thus, alarge part of Indian exports is formulation of Chinese bulk drug. This is an extremelydisappointing and critical aspect of Indian pharma industry. Action is required at twolevels. First of all, critical policy interventions need to be made in the API sector forbringing back bulk drug manufacturing to India. This would require concertedgovernment action over the next few years. Secondly, special efforts need to bemade to increase Indias presence in China in the formulation sector. This could benegotiated as part of an understanding between India and China. India should alsonegotiate with China cooperation in the regulatory and enforcement area. This is an

extremely sensitive area; therefore, cautious and calibrated approach would berequired.


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7. Improving the composition of production/ export basket in India

a. Global Contract Research and Manufacturing opportunity was approximately

US$26bn. in 2008-09 and is expected to touch US$44bn. as of 2013-14growing at approx.14.5% CAGR. India has potential to capture 10-20% ofwhich is between US$4.4 to US$8.8bn

b. New Drug Delivery Systems (NDDS) (sustained release, extended release,etc., over 100 NDDs are there) and Specialty formulations have an estimatedglobal market size of over U$50bn. Post generics the market size is approx.US$25bn. India could potentially capture 10 to 20% which is around US$2.5to 5bn.

c. The world biotech market including monoclonal anti-bodies is estimated at

US$150bn by 2013-14. Post generics the market size is approx. US$50bn ofwhich India can capture approx. 5% to 10%. In value terms the opportunity isUS$2.5 to 5bn.

d. APIs market estimated at US$135bn. Out of which complex APIs is aboutUS$30 to US$40bn. India can capture easily 10% or approx. US$3.5bn.

The total additional market which India can capture is US$4.5bn. +US$2.5bn. inNDDS + US$2.5bn in biotech +US$3.5bn. in complex APIs which is approx.US$13bn.(Note: Source of estimated growth: Taking Wings, OPPI & E&Y)

8. Suggested Initiatives

In the regional analysis in para 4 to 7, a roadmap has been suggested forimproving Indias market share in significant destinations. Besides we would requireto adopt following initiatives for bringing in significant change in Indias exportperformance.

a. Herbals/ traditional medicine is another significant area requiring substantialpolicy interventions. We have been approaching the European Union to dealwith problems arising out of their registration process and the simplifiedversion of it called THMPD with little success so far. It is important that weexplore other markets also. Two approaches need to be taken. Firstly, assuggested in the Task Force Report, we need to focus our attention on twentyfive more important traditional medicine products selected purely on theconsiderations of their acceptance in the export markets and then workaround those products for pharmacopeia development, marketing tie-ups andregulatory facilitation. Secondly, we should institutionalize cooperationagreements with territories where traditional medicine has strong roots suchas South Asia, South East Asia (ASEAN) some CIS countries and some

African countries. The agreement within South Asia is the first effort required.We also need to work towards getting traditional medicine practitioner access


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to these markets because they will carry with them traditional medicine fromIndia. The Vishesh Krishi Upaj Yojana (VKUY) of the Department ofCommerce administered through DGFT is not evenly applied to all aspects ofAYUSH products. While primary plant products are subjected to this scheme,the derived products are not included in the scheme. It may be noted that

derived products (phyto-chemicals) have additional value added to them andare more sought after by developed markets and thereby fetch goodrealization. Therefore, VKUY should also be applicable to plant derivatives tofacilitate and encourage greater value addition within the country.

b. Target of 20% growth in European Union for which two important issues to beaddressed are breaking the knowledge barrier and high bio equivalence costfor product registration. Extensive training programmes, free/online on EUregulation should be offered to Indian companies aggressively.

c. The need for special financial package for pharma sector has been highlightedin various fora. Pharma sector is a capital intensive sector. Besides R&Dexpenditure, regulatory requirements require large funds. Establishing largenumber of Bioequivalence centers through soft funding would lower the costsof Bioequivalence tests and more registrations/exports can happen from ourcountry. All quality investments should be treated on par with R&D to provideincentive to the industry as cost of quality investments is very high in EU.The issue has already been flagged and a meeting has been scheduled withExim Bank, RBI, D/o Financial Services and DOP on 7.2.2011 for specialfinancial solutions for pharma sector.

d. To attract more contract manufacturing business, developing capability inexisting clusters and providing concessional finance for large scale advancedtesting centers, stability testing centers, effluent treatment infrastructure,bioequivalence centers, etc. to enable the individual entrepreneurs buildrelevant manufacturing capacities and successes in CRAMS space, is the wayahead. Clusters such as Jawaharlal Nehru Pharma City, Vizag should receivespecial investments and such clusters could be developed in various parts ofthe country. The infrastructure in these clusters should be augmented forcommunity science and technology services.

e. In LAC countries such as Mexico, local bioequivalence and separate datarequirements which are major barriers. India should therefore fund acquisitionof a local bio equivalence center in Mexico (as also in countries where localBE requirements are mandated such as Japan, etc.). A Consortium may befunded by EXIM bank to buy local company/Bioequivalence center to launchproducts in those countries.

f. In all key countries of Asia India should open local liaison offices which canprovide local agency support for drug registration with local FDAs for bothAPIs and formulations. These local offices can further provide marketinformation, samples and regulatory and distributor information. Such agency

support for multiple companies is permitted universally. Local liaison officesshould be opened in 20-25 countries such as Australia, New Zealand,


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Canada, USA, Mexico, Brazil, Argentina, Peru, South Africa, Vietnam, Ghana,etc.

g. Herbal industrial parks in line with model concept of JNPC should bedeveloped wherein the national priority 25 herbals are processed into GMP

facilities and infrastructure for necessary conversion into end use formulationsis provided. Most herbal dealers do not enjoy this infrastructure and the valueaddition is unnecessarily lost.

h. It is imperative of an aggressive approach that a Brand India should beevolved and campaigned for in the next three to five years. This would requirefirst of all identification of elements of Brand India Pharma, identification ofmethodologies for brand campaign, selection of actors, participation ofstakeholders leading to development of a comprehensive Brand Indiacampaign. This would be funded through a partnership between MAI, Indianindustry and IBEF. We are already working on preparation of such Brand

India campaign.

i. The quality, safety and efficacy of generic medicines within the premise ofaffordability are their Unique Selling Proposition (USP). India has latelyenhanced its focus on quality aspects of medicines. The latest evidence inthis direction is introduction of trace and track system for exports. Theseefforts must continue with a variety of other initiatives, for example,incentivization of foreign site inspection, strong enforcement against sub-standard drug producers including cancellation of IEC codes will follow.

j. Port infrastructure specific to pharmaceutical products is not adequatelydeveloped. Medicines are exported both through air and sea route. It isimportant that cold chains and storage facility for medicines at these ports isadequately developed to ensure that they do not lose their QSE strength whilein transit to their destination. Medicines are exported from six sea/air ports.We have already taken up with concerned Departments/ private parties fordeveloping and strengthening port infrastructure in this respect. Our effortsmust continue so that the required infrastructure comes up within the subjectperiod.

k. The study of the profile of bulk drugs exported from India shows that following

bulk drugs have tremendous potential by virtue of their being used in a largenumber of medicines across the spectrum of various pharma categories. It isimportant that production and exports of these drugs is encouraged throughfocus drugs schemes. This will on the one hand encourage their productionand thereby increase the proposition of bulk drugs production in India which atpresent is heavily dependent on China and on the other hand it will improveexports of formulation based on these bulk drugs.

HS code Description29420090 Diloxanide furoate, cimetidine, famotidine nes30042099 Medicament containing other antibiotic and put up for retail sale

30033900 Medicaments containing hormones or product of hdng 2937 exclantibiotic


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29419090 antibiotics30042019 Cephalosporins & their derivatives30032000 Medicaments cont. antibiotics29411030 Amoxycilline & its salts30039090 Medicaments not put up in measured doses or in packing

30041030 Amoxycyllin in capsules, injections etc.30049029 Anthelmintics drugs;antiamoebic and antiprotozoal/ antifungal

drugs12119032 Psyllium husk (isobgul husk)30049079 Antihypertensive drugs30049034 Omeprazole and lansoprazole

30022029 Other mixed vaccine30049011 Medicaments of ayurvedic system

9. Policy initiatives as above would require total commitment by the industry toaddress strict compliance with WHO GMP requirement as also adhering to qualityparameters at all stages of manufacturing. Government can only create anenvironment for faster growth. However, the real implementation and commitmenthas to come from the industry.

With the road map indicated above, the targeted exports of US$ 22 billion byend of 2013-14 are within our reach.


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Appendix-I

ImportingCountry

2007-08 2008-09 2009-10 CAGR (2007-08 to2009-10)

%Share

North America 1,647.24 1,801.63 2,085.70 12.52% 23.49%

European Union 1,583.71 2,014.18 1,728.82 4.48% 19.47%Africa 1,061.90 1,406.30 1,404.22 14.99% 15.82%Middle East 655.45 736.44 750.89 7.03% 8.46%

LAC 575.74 716.98 690.65 9.53% 7.78%ASEAN 524.73 514.81 621.73 8.85% 7.00%CIS 531.58 598.18 526.81 -0.45% 5.93%

Other Asia 514.9 407.26 402.83 -11.55% 4.54%South Asia 342.36 353.76 363.7 3.07% 4.10%Other Europe 106.66 126.46 140.18 14.64% 1.58%

Oceania 73.33 99.35 129.53 32.91% 1.46%Other America 17.25 20.37 21 10.34% 0.24%Unknown 9.15 6.98 12.24 15.66% 0.14%

Total 7,644.00 8,802.70 8,878.30 7.77%


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The top 25 destinations of Indian pharmaceutical exports with value are given below.USA remains the top export destination with a share of 21.67% and a growth of28.05 % CAGR.

Countries showing more than 20% CAGR growth are:

1. Ghana (32%)2. USA(28.05%3. Kenya (28.48%)4. France (26.89%)5. South Africa (24.87%)6. Thailand (22.84%)

Countries showing 10-20% CAGR growth are:

1. UK (16.45%)2. Switzerland (14.05%)3. Iran (13.35%)4. Vietnam (12.67%)5. Nigeria (12.59%)6. Netherland (12.41%)7. Sri Lanka (12.08%)8. UAE (11.34%)9. Spain (10.73%)10. Israel (10.60%)11. Brazil (10.37%)

Countries showing CAGR growth of up to 10% are:

1. Turkey (8.76%)2. Canada (8.08%)3. Mexico (6.93%)4. Germany (5.79%)5. Italy (5.65%)6. Ukraine (5.55%)

7. Russia (3.12%)

Countries showing negative CAGR:

1. China (-6.44%)


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Appendix-III

Top ten importing countries(formulations) in Europe and Indias contribution:

Top Ten countries in Europe by way of Formulations importsbased on 2009 UN comtade statistics in USD million

Countries 2007 2008 2009 % share in2009)

Germany 91521.42 106570.4 105245India's Exports 197.795 213.418 236.105 0.224338Belgium 84717.95 90793.35 91508.8India's Exports 78.69735 142.5512 186.839 0.204176France 47428.25 54571.17 58178.24India's Exports 146.7706 166.6386 147.5481 0.253614Switzerland 47828.19 56454.24 57404.74India's Exports 146.7706 166.6386 147.5481 0.257031United Kingdom 47702.42 50506.79 50472.19India's Exports 263.4555 264.7258 302.6829 0.599702Italy 29745.83 32685.04 33391.87India's Exports 30.62611 53.18929 59.44665 0.178027Ireland 21528.26 26192.61 31999.18India's Exports 40.42181 42.95324 47.02039 0.146942Spain 20659.77 25035.98 25973.59

India's Exports 10.22779 19.9539 22.64963 0.087203Netherlands 29417.74 21825.23 22553.64India's Exports 31.41486 67.4292 103.4562 0.458712Austria 10346.31 12108.43 12499.26India's Exports 15.13615 29.10753 32.75688 0.262071Top Ten Totalimports

430896.1 476743.3 489226.5

India's exports to topten

961.3157 1166.605 1286.053 0.262875

Contd..


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Top ten importing countries(bulk) in Europe and Indias contribution:

Top Ten countries in Europe by way of Bulk drug Total importsbased on 2009 UN comtade statistics in USD million

Countries 2007 2008 2009 % share in2009)

Switzerland 5036.093 5397.986 5438.575India's Exports 6.625557 15.64244 11.6636 0.214461Germany 4739.117 7357.527 5136.507India's Exports 36.704 53.679 58.367 1.136317Belgium 4223.941 4100.363 4181.692India's Exports 3.248699 6.6601 6.737079 0.161109Italy 4008.338 4032.975 3969.181

India's Exports 45.02774 50.16946 45.54875 1.14756France 2705.901 3154.888 2767.74India's Exports 13.23809 26.69025 21.98702 0.794403Austria 1409.374 1404.007 2013.334India's Exports 8.624612 13.96041 19.39778 0.963465Spain 1323.395 1586.866 1967.208India's Exports 38.76177 47.89593 37.40376 1.901363United Kingdom 1688.303 1712.985 1931.874India's Exports 25.73586 27.09364 29.71797 1.538297Netherlands 2077.385 1112.176 1273.192

India's Exports 21.8821 10.56644 6.351972 0.498901Ireland 1851.494 2513.22 1074.279India's Exports 14.81659 10.08875 15.05855 1.401736Top Ten Totalimports

29063.34 32372.99 29753.58

India's exports totop ten

214.665 262.4464 252.2335 0.847742


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Electronics goods sector is characterized by a large variety of products whichare imported and significant exports as well. The volume of exports is about US$ 7.5billion annually. There is a huge domestic demand for electronics products which ismet largely by imports and some local manufacture. Large and rising domesticdemand fuelled by the growing middle class has resulted in companies not activelylooking for export opportunities. The Indian electronic hardware manufacturers alsoexperience a higher level of taxation, cost of power, finance and freight and poorerinfrastructure compared to their competitors from China, Taiwan, Korea and Japan.Consequently the cost of production of most electronic goods in India is at least 8 to10% higher than in other countries of South East Asia.

2. China, our main competitor in this sector, with its state of the art infrastructure,manufacturing competitiveness due to lower factor cost and pricing power and otherreasons including the artificially low exchange rate of the currency has an evenbigger advantage. It is, therefore not surprising that China has been able to attractlarge market leaders in the electronics sector with established international brandsby offering land at low cost, high quality infrastructure that reduces transaction costs,low wages, subsidized credit and extremely liberal capital structure. This has led toeconomies of scale which in turn have made the Chinese electronic goods industrycompetitive. A strategy to double exports of electronic goods from India in 3 yearswill have to address the disabilities vis-a-vis China and leverage our competitive

advantage.

3. Indian exports of electronics hardware can increase faster if we are able toincrease exports of high value added items, products embedded with IPRs anddiversify our export basket. The strength of Indian electronics industry in design,system integration and diagnostic skills needs to be leveraged for catering to nichemarkets. While some interventions will have major impacts in the long term, ifimplemented effectively, they will make a difference sooner. After ITA-1 in 2005, withzero or very low duty rates already prevalent in this sector, reforms like simplificationof procedures can have a significant impact in raising exports.

4. Taking the above into consideration the contribution of different items andcategories of electronic goods to the export target of US$ 15 billion by 2013-14 hasbeen estimated to be:


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(USD Million)

Sl.No.

Category 2010-11 2011-12 2012-13 2013-14

1 Mobile Phones 1560 2100 2700 3600

2 Sub Assemblies 1070 1280 1550 1900

3 Electronic Components 1020 1310 1720 2300

4 Audio-Video Products 1000 1300 1500 1800

5 Computer Peripherals & Parts 450 590 770 1000

6 Power Equipments 420 530 700 850

7 Solar Energy Products 400 500 630 770

8 Medical Equipments 300 340 440 500

9 Telephone Sets 250 300 380 430

10 Industrial Equipments 200 220 270 300

11 Computers 80 100 140 160

12 Trans. Apparatus & Parts 40 50 70 80

13 Watches and Clocks 30 40 50 60

14 Others 680 840 1080 1250

Total 7500 9500 12000 15000

Strategy to Achieve Export Targets

5. The target of exceeding US$ 15 billion of electronic goods exports by 2013-14, and substantial import substitution as a by-product, would require addressingsome of disabilities related to infrastructure, labour productivity, costs and commonfacilities. More specifically the target can be achieved by adopting the following:

A. Setting up Manufacturing Clusters or Industrial Parks

Electronic goods that are manufactured for exports require infrastructure facilities, alarge number of imported components and skilled labour. Mass production of theseitems can be competitive if components are available on time and the ecosystemensures that transaction costs are low and inventory carrying costs are borne by thecomponent manufacturers. In the Indian context this is possible if unitsmanufacturing major product lines are set up in SEZs along with units producing (orwarehousing) essential components on the lines of the Nokia SEZ in Tamil Nadu.The clusters should also have employee hostels and other facilities like clinics andsports facilities to enable employees to stay on site, be more productive and put in

extra time if required by production schedules. In addition, logistics, warehousingand testing facilities need to be provided on site. Each such cluster needs to be


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anchored by one or more dominant international brands. To attract such mother unitsfor manufacture of computers, tablets, cell phones, medical electronic equipments,telecom equipment etc industrial parks need to be promoted with the Make in Indiatag.

B. Diversification by Promoting Repair/Reconditioning/Refurbishment ofElectronic Goods

The American market for repair/reconditioning/refurbishing of electronic goods isestimated to be US$ 10 billion annually. The EU market size is of the same order.The major countries servicing the American market are China, Vietnam, Philippines& Thailand. India has a few large emerging companies which are beginning toprovide these services but the combined turnover is of the order of only US$ 5million. Indian workers are recognized as having better diagnostic skills and thusenjoy a core competence in the area of repair and re-export and this should be usedas a major opportunity. Further, due to excellence in the software sector Indianindustry has very good brand equity in the US. An export volume of US$ 1 billioncan be targeted in the US market over the next three years (creating 5 lac jobs) bymerely simplifying the procedure for one-to-one co-relation of units like laptops,mobile phones, mother boards, memory cards, etc. (both having unique identificationnumbers and others) at the time of import and re-export. Since repair andrefurbishment services are related to warranties/guarantees and require time-bounddelivery the maximum time for inward and outward custom clearance needs to bespecified (say 48 hours). Units under this category may be asked to provide monthlydeclarations of imported and exported quantities for each type of hardware to

customs subject to periodic audit and deterrent penal provisions for wrongdeclarations. Also the maximum time for export of any imported item after repair orbeing scrapped needs to be fixed as six months.

C. Promoting Intelligent Manufacturing

In the evolution stage advanced technology products require huge engineeringsupport and a combination of hardware, software and system integration skills. Thisniche area is called intelligent manufacturing. These are usually high tech productswhich provide high value addition but low volumes in highly quality conscious capital

goods sector. India has a competitive advantage in this sector where a largeproportion of value addition is through software and system integration. Suchelectronic items are widely used as part of telecom and power equipment.Establishing joint ventures with Chinese companies like Huawei, Zte etc. which havemanufacturing strengths and substantial market share in third world countries, canhelp in increasing high tech exports in the short term to Africa and the Middle East.Such joint ventures can either be independent or part of industrial parks set up withChinese investment as proposed by China during the visit of the Chinese Premier.


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D. Reform by Simplification of Customs Procedures

Customs procedures were designed during a regime when customs duties weremuch higher than excise rates. With the signing of the ITA-1 electronic hardwaresector was the first sector to open up with zero duty on most items and overall low

duty rates. However, the customs procedures have not undergone anysimplification which is the need of the hour. All raw materials, components,intermediate products if imported by an excise-registered manufacturing unit shouldbe allowed at zero duty based on self-declaration. The local excise range, withwhich these units are registered, can ensure that there is no misuse. In other words,the customs procedures should move from a refund regime to a self-declaratoryregime as is the case with excise duties. This will go a long way in reducing a majornon-tariff disability faced by the electronic goods exporting units.

E. Support for R&D for Generating IPRs and Development of HighTechnology Products

Each line of mobile phone capacity that we add results in an outflow of US$ 15 onaccount of royalty payments for IPRs held abroad. Viable manufacture and export ofvalue added electronic goods require domestic companies to possess IPRs for suchproducts. This is the main reason why Taiwan which is a leader in manufacture ofconsumer electronics has not been able to make any headway in manufacture (orexport) of telecom products like mobile handsets. IPRs can be generated only with agovernment supported R&D programme which gives a boost to innovation andentrepreneurship.

A programme of entrepreneurship development in telecom equipment, called theIndia Telecom Innovation Fund should be created to operate a for-profit model withthe goal of building at least 20 innovative and successful techno- enterprises focusedon providing telecom solutions for the rural sector within the next three years. Thesesolutions would be of use for rural India as well as result in exports. This interventionwill involve setting up of a physical incubator to provide access to technologyplatforms, test labs, office space and help mentor and provide managerial inputs tostart-ups. It would support commercialization of technologies by providing seed fundfor moving from the concept stage to prototype stage, an angel fund for progressfrom prototype to product and a venture capital fund for commercialization ofproducts. This activity could be funded by the Universal Services Obligation Fund of

the Department of Telecom. This will result in accelerating the conversion of variousprototypes already developed by academic and research institutes into marketableproducts that could be exported even in the short period of three years.

F. Nurturing Skill Development

For doubling exports of the electronics goods the manufacturing base of industry willhave to increase manifold. However the shortage of skilled workers is likely toimpact this unless urgent efforts are made to augment skill development for this

sector. The capacity of ITIs for producing skilled workers suitable for employment inthe electronic hardware sector needs to be increased and in the short run the


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scheme of adoption of ITIs by private companies needs to be made more userfriendly. This scheme is a non-starter in many states like UP which have aconcentration of electronics hardware manufacturing. Most of the schemes of theNational Skills Development Corporation also need to be revamped. The challengeof making available adequate and better skilled manpower to Indian companies to

enable them to make products for the export market needs to be tackled urgently.

G. Setting up a Semiconductor Wafer Fabrication Facility

Government of India is considering inviting a leading international player to set up afab facility in India. This has a great potential of expanding downstreammanufacturing related to assembly, testing, packaging and marketing of productsthat use semi-conductor chips. This decision needs to be expedited as a fab will actas a magnet for attracting a vast array of export- oriented units. Once the location ofthis facility is decided, an industrial park/SEZ/cluster with state of the artinfrastructure needs to be established for downstream units. Setting up of a fabwhich is likely to take one and a half years and an attached electronics cluster willcreate an eco-system for attracting reputed original equipment manufacturing unitsto set up base for exports of electronic components specially to Asia and Africa.

H. Infrastructure Improvement

A major constraint faced by electronic goods exporters based in the northern part ofthe country is the difficulty in getting containers for transporting goods to Mumbai

and the inordinately long time required to move consignments from containerterminal to port to ship. The absence of coordination between the ContainerCorporation of India (CCI), the Railways and the port authorities makes mattersworse. This is further compounded by the fact that ship berthing assignments oftenget shifted from JNPT to Mundra at short notice due to port congestion. Since it isnot possible to divert consignments in the time available this often results in missedshipments. Thus there is an urgent need to expand container capacity on trunkroutes to Mumbai and develop an integrated solution involving CCI, the railways andports to minimize shop-floor to ship transportation times.


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Gem and Jewellery exports have increased by 82% in 2009-2010 as compared to2006-2007. During this period, the export of diamonds have increased by73%, GoldJewellery by 57% and Colour Gemstones & others by 219%. During the period April-September 2010, the G&J exports have increased by 13.86% as compared to thecorresponding period in 2009. G&J exports contribute to 16.27% of our globalexports in 2009-10 as compared to 12.64% in 2006-07.

Given the depth of the wholesale Indian market and the technological edge, India willretain its dominant position in diamond polishing. Indias acknowledged prowess inIT development has strengthened the Indian diamond industry in terms of creating

platforms for internet sales. Enhancing the skilled manpower, providing concessionsavailable in other diamond importing countries like allowing consignment imports etcwould make India an international diamond trading hub as envisaged in the ForeignTrade Policy. This Sector has the ability and the momentum to double its export.

Projected incremental growth in gem and jewellery sector up to 2013-14:(In billion $)

Items

ActualExportsApril 09

toMarch2010

ExportTargetsent to

MOC & Ifor 2010to 2011

Estimatedexports2011-12



% of

growth

Cut & PolishedDiamonds

18.244 20.440 25.550 31.940 39.930 25%

Gold Jewellery 9.681 11.140 13.590 16.580 20.230 22%

Col. Gem Stones 2.87 0.310 0.330 0.360 0.490 6.50%

Others 1.509 1.960 2.380 2.880 3.590 21%

Total Gem &Jewellery

29.434 33.850 41.810 51.640 64.040 24%

Source: GJEPC


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ACTION PLAN TO ACHIEVE THE TARGETS

Concessions/facilities required by Gem and Jewellery sector to double itsexport:

I. Easy availability of Raw materials like rough diamonds, colouredgemstones, gold and silver

a) Sourcing and Supply of Rough Diamonds Coloured Gemstones segmentReform

Rough diamonds are mostly imported in India. At present, rough diamondscome to India through indirect means. In the year 2009, the Rough Diamond supplyin the global market was dominated by the 6 major suppliers, namely, DTC (34%),Alrosa (13%), SODIAM (8%), BHP (7%), Rio Tinto (5%) & Harry Winston 2%. Withpro-active involvement of the Government in the Kimberley Process and continuous

follow up within the framework of existing bilateral institutional mechanism, ourindustry could source roughs directly from Russia, Namibia and Zimbabwe. Theseefforts need to be pursued with greater momentum and an aggressive policy bedeveloped to ensure continuous supply of roughs from countries in the African regionand other diamond mining companies.

The Indian Coloured Gemstone sector is highly fragmented and unorganized. In thecurrent cost based competition, other major competing countries like Thailand etccan offer the entire range of activities including sophisticated treatments for whichIndia does not possess capabilities. Hence for the growth of this sector, there is aneed to explore continuous supply of coloured gemstones from countries like Brazil,Russia, Tanzania, Myanmar etc. during the bilateral meetings

b) Supply of Precious Metals Gold/Silver:

At present, the import of precious metal is permitted through selectednominated agencies authorized by Government of India and 20 banks authorized byReserve Bank of India. The agencies further sell duty free gold to the exporters andduty paid precious metals in the local/domestic market. The Government has alsointroduced a new regulation wherein all nominated agencies will have to disburse15% of their total imported precious metal to the exporters.

The objective of expansion of the list is not met as the small and mediumexporters are still facing the problem of procurement of precious metals of theirdesired quantity from the nominated agencies.

Therefore, the obligation to supply to exporters may be made compulsory forall nominated agencies including the banks. The Government should also considerallowing import of scrap gold & silver and gold dust to get cheaper raw materials forthe manufacture of jewellery.


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II. Credit Availability

The Gem & Jewellery Industry is an import based industry which deals inforeign currency i.e. US Dollars. To ensure easy and continuous availability of

roughs from overseas mining companies, for its marketing and infrastructure, there isa need to ensure bank finance in foreign currency at international interest rates andcosts. Special reserves may be created by the Reserve Bank of India for thisIndustry.

III. Facilitating Indias development into a trading and manufacturingdestination

Foreign Trade Policy 2009 envisages setting up Diamond Bourses in thecountry to make it an international diamond hub. There is a need to undertakedetailed review of the various taxation, financial regulations, policy framework andforeign investments as prevalent in other global competing countries and suitablydevelop a regulatory mechanism for Diamond Bourse. A special chapter may beincluded in the Foreign Trade Policy.

IV. Consignment import of rough diamonds

It is necessary to allow consignment import of rough diamonds for conductingfollowing operations/activities to make India a major International Diamond Hub:

Assortment & re-export of the same:

Purchase or return:

Sale of rough diamonds, rough coloured gemstones, cut & polisheddiamonds and coloured gemstones by a foreign miner without IECnumber:

Establishment of a Diamond Sale Operation in India

Under this system, both the cut and polished and rough diamonds areimported on consignment basis from across the world and are assorted in different

lots according to the cut & polished size and these diamonds are then displayed forauction. After the bidding, diamonds are taken by the bi

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