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Program & Batch: PGDM 2012-14

Term: V

Course Name: Economic Policies & Regulatory Environment in India

Name of the faculty: Sujoy Chakrboarty

Topic/ Title : Analysis of Indias EximPolicy

Original or Revised Write-up: Original

Group Number: 6

Contact No. and email of

Group Coordinator:

7503139615

Satya Prakash

Group Members: Sl. Roll No. Name

1. 12DM-176 Arnab Ganguly

2. 12IT-020 Satya Prakash

3. 12DM-155 Vaisakh Krishnan

4. 12DM-142 Shyam Suresh

5. 12FN-092 Prashant Trivedi

6. 12IB-015 Asim Anand

7. 12HR-034 Utsav Chatterjee

8. 12IB-039 Rohit Jain9. 12HR-017 Mohit Kaushal


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Contents1. Introduction ........................................................................................................................................ 4

2. Legal Framework of Indian Exports and Imports ................................................................................ 5

3. Objectives of Indian EXIM Policy ......................................................................................................... 5

4. EXIM policies & Scheme for Promotion of Exports ............................................................................. 6

4.1 Board Of Trade .............................................................................................................................. 6

4.2 Special Focus Initiatives ................................................................................................................ 6

4.3 Export Promotion of Capital Goods .............................................................................................. 7

4.4 FPS (Focus Product Scheme)......................................................................................................... 7

4.5 FMS (Focus Market Scheme): ....................................................................................................... 7

MLFPS (Market Linked Focused Product Scheme): ........................................................................ 7

Market Linked Focus Product Scheme (MLFPS).............................................................................. 8

MDA (Market Development Assess): .............................................................................................. 8

Market assess initiative (MAI):........................................................................................................ 8

4.6 Value Added Manufacturing (VAM) .............................................................................................. 9

Project Export Announcement............................................................................................................ 9

4.7 Reduction of transaction cost ....................................................................................................... 9

4.8 Disposal of manufacturing waste.................................................................................................. 9

4.9 Announcements ............................................................................................................................ 9

4.9.1 Announcement related to sports weapon ............................................................................. 9

4.9.2 Announcement for medical devices ...................................................................................... 9

4.9.3 Announcement for automobile sector ................................................................................ 10

4.10 Announcement for Electronic Data Interchange (EDI) ............................................................. 10

4.11 Marine ....................................................................................................................................... 10

4.12 Star Export Houses/ Status Holders .......................................................................................... 10

4.13 Gems & Jewellery ...................................................................................................................... 11

4.14 Agro Products ............................................................................................................................ 11

4.14 Leather Products ....................................................................................................................... 12

4.15 Tea ............................................................................................................................................. 12

4.16 Pharmaceuticals Industry .......................................................................................................... 12

4.17 Handloom Industry ................................................................................................................... 12

4.18 Scheme for Export Oriented Units: ........................................................................................... 135. Quantitative Target of EXIM Policy 2009-14 ..................................................................................... 13


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6. Analysis Of effects EXIM Policy ......................................................................................................... 13

6.1 Current Position of Indian Exports and Imports ......................................................................... 14

6.2 Category wise Analysis of Indian export ..................................................................................... 15

6.3 Category wise Analysis of Indian Import ..................................................................................... 15

6.4 Comparison of Indias major exporting sector to major importing sector................................. 17

6.5 Indian Export Region wise ........................................................................................................... 18

7. Conclusions & Recommendations .................................................................................................... 19

8. References ........................................................................................................................................ 20


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1.Introduction

India has long history of Foreign trade earlier it use to have trade surplus with entire world

and there were no restrictions on export and import but in pre-independence era British

government discouraged Indian exports and encouraged British imports to India .After

Independence Indian government put controls on both exports and imports but in 1991

significant changes were made to boost Indias trade and majority od trade barriers were

removed. After 1991 due significant increase in demand for Indias exports in services sector

Indian government has adopted the policy of liberalization and globalization for attainment

of economic growth.

EXIM policy of any country governs its exports and imports its one of the most important

policy measure for government to achieve economic development according to the current

priorities of country.

In India Ministry of commerce decides EXIM Policy also known as foreign trade policy. EXIM

policy in India is decided for every 5 years. Recently foreign trade policy was announced for

2009-14 period on August 28 2009. Previously in policy announced in 2004 has two main

objective first was to double share of global merchandise trade and to use trade as an active

tool for economic growth and employment generation.

The policy (2009-14) was very crucial because it was announced at the time when the entire

world is suffering from one of most severe recession in the entire history of modern trade.

According to the forecast done by World Bank over all international trade was projected to

decline by 9% by volume. It was a difficult task for policy makers to increase the volume of

exports when demand was on a sharp decline in developed countries.

Though condition in India was slightly better than other exporting countries after 4 quarters

of recession Indian Economy was showing signs of recovery to pre recessionary levels.


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2. Legal Framework of Indian Exports and Imports

3. Objectives of Indian EXIM PolicyAs global economic slowdown has led to closing of many export based small medium scale

industries. Indian EXIM policy aims at exploring potential export market and boosting exportperformance to increase foreign trade.

Foreign Tradeact 1992

Foreign TradeRules 1993

Foreign Trade

Order 1993

EXIM Policy

Hand book

OfProcedures

Vol 1

ITCClassification

of EXIMPolicy

Hand bookOf

ProceduresVol 2 (SION)


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4. EXIM policies & Scheme for Promotion of Exports

4.1 Board Of Trade

Government of India has established a Board of trade as advisory body on foreign trade

issues. Government nominates 25 members of BOT of which 10 to be expert in foreign trade

policy. Main Objectives of Board Of trade are

To advise govern in execution and formulation of short term and long term

strategies according to domestic and global economic scenario.

To analyse the performance of different industrial sectors and make

recommendations to improve their incomes through export.

To propose practical procedures for rationalisation of current institutionalframework of EXIM to attain required objective

To analyse the central issues of foreign trade promotion and increase competitive

advantage of Indian Goods and services.

4.2 Special Focus Initiatives

In order to increase percentage share of global trade and expanding employment

opportunities Government of India has announced following special focus initiatives with

objective of

Diversifying market portfolio for Indian exports

To reverse declining trend of Indian Export

To double exports of goods and services by 2014

To increase india's share global merchandise trade to 2.9% in2020 from current figure of 1.45%

To implement & formulate policies and strategieswhich will catalyze the increasing trend in exports

Removing complexities and simplifying procedures forapplication of availing various benefits

To Boost exports through and diversify exportportfolio and enhance acess across the world

Providing Fiscal Incentives , Procedural Simplification andchanges at institutional level


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To achieve technological improvement through continuous R&D and develop

superior quality goods for trade in international market.

To support sectors which are already have good status in international market

Handicrafts, Agriculture, Gems & Jewellery, sport goods etc.

To provide extra support for promotion of products based on green technologies andproducts produced from North East India.

4.3 Export Promotion of Capital Goods

EPCG scheme which was launched earlier by government it allows exporters to import

capital goods pre and post manufacture at affordable price so that they can produce quality

products for exports in international market . Through EPCG government also reduced

import duty of exporters on capital by 50% in return of an Obligation to export. Under EXIM

policy 2009-14 following incentives are provided to exporters:

For making export sector technologically competitive imports at zero duty have been

introduced

Export Obligation has been significantly reduced, in case of products like spares moulds it

has been reduced to 50%

If overall export of country decline for a particular financial year than export obligation will

be redesigned

4.4 FPS (Focus Product Scheme)

It is mainly aimed at providing licenses to those export products which can generate a lot of

employment. More emphasis is provided in proving employment to rural and semi urban

areas. Moreover it has to provide more infrastructure development.

4.5 FMS (Focus Market Scheme):

These schemes are mainly focused in how to offset high distribution and freight cost that

has to be taken into account in export related activities.

MLFPS (Market Linked Focused Product Scheme):These schemes mainly focus on

expanding the product line in the market that is identified as major export destination.

Vishesh Krishi & Gram Udyog Yojna: This scheme is focused mainly on increasing

agricultural export from rural areas. The facility of re credit is provided at mere 2%

additional duty.


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If duty payment is already done using Vishesh Krishi & Gram Udyog Yojna, FPS and FMS

incentives wont be available.

Over All changes

In total 26 new markets have been added to the above scheme to make them have

wider reach.

The incentives available under FMS have been raised to a level of 3% from previous

level of 3%

The incentives available under FPS have been raised to a level of 1.25% from

previous level of 2%

New products have been added in the scope of having benefit under FPS

Market Linked Focus Product Scheme (MLFPS):This scheme is expanded by including new

product like textile fabrics, glass product, motor cars, auto component .But the benefits of theseprogram can be availed only if exports are done to 13 identified markets(like Algeria, Egypt, Nigeria,Tanzania, Mexico, Ukraine, Cambodia and New Zealand).

FPS have more benefits for exporters of agricultural products mainly Green products and

products which are mainly produced in north eastern countries.

In order to have ease in adoption of all these scheme like FPS, FMS, VKGUY and MLFPS.

MDA (Market Development Assess):This mainly focused on providing financial support to

all the activities being actively done by Trade promotion organization and EPC

This was actively administered by the department of commerce (DOC)

Buyer seller meet to be arranged in India and abroad and Trade fair to be organized

in similar lines

Other services to be started to promoted export

Backing of travel agencies to the active exporters. The main travel destination to be

focused on includes Africa, Australia, ASEAN, Latin America and Newzeland.

Market assess initiative (MAI):On the basis of country and product in focus financial

assistance is to be provided to all the activities promoting exports. The agencies to have the

benefit of this scheme are: Agencies of state governments, Industry & trade Associates

(ITA), Indian Commercial Mission (ICM) and Export Promotion Council (EPC).

Promoting the Brand

Campaigns to gain publicity

Organization and participation in trade fair

Showcase event to be organized

Market study and research for potential markets

Trade fair participation

Setting up public display in International dept. stores


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4.6 Value Added Manufacturing (VAM)

A minimum of 15% value add is mandated for imported input. Advanced

Authorization scheme has adopted and implemented for import of raw materials for

export of processed goods.

Project Export Announcement

Duty Entitlement Pass Book Scheme has fuel included in it.

Import of samples has been eased. The number of samples to be imported has been

increased from 15 to 50.This will help the exporters to test with more samples

without out having the burden of paying the duty

Shipping bill convertibility has been enforced

The conversion of bills from one export scheme to other has been facilitated

providing greater flexibility. All conversion to take place within 3 moths

4.7 Reduction of transaction cost

Advanced authorization scheme facilitated movement of imported goods directly

from port to site of utilization

The fee charged for application in bulk has been reduced. As for example the cost of

18 authorization or license application has been reduced from Rs 1,50,000 to Rs

1,00,000 for manual application and from Rs 75,000 to Rs 50,000 for EDI application.

Incentive grant will be free of any fee charges applicable earlier.

4.8 Disposal of manufacturing waste

The manufacturing waste disposal will be allowed only after payment of excise duty

and before the exporting of manufacture or transformed final product. This all

changes will be governed under EPCG scheme and Advanced authorization.

4.9 Announcements

4.9.1 Announcement related to sports weapon

Regional authorities will be responsible for providing licensing of sports weapon. This

all licenses will be valid only when prior NOC has been provided by Ministry of sports

and youth affairs.

4.9.2 Announcement for medical devices

The free sales certificate issuance procedure have been simplified and for making it

easier for medical sector imports. The validity period for the certificate has been

extended to 2 years from 1 year. These certificate certify that the good beingimported are freely sold in the markets of the exporting countries.


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4.9.3 Announcement for automobile sector

The automobile companies which have their R&D department established in the

country will be allowed to import 5kl of reference fuel per year.

This announcement was a part of simplification of EPCG for automobile sector.

4.10 Announcement for Electronic Data Interchange (EDI)

RCMC (registration cum membership certificate) is to be issued using online web based

portal by Export Promotion Councils & Commodity Boards.

Directorate of Trade Remedy Measures Announced

For Trade Remedy measure a directorate has been setup. The MSMEs will be in a position to

avail their rights and will have remedy available

Trade Remedy will be more available to Indian exporters and importers

4.11 Marine

As the marine sector promised growth in terms of exports the government laid special focus

on this sector to increase Indias share in the global trade. Some of the major

announcements made for the marine sector were

The fisheries sector was exempted from maintaining the mandatory export

obligation of imports required for technological resources under the Export

Promotion Capital Goods scheme. However the same was not applicable to

Trawlers, Fishing ships, boats and other comparable products.

In addition to this the sector was given higher flexibility under the Target Plus

Scheme which enabled accelerated growth of exports by patronizing Star

Export Houses which achieved a high amount of growth of exports. Also Duty

Free Certificate of Entitlement (DFCE) Scheme was initiated for the marine

sector.

4.12 Star Export Houses/ Status Holders

All trading firms such as manufacturer exporters, Export Oriented Units, Service

Providers and Units located in Special Economic Zones, Agri Export Zones, Software

Technology Parks, Electronic Hardware Technology Parks and Bio Technology Parks

were entitled for applying for status as Star Export Houses. This scheme offered the

status depending on the total Freight on Board export performance in the presentyear and the previous 3 years as follows:


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4.13 Gems & Jewellery

The government came up with the scheme of Duty Drawback which enabled the refund of

duties, taxes and fees incurred on imported merchandise which is meant for export.

However this was allowed only on Gold Jewellery exports so as to neutralize the duty

incidence.

A plan has been made to establish a Diamond Bourse where wholesale polished diamondscan be transacted by trade merchants. This would propel the Indian diamond trade and

make India an International Trading Hub.

As diamond trade offers great scope for exports growth a new facility is planned where cut

& polished diamonds can be imported on a consignment basis for the purpose of grading

and certification, thus streamlining this process.

4.14 Agro Products

A major issue faced with the export of Agro product was the perishable nature of the

produce and the gaps in the supply chain process. To tackle this, a single window system is

planned to be introduced. This would include Paperless Customs & Port Community

Systems. The single window system will lead to lesser transaction costs and handling costs,

increasing the profitability of the sector as a whole.

To implement the Single Window System multi-functional nodal agencies will be

established. These agencies will be accredited by the Agriculture & Processed Food Products

Export Development Authority (APEDA).


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4.14 Leather Products

A major issue faced by the players of the Leather industry was the inaccurate forecasting

performed for their imports. Often they were left with excess imported stocks which they

couldnt liquidate in the Indian market. These players would have to incur a 100% exportduty on these unsold products. To solve this issue the government decreased the export

duty of re-exported merchandise to 50%.

So the Leather sector is allowed export of the unsold imported raw hides and skins and

semi-finished leather products from bonded ware houses.

The Re-exportation is used as a tool to avoid sanctions by third party countries. For

example, U.A.E engaged in re-exportation of goods to Iran, so as to circumnavigate the U.S

trade sanctions against Iran.

4.15 Tea

The existing export duty for Tea was 100% which was hindering the global aspirations for

the Tea industry. The Minimum value addition under Advance Authorization Scheme i.e.

duty free on imports of inputs was reduced from 100% to 50%, thus enabling the Indian

companies to compete effectively in the global tea industry.

The sale limit of instant tea by EOU units was increased by 20% to 50% in Domestic Tariff

Areas. DTA is an area in India that is not in the boundary of a Special Economic Zone and

Export Oriented Units/Electronic Hardware Technology Park.

Additionally Tea exports have been included in the VISHESH KRISHI GRAM UDYOG YOJANA

Scheme, thus passing on the benefits of this scheme to the Tea industry.

4.16 Pharmaceuticals Industry

A major hassle faced by the pharma industry was number of paperwork involved in the export

process. One such procedure was the Export Obligation Period authorization. To tackle this, the

Government increased the time period of the Export Obligation Period for Advanced Authorizations

from 6 months to 36 months.

The major export market for the Indian pharma industry other than U.S and the Europe markets

were Africa, Latin America & few Oceanic countries in the region in the Tropical Pacific Ocean and

Far East such as Japan & Korea.

4.17 Handloom Industry

The existing policy required handloom exporters to have a Handloom Mark for all their

products, this was under the Focus Product Scheme. This made the entire export process

cumbersome and inefficient. This policy has been changed and handloom exporters are no


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longer required to follow these claims under the Focus Product Scheme requiring them to

display the Handloom Mark.

4.18 Scheme for Export Oriented Units:

Export Oriented Units are now given permission to sell products made by them in DTA

(Domestic Tariff Area) up to 90%, which is an increase of 15% from the existing 75%, without

changing the criteria of similar goods within the overall entitlement of 50% for DTA sale.

This means that these units can now sell 90% of their products in the domestic market

compared to 75% earlier.

The term similar goods means goods though not alike in all aspects, have similar

characteristics and like component products which enable them to perform the same tasks

and to be interchangeable monetarily with the products which have been exported or

expected to be exported depending on the quality, reputation and the existence of trade

mark and manufactured in the same unit by the same entity which manufactured the exportgoods.

Export Oriented Units are permitted to purchase finished goods for consolidation along with

their produced goods, however for this they have to meet certain stipulations & safeguards.

Additionally the block period has been extended by an entire year for calculation of Net

Foreign Exchange earning of Export Oriented Units kept under consideration. Export

Oriented Units allowed Central Value Added Tax Credit Facility.

5. Quantitative Target of EXIM Policy 2009-14To achieve export target of $ 200 billion for principal commodities.

To achieve CAGR of 15% in exports for next two years and 25 % for remaining two years

6. Analysis Of effects EXIM Policy

As government as introduced has introduced many promotional schemes now we will try to

analyse what are the effects of such promotional schemes to surge our exports. To what

extent the desired objectives of EXIM policy 2009-14 have been achieved


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6.1 Current Position of Indian Exports and Imports

Data Source: RBI web site

Indian Exports of principal commodities month on month has increased from US $ 12.8billion to US $ 25.8 billion in period of Jan 2009 to Jul 2013 but distressing point for policy

makers is that imports growth have surged from US $ 18.2 billion to US $ 38.1 billion

increasing month on month trade gap of principal commodities from USD 5.3 billion to USD

12.3 billion which led to devaluation of Indian currency to record levels in history

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Indian Exim in USD Millions

Exports (f.o.b.) Imports (c.i.f)


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6.2 Category wise Analysis of Indian export

Data Source: RBI website

As evident from Chart services and manufactured goods forms major chunk of Indian export


Growth rate pattern in every sectors is similar with services and manufactured good having

high volumes of exports in comparison with primary and petroleum products.

6.3 Category wise Analysis of Indian Import


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Non bulk imports which consist of capital goods and gold is growing at fastest rate due to

concessions provide by government on import duty of capital goods EPCG schemes and also

due traditional high demand of gold in India.

6.4 Comparison of Indias major exporting sector to major importing sector

In the year 2008-09 payment received from export of services was sufficient to provide

support to imports of gold and services but in year 2011-12 there is wide negative gap

between payment received from services and payment made for crude and gold. This has

led to upsurge in current account deficit of our country


-100000

-90000

-80000

-70000

-60000

-50000

-40000

-30000

-20000

-10000

0

2008-09 2009-10 2010-11 2011-12 2012-13

CAD USD $ Millions


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6.5 Indian Export Region wise

Indian export majority of its products to Asia. Europe and United States also plays significant

role as Indias exporting partner. Export portfolio across various region is not much changed

from 2009 to 2013 except the percentage share of European region in Indias export has

23% to 19% because of slow down in European economy due to Eurozone crisis.


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As various initiatives are taken by Indian government to diversify export portfolio across the

world

Growth of Indian export is highest in African countries for year 2010-11, 2011-12 and 2012-

13 but still volume of trade is heavily dependent on Asian countries.


7. Conclusions & Recommendations

Net exports of commodities have increased by 64% but net growth in payments due

to invisibles has been only 30% due to competition faced by other developing

services based exporting economies like Vietnam and Philippines

Net imports of commodities have also increased by 64% but due to decline of growth

in payments received due to services has increased Indias current account deficit US

$ 28 billion to US $ 90 billion.

Major upsurge in overall-import is due to increase in demand of crude oil so

government of India should promote green technologies and Non-Conventional

sources of energy to curtail demand of crude

India should also focus on technological advancement of its manufacturing industries

so that more capital items could be developed in-house and burden on trade deficit

could be reduced

2009-10 2010-11 2011-12 2012-13

1) Europe (4.84) 24.59 21.79 10.09

2) Africa (5.49) 46.63 34.27 32.83

3) America (2.73) 32.27 43.82 20.21

4) Asia & ASEAN 4.27 30.37 27.35 13.45

Total 0.57 35.17 28.26 11.44

(10.00)

-

10.00

20.00

30.00

40.00

50.00

Growtthrate

ofexports

Year


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Export portfolio of India should be more diversified so that its exports are not

affected due to economic slowdown in particular region of world.

Focussed efforts should be made to make services sector of Indian economy

attractive and competent enough to face tough challenges posed by other emerging

economies around the world

8. References

Reserve Bank of India website

ET intelligence website

Indian Stat website

Document released by Ministry of commerce on foreign trade policy 2009-14