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Program & Batch:

PGDM 2012-14

Term:

Course Name:

Economic Policies & Regulatory Environment in India

Name of the faculty:

Sujoy Chakrboarty

Topic/ Title :

Analysis of Indias Exim Policy

Original or Revised Write-up:

Original

Group Number:

Contact No. and email of 7503139615


Satya Prakash
Group Coordinator:
Group Members:
Sl. Roll No.
12DM-176
1.
2. 12IT-020
3. 12DM-155
4. 12DM-142
5. 12FN-092
6. 12IB-015
7. 12HR-034
8. 12IB-039
9. 12HR-017

Name
Arnab Ganguly
Satya Prakash
Vaisakh Krishnan
Shyam Suresh
Prashant Trivedi
Asim Anand
Utsav Chatterjee
Rohit Jain
Mohit Kaushal

Contents
1. 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: ........................................................................................... 13
5. Quantitative Target of EXIM Policy 2009-14 ..................................................................................... 13

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

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.

2. Legal Framework of Indian Exports and Imports

Foreign Trade
Rules 1993
Hand book
Of
Procedures
Vol 2 (SION)

Foreign Trade
Order 1993
Foreign Trade
act 1992

ITC
Classification
of EXIM
Policy

EXIM Policy
Hand book
Of
Procedures
Vol 1

3. Objectives of Indian EXIM Policy


As 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 export
performance to increase foreign trade.

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% in
2020 from current figure of 1.45%

To implement & formulate policies and strategies


which will catalyze the increasing trend in exports
Removing complexities and simplifying procedures for
application of availing various benefits

To Boost exports through and diversify export


portfolio and enhance acess across the world
Providing Fiscal Incentives , Procedural Simplification and
changes at institutional level

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 institutional
framework 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 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 and
products 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.

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 these
program 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

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 being
imported are freely sold in the markets of the exporting countries.

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 present
year and the previous 3 years as follows:

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 diamonds
can 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).

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% export
duty 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

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 export
goods.
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 2009-14


To 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

6.1 Current Position of Indian Exports and Imports

Indian Exim in USD Millions

Exports (f.o.b.)

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-

Imports (c.i.f)

Data Source: RBI web site


Indian Exports of principal commodities month on month has increased from US $ 12.8
billion 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

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

Data Source: RBI website


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

Data Source: RBI website


Bulk imports (in which major share is occupied by crude oil) and Non bulk imports consisting
of gold and capital items comprise major chunk of our imports.

Data Source: RBI website


Bulk imports comprising of crude oil is growing at a much faster rate due to surge in demand
of fuel to fulfil the needs of growing economy.

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

Data Source: RBI website

CAD USD $ Millions


0
-10000
-20000
-30000
-40000
-50000
-60000
-70000
-80000
-90000
-100000

2008-09

2009-10

2010-11

2011-12

2012-13

Data Source: RBI website

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.

Data Source: RBI website


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 201213 but still volume of trade is heavily dependent on Asian countries.

Growtth rate of exports

50.00
40.00
30.00
20.00
10.00
(10.00)

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

Year

Data Source: RBI website

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

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