Indian Economy | Foreign Trade Policy (2009-2014) Download PDF

Indian Economy | Foreign Trade Policy (2009-2014) Download PDF

Objectives

A number of references have been made to the policy in previous sections. In fact, the strategy of growth-led exports and the seamless integration of the export sector with the domestic sector is achieved by the foreign trade policy (FTP) which was earlier known as EXIM policy announced yearly.
The time period of the FTP has been increased from one year to five years with the first policy covering the time period 2005-2009 and now the FTP covering the period 2009-2014. The policy also allows for supplementary policies yearly but within the overall framework of the FTP. It was widely believed by the government that longer horizon needs to be kept by the government for review and promotion of exports. The guiding principles followed by the policy are as follows:
(1) Conscious efforts need to be fnade at increasing our share in global merchandize trade as present levels are not commensurate with our growing size. This increased share can happen over a period of time and with sustained efforts every year.
(2) In line with this, the policy has set a target of increasing our share in merchandizing exports to around 5 per cent by 2020.
(3) Focus on core competencies over which India has a comparative advantage and also blend other products with high degree of skills and sophistication.
(4) Achieve market diversification by looking at potential emerging markets rather than the traditional markets with a distinct ‘look east’ policy.
(5) Establishing India as a brand image globally with the changing global perception of India.
(6) Finally, as a part of our strategy, trade expansion should become instruments of growth and employment and this in turn reinforcing exports setting in motion circular chain of mutual reinforcement.

The strategy being followed by the FTP of achieving the objectives is through the following special initiatives:
(1) Focus Product Scheme (FPS)—in line with the guiding principle, products for special focus have been identified as agriculture, handloom, handicrafts, gems and jewellery, leather, marine, IT hardware, green products, sports goods, toys and also exports from the north-east states
Their promotion is through an incentive mechanism given based on a percentage of exports of these products.
Focus Market Scheme (FMS)—in a bid to reach out to new markets as many as twenty-six new markets comprising of sixteen Latin American countries and ten Asia-Oceania countries have been identified for increased exports to these countries again by providing similar incentive based on exports to these markets. Market-linked Focus Product Scheme (MFPS)—this is a combination of the above of a common subset of both markets as well as products that are eligible for incentive for exports under this category.
Towns of Export Excellence (TEE)—this status is given to towns which have crossed the production level of Rs. 750 crores and in case of handicrafts and handlooms production level of greater than Rs. 130 crores. Examples of this are Srinagar, Anantnag, Jaipur (Handicrafts); Kanpur, Dewas, Ambur (leather).
Setting up of the India brand equity fund (IBEF) for promoting the brand image of the country.
The status category of exporters has been defined in terms of their export performance and thus eligible for various incentives.

Besides the above, the policy also provides incentives for those engaged in export promotion such as:
Assistance to states for infrastructure development for export promotion activities (ASIDE) which is an export performance-linked incentive given to the state governments. Market Access Initiative (MAI)—under this, financial assistance is made available to those engaged in export promotion activities on focus markets and products. Market Development Initiative (MDI)—this assistance is available to Export Promotion Councils and other such organizations organizing exhibitions and trade fairs for promotion of exports.
The FTP is also responsible for various concessions available to exporters operating in the domestic tariff area (DTA) and also changes therein from time-to-time.

Concessions Available to Exporters in DTA

The exporters like their counterparts in SEZs are also eligible for various concessions as given below: ‘
Advance Authorization Scheme (AAS)—in terms of the FTP for those exporters requiring imports of those goods which are physically incorporated in the exportable goods can import them without payment of any custom or import duty, based on the standard input output norm (SION) specified by Directorate General of Foreign Trade, Government of India (DGFT).lhere is a minimum value addition norm of 15 per cent except for gems and jewellery where these norms are higher.
(2) Duty-free Import Authorization Scheme (DFIAS)—under this scheme, an exporter is allowed to import duty-free other inputs as may be required for exports including fuels, oil, energy, but with a minimum 20 per cent value addition norms and again subject to SION as mentioned above.
(3) Duty Drawback Scheme—if any exporter is sourcing inputs for exports from the domestic market, then under the scheme the excise duty paid, or other taxes on such inputs are reimbursed to the exporter.
(4) Export Promotion Capital Good Scheme (EPCGS)—this scheme allows for import of capital goods and other such machines as may be required by an exporter for exports at zero import duty, for selected sectors such as engineering, pharmaceuticals, etc., (list is specified in the FTP), but subject to an export obligation of six times the duty saved over six years. For other capital imports not eligible for import at zero import duty, they can be imported at a concessional import duty of 3 per cent but subject to an export obligation of eight times, the duty saved over eight years.
(5) Exchange Earners Foreign Currency Account (EEFC)—as a normal Indian resident, one cannot open a foreign currency account in India. However, an exporter or professionals earning in foreign currency in India have been permitted by RBI, to maintain foreign currency accounts with banks in India authorized to deal in foreign exchange. These accounts do not earn interest but allows for retention of 100 per cent of the export proceeds in these accounts. It saves the exporter from exchange rate fluctuations, besides the freedom for using the foreign currency for export promotion activities by the exporter.
What has been the impact of such schemes in promoting exports of the country?

India’s Export Performance

The significant openness which started becoming visible in the nineties intensified from 2000 onwards with a sharp focus given through the FTP has resulted in a reversal of the declining trend in global trade. However, the growth of the Indian economy in recent times has outpaced the trade growth or that trade growth has lagged behind the overall growth.
To draw comparisons with China, during 1950, India’s exports were more than that of China, however, gradually China overtook India. It may be interesting to note that China’s share in manufactured exports stood at 1.8 per cent and India’s at 0.5 per cent during 1990 but presently China has become the largest exporter of manufactured goods, displacing even the US while for India share in global manufactured exports is only around one per cent. India’s export is only about 15 per cent of what China exports to the rest of the world. This is not to take away any credit to India on the export front which has seen some distinct focus and acceleration in the last few years. Except that the global recession has adversely affected global trade including exports of India and China, resulting in contraction of exports in the wake of slowdown of global trade.
There is an apparent turnaround since recent times but resulting out of steep depreciation of the Rupee. With signs of recovery in the US and Europe, exports are likely to pick up. The overall objective, as already covered in the FTP is to double our share by 2020. The composition of Indian exports has also undergone a change, diversified from an exporter of traditional and agricultural-based products to increased exports of manufactured goods which now account for over 69 per cent of the total exports and a relative decline in the share of exports of primary articles.
Notable among manufactured exports are engineering goods, chemicals, petroleum oil and lubricants (POL) products, textiles, leather products, handicrafts, and gems and jewellery. Another important feature is the changing trading partners of India from the dominant US economy to new trading partners and China and UAE emerging as top two trading partner countries. Also exports to countries such as Singapore, south- asian countries and Sri Lanka are increasing due to bilateral agreements entered into recently.
Newer markets comprising of Latin American-Oceania countries and African countries are likely to witness greater thrust in future. This is significant as part of the conscious attempts made by the government to ‘look East’ to reduce ‘dependence on the West’.
Despite these appreciable change in trading partners in terms of the quantum of exports in value terms the major markets continue to be the US and European Union and it may take some to see the east countries actually becoming major if not equal trading partners of India in the future.

What More Needs to Be Done to Increase Exports?

The FTP has played an important role in accelerating exports but can something more be performed which can further boost export growth or help like the Chinese experience.
(1) Liberalization has touched all sectors such as industrial, financial, but not specifically the export sector which is highly restrictive and a multiple complex regulatory framework, comprising of the Ministry of Commerce, DGFT and BOT, etc.
What this has resulted in ‘indirect’ licensing system, registration formalities for various facilities, documentation requirements or to say they act more as impediments rather than the facilitating exports.
What is required? Simplified procedures, documentation and single window clearances for exporters similar to that for private sector in the manufacturing sector. Or simply liberalize the export sector and get rid of the government interface.
The complex procedures, documentation, government interface and incidentally excessive have led to increased transaction costs, inordinate delays adversely affecting our competitive capabilities.
While export is a thrust area for the government but multiple government bodies dilute the focus such as DGFT, BOT, and the Ministry of Commerce. There is a need to closely look at all the government organs, their relevance, weeding out overlaps and ambiguities, with a leaner effective and efficient structure facilitating exports from the country.
(2) The FTP is a 100 page document detailing micro aspects of exports, multiplicity of schemes, overlaps, not easy to comprehend. Can we have a simplified and easy to understand FTP?
(3) The overall tone from the FTP appears to be an element of ‘trust deficit’ or a ‘disconnect’ between the government and the exporters which gets evidenced from the micro-regulations. This has to be bridged with government and exporters becoming partners.
(4) While acknowledging export as a thrust area, there is an apparent confusion of the thrust area within the subset of exports. Is it product, or markets? Which is priority? This cannot be decided by the government.
It can but provided it as a direct exporter. Priority, in the national interest should be deliberated with exporters by placing all facts before them and also challenges and then jointly arrive at an action plan for meeting the challenges.
(5) Agricultural sector in India has great potential for increasing exports and earning maximum foreign exchange given their zero-import content. The performance of AEZ has left much to be desired.
More focused attention needs to be given by the state governments in making agricultural sector contribute a larger share to the overall exports from the country.
(6) The overall direction for promoting exports by the government is from the monetary incentive angle, but very little for strengthening the competitive abilities of Indian exports, except for technology upgradation fund scheme (TUFS) but that is for textiles.
What about upgradation of .quality for example, in leather industry or even handlooms or for other products? Can there be fusion of traditional with the modern? The existing ‘incentive’ orientation has to pave way to ‘competitive orientation’.
(7) India also needs to do something like what japan has done previously that of ‘zero tolerance’ or ‘no defect policy’. China went for ‘mass-scale standardization’ to achieve desired quality levels. Can the government set bench marks for various goods to ensure qualities are not comprised in exportables?
(8) A lot is being talked about in recent times of export competitiveness being eroded because of appreciating home currency, making goods expensive in the international market and thereby adversely affecting exporters in the home currency.
It needs to be understood, that as economies pursue greater openness, exchange rates will always be a variable and exports sensitiveness to such a variable, is myopic and not provide for long-term stable growth of exports.
Exports should be more a function of ‘quality’ rather than ‘prices’. The focus in promoting stable and sustainable export growth has to be more on better and improved quality, moving up the value chain, greater sophistication and diversified markets rather than looking at competitive abilities based on only prices.
(9) All major countries of the world which can potentially become our trading partners have either an embassy or a high commission of the country, represented by a high commissioner or an ambassador.
Can we also see them as playing brand ambassador to Indian goods or a platform to showcase Indian goods or become a conduit between the importer and the exporter from India? It should not be difficult as each office also has commercial attache.
What is solely required is changed orientation and willingness of the government. This would make government true partners in increasing Indian exports.
(10) Finally, India is a unique country, offering great diversity, almost similar to as being country within the country. Many products sold from India in the international markets are not known for their Indian origin.
Understandably, Indian branding may not be possible, but branding of the product ‘being’ from India surely can be done.
Can the Indian Government do a similar branding like that of ‘incredible India’ showcased for tourism, to promote Indian exports in a composite and comprehensive manner covering all gbods and services.
India’s ‘potential’ to export a wide range of diverse goods from Kashmir to Kanyakumari, from Gujarat to north-east states, from traditional, ethnic to modern, its herbs, medicinal plants is probably unknown to the World.
Can the government do a global publicity building? An Indian brand image for tapping this latent potential not only to improve exports but also as an income source and also bring distant and remote places of India on national and global map

India’s Imports

As far as imports are concerned for a long time it was believed that it comprised of critical products such as food items and a fairly high proportion of import of fuels especially POL. Import of fuels was over 70 per cfent of the total import basket. In recent years, the share of fuels especially POL has come down to around 33 per cent. Import of commodities such as precious stones, gold and silver bullion, uncut and unpolished gems and jewellery, electronic goods, etc., account for almost 40 per cent of total imports.
Share of fertilizers imports and also that of edible oils and pulses have sharply increased in the last few years. Increased fertilizer imports are largely due to steep escalation in their international prices. While increase in imports of edible oils and pulses is on account domestic production not sufficient to match demand and to further prevent any pressures on their prices in the domestic market.
However, a discerning aspect of our structure of exports and imports of merchandize goods is the fact that imports have always outstripped exports continuously post-Independence. In no given year our exports were sufficient to meet imports. The implications will be examined in the next section.
India’s exports in recent times has begun to evolve, diversify in products and markets, moving up the value chain, creeping up its share in global trade, but these only mark an initiation, with no room for complacency, require greater intensification of efforts, tapping the immense available potential, globally competitive, to make robust growth of exports a reality, and a driver of growth in future.