Foreign Trade Policy of India

Dr. A.K. Sengupta

Principal Advisor CED Former Dean, Indian Institute of Foreign Trade
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Foreign Trade Policy of India

1. International Business Operations are influenced by various policy measures employed to regulate trade both by home country and host country. 2. Trade Policy refers to the complete framework of laws, regulations, international agreements, incentives, non-tariff barriers like quota, indirect subsidy etc. Financial controls to conserve foreign exchange. 3. These instruments are reflected in various export-import procedural matters and documents as prescribed by the government from to time. 4. Host countrys trade and investment policies influence entry decisions
Policy incentives help exporters to increase profitability.
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5. A thorough understanding of the countrys trade policy and incentives are crucial to the development of a successful international business strategy 6. Need for a Foreign Trade Policy for developing countries like India

Huge gap in per capita income between developed and developing countries
Efforts to bridge the income gap between developed and developing countries to raise living standards by increasing income levels and to cope with the uneven development in the domestic economy are the central concern of economic and trade policies of developing countries

With low production base and constrains in value addition, most developing countries remain marginal players in international trade
Key characteristics of developing countries:
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 Heavy dependence upon developed countries for both exports and imports

Dominance of primary products commodities such as agricultural goods, raw materials or labour intensive manufactured goods like Readymade garments, leather products.
Over dependence on a few markets and a few products Worsening Terms of Trade high share of commodities

Global protectionism
Developed countries provide subsidies to farmers

Non-tariff barriers like

Quality requirements Environmental and social issues

Quotas
Indirect subsidies
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7. Indias Foreign Trade Policy is formulated under Foreign Trade Development & Regulation Act, for a period of five years by Ministry of Commerce & Industry, which outlines countrys export promotion measures. DGFTs responsibility is for execution of the policy Most developing countries including India, historically followed inward looking trade strategies encouraging import substitution and restriction in imports and FDI In 1991, India shifted towards outward looking strategies involving greater integration with world economy. To encourage exports, a number of duty exemption and remission schemes have been introduced

 Export Promotion Capital Goods (EPCG) scheme 5% duty concession on capital goods imports subject to export obligation
Advance license Manufacturer exporter / merchant exporter (tied with manufacturer) zero duty on imports Duty free imports of inputs for export production value addition of 20% Duty draw back scheme refund of customs duty paid on inputs.

To augment export production the Trade Policy provides various schemes: EOU

Electronic Hardware Technology

Software Technology Parks Bio-technology parks

SEZ
Assistance to states for developing Export Infrastructure & other Allied activities

Promotional Measures Market Development Assistance Fund (MDA) To assist exporters in their export promotion activities Assistance is available for exporters with annual turn over of RS 150 million for export promotion

Promote exports to new markets Travel - Brochure Market Access Initiative Scheme (MIA) for Focus market and focus product approach
The scheme is formulated on focus products focus country approach Market surveys Setting up of showrooms and warehouses Sales promotion campaign
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Served from India Scheme Service Sector The scheme allows for import of any capital goods, including spares, office and professional equipment, office furniture and consumable for providing the services, duty free Towns of export excellence The schemes aims at recognizing towns that have come up as industrial clusters with considerable exports so as to maximize their potential

Special Agriculture and Village industry scheme (Vishesh Krishi & Gram Udyog Yojna) The schemes aims to promote the agricultural products, minor forest produce, floriculture process fruits and vegetables and various village industries products and forest based products

Focus Market Schemes (FMS)

In order to enhance Indias export competitiveness to select strategic market the focus market scheme was introduced Latin America, Africa CIS and ASEAN

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Focus Product Scheme (FPS) In order to provide incentives for export of selected products that have high employment potential in rural and urban areas for the focus products scheme was introduced Leather products, stationery items, fire works, sports goods, handloom and handicraft items, Gems and Jewellery, value added fishery products and coir products

High Tech Products Export Promotion Scheme

IT hardware sector

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Export / Trading Houses

Objectives of the scheme is to give recognition to the established exporters and large export houses

Category
Export House** Star Export House (SHE) Trading House (TH) Star Trading House (STH) Premier Trading House (PTH)

Average FOB/FOR value* In Rupees

200 million 1 billion 5 billion 25 billion 100 billion

The exporters who have been granted the status of export house / trading house are entitled to a number of benefits under the foreign trade policy.
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 Agri-Export Zones (AEZs) Pre-shipment and Post-shipment Finance ECGC Schemes

EEFC account

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Foreign Trade Policy of 2009-2014

Though India has not been affected to the same extent as other economies of the world, its exports suffered a decline due to contraction in demand in our traditional markets in recent years.
Indias share of global merchandise trade was 0.83% in 2003 Rose to 1.45% in 2008 Share of services exports was 1.4% on 2003 Rose to 2.8% in 2008 Target to double our share of both merchandise and services by 2014 from 2008 level Short-term objective is to arrest and reverse the declining trade of exports and to provide additional support especially to those sectors which have been hid badly by recession Policy objective is to achieve an export growth of 15% with an annual export target of US$ 200 billion by March 2011. By the end of the Trade policy period in 2014, the country should be able to achieve a growth of 25% per annum 14

To meet this objective the government has announced a mix of policy measures Fiscal incentives Institutional changes Procedural rationalization Enhanced market access Diversification of markets Improvement in infrastructure related to exports Bringing down transaction cost Providing full refund of all taxes & levies

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Highlights of the Policy Higher support for markets and products diversification Focus market scheme 26 new markets added incentives raised Focus product scheme Agro based products Floriculture processed fruits & vegetables Gem & Jewellery, Leather products, Handicrafts,

Other products included Engineering products (agricultural mechanism), hand tools, garden tools, Textiles, jute products and electronic items, pharmaceuticals
Market Linked Focus Products 13 identified markets Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand

Technological Upgradation
- EPCG schemes at Zero duty
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New Towns of Export Interest Jaipur, Srinagar, Anantnag for Handicrafts Kanpu, Dewas, Ambur for Leather Products EOU EOUs are allowed to sell products manufactured by them in DTA upto a limit of 90% instead of existing 75% EEFC 100% in foreign currency Pre-shipment and post shipment finance Subvention of two per cent
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Malihabad for horticulture products. Products from North Eastern Region Income Tax exemption to 100% EOU and STP1 units ECGC cost 95%

Sector wise benefits Marine products Handicrafts Gems & Jewellery Diamond Trading hub by establishing Diamond Bourse(s) Agro-based products

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