ECONOMICS II

Foreign Trade
An Analysis

3/9/2009
 Foreign Trade of India: An Analysis

Post Liberalization Exim Policy (1991-01)

India’s Export Performance in the post liberalisation period i.e., 1991-2001 has been
much better than the pre-reform period. From a level of (–) 1.5% growth rate during 1991-92
the value of exports in dollar terms witnessed a growth rate of 21% in 2000-01.
Consequently, India’s share in world exports increased from 0.41% in 1992-93 to 0.67% in
2000-01. In terms of openness of Indian economy, that is trade measured as percentage of
value of GDP, the degree of openness, has almost doubled from a level of 13% in 1990-91 to
22% in 2000-01. The highest export growth rate for the decade was achieved in 2000-01 at
21%. Such a commendable performance on the export front could be attributed to the
favourable international economic environment, the domestic reforms undertaken during the
last few years and the responsiveness of the exporters to the market trends.

A compositional change has been witnessed in the export basket of India with the
opening up of the economy. During the last 10 years there has been a significant shift in the
composition of the export basket . The share of manufactured goods in total export of India
has increased from 76% in 1991-92 to 83% in 2000-2001. Chemicals & related products,
Engineering goods, Electronic goods,
Gems & jewellery, Marine products
Submitted by:
and Textiles have witnessed steady
export growth, barring Maneesh Gangwani (81088) some inter year
variations, during the Namita Gupta (81091) period. The growth
rates of Agricultural & Pallavi Garg (81094) allied products and
Leather & manufactures have lagged
Vaibhav Gupta (81120)
behind during the last 10 years. The export
Yogesh Sehgal (81122)
growth rates of items within the
manufactured goods FMG 17 B groups have shown
an increasing trend throughout the
decade and include items like Gems &
Jewellery, Manufactures of Metals, Drugs,
Pharmaceuticals & Chemicals and Textiles.

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 Another important sector is that of Petroleum products export in which the share has
risen from a level of 2.58% to 4.10%. Destination-wise, the share of India’s exports to Asia
& Oceania region has improved significantly over the decade from 30% in 1990-91 to
37.48% in 2000-01. Similarly, North America’s share has increased substantially from 16%
to 24.73% and Africa’s share has more than doubled from 2.61% to 5.3%. However, the West
European region has slipped from its top position as India’s main export destination to the
second position with its share falling from 33.64% in 1990-91 to 27.7% in 2000-01.

Another important trading partner of India whose share has fallen substantially is that of
East European region. India’s exports to this region have declined from a level of 17.87% in
1990-91 to 2.95% at the end of the decade. In terms of growth performance, high growth
rates have been recorded in the case of Asia & Oceania, Africa, America and Latin American
Countries (LAC). Low growth rates have been seen in our exports to West Europe and East
Europe.

Country-wise, share of Hong Kong in India’s total exports has shown an increase from
3.29% to 5.94% in the decade.The share of India’s exports to China to the total has also
increased from 0.10% to 1.87%. Other countries to which India’s exports during the last
decade have increased are Bangladesh, Sri Lanka, Indonesia and Malaysia. The countries that
have declined in importance in this region are Japan, Australia and Singapore. Among
countries other than ESCAP region in Asia & Oceania, the share of India’s exports to UAE
has more than doubled. The substantial fall in the share of Western Europe can be attributed
to decline in the share of India’s exports to Germany, U.K., Italy, Belgium, Switzerland and
Finland. The East European story is largely explained by the fall in the share of India’s
exports to CIS countries.

Review of Past Export Strategies

In the past, the Ministry of Commerce had formulated several export strategies that
identified growth markets and products. The essential assumption behind such strategies is
that since resources are limited, concentration on selected products and market segments
would provide better return in terms of incremental export expansion compared to the
strategy where the limited resources are distributed thinly over a large spectrum of products
and markets.

The Extreme Focus Product Strategy was introduced in 1992 with the objective of
giving a focussed attention to products that have high production capacity in India and
potential for export competitiveness. The target for the Focus Products was to induce growth

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of 30% volume/value in the medium term and stabilise growth in the subsequent period. The
success of this strategy has been mixed.

The 15X15 Matrix Strategy was first launched in the year 1995. The objective of this
strategy was to identify market diversification and commodity diversification. An
examination of the effectiveness of the strategy shows that the share of the total top 15
product groups exported to the top 15 market destinations declinesd from 71% in 1996-97 to
66% in 2000-01 in respect of the total export of these 15 product groups for all destinations
taken together. There has thus been a market derivsification for these product groups. The top
three items of India’s exports contained in the Matrix continue to remain the same during
2000 - 01 i.e. Gems and Jewellery, RMG Cotton including accessories and Cotton Yarn,
Fabrics and Made Ups. The top three destinations changed from US, UK and Japan to US,
Hong Kong and UAE.The ranking of other countries has also changed. These developments
need to be factored into the new strategy.

Focus LAC was another strategy launched in 1997 with the objective of boosting
exports of select items like Textiles including RMG, Engineering goods and Chemical
products to Latin American Region. The highest ever growth rate of exports to this region
was achieved in the year 2000-01 when the value of exports touched an all time high of US$
982 million. Although the current volume of trade between LAC and India is still low, there
is scope for enhancing two-way trade between India and the LAC region. It is obvious that
the overall export strategy must include regional focus wherever potentialities are identified.

The main lesson that we learn from the export strategies of the last decade is that the
composition, competitiveness and complexion of world merchandise trade are changing very
fast and a dynamic approach with a built in institutional mechanism for constant review is
essential for any medium term export strategy in order to achieve a higher share of global
exports on a sustainable basis. The focus of the past strategies was on the existing export
products of India; what is additionally necessary is to review the import baskets of our
current and potential markets and also to examine our export competitiveness, both revealed
and real based on our potentialities.

While the overall medium term strategy would have to be necessarily evolved on the
basis of the perspective of a longer time frame, there would also be need for short term
response to unforeseen situations like the slowdown in world economy witnessed from the
begining of 2001 and aggravated by the September 11, 2001 event.

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 In the past, the export strategies had basically concentrated on existing products and
existing markets of India’s export sector. What is additionally necessary, and what has been
addressed in the present strategy document, is identification of export opportunities after
examining the import basket of major importing economies of the world and identifying
potential items of exports in which India is competitive vis-à-vis some of the major exporting
countries of these products at present. The existing products and markets have also been
analysed. Focus markets have further been identified based on different criteria. Another
additionality in the current document is that some of the key strategic policy issues that have
a bearing on India’s competitive advantage in opportunity areas have been brought in one
place so that policy measures that are necessary to enhance the competitive edge of our
exporting community gets appropriate focus. Sector-wise strategies have also been examined.
The strategy document further fully takes into account the international developments and the
complexities arising in the New World Trade Order under the WTO.

SECTOR-WISE STRATEGIES

For the identified potential sectors, indicative sector-wise strategies have been given based on

the detailed strategy paper prepared by the Export Promotion Councils/Commodity Boards
and detailed discussions held with exporters. The main sectors covered are the following:

Engineering (including instruments and items of repairs), Textiles, Gems & Jewellery,
Chemicals & Allied, Agriculture, and Allied (including Marine and Plantations), Leather &
Footwear items and Other items.

These strategies need to be operationalised by Government for achieving the

maximum results.Some of the major strategies suggested for the different sectors are as
follows:

Engineering/Electronic/Electrical and allied

The strategies for this sector include support for SMEs to modernise, accreditation of
testing laboratories in India by overseas agencies, R&D, other measures to effectively counter
NTBs in the form of TBT conditions, furthering joint ventures, brand promotion, support to
industry to fight anti-dumping cases, providing warehousing facilities in overseas markets,
exploring possibilities of promoting exports of Indian made economy vehicles in developing
countries and middle and low income groups in developed countries, promoting export of
automobiles with the help of FDI, MRAs with respect to recognition of testing agencies and
infrastructural and logistic support for automobiles exports, a three pronged export marketing

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strategy for automobile component exports (i) export through Original Equipment
Manufacturers(OEMs) for their global sourcing requirements, (ii) export to tier 1
manufacturers as a part of their international supply chain and (iii) direct export to after-
market, focussing on auto sector in some SEZs and automobile component centres, setting up
construction equipment banks and adoption of consortium approach by Indian construction
companies to increase project exports, the 3 key mantras to promote electronics hardware,
namely (i) hardware-software combination, (ii) integrating local and export production and
(iii) massive investments. We need to make all out efforts to develop India as an off-shore
production centre for electronic components/equipments required for MNCs through
clusterisation, low-duties, and combine all this with an appropriate thrust on service exports.

Textiles sector

The main strategies for this sector include increased investment in key areas,
infrastructure development by setting up ‘Apparel Parks’ and Textiles Centres Infrastructure
Development Schemes, restructuring EPCs, Brand Promotion and market assistance schemes,
restructuring

labour laws and smoothening existing schemes.

Gems & jewellery

The main strategies for this sector include forging strategic alliances with producers
of roughs and retailers of jewellery and efforts to make India a grading/trading centre for
processed diamonds, forward integration into gem stone jewellery, moving towards exports
of jewellery, etc.

Chemicals and allied sector

The main strategies for this sector include setting up of Comprehensive Chemicals
Estates(CCEs), enhancing awareness of Indian herbal items, focussing on branded generic
pharmaceutical products out of patent regime, promoting exports of cement by lowering input
costs like import duties, customs examination charges by railways, state levies, freight rates
by railways etc.

Agriculture & allied sector

The main strategies for this sector include establishing Agri.Export Zones,
establishing a supply chain management and export certification programme for basmati rice,
setting up a nodal SPS point in the Department of Commerce, cold chain system and
innovative packaging for floriculture exports, packhouses/value added centres for mangoes,
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market oriented approach for tea and shift in focus from bulk tea exports to value-added
packaged tea exports, focus on export of value added forms of natural rubber and export of
rubber wood, judicious mix of strategy relating to export of Arabica coffee vis-à-vis Robusta
depending on market preference, promoting tobacco exports by production of quality tobacco
of FCV and Burley types, pursuing with USA for higher TRQ (Tariff Rate Quota) allocations
and promoting exports to Japan, China, Russia, Tunisia, Morocco, etc. through bilateral
negotiations, construction of drying yards and promoting exports of value added kernels in
consumer packs, promoting exports of value added and organic spices and determining
minimum residue level for pesticide residues in the case of spices, promoting use of better
handling techniques on fishing vessels and adoption of food safety and quality systems in the
case of marine exports, utilisation of under-exploited commercially important varieties in the
case of capture shrimps and logo schemes for marketing marine products.

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 ANALYSIS OF FOREIGN POLICY 1997-2002

NDA REGIME

Highlights of Exim Policy

The new 5-year Export and Import policy for the period 1997-2002 aims at giving a major
thrust to acceleration of India's exports through restructuring and revamping of various export
promotion schemes and wide ranging measures for simplification of procedures with a view
to making them more transparent and easy to administer.

Gems & Jewellery Scheme To promote export of gold jewellery, it is proposed to increase the
number of nominated agencies permitted to stock gold. At present only HHEC, SBI, MMTC
and STC are doing this. This improvement will make available adequate quantity of gold to
exporters on replenishment basis or on outright purchase.

Moreover, the EOU/EPZ units are being permitted to sell 10% of their output in the DTA
against SIL on payment of duty. Duty Exemption Scheme Significant changes have been
made to reduce the multiplicity of schemes, improve their attractiveness and to make them
simple and easy to administer. The quantity based advance license has been continued.

It has restructured various export promotion schemes and has replaced Value Based Advance
License and the Passbook Scheme by a new scheme called Duty Entitlement Passbook
Scheme. Under this scheme, an exporter, on the basis of notified entitlement rates, will be
granted duty credits which will allow them to import inputs duty free. He can make use of
this to import any free importable item. The credit can be transferred to another person but
the transfer will be valid within the same port.

Under the Advance Licensing Scheme, the procedure has been further simplified. The Export
Obligation period of 12 months has now been extended to 18 months. Further extension for 6
months will be granted on payment of 1% of the value of unfulfilled exports. This will reduce
considerable paper work and harassment to the exporter.

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Software Software units can undertake exports using a data communication link or in the
form of physical exports through a courier service also. They will be permitted on-line data
communication for DTA sales, use of the computer system for commercial training and
import of goods on loan from clients for a specified period.

Agro Sector Import of equipment of Rs 5 crores and above under the Zero Duty EPCG
Scheme will be permitted for this sector.

Double weightage will be given to agro exports in calculating the eligibility of Export
Houses, Trading Houses, etc. An additional 1% Special Import License on the total value of
exports will be given for export of fruits, vegetables, floriculture and horticulture products.

EOU/EPZ units will be permitted to sell 50% of their output in the DTA on payment of duty
without insistence on value addition.

Special Incentives for Export of SSI product/Products from North Eastern States/New
Markets
An additional Special Import Licence of 1% on total value of exports has been given to
EH/TH, etc., where such exports of products from North Eastern States constitute 10% or
more of the total exports made. Double weightage on such exports has been given for
recognition as EH/TH/STH/SSTH. Additional SIL has also been given for exploration of new
markets. SIL on export of SSI products has been increased from 1% to 2%.

In case of small scale exporters holding ISO 9000 series or IS/ISO 9000 series quality
certification, the FOB value of export will now be Rs. 1 crores and above during the
preceding three licensing years instead of the limit of Rs. 5 crore and Rs. 2 crore respectively
prescribed for others.

Export /Trading /Star Trading /Super Star Trading Houses

Earlier eligibility criterion for recognition of Export House/Trading House/Star Trading
House/Super Star Trading House based on the average annual export performance of the
preceding 3 licensing years was Rs 10 crores, 50 crores, 250 crores and 750 crores
respectively. Keeping in mind the export target growth to be reached by the turn of the
century and the fact that such status holders contribute between 60-70% of the country's total
exports this has now been revised to Rs 20 crores, 100 crores, 500 crores and 1500 crores
respectively.
Incentives to improve Quality of Export Products The SIL entitlement of exporters holding
IS/ISO 9000 series has been increased from 2% of FOB to 5% of FOB.

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 PERFORMANCE OF EXPORTS AND IMPORTS

Exports as
percentage
Year of Imports
1998-
99 78.36617538
1999-
00 74.13330412
2000-
01 88.17445579
2001-
02 85.24348616
2002-
03 85.84529075

During the last decade of reforms, India’s exports have performed well. Positive policy
measures combined with robust growth of world trade have led to this improved
performance. Compared to pre-liberalization period, India’s export to GDP ratio has
increased from 5.8% in 1991-92 to 10.1% in 2000-01 and the export growth rate has
increased from -1.5% in 1991-92 to 21% in 2000-01. The export growth rate, however, has
not been steady during this decade; the rate was high during 1993-94, 1994-95 and 1995-96
at 20%, 18.4% and 20.8% respectively, but declined sharply in 1996-97 to 5.3% and became
negative in 1998-99 on account of South East Asian crisis and worldwide recession. It again
recovered to 10.8% in 1999-00 and reached the highest growth for the decade at 21% in
2000-01. However, the global economic slowdown and the events of September 11 have led
to a steep fall in the rate of growth of exports during 2001-02. Liberalisation & trade reforms
have also led to a compositional change in India’s export basket. Analysis of our export
basket indicates an increase in the share of manufactured goods along with an overall
widening and diversification of exports.

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India’s export performance has been commendable and exports have risen from USD 18
billion in 1991-92 to a leval of USD 44.56 billion in 2000-01. The trend starts from a
negative export growth in 1991-92, the year when liberalisation efforts started in full swing
and can be divided into 3 distinct time periods (refer Annexure table 2.1)

In the first five years i.e. 1991-92 to 1995-96, the export growth rate averaged around 12.28%

with the highest of 20.8% achieved in 1995-96. The good performance could be attributed to

the favorable international economic situation and domestic reforms. In the next three years,
however, export growth rate sharply declined with growth rate at 5.3% in 1996-97 and
becoming negative in 1998-99 on account of the South East Asian crisis.

India’s Exports as a percentage of World Exports

Export Growth Rate of India and World

Year World’s Export India’s Export Growth

Growth Rate Rate

1995 19.67 22.41

1996 5.28 8.10
1997 3.55 5.75
1998 (-)1.63 (-)4.48
1999 3.95 8.61
2000 12.4 16.46

Source: WTO International trade statistics 2001

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Source: Indiastat

PERFORMANCE OF IMPORTS

Source: Indiastat

MAJORT COMMODITIES IN IMPORTS

Percentage share to total imports

1994-95 2000-01

Petroleum crude & products 20.69 31.53

Pearls precious & semi 5.72 9.69
Machinery 15.03 8.24
Organic & Inorganic chemicals 7.46 4.91
Electronic Goods 4.29 7.06
Gold & Silver 2.49 8.92

It is seen that during the second half of the 1990s, there has been a shift in the commodity
composition of major items of imports. The proportion of imports of items that are related to

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export production has increased. The rise in the percentage of imports of Pearls, Precious &
semi-precious stones, and Electronic goods to the total imports are pointers in this case. It is
also important to note that the share of the value of import of Petroleum crude to the total
imports has gone up by nearly 10% mostly on account of the rise in oil prices.

Structural Changes in Indian Exports

As already noted earlier, there has been a compositional change in the export basket of India.

The share of manufactured goods in the total exports of India have increased from 75% in

1991-92 to 79% in 2000-01. If we include Petroleum products being exported from the
country, the share of manufactured goods has risen from a level of 76% in 1991-92 to 83% in
2000-01. On the contrary, the share of Agricultural and allied products has declined from
18% in 1991-92 to 13% in 2000-01. Similarly, the share of exports of Ores and Minerals has
declined from 5.2% in 1991-92 to 2.60% in 2000-01. This is an evidence of India’s exports
moving away from Resource based products to Technology based products in the post-
liberalisation period.

A study(1) reveals that during 1980-96 the growth of Indian export earnings turned out to be
above the world average for all the broad categories of Extended-Manufacturing (E-Mfg)
exports including double digit growth rates in labour and scale intensive products. However,
Indonesia, Malaysia and Thailand posted much higher and more stable growth rates than
India. A better export performance than India in technologically more sophisticated products
by South Korea and Taiwan requires to be underlined. During the period 1980-96, the highest
growth has been achieved in the export of labour-intensive exports at 12% by India which is
higher than the world export of labour-intensive products at 9%. As far as changes in the
commodity composition of country specific export basket is concerned, India improved the
share of Extended-Manufacturing significantly from 56% (1980-86) to 71% (1987-90) in
total exports but only marginally further to 75% during 1993-96. The first period 1980-1990
was marked by the rise in the share of scale intensive exports. Share of labour intensive
exports remained constant at around 41%.The scale intensive product exports improved their
average share from 26% in 1980-86 to 36% in 1993-96. On the other hand, the Resource
Intensive export items witnessed a decline in their share to the total exports from 11% during
1980-86 to about 6% in 1993-96. The other early trade liberalising and rapidly growing
economies changed their export basket increasingly towards differentiated and science based
products. This diversification achieved by them helped in reducing their vulnerability to

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volatile world trading environment in resource intensive exports and slower growing world
exports of labour intensive products.

The critical factor in these countries has been not the state of the international trading
environment but the functioning of the domestic main springs of the growth process such as
the incentive structure for innovations, reliable and cost effective transport and
communication facility and stable macroeconomic management - all this has been driven by a
proactive approach. India had a headlong start in industrialisation in the 1950s well ahead of
these countries, but the persistently inward looking character of Indian industrialisation not
only made it internationally non-competitive but led to wastage of scarce capital and foreign
exchange, thereby slowing down the rate of economic growth. Possibly realising the limited
size of their domestic markets at lower levels of per capita incomes, these East Asian
countries had switched from import substitution to export-orientation fairly early in their
development process. India was the first in initiating industrialisation but the last in trade
liberalisation.

Region and country-wise trends

Analysis of trends in the share of India’s major export destinations during 1990 shows certain

trends (refer table 2.3 in annexure):Asia and Oceania region has improved its share
significantly over the decade from 30% in1990-01 to 37.5% in 2000-01.The West European
region has slipped from its top position as India’s main export destination to the 2nd position
with its share falling from 33.6% to 25.35% over the same period. America’s share increased
substantially from 16% to 25% mainly due to increase in share of North America (USA &
Canada) from 15.6% to 22.41%. Exports to Africa have displayed a 17% growth rate and
share increased from 2.6% to 5.3% over the decade. Nigeria and South Africa have shown an
increase from 0.35% to 0.86% and 0% to 0.7% respectively. However, one of the important
trading partners, East European region’s share has fallen substantially from 17.87% in 1992
to just 2.95% in 2000.

Major Export Destinations

Trend

In the West Europe region, Belgium, France, Italy and Netherlands have more or less
maintained their respective shares while there is a marginal fall in the share of Germany and
UK.

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In the Asia & Oceania region, among the major partners, Hong Kong’s share improved from
3.3% to 6%, while that of Japan fell to 4.04% from 9.3%. The share of UAE has increased
from 2.42% in 1990-91 to 5.8% in 2000-01. In the American region, USA’s share of India’s
exports has increased substantially, from 14.7% in 1990-91 to 20.94% in 2000-01. In the case
of South American countries, Brazil’s share has increased from 0.08% to 0.5% in 2000-01.
CIS a major trading partner of India having a share of 16% in 1990-91, lost its share
drastically to a mere 2.38% in 2000-01.

EXIM POLICY 2004-2009

UPA REGIME

The policy contains special focus initiatives for agriculture, handicrafts & handlooms,
gems & jewellery, and leather and footwear sectors. The special attention to agriculture is
particularly noteworthy because export promotion policies so far have focussed mainly on the
manufacturing sector. The agricultural sector had not received the attention it deserves in a
country where the vast majority of population is engaged in agriculture related activities.
India has taken big strides in increasing agricultural productivity and has achieved food
security. A concerted boost is now required to be given to promotion of agricultural exports,
especially high value commercial items and value added agricultural products.
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 The new policy contains a number of initiatives for achieving a quantum jump in
export of agricultural products. The Vishesh Krishi Upaj Yojana will boost exports of fruits,
vegetables, flowers, minor forest produce, and other value added products. The special
package for agriculture also includes policy measures like duty free import of capital goods,
liberalized import of seeds, planting materials, etc and liberalized export of medicinal and
herbal products. The focus on agricultural sector in the new foreign trade policy will, among
other things, enhance employment in some of the poorest regions of the country.

While policies for promoting exports of above mentioned agricultural products are a
step in the right direction, I would request the Hon'ble Minister to also come out with a
proactive policy on grain exports. It is an area with tremendous potential and a long-term
policy would help Indian grain exporters capture larger market share.

A significant percentage of agricultural production in India is damaged or lost due to

poor storage, deterioration during transit, rodent infestation, etc. Many of India's perishable
agro products often run into quality problems which create buyer resistance in foreign
markets. There is an urgent need to strengthen the storage and transportation infrastructure
for such products. The new policy addresses this issue to a great extent. There is a scheme to
establish Free Trade & Warehousing Zones to create trade related infrastructure to facilitate
import and export of goods and services. Foreign Direct Investment would be permitted upto
100 per cent in the development and establishment of the zones and their infrastructural
facilities. The central aim of this scheme is to make India a global trading hub. The world
class warehousing and other infrastructure will also meet the special needs of agricultural
products.

While announcing the new policy, a very important observation was made that while
increase in exports is of vital importance, we have also to facilitate those imports which are
required to stimulate our economy. This central thread runs throughout the new policy. In all
the export thrust sectors there is a policy of allowing several duty free imports for
neutralizing the incidence of levies and duties on inputs used in export products. This will
make export inputs available at international rates and will enhance the competitiveness of
Indian products in world markets.

There are several other features in the new policy like setting-up of an exclusive
Services Export Promotion Council and setting-up of Bio Technology Parks which are path

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breaking policy initiatives and will have long term impact in strengthening the country's
foreign trade.

In conclusion I would like to reiterate the suggestion towards urgent need for
improving our export related infrastructure like transportation, port facilities etc so that the
concept of total export chain focus mooted by our dynamic Minister can be implemented
speedily.

FOREIGN TRADE POLICY 2004-2009

HIGHLIGHTS

1. Strategy:

(a) It is for the first time that a comprehensive Foreign Trade Policy is being notified. The
Foreign Trade Policy takes an integrated view of the overall development of India’s foreign
trade.

(b) The objective of the Foreign Trade Policy is two-fold:

i. To double India’s percentage share of global merchandise trade by 2009; and

ii. To act as an effective instrument of economic growth by giving a thrust to

employment generation, especially in semi-urban and rural areas.

(c) The key strategies are:

i. Unshackling of controls;

ii. Creating an atmosphere of trust and transparency;

1. Simplifying procedures and bringing down transaction costs;

2. Adopting the fundamental principle that duties and levies should not be
exported;

3. Identifying and nurturing different special focus areas to facilitate

development of India as a global hub for manufacturing, trading and services.

2. Special Focus Initiatives:

(a) Sectors with significant export prospects coupled with potential for employment
generation in semi-urban and rural areas have been identified as thrust sectors, and specific
sectoral strategies have been prepared.

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(b) Further sectoral initiatives in other sectors will be announced from time to time. For the
present, Special Focus Initiatives have been prepared for Agriculture, Handicrafts,
Handlooms, Gems & Jewellery and Leather & Footwear sectors.

(c) The threshold limit of designated “Towns of Export Excellence” is reduced from Rs.1000
crores to Rs.250 crores in these thrust sectors.

3. Package for Agriculture:

The Special Focus Initiative for Agriculture includes:

(a) A new scheme called Vishesh Krishi Upaj Yojana has been introduced to boost exports of
fruits, vegetables, flowers, minor forest produce and their value added products.

(b) Duty free import of capital goods under EPCG scheme.

(c) Capital goods imported under EPCG for agriculture permitted to be installed anywhere in
the Agri Export Zone.

(d) ASIDE funds to be utilized for development for Agri Export Zones also.

(e) Import of seeds, bulbs, tubers and planting material has been liberalized.

(f) Export of plant portions, derivatives and extracts has been liberalized with a view to
promote export of medicinal plants and herbal products.

4. Gems & Jewellery:

(a) Duty free import of consumables for metals other than gold and platinum allowed up to
2% of FOB value of exports.

(b) Duty free re-import entitlement for rejected jewellery allowed up to 2% of FOB value of
exports.

(c) Duty free import of commercial samples of jewellery increased to Rs.1 lakh.

(d) Import of gold of 18 carat and above shall be allowed under the replenishment scheme.

5. Handlooms & Handicrafts:

(a) Duty free import of trimmings and embellishments for Handlooms & Handicrafts sectors
increased to 5% of FOB value of exports.

(b) Import of trimmings and embellishments and samples shall be exempt from CVD.

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(c) Handicraft Export Promotion Council authorised to import trimmings, embellishments
and samples for small manufacturers.

(d) A new Handicraft Special Economic Zone shall be established.

6. Leather & Footwear:

(a) Duty free entitlements of import trimmings, embellishments and footwear components for
leather industry increased to 3% of FOB value of exports.

(b) Duty free import of specified items for leather sector increased to 5% of FOB value of
exports.

(c) Machinery and equipment for Effluent Treatment Plants for leather industry shall be
exempt from Customs Duty.

7. Export Promotion Schemes:

(a) Target Plus:

A new scheme to accelerate growth of exports called “Target Plus” has been introduced.

Exporters who have achieved a quantum growth in exports would be entitled to duty free
credit based on incremental exports substantially higher than the general actual export target
fixed. (Since the target fixed for 2004-05 is 16%, the lower limit of performance for
qualifying for rewards is pegged at 20% for the current year).

Rewards will be granted based on a tiered approach. For incremental growth of over 20%,
25% and 100%, the duty free credits would be 5%, 10% and 15% of FOB value of
incremental exports.

(b) Vishesh Krishi Upaj Yojana:

Another new scheme called Vishesh Krishi Upaj Yojana (Special Agricultural Produce
Scheme) has been introduced to boost exports of fruits, vegetables, flowers, minor forest
produce and their value added products.

Export of these products shall qualify for duty free credit entitlement equivalent to 5% of
FOB value of exports.

The entitlement is freely transferable and can be used for import of a variety of inputs and
goods.

(c) Served from India Scheme:

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To accelerate growth in export of services so as to create a powerful and unique “Served
from India” brand instantly recognized and respected the world over, the earlier DFEC
scheme for services has been revamped and re-cast into the “Served from India” scheme.

Individual service providers who earn foreign exchange of at least Rs.5 lakhs, and other
service providers who earn foreign exchange of at least Rs.10 lakhs will be eligible for a duty
credit entitlement of 10% of total foreign exchange earned by them.

In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of
hotels, it shall be 5%.

Hotels and Restaurants can use their duty credit entitlement for import of food items and
alcoholic beverages.

(d) EPCG:

(i) Additional flexibility for fulfillment of export obligation under EPCG scheme in order to
reduce difficulties of exporters of goods and services.

(ii) Technological upgradation under EPCG scheme has been facilitated and incentivised.

(iii) Transfer of capital goods to group companies and managed hotels now permitted under
EPCG.

(iv) In case of movable capital goods in the service sector, the requirement of installation
certificate from Central Excise has been done away with.

(v) Export obligation for specified projects shall be calculated based on concessional duty
permitted to them. This would improve the viability of such projects.

(e) DFRC:

Import of fuel under DFRC entitlement shall be allowed to be transferred to marketing

agencies authorized by the Ministry of Petroleum and Natural Gas.

(f) DEPB:

The DEPB scheme would be continued until replaced by a new scheme to be drawn up in
consultation with exporters.

8. New Status Holder Categorization:

(a) A new rationalized scheme of categorization of status holders as Star Export Houses has
been introduced as under:

Category Total performance over three years

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One Star Export House 15 crores

Two Star Export House 100 crores

Three Star Export House 500 crores

Four Star Export House 1500 crores

Five Star Export House 5000 crores

(b) Star Export Houses shall be eligible for a number of privileges including fast-track
clearance procedures, exemption from furnishing of Bank Guarantee, eligibility for
consideration under Target Plus Scheme etc.

9. EOUs:

(a) EOUs shall be exempted from Service Tax in proportion to their exported goods and
services.

(b) EOUs shall be permitted to retain 100% of export earnings in EEFC accounts.

(c) Income Tax benefits on plant and machinery shall be extended to DTA units which
convert to EOUs.

(d) Import of capital goods shall be on self-certification basis for EOUs.

(e) For EOUs engaged in Textile & Garments manufacture leftover materials and fabrics upto
2% of CIF value or quantity of import shall be allowed to be disposed of on payment of duty
on transaction value only.

(f) Minimum investment criteria shall not apply to Brass Hardware and Hand-made Jewellery
EOUs (this facility already exists for Handicrafts, Agriculture, Floriculture, Aquaculture,
Animal Husbandry, IT and Services).

10. Free Trade and Warehousing Zone:

(i) A new scheme to establish Free Trade and Warehousing Zone has been introduced to
create trade-related infrastructure to facilitate the import and export of goods and services
with freedom to carry out trade transactions in free currency. This is aimed at making India
into a global trading-hub.

(ii) FDI would be permitted up to 100% in the development and establishment of the zones
and their infrastructural facilities.

(iii) Each zone would have minimum outlay of Rs.100 crores and Five Lakh sq. mts. built up
area
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(iv) Units in the FTWZs would qualify for all other benefits as applicable for SEZ units.

11. Import of Second Hand Capital Goods:

a. Import of second-hand capital goods shall be permitted without any age restrictions.

b. Minimum depreciated value for plant and machinery to be re-located into India has been
reduced from Rs.50 crores to Rs.25 crores.

12. Services Export Promotion Council:

An exclusive Services Export Promotion Council shall be set up in order to map opportunities
for key services in key markets, and develop strategic market access programmes, including
brand building, in co-ordination with sectoral players and recognized nodal bodies of the
services industry.

Further Analysis

Exports

Textiles

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The textile has been among the major exports of India since independence but as we have
seen that in the recent years the percentage share of Textile in the total export has decreased
considerably from 28.30 to 16.60%. The major reasons which can be attributed to this
downfall is that we have not considerably invested into this sector where as our competitors
have surpassed us in both labour cost and technology.

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Leather

Leather again as evident from the graph has shown constant increment in the past few years
but still the measures that are done in terms of providing leather products manufacturing SEZ
and other EOU’s are not fully harnessed. The industry is in a going good but can be improved
by addressing the labour issues as it is a labour intensive industry.

Agriculture

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Agriculture which is the major occupation of people in India has not seen any technological
developenment since the last green revolution. Still old practices of farming are used and the
farm productivity is very low as compared to the developed countries. In 1991 agriculture
was contributing to about 17 % to the exports which has come down to around 12% in 2007-
08. So it shows that the steps that were taken to increase the productiviity of this sector has
not successfully frutified. The various agro export zones that were set are yet to show results
and private initiatives of the kind of E-chaupal are playing important role in educating and
creating awareness among the farmers which may also help in inceasing the productivity in
long run.

Recent Dvelopements

The tarde equation of India has taken a bad hit in the last few months owing to the global
turmoil situation prevailing in the world. As USA the biggest consumer of the world is worst
hit by this recession the effect is seen through out the world and we are facing the heat
slowlyin some of the sectors as we are highly dependent on US for our exports.

Exports in the last few months are a bit on down side as major export sectors Textile, Gems
and Jewellery and a few other labour intensive sectors like Leather are worst hit.

According to ASSOCHAM analysis

 Indian exports are likely to witness a shortfall of about 20%.

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  Projected US$ 200 billion, Expected shortfall US$ 40 billion.

 Fluctuation in rupee dollar exchange rate.

 Improve in Pharma and chemicals, heavy engineering, metal and marine products.

The composition of the export basket has changed and now new sectors like engineering
goods and petroleum products are also playing important roles where as sectors like Leather
and manufacturing has taken a beating.

Commodity Apr-Sep 2007 Apr-Sep 2008(P) %Growth %Share

A) PLANTATION 434.1 585.43 34.86 0.62
B) AGRI & ALLIED PRDTS 5,318.01 8,302.16 56.11 8.75
C) MARINE PRODUCTS 854.07 767.85 -10.09 0.81
D) ORES & MINERALS 3,487.91 4,415.03 26.58 4.65
E) LEATHER & MNFRS 1,713.75 1,972.53 15.1 2.08
F) GEMS & JEWELLERY 9,579.32 10,029.90 4.7 10.57
G) SPORTS GOODS 66.83 82.72 23.79 0.09
H) CHEMICALS & RELATED 10,115.26 12,748.95 26.04 13.43
PRODUCTS
I) ENGINEERING GOODS 15,486.38 22,122.09 42.85 23.31
J) ELECTRONIC GOODS 1,593.27 2,331.17 46.31 2.46
K) PROJECT GOODS 80.8 88.77 9.86 0.09
L) TEXTILES 8,854.17 9,559.20 7.96 10.07
M) HANDICRAFTS 263.59 157.06 -40.42 0.17
N) CARPETS 446.49 414.89 -7.08 0.44
O) COTTON RAW INCL WASTE 250.49 386.9 54.46 0.41
P) PETROLEUM PRODUCTS 12,700.12 18,494.51 45.62 19.48
Q) UNCLASSIFIED EXPORTS 2,031.02 2,462.37 21.24 2.59
Total 73,275.55 94,921.52 29.54 100

Export Basket of India: 2008

Source: DOC, Govt. of India.

Sectors like Gems and Jewellery and Leather have been badly hit in this recession.

Growth rate of sectors in October

 Textile : -13%

 Chemical : -20%

 Gems & Jewellery : -21%

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  Handicraft & Handloom : -64%

Major Exports to:

 Hongkong (27%), USA (22%), UAE (20%)

 Reasons:

 High commodity prices

 Global economic slowdown

 Rupee appreciation

Rise in the crude and food prices last year have increased our import budget which has raised
our fiscal deficit to around 10% of GDP.

Crude Oil (in Rs. Billion) and GDP Growth Rate

Exports post September 2008

Current Scenario in India

✔ Slow Down in US, Europe & Western World

✔ Export Restrictions in Domestic Markets

✔ Credit Crunch

✔ Surge in Ocean Freight Rate

✔ Slackness in construction Industry

✔ Labour intensive firms worst hit

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 References

 Exim policy 2002-07

 Exim policy 2004-09
 www.Indiastat.com
 www.commerce.nic.in
 www.textile.nic.in
 http://commerce.nic.in/medium_term/contents.htm
 CMIE

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  SPEECH BY COMMERCE & INDUSTRY MINISTER ON
RELEASE OF ANNUAL SUPPLEMENT TO FOREIGN TRADE
POLICY 2004-09
 International Business & Economics Research Journal – March
2006, Volume 5, Number 3
 ANNUAL SUPPLEMENT 2008 TO FOREIGN TRADE POLICY
2004-09
 Economic Times
 Business Line

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