INSTRUMENTS OF EXPORT PROMOTION AND RECENT EXPORT AND IMPORT POLICIES OF INDIA

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Ambrose Underwood
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1 INSTRUMENTS OF EXPORT PROMOTION AND RECENT EXPORT AND IMPORT POLICIES OF INDIA Prof: Vijaya (Retd.,) Kakatiya University B.A (Pass &Honours ) Compulsory Paper VI, International Economics Module 5 Foreign Trade in India Instruments of Export Promotion & Recent Export and Import Policies of India Introduction: This topic will help to understand and what are the changes that have taken place in Indians exports policy measures and how from an invert oriented policies the government has adhere to the export promotion measure. To understand it more clearly we can divide this pre-reform period into three phases the first phase up to the oil shock of 1973 were exports were not given much importance as the policies were oriented towards inward measures this is what we call as export pessimism. From 1973 onwards up to a decade which comes to the second phase export policies were given much significance in promotion of exports this was basically in order to promote exports and therefore they realized that import substitution alone is not sufficient or viable to improve the balance of payments, and that was the reason why export policies were given more important in promoting exports. The third phase from 1983 on words you find that more incentives were given to the export development and we see that exports were seen as an integral part of industrial development polices. Now coming to the policy measures let us try to divide this topic into three phases.

2 Export Promotion Policies: An Overall View Important export promotion measures undertaken by the government of India during the pre-reform period were as follows. Phase I: The Policies which were undertaken during the perform period Phase II: During the reform period and Phase III: The recent policies of exports and imports i.e., the new trade policy constituting Phase I: The Policies which were undertaken during the perform period. Cash Compensatory Support (CCS): Cash compensatory support was introduced in It was designed to provide compensation for un- rebated indirect taxes paid by exporters on inputs, higher freight rates and market development costs. The rates varied from product to product and often from exporter to exporter. The CCS involved the largest single budgetary outlay for exports. The proportion of total exports eligible for CCS rose from 20 % in early 1970 s to a little more than 40 % in early 1980 s. After devaluation of rupee in the year 1991 and substantial trade liberalization, it was felt that CCS had become redundant. It was accordingly abolished in July Duty Drawback System: This is a very important one again to influence or in other words to compensate the cost escalation to the exporters due to the imposition of customs and excise duties. The government reimburses the tariff paid on imported inputs and intermediaries, so also the central excise duty on domestically produced inputs which enter into export production.

3 So this is nothing but compensation paid to the exporters for cost escalation due to customs and excise duties. Replenishment Licenses: In 1957 the government introduced the Import Entitlement Scheme (IES) to the exporters in procuring imported raw material and other components necessary for export production. Exporters were granted import licenses fetching high import premia.ies was withdrawn in 1966 but soon re-introduced in a revised form as Import Replacement Scheme (IRS). This was a facility to exporters to import inputs were the domestic substitutes were not adequate in terms of price, quantity or delivery dates. It was also an incentive in so far as there was a premium on those REP licenses which were transferable. Advanced Licenses and Duty Exemption Scheme: Advanced licenses and duty exemption scheme facilitated imports of specified raw materials without payment of any customs duty. Such licenses were available only against confirmed export orders or letter of credit. 100 Per cent Exported Oriented Units (EOUs): The scheme of 100 percent export oriented units (EOUs) was introduced in December 1980 to provide duty free access to imports of raw materials, intermediate goods, capital goods and technology on OGL. Their productions is bonded for exports and units can be established anywhere in the country. Export Processing Zones (EPZs): There is another important policy to the government providing export processing zones EPZ and these again were setup to boost exports. They have provided a free trade environment wherein the government has given all the necessary infrastructure to boost exports, so that there is a clear environment and facilities provided so that the exporters can try to produce export goods.

4 For producing this exports they required high quality export production and these goods have to be maid globally competitive and that is the reason all the infrastructure was provided in this zones i.e., export processing zones by the government. Subsidies on Domestic Raw Materials: The subsidies on domestic raw materials were another measure headed by the government to boost exports and this was especially to protect certain raw materials which are very essential for the production of goods. The international price reimbursement scheme for steel to protect domestic producers, so us to equalize the price differences of steel due to global competition so by giving subsidy on steel and domestic price of steel was equalise international price of steel. So that the domestic producers could compete in the international market and that was most important policy of giving subsidy on domestic raw materials. Fiscal Concession for Exports: Added to these policies several fiscal concessions for exports were also granted. the exports earnings were partially exempted from income tax or there were tax at a lower level to boost exports. Certain indirect tax concessions which incorporated in CCS or duty drawback system which sort to reimburse indirect tax that were not refunded through the former. These fiscal concessions for exports also played a major role in trying to give a boost to the export promotions.

5 Export Credit and Assistance to EPCs: Assistance was granted in the form of grants-in- aid to the export promotion councils and approved organizations, export houses, consulting organizations and individual exporters to undertake- a) Market research, commodity research, area survey. b) Export publicity and dissemination of information. c) Trade delegation and teams. d) Participation in trade- fairs and exhibitions e) Establishment of offices and branches in countries abroad. f) R & D schemes. Blanket Exchange Permit Scheme: Blanket exchange permit scheme was introduced by the government in June The scheme aimed to give a major thrust to the country s export promotion drive. Under the scheme exporters were allowed barring a few products to utilize 5 10 per cent of foreign exchange earnings for undertaking export promotion activities. Organizational Structure for Promotion of Exports: Organizational structure for promotion of exports includes setting- up a number of councils and organizations. These include 1) Export promotional councils. 2) Commodity Boards. 3) Export Houses. 4) Trade Fair Authority of India. 5) The Federation of Indian Exports Organization. 6) The Export Inspection Council. 7) STC, MMTC 8) Indian Institute of Foreign Trade. 9) India Trade Promotion Organization. 10) The Central advisory Council on Trade.

6 Phase II New Trade Policy: The Reform Period - Substantial Liberalisation of Trade Policy: The period after 1991 has been marked by a substantial liberalization of trade policy. In the pre-reform period India s trade policy regime was complex and cumbersome. Substantial simplification and liberalization in all these respects have been carried out in reform period. In line with India s commitment to the WTO, quantitative restrictions on all import items have been withdrawn. Rationalization of Tariff Structure: The rationalization of tariff structure, this was basically due to the recommendation of Raja Chelliah committee, the maximum rate of duty was reduced over the years. Let us take during the period budget it has reduced from 110% to 85% later on over the years the tariff structures was rationalized and the peak import duty on non agriculture goods is now 10% only. So we can see the ratiocination of tariff structure as brought down the tariff rates from an peak of 110 % to 10%. De-canalization: De-canalization implies that the large number of exports and imports which were canalized through public sector agencies hitherto the de-canalization was taken up August 1991, 16 export items and 20 import items were de-canalization. the subsequent policies of the government for the de-canalize and the export, import policy of 2001 and 2006, Six items fall under the special list which were allowed through state trading corporation those being Rice, Wheat, Mize, Urea, Diesel and petrol.

7 Convertibility of Rupee on Current Account: The convertibility was taken up by the government in the year but to begin with it was only a partial convertibility of rupee. The full convertibility of rupee on trade account was in the year and convertibility on capital account in the year august The exchange rupee is now market determine but still RBI managed the floating i.e., it took certain controls and certain measures on the exchange rate variation. So in spite of convertibility it is to certain extant controlled by the RBI. To make the government exports and imports free in to the economy you find that certain trading houses were also given certain support for instance the trading houses permitted 51% equity to promote exports. Trading Houses: The foreign trade policy houses of 2004 and 2009 divided export houses in to five categories and this houses were given status on achieving exports worth. Export house tries to contribute 20 Crores, Star export house to the tune of 100 Crores, Trading house 500 Crores, Stars trading house 2500 Crores and Premium trading house 10,000 Crores. So we can say that the export houses were divided and they were given status starting with export house to premium trading house. Special Economic Zones: The special Economic Zone the fact of social economic zone act. was passed in 2005 and as per the act. these zones can be setup in public sector, Joint sector and the state government and the basic purpose of the special economic zones are basically to provide all the necessary infrastructure to enable the exporter to

8 boost up their exports and make their industries highly competitive in the international market. Export Oriented Units (EOUs): The exports oriented units the basic difference between the export processing zone and export oriented units is that under export processing zones infrastructure will be provided by the government. But under export oriented units infrastructure will not be provided and the other difference is that under export processing zones export unity have to be necessarily in that particular zone or area were as under EOU they can be setup any were in the country because the government does not provide is any infrastructure to those units. But all the goods which are been produced in those units have to be necessarily exported to the other countries. Agricultural Export Zones (AEZs): In these export oriented zones and EPZ, you have another category what you called as agriculture export zone. Now that export import policy 2001 introduced this export or agricultural export zone and the basic philosophy this AEF are that the products are grown end to end approach integrating the entire process from production to market. They have a state of art services such as starting from the pre post operation to plant protection, packaging, storaging and R&D. Everything has been taken up by these export agriculture export zone, so we called as products are grown from end to end approach integrating all stages from the entire process of production to the market. That is starting from production to market everything is been taken care in this agriculture sports zone.

9 This will defiantly help to boost agriculture products so that they become highly competitive in the international market. Market Access Initiative Scheme: Which was launched in the year 2001 and 2002 and this scheme especially launched for marketing promotional efforts abroad. Market studies for select products facilitate display of Indian brands through trade fares, showrooms etc. They also help to arrange certain publicity campaigns' and not only that helping in trying to market the products but under this scheme they also assist in quality up gradation as per the foreign demand. So apart from marketing facility they also help the exporters in trying to assist them in quality up gradation. So that, the domestic goods are no way fear to the international goods. Five Thrust Sectors: Special forms of initiatives were announced in FTP for five sectors namely agriculture, handicrafts, handlooms, gems & jewellery, leather & footwear sector. A new scheme called Vishesh Krishiupaj Yojana was introduced to boost exports of fruits, vegetables, flowers, minor forest products and value added products. Free Trade and Warehousing Zones: FTP announced free trade and warehousing zones to create trade related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free economy. This was basically to create trade related infrastructure so as to facilitate import and export goods and services not only that this free trade and warehousing zones help to carry out trade in a free economy so that there are no hazes or hurdles in the exports of goods.

10 Reducing Transactional Costs and Simplifying Procedures: 1. All exporters with minimum turnover of 5 crores were exempted from furnishing bank guarantee. 2. Import of second-hand capital goods was permitted without any age restriction. 3. All goods and services exported were exempted from payment of service taxes. 4. The number of returns and forms to be filed was reduced. Concessions and exemptions: 1. Reduction of peak custom duty to 10 %. 2. Reduction in duty rates for imports for the IT sector. 3. Tax holiday for 10 years to developers of SEZs 4. Reduction of custom duty on specified equipments for ports and airports to 10 % to encourage development of world class infrastructure. 5. A number of tax benefits have been announced for IT sector, telecommunication sector and the entertainment sector. Phase III Recent Export Import or Trade Policies of India: The government announced its new FTP on August 27, 2009 covering 5 year period The short term objective is to arrest and reverse the declining trend of exports and to provide additional support to sectors hit badly by recession in developed world. The long term policy objective for the government is to double India s share in global trade by 2020 i.e. from 1.64 % in 2008 to 3.28 % in 2020.

11 Expansion of Focus Market Scheme: At present India s exports are highly concentrated in Europe (36 %), USA (18 %) and Japan (16 %). These traditional markets have been worst hit in recent global financial crisis and demand slump for Indian exports. To counter this demand slump 26 new markets were added to focus market scheme. These include 16 new markets in Latin America and 10 in Asia Oceania. EPCG Scheme: FTP has allowed zero duty import of capital goods for engineering & electronic products, basic chemical & pharmaceuticals, apparels & textiles, plastics, handicrafts and leather. Thrust for Value Added Manufacturing: To encourage value added manufactured exports a minimum 15 % value addition on imported inputs under Advance Authorization Scheme has been prescribed. To make India an international diamond trading hub. It is planned to establish Diamond Bourses. The 1 st one has come up in Mumbai. Export oriented instant tea companies can sell up to 50 % produce in Domestic Tariff Area (DTA). A single window system to facilitate export of perishable agricultural produce has been introduced. Simplification of procedures and reduction in transaction costs. Summary: The trade policy reforms initiated since 1991 have drastically changed the foreign trade scenario and have resulted in the shift from inward oriented to an outward oriented policy with sweeping liberalization process that is currently underway in the foreign trade sector, the level of protection to Indian industry has declined significantly as the government has resorted to a massive cutting down of import tariffs and allowing number of goods whose imports were earlier either totally

12 banned or severely restricted. The large scale trade policy reforms in recent years have led many in the official and non-official circles to regard the foreign trade sector in India now as a leading sector of the economy - a sector that will change the very face of the economy in the coming years. Frequently asked questions: 1. Explain the export policy of India in the pre-reform period. 2. Explain the export promotion measures undertaken by the government during the pre-reform period. 3. Discuss the new trade policy of India during the reform period. 4. State the objective of trade policy of India. 5. Examine the significance of new trade policy reforms on India s trade. References: 1. Uma Kapila Indian Economy Performance & Policies, Academic Foundation, New Delhi. 2. S.K. Mishra & V.K Puri Indian Economy, Himalaya Publishing House, 3. Sundaram & Ruddar Dutt Indian Economy, Chand & Company

Direction of External Trade in India

Direction of External Trade in India India has export and import links with all the regions of the world. Region and sub-regionwise direction of India s exports and imports during April-February 1997-98