FOREIGN TRADE POLICY

Presentation by Group,

Suhasini Teraya 138 Shariq Shaikh 172

Shruti Shetty 129 Mannan Bobre 56

Megha Thakkar 58

OVERVIEW

One of the most important phenomena in post-war economic history has been the enormous expansion of world trade.

Indian trade grew poorly from 1950 to 1980 as compared with the world.

In 1993, India ranked 33rd in top exporting countries and 32nd in top importing countries.

MEANING

Trade between two or more nations is called foreign trade or international trade

Foreign trade is also known as external trade.

Foreign trade transactions are classified under three categories:

Import Trade Export Trade Net Exports

Deemed Exports

“Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange.

Scope of Foreign Trade

I. Uneven Distribution of Natural Resources

Natural resources of the world are not evenly divided amongst the nations of the world.

Countries have to depend upon one another for the exchange of their surpluses with the goods, hence the need for foreign trade is natural.

II. Division of Labour and Specialization

Due to uneven distribution of natural resources, some countries are more suitable placed to produce some goods more economically than other countries.

But they are geographically at a disadvantageous position to produce other goods.

III. Differences in Economic Growth Rate

There are many differences in the economic growth rates of different countries.

Under- developed and Developing countries have to depend upon developed ones for financial help, which ultimately encourages foreign trade.

IV Theory of Comparative Cost

According to the theory of comparative cost each country should concentrate on the production of those goods for which it is best suited.

Each country specializes in the production of those goods which it can produce at the lowest cost as compared to other countries which leads to international specialization and division of labour.

This reduces the cost of production all over the world and improves the standard of living of the people in various countries

HISTORY

The Government of India, Ministry of Commerce and Industry announced New Foreign Trade Policy on 27th August 2009 for the period 2009-2014

Earlier this policy known as  Export Import (Exim) Policy.

The Export Import Policy (EXIM Policy) or Foreign Trade Policy is updated every year on the 31st of March and the modifications, improvements and new schemes becomes effective from April  month of each year.

Fact of Foreign Trade Policy

On a per capita income basis, India ranked 140th by nominal GDP and 129th by GDP (PPP) in 2011.

India is the nineteenth largest exporter and tenth largest importer in the world.

Economic growth rate stood at around 6.5% for the 2011–12 fiscal year.

How Foreign Trade Affects The Indian

Markets?

Foreign trade affects the domestic trade and markets of a country and India.

India is a part of the globalization and any effect, positive or negative, on the global trade is bound to affect the Indian markets.

It was until 1991 that India followed a socialist-democratic approach which kept it uncommitted to the foreign countries.

India, like other countries participating in globalization, has been exporting and importing products and services to and from other countries.

Steps Taken Objectives Set

The Indian Foreign Trade Policy of 2009-2014 has added 26 new markets to its aim of achieving the export target of US$ 200 billion and export growth target of 15 percent for the first two years.

Other aims of the policy are to double India’s export of goods and services by 2014 and to double India’s share in global merchandise trade by 2020.

REWARD / INCENTIVE SCHEMES IN DGFT

Served From India Scheme(SFIS)

Objective is to accelerate growth in export of services so as to create a powerful and unique ‘Served From India’ brand, instantly recognized and respected world over.

All Indian service providers, who have free foreign exchange earning of at least Rs. 10 lakhs in preceding financial year /current financial year shall qualify for Duty Credit Scrip.

Duty Credit scrip may be used for import of any capital goods including spares, office equipment and professional equipment, office furniture and consumables.

VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) (SPECIAL AGRICULTURE AND

VILLAGE INDUSTRY SCHEME)

Objective of VKGUY is to promote exports of:

1. Agricultural products

2. Minor Forest products

3. Gram Udyog products

4. Forest Based products

FOCUS MARKET SCHEME (FMS)

Objective is to offset high freight cost and other externalities to select international markets with a view to enhance India’s export competitiveness in these countries.

The following categories of export products / sectors shall be ineligible for Duty Credit Scrip, under FMS scheme:

a. Supplies made to SEZ units b. Service Exports c. Diamonds and other precious stones, d. Gold, silver, platinum and other precious metals, e. Cereals, Sugar, Milk, f. Crude/Petroleum oil.

New Markets have been added under Focus Market Scheme. These includes 16 new markets in Latin America and 10 in Asia-Oceania.

The incentive available under Focus Market Scheme(FMS) has been raised from 2..5% to 3%.

FOCUS PRODUCT SCHEME (FPS) 

Objective is to incentivise export of such products which have high export intensity/employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products.

The incentive available under Focus Product Scheme(FPS) has been raised from 1.25% to 2%.

A large number of products from various sectors have been included for benefits under FPS.

These includes, Engineering products, plastic, technical textiles, project goods, vegetable textiles & certain Electronic items.

Market Linked Focus Products Scrip (MLFPS)

 MLFPS promotes exports of products of high export intensity but which have a low penetration in countries.

MLPFS has been greatly expanded by inclusion of products. Products include Pharmaceuticals, Synthetic textile fabrics, value added rubber products, value added plastic goods, knitted & fabrics, glass products, certain iron and steel products, & certain articles of aluminium among others.

Also extended for certain new products like auto components, motor cars, bicycle and its parts, and apparels among others.

Benefits to these products will be provided, if exports are made to 13 identified markets.

Duty Exemption & Remission Schemes

Duty Exemption Schemes enable duty free import of inputs required for export production.

Duty Exemption Schemes consists of

a. Advance Authorisation Scheme

It is issued to allow duty free inputs which are physically incorporated in export product.

b. Duty Free Import Authorisation(DFIA) Scheme.

It is issued to allow duty free inputs which are required for production of export product.

Duty Remission Schemes consists of

a. Duty Entitlement Passbook (DEPB) Scheme

DEPB holder shall have option to pay additional customs duty in cash as well.

b. Duty Drawback (DBK) Scheme.

Export Promotion Capital Goods(EPCG) Scheme

Zero duty EPCG scheme allows import of capital goods for pre production, production, post production.

Import duty under the EPCG scheme is being reduced from 5% to 3%, in order to promote modernization of manufacturing and services exports.

Foreign Trade Policy 2009-2014 the interest subvention scheme of 2% will continue to be effective till March 31,2013.

For continued technological up-gradation of export sectors, this Scheme has now been extended up to 31st March 2013.

Special Focus Initiatives

With a view to continuously increasing our percentage share of global trade and expanding employment opportunities, certain special focus initiatives have been identified/continued for

Market Diversification, Technological Upgradation, Support to status holders, Agriculture, Handlooms, Handicraft, Gems & Jewellery, Leather, Marine, Electronics and IT Hardware manufacturing Industries, Green products, Exports of products from North-East, Sports Goods and Toys sectors.

Market Diversification

•26 new countries have been included within the ambit of Focus Market Scheme.

•The incentives provided under Focus Market Scheme have been increased from 2.5% to 3%.

•There has been a significant increase in the outlay under ‘Market Linked Focus Product Scheme’.

Technological Upgradation

•EPGC Scheme at zero duty has been introduced for certain engineering products, electronic products, etc..

•To encourage value added manufacture export, a minimum 15% value addition on imported inputs under Advance Authorisation Scheme has been stipulated.

•A number of products including automobiles and other engineering products have been included for incentives under Focus Product, and Market Linked Focus Product Scheme

Support to status holders

•The government recognised ‘Status Holders’ contribute approx. 60% of India’s goods exports.

•To incentives and encourage the status holders, as well as to encourage technological upgradation of export production, additional duty credit scrip @ 1% of FOB value.

•This duty credit scrip can be used for import of capital goods by these status holders.

Agriculture and Village Industry

•Vishesh Krishi and Gram Udyog Yojana.

•Capital goods imported under EPCG will be permitted to be installed anywhere in AEZ.

•Import of restricted items, such as panels, are allowed under various export promotion schemes.

•Import of inputs such as pesticides are permitted under Advance Authorisation for agro exports.

•New towns of export excellence with a threshold limit of Rs 150 crore shall be notified.

•Certain specified flowers, fruits, and vegetables are entitled to a special duty credit scrip, in addition to the normal benefit under VKGUY.

Handlooms & Handicrafts

•Duty free import entitlement of specified trimmings and embellishments is 5% of FOB value of exports during previous financial year..

•Duty free import entitlement of hand knotted carpet samples is 1% of FOB value of exports during previous financial year.

•Duty free import of old pieces of hand knotted carpets on consignment basis for re-export after repair is permitted.

•New towns of export excellence with a threshold limit of Rs 150 crore shall be notified.

•All handicraft exports would be treated as special.

Gems & Jewellery

•Import of gold of 8 k and above is allowed under replenishment scheme.

•Jewellery made out of:

•Precious metals – 2%•Gold & Platinum – 1%•Rhodium finished Silver – 3% Schemes

•Cut & Polished Diamonds-1%

•Duty free import entitlement of commercial samples shall be Rs 300,000.

•Duty free re-import entitlement for rejected jewellery shall be 2% of FOB value of exports.

•Extension in number of days for re-import of unsold items in case of participation in an exhibition in USA increased to 90 days.

Leather & Footwear

•Duty free import entitlement of specified items is 3% of FOB value of exports of leather garments during preceding financial year.

•Re-export of unsuitable imported materials such 12 as raw hides & skins and wet blue leather is permitted.

Marine Sector

•Imports for technological upgradation under EPCG in fisheries sector (except fishing trawlers, ships, boats & other similar items).

•Marine products are considered for VKGUY scheme.

•A self removal procedure for clearance of seafood waste is applicable subject to prescribed wastage norms.

Electronics & IT Hardware

Manufacturing Industries

•Expeditious clearance of approvals required from DGFT shall be ensured.

•Exporters/Associations would be entitled to utilize MAI & MDA Schemes for promoting Electronics and IT Hardware Manufacturing industry exports.

Sports Goods & Toys

•Duty free import of specified specialised inputs allowed to the extent of 3% of FOB value of preceding financial year’s export.

•Applications relating to Sports Goods & Toys shall be considered for fast track clearance by DGFT.

•Sports Goods & Toys are treated as special focus products and entitled to higher incentives.

Green Products & Technologies

•India aims to become a hub for production and export of green products and technologies.

•Focus would be on items relating to transportation, solar and wind power generation and other products as may be notified which will be incentivized under Reward Schemes.

•FPS benefit extended for export of “Green products” and for exports of some products originating from the North East.

• Every Authorisation shall be valid for prescribed period of validity and shall contain such terms and conditions as may be specified by RA which may include:

 

(a) Quantity, description and value of goods;

 

(b) Actual User condition;

 

(c) Export obligation;

 

(d) Value addition to be achieved; and

 

(e) Minimum export / import price.

Actual User Condition

Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person.

Second Hand Goods

• Import of second hand capital goods, including refurbished / re-conditioned spares shall be allowed freely.

• However, second hand personal computers / laptops, photocopier machines, air conditioners, diesel generating sets will only be allowed against a licence.

Exemption from Service Tax on Services

For all goods and services exported from India, services received / rendered abroad, where ever possible, shall be received abroad exempted from service tax.

Export Import Data Analysis

World trade volume growth picked up sharply to 12.7 per cent in 2010 from -10.7 per cent in 2009.

Moderating its growth projections of world output to 3.3 per cent in 2012 and 3.9 per cent in 2013.

The improvement in export growth of 35.1 per cent in rupee terms in 2010-11.

High growth of exports in volume terms is a positive sign and is mainly due to the growth in machinery and transport equipment (85.1 per cent).

In 2010-11, the growth of unit value index of exports declined to - 5.1 per cent, mainly due to decline in machinery and transport equipment (-18.2 per cent) and beverages and tobacco (-11.1per cent).

The increase in growth of imports in rupee terms in 2010-11 was due to growth in both volume and unit value indices.

The volume index witnessed a growth of 10.1 per cent in 2010-11, due to the high growth of manufactured goods.

The unit value index of imports registered a growth of 11.2 per cent mainly due to growth in unit values

• Top six states in terms of allocation in 2011-12 are Maharashtra and Gujarat followed by Tamil Nadu, Karnataka, Uttar Pradesh and Andhra Pradesh.

• In the North East region, Assam is the only state with significant share.

Impact of Foreign Trade Policy

2008-2009

• The new Foreign Trade Policy failed to cheer investors.

 • Consumer durables shares, however, cheered the new trade policy

and rallied.

 • Export-oriented Gitanjali Gems gained 4.65 per cent, while Rajesh

Exports was up 8.58 per cent.

• Videocon was up 8.51 per cent and Titan Ind 3.21 per cent.

• IT major Wipro was up 2.01 per cent, followed by Tata Power at 1.70 per cent, L&T at 1.56 per cent, Sterlite are 1.45 per cent, BHEL at 1.34 per cent and Mah&Mah at 1.20 per cent.

• Sensex stock Bharti Airtel, India’s largest mobile phone company, jumped 2.74 per cent on reports.

• While select blue-chips such as Bharti Airtel and Wipro attracted buying, Tata Steel and Tata Motors came under selling pressure.

• Among other major losers, Tata Motor was down 2.55 per cent, Hindustan Unilever 2.32 per cent, Hero Honda 1.77 per cent, DLF 1.68 per cent and REL Comm 1.50 per cent.

Exports of India's are broadly classified into following four categories.

• During 2011-12, India's overall exports grew 21%.

• Engineering goods exports have seen almost steady rise in share from 1999-2000 to the first half of the 2010- 11 and high growth rates of 84% and 43.6 % in 2010-11 and in the first half of the 2011-12.

• With the highest growth rate among manufacturers at 58.4 % in the first half of 2011-12, gems and jewellery, the second major export item retained its share around 16-17 % since 2000-01.

• The share of chemicals and related products and textiles has fallen marginally over the years.

• Sudden rise in the share of gold and silver imports from 9.3% in 2000-01 to 13.3% in the first half of the 2011-12 and fall in the share of the pearls.

• Precious and semi-precious stones from 9.6% in 2000-01 to 6.0% in the first half of the 2011-12.

• The share of POL imports which fell from 31.3% in 2000-01 to 28.6% in 2010-11 rose again to 31.4% in the first half of the 2011-12 due to high prices of crude oil.

• If we look at the trade deficit of India we found that the Indian trade deficit is widening due to huge imports of oil and gold

• Import of oil is seen to be relatively inelastic to changes in international prices.

Some reasons of rising trade deficit are

• Imports are rising at faster rate than exports

 • Increase in consumption requirements

• Need for key industrial raw materials

• Poor competitiveness of India’s exports both at the cost as well as price front.

• The trade deficit for April, 2012 was estimated at US$ 13486.32 million which was higher than the deficit of US$ 12850.38 million during April, 2011.

Wal-Mart

• Wal-Mart is the largest importer of foreign products and is the largest customer to China.

• As long as we buy Chinese goods, our workers will continue to suffer job losses.

• China raises the price of that same product knowing it will still sell.

• If NAFTA is introduced, then for every dollar Wal-Mart sends to China, then China will have to buy the same amount of dollars of our goods.

• Foreign Trade Policy does not in itself mean it has to be fair. It simply means two or more countries agree to trade goods from each country to the other.

Challenges

• Some are due to the current emerging global situation and some are systemic and long term in nature.

• A lot more needs to be done on diversification of India’s export basket as its export presence is limited in the top items of world trade.

• India requires 8 export documents to be cleared and China 5 with good practice economies like France at 2.

• Time to export is 16 days for India, 21 for China, and 5 for Denmark.

• Numbers of import documents that need clearance are 9 in India, 5 in China, and 2 in France.

• Time to import is 20 days in India, 24 in China, and 4 in Singapore.

Conclusion

• India needs to try diversifying its exports.

• Although India has made major strides in Diversifying its exports but a lot needs to be done not only to diversify the export basket but also have a perceptible share in the top items of the world trade.

• Thus in conclusion we can say that India is trying to be more liberal in its foreign trade policy.