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Ministry of Commerce & Industry Department of Commerce

(Economic Division) *****

Udyog Bhawan, New Delhi, Dated the 8th July, 2013

OFFICE MEMORANDUM

Subject : Mid-Term Review of Strategy for Doubling Exports in three years (2011-12

to 2013-14) : Draft Discussion Paper.

On the back drop of robust export growth and favourable global economic environment, Department of Commerce, in May 2011, had prepared a strategy for

Doubling Merchandise Exports in three years from US$ 246 billion in 2010-11 to US$ 500 billion in 2013-14.

The Export Target for the year 2013-14, for Merchandise Trade, as finalised by

DOC is US$325 billion. Building around this target, the Mid Term Review of the Strategy Paper, as indicated in the enclosed Discussion Paper, highlights the issues to which immediate tasks, and existing key challenges have to be targeted.

The Draft Discussion Paper is being placed on the website of DOC for wider

consultations with the stakeholders before undertaking the review of the Strategy for Doubling Exports.

(Rupa Dutta) Economic Adviser

Tel. No. : 23061341 Email : rupa.dutta@nic.in

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Ministry of Commerce & Industry Department of Commerce (Economic Division)

*****

Mid-Term Review of

"Strategy for Doubling Exports in three years (2011-12 to 2013-14)".

Draft Discussion Paper

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Executive Summary

Department of Commerce is mandated to facilitate creation of an enabling

environment and infrastructure for accelerated growth of exports.On the back drop of robust export growth and favourable global economic environment, Department of Commerce, in May 2011, had prepared a strategy for Doubling Merchandise Exports in three years from US$ 246 billion in 2010-11 to US$ 500 billion in 2013-14. The Main features of the Strategy Paper (SP) were: policy instruments including, fiscal incentives, institutional changes, enhanced market access across the world, diversification of export markets, improvement in infrastructure and reduction in transaction cost.

The Export Target for the year 2013-14, for Merchandise Trade, as finalised by DOC is US$325 billion. This is as against the initial proposed target of US$ 500 billion as mentioned in the Strategy Paper.

The Global economic situation indicated that global growth is likely to stay sluggish in 2013. During 2012, Global Trade expanded at its slowest pace since the mid 1990s and rising inflation has increased the manufacturing cost of inputs, and rupee depreciation has added to the cost of imports. The cost of credit has moved up substantially in the last two years. These factors have adversely impacted domestic manufacturing and subsequently exports. The Mid Term Review of the original Strategy Paper would need to focus on the following:

• Special focus on commodities such as : Gems and Jewellery, Engineering Goods,

Chemicals and Related Products including pharmaceuticals, basic chemicals and plastic sectors, Leather Products, Agriculture and allied products including marine products, Textiles and Electronics Sectors.

• There is increase in India's trade to South Asia, ASEAN, Africa and Latin America. Market strategy needs focus on these markets and identify 8-10 top commodities.

• Export target for merchandise exports for the year 2013-14 has been fixed as $ 325 billion.

• The Mid Term Review has to be built around this target.

Summing up, the Discussion Paper highlights the issues to which immediate tasks, and existing key challenges have to be targeted. Along with the specific product centric and market specific strategies, a way ahead has been indicated whereby the overall strategy and key recommendations have been mentioned.

These would require focused attention during the entire 12th Five Year Plan period

(2012-2017). This Discussion Paper is to be converted into a detailed Strategy Paper for the entire 12th Five Year Plan period with the target of achieving US$ 500 billion of the merchandise exports by the end of 12th Five Year Plan.

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Introduction

Department of Commerce is mandated to facilitate creation of an enabling environment and infrastructure for accelerated growth of exports.On the back drop of robust export growth and favourable global economic environment, Department of Commerce, in May 2011, had prepared a strategy to Doubling Merchandise Exports in three years from US$ 246 billion in 2010-11 to US$ 500 billion in 2013-14.

The paper was aligned with the broader objectives of the long term Strategic Plan of the Department. Main features of the Strategy Paper (SP) are:-

• Policy instruments which include, fiscal incentives, institutional changes, enhanced market access across the world, diversification of export markets, improvement in infrastructure and reduction in transaction cost.

• Aggressive export promotion of high value products that have a strong domestic manufacturing base viz engineering goods be the main focus of overall export growth strategy.

• Labour intensive leather, gems & jewellery and textile sectors have high value addition, and have been areas of strength. Product diversification into high value-added products in these sectors is essential.

• Retain presence and market share in developed country markets, move up the value chain and open up new vistas, both in terms of markets and new products in these new markets.

• Focus on markets in Asia (including ASEAN), Africa and Latin America to strengthen our presence in newly opened up markets.

• Strengthen efforts to build a brand image for important Indian exports and promote a thrust for quality up-gradation.

• Standards for export related products be raised, assurances put in place of quality enforcement through appropriate agencies and certification of export products encouraged.

Present Situation

Four years after the eruption of the financial crisis, the global economy is still struggling to recover. During 2012, global economic growth weakened further. A growing number of developed economies have fallen into recession. Global slowdown due to unfolding of euro zone sovereign debt crisis has, inter-alia, impacted the Indian economy through deceleration in exports, widening of trade and current account deficit, decline in capital flows, fall in the value of Indian Rupee, stock market decline and lower economic growth.

India's merchandise trade deficit has risen and continues to rise as import growth

has outpaced export growth. The prime reason for rising imports is the inelastic demand for oil and rise in gold imports. The Indian Rupee continues to be weak with a cumulative average value of Rs 55 (April-May 2013). While, this would make the exports cheaper but

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also is likely to put pressure on the oil and gold imports and therefore affect the Current Account Deficit.

The Export Target for the year 2013-14, for Merchandise Trade, as finalised by DOC is $325 billion. This is against the initial proposed target of $ 500 billion as mentioned in the Strategy Paper. This discussion Paper, attempts a mid Term Review of the Existing Paper, along with, detailing of proposed strategies, both short and long term, for products, as well as, markets, in the backdrop of the contemporary global scenario.

As per the existing SP, Exports were envisaged to increase at compounded

average growth of 26.7% per annum. Sector-wise break-up of the exports as projected in the Strategy Paper to be achieved by the year 2013-14 and available latest data for merchandise exports for the period of April-March, 2012-13, is indicated below.

(In US$ billion)

Sl. No.

Exports Projected Exports (2013-14)

Share in total projected Exports (%)

Exports (2012-13)

Share in total exports

1 Gems and Jewellery 70 14 43.40 14.45

2 Engineering Goods 125 25 56.72 18.89

3 Textiles* 45 9 31.21 10.39

4 Chemicals and related-* Products**

54 10.8 34.98 11.65

5 Electronic Goods 17 3.4 8.44 2.81

6 Leather & Leather Manufacturers

9 1.8 4.88 1.62

7 Ores and Minerals***

18 3.6 3.50 1.16

8 Marine Products 5 1 3.46 1.15

9 Agricultural Products 22 4.4 31.86 10.61

10 Petroleum Products 80 16 60.00 19.98

11 Miscellaneous 55 11 21.82 7.27

Total 500 100 300.27 100.00

* Textiles also includes Carpets and other Textiles. ** This includes Drugs, Pharma & Fine Chemicals, Plastic & Linoleum and other basic chemicals also. *** This includes Iron Ores & Mica and Other Ores, etc. Source: DGCIS data

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(Exports in US $ billion)

Growth Rate

Sl. No.

Exports 2010-11

2011-12

2012-13

2010-11 to 2011-12

2011-12 to 2012-13

1 Gems and Jewellery 40.51 44.89 43.4 10.81 -3.32

2 Engineering Goods 49.81 58.55 56.72 17.55 -3.13

3 Textiles* 27.41 32.66 31.21 19.15 -4.44

4 Chemicals and related-* Products** 25.3 32.31 34.98 27.71 8.26

5 Electronic Goods 8.28 9.37 8.44 13.16 -9.93

6 Leather & Leather Manufacturers 3.91 4.8 4.88 22.76 1.67

7 Ores and Minerals*** 6.48 6.6 3.5 1.85 -46.97

8 Marine Products 2.62 3.44 3.46 31.30 0.58

9 Agricultural Products 17.35 27.43 31.86 58.10 16.15

10 Petroleum Products 41.48 56.04 60 35.10 7.07

11 Miscellaneous 27.98 29.87 21.82 6.75 -26.95

Total 251.14 305.96 300.27 21.83 -1.86 * Textiles also includes Carpets and other Textiles. ** This includes Drugs, Pharma & Fine Chemicals, Plastic & Linoleum and other basic chemicals also. *** This includes Iron Ores & Mica and Other Ores, etc. Source: DGCIS data

Recent Global Developments and its Implications on Trade for India Global growth likely to stay sluggish in 2013

Global growth turned weaker in 2012 and is expected to stay sluggish in 2013. IMF WEO outlook for April 2013 mentions that world output growth is forecast to reach 3.3% in 2013 as against the original projected growth rate of 3.5%,before improving to 4.0 per cent in 2014.The advanced economies are projected to grow at 1.2% (as against 1.3% initially projected). The emerging marketing and developing economies are expected to grow at 5.3% with growth rate of India projected at 5.7% (initial projection 5.9%) and China at 8% (initial projection 8.1%).

The Global Economic Prospect June 2013 of World Bank has predicted that Global gross domestic product (GDP), which slowed in mid-2012 is recovering, and whole-year growth for 2013 is projected at 2.2 %, slower than the 2012 growth rate of 2.3 %. The predicted global GDP growth is 3.0 percent for 2014 and 3.3 percent in 2015

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World Trade 2012, Prospects for 2013

As per the 10th April, 2013 Press Release, world trade growth fell to 2.0% in 2012 — down from 5.2% in 2011 — and is expected to remain sluggish in 2013 at around 3.3% as the economic slowdown in Europe continues to suppress global import demand.

As per WTO's International Trade Statistics, 2013, in merchandise trade, WTO

ranked India as the19th largest merchandise exporter in the world, with a share of 1.6% of the global trade and the 10th largest importer with a share of 2.6% of global imports in 2012. In commercial services trade, India ranked higher: 6th largest exporter (3.4% of world exports) and 7th largest importer of services (3% of the global imports). Impact of Global Trade slowdown

During 2012, global trade expanded at its slowest pace since the mid-1990s with the exception of a large contraction in 2009. Slow growth in the advanced economies (AEs) continued to remain a weak link in global trade expansion, while emerging market and developing economies (EMDEs) seem to be contributing to global trade through increased intra-industry and South-South trade.

Objectives of the Mid Term Review

The Mid Term Review of the original Strategy Paper would need to focus on the following:

• Special focus on commodities such as : Gems and Jewellery, Engineering Goods,

Chemicals and Related Products including Pharmaceuticals, Basic Chemicals and Plastic sectors, Leather Products, Agriculture and allied products including marine products, Textiles and Electronics Sectors. This would entail analyzing what was the original policy measures anticipated and how much has been achieved and what else remains to be focused on, both for immediate measures and for medium term measures.

• There is increase in India's trade to South Asia, ASEAN, Africa and Latin America. Market strategy needs focus on these markets and identify 8-10 top commodities.

• Export target for merchandise exports for the year 2013-14 has been fixed as $ 325 billion.

• The Mid Term Review has to be built around this target. There is only 9 months left for achieving this export target.

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Composition and Direction of Trade

India's merchandise exports reached a level of US$ 300.27 billion during 2012-13(P) registering a negative growth of 1.9 percent as compared to a growth of 21.8 percent during the previous year. Despite the recent setback faced by India's export sector due to global slowdown, merchandise exports recorded a Compound Annual Growth Rate (CAGR) of 17.4 percent from 2004-05 to 2012-13.

The Compound Annual Growth Rate (CAGR) of exports during the Eleventh Plan

Period (2007-08 to 2011-12) was 17% mainly due to commodities of export exhibiting more than 10% CAGR, i.e. petroleum (crude and products, gems & jewellery, transport equipment, machinery and instruments, drugs, pharmaceuticals and fine chemicals, electronic goods and plastic and linoleum products. The share of petroleum products in the export basket continued to be substantial followed by Gems and Jewellery.

Imports recorded a compound annual growth rate of 18.1% in dollar terms during the Eleventh Plan period. The high growth of value of imports was mainly on account of increase in oil prices and rise in imports of gold and silver (from 7.05% in April-March 2007-08 to 12.59% in April-March 2011-12).

The following is the growth trend in exports of the top ten commodities and top ten

countries:

Exports of top ten Principal Commodities (2009-10 to 2012-13) Values in US $ Million)

Commodity 2010 2011 2012 2013 CAGR 2010-12 %Share

Petroleum (Crude & Products) 28,192 41,480 56,039 60,004 28.6 20.1

Gems & Jewellary 29,081 40,509 44,888 43,398 14.3 14.5

Transport Equipments 9,791 16,024 21,408 18,428 23.5 6.1

Machinery And Instruments 9,551 11,858 14,285 15,197 16.7 5.1

Drugs,Phrmcutes & Fine Chemls 8,971 10,722 13,198 14,648 17.8 4.9

Other Commodities 8,629 18,583 18,907 10,161 5.6 3.4

Rmg Cotton Incl Accessories 8,032 8,579 9,631 8,422 1.6 3.3

Manufactures Of Metals 5,526 8,466 9,535 10,035 22.0 2.8

Electronic Goods 5,445 8,214 8,848 8,048 13.9 2.7

Cotton Yarn,Fabrics,Madeupsetc 3,702 5,792 6,811 7,520 26.7 2.5

Inorganic/Organic/Agro Chemls 3,499 4,346 5,817 6,578 23.4 2.2

An analysis of top 10 principal commodity‘s exports for the year 2009-10 to 2012-13

indicates that petroleum (crude & products) registered a highest CAGR growth of 28.6% with a share of 20.1% in India‘s total exports. This was followed by Cotton Yarn, Fabrics and Madeups etc. (26.7% CAGR and 2.5% share), transport Equipments (23.5% CAGR and 6.1% share), Manufactures of Metals (22% CAGR and 3.3% share). Drugs Pharmaceuticals and fine Chemicals, Machinery and Instruments and Electronic Goods

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also registered a CAGR of 17.8%, 16.7% and 13.9% respectively. Exports to top ten Countries (2009-10 to 2012-13) (In US $ million)

Rank Country

Apr-Mar 2010

Apr-Mar 2011

Apr-Mar 2012

Apr-Mar 2013 CAGR %Share

1 U Arab Emts 23,970 33,822 35,926 36,265 14.8 12.1

2 U S A 19,535 25,296 34,746 36,158 22.8 12.0

3 Singapore 7,592 9,825 16,858 13,609 21.5 4.5

4 China P Rp 11,618 15,521 18,118 13,548 5.3 4.5

5 Hong Kong 7,888 10,320 12,932 12,278 15.9 4.1

6 Netherland 6,398 7,681 9,153 10,566 18.2 3.5

7 Saudi Arab 3,907 4,684 5,683 9,784 35.8 3.3

8 U K 6,221 7,312 8,628 8,648 11.6 2.9

9 Germany 5,413 6,754 7,946 7,252 10.2 2.4

10 Japan 3,630 5,092 6,330 6,100 18.9 2.0

Total 178,751 251,136 305,964 300,274 18.9 100.0

Source: DGCI&S, Kolkata

India‘s cumulative export growth during the period of 2009-10 to 2012-13 has been at 18.9%. The important export destinations which registered an impressive CAGR surpassing the average growth rate are Saudi Arabia (35.8%) followed by USA (22.8%), Singapore (21.5%), Japan (18.9%).

Besides, sluggish global economic growth and overall slowdown in the global trade scenario, there are a number of supply side constraints, which are hampering our exports. Some of these have been highlighted below:

Supply Side Constraints Issues to which immediate tasks have to be targeted: 1. Weak domestic industrial growth

Rising inflation has increased the manufacturing cost of inputs, and rupee depreciation has added to the cost of imports. The cost of credit has moved up substantially in the last two years. These have adversely impacted domestic manufacturing. Several factors are believed to have caused the stalling of investments and drying up of new investment which include, difficulties in land acquisition, coal linkages, and mining bans.

Though, sluggish global demand has largely been responsible for continued weak exports, there is a need to address domestic policy issues impeding export growth.

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It is essential that Indian exports build productivity-based competiveness and in this context, infrastructural constraints need to be addressed. The global economic outlook is far from rosy and downside risks remain substantial. Thus, sustaining Indian export recovery in such an uncertain situation would be a challenge that needs domestic efforts to raise productivity-based competitiveness. Policy measures

All the schemes implemented by DOC have implications for increasing competitiveness of Indian Exports and reduction of costs. In the years 2012-13 and 2013-14, the budgetary allocations for Plan Schemes of Department of Commerce which have implications for increasing competitiveness and reduction of costs are : MAI,ECGC, NEIA, DGFT and DGCIS. Besides, on the non-Plan side for enhancement of competitiveness of exports, the major Schemes are :

Interest Subvention Scheme: 2% interest subvention is extended to commercial banks for loans meant for export purpose availed by exporters. Government has decided to extend this scheme for another one year.

Deemed Export Duty Drawback/ Terminal Excise Duty/Central Sale Tax: under this scheme for reimbursement of duty suffered on export products through DGFT/ Development Commissioners of SEZs.

2. Trade Credit

Trade credit is a critical component of global trade. Internationally active firms rely extensively on trade credits. Both availability and cost of trade credit are important in the current environment of financial uncertainties when the banking system is likely to be tempted to reduce exposure to cross-border banking.

High cost of export credit in India compared to developed countries is one of the factors contributing to the high transaction cost for Indian exporters. Issues such as availability of foreign currency, credit to exporters at competitive terms, high interest cost (given the experiences of some competing nations of India like Brazil and China), un-viability of high service charge by banks as disbursal of export credit in foreign currency, charges for renewal and enhancement of credit limits need to be immediately addressed. Policy Measures

The Department of Commerce has launched a new scheme for providing Interest Equalization Support (IES) by GoI to Exim Bank for Buyers Credit Programme to support India‘s project export. The Department of Commerce would contribute 2% interest subvention to Exim Bank for selected project exports for SAARC, Myanmar and Africa region from Market Access Initiative (MAI) Scheme.

2% Interest subvention scheme is available to Handlooms, Handicrafts, SMEs,

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carpets, Toys, sports goods, process agricultural products, and readymade garments. The scheme has been widened to include 134 sub-sectors of Engineering sector w.e.f. 1st January, 2013 and the validity of the scheme has also been extended till March 31, 2014.

RBI has given instructions for making credit available to exporters including the

MSME exporters at internationally competitive rates. Authorized dealers have been permitted to extend pre-shipment Credit in Foreign Currency (PCFC) to exporters for domestic and imported inputs of exported goods at LIBOR/EURO LIBOR/EURIBOR related rates of interest. 3. Brand promotion and Marketing The export diversification policy pursued by the Government needs to be accelerated by expanding both the range of products and number of countries. Indian exports should move up the value chain. Export of branded goods needs to be encouraged by promoting individual brands. Manufacturing exports require strong brand promotion. Sectors like Gems and Jewellery, Leather, Textiles, Engineering etc. are striving to carve an exclusive `Brand India` niche for themselves in the world markets. Policy Measures

IBEF is playing a key role in product perception and production promotion strategies in international markets. 4. Infrastructure Related

Even the best of Indian ports do not have state-of-the-art technology as in Singapore, Rotterdam, and Shanghai. Port Infrastructure issues include poor road conditions and port connectivity, congestions, vessel berthing delays, poor cargo handling techniques and equipment., resulting in multiple handlings, increased lead time, high transaction costs and thus loss of market competitiveness. Trade Facilitation Measures

While India is ranked 132 in the 'ease of doing business', on 'trading across borders' India is ranked 127 with Singapore at first rank and China at 68th as per the World Bank and IFC 'Doing Business 2013'. India requires 9 export documents to be cleared, while China needs 8, with good practice economies like France needing 2. Time to export is 16 days for India and five for Denmark. Cost to export is $1120 per container, compared to $580 in China and $435 in Malaysia.

There are many trade facilitation measures that can help the export sector without any

cost to the government exchequer. These include simplification of the multiple documentation procedures. These procedures and costs need to be reduced to the barest minimum.

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Policy Measures With a view to bringing efficiency and transparency, and improve the interface of Government with exporters, the Directorate General of Foreign Trade (DGFT), under the Department of Commerce, is increasingly utilizing e-governance tools such as the Electronic bank realization certificate system (e-BRC) which dispenses with the need of filing copies and reduces cost of transaction. The DGFT is also working on developing an electronic system for monitoring export obligation discharge of importers. 5. Slow Economic Growth

A number of factors are responsible for a rapid slow down in economic growth. The initial boost to demand given by monetary and fiscal stimulus following the crisis was large. Final consumption grew at an average of over 8 per cent annually between 2009-10 and 2011-12. The result was strong inflation and a powerful monetary response that also slowed consumption demand. Besides, from 2011-12, corporate and infrastructure investment started slowing both as a result of investment bottlenecks as well as the tighter monetary policy. Even as the economy slowed, it was hit by two additional shocks: a slowing global economy, weighed down by the crisis in the Euro area and uncertainties about fiscal policy in the United States.

Several factors are believed to have caused the stalling of investments and drying

up of new investment. Difficulties in land acquisition, coal linkages, and mining bans, policy issues such as in telecom spectrum allocations have played a role. Several sectors such as consumer non-durables, are also seeing a slowdown in new investments. High interest rates have contributed to the depressed investment climate as well. Industry and Infrastructure

The moderation in growth is primarily attributable to weakness in industry (comprising the mining and quarrying, manufacturing, electricity, gas and water supply, and construction sectors), which registered a growth rate of only 3.5 per cent and 3.1 per cent in 2011-12 and 2012-13 respectively. The rate of growth of the manufacturing sector was even lower at 2.7 per cent and 1.9 per cent for these two years respectively.

The capital goods sector remained weak for the second consecutive year. Negative

growth was not only experienced across the sub-sectors of the capital goods segment but was also more persistent with only two months in the last twelve months recording positive growth. The production of key capital goods such as machinery and equipment , electrical machinery, and transport segments contracted owing to deceleration in investment, a decline in new projects, and import competition. High interest rates and slower growth in household or retail credit resulted in slower growth in consumer durables.

The eight core infrastructure industries registered a growth of 3.2 per cent during

2012-13 compared to 5 per cent during the same period of the previous year. The decline in growth in the current year so far is mainly on account of negative growth witnessed in the production of crude oil, natural gas, and fertilizers.

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The issue of import of coal, oil, gas, pulses, edible oils and fertilizers needs to be tackled. The production of key capital goods such as machinery and equipment , electrical machinery, and transport segments contracted owing to deceleration in investment, a decline in new projects, and import competition. The decline in growth in the current year so far is mainly on account of negative growth witnessed in the production of coal, natural gas, and fertilizers. Policy Measures

The government has taken some steps to kick-start investments. The Cabinet Committee on Investments (CCI) has been set up to fast-track projects more than Rs. 1,000 crores. The Land Acquisition and Rehabilitation and Resettlement (LARR) Bill, which has been cleared by the Cabinet, could bring greater clarity, reduce uncertainty, and thereby aid investments. Investments by cash-rich public-sector units (PSU) have the potential of crowding-in the private sector. Progress on the Delhi-Mumbai Industrial Corridor has the potential of providing a fillip to the investment climate of the country. Policy rate cuts by the RBI and improving business sentiments could also support a revival in investments. The government is also working towards enhancing the FDI caps in various sectors such as: Telecom, Retail, Civil Aviation etc.

6. Trade Policy

The government has announced many trade policy measures in the Annual Supplement to Foreign Trade Policy (FTP) released on 5 June 2012 and in its Annual Supplements, released during 2012 and 2013. Many measures were also taken by the government in Union Budget 2012-13 and the RBI in its monetary and credit policies during the course of the year to help exports. Policy Measures

In recent years, the policy impetus provided by the government has also provided much required stability to agricultural exports. 7. Transaction Costs

The cost differential for Indian exports viz-a-viz the competing countries are dependent on input cost of various factors of production including cost of infrastructure, cost of credit, different components of transaction cost, etc. Policy Measures

The Department of Commerce has taken initiatives through its various schemes to offset costs incurred by the exporters. Other Ministries, especially, DIPP is trying to spearhead investments like NIMZ, DMIC, etc to create conditions for manufacturing sector. Initiatives taken by RBI to recognize the external credit borrowing route coupled with interest subvention scheme of Department of Commerce has tried to address the cost differential of Indian exports viz-a-viz other countries. Besides, DGFT has set up a second Task Force on tackling the issue of reduction of transaction costs.

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8. Ores and Minerals

During the period 2012-13, the exports of Ores and Minerals was US $ 5.5 billion. Reasons for this declined are on account of ban in iron ore mining in Karnataka and Goa, export duty hike and increase in railway freight.

Iron ore lumps and iron ore fines are produced simultaneously in mining operations. However, domestic industry has not been able to absorb the entire iron-ore fines quantities, due to absence of technology and inadequate sintering and pelletisation capacity, For want of outlet of such fines and with stacking space used up, the production of lumps required by domestic industries would be affected since mining activities would have to be slowed down. The non-evacuation of iron ore fines causes environmental degradation and hazards in terms of air and water pollution in the mining and surrounding areas. Therefore, in this context, export window can provide a ready outlet for disposal of surplus iron ore ‗fines‘. However, it would also be necessary that an appropriate export tariff level is fixed to ensure competitiveness of Indian exports. Mining as an activity also has a social dimension since livelihoods of a large number of population is dependant on it.

9. Emerging Markets

Africa, Latin America, CIS and Asia, would be the emerging markets for Indian exports. There has been gradual shift in India‘s exports from advanced economies of EU and North America to the emerging economies of Asia, Latin America and Africa. The share of EU in India‘s exports declined from about 25 per cent (April-March 2002) to 19 per cent (April-March 2012), while North America witnessed further sharp decline from 21 per cent to about 12 per cent during the same period.

The loss of advanced economies was a major gain for Asia which accounted for 51.5 per cent of India‘s exports, up from 40 per cent a decade before. India doubled its exports to Latin America. Exports to the region moved from 2.2 per cent (April-March 2002) to 4.5 per cent (April-March 2012), while exports to Africa went up from about 5 per cent to 6.6 per cent in the corresponding periods. This trend will continue in the next 10 years. However, we cannot ignore advanced countries as they still account for a major share of our imports. Out of 13 countries (excluding India) with imports of over $200 billion, 11 are advanced economies. Doubling India‘s share in global trade by 2020 would require a right mix of policies aiming to retain market share in advanced economies, while simultaneously increasing it in emerging markets.

There is need to focus on trade with countries such as: Vietnam, Indonesia, Egypt, Turkey, China, Brazil, Mexico etc. Policy Measures

In DoC, under schemes such as MDA, flexibility is given to the concerned export

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promotion council for utilization of funds as per the MDA guidelines. The MAI funds are allocated through a short-listing process to help members of MSME sector exporters of various export promotion councils to participate in major export shows of various countries. MAI funds are also used for holding of India shows in selected countries where a potentiality of export growth has been identified over the long term. Some specific product groups such as gems & jewellery, engineering sector, pharmaceutical sectors and textiles are also promoted through India shows and Reverse Buyer Seller Meets. The MAI funds have also been used to encourage greater participation in emerging markets of Asia, Africa and Latin America. Selective studies are also commissioned for better understanding of emerging export potentials as well as specific barriers to trade.

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Product and Market Strategies

Product Strategies

The Strategy Paper as part of the product strategy, focussed on some of the critical industries, along with promoting export growth of high value products for moving up the value chain. Therefore in this context, the key focus areas were : Engineering, Drugs & Pharmaceuticals, Electronic sectors, Basic Chemicals. Besides, the Strategy Paper also focussed on light manufacturing sectors, such as Leather Products and Textiles. These were important because they generated employment, had high domestic value addition and have been traditional areas of strength in the export markets. Besides, potential for exports in labour intensive export sections, such as Gem & Jewellery and natural resource based exports had also been highlighted.

Accordingly, the SP had given sector wise targets for the year 2013-14, so as to achieve US$ 500 billion of exports. The sector wise current status is indicated below :

A. Gems and Jewellery

India‘s Gem and Jewellery (G&J) industry is an important foundation of the country‘s export led growth. It is a leading foreign exchange earner and one of the fastest growing sectors accounting for 14.5% of India‘s total merchandise exports during FY 2012-13.

As against the initial export target of $70 billion, as per the Strategy Paper, keeping in view the 2% duty imposed on cut and polished diamonds, the targets for this sector for the year 2013-14, have been revised to $49.50 billion for the year 2013-14.

Reasons for shortfall

The major export of Gem & Jewellery products is with countries like USA, Canada and European Union. However, due to the slowdown in these countries, the exports have declined.

Cut & Polished diamonds exports have shown a sharp decline due to imposition of 2% import duty.

Extreme price volatility of rough diamonds and widening gap between the rough prices and the resultant polished diamonds is also hurting the Indian diamond industry.

Imposition of limit of 90 days by RBI on the Supplier‘s Credit has affected both imports and exports of diamonds from the sector.

The major mining companies of the world are doing their trading activities in Belgium, Israel, Dubai etc. instead of India as the facility for consignment import of rough diamonds is not available.

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Immediate Tasks

Focus on Sourcing and supply of rough Diamonds/Coloured Gemstones - territorial divisions are including this issue in bilateral negotiations with countries which are the main source of these products : Russia, Canada, South Africa, etc.

Credit Availability - creation of a special diamond dollar fund, increase in dollar finance and interest rates at par with international rates. The issue is being taken up with Ministry of Finance.

Consignment import of rough diamonds - DGFT has included this in the Foreign Trade Policy.

Skill Development – GJSCI (Gem & Jewellery Skill Council of India) has been formed to upgrade the level of skills in this sector.

Medium Term Measures

Allow duty free re-import quota for cut and polished diamonds to the tune of 15% of the previous 3 year‘s average exports.

Establishment of Special Notified Zones (SNZ) for import and trading of rough diamonds, where net income is fixed and taxes are paid only on invoices raised to Indian companies.

Establish a special fund by RBI to the tune of USD 3-5 billion for the refinance of borrowing given to non-petroleum export industries, which have a high import content of more than 70% of their exports.

2% interest subvention scheme should be extended for the entire gem & jewellery exporters as it was done in 2008-09.

Introduction of Presumptive Taxation regime for gem & jewellery sector.

Interest rates at par with international rates of interest.

Tapping potential markets.

Brand promotion.

Assistance for export promotion tours and exhibition in new market like China, Russia, Middle East and Latin America

Introduction of EDI at Precious Cargo Custom Clearance Centre for gems and jewellery import and export

B. Agriculture

(a) Agri & Allied products

The major items of exports include plantation, marine products, agriculture and allied products. Focus of agriculture policy in India has been on self reliance in food grains and other commodities. During the Eleventh Five Year Plan agricultural exports improved from US$ 6.01 billion in 2006-07 to US$ 18.19 billion in 2011-12.India‘s share in global exports is 1.7% and it ranks 11th in the world. The target for the year 2013-14 is approximately $ 31.5 billion.

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Immediate Tasks

Supply Management :The recurrent spurts of essential commodities price do not augur well for exports. A clear food-grains policy based on buffer norms is need of the hour. Infrastructure and Technology: Improvement of Infrastructure facilities with focus on substantial back-chain infrastructure, especially at post harvest stage. Provision of electricity to cold chain and other agri infrastructure (Green House etc.) at the same rates as provided to farmers. Food Processing and Value Addition: Food processing and value addition will be crucial for any strategy to boost exports of agricultural products. Encouraging development of post harvest technology and incentivising food processing in the producing areas will be central to any sustainable agricultural export promotion strategy. Medium Term Measures

Market and Product Development:

Institutional mechanism to impart knowledge & information among farmers about quality, statutory and procedural requirements of major importing countries with specific focus on European Union, USA, Middle East etc. Engaging important trading partners for removal of trade restrictive practices like imposing unfair SPS/TBT measures etc.

No grant of concessions under FTAs in agriculture sector without redressal of our outstanding issues and based on reciprocity.

Preferential export promotion policy support for value added products visa-vis raw material exports, e.g. Castor oil products, Guar Gum etc.

Ensuring availability of adequate and cheap export credit in foreign currency.

Harmonization of state laws/procedures/taxation issues relating to agri commodities having huge export potential.

Engaging major export destination to remove/reduce duties on exports of important Indian agri produce.

(b) Marine Products

As against the target of $5 billion for the year 2013-14, as per the Strategy paper, the projection is $3.8 billion. The Major markets for Indian seafood export during 2012-13 have been South East Asia (23.1%), European Union (22.2 %), USA (21.4%), Japan (10.7%).

Immediate Tasks

Supply scenario: Dependent on production cycle, climatic changes, market preferences etc.

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Market Conditions: Traditional Markets : EU, Japan and USA have been leading importers of Indian seafood products and have not been faring well. However, exports to USA have increased significantly in last two years particularly of shrimp.

Medium Term Measures

Focus on other Markets: Indian seafood exports to Canada, Africa and Russia have shown decent growth. With focused approach over these countries in resolving the regulatory and trade issues, exports to these destinations can be increased.

Competitiveness: Need to focus on Quality, Value added Products by providing several incentives for exporters, brand Promotion assistance, Warehousing, logistics and slotting fee assistance, sea freight assistance etc. Also need to work on the Trade Barriers, so as to, ensure compliance.

C. Chemicals and Related products

(a) Pharmaceutical sector

As against a target of USD 25 Billion for 2013-14, it is estimated that only USD 17 Billion can be achieved – i.e. nearly 70% of the target. Reasons for shortfall:

Inability of India to spread its exports from the existing basket in the highly evolving pharma market.

Recession in Europe, Indian rupee‘s devaluation at unexpected rate, some of our major export partners in LAC, CIS and Africa regions initiating process of indigenous production working towards self reliance and China‘s increased competition even in formulations sector especially in Europe, are some of the factors.

CIS countries, some of the LAC countries & African countries are initiating self reliance in Pharmaceuticals.

Russia is restricting direct imports through various methods. Brazil has been doing so for the last one year.

Nigeria has imposed restrictions on imports of pharmaceuticals which are being made in the country despite the fact they are falling short of demand.

Mexico has been imposing NTB‘s to reduce imports.

India‘s exports to China have been continuously slipping. Immediate Tasks

Maintain and enhance market share where India‘s presence is already robust such as the North America, European Union and Africa. Even within groups of countries such as European Union and Africa, identify those countries where the rate of growth and market share have been substantially low.

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Use opportunity available in Japan and government intervention required through the recently concluded CEPA.

Indian dependence on bulk drugs from China needs to be reduced. Policy intervention required in API Sector to strengthen bulk drugs manufacturing in India, coupled with export of formulations to China.

VCF needed to support R&D effort as financing needs of the sector are very unique and cannot be supported by traditional bank credit. A scheme is being negotiated with the Planning Commission and the DoP.

Medium Term Measures

Pharmaceutical is a knowledge based industry and requires different support in comparison to other commodities. Pharma industry not provided any specific new concessions in the last three years, and requires specific government intervention for market access and strong regulatory support.

Indian pharma industry needs to improve the composition of production/ export basket in India, such as tapping:

a) Global Contract Research and Manufacturing opportunity (US$44bn. as of 2013-14)

b) New Drug Delivery Systems (NDDS). c) The world biotech market including monoclonal anti-bodies. d) Complex APIs. e) Drugs going off patent in the next 5 years (of USD 100 billion value).

To support upgradation of infrastructure & capacities; special initiative required which is being devised in consultation with the Planning Commission & DoP.

(b) Basic Chemicals

Against a target of US$ 19.01 Billion for 2013-14 US$ 15.5 Billion can be achieved.

Reasons for shortfall:-

• The issue of inverted duty structure emerged as a major barrier especially for the products like Oleo Chemicals and Crude Naphthalene.

• Environmental ban has been put in most Chemical industrial areas. • The countries where chemicals have very good export potential like UAE, Syria,

Lebanon do not allow import of Indian agrochemicals unless they are registered in USA.

• EU has introduced chemical registration formalities which escalated costs significantly.

• Infrastructure limitation pertaining to chemical handling in ports, and logistic issues in various ports, including Mumbai port.

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Immediate Tasks

The Latin American and Caribbean American Countries have shown a considerable positive growth in Agrochemicals. Therefore capturing larger share of the market aggressive marketing strategies like Exhibitions, BSM and RBSM are needed. Medium Term Measures

May continue assistance with REACH and Chemical inventory program.

(c) Plastic Sector Against a target of US$ 10 Billion for 2013-14 US$ 7.5 Billion can be achieved. Reasons for shortfall:

Negative growth in two major trade partners for this sector- China and Italy.

For the Woven sack/FIBC sector, the major destination markets viz. EU and the USA have shown a negative demand.

While India has capacities, availability of plastic raw materials for plastic processors at reasonable rates is a big issue.

Plastic process industry lacks economies of scales in production (vis-a-vis its competitors in South East Asia).

There is a good domestic market which works as a disincentive for exports.

Immediate Tasks

To set up common facility centres for design and prototyping of plastic items. Medium Term Measures

Policy initiatives for creation of plastic processing parks D. Engineering Sector

Against a target of USD 125 Billion for 2013-14, it is estimated that only USD 63.50 Billion can be achieved. Engineering goods is a very broad spectrum covering many commodities of various equipments / machinery / machines etc. in more than 30 categories. For focused monitoring of engineering exports, the following initiatives have been taken recently (2013) :

The DGCIS HS commodity codes have been expanded to 32 for the engineering sector, vis-à-vis 10 in number that existed till 2012-13.

Brand engineering campaign has been launched in 2013-14 and would get carried forward during the 12th Plan, specific product groups would get covered for focused campaigning

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Reasons for shortfall:

The EU, major markets which accounted for 24% of exports has fallen to 19%. Similar is the case for North America, which is another major market.

The fall in global demand has also impacted the domestic production with associated issues like inflation interest rates etc. The Chinese engineering exporters have benefited during this period.

Although initiative have been taken by the Department to stimulate the exports, engineering goods have long gestation periods and take time to establish new markets.

Tariff and non-tariff barriers have also been introduced by some of the major markets.

Various procedural bottle-necks and policy initiatives have also affected anticipated CAGR.

Immediate Tasks

Provide credit at low cost for investment in capital goods / equipment

VAT refund issues to be redressed.

Soft loan (or subvention) for technology upgradation required.

Use focus market scheme to explore new markets (Eastern and Central Europe) and strengthen the position in the existing markets (ASIAN, LAC region, etc.)

Focus on Brand India Campaign, institutionalise the Indian Engineering Sourcing Show.

Continue efforts to get favourable treatment under PTA / FTAs.

Inverted duty structure is to be redressed where necessary.

The limits for plant and machinery in the MSME sector need to be enhanced so that the benefits of MSME sector can add value to engineering exports.

Medium Term Measures

Skill Development Fund for Engineering Industry

Improvement in existing FTP instruments by aligning FPS and MLFPS to Big, Niche and Tough Market.

Infrastructure and freight cost to be addressed.

Industry to be facilitated in all new markets with direct government

Support to tackle the local issues especially project exports.

Formulate a Technology Upgradation Fund Scheme for the MSME sector

E. Leather Sector

As against the target of US$ 9 billion in 2013-14, it is expected that about US$ 5.75-$ 6 billion, is likely to be achieved.

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Reasons for shortfall:

Persisting Euro Zone crisis, intense competition from China, South East Asian Countries, Pakistan and Bangladesh; emergence of synthetic / textile winter garments as an alternate to leather garments; removal of anti dumping duty on Chinese and Vietnamese leather footwear and the rising prices of chemicals / inputs required by the leather/tanning industry pose great challenge to the sector.

Immediate Tasks

Development of Mega Leather Clusters: The DIPP has notified the Mega Leather Cluster (MLC) scheme. It is proposed to develop Greenfield Mega Leather Clusters in the States having large concentration of leather units and also in states having potential for growth. Each MLC will be implemented by a SPV.

Continuation of existing Support Measures: under Marketing Development Assistance (MDA), Market Access Initiative Scheme (MAI) and ASIDE, specially for export to continuing and potential markets..

Proposed Venture Capital Fund for export oriented leather units.

Exemption to leather sector in maintenance of average annual export obligation under EPCG

Special package for USA market

Request to extend 2% interest subvention scheme on Rupee export credit to entire leather sector during 2013-14

Enhancement of duty free limit under Duty Free Import Scheme (DFIS) from 3% to 5%.

Request for creation of brand promotion fund.

Medium Term Measures

Skill Development: FDDI can play a useful role in imparting training. It has established 5 branches in Fursatganj, Chennai, Kolkata, Rohtak, and Chhindwara. A branch of FDDI at Jodhpur has been established during 11th FYP. Another branch at Guna (MP) has been approved during 12th FYP. Four more branches are proposed to be set up during 12th FYP in Punjab/Chandigarh, Bihar, Gujarat and Andhra Pradesh.

The Leather Sector Skill Council (LSSC) has been constituted under National Skill Development Council (NSDC).

Raw Material Availability: The Indian leather industry requires an additional 2 billion sq.ft of leather in the next 5 years, over and above the 2 billion sq.ft that is currently available per annum. Considering the domestic limitations, efforts are being made to explore new markets for importing the leather to meet our increasing requirement. Need for relaxation in input procedures of hides, skins and leathers.

Design upgradation scheme required

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F. Textiles

Against projected target of Rs. 42.78 USD billion exports 2013-14, revised projection is 39.1 USD billion (inclusive of Jute, Coir & Handicrafts).India‘s textiles and clothing industry is one of the mainstays of the national economy. It is also one of the largest contributing sectors of India‘s exports worldwide. The textiles industry accounts for 14% of industrial production, which is 4% of GDP; employs 45 million people and accounts for nearly 10.5% share of the country‘s total exports basket. India‘s textiles products, including handlooms and handicrafts, are exported to more than a hundred countries. However, the USA and the EU, account for about two-thirds of India‘s textiles exports. The other major export destinations are China, U.A.E., Sri Lanka, Saudi Arabia, Republic of Korea, Bangladesh, Turkey, Pakistan, Brazil, Hong-Kong, Canada and Egypt etc.

Reasons for Shortfall

As per latest exports figures, Textiles & Clothing worth USD 26.82 billion was exported during 2010-11 and USD 33.31billion during 2011-12. During 2012-13, exports of textiles & clothing were of the order of USD 31.71 billion as against USD 33.31 billon in 2011-12, recording a negative growth 4.82%.

The volatility in the EU market during the calendar year 2012 affected severely India‘s T&C exports to EU.

Export Promotion Measures

The recent measures taken by the Government to support the textiles exports sector are :

2% Interest Subvention Scheme on rupee export credit is available to certain specific export sectors. These are (i) Handicrafts, (ii) Carpets, (iii) Handloom, (iv) Readymade Garments, (v) Processed Agriculture Products, (vi) Sports Goods and (vii) Toys. In addition Small and Medium Enterprises (SME) in all sectors enjoy this benefit.

Introduction of a new scheme to incentivize incremental exports in certain sectors and to certain markets

Five new countries have been added under the Focus Market Scheme while Eritrea has been added under the Special Focus Market Scheme. Sixty new products which include Textile products among others, and three countries (Taiwan, Thailand and Czech Republic) have been incorporated under the Market Linked Focus Product Scheme.

Under the Focus Product Scheme, more than 100 new products have been added from sectors including, Textiles,

Technology Upgradation Fund Scheme (TUFS) to continue in 12th Plan with an investment target of Rs. 1,51,000 crore.

Allocation of Rs. 50 crore to Ministry of Textile to incentivise setting up Apparel Parks within the SITPs to house apparel manufacturing units.

A new scheme with an outlay of Rs. 500 crore called the Integrated Processing Development Scheme.

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Various customs/ excise duty concessions extended in Budget 2013-14.

FTP supplement 2013 provided various incentives to Textiles Sector.

MOUs signed with Mauritius, Uzbekistan, Kazakhstan, Tajikistan, Israel Australia and Romania. MOUs under discussion with Bangladesh, Sri Lanka and Belarus.

Immediate Tasks

Policy realignment for apparel sector urgently required – duty drawback/ incentives under FTP/ duty reduction in fabric/ yarn imports.

TUFS committed liabilities crowding out new sanctions.

At the Processing Stage there is a need to provide the technical and financial assistance to processing units to enable industry to meet environment sustainability objectives.

At the Apparel Stage amendment to Labour Laws is urgent.

Encourage and also support innovative start-up models.

Finalisation of the India-EU BTIA would open up trade in textiles sector with EU countries.

Medium Term Measures

Shifting to value added niche product segment, and up-gradation of technology

Scaling up of operations in the value chain

Scaling up of investment and credit flow to the sector, including facilitating foreign direct investment

Creating competitiveness through stable policy instruments including fiscal incentives and institutional changes and

Revamping of Export Promotion Councils and brand image building

Appropriate strategy for each product and market such as: Ready Made Garments, Man Made Fibres

Negotiating preferential access to prospective markets

Addressing Non Tariff Issues

G. Electronics Electronic Goods

India has a share of 1.44 per cent in the world Electronics market estimated at US$ 1.8 trillion. Important features of the strategy for bolstering growth in electronics manufacturing include (a) change in strategy from ‗Design led Manufacturing‘ to ‗Demand led Manufacturing, (b) promotion of Export incentives to create an environment for electronics exports, (c) development of clusters for Electronics – ‗design to marketing‘ clusters, (d) promotion of tax holidays and incentives for EMS companies investing in the country and (e) policy to attract investment in setting up of ecosystem companies.

As against 2013-14 target of US$ 17 billion, the actual exports are likely to be

amounting to be US$ 13.84 billion.

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Strategies for achieving this target include:

Immediate Tasks

Identification of new opportunities such as Repair, Reconditioning and Refurbishing of Electronics Hardware Goods,

Set up two Semiconductor Wafer Fabs

Preferential access to “Manufactured-in-India‖ Electronics Products and ―Indian Electronics Products‖ for all government procurements and procurement by Government Licensees.

Extending focus product schemes to cover all electronics items.

For zero duty items, treat DTA sales as Exports

Simplifying Custom procedures and reduce transaction costs Medium Term Measures

Set up a dedicated Electronic Development Fund

Providing Capital grant and creation of electronic manufacturing clusters to encourage manufacture of specific high priority electronic product line in India

Skill Development

Promoting intelligent manufacturing

Aggressive marketing

Besides, the above mentioned product specific strategies some of the other recommendations which may be highlighted are:

The total global imports in the World for all 99 Chapters (at 2 digit HS code) and approximately 5010 commodities (at 6 digit HS code) is to the tune of US $ 11595.470 billion in 2012.

The Total Exports from India for all 99 Chapters is US $ 287.037 billion in 2012.

The top 20 sectors of World to World imports constitute 80% of the total global imports, whereas for India, these 20 sectors constitute 70% of the entire India‘s exports basket of 2012, in terms of value.

Of these, top 20 sectors, there are 10 sectors where India‘s share in World import market is above 2% & 10 sectors where the share is less than 2%.

India should now focus on those sectors where the percentage share is less than 2% to capture the import market share of the world and for immediate increase in merchandise exports.

Some of these are: Electrical and electronic equipment, Nuclear reactors, boilers, machinery, etc., Vehicles other than railway, Plastic and articles, Optical apparatus, Rubber articles, Paper & paperboard articles etc.

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Market Strategies

The Strategy Paper talks of a market diversification strategy based on the changing dynamics of growth in the world economy is necessary to ensure sustained growth of exports.

It mentions about need to focus on markets in Asia (including ASEAN), Africa and Latin America. The core of the market strategy must therefore be:

Retain presence and market share in our ―old developed country markets‖

Move up the value chain in providing products in these old developed country markets;

Open up new vistas, both in terms of markets and new products in these new markets.

DOC has consciously worked on diversifying our export markets, reducing the

dependence on traditional markets. India has been pursuing a policy of market diversification directing her export promotion efforts at Asia and ASEAN, Latin America and Africa through Focus Market initiatives and bilateral trade agreements.

Some of the strategies being adopted for Key Markets are:

Africa

The sub-Saharan Africa region comprises 49 countries. The major trading partners in the region are Nigeria, South Africa, Angola, Kenya, Tanzania, Mauritius, Mozambique and Ghana. Exports to sub-Saharan Africa in 2012-13 were US $ 23.45 bn., registering an annual growth of 17.41%. The share of Sub-Saharan Africa in India's total exports has increased from 6.53% in 2011-2012 to 7.9% in 2012-13.

Many economies in the sub-Saharan Africa are registering highest GDP growth rates globally [Africa registered Real GDP growth rate of 6.6.% in 2012 ]. In view of growth in industrial and services sectors, there is potential for further growth in the traditionally strong export products in Vehicles, auto components, and Machinery & Instruments. Lately, there has been substantial growth in exports of food products, especially rice with immense potential for further growth

The main products where India can focus in the sub-saharan Africa region as a whole are Drugs & pharmaceuticals, Plastic and Linoleum products, Man-made yarn, fabrics and made-ups, Manufactures of metals, Vehicles and auto components, Machinery & Instruments, Food products, including cereal and meat.

Specific measures are required for reversing the decline in exports to Ghana,

Mauritius, Benin and Djibouti in the sectors which have contributed to the decline.

Following steps are already being undertaken for enhancing the exports to the Sub-Saharan African Region:

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An 'India Show' event being organized in Dar-es-Salaam, comprising of a large Exhibition,

Participation in international trade fairs approved for South Africa, Zambia, Senegal and Ethiopia.

Negotiations are underway with the 'Southern Africa Customs Union' (SACU) [for a Preferential Trade Agreement' covering Trade in Goods] and with 'Mauritius' [for entering into a Comprehensive Economic Co-operation and Partnership Agreement (CECPA).

A Joint Study Group (JSG) established to examine the feasibility of the FTA/PTA between India and the Common Market for Eastern and Southern Africa (COMESA),

South Asia

Between 2010-11 to 2012-13 the exports from South Asia region and Iran has increased by 28%. For most of the countries of this region, the export growth has range between 10-15% on year to year basis.

Bangladesh

Both sides are working on several projects to improve trade infrastructure and connectivity which include development of 7 ICPs and 8 LCSs along India- Bangladesh border, besides establishment of a number of Border Haats, of which 2 are operational. These trade facilitation initiatives have already started yielding results and Bangladesh is now India‘s largest Export destination in South Asian region. Iran

Recent measures taken for Rupee-Riyal payment mechanism will help increase exports. However, the US/EU sanctions on Iran will dampen India‘s bilateral trade due to Shipping/Insurance/Payment mechanisms and other transactional problems. Pakistan

Trade with Conservative based on past trends. MFN status by Pakistan to India could later lead to better projections. Bhutan

Most important requirements of Bhutan are mainly met by imports from India. Bhutan has limited additional export absorption capacity. However up gradation of transit facilities by India to Bhutan, coupled with other trade facilitation measures, are expected to result in steady increase of our exports to Bhutan. Nepal Export proceeds from the ongoing hydro power project in Nepal is expected to add to its export absorption capacity. Besides, other trade facilitation measures, are also expected to result in steady increase of our exports to Nepal. Sri Lanka Export proceeds from the proposed Wind and Solar energy projects in Sri Lanka is

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expected to add to its export absorption capacity from India. LAC region

The LAC region has been identified as focus region with the objective to enhance trade and commercial relations.LAC Programme has been extended up to March 2014 for supporting and encouraging Indian exporters to explore new markets in the region.

Key issues are:

Latin America accorded special focus to diversify trade basket and offset inherent disadvantages as credit risk, higher freight cost etc. Double Weight Scheme for exports to all countries of LAC will continue. 16 new markets of LAC region have been incorporated under Focus Market Scheme (FMS). Thus, the total countries of LAC region now covered by the FMS are thirty one (31). Under the Market Linked Focus Product Scheme (MLFPS), 13 markets have been identified, including Brazil.

The work of expansion of existing India-Chile Preferential Trade Agreement (PTA) (i.e. inclusion of more items and increasing the level of margin of preference called duty concession, on the existing items) has been initiated.

The work of expansion of India-MERCOSUR PTA initiated.

A general trade MOU between India and Costa Rica & Ecuador signed.

Existing India-Brazil Trade Monitoring Mechanism (TMM) being strengthened to resolve and overcome operational issues/ tariff obstacles.

Memorandum of Understandings (MoU) with important trading partners in LAC like Colombia and Argentina on cooperation in trade and commerce have already been signed.

Focus on commodities like: Indian Drugs, pharmaceuticals and fine chemicals, transport equipments, machinery and instruments, inorganic/organic/agro-chemicals, cotton yarn, fabrics, made-ups, manufacturers of metals etc for export.

WANA Region

West Asia North Africa (WANA) Region account for a share of 22.55% in India's total exports.

• Exports to the WANA region registered a growth of 13.07% during 2012-13

• Top five export partners in the WANA region are UAE - US$ 36290 million, Saudi Arabia - US$ 9780 million, Israel- US$ 3739 million, Egypt - US$ 2896 million and Oman - US$ 2590 million.

• The top five export products to the region during FY-2012-13 are Gems & Jewellery, Petroleum (crude & products), machinery & Instruments, Rice-basmati, Transport equipments.

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• Export to the region in 2012-13 increased in all countries with the exception of Israel, Kuwait, Qatar and Syria.

Strategy for improving exports in the region-

Product diversification of "high export potential products" which include Medicaments / Pharmaceuticals, Automobiles and Motor Vehicle parts, Telephones; Mobile phones, Aircraft parts, Machinery, Raw sugar and refined sugar, Meat and Meat preparations, Wheat, Tea, Maize/Corn.

The region being wealthy has huge expenditure on pharmaceuticals and automobiles and is a potential market for these items. The region has huge demand for construction, power, roads, airport projects etc.

Joint Business Councils and Trade Committee mechanism established in respect of the five most important countries of our export in the region being UAE, Saudi Arabia, Israel, Egypt and Oman. Negotiations are on for FTA with Israel. ASEAN ASEAN (Association of South East Asian Nations) comprises 10 countries namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The region has great importance in the ―Look East‖ policy of India and accounts for about 12% of India‘s trade with world. The four major trading partners from the ASEAN are Singapore, Indonesia, Malaysia and Thailand for India and accounts for more than 85% trade with ASEAN.

The top 10 items of export to ASEAN region in the year 2012-13 were: petroleum and petroleum products, transport equipment, machinery and instruments, meat and preparations, gems and jewellery, dyes, other cereals, drugs, pharmaceuticals and fine chemicals, primary & semi-finished iron and steel and oil meals. The region has great potential for export of most of the Indian products due to proximity and cultural bonding.

With a view to boost trade with the ASEAN, India has signed a series of Trade Agreements on Trade in Goods and Services under the broader framework of Comprehensive Economic Cooperation Agreements (CECA) between India and various countries in this region.

There are a lot of trade promotions activities in the region. India has an ASEAN India Business Council (AIBC) and Joint Business Councils (JBC), with Singapore, Malaysia, Myanmar, Indonesia, Thailand, Vietnam and Philippines. Meetings of AIBC & JBCs are held between the business communities of both sides to discuss a wide range of issues of mutual interest for expansion of bilateral trade. Sector and country specific shows are planned abroad as well as in India by the Department to showcase India‘s strength and potential.

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North East Asia

North East Asian region comprises of China, Japan, Republic of Korea, Hong Kong China, Taiwan China, Democratic People Republic of Korea, Macao and Mongolia. NEA accounts for a share of 13.10% in India‘s total exports.

India‘s trade with NEA stood at US$ 132.17 billion during 2012-13, which is a

decrease of 8.13% over the previous year. Exports to the NEA region were of the order of US$ 39.34 billion during 2012-13,

registering a decline of 13.15% over the last year. Imports from the region were decreased by 5.89% to US$ 92.77 billion during 2012-

13. India‘s top five trading partners in the region are China, Hong Kong, Japan,

Republic of Korea and Taiwan. Top five export partners in NEA region during 2012-13 are China-US$ 13,503

million, Hong Kong-US$ 12,278 million, Japan-US$ 6,099,Korea RP- US$4,201 million and Taiwan-US$ 3,038 million.

Top ten products of exports to NEA region during 2012-13 are gems and jewellery, petroleum (crude and products), cotton raw incld. Waste, non-ferrous metals, cotton yarn/fabrics/made ups, iron ore, other ores & minerals, machinery & instruments, plastic & linoleum products and ferro allows.

Export to the region declined in all countries during 2012-13.

Strategy for improving exports in the region-

Issues relating to market access of potential Indian products such as pharmaceutical, IT & ITES and other agri & marine products are being taken with China under the India-China JEG.

India and Republic of Korea has signed a Comprehensive Economic Partnership Agreement (CEPA)and a CEPA has also been signed between India and Japan. Through the trade liberalization under CEPA, India it is expected to result in growth in exports to Japan and Korea.

‗India Show‘ events are organized in the region comprising of a large Exhibition, showcasing Indian products, technologies & services, Business Seminar, B2B meetings etc.

Participation in 14 international trade fairs approved for the year 2013-14 for China, Hong Kong and Japan.

Product diversification of high export potential products/services which include gems and jewellery, pharmaceuticals, cotton yarn/fabrics/made ups, plastic & linoleum products, marine products, meat & meat preparations, IT & ITES.

Several studies have been made regarding the possibility of increasing India‘s exports in the short run. The key lessons which emerge are:

Promote exports of manufactured products: chemicals and related products, engineering goods, electronic goods, project goods etc.

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Explore the possibility of altering the composition of commodities in the export basket, i.e. shifting focus in favour of promoting top 10 commodities going to specific countries whose percentage share is low.

Explore destinations having less than 70 per cent share in our top 10 exports where India has a competitive advantage, for example USA (67.1%), UK(62.5%), Indonesia (60.8%), Germany (55.9%), China (21.8%) etc.

Focus on BRIC countries and Emerging Economies. There seems a huge scope for improvement in the export to CIS countries, South Asian countries and Latin American countries.

India's missions in foreign countries should play a greater role in commercial diplomacy, market research and activating trade enquiries.

The territorial divisions and the commodity boards concerned should focus on getting trading partners to remove trade restrictive measures such as SPS/TBT measures.

Strengthen the Trade portal which provides, inter alia updated tariff data for India, ASEAN and India's top 25 export destinations as well as SPS-TBT requirements for India and its top 25 export destinations.

A summary of these recommendations, highlighting product and country specific strategies are indicated below.

Mineral Fuel (Petroleum Crude & Products): explore the markets of Japan, Indonesia, and Netherland

Precious Stones (Gems & Jewellery): UK, Belgium and USA. Vehicles not Railways: USA, UK, and Germany. Machinery: Singapore, Netherlands, USA, Hong Kong, Germany, China and UK. Pharmaceutical Products: Germany, UK, Netherland and USA. RMG Cotton including Accessories: China, Japan and Germany. Manufacture of Metals: China, Germany, Indonesia, and Belgium. Cotton Yarn, Fabrics, Made-ups: Indonesia, Hong Kong, China and Germany. Plastic: China, Belgium, Indonesia, Germany and Netherlands. Inorganic/Organic Chemicals: Indonesia, Netherlands, China and Germany. Manufacture of Primary and Semi-Finished Iron & Steel: Germany, Belgium,

Netherlands and USA. Dyes, Intermediates & Chemicals: World Imports of Dyes, Intermediates &

Chemicals among the selected 10 countries is below 1%. Therefore, this commodity may not warrant much attention in our export promotion.

Non-Ferrous Metals & Products: China, Germany, Netherlands, Belgium, Indonesia and Japan.

Marine Products: Japan, UK, Hong Kong, Netherlands and USA.

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Conclusion and Way Ahead Key Challenges

Product Diversification To reposition itself in its traditional areas of strength like textiles and leather & leather manufactures and also making forays into new areas.

Strategic regional trading policy With multilateral trade negotiations stalled, and RTAs on the rise, India also has to follow a focusing on the potential technology-intensive items in the more important RTAs.

Address inverted duty structure in sectors like electronics, textiles, and chemicals and the artificial inverted duty structure caused by some FTAs/RTAs.

Low level of production. Output is the most important determinant of exports. Therefore, quantum, quality and competitiveness of domestic manufacturing is very important for export performance of the manufacturing sector.

Very low share of high tech exports. High – tech products have better terms of trade due to high income elasticity. However, India‘s share in the global trade of high tech products is very low, and has been between 5-8 percent during 2003-09.

Non-tariff barriers being placed by countries. There is a lack of information and clarity on procedural norms and regulations of various countries regarding specification as well as methods of sampling, inspection and testing. Several conformity assessment issues also have the effect of restricting trade.

Specify the Role of State Governments‘ and Local Governments‘ in policy, fiscal incentives and implementation mechanism.

Inadequate allocation of Plan funds.

Way Ahead

A study by Centre of WTO Studies shows that income elasticity of total exports of India i.e. responsiveness of Indian exports to GDP growth of rest of the world is high. Estimates of income elasticities of ten major export sectors of India (which are around 95% of total India‘s exports) show that sectors such as petroleum products, ores and minerals, gems and jewellery, chemical products and engineering products is high. India‘s traditional export sectors like textiles leather and plantation have relatively low income elasticity, with lowest being for plantation. This also explains the shift in India‘s exports away from traditional exports and growing diversification of export basket in the period 2000-2007 in which global GDP grew consistently.

An important implication of these elasticities is that during slowdown in growth of global GDP, sectors with higher income elasticities will experience a higher decline in their export growth. But if the price elasticities (i.e. pricing of exports being affected by depreciation of the Indian Rupee), are also high then these sectors can lower their prices to improve exports, but such an option may not be available in respect of products with high income elasticity but low price elasticity like gems and jewellery and textiles. These sectors are relatively more vulnerable in terms of impact of global slowdown.

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The strategy in respect of government support measures in sectors of India's traditional strength - textiles and clothing, leather products and gems and jewelry - has to be calibrated taking into consideration the changes in global GDP growth. During times of economic boom, the gems and jewellery sector may not require significant financial assistance from the government as the income elasticity of this sector is relatively high. However, during periods of economic downturn, exports of this sector is likely to suffer the most significant dip, as compared to textiles and clothing and leather products. Further, as the price elasticity of this sector is higher than that of the other two sectors of India's traditional strength, financial assistance to gems and jewellery sector could be more effective in arresting a potential decline in exports of this sector. For both textiles and leather exports, price elasticity is low which implies that improving cost competitiveness or lowering prices may not be a feasible option for boosting exports of these sectors during slowdown.

In order to enhance exports in the short term, it may be useful to identify some

products in which India has the productive capacity and is already a player in the global market, but does not have a significant presence in some of the expanding markets and work accordingly, focussing on product specific strategies. Given the Current Situation of Global slowdown and Depreciation in Currency, the following Recommendations emerge

Immediate Measures

Focus on ASEAN countries, for enhancing export prospects during global Slowdown.

New Markets needing greater attention and focus: ASEAN, Australia, Brazil, China, Israel, Japan, Korea, Mexico, Russia, Turkey.

Key Products to be emphasised in these markets: Agricultural Products, Ores and Minerals, Drugs and Pharmaceuticals, Textiles, Gems and Jewellery, Engineering and Electronic Goods

For Textiles and Leather Exports, focus on improving cost competitiveness/lower prices.

Provide enhanced financial assistance to the Gems and Jewellery Sector

Lower prices of Ores and Minerals and Plantation products as an effective instrument for enhancing Exports.

Thus, work towards: o Initiate dialogues with the parent Ministries and EPC‘s o Remove Policy bottlenecks, if any o Align MDA and MAI support accordingly

Long Term Measures

Providing world class infrastructure at the ports and airports.

Reduction of transaction cost for exporters

Export procedure to be simplified and human interface with exporters to be reduced.

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Addressing non-tariff barriers to ensure fairness to exporters Indian standards need to be in line with international standards and

technical regulations Review of our existing standards and their benchmarking with

international standards is required More improved labs with international accreditation

Reform of the FTA process to include improved consultative process with stakeholders Include better input taking mechanism from industries and associations

Improving fiscal incentives to exporters

Attracting FDI in country Linking FDI investment with market access and giving preferential

incentives for investment in areas where Indian domestic market is non-existent.

Reduction of threshold limit for offset obligation should be considered

Ensuring availability of funds to exporters For example, reduction in ECGC premium, availability of pre-shipment

and post- shipment credit

Market strategy to capture unexplored markets and products

Move to higher value-added products exported to traditional markets

Focus on Asian and African countries Market access through quota system should be negotiated with

competing countries Conducive trade agreements need to be put in place

Focus on globally dynamic products Products which are gaining significant share in global trade.

Focus on moving towards `High-tech‘ exports from Current Low Tech Exports

The industry needs to lead the initiatives for brand promotion by dovetailing with on-going Government initiatives like India Brand Equity Foundation (IBEF) and Ministry of Tourism led ―Incredible India‖ campaign.

Summing up the Discussion Paper highlights the issues to which immediate tasks

have to be targeted and existing key challenges. Along with the specific product centric and market specific strategies, a way ahead has been indicated whereby the overall strategy and key recommendations have been mentioned. These would require focused attention during the entire 12th Five Year Plan period (2012-2017). This Discussion Paper is to be converted into a detailed Strategy Paper for the entire 12th Five Year Plan period with the target of achieving the target of US$ 500 billion of the merchandise exports by the end of 12th Five Year Plan.

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