Introduction Foreign Trade Policy

To become a major player in world trade, a comprehensive approach needs

to be taken through the Foreign Trade Policy of India. Increment of exports is

of utmost importance, India will have to facilitate imports which are required

for the growth Indian economy. Rationality and consistency among trade and

other economic policies is important for maximizing the contribution of such

policies to development. Thus, while incorporating the new Foreign Trade

Policy of India, the past policies should also be integrated to allow

developmental scope of India’s foreign trade. This is the main mantra of the

Foreign Trade Policy of India.

Objectives of foreign trade policy of India

Trade propels economic growth and national development. The primary

purpose is not the mere earning of foreign exchange, but the stimulation of

greater economic activity. The Foreign Trade Policy of India is based on two

major objectives, they are -

1. To double the percentage share of global merchandise trade within the

next five years.

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

to employment generation.

Strategy of Foreign Trade Policy of India

1. Removing government controls and creating an atmosphere of trust

and transparency to promote entrepreneurship, industrialization and

trades.

2. Simplification of commercial and legal procedures and bringing down

transaction costs.

3. Simplification of levies and duties on inputs used in export products.

4. Facilitating development of India as a global hub for manufacturing,

trading and services.

5. Generating additional employment opportunities, particularly in semi-

urban and rural areas, and developing a series of ‘Initiatives’ for each

of these sectors.

6. Facilitating technological and infrastructural up gradation of all the

sectors of the Indian economy, especially through imports and thereby

increasing value addition and productivity, while attaining global

standards of quality.

7. Neutralizing inverted duty structures and ensuring that India's

domestic sectors are not disadvantaged in the Free Trade

Agreements / Regional Trade Agreements / Preferential Trade

Agreements that India enters into in order to enhance exports.

8. Up gradation of infrastructural network, both physical and virtual,

related to the entire Foreign Trade chain, to global standards.

9. Revitalizing the Board of Trade by redefining its role, giving it due

recognition and inducting foreign trade experts while drafting Trade

Policy.

This Foreign Trade Policy of India is a stepping stone for the development

of India’s foreign trade. It contains the basic principles and points the

direction in which it propose to go. A trade policy cannot be fully

comprehensive in all its details it would naturally require modification from

time to time with changing dynamics of international trade.

Certain Facts & achievements from previous policies:

1. In 2004 our exports stood at a little over US $ 63 billion. In 2007-08,

they have exceeded US $ 155 billion; our exports are not just double

what they were 4 years ago, but 2½ times that.

2. We have managed an average cumulative annual growth rate (CAGR)

of 23%, year on year, way ahead of the average growth rate of

international trade.

3. Our total merchandise trade – exports and imports together – will be

almost US $ 400 billion this past year, accounting for 1.2% of world

trade.

4. If the trade in services is added to this, our commercial engagement

with the world would be in the region of US $ 525 billion.

5. We have delivered on our second objective as well: that of fashioning

trade into an instrument of economic growth and employment

generation.

6. Our total trade in goods and services is now equivalent to almost 50%

of our GDP. This is unprecedented in India’s modern economic history.

7. On the issue of employment, it is our estimate that during the last 4

years increased trade activity has created 136 lac new jobs.

8. We have always mentioned that exports are not just about earning

foreign exchange but about boosting our manufacturing sector,

creating large scale economic activity and generating fresh

employment opportunities.

9. What is more remarkable about all these achievements is that they

have been accomplished in the face of appreciation of the rupee (by

more than 12% in the last year alone), high interest rates, spiraling oil

prices, withdrawal of some GSP benefits to India by other countries and

general international economic slowdown in some of our major trade

markets.

India’s Foreign Trade

Period $ Growth Rate

1999-2000 10.85

2000-2001 21.01

2001-2002 -01.65

2002-2003 20.34

2003-2004 17.26

Steps considered in latest 2004-2009 foreign trade policy of India:

1. To promote modernization of our manufacturing and services exports,

the import.

2. Duty under the EPCG scheme is being reduced from 5% to 3%.

3. Refund of tax on a large number of services relating to exports has

already been announced by the Government. A few remaining issues

regarding refund of service tax on exports are still in progress to be

resolved.

4. Income tax benefit to 100% EOUs available under Section 10B of

Income Tax Act is being extended for one more year, beyond 2009.

5. Sports and toys are mainly produced by our unorganized labour

intensive sector.

6. To promote export of these items and also to compensate

disadvantages suffered by them, an additional duty credit of 5% over

and above the credit under Focus

7. Product Scheme is being provided.

8. Our export of fresh fruits and vegetables and floriculture suffers from

high incidence of freight cost. To neutralize this disadvantage, an

additional credit of 2.5% over and above the credit available under

VKGUY is proposed.

9. Interest relief already granted for sectors affected adversely by the

appreciation of the rupee is being extended for one more year. The

DEPB scheme is being continued till May 2009.

Thrust Sectors & schemes

1. Agricultural.

2. Handicrafts.

3. Handlooms.

4. Gems and Jewellery.

5. Leather.

6. Textile

Schemes:

1. SEZ Scheme

2. EOU/EHTP/STP/BTP Schemes

3. EPIP Scheme

4. Warehousing Scheme

5. CCP

6. DTA Schemes

Incorporating a legal entity Proprietorship&

In India [ROC] Partnership Concern

Trade Licence

[State Departments]

Permanent Acccount Number Bank Certificate

[PAN by Income Tax Dept.] [from the concerned Bank]

 

Importer-Exporter Code Number[DGFT]

 

EXPORTS IMPORTS

Nature of Restriction

ITC [HS] Classification

 

Free List items Negative List

Prohibited Restricted Canalized

Certain schemes ( over view)

ADVANCE LICENCE SCHEME

1. PHYSICAL EXPORT

Duty free import of Inputs, Fuel, Oil, Energy, Catalyst etc.

V.A.;AU condition; Norm fixed & No Norm cases; Imports & Exports

valid upto 24 months; Further extn allowed

Supply to SEZ units also covered.

E.O. discharge based on S/Bs & BRC (Irrevocable L/C , Provision of

Avalisation, co-acceptance also available)

Advance Licence (Intermediate Supply)

For supplies to Advance licence for physical exports; Alternatively

direct Physical Exports also allowed.

Duty free import of Inputs, Fuel, Oil,Energy, Catalyst etc.

AU condition; Norm fixed & No Norm cases; Imports & Exports valid

upto 24 months; further extn allowed.

E.O. discharge based on S/Bs & Bank certificate (Irrevocable inland

L/C , Provision of Avalisation, co-acceptance also available)

Advance License (Deemed Export)

For supplies within India under various projects, supplies to

EOU/EHTP/STP/BTP.

Duty free import of Inputs, Fuel, Oil, energy, Catalyst etc.

EPCG Scheme

Import of capital goods with AU condition at concessional rate of 5%

duty for pre-production, Production & Post production purposes

related to export (Both Physical & deemed);Import of Car.

E.O. 8 times the duty saved in 8 years; 12 Years.

E.O. monitoring in two blocks only.

Special Dispensation for licence with duty saved of Rs 100 crores or

above, Agro units, SSI units, BIFR. E.O. period 12 years and varied

/reduced E.O.

EPCG license for project import—Reduced E.O.

Export of alternate product/services allowed.

Special package for agro units in the AEZ

DFRC SCHEME

Post export scheme based on S/B (Bill of Export)

and BRC; Both against Phy. & Deemed exports.

Min. 25% V.A., SION based, Certain sensitive

items with technical specification allowed.

SERVICE EXPORTS

For 161 Tradable services.

New Export Promotion Council for Service.

DFEC for Serve from India Scheme

1. Eligibility:

-- Min.FFE of Rs 10 Lakhs in the preceding or current

financial year (Exception Rs 5 Lakhs for individuals)

-- Categories of exports excluded for entitlement

2. Entitlement:

Hotels of one star & above 5%

Stand alone Restaurants 20%

All other service providers 10%

3. Imports allowed:

With AU condition

Any CAPITAL GOODS, Office Equipments, Furnitures and

consumables etc

No Agricultural Product except food items and beverages for

the Hotels and Restaurants.

VISHESH KRISHI UPAJ YOJANA

A new scheme christened as the “Vishesh Krishi Upaj Yojana” to

boost exports of specified agricultural products.

1. Duty credit entitlement of 5% of FOB value of Exports.

2. Exports of fruits, vegetables, flowers, minor forest

produce and their value added variants

3. Freely transferable

4. Imports of inputs and capital goods permitted.

5.CENVAT credit or DBK allowed for the CVD

Import of capital goods shall be permitted duty free under the

EPCG Scheme

Units in Agri Export Zones (AEZ) shall be exempt from BG under

the EPCG Scheme

Import of inputs such as pesticides shall be permitted under the

Advance Licence for agro exports.

Capital goods imported under EPCG permitted to be installed

anywhere in the AEZ.

ROADMAP:

This Policy is essentially a roadmap for the development of India’s foreign

trade. It contains the basic principles and points the direction in which we

propose to go. By virtue of its very dynamics, a trade policy cannot be fully

comprehensive in all its details. It would naturally require modification from

time to time. We propose to do this through continuous updating, based on

the inevitable changing dynamics of international trade. It is in partnership

with business and industry that severs the propose to erect milestones on

this roadmap.