Document

Report
Foreign Trade Policy and
Promotional Measures
Dr. Raj Agrawal
Trade Policies in India
 Exim Policies
 Streamlined trade procedures
 Liberalised import regime
 Thrust on export orientation
 Medium Term Export Strategy, 2002
 1% share in global exports by 2007
 Foreign Trade Policy 2004-2009
 To double India’s share in global merchandise
trade by 2009
Dr Raj Agrawal, IILM, New Delhi
2
Story So Far
In 1990s:

QRs on hundreds of items;

high levels of customs duties (22 ad-valorem rates
with peak basic rate of 300%
2005 :

QRs removed

Peak rate of Custom duty for most nonagricultural products : 15 %

EXIM Policy

targets 12% export growth for next 5 years

incentives for Special Economic Zones &
export-oriented clusters

procedural simplifications to reduce
transaction costs
Dr Raj Agrawal, IILM, New Delhi
3
Where Does India Stand
Globally?
International Trade of Select Countries in 2003
Country
Exports
Imports
GDP
(US$ bn.)
(US$ bn.)
(US$ bn.)
Korea
197.6
175.5
China
438.3
393.6
Mexico
165.4
171.0
Russia
135.9
75.4
South Africa
38.7
35.0
Argentina
29.4
13.1
Brazil
73.1
48.3
India
57.0
74.3
Source: Economist Intelligence Unit
605.0
1446.9
626.1
433.5
160.1
129.7
492.1
588.8
Trade as % of GDP
61.7
57.5
53.7
48.7
46.0
32.8
24.7
22.3
 India’s share in global Drmerchandise
exports: 0.8% (2003)
Raj Agrawal, IILM, New Delhi
4
India’s Export Performance
India's Export Performance (1999-2000 to 2003-04)
70000
52856
60000
US$ million
50000
40000
30000
20000
36760
44147
43976
2000-01
2001-02
63623
47742
29751
10000
0
1999-2000
All Commodities
Ores & minerals
Petroleum & crude products
Years
2002-03
2003-04
Agricultural & allied products
Manufactured goods
Dr Raj Agrawal, IILM, New Delhi
5
India’s Import Performance
India's Import Performance (1999-2000 to 2003-04)
90000
80000
77237
US$ million
70000
60000
50000
61572
50056
49799
51588
56613
40000
30000
37172
20000
10000
0
1999-2000
2000-01
All Commodities
2001-02
2002-03
Years
Petroleum
crude & products
Dr Raj Agrawal, IILM, New Delhi
2003-04
Non-POL items
6
Reduction in Peak Duties
Reduction in Peak Customs Duties on Manufactured items
160
in per cent
140
120
150
100
110
80
60
40
50
20
42
38.5
30
25
20
Mar-97
Mar-00
Mar-02
Mar-03
w.e.f March
2004
0
1991
Mar-92
Mar-95
Dr Raj Agrawal, IILM, New Delhi
7
India’s Services Exports
Trends in India's Services Exports (US $ Billion)
27.6
30
25
US $ Billion
25
18.9
20
20.3
15.7
13.2
15
10
9.4
5
0
199798
199899
19992000
200001
200102
Dr Raj Agrawal, IILM, New Delhi
200203
200304
8
New Trade Policy 2004-09
Highlights of New Foreign Trade Policy 2004-09

Special Focus Initiatives for Agriculture, Handicrafts, Handloom,
Gems & Jewellery, Leather & Footwear

Import of 2nd hand capital goods allowed without any restrictions

Separate Export Promotion Council established for promoting
Services Exports

New Scheme to establish Free Trade & Warehousing Zones – to make
India a global trading hub - trade transactions in free currency allowed
in these zones

100% FDI permitted in development & establishment of these zones
and their infrastructure facilities

Policy introduced to accord 100% EOU Status to Biotech Parks

New and Comprehensive
SEZ
Policy
soon
Dr Raj
Agrawal,
IILM, New
Delhi
9
Foreign Trade Policy 2004-09
Objectives:
 To double India’s percentage share of
global trade within five years
 To act as an effective instrument of
growth to by giving a thrust to
employment generation
Strategies
 Unshackling controls

Simplifying procedures and reducing
transactions cost
 Neutralizing incidence of all levies and
duties used in export products

Nurturing different
focus areas
Dr Raj Agrawal, IILM, New Delhi
10
Foreign Trade Policy 2004-09





Facilitating development of India as
global hub for manufacturing,
trading and services
Identifying and initiating special
focus areas which would generate
employment
Facilitating Technological and
infrastructure upgradation
Avoiding inverted duty structure
Revitalising the Board of Trade
Dr Raj Agrawal, IILM, New Delhi
11
Foreign Trade Policy 2004-09
Special Focus Initiatives :
 Agriculture
 Handicrafts
 Handlooms
 Gems and Jewellery
 Leather and Footwear sectors
Dr Raj Agrawal, IILM, New Delhi
12
Foreign Trade Policy 2004-09
Thrust on agricultural exports
- Quantitative restrictions on export
of almost all agricultural products
have been removed.
- Twenty Agricultural Export Zones
have been identified for
encouraging export of agricultural
products.
Dr Raj Agrawal, IILM, New Delhi
13
Foreign Trade Policy 2004-09
Special package for agriculture

Duty free imports of capital goods
 Will lower production cost and hence improve profitability

Exports of medicinal plants & herbal products facilitated
 Global imports of medicinal plants: US$ 1 bn (2001)
 India second largest exporter after China
 Potential to increase export to Rs. 1750 crore by 2006-07 and
more than Rs. 2500 crore by 2009-10.
 Global market for Herbal products: US$ 80 bn
 India’s exports of Herbal products: US$ 280 mn (2002-03)
Dr Raj Agrawal, IILM, New Delhi
14
Foreign Trade Policy 2004-09
Export Promotion Schemes

Target Plus scheme introduced

Will further boost exports from the successful exporters

Vishesh Krishi Upaj Yojana to boost horticulture exports

Global trade in horticulture: US$ 79 bn (1999)

India’s exports: US$ Rs. 1830 cr (1999-2000)

Success of AEZs for horticulture depend on “the ability of the states
to overcome existing shortcomings in infrastructure, institutional
mechanism and policy and programme support to achieve desired
export orientation”
Dr Raj Agrawal, IILM, New Delhi
15
Foreign Trade Policy 2004-09
Textile sector incentives


Duty free entitlement for garments & handicrafts increased from
3% to 5%
 Will help exporters to move up the value chain
 However, further incentives required to consolidate India’s
position in the post-MFA era
Handicraft Special Economic Zone to be established
 Will contribute to strong growth in handicraft exports
 Will generate employment opportunities
Dr Raj Agrawal, IILM, New Delhi
16
Foreign Trade Policy 2004-09
Export Promotion Schemes

“Services Export Promotion Council” to be set
up

“Served from India” scheme: Service providers
who earn forex of at least Rs. 5 lakhs will be
eligible for duty credit entitlement

Will help small scale service providers

Will enhance India’s share in global exports
of services (1.4% in 2003)
Dr Raj Agrawal, IILM, New Delhi
17
Foreign Trade Policy 2004-09
Export Oriented Units



Exemption from service tax
EOUs permitted to retain 100% of export
earnings in EEFC accounts
Income tax benefits to DTA units which convert
to EOUs
 All these should considerably increase
export growth from the EOUs
Dr Raj Agrawal, IILM, New Delhi
18
Foreign Trade Policy 2004-09
 Import of second hand capital goods allowed without
age restrictions

No outdated technology should be imported
 “Special Focus Initiatives”

Could be extended to other sectors of high export
orientation like chemicals & pharmaceuticals
 Export orientation of FDI should be increased
Dr Raj Agrawal, IILM, New Delhi
19
Foreign Trade Policy 2004-09
Simplifying procedures and bringing down
transaction costs
 Transaction costs are incurred at the
pre and post-production stages, and
arise out from several procedural
complexities
associated
with
administrative processes, availability
of
finance
and
transportation
problems.
 For enhancing the growth of exports it
is important to reduce the transaction
costs involved.
Dr Raj Agrawal, IILM, New Delhi
20
Ex-Im Bank Study on
Transaction costs:Sector
No. of
Firms
Transaction costs as
% of export revenue
(2003 Survey)
Transaction costs
as % of export
revenue
(1998 Survey)
Textile/Garments
23
3-10
15
Engineering goods
18
<5
10
Pharmaceuticals
9
8
10
Chemicals
7
<5
14
Computer software
9
1-5
10
Agro-Industries
2
1-2
7-8.5
Electronic & Electrical
machinery
3
5
-
Plastic components
2
5-10
-
Paper Industry
2
5-7
-
Others
7

Findings of Exim Bank’s Study
Dr Raj Agrawal, IILM, New Delhi
1-2
21
Foreign Trade Policy 2004-09
Transaction Costs: International Experience


Simplified and less stringent bureaucratic
procedures like single window clearance and
business friendly approach
Better technology due to higher levels of
foreign investment, faster loading/unloading
methods

Flexible labour laws

Cheap availability of power and raw materials,

Freight incentives by the Government,

Lower ocean freight rates due to greater
availability of vessels
Dr Raj Agrawal, IILM, New Delhi
22
Studies: Transaction Costs




Reduction in costs; OECD study , cost poor border
transaction procedures: vary between 2% to 15%,
while average post-Uruguay tariffs on Industrial
goods amounts to 3.8%s
UNCTAD, Direct and Indirect transaction costs
( banking and insurance,customs,business
information,transport and logistics) 10% of the
total value of world trade (US $ 400)
Improving performance (below global average
countries): Port Efficiency: Global trade will
increase by US$ 117 billion,
Improvement in custom procedures :$22billion
Dr Raj Agrawal, IILM, New Delhi
23
Foreign Trade Policy 2004-09
Quantum Jump in Merchandise Exports Required:

Enhance exports of major export
commodities

Identify potential export commodities

Diversify export destinations

Increasing Export competitiveness in global
market
Dr Raj Agrawal, IILM, New Delhi
24
Foreign Trade Policy 2004-09
Exim Bank Study “Strategy for Quantum Jump in
Exports: Focus on Africa, Latin America and China”

India could aim to achieve:




US$ 18 billion in Africa’s Imports by 2007 from
US$ 3.8 bn in 2003-04
US$ 4 bn in China’s imports by 2007 (in 64
identified groups) from US$ 0.86 bn in 2000
US$ 1.8 bn in LAC’s imports by 2007 (in 100
identified groups) from US$ 0.6 bn in 2000
Share in India’s Exports in 2003-04: Africa (6%);
Latin America (1.8%); China (4.7)
Dr Raj Agrawal, IILM, New Delhi
25
Export Competitiveness and
FDI



Export as a proportion of sales among
sample of 450-odd (FDI) controlled firm
in India was just 11.6 percent.
40 percent went into acquisition of
gross fixed assets such as plant and
machienery
More tariff jumping and market
seeking than efficiency seeking (that is
export driven)
Dr Raj Agrawal, IILM, New Delhi
26
Low share of FDI in major export sectors
Sector
Share in FDI
(%)
Transportation industry
7.50
Computer software industry
6.46
Chemicals & pharmaceuticals
5.70
Textiles
1.20
Leather & leather goods
0.20
Services (incl. Hotels & Tourism)
8.37
Dr Raj Agrawal, IILM, New Delhi
27
Some Suggestions





Export margins thinning
Exporters wants “ Single Window”
announcements
EDI or electronic data interchange is
yet to function as a seamless network
EOUs versus SEZs
Specific incentives to Pharma industry
Dr Raj Agrawal, IILM, New Delhi
28
Some Suggestions:




Need of implementing all export procedures
online
Various export incentives cost the
government about Rs 40,000 crore. But are
they really needed ?
Need of creating adequate infrastructure
Issue of delayed payment of legitimate
dues or rebates for tax borne
Dr Raj Agrawal, IILM, New Delhi
29
THANKS YOU
For suggestions & Questions
contact me at
[email protected] rediffmail.com
Dr Raj Agrawal, IILM, New Delhi
30

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