Foreign Trade Policy and Promotional Measures

1. Foreign Trade Policy and Promotional Measures Dr. Raj Agrawal

2. 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 Trade Policies in India Dr Raj Agrawal, IILM, New Delhi

3. 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 non-agricultural 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

4. Where Does India Stand Globally? • India’s share in global merchandise exports: 0.8% (2003) Dr Raj Agrawal, IILM, New Delhi

5. India’s Export Performance Dr Raj Agrawal, IILM, New Delhi

6. India’s Import Performance Dr Raj Agrawal, IILM, New Delhi

7. Reduction in Peak Duties Dr Raj Agrawal, IILM, New Delhi

8. India’s Services Exports Dr Raj Agrawal, IILM, New Delhi

9. 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

10. 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

11. 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

12. Foreign Trade Policy 2004-09 Special Focus Initiatives : • Agriculture • Handicrafts • Handlooms • Gems and Jewellery • Leather and Footwear sectors Dr Raj Agrawal, IILM, New Delhi

13. 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

14. 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

15. 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 AEZsfor 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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 1-2 Ex-Im Bank Study on Transaction costs:- • Findings of Exim Bank’s Study Dr Raj Agrawal, IILM, New Delhi

22. 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

23. 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

24. 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

25. 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

26. 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

27. Low share of FDI in major export sectors Dr Raj Agrawal, IILM, New Delhi

28. 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

29. 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

30. THANKS YOU For suggestions & Questions contact me at brahm123@ rediffmail.com Dr Raj Agrawal, IILM, New Delhi