Professional Documents
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University of Delhi
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November, 2009
Declaration
We hereby declare that this project on “India’s foreign trade policy” is solely made by
us. We were completely involved from the initial stage to the final stage. Obviously, our
well wishers had always supported & guided us and have impacted our thinking but we
made this project on the basis of our knowledge and skill.
_______________ ________________
_________ _________
Keshav Jha Panku Gupta
Acknowledgment
We acknowledge the contribution of our mentor Mr. Rakesh Kumar who have an
important impact on our thinking. We are indebted to him for his guidance and
suggestion in the initial stages of our project. We owe a great deal to library staff for
providing generous support for our research and preparation of our project. We also
want to thank our colleagues and associates of Bachelor of Business Studies for their
continuous support.
We have benefited immensely from our interactions with various corporate people and
we acknowledge their contribution to my learning. And even after such support if you
finds any mistake in the project, then we are extremely sorry for that and will try to be
perfect next time.
FOREIGN TRADE POLICY OF INDIA
PREAMBLE
CONTEXT
For India to become a major player in world trade, an all encompassing, and comprehensive
view needs to be taken for the overall development of the country’s foreign trade. While increase
in exports is of vital importance, we have also to facilitate those imports which are required to
stimulate our economy. Coherence and consistency among trade and other economic policies is
important for maximizing the contribution of such policies to development. Thus, while
incorporating the existing practice of enunciating an annual EXIM Policy, it is necessary to go
much beyond and take an integrated approach to the developmental requirements of India’s
foreign trade. This is the context of the new Foreign Trade Policy.
OBJECTIVES
Trade is not an end in itself, but a means to 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 is built around two major objectives. These are:
1. To double our percentage share of global merchandise trade within the next five years;
and
STRATEGY
These objectives are proposed to be achieved by adopting, among others, the following
strategies:
3. Neutralizing incidence of all levies and duties on inputs used in export products, based on
the fundamental principle that duties and levies should not be exported.
4. Facilitating development of India as a global hub for manufacturing, trading and services.
6. Facilitating technological and infrastructural upgradation of all the sectors of the Indian
economy, especially through import of capital goods and equipment, thereby increasing
value addition and productivity, while attaining internationally accepted standards of
quality.
7. Avoiding inverted duty structures and ensuring that our domestic sectors are not
disadvantaged in the Free Trade Agreements/Regional Trade Agreements/Preferential
Trade Agreements that we enter into in order to enhance our exports.
8. Upgrading our infrastructural network, both physical and virtual, related to the entire
Foreign Trade chain, to international standards.
9. Revitalising the Board of Trade by redefining its role, giving it due recognition and
inducting experts on Trade Policy.
10. Activating our Embassies as key players in our export strategy and linking our
Commercial Wings abroad through an electronic platform for real time trade intelligence
and enquiry dissemination.
PARTNERSHIP:
The new Policy envisages merchant exporters and manufacturer exporters, business and industry
as partners of Government in the achievement of its stated objectives and goals. The dynamics of
a liberalized trading system sometimes results in injury caused to domestic industry on account
of dumping. When this happens, effective measures to redress such injury will be taken.
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 we propose to erect milestones on this roadmap.
HIGHLIGHTS OF INDIA’S TRADE POLICY
(i) An amount of Rs. 5 crore under Market Access Initiative (MAI) has been earmarked for
promoting cottage sector exports coming under the KVIC.
(ii) The units in the handicrafts sector can also access funds from MAI scheme for
development of website for virtual exhibition of their product.
(iii Under the Export Promotion Capital Goods (EPCG) scheme, these units will not be
) required to maintain average level of exports, while calculating the Export Obligation.
(iv) These units shall be entitled to the benefit of Export House status on achieving lower
average export performance of Rs.5 crore as against Rs. 15 crore for others; and
(v) The units in handicraft sector shall be entitled to duty free imports of an enlarged list of
items as embellishments upto 3% of FOB value of their exports.
i. Common service providers in these areas shall be entitled for facility of EPCG scheme.
ii. The recognised associations of units in these areas will be able to access the funds under
the Market Access Initiative scheme for creating focused technological services and
marketing abroad.
iii. Such areas will receive priority for assistance for identified critical infrastructure gaps
from the scheme on Central Assistance to States
iv. Entitlement for Export House status at Rs. 5 crore instead of Rs. 15 crore for others.
Leather
Duty free imports of trimmings and embellishments upto 3% of the FOB value hitherto confined
to leather garments extended to all leather products.
Textiles
i. Sample fabrics permitted duty free within the 3% limit for trimmings and
embellishments.
ii. 10% variation in GSM be allowed for fabrics under Advance Licence.
iii. Additional items such as zip fasteners, inlay cards, eyelets, rivets, eyes, toggles, velcro
tape, cord and cord stopper included in input output norms.
iv. Duty Entitlement Passbook (DEPB) rates for all kinds of blended fabrics permitted. Such
blended fabrics to have the lowest rate as applicable to different constituent fabrics.
i. Customs duty on import of rough diamonds is being reduced to 0%. Import of rough
diamonds is already freely allowed. Licensing regime for rough diamond is being
abolished. This should help the country emerge as a major international centre for
diamonds.
ii. Value addition norms for export of plain jewellery reduced from 10% to 7%. Export of
all mechanised unstudded jewellery allowed at a value addition of 3 % only. Having
already achieved leadership position in diamonds, now efforts will be made for achieving
quantum jump on jewellery exports as well.
iii. Personal carriage of jewellery allowed through Hyderabad and Jaipur airport as well.
• Supplies of ITA I items having zero duty in the domestic market to be eligible for
counting of export obligation.
b. Supplemental efforts to be made under the ASIDE scheme and similar schemes of other
Ministries to bridge technology and productivity gaps in identified clusters.
For revival of sick units, extension of export obligation period to be allowed to such units based
on BIFR rehabilitation schemes. This facility shall also be available to units outside the purview
of BIFR but operating under the State rehabilitation programme.
a. Import of 69 items covering animal products, vegetables and spices, antibiotics and films
removed from restricted list.
b. Export of 5 items namely paddy except basmati, cotton linters, rare earth, silk cocoons,
family planning devices except condoms removed from restricted list.
a. Sales from Domestic Tariff Area (DTA) to SEZs to be treated as export. This would now
entitle domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax
exemption.
b. Agriculture/Horticulture processing SEZ units will now be allowed to provide inputs and
equipments to contract farmers in DTA to promote production of goods as per the
requirement of importing countries. This is expected to integrate the production and
processing and help in promoting SEZs specialising in agro exports.
c. Foreign bound passengers will now be allowed to take goods from SEZs to promote
trade, tourism and exports.
e. Restriction of one year period for remittance of export proceeds removed for SEZ units.
f. Netting of export permitted for SEZ unit provided it is between same exporter and
importer over a period of 12 months.
g. SEZ units permitted to take jobwork abroad and exports goods from there only.
j. Export/import of all products through post parcel/courier by SEZ units will now be
allowed.
k. The value of capital goods imported by SEZ units will now be amortised uniformly over
10 years.
l. SEZ units will now be allowed to sell all products including gems and jewellery through
exhibitions and duty free shops or shops set up abroad
m. Goods required for operation and maintenance of SEZ units will now be allowed duty
free.
EOU Scheme
b. EOUs are now required to be only net positive foreign exchange earner and there will
now be no export performance requirement.
c. Foreign bound passengers will now be allowed to take goods from EOUs to promote
trade, tourism and exports.
d. The value of capital goods imported by EOUs will now be amortized uniformly over 10
years.
e. Period of utilisation of raw materials prescribed for EOUs increased from 1 year to 3
years.
f. Gems and jewellery EOUs are now being permitted sub-contracting in DTA.
i. EOUs will now be allowed to sell all products including gems and jewellery through
exhibitions and duty free shops or shops set up abroad
j. Gems and jewellery EOUs will now be entitled to advance domestic sales.
EPCG scheme
a. The scheme shall now allow import of capital goods for pre-production and post-
production facilities also.
b. The Export Obligation under the scheme shall now be linked to the duty saved and shall
be 8 times the duty saved.
c. To facilitate upgradation of existing plant and machinery, import of spares shall also be
allowed under the scheme.
e. Greater flexibility for fulfillment of export obligation under the scheme by allowing
export of any other product manufactured by the exporter. This shall take care of the
dynamics of international market.
f. Capital goods upto 10 years old shall also be allowed under the scheme.
g. To facilitate diversification into the software sector, existing manufacturer exporters will
be allowed to fulfill export obligation arising out of import of capital goods under the
scheme for setting up of software units through export of manufactured goods of the
same company.
h. Royalty payments received from abroad and testing charges received in free foreign
exchange to be counted for discharge of export obligation under EPCG scheme.
DEPB Scheme
a. Facility for provisional DEPB rate introduced to encourage diversification and promote
export of new products.
Advance Licence
DFRC Scheme
a. High priority being accorded to the EDI implementation programme covering all major
community partners in order to minimise transaction cost, time and discretion. We are
now gearing ourselves to provide on line approvals to exporters where exports have been
effected from 23 EDI ports.
Miscellaneous
a. Actual user condition for import of second hand capital goods upto 10 years old
dispensed with.
b. Reduction in penal interest rate from 24% to 15% for all old cases of default under Exim
Policy.
e. Export of free of cost goods for export promotion @ 2% of average annual exports in
preceding three years subject to ceiling of Rs.5 lakh permitted
India's Trade with Different Countries/Alliances
India's total external trade (exports plus imports including re-exports) in the year 1950-51 stood
at Rs. 1214 crore. Since then, this has witnessed continuous increase with occasional downturns.
During 2007-08 the value of India’s external trade reached Rs. 1605022 crore.
India's exports of merchandise goods touched the target of US$159 billion in 2007-08 recording
a growth of around 26% in dollar terms. India’s growth of exports is much higher than that of
the world economy as well as many major economies of the world.
At the same time, imports increased from Rs. 840506 crore in 2006-2007 to Rs. 964850 crore
during 2007-2008 thereby registering a growth of 29% in rupee terms. The trade deficit in 2007-
08 was increased to Rs. (-) 324678 crore as against Rs. (-) 268727 crore during 2006-07.
In dollar terms, Asia & Asean accounted for 51.54 per cent of India’s total exports, followed by
Europe (22.99%) and America (17.04%). India’s imports were highest from Asia & Asean
(62.52%) followed by Europe (19.97%) and America (9.05%), during the same period.
Exports Imports
Europeans countries account for about 22.5 per cent of India's total trade while India's exports to
Europe during 2006-07 were US$ 28.87 billion. During this year, bilateral trade increased by 26
per cent over 2005-06. While India's export to Europe recorded a growth of 17 per cent, India's
import from Europe grew by 33 per cent. The top five items of India's exports to Europe are
ready-made garments including accessories, gems & jewellery, machinery & instruments,
petroleum (crude & products) and transport equipment. The top five items of India's imports
from Europe are machinery (except electrical & electronics), pearls/precious, semi-previous
stones, electronic goods, transport equipments and iron & steel.
The European Union (EU) presently consists of 27 countries. These countries are Austria,
Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland,
Portugal, Slovak Republic, Slovenia, Spain, Sweden, UK, Bulgaria and Romania.
India and EU enjoy healthy economic relations. These relations have been built on the
foundation of
India also has bilateral economic Agreements with a number of individual EU countries in the
areas of trade, investments and avoidance of double taxation. India has agreements for
investments and promotions/protections with 22 countries of Europe, including 17 countries of
EU. Similarly, agreements for avoidance of double taxation exist with 26 countries in EU.
India-EU bilateral relations are reviewed at the official level by the India-EC Joint Commission.
This had its last meeting in July 2008. Three Sub-Commissions on Trade, Economic
Cooperation and Development Cooperation and nine Joint Working Groups on agriculture and
marine products, textiles, information technology & communications, consular matters,
environment, steel, food processing industries, pharmaceuticals & bio-technology and technical
barriers to trade (TBT)/sanitary and photo sanitary (SPS) issues are functioning and their reports
are considered by Joint Commission.
India-Africa Trade
There are more than 50 countries in the Sub-Saharan Africa (SSA) regional. In spite of various
constraints such as distance, language barriers, lack of information etc. India's trade with the
region has grown rapidly. The trade between India and SSA region has grown from US$
7572.65 million in 2004-05 to US$ 197,053.37 million in 2007-08 registering a growth of
32.34%.
India's exports to the region have increased by 30.85% from US$ 4218.23 million in 2004-05 to
US$ 83,535.94 million in 2007-08 and the imports form the region have increased by 42.70%
from US$ 3354.42 million in 2004-05 to US$ 111,517.43 million in 2007-08.
• manufactures of Metals
• Transport equipment
• Inorganic/organic/agro chemicals.
• Gold,
• Cashew Nuts
• Inorganic Chemicals,
• Organic chemicals,
• Fertilizer crude,
• Electronic goods,
In order to enhance the bilateral trade between India and African countries, the "Focus: Africa"
Programme was launched by Minister for Commerce & Industry on 31st March 2002. Initially
focus was on seven African countries viz. Ghana, Nigeria South Africa, Tanzania, Kenya,
Ethiopia and Mauritius. In view of the enthusiasm generated by this programme in its first year,
the Government expanded the programme to cover the entire continent of Africa including six
North African countries during the year 2003-04. The Focus Africa programme is continuing for
the fifth year during 2006-07.
South Africa, Lesotho, Swaziland, Botswana and Namibia have formed the South Africa
Customs Union (SACU) with a common Custom Tariff Policy. A Joint Working Group (JWG)
consisting of Government representatives from both sides was set up to examine the proposal to
prepare a draft.
Frame Work Treaty for the Preferential Trade Agreement (PTA) between India and SACU
countries. In a meeting of JWG held in Namibia on 6th-7th September 2004, the draft
Framework Agreement was finalized. In the sixth session of the India-South Africa Joint
Ministerial Commission Meeting held in New Delhi on 5-6 Dec. 2005, both sides agreed that a
comprehensive Free Trade Agreement within a reasonable time, and in the interim, a limited
scope agreement providing for exchange of tariff concession on select list of products between
India and SACU, would give further impetus to bilateral trade. India and Southern African
Custom Union (SACU) commenced negotiations for Preferential Trade Agreement (PTA) at
Pretoria, South Africa on 5th-6th October, 2007. The 2nd round for PTA with SACU was held at
Walvis Bay, Namibia on 21st-22nd February, 2008.
During the visit of the Prime Minister of Mauritius to India in October 2005 the following
bilateral agreements/MoUs were signed between two countries:
The Joint Trade Committee (JTC) meting is an institutional arrangement under the aegis of
Trade Agreement to review the implementation of Trade Agreement and to identify bottlenecks
is promoting trade between the countries. The 4th JTC meeting with Ethiopia was held on 5th
June 2006 at New Delhi. Sh. Jairam Ramesh, Hon'ble Minister of State for Commerce,
Govt. of India and the H.E. Mr Ahmed Tusa, State Minister of Trade and Industry, Govt.
of Ethiopia co-chaired this JTC meeting.
Free Trade Agreement (FTA)
Free Trade Agreement (FTA)
Free trade agreements (FTAs) are generally made between two countries. Many governments,
throughout the world have either signed FTA, or are negotiating or contemplating new bilateral
free trade and investment agreements.
FTA signed
» INDO-THAILAND (9 October, 2003)
» INDO-SRILANKA (28 December, 1998)
FTA by 2011
» Brunei
» Indonesia
» Malaysia
FTA by 2016
» Philippines
» Cambodia
» Laos
» Myanmar
» Vietnam
FTA Ongoing
» China
» Singapore
Note : At the third Asean-India summit, the prime minister, Dr. Manmohan Singh came out with
a bold vision of an Asian economic community which will include ASEAN, China, Japan,
Korea and India.
Indo-Thailand
India and Thailand signed FTA on October 09, 2003 with four other accords for enhancing
cooperation in agriculture, tourism and science.
Both the countries signed MoU on agricultural cooperation, MoU on tourism cooperation,
agreement on visa exemption for diplomatic and official passport holders and programme of
cooperation in biotechnology.
The agreements were signed in the presence of the then Prime Minister Atal Bihari Vajpayee and
the Thai counterpart Thaksin Shinawatara, in Bangkok.
It also contains a provision regarding emergency measures to protect domestic producers in case
of sudden surges in imports.
Agricultural co operations MoU provides joint activities between the two states, covering
agricultural and forestry research, biotechnology soil and water conservation, watershed
management, land use planning and horticulture.
The agreement will be valid for five years from the date of signing (as mentioned then).
The agreement on tourism through reciprocal establishment of representative offices of the
tourism department of the India as well as Thailand.
• Formulation,
• Approval
• Monitoring
Indo-Sri Lanka
Agreement
Overview of Indo-Lanka Free Trade Agreement Milestones
• 28 December 1998 - Signing of the Free Trade Agreement in New Delhi by the Prime
Minister of India and the President of Sri Lanka.
• 2 February 2000 - Letters of Exchange to finalize the annexure.
• 1 March 2000 - Full implementation of the Free Trade Agreement.
Salient Features
• Granting duty free access for 1351 items by 6 - digit HS Code upon entry into force of
the Agreement (Annexure E).
• 25% tariff reduction for 528 Textile items
• Other than the 429 items in the Negative List of India, 50% reduction of tariffs for the
balance 2799 items, upon entry into force of the Agreement followed by phased out
removal of tariffs up to 100% in 2 stages within 3 years. Tea and Garments come under a
special quota regime.
• A 50% fixed tariff concession for imports of Tea from Sri Lanka on a preferential basis
subject to an annual maximum quota of up to 15 million kg .
• A 50% fixed tariff concession for imports of Garments from Sri Lanka (remaining in
India's Negative List) subject to a maximum annual quota of 8 million pieces of which a
minimum of 6 million pieces should contain Indian fabrics. No category of Garments
could exceed 1.5 million pieces per annum.
• Granting duty free access for 319 items by 6 - digit HS Code (raw materials and
machinery for industries) upon entry into force of the Agreement
• 50% reduction of tariffs for 889 items by 6 - digit HS Code (raw materials) upon entry
into force of the Agreement followed by phased out removal of tariffs as follows
o up to 70% at the end of the 1st year
o up to 90% at the end of the 2nd year
o 100% at the end of the 3rd year
• For 1180 items in Sri Lanka's Negative there will not be any duty preference.
• For the remaining 2724 items by 6-digit HS Code, upon entry into force of the
Agreement, the removal of tariffs will be phased out within 8 years as follows:
o Not less than 35% before the end of the 3rd year
o Not less than 70% before the end of the 6th year
o Not less than 100% before the end of the 8th year
Indo-Singapore
1. On 8 April 2002, the Prime Minister of India, Shri Atal Bihari Vajpayee, and Prime Minister
of Singapore, Mr. Goh Chok Tong, met in Singapore and agreed to establish a Joint Study Group
to study the benefits of an India-Singapore Comprehensive Economic Cooperation Agreement
(CECA).
2. The Joint Study Group met seven times, in its report, the Joint Study Group has concluded
that CECA between India and Singapore would provide significant benefits for both countries, in
terms of the potential for increased trade and investment, and through economic cooperation.
3. As important as the direct economic benefits the CECA would bring to the two countries, the
CECA would serve to strengthen ties between India and Singapore, and to form a bridge
between India and the Association of Southeast Asian Nations (ASEAN) region.
4. Significantly, the CECA could serve as a pathfinder for the India-ASEAN Free Trade
Agreement, and to connect Singapore to one of the world's most dynamic emerging economies.
Negotiations for the India-Singapore CECA should begin as soon as possible and aim to
conclude with the signing of the relevant agreements as early as possible.
ONGOING NEGOTIATIONS
» ASEAN-India FTA
On July 23rd, during his visit to Thailand for the East Asia Summit, External Affairs Minister
S.M. Krishna made a strong pitch for the signing of the agreement in October, during the next
ASEAN-India Summit, as a key element of a pan-regional strategy.
Later the next day, the Union Cabinet approved the FTA in trade in goods between India and the
Association of South East Asian Nations (ASEAN), despite concerns raised by several Ministers
over the pact In a press release dated July 26th, the Kerala Independent Fish workers Federation
said that the FTA will lead to a huge loss of livelihoods in the fisheries and agriculture sector
especially in Kerala (KSMTF Press Release on ASEAN India FTA).
» EU-India FTA
The 7th round of negotiations for a FTA between India and the European Union (EU) took place
in Brussels from July 13th to 15th 2009. High on the agenda was the seizure of Indian
pharmaceutical consignments during transit in EU, based on the EU line of “strong
implementation” of Intellectual Property Rights regulations.
» EFTA-India FTA
India talks FTA with Switzerland
DNA | July 15th, 2009
Instead of stopping the West and multinational drug makers in their efforts to block India's low-
cost generic drugs exports, the government is helping their cause by aggressively pursuing FTAs
with developed economies, which could further hamper the world's access to such drugs.
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