Mandeep Singh 10/MBA/2006

Assignment on

India’s EXIM / Foreign Trade

Policy 2004-09

International Marketing
(Course No.431)

Submitted To: Submitted By:

Prof. Keshav Sharma Mandeep Singh

10/MBA/2006
4th Semester

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Foreign Trade Policy 2004-09

New government decided to terminate the five-year Exim Policy, 2002-07 and replace it with a
Foreign Trade Policy for a five-year term beginning fiscal year on the 31st August 2004.

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.

Foreign Trade Policy 2004-09: Brief Structure

CHAPTER SUBJECT
PREAMBLE
1A LEGAL FRAMEWORK
1B SPECIAL FOCUS INITIATIVES
1C BOARD OF TRADE
2 GENERAL PROVISIONS REGARDING IMPORTS AND
EXPORTS
3 PROMOTIONAL MEASURES
4 DUTY EXEMPTION/ REMISSION SCHEME
5 EXPORT PROMOTION CAPITAL GOODS SCHEME
6 EXPORT ORIENTED UNITS (EOUs), ELECTRONICS
HARDWARE TECHNOLOGY PARKS (EHTPs)
SOFTWARE TECHNOLOGY PARKS (STPs) AND BIO-
TECHNOLOGY PARKS (BTPs)
7 SPECIAL ECONOMIC ZONES
7A FREE TRADE & WAREHOUSING ZONES
8 DEEMED EXPORTS
9 DEFINITIONS

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Detailed Highlights of the FTP 2004-09

1. Strategy:

(a) It is for the first time that a comprehensive Foreign Trade Policy is being notified. The Foreign
Trade Policy takes an integrated view of the overall development of India’s foreign trade.

(b) The objective of the Foreign Trade Policy is two-fold:

(i) to double India’s percentage share of global merchandise trade by 2009; and

(ii) to act as an effective instrument of economic growth by giving a thrust to employment generation,
especially in semi-urban and rural areas.

(c) The key strategies are:

(i) Unshackling of controls;

(ii) Creating an atmosphere of trust and transparency;

Simplifying procedures and bringing down transaction costs;

Adopting the fundamental principle that duties and levies should not be exported;

Identifying and nurturing different special focus areas to facilitate development of India as a global
hub for manufacturing, trading and services.

2. Special Focus Initiatives:

(a) Sectors with significant export prospects coupled with potential for employment generation in
semi-urban and rural areas have been identified as thrust sectors, and specific sectoral strategies
have been prepared.

(b) Further sectoral initiatives in other sectors will be announced from time to time. For the present,
Special Focus Initiatives have been prepared for Agriculture, Handicrafts, Handlooms, Gems &
Jewellery and Leather & Footwear sectors.

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(c) The threshold limit of designated ‘Towns of Export Excellence’ is reduced from Rs.1000 crores to
Rs.250 crores in these thrust sectors.

3. Package for Agriculture:

The Special Focus Initiative for Agriculture includes:

(a) A new scheme called Vishesh Krishi Upaj Yojana has been introduced to boost exports of fruits,
vegetables, flowers, minor forest produce and their value added products.

(b) Duty free import of capital goods under EPCG scheme.

(c) Capital goods imported under EPCG for agriculture permitted to be installed anywhere in the Agri
Export Zone.

(d) ASIDE funds to be utilized for development for Agri Export Zones also.

(e) Import of seeds, bulbs, tubers and planting material has been liberalized.

(f) Export of plant portions, derivatives and extracts has been liberalized with a view to promote
export of medicinal plants and herbal products.

4. Gems & Jewellery:

(a) Duty free import of consumables for metals other than gold and platinum allowed up to 2% of FOB
value of exports.

(b) Duty free re-import entitlement for rejected jewellery allowed up to 2% of FOB value of exports.

(c) Duty free import of commercial samples of jewellery increased to Rs.1 lakh.

(d) Import of gold of 18 carat and above shall be allowed under the replenishment scheme.

5. Handlooms & Handicrafts:

(a) Duty free import of trimmings and embellishments for Handlooms & Handicrafts sectors increased
to 5% of FOB value of exports.

(b) Import of trimmings and embellishments and samples shall be exempt from CVD.
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(c) Handicraft Export Promotion Council authorised to import trimmings, embellishments and samples
for small manufacturers.

(d) A new Handicraft Special Economic Zone shall be established.

6. Leather & Footwear:

(a) Duty free entitlements of import trimmings, embellishments and footwear components for leather
industry increased to 3% of FOB value of exports.

(b) Duty free import of specified items for leather sector increased to 5% of FOB value of exports.

(c) Machinery and equipment for Effluent Treatment Plants for leather industry shall be exempt from
Customs Duty.

7. Export Promotion Schemes:

(a) Target Plus:

A new scheme to accelerate growth of exports called ‘Target Plus’ has been introduced.

Exporters who have achieved a quantum growth in exports would be entitled to duty free credit based
on incremental exports substantially higher than the general actual export target fixed. (Since the
target fixed for 2004-05 is 16%, the lower limit of performance for qualifying for rewards is pegged at
20% for the current year).

Rewards will be granted based on a tiered approach. For incremental growth of over 20%, 25% and
100%, the duty free credits would be 5%, 10% and 15% of FOB value of incremental exports.

(b) Vishesh Krishi Upaj Yojana:

Another new scheme called Vishesh Krishi Upaj Yojana (Special Agricultural Produce Scheme) has
been introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value
added products.

Export of these products shall qualify for duty free credit entitlement equivalent to 5% of FOB value of
exports.

The entitlement is freely transferable and can be used for import of a variety of inputs and goods.

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(c) ‘Served from India’ Scheme:

To accelerate growth in export of services so as to create a powerful and unique ‘Served from India’
brand instantly recognized and respected the world over, the earlier DFEC scheme for services has
been revamped and re-cast into the ‘Served from India’ scheme.

Individual service providers who earn foreign exchange of at least Rs.5 lakhs, and other service
providers who earn foreign exchange of at least Rs.10 lakhs will be eligible for a duty credit
entitlement of 10% of total foreign exchange earned by them.

In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of hotels, it
shall be 5%.

Hotels and Restaurants can use their duty credit entitlement for import of food items and alcoholic
beverages.

(d) EPCG:

(i) Additional flexibility for fulfillment of export obligation under EPCG scheme in order to reduce
difficulties of exporters of goods and services.

(ii) Technological upgradation under EPCG scheme has been facilitated and incentivised.

(iii) Transfer of capital goods to group companies and managed hotels now permitted under EPCG.

(iv) In case of movable capital goods in the service sector, the requirement of installation certificate
from Central Excise has been done away with.

(v) Export obligation for specified projects shall be calculated based on concessional duty permitted
to them. This would improve the viability of such projects.

(e) DFRC:

Import of fuel under DFRC entitlement shall be allowed to be transferred to marketing agencies
authorized by the Ministry of Petroleum and Natural Gas.

(f) DEPB:

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The DEPB scheme would be continued until replaced by a new scheme to be drawn up in
consultation with exporters.

8. New Status Holder Categorization:

(a) A new rationalized scheme of categorization of status holders as Star Export Houses has been
introduced as under:

Category Total performance over three years

One Star Export House 15 crores

Two Star Export House 100 crores
Three Star Export House 500 crores
Four Star Export House 1500 crores
Five Star Export House 5000 crores

(b) Star Export Houses shall be eligible for a number of privileges including fast-track clearance
procedures, exemption from furnishing of Bank Guarantee, eligibility for consideration under Target
Plus Scheme etc.

9. Export oriented units (EOUs):

(a) EOUs shall be exempted from Service Tax in proportion to their exported goods and services.

(b) EOUs shall be permitted to retain 100% of export earnings in EEFC accounts.

(c) Income Tax benefits on plant and machinery shall be extended to DTA units which convert to
EOUs.

(d) Import of capital goods shall be on self-certification basis for EOUs.

(e) For EOUs engaged in Textile & Garments manufacture leftover materials and fabrics upto 2% of
CIF value or quantity of import shall be allowed to be disposed of on payment of duty on transaction
value only.

(f) Minimum investment criteria shall not apply to Brass Hardware and Hand-made Jewellery EOUs
(this facility already exists for Handicrafts, Agriculture, Floriculture, Aquaculture, Animal Husbandry,
IT and Services).

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10. Free Trade and Warehousing Zone:

(i) A new scheme to establish Free Trade and Warehousing Zone has been introduced to create
trade-related infrastructure to facilitate the import and export of goods and services with freedom to
carry out trade transactions in free currency. This is aimed at making India into a global trading-hub.

(ii) FDI would be permitted up to 100% in the development and establishment of the zones and their
infrastructural facilities.

(iii) Each zone would have minimum outlay of Rs.100 crores and five lakh sq. mts. built up area.

Units in the FTWZs would qualify for all other benefits as applicable for SEZ units.

11.Import of Second hand Capital Goods

a. Import of second-hand capital goods shall be permitted without any age restrictions.

b. Minimum depreciated value for plant and machinery to be re-located into India has been reduced
from Rs.50 crores to Rs.25 crores.

12. Services Export Promotion Council:

An exclusive Services Export Promotion Council shall be set up in order to map opportunities for key
services in key markets, and develop strategic market access programmes, including brand building,
in co-ordination with sectoral players and recognized nodal bodies of the services industry.

13. Common Facilities Centre:

Government shall promote the establishment of Common Facility Centres for use by home-based
service providers, particularly in areas like Engineering & Architectural design, Multi-media
operations, software developers etc., in State and District-level towns, to draw in a vast multitude of
home-based professionals into the services export arena.

14. Procedural Simplification & Rationalisation Measures:

(a) All exporters with minimum turnover of Rs.5 crores and good track record shall be exempt from
furnishing Bank Guarantee in any of the schemes, so as to reduce their transactional costs.

(b) All goods and services exported, including those from DTA units, shall be exempt from Service
Tax.

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(c) Validity of all licences/entitlements issued under various schemes has been increased to a uniform
24 months.

(d) Number of returns and forms to be filed have been reduced. This process shall be continued in
consultation with Customs & Excise.

(e) Enhanced delegation of powers to Zonal and Regional offices of DGFT for speedy and less
cumbersome disposal of matters.

(f) Time bound introduction of Electronic Data Interface (EDI) for export transactions. 75% of all
export transactions to be on EDI within six months.

15. Pragati Maidan:

In order to showcase our industrial and trade prowess to its best advantage and leverage existing
facilities, Pragati Maidan will be transformed into a world-class complex. There shall be state-of-the-
art, environmentally-controlled, visitor friendly exhibition areas and marts. A huge Convention Centre
to accommodate 10,000 delegates with flexible hall spaces, auditoria and meeting rooms with high-
tech equipment, as well as multi-level car parking for 9,000 vehicles will be developed within the
envelope of Pragati Maidan.

16. Legal Aid:

Financial assistance would be provided to deserving exporters, on the recommendation of Export

Promotion Councils, for meeting the costs of legal expenses connected with trade-related matters.

17. Grievance Redressal:

A new mechanism for grievance redressal has been formulated and put into place by a Government
Resolution to facilitate speedy redressal of grievances of trade and industry.

18. Quality Policy:

(a) DGFT shall be a business-driven, transparent, corporate oriented organization.

(b) Exporters can file digitally signed applications and use Electronic Fund Transfer Mechanism for
paying application fees.

(c) All DGFT offices shall be connected via a central server making application processing faster.
DGFT HQ has obtained ISO 9000 certification by standardizing and automating procedures.

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19. Bio Technology Parks

Biotechnology Parks to be set up which would be granted all facilities of 100% EOUs.

20. Co-acceptance/ Avalisation introduced as equivalent to irrevocable letter of credit to

provide wider flexibility in financial instrument for export transaction.

21.Board of Trade:

The Board of Trade shall be revamped and given a clear and dynamic role. An eminent person or
expert on trade policy shall be nominated as President of the Board of Trade, which shall have a
Secretariat and separate Budget Head, and will be serviced by the Department of Commerce.

22.References:-

• http://exim.indiamart.com/index.html
• http://www.rbi.org.in/home.aspx
• http://www.banknetindia.com/index.htm
• http://www.eximbankindia.in/
• http://www.eximkey.com
• http://dgft.gov.in
• http://finmin.nic.in/
• http://commerce.nic.in/trade/national_ftpp.asp?id=3&trade=n

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Foreign Trade Policy 2004-09- Annual

Supplement 2006

Shri Kamal Nath, Minister for Commerce & Industry, Government of India announced Annual
Supplement 2006, to the Foreign Trade Policy 2004-09 on the 7th April 2006. Following is the Full
Text of Shri Kamal Nath Speech-

1. INTRODUCTION-

This Annual Supplement is the second in the series supplementing the Foreign Trade Policy 2004-09.
In line with Government’s promise of a stable Foreign Trade Policy regime, this year’s supplement (in
the same way as last year) does not alter the broad contours of the main Policy. However,
recognizing the dynamic nature of international trade and the consequent need for periodic
realignment of our international trade strategies, contemporary issues have to be addressed from
time to time, and this is what this initiative does.

The changes in the Annual Supplement resulted from the inputs received through interactive sessions
with various Export Promotion Councils, Industry organizations, Apex Chambers of Commerce &
Industry and sister Departments of Government. The Board of Trade has emerged as an effective
institutional mechanism and idea-generator for the FTP. A number of useful inputs have been
obtained through the Working and Study Group reports and brain storming sessions of the Board of
Trade.

2. TRADE PERFORMANCE-

When the Government launched the new Foreign Trade Policy in August 2004, it set out with the
ambitious objective of doubling India’s percentage share of global merchandize trade within five
years. Merchandize trade in the very first year of the policy period grew at the rate of 26%. This year’s
export figures are unprecedented. I am delighted to share with you that merchandize exports have
crossed the ‘magic figure’ of 100 billion dollars. In fact, they have touched the ‘auspicious figure’ of
101 billion dollars. The annual growth rate is 25%.

Our imports have grown 32%, and stand at 140 billion dollars – but 43 billion is our oil bill. Thus, our
non-oil imports are 97 billion dollars, a full 4 billion lower than our exports. On the non-oil front,
therefore, we have a positive balance of trade.

3. SECTORAL EXPORT GROWTH

Exports from many sectors have surpassed our expectations. Project goods exports grew at the rate

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of 173%. Exports of non-ferrous metals, guar gum meal, computer software in physical form, rice,
pulses, dairy products, all recorded a growth surpassing 50%. Commodities like man-made staple
fibres, cosmetics and toiletries, iron-ore, coffee, processed food and transport equipment grew at the
rate above the average, i.e. more than 25% during this period.

4. MARKET SHARE IN DIFFERENT COUNTRIES

India is steadily increasing its share in important markets. Growth in exports to UK has been 30%, to
Singapore (with which we implemented the CECA) 54%. India’s exports to South Africa grew at 44%
while for China the growth rate is 35%. We shall be releasing detailed statistics on all this in the form
of a Ready Reckoner next month, after exact figures come in.

5. ‘FOCUS PRODUCT’ & ‘FOCUS MARKET’ SCHEMES

The other chief objective of the Foreign Trade Policy was providing a thrust to employment
generation, particularly in semi-urban and rural areas. We are therefore introducing two new schemes
to nurture this. We realized that certain industrial products can generate large employment per unit of
investment compared to other products, and promoting their export would in turn give a thrust to their
manufacture. This realization led to the formulation of the ‘Focus Product Scheme’ which aims to
promote such exports.

The Scheme allows duty credit facility at 2.5% of the FOB value of exports on fifty percent of the
export turnover of notified products, such as value added fish and leather products, stationery items,
fireworks, sports goods, and handloom & handicraft items.

It is also necessary to penetrate markets, especially to which our exports are comparatively low.
Some of our competitors are aggressively ‘occupying space’ in Latin America, in Africa and other
destinations which Indian exporters have unfortunately been neglecting, perhaps due to high freight
costs & undeveloped networks. But these are the markets of the future, and it is of strategic necessity
that we enlarge our market share here.

For this we have a ‘Focus Market Scheme’ which allows duty credit facility at 2.5% of the FOB value
of exports of all products to the notified countries.

The scrip and the items imported against it for both these schemes would be freely transferable.

These two Schemes would replace the Target Plus Scheme.

To take the benefits of foreign trade further to rural areas, the Vishesh Krishi Upaj Yojana is being
expanded to include village industries based products for export benefits, and it is therefore renamed

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as Vishesh Krishi Upaj aur Gram Udyog Yojana – a rather long name, but one which adequately
reflects its intent and coverage.

6. PROMOTING SERVICES EXPORT

While Services account for 52% of our GDP, our total services trade – exports & imports – totals
more than 100 billion dollars. Expansion of the Services sector is vital for providing jobs to urban
educated youth. In the WTO too we are actively engaged in the Services negotiations. A number of
features have been added in the Served from India Scheme to encourage service exports.

The Scheme ill now allow transfer of both the scrip and the imported input to the Group Service
Company, whereas earlier transfer of imported material only was allowed.

7. INDIA EMERGING AS GEM AND JEWELLERY HUB

Because of a rich tradition of craftsmanship, enterprise and availability of skilled, low cost manpower
India has the potential to become an international hub for Gems and Jewellery. We have already
introduced some measures in the Budget. The diamond trade, which was concentrated in Antwerp, is
moving out – to Dubai, to Tel Aviv. I want Mumbai be right up there, and not lose out to its fellow
Asian cities. This Supplement now introduces a number of measures for facilitating export of value
added products catering to changing needs of the market and facilitating easier product movement
across the borders and allowing import of precious metal scrap for refining.

(a) We have large unutilized melting, refining and jewellery-making production capacity. To enable
such capacities to be used in a productive manner, import of precious metal scrap and used jewellery
will now be allowed for melting, refining and re-export of jewellery. However, such import will not be
allowed through hand baggage.

(b) Gems & Jewellery exporters will now be allowed to re-import the rejected precious metal jewellery
subject to refund of duty exemption benefits on the inputs only and not the duty on jewellery as was
being done earlier.

(c) Many a times exporters faced the dilemma of unsold jewellery in the foreign markets because of
changing designs and other such factors. To overcome this problem, Gems & Jewellery exporters will
now, be allowed to export jewellery on consignment basis.

(d) Treatment of cut and polished precious and semi-precious stones enhance the quality and afford
higher value in the international market. For this purpose, Gems & Jewellery exporters will now be
allowed to export such items for treatment and subsequent re-import, within a period of 120 days.

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(e) Increase of gold and silver prices in the international market over the past few years has made the
present value addition norms on export of gold & silver jewellery unrealistic. The value addition norm
for such items is being reduced from 7% to 4.5%.

Such measures will help Indian Gems and Jewellery to sparkle on the world stage.

8. AUTO-COMPONENTS

India is on the move, metaphorically as well as literally. We not only have the fastest growing
automobile market in the world, but India is fast emerging as an important centre for sourcing auto-
components. The FTP already extends a number of facilities for the sector. We shall now allow import
of new vehicles by auto component manufacturers for R & D purposes without homologation. This is
necessary to give our R&D labs easier access to the latest technologies current in the auto
component industry.

9. AVIATION SECTOR

Supplies of stores (food, beverages and other supplies) and refueling of long distance flights has
emerged as a big business opportunity. Currently, most airlines replenish supplies or refuel at
Thailand, Malaysia or Singapore. Since these supplies were not treated as exports in India and the
suppliers could not obtain the duty neutralisation benefits available to other export products the store
supplies from India were not competitive enough. We have decided to treat such supplies on an equal
footing with other exports, qualifying for benefits under various Export Promotion Schemes. This will
hopefully enable India to offer competitive fuel prices and will attract mid route stops of the
international flights.

10. MARINE SECTOR

Having done something for the ‘land’ and the ‘air’, we felt we must do something for the ‘sea’ too! We
had already brought in some benefits for shrimp and tuna fishing through the budget. Now the list of
specialized inputs used in the marine sector has been expanded to include additional items of
chemicals and other additives within the present duty free entitlement of 1%.

11. DUTY FREE IMPORT AUTHORISATION SCHEME

Export production requires use of many inputs in small quantities. Even though such inputs are
allowed for import without payment of customs duty under Advance Licensing Scheme, exporters
generally do not import them because of lack of economies of scale and are forced to source them
locally at a higher price. The existing Duty Exemption Schemes have been of little help in such cases
because of design limitations.

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To address the issue, the salient features of the Advance Licensing scheme (which allows imports
before exports) and Duty Free Replenishment Certificate (which allows transferability of import
entitlements) have been clubbed to evolve a new scheme named Duty Free Import Authorisation
Scheme. The new scheme offers the facility to import the required inputs before the exports. It allows
transferability of scrip once the export obligation is complete.

Imports made under this authorisation will be exempt from payment of basic custom duty, additional
customs duty, education cess, anti-dumping duty and safeguard duty, if any. The scheme will come
into effect from 1st May, 2006.

12. SERVICE TAX & FRINGE BENEFIT TAX

The incidence of un-rebated Service Tax and Fringe Benefit Tax on exports will be factored in the
various duty neutralisation and remission schemes.

13. EPCG SCHEME

We have introduced certain flexibilities in the conditions relating to maintenance of average export
performance under the EPCG Scheme, and also in the extension of export obligation period by 2
years, based on certain conditions.

14. EOUs

EOUs account for a substantial portion of our exports. Just because we have the new SEZ Act in
place, it does not mean that our EOUs can be neglected. On the contrary, we will continue to nurture
them.

In order to facilitate the smooth functioning of the EOU units, Development Commissioners will fix
time limits for finalizing the disposal of matters.

EOU units in the textile sector are allowed to dispose of the left over fabrics upto 2% of CIF value of
imports, on consignment basis. Settling accounts for every consignment is complex and time
consuming. It has therefore been decided to allow disposal of left over material on the basis of
previous year’s imports.

15. GENETICALLY MODIFIED (GMO) MATERIAL

For the benefit of the consumer clear guidelines for import of Genetically Modified Material are being
laid down. While making such imports, products which have been subjected to Genetic Modification
will have to carry a declaration stating the fact.

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16. INTEREST PAYMENT ON REFUNDS

It has been decided that interest for delayed payment of refunds would be made by the Government
to ensure accountability and cut delays.

17. TRADE FACILITATION

Clearance of import or export consignments are held up for want of test reports of samples drawn at
the time of import or export. Therefore, to accelerate cargo clearances, it has been decided to allow
pre-shipment test certificates from accredited international agencies in lieu of demanding only test
reports.

18. EDI INITIATIVES

We are committed to simplifying procedures relating to international trade and putting in place an
exporter friendly regime for obtaining import authorizations and disbursement of export linked
incentives. A web based online system of filing import & export applications is functional.

Requests for obtaining authorizations relating to Advance Licence, EPCG Licence and DEPB are to
be filed on the DGFT website with a digital signature and payment of licence fee through the
Electronic Fund Transfer mode. No manual applications and supporting documents are required to be
submitted. All EDI applications are processed within one working day. We propose to take more EDI
initiatives in the next six months to take the process further.

19. CONCLUSION

Our FTP has served us well. What else could account for the ‘grand leap forward’ by our exports?
Within just two years we have jumped 60%, from 63 billion dollars to 101 billion! But the real
congratulations are due not to us – we have only prepared a document – but to you the exporters, the
businessmen, the traders, the entrepreneurs. It is you who have given this policy flesh and blood and
meaning. I assure you, my Ministry will continue to work closely with you all, to continue to energise
and invigorate the national economy, so that our Prime Minister’s vision of double-digit growth is
achieved sooner rather than later.

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