India's Foreign Trade Policy 2009-2014

On August 27, 2009, Indian Commerce Minister Anand Sharma announced India’s “Foreign Trade Policy (FTP) 2009-14.” The FTP seeks to enhance support to Indian exporters and diversify export markets in order to mitigate the negative effects of demand slowdown in India’s traditional export markets (U.S. and Europe). The FTP has a five year time horizon and will be reviewed and adjusted after two years, given the evolving global economic scenario.

The measures in the policy focus on increasing productivity by encouraging technology development and providing incentives and concessions to labour-intensive sectors such as precious gems and jewelery, leather products and handicrafts.The policy also includes incentives to export commodities to 39 new markets in Latin America, Asia and Oceania. India will use the same export target this fiscal year as in 2008-09: US$ 168 billion. The Minister urged private industry to take advantage of the measures in the policy to expand access in new markets and emerging economies, rather than to wait for a growth in U.S. and European demand.

The Market Linked Focus Product Scheme (MLFPS) is expanded to include pharmaceuticals, textile fabrics, rubber products, glass products, auto components, motor cars, bicycle and parts.  Benefits to these products are provided, for exports to 13 markets (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand). Jaipur, Srinagar and Anantnag have been recognized as ‘Towns of Export Excellence’  for handicrafts; Kanpur, Dewas and Ambur for leather products; and Malihabad for horticultural products.

Focus Product Scheme benefit extended for export of  ‘green products’ and some products from North East India. Interest subsidy for exporters of 2% for pre-shipment credit and income tax exemptions to “100% Export Oriented Units (EOUs)” to continue until the end of the next fiscal. [100% EOUs are companies that undertake to export their entire production of goods]. Duty free import of capital goods for technological upgrading in labour-intensive sectors like engineering, electronics, basic chemicals and pharmaceuticals, apparel and textiles, plastics as well as leather and leather products allowed. In addition, all other sectors are permitted to import capital goods at a concessional duty of 3%. The objective is to enhance the productivity of Indian exporters so that they can increase their overseas market share.

Tax holiday on business tax for the Software Technology Parks of India (STPI) to continue until March 31, 2011. With a view to boost exports, the government initiated several measures to rationalize procedures and reduce transaction costs.

3. Highlights of the Foreign Trade Policy:

Duty entitlement passbook scheme extended till December 2010

-Extension of “sops” for export-oriented units till March 2011
-Export target of $200 billion set for 2010-11
-Growth target of 15 percent for next two years, 25 percent thereafter
-Inter-ministerial group to address issues raised by exporters
-Obligation under export promotion capital goods scheme relaxed
-Permission for tax refund scheme for jewelry sector
-No fee on grant of incentives to cut transaction costs
-Steps to help exporters reduce transaction costs
-Plan for diamond bourses in the country
-Single-window scheme for farm exports
-Re-export of unused leather allowed subject to 50 percent duty
-Minimum value addition for tea reduced to 50 percent from 100 percent
-Export units allowed to sell 90 percent of goods in domestic market
-Provision for state-run banks to provide dollar credits
-Twenty-six new markets added to focus market scheme
-Sops under focus market scheme hiked from 2.5 percent to 3 percent
-Number of duty-free samples for exporters raised to 50 pieces from 15
-New directorate of trade remedy measures to be set up
-Zero duty under technology upgrade scheme

C-IBC Featured Content: Implications on Jewelry and Gold Sector and Canada-India Trade

To neutralize duty on gold jewelry exports, Duty Drawback will applied on such exports. To make India a diamond international trading hub, it is planned to establish “Diamond Bourse(s)”. Despite the presence of Bharat Diamond Bourse (BHP) in Mumbai, the “diamantaires” have to visit Antwerp, Israel, Hong Kong, and Dubai and other locations to buy and sell rough and polished diamonds. The BHP is perceived as being able to cater to this globalized industry. The inclusion of duty drawback on exports of gold jewelery will particularly benefit the small and medium sized exporters. This measure will enable them to avail gold from open market, fabricate their jewelery, export it and then claim back the import duty levied on gold bought from open market.

For institutions like Indian Diamond Institute (IDI), the new policy allows import on consignment basis of cut and polished diamonds for the purpose of grading and certification.  ”Till now, the foreign companies were sending their parcels to Gemology Institute of America (GIA) and other foreign institutions for grading and certification of diamonds as import was not allowed. Now, we can expect the diamond manufacturers in Israel, Australia and Canada to directly send the consignment to us for grading and certification purpose,” said IDI executive director K K Sharma in a recent interview.

As was reported in the Globe and Mail Report on Business September 17, 2009 diamond demand is picking up because of stronger than expected sales in China, India, and Japan. Production shutdowns have cleared inventories. This has led to restart of production and cancellation of future planned shutdowns, including the planned December shutdown of the Diavic Mine in the North-West Territories. In 2008, Canada exported CDN $2.8 billion in diamonds. Although India is a major final destination for this product only CDN $26 million of exports to India is identified in official data. As is described above, this is due to “diamentaires” purchasing Canadian diamonds in Antwerp, Israel, Hong Kong, and Dubai. The new measures to make India an international trading hub with a diamond bourse will likely make the considerable Canada-India diamond trade more transparent.   A similar under-reporting, with like causes, occurs in the gold trade where only CDN $60 million of Canada’s CDN $8.2 billion in global Canada exports in 2008 was reported to be destined to India. (Source: Strategis.ic. gc.ca)

Web Exclusive: A round-up of the Foreign Trade Policy 2009-2014

Yashika Singh / Mumbai August 31, 2009, 16:31 IST

In the back drop of the significant slump witnessed in Indian exports during the past 10 months, the foreign trade policy for 2009-2014 endeavors to reverse the declining trend in exports in the short run and return on a high growth path in the medium to long period. The policy sets an annual export target of $200 billion, an accomplishment that India failed to achieve in FY09 due to the global economic crisis, to be achieved by March 2011.

The policy objective is to achieve 15% annual growth to reach the target of $200 billion in FY11. This implies that the annual export growth for the current fiscal would be more or less stagnant, with value of export reaching around pervious fiscal’s level of $168 billion. With the subdued global demand conditions exports are expected to remain muted during most of FY10. Further, expected lower agriculture production given the deficient monsoon and draught like conditions in some Indian states, might put significant downward pressure on agriculture exports during the current fiscal. Nonetheless, as the global economy begins to recover exports demand is likely to see an upturn and hence the export target for FY11 as articulated in the FTP seems to be realistic.

The policy endeavors to achieve an annual growth target of 25 per cent for the next three years till FY14. On the policy front, the foreign trade policy lacked major big bang announcements. However, it continued with some of the sops announced in the previous fiscal to help the distressed exporters and announced measures aimed at increasing export competitiveness and diversification.

The government decided to continue with the DEPB Scheme upto December 2010 and income tax benefits under Section 10(A) for IT industry and under Section 10(B) for 100% export oriented units for one additional year till March 31, 2011. The adjustment assistance scheme initiated in December-08 to provide enhanced ECGC cover at 95 per cent, to the adversely affected sectors, is also extended till March, 2010.

The extension of various measures announced previously is a welcome move as it will continue to provide some relief to the exporters. Further, allowing duty free imports of capital good to exporters is likely to increase competitiveness by encouraging technological upgradation and leading to cost reduction. In an attempt to explore new markets and diversify India’s export basket, the Foreign Trade Policy has announced enhancement of the Focus Market Scheme and Focus Product Scheme in terms of increased incentives and inclusion new markets and new products.

In view of the declining demand from India’s major trading partners during the current economic downturn, focus on product and market diversification is likely to garner demand for the Indian exports. Further, the additional support and incentives to ‘Towns of Excellence’ along with implementation of e-trade projects in time bond manner are likely to improve trade related infrastructure and bring down cost, thereby improving efficiency and export competitiveness in the long run.

The author is Head-Economic Analysis, Dun & Bradstreet India

Speech of Shri Anand Sharma, Minister of Commerce & Industry on New Foreign Trade Policy 2009 – 2014. August 27, 2009

(Selections)

“…The immediate objective of this policy is to arrest and reverse the declining trend of exports and to provide additional support, especially to those sectors which have been hit badly by recession in the developed world. We would like to achieve an annual export growth of 15% over 2010-11 with an annual export target of US$ 200 billion by March 2011. In the remaining three years of this Foreign Trade Policy, the country should be able to come back on the high export growth path of around 25% per annum. By 2014, we expect to double India’s exports of goods and services. The long term policy objective for the Government is to double India’s share in global trade by 2020.

In order to meet these objectives, the Government would provide a policy environment through a mix of measures including fiscal incentives, institutional changes, procedural rationalization, and efforts for enhanced market access across the world and diversification of export markets. The three pillars which would support us to achieve the targets are improvement in export related infrastructure, lowering of transaction costs and providing full refund of all indirect taxes and levies.

We would reassure our exporters and provide them adequate confidence to maintain their market presence even in a period of stress. In this policy we have given a special thrust to the employment oriented sectors which have witnessed job losses in the wake of recession especially in the field of textiles, leather, handicrafts, etc.

We shall ensure that Dollar credit needs of exporters are met in a timely manner, and a committee has been constituted with Finance Secretary, Commerce Secretary and Chairman IBA, which would meet periodically for this purpose.

We have taken a conscious decision to continue with the DEPB scheme up to December 2010, and also income tax benefits under Section 10(A) for IT industry and under Section 10(B) for 100% export oriented units would continue for one additional year till 31st March 2011. Enhanced insurance coverage and exposure for exports through ECGC Schemes has been ensured till 31st March 2010. We have also taken a view to continue with the interest subvention scheme for this purpose.

Through this policy, we will encourage value addition in our manufactured exports and towards this end, we have stipulated a minimum 15% value addition norm on imported inputs for advance authorization scheme.

In the era of global competitiveness, there is an imperative need for Indian exporters to upgrade their technology and reduce their costs. Accordingly, an important element of the Foreign Trade Policy is to help exporters for technological upgradation. Technological upgradation of exports is sought to be achieved by promoting imports of capital goods for certain sectors under EPCG at zero percent duty.

Under the present Foreign Trade Policy, Government recognizes exporters based on their export performance and they are called ’status holders’. For technological upgradation of the export sector, these status holders will be permitted to import capital goods duty free (through additional Duty Credit Scrips equivalent to 1% of their FOB value of export in the previous year, of specified product groups). This will help them to upgrade their technology and reduce cost of production. These two schemes would be valid up to 31st March 2011.

For upgradation of export sector infrastructure, ‘Towns of Export Excellence’ & units located therein would be granted additional focused support and incentives.

To enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments under the WTO framework, we propose to set up a Directorate of Trade Remedy Measures.

It shall be our endeavor to make India an international diamond trading hub, and we plan to establish more diamond bourses in the coming years.”

Full address can be found at:  www.infodriveindia.com/Exim/DGFT/Exim-Policy/2009-2014/speech.aspx

Full Foreign Trade Policy 2009-2014 Report can be found at: www.dgft.gov.in