Chapter 51 Foreign Trade Policy – Indian Economy


Foreign Trade Policy

Statement of Trade Policy

International trade today, more than ever before, is the driving force of economic activities. It not only enables the exchange of goods and services among countries, but in today’s world, it serves as the bedrock for the increasingly interdependent global network of technology, investment and production. No country can disregard these issues that offer challenges as well as opportunities. India’s trade policy must respond to these challenges.

The Indian foreign trade policy is an important and well to-chiselled blueprint that provides a direction to the exports and imports of the country. It is a policy statement of the central government that defines in clear terms the type of policy that would govern the forthcoming year’s external trade comprising imports and exports, both of merchandise and services, the kind of encouragement provided by it to augment exports in terms of reduction in duties, increase in subsidies and other concessions, and the ways and means of pruning unwarranted imports. Such policy statements spelling out in details the government’s policy to external trade is important in the context of developing countries including India as the state plays a major role in promoting economic growth and gives direction to the private sector as to what is expected of it in the scheme of the country’s overall development in which external trade plays a pivotal role. The Ministry of Commerce and Industry of the Government of India announces the foreign trade policy, also known as the Exim policy, once every five years. The policy, as we have seen, aims at developing export potential and export performance, encouraging foreign trade and creating favourable balance of payments position.

An all-encompassing and comprehensive view has to be taken for the overall development of the country’s foreign trade if India is to become a major player in world trade. If an increase in exports is of great importance, it is equally important to facilitate those imports which are required not only to be inputs in the exportable goods but also to stimulate our economy. Lucidity and consistency in trade and related economic policies is important if they have to maximize their contribution towards 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 in which any foreign trade policy is formulated.

Objectives of India’s Foreign Trade Policy

Trade is not an end in itself but a means to greater end, namely, economic growth and national development. The principal objective of trade is not merely to earn foreign exchange, but to boost economic activity. India’s foreign trade policy is rooted in this belief and built around the following two major objectives:

  1. To ensure a two-fold increase in the country’s percentage share of global products’ trade within the next five years.
  2. To act as an effective tool of economic growth by giving a push to employment generation.

Strategies Adopted in India’s Foreign Trade Policy

The objectives already stated are planned to be achieved by adopting, among others, the following strategies:

  • Removing controls and preparing for an atmosphere of trust and openness to give free vent to the native genius and entrepreneurship of our businessmen, industrialists and traders;
  • Bringing down transaction costs and simplifying procedures; Rendering ineffective the incidence of all levies and duties on inputs used in export of goods, based on the basic principle that duties and levies should not be exported;
  • Enabling India develop herself as a global hub for manufacturing, trading and services;
  • Identifying and fostering special focus areas which would generate additional employment opportunities, predominantly in semi-urban and rural areas, and developing a series of ‘initiatives’ for each of these;
  • Bringing about technological transformation and infrastructural development of all the sectors of the Indian economy, particularly through import of investment goods and equipment, thereby increasing value addition and productivity while achieving internationally accepted standards of quality;
  • Avoiding unrealistic duty structures and seeing that our domestic sectors are not placed at a disadvantage while we enter into the free trade agreements/regional trade agreements/preferential trade agreements with a view to augmenting our exports;
  • Improving our infrastructural network, both physical and virtual, connected to the entire foreign trade chain, to global standards;
  • Invigorating the Board of Trade by reframing its role, offering it due recognition and bringing in experts on trade policy; and
  • Revitalizing our embassies as pivotal players in our export strategy and linking our commercial wings abroad through an electronic platform for real-time trade intelligence and enquiry diffusion.

Partnership with Private Players

The Exim policy generally envisages merchant exporters and manufacturer-exporters, business and industry as partners of government in the achievement of its declared objectives and goals. Protracted and needless litigation undermines the premise of partnership. In order to prevent the need for litigation and nurture a constructive and conducive atmosphere, a suitable grievance redressal mechanism is envisaged which would substantially reduce litigation and further a relationship of partnership.

The dynamics of a liberalized trading system now and then results in injury caused to home industry on account of dumping. When this happens, efficient measures will be taken to cure such injury.

Road Map of the Trade Policy

Any trade 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 plan to go. By virtue of its very dynamics, a trade policy cannot be fully complete 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.’1

Interim Foreign Trade Policy 2009–10

The Interim Exim policy or foreign trade policy 2009–2010 was a supplement to foreign trade policy 2004–09, and was announced on 26 February 2009, and was to be effective from 1 April 2009. In its interim Indian foreign trade policy 2009–10, the Government of India has laid down several provisions to encourage the trade of the country at the global level so that the country makes its presence felt in the world as one of the fastest growing economies of the world. The main highlights of the interim new Exim policy announced by Kamal Nath, the then Minister of Commerce and Industry, Government of India on 26 February 2009 are herein discussed.

The Minister, while announcing the policy, stated that the global meltdown of the world economy presented two engines of global integration–trade and capital flows, which together were expected to shift into reverse direction. India was also expected to be effected by this trend; however in his perception, the country would recover from the slump very fast ‘due to the nature of our trade, the diversification of our trade basket, our trade facilitation measures and the proactive steps taken by our Government’. Because of the redoubtable support of strong economic fundamentals the government ‘will stimulate demand, increase confidence, uplift business sentiment and give a fresh impetus to India’s trade and growth story.’ Later, he focused on the twin objectives of achieving a two-fold percentage share of global merchandise trade over the next five years as well as to act as an instrument of economic growth by giving a thrust to the creation of employment. The speech highlighted the sectors which provided significant export prospects along with the potential for employment generation in semi-urban and rural areas such as in agriculture, handicrafts, handloom, gems and jewellery and leather and footwear sectors. These are considered the major sectors on which special focus initiatives have been provided by the government. The policy highlighted the following features:

  1. Foreign Trade Policy benefits without bank realization certificate: Duty credit scrip now will be provided without waiting for realization of export proceeds. The exporters should submit proof of export proceeds realization within the time limits prescribed by the Reserve Bank of India. The issuance of these benefits without bank realization certificate (BRC) would be subject to a bank guarantee/LUT in terms of circular to be issued. This proviso shall be applicable for applications made on or after 1 April 2009.
  2. Additional benefits under promotional schemes: For the promotional schemes for leather, textile, etc., towards exports a sum of INR 3.25 billion will be provided.

    Benefit of 5 per cent under the ‘Focus Product Scheme (FPS)’ has been notified for export of handmade carpets in lieu of 3.5 per cent benefit allowed earlier under Vishesh Krishi Gram Udyog Yojana (YKGUY) scheme.

  3. Gems and jewellery sector:
    • Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporters.
    • An authorized person of gem and jewellery units in export-oriented units (EOUs) shall be allowed personal carriage of gold in primary form up to 10 kg in a financial year subject to RBI and customs guidelines.
  4. Advance authorization:
    • Export obligation period against advance authorizations has been extended up to 3 years because of the present global economic slowdown.
    • Supply of an intermediate product by the domestic supplier directly from their factory to the port against advance intermediate authorization has been allowed for export by the ultimate exporter.
    • In advance authorization for annual requirement in which the standard input–output norms have not been fixed, the appropriate clauses in customs notification have been amended in consonance with FTP.
  5. DEPB scheme: At present, duty entitlement passbook (DEPB) scheme’s duty credit scrip can be used for payment of duty only on items which are under free category.
  6. EPCG scheme: Under the export promotion capital goods (EPCG) scheme, if there is a d ecline in exports of a product(s) by more than 5 per cent, the export obligation for all exporters of that product(s) is to be reduced proportionately.

    EPCG authorization/redemption form, i.e. ANF 5A and 5B forms are being made simpler and shall be substituted shortly by new forms.

  7. Premier trading houses: The Government of India presently recognizes premier trading houses based on an export turnover of INR 100 billion in the past three years and the present year taken together.
  8. Towns of export excellence: Surat in the state of Gujarat and Bhilwara in Rajasthan have been recognized as towns of export excellence for diamonds and textiles, respectively.
  9. Other facilitation measures:
    • Reimbursement of additional duty of excise levied on fuel under the Finance Acts would be admissible in respect of EOUs.
    • Recredit of 4 per cent special additional duty in the case of payment of the duty by incentive scheme scrips.
    • According to the present procedure, applicants have to produce individual invoices certified by the concerned excise officers for obtaining duty drawback claims. A much simpler procedure has now been prescribed by which exporters can now present a central excise certified statement instead of individual invoices and a monthly statement confirming duty payment in lieu of ER-l/ER-3 for the purpose of deemed export benefits.2
    • Export of blood samples is now allowed without license after obtaining a no objection certificate (NOC) from the Director General of Health Services (DGHS).
    • A simpler export procedure for issue of free sale certificate has now been put into practice.
  10. In addition to the above, Director General of Foreign Trade and Department of Revenue provisions have been aligned in the following matters:
    • Utilization of the duty credit scrip allowed under reward schemes of Chapter 3/DEPB in Chapter 4 of FTP for payment of duty under export promotion capital goods (EPCG) scheme.
    • Notification of duty-free import authorization (DFIA) scheme aligned with FTP provisions.
    • Granite sector EOUs have been allowed procurement of spares up to 5 per cent value of quarrying equipment in each financial year.
    • Reimport of exported pharmaceutical samples by EOUs without payment of duty for statutory requirement of stability or retention has been allowed and notified by department of revenue (DOR).
    • DOR shall issue necessary clarification thereby allowing supply of goods and services at zero duty to authorized organizations notified for zero duty import.
    • Customs notification has now been issued to permit status holders import of agricultural capital goods/equipment.3

Foreign Trade Policy 2009–14

The then commerce minister unveiled the foreign trade policy (FTP) 2009–14. The policy takes into consideration the grim scenario of global trade in last four quarters and takes initiatives to redress the situation. The policy aims at USD 200 billions export by March 2011. The long-term objective is to double the share of India in global trade from the present level.4

While presenting the foreign trade policy 2009–14, Anand Sharma, Minister of Commerce and Industry, Government of India on 27 August 2009 made the following observations:

The UPA Government has assumed office at a challenging time when the entire world is facing an unprecedented economic slow-down. The year 2009 is witnessing one of the most severe global recessions in the post-war period. Countries across the world have been affected in varying degrees and all major economic indicators of industrial production, trade, capital flows, unemployment, per capita investment and consumption have taken a hit.5

According to the WTO estimates, global trade is likely to decline by 9 per cent in volume terms while the International Monetary Fund estimates project a decline of over 11 per cent. The World Bank estimated that 53 million more people would fall into the poverty net in 2009 and over a billion people would go chronically hungry. All these would have huge social implications.

Sharma wrote in his introductory remarks to the FTP that though India has been less affected as compared to other economies of the world, yet there had been a fall in the past 10 months in our exports because of a contraction in demand in our traditional markets. Some of these countries have been adopting protectionist measures that have aggravated the problem. After almost one year of recession, there is some sign of a recovery and the emergence of ‘green shoots’. Making an announcement of a foreign trade policy in this economic climate is indeed an overwhelming task. We cannot remain unmindful to falling demand in the industrialized countries and we need to set in motion strategies and policy measures which will actively promote the growth of exports. Before explaining the objectives of the new policy, it would be useful to take stock of our accomplishments in the foreign trade over the past five years. The foreign trade policy announced by the UPA Government in 2004 had set two objectives, namely, (i) to make our percentage share of global merchandize trade double within five years and (ii) use the expansion in trade as an effective instrument of economic growth and employment generation.

In retrospect, we can declare with a sense of fulfilment that the UPA Government has delivered on its promise. Both agriculture and industry have been remarkably resilient and dynamic in promoting a healthy growth in exports. In the last five years, our exports registered robust growth to reach a level of USD 168 billion in 2008–09 from USD 63 billion in 2003–04. Our share of global merchandise trade was a mere 0.83 per cent in 2003; it increased to 1.45 per cent in 2008, according to the estimates of the WTO.

Likewise, our share of global commercial services export was only 1.4 per cent in 2003; it  doubled to 2.8 per cent in 2008. India’s total share in goods and services trade was 0.92 per cent in 2003; it rose to 1.64 per cent in 2008. Studies suggest that on the employment front, nearly 14  million jobs were created directly or indirectly as a consequence of increased exports in the past five years. The objective of our policy in the short term is to arrest and reverse the declining trend of exports and to give increased support particularly to those sectors which have been hit badly by recession in the developed world. Our policy objective is to achieve an annual export growth of 15 per cent with an annual export target of USD 200 billion by March 2011.

The country should be able to come back on the high export growth path of around 25 per cent per annum in the remaining three years of this foreign trade policy, i.e., up to 2014. By 2014, we hope to double India’s exports of goods and services. The long-term policy objective for the government is to ensure that India’s share in global trade doubles by 2020. The government would follow a mix of policy measures including fiscal incentives, institutional changes, procedural rationalization, and enhanced market access across the world and diversification of export markets in order to meet these objectives. Improving infrastructure related to exports, bringing down transaction costs and providing full refund of all indirect taxes and levies are the three pillars which would support in the achievement of this target. Efforts will be made to see that the goods and services tax rebates of all indirect taxes and levies are available on exports.

Future Perspectives on Foreign Trade by Modi Government

The Modi government has set the annual exports target at US$ 900 billion by the year 2020, which is almost double of the country’s exports. This means the government aims to raise India’s share in global trade over the 5-year period of 2015–2020 to 3.5 per cent from the present 2 per cent. It is said this policy is aligned with the Modi governments set initiative. ‘The Make in India, Digital India and Skills India.’ For the first time the country’s position on global trade pacts is being addressed in the trade policy (Media Reports 2 April 2015).

In this context, it is necessary to provide sufficient confidence to our exporters to maintain their market presence even in a period of stress. A special thrust has to be provided to employment– intensive sectors which have experienced job losses during this recession, in particular in the fields of textile, leather, handicrafts, etc. The government wants to provide a stable policy environment helpful for foreign trade and has decided to continue with the DEPB scheme up to December 2010 and income tax benefits under Section 10(A) for IT industry and under Section 10(B) for 100 per cent EOUs for one more year till 31 March 2011. Increased insurance coverage and exposure for exports through ECGC schemes has been made certain till 31 March 2010. The government also wishes to continue with the interest subvention scheme for this reason. It wants to encourage value addition in our manufactured exports and for this purpose has stipulated a minimum 15 per cent value addition on imported inputs under advance authorization scheme.

As per the commerce minister, it is important to diversity our export markets and counteract the inherent disadvantage for our exporters through appropriate policy instruments including credit risks, higher trade costs, etc., in emerging markets of Africa, Latin America, Oceania and CIS countries. The government is trying to diversity products and markets through rationalization of incentive schemes such as the enhancement of incentive rates which have been based on the perceived long-term competitive advantage of India in a particular product group and market. To enable competitive exports, new emerging markets have been given a special focus. This would of course be dependent upon availability of adequate exportable surplus for a particular product. Additional wherewithal has been made available under the Market Development Assistance Scheme (MDAS) and Market Access Initiative Scheme (MAIS). Incentive schemes are being restructured to identity leading products which would catapult the next phase of export growth.

As part of our policy of market expansion, the government has signed a comprehensive economic partnership agreement with South Korea which would provide increased market access to Indian exports. The Government has also signed a trade in goods agreement with ASEAN which will become effective from 1 January 2010 and will give enhanced market access to quite a few items of Indian exports. These trade agreements are in consonance with India’s Look East Policy. The  government has also endeavoured to deepen our trade engagement with other major economic groupings in the world.

The government seeks, through six or more ‘Made in India’ shows to be organized across the world every year, to promote brand India. In the age of global competitiveness, there is a dire need for Indian exporters to advance their technology and reduce their costs. Accordingly, an important element of the foreign trade policy is to help exporters in technological upgradation. Technological upgradation of exports is to be achieved by promoting imports of capital goods for certain sectors under EPCG at zero per cent 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 allowed to import capital goods duty free (through duty credit scrips equivalent to 1 per cent of their free on board (FOB) value of exports in the previous year) of specified product groups. This will enable them advance their technology and lessen the cost of production.

For the upgradation of export sector infrastructure, ‘towns of export excellence’ and units located therein would be given additional focused support and incentives. The policy is dedicated to support the growth of project exports. A high level coordination committee is being set up in the Department of Commerce to make possible the export of manufactured goods/project exports creating synergies in the line of credit extended through EXIM Bank for new and emerging markets. This committee would consist of representatives from the Ministry of External Affairs, Department of Economic Affairs, EXIM Bank and the RBI. The government would encourage production and export of ‘green products’ through measures such as phased manufacturing programme for green vehicles, zero duty EPCG scheme and incentives for exports.

The government proposes to set up a directorate of trade remedy measures to extend support to Indian industry and exporters, especially the micro, small and medium enterprises (MSMEs), in availing their rights through trade remedy instruments under the WTO framework. The e-trade project would be implemented in a time bound manner to bring all the stakeholders on a common platform with a view to reducing the transaction cost and institutional bottlenecks. More ports/locations would be made available on the electronic data interchange in the next few years. An inter-ministerial committee has been set up to serve as a single window mechanism to solve trade related grievances.

Highlights of the Foreign Trade Policy 2009–14

The following are the salient features of the foreign trade policy, also known as the Exim policy of 2009–14:

  1. Higher support for market and product diversification:
    • Incentive schemes under Chapter 3 have been elaborated by adding new products and markets.
    • Twenty-six new markets have been included under focus market scheme (FMS), with 16 new markets in Latin America and 10 in Asia-Oceania.
    • The incentive available under FMS has been increased to 3 per cent from 2.5 per cent.
    • The incentive available under FPS has been increased to 2 per cent from 1.25 per cent.
    • A good many number of products from different sectors have been added for benefits under FPS, which include engineering products (hand tools, garden tools, agricultural machinery, parts of trailers, sewing machines, musical instruments, clocks and watches, railway locomotives, etc.), value-added products such as plastics, jute and sisal products, technical textiles, green technology products such as wind mills, wind turbines and electricity- operated vehicles., project goods, vegetable textiles and a few electronic items.
    • Market-linked focus product scheme (MLFPS) has been greatly increased by inclusion of products classified under as many as 153 ITC (HS) codes at 4 digit level. Some major products include value-added rubber products, value-added plastic goods, synthetic textile fabrics, pharmaceuticals, textile made-up, glass products, knitted and crocheted fabrics, certain iron and steel products and certain articles of aluminium among others. Benefits to these products will be provided if exports are made to 13 identified markets to the following countries Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand.
    • MLFPS benefits are also extended for certain products if exported to additional new markets. These products include motor cars, auto components, bicycle and its parts, and apparels among others.
    • A common simplified application form has been prepared and made available for taking benefits under FPS, FMS, MLFPS and VKGUY.
    • Higher allocation is being provided for market development assistance (MDA) and market access initiative (MAI) schemes.
  2. Technological upgradation:
    • An EPCG scheme at zero duty has been introduced to aid technological upgradation of our export sector. This scheme will be available for engineering and electronic products, basic chemicals and pharmaceuticals, apparels and textiles, plastics, handicrafts, chemicals and allied products and leather and leather products excepting current beneficiaries under the technological upgradation fund schemes (TUFS), administered by Ministry of Textiles and beneficiaries of status holder incentive scheme in that particular year. The scheme was to be effective till 31 March, 2011.
    • Anantnag, Jaipur and Srinagar have been recognized as ‘Towns Export Excellence’ for handicrafts; Ambur, Dewas and Kanpur have been recognized as ‘Towns of Export Excellence’ for leather products; and Malihabad for horticultural products.
  3. EPCG scheme relaxations:
    • To increase the life of the presently working plant and machinery, export obligation on import of spares, moulds etc., under EPCG scheme has been brought down to 50 per cent of the normal specific export obligation.
    • The facility of refixation of annual average export obligation for a particular financial year, in which there is decline in exports from the country, has been extended taking into account the decline in exports for the five year policy period of 2009–14. Support for green products and products from North East is being provided.
    • The FPS benefit has been extended for export of ‘green products’; and for exports of some products originating from the North East.
  4. Status holders:
    • To augment exports and encourage technological upgradation, additional duty credit scrips shall be given to status holders @ 1 per cent of the FOB value of past exports. The duty credit scrips can be made use of for procurement of capital goods with actual user condition. This facility shall be available for sectors of leather excluding finished leather, textiles and jute, handicrafts, engineering excluding iron and steel and non-ferrous metals in primary and intermediate form, automobiles and two wheelers, nuclear reactors and parts, ships, boats and floating structures, plastics and basic chemicals excluding pharma products. This facility is available, of course, subject to exclusions of current beneficiaries, under TUFS which was to be available up to 31 March 2011.
    • Transferability has been permitted for the duty credit scrips being issued to status holders under paragraph 3.8.6 of FTP under VKGUY scheme. This is subject to the provision that transfer would be only to status holders and scrips would be utilized for the purchase of cold chain equipment(s) only.
  5. Stability/continuity of the foreign trade policy:
    • The DEPB scheme has been extended beyond 31 December, 2009 till 31 December, 2010 to impart stability to the policy regime.
    • In the Budget 2009–10, interest subvention of 2 per cent for pre-shipment credit for seven specified sectors has been extended till 31 March, 2010.
    • In the Budget 2009–10, income tax exemption of l00 per cent to EOUs and to STPI units under Section 10B and 10A of Income Tax Act has been extended for the financial year 2010–11.
    • The adjustment assistance scheme initiated in December 2008 has been extended till March 2010 to provide enhanced ECGC cover at 95 per cent to the adversely affected sectors.
  6. Marine sector:
    • Fisheries have been now added to the sectors which are exempted from maintenance of average EO under EPCG Scheme, subject to the provision that fishing trawlers, boats, ships and other similar items shall not be permitted to be imported under this provision. This would provide an incentive to the marine sector which has been adversely affected by the present downturn in exports.
    • Additional flexibility under target plus scheme (TPS)/duty free certificate of entitlement (DFCE) scheme for status holders has been granted to the marine sector and Gems and Jewellery sector.
    • To make even duty incidence on gold jewellery exports, it has now been decided to permit duty drawback on such exports.
    • It is planned to establish ‘Diamond Bourse(s)’ in an effort to make India a diamond international trading hub.
    • A new facility has been introduced to allow import on consignment basis of cut and polished diamonds for the purpose of grading/certification purposes.
    • To encourage export of gems and jewellery products, the value limits of personal carriage have been raised from USD 2 million to USD 5 million in case of participation in overseas exhibitions. The upper limit in case of personal carriage, as samples, for export promotion tours, has also been raised from USD 0.1 million to USD 1 million.
  7. Agriculture sector:
    • A single window system to facilitate export of perishable agricultural produce has been introduced to reduce transaction and handling costs. The system will involve setting up of multifunctional nodal agencies to be accredited by the Agricultural and Processed Food Products Export Development Authority (APFPEDA).
  8. Leather sector:
    • Leather sector shall be permitted re-export of residual imported raw hides and skins and semi-finished leather from public bonded warehouses, subject to payment of 50 per cent of the applicable export duty.
    • The enhancement of FPS rate to 2 per cent would also significantly benefit the leather sector.
  9. Tea:
    • Minimum value addition under advance authorization scheme for export of tea has been reduced to 50 per cent from the existing 100 per cent.
    • DTA sale limit of instant tea by EOU units has been increased to 50 per cent from the existing 30 per cent.
    • YKGUY scheme benefits have now been extended to the export of tea.
  10. Pharmaceutical sector:
    • Export obligation period for advance authorizations issued with 6-APA as input has been raised from the existing 6 months to 3 years, as is available for other products.
    • Pharmaceutical sector has been elaborately covered under MLFPS for countries in Africa and Latin America, some countries in Oceania and the Far East.
  11. Handloom sector:
    • To simplify claims under FPS, requirement of ‘Handloom Mark’ for availing benefits under FPS has been done away with.
  12. EOUs:
    • EOUs have been allowed to sell products manufactured by them in DTA up to a limit of 90 per cent instead of the existing 75 per cent, without changing the criteria of ‘similar goods’, within the overall entitlement of 50 per cent for DTA sale.
    • The Department of Revenue (DOR) shall issue a clarification to provide clarity to the customs field formations to enable procurement of spares beyond 5 per cent by granite sector EOUs.
    • EOUs will now be permitted to purchase finished goods for consolidation along with their manufactured goods, subject to certain safeguards.
    • The Board of Approvals (BOA) shall consider during the period of downturn, extension of block period by one year for calculation of net foreign exchange earning of EOUs.
    • EOUs will now be permitted central value-added tax credit facility for the component of SAD and education cess on DTA sale.
  13. Thrust to value-added manufacturing:
    • A minimum 15 per cent value addition on imported inputs under advance authorization scheme has now been prescribed to promote value-added manufactured export.
    • Coverage of projected exports and a large number of manufactured goods under FPS and MLFPS has now been done.
  14. Duty entitlement passbook:
    • DEPB rate shall also include factoring of customs duty component on fuel where fuel is being allowed as a consumable in standard input-output norms.
  15. Flexibility provided to exporters:
    • For export obligation (EO) shortfall under advance authorization, payment of customs duty is now allowed. Authorization has been permitted through duty credit scrips instead of cash payment which was the condition earlier DFIA/EPCG.
    • Import of disallowed items, as replenishment, shall now be allowed against transferred DFIAs, in line with the earlier DFRC scheme.
    • Time limit of 60 days has been extended to 90 days in case of the United States for re-import of exported gems and jewellery items for participation in exhibitions.
    • Transit loss claims received from private approved insurance companies in India will now be permitted for the purpose of EO fulfilment under export promotion schemes. Presently, the facility has been limited to public sector general insurance companies only.
  16. Waiver of incentives recovery on RBI specific write-off:
    • In cases where RBI specifically writes off the export proceeds realization, the incentives under the FTP shall now not be recovered from the exporters subject to some conditions.
  17. Simplification of procedures:
    • To help the duty free import of samples by exporters, number of samples/pieces has been increased from the existing 15 to 50. Customs’ clearance of such samples shall be based on declarations given by the importers with regard to the limit of value and the number of samples.
    • It has now been allowed exemption for up to two stages from payment of excise duty instead of refund, in the event of supply to an advance authorization holder against invalidation letter by the domestic intermediate manufacturer. It would allow exemption for supplies made to a manufacturer, if he in turn supplies the products to an ultimate exporter. Currently, exemption is allowed up to one stage only.
    • Greater flexibility has been permitted for the conversion of shipping bills from one export promotion scheme to the other. Customs shall now permit this conversion within three months, instead of the present period of only one month.
    • To reduce transaction costs, dispatch of imported goods directly from the port to the site has been permitted under Advance Authorization Scheme for deemed supplies. Presently, the duty free imported goods could be taken only to the manufacturing unit of the authorization holder or its supporting manufacturer.
    • Disposal of manufacturing wastes/scrap will now be permitted after payment of applicable excise duty, even before fulfilment of export obligation under advance authorization and EPCG schemes.
    • Regional authorities have now been granted the power to issue licences for the import of sports weapons by ‘renowned shooters’, on the basis of NOC from the Ministry of Sports and Youth Affairs. Now there is no necessity to approach DGFT (Headquarters) in such cases.
    • The procedure for issue of free sale certificate has been simplified and the validity of the certificate has been raised to 2 years from the existing one year. This will solve the problems faced by the medical devices industry.
    • Automobile industry, with their own R&D establishment, would be allowed free import of reference fuels (petrol and diesel) up to a maximum of 5 kl per annum, which are not manufactured in India.
    • The application and redemption forms under EPCG scheme have been made simpler acceding to the demand of trade and industry.
  18. Reduction of transaction costs:
    • No fee shall now be charged for grant of incentives under the schemes in Chapter 3 of FTP. Moreover, for all other authorizations/licence applications, maximum applicable fee is being reduced to INR 100,000 from the existing INR 150,000 for manual applications and INR 50,000 from the existing INR 75,000 for electronic commerce and document interchange (EDI) applications.
    • To advance EDI initiatives, export promotion councils/commodity Boards have been advised to issue RCMC through a web-based online system. It is expected that issuance of RCMC would become EDI enabled in course of time.
    • Electronic message exchange between customs and DGFT with respect to incentive schemes under Chapter 3 to be operational by 12 December 2009. This will remove the need for verification of scrips by customs facilitating faster clearances.
    • For EDI ports, with effect from December 2009, double verification of shipping bills by customs for any of the DGFT schemes shall be done away with.
    • In cases where the earlier authorization has been cancelled and a new authorization has been issued in lieu of the earlier authorization, application fee paid earlier for the cancelled authorization will now be adjusted against the application fee for the new authorization subject to the payment of a minimum fee of INR 200.
    • An inter-ministerial committee will be set up to redress/resolve problems/issues of exporters.
    • An improved version of standard input–output norms (SION) and ITC (HS) classification of export and import items has been published.
  19. Directorate of trade remedy measures:
    • A directorate of trade remedy measures shall be set up to enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments.

Industries’ Reaction

The commerce minister while announcing the trade policy stated that he had formulated the policy after holding wide consultations with exporters and industry groups. Against the backdrop of a global financial crisis, the new foreign trade policy (FTP) managed to revive the spirit of exporters. The exporters in Jaipur particularly were optimistic that the FTP would benefit the industry. The city has been recently adjudged as the ‘Town of Export Excellence’, along with Srinagar and Anantnag. However, the Confederation of Indian Textile Industry (CITI) and the Apparel Export Promotion Council (AEPC) complained that the policy fell far short of what was required in the context of the current global economic meltdown. The ailing domestic textile industry was disappointed with the FTP as it does not contain specific measures for the industry, though the general incentives would benefit the textile industry also. ‘Industry lobbies such as the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) also welcomed the overall thrust of the policy and said it rightly focuses on demand creation for Indian products in new markets.6

There is a perception in certain quarters of the trading community and in the industrial circles that the just announced FTP lacks innovation and has only tinkered with the policy of the previous five years. The government should have offered a much bigger package of incentives on a short-term basis. Besides, ‘following the examples of China and Japan, that offer credit support to project and capital goods exports to India, the policy could have extended credit support to countries in Africa and other new destinations at zero rates for all the purchases made from India over the next two years.7

Key Terms

Advance authorization 783

BRC 783

DEPB Scheme 783

EOU 783

EPCG scheme 783

Facilitation measures 784

FPS 783

Interim trade policy 782

Premier trading houses 783

Status holders 787

Technological upgradation 788

Towns of export excellence 783


Discussion Questions

51.1. What is trade policy? Explain the objectives of India’s trade policy. To what extent have we realized these objectives?

51.2. What is the strategy adopted by India to realize the objectives of trade policy over the years since 1991?

51.3. Explain in detail the interim trade policy 2009–10. Make a critical study on the impact of this policy on the economy.

51.4. Review the performance of the various parameters of the Indian economy in the context of the foreign trade policy 2004– 09, as outlined by the union commerce minister.

51.5. Elucidate and make critical comments on the foreign trade policy 2009–14 of the Government of India.


1. Kamal Nath (2004), Minister for Commerce and Industry: Preamble to Trade Policy 2004–09 (New Delhi: Government of India, 31 August).

2. Foreign Trade Policy, available online: 09.asp

3. Foreign Trade Policy, Business Support Center, available online:

4. Rajesh Kumar (2009), ‘India’s Foreign Trade Policy’, 2009–14. 27 August 2009, available online at http://www.newsandreviews. in/index.php/MKJ/?title=foreigntrade-policy 2009–14-ananalysis&more= 1 &c= 1 &tb= 1 &pb= 1.

5. asp?storyId= 112677 &1mn= 1

6. Xinhuanet (2009), China Economic Net, ‘Indian foreign trade policy draws mixed reaction’ 29 August, available online at http://en.ce.cnl World/ Asia-Pacific/200908/29/t20090829 _19893803.shtml.

7. Naik, S. D. (2009), ‘Trade policy lowers the bar’, The Hindu Business Line, 9  September, available online at http://www.thehindubusinessline.coml2009/09/09/stories/2009090950540900.htm

Suggested Readings

51.1. Government of India (2009–14), ‘Foreign Trade Policy 2009-14, Exim Policy’ (New Delhi: The Government of India), available online: http://www. _1C.php

51.2. Polaski, S., Ganesh-Kumar, A., McDonald, S., Panda, M. and Robinson, S. ‘India’s Trade Policy Choices’, Carnegie Endowment Report, available online at