Foreign Trade Policy

Foreign Trade 1 FOREIGN TRADE FOREIGN TRADE POLICY OF INDIA 2009-14 Submitted to: Mr. UTTAM Submitted by: GURJEIT SINGH Made by GURJEIT SINGH Foreign Trade 2 Foreign Trade It is the exchange of goods and services between nations. Goods can be defined as finished products, as intermediate goods used in producing other goods, or as agricultural products and foodstuffs. International trade enables a nation to specialize in those goods it can produce most cheaply and efficiently. Trade also enables a country to consume more than it would be able to produce if it depended only on its own resources. Finally, trade enlarges the potential market for the goods of a particular economy. Trade has always been the major force behind the economic relations among nations. Import control introduced in 1940 as a wartime measure under the Defence of India Rules with the primary objective of conserving the foreign exchange resources and restricting physical imports to reduce the pressure on the limited available shipping space. After the end of the war, the Defence of India Rules lapsed and hence in September 1946, the Emergency Provisions Ordinance, 1946 promulgated to continue the import trade control. This was ultimately replaced by the Imports and Exports Act, 1947, which came into force with in the effect from 25th March 1947. The Imports and Exports Act, 1947 was replaced by the Foreign Trade Development and Regulation Act, came into force on 19th June 1992. Objectives of the Foreign Trade Policy of India – Trade propels 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 Policy of India is based on two major objectives, they are -  To double the percentage share of global merchandise trade within the next five years.  To act as an effective instrument of economic growth by giving a thrust to employment generation. Made by GURJEIT SINGH Foreign Trade 3 Government Restrictions Because foreign trade is such an integral part of a nation‘s economy, governmental restrictions are sometimes necessary to protect what are regarded as national interests. Government action may occur in response to the trade policies of other countries, or it may be resorted to in order to protect specific industries. Since the beginnings of international trade, nations have striven to achieve and maintain a favorable balance of trade—that is, to export more than they import. In a money economy, goods are not merely bartered for other goods. Instead, products are bought and sold in the international market with national currencies. In an effort to improve its balance of international payments (that is, to increase reserves of its own currency and reduce the amount held by foreigners), a country may attempt to limit imports. Such a policy aims to control the amount of currency that leaves the country.  Import Quotas – One method of limiting imports is simply to close the ports of entry into a country. More commonly, maximum allowable import quantities may be set for specific products. Such quantity restrictions are known as quotas. These may also be used to limit the amount of foreign or domestic currency that is permitted to cross national borders. Quotas are imposed as the quickest means to stop or even reverse a negative trend in a country‘s balance of payments. They are also used as the most effective means of protecting domestic industry from foreign competition.  Tariffs – Another common way of restricting imports is by imposing tariffs, or taxes on imported goods. A tariff, paid by the buyer of the imported product, makes the price higher for that item in the country that imported it. The higher price reduces consumer demand and thus effectively restricts the import. The taxes collected on the imported goods also increase revenues for the nation‘s government. Furthermore, tariffs serve as a subsidy to domestic producers of the items taxed because the higher price that results from a tariff encourages the competing domestic industry to expand production.  Nontariff Barriers to Trade – In recent years the use of nontariff barriers to trade has increased. Although these barriers are not necessarily administered by a government with the intention of regulating trade, they nevertheless have that result. Such nontariff barriers include government health and safety regulations, business codes of conduct, and domestic tax policies. Direct government support of various domestic industries is also viewed as a nontariff barrier to trade, because such support puts the aided industries at an unfair advantage among trading nations. Made by GURJEIT SINGH Foreign Trade 4 Strategy of Foreign Trade Policy of India – o Removing government controls and creating an atmosphere of trust and transparency to promote entrepreneurship, industrialization, and trades. o Simplification of commercial and legal procedures and bringing down transaction costs. o Simplification of levies and duties on inputs used in export products. o Facilitating development of India as a global hub for manufacturing, trading, and services. o Generating additional employment opportunities, particularly in semi-urban and rural areas, and developing a series of ‗Initiatives‘ for each of these sectors. o Facilitating technological and infrastructural up gradation of all the sectors of the Indian economy, especially through imports and thereby increasing value addition and productivity, while attaining global standards of quality. o Neutralizing inverted duty structures and ensuring that India's domestic sectors are not disadvantaged in the o Free Trade Agreements / Regional Trade Agreements / Preferential Trade Agreements that India enters into in order to enhance exports. o Up gradation of infrastructural network, both physical and virtual, related to the entire Foreign Trade chain, to global standards. o Revitalizing the Board of Trade by redefining its role, giving it due recognition and inducting foreign trade experts while drafting Trade Policy. o Involving Indian Embassies as an important member of export strategy and linking all commercial houses at international locations through an electronic platform for real time trade intelligence, inquiry and information dissemination. Foreign Trade Policy of India is a stepping-stone for the development of India‘s foreign trade. It contains the basic principles and points the direction in which it propose to go. A trade policy cannot be fully comprehensive in all its details it would naturally require modification from time to time with changing dynamics of international trade. Made by GURJEIT SINGH Foreign Trade 5 India’s Foreign Trade Policy 2009-14 The Union Commerce Ministry, Government of India announces the integrated Foreign Trade Policy FTP in every five year also called EXIM policy. This policy updated every year with some modifications and new schemes. New schemes come into effect on the first day of financial year i.e. April 1, every year. The Foreign trade Policy, which was announced on August 28, 2009, is an integrated policy for the period 2009-14. Aim in General The policy aims at developing export potential, improving export performance, boosting foreign trade, and earning valuable foreign exchange. FTP assumes great significance this year as India‘s exports have been battered by the global recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in large-scale unemployment. Objectives of Foreign Trade Policy 2009-14 1) To arrest and reverse declining trend of exports is the main aim of the policy. This aim will be reviewed after two years. 2) To Double India‘s exports of goods and services by 2014. 3) To double India‘s share in global merchandise trade by 2020 as a long-term aim of this policy. India‘s share in Global merchandise exports was 1.45% in 2008. 4) Simplification of the application procedure for availing various benefits 5) To set in motion the strategies and policy measures which catalyse the growth of exports 6) To encourage exports through a mix of measures including fiscal incentives, institutional changes, procedural rationalization, and efforts for enhance market access across the world and diversification of export markets. Targets: Export Target: $ 200 Billion for 2010-11 Export Growth Target: 15 % for next two year and 25 % thereafter. Made by GURJEIT SINGH Foreign Trade 6 Highlights of New Foreign Trade Policy 2009 - 2014 DEPB Scheme up to December 2010. To encourage value addition in our manufactured exports and towards this end, have stipulated a minimum 15%. 100% export oriented units for one additional year till 31st March 2011. The Government seeks to promote Brand India through six or more ‗Made in India‘ shows to be organized across the world every year. Foreign Trade Policy is to help exporters for technological up gradation export sector infrastructure, ‗Towns of Export Excellence‘ and units located therein would be granted additional focused support and incentives. To 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. e-Trade project would be implemented in a time bound manner to bring all stake holders on a common platform. Additional ports/locations would be enabled on the Electronic Data Interchange over the next few years. Incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%. Incentive available under Focus Product Scheme(FPS) has been raised from 1.25% to 2%. 26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania. 153 ITC(HS) Codes at 4 digit level Product classified for Market Linked Focus Product Scheme (MLFPS) Focus Product Scheme benefit extended for export of ‗green products‘; and for exports of some products originating from the North East. To accelerate exports and encourage technological up gradation, additional Duty Credit Scrip‘s shall be given to Status Holders @ 1% of the FOB value of past exports. Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10. In Tea Sector Minimum value addition under advance authorisation scheme for export of tea has been reduced from the existing 100% to 50%. DTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%. EOUs will now be allowed CENVAT Credit facility for the component of SAD and Education Cess on DTA sale. Time limit of 60 days for re-import of exported gems and jewellery items, for participation in exhibitions has been extended to 90 days in case of USA. Duty Free Import of samples by exporters, number of samples/pieces has been increased from the existing 15 to 50. Made by GURJEIT SINGH Foreign Trade 7 Exemption for up to two stages from payment of excise duty in lieu of refund, in case of supply to an advance authorisation holder (against invalidation letter) by the domestic intermediate manufacturer. Reduce transaction costs, dispatch of imported goods directly from the Port to the site has been allowed under Advance Authorisation scheme for deemed supplies. Free Sale Certificate has been simplified and the validity of the Certificate has been increased from 1 year to 2 years. Higher Support for Market and Product Diversification— Incentive schemes under Chapter 3 have been expanded by way of addition of new products and markets. 26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania. The incentive available under Focus Market Scheme(FMS) has been raised from 2.5% to 3%. The incentive available under Focus Product Scheme(FPS) has been raised from 1.25% to 2%. A large number of products from various sectors have been included for benefits under FPS. These include, Engineering products (agricultural machinery, parts of trailers, sewing machines, hand tools, garden tools, musical instruments, clocks and watches, railway locomotives etc.), Plastic (value added products), Jute and Sisal products, Technical Textiles, Green Technology products (wind mills, wind turbines, electric operated vehicles etc.), Project goods, vegetable textiles and certain Electronic items. Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of products classified under as many as 153 ITC (HS) Codes at 4 digit level. Some major products include; Pharmaceuticals, Synthetic textile fabrics, value added rubber products, value added plastic goods, textile made ups, knitted and crocheted fabrics, glass products, certain iron and steel products and certain articles of aluminium among others. Benefits to these products will be provided, if exports are made to13-identified markets (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia, and New Zealand). MLFPS benefits also extended for export to additional new markets for certain products. These products include auto components, motor cars, bicycle and its parts, and apparels among others. A common simplified application form has been introduced for taking benefits under FPS, FMS, MLFPS and VKGUY. Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided. Made by GURJEIT SINGH Foreign Trade 8 Technological Up gradation— To aid technological up gradation of our export sector, EPCG Scheme at Zero Duty has been introduced. This Scheme will be available for engineering & electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied products and leather & leather products (subject to exclusions of current beneficiaries under Technological Up gradation Fund Schemes (TUFS), administered by Ministry of Textiles and beneficiaries of Status Holder Incentive Scheme in that particular year). The scheme shall be in operation till 31.3.2011. Jaipur, Srinagar and Anantnag have been recognised as ‗Towns of Export Excellence‘ for handicrafts; Kanpur, Dewas and Ambur have been recognised as ‗Towns of Export Excellence‘ for leather products; and Malihabad for horticultural products. EPCG Scheme Relaxations To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation. Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period2009-14. Support for Green products and products from North East Focus Product Scheme benefit extended for export of ‗green products‘; and for exports of some products originating from the North East. Status Holders To accelerate exports and encourage technological up gradation, additional Duty Credit Scrips shall be given to Status Holders @ 1% of the FOB value of past exports. The duty credit scrips can be used 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 & steel & non-ferrous metals in primary and intermediate form, automobiles & two wheelers, nuclear reactors & parts, and ships, boats and floating structures), plastics and basic chemicals (excluding pharmaceutical products) [subject to exclusions of current beneficiaries under Technological Up gradation Fund Schemes (TUFS)]. This facility shall be available upto31.3.2011. Made by GURJEIT SINGH Foreign Trade 9 Transferability for the Duty Credit scrips being issued to Status Holders under paragraph 3.8.6 of FTP under VKGUY Scheme has been permitted. This is subject to the condition that transfer would be only to Status Holders and Scrips would be utilized for the procurement of Cold Chain equipment(s) only. Stability/ continuity of the Foreign Trade Policy To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12-2009 till 31.12.2010. Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10. Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget2009-10. The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010. Marine sector Fisheries have been included in the sectors which are exempted from maintenance of average EO under EPCG Scheme, subject to the condition that Fishing Trawlers, boats, ships and other similar items shall not be allowed to be imported under this provision. This would provide a fillip to the marine sector which has been 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 given to Marine sector. Gems & Jewellery Sector To neutralize duty incidence on gold Jewellery exports, it has now been decided to allow Duty Drawback on such exports. In an endeavour to make India a diamond international trading hub, it is planned to establish ―Diamond Bourse(s)‖. A new facility to allow import on consignment basis of cut & polished diamonds for the purpose of grading/ certification purposes has been introduced. To promote export of Gems & Jewellery products, the value limits of personal carriage have been increased from US$ 2 million to US$ 5 million in case of participation in overseas exhibitions. The limit in case of personal carriage, as samples, for export promotion tours, has also been increased from US$ 0.1 million to US$ 1 million. Made by GURJEIT SINGH Foreign Trade 10 Agriculture Sector To reduce transaction and handling costs, a single window system to facilitate export of perishable agricultural produce has been introduced. The system will involve creation of multi-functional nodal agencies to be accredited by APEDA. Leather Sector Leather sector shall be allowed re-export of unsold imported raw hides and skins and semi finished leather from public bonded ware houses, subject to payment of50% of the applicable export duty. Enhancement of FPS rate to 2%, would also significantly benefit the leather sector. Tea Minimum value addition under advance authorisation scheme for export of tea has been reduced from the existing 100% to 50%. DTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%. Export of tea has been covered under VKGUY Scheme benefits. Pharmaceutical Sector Export Obligation Period for advance authorizations issued with 6-APA as input has been increased from the existing 6 months to 36 months, as is available for other products. Pharma sector extensively covered under MLFPS for countries in Africa and Latin America; some countries in Oceania and Far East. Handloom Sector To simplify claims under FPS, requirement of ‗Handloom Mark‘ for availing benefits under FPS has been removed. EOUs EOUs have been allowed to sell products manufactured by them in DTA upto a limit of 90% instead of existing75%, without changing the criteria of ‗similar goods‘, within the overall entitlement of 50% for DTA sale. To provide clarity to the customs field formations, DOR shall issue a clarification to enable procurement of spares beyond 5% by granite sector EOUs. Made by GURJEIT SINGH