Foreign trade policy of india 1991,2004-2009,2009-2014 EXIM policy and SEZ

1. FOREIGN TRADE POLICY OF INDIA
SINCE 1980

2. INTRODUCTION
Traditionally, the main objective of the Indian ForeignTrade
Policy has been to protect its market from foreign competition. Up
until the 1980s, India was not interested in exporting its goods and
services abroad and not ready to open its economy to foreign
investments. The aim of its economic policy was to ensure the
country’s independent development (the swadeshi principle). At the
end of the 1980s, India was one of the most closed economies in the
world. Its bilateral trade policy, heavily skewed toward the former
communist countries, was full of grand statements about technology
transfer, mutually advantageous relations and partnership
for development to very little purpose.

3. Import Policy Prior to 1991
In the pre-reform period Indian import policy had two
constituents:
Import Restrictions: In the initial phases of development, India
had to import capital equipment, machinery, spare parts,
industrial raw material, etc. From time to time it had to
import food grains too, but because of stagnant exports,
government had to decide to import curtail. High import
tariffs were used to control import.
Import substitution :means reducing the dependability on
imports, i.e., produce goods that we are importing. Two
broad objectives of the programme of import substitution in
India were:
(i) To save scarce foreign currency for the import of more
important goods,
(ii) (ii) To achieve self-reliance in the production of as many
goods as possible.

4. EXIM POLICY OF INDIA
In order to maintain the balance of payments and to avoid trade deficit the
government of India has announced a trade policy for imports and exports. After
every five years the government of India reviews the import and export policy in
view of the changing international economic situation. The policy relates to
promotion of exports and regulation of imports so as to promote economic growth
and overcome trade deficit.
Accordingly, the export-and import policies (EXIM Policy) were announced by the
government first in 1985 and then in 1988 which was again revised in 1990. All
these policies made necessary provision for extension of import liberalisation
measures. All these policies made necessary provision for import of capital goods
and raw materials for industrialisation, utilisation and liberalisation of REP
(Registered Exporters Policy) licences, liberal import of technology and policy for
export and trading houses. The government announced its new EXIM policy for
2002-2007 which is mainly a continuation of the EXIM policy of 1997-2002.
The new export-import policy for 2002-2007 aims at pushing up growth of exports to
12 per cent a year as compared to about 1.56 per cent achieved during the
financial year 2001-2002.

5. NEW TRADE POLICY 1991
1. Free Import and Export :
Import of OGL capital goods, non-
OGL capital goods and restricted
goods would be allowed without
a specific license, provided
clearance was given by the RBI
and foreign exchange, because
their imports are fully covered by
foreign equity.

6. 2. Rationalisation Of Tariff Structure
On the recommendation of Chelliah Committee,
import duty was drastically reduced to
establish parity in prices of goods produced
domestically and internationally. The 1993-94
Budget reduced the maximum rate of duty on
all goods from 110% to 85%, except for few
goods, which was further reduced to 40% in
1998-99 and further to 35% in 2000-01

7. 3. Decanalisation
The new trade policy aimed at progressive
decanalisation. The government decontrolled
116 items allowing their exports without any
licensing formalities.
Another 29 items were shifted to OGL. It also
decanalised 16 export items and 20 import
items including new print, non ferrous metals,
natural rubber, intermediate and raw material
for fertilizers. However, eight items (petroleum
products, fertilisers, etc.) remained canalised

8. 4. Devaluation and Convertibility of Rupee on
Current Account
The government made a two- step downward
adjustment of 18-19 per cent in the exchange rate of
the rupee on July 1 and July 3, 1991. This was followed
by the introduction of LERMS i.e., partial convertibility
of rupee in 1992-93, full convertibility on the trade
account in 1993-94 and full convertibility on the
current account in August 1994.
Substantial capital account liberalisation measures have
also been announced. The exchange rate of the rupee
is now market-determined. Thus, exchange rate policy
in India has evolved from the rupee being pegged to a
market related system (since March 1993).

9. 5. Trading Houses
The 1991 policy allowed export
houses and trading houses to
import a wide range of items.
The government also permitted
the setting up of trading
houses with 51 per cent foreign
equity for the purpose of
promoting exports.

10. 6. Phased Manufacturing Programme
PMP, according to which
organisations were
required to substitute
all the imported parts
with Indian parts in a
specified period, was
abolished

11. 7. Export Oriented Units, (EOUs), Electronic
Hardware Parks (EHTP), Software Technology Parks
(STPs) and Bio-Technology Parks (BTPs)
The units undertaking to export their entire
production of goods and services may be
set up under the Export Oriented Unit
(EOU) Scheme, Electronics Hardware
Technology Park (EHTP) Scheme, Software
Technology Park (STP) Scheme or Bio-
Technology Park (BTP) Scheme for
manufacture of goods, including repair, re-making,
reconditioning, reengineering and
rendering of services. Trading units are not
covered under these schemes.

12. 8. Free Trade & Warehousing Zones
The Free Trade & Warehousing Zones
(FTWZ) shall be a special category of
Special Economic Zones with a focus on
trading and warehousing. The objective
of FTWZ is 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. These Zones would be
established in the nearby areas to
seaports, airports or dry ports so as to
offer easy access by rail and road.

13. 9. Deemed Exports
Deemed Exports refer to those transactions in which
goods supplied do not leave country, and payment for
such supplies is received either in Indian rupees or in
free foreign exchange. Following categories of supply of
goods by main/subcontractors shall be regarded as
Deemed Exports under FTP, provided goods are
manufactured in India:
1) Supply of goods against Advance Authorisation
/Advance Authorisation for annual requrrement/DFIA;
2) Supply of goods to EOU/STP/EHTP/BTP;
3) Supply of captial goods to EPCG Authorisation holders
4) Supply to projects funded by UN Agencies

14. • Besides all these, various concessions and
exemptions were granted during the nineties to
liberalise imports and promote exports.
Liberalisation also allowed FDI in many sectors.
Foreign companies are allowed to open branch
offices, foreign technology agreements were
allowed, and the Foreign Investment Promotion
Board (FIPB) was established to process and give
speedy approvals for foreign investment
proposals. Automatic approval was allowed for
technical collaboration and foreign equity
participation up to 51% in Indian companies in
34% high priority industries.

15. The Highlights of the India’s Foreign Trade Policy 2004-2009
The new United Progressive Alliance (UPA) Government at the
Centre changed the name of EXIM Policy and called it Foreign
Trade Policy (FTP). Consequently, on August 31, 2004, the
Commerce and Industry Minister, Mr. Kamal Nath, announced
the five year (2004-09) FTP.
The policy aims at doubling India’s percentage share of global
merchandise trade to 1.5 per cent by 2009 from 0.7 per cent
in 2003, besides serving as an effective tool to generate
employment, especially in semi-urban and rural areas.
Exporters of all goods and services, including those from
Domestic Tariff Area (DTA), were exempted from service tax.
Also exporters with minimum turnover of Rs. 5 crore and a
sound track record have been exempted from furnishing bank
guarantees in any of the export schemes. So as to reduce
their high transaction cost and tax burden.

16. Incentives and Promotions for Export
1. Export Promotion Capital
Goods Scheme (EPCG):
To reduce the price of goods produced
for export to compete in the
international market, this scheme
was introduced. Under the EPCG
scheme, capital goods imported for
manufacture were charged low
imports duties subject to all export
obligation to be fulfilled over a
period of time.

17. 2. Duty Entitlement Passbook Scheme
(DEPB):
• This is a scheme available for a manufacturer, exporter,
Export House, Trading House, Star Trading House and
Super Star Trading House. The aim of the scheme was to
streamline the import procedures for exporters by
providing duty-free access to imported inputs for
exporters or manufacturers. Imports used for export
production were exempted from customs duty as well as
from additional duties on imports for an exporter
holding Import Export Pass book including import license.
The passbook is applicable only to registered
manufactured exporters.

18. 3. Duty Draw Back System
• The Duty Drawback system
reimburses exporters for the tariffs
paid on the imported materials
and intermediates and central
excise duties paid on domestically
produced inputs which enter into
export production.

19. 4. Replenishment and Imprest
Licenses
• These licenses were given to the
exporter to have an access to otherwise
restrict material, (even imports) or
canalized, that too of good quality, for
the purpose of exports, or to be used as
a raw material to produce export goods.
The objective of this license is to ensure
the availability of qualitative raw
material in sufficient quantity and at the
right time at competitive prices for
export growth.

20. 5. Advance License
Advance license is granted for the duty-free
imports of raw material,
components, intermediates,
consumables, parts, spares, etc.
Advance license may be either value-based
or quantity-based.
6. Tax Benefit
To promote exports, government exempts
the export profits from tax under 80
HHC provision of the IT Act.

21. 7. Finance Facility
Credit facility is made
available to the exporters
for purchase,
manufacture and
packaging prior to the
shipment, as also post-shipment,
credit facilities.
Medium and long-term
credits are also made
available for the export of
capital equipment.

22. 8. Subsidies on Domestic Raw Material
• In case the domestic price of material
used for exports is higher than
international price, then there was the
provision of giving subsidy to the
extent of difference of price. This
scheme was introduced in 1981 in
steel and was called the International
Price Reimbursement Schemes’ (IPRS),
which later included other imported
raw materials such as aluminium and
copper.

23. 9. Blanket Exchange Permit Scheme:
• Under this scheme,
exporters are allowed,
barring a few products,
to utilize 5-10% of their
foreign exchange
earning for undertaking
export promotion
activities.

24. 10. Free Trade Zone and Export
Oriented Units
The government has set up free trade zone to give push to
exports. The objective behind this is that in these zones,
capital goods can be imported freely and there will be
minimum red-tapism. These zones are treated differently
from Domestic Tariff Area (DTA) and have a right to import
all their requirements, including capital goods and spare
parts as well as raw material, free of import licensing
controls and import duties. The first EPZ was established in
Kandla. Now, India has eleven functioning SEZs of which
seven are set up by the center and four are promoted by
the private/joint stake—Kandla, Cochin, Surat, Santa Cruz,
Falta, Chennai, Vishakhapatnam, Noida, Indore, Salt Lake
(Calcutta) and Jaipur. Approval has already been given for
35 new SEZs in private/state sector.

25. 11. Vishesh Krishi Upaj Yojna
The objective of this Yojna is to encourage the
exports of fruits, vegetables, flowers, minor
forest produce and their value-added
products. Exporters of these products will get
duty free credit.
12. Town of Export Excellence:
The limit to become the Town of Export
Excellence have been reduced to 250 crore
from Rs.1000 crore. FTP gave several benefits
to become the Town of Export Excellence. It
includes exemption from service tax in
proportion to their exported goods and
services and permission to retain 100
percent earnings in exchange earner's
Foreign currency account.

26. 13. Served from India
To facilitate the exporter of various type of services, the
government of India has introduced ‘Served from India
Scheme’ as a brand. Under this scheme, service providers of
more than 100 services like Professional Services,
Computer-related services, Hotels, Restaurants,
Educational Services, Research and Development Services,
Communication Services, Construction and related
Engineering Services, Distribution Service, Environment-related
Services, Tourism and Transport-related Services,
Health-related Social Service, Recreational, Cultural and
Sporting Services, etc., are entitled for Duty Credit Scrip.
Service providers with a total foreign exchange earning of
at least Rs. 10 Lakhs in preceding or current financial year
shall qualify for the Duty Credit Scrip. For Individual Service
Providers, the criterion is reduced to Rs. 5 Lakhs of foreign
exchange earnings.

27. 14. Service Export Promotion Council
In order to provide proper direction, guidance and
encouragement to the Services Sector, this
exclusive council was set up by the government of
India. Its main objectives were to tap the
opportunities in key service areas and develop
strategic market access programmes, including
brand building in coordination with sectoral
players and recognized nodal bodies of the
services industry.
15.Common Facility Center
The Common Facility Centers shall be promoted by
the government for use by the home-based
service providers, particularly in the areas like
engineering and architectural design, multimedia
operations, software developers, etc., at the state
and district levels, to draw-in a vast multitude of
home-based professionals into the service-export
arena.

28. NEW FOREIGN TRADE POLICY 2009-2014
The Hon’ble Union Commerce & Industry Minister Mr.Anand Sharma
announced the new Foreign Trade Policy 2009 - 2014 in New Delhi on
27th August, 2009.Mr.Jyothiraditya Madhavrao Scindia, Minister of
State for Commerce;Dr. Rahul Khullar, Commerce Secretary, Ministry
of Commerce & Industry and other dignitaries were present on the
occasion.
Various Suggestions of the Federation have been considered in the New
Foreign Trade Policy like - Continuation of DEPB
scheme; Enhancement of incentives under promotional
schemes; Benefits to Status Holders; Zero duty EPCG Scheme;
Rationalization of additional export obligation under EPCG; Additional
markets under focus market scheme; Additional products under
Focus Product Scheme; Flexibility in import of items against Duty
Credit Scrips issued under earstwhile in Target Plus/DFCE Schemes;
Removal of Handloom Mark under Focus Product Scheme; Issues
relating to transaction costs; Tangible benefits to town of export
excellence; Technology Fund, etc.

29. HIGHLIGHTS OF THE NEW FOREIGN TRADE POLICY ARE AS UNDER:
Higher Support for Market and Product Diversification
• Incentive schemes 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.

30. Technological Upgradation
• To aid technological upgradation 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 Upgradation 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 period 2009-14.

31. 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.

32. Agriculture Sector
• To reduce transaction and handling costs, a single window
system to facilitate export of perishable agricultural
produce has been introduced.
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 of
50% of the applicable export duty.
• Enhancement of FPS rate to 2%, would also significantly
benefit the leather sector.

33. 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 ‘HandloomMark’ 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 existing 75%, 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.

34. • EOUs will now be allowed to procure finished goods for
consolidation along with their manufactured goods,
subject to certain safeguards.
• During this period of downturn, Board of Approvals
(BOA) to consider, extension of block period by one
year for calculation of Net Foreign Exchange earning of
EOUs.
• EOUs will now be allowed CENVAT Credit facility for the
component of SAD and Education Cess on DTA sale
Directorate of Trade Remedy Measures
To enable support to Indian industry and exporters,
especially the MSMEs, in availing their rights
through trade remedy instruments, a Directorate of
Trade Remedy Measures shall be set up.

35. SEZ in India
Export-led economic growth has been an important part of the
economic strategy prescribed to developing countries for
their progress and development especially since the 1970s.
The first Export Processing Zone(EPZ) was set up in Ireland in
1959 and the first EPZ in Asia was established in India at
Kandla in 1965.In later years, the concept EPZ has gradually
been replaced by SEZ. Between 1975 and 2006, the number
of Free Zones has shot up from 79 in 25 countries to 3500 in
130 countries. Over the last decade, many new zones have
been developed in Africa. Eastern Europe and transitional
economies. The idea behind SEZs was to promote and
create hassle-free territorial production complexes that
could be established to secure regional balance in
development opportunities.

36. Importance/Contribution of SEZ
The major contributions of SEZs for the development of the economy
are briefly accounted as follows;
1. The SEZs attract foreign and domestic investment in enclaves.
Because of the provision of facilities and amenities on the one
hand and incentives on the other, the capital flows in.
2. The SEZs stimulate exports. This is the major purpose of the
SEZs.
3. The SEZs cannot be counted as a solution to the unemployment
problem, for they are a viable source of employment creation.
4. The creation of SEZ leads to balanced development of the region.
Though it is good to develop all the regions simultaneously, such
balanced development requires a lot of resources at a time. the
regional development can be undertaken in stages. Thus, to
develop certain areas as leading areas, SEZs is a solution.