India Foreign Trade Policy,2009-14

Mohammad Thoriq BahriIndonesia

1

India’s Foreign Trade

Current Economic Crisis

Foreign Trade Policy – Components and Schemes

Foreign Trade Policy – New Initiatives

Role of CAs in trade facilitation as in FTP

2

In the last five years, robust growth in merchandise exports

From US$ 63 billion in 2003-04 to US $ 185 billion in 2008-09.

Share of global trade (WTO estimates):

2003 2008

Merchandise trade 0.83% 1.45%

Commercial Services exports

1.4% 2.8%

Goods & Services Trade 0.92% 1.64%

3

Year Export Target

Actual Export

%Growth

Imports % Growth

2004-05 75 83.53 30.8 111.52 42.7

2005-06 100 103.09 23.4 149.17 33.8

2006-07 125 126.26 22.5 185.60 24.4

2007-08 160 162.90 29.0 235.9 27.0

2008-09 175 (Revised)

185.29 13.6 287.76 14.3

2009-10(April-Oct’09)*

91.05 146.77

4

Period 2007-08* (US $ Billion)

2008-09**(US $ Billion) Increase(+) / Decrease (-)

April- Sept. 73.558 108.907 + 48.1

October 14.675 14.131 -3.7

November 12.909 11.163 -13.5

December 14.625 13..368 -8.6

January 2009 14.889 12.869 -13.6

February 15.221 11..941 -21.5

March 17.254 12..916 -25.1

April’ 08 to March’ 09 163.13 185.295 +13.6

Month 2008-09@ 2009-10 Increase(+) / Decrease (-)

April 2009 18.460 11.909 -35.5

May 18.687 11.368 -39.2

June 19.181 13.059 -31.9

July 19.030 13.623 -28.4

August 17.759 14.289 -19.5

September 15.789 13.608 -13.8

5

6

Impact on Indian exports:•Suffered a decline in the last 11 months since October 2008.

•April - September 2009 exports show a decline of 28.5% (in $ terms) and 18.6% (in Rupee terms) vis-à-vis last year.

Employment intensive sectors have been severely affected.

Tea (-37.2%), Spices (-27.8%), Cashew (-27.5%), Oil-meals (- 42.9%)Iron-ore (-29.5%), Leather and Leather Manf. (-26.6%), Gems & Jewellery (-28%), Basic Chemicals (-26.9%), Engineering Goods (-32.1%), Electronic Goods (-32.2%).Cotton Yarn /Fabrics /Made-ups (-31.5%), Jute Mfg. incl. Floor Covering

(-39.8%), Carpets (-29.8%), Handicrafts (-29.8%), Petroleum Products (-43.1%), Plastics & Linoleum (-23.2%).

Major Hurdles faced by Indian Exporters:

Unprecedented Rupee Appreciation by about 12% in the year 2007-08;

Global Economic Slowdown and Recession in Developed Economies during 2008-09 and its impact.

High Interest Rates Non-availability of trade credit Withdrawal of GSP Benefits by US on certain products such as

Gems and Jewellery items, certain leather products etc. Ban on exports of certain food products since 2007. High Incentives provided by some of the countries like China,

Bangladesh etc.

7

Apprehension of severe downturn in November 2008

Series of stimulus measures announced

o Fiscal incentives

o Monetary liberalization

8

Measures taken by the Government: Interest subvention of 2% extended till 31.3.2010, to labour

intensive sectors for exports:- Textiles (including Handlooms), Handicrafts, Carpet, Leather, Gems & Jewellery, Marine Products and SMEs;

Continuation of Duty Entitlement Passbook (DEPB) Scheme upto 31st December, 2010;

Restoration of DEPB rates for all items where they were reduced in November, 2008 and increase in Duty Drawback rates on certain items effective from 1st September, 2008;

DEPB and Freely transferable Incentive Schemes allowed without the initial requirement of BRC;

9

CENVAT reduced from 14 per cent to 8 per cent Service tax reduced from 12 percent to 10 per cent Additional Plan expenditure for critical rural & infrastructure

schemes Monetary policy measures

Repo rate reduced from 9 percent to 8 per cent Reverse repo rate reduced from 6 per cent to 7 percent CRR reduced from 9 percent to 4.75 percent

Large program for construction of affordable housing announced Assistance under the JNNURM for the purchase of buses for their

urban transport systems. Accelerated depreciation of 50 percent for commercial vehicles Removal of ban on Government departments for replacement of

vehicles

10

Back-up guarantee of Rs.350 crores made available to ECGC to provide guarantees for exports to difficult markets / products;

Additional funds of Rs 350 crore provided to cover handicraft items etc. in Vishesh Krishi and Gram Udyog Yojana (VKGUY);

Market Linked Focus Product Scheme extended for bicycle parts, Motor Cars and Motor Cycles, Apparels and Clothing accessories, Auto Components etc.

Additional Rs 1100 crore provided to ensure full refund of claims of CST / Terminal Excise duty /Duty drawback.

Additional funds of Rs 1400 crore provided for textile sector to clear the backlog claims of TUF;

Export duty on iron ore fines eliminated, and for lumps, reduced to 5%;

Some pending issues relating to Service Tax refund on exports resolved.

11

A Committee constituted under the Chairmanship of Finance Secretary to fast track resolution of procedural issues. Secretaries of Department of Revenue and Commerce other Members of the Committee;

Measures taken by RBI: Increase in Liquidity to the banks for improving credit flow

by reduction of CRR from 9% to 5%, SLR reduced from 25% to 24%; Repo rate from 7.5% to 4.75% and Reverse Repo rate from 6% to 3.25%.

Refinance facility to the EXIM Bank for Rs. 5000 crores for providing pre-shipment and post-shipment credit.

Increase in FOREX Liquidity Easing of Credit Terms by Enhancing the period of pre-

shipment and post-shipment Rupee Export Credit by 90 days each, Increasing the time period of export realization for non-status holder exporters to 12 months etc.

12

Country 2008-09($ bn) % share in Total

1 USA 19.7 12%

2 United Arab Emirates 17.8 11%

3 China 8.5 5%

4 Singapore 7.6 5%

5 Hong Kong 6.4 4%

6 United Kingdom 6.2 4%

7 Germany 5.9 4%

8 Netherlands 5.9 4%

9 Saudi Arabia 4.8 3%

10 Belgium 4.3 3%

13

Commodity 2008-09($ bn)

% share in Total

1 Petroleum, Crude and products 93.1 32.36%

2 Machinery, Electrical and non-electrical 24.3 8.44%

3 Electronic goods 21.5 7.48%

4 Gold and silver 19.5 6.76%

5 Fertilizer, crude and manufactured 13.6 4.72%

6 Pearls, precious and semi-precious 12.8 4.44%

7 Organic and inorganic chemicals 12.8 4.43%

8 Coal, coke and briquettes 10.5 3.64%

9 Iron & Steel 9.5 3.30%

10 Metaliferrous ores and metal scrap 8.3 2.89%

14

Short Term Objectives: To arrest and reverse the declining trend of exports; and To provide additional support to those sectors which have been hit badly

by recession in the Developed World.

Medium term Policy Objectives : To achieve an Annual Export growth of 15% with an Annual Export Target

of US$ 200 billion by March 2011. To achieve an Annual Export growth of around 25% by 2014. To double India’s exports of goods and services by 2014.

Long Term Objective : To double India’s share in Global Trade by 2020.

15

Strategies Stable Policy environment Fiscal incentives Diversif ication of export markets Procedural rationalization Inst itutional changes

16

Import / Exports controls

Schemes for Duty Exemption/Remission

Promotional Measures/ Incentive Schemes

Technological Upgradation

Deemed Exports

Export Oriented Units (EOUS), Electronics Hardware Technology Parks (EHTPS), Software Technology Parks (STPS) and Bio-Technology Parks (BTPS)

Special Economic Zones

17

Import: Around 5% Tariff Lines are under Import Controls. 11600 Tariff Lines are free for import. Almost total control on imports in 1991, Restrictions removed over the next 10 years, removing

almost all the Quantitative Restrictions. Presently:

Prohibited items - 53 Lines Restricted items - 485 Lines State Trading Items - 33 Lines.

18

Exports

Controls primarily on account of security, public health, public morals, exhaustible resources and environment grounds. Prohibited items - 59 Restricted items - 155 State Trading Items - 12.

Restrictions fall under two Categories Dual Use Items (SCOMET items) – Special provision for these items

under Weapons of Mass Destruction Act, 2005.General Trading Items - Export Facilitation Committee looks into

applications for license for these items.

19

20

CENTRAL DUTIES: CUSTOMS DUTY—Basic, Addl customs (CVD including 4% Addl. duty, Education Cess, Anti- dumping, Safeguard duties etc.EXCISE DUTY--- Basic, Addl Excise duty etc.CENTRAL SALES TAX (CST)SERVICE TAXEXPORT CESS INCOME TAX [Exemption for SEZs ;EOUs (upto 31.3.2011)FBT (Withdrawn)OTHERS: ELECTRICITY DUTY, SALES TAX, OCTROI, etc.GST-- Implications

Principle - Goods and Services are to be exported and not the Taxes and

Levies.

Purpose: Procure inputs and capital goods without the component of Central Indirect Taxes & Levies

Pre Export Schemes :1. For Inputs: Advance Authorisation Scheme Duty Free Import Authorisation (DFIA) Scheme

Schemes for Gems & Jewellery Sector2. For Capital Goods: Export Promotion Capital Goods (EPCG) Scheme

Post Export Schemes : Duty Entitlement Pass Book (DEPB) Duty Drawback Scheme Terminal Excise Duty (TED) Refund

21

Advance Authorization Scheme

For making available duty free Inputs required to manufacture the export product.

Inputs allowed as per Standard Input Output Norms and with Actual User condition

Facility available for Physical exports (including supplies to SEZ units & SEZ Developers), deemed exports and Intermediate supplies.

Minimum 15% V.A.

Time period for import & export

Penalty clauses

2008-09 – 19,146 authorizations issued for CIF value of Rs. 1,04,333 crores22

Duty Free Import Authorisation (DFIA)Scheme made operational from 1.5.06.

This was introduced to facilitate transfer of the authorisation or the inputs imported, once export is completed

Minimum 20% value addition stipulated. Based on SION 22 sensitive items Validity – similar to advance authorisation Sectors availing

2008-09 – 3,815 authorizations issued for CIF value of Rs. 8,779 crores

23

Duty Entit lement Passbook Scheme (DEPB)

Post Exports scheme to neutralize the Basic customs duty on inputs.

Post export Freely transferable Duty Credit Scrips issued at notified percentage of FOB value of Exports.

Duty Credit Scrips used for payment of customs duty on imports DEPB rates notified for 2137 items Most popular scheme DEPB on pre realisation and post realisation Validity Usability Sectors availing 2008-09 – 1,12,764 DEPB scrips issued for duty credit worth

Rs.7,713 crores.24

Gems & Jewellery Scheme

Duty Free Procurement of precious metal (Gold / Silver / Platinum) from the nominated agencies either in advance or as replenishment.

Duty Drawback scheme notified

Duty Free Import of Consumables for export production upto a specified percentage of FOB value of previous years’ export.

25

Vishesh Krishi and Gram Udyog Yojana (VKGUY)

Focus Market Scheme (FMS) Focus Product Scheme (FPS) Market Linked Focus Product Scheme

(MLFPS) Served From India Scheme (SFIS)

26

Vishesh Krishi & Gram Udyog Yojana (VKGUY)

To promote exports of :(i) Agricultural Produce and their value added products;(ii) Minor Forest Produce and their value added variants;(iii) Gram Udyog Products;(iv) Forest Based Products; and(v) Other Products, as notified from time to time.

VKGUY benefits are granted with an aim to compensate high transport costs, and to offset other disadvantages.

Duty Credit Scrip benefits, at 5% of FOB value of exports; Lower rate of 3% when specific DEPB/ Drawback more than 1% /Advance Authorisation benefit availed; Additional 2% provided for a few items.

2008-09 - Duty credit scrips issued under VKGUY Rs.2676 crores27

Objective is to offset high freight cost and other externalit ies to select international markets with a view to diversify the markets and to enhance India’s export competit iveness in these countries.

Currently 109 markets have been notif ied;

Exports of al l products (except some in-eligible items / categories) to notif ied countries entit led for Duty Credit Scrips equivalent to 3 % of FOB value of exports.

Pre realisation & post realisation Validity Util i ty

2008-09 - Duty credit scrips issued under FMSRs.347 crores

28

Objective is to incentivise export of such products which have high export intensity / employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products.

Exports of notified products to all countries entitled for Duty Credit scrip equivalent to 2 % of FOB value of exports.

Currently over 1000 Products (at 8 digit level) covered under FPS. Validity Utility

2008-09 - Duty credit scrips issued under FPS Rs 215 crores.

29

To promote exports of products of high export intensity but which have a low penetration in countries;

Export of Products/Sectors of high export intensity / employment potential (which are not covered under present FPS List) would be incentivized at 2 % of FOB value of exports.

Validity Utility

Currently over 1550 products (at 8 digit level) covered under MLFPS.

30

To accelerate growth in export of Services to create a powerful and unique “Served from India” Brand;

All service providers (except a few ineligible sectors / services) entitled to duty credit scrips equivalent to 10 % of free foreign exchange earned during the year;

Validity Utility Actual User

2008-09 – 785 SFIS scrips issued for duty credit worth Rs.736 crores.

31

Export Promotion Capital goods Scheme (EPCG)

Status Holders Incentive Scrip (SHIS)

32

Import of capital goods for modernization and technological upgradation at a

concessional import duty of 3% and at Zero duty for certain export sectors (against normal basic customs duty of 5% to 7.5%)

Zero Duty Scheme valid for specified sectors and till 31.3.2011.

Export obl igation: Block-wise E.O. monitoring;

Specific E.O.:- Subject to export obligation of 8 times duty saved over 8 years (3% duty scheme) and 6 times duty saved over 6 years (zero duty scheme); Exceptions for Small scale, tiny industries, agri sector etc.Average E.O.:- Exemption to certain sectors.E.O. extension: EPCG committeePhysical, deemed and Third party exports

Penalty clauses 2008-09 - 19,931 authorisations issued for duty saved amount Rs.17,038 crores

33

With an objective to promote investment for

upgradation of technology of specified sectors Status Holders shall be entitled to incentive scrip @1% of FOB value of exports in those sectors made during 2009-10 and during 2010-11, in the form of duty credit scrip.

Mutually exclusive with EPCG

34

EOUs are permitted for manufacture of goods including repair, remaking, reconditioning, re-engineering and rendering of services. Trading activity is not permitted.

Duty free imports of all inputs. Exemption from Income Tax under Section 10 B

(presently extended till 31.3.2011.) Refund of Central Sales Tax (CST) paid on supply of

goods from Domestic Tariff Area (DTA) to EOU. 50% of FOB value of exports allowed to be sold in the

DTA on payment of concessional duty (50%). EOUs have to be a positive net foreign exchange earner.

NFE is to be achieved cumulatively in a block of 5 years.

35

Supply of goods manufactured by Domestic Units to

certain authorisation holders / recognised projects which are otherwise entitled for Duty Free Imports.

Purpose is:• Import Substitution.

Benefits available in the form of:• Advance Authorisation / DFIA;• Deemed Export Duty Drawback and TED Refund.

36

37

38

PROHIBITED SUBSIDIES:(Exceptions)

39

ASCM and DISCIPLINE ON EXPORT SUBSIDIES-Export subsidies generally prohibited

One of the first Government Departments to enable online processing of applications.

DGFT website updated on daily basis. All DGFT Offices computerised and networked

to the DGFT – NIC Server. Applications for Export / Import are made online

with digital signature and Electronic Fund Transfer Facility.

40

41

(return to Next slide in the Main Presentation)

Higher Support for Market and Product Diversif ication

26 new markets added under FMS(16 in Latin America, 10 in Asia-Oceania)

Incentive under FMS raised from 2.5% to 3%.

Incentive under FPS raised from 1.25% to 2%.

42

Higher Support for Market and Product Diversif ication (contd.)

New products under FPS - Engineering products Plastic (value added products), Jute and Sisal products, Technical Textiles, Green Technology products Project goods, vegetable textiles and certain Electronic items.

New products/markets under MLFPS - Pharmaceuticals, Synthetic textile fabrics, value added rubber products, value added plastic goods, textile madeups, 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 to 13 identified markets (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand).

The above markets also included for existing products i.e. Auto Components, Motor cars, Bicycles & Parts, Apparels.

43

Stabil i ty/ continuity of the Foreign Trade Policy

DEPB Scheme 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 Budget 2009-10.

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.

44

Gems & Jewellery Sector

To neutralize duty incidence on gold Jewellery exports, Duty Drawback to be allowed.

A new facility for import on consignment basis of cut & polished diamonds for the purpose of grading/ certification purposes has been introduced [Branch of Gemological Institute of America (GIA) at Mumbai has been notified for the purpose].

In an endeavour to make India a diamond international trading hub, plans are to establish “Diamond Bourse (s)”.

45

Pharmaceutical Sector

Pharma sector extensively covered under MLFPS for countries in Africa and Latin America; some countries in Oceania and Far East.

Export Obligation Period for advance authorizations issued with 6-APA as input increased from the existing 6 months to 36 months.

46

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.

47

Thrust to Value Added Manufacturing

Coverage of Project Exports and a large number of manufactured goods under FPS and MLFPS.

To encourage Value Added Manufactured export, a minimum 15% value addition on imported inputs under Advance Authorization Scheme has now been prescribed.

48

Flexibil i ty provided to exporters

Payment of customs duty for Export Obligation (EO) shortfall allowed through debit of Duty Credit scrips. Earlier the payment was allowed in cash only.

Import of restricted items, as replenishment, shall now be allowed against transferred DFIAs.

Time limit of 60 days for re-import of exported gems and jewellery items, for participation in exhibitions extended to 90 days in case of USA.

Transit loss claims received from private approved insurance companies in India allowed for the purpose of EO fulfillment, as against only public sector general insurance companies earlier.

49

Waiver of Incentives Recovery, On RBI Specif ic Write off

In cases, where RBI specif ically writes off the export proceeds realization, the incentives under the FTP shall now not be recovered from the exporters subject to cert i f ication by the Indian missions abroad and the RBI.

50

Simplif ication of Procedures Exemption from payment of excise duty up to two stages rather than refund,

for supply against advance authorisation. Earlier, exemption was allowed upto one stage only.

Greater flexibility for conversion of Shipping Bills from one Export Promotion scheme to other scheme. Customs shall now permit this conversion within three months, instead of one month stipulated earlier.

Regional Authorities authorised to issue licences for import of sports weapons by ‘renowned shooters’, on the basis of NOC from the Ministry of Sports & Youth Affairs.

The procedure for issue of Free Sale Certificate has been simplified and the validity of the Certificate has been increased from 1 year to 2 years.

Automobile industry, having their own R&D establishment, would be allowed free import of reference fuels (petrol and diesel), upto a maximum of 5 KL per annum.

51

IEC Number Authorisations under Duty Neutralization Schemes and Export

Promotion Schemes (Incentive Schemes) Import licences for Restricted Items Export Licences including SCOMET licences Status Certificates Preferential (GSP) & Non-preferential certificates of origin Tariff rate quota allocation Authorisations for Imports at concessional duty for R& D

purpose for Pharmaceuticals and Bio-technology Sectors Authorisation for Duty Free import of consumables by Gems

& Jewellery Sector Terminal Excise Duty (TED) refund and Duty Drawback on

deemed exports

52

Status Category Export Performance FOB/FOR Value(Rupees in Crores)

Export House (EH) 20Star Export House (SEH) 100Trading House (TH) 500Star Trading House (STH) 2500Premier Trading House (PTH) 7500About 4000 Status Holders, including about a dozen PTH.(return to Next slide in the Main Presentation)

53

54

Major contributions from CAs:

55

Relatively lower share of exports to GDP

Strong demand stimulus◦ Farm Loan waiver◦ Higher food procurement prices◦ Sixth Pay Commission◦ Increased Infrastructure spending

55

Country Share of exports to GDP (Percent)

OECD 58

CHINA 35

INDIA 22

GDP growth figures for India for 2008 is 5.4%; and it has been projected at a higher level of 6.5% for the Year 2009, with due credit to Stimulus Measures announced by the Government of India and the RBI.

IIP figures for May, 2009 onwards show that certain industrial sectors like steel, commercial vehicles, cement, two wheelers, intermediate goods etc have started looking up.

Rate of decline in export growth is somewhat reducing, which indicates that while the impact of global recession is still continuing on our exports, the stimulus packages have started showing their impact in arresting the steep decline in exports.

56

57