India's Foreign Trade Policy 2009-2014

Monday, November 2, 2009 - 01:00

Anand Sharma

The United Progressive Alliance (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. The WTO estimates project a grim forecast that global trade is likely to decline by nine percent in volume terms and the IMF estimates project a decline of over 11 percent. The recessionary trend has huge social implications.

The World Bank estimate suggests that 53 million more people would fall into the poverty net this year and over a billion people would go chronically hungry. Though India has not been affected to the same extent as other economies of the world, yet our exports have suffered a decline in the last 10 months due to a contraction in demand in the traditional markets of our exports.

The protectionist measures being adopted by some of these countries have aggravated the problem. After four clear quarters of recession there is some sign of a turnaround and the emergence of 'green shoots', though I would be hesitant to hazard a guess on the nature and extent of this recovery and the time the major economies will take to return to their pre-recession growth levels.

Announcing a foreign trade policy in this economic climate is indeed a daunting task. We cannot remain oblivious to declining demand in the developed world and we need to set in motion strategies and policy measures which will catalyse the growth of exports. Before defining the objectives of the new policy it would be useful to take stock of our achievements in the foreign trade over the last five years. The foreign trade policy announced by the UPA Government in 2004 had set two objectives, namely, (i) to double our percentage share of global merchandize trade within five years and (ii) use trade expansion as an effective instrument of economic growth and employment generation. Looking back, we can say with satisfaction that the UPA Government has delivered on its promise.

Agriculture and industry has shown remarkable resilience and dynamism in contributing to a healthy growth in exports.

In the last five years our exports witnessed robust growth to reach a level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. Our share of global merchandise trade was 0.83 percent in 2003; it rose to 1.45 percent in 2008 as per WTO estimates. Our share of global commercial services export was 1.4 percent in 2003; it rose to 2.8 percent in 2008. India's total share in goods and services trade was 0.92 percent in 2003; it increased to 1.64 percent in 2008. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.

The short term objective of our policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. We would like to set a policy objective of achieving an annual export growth of 15 percent with an annual export target of US$ 200 billion by March 2011. In the remaining three years of this foreign trade policy - i.e., up to 2014 - the country should be able to come back on the high export growth path of around 25 percent per annum. By 2014, we expect to double India's exports of goods and services. The long term policy objective for the Government is to double India's share in global trade by 2020.

In order to meet these objectives, the Government would follow a mix of policy measures including fiscal incentives, institutional changes, procedural rationalization, enhanced market access across the world and diversification of export markets. Improvement in infrastructure related to exports; bringing down transaction costs, and providing full refund of all indirect taxes and levies, would be the three pillars, which will support us to achieve this target.

Endeavour will be made to see that the Goods and Services Tax rebates all indirect taxes and levies on exports. At this juncture, it is our endeavour to provide adequate confidence to our exporters to maintain their market presence even in a period of stress. A special thrust needs to be provided to employment intensive sectors which have witnessed job losses in the wake of this recession, especially in the fields of textile, leather, handicrafts, etc.

We want to provide a stable policy environment conducive for foreign trade and we have decided to continue with the Duty Entitlement Passbook Scheme (DEPB Scheme) - i.e., export incentive scheme - up to December 2010 and income tax benefits under Section 10(A) for IT industry and under Section 10(B) for 100 percent export oriented units for one additional year till 31st March 2011. Enhanced insurance coverage and exposure for exports through Export Credit Guaranteed Corporation of India Ltd. (ECGC) Schemes has been ensured till 31st March 2010. We have also taken a view to continue with the interest subvention scheme for this purpose.

We need to encourage value addition in our manufactured exports and towards this end, have stipulated a minimum 15 percent value addition on imported inputs under advance authorization scheme.

It is important to take an initiative to diversify our export markets and offset the inherent disadvantage for our exporters in emerging markets of Africa, Latin America, Oceania and CIS countries such as credit risks, higher trade costs, etc., through appropriate policy instruments. We have endeavored to diversify products and markets through rationalization of incentive schemes including 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. New emerging markets have been given a special focus to enable competitive exports. This would of course be contingent upon availability of adequate exportable surplus for a particular product. Additional resources have been made available under the Market Development Assistance Scheme and Market Access Initiative Scheme.

Incentive schemes are being rationalized to identify leading products whichwould catalyze the next phase of export growth.

As part of our policy of market expansion, we have signed a Comprehensive Economic Partnership Agreement with South Korea which will give enhanced market access to Indian exports. We have also signed a Trade in Goods Agreement with ASEAN which will come in force from January 01, 2010, and will give enhanced market access to several items of Indian exports.

These trade agreements are in line with India's Look East Policy. We have also concluded the Mercosur Preferential Trade Agreement. It shall be our endeavour to deepen our trade engagement with other major economic groupings in the world.

The Government seeks to promote Brand India through six or more 'Made in India' shows to be organized across the world every year.

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

Under the present foreign trade policy, Government recognizes exporters based on their export performance and they are called "status holders." For technological upgradation of the export sector, these status holders will be permitted to import capital goods duty free (through duty credit scrips equivalent to one percent of their FOB value of exports in the previous year), of specified product groups. This will help them to upgrade their technology and reduce cost of production.

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

The policy is committed to support the growth of project exports. A high level coordination committee is being established in the Department of Commerce to facilitate 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 have representation from the Ministry of External Affairs, Department of Economic Affairs, EXIM Bank and the Reserve Bank of India. We would like 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.

To enable support to Indian industry and exporters, especially the Ministry of Micro, Small and Medium Enterprises (MSMEs), in availing their rights through trade remedy instruments under the WTO framework, we propose to set up a Directorate of Trade Remedy Measures. In order to reduce the transaction cost and institutional bottlenecks, the 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. An Inter-Ministerial Committee has been established to serve as a single window mechanism for resolution of trade related grievances.

These are difficult times and we have set an ambitious goal for ourselves. I am sure that the industry and the Government, working in tandem, will be able to ensure that the Indian exports become globally competitive and that we are able to achieve the target, which we have set for ourselves.

The Metropolitan Corporate Counsel is grateful to the Minister of Commerce & Industry of the Government of India, Mr. Anand Sharma , for granting permission to republish the Foreword to its Policy Statement, Notification No. 1/2009-20014, New Delhi, the 27th of August. In exercise of powers conferred by Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (No.22 of 1992) read with paragraph 1.2 of the Foreign Trade Policy, 2009-20014, the Central Government hereby notifies the Foreign Trade Policy, 2009-2014 as contained in the Annexure to this notification. The Policy came into force on August 27, 2009. Mr. Sharma is Minister of Commerce & Industry, Government of India.