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GOVERNMENT INFLUENCE ON TRADE AND INVESTMENT International trade is affected by a number of factors including, in particular' the government policies.

The economic policies, in general, may affect the foreign trade. The trade policy and regulations have a direct bearing on the trade. While governments endeavour to promote exports, imports in many cases are hit by protectionism or trade barriers. The Foreign Trade (Development and Regulation) Act, 1992 This Act which replaced the Imports and Exports (Control) Act, 1947, came into force on June 19, 1992. Besides the FTDR Act, there are some laws which control the trade in certain items. For instance, the export of antiquities is regulated under the Antiquities and Art Treasures Act 1972; export of coffee is regulated by the Coffee Board under the Indian Coffee Act 1942; export of tea is regulated under Tea Act, 1953, etc. The export and import of currency notes, bank notes and coins were controlled by the Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The FTDR Act lays down that no export or import shall be made by any person except in accordance with the provisions of this Act, the orders and rules made under this Act and the export and import policy. Objective The objective of the Act is to provide for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India and for matters connected therewith or incidental thereto. A drastic and welcome change in the attitude of the government is reflected in the statement of objective of the new law, the Foreign Trade (Development and Regulation) Act, 1992, which has replaced the Imports and Exports (Control) Act, 1947.The objective of this Act is to provide for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India and for matters connected there with or incidental thereto. Contrast this with the objective of the 1947 Act: to prohibit or control irnports and exports. The objective of the new Act reflects a positive and dynamic attitude in contrast to the negative attitude of the old Act. However, the bureaucracy is yet to imbibe the spirit of the new attitude which is laid down in the paper' Main Provisions The main provisions of the FTDR Act are the following: Development and Regulation: The FTDRA empowers the Central Government to make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. Prohibition and Restriction: The Act also empowers the Central Government to take provisions for prohibiting, restricting or otherwise regulating the import or export of goods and when required. All goods which are so regulated under this sub-section shall be deemed to be goods the import or export of which has been prohibited under Section 11 of the Customs Act, I96Z,and all the provisions of that Act shall have effect accordingly.

It may be noted that it is according to this sub-clause that the Government has provided for negative lists of exports and imports in the Foreign Trade policy. Exim Policy: The Act lays down that the Central Government may, from time to time, formulate and announce the Exirn (now Foreign Trade) policy and may also amend that policy. Director General of Foreign Trade: The Act provides for the appointment by the Central Government, of a Director General of Foreign Trade for the purpose of this Act. The DGFT shall advise the Central Government in the formulation of the export and import policy and shall be responsible for carrying out that policy. [The corresponding authority under the Imports and Exports Control Act, 194l, was called the chief controller of Imports and Exports (CCIE). Importer-Exporter Code Number: The Act lays down that no person shall make any import or export except under an Importer-Exporter Cocle (IEC) Number granted by the DGFT or the Officer authorised by him in his behalf. The Director General is empowered to suspend or cancel the Importer-Exporter Code Number granted to any person if there is valid reason to do so, like contravention of law relating to Central excise or customs or foreign exchange or having conducted import/export in a manner gravely prejudicial to the trade relations of India with any foreign country or in a way detrimental to the interests of the country. Issue and Suspension / Cancellation of Licence: The Director General or any other officer authorised under this Act is empowered to suspend or cancel a licence issued for export or import of good in accordance with this Act for good and sufficient reasons, after giving the licence holder a reasonable opportunity of being heard. Search, lnspection and Seizure; Where any contravention of any condition of the licence of authority under which any goods are imported is suspected or made, any person authorised by the Central Government may search, inspect and seize such goods, documents, things and conveyances subject to such requirements and conditions as may be prescribed. Penalty for Contravention: Where any person makes or abets or attempts to make any export or import in contravention of any provisions of this Act or any rules or orders made under this Act or the Exim policy, he shall be liable to a penalty not exceeding one thousand rupees or five times the value of the goods involved, whichever is more. FOREIGN TRADE POLICY, 2OO9- 14 (EXIM POLICY) Government of India used to announce five year Export-Import policy 1994, the Policy is known as Foreign Trade Policy. Foreign Trade Policy plays a very important role in directing, regulating and promoting the foreign trade. Objectives The short term objective of the Foreign Trade policy, 2009-14, announced on August 27, 2009 in a situation of continuously falling exports due to the global recession, is to arrest and reverse the declining trend of exports and to provide additional support 2

especially to those sectors which have been hit badly by recession in the developed world. Strategies In order to meet these objectives, the Government would follow a mix of policy measures including fiscal incentives, institutional changes, procedural rationalisation, 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. The Policy has endeavored to provide adequate confidence to the exporters to maintain their market presence even in a period of stress and a special thrust is given to employment intensive sectors which have witnessed job losses in the wake of this recession, especially in the fields of textile, leather, handicrafts, etc. Several measures are being taken for simplification of procedures and reduction of transaction costs. Highlights Important features of some of the schemes mentioned above are given very briefly below. Higher Support for Market and Product Diversification Certain Incentive schemes have been expanded by way of addition of new products and markets. It has been felt 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' 26 new markets (16 in Latin America and 10 in Asia-Oceania) have been added under Focus Market Scheme(FMS). A large number of products from various sectors have been included for benefits under Focus Product Scheme (FPS). The incentives available under FMS and FPS have been raised. Marker Linked Focus product Scheme (MLFPS) has been greatly expanded by inclusion of a large number of products. Additional resources have been made available under the Market Development Assistance (MDA) Scheme and Market Access Initiative (MAI) Scheme. Incentive schemes are being rationalized to identify leading products which would catalyze the next phase of export growth. 3

The Government seeks to promote Brand lndia through six or more 'Made in India' shows to be organised across the world every year. Technological Upgradation Schemes Recognising the fact that in the era of global competitiveness, there is an imperative need for Indian exporters to upgrade their technology and reduce their costs. certain schemes to aid technological upgradation of the export sector have been introduced/modified/continued, like the Export Promotion Capital Goods (EPCG) Scheme at Zero Duty and Technological Upgradation Fund Schemes (TUFS). Towns of Export Excellence A scheme known as Towns of Export Excellence was introduced in the past for upgradation of export sector infrastructure. Several new towns have been added to the list of Towns of Export Excellence: Jaipur, Srinagar, and Anantnag for handicrafts; Kanpur, Dewas and Ambur for leather products; and Malihabad for horticultural products. The Towns of Export Excellence' and units located therein would be granted additional focused support and incentives. Agricultural 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. Support for Green Products and Products from North East Focus product Scheme benefit has been extended for export of 'green products'; and for exports of some products originating from the North East. Project Exports It is claimed that the policy is committed to support the growth of project exports. A high level co-ordination 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. Project Exports and a large number of manufactured goods are covered under FPS and MLFPS. Directorate of Trade Remedy Measures To enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments under the WTO framework, it has been proposed to set up a Directorate of Trade Remedy Measures. E-trade Project 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 4

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. Promotional Measures introduced by Previous Policies Many promotional measures introduced by the previous policies continue. Important among the measures introduced by the previous policies are the following. Special Focus Initiatives With a view to doubling India's percentage share of global trade within 5 years and expanding employment opportunities, especially in semi-urban and rural areas, certain special focus initiatives have been identified for the agriculture, handlooms, handicraft, gems and jewellery and leather sectors. Government proposes to make concerted efforts to promote exports in these sectors by specific sectoral strategies that shall be notified from time to time. Further sectoral initiatives in other sectors will also be announced from time to time. A new scheme called the Vishesh Krishi Upaj Yojana (special Agricultural produce scheme) for promoting the export of fruits, vegetables, flowers,-minor forest produce, and their value added products has been introduced. The Agri Export Zones (AEZ) scheme introduced under the previous policy has been offered several additional measures of support. Besides proposing to earmark specific funds under MAI/MDA Scheme, several incentives and support measures have been announced for promoting handloom exports. Further, new towns of export excellence with a threshold limit of Rs. 250 crore shall be notified. Besides some other incentives and support measures, it is proposed that new Handicraft SEZs shall be established which would procure products from the cottage sector and do the finishing for exports. In order to showcase our industrial and trade prowess to its best advantage and leverage existing facilities to enhance the quantity of space and service, Pragati Maidan will be transformed into a world-class complex with visitor friendliness ingress and egress system. The complex utilization will be improved, increased and diversified. There shall be brand new, state-of-the-ar1, environmentally- controlled, air-conditioned exhibition areas, and Permanent Exhibition Marts. In addition, a large Convention Centre to accommodate ten thousand delegates will be developed, with multiple and flexible hall spaces, auditoria and meeting rooms with hi-tech equipment. A year-round Food and Beverage destination will be developed, with a large number of outlets covering all cuisines and pricing levels. There will be a multilevel park to accommodate over nine thousand vehicles within the envelope of Pragati Maidan, Assistance to States for Infrastructure Development of Exports (ASIDB) The State Governments shall be encouraged to participate in promoting exports from their respective States. For this purpose, Department of Commerce has formulated a scheme called ASIDE. The States shall utilise this amount for developing 5

infrastructure such as roads connecting production centres with the ports, setting up of Inland Container Depots and Container Freight Stations, creation of new State level export promotion industrial parks/zones, augmenting common facilities in the existing zones, equity participation in infrastructure projects, development of minor ports and jetties, assistance in setting up of common effluent treatment facilities, stabilising power supply and any other activity as may be notified by Department of Commerce from time to time. Market Access Initiative (MAI) The Market Access Initiative (MAI) scheme is intended to provide financial assistance for medium term export promotion efforts with a sharp focus on a country and product. The financial assistance is available for Export Promotion Councils, Industry and Trade associations, Agencies of State Governments. Indian Commercial Missions abroad and other eligible entities as may be notified from time to time. A whole range of activities can be funded under the MAI scheme. These include market studies, setting up of showroom/warehouse, sales promotion campaigns, international departmental stores, publicity campaigns, participation in international trade fairs, brand promotion, registration charges for pharmaceuticals and testing charges for engineering products, etc. Each of these export promotion activities can receive financial assistance from the Government ranging from 25% to 100% of the total cost depending upon the activity and the implementing agency, as indicated in the detailed guidelines. Marketing Development Assistance (MDA) The Marketing Development Assistance (MDA) Scheme is intended to provide financial assistance for a range of export promotion activities implemented by export promotion councils, industry and trade associations on a regular basis every year. As per the revised MDA guidelines with effect from 1" April, 2004 assistance under MDA is available for exporters with annual export turnover upto Rs. 5 crore. These include participation in Trade Fairs and Buyer Seller meets abroad or in India, export promotion seminars, etc. Further, assistance for participation in Trade Fairs abroad and travel grant is available to such exporters if they travel to countries in one of the four Focus Areas, such as, Latin America, Africa, CIS Region, ASEAN countries, Australia and New Zealand. For participation in trade fairs, etc.,inother areas financial assistance without travel grant is available. Towns of Export Excellence A number of towns in specific geographical locations have emerged as dynamic industrial clusters contributing handsomely to India's exports. The previous Policy had granted recognition to these industrial clusters as Towns of Export's Excellence with a view to maximising their potential and enabling them to move higher in the value chain and tap new markets. Selected towns producing goods of Rs. 1,000 crores or more will be notified as Towns of Exports Excellence on the basis of potential for growth in exports. However for the Towns of Export Excellence in the Handloom, Handicraft, Agriculture and Fisheries sector, the threshold limit would be Rs. 250 crore. 6

Brand Promotion and Quality The Central Government aims to encourage rnanufacturers and exporters to attain internationally accepted standards of quality for their products. The Central Government will extend support and assistance to Trade and Industry to launch a nationwide programme on quality awareness and to promote the concept of total quality management. Target Plus Scheme The objective of the scheme is to accelerate growth in exports by rewarding Star Export Houses who have achieved a quantum growth in exports. High performing Star Export Houses shall be entitled for a duty credit based on incremental exports substantially higher than the general annual export target fixed. Duty Entitlement Passbook Scheme (DEPB) The objective of DEPB is to neutralise the incidence of Customs duty on the import content of the export product. The neutralisation shall be provided by way of grant of duty credit against the export product. The DEPB scheme was to continue to be operative until it is replaced by a new scheme which will be drawn up in consultation with exporters. Under the DEPB, an exporter may apply for credit, as a specified percentage of FOB value of exports, made in freely convertible currency. The credit shall be available against such export products and at such rates as may be specified by the Director General of Foreign Trade by way of public notice issued in this behalf, for import of raw materials, intermediates, components, parts, packaging material etc. Export Promotion Capital Goods Scheme The EPCG Scheme allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 570 Customs duty subject to an export obligation equivalent to B times of duty saved on capital goods imported under EPCG scheme to be fulfilled over a period of 8 years reckoned from the date of issuance of licence. Capital goods would be allowed at 07a duty for exports of agricultural products and their value added variants. However, in respect of EPCG licences with a duty saved of Rs.100 crores or more, the same export obligation shall be required to be fulfilled over a period of l2 years. Services Exports In order to give proper direction, guidance and encouragement to the Services Sector, it is proposed to set up an exclusive Export Promotion Council for Services. The Services Export Promotion Council shall: 7

1. Map opportunities for key services in key markets and develop strategic market access programmes for each component of the matrix. 2. Co-ordinate with sectoral players in undertaking intensive brand building and marketing programmes in target markets. 3. Make necessary interventions with regard to policies, procedures and bilateral/ multilateral issues, in co-ordination with recognised nodal bodies of the services industry. Government will promote the establishment of Common Facility Centres for use by home-based service providers, particularly in areas like Engineering and Architectural design, Multi-media operations, software developers etc., in State and District-level towns, to draw in a vast multitude of home-based professionals into the services export arena. EXPORT PROMOTION Importance and Objectives Governments all over the world actively promote exports due to various reasons. When the domestic market is small, the foreign market provides opportunities to achieve economies of scale and growth. Second, the supply of many commodities, as in the case of a number of agricultural products in India, is more than the domestic demand. Third, exports enable certain countries to achieve export-led growth. Fourth, export markets may help mitigate the effects of domestic recession. Fifth, a country may need to boost its exports to earn enough foreign exchange to-finance its imports and service its foreign debt: It may be noted that many countries are suffering from trade deficit and foreign debt. Sixth, even in the case of countries with trade surplus, export promotion may be required to maintain its position against the international competition and the level of domestic economic activity. Last, higher exports facilitate larger imports and help increase consumption levels and economic welfare. Most of the benefits of exports mentioned above call for a vigorous export promotion in India. The important objectives of export promotion are: l. To provide organisational and infrastructural facilities for development of export. 2. To provide production, marketing and financial support for the development of exports. 3. To compensate the exporters for the high domestic cost of production. 4. To provide necessary assistance to the new and small exporters to develop export businesses. 5. To increase the relative profitability of the export business vis--vis the domestic business.

Export Promotion Measures A brief account of the measures taken by the Government of India for export promotion is given below. Organisational Set-up The government has established or sponsored a number of organisations to provide different types of assistance to the export sector. While some of these organisations are product specific, others are general. Apart from the organisations set up exclusively for export promotion, there are also a number of them which assist the export sector in different ways. Assistance provided by these organisations cover areas such as identification of markets and market development; identification of products with export potential and product development; financing of foreign trade; education and training in export marketing; export intelligence, including research and collection and dissemination of information; insurance covers against export risks; organization of, and participation in, trade fairs and exhibitions; packaging; pre-shipment inspection and quality control; export documentation and procedures; and so on. Incentives Export incentives are a widely employed strategy of export promotion. The main aim of these incentives is to increase the profitability of export business. Important export incentives in India include rebate of duties, income tax concession, interest subsidies, freight subsidy, etc. However, as the Abid Hussain Committee has observed, they are more of a compensation for the comparative disadvantages faced by the Indian exporter than incentives. A brief account of these 'incentives' is given below. Duty Exemption/Drawback as an export promotion measure had its origin in India during the Second Plan. Over the years, the scheme has been enlarged and modified. The scheme of duty exemption is designed to avoid the incidence of commodity taxes like excise duty and customs duty on the exports so as to make the exports more price competitive. The exporters are either exempted from the payment of duty while procuring inputs like raw materials and intermediates or, in cases where the duty is paid on the inputs, the duty paid is refunded. Thus, under the duty drawback system, the exporters are reimbursed for tariff paid on the imported raw materials and intermediates and central excise duty on domestically procured inputs which enter into export production. Due to a series of modifications in the import policy for registered exporters, particularly with the introduction of the advance licensing system, the exporter can now make most of the import of inputs without payment of customs duty. Eligible exporters are entitled to interest-free bank credit against the duty drawback applicable to them up to a period of 90 days or up to the time they realize the drawback, whichever is earlier.

Income Tax Concession: Besides the exemption or rebate of indirect taxes, a special fiscal treatment granted to exports is in the form of certain tax concessions with respect to income from exports. Such income tax rebates have been provided to exporters in India since the early 1960s. IPRS: The International Price Reimbursement Scheme was designed to make specified inputs, like steel and aluminium, available to the exporters at international prices. Under this scheme, the difference between price of the indigenously procured material and its international price was reimbursed to the exporter to offset the cost difference because of the difference in the input prices. The IPRS has been replaced by the Engineering Products Exports (Replenishment of Iron and Steel Intermediates) Scheme. Awards: A number of awards have been instituted to encourage e\ports and to recognize excellence in exports. There are separate awards for different categories of exporters. Awards are given on the basis of certain specified criteria such as development of a market for products which have not been exported previously, substantial increase in exports, successful introduction of new products, product development, successful breakthough in foreign markets where conditions have been especially difficult, etc. Some incentives like the Cash Compensatory Support Scheme (CCS), Replenishment Licence (REP)/Exim Scrip were abolished following the economic reforms. References to some other incentives are made in the sub-section on Marketing Assistance. Marketing Assistance A number of steps have been taken to assist the exporters in their marketing efforts. These include conducting, sponsoring or otherwise assisting, market surveys and research; collection, storage and dissemination of marketing information, organising and facilitating participation in international trade fairs and exhibitions; credit and insurance facilities; release of foreign exchange for export marketing activities; assistance in export procedures, quality control and pre-shipment inspection; identifying markets and products with export potential; helping buyer- seller interaction, etc. Export Credit From time to time, the Reserve Bank has undertaken several measures to ensure adequate and timely availability of credit for exports at competitive interest rates. The RBI's export credit refinance schemes have played a pivotal role in this area, Commercial banks have been providing credit to e4p0lters at pre-shipment and postshipment stages, both in rupees as well as foreign currency. The rupee export credit has been generally available at rate of interest linked to the Prime Lending Rate (PLR) The export credit in foreign currency is provided at internationally competitive interest rates linked to London inter-Bank Offer Rate (LIBOR) or similar interest rates. The Reserve Bank has been adjusting interest rates on rupee export credit from time to time taking into account the need to maintain competitiveness by looking at interest rate differentials. as also other factors like inflation and developments in financial markets. The Reserve Bank has also taken measures to support institutional arrangements for export promotion, such as policy initiatives to provide a liberalized 10

environment for the operations of SEZ units. These measures include: (l) exemption from interest rate surcharge on import finance; (ll) release of foreign exchange to DTA units for buying goods from EOU/EPZ/SEZ units; (iii) permitting 100 per cent retention of foreign exchange in Exchange Earners Foreign Currency (EEFC) accounts; (iv,)permitting overseas investment by SEZ units from the EEFC accounts through the automatic route, write-off of unrealised export bills and (v) permitting SEZ units to enter into a contract in overseas commodity exchanges or markets to hedge the price risk in the commodity on export / import provided that the contract is made on a stand alone basis. Production Assistance/Facilities Exports depend, inter alia, on exportable surplus and the quality and price of the goods. The government has, therefore, taken a number of measures to enlarge and strengthen the production base, improve the productive efficiency and quality of products and to make the products more price competitive. Measures in these directions include making available raw materials and other inputs of required quality at reasonable prices; facilities to establish and expand productive capacity, including import of capital goods and technology; facilities to modernize production facilities; provision of infrastructure and incentives for the growth of export oriented industries, etc. Special Economic Zones (SEZs), Export Oriented Units (EOUs), Electronic Hardware Technology parks (EHTPs), and Software Technology Parks (STPs), are among the important measures that encourage export production and were also set up.

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