Growth Prospect

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GROWTH PROSPECTS OF THRUST
AREAS OF INDIAN EXPORTS
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Masters of Business Administration
International Business
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Semester IV
Amity University
PREFACE
The rules of the trade games are being redefined, markets are liberalizing and globalizing,
international business practices are changing and competition is becoming much more intense.
The major question which the governments today face is, 'Can countries create and sustain
export strategies that will foster growth and development as well as exploit commercial
opportunity'?
On the eve of Independence in 1947, foreign trade of India was typical of a colonial and
agricultural economy. Trade relations were mainly confined to Britain and other Commonwealth
countries. Exports consisted chiefly of raw materials and plantation crops while imports
composed of light consumer goods and other manufactures. Over the last 60 years, Indias
foreign trade has undergone a complete change in terms of composition and direction. The
exports cover a wide range of traditional and non-traditional items while imports consist mainly of
capital goods, petroleum products, raw materials, and chemicals to meet the ever-increasing
needs of a developing and diversifying economy. For about 40 years (1950-90, foreign trade of
India suffered from strict bureaucratic and discretionary controls. Similarly, foreign exchange
transactions were tightly controlled by the Government and the Reserve Bank of India. From
1947 till mid-1990s, India, with some exceptions, always faced deficit in its balance of payments,
i.e. imports always exceeded exports. This was characteristic of a developing country struggling
for reconstruction and modernization of its economy. Imports galloped because of increasing
requirements of capital goods, defense equipment, petroleum products, and raw materials.
Exports remained relatively sluggish owing to lack of exportable surplus, competition in the
international market, inflation at home, and increasing protectionist policies of the developed
countries.
Beginning mid-1991, the Government of India introduced a series of reforms to liberalize and
globalize the Indian economy. Reforms in the external sector of India were intended to integrate
the Indian economy with the world economy. Indias approach to openness has been cautious,
contingent on achieving certain preconditions to ensure an orderly process of liberalization and
ensuring macroeconomic stability. This approach has been vindicated in recent years with the
growing incidence of financial crises elsewhere in the world. All the same, the policy regime in
India in regard to liberalization of the foreign sector has witnessed significant change. In
recognition of the growing importance of the foreign trade in driving the economy, this work
describes and examines changes in the pattern of Indias foreign trade. It addresses the
importance of external sector in India's economic development has been well recognized and
reinforced especially since the initiation of economic reforms in 1991. A study of India's external
sector includes a study of a number of aspects such as-value, composition direction of foreign
trade, trade policies pursued, etc. Unlike past, India's export basket is now more diversified and
gaining more strength from the manufactured goods thereby reducing the share of agriculture and
allied products. However in terms of the share of total world trade, India's performance has not
been so good. It caters to approximately 0.8 per cent of total world trade at present (as against 2
per cent in early 1950s). This material provides a comprehensive coverage of and analysis of
India's thrust exports.
The work also throws light on 'Export Promotion Organizations' which covers Export Promotion
Councils, SEZs, EOUs, Commodity Boards, FICCI, IIFT, FIEO and ITPO. It also throws light on
Marketing Development Assistance (MDA) and Marketing Access Initiative (MAI), etc. This
material will be helpful for academic purpose and can serve as a good base for further
researches. It will also be helpful to least developing countries trying to develop institutional
framework and enhancing their exports.
SYLLABUS
Growth Prospects Of Thrust Areas Of Indian Exports
Course Objective:
The course aims to develop awareness of thrust products of Indias exports and to identify
specific market for thrust products of Indias export. It will enable the students to understand
prospects of Indias export in the background of multi lateral-trading system & global competitors
and to develop an ability to use trade information available from various sources to analyze and
prepare market potential reports, to understand Indias Foreign Trade Policy and the Institutional
mechanism for promoting exports from India.
Learning Outcomes:
On the successful completion of this module the student will be able to:
Examine the past and present scenario, and trends of Indian exports
Understand the factors effecting Indian international trade
Assess the status, potential, challenges and strategies for furthering exports in key thrust
areas
Course Contents:
Module I: Introduction
Indias International Trade-Present Scenario
Trends in Indias Export
Future outlook
Module II: Focus on Specific Growth Sectors

Gems and Jewellery
Leather and Footwear
Textiles
Agriculture and Processed Food Sector
Engineering/Automobile Sector
Tea, Coffee and Spices
Module III: Foreign Trade Policy-2004-09

Special Focus Initiatives
General Provisions Regarding Imports And Exports
Promotional Measures
Duty Exemption / Remission Schemes
Export Promotion Capital Goods Scheme
Module IV: Study of Specific Markets

USA : World biggest importer and Exporter
EU : Single Largest market
Focus LAC : Potential Market for Export from India
Module V: Institutional Framework for Export Promotion of Thrust Sectors

Role of EPCs and other Trade Promotion bodies is promoting Export From India
Role of EoUs, EPZs and SEZs in Indias Export
TABLE OF CONTENTS
Name of the Chapter
S.No.
Page Nos
Unit 1
1
1.1
India's International Trade
8 - 17
Trends in Indias Exports and Future Outlook

Unit 2
India's Foreign Trade Policy
2.1
Indias Foreign Trade Policy
2.2
Highlights of Foreign Trade Policy (2004-2009)
2.3
18 - 47
Unit 3
3
Institutional Framework for Export Promotion
3.1
Institutional Framework for Export Promotion in India
3.2
Export Promotion Council for EOUs and SEZs
3.3
Export Oriented Units
3.4
Special Economic Zones
48 - 88
Unit 4
4
India's Thrust Exports
4.0
Indias Exports: Thrust Sectors
4.1
Thrust Areas Of Indian Exports: Agriculture & Food Processing Sector
4.2
Thrust Areas Of Indian Exports: Textiles
4.3
Thrust Areas Of Indian Exports: Gems & Jewellery
4.4
Thrust Areas Of Indian Exports: Leather & Leather Good
4.5
Thrust Areas Of Indian Exports: Automotive & Auto-components Industry
89 - 186
Unit 5
5
Characteristics of India's Major Export Markets
5.1
USA: World biggest importer and Exporter
5.2
EU: Single Largest market
5.3
Focus LAC: Potential Market for Export from India

Bibliography
187 229
230 - 231
UNIT 1
INDIAS INTERNATIONAL TRADE

Chapters:
Trends in Indias Exports and Future Outlook
Chapter 1.1
TRENDS IN INDIAS FOREIGN TRADE
1.1.1 India's Trade Performance
Indias merchandise exports reached a level of US $ 185.3 billion during 2008-09 registering a
growth of 13.6 percent as compared to a growth of 29.1 percent during the previous year.
Notwithstanding the deceleration of the growth in 2008-09, Indias export sector has exhibited
remarkable resilience and dynamism in the recent years.
Our merchandise exports recorded an Average Annual Growth Rate (AAGR) of 23.9 per cent
during the five year period from 2004-05 to 2008-09, as compared to the preceding five years
when the exports increased by a lower AAGR of 14.3 per cent. According to latest WTO data
(2009), Indias share in the world merchandise exports increased from 0.8 per cent in 2004 to 1.1
per cent in 2008. India also improved its ranking in the leading exporters in world merchandise
trade from 30th in 2004 to 27th in 2008.
The Government had initially set an export target of US $ 200 billion for 2008-09, which was later
revised downward to US $ 175 billion because of global slowdown in the second half of the year.
With merchandise exports reaching US $ 185.3 billion in 2008-09, the actual exports exceeded
the target by 5.9 per cent which is a remarkable achievement during a period of recession in
countries of Indias major export destinations.
1.1.2 Exports
Exports recorded high growth during the first half of 2008-09 although a deceleration was
witnessed during the subsequent months due to global economic slowdown. During 2008-09
(Apr-Sept) exports grew by 48.1 per cent with almost all the major commodity groups, except
marine products, handicrafts recording significant growth.
In the second half of the year 2008-09 (Oct-Mar), exports declined by (-) 14.7 per cent with
almost all the major commodity groups, except Gems & Jewellery, RMG, Electronics goods,
recording significant negative growth. Commodities like Engineering Goods, Other basic
Chemicals, Man-made Yarn, Leather & Leather Manufactures, and Spices which recorded overall
positive growth during the year, as a whole, also recorded negative growth during the second
half.
However, despite the significant decline in the second half of the 2008-09, exports registered an
overall growth of 13.6 per cent for the year.
1.1.3 Imports
Cumulative imports during 2008-09 was US $ 303.7 billion as against US $ 251.6 billion during
the corresponding period of the previous year registering a growth of 20.7 per cent in $ terms.
Oil imports were valued at US $ 93.7 billion which was 17.4 per cent higher than oil imports
valued US $ 79.8 billion in the corresponding period of previous year. Non-oil imports valued US
$ 210.0 billion which was 22.2 per cent higher than non-oil imports of US $ 171.8 billion in
previous year.
Export, Imports & Balance of Trade

Year
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
Year
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
(P): Provisional
Exports
375340
456418
571779
655864
840755
563304
Exports
83.5
103.1
126.4
163.1
185.3
117.5
Growth Rate
(%)
27.9
21.6
25.3
14.7
28.2
-13.7
Imports
501065
660409
840506
1012312
1374436
927969
Growth Rate
Imports
(%)
30.9
111.5
23.4
149.2
22.6
185.7
29.1
251.7
13.6
303.7
-20.3
193.8
Data Source: DGCI&S, Kolkata
Value in Rs. Crore

Growth Rate
Balance of
(%)
Trade
39.5
-125725
31.8
-203991
27.3
-268727
20.4
-356448
35.8
-533680
-17.6
-364665
Value in US $ Billion
Growth Rate
Balance of
(%)
Trade
42.7
-28.0
33.8
-46.1
24.5
-59.3
35.5
-88.6
20.7
-118.4
-23.6
-76.2
10
1.1.4 Trade Balance

The Trade deficit in 2008-09 was estimated at US $ 118.4 billion which was higher than the deficit
of US $ 88.6 billion during 2007-08. Performance of Exports, Imports and Balance of Trade
during 2004-05 to 2009-10 (April- December) is given in the table 2.1 below:
During the year 2009-10 (April-December), the cumulative value of exports was US $ 117.6 billion
as against US $ 147.6 billion registering a decline of 20.3 per cent in US $ term over the
corresponding period of the previous year. Cumulative of imports for the same period was US $
193.8 billion as against US $ 253.8 billion during the corresponding period of the previous year
registering a decline of 23.6 per cent in US $ terms. Oil imports for the same period were valued
at US $ 56.9 billion which was 29.8 per cent lower than oil imports valued US $ 81.1 billion in the
corresponding period of last year. Non-oil imports for the same period valued at US $ 136.9 billion
which was 20.7 per cent lower than non-oil imports of US $ 172.7 billion in December, 2008. The
Trade deficit in April-December 2009-10 was estimated at US $ 76.2 billion which was lower than
the deficit of US $ 106.2 billion during April-December 2008.
Indias exports have not been affected to the same extent as other economies of the world during
the phase of global slowdown, yet our exports which suffered a decline since October 2008
continued for first seven consecutive months in 2009-10 as well. However, growth during the first
phase of 2009-10 though continued to be negative was progressively slower from June 2009
onwards and entered the positive phase from the month of November 2009 reversing the earlier
trend.
Trade Balance Foreign Trade Policy, 2009-14
The Foreign Trade Policy (FTP) 2009-14 was announced on 27th August, 2009 in the backdrop
of a fall in Indias exports due to global slowdown. The short term objective of FTP (2009-14) was
to arrest and reverse the declining trend of exports as well as to provide additional support
especially to those sectors which were hit badly by recession in the developed world. The Policy
envisaged an annual export growth of 15 per cent with an annual export target of US$ 200 billion
11
by March 2011 and to come back on the high export growth path of around 25 per cent per
annum in the remaining three years of this Foreign Trade Policy i.e. up to 2014. The long term
policy objective for the Government is to double Indias share in global trade by 2020.
1.1.5 Exports by Principal Commodities

Disaggregated data on exports by Principal Commodities, in $ terms, available for the period
2009-10 (AprilSeptember) as compared with the corresponding period of the previous year are
given in Table 2.2. Exports during the period registered a decline of (-) 29.67 per cent mainly due
to significant fall in the exports of Engineering Goods, Gems & Jewellery, Petroleum Products,
Agriculture and allied products, Chemical & related products and Ores & Minerals.
The share of top five Principal Commodity Groups in Indias total exports during 2009-10 (AprilSeptember) is given at Chart 2.2.
The export performance (in terms of growth) of top five commodities during 2009-10
(April-September) vis-a-vis the corresponding period of the previous year is shown at Chart 2.3.
Plantation Crops
Export of plantation crops during 2009-10 (AprilSeptember), decreased by 25.8 per cent in US $
terms compared with the corresponding period of the previous year. Export of Coffee registered a
negative growth of 34.6 per cent, the value increasing from US $ 610.1 million to US $ 452.4
million. Export of Tea also decreased by 17.7 per cent.
Agriculture and Allied Products
Agriculture and Allied Products as a group include Cereals, Pulses, Tobacco, Spices,Nuts and
Seeds, Oil Meals, Guargum Meals, Castor Oil, Shellac, Sugar & Molasses,Processed Food, Meat
& Meat Products, etc. During 2009-10 (AprilSeptember), exports of commodities under this
12
group registered a negative growth of 34.1 per cent with thevalue of exports falling from US $
8613.8 million in the previous year to US $ 5675.2 million during the current year.
Ores and Minerals
Exports of Ores and Minerals were estimated at US $ 2884.1million during 2009-10 (AprilSeptember) registering a negative growth of 35.5 per cent over the same period of the previous
year. Sub groups viz. Processed Minerals, has recorded a negative growth of 28.9 per cent and
Coal a positive growth of 40.4 per cent respectively. Mica has registered negative growth of
27.7per cent.
Leather and Leather Manufactures

Export of Leather and Leather Manufactures recorded a negative growth of 24.0 per cent during
2009-10 (April-September). The value of exports decreased to US $ 1531.0 million from US $
2013.0 million during the same period of the previous year. Exports of Leather and Manufactures
have registered a negative growth of 28.5 per cent and Leather Footwear also registered a
negative growth of 18.2 per cent.
Gems and Jewellery
The export of Gems and Jewelry during 2009-10 (April-September) decreased to US $ 13608.4
million from US $ 17387.7million during the corresponding period of last year showing a negative
growth of 21.7 per cent.
Chemicals and Related Products
During the period 2009-10 (April-September), the value of exports of Chemicals and Allied
Products decreased to US $ 10550.0 million from US $ 13228.1 million during the same period of
13
the previous year registering a negative growth of 20.2 per cent. Rubber, Glass & Other Products;
Residual Chemicals & Allied Products and Basic Chemicals, Pharmaceuticals & Cosmetics and
Plastic & Linoleum have also registered a negative growth.
Engineering Goods
Items under this group consist of Machinery, Iron & Steel and Other Engineering items. Export
from this sector during the period 2009-10 (April-September) stood at US $ 15143.7million
compared with US $ 23214.0 million during the same period of the previous year, registering a
negative growth of 34.8 per cent. Export of Machine Tools and Transport Equipments have
registered negative growth of 42.6 and 19.1 per cent respectively.
Electronic Goods
During the period 2009-10 (April-September), exports of Electronic Goods as a group were
estimated at US $3086.8 million compared with US $ 3828.2 million during the corresponding
period of last year, registering a negative growth of 19.4 per cent.
Textiles
During the period 2009-10 (April-September), the value of Textiles exports was estimated at US $
8657.3 million compared with US $ 10151.5 million in the corresponding period of the previous
year, recording a negative growth of 14.7 per cent. The export of Natural Silk Textiles registered a
negative growth of 31.0 per cent and Manmade Textiles & Made Ups has shown a positive
growth of 2.4 per cent.
Handicrafts and Carpets
Exports of Handicrafts declined to US $ 94.6 million during 2009-10 (April-September), from US $
167.2 million during the corresponding period of the previous year registering a negative growth
of 43.4 per cent. Export of carpets increased marginally to US $ 437.8 million from US $ 427.9
million during the same period last year registering a positive growth of 2.3 per cent.
Project Goods
During 2009-10 (April-September), the export of Project Goods were estimated at US $ 63.5
million compared with US $ 118.6 million during the corresponding period of last year registering
a negative growth of 46.4 per cent.
Petroleum Products
Export of Petroleum Products decreased to US $ 10579.8 million during 2009-10 (AprilSeptember), as compared with US $ 18721.4 million during the same period of last year
recording a negative growth of 43.5 per cent.
Cotton Raw including Waste
14
There was a negative growth in the exports of Cotton Raw including waste by 35.3 per cent from
US $ 400.3 million in 2008-09 (April-September) to US $ 259.0 million during 2009-10 (AprilSeptember).
Imports by Principal Commodities
Disaggregated data on imports by principal commodities, in $ terms, available for the period
2009-10 (AprilSeptember), as compared to the corresponding period of the previous year are
given in Table 2.3. Imports during the period registered a decline of (-) 23.7 per cent due to a
significant fall in the import of commodities such as Petroleum crude & products, Gold,
Electronics Goods, Machinery (except electrical & electronics) and Pearls Precious and semiprecious stones, etc.
The share of top five Principal Commodity in Indias total imports during 2009-10 (AprilSeptember) is given at Chart 2.4.
The import performance by top five Principal commodities during 2009-10 (AprilSeptember) visa-vis the corresponding period of the previous year is shown at Chart 2.5.
Fertilizers
During 2009-10 (April-September), import of Fertilizers (manufactured) decreased to US $ 2781.0
million from US $ 6947.0 million in April-September 2008 recording a negative growth of 60.0 per
cent.
Petroleum Crude & Products
The import of Petroleum Crude & Products stood at US $ 37386.3 million during April September, 2009 against US $ 63284.7 million during the same period of the previous year
registering a negative growth of 41.0 per cent.
Pearls, Precious and Semi-Precious Stones
Import of Pearls and Precious and Semi-Precious Stones during 2009-10 (April-September)
decreased to US $ 5430.1 million from US $ 10430.1 million during the corresponding period of
the previous year registering a negative growth of 48.0 per cent.
Capital Goods
Import of Capital Goods, largely comprises of Machinery, including Transport Equipment and
Electrical Machinery. Import of Machine Tools, Non-Electrical Machinery, Electrical Machinery
and Transport Equipment registered a negative growth of 41.1 per cent, 22.6 per cent, 29.2 per
cent, and 57.3 per cent respectively.
Organic and Inorganic Chemicals
During 2009-10 (April-September), import of Organic and Inorganic Chemicals decreased to US $
5628.6 million from US $ 7644.5 million during the same period of last year, registering
15
1.1.6 Direction of Indias Foreign Trade

The value of Indias exports to and imports from major regions/ countries are given in Table 2.4 &
2.5. Share of major destinations of Indias Exports and sources of Imports during 2009-10 (AprilSeptember) are given in Chart 2.6 and 2.7 respectively.
During the period 2009-10 (April-September), the share of Asia and ASEAN region comprising
South Asia, East Asia, Mid-Eastern and Gulf countries accounted for 55.0 per cent of Indias total
exports. The share of Europe and America in Indias exports stood at 21.4 per cent and 15.3 per
cent respectively of which EU countries (27) comprises 20.0 per cent. During the period, United
16
Arab Emirates (14.4 per cent) has been the most important country of export destination followed
by USA (11.5 per cent), China (5.1 per cent), Hong Kong (4.5 per cent), Singapore (4.3 per cent),
Netherland (3.7 per cent), U.K. (3.7 per cent), Germany (3.1 per cent), Saudi Arabia (2.7 per
cent) and Belgium (2.1 per cent).
Asia and ASEAN accounted for 61.3 per cent of Indias total imports during the period followed by
Europe (19.1 per cent) and America (9.4 per cent). Amongindividual countries the share of China
stood highest at (12.0 per cent) followed by USA (6.0 per cent), UAE (6.0 per cent), Saudi
Arabia (5.5 per cent), Iran (4.5 per cent), Switzerland (4.4 per cent), Germany (3.8 per cent),
Kuwait (2.9 per cent), Nigeria (2.5 per cent) and Iraq (2.3 per cent).
1.1.7 Import of Sensitive Items during April 09- September 09

The total import of sensitive items for the period April-September 2009-10 has been Rs.29256.29
crore as compared to Rs.21186.61 crore during the corresponding period of last year thereby
showing an increase of 38.1%. The gross import of all commodities during same period of current
year was Rs.790644 crore as compared to Rs 605075 crore during the same period of last year.
Thus import of sensitive items constitutes 2.7% and 4.8% of the gross imports during last year
and current year respectively. The summary of import of Sensitive items is given in the Table 2.6.
Imports of automobiles, cotton & silk, products of SSI alcoholic beverages and food grains have
shown a decline at broad group level during the period. Imports of all other items viz. edible oil,
Pulses, fruits & vegetables (including nuts), rubber, spices, marble & granite, tea & coffee and
milk & milk products have shown increase during the period under reference.
In the edible oil segment, the import has increased from Rs 6265.69 crore last year to Rs
11831.43 crore for the corresponding period of this year. The imports of both crude edible oil as
well as refined oil have gone up by 97% and 55% respectively. The increase in edible oil import is
mainly due to substantial increase in import of crude palm oil and its fractions.
Imports of sensitive items from Indonesia, Myanmar, Brazil, Malaysia, United States of America,
Japan, Canada, Ukraine, Argentina, Australia, Benin, Guinea Bissau etc. have gone up while
those from China P RP, Korea RP, Germany, Thailand, Cote D Ivoire, Czech Republic etc. have
shown a decrease.
17
UNIT 2
INDIAS FOREIGN TRADE POLICY

Chapters:
Indias Foreign Trade Policy
18
Chapter 2.1
INDIA'S FOREIGN TRADE POLICY
2.1.1 Brief Review of Indias Trade Policy
Indias foreign trade policy during the last five decades may be broadly split into import
substitution policy, export drive policy and export acceleration policy. The import substitution was
followed in the first two decades. With fears of external dominance, the Indian planners adopted a
somewhat introvert external trade strategy which relied on encouraging domestic production for
the domestic market with the help of high tariffs and high degree of protection. Far from viewing
foreign trade as an engine of growth, Indian planners sought to minimise import demand by
adopting an import substitution policy and gave secondary place to exports primarily as a source
to generate the foreign exchange earnings to meet that part of the import bill not covered by
external assistance. There were controls over both imports and exports. However, this policy of
import substituting industrialisation and system of controls failed to produce rapid growth and selfreliance.
With the realisation of the drawbacks of the excessively inward-looking strategy on one hand and
the need for modernisation and technology upgradation on the other, certain policy measures
were initiated in the late seventies. Export incentives in the form of cash compensatory support
(CCS), import replenishment (REP), duty drawback (DDS), market development assistance
(MDA) etc and export services in the form of export promotion councils, commodity boards and
specialised services institution were introduced. The strategy towards a greater integration of the
Indian economy with the rest of the world has been pursued since then. In 1975-76 import policy
was liberalised to make available imported inputs for registered exporters. In mid-1980s the
government adopted a three-year import-export policy (1985-88) with the aim to provide easy
access to imports, essential for maximizing production and exports. The main policy changes
were abolition of automatic licensing, inclusion of 201 items of industrial machinery under capital
goods import under OGL, decentralisation of 53 import items and granting facility for import of
capital goods against REP license from Rs 1 lakhs to Rs 2 lakhs.
The second three-year policy (1988-91) carried forward the process of trade liberalisation to
make exports more competitive. The policy was designed to stimulate industrial growth by
providing easy access to essential imported capital goods, raw materials and components to
industry so as to sustain movements towards modernization, technological upgradation and
making Indian industry competitive internationally. The liberal imports of capital goods and
technology were viewed as a means to enable exporters to undertake technological upgradation
in order to compete more effectively in the international market.
In the 1990s many short run adjustments were made in the trade policy in order to overcome the
external sector crisis, which hit the country in 1991. Two major measures taken in trade policies
were (a) liberalisation of imports entailing successive expansion in the OGL list and (b) linking
expansion in exports to import liberalisation. CCS scheme was suspended; REP license was
substituted by EXIM scrips. The rupee was devalued in July 1991 and the country saw transition
towards the market-based exchange rate regime.
From Independence in 1947 till mid 1990s, India with some exceptions, always faced deficit in its
balance of payments i.e. imports always exceeded exports. This was characteristic of a
developing country struggling for reconstruction and modernization of its economy. Imports
galloped because of increasing requirements of capital goods, defence equipments, petroleum
products, and raw materials. Exports remained relatively sluggish owing to lack of exportable
19
surplus, competition in the international market, inflation at home, and increasing protectionist
policies, of the developed countries.
India embarked on the path of globalization in the early 1990s with the objective of improving
overall productivity, competitiveness and efficiency of the economy in order to attain a higher
growth profile. Concomitantly, industrial, financial and external sector reforms were initiated with a
view to creating an environment conductive for the expansion of trade. As a result, growth in
trade accelerated in the early part of the 1990s. This momentum however could not be sustained
in the face of various domestic bottlenecks and exogenous constraints like East Asia crisis and
slowdown in the US economy. These external factors along with stagnation in investment rate,
sluggish industrial growth and slow down in manufacturing productivity, predicted Indias trade
during the closing years of the 1990s. Thus while the opening of the economy presented a range
of opportunities and advantages to the trade sector in India, the greater integration with the global
economy has posed several challenges as well.
Since the initiation of economic reforms, Indias outward orientation has increased considerably.
The destination pattern of Indian exports has remarkably changed in the sense that the
importance of developing countries as an export market has increased considerably. There are,
however, concerns that the country the dramatic changes in exports of East Asia. Indias
experience has seemingly fallen short of expectation. Indias share in global trade did not rise as
impressively and the commodity structure of Indias export remained almost unchanged until the
mid 1990s.
Moreover, unlike the East Asian countries where industry has been the major driver of exports
growth, the contribution of industrial exports in India has been comparatively low. This could
perhaps be attributed to small scale industry reservations and inflexible labour laws besides
infrastructural bottlenecks. The labour cost in India however is one of the lowest among the
competitor countries. Given the export structure on India, the potential for higher exports of
manufactures, especially to the developed countries is high.
On the imports side, despite some initial apprehensions, liberalization has not adversely affected
Indias balance of payments. On the contrary, increased trade liberalization along with the
prudent management of capital account liberalization has imparted with significant strength to the
balance of payments since the mid 1990a. With the increased competitiveness of Indian
Industries imports of low and medium technology intensive products have declined. At the same
time, imports of high technology intensive products and imports used for export production have
increased. There is growing evidence that accessibility to imports has a positive impact on the
growth performance of the country.
In the 1990s, a liberalised trade regime was put in place, which marked a significant turnaround
from the earlier controlled regime. The challenge of restoring the macro-economic balance
initially was combined with a long term new trade policy which formed a major ingredient of the
economic reforms programme. It was recognized that trade policies should form a part of an
integrated policy framework if the aim was to improve the overall productivity and efficiency of the
economic system. Apart from devaluation of the exchange rate and a switch over to a unified
marked determined exchange system in 1993, the new trade policy was characterized by a short
negative list of imports and exports, lowering of the level and dispersion of nominal tariffs,
withdrawal of quantitative restrictions on imports and phasing out of the system of import
licensing. The new trade policy reforms also encompassed significant changes in the system of
export incentives, moving away from direct subsidies to indirect export promotional measures.
20
The multi-pronged strategy undertaken in the beginning of the 1990s gradually had its desired
effects on the economy and ushered in a phase of a stable and high growth. The rising exports
combined with significant surge in capital flows provided opportunities for further liberalization of
essential imports from quantitative restrictions. The stability in the exchange rate of the rupee
maintained the competitiveness of Indian exports and at the same time prevented the upsurge of
cheap imports. The loss of the East European markets since the early 1990s was successfully
countered by diversifying into newer markets of developing countries of Asia and the
Organization of the petroleum Exporting Countries(OPEC).
The economic reform process introduced in the beginning of the 1990s wit focus on liberalization
had enabled increased integration of the Indian Economy with the rest of the world. The growth
rate of Indias trade is increasingly dependent on exogenous factors such as world trade growth,
international price changes and developments in the competitor countries. Cross currency
exchange rates as well as solar-rupee exchange rate movements also get reflected in the
performance of Indias trade. Although the level and dispersion of Indias tariff have considerably
come down since the early 1990s it remains among the highest as compared to emerging market
economies.
It is increasingly being realized that the desirable structure of tariff rates should comply with the
basic principles of simplicity, transparency, stability and international practices. As noted in the
tenth plan document, the most effective means of encouraging outward orientation is to lower
tariffs on imports so that the anti-export bias corrected. Further, it may be noted that as the duty
rates fall, the need for refunds will commensurately decline thereby bringing down the transaction
cost.
It has been observed that in contrast to the structural and compositional shifts in world trade
towards higher technology intensive products, the commodity structure of Indias exports
remained largely unchanged until the mid 1990s. Although, of late Indias exports have shown a
steady trend towards higher technology content, Indias specialization of in exports lies in
manufacturing goods, especially to the developed markets remains high. However, given the
general trend of movement of terms of trade towards higher technology intensive products, it may
be imperative for India to move up the technology ladder.
At the same time, the policy of reservation for SSIs had declined successful small scale units to
expand and achieve economies of scale and upgrade technology. This in turn has affected
export growth, manufacturing production and employment generation.
A noteworthy fact is that despite significant liberalization of imports during the 1990s the overall
balance of payments has been in surplus for most of the years with the country foreign exchange
reserves crossing US$ 100 billion mark. Thus, in contrast to fears expressed at the time if the
opening up of the economy, import, and liberalization policies have in fact strengthened the
countrys external sector since 1990-91. The implication is that continued reduction in import
tariffs will help in inducing greater efficiency and competitiveness in the economy, while reducing
avoidable transaction costs in trade. For the future, the prospects of sustained growth in exports
of goods and services are bright provided the Indian economy can face the challenge of
enhancing productivity and competitiveness in an increasingly integrated global environment.
21
2.1.2 Import Substitution: Cornerstone of Trade Policy

India adopted an inward looking development strategy after independence wherein import
substitution constituted a major element of both trade and industrial policies. The focus in the
initial stages of planned development was on stimulating home grown industrialization,
essentially based on the infant industry argument ,wherein production for domestic market was
shielded
behind high tariff walls
and high effective protection .this policy not only
underestimated the export possibilities but also the import intensity of the import substitution
process itself.
Import substitution was the prime objective of Indias trade policy till the mid 1970s. This policy
was largely based on the imports and exports act of 1947. Liberal incentives were granted to
firms if they were undertaking production of an imported item that was not domestically produced.
Protective quotas however remained more or less intact and domestic industry continued to be
shielded from import competition. Production for exports cannot be isolated from production for
the home market and trade policy would have to be integrated with the policy for domestic
industrialization.
A three year export import policy was introduced in 1985 to provide a definite focus to the trade
sector. A major ingredient of this policy was the provision of easy access to essential capital
goods, raw materials and component from abroad since these were viewed as a major incentive
for exporters in undertaking technological up gradation for reducing cost and improving quality.
In short prior to mid 1991, foreign trade of India suffered from strict bureaucratic and discretionary
control. Foreign exchange transactions were controlled by the government and the Reserve Bank
of India. Beginning mid1991 the government of India introduced a series of reforms to liberalize
and globalize the Indian economy. The process of globalization is a reality which cannot be
denied and also should not be avoided .It needs to be managed so that we can derive the
maximum advantage from world markets.
2.1.3 Balance of payment crisis, 1991

The balance of payment situation became very difficult in 1991-1992 despite of softening of oil
price in the world market. Even with a substantial import compression, the pressure on the
balance of payments persisted throughout the current financial year.
The government attempted to mobilize support for balance of payments for multilateral financial
institutions the international monetary fund, the World Bank and the Asian development bank.
Another important initiative taken by the government to meet the urgent need for the balance of
payments financing was the announcement of two schemes designed to encourage the inflow of
capital funds from abroad .The India development bond scheme and the immunity scheme for
repatriation of funds held abroad were introduced in October1991.
Foreign currency assets, which had declined to $1.1 billion at their lowest point in june1991, had
risen to $4.4 billion by February1992.
22
The build up of the reserves in the course of 1991-92 was necessary to restore confidence in the
system, but it also meant the additional resources mobilized from the multilateral financial
institutions and the IDB and immunity schemes were primarily used for building up reserves and
not to liberalize imports, which remain severely constrained in 1991-92.
Following adjustments were called for a broad based, rapid and sustained growth of exports.
Reduction in the excess domestic demand-Domestic demand had to be restrained and
supply increased.
Enhanced Competiveness-This required two changes, a change in the exchange rate of
rupee and a reduction in a relative prices of those products which were costly vis--vis
competing goods abroad. The first step was taken by means of a downward adjustment
of about 18 percent in the external value of the rupee .The second step required a
phasing down of import restrictions and a reductions in the high levels of protection
,which characterize Indian industries.
Deregulation-One of the obstacles to exports lied in the cumbersome administrative
procedures involved, arising from controls over imports and exports, exchange control
and also procedures.
Measures which were taken for lowering the inflation rate in the economy are:Reducing subsidies and external support to production enterprises so as to make more
responsive to price and demand changes.
Ensuring that buffer stock operations for food grains and interventions in agricultural
markets were counter cyclical.
Encouraging savings to be high not only as a proportion of GDP but in relation to demand
for investment funds in the economy.
Keeping entry barriers low in the industrial sector and improving industrys access to
imported inputs at low tariffs.
2.1.4 Indias Share in World Trade

In 1950, India accounted for 1.8 percent (1.85 percent of exports and 1.71 percent of imports) of
world trade, gradually declining to 0.53 percent by 1991; it marginally improved to 0.61 percent in
1994. The decline in Indias share in world trade has not only been arrested but reversed. Below
table shows trends in Indias share in the world trade during the post-Independence period. It is
discernible that of late Indias share in world exports in on the increase. It s noteworthy that
India commands an important place in world trade in tea, precious, and semi-precious stone,
spices, iron ore, leather and coffee. The Foreign Trade Policy, 2004 2009 has set an ambitious
task of achieving 1.5 percent share in the world trade by the year 2009.
2.1.5 History of Indias EXIM Policy
23
India`s foreign trade is regulated by the foreign trade (Development and Regulation) Act, 1992
which replaced the import and export (control) Act, 1947. The act of 1992 empowers the central
government to formulate and announce from time to time the export and import policy and to
amend it in like manner.
Prior to mid -1991, foreign trade of India suffered from strict bureaucratic and discretionary
controls. However, the new government which took over at the centre in June 1991 soon realised
that Indias foreign trade policy must respond to the changes (liberalization and openness)
sweeping across the world. To reduce controls, simplify procedures and to create a congenial
environment for trade, the government made a statement on trade policy in parliament on august
13, 1991, ushering a new era in the foreign trade policy of India. Instead of controls and
regulations, the focus shifted to promotion and development of foreign trade.
Before 1985-86, the annual export-import policy was announced at the beginning of the financial
year. In 1985-86 , a three year export-import policy was announced for the period April 1985
through march 1988, providing a reasonable degree of stability to the policy framework. On its
expiry, the new policy for three years 1988-91 was announced in March 1988 which laid even
greater emphasis on promotion of exports.
EXIM Policy, 1992-97

On March 31, 1992, the government announced the export and import policy for a period of five
years (April 1, 1992 to march 31, 1997), coinciding with the period of eighth five year plan. The
chief controller of imports and exports was re-designated as director general of foreign trade.
EXIM Policy, 1992-97 made a conscious effort to dismantle various protectionist and regulatory
policies and accelerate India`s transition towards a globally oriented economy. The export-import
policy was further liberalized by the government on March 31, 1993. Substantial concessions
were announced to boost agricultural exports. The government also announced a centrally
sponsored scheme to set up industrial parks in different states.

The export and import policy, 1997- 2002 (coinciding with the period of ninth five year plan)
sought to consolidate the gains of the previous policy and further carry forward the process of
liberalization by deregulating and simplifying procedures and removing quantitative restrictions in
a phased manner. It set an ambitious target of attaining an export level of US$ 90-100 billion by
the year 2002 and achieving 1 per cent share in world trade.
Objectives:
The principal objectives of the policy were the following:
1. To accelerate the country`s transition to a globally oriented vibrant economy to derive
maximum benefits from expanding global market opportunities.
24
2. To stimulate sustained economic growth by providing access to essential raw materials,

intermediates, Components, consumables and capital goods required for augmenting
production.
3. To enhance the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities, and encourage the attainment of internationally accepted standards of
quality.
4. To provide consumers with good quality products at reasonable prices.
Salient Features:
Following were the salient features of the policy:
1. Exports and imports shall be free, except to the extent they are regulated by the
provisions of this policy.
2. The Central Government may in public, interest, regulate the import or exports of goods
by means of a negative list of imports or a negative list of exports, as the case may be.
3. The negative list may consist of goods, the import or export of which is prohibited,
restricted through licensing, or canalised.
4. Prohibited items in the Negative list of Imports shall not be imported and prohibited items
in the Negative list of exports shall not be exported.
5. Any goods, the export or import of which is restricted through licensing , may be exported
or imported only in accordance with a license issued in this behalf.
6. Any goods, the import or export of which is canalised, may be imported or exported by
canalising agency specified in the negative list.
7. No export or import shall be made by any person without an importer exporter code
(IEC) number unless specifically exempted.
Modified EXIM Policy, April 1998

The new government at the centre, which assumed office in March 1998, announced its exports
and import policy for the year 1998-99 on April 13, 1998. As part of the annual export-import
policy modification, the government freed from import restrictions a large number of consumer
goods and liberalized all major export promotion schemes. This new dose of liberalization of the
trade regime by the new government was necessitated by the commitments made by India at the
World Trade Organization (WTO). The timing of the import policy liberalization coincided with the
scheduled review of India`s trade policy by WTO on April 16 and 17, 1998. Apart from the general
global pressure on India to remove restrictions on imports, the US had filed a complaint with the
WTO against India`s import regime. The following were the main provisions of the modified
Export-import policy unveiled by the Commerce Minister on April 13, 1998.
25
1. 340 more items were shifted from restricted list to open general licence (OGL). Thus out of
the total number of 10, 202 items covered under the export-import policy, only 2200 remained
on the restricted list.
2. The revised policy set an export growth target of 20 percent for the year 1998-99 which in
other words required total exports of the order of US$ 41.4 billion during 1998-99.
3. Zero duty export promotion capital goods (EPCG) scheme was extended to all the software
exporters by lowering the threshold limit of importable capital goods from Rs 20 crore to Rs
10 lakhs. The lowering of the threshold limit was expected to help the software companies to
proliferate throughout the length and breadth of the country. In other words they could import
any capital goods without paying any import duty and in return sign an export obligation of 5
times the value of capital goods on net foreign exchange earning basis for a period of six
years. In the case of garments, agriculture, food processing, gems and jewellery, electronics
leather, sport goods and toys the minimum limit was lowered to Rs 1 crore.
4. In a bid to prevent cheap imports being dumped at unreasonable prices, the government set
up an anti-dumping cell called Directorate General (DG) of Anti-Dumping and Allied Duties.
The DG would be responsible for investigation into alleged cases of dumping as well as
subsidised cases. DG would be recommended Anti Dumping duties where it is found that
dumped imports are causing harm to the domestic industry. Where harm is caused to the
domestic industry by subsidising exports of the exporting countries then the DG would have
the jurisdiction to investigate all such cases and recommend possible imposition of
countervailing duties. The DG would also advice the industry groups and consumer for on
how to go about collecting information and procedures involved in making out a case for antidumping duties.
Other provisions included:
Delegation of powers to regional licensing offices, Doing away with the minimum value addition of
33 percent under advance licensing scheme, Simplified procedures for clubbing of advance
license scheme and Private bonded warehouses to be set up to import, stock and sell even
negative list items.

In its effort to further dismantle the import control regime and hasten the integration of the Indian
economy with the world economy, the government announced a revised export-import policy on
March 31, 1999 which came into force on April1, 1999.
The new export import policy freed import of 894 items of consumer goods, agricultural products
and textile from licensing requirements. In other words a number of consumer items could now be
imported license-free subject only to the payment of import duty. Physical controls on imports
were removed and the only control over imports was fiscal in nature, i.e. adjusting import duty to
regulate imports. These adjustments were to be made within the upper limit prescribed by WTO.
26
Moreover, another 414items were removed from the restricted list, allowing these to be imported
against special import licenses. India`s international commitments require it to remove licensing
curbs on imports by the year 2003.

The union commerce and industry minister announced on march 31, 2000 the new export-import
policy of the government of India for the year 2000-2001. The export import policy envisaging a
20 percent export growth in dollar terms in 2000-2001, brought about a major rationalisation in
export promotion schemes and launched a series of sector specific initiatives.
Export Promotion: In a major initiative to boost exports, the Government announced the
following measures:
(A) Special Economic Zones (SEZ)
In the pattern of Chinese models the government announced the setting up of two SEZs at
Positra in Gujarat and Nangunery in Tamil Nadu ]. Industrial units located in SEZs will be
exempted from rules and regulations governing exports and imports. The entire production will
have to be exported from these zones. Sales from Domestic Tariff Area (DTA) can be done only
on full payment of custom duty. Several Export Processing Zones (EPZs)will shortly be converted
into SEZs. The EPZs located in Kandla, Vizag and Kochi will be converted into SEZs
immediately. It was further announced that 100 percent foreign direct investment (FDI) would be
allowed in all products in SEZs.
SEZs would be treated as if they are outside the customs territory of the country. The units would
be able to import capital goods and raw material duty free. The movement of goods to and from
SEZs would be unrestricted. It is noteworthy that SEZs have played a crucial role in boosting
China`s exports and presently the country derives 40 percent of its exports from such zones.
However, Chinese SEZs are based on contract labour system (hire and fire policy). The
commerce minister while announcing the EXIM policy categorically ruled out any changes in
labour laws. Moreover, there is no systems of reservation of items for small scale industries in
China. It is unclear if the Government of India would allow the production of reserved item for
small industries in the SEZs. Still further there are various infrastructural bottlenecks like power
shortage, lack of transport facility and of course procedural delays. Hence the success of SEZs in
India is a moot question
(B) Sector-Specific Packages
The Export-import policy 2000-2001 announced sector-specific packages for sever core areas to
boost export, viz. Gems and jewellery, pharmaceuticals, agrochemicals, biotechnology, silk,
leather and garments.
For the gems and jewellery exporters, the government announced a diamond-dollar account
(DDA) scheme export proceeds can be retained in a dollar account and the exporters can use
funds in this account for import of rough diamonds.
27
For agrochemicals, biotechnology and pharma units (considered as knowledge-intensive), the

government has allowed duty free imports of laboratory equipment, chemicals and reagents upto
1% of the FOB value of exports. Similarly the government increased duty free import of
trimmings, embellishments and other items from 2 to 3% of the total export value
(C) Involvement of State Governments in Export Promotions
Since the stages forgo taxes (mainly sales tax) on exports, they have little incentive to promote
exports. [1] the 2000-2001 export -import policy announced financial incentives to states based
on their export performance. An incentives scheme with an initial outlay of Rs. 250 crores to
secure states involvement in the national export drive was unveiled. The states can use the funds
for export promotions activities such as infrastructure development. The commerce and industry
minister said that he would request the state to treat all units exporting more than 50 percent of
their turnover as public utility services. This would enable them to keep their international
commitment on delivery schedule.
Furthermore, the minister observed that the recent spectacular growth of software exports was,
apart from Indias knowledge in high-tech, due to hands off policy of government towards this
sector .A similar approach to hardware electronics is called for.
(D) Import Liberalization
The export import policy 2000 to 2001 lifted quantitative restrictions on 714 commonly used items
(agricultural products and consumer durables ) which can now be freely imported. Thus,
commodities like meat, milk powder, coffee, tea, fish, pickles, cigars , cigarettes, television , radio
, tape recorders , foot wares & umbrellas can be imported freely from April 1, 2000. However
most of these items will attracts peak rates of basic import duty.
The lifting of licensing and quota restrictions on 714 import items was in line with Indias WTO
obligations. The government promised to abolish licensing and quota curbs on the remaining 715
items (such liquor, cars etc) in April 2001.
Many critics of new policy fear that that removal of licensing and quota restriction will lead to
surge in imports of these items, hurting the domestic industry. However, it is noteworthy that
import restrictionare being phased out since 1966 but no extraordinary growth has occurred in the
import of freed items. The commerce minister maintain that anti-dumping and anti-subsidy tariffs
and other safeguards would be used if there is sudden search in imports, causing serious injuries
to the domestic industry.

The Union Commerce and Industry minister unveiled on March 31, 2001, the EXIM policy for the
year 2001-2002, with the following main features:
Removal of Quantitative restrictions:
The process of removal of import restrictions, which began in 1991, was completed in a phased
manner bye the Export-Import Policy 2001-2002 with the removal of restriction on the remaining
28
of 715 items. This was in tune with the commitments made to the WTO. Out of these 715 items
342 were textile products, 147 were agricultural products and 226 were other manufactured
products.
However, import of agricultural products like wheat, rice, maze, copra and coconut oil was placed
in the category safe trading . the nominated state trading enterprise will conduct the import of this
commodity solely as per commercial consideration . similarly, import of petroleum products
including petrol , diesel & ATF was placed in the category of state trading in all 27 out of 715
items taken of the quantitative restrictions list were put under the state trading category.
The minister was confident that the Indian market will not swamped by imported brands of
commonly used articles. To prevent dumping, government will take recourse to anti-dumping
duties and other non-tariff barriers. Arrangements have been made to track, collate and analyse
data on 300 sensitive items which mainly comprise farm goods and items produced by small
scale sectors.
Agricultural Export Zones
With a view to boost agricultural exports and provide remunerative returns to the farming
community, the Export-Import policy proposed the setting up of agricultural export zones. Three
such zones are proposed to be set up in Himachal Pradesh, Jammu Kashmir (to promote export
of apples) and Maharashtra. Government will make efforts to provide improved access to the
produce/products of the agriculture and allied sectors in the international market. State
governments have been asking to identify product specific agricultural export zones for
development for export of specific products from a geographically contiguous area.

The EXIM Policy 2002-07 was unveiled on March 31, 2002. The policy entailed several
institutional, infrastructural and fiscal measures intended to promote exports which are conductive
to the economic development of the country. The following were the salient features of the policy:
Special Economic zones (SEZs):
Offshore banking units (OBUs) were permitted in SEZs . Units in SEZ were permitted to
undertake hedging of commodity price risks, provided such transactions are undertaken by the
units on stand-alone basis. This will impart security to the returns of the unit. It has also been
decided to permit external commercial borrowings (ECBs) for tenure of less than three years in
SEZs. The detailed guidelines will be worked out by RBI. This will provide opportunities for
accessing working capital loan for these units internationally competitive rates.
Employment Generation:
In an effort to generate additional employment, the following announcements were made
pertaining to agricultural and small industry sectors. Exports restrictions like registration and
packaging requirement were removed forthwith on butter, wheat & wheat products, coarse
grains groundnuts oil and cashew to Russia. Quantitative and packaging restrictions on
29
wheat and its products, butter, pulses, grains and flour of barley, maize, bajra, ragi and jowar
had already been removed on arch 5, 2002.
Restrictions on export of all cultivated varieties of seed, except jute and onion, were
removed.
To promote export of agriculture and agriculture-based products, 20 agriculture export
zones were notified.
In order to promote diversification of agriculture, transport subsidy shall be available for
export of fruits, vegetables, floriculture, poultry and dairy products.
3 percent special DEPB rate was announced for primary and processed foods exported
in retail packaging of 1 kg or less
An amount of Rs 5 crore under Market Access Initiative (MAI)
Was earmarked for promoting cottage sector exports coming under te KVIC.
The units in the handicrafts sector can also access funds from MAI scheme for
development of website for visual exhibition of their product.
Under the export of Promotion Capitals Goods (EPCG) scheme, these units will not be
required to maintain average level of exports, while calculating the export obligation.
These units shall be entitled to the benefit of Export House Status on achieving lower
average export performance of Rs 5 crore as against Rs 15 crore for others.
The units in handicraft sector will be entitled to duty free imports of an enlarged list of
items as embellishments up to 3 percent of FOB value of their exports.
With a view to encouraging further development of centers of economics and export
excellence such as Tirupur for hosiery, wollen blanket in Panipat, wollen knitwear in
Ludhiana, following benefits shall be available to small scale sector:
1. Common service providers in these areas shall be entitled for facility of EPCG
scheme.
2. The recognized associations of units in these areas will be able to access the
funds under the Market Access initiative scheme for creating focused
technological services and marketing abroad.
3. Such areas will receive priority for assistance for identified critical infrastructure
gaps from the scheme on Central Assistance to States.
4. Entitlement for Export House Status at Rs 15 crore for others.
Technology Upgradation:
30
Electronic Hardware Technology Park (EHTP) scheme was modified to enable the sector to face
the zero duty regime under ITA(Information Technology Agreement)-1.The units shall be entitled
to following facility.
Net Foreign Exchange as a Percentage of Exports (NFEP) positive in 5 years.
No other export obligation for units in EHTP.
Supplies of ITA-1 items having zero duty in the domestic market to be eligible for
counting of export obligation.
Growth-oriented:
The status holders shall be eligible for the following new/special facilities.
License/Certificate/Permissions and customs clearance for both exports imports on selfdeclaration basis.
Fixation of input-output norms on priority.
Priority finance for medium and long-term capital requirement as per conditions notified
by rbi.
Exemption from compulsory negotiation of documents through banks. The remittances,
however, would continue to be received through banking channels.
100 percent retention of foreign exchange in Exchange Earners Foreign Currency
(EEFC) account.
Enhancement in normal repatriation period from 180 days to 360 days.

It had the following provisions:
The policy provided a massive thrust to export of services by introducing duty free export
facility for the service sector units having a minimum foreign exchange earning of Rs 10
lakh.
Encouragement of corporate sector with proven credential to sponsor Agri-Export Zones
for boosting farm exports.
EPCG scheme made more flexible and attractive so that even the small scale sector
could set up and expand its manufacturing base for exports.
Fixing of input-output norms for status holders on priority basis within a period of 60 days
and permission to status holders in Software Technology Parks India(STPI) for free
movement of professional equipments.
31
Simplification and codification of rules, regulations and procedures application on SEZ

and EOU units by putting all these rules and regulations in one place, thus greatly
facilitating both potential investors and existing units.
To increase the overall competitiveness of export clusters, a scheme for upgradation of
infrastructure in existing clusters/industrial locations would be implemented.
Extension of Duty Free Replenishment Certificate(DFRC)scheme to deemed exports and
reduction in its value addition norms from 33 percent to 25 percent.
Mini EXIM Policy, Jan 2004

th
Preceding the dissolution of the 13 Lok Sabha on Feb. 6, 2004 the government of India
announced mini EXIM policy on Jan 28, 2004. It included facilitation and simplification measure to
sustain the momentum of export growth. Specifically it was aimed at providing boost to exports of
gems and jewellery, encouraging tourism and making energy generation cheaper. Highlights of
new policy were.
Free import of gold and silver for export purpose permitted. In other words, gold and
silver can now be imported without paying any commission to channelling agents. (in
10997, the government authorized three canalizing agencies viz MMTC, STC and HHEC,
and eight banks to import gold and silver for sales in the domestic market ). Likewise,
import of rough, uncut and semi polished diamonds will not be valued for export
obligations. Quantitative restriction on gold and silver imports has also been lifted.
Government also announced the introduction of a gold card for creditworthy exporters to
make available cheaper foreign currency debt on easier terms.
Duty free import facility available to star hotels extended the heritage, one and two star
hotels and stand alone restaurants. All these hotels have been allowed duty free import
equivalent to 5% of their export earnings in three preceding years.
Restriction on import of electrical energy lifted
Online license electronic fund transfer facility for exporters. These measures are
expected to reduce transaction cost for exporters and make export administration
transparent
Foreign Trade Policy, 2004-2009

In radical move the government of India announced on August 31 2004 a new forign trade policy
for the period 2004-09, replacing the hitherto nomenclature of EXIM policy by foreign Trade
policy. A vigorous export led growth strategy of doubling Indias share in global merchandise
trade in the next 5 years , with a focus on the sector having prospectus for export expansion and
potential for employment generation, constitute the mail plank of the policy. These measures are
expected to enhance international competiveness and aid in further increasing the acceptability
on Indian exports.
Objectives and Strategy
32
The new FTP takes an integrated view of the overall development of Indias foreign trade and
essentially provides a roadmap for the development of this sector. It is built around two major
objectives of doubling Indias share of global merchandise trade by 2009 and using trade policy
as an effective instrument of economic growth with a thrust on employment generation. Key
strategies to achieve these objectives, inter alia, include: unshackling of controls and creating an
atmosphere of trust and transparency; incidence of all levies on input used in export products;
facilitating development of India as a global hub of manufacturing, trading and services;
identifying and nurturing special focus area to generate additional employment opportunities,
particularly in semi urban and rural areas; facilitating technological and infrastructural up
gradation of the Indian economy, epically and ensuring that domestic sector are not disadvantage
in trading agreements upgrading the infrastructural network related to the entire foreign trade
chain to international standards revitalizing the board of trade by redefining its role and inducting
into it experts on trade policy and activating Indian embassies as key players in export strategies.
The FTP 2004 has indentified certain thrust sector having prospects for export expansion and
potential for employment generation. These thrust sector include agriculture, handlooms and
handicraft, gems and jewellery and leather footwear sector. Sector specific policy initiatives for
the thrust sector include for agriculture sector introduction of new scheme called vishesh krishi
upaj yojana to boost export exports of fruit, vegetables, flowers minor forest produce and their
value added products. Under the scheme exports of these products qualify for duty free credit
entitlement for importing inputs and other goods under EPCG scheme permitting the installation
of capital goods imported under EPCG for agriculture anywhere ASIDE scheme for development
of AEZs, liberalization of import of seeds bulbs tuberts and planting material and liberalization of
the exports of plant portion, derivatives and extract to promote export of medicinal plants and
herbal produce
The special focus initiatives for handlooms and handicraft sector include extension of facilitating
like enhancing duty free imports of trimming and embellishment for handlooms and handicrafts
exemption of samples from CVD authorizing handicraft export promotion council to import
trimmings embellishment and samples for small manufacturing and establishment of a new
handicraft special economic zone.
New Export Promotion Scheme
A new scheme to accelerate growth of export called the target plus has been introduced. Under
the scheme exporters achieving a quantum growth in exports are entitled to duty free credit
based on incremental exports substantially higher than the general actual export target fixed.
Rewards are granted based on a tired approach. For incremental growth of over 20%, 25% and
100%, the duty free credit are 5%, 10%, and 15% of f.o.b value of incremental exports. Another
new scheme called vishesh kishi upaj yojana has been introduced to boost exports of fruits,
vegetables and flower. Exports of these products qualify for duty free credit entitlement equivalent
to 5% of f.o.b value of exports. The entitlement is freely transferable and can be used for import
of a variety of input and goods. To accelerate growth in export of service so as to create a
powerful and unique served from India brand instantly recognized and respected the world over
the earlier duty free export credit scheme for service has been revamped and re cast into the
33
served from India scheme. Individual service providers who earn foreign exchange of at least 5
lakh, and other service providers who earn foreign exchange of at least Rs. 10 lakh are eligible
for a duty-credit entitlement of 10% of total foreign exchange earned by them. In the case of
hotels it is 5%. Hotels and restaurants can use their duty credit entitlement for import of good
items and alcoholic beverages. To make India into global trading hub a new scheme to establish
Free trading and warehousing zones has been introduced to create trade related infra to facilitate
the import and export of goods and service with freedom to carry out trade transaction in
convertible currency. Besides permitting FDI up to 100% in the development outlay of Rs 100 cr
and five lakh sq. mts built up area. Units in the FTWZ qualify for all other benefits as applicable
for SEZ units.
Simplification, Rationalization and Modification of Ongoing Schemes
EPCG scheme has been further improved upon by providing additional flexibility for fulfilment of
export obligation, facilitating and providing incentives for technological up gradation, permitting
transfer of capital goods to group companies and managed hotels, doing away with the
requirement of certificate from central excise and improving the viability of specified projects by
calculating their exports obligating based on concessional duty permitted to them. Import of
second hand capital goods without any restriction on age has been permitted and the minimum
depreciated value for plant and machinery to be re located into India has been reduced from Rs
50 cr to Rs 25 cr. The new policy has been allowed transfer of the import entitlement under duty
free replenishment certificate scheme in respect of fuel to the marketing agencies authorized by
the ministry of petroleum and natural gas to facilitate sourcing of such import by individual
exporters.
The Duty Entitlement passbook scheme will continue until replaced by a new scheme to be drawn
up in consultation with exports. Additional benefits have been provided to EOU , including
exemption from service tax in proportion to their goods and service, permission to retain 100% of
exports earnings in export earners foreign currency accounts, extension of income tax benefits on
plant and machinery to DTA unit which convert to EOU, EHTP, STP, BTP units allowing imports
of capital goods on self certification basis and permission to dispose of leftover material and
fabrics up to 2% of c.i.f value or quantity of import on imports on payment of duty on transaction
value only. Minimum investment criterion has been waived for handicraft, agriculture, floriculture.
The FTP propose setting up to BTPs by granting all facilitates of 100% EOUs. The FTP 2004 has
introduced a new rationalization scheme of categorization of status holders as star export houses
with benchmarking for exports performance varying from Rs15 cr to Rs 5000cr.
Simplification of Rules, Procedures and Institutional Measures
Policy measures announced to further rationalize/simplify the rule and procedure include
exemption for exporters with minimum turnover of Rs 5cr and good track record from furnishing
bank guarantee in any of the scheme service tax exemption for exporters of all goods and service
uniformly to 24 months reduction in number of return of returns and forms to be filled delegation
of more power to zonal and regional offices and time bound introduction of electronic data
interface. Institutional measures proposed in the FTP 2004 include revamping and revitalizing the
board of trade setting up of council to map opportunities for key service in key markets and
34
setting up of common facility centres for use of professional home based service providers in
state and district level towns.
Annual Supplement 2005-06 to the Foreign Trade Policy 2004-05
The union commerce and industry minister announcement on April 8 2005, the 2005-06
supplement to the five year foreign trade policy, giving a big boost to exports from agriculture and
manufacturing sector. Auto components pharmaceuticals gems and jewellery and seafood
exports firms stood to gain the most. Highlights of the annual supplement were as follows
Push to exports of farm, marine, manufacture and pharma products
Exports cess on farm commodities abolished
Infra imitative to reduce port congestion
Imports by hotels, other service industry made duty free
Setting up of interstate trade council mooted
35
Chapter 2.2
HIGHLIGHTS OF FOREIGN TRADE POLICY
(2004-2009)
It is for the first time that a comprehensive Foreign Trade Policy is being notified. The Foreign
Trade Policy takes an integrated view of the overall development of India's foreign trade. This
Policy is essentially a roadmap for the development of India's foreign trade. It contains the basic
principles and points the direction in which Indian Foreign Trade proposes to go. The objective of
the Foreign Trade Policy is two-fold:
a) To double India's percentage share of global merchandise trade by 2009; and
b) To act as an effective instrument of economic growth by giving a thrust to employment
generation, especially in semi-urban and rural areas
The main objectives of the Foreign Trade Policy are to double India's trade in the next five years
and to act as an instrument of economic growth. Currently, it is 0.76%, or $62 billion. It is targeted
to double that amount in 2009. a target of 1.5% by 2009 is set. This is a dilution of target set
earlier by Murasoli Maran, who wanted achieve 1% by 2007. According to the Federation of
Indian Export Organisation, 1% of world trade by 2007 would have been $110 billion.
The key strategies are adopted are unshackling of controls, creating an atmosphere of trust and
transparency, simplifying procedures and bringing down transaction costs, adopting the
fundamental principle that duties and levies should not be exported and identifying and nurturing
different special focus areas to facilitate development of India as a global hub for manufacturing,
trading and services.

1. Sectors with significant export prospects coupled with potential for employment generation in
semi-urban and rural areas have been identified as thrust sectors, and specific sectoral strategies
have been prepared. Further sectoral initiatives in other sectors will be announced from time to
time. For the present, Special Focus Initiatives have been prepared for Agriculture, Handicrafts,
Handlooms, Gems & Jewellery and Leather & Footwear sectors.
2. The threshold limit of designated 'Towns of Export Excellence' is reduced from Rs. 1000 crores
to Rs. 250 crores in these thrust sectors.
3. Package for Agriculture: The Special Focus Initiative for Agriculture includes:
a) A new scheme called Vishesh Krishi Upaj Yojana has been introduced to boost exports
of fruits, vegetables, flowers, minor forest produce and their value added products.
b) Duty free import of capital goods under EPCG scheme.
36
c) Capital goods imported under EPCG for agriculture permitted to be installed anywhere in
the Agri Export Zone.
d) ASIDE funds to be utilized for development for Agri Export Zones also.
e) Import of seeds, bulbs, tubers and planting material has been liberalized.
f)
Export of plant portions, derivatives and extracts has been liberalized with a view to
promote export of medicinal plants and herbal products.
4. Gems & Jewellery:

a) Duty free import of consumables for metals other than gold and platinum allowed up to
2% of FOB value of exports.
b) Duty free re-import entitlement for rejected jewellery allowed up to 2% of FOB value of
exports.
c) Duty free import of commercial samples of jewellery increased to Rs.1 lakh.
d) Import of gold of 18 carat and above shall be allowed under the replenishment scheme.
5. Handlooms & Handicrafts:
a) Duty free import of trimmings and embellishments for Handlooms &
b) Handicrafts sectors increased to 5% of FOB value of exports.
c) Import of trimmings and embellishments and samples shall be exempt fromCVD.
d) Handicraft Export Promotion Council authorised to import trimmings, embellishments and
samples for small manufacturers.
e) A new Handicraft Special Economic Zone shall be established.
6. Leather & Footwear:
a) Duty free entitlements of import trimmings, embellishments and footwear components for
leather industry increased to 3% of FOB value of exports.
b) Duty free import of specified items for leather sector increased to 5% of FOB value of
exports.
c) Machinery and equipment for Effluent Treatment Plants for leather industry shall be
exempt from Customs Duty.
7. Export Promotion Schemes:
a) Target Plus: A new scheme to accelerate growth of exports called 'Target Plus' has been
introduced. Exporters who have achieved a quantum growth in exports would be entitled
to duty free credit based on incremental exports substantially higher than the general
37
actual export target fixed. (Since the target fixed for 2004-05 is 16%, the lower limit of
performance for qualifying for rewards is pegged at 20% for the current year). Rewards
will be granted based on a tiered approach. For incremental growth of over 20%, 25%
and 100%, the duty free credits would be 5%, 10% and 15% of FOB value of incremental
exports.
b) Vishesh Krishi Upaj Yojana: Another new scheme called Vishesh Krishi Upaj Yojana
(Special Agricultural Produce Scheme) has been introduced to boost exports of fruits,
vegetables, flowers, minor forest produce and their value added products. Export of these
products shall qualify for duty free credit entitlement equivalent to 5% of FOB value of
exports. The entitlement is freely transferable and can be used for import of a variety of
inputs and goods.
c) 'Served from India' Scheme: To accelerate growth in export of services so as to create a
powerful and unique 'Served from India' brand instantly recognized and respected the
world over, the earlier DFEC scheme for services has been revamped and re-cast into
the 'Served from India' scheme. Individual service providers who earn foreign exchange
of at least Rs.5 lakhs, and other service providers who earn foreign exchange of at least
Rs.10 lakhs will be eligible for a duty credit entitlement of 10% of total foreign exchange
earned by them. In the case of stand-alone restaurants, the entitlement shall be 20%,
whereas in the case of hotels, it shall be 5%. Hotels and Restaurants can use their duty
credit entitlement for import of food items and alcoholic beverages.
d) EPCG: Additional flexibility for fulfillment of export obligation under EPCG scheme in
order to reduce difficulties of exporters of goods and services.
e) Technological upgradation under EPCG scheme has been facilitated and incentivised.
f)
Transfer of capital goods to group companies and managed hotels now permitted under
EPCG.
g) In case of movable capital goods in the service sector, the requirement of installation
certificate from Central Excise has been done away with.
h) Export obligation for specified projects shall be calculated based on concessional duty
permitted to them. This would improve the viability of such projects.
i)
DFRC: Import of fuel under DFRC entitlement shall be allowed to be transferred to

marketing agencies authorized by the Ministry of Petroleum and Natural Gas.
j)
DEPB: The DEPB scheme would be continued until replaced by a new scheme to be
drawn up in consultation with exporters.
New Status Holder Categorization:

a) A new rationalized scheme of categorization of status holders as Star Export Houses has
been introduced as under:
38
Category
Total performance over three years
One Star Export House
15 crores
Two Star Export House
100 crores
Three Star Export House
500 crores
Four Star Export House
1500 crores
Five Star Export House
5000 crores
b) Star Export Houses shall be eligible for a number of privileges including fast-track
clearance procedures, exemption from furnishing of Bank Guarantee, eligibility for
consideration under Target Plus Scheme etc.
8. EOUs:
a) EOUs shall be exempted from Service Tax in proportion to their exported goods and
services.
b) EOUs shall be permitted to retain 100% of export earnings in EEFC accounts.
c) Income Tax benefits on plant and machinery shall be extended to DTA units which
convert to EOUs.
d) Import of capital goods shall be on self-certification basis for EOUs.
e) For EOUs engaged in Textile & Garments manufacture leftover materials and fabrics
upto 2% of CIF value or quantity of import shall be allowed to be disposed of on payment
of duty on transaction value only.
f)
Minimum investment criteria shall not apply to Brass Hardware and Handmade Jewellery
EOUs (this facility already exists for Handicrafts, Agriculture, Floriculture, Aquaculture,
Animal Husbandry, IT and Services).
9. Free Trade and Warehousing Zone:

a) A new scheme to establish Free Trade and Warehousing Zone has been introduced 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. This is aimed at
making India into a global trading-hub.
b) FDI would be permitted up to 100% in the development and establishment of the zones
and their infrastructural facilities.
c) Each zone would have minimum outlay of Rs.100 crores and five lakh sq.mts. built up
area.
d) Units in the FTWZs would qualify for all other benefits as applicable for SEZ units.
39
10. Import of Second hand Capital Goods

a) Import of second-hand capital goods shall be permitted without any age restrictions.
b) Minimum depreciated value for plant and machinery to be re-located into India has been
reduced from Rs.50 crores to Rs.25 crores.
11. Other Significant Measures
a) Services Export Promotion Council: An exclusive Services Export Promotion Council
shall be set up in order to map opportunities for key services in key markets, and develop
strategic market access programmes, including brand building, in co-ordination with
sectoral players and recognized nodal bodies of the services industry.
b) Common Facilities Centre: Government shall promote the establishment of Common
Facility Centres for use by home-based service providers, particularly in areas like
Engineering & 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.
c) Procedural Simplification & Rationalisation Measures. All exporters with minimum
turnover of Rs.5 crores and good track record shall be exempt from furnishing Bank
Guarantee in any of the schemes, so as to reduce their transactional costs.
i.
All goods and services exported, including those from DTA units, shall be exempt
from Service Tax.
ii.
Validity of all licences/entitlements issued under various schemes has been

increased to a uniform 24 months.
iii.
Number of returns and forms to be filed have been reduced. This process shall
be continued in consultation with Customs & Excise.
iv.
Enhanced delegation of powers to Zonal and Regional offices of DGFT for

speedy and less cumbersome disposal of matters.
v.
Time bound introduction of Electronic Data Interface (EDI) for export

transactions. 75% of all export transactions to be on EDI within six months.
d) Pragati Maidan: In order to showcase our industrial and trade prowess to its best
advantage and leverage existing facilities, Pragati Maidan will be transformed into a
world-class complex. There shall be state-of-the-art, environmentally controlled, visitor
friendly exhibition areas and marts. A huge Convention Centre to accommodate 10,000
delegates with flexible hall spaces, auditoria and meeting rooms with high-tech
equipment, as well as multi-level car parking for 9,000 vehicles will be developed within
the envelope of Pragati Maidan.
40
e) Legal Aid: Financial assistance would be provided to deserving exporters, on the

recommendation of Export Promotion Councils, for meeting the costs of legal expenses
connected with trade-related matters.
f)
Grievance Redressal: A new mechanism for grievance redressal has been formulated
and put into place by a Government Resolution to facilitate speedy redressal of
grievances of trade and industry.
g) Quality Policy: DGFT shall be a business-driven, transparent, corporate oriented

organization.
h) Exporters can file digitally signed applications and use Electronic Fund Transfer
Mechanism for paying application fees.
i)
All DGFT offices shall be connected via a central server making application processing
faster. DGFT HQ has obtained ISO 9000 certification by standardizing and automating
procedures.
j)
Bio Technology Parks - Biotechnology Parks to be set up which would be granted all
facilities of 100% EOUs.
k) Board of Trade: The Board of Trade shall be revamped and given a clear and dynamic
role. An eminent person or expert on trade policy shall be nominated as President of the
Board of Trade, which shall have a Secretariat and separate Budget Head, and will be
serviced by the Department of Commerce.
Looking Ahead
The policy document is welcome change from the previous documents. Till now we had EXIM
policy statements. The foreign trade policy statement gives a much wider connotation to the
global integration of the Indian economy. It also attempts to view foreign trade as critical strategic
input to the development paradigm and suitably accommodates the sectors of India's
comparative advantage. The thrust on agri based products export is the restatement of the
economic model of the new government and has suitably been reflected in the policy document.
Foreign trade is and cannot be viewed in isolation to the domestic economy. The health of the
domestic economy is what drives the performance ion the external. The document Attempts to
enhance the symbiotic relationship between the two.
41
Chapter 2.3
HIGHLIGHTS OF FOREIGN TRADE POLICY
(2009-2014)
General
Export target of $200 billion set for 2010-11
Growth target set to 15 per cent for next two years, 25 per cent thereafter
Various procedural relaxations provided like:
Reduction in and exemption from application fees for availing incentives
Transit loss claims received even from private approved insurance companies allowed for
Export Obligation (EO) fulfillment
Incentives not to be recovered from the exporters where Reserve Bank if India (RBI)
specifically writes off the export proceeds realization
Additional ports/ locations to be enabled on the Electronic Data Interchange (EDI)
Market and Product Diversification

Incentive available under Focus Market Scheme (FMS) raised from 2.5% to 3%.
Incentive available under Focus Product Scheme (FPS) raised from 1.25% to 2%.
Widened scope for products to be included for benefits under FPS. Additional engineering
products, plastic and some electronics to be reviewed.
Market Linked Focus Product Scheme (MLFPS) expanded by inclusion of products like
pharmaceuticals, textile fabrics, rubber products, glass products,auto components, motor
cars, bicycle and its parts.etc.
Common simplified application form introduced for taking benefits under FPS, FMS, MLFPS
and Vishesh Krishi and Gram Udyog Yojana (VKGUY).
Higher allocation for Market Development Assistance (MDA) and Market Access Initiative
(MAI)
To aid technological upgradation of export sector, Export Promotion Capital Goods (EPCG)
Scheme at Zero Duty has been introduced. Import of capital goods allowed at zero customs
duty to exporters of specified products, like engineering & electronic products, basic
chemicals & pharmaceuticals, apparels & textiles, plastics, etc. In these cases, Export
Obligation (EO) equivalent to 6 times of duty saved required to be met in 6 years. This
Scheme will be valid till 31 March 2011
Jaipur, Srinagar and Anantnag have been recognised as Towns of Export Excellence for
handicrafts; Kanpur,Dewas and Ambur for leather products; and Malihabad for horticultural
products.
Export obligation on import of spares, moulds, etc. under EPCG Scheme has been reduced
by 50%.
42
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.
Focus Product Scheme benefit extended for export of green products and some other
products from the North East.
Status Holders
To accelerate exports and encourage technological upgradation, 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 pharma products) [subject to
exclusions of current beneficiaries under Technological Upgradation Fund Schemes (TUFS)].
This facility shall be available up to 31 March, 2011.
Transferability for the Duty Credit scrips being issued to status holders under FTP and under
VKGUY Scheme permitted on condition that scrips would be utilized for the procurement of
coldchain equipments only.
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% Export Oriented Units (EOUs) and to Software Technology
Parks of India (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 Export
Credit and Guarantee Corporation (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.
43
Gems & Jewelry Sector

To neutralize duty incidence on gold Jewellery exports, it has been decided to allow Duty
Drawback on such exports.
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 & Jewelry products, the 13 value limits of personal carriage have
been increased from $ 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.
Agriculture Sector
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 to re-export 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.
FPS rate has been enhanced to 2%
Tea
Minimum value addition under advance authorisation scheme for export of tea has been
reduced from the existing 100% to 50%.
Domestic Tariff Area (DTA) sale limit of instant tea by EOU units increased from 30% to 50%.
Export of tea has been covered under VKGUY Scheme benefits.
Pharmaceutical Sector
Export Obligation Period for advance authorizations increased from existing 6 months to 36
months.
Handloom Sector
Simplify claims under FPS, requirement of Handloom Mark for availing benefits under FPS
has been removed.
44
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, Department of Revenue (DOR) shall issue
a clarification to enable procurement of spares beyond 5% by granite sector EOUs.
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 Special Additional
Duty (SAD) and Education Cess on DTA sale.
Value Added Manufacturing

To encourage Value Added Manufactured export, a minimum 15% value addition on imported
inputs under Advance Authorization Scheme has been prescribed.
Project Exports and a large number of manufactured goods have been covered under FPS
and MLFPS.
Duty Entitlement Passbook (DEPB) Scheme

DEPB rate shall also include factoring of custom duty component on fuel where fuel is
allowed as a consumable in Standard Input-Output Norms.
Scheme extended upto 31 December 2010
Flexibility Provided to Exporters

Payment of customs duty for Export Obligation (EO) shortfall under Advance Authorisation /
Duty Free Import Authorisation (DFIA) / EPCG Authorisation has been allowed by way of
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,
in line with the erstwhile DFRC scheme.
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.
Transit loss claims received from private approved insurance companies in India will now be
allowed for the purpose of EO fulfillment under Export Promotion schemes. At present, the
facility has been limited to public sector general insurance companies only.
Simplification of Procedures
45
To facilitate duty free import of samples by exporters, number of samples/pieces has been
increased from the existing 15 to 50. Customs clearance of such samples shall be based on
declarations given by the importers with regard to the limit of value and quantity of samples.
Allow 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. It would allow exemption for supplies made to a manufacturer, if
such manufacturer in turn supplies the products to an ultimate exporter. At present,
exemption is allowed upto one stage only.
Greater flexibility has been permitted to allow conversion of Shipping Bills from one Export
Promotion scheme to other scheme. Customs shall now permit this conversion within three
months, instead of the present limited period of only one month.
To reduce transaction costs, dispatch of imported goods directly from the Port to the site has
been allowed under Advance Authorisation scheme for deemed supplies. At present, the duty
free imported goods could be taken only to the manufacturing unit of the authorisation holder
or its supporting manufacturer.
Disposal of manufacturing wastes / scrap will now be allowed after payment of applicable
excise duty, even before fulfillment of export obligation under Advance Authorisation and
EPCG Scheme.
Regional Authorities have now been authorised to issue licences for import of sports
weapons by renowned shooters, on the basis of NOC from the Ministry of Sports & Youth
Affairs. Now there will be no need to approach DGFT (Hqrs.) in such cases.
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. This will solve the problems faced by
the medical devices industry.
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, which are not
manufactured in India.
Acceding to the demand of trade & industry, the application and redemption forms under
EPCG scheme have been simplified.
Reduction of Transaction Costs

No fee shall now be charged for grant of incentives under the Schemes in Chapter 3 of FTP.
Further, for all other 18 Authorisations/ licence applications, maximum applicable fee is being
reduced to Rs. 100,000 from the existing Rs 1,50,000 (for manual applications) and Rs.
50,000 from the existing Rs.75,000 (for EDI applications).
To further Electronic Data Interchange (EDI) initiatives, Export Promotion Councils/
Commodity Boards have been advised to issue Registration-cum-Membership Certificate
(RCMC) through a web based online system. It is expected that issuance of RCMC would
become EDI enabled before the end of 2009.
Electronic Message Exchange between Customs and DGFT in respect of incentive schemes
under Chapter 3 will become operational by 31.12.2009. This will obviate the need for
verification of scrips by Customs facilitating faster clearances.
46
For EDI ports, with effect from December 09, double verification of shipping bills by customs
for any of the DGFT schemes shall be dispensed with.
In cases, where the earlier authorization has been cancelled and a new authorization has
been issued in lieu of the earlier authorization, application fee paid already for the cancelled
authorisation will now be adjusted against the application fee for the new authorisation
subject to payment of minimum fee of Rs. 200.
An Inter Ministerial Committee will be formed to redress/ resolve problems/issues of
exporters.
An updated compilation of Standard Input Output Norms (SION) and ITC (HS) Classification
of Export and Import Items has been published.
Directorate of Trade Remedy Measures

To enable support to Indian industry and exporters, especially the Micro, Small and Medium
Enterprises (MSMEs), in availing their rights through trade remedy instruments, a Directorate
of Trade Remedy Measures shall be set up.
47
UNIT 3
INSTITUTIONAL FRAMEWORK FOR

EXPORT PROMOTION
Chapters:
Institutional Framework for Export Promotion in India
Export Promotion Council for EOUs and SEZs
Export Oriented Units
Special Economic Zones
48
Chapter 3.1
INSTITUTIONAL FRAMEWORK FOR EXPORT
PROMOTION IN INDIA
The Government of India has set up several institutions whose main functions are to help an
exporter in his work. It would be advisable for an exporter to acquaint him with these institutions
and the nature of help that they can render to him so that he can initially contact them and have a
clear picture of what help he can expect of the organized sources in his export effort.
Institutions engaged in export effort fall in six distinct tiers. At the top is the Department of
Commerce of the Ministry of Commerce. This is the main organization to formulate and guide
Indias trade policy. At the second tier, there are deliberative and consultative organizations to
ensure that export problems are comprehensively dealt with after mutual discussions between the
Government and the Industry. At the third tier are the commodity specific organizations which
deal with problems relating to individual commodities and/or groups of commodities. The fourth
tier consists of service institutions which facilitate and assist the exporters to expand their
operations and reach out more effectively to the world markets. The fifth tier consists of
Government trading organizations specifically set up to handle export / import of specified
commodities and to supplement the efforts of the private enterprise in the field of export
promotion and import management. Agencies for export promotion at the State level constitute
the sixth tier.
The Department of Commerce is the primary government agency responsible for evolving and
directing foreign trade policy and programmes, including commercial relations with other
countries, State trading, various trade promotional measures and development and regulation of
certain export oriented industries. Apart from the Finance and Administrative Divisions, the
principal functional divisions of the Department of Commerce are Economic Division, Trade
Policy Division, Foreign Trade Territorial Division, Export Products Division, Export Services
Division and Export Industries Division.
The main task of the Trade Policy Division is to keep abreast of the developments in the
international organizations like UNCTAD, WTO, the Economic Commissions for Europe, Africa,
Latin America and Asia and Far Past (ESCAP). It is also responsible for Indias relations with the
European Economic Community, European Free Trade Association, Latin American Free Trade
Area, other regional groupings and the Commonwealth. It also looks after the generalized system
of preferences and non-tariff barriers.
The Foreign Trade Territorial Division is entrusted with the work relating to the development of
trade with different countries and regions of the world. This Division also handles matters
pertaining to State trading and barter deals, organization of trade fairs and exhibitions,
commercial publicity abroad etc. It also maintains contacts with Indian Trade Missions abroad
and attends to the connected administrative work including the protocol functions.
49
The Export Products Division pays attention to the problems connected with production,
generation of surplus and development of markets for the various products under its jurisdiction.
These products include, inter alia, plantations, marine products, chemicals, plastics, leather and
leather goods, sports goods, films, steel, metals, engineering products, minerals and ores,
coal, petroleum products, mica, salt, etc. Although in administrative terms the responsibility for
these products remains with the Ministries concerned, this Division keeps itself in close touch with
them to ensure that production is sufficient to realize the full export potential besides meeting the
home consumption. This Division is also responsible for the working of export organizations and
corporations dealing with above commodities and products.
The Export Industries Division is responsible for development and regulation of rubber, tobacco
and cardamom. The Division is also responsible for handling export promotion activities relating
to textiles, woolens, hand-looms, readymade garments, silk and cellulosic fibres, jute and jute
products, handicrafts, coir and coir products.
The Export Services Division deals with the problems of export assistance including import
replenishment licensing, cash assistance, export credit, export houses, Marketing Development
Assistance and grants therefrom, transport , free trade zones, dry ports, quality control and preshipment inspection, joint ventures abroad and capacity creation in export oriented industries
including assistance to import capital goods and essential raw materials.
The Economic Division, headed by the Economic Adviser, is responsible r the formulation of
export strategies, export planning, periodic appraisal and view of policies as also for maintaining
coordination and constant contacts with the other Divisions as well as with various organizations
which have been under the Commerce Department to assist the export drive. This Division also
monitors work relating to technical assistance, management services for export and overseas
investments by Indian entrepreneurs.
3.1.1 Attached and Subordinate Office

Directorate General of Foreign Trade, New Delhi: The Import Export Trade Control Organization
headed by the Director General of Foreign Trade is responsible for the execution of the import
and export policies of the Government of India. Import and export licensing of iron and steel and
ferro-alloys is also looked after by this organization. The Director General of Foreign Trade has
subordinate offices, located at Ahmedabad, Amritsar, Bangalore Bhopal, Bombay, Calcutta,
Chandigarh, Cuttack, Ernakulam, Gandhidham, Guwahati, Hyderabad, Jaipur, Kanpur, Ludhiana,
Madras, Moradabad, New Delhi, Panaji, Patna, Pondicherry, Rajkot, Shillong, Srmagar, Tuticorin,
Varanasi, Visakhapatnam, Baroda, Coimbatore, Panipat and Pune. The Export Promotion Offices
at Bombay, Calcutta, Madras, Cochin, Nagpur and Pune are also functioning under the
administrative control of the Regional Joint Director General of Foreign Trade.
3.1.2 Consultative and Deliberative Body-Board of Trade

The Board of trade has been set up to ensure that the collective advice of the commercial
interests is available to the Government of India for framing and formulating export promotion and
import policies and for successful implementation thereof. The Board of Trade is the highest
50
forum for Government industry inter-face on trade policy issues. It has as its members Presidents
of FICCJ, AS-SOCHAM, CII, FASSI and FIEO, in addition to several other leading industrialists. It
has also representatives from the Ministries of Finance, Industry and Textiles as also from the
Prime Ministers office. The chairman of the State Bank of India and Export Import Bank and
Director General of Foreign Trade, are also its members. The Board of Trade is presided over by
the Commerce Minister. It deliberates on the policy and major bottlenecks faced by the trade and
industry in foreign trade and makes recommendations for Governments consideration and
implementation.
3.1.3 Commodity Organizations

A number of organizations have been established in the country with the objective of promoting
and strengthening commodity specialization. More important among them are the Export
Promotion Councils and the Commodity Boards.
3.1.4 Export Promotion Councils

There are 19 Export Promotion Councils covering the following products: Apparels; Basic
Chemicals, Pharmaceuticals and Cosmetics; Chemicals and Allied Products; Carpet; Cashew;
Cotton Textiles; Electronics & Computer software Engineering; Gems and Jewellery; Handicrafts;
Handlooms; Leathers, Overseas Construction; Plastics and Linoleums; Shellac; Silk; Synthetic
and Rayon Textiles; Sports Goods and Wool and Woolens. These councils are non-profit-making
limited companies registered under the Company Act. The Ministry of Commerce provides
necessary assistance in relation to their programmes of work.
These Councils advise the government regarding current developments in the export sector and
measures necessary to facilitate future growth in exports, assist manufacturers and exporters to
overcome the various cons-traints and extend to them the full range of services for the
development of markets overseas. The Councils also perform certain regulatory functions as they
have the power to de-register errant or defaulting exporters.
An idea of the functions of the Export Promotion Councils can be had from some of the important
activities of the Engineering Export Promotion Council as mentioned below:
1. To apprise the Government of the exporters problems
2. To keep its members posted with regard to trade enquiries and opportunities;
3. To help in exploration of overseas markets and identification of items with export
potential;
4. To render assistance on specific problems confronting individual exporters;
5. To help resolve amicably disputes between exporters and importers of Indian engineering
goods; and
6. To offer various facilities to engineering exporters in line with other exporting countries.
The Government is now increasingly limiting its role in direct conduct and promotion of trade.
Accordingly, it has been decided that the Export Promotion Councils, which have so far received
subsidy from the Government for some of their activities, will have to generate their own
resources. Over a period of five years, the grants to the EPCs will be phased out. The EPCs
51
would have to, therefore, redefine their role and functions. Over the years, they have more or less
functioned as liaison offices of the trade and industry in their dealings with the Government.
Developmental activities were undertaken only by a few EPCs. In the changed scenario, they will
have to reorient their services because with the procedural simplification of foreign trade,
traditional liaison work has lost its importance. They will now have to offer concrete market
promotional and consolidation programmes and set-vices to their members.
3.1.5 Commodity Boards

There are 9 statutory Boards for the following commodities: Handicrafts and Handlooms, Silk,
Powerloom, Coffee, Coir, Rubber, Tea, Tobacco and Spices. The Commodity Boards deal with
the entire range of problems production, development, marketing, etc. In respect of the
commodities concerned, they act themselves as if they were the Export Promotion Council.
Some of these Boards have opened their branch offices in foreign countries in order to promote
the consumption of the commodities under their jurisdiction.
3.1.6 Marine Products Export Development Authority

The Marine Products Export Development Authority replaced the Marine Products Export
Promotion Council and started functioning in September 1972. The Authority serves the seafood
industry right from fishing to processing, packaging, storing, transporting and marketing to the
different markets all over the world. The Authority is entrusted with the task of ensuring a healthy
growth of the industry through judicious regulation, conservation and control. Importers and
exporters can obtain any information relating to the markets and the products from the Marine
Products Export Development Authority.
The specific functions of the Authority are
a) Development of off-shore and deep-sea fishing in all its aspects and conservation and
management of off-shore and deep-sea fisheries;
b) Registration of fishing vessels, processing plants, storage premises and conveyances
relating to the marine products industry and ex-ports with a view to promote a healthy
development;
c) Laying down standards and specifications for marine products for purposes of export and
to introduce comprehensive in-plant inspection system to maintain a high quality of the
products;
d) Rendering financial or other assistance and to act as an agency for extension of relief
and subsidy as may be entrusted by the Government;
e) Rendering other types of assistance and service to the industry in relation to market
intelligence, export promotion, trade enquiries and import of certain essential items
required in small quantities for the industry;
f) Regulation of export of marine products;
g) Improve the marketing of marine products overseas by providing market intelligence,
market promotion activities, information on the types of products in demand in different
countries, nature of processing for specific types of requirements, etc.;
52
h) Arrange for training in different aspects connected with export with special reference to
fishing, processing and marketing; and
i) Such other measures that will be of importance to the export industry.
MPEDAs services extended to foreign buyers range from spotting the exporters and in ensuring
that the products are delivered in markets on time and in prime condition.
3.1.7 Agricultural and Processed Food Products Export Development

Authority
With a view to increase the exports from agricultural sector, the Processed Food Export
Promotion Council has been upgraded as Agricultural & Processed Food Products Export
Development Authority (APEDA). It will coordinate its activities with national bodies like
Horticulture Board and State Governments for generating production for exports and with
research institutes for development of value added products. It would also undertake quality
certification and unify the existing inspection and quality control for products such as meat and
meat products.
The products covered by the authority are:
1. Fruits, vegetables and their products.
2. Meat and meat products.
3. Poultry and poultry products.
4. Dairy products.
5. Confectionery, biscuits and bakery products.
6. Honey, jaggery and sugar products.
7. Cocoa and its products, chocolates of all kinds.
8. Alcoholic and non-alcoholic beverages.
9. Cereal products.
10. Cashewnuts, groundnuts and papads.
11. Guargum.
12. Horticulture and floriculture products.
13. Herbal and medicinal plants
The Functions of APEDA are:
a) The development of industries relating to the above products for export by way of
providing financial assistance or otherwise for undertaking surveys and feasibility studies,
participation in the equity capital through joint ventures and other reliefs and subsidy
schemes;
b) The registration of persons as exporters of the products concerned on payment of such
fees as may be prescribed;
c) The fixing of standards and specifications for these products for purposes of export;
d) The carrying out of inspection of meat and meat products in a slaughter house,
processing plant, storage premises, conveyance or other places where such products are
kept or handled for the purpose of ensuring the quality of such products;
e) The improving of packaging of these products;
f) The improving of the marketing of these products outside India;
53
g) The promotion of export oriented production and development of these products;

h) The collection of statistics from the owners of factories or establishments engaged in the
production, processing, packaging, marketing or export of these products or from such
other persons as may be prescribed on any matter relating to these products, and the
publication of the statistics so collected, or of any portions thereof or extracts therefrom;
and
i) The training in various aspects of the industries connected with these products.
3.1.8 Service Institutions

Indian Institute of Foreign Trade
Some of the principal activities of the Institute are the following:
1. It provides training of a high standard, short-term and long-term, for executives and
personnel employed in trade and industry, export houses, export organisations,
government departments, government trading corporations and Indian embassies and
consulates abroad, for developing specialization in the techniques, methods and
procedures of international trade.
2. It sponsors candidates selected from industry and trade, export houses, government
departments, trading corporations, etc. for higher training abroad in export management
and export techniques and for acquiring firsthand knowledge of the techniques and
procedures adopted by advanced countries in export marketing.
3. It plans, organizes, undertakes, sponsors and commissions marketing research and area
surveys in foreign countries in accordance with a planned programme in order to
ascertain the characteristics of the overseas markets and consumer preferences,
assesses the current and potential demand for Indian products, and determines the
scope and the techniques to be adopted for an increased absorption of Indian products in
these countries. It also undertakes commodity studies within the country with a view to
locating new products or developing new uses of existing products with export potential
and drawing up long-term plans for their development, processing and export.
4. The Institute undertakes and sponsors practical as well as fundamental research on
various problems of international trade. Be-sides its own research programmes, the
Institute undertakes research into problems referred to it by industry and trade and the
government.
5. It provides consultancy to business firms in matters relating to foreign trade.
6. The Institute disseminates information through its quarterly journal Foreign Trade
Review and reports on various products and market studies undertaken by it. Its monthly
Foreign Trade Bulletin seeks to disseminate information on new decisions and
developments affecting Indias foreign trade.
54
India Trade Promotion Organisation (ITPO)

The India Trade Promotion Organisation (ITPO) has come into effect from 1-1-92 with the main
objective of promoting exports and imports, and upgradation of technology through the medium of
fairs to be held in India and abroad, to undertake publicity through the print and electronic media,
to assist Indian companies in product development, to organize programmes, buyer-seller meets,
contact promotion programmes for specific products in specific markets. The India Trade
Promotion Organisation (ITPO) provides information and market intelligence to the business
community in India. It also organizes visits of buyers and trade delegations to industry and trade
establishments in India with a view to promote business contacts. ITPO has four foreign offices
located at New York, Frankfurt, Tokyo and hai. The major activities of ITPOs foreign offices
include:
Provide necessary inputs to Head Office and Regional Offices for various ITPO activities.
Assist in fixing appointments and business meetings for Indian exporters travelling
abroad.
Sponsoring buying delegations to India
Generation of trade enquiries and dissemination of trade information.
Collect latest information on fashion trends, pricing, distribution channels, standards,
specifications, drawings, etc.
Mobilization of foreign participation for trade fairs being organized in India.
Provide assistance in space booking, custom clearance and other arrangements like
stand erection, decoration, etc. for trade fairs being organized by ITPO in their region.
Publicize the ITPO participation in international fairs in their region by direct mailing,
telephone contacts, press conference, etc.
Invite buyers, government officials and the representatives of industry associations, etc.
to Indian pavilion at various fairs in their region.
Follow-up of the enquiries of buyers visit, and Indias participation in trade fairs abroad.
Feedback on Indias participation in international trade fairs, trade delegations, buyerseller meets, India promotions and other export developmental activities
Procurement of samples for product development and adaptation
Assist in setting up of joint ventures and promote upgradation of technology in India
Arrange visit of designers, experts, consultants, etc. for product development and
adaptation.
To collaborate with Government offices, industry associations, chambers of commerce,
standards institutions and other similar organisations
ITPO also has five regional offices in India located at Bombay, Calcutta, Madras, Bangalore and
Kanpur. These offices are involved with all activities of ITPO and service the regions in which
they are located.
National Centre for Trade Information (NCTI)
NCTI is a joint venture of ITPO and National Informatics Centre. The main functions of the Centre
are:
To create databases at national and international levels for export promotion
55
To collect information on various aspects of trade and commerce on different countries;

To disseminate information on countries and products to trade and industry;
To establish linkages with trade promotion bodies, regulatory bodies, chambers,
associations among others;
To establish linkages with commercial wings of Indian Missions abroad and foreign
Missions in India;
To create information base for all types of marketing intelligence on trade aspects;
To organize training, seminars and conferences on matters related to trade and
commerce;
To maintain liaison with trade and commercial bodies of different countries;
To publish papers, periodicals and other literature having a bearing on trade and
commerce
Export Credit Guarantee Corporation (ECGC)
For minimizing the risk element in export business and to facilitate the flow of finance from the
banks to exporters, there is an Export Credit Guarantee Corporation. In addition to the normal risk
policies, the Corporation assists the exporters through special schemes such as packing credit
guarantee, post-shipment credit guarantee and export production finance guarantee. It is wholly
owned by the Government of India and works on no-profit no-loss basis. To suit varying needs of
the exporters, the Corporation provides different types of cover which may be divided into the
following three broad groups:
1. Standard policies issued to exporters to protect them against the risks of trading with
overseas buyers on credit terms;
2. Financial guarantees issued to banks against the risks involve providing credit to
exporters; and
3. Special Policies.
Under its policies intended to protect the exporters against overseas credit risks, ECGC bears the
main brunt of the risk and pays the exporter 90 per cent of his loss on account of commercial
risks and political risks.
Export Import Bank
Export Import Bank was established on January 1, 1982 for the purpose of financing, facilitating
and promoting foreign trade of India. It extends finance to exporters of capital and manufactured
goods, exporters of software and consultancy services and to overseas joint ventures and
turnkey/construction projects abroad. The Bank is the principal financial institution in India for
coordinating the work of institutions engaged in financing export and import trade.
Export Inspection Council
In consonance with the need for constant improvement in the quality of Indian manufactures and
products, and for lending confidence to the importers abroad in respect of the quality of Indian
exports, the Government had enacted the Quality Control and Pre-shipment Inspection Act.
56
Eighty-eight per cent of export commodities cohering about 1,000 items have already been
brought within the purview of this Act and are subject to compulsory pre-shipment inspection. It is
envisaged that barring a few items, all the commodities will in the near future be covered by
quality control and compulsory pre-shipment inspection. The Export Inspection Council
established under the Act administers the various schemes of quality control and pre-shipment
inspection. The Council is also charged with the responsibility of establishing laboratories and test
houses throughout the country for the provision of inspection facilities in regard to the
commodities thus notified. It has established inspection agencies under which the network of
quality inspection officials operate in various parts of the country.
Indian Institute of Packaging
Indian Institute of Packaging (IIP) is established, by Government of India in collaboration with
Industries, in 1966. The main aims of the Institute are:
To undertake research on raw materials for the packaging industry,
To keep India in step with international developments in the field of packaging,
To organize training programmes on packaging technology,
To stimulate consciousness of the need for good packing, and
To organize consultancy services for the industry. Its activities include effecting
improvements in packaging standards and rendering testing facilities in respect of
packages
Indian Council of Arbitration
The Indian Council of Arbitration was set up in 1965 as the apex arbitra lion body by the
Government for promoting and encouraging amicable settlement of foreign trade disputes with a
view to generating goodwill in the field of foreign trade. The Councils objectives include:
propagation and popularization of the idea of commercial arbitration in relation to foreign
trade,
arranging arbitration of disputes in international trade through its constituent members,
maintenance of panels of persons to act as arbitrators, and
collaboration with international organisations and arbitral bodies in matters concerning
international commercial arbitration.
Federation of Indian Export Organisations
An apex body called the Federation of Indian Export Organisations (FIEO) was set up in 1965
with its registered office in Delhi, as a common and coordinating platform for the various export
organisations including the Commodity Councils and Boards and the service institutions and
organisations. The principal activities of the FIEO are:
Convening meetings, conferences, seminars and workshops to pro-vide opportunity to all
sectors of the exporting community and export promotion institutions in India to review,
discuss and, wherever necessary, to formulate recommendations to the Government and
other authorities, on problems, prospects and potentials of Indias exports.
57
Arranging round-table conferences of business interests in India with trade missions and
other business teams on a visit to India
Inviting leading business interests and Economic and Trade Missions from abroad
specially for a tour of industrial and commercial centers in India
Projecting Indian goods and services abroad through various media including films,
exhibitions, advertisements and publications
Sponsoring outgoing multi-interest trade and economic missions, and special teams of
government recognized export houses, consultancy firms, small scale industries and
individual study-cum-sales teams
Maintaining overseas liaison with International and UN agencies like ITC, WTO,
UNCTAD, ESCAP, UNIDO, IMF, World Bank, ADB, ILO, etc
Establishing rapport with overseas chambers of commerce, trade associations and
government departments concerned
Sponsoring special projects related to the export promotion of Indias consultancy
services.
Executing projects and responsibilities entrusted to it, from time to time, by the
Government of India and serving as a forum for two-way transmission of views and
information between government departments and the exporting community.
Promoting trade, economic and technical co-operation between India and other countries
by way of international seminars and creating special infrastructure for follow-up
The FIEO is the primary servicing agency to provide integrated assistance to Government
recognized export houses as also the central coordinating agency for export promotion of
consultancy services. FIEO is now placing great emphasis on intra and inter-regional cooperation in trade and economic matters with a view to promoting harmony and understanding
through economic, trade and technical ties.
Department of Commercial Intelligence and Statistics
The Department of Commercial Intelligence and Statistics is located at Calcutta. Its functions
comprise:
i.
commercial intelligence and
ii.
collection, compilation and publication of the statistics of trade, tariffs and shipping.
The work of the Department is broadly divided into the following principal categories:
Collection and supply of commercial information required by the government and the
trade;
Maintenance of registers of Indian and foreign firms;
Publication of the Directory of Exporters of Indian Products and Manufactures;
Publication of the weekly Indian Trade Journal and Monthly Statistics of Foreign Trade
of India;
Publication of the periodical reports received from Indian Government Trade
Representatives stationed in foreign countries in regard to economic conditions in these
countries;
58
Mediation in commercial disputes between Indian and foreign firms with a view to
bringing about amicable settlement;
Trade introduction; and
Maintenance of Commercial Library in Calcutta for the use of the public.
Directorate General of Shipping
Till 1949, the Ministry of Commerce was responsible for all matter relating to policy and
administration of merchant shipping. Subsequently, it was felt that there should be a separate
organization to deal with all executive matters relating to merchant shipping. Accordingly, the
Directorate General of Shipping was set up in September 1949, with headquarters at Bombay. It
functions, inter alia, include:
Matters affecting merchant shipping, navigation, administration of merchant shipping;
Development of Indian shipping;
Regulation of ocean freight rates in overseas trade.
Freight Investigation Bureau
Freight Investigation Bureau (FIB) was set up in the Directorate General of Shipping 1959. This
has branch offices at Calcutta, Cochin, Kandla, Madras and Vishakhapatnam. The main functions
of FIB are:
To investigate into the representations of shippers/ shippers councils relating to high/
anomalous/ discriminatory freight rates and to secure necessary adjustment
To critically examine proposals of Conference Lines on periodic increases in freight rates
and to provide guidance to shippers councils with a view to enabling them to have an
effective dialogue with Conferences on such proposals;
To provide spot assistance to shippers all over the country in procuring timely and
adequate shipping space;
To collect, maintain and examine freight rates of Conferences/ Shipping Lines operating
in Indias overseas trade and also in international cross trade;
To analyze the impact of changes in freight rates and to keep shippers councils and
other organisations concerned posted on such amendments;
To investigate into complaints regarding lack of shipping facilities;
To serve as a liaison organization between shippers and shipping companies to solve
shipping and freight problems through mutual consultation
3.1.9 Organizational Set-Up in the States

The State governments are increasingly participating in export efforts of the country. Some State
Governments have created independent Departments of Commerce and a Minister has been put
in charge of it. Some Governments have also set up Export Promotion Boards and Export
Corporations for stimulating exports of items originating from their respective States. Liaison
officers have also been appointed by the States to develop export trade and maintain links with
the Central Government departments and organisations. Export Promotion Advisory Committees
have been established by some States.
59
Chapter 3.2
EXPORT PROMOTION COUNCIL FOR EOUs AND
SEZs (EPCES)
3.2.1 Introduction
The Export Promotion Council for EOUs and SEZs (EPCES) has been setup to service the
export promotional needs of 100% Export Oriented Units (EOUs), Special Economic Zone (SEZ)
Units and Agri-Economic Zones in the country. EPCES represents EOU/SEZ Sector, which has
over 2900 EOUs/SEZ Units, spread all over the country. The export earnings by this sector in
2005-06 was Rs. 59,967/- crore (US $ 13.84 billion) with a contribution of 13.19% in national
exports. In the decade 1996-97 to 2005-06, exports from EOU/SEZ Sector had shown an
average growth rate of 18.24%. This shows the potential of EOU/SEZ Scheme. This Council is a
multi-product and scheme specific Export Promotion Council. The EOUs/SEZ Units cover major
industrial sectors, like Textiles, Garments & Yarn, Food & Agro Products, Electronics & Software,
Chemical, Engineering, Minerals, Granite, etc.
3.2.2 Objectives of the Export Promotion Council for EOUs and SEZs
(EPCES)
The objectives of the Council are:
To promote exports from India and to earn more foreign exchange for the country.
To facilitate interaction between the exporting community and government both at the
Central and State level.
To canalize financial assistance rendered by the Central Government to members for
assisting their export market development efforts.
To collaborate with other Export Promotion Councils/Export Promotion Organizations in
India and similar bodies in foreign countries as well as with international organizations
working in the field.
3.2.3 Activities of the Export Promotion Council for EOUs and SEZs
(EPCES)
The main activities of the Council are:
Providing financial assistance to EOUs/SEZ Units through Market Development
Assistance for export promotion activities abroad.
Organizing Open Houses/Seminars/Workshops in different states of the country for
resolving their problems and eliciting suggestions for policy making by Government.
60
Taking up issues affecting EOUs/SEZ Units with various Ministries like Commerce,
Finance, CBEC, CBDT, RBI, State Governments etc.
Participating in trade fairs/exhibitions in India and abroad.
Informing members about latest developments and changes in the national and
international trade scenario.
Publishing a quarterly EPCES News focusing on marketing strategies, international
scene, latest provisions and procedures relating to Export-Import, Customs & Excise,
Investment Opportunities etc.
Bringing out publications for use within India and abroad.
Organizing buyer-seller meets with EOUs and SEZ Units for the promotion of exports.
3.2.4 Marketing Development Assistance Scheme

Export promotion continues to be a major thrust area for the Government. In view of the
prevailing macro economic situation with emphasis on exports and to facilitate various measures
being undertaken to stimulate and diversify the countrys export trade, Marketing Development
Assistance (MDA) Scheme is under operation through the Department of Commerce to support
the under mentioned activities:
(i) Assist exporters for export promotion activities abroad
(ii) Assist Export Promotion Councils (EPCs) to undertake export promotion activities for their
product(s) and commodities
(iii) Assist approved organizations/trade bodies in undertaking exclusive nonrecurring innovative
activities connected with export promotion efforts for their members
(iv) Assist Focus export promotion programmes in specific regions abroad like FOCUS (LAC),
Focus (Africa), Focus (CIS) and Focus (ASEAN + 2) programmes.
(v) Residual essential activities connected with marketing promotion efforts abroad.
3.2.4.1 Administration of the Scheme

(i) The utilization of scheme is administered by the E&MDA Division in the Department of
Commerce, Government of India. Recognized EPCs on product grouping basis, Commodity
Boards and Export Development Authorities are eligible for MDA assistance for development and
promotional activities to promote exports of their products and commodities from India.
(ii) MDA budget allocation to recognized EPCs and other export promotion organizations for
export promotion activities including specific special development and promotional projects are
finalized in annual meetings with the respective EPCs, which are chaired, by the Additional
Secretary and Financial Advisor (AS&FA), Department of Commerce. Proposals for adhoc grants
for exclusive innovative export promotional activities, which are considered helpful to promote
61
exports of Indian products and commodities are examined by the E&MDA Division and decided
with the approval of the AS&FA.
(iii) Proposals of individual exporters for eligible MDA supported activities like participation in EPC
led Trade Delegations/BSMs/Trade Fairs/Exhibitions for reimbursement of MDA assistance will
be considered and approved by the Chief Executive Officer of the Export Promotion
Councils/FIEO etc.
The approved claims shall be then disbursed by the concerned organization out of the funds
allocated to them for this purpose. A monthly utilization report in the format at Annexure- IX , duly
signed by the Chief executive Officer of the concerned organization shall be sent to the E&MDA
Division in Department of Commerce.
The MDA Committee in the Dept. of Commerce shall test check 10% of the cases approved by
the EPCs etc. through a random selection method, based on the monthly progress reports to be
send by the EPCs.
Assistance to individual exporters for export promotion activities abroad Participation in EPC
etc. led Trade Delegations/BSMs/Trade Fairs/ Exhibitions:
(i) Exporting companies with an f.o.b. value of exports of upto Rs. 15 crore in the preceding year
will be eligible for MDA assistance for participation in trade delegations/BSMs/fairs/exhibitions
abroad to explore new markets for export of their specific product(s) and commodities from India
in the initial phase. This will be subject to the condition that the exporter is having complete 12
months membership with concerned EPC etc. and filing of returns with concerned EPC/
organization regularly. However, this condition would not apply in case of a new EPC for a period
of 5 years from the date of its creation.
(ii) Assistance would be permissible on travel expenses by air, in economy excursion class fair
and/or charges of the built up furnished stall. This would, however, be subject to an upper ceiling
mentioned in the table per tour.
S
Area/Sector
No. of visits
No.
Maximum Financial
ceiling per event
1.
Focus LAC
Rs. 1,80,000
2.
FOCUS AFRICA (including WANA Countries)
Rs. 1,50,000
3.
FOCUS CIS
Rs. 1,50,000
4.
FOCUS ASEAN+2
Rs. 1,50,000
5.
General Areas
Rs. 80,000*
TOTAL
General Areas
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The participation of individual companies in the above activities shall be subject to the following
conditions:
(1) For EPC etc. led Trade Delegations/BSMs only air-fare by Economy Excursion class upto a
maximum of Rs. 70,000 (Rs. 1,00,000 in case of Focus LAC) shall be permissible. For
participation in Trade Fairs/Exhibitions reimbursement shall be permissible subject to ceilings
mentioned in the column 4 in the above table.
(2) Maximum number of permissible participations shall be five in a financial year as indicated in
above table (No travel grant is permissible for visit to General Areas). However, for priority
sectors, having large employment generation potential, viz. Agriculture including food items,
Handicrafts, Handlooms, Carpets, Leather & Minor Forest Produce including LAC, 2 (two)
participations in General Areas would be admissible with the assistance of Rs. 1,50,000 for each
participation. The exporters availing of assistance under this provision would, however, be in
addition to these participations, eligible for only any 2 Focus Area participations.
(3) Assistance shall be permissible to one regular employee/director/ partner/proprietor of the
company. Assistance would not be available to exporter of foreign nationality or holding foreign
passport.
(4) Intimation application must be received in the concerned EPC etc. with a minimum of 14
days clear advance notice excluding the date of receipt of application in the office of the
concerned organization and the date of departure from the country.
(5) The company shall not be under investigation/charged/prosecuted/ debarred/black listed
under the Foreign Trade Policy of India or any other law relating to export and import business.
(6) Member exporters of EPCs etc. would also be eligible for MDA assistance for participation in
events organized by ITPO abroad. Their applications / claims would by routed/reimbursed
through concerned EPC etc.
(7) Maximum MDA assistance shall be inclusive of MDA assistance received from all Govt.
bodies/FIEO/EPCs/Commodity Boards/Export Development Authorities/ITPO etc.,
(8) A Maximum of three participations in a particular trade fair/exhibition would be eligible for
MDA assistance and exporting companies after availing assistance three times including past
cases for a particular fair/exhibition, have to participate in that fair, if any, on self-financing basis.
3.2.4.2 Assistance to Export promotion Councils

(i) Export Promotion Councils (EPCs) are autonomous in administrative matters and no financial
assistance is provided to them from MDA for administrative expenditure (non-code). List of
recognized EPCs is given in Annexure-I. The EPCs can, however, be considered for one time
assistance for computerization for data collection, analysis, dissemination under MDA.
Maintenance and updating of systems shall be the responsibility of the EPCs.
63
(ii) EPCs will be allocated a budget, both for code activities and reimbursement of Individual
Exporters claims, on annual basis. The budget for code activities and the funds for assistance to
Individual Exporters will be released in two installments.
(iii) The EPCs are required to send their detailed annual action plan and estimated funds required
for reimbursement to individual exporters to E&MDA Division three months in advance. The
activities approved in the annual meetings with each EPC well before the start of the financial
year shall only be financed from MDA funds. EPCs shall have to utilize the MDA funds in a
financial year for purposes for which these are sanctioned. 50% of the MDA budget approved for
both the Code activities as well as for reimbursement to individual exporters shall be released to
the EPCs in the beginning of the financial year. The EPCs shall indicate their further requirement
th
of funds latest by 30 November of the year. Funds for reimbursement to individual exporters
shall be released only when 90% of the first installment has been utilized and a utilization
certificate to this effect has been submitted by the concerned organization. Earmarked grant for
the financial year but not claimed within the year or wherein complete information has not been
provided to facilitate its release, would lapse and shall not be carried over to the next financial
year.
(iv) EPCs shall furnish activity-wise detailed accounts for each approved code activity certified by
a Chartered Accountant and the utilization certificate for the funds released in a financial
th
year duly signed by the Chief Executive Officer of the concerned organization by 30 September
of the succeeding financial year. The EPCs shall qualify for release for second installment of
funds of the year only after their accounts including activity wise financial accounts for the
preceding year have been audited by the Chartered Accountant and accepted by the Department
of Commerce.
(v) The EPCs shall plan development and export promotion activities in overseas markets for
export promotion of particular products, based on the findings of the desktop studies/findings of
the strategy papers on potential of exports and data available with institutes like NCTI etc., to
penetrate into new potential markets and to consolidate in the already explored export markets.
Eligible activities shall be trade delegations to potential markets, organizing participation in the
important trade fairs/exhibitions in the focus markets associated with BSMs, focused publicity for
the event etc.
(vi) While formulating the annual action plan, the EPCs shall identify and plan participation in at
least two established trade fairs/exhibitions for their product group. Participation in these fairs
shall be done irrespective of the number of exporters participating. One EPC official will be
eligible for assistance under the scheme for such participation with the prior approval of the Joint
Secretary of the concerned commodity/territorial division. The EPCs shall carry product samples
for display in these fairs/exhibitions on behalf of their members.
(Vii) Role of the EPCs shall also be to diversify the export promotion activities to new emerging
potential markets wherein the participation by the Indian companies is yet to be established.
(viii) Based on the recommendations of the concerned Commodity Division (s) of the
Department of Commerce/Ministry of Textiles, Export promotion Councils, with the prior
64
approval of the E & MDA Division, may undertake promotional & export development activities
abroad and within India with assistance from MDA to stimulate and diversify the exports of
Indian products and commodities as follows:
(A) For Activities in Non Focus Areas
S.No
(I)
1.
2.
3.
4.
5.
Permissible Items of expenditure under MDA
Percentage of funding under MDA
Participation in Fairs/Exhibitions abroad by EPCs

etc.
Central Stall of Council
60% of (i)+(ii) (subject to a ceiling of Rs.15
lakh per event)*
However, if the event is conducted in more
(i) Rent of Councils area
than one country during the same tour,
additional expenses @ 60% of the rent and
(ii) Other organizing expenditure
organizing expenses not exceeding Rs. 15
lakhs per country shall be allowed.
Air fare for official of EPC in economy excursion 100%
class(visa charges to be met by the Council)
D.A. for official of EPC etc.: As per notified MEA 100%
rates for Govt. officials of equivalent status.
Hotel stay for official of EPC : On scales
100%
applicable to equivalent Govt. officials on duty
abroad and subject to furnishing of original bills
(with upper ceiling of US$150 per night stay)
US $ 500 US $ 250
Entertainment:
(i) For EPC sponsored activity led by Chairman.
(II)
1.
(ii) For EPC sponsored activity led by ViceChairman/E.D/ Addl. E.D.

(On production of bills)
EPC sponsored Buyer Seller Meets/Trade
Delegations abroad:
(i) Venue Cost
(ii) All other organizing expenditure
2.
Air fare, DA, Hotel stay, for one official of EPC
3.
Entertainment
(III)
Promotional Activities within India by EPCs etc.:
1.
Organizing seminars, workshops etc., on quality

upgradation, awareness creation etc., with focus
on export promotion.
60% of (i)+(ii) (subject to a ceiling of Rs. 15

lakh per event)
However, if the event is conducted in more
than one country during the same tour,
additional expenses @ 60% of the rent and
organizing expenses not exceeding Rs. 15
lakhs per country shall be allowed.
As applicable in the case of participation in
fairs/exhibitions
As applicable in the case of participation in
fairs/exhibitions
60% subject to maximum ceiling of
Rs.1,00,000/per event.
65
2.
3.
(i) Venue cost

Organisation of important international fairs/
exhibition in India.(support from MDA only for
three years)
(i) Venue cost
Buyer Seller Meets in India
60% of (i) + (ii)

(subject to a ceiling of Rs.15 lakh per event)
60% of (i) +(ii)

(subject to a ceiling of
Rs.15 lakh per event)
(i) Venue Cost

(IV)
PUBLICITY:
(i) Publication/publicity with focus on export
promotion and brought out for circulation/use of
overseas buyers/organizations
(ii) Advertisement abroad
(iii) Publication for circulation to the members and
publicity within the country etc.
60% of net approved

expenditure after accounting for the
revenue generated through the sales,
advertisement.
etc.)
Not an eligible item.
Note:
(1) Expenses relating to stay, per diem allowance, local travel etc. of Councils official etc. for
activities within India are to be met by the EPCs etc.
(2) MDA grant required for exporters accompanying the EPCs etc. led delegation/Trade
fair/Exhibition is required to be shown along with Budget of each Activity in the Annual Action
Plan.
(3) In case where the activities are planned as a part of the Made in India Trade Promotion
initiative of the Department of Commerce, Government of India, the scale of assistance may be
increased upto 90% of the venue cost and organizing expenditure.
(B) Focus Area Programmes
At present 4 Focus Area programmes viz. Focus (LAC), Focus (Africa), Focus (CIS) and Focus
(ASEAN+2) are under operation in the Department. In addition to activities in non focus areas,
special provision has been made under Reverse Trade Visits for visit of prominent delegates and
buyers (one person from each organization) from these Focus Area Regions for participation in
buyer cum seller meets, exhibitions etc. in India. The foreign delegates/buyers/journalists would
be assisted in meeting their return air travel expenses in economy excursion class upto the entry
point in India. This would, however, be subject to financing only the well planned participations
wherein the potential of the incoming delegate(s) /buyer(s) /journalist(s) have been screened by
66
the concerned EPC and Territorial Division. The following activities are eligible to be undertaken
under Focus Area Programmes:
For Activities Under the Focus-Area Programmes
S.No.
Permissible Items of expenditure under MDA
Percentage of funding under MDA
1.
(i) Participation in International Fairs/exhibitions

organised by EPCs etc.
(ii) Sponsoring BSMs/Trade delegations abroad by
EPCs etc.
As applicable in non-focus area

with ceiling of Rs.15 lakh.
2.
Reverse Trade visits of prominent foreign buyer/

delegates/journalists to India for participation in
BSMs/ exhibitions etc.:
(i) Return air-fare travel expenses in economy
excursion class upto the entry point in India and
hotel charges etc.
(ii) Venue charges
(iii) All other organizing expenditure.
All other expenses relating to stay, per diem
allowance, local travel etc. of delegates invited from
abroad are to be met by the EPC or by sharing
between the organizers and delegates.
(i)100% (subject to a ceiling of

Rs.1,00,000/for
LAC
and
Rs.70,000/- for other Focus areas)
(ii)&(iii) As applicable in non-focus
area with ceiling of Rs. 15 lakh
3.
Translation facilities in foreign languages and vice

versa
60%
4.
Product catalogue in CD ROM
60%
Participation/ organization of export promotional activities shall be subject to the following

conditions:
(i) The exporters participating in EPC sponsored trade delegations and fairs/exhibitions/buyer
cum seller meets etc. abroad shall receive the MDA assistance on reimbursement basis on
scales.
(ii) One official of the EPC (subject to an upper ceiling of two visits in one financial year by
individual official) can accompany EPC sponsored trade delegation/organized participation in
trade fair/exhibition followed by BSM. This would, however, be subject to the condition that
a minimum of five exporters participates in such events except in case of established trade fairs
67
where this condition shall not apply for two such fairs in a financial year with the prior approval of
the Joint Secretary of the concerned commodity/territorial division . In rare circumstances, the
Joint Secretary of the concerned commodity/territorial division can also relax the condition of a
maximum of two visits by an individual official in a financial year. However, in case the number of
participants for a particular event goes beyond 20 (Twenty), MDA assistance for one additional
official of the EPC for every block of 20 participants shall be permitted.
(iii) Per diem allowance, hotel charges etc. would not be permissible from MDA funds to
exporters/elected office bearers of the EPCs etc. traveling abroad.
(iv) MDA assistance shall be limited to 60% of the total approved cost ( upto 90% in case of
Made in India shows) and the remaining has to be met by the EPCs from the contributions from
participants, members, trade etc.
(v) For Reverse Trade Visits the air-fare by economy excursion class for invited delegates
would be subject to the upper ceilings of Rs.100,000/-for LAC region and Rs.70,000/- for CIS,
Africa and ASEAN+2 regions.
3.2.4.3 Approved organization(s)/ trade bodies

(a) Approved organization/trade body means an organization, institution or association engaged
in development and promotion of exports and approved by the E&MDA Division in the
Department of commerce for this purpose. These Organizations can organize programme/activity
for specific purpose of development and promotion of exports of Indian products and commodities
with the prior approval of the Government (E&MDA Division in the Department of Commerce) for
its members.
These are of following two types:
(i) Approved organizations who can sponsor MDA proposals of its member exporters:List of the approved organizations is given in Annexure-II. No MDA grant on annual basis would
be given to these organizations for their export promotion activities. However, organizations can
sponsor requests of their member exporters for participation in fairs/exhibitions/BSMs/Trade
delegations led by these organizations for MDA assistance.
(ii) Other approved trade bodies
List of organizations approved under this heading is at Annexure-III.
These organizations cannot sponsor proposals of their member exporters for MDA assistance.
However, with the prior approval of the E&MDA Division of the Department of Commerce, their
proposals for organizing non-recurring specific promotional activity for export growth of Indian
Products and Commodities abroad can be considered for MDA assistance.
68
Any other organization, institution or association desirous of getting itself registered as an

approved organization, may apply to the Department of Commerce (E&MDA Division) with full
particulars in the prescribed proforma (Annexure-IV).
3.2.4.4 Pattern of assistance to Grantee/ Approved organizations other than

EPCs
(i) FIEO
MDA assistance to FIEO will be on the lines as applicable to EPCs, with the condition that export
promotion
activities
by
them
should
be
for
multi-products/sectors
or
products/services not covered by any other EPCs or to a country where EPC is not in a position
to participate. However, the total MDA grant to FIEO would not be more than Rs. 100 lakhs in a
financial year .
FIEO can, in addition, also sponsor requests of its member exporters for participation in
fairs/exhibitions/BSMs/Trade delegations led by FIEO for MDA assistance provided these
members are not members of any Export Promotion Council..
(ii) ITPO
Allocation for ITPO from MDA would be kept to the minimum and confined to the special fairs to
meet deficit as approved by the Exhibition Advisory Committee in the Department of Commerce.
Member exporters of EPCs etc. would also be eligible for MDA assistance for participation in
events organized by ITPO abroad. Their applications/claims would by routed/reimbursed through
concerned EPC etc.
(iii) IIFT, IIP, IDI and ICA
MDA assistance to IIFT, IIP, IDI and ICA for various activities on an annual basis would not be
provided. However, specific development activities directed towards export growth of Indian
products and Commodities would be considered by the Govt. (E&MDA Division in the Department
of Commerce) for part financing.
(iv) To other approved trade bodies
On receipt of specific development and export promotion project(s) from the approved trade
bodies such as ASSOCHAM, CII, FICCI etc. (other than FIEO, IIFT, IIP,IDI, ICA and ITPO) ,
E&MDA Division may consider financing one or two special specific non-recurring activities with
60% financial assistance of the net expenditure on approved items from MDA subject to
maximum MDA assistance of Rs. 15 lakh for each focus area programme + Rs. 15 lakhs for
general areas.
As such the total MDA grant to such approved trade bodies would not be more than Rs. 75 lakhs
in a financial year to a particular approved trade body.
69
(v) Adhoc Grant-In-Aid

Residual essential activities or proposals connected with the export effort, which qualify for the
grant-in-aid but not covered by this Code will also be considered on merits for assisting from the
Marketing Development Assistance scheme.
3.2.4.5 Documentation for Reimbursement of Assistance to Exporters

(i) Intimation application in Annexure V duly completed and signed shall be submitted by the
exporter to the concerned EPC etc. giving clear 14 days advance notice. Intimation and the
application must be sent electronically by email also.
(ii) Concerned Organization (FIEO, EPC etc.) on receipt of intimation shall immediately
issue acknowledge receipt. Thereafter they will examine and issue approval letter to the
exporter preferable within 5 working days of the receipt of the intimation, in the prescribed format
(Annexure-VI).
(iii) Claim along with the declaration duly completed and the Certificate (as per Annexure VIII)
duly signed by a Chartered Accountant shall be submitted by the exporter to the concerned
Organization (FIEO), EPC etc.) in the prescribed format (Annexure-VII) along with under
mentioned papers immediately on return to India after completion of the activity but positively
within 45 days of their return to India:
Details of activity undertaken earlier with MDA assistance to the same country/countries.
Legible photocopy of passport highlighting the entries about departure from and arrival
into India and also the countries visited. In case, passport does not have arrival/departure
dates regarding visits to various countries, some documentary evidence such as Hotel
Bills, Boarding pass, lodging pass etc. be submitted.
Original air ticket/jacket used during the journey. If Original air ticket/jacket is lost, a
legible photocopy of the same along with a certificate from the concerned airline
indicating following may be sent:
a) Name of the traveler
b) Ticket number
c) Flight No.
d) Date of departure from India
e) Sectors/countries visited
f) Class in which traveled
g) Economy excursion class fare for sectors/countries visited.
Self certified f.o.b. value export figures during the last three financial years, year wise.
Brief report about the activity participated and achievements made.
(iv) Claim forms duly filled in and complete in all respects must be submitted to the concerned
EPC, FIEO etc., within 90 days of return to India would. However, claims submitted within 30
days from the expiry of the 90 days period may be entertained by or wherein the deficiencies in
70
the claim as intimated by the concerned EPC, FIEO etc., with 10% deduction. The claims which
are submitted after 120 days of return to India shall not be entertained under any circumstances.
Any deficiencies in the claim as intimated by the concerned EPC, FIEO etc., must be completed
within 30 days of the date of directions given in this regard failing which the claim shall stand
rejected without any further intimation or reminder in this regard by the concerned EPC, FIEO etc.
.
71
Annexure I
List of Grantee Organisations (Export Promotion Councils) Under the MDA
Code
1. Apparel EPC, NBCC Tower, 15, Bhikaji Cama Place, New Delhi-110066 (Phone
No.26183351, 26169394 Fax No.26188584, 26188300)
th
2. Chemexcil EPC, Jhansi Castle (4 floor), 7- cooperage road Mumbai-400039. (Phone
No.22-22021288, 22822979 Fax No.22026684) E-mail: chemexcil@vsnl.com
3. Carpet EPC, 110-A/1 Krishna Nagar, Street No. 5 Safdarjung Enclave, New Delhi110029 (Phone No.26102742, 26101024 Fax No. 26165299) E-mail: cepc@vsnl.com
4. Cashew EPC, P.B.No. 1709, Chittor Road, Ernakulam South, Cochin, 682016 (Phone
No.2376459, 2376080 Fax No.0484-2377973) E-mail: cepc@cashewindia.org
5. Capexil EPC, Vanijya Bhavan International Trade Facilitation Centre 1/1 Wood Street
rd
3 floor, Kolkatta-700016 (Phone No. 033-22890524/25 Fax No. 22891729 E-mail:
capexilh@cal.vsnl.net.in
th
6. Cotton Textile EPC, Engineering Centre, 5 Floor 9, Mathew Road, Mumbai-400004
(Phone No. 23632910-13 Fax No. 022-23632914 E-mail: texprocil@vsnl.com
rd
7. Council for Leather Exports, CMDA Tower 3 floor, Gandhi-Irwin Bridge Road Egnore
Chennai-600008 E-mail: cle@vsnl.com
rd
8. Engineering EPC, World Trade Centre 3 floor, 14/1-B, Ezra Street, Kolcutta-700001
(Phone No. 2350442-44, 2353796 Fax No. E-mail: eepcto@eepc.gov.in
rd
9. Electronic & Computer Software EPC, PHD House 3 Floor 4/2 Siri Institutional Area,
August Kranti Marg, New Delhi (Phone No.26510632, 26964463 Fax No. 26853412) Email: esc@vsnl.com
10. EPC for Handicrafts, EPCH House Pocket 6&7 Sector C LSC Vasant Kunj New Delhi110070 (Phone No. 26135256/57/58 Fax No.26135518/19 E-mail: epch@vsnl.com
11. Export Promotion Council for EOUs & SEZ Units, 705, Bhikaji Cama Bhawan, Bhikaji
Cama Place, New Delhi-110066 (Phone No.26167042, 26165805 Fax No. 26165538 Email: epces@vsnl.net
th
12. Gem & Jewellary EPC, Diamond Plaza, 5 floor, 91-A Dr. D.B. Marg, Mumbai-400004
(Phone No.22-23821801/23821806 Fax: 23804958 E-mail: giepc@vsnl.com
th
13. Handloom EPC, 1004, Padma Tower-1 10 floor, 5 Rajendra Place, New Delhi-110008
(Phone No.2586965 Fax No.25826966 E-mail: hepcrond@vsnl.com
14. The Indian Silk EPC, 62, Mittal Chambers Nariman Point, Mumbai-400021 (Phone
No.22025866, 22027662 Fax No. 22874606 E-mail:ispec@bom2.vsnl.net.in
15. The Plastic EPC, Crystal Tower, Ground Floor, Crystal Cooperative Housing Society Ltd.,
Gundowli Road No. 3, Off Sir M.V.Road, Andheri East, Mumbai-400069. (Phone
No.26833951 Fax No. 26833953, 26834057 E-mail: plexconcil@vsnl.com
16. Powerloom Development & EPC, 16, Ist Floor, Mittal Chambers, Nariman Point, Mumbai400021 (Phone No. 22846518-19 Fax No.22846517) E-mail pdepc@gems.vsnl.net.in
17. Pharmexcil, 101 Aditya Trade Centre, Ameerpet, Hyderabad, AP-500038 (Phone
No.402373546 Fax No. 91-40-23735464 E-mail: info@pharmexcil.com
18. Sports Goods EPC, 1-E/6, Seami Ram Tirth Nagar, Jhandewalan Extn., New Delhi110055 (Phone No. 23525695 Fax No. 23632147 E-mail: sgepc@vsnl.com
19. Shellac Export Promotion Council, World Trade Centre, 14/1.B, Ezra Street, Kolcutta700001 (Phone No. 2354556 Fax No. 033-2353134) E-mail:sepc@vsnl.net
72
20. The Synthetic & Rayon Textile EPC, Resham Bhavan, 78 veer Nariman Road, Mumbai400020 (Phone No. 22048690 Fax No.022-22048358) E-mail: srtepc@vsnl.com
21. Wool & Woollen EPC, 612/714, Ashoka Estate, 24 Barakhamba Road, New Delhi
110001 (Phone No.23315512, 23315205 Fax No. 23314626) E-mail:wwepc@bol.net.in
th
22. Wool Industry Export Promotion Organisation, Churchgate Chambers, 7 floor, 5 New
Marine Lines, Mumbai-400020 (Phone No.22624680 Fax No. 022-56318561 E-mail:
wwepc@vsnl.com
th
23. Project Export Promotion Council of India, H-118 Himalaya House 11 floor 23, Kasturba
Gandhi Marg New Delhi-110001 (Phone No.23722425 Fax No.23312936 E-mail:
infor@projectsexports.com
Annexure II
List of Approved Organisations Who Can Sponsor Proposals From Their
Members
1. Tea Board, 14 BTM Sarani, Brabourne Road, P.B.No.2172, Calcutta-700001 (Phone
No.2351411 Fax No. 033-2215715
2. Coffee Board, 1, Dr. B.R. Ambedkar Veedhi, Bangalore- 560001 (Phone No 2250250,
2252917 Fax No. 080-2255557)
3. Spices Board, Sugandha Bhavan, Cochin Bypass, Cochin-682025 (Phone No. 333610616 Fax No.0484-331429, 334429)
4. Tobacco Board, P.B.No. 322, G.T.Road, Guntur-522004 (Phone No.358399 Fax No.
0863-354232)
5. Rubber Board, Sub Jail Road, P.B.No. 1122, Kottayam-686002 (Phone No.571231, 232)
Fax No. 0481-571380
6. Coir Board, M.G.Road, Ernakulam, Cochin-682016 (Phone No 351807, 351788 Fax No.
0484-370034)
7. Central Silk Board CSB Complex, Hosur Road, BTM Layout, Madiwala, Bangalore560068 (Phone No.6688831, 6680841 Fax No. 080-6681511, 6680387)
8. Marine Products Export Development Authority (MPEDA) MPEDA House, Panapilly
Avenue, M.G.Road Cochin 682016 (Phone No 311901, 314468 Fax No. 0484-313361)
9. Agricultural and Processed Food Products Export Development Authority (APEDA),
rd
3 floor, NCUI Building, 3 Siri Institutional Area, August Kranti Marg (Opp Asiad Village)
New Delhi-110066 (Phone No.2613204, 2614572 Fax No. 26513167
rd
10. Federation of Indian Export Organisations, PHD House, 3 floor, Opp. Asian Games
Village, Hauz Khas, New Delhi 110016 (Phone No 26851310/12/14/15 Fax No.
26863087, 26967859 E-mail: fieo@nda.vsnl.net.in
Annexure III
List of Other Approved Trade Bodies
rd
1. Export Inspection Council, 14/1.B, Ezra Street, 3 floor, Calcutta-700001,

2. Federation of Indian Chamber of Commerce & Industry, Federation House, Tansen Marg,
New Delhi-110001.
73
3. Associated Chambers of Commerce & Industry of India, Royal Exchange, Calcutta700001.

4. Confederation of Indian Industries, 23-26, Institutional Area, Lodhi Road, New Delhi.
5. India Woollen Mills Federation in India, G-4, Advent Building,Ferozshah Road, Mumbai400001.
6. Federation of Association of Small Industries of India, Laghudhyog Kuttee, 23-B/2,
Rohtak Road, New Delhi-110019.
7. Indian Machine Tool Manufactures Association, 12-Rampart Road, Mumbai.
8. Indian Electrical & Electronics Manufacturers Association, 5501, Kakad Chambers, 132,
Dr. Annie besant Road, Worli, Mumbai 400018.
th
9. Jute Manufacturers Development Council, 25-Camac Street, 6 floor, Flat No.6(A),
Calcutta-600016.
10. Textile Machinery Manufacturers Association(India) 53-Mittal Chamber, Nariman Point,
Mumbai.
11. The Solvent Extracters Association of India, Tanna House, Annexe-11(A), Nathalai D.
Parikh Marg, Mumbai-400039.
12. The Groundnut Extractions Export Development Association, Tanna House, 11(A),
Nathalai D. Parikh Marg, Mumbai-400039.
13. Indian Oil & Produce Exporters Association, 78-79-Bajaj Bhavan, Backbay Reclamation,
Nariman Point ,Mumbai-400021.
74
Chapter 3.3
EXPORT ORIENTED UNITS
3.3.1 Introduction
The needs for higher level of technological and industrial progress made the Government devise
a series of export promotional schemes. EOU & SEZ Schemes are one among them, which
provides an internationally competitive duty free environment coupled with better infrastructural
facilities for export production. Export Oriented Units (EOUs) now constitute a very important
sector in the countrys Export Production scenario. They have become dominant players in our
export strategy, and their share in the Countrys export performance is about 10%. The export
growth rate of 30% compares very favorably with the national growth rate.
The EOU Scheme introduced in early 1981, is complementary to the SEZ scheme (erstwhile EPZ
scheme). It adopts the same production regime but offers a wider option in location with reference
to factors like source of raw materials, port of export, hinterland facilities, availability of
technological skills, existence of an industrial base, and the need for a large area of land for the
project.
Over the last decade, Export Oriented Units have evolved as a major player in the country's
export effort. They have grown consistently at double digit level, and recorded a growth of about
27.48% during the year 2004-05.
3.3.2 Salient Features

No license required for import.
Exemption from Central Excise Duty in procurement of capital goods, raw-materials,
consumables spares etc. from the domestic market.
Exemption from customs duty on import of capital goods, raw materials, consumables spares
etc.
Reimbursement of Central Sales Tax (CST) paid on domestic purchases.
Supplies from DTA to EOUs treated as deemed exports.
Reimbursement of duty paid on furnace oil, procured from domestic oil companies to EOUs
as per the rate of drawback notified by the Directorate General of Foreign Trade.
100% Foreign Direct Investment permisisible.
Exchange earners foreign currency (EEFC) Account
Facility to retain 100% foreign exchange proceeds in EEFC Account.
Facility to realize and repatriate export proceeds within twelve months. Further extension in
time period can be granted by RBI and their authorized dealers.
75
Re-export of imported goods found defective, goods imported from foreign suppliers on loan
basis etc.
Exemption from industrial licensing requirement for items reserved for SSI sector.
Profits allowed to be repatriated freely without any dividend balancing requirement
Access to Domestic Market upto 50% of FOB value of export on concessional rate of duty.
Duty free goods to be utilized in two years. Further extension granted on liberal basis.
Job work on behalf of domestic exporters for direct export allowed.
Conversion of existing Domestic Tariff Area ( DTA) unit into an EOU permitted.
Can Procure duty-free inputs for supply of manufactured goods to advance licence holders.
Supply of ITA-I items in the domestic market which would be counted for fulfillment of NFE.
EOUs in agriculture and horticulture engaged in contract farming may be permitted to take
out duty free goods to the fields of contact farmers for production.
3.3.3 Obligations of EOU

The EOUs are required to achieve Positive Net Foreign Exchange Earning (NFE). NFE shall be
calculated cumulatively for a period of five years from the commencement of production. For this
purpose, a Legal Undertaking is required to be executed by the unit with the Development
Commissioner. The units have to provide periodic reports to the Development Commissioner and
Zone Customs. Units have to obtain Customs Bonding from the concerned jurisdictional Central
Excise Authority.
3.3.4 Setting-up an Export Oriented Unit

Setting up an EOU is a step by step process. The information may be divided into five parts:
1) Eligibility Criteria
An EOU can be set up by any entrepreneur for manufacturing of goods and also for rendering
services. An EOU can be set up for repair, reconditioning, re-making and re-engineering also.
Trading activity is not allowed in the EOU Scheme. EOU unit is required to achieve only positive
Net Foreign Exchange (NFE) over a period of 5 years. EOU can also be set up in the following
sectors: Agriculture
Animal Husbandry
Aquaculture
76
Floriculture
Horticulture
Pisciculture
Viticulture
Poultry or
Sericulture
Existing DTA units or EPCG units are permitted for conversion into EOU Scheme as one time
option. In case there is an outstanding export commitment under the EPCG Scheme, it will be
sub summed in the export performance (EP) of the unit. If the unit is having outstanding export
commitment under the Advance Licensing Scheme, it will discharge the same as well, as per its
conditions before conversion into EOU Scheme. However, duties of Customs and Central Excise
already suffered shall not be refunded on conversion into EOU.
2) Prior to Approval: Before tak9ing an approval from the government, the following activities
have to be planned:
Planning your venture: The main questions that need to be addresses are - is it your
own or is it with foreign participation and, if so, nature of participation (foreign investment
allowed 100%)
What process do you intend to do i.e. Manufacturing, rendering and export of
services or: As mentioned earlier, EOU can be set up in any of the following sectors
Agriculture, Animal Husbandry, Aquaculture, Floriculture, Horticulture, Pisciculture,
Viticulture, Poultry or Sericulture, Repair, reconditioning, re-making, re-engineering etc.
Technology to be used: Indigenous/ foreign; Related cost and conditions
Feasibility report: On your own or with help of consultant
The finances involved: Land, structure, buildings etc.(Please note, building construction
material is not exempted from duty); capital Goods, machinery etc.; payment for royalties
etc.; Administration and establishment; others : like interest on loans, related taxes and
levies etc.
The current competition overseas: Main competitors and demand and price levels.
The import laws and other requirements in target markets: Any fiscal/ non-fiscal
barriers, like anti-dumping laws, quota restrictions and preferential treatment to
competitor countries.
Location of the Unit: The first thing before setting up an EOU the entrepreneur has to
decide the location of unit:
77
i.
close to port or rail/ road.
ii.
availability of raw material and
iii.
environment clearance needed if unit is located within 25 kms of an urban town
Accordingly the application will be submitted to the concerned Development

Commissioner under whose jurisdiction that state comes.
Capital goods, machinery and equipment to be used: Indigenous or foreign (allowed
duty free) and related cost
The raw materials and other inputs, like consumables etc. that would be required:
Source (allowed duty free), cost, monthly, quarterly and annual requirements.
The production process: Whether production process requires air-conditioning plant,
special furnaces or kilns etc.; details and cost. (Please note, air-conditioning equipment
permitted duty free only if it is essential for production process).
The production capacity and spare capacity: Do you intend to utilize the same by
doing sub-contracting work for other export units in DTA or Export Oriented Units;
whether you want to get job work done outside the EOU; details of sub-contractors and
related costs.
Any by-products turned out in the production process: Details of by-products and
whether these would be exported or sold in Domestic Tariff Area (DTA)
Effluents or waste-material: How do you propose to treat these or discharge them.
Packaging: Details of packaging (packaging material allowed without payment of duty),
source and cost
Power: Whether the normal grid could supply adequate power or there would be a need
for a captive power plant; cost of power plant; fuel required for captive power plant (e.g.
furnace oil, LPG, HSD, coal etc.) (allowed duty free)
Other information: Firm/company should be duly registered and details about
Proprietor/Partner/ Directors etc.; a current account with the bank authorized to deal in
foreign exchange should be opened.; sale tax registration to be obtained from the Sale
Tax Department and investment details
Mandatory clearances from State Government: Pollution clearance certificate;
approvals of building plan in cases where building is proposed to be constructed and
registration as a small scale industrial unit, if applicable; Registration under Factories Act.
3) How to Apply: All applications are to be filed with the concerned Development Commissioner
of Special Economic Zone. The unit/ promoter has to apply in the application form, to be given in
triplicate.
78
Project Report including a write up on the background of the promoters establishing their
credentials and standing.
4) Approval Procedure: After submitting the application form and if every thing is in order, Letter
of Permission (LOP) is issued by the Zone Administration within 2 weeks after interview of the
promoter by the Approval Committee. A legal undertaking in the prescribed form undertaking to
abide by the terms and conditions of the LOP has to be executed by the unit.
5) After Approval: After the approval from the Development Commissioner concerned, the
manufacturing and other activities have to be undertaken under customs bond for which formal
application is to be made to the jurisdictional Assistant Commissioner/ Deputy Commissioner of
the Customs/ Central Excise for issuance of a Private Custom Bonded Warehouse Licence under
section 58 and 65 of the Customs Act, 1962. The application shall be accompanied by the
following documents/information: Copy of notification whereunder the place (proposed location of unit) has been declared
as warehousing station under section 9 of the Customs Act. In case the approved place
is not a notified warehousing station, a separate application for issuance of such
notification is to be submitted to the Commissioner of Customs through the jurisdictional
Assistant Commissioner/ Deputy Commissioner.
Copy of LOI/LOP issued by Development Commissioner concerned and LUT accepted
by the Development Commissioner.
Details of the premises including ground plan, purchase/rent/lease deed, allotment letter
from Industrial Development Corporation/ Authority (if any)
Details
about
the
constitution
Proprietor/Partners/Directors etc.
of
the
firm/company
including
its
Project Report indicating stage wise manufacturing process.

List of raw material, consumables and capital goods etc. required.
Undertaking that cost recovery and other charges shall be paid.
After verification of the premises and relevant documents, the requisite licence under section
58 and 65 of the Customs Act will be issued by the Assistant Commissioner/ Deputy
Commissioner Customs/ Central Excise on priority basis.
B-17 Bond: B-17 Bond is a surety bond and in case valid surety cannot be arranged security
@5% of the bond amount has to be furnished. The bond amount shall be equal to 25% of the
duty foregone on the capital goods required in the next 5 years plus duty foregone on the value of
raw material for a period of 3 months. B-17- Bond covers the following activities:
Duty free import/ procurement of goods as
warehousing/storage in the unit and their utilization.
per
relevant
notification
and
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Transhipment of import/ export of goods duty free between port of import/ export and
units premises.
Movement of duty free goods for job work and return.
Temporary clearance for repair and display in exhibitions, testing/ approval etc.
However it dose not cover differential duty amount against advance DTA sale for which a
separate bond is to be executed. The unit has also to take a Central Excise Manufacture Code
No. from the Superintendent, Central Excise to enable them to sell in the domestic market.
The Development Commissioner is empowered to grant approvals on the following
matters: Import of additional capital goods
Enhancement of production capacity
Broad-banding/diversification
Change in name/ constitutions
Change of location/expansion
Extension of validity of LOP/LOI/LOA:
Import of Office equipment:
Merger of two or more EOU/SEZ Units
Import of spares and accessories of DG sets
Eligibility certificates for grant of employment visa to low level foreign technicians to be
engaged by EOUs
Sale of goods in DTA.
De-bonding/ Exit from EOU scheme.
Approval from State Government Agencies:
The unit has to secure approval for its wiring and electrical plan from the Electrical authorities. It
has also to secure power allocation and wiring approval from the State Electricity Board. The
industrial water supply is undertaken by the unit for which it has to take a registration under the
State Government Sales Tax Act and Central Sales Tax Act. In case the unit already has a
registration with the State Sale Tax Department the address of the additional premises should
also be endorsed in the registration certificate. The unit has also to take Small Scale Industry
(SSI) Registration from the District Industries Center to apply for State Governments Investment
Subsidy. In case there are effluents or emissions the unit has to secure approval form the
Pollution Control Board. Every Zone has a statutory Single Window Clearance Board.
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Approval Mechanism
All applications are to be filed with the Development Commissioner concerned. Development
Commissioner is competent to clear/approve all cases within a period of 15 days, if the
application is otherwise in order. A limited number of cases are referred by the Development
Commissioner to the Board of Approvals in Deptt. of Commerce for approval. Manufacturing
activities requiring compulsory industrial licensing and those reserved for the Public Sector. The
Development Commissioner is also competent to approve all cases involving FDI (Foreign Direct
Investment) falling under the automatic route. For cases not falling under the automatic route, the
DC recommends the case to the FIPB (Foreign Investment Promotion Board) in DEA. On
approval of a proposal, the Development Commissioner issues a Letter of Permission/Letter of
Intent to the unit concerned. The Letter of Permission is valid for a period of three years within
which the prospective investor is required to execute the Legal Undertaking and common
products.
Jurisdiction of DC's
The EOUs basically functioning under the administrative control of the Development
Commissioner of Special Economic Zones, whose jurisdiction has been notified by the Ministry Of
Commerce. In all there are seven Development Commisioner at Mumbai, Ghandhidham,
Chennai, Cochin, Vizag, Noida, Calcutta, who supervise the fuctioning of EOUs. Application for
setting up units under EOU scheme may be filled with the concerned Development Commissioner
under whose jurisdiction the unit is proposed to be located.
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Chapter 3.4
SPECIAL ECONOMIC ZONES
3.4.1 Introduction
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone
(EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to
overcome the shortcomings experienced on account of the multiplicity of controls and clearances;
absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract
larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in
April 2000.
This policy intended to make SEZs an engine for economic growth supported by quality
infrastructure complemented by an attractive fiscal package, both at the Centre and the State
level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to
09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made
effective through the provisions of relevant statutes.
To instill confidence in investors and signal the Government's commitment to a stable SEZ policy
regime and with a view to impart stability to the SEZ regime thereby generating greater economic
activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill
prepared after extensive discussions with the stakeholders. A number of meetings were held in
various parts of the country both by the Minister for Commerce and Industry as well as senior
officials for this purpose. The Special Economic Zones Act, 2005, was passed by Parliament in
May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules
were widely discussed and put on the website of the Department of Commerce offering
suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive
consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February,
2006, providing for drastic simplification of procedures and for single window clearance on
matters relating to central as well as state governments. The main objectives of the SEZ Act are:
a) generation of additional economic activity
b) promotion of exports of goods and services;
c) promotion of investment from domestic and foreign sources;
d) creation of employment opportunities;
e) development of infrastructure facilities.
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in
infrastructure and productive capacity, leading to generation of additional economic activity and
creation of employment opportunities. The SEZ Act 2005 envisages key role for the State
Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ
approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of
Approval (BoA). The applications duly recommended by the respective State Governments/UT
82
Administration are considered by this BoA periodically. All decisions of the Board of approvals are
with consensus. The SEZ Rules provide for different minimum land requirement for different class
of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up
and the non-processing area where the supporting infrastructure is to be created. The SEZ Rules
provide for:
" Simplified procedures for development, operation, and maintenance of the Special
Economic Zones and for setting up units and conducting business in SEZs;
Single window clearance for setting up of an SEZ;
Single window clearance for setting up a unit in a Special Economic Zone;
Single Window clearance on matters relating to Central as well as State Governments;
Simplified compliance procedures and documentation with an emphasis on self certification
3.4.2 Approval Mechanism and Administrative Set Up of SEZs

Approval Mechanism
The developer submits the proposal for establishment of SEZ to the concerned State
Government. The State Government has to forward the proposal with its recommendation within
45 days from the date of receipt of such proposal to the Board of Approval. The applicant also
has the option to submit the proposal directly to the Board of Approval.
The Board of Approval has been constituted by the Central Government in exercise of the powers
conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus.
The Board of Approval has 19 Members. Its constitution is as follows:
Administrative Set Up
The functioning of the SEZs is governed by a three tier administrative set up. The Board of
Approval is the apex body and is headed by the Secretary, Department of Commerce. The
Approval Committee at the Zone level deals with approval of units in the SEZs and other related
issues. Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of
the
Approval
Committee.
Once an SEZ has been approved by the Board of Approval and Central Government has notified
the area of the SEZ, units are allowed to be set up in the SEZ. All the proposals for setting up of
units in the SEZ are approved at the Zone level by the Approval Committee consisting of
Development Commissioner, Customs Authorities and representatives of State Government. All
post approval clearances including grant of importer-exporter code number, change in the name
of the company or implementing agency, broad banding diversification, etc. are given at the Zone
level by the Development Commissioner. The performance of the SEZ units are periodically
monitored by the Approval Committee and units are liable for penal action under the provision of
Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the
approval.
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Facilities and Incentives

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs,
including foreign investment include:Duty free import/domestic procurement of goods for development, operation and
maintenance of SEZ units
100% Income Tax exemption on export income for SEZ units under Section 10AA of the
Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed
back export profit for next 5 years.
Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
External commercial borrowing by SEZ units upto US $ 500 million in a year without any
maturity restriction through recognized banking channels.
Exemption from Central Sales Tax.
Exemption from Service Tax.
Single window clearance for Central and State level approvals.
Exemption from State sales tax and other levies as extended by the respective State
Governments.
The major incentives and facilities available to SEZ developers include:Exemption from customs/excise duties for development of SEZs for authorized operations
approved by the BOA.
Income Tax exemption on income derived from the business of development of the SEZ in a
block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
Exemption from Central Sales Tax (CST).
Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).
Export Performances Exports from the functioning SEZs during the last three years are as
under:
Year
2003-2004
2004-2005
Value (Rs. Crore)
Growth Rate ( over previous year )
13,854
18,314
39%
32%
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2005-2006
2006-20007
2007-2008
2008-2009
22 840
34,615
66,638
99,689
25%
52%
93%
50%
2009-2010
2,20,711.39
121.40%
3.4.3 Developing an SEZ

Any individual, co-operative society, company or partnership firm can file an application for setting
up of Special Economic Zone. The application is to be made in Form-A to the concerned State
Government and the Board of Approval (BOA) in the Department of Commerce, Government of
India. However the application would be considered by the BOA only when the State Government
recommendation
is
received.
Minimum area requirements for setting up a SEZ are as follows:
Multi Sector SEZ
1000 hectares
Sector Specific SEZ
100 hectares
FTWZ
40 hectares
IT/ITES/handicrafts SEZ Bio-technology/

non-conventional energy/gems and jewellery Sector
10 hectares
Once the BOA gives formal approval and the concerned Development Commissioner gives an
inspection report certifying the contiguity and vacancy of the area, the area is notified as SEZ.
85
Appendix I: State-wise SEZs
86
Appendix II: Sector-wise SEZs
87
Appendix III: List of Operational SEZs
88
UNIT 4
INDIAS THRUST EXPORTS

Chapters:
Indias Exports: Thrust Sectors
Thrust Areas Of Indian Exports: Agriculture & Food
Processing Sector
Thrust Areas Of Indian Exports: Textiles
Thrust Areas Of Indian Exports: Gems & Jewellery
Thrust Areas Of Indian Exports: Leather & Leather
Good
Thrust Areas Of Indian Exports: Automotive & Autocomponents Industry
89
Chapter 4
INDIAS EXPORTS: THRUST SECTORS
4.1 Introduction
Trade is an indispensable means for sustaining the economic growth and development of a
nation. In India, the main legislation governing foreign trade is the Foreign Trade (Development
and Regulation) Act, 1992. As per the provisions of the Act, the Government of India formulates
and announces a foreign trade policy and amends it from time to time. The new Foreign Trade
Policy (FTP) announced in August, 2004, covering a five year period of 2004-2009 is a
comprehensive policy for the overall development of India's foreign trade sector. It is built around
two major objectives :- (i) to double India's percentage share of global merchandise trade within
the next five years; and (ii) trade to act as an effective instrument of economic growth by giving a
thrust to employment generation.
The Ministry of Commerce and Industry is the most important organ concerned with the
promotion and regulation of foreign trade in India. The Ministry has an elaborate organizational
set up to look after the various aspects of trade. Its two important offices concerned with trade are
the 'Directorate General of Foreign Trade (DGFT)' and the 'Directorate General of Commercial
Intelligence and Statistics (DGCI&S)'. DGFT is responsible for implementing the Foreign Trade
Policy/Exim Policy with the main objective of promoting Indian exports. It also issues licences to
exporters and monitors their corresponding obligations through a network of regional offices.
DGCI&S is entrusted with the work of collecting, compiling and publishing/ disseminating trade
statistics and various types of commercial information required by the policy makers, researchers,
importers, exporters, traders as well as overseas buyers.
India is also engaged in trade negotiations and agreements at multilateral, regional and bilateral
levels. It is interacting with international agencies such as the World Trade Organisation (WTO),
the United National Conference on Trade & Development (UNCTAD), the Economic and Social
Commission for Asia and Pacific (ESCAP), etc as well as with individual countries or group of
countries on a wide range of issues including tariff and non-tariff barriers, international commodity
agreements, preferential/free trade arrangements, investment matters, etc. Some of the major
regional trading arrangements that India has entered into include:- Agreement on South Asian
Free Trade Area (SAFTA); Asia-Pacific Trade Agreement (APTA); Framework Agreement on
Comprehensive Economic Cooperation between ASEAN and India; etc.
4.2 Foreign Trade Policy

In India, the main legislation concerning foreign trade is the Foreign Trade (Development and
Regulation) Act, 1992. The Act provides 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. As per the provisions of the Act, the Government :- (i) may make provisions
for facilitating and controlling foreign trade; (ii) may prohibit, restrict and regulate exports and
90
imports, in all or specified cases as well as subject them to exemptions; (iii) is authorized to
formulate and announce an export and import policy and also amend the same from time to time,
by notification in the Official Gazette; (iv) is also authorized to appoint a 'Director General of
Foreign Trade' for the purpose of the Act, including formulation and implementation of the exportimport policy.
Accordingly, the Ministry of Commerce and Industry has been set up as the most important organ
concerned with the promotion and regulation of foreign trade in India. In exercise of the powers
conferred by the Act, the Ministry notifies a trade policy on a regular basis with certain underlined
objectives. The earlier trade policies were based on the objectives of self-reliance and selfsufficiency. While, the later policies were driven by factors like export led growth, improving
efficiency and competitiveness of the Indian industries, etc.
With economic reforms, globalization of the Indian economy has been the guiding factor in
formulating the trade policies. The reform measures introduced in the subsequent policies have
focused on liberalization, openness and transparency. They have provided an export friendly
environment by simplifying the procedures for trade facilitation. The announcement of a new
Foreign Trade Policy for a five year period of 2004-09, replacing the hitherto nomenclature of
EXIM Policy by Foreign Trade Policy (FTP) is another step in this direction. It takes an integrated
view of the overall development of Indias foreign trade and provides a roadmap for the
development of this sector. A vigorous export-led growth strategy of doubling Indias share in
global merchandise trade (in the next five years), with a focus on the sectors having prospects for
export expansion and potential for employment generation, constitute the main plank of the
policy. All such measures are expected to enhance India's international competitiveness and aid
in further increasing the acceptability of Indian exports. The policy sets out the core objectives,
identifies key strategies, spells out focus initiatives, outlines export incentives, and also
addresses issues concerning institutional support including simplification of procedures relating to
export activities.
The key strategies for achieving its objectives include:
Unshackling of controls and creating an atmosphere of trust and transparency;
Simplifying procedures and bringing down transaction costs;
Neutralizing incidence of all levies on inputs used in export products;
Facilitating development of India as a global hub for manufacturing, trading and services;
Identifying and nurturing special focus areas to generate additional employment
opportunities, particularly in semi-urban and rural areas;
Facilitating technological and infrastructural upgradation of the Indian economy,
especially through import of capital goods and equipment;
Avoiding inverted duty structure and ensuring that domestic sectors are not
disadvantaged in trade agreements;
Upgrading the infrastructure network related to the entire foreign trade chain to
international standards;
Revitalizing the Board of Trade by redefining its role and inducting into it experts on trade
policy; and
91
Activating Indian Embassies as key players in the export strategy.

The FTP has identified certain thrust sectors having prospects for export expansion and potential
for employment generation. These thrust sectors include: (i) Agriculture; (ii) Handlooms &
Handicrafts; (iii) Gems & Jewellery; and (iv) Leather & Footwear. Accordingly, specific policy
initiative for these sectors has been announced.
For the agriculture sector:
A new scheme called "Vishesh Krishi Upaj Yojana (Special Agricultural Produce
Scheme)" to boost exports of fruits, vegetables, flowers, minor forest produce and their
value added products has been introduced. Under the scheme, exports of these products
qualify for duty free credit entitlement (5 per cent of Free On Board (f.o.b) value of
exports) for importing inputs and other goods;
Duty free import of capital goods under Export Promotion Capital Goods (EPCG)
scheme, permitting the installation of capital goods imported under EPCG for agriculture
anywhere in the Agri- Export Zone (AEZ);
Utilizing funds from the 'Assistance to States for Infrastructure Development of Exports
(ASIDE) scheme' for development of AEZs;
Liberalization of import of seeds, bulbs, tubers and planting material, and liberalization of
the export of plant portions, derivatives and extracts to promote export of medicinal plants
and herbal products.
For the handlooms and handicraft sector:
Enhancing to 5 per cent of Free On Board (f.o.b) value of exports duty free import of
trimmings and embellishments for handlooms and handicrafts;
Exemption of samples from countervailing duty (CVD);
Authorizing Handicraft Export Promotion Council to import trimmings, embellishments
and samples for small manufacturers; and
Establishment of a new Handicraft Special Economic Zone.
For the gems and jewellery sector:
Permission for duty free import of consumables for metals other than gold and platinum
up to 2 per cent of Free On Board (f.o.b) value of exports;
Duty free re-import entitlement for rejected jewellery allowed up to 2 per cent of f.o.b
value of exports;
Increase in duty free import of commercial samples of jewellery to Rs. 1 lakh; and
Permission to import of gold of 18 carat and above under the replenishment scheme.
For the leather and footwear sector, the specific policy initiatives are mainly in the form of
reduction in the incidence of customs duties on the inputs and plants and machinery. These
include:
92
Increase in the limit for duty free entitlements of import trimmings, embellishments and
footwear components for leather industry to 3 per cent of Free On Board (f.o.b) value of
exports and that for duty free import of specified items for leather sector to 5 per cent of
f.o.b value of exports;
Import of machinery and equipment for Effluent Treatment Plants for leather industry
exempted from customs duty; and
Re-export of unsuitable imported materials (such as raw hides and skin and wet blue
leathers) has been permitted.
In order to review the progress and policy measures, each year, "Annual Supplements" to the five
year Foreign Trade Policy (FTP) have been announced by the Ministry:
The Annual Supplement announced in April, 2005 incorporated additional policy
initiatives and further simplified the procedures. It provided for an active involvement of
the State Governments in creating an enabling environment for boosting international
trade, by setting up an Inter-State Trade Council. Also, different categories of advance
licences were merged into a single category for procedural facilitation and easy
monitoring. The supplement provided renewed thrust to agricultural exports by extension
of 'Vishesh Krish Upaj Yojna' to poultry and dairy products and removal of cess on
exports of all agricultural and plantation commodities.
The Annual Supplement put forward in April 2006, announced the twin schemes of
'Focus Product' and 'Focus Market'. To further meet the objective of employment
generation in rural and semi urban areas, export of village and cottage industry products
were included in the 'Vishesh Krishi Upaj Yojana', which was renamed as "Vishesh Krishi
and Gram Udyog Yojana". Also, a number of measures were introduced in order to
achieve the objective of making India a gems and jewellery hub of the world. These
include:- (i) allowing import of precious metal scrap and used jewellery for melting,
refining and re-export; (ii) permission for export of jewellery on consignment basis; (iii)
permission to export polished precious and semi precious stones for treatment abroad
and re-import in order to enhance the quality and afford higher value in the international
market.
Likewise, the third Annual Supplement to the Foreign Trade Policy was announced on 19
April,2007 (effective from 1 st April, 2007). Some of the important measures introduced
by it are:- (i) exemption from service tax on services (related to exports) rendered abroad;
(ii) service tax on services rendered in India and utilized by exporters would be
exempted/remitted; (iii) categorization of exporters as 'One to Five Star Export Houses'
has been changed to 'Export Houses & Trading Houses', with rationalization and change
in export performance parameters; (iv) expansion of ceiling, scope and coverage under
the 'Focus Market Scheme (FMS)' and 'Focus Product Scheme (FPS)'.
The final annual supplement to the Foreign Trade Policy for 2004-2009 was announced in April
2008 in which several innovative steps were proposed. They included the following:
Import duty under the EPCG scheme is being reduced from 5% to 3%, in order to
promote modernization of manufacturing and services exports.
93
Income tax benefit to 100% EOUs available under Section 10B of Income Tax Act is
being extended for one more year, beyond 2009.
To promote export of sports and toys and also to compensate disadvantages suffered by
them, an additional duty credit of 5% over and above the credit under 'Focus Product
Scheme' is being provided.
Our export of fresh fruits and vegetables and floriculture suffers from high incidence of
freight cost. To neutralize this disadvantage, an additional credit of 2.5% over and above
the credit available under Visesh Krishi and Gram Udyog Yojana (VKGUY) is proposed.
Interest relief already granted for sectors affected adversely by the appreciation of the
rupee is being extended for one more year.
DEPB scheme is being continued till May 2009.
Trade Facilitation Measures (Supplement To Foreign Trade Policy 2004-09) Announced On 26th
February 2009,
DUTY CREDIT SCRIPS under DEPB scheme to be issued without waiting for realization
of export proceeds;
Special package of Rs. 325 crore for leather and textiles sector;
STCL, DIAMOND INDIA, MSTC, GEM & JEWELLERY EPC and STAR TRADING
HOUSES added as nominated agencies for import of precious metals;
Gem and Jewellery export: import restrictions on worked corals removed;
Bhilwara and Surat recognized as towns of export excellence for textiles and diamonds;
Threshold limit for recognition as premier trading houses reduced to Rs. 7500 crore;
Under EPCG scheme, export obligation extended till 2009-10 for exports during 2008-09;
DEPB/DUTY CREDIT SCRIP utilization extended for payment of duty for import of
restricted items also;
Procedure for claiming duty drawback refund & refund of terminal excise duty further
simplified;
Re-credit of 4% SAD for VKGUY, FPS and FMS allowed;
A new office of DGFT to be opened at Srinagar;
Value cap under DEPB revised for two products;
Electronic message transfer facility for advance authorization and EPCG to be
established;
Gem & Jewellery units in EOU to be allowed personal carriage of gold up to 10 kg;
Advance licenses issued prior to 1.4.2002 requiring MODVAT/CENVAT certificate
dispensed with;
Export obligation period against advance authorizations extended up to 36 months;
Reimbursement of additional duty of excise levied on fuel to be admissible for EOUS;
Early refund of service tax claims & further simplification of refund procedures on the
anvil;
In accordance with the provisions of the Act, a "Directorate General of Foreign Trade (DGFT)"
has been set up as an attached office of the Ministry of Commerce and Industry. It is headed by
the 'Director General of Foreign Trade' and is responsible for formulating and executing the
Foreign Trade Policy/ EXIM Policy with the main objective of promoting Indian exports. The
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DGFT also issues licenses to exporters and monitors their corresponding obligations through a
net work of 32 regional offices located at the following places: Ahmadabad; Amritsar; Bangalore;
Baroda (Vadodara); Bhopal; Kolkata; Chandigarh; Chennai; Coimbatore; Cuttack; Ernakulam;
Guwahati; Hyderabad; Jaipur; Kanpur;Ludhiana; Madurai; Moradabad; Mumbai; New Delhi;
Panaji; Panipat; Patna; Pondicherry; Pune; Rajkot; Shillong; Srinagar(Functioning at Jammu);
Surat; Thiruvananthapuram; Varanasi; and Vishakhapatnam.
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Chapter 4.1
THRUST AREAS OF INDIAN EXPORTS:
AGRICULTURE & FOOD PROCESSING SECTOR
4.1.1 Introduction
Agriculture is one of the strongholds of the Indian economy and accounts for 14.6 per cent of the
country's gross domestic product (GDP) in 2009-10, and 10.23 per cent (provisional) of the total
exports. Furthermore, the sector provided employment to 55 per cent of the work force India's
agriculture and allied sector grew by 3.8 per cent in the first six months of the current fiscal (201011), against one per cent in the year-ago period on the back of better Kharif crop output.
According to the GDP data released by the Central Statistical Organisation (CSO) on November
30, 2010, the country's farm sector grew by 2.5 per cent and 4.4 per cent each in the first two
quarters of the current fiscal, against 1.9 per cent and 0.9 per cent, respectively, in the same
period last year.
The Government is giving highest priority to agriculture and allied sector. The Eleventh Plan
allocation has been considerably higher over the Tenth Plan allocation. An amount of US$ 19
billion has been allocated for the Ministry of Agriculture during the Eleventh Five Year Plan.
Capital investment in agriculture has increased from US$ 1.2 billion in 2007-08 to US$ 3.26 billion
in 2010-11 (inclusive of State Plan Scheme Rashtriya Krishi Vikas Yojana), as per a Ministry of
Agriculture press release dated August 3, 2010.
4.1.2 The Indian Agricultural Scenario

The total geographical area of India is 328.7 million hectares of which 140.3 million hectares is
net sown area, while 193.7 million hectares is the gross cropped area, according to the Annual
Report 2009-10 of the Ministry of Agriculture.
Production
India has become the world's largest producer across a range of commodities due to its
favourable agro-climatic conditions and rich natural resource base. India is the largest producer of
coconuts, mangoes, bananas, milk and dairy products, cashew nuts, pulses, ginger, turmeric and
black pepper. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and
vegetables.
As per the Centre for Monitoring Indian Economy (CMIE) farm output will grow by 10 per cent to
114 million tonne (MT) in the 2010 Kharif season, while Rabi season is expected to report a 2 per
cent increase at 116.6 MT.
Oilseeds production is expected to rise by 11.1 per cent during the season to 18.1 per cent,
sugarcane to notch up by 15.6 per cent to 321 MT and cotton to grow by 12.4 per cent to 26.9
96
million bales compared to 23.9 million bales in the last season. The agency pegs the overall
foodgrain output growth up by 5.3 per cent to 229.7 MT.
Major agricultural crops, including foodgrain, oilseeds, cotton, sugarcane, and fruits and
vegetables, are projected to grow by 7.2 per cent in 2010-11, while production of non-food crops
as a whole is projected to grow by 9.7 per cent in the year.
Exports
According to the government's agri-trade promotion body, Agricultural and Processed Food
Products Export Development Authority (APEDA), India's exports of agricultural and floricultural
products, fruits and vegetables, animal products, cereals and processed food products was worth
US$ 1.14 billion during April-May 2010-11. India's agri-export turnover is expected to rise to
nearly US$ 18 billion by 2014, according to APEDA. At present, around 70 per cent of the
country's agricultural and processed food exports are to developing countries in the Middle East,
Asia, Africa and South America.
Indian seed companies are eyeing the export markets in SAARC (South Asian Association for
Regional Cooperation) and African countries with a host of hybrid seeds and best farm practices.
While some of the companies like J K Seeds, Namdhari Seeds, Nuziveedu Seeds, Nath Seeds,
Rasi and Vibha Seeds have already ventured into the export markets in the region.
Investments
The public and private sector investment in agriculture have been steadily increasing since 200405. While public sector investments in agriculture have increased from US$ 3.61 billion in 200405 to US$ 5.5 billion in 2008-09, private sector investment has increased from US$ 14 billion in
2004-05 to US$ 25.5 billion in 2008-09, according to the Annual Report 2009-10 of the Ministry of
Agriculture. Mahindra Samriddhi, an initiative of Mahindra Farm Equipment, eyes having 600
Mahindra Samriddhi centres and five million farmers under its ambit by 2020, said Pawan
Goenka, President, utomotive and Farm Equipment Sectors, Mahindra & Mahindra.
4.1.3 Government Initiatives

In the Union Budget 2010-11, the Finance Minister, Mr Pranab Mukherjee has made the following
announcements for the agriculture sector:
Provision of US$ 86.9 million to extend the green revolution to the eastern region of the
country comprising Bihar, Chattisgarh, Jharkhand, Eastern Uttar Pradesh, West Bengal and
Orissa
Provision of US$ 65.2 million to organise 60,000 pulses and oil-seed villages in rain-fed areas
in 2010-11 and to provide an integrated intervention for water harvesting, watershed
management and soil health to improve productivity of the dry land farming areas
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Provision of US$ 43.4 million for sustaining the gains already made in the green revolution
areas through conservation farming, which involves concurrent attention to soil health, water
conservation and preservation of biodiversity
Banks have been consistently meeting the targets set for agricultural credit flow in the past
few years. For the year 2010-11, the agricultural credit flow target has been set at US$ 81.5
billion
Under the Agricultural Debt Waiver and Debt Relief Scheme (2008), time frame for the
repayment of the loan has been extended till June 30, 2010 from six months up to December
31, 2009
In addition to the 10 mega food park projects already being set up, the government has
decided to set up five more such parks
External commercial borrowings are to be available for cold storage or cold room facility,
including for farm level pre-cooling, for preservation or storage of agricultural and allied
products, marine products and meat
A number of other initiatives that have already been put in place for the agriculture sector include:
The National Food Security Mission was launched in 2007-08, with an outlay of US$ 1.24
billion during the 11th Five Year Plan (20072012). It aims at enhancing the production of
rice, wheat and pulses by 10 MT, 8 MT and 2 MT respectively, by the year 2011-12
The Rashtriya Krishi Vikas Yojna (RKVY) was operationalised with effect from August 2007
with an outlay of US$ 5.3 billion during the 11th Five-Year Plan (2007-12). The RKVY
scheme aims at incentivising states to increase outlays for agriculture and allied sectors in
order to achieve 4 per cent growth in the sector in the current five-year plan. RKVY has
encouraged states to step up allocations to this sector. Allocation to agriculture and allied
sectors was 5.11 per cent of total State Plan Expenditure in 2006-07 and this has gone up to
5.84 per cent in 2008-09, according to the Annual Report 2009-10 of the Ministry of
Agriculture
The government has allocated US$ 1.43 billion this fiscal to the states under RKVY, 87 per
cent more than in 2009-10 at US$ 763.3 million
According to the Annual Report 2009-10 of the Ministry of Agriculture, the National
Horticulture Mission (NHM) was launched in 2005-06. During 2009-10, 201 new nurseries
were set up under NHM
100 per cent foreign direct investment (FDI) is allowed under automatic route in Floriculture,
Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture and
Cultivation of Vegetables and Mushrooms under controlled conditions and services related to
agro and allied sector. Besides the above, FDI is not allowed in any other agricultural
sector/activity, according to the Department of Industrial Policy and Promotions (DIPP),
consolidated FDI Policy
The Planning Commission is working on an ambitious action plan to boost secondary
agriculture, which includes value-addition to farm products, in the 12th Five Year Plan (201217). According to K Kasturirangan, Planning Commission Member, the sector was estimated
worth over US$ 12.8 billion three years back and now it could be more than US$ 21.3 billion
The government will provide US$ 6.43 billion in 2010-11 as subsidy to decontrolled fertilisers
under the nutrient-based subsidy policy that came into effect from April 1, 2010, according to
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Mr Srikant Kumar Jena, Minister of State for Chemicals and Fertilisers. Under the new
nutrient-based subsidy policy (NBS), the government provides subsidy on decontrolled
(whose MRP is not decided by the government) nutrients such as Phosphorus (K) and
Potash (S). A budget estimate of US$ 11.9 billion has been set for fertiliser subsidy during the
2010-11
In April 2010, the Cabinet Committee on Economic Affairs (CCEA) approved US$ 142.5
million for the National Horticulture Board to implement its existing schemes and promote
25,000 integrated commercial horticulture projects in the 11th Plan period ending 2012.
4.1.4 Future Outlook

The country's demand for horticulture products is expected to grow by over 20 per cent to touch
360 MT in 2020-21, according to a study conducted by the Horticulture Society of India. The
report said that rising income will create more demand for horticultural products, which will further
push the production of such crops in India. The horticulture sector encompasses a wide range of
commodities, including fruits, vegetables, potatoes, tuber crops, ornamentals, medicinals and
aromatic crops.
The Indian organic product market, currently pegged at US$ 322.41 million, is expected to reach
US$ 2.15 billion in the next five years, as per Mukesh Gupta, President, International
Competence Centre for Organic Agriculture.
4.1.5 Agricultural Trade

India is among the 15 leading exporters of agricultural products in the world. As per International
Trade Statistics, 2009, published by the WTO, India's agricultural exports amounted to US$ 21.37
billion, with a share of 1.6 per cent of world trade in agriculture in 2008.
Table 1 - World: Leading exporters of agricultural products, 2008
Value
Share in world exports/imports
2008
566.32
127.63
139.97
61.40
54.08
42.29
37.50
32.86
31.66
27.80
26.14
25.02
21.37
1980
(Billion dollars)
Exporters
European Union (27)
extra-EU (27) exports
United States
Brazil
Canada
China
Argentina
Indonesia
Thailand
Malaysia
Australia
Russian Federation
India
17.0
3.4
5.0
1.5
1.9
1.6
1.2
2.0
3.3
1.0
1990
14.3
2.4
5.4
2.4
1.8
1.0
1.9
1.8
2.9
0.8
2000
41.8
10.1
12.9
2.8
6.3
3.0
2.2
1.4
2.2
1.5
3.0
1.4
1.1
2008
42.2
9.5
10.4
4.6
4.0
3.2
2.8
2.4
2.4
2.1
1.9
1.9
1.6
99
New Zealand
Mexico
Chile
Above 15
17.90
17.56
15.61
1117.47
1.3
0.8
0.4
-
1.4
0.8
0.7
-
1.4
1.6
1.2
83.6
1.3
1.3
1.2
83.3
Table 2 - World: Leading importers of agricultural products, 2008

(Billion dollars)
Importers
European Union (27)
extra-EU (27) imports
United States
China
Japan
Russian Federation a
Canada b
Korea, Republic of
Mexico b
Hong Kong, China
retained imports
Saudi Arabia a
United Arab Emirates a
Malaysia
Indonesia
Turkey
Taipei, Chinese
Above 15
a Includes Secretariat estimates.
b Imports are valued f.o.b.
Value
2008
611.75
173.05
115.91
86.83
80.63
34.27
31.24
26.36
25.92
16.50
10.46
15.86
14.64
13.36
13.31
13.04
12.55
1106.12
Share in world exports/imports

1980
1990
2000
2008
42.4
43.3
13.2
12.2
8.7
9.0
11.5
8.2
2.1
1.8
3.3
6.1
9.6
11.5
10.4
5.7
1.5
2.4
1.8
2.0
2.6
2.2
1.5
2.2
2.1
1.9
1.2
1.2
1.8
1.8
1.0
1.0
1.1
0.7
1.5
0.8
0.9
1.1
0.3
0.4
0.6
1.0
0.5
0.5
0.8
0.9
0.6
0.5
1.0
0.9
0.1
0.6
0.7
0.9
1.1
1.4
1.3
0.9
82.0
78.3
Agricultural exports have shown an increasing trend. Agricultural exports have increased from Rs.
79,039.72 crore in 2007-08 to Rs. 85,961.82 crore in 2008-09, registering a growth of about 8.76
per cent. However, the share of agricultural exports in the country's total exports has declined to
10.23 per cent from 12.05 per cent during 2007-08. The increase in the value of agricultural
exports during 2008-09 was primarily because of higher exports of basmati rice, tobacco (unmanufactured), wheat, spices, meat and preparations, paper/wood products, other cereals,
cashew nuts, castor oil, tea and coffee, dairy products, fresh and processed fruits, and
vegetables and oil meals, compared to the corresponding period of the previous year. The export
of non-basmati rice, sugar, molasses, and raw cotton, including waste, has registered a decline
as compared to the previous year.
Agricultural imports increased from Rs. 29,906.24 crore in 2007-08 to Rs. 36,736.52 crore in
2008-09, registering a growth of 22.84 per cent over the corresponding period of the previous
year. The share of agricultural imports in the country's total imports has also declined to 2.74 per
cent during 2008-09 compared to 2.95 per cent in 2007-08. The increase in the value of
agricultural imports during this period has primarily been due to higher imports of sugar, fixed
vegetable oils (edible), raw and waste cotton, cashew nuts, other cereals, tea, and wood and
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wood products. However, a decrease in imports has been registered in the case of raw jute and
oilseeds in 2008-09.
There has generally been a surplus in agricultural trade over the years. The trade surplus has
increased from Rs. 49,133.48 crore in 2007-08 to Rs. 49,225.30 crore in 2008-09. Agricultural
trade during 2008-09 shows a healthy balance, which can be boosted further if the export of
traditional and new agricultural products like marine products, rice (basmati), other cereals, tea,
coffee, cashew nuts, oil meals, floriculture, cotton, niger seed, etc., can be increased further.
The post Uruguay round experience has been a mixed one for agricultural trade in India. While
exports in certain areas, have registered a high growth, in certain other areas, the growth rate has
not been satisfactory. Exports of rice (basmati and non-basmati), coffee, tobacco, dairy and
poultry products, spices, groundnut, guar gum meal, oil meal, fresh fruits and vegetables, meat
and its preparations, raw cotton including waste, and paper/wood products have shown
significant growth. Exports of pulses, castor oil, and marine products have not shown significant
growth. At the global level, average bound tariffs have been reduced in the Uruguay round.
However, measures like, tariff escalation, variable tariffs, complex tariffs and also certain
nontechnical barriers still persist. Domestic support and export subsidies continue to remain high
in a few developed countries. For most high-value agricultural products, including fruits and
vegetables, fish, beef, poultry products, and spices, many importing countries have developed
new standards, besides tightening existing standards. These factors have acted as inhibiting
forces in actualising the export growth potential of the country. Other factors that have led to
limited exports, include infrastructure inadequacies, poor quality awareness, and poor postharvest management.
Globalization has led to increased competition from international markets and pressure to
dismantle protectionist instruments. Since agriculture in India is more a matter of livelihood than a
commercial venture, it is necessary to build capacities in the system so that it is able to withstand
the forces of globalization and compete wherever possible. While there are a large number of
issues to be addressed at the micro and macro levels, the Capacity Building to Enhance the
Competitiveness of Indian Agriculture and Registration of Organic Products Abroad scheme aims
to address some of the limited micro-level capacity creation issues. The capacity building under
this scheme may be in the form of academic, relevant research, market surveys (domestic and
international), or in the form of creation of physical assets critical to agriculture in the international
context.
The EC-India Joint Working Group on Agriculture and Marine Products has been set up in the
Department of Agriculture and Cooperation for facilitating and promoting agricultural trade
between India and the European Union. The 3rd meeting of the Joint Working Group was held in
New Delhi on 14 October 2009 to discuss agricultural policies, growth in bilateral trade, and
issues of mutual interest related to agricultural trade.
Negotiations on PTAs/FTAs are at various stages of progress with MERCOSUR (Brazil,
Argentina, Paraguay, and Uruguay), BIMSTEC (Bangladesh, Bhutan, Myanmar, Nepal, Sri Lanka
and Thailand), the Gulf Cooperation Council (Kuwait, Bahrain, Qatar, Oman, Saudi Arabia, and
the United Arab Emirates), Thailand, and the European Union. India has signed the Trade in
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Goods Agreement with ASEAN countries and a Comprehensive Economic Partnership

Agreement with South Korea in 2009. Agricultural commodities which are vulnerable to global
competition and which are crucial for food and livelihood security have been kept out of the
purview of these agreements. Besides, stringent rules of origin norms and built-in safeguards
have been put in place to protect the interest of farmers.
The Doha Round of trade negotiations in the World Trade Organization (WTO), which were
launched in November 2001, is in progress. The Chairman of the WTO Agriculture Negotiations
brought out further Revised Draft Modalities on Agriculture on 6 December 2008. Multilateral
discussions on the text gained impetus from the mini-ministerial meeting which was held in New
Delhi between September 2-4 2009, with the objective of developing a broad-based consensus to
energise the multilateral process at the WTO and translate the political intent to wrap up the Doha
round in 2010 into ground level progress. Throughout the negotiations, India has been working
constructively with coalition partners in developing country groupings such as the G-20 and the
G-33. In recent discussions, the G-20 and G-33 have emphasised the need to respect the
multilateral mandate, with the texts of December 2008 to form a basis of future work. The Chair of
the Negotiating Groups on Agriculture is implementing an issue-based work plan for intensifying
engagement on negotiations and scheduling of commitments. The seventh ministerial meeting
was held in the WTO between 30 November-2 December 2009, to review WTO activities
including the Doha Work Programme.
India is committed towards a successful conclusion of the Doha Round negotiations, while
protecting the livelihood and food security concerns of its farmers, as per the agreed framework
for negotiation. Since the primary objective of the Doha Round is to put the development
dimension of international trade on to the centre-stage, developing countries, including India, are
arguing in the ongoing negotiations that, in undertaking liberalization and reforms in agriculture
trade, it is important to protect poor and vulnerable farmers from the shocks of import surges or
decline in import prices, and to protect their livelihood, particularly in the context of trade distorting
subsidies, with the help of agreed flexibilities of Special Products and Special Safeguard
Mechanisms. These policy flexibilities are required to protect the interests of vulnerable and
resource-poor farmers.
4.1.6 Food Processing Industry: Overview

India is the worlds second largest producer of food next to China, and has the potential of being
the biggest with the food and agricultural sector. The food processing industry is one of the
largest industries in India-it is ranked fifth in terms of production, consumption, export and
expected growth. The food industry is on a high as Indians continue to have a feast. Fuelled by
what can be termed as a perfect ingredient for any industry large disposable incomes - the food
sector has been witnessing a marked change in consumption patterns, especially in terms of
food.
Increasing incomes are always accompanied by a change in the food basket. The proportionate
expenditure on cereals, pulses, edible oil, sugar, salt and spices declines as households climb
the expenditure classes in urban India while the opposite happens in the case of milk and milk
products, meat, egg and fish, fruits and beverages. For instance, the proportionate expenditure
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on staples (cereals, grams, pulses) declined from 45 per cent to 44 per cent in rural India while
the figure settled at 32 per cent of the total expenditure on food in urban India.
A large part of this shift in consumption is driven by the processed food market, which accounts
for 32 per cent of the total food market. It accounts for US$ 29.4 billion, in a total estimated
market of US$ 91.66 billion. The Confederation of Indian Industry (CII) has estimated that the
food processing sector has the potential of attracting US$ 33 billion of investment in 10 years and
generate employment of 9 million person-days.
The Government has formulated and implemented several Plan Schemes to provide financial
assistance for setting up and modernizing food processing units, creation of infrastructure,
support for research and development and human resource development in addition to other
promotional measures to encourage the growth of the processed food sector. Food processing is
a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry
and fisheries. It also includes other industries that use agriculture inputs for manufacturing of
edible products. The Ministry of Food Processing, Government of India indicates the following
segments within the Food Processing industry:
Dairy, fruits & vegetable processing
Grain processing
Meat & poultry processing
Fisheries
onsumer foods including packaged foods, beverages and packaged drinking water.
Though the industry is large in size, it is still at a nascent stage in terms of development of the
country's total agriculture and food produce, only 2 per cent is processed. The industry size has
been estimated at US$ 70 billion by the Ministry of Food Processing, Government of India. The
food processing industry contributed 6.3 per cent to Indias GDP in 2003 and had a share of 6 per
cent in total industrial production. The industry employs 1.6 million workers directly. The industry
is estimated to be growing at 9-12 per cent during the period 2002 to 2007.
Value addition of food products is expected to increase from the current 8 per cent to 35 per cent
by the end of 2025. Fruit & vegetable processing, which is currently around 2 per cent of total
production will increase to 10 per cent by 2010 and to 25 per cent by 2025. The highest share of
processed food is in the dairy sector, where 37 per cent of the total produce is processed, of this
only 15 per cent is processed by the organized sector. The food processing industry in the
country is on track to ensure profitability in the coming decades. The sector is expected to attract
phenomenal investments of about Rs 1,400 billion in the next decade.
Primary food processing is a major industry with a highly fragmented structure that includes
hundreds of thousands of rice-mills and hullers, flour mills, pulse mills and oil-seed mills, several
thousands of bakeries, traditional food units and fruits, vegetable and spice processing units in
the unorganized sector. In comparison, the organized sector is relatively small, with around 516
flour mills, 568 fish processing units, 5,293 fruit and vegetable processing units, 171 meat
processing units and numerous dairy processing units at state and district levels. The share of the
organized and unorganized sectors varies across different segments of the industry.
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4.1.7 Processed Foods Scenario with respect to Specific Sectors

The industry structure and ongoing transformation offers opportunities for organized players to
invest and grow. As the Indian market matures and consumers become more quality and brand
conscious, the organized sector is poised to grow and gain prominence.
Dairy: In the dairy sector, most of the processing is done by the unorganized sector. Though the
share of organized sector is less than 15 per cent, it is expected to rise rapidly, especially in the
urban regions. Among the milk products manufactured by the organized sector, some of the
prominent ones are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed
milk and infant foods. Amongst dairy products, the 50,000 ton branded butter market, valued at
US$ 133 million is estimated to be growing at 8-10 per cent per annum. The cheese market is
estimated to be US$ 110 million in value terms and an estimated 54,000 tonnes in volume terms,
and has been growing at a compounded annual growth rate (CAGR) of 8-9 per cent during 19992003. The growth in urban areas has been higher at about 15 per cent per annum. The ice cream
market in India is estimated to be about US$ 199 million per annum. A few corporate players,
including Multi National Corporations are now focusing on this market. For example, Nestle and
Britannia have forayed into emerging segments such as Ultra Heated Treatment (UHT) and
flavored milk. Ultra Heat Treated (UHT) milk is becoming popular and the market is estimated at
US$ 33.4 million (Rs1.5 billion).
Fruits and Vegetables: Fruit and vegetable processing in India is almost equally divided
between the organized and unorganized sectors, with the organized sector holding 48 per cent of
the share. While products like juices and pulp concentrate are largely manufactured by the
organized sector, the unorganized sectors foothold is in the traditional areas of processed items
like pickles, sauces and squashes. By size, pickles form the strongest category. The installed
capacity of fruit and vegetable processing industry has increased from 1.11 million tonnes in 1993
to 2.33 million tonnes in 2004. Over the last few years, the industry has seen a positive growth in
ready-to-serve beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable
products, pickles, processed mushrooms and curried vegetables. The government expects the
processing in this sector to grow to 10 per cent in 2010 and 25 per cent of the total produce by
2025. Most of the units engaged in above are currently export oriented. Domestic consumption of
processed fruits & vegetable products is low, indicating a potential for growth through increased
penetration of the domestic market.
Grains: India produces more than 200 million tonnes of different food grains every year. All major
grains rice, wheat, maize, barley and millets like jowar (great millet), bajra (pearl millet) & ragi
(finger millet) are produced in the country. About 15 per cent of the annual production of wheat is
converted into wheat products. There are 10,000 pulse mills in the country with a milling capacity
of 14 million tonnes, milling about 75 per cent of annual pulse production. The country is self
sufficient in grain production and is the second largest rice producer in the world with a 20 per
cent global share. Primary milling of rice, wheat and pulses is the most important activity in food
grains processing. Total investment in the grain milling sector up to December 2002 was around
US$ 1.5 billion, of which US$ 253.5 million was foreign investment. Branded rice is becoming
popular in both the domestic as well as the export market. Indian Basmati rice commands a
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premium in the international market. This segment thus offers opportunities in marketing of
branded grains, as well as grains processing.
Meat and Poultry: India has a livestock population of 470 million, which includes 205 million
cattle and 90 million buffaloes. Processing of meat products is licensed under Meat Food
Products Order, (MFPO), 1973. Total meat production in the country is currently estimated at 5
million tonnes annually. Only about 1-2 per cent of the total meat is converted into value added
products. The rest is purchased raw and consumed at home. Poultry processing is also at a
nascent stage. The country produces about 450 million broilers and 33 billion eggs annually.
Growth rate of egg and broiler production is 16 per cent and 20 per cent respectively. India has
3,600 slaughter houses, 9 modern abattoirs and 171 meat processing units licensed under Meat
Products Order. A few modern pork processing plants are also coming up in the country. There is
a large potential for setting up modern slaughter facilities and development of cold chains in the
meat and poultry processing sector. Buffalo meat is surplus in the country and also has good
export potential. In the case of poultry, export from India is mostly to Maldives and Oman. Other
markets such as Japan, Malaysia, Indonesia and Singapore are being explored. The growing
number of fast food outlets in the country has had a significant impact on the meat processing
industry in India. As per capita incomes rise and urban families live in smaller units, the demand
for processed meat products, which can be quickly cooked, has been rising. Most of the
production of meat and meat products continues to be in the unorganised sector. Some branded
products like Venkys and Godrejs Real Chicken are, however, becoming popular in the domestic
market.
Fish Processing: India is the third largest fish producer in the world and is second in inland fish
production. The fisheries sector contributes US$ 4.4 billion to the national income, which is about
1.4 per cent of the total GDP. With its over 8,000 km of coastline, 3 million hectares of reservoirs,
1.4 million hectares of brackish water, 50,600 sq km of continental shelf area and 2.2 million sq
km of exclusive economic zone, India is endowed with rich fishery resources and has vast
potential for fishes from both inland and marine resources. Processing of fish into canned and
frozen forms is carried out almost entirely for the export market. It is widely felt that Indias
substantial fishery resources are under-utilized and there is tremendous potential to increase the
output of this sector. Total investment in the sector since 1991 has been around US$ 600 million.
With the liberalized policy, fish-processing sector has been attracting more foreign investments.
Foreign investment up to 2003 has been US$ 122.5 million. The units in the fish processing
sector are largely small scale proprietary/ partnership firms or fishermen co-operatives. In the
past ten years, the corporate sector has increased its operations in preservation, processing and
export of coastal fish.
Consumer Foods: Consumer food industry includes packaged foods, aerated soft drinks,
packaged drinking water and alcoholic beverages.
Packaged or Convenience Foods - This segment comprises bakery products, ready-toeat snacks, chips, namkeens (salted snacks and savouries) and other processed foods/
snack foods. The market size of confectioneries is estimated at US$ 484.3 million
growing at the rate of 5.7 per cent per annum. Biscuits have a market of US$ 373.4
million, growing at 7.5 per cent per annum. Other products like bread, chocolates are also
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growing at a significant rate. There is a demand for Indian snack food (Ready-To-eat) in
overseas markets. The exports market is estimated at US$ 33.4 million and is growing at
around 20 per cent annually. The packaged food industry has around over 60,000
bakeries, 20,000 traditional food units and several pasta food units. In the past decade
several new biscuits & confectionery units, soya processing units and
starch/glucose/sorbitol producing units have come up. Multinational Companies are
coming up in confectionery and cocoa based products areas.
Aerated Soft Drinks - The aerated soft drinks industry in India comprises over 100 plants
across all States. It provides direct and indirect employment to over 125,000 employees.
It has attracted one of the highest foreign direct investments in the country, amounting to
around US$ 1049 million. Two of the biggest global brands in this segment are well
established in India. Soft drinks constitute the third largest packaged foods segment, after
packed tea and packed biscuits. Total export earnings of the industry are over US$ 156
million per annum. Penetration levels of aerated soft drinks in India are quite low
compared to other developing and developed markets, an indication of further potential
for rapid growth.
Packaged Drinking Water - The market size for packaged drinking water in India has
been estimated at around US$ 223 million. The industry comprises 215 companies which
have been granted license for manufacturing packaged drinking water and 3 for
manufacturing packaged natural mineral water. Trends such as shortage of drinking
water in the large metropolitan cities, changes in consumer lifestyles leading to demand
for convenience and availability of various packaged sizes to suit different needs have led
to a spurt in growth over the last 3-4 years and these trends are expected to continue to
fuel demand in this sector.
Alcoholic Beverages - India is the third largest market for alcoholic beverages in the
world. The demand for spirits and beer is estimated to be around 373 million cases per
annum. There are 12 joint venture companies producing grain based alcoholic beverages
that have a combined licensed capacity of 33.9 million litres per annum. 56 units are
engaged in manufacturing beer under license from the Government of India. The demand
per annum for wine in the domestic market is estimated to be around 6 million bottles
(750 ml), while the domestic production of wine is over 2.4 million bottles. The market is
estimated to grow at a healthy rate of around 25 per cent per annum in the next five
years, indicating attractive investment potential.
4.1.8 Competitive Advantages: India

The Indian food processing sector is highly competitive. There are a large number of players in
the organised as well as unorganized sector. The organised sector is small but growing - for
example, it forms less than 15 per cent of the dairy sector and around 48 per cent of the fruits and
vegetable processing. The sector offers potential for growth and a large number of Multi National
Corporations have entered into India to leverage this opportunity. Some of the successful
overseas players in this sector include Unilever, Cadbury, Nestle and Pepsi. These players face
competition from strong Indian brands. Companies have adopted various strategies to maintain
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and increase their market share in India. These include competitive pricing, aggressive
advertising campaign, expansion plans etc. Examples of such strategies are:
Agro Tech Foods uses two strategies to counter the threat of low priced competition. By
launching lower-priced blended oils under the Sundrop umbrella, and acquiring a fairly
strong presence in the mass market for edible oils through its low priced brand, Crystal.
Secondly, it has reengineered its costs to lower its own fixed cost structure.
In the mass segment, Britannia has introduced biscuit packs at lower price points.
Gits is strategically growing and broadening its export market and has launched new
international style export packaging.
The strategy followed by Haldiram is competitive pricing and labor intensive products that
predominantly cater to the Indian palette. It follows aggressive marketing in terms of TV
advertisements, print ads and kiosks of Haldirams range of products at railway stations.
Hindustan Level Limited has followed the strategy of divesting its non-core businesses
and focusing on its food business as a growth driver.
New products are being continuously launched in all product segments by Nestle. The
dairy portfolio consisting of regular and flavoured curds, skimmed milk and fruit-based
milk, condensed milk and butter is being expanded by launch of lassi and cheese.
4.1.9 Policies and Regulations

Policy Initiatives
Given the size of the industry and the nascent development stage, the food processing sector is a
key focus area for the Government of India. The importance of the sector is further enhanced by
the fact that over 70 per cent of the population depends upon agricultural activity for livelihood.
The government has therefore been focusing on commercialization and value addition to
agricultural produce, minimizing pre/post harvest wastage, generating employment and export
growth in this sector, through a number of regulatory and fiscal incentives. The industry is largely
unorganized, with a small but growing organized sector.
The popularity of food and agro products is not surprising when the sector is now offering a
growth of more than 150 per cent in sales. With such promise in the sector, a number of foreign
companies have joined the fray. While US brands such as McDonald's, Pizza Hut and Kentucky
Fried Chicken have become household names, more are on their way. The new wave in the food
industry is not only about foreign companies arriving here attracted by the prospective size of the
market. It is also about the migration of the Made in India tag on food products traveling abroad.
Indian food brands and fast moving consumer goods (FMCGs) are now increasingly finding prime
shelf-space in the retail chains of the US and Europe. These include Cobra Beer, Bikanervala
Foods, MTR Foods' ready-to-eat food stuff, ITC's Kitchen of India and Satnam Overseas' Basmati
rice. The Government has formulated and implemented several schemes to provide financial
assistance for setting up and modernizing of food processing units, creation of infrastructure,
support for research and development and human resource development in addition to other
promotional measures to encourage the growth of the processed food sector.
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The Centre has permitted under the Income Tax Act a deduction of 100 per cent of profit
for five years and 25 per cent of profit in the next five years in case of new agro
processing industries set up to package and preserve fruits and vegetables.
Excise Duty of 16 per cent on dairy machinery has been fully waived off and excise duty
on meat, poultry and fish products has been reduced from 16 per cent to 8 per cent.
Most of the processed food items have been exempted from the purview of licensing
under the Industries (Development and regulation) Act, 1951, except items reserved for
small-scale sector and alcoholic beverages.
Food processing industries were included in the list of priority sector for bank lending in
1999.
Automatic approval for foreign equity up to 100 per cent is available for most of the
processed food items except alcohol, beer and those reserved for small-scale sector
subject to certain conditions.
The Union Commerce Ministry has approved a brand promotion campaign for value
added Made in India cashew being launched in the West Asian market by March end.
The campaign, mooted by Cashew Export Promotion Council of India (CEPCI), involves
a financial assistance of US$ 344,787 by the Ministry.
Full repatriation of profits and capital has been allowed.
Zero duty import of capital goods and raw material for 100 per cent export oriented units.
Sales of up to 50 per cent in domestic tariff area for agro based, 100 per cent export
oriented units is allowed.
Government grants have been given for setting up common facilities in agro Food Park.
Full duty exemption on all imports for units in export processing zones has been done.
4.1.10 Food Safety and Standard Act, 2006

Till the year 2005, thirteen different laws were applicable on the food and food processing sector.
Multiple laws/ regulations prescribe varied standards regarding food additives, contaminants, food
colours, preservatives and labeling. In order to rationalize the multiplicity of food laws, a Group of
Ministers (GoM) was set up to suggest legislative and other changes to formulate integrated food
law, to be a single reference point in relation to regulation of food products. Based on the
recommendations of the GoM the ministry of food processing enacted the Food Safety &
Standard Act (FSSA), 2006. Salient features of the act:
FSSA will be aided by several scientific panels and a central advisory committee to lay
down standards for food safety. These standards will include specifications for
ingredients, contaminants, pesticide residue, biological hazards and labels.
The law will be enforced through State Commissioners of Food Safety and local level
officials.
Everyone in the food sector is required to get a licence or a registration which would be
issued by local authorities.
Every distributor is required to be able to identify any food article to its manufacturer, and
every seller to its distributor. Anyone in the sector should be able to initiate recall
procedures if he finds that the food sold had violated specified standards.
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4.1.11 Foreign Direct Investment

The government of India is planning to offer 100 per cent foreign direct investment and income
tax benefits in the food processing sector.Foreign direct investment (FDI) in the country's food
sector is poised to hit the US$ 3 billion mark. In the last one year alone, FDI approvals in food
processing have doubled. The cumulative FDI inflow in food processing reached US$ 2,804
million in March '06. In '05- 06, the sector received approvals worth US$ 41 million. This figure is
almost double the US$ 22 million approved in 2004-05.
Nearly 30 per cent of FDI in this sector comes from EU countries such as Netherlands,
Germany, Italy and France. Some of the successful ventures from EU countries are
Perfetti, Cadbury, Godrej-Pilsbury, Nutricia International, Manjini Comaco, etc.
The US-based private equity fund, New Vernon Private Equity Limited (NVPEL), has
decided to invest Rs 45 0 million in Kochi-based masala major, Eastern Condiments, the
flagship company of Eastern Group.
America's largest chocolate and confectionery-maker Hershey is acquiring 51 per cent
stake in Godrej Beverages & Foods for US$ 54 million.
4.1.12 Vision Strategy and Action Plan

Ministry had commissioned a Vision preparation for the growth of FPI sector. The Vision
Document was released on April 07, 2005. The Vision envisages that industry should aim to
increase processing level of perishables from 6per cent to 20 per cent, increase value addition
from the present level of 20 per cent to 34per cent and share in global trade up from 1.6 per cent
to 3 per cent, thus tripling the size of processed food industry by 2015. Tripling of the size of
industry is estimated to generate direct employment of 2.8 million and indirect employment of 7.4
million persons.
4.1.13 Tax Relief for Speed Growth of FPI Sector

Budget of 2006- 07
Recognizing the enormous benefits that the food processing industry can bring to agriculture and
job creation, and to consumers, food processing will be treated as a priority sector for bank credit.
NABARD will create a separate window with a corpus of US$ 225 million for refinancing loans to
the sector, especially for agro-processing infrastructure and market development. Government
will also set up the National Institute of Food Technology Entrepreneurship and Management.
The Paddy Processing Research Centre at Thanjavur will be developed into a national-level
institute.
Output of foodgrains likely to be 209.3 MT
2 per cent credit on farm loans
To double farm loans in 3-Years
US$ 22 million fund to help tea growers
Increased funding for repair of water bodies
To double farm loans in 3 years Short term credit to farm
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Food processing industry has been given a fillip as the condensed milk, ice cream, preparation of
meat, fish and poultry, pectins, pasta and yeast have been fully exempted from excise duties.
4.1.14 Eleventh Five Year Plan (2007-2012) Initiatives

To cope up with the growth of 9% visualized during the 11th Five Year Plan milk
production has to be enhanced, so that, per capita availability is doubled as milk
contributes almost 60-65% of the total livestock product value
To build participatory institutions of collective action for small-scale farmers that allow
them to get vertically integrated with livestock processors and input suppliers
To create an environment in which farmers will increase investment in ways that will
improve productivity in the livestock sector
To promote effective regulatory institutions to deal with the threat of environmental and
health crisis stemming from livestock
To increase per ha. fish production through private sector to bring it at par with national
average
To develop PAN culture for raising fish finger-lings
Renovation of 1,642 seasonal ponds through NREG Programme to make available
approx. 6,000 ha. additional water area
Development of fish seed production and infrastructure in vicinity of NVDA reservoirs
Providing employment to fisherman communities by allotting water bodies on long lease
for fish culture
To introduce biotechnology in fish seed and fish production
4.1.15 Infrastructure Development in Food Processing Sector

There is a lack of suitable infrastructure in the shape of cold chain, packaging centres, value
added centre, modernized abattoirs etc. Improvement in general infrastructure is also an aid for
energizing of sector. Government attaches highest priority to development and expansion of
physical infrastructure for facilitating prompt growth of industries. In order to address the problem
of infrastructure in food processing sector, the Government has implemented the scheme for
infrastructure development comprising the following components:
Food Park Scheme: The idea behind setting up of food parks is that small and medium
entrepreneurs find it difficult to invest in capital-intensive activities. Therefore, as a part of
the strategy to develop food processing infrastructure, the Ministry has been pro actively
pursuing the task of setting up of food parks in different parts of the country. In the food
parks, common facilities like cold storage, food testing and analysis lab, affluent
treatment plant, common processing facilities, packaging centre, power supply, water
supply, seminar / conference / training facilities etc can be assisted. Financial assistance
for food parks is provided at 25 per cent for general and 33.33 per cent for difficult areas
subject to a maximum of Rs. 40 million. Under the scheme, 02 food parks were assisted
under 8th Plan, 39 under 9th Plan Scheme and 10 under 10th Plan. An amount of Rs.
1.04 billion has been sanctioned up to December 2005. 22 food parks have become
operational. In a bid to boost the food sector, the Government is working on agrizones
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and the concept of mega food parks. Twenty such mega parks will come up across the
country in various cities to attract Foreign Direct Investment (FDI) in the food processing
sector. The Government has released a total assistance of US$ 23 million to implement
the Food Parks Scheme. It has so far approved 50 food parks for assistance across the
country. The Centre also plans US$ 22 billion subsidy for at least 10 mega food
processing parks.
Packaging Centres: The Scheme aims to provide facilities for packaging, which may
help in enhancement of shelf life of food products and make them internationally
acceptable. Assistance at 25 per cent of the project cost in general areas and 33.33 per
cent in difficult areas subject to a maximum of Rs. 20 million is provided for establishment
of packaging centre. Assistance is available to all implementing agencies. So far
assistance of Rs. 1450 million has been sanctioned to one packaging centre in Jammu &
Kashmir.
Integrated Cold Chain Facility: The scheme is intended to improve viability of cold
storages and enhance cold storage capacity. Assistance at 25 per cent of the project cost
in general areas and 33.33 per cent in difficult areas subject to a maximum of Rs. 7.5
million is provided for establishment of cold chain facilities. During 10th Plan an amount
of Rs. 4010 million has been sanctioned towards assistance for three cold storages in
Gujarat, three in Maharashtra, one each in U.P., Kerala, Manipur, Meghalaya, Andhra
Pradesh, Haryana, Delhi and Goa. During 9th Plan, assistance of Rs. 148.6 million was
extended to 53 cold storages.
Value Added Centre (VAC): The Scheme is intended to enhance value addition leading
to enhanced shelf life, higher total realization and value addition at each level of handling
and also to facilitate traceability. Assistance at 25 per cent of the project cost in general
areas and 33.33 per cent in difficult areas subject to a maximum Rs. 7.5 million is
provided for establishment and modernization of value added centre. So far, three VACs
i.e. one each in Maharashtra, Himachal Pradesh and Punjab have been sanctioned
assistance involving an amount of Rs. 1100 million during 10th plan.
Irradiation Facilities: The scheme aims at enhancing shelf life of the food product
through irradiation techniques by preventing infestation like in flour, sprouting and change
in chemical composition of the product (as in potato). Financial assistance at 25 per cent
of the project cost in general areas and 33.33 per cent in difficult areas subject to a
maximum of Rs. 50 million is provided for establishment of irradiation facilities. So far four
irradiation projects i.e. two in Maharashtra and one each in West Bengal and Haryana
have been sanctioned assistance involving an amount of Rs. 78.9 million.
Modernized Abattoir: The Scheme aims at scientific and hygienic slaughter, causing
least pain to the cattle and ensuring better byproduct utilization. Assistance at 25 per cent
of the project cost in general areas and 33.33 per cent in difficult areas subject to a
maximum of Rs. 40 million is provided to local bodies for modernization of abattoirs. So
far only one case i.e. of MCD Delhi has been approved for grant of Rs. 40 million.
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4.1.16 Sector-Specific Government Policies

Fruits and vegetables:
Though no industrial license is required for setting up Fruits & Vegetable Processing
industries, setting-up 100 per cent Export Oriented Units require specific Govt. approvals.
Many Fruits & Vegetables Processing industries are eligible for automatic approval of
foreign technology agreement and up to 51 per cent foreign equity participation including
tomatoes, mushrooms & other frozen vegetables, fruit, nuts, fruit-peel, fruit jellies,
marmalades, fruit juices & vegetable juices etc.
This sector is regulated by the Fruit Products Order, 1955 (FPO), issued under the
Essential Commodities Act
All processing units are required to obtain a license under this order
Some items like: pickles & chutneys, tapioca sago and tapioca flour are reserved for
exclusive manufacture in the small scale sector
Export of fruit & vegetable products is freely allowed
Fisheries
Foreign equity is permitted in fish processing sector. Fish processing projects with a
minimum of 20 per cent value addition can be set up as 100 per cent Export Oriented
Units
All items can be exported freely except for silver pomfrets of weight less than 300 grams
Export of marine products is allowed only after registration of the units as an exporter
with the Marine Products Export Development Authority (MPEDA), Cochin
Meat & Poultry
The Meat Products Control Order, 1973 under the Essential Commodities Act, 1954
regulates the manufacture, quality and sale of all meat products
A license is required under this order to set up of a factory for producing/processing meat
products
Export of meat is subjected to pre-shipment inspection and a certificate is required from
State Animal Husbandry Department/Directorate of Marketing and Inspection
Slaughter of cows is banned in most of the States. Export of beef is prohibited
A No Objection Certificate (NOC) has to be obtained from the District administration for
the slaughter of cattle, buffaloes etc.
Permission from the civic bodies/State Government (Department of Animal Husbandry) is
also required before setting up a meat processing unit integrated with a slaughter house
Milk & Milk products
Milk and Milk Products Order (MMPO) regulates milk and milk products production in the
country. The order requires no permission for units handling less than 10,000 litres of
liquid milk per day or milk solids up to 500 tonnes per annum
All the milk products except malted foods are covered in the category of industries for
which foreign equity participation up to 51 per cent is automatically allowed
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Ice cream, which was earlier reserved for manufacturing in the small scale sector, has
now been de-reserved. As such, no license is required for setting up of large scale
production facilities for manufacture of ice cream
Subsequent to de canalization, exports of some milk based products are freely allowed
provided these units comply with the compulsory inspection requirements of concerned
agencies like: National Dairy Development Board, Export Inspection Council etc.
Grains
The Rice Milling Industry (Regulation) Act 1958 & Rice Milling Industry (Regulation &
Licensing) Rules 1959 have been repealed from 28 May, 1997.
Rice milling and pulse milling sectors, which were earlier reserved for the small scale
sector, have now been de reserved
Since liberalization, there is no license requirement for setting up or capacityexpansion of
roller flour mills. The mills can obtain their wheat supply from any source
There is no license requirement or price/distribution controls on manufacture of wheat
products
Packaged Foods
The industry is de licensed and automatic approval for foreign investment up to 51 per
cent of equity (except for items like malted food and items which are reserved for
production in small scale sector) is granted
The setting up of 100 per cent export oriented units requires specific government
approval
The packaging laws and regulations affecting food products are mainly covered under the
Standards of Weights and Measures Act, 1976, and the Standards of Weights and
Measures (Packaged Commodities) Rules, 1977 (SWMA) specifying the quantity and
package labeling regulations for all products
The Prevention of Food Adulteration Act, 1954, and the Prevention of Food Adulteration
Rules, 1955 (PFA) specify food adulteration/contamination norms and permissible
ingredients from consumer health and safety point of view
The Agmark Rules relate to the quality specifications and needs of certain agricultural
products to be eligible for Agmark certification
4.1.17 Challenges and Opportunities

The future of the Indian farmer depends on the success of the food industry as India's prosperity
is predominantly linked to the growth of incomes in the agrarian sector of the economy.
Increasing liberalization of the economy has tried to lift the protection that the food and agriculture
sector once enjoyed in the country. This has exposed the sector both to the opportunities and
challenges of the global food economy.
The market forces are compelling the Indian agriculture producers to increase the quality of their
farm produce while continuing to maintain their cost competitiveness in order to be able to
compete effectively in the global food market. Even in the domestic market, rising per capita
incomes and changing demographic profile of the population has ensured the growing demand
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for processed and convenience foods. Increasing consumer awareness about health and hygiene
has shifted the focus of the market to "safe" foods.
The Indian food-processing sector is undergoing a veritable revolution - all the way from the plate
to the plough. Indian food processing industry has seen significant growth and changes over the
past few years, driven by changing trends in markets, consumer segments and regulations.
These trends, such as changing demographics, growing population and rapid urbanization are
expected to continue in the future and, therefore, will shape the demand for value added products
and thus for food processing industry in India. The Government of Indias focus towards food
processing industry as a priority sector is expected to ensure policies to support investment in this
sector and attract more FDI. India, having access to vast pool of natural resources and growing
technical knowledge base, has strong comparative advantages over other nations in this industry.
The food processing sector in India is clearly an attractive sector for investment and offers
significant growth potential to investors.
Challenges faced by the Indian industry
The most crucial challenge today that the Indian food processing industry is facing is the lack of
suitable infrastructure in the shape of cold chain, packaging centres, value added centre,
modernized abattoirs etc. Improvement in general infrastructure is also a must requirement for
the industry to progress. Some other important initiatives that are needed are:
Promotion of appropriate crossbreeds while conserving indigenous breeds of livestock
Establishment of livestock marketing system
Promotion of rural backyard poultry in a cooperative marketing setup
Development of cooperative dairy firms
Enhancing livestock extension services
Encouraging private veterinary clinic
Institutionalising a framework for utilising synergy between restoration and creation of
water bodies for water harvesting and fishery
Provision of an insurance package to avoid distress
4.1.18 Strengths and Opportunities

It is the seventh largest country, with extensive administrative structure and independent
judiciary, a sound financial & infrastructural network and above all a stable and thriving
democracy
Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material
base suitable for food processing industries. Presently a very small percentage of these
are processed into value added products
It is one of the biggest emerging markets, with over 1 billion population and a 250 million
strong middle class
Rapid urbanisation, increased literacy and rising per capita income, have all caused rapid
growth and changes in demand patterns, leading to tremendous new opportunities for
exploiting the large latent market. An average Indian spends about 50 per cent of
household expenditure on food items.
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Demand for processed/convenience food is constantly on the rise

India's comparatively cheaper workforce can be effectively utilized to setup large low cost
production bases for domestic and export markets
Liberalized overall policy regime, with specific incentives for high priority food processing
sector, provide a very conducive environment for investments and exports in the sector
Very good investment opportunities exist in many areas of food processing industries, the
important ones being : fruit & vegetable processing, meat, fish & poultry processing,
packaged, convenience food and drinks, milk products etc.
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Chapter 4.2
THRUST AREAS OF INDIAN EXPORTS: TEXTILES
4.2.1 Introduction
The textile industry has an overwhelming influence in the economic development of India.
Through its contribution to the industrial output, employment generation and export earnings, the
industry plays a very important role in the Indian economy. Currently, it contributes about 14
percent to industrial production, 4 percent to the GDP, more than 12 percent to the countrys
export earnings, and provides direct employment to over 35 million people. Post MFA (Multi Fibre
Arrangement), the Indian textile and clothing industry has been growing and has made India as
one of the league countries involved in export of textile as well as apparel products.
4.2.2 Global Scenario

The removal of quotas has been advantageous mainly to the developing countries, which were
the main exporters of textiles and clothing products. The world textile and clothing exports grew
by 9.7% in 2006, to US $ 530 billion. With regards to the total exports, textiles accounted for US $
219 billion and clothing for the remaining US $ 311 billion of exports. The worlds largest exporter
of textiles (excluding clothing) as a region was EU25, whereas in case of individual countries,
China was topping the list with US $ 48.68 billion, followed by Hong Kong (US $ 13.91 billion),
USA (US $ 12.67 billion) and South Korea (US $ 10.11 billion). India stood at the 6th position with
US $ 9.33 billion worth exports of textiles in 2006. In case of imports of textiles too EU25, as a
bloc, was leading the list with US $ 70.43 billion followed by USA (US $ 23.5 billion), China (US $
16.36 billion), Hong Kong (US $ 13.98 billion), and Japan (US $ 6.18 billion) USA was the largest
importer in the case of individual countries. India stood at the 14th position with regard to import
of textiles by individual countries, with a mere US $ 2 billion. Developing countries were making
an impressive stride in the clothing exports, as has been in the textiles exports. China was the
worlds largest exporter of clothing in 2006, with the export value being US $ 95.39 billion, and
constituting to around 31% of the world exports in clothing, followed by EU25 (US $ 83.42 billion),
as a bloc, Hong Kong (US $ 20.39 billion), Turkey(US $ 11.88 billion) and India (US $ 10.19
billion). The leading importers of clothing were EU 25, with the import value being US $ 141.15
billion and constituting 44% of the total imports, followed by USA (US $ 82.97 billion) and Japan
(US $ 23.87billion).
The developed countries on the whole were having deficits in textiles and clothing trade for over a
decade with USA topping the list with a deficit of US $ 89 billion in 2006. EU held a huge deficit of
US $ 56.95 billion, followed by Japan with US $ 22.63 billion during the same period. Such trade
deficits show the low competitiveness of manufacturing of textile and clothing industry in these
countries. The growth in textile and clothing exports especially by the Asian countries has been
an important trend owing mainly to removal of quotas, increasing internationalization and
liberalization.
4.2.3 Fibre Industry in the World
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As of 2006, man-made fibres constitute 58% of the total fibre production and natural fibres
constitute the rest 42%. Under the natural fibre segment, cotton is the largest produced fibre in
the world accounting for 40% share in world fibre production. The world cotton output achieved a
growth of around 2% to reach a level of over 25 million tonnes in 2006; world cotton production is
expected to reach 29 million tonnes by 2012. The major cotton producing countries are China
(30%), India (21%), USA (16%), Pakistan (7%) and Brazil (6%). Around 75% of the man made
fibres was constituted by polyester, followed by nylon (11%), acrylic (7%) and other man-made
fibres (7%). Major producers of man-made fibres are China constituting around 49%, followed by
Taiwan (6.8%), India (6.5%) and USA (6.2%)
4.2.4 Home Textiles

The global consumption of home textiles was worth around US $ 105 billion in 2006. The largest
market was the USA, with an estimated US $ 16 billion in 2006, followed by EU25 (of which UK
was the single largest market) with a market size of US $ 5.61 billion. World exports of home
textiles amounted to US $ 22.51 billion in 2006, a CAGR of 17% since 2001 (US $ 10 billion). Of
the total exports in 2006, home textiles of cotton accounted for US $ 11.35 billion. The top three
exporters were China, Pakistan and
India. The world exports is expected to touch US $ 27 billion in 2008.
4.2.5 Indian Scenario

Indias prominent role in textile production stems from its wealth in natural resources. Silk, cotton
and jute, all nature-base fibre resources are available in India. The textile and clothing industry
occupies a unique place in the Indian manufacturing sector. Having a highly fragmented
structure, the Indian textile and clothing value chain consists of four stages:
Ginning and Spinning Spinning is the process by which cotton or manmade fibre is
converted into yarn. In case of cotton, before spinning, ginning is done where the
impurities are removed;
Weaving and Knitting Conversion of cotton or manmade yarns into woven or knitted
fabrics;
Processing includes bleaching, dyeing, mercerizing and printing, which results in
finished fabric to be used for manufacture of clothing;
Clothing manufacturing this is the final stage where the designing, pattern making,
cutting, embellishing, stitching, finishing and packaging is done for distribution.
One of the key advantages of the Indian textile industry is abundant availability of raw material.
Indian textile industry is multi-fibre based, using cotton, jute, wool, silk, manmade and synthetic
fibres. India is the largest producer of jute fibre, second largest producer of cotton yarn and silk
fibre in the world. Under the man-made fibre category also, India is one of the major producers in
the world; second largest producer of cellulosic fibre / filament yarn, third largest producer of
viscose staple fibre and polyester filament yarn, fourth largest producer of polyester staple fibre,
and seventh largest producer of acrylic staple fibre.
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Value of textile exports from India, including clothing, was worth US $ 17 billion in 2007-08.
Textiles accounted for 48% (US $ 8.3 billion) of exports and the rest 52% (US $ 8.7 billion) was
accounted by clothing. As per the data collated by WTO, for the year 2006, India accounted for
4.3% of total world export of textile products, and in the clothing segment Indias share was 3.3%.
European Union and USA are the major destinations for Indias textile and garment exports.
Other major destinations include: United Arab Emirates (UAE), China, Bangladesh, Saudi Arabia
and Japan.
4.2.6 Raw Material Base and Capacity in India

Cotton
Cotton is one of the major raw materials for the Indian textiles industry. India is the second largest
producer of cotton in the world, has the largest cultivated area of over 9 million hectares and
accounts for around 20% (4.8 million tonnes) of global production (over 25 million tonnes). The
performance of the cotton sector has been increasing over the years and during the cotton
season (Aug-Sept) 2007-08, the output recorded was 310 lakh bales (170 kg each). Even the
consumption has been increasing over the years from 195.03 lakh bales in 2004-05 to 245 lakh
bales in 2007-08, by both mill and non - mill sectors. During 2007-08, India exported 65 lakh
bales of cotton. Technology Mission of Cotton (TMC), Mini mission III, and Mini Mission IV are
some of the developmental measures taken by the Government in this sector. The cotton sector
provides employment to more than 50 million people in various activities starting from cultivation
to trade and processing.
Silk
In the world silk production, India is a distant - second largest producer, with a share of around
15%, next to China, which holds a share of 82% in the world. With a total silk production of
around 18,500 MT in 2006-07, India has the distinction of producing all varieties of silk, viz;
mulberry, eri, tasar and muga. Mulberry accounted for nearly 90% of total silk production in India.
The silk sector provides employment to around six million persons in rural and semi urban areas,
and the majority belonging to the economically weaker sections of the society, including women.
With Japanese technology and cooperation, Indian sericulture industry is able to evolve and
popularize Bivoltine silkworm races, which can yield raw silk, matching the international
standards.
Wool
India is the 7th largest producer of raw wool in the world accounting for little over 2% of the world
production, with about 4.2% of the total sheep population. Although the woolen textile and
clothing industry is relatively small compared to the cotton and man-made fibre based textiles and
clothing industry, yet the woollen sector plays an important role as it is linking the rural sector with
the textile manufacturing sector. The product portfolio is also diverse, ranging from textile
intermediates to finished textiles, garments, knitwear, blankets and carpets. Indian woolen sector
has also a small presence in manufacture of technical textiles, catering to the civil and defence
requirements for warm-clothing. Most of the wool produced in India (around 85%) is of coarse
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quality used mainly in the manufacture of hand-knotted carpets, and 5% is of apparel grade, and
10% is of coarse grade, used mainly for production of blankets.
Jute
India is the largest producer and consumer of raw jute in the world. In the year 2006-07, India
imported raw jute worth US $ 25 million (over 83,000 tonnes). During the period April-February
2007-08, India imported raw jute valued US $ 31.6 million (over 119,000 tonnes). Export of jute
products (including floor coverings) from India was around US $ 257 million in 2006-07, which
has reached to US $ 296 million, for the period April February 2007-08. There are 77 jute mills
in India; 60 in West Bengal, 3 each in Bihar and Uttar Pradesh, 7 in Andhra Pradesh and one
each in Assam, Orissa, Tripura and Chattisgarh.
Manmade Fibres
The man-made fibre industry comprises fibre and filament yarn manufacturing units of cellulosic
and non-cellulosic origin. The production of man-made fibres in India has shown an increasing
trend in 2007-08, a growth of around 10% over the previous year. India also imports man-made
fibres and synthetic & regenerated fibres for processing and value addition. In the year 2006-07,
India imported man-made fibres valued US $ 555 million, and synthetic and regenerated fibres
worth US $ 97 million. In the year 2007-08, during the period April-February, Indias imports of
man-made filament and spun yarn amounted to US $ 578 million, and Indias import of synthetic
and regenerated fibres amounted to US $ 100 million.
4.2.7 Profile of Textile Sub-Sectors

Organized Mill Sector
As of December 31, 2007, there were over 1,700 cotton-fibre and man-made fibre textiles mills
non- SSI) in the country with a capacity of around 35 million spindles, and around 0.5 million
rotors. Indias organized mill sector produced about 4000 million kgs of yarn and over 1700
million sq.mtrs of cloth.
Powerlooms Sector
The powerlooms sector provides a wide variety of cloth, both grey as well as processed fabrics.
As on January 31, 2008, there were 20.83 lakh powerlooms distributed in over 4.64 lakh units,
constituting over 60% of the global powerloomage. The sector also contributes around 62% to the
total cloth production in the country, provides employment to about 50 lakh people, which
constitutes around 14% of the total employment in the textiles sector and contributes 60% of the
fabric, meant for exports.
Handlooms
The handlooms sector has been playing an important role in creating an awareness of the Indian
cultural diversity and fashion, which is unique only to the Indian textile industry. The handloom
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cloth production was 6536 million square meters in 2006-07 and during 2007-08, the production
of cloth by handlooms sector was over 7000 million square metres.
Readymade Garments
The clothing sector is fragmented and predominantly in the small scale sector. It is estimated that
there are over 13,000 apparel units (excluding tailoring units) in India, majority of which are in the
SME sector. The total production of clothing sector was around 8 billion pieces with a value of Rs.
1 trillion during 2005-06; of which over one fourth in quantity terms are being exported. The
clothing sector is concentrated primarily in 8 clusters, viz., Tirupur, Ludhiana, Bangalore, Delhi/
Noida/ Gurgaon, Mumbai, Kolkata, Jaipur and Indore. Tirupur, Ludhiana and Kolkata are major
centres for knitwear, while Bangalore, Delhi/ Noida/ Gurgaon, Mumbai, Jaipur and Indore are
major centres for woven clothing. Indias exports of ready-made garments, consisting of cotton,
silk, man-made fibres, wool and other textile materials showed a marginal increase of 0.8%, from
2005-06 to 2006-07; and it is expected to perform marginally better in the year 2007-08.
Technical Textiles
Textile materials and products, which are used for industrial purposes and manufactured primarily
for their technical performance and functional properties, rather than for decoration, are called
technical textiles. The maximum consumption of technical textiles is in the USA, Western Europe,
China and Japan. These regions account for 65% of the total consumption of technical textiles in
the world. In India, the production of different items of the technical textile industry has been
slowly and steadily increasing. All the twelve items are produced in India in varied quantities.
India has also made notable contribution in the production of textiles for strategic applications viz.
national security, e.g. parachute canopy fabric used for carrying human, dropping of supply,
brake parachute application etc. that are indegenised and exported to other countries as well.
The market size and potential of technical textiles was estimated at Rs 19,130 crores in 2003-04,
and it is estimated to have reached Rs 30,000 crores in 2007-08. Being an emerging field,
Government of India is launching a (Rs 1000 crore) Technology Mission on Technical Textiles
(TMTT) to ensure that there are necessary profitable benefits from the enduring investments. To
combat the issue of technology backwardness and infrastructure issues, The Ministry of Textiles,
Government of India, plans to create clusters on technical textiles, so that the necessary textiles
may be produced with adequate technology, thereby making the products technologically
competitive too.
4.2.8 Market Analysis and Indias Position in EU & USA

European Union
Following the elimination of quotas, there has been a marginal shift in the trade pattern in the EU;
the share of extra-EU trade in total trade has been growing, as also the share of developing
countries of Asia. In the EU market, in 2007, growth in imports from China was 14% as compared
to the 3.7% growth in imports from India. Even imports from other Asian countries such as
Vietnam (11%), Sri Lanka and Pakistan (around 7% each) have also been impressive. In the first
quarter of 2008 (January- March), import growth in EU market was around 12%. However, the
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role of developing economies from Asia in catering to this level of import growth has come down
during this period. Except the imports from Sri Lanka and Vietnam (which grew at 13% and 7%
respectively), and Bangladesh with a marginal growth of 0.6%, growth in imports from other
countries, including that of China and India were negative (-0.7 and 1%, respectively). Other
Asian countries such as Pakistan and Indonesia witnessed greater level of negative growth
during this period.
In some product groups, India has improved its market share in EU market, while in others it has
lost its market share to some other competitors. In mens and boys garments segment, India has
improved its market share under HS codes such as 6205 and 6105; in babies garments segment,
India has improved its market share under HS codes such as 6111 and 6209; in home textiles
segment, India has improved its market share under HS code 6305; in made-ups, India has
improved its market share under HS code 6214. Indias position and market share is unchanged
in product sub groups such as mens and boys garments (falling under HS codes 6201, 6107,
6203), womens and girls garments (falling under HS codes 6202, 6108, 6102), home textiles
(falling under HS codes 6302, 6303), technical textiles (falling under HS codes 5911, 6116), and
woven fabrics (falling under HS codes 5208, 5209, 5515). Indias position has been captured by
China under HS codes 6206 (womens and girls garments), 6306 (technical textiles) by
Bangladesh, and 6307 (madeups) by Turkey.
USA
Textiles and clothing market in USA has grown at a CAGR of 3.3% since the elimination of
quotas. However, during January-May 2008, the imports of textiles and garments by USA have
been witnessing slowdown. Over the years, China has improved its market share from 27.2% in
2005 to 34.3% in 2007. Vietnam has also increased its market share from 2.9% in 2005 to 4.4%
in 2007. Bangladesh has marginally increased its market share in USAs import of textiles and
clothing from 2.6% in 2005 to 3.2% in 2007. While India, Pakistan and Italy have more or less
retained the market share, countries such as Mexico, Honduras and Canada from the Americas
region have lost the market share. However, in the year 2008 (January-May), China has lost 3%
market share; the gainers during this period include India (by more than 1%), followed by Vietnam
(by less than 1%) and Indonesia and Bangladesh (by about 0.5% each). It may be noted that
Indias gain emerged mainly from export of non-clothing products. During January May 2008,
under the clothing segment, China, Indonesia and India witnessed negative growth, while
Vietnam (27%) and Bangladesh (over 6%) witnessed positive growth. Under the non-clothing
segment, the growth in imports from India has improved to 9%, while that of China has slowed
down to 7%, and Pakistan witnessing a negative growth (of 6%). Growth in imports of cotton
textiles and products from India have improved (12%) during the period January-May 2008, as
compared to China (which has posted a marginal growth of 7.5%) and Turkey (which has posted
a negative growth of 22%). However, Indias export of woolen textiles and silk textiles has
witnessed negative growth (of 5% and -24%, respectively). It may thus be inferred that in some
sub-segments Indian textile and clothing industry is shining both in EU and USA markets, but in
others it is losing out due to various reasons.
4.2.9 Challenges, Opportunities and Strategies
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Challenges
Impact of Rupee Appreciation on Exports: One of the recent challenges faced by the Indian
textiles and garments sector was the sudden appreciation of Indian Rupee vis--vis US dollar in
2007-08. This has slowed down the growth momentum of textiles and clothing industry in India.
Though, the growth trends in US dollar terms is not very much affected during the period AprilFebruary 2007, in Rupee terms, exports witnessed negative growth rate with regard to both
textiles (-0.6%) and clothing (-4.8%). High export intensity of readymade garments and silk
textiles has affected the export price realization and profitability in these subsectors. While
appreciation of Indian Rupee adversely impacted the export price realization of Indian exporters,
the competitiveness of Indian textiles and clothing in international markets have been gradually
eroded with depreciation of competitor currencies vis--vis US dollar. The currencies of Sri Lanka
and Pakistan have been depreciating over the years strengthening the price competitiveness of
their exporters. However, in recent months, since April 2008 onwards, Indian Rupee has been
depreciating against US dollar, which may have positive impact on textile exports.
Competitive Threats from Other Developing Countries: In the year 2007, USAs import of
textile and clothing from China had grown at 16%, while the overall import growth in USA
decelerated to around 3%. USAs textile and clothing imports from India have grown a mere 0.6%
in 2007, as compared to the impressive import growth of 35% from Vietnam, 13.3% from
Cambodia, 10.1% from Nicaragua, 8% from Indonesia, 7.8% from Egypt, and 6.3% from
Bangladesh. During the period January-May 2008, there has been a negative growth (-2.8%) of
overall import of textiles and clothing by USA, mainly contributed by a negative import growth (2.7%) of textiles and clothing from China. Though imports from India had grown at 2.3% during
this period, there has been a threat of competition from other developing countries such as
Vietnam (27%), Peru (6.5%), El Salvador, (6.7%), and Bangladesh (6.3%). This indicates the
level of competition and threats from other developing countries.
With regard to EU, it may be said that there has been a marginal shift in the trade pattern
following the elimination of quotas; while the share of intra-EU trade has reduced from 56% in
2005 to 54% in January- March 2008, the share of extra EU trade has increased from 44% in
2005 to 46% in January-March 2008. The share of developing countries of Asia has been
increasing in extra-EU trade, since the removal of quota, led by increasing exports by China.
During the first quarter (January March) of 2008, import growth by EU has increased by around
12%. While EU member countries have catered to most of the import requirements, the role of
developing Asian economies declined during this period. Except the imports from Sri Lanka and
Vietnam, which grew at 13% and 7% respectively, and Bangladesh a marginal growth ofrate with
regard to both textiles (-0.6%) and clothing (-4.8%). High export intensity of readymade garments
and silk textiles has affected the export price realization and profitability in these subsectors.
While appreciation of Indian Rupee adversely impacted the export price realization of Indian
exporters, the competitiveness of Indian textiles and clothing in international markets have been
gradually eroded with depreciation of competitor currencies vis--vis US dollar. The currencies of
Sri Lanka and Pakistan have been depreciating over the years strengthening the price
competitiveness of their exporters. However, in recent months, since April 2008 onwards, Indian
Rupee has been depreciating against US dollar, which may have positive impact on textile
exports.
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Competitive Threats from Other Developing Countries: In the year 2007, USAs import of
textile and clothing from China had grown at 16%, while the overall import growth in USA
decelerated to around 3%. USAs textile and clothing imports from India have grown a mere 0.6%
in 2007, as compared to the impressive import growth of 35% from Vietnam, 13.3% from
Cambodia, 10.1% from Nicaragua, 8% from Indonesia, 7.8% from Egypt, and 6.3% from
Bangladesh. During the period January-May 2008, there has been a negative growth (-2.8%) of
overall import of textiles and clothing by USA, mainly contributed by a negative import growth (2.7%) of textiles and clothing from China. Though imports from India had grown at 2.3% during
this period, there has been a threat of competition from other developing countries such as
Vietnam (27%), Peru (6.5%), El Salvador, (6.7%), and Bangladesh (6.3%). This indicates the
level of competition and threats from other developing countries. With regard to EU, it may be
said that there has been a marginal shift in the trade pattern following the elimination of quotas;
while the share of intra-EU trade has reduced from 56% in 2005 to 54% in January-March 2008,
the share of extra EU trade has increased from 44% in 2005 to 46% in January-March 2008. The
share of developing countries of Asia has been increasing in extra-EU trade, since the removal of
quota, led by increasing exports by China. During the first quarter (January March) of 2008,
import growth by EU has increased by around 12%. While EU member countries have catered to
most of the import requirements, the role of developing Asian economies declined during this
period. Except the imports from Sri Lanka and Vietnam, which grew at 13% and 7% respectively,
and Bangladesh a marginal growth of textile and clothing industry is its integrated production and
consolidated supply chain facilities. The global buyers prefer to buy from a few large vendors at
competitive cost. The disintegrated nature of textile and clothing value chain in India hampers the
chances of securing such large orders as also achieving the economies of scale. There are also
challenges associated with productivity, non-availability of adequate resources to invest in high
technology.
Cost Competitiveness: With regard to cost of production, India fares well in labour cost
advantage in the textile sector; however, the cost of power and capital in Indian textile sector is
greater than many other countries. Labour cost in Indian clothing industry has grown since 2000.
As of 2007, the cost of labour in India is higher than the cost of labour in Asian competitor
countries. Although, the labour cost in coastal China is expected to be higher (US $ 0.85 per
hour) than the national average, the labour mobility would moderate the increase in labour cost in
the coastal region. The labour costs of Bangladesh, Pakistan and Vietnam are far below than the
labour cost in India, posing competitive threat to the Indian clothing industry.
Rising Input Prices: There has been a continuous increase in input prices in the textile value
chain leading to cost escalation in production. For example, raw cotton prices in the month of July
2007 was around Rs. 55.57 per kg., which has increased to Rs. 65.10 per kg in May 2008. Prices
of cotton lint, which was prevailing around Rs. 15000 per candy in June 2007 has moved up to
Rs. 24,600 in June 2008. Similarly, the price of viscose staple fibre, which prevailed around Rs.
108.24 per kg in July 2007 has increased to Rs. 119.59 per kg in May 2008.The prices of yarn
have also increased in the last one year, but not proportionately with the increase in prices of
fibres, affecting the margins of spinning units. The price of hank yarn has increased from Rs.
102.34 per kg in July 2007 to Rs. 108.38 per kg in May 2008. Polyester cotton blended yarn has
increased from Rs. 127.38 per kg in July 2007 to Rs. 129.13 per kg in May 2008.The cost of
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energy has also gone up significantly due to spike in global crude prices. Industry sources
contend that there has been no corresponding increase in unit price realization of final products,
squeezing the margins.
Skewed Fibre Mix in India: At present, in India, the fibre mix of textile industry is skewed
towards cotton; about 75% of yarn production in India is cotton based. On the other hand the fibre
mix in the world is estimated to be 60%of man-made fibres and 40% of cotton. Cotton fibre
production had grown at 16% in 2006-07 over the year 2005-06 from 4.1 million tonnes to 4.8
million tonnes.
Social Issue: Internationally, there are increasing awareness about social issues such as
preventing the usage of child labour in textile value chain, especially in the developing countries.
Sourcing firms are undertaking surprise checks in the manufacturing premises and tighten the
vigilance level to prevent violation of such social standards in future. Some of the buyers have
established systematic tracking of hand-work orders including subcontractors in the value chain
either through credible third-parties (such as civil society organizations, NGOs) or directly. The
buyers are also seeking from the vendors to submit a plan giving extensive details about every
sub-contracted facility, as also the internal monitoring protocols to implement the vendor code of
conduct. Wherever possible, the importers demand production to be undertaken in-house at the
vendors facilities so that monitoring is easier.
4.2.10 Select Trends and Opportunities for India

Competition from China: Chinas WTO accession protocol allows both for textile specific
safeguards, and product-specific safeguards. The safeguard can be used by any WTO member
to limit growth in imports of a textile or clothing product category from China, where such imports
are causing, or threatening to cause, market disruption. However, quite understandably, neither
the US nor the EU, have launched such unilateral restrictions under product specific safeguards.
Instead, EU and USA have initiated investigations claiming market disruptions only to pressure
the Chinese government to sign special agreements for curtailing textile exports from China.
According to these agreements (respectively signed in June and December 2005), the growth
rate of a range of particularly sensitive textile products is restricted for the three following years.
They cover about 40% of Chinas textile exports to the EU and about 24 % of its textile exports to
the US. The agreed growth levels range between 8% and 12.5% annually in the EU, China
agreement, with an average 10.5%. The Sino-US agreement sets average growth rates of 10%
for 2006, 12.5% for 2007 and 15% for 2008 for textile, and 12.5% for 2006 and 2007 and 15% for
2008 for clothing.
Chinese clothing industry is known to be having low-fashion and low-embellishments. For
example, in cotton-knit fashion-wear like ladies wears, India stands to gain because of the
strengths in handworks like embroidery, sequins, printing and designs. India, therefore, has an
edge over China when it comes to fashion garments, since international clothing trade is oriented
towards the fashion content rather than the volume of production. Other factors affecting the
Chinese exports are its wage increase, power shortages and rise in cost of credit. The growing
environmental compliance, mainly because of Chinas efforts to project a clean image of an
environmentally friendly country for the Olympics 2008, is likely to increase cost of production in
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the textile sector. China has, of late, been adopting stricter norms like closure of textile mills
which have coal based power plants. This in turn has increased costs and reduced production. All
these factors provide India further opportunities to develop as the largest textile player globally.
Green Clothing: There has been an increasing awareness about green clothing all over the
world, as environmental issues arise at all stages of textile value chain. The problem is expected
to be compounded and impact the clothing industry, because of the number of components
estimated to be around 15) used in making a garment. On the one-hand there have been
increasing concerns about the ecological and environmental impact of raw materials used in
production of clothing, and on the other hand, the concerns about poor working conditions and
unfriendly industrial production methods have also increased multi-fold over the years. Major
retailers and high-profile brand companies are, of late, undertaking investigative inspections in
the factories from where the products sourced by them are produced. They are also turning
towards procurement of products made from organic cotton.
Rising Household Incomes in India: The disposable incomes of the households have been on
the rise, both in the urban and in the rural sectors, mainly because of the growing economic
activity. The growing multiple income households have also led to the increase in disposable
incomes among the population in India and preference towards high value apparel products.
Changing Consumerism: Having nearly two-third of the population under the age of 35, India
has one of the youngest populations in the world. This attribute provides opportunities for fashionoriented textile and clothing industry. Over the years, consumers of textiles and clothing have
been preferring quality over the price considerations. Also, there is an increasing trend towards
giving importance to physical appearance leading to willingness to spend and experiment with
new trends and fashion. All these have led to an increase in consumption of high value clothing,
providing opportunities for the industry to innovate with new ideas.
Availability of Skilled Labour: India has the advantage of being one of the nations with
abundance of cost-competitive skilled labour. This has attracted a lot of investment from various
countries. India has of late become the hub of activities because of this main reason of availability
of skilled labour at low cost compared to many other countries.
Strong Textile Production Base: India has a very strong textile production base right from fibre
to yarn and fabric. One of the major advantages of Indian textile industry is widespread presence
of companies engaged in the textile value chain, starting from field to shelf. This sharpens Indias
competitive edge vis--vis Sri Lanka and Bangladesh, who focus more on apparel production.
India - A Retail Sourcing Hub: Given the abundant supply of fibre, strong production base and
availability of skilled labour the Indian textile industry is poised to become a hub for the global
retailers. Following the abolition of quotas, many global players are setting up their sourcing and
buying offices in India. India is being viewed as alternate sourcing base for China by these firms.
It is estimated that the market size of retail sourcing from India is around US $ 25 billion, which
may reach US $ 40 billion by 2011. Both Wal-Mart and Marks & Spencers have identified India as
a fastest growing retail market. Also with the increasing fashion trends, India would emerge as a
global hub for textiles.
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Recent Depreciation of Rupee: The very recent depreciation in the rupee value against the US
dollar is showing positive signs for the exporters in India, and comparatively, Chinas Yuan has
shown an increase in its value hurting the margins of its exporters. During the period April June
2008, Indian rupee marginally depreciated (by -1.3%) vis--vis US dollar, as compared to the
appreciation of Chinese Yuan by 10.3%. Some estimates have put the Chinese Yuan to
appreciate by around 8% to 10% in 2008. Other competitor currencies such as Malaysian Ringgit
(6.7%), Sri Lankan Rupee (2.4%), and Bangladeshi Taka (0.8%) have also appreciated during
this period. However, some of the Asian competitor currencies, such as Pakistani Rupee (-8.2%),
Korean Won (-8.7%) and Indonesian Rupiah (-3.1%) have depreciated at greater level during this
period.
Technical Textiles: Emerging Opportunities for India
The growing middle class population and the rise in income of households are major drivers of
growth for the technical textile industry in India. Also the developed economies such as US and
Europe are witnessing growing consumption of technical textiles since the last few years.
Recognizing this emerging field, Government of India has initiated schemes for development of
this sector. The National Mission on Technical Textiles is aiming at reaching a market size of US
$ 12-15 billion by 2012 in this segment. Meditech, Geotech, Agrotech and Protech are the four
major subsectors of technical textiles, that could be considered as niche growth areas, in view of
increasing competition in clothing segment (from Bangladesh, Sri Lanka and Vietnam), and home
textiles segment (from Turkey and Pakistan).
4.2.11 Strategies
Technology Upgradation Technology would play a lead role in the weaving and processing,
which would improve the quality and productivity levels. The economies of scale operating under
hi-tech processing would enable operating expenses to be lower with minimal fabric defects.
Further, upgradation / modernization in textile industry would help ensure economies of scale and
quality improvement. The industry needs to undertake innovations and product development and
strategies that would enhance efficiency in production, supply chain and product distribution.
However, at present, the Indian textile industry is having technological obsolescence and subscale operations. Indian textile industry should turn into hi-tech mode to reap the benefits of scale
operations and quality. The Technology Upgradation Fund Scheme (TUFS) has a major role in
strengthening the technology upgradation effort of the Indian textile and clothing industry.
Scale and Integration: Internationally, trading in textile and clothing sector is concentrated in the
hands of few large retail firms. Majority of them are looking at new vendors with bulk orders and
opting for vertically integrated companies. Thus, there is a need for integrating operations in
Indian textile and clothing industry also, from spinning to garment making, to gain their
confidence. Besides, integration of operations from weaving to garment making would ensure
quality and facilitate undertaking of large orders at low cost. Such integration would also bring
down turn-around time and thus help the firms to stick to the delivery schedules. At present, there
are around 200 composite mills, 200 exclusive weaving mills and over 1600 stand-alone spinning
mills in non-SSI category and over 1200 spinning mills in SSI category. Very few players in India
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are integrated with garmenting business. Thus, more and more players need to be focusing on
integration in order to reduce lead time, cut down the cost and improve the quality.
Infrastructure Development: India needs to enhance its focus in developing infrastructure,
especially the export-related infrastructure, including the modernization of ports. This would help
the country to enhance its brand equity as a reliable supplier. Efforts are already being taken to
speed up the movement of raw materials and finished products, by investing in road
infrastructure, port infrastructure, and providing thrust to multi-modal transport to match with
international standards. Prioritisation of areas for infrastructure development, especially the
industrial clusters, coastal regions, and the special economic zones may provide immediate
benefits in export growth. India also needs to create infrastructure for creating brand equity,
supply chain management and educational infrastructure in textile and clothing industry.
Encouraging FDI: Many studies have highlighted the investment requirements in Indian textile
and clothing industry, especially in view of meeting the capacity expansion with technology
upgradation, to overcome the competition in international arena. Foreign direct investments in the
textile sector should also be encouraged. Compared to the other sectors, the FDI inflow into the
textile sector is only 0.90% of total inflows during April 2000 to March 2008. Encouragement of
FDI inflows especially in the clothing sector would enable large sourcing companies to set up
their base in India. Encouragement to retail industry would also enhance the domestic demand
and promote large scale manufacturing in India.
Innovation and Product Development: Manufacturers are increasingly differentiating their
products through innovations and product development. One UK mill has developed a new
moisture management fabric for sportswear using plaited polyester. Innovations also include
application of nanoscale coating for stain resistance in armpits, collars and cuffs. Inventions are
also happening in the processing stage. A novel heattransfer technique has been developed for
applying high resolution prints on textiles, and a discharge printing technique for use in denim
fabrics. A US firm has developed a software programme that corrects garment manufacturing
measurements to allow for shrinkages. A device has been invented to collect residue lint around
the knitting machinery. Indian textile firms should also create new generation machinery and
fabrics in order to effectively compete with other nations. Another area that have potential for
innovation is technical textiles. This segment is different from the conventional fibre to fashion
value chain. Inventions and product development in the technical textiles would help India capture
niche position, instead of competing with other Asian developing countries such as Vietnam and
Bangladesh in the garment business.
Soft Skill: Indian players need to recognize the increasing role of soft skills in international trade.
It is necessary to develop management, administrative and negotiation skills with specific
reference to clothing trade. Further, Indian players should also enhance the design skill and
capabilities to add value to the products. Indian firms should constantly track the fashion trends
and adapt suitability to the changing tastes of the consumers.
Labour Laws: Mostly, the garment-manufacturing business is order driven. However, in India,
labour laws are not conducive to retrench the size during the off-season or recessionary periods.
This relatively unfavourable situation have put restrictions on the growth of the industry, as even
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companies have often preferred to split their business into small units to avoid any trouble
created by labour unionization. There needs to be changes in the labour laws especially the
contract labour laws as it would be difficult for players to keep the workforce full time. Countries
such as China, Bangladesh and Sri Lanka have allowed contract labour in textiles industry. India,
thus needs to change the labour laws to suit the exigencies of the textile value chain so that the
labour force engaged are used much more productively.
Logistics and Supply Chain: Logistics and supply-chain would also play a crucial role as timely
delivery would be an important requirement for success in international trade. The logistics and
supply chain management in Indian textile and clothing industry is relatively less oriented, in both
backward and forward linkages. This is one of the reasons for long lead-time and extended
delivery schedule of Indian textile and clothing industry. Indian industry needs to effectively invest
in logistics and supply chain management to execute the export order well in time and at low
transaction cost.
Brand Promotion: Brands play an important role as they assure consumers that the products
are of certain quality, durability and conform to several social, environmental and durability
standards. USA and Europe are entirely dominated by various global brands and Indian exporters
are merely suppliers to such brands. It has been estimated that the final retail value of the
clothing products sold to consumers in the export markets are 5-10 times higher than its factory
price, which shows that India is actually loosing a significant amount of earnings from brand
value. Brand promotion is therefore the best way of market penetration, which would help
increasing the export earnings. Acquisition of brands by Indian companies is another strategy that
may be considered. Since developing a brand is an expensive proposition, the Government of
India has proposed a Brand Promotion Scheme, based on Public-Private Partnership (PPP)
approach for the textile and clothing industry in India. The scheme is expected to develop globally
acceptable Indian apparel brands. The scheme is meant for promotional programmes in select
markets of the world. The scheme envisages publicity material through electronic and print media
campaigns; arranging India focus shows and exhibitions; capacity building through training of
entrepreneurs in export measures, etc.
Ecolabelling: Ecolabelling is emerging as one of the key requirements for global competitiveness
of textile and clothing industry. Through such third party accreditation or certification, companies
adhere to comply with the environmental standards, quality standards and social standards.
Some of the major global eco-labels for the textile and clothing industry include Oko-Tex, MST
Label, ELTAC Label, Eco-Tex, etc. Indian textile and clothing industry, a fragmented industry
having lot of small-scale units in the value chain, requires support from the Government or
industry associations in achieving eco-labeling.
4.2.12 Few Measures Taken by the Government of India

In view of the crucial role of the textile industry in Indian economy, the Government of India has
been introducing a number of measures from time to time to promote this sector. These
measures are aimed at increasing the competitiveness of the sector in the post MFA era.
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Technology Upgradation Fund Scheme: Technology Upgradation Fund Scheme (TUFS) aims
to modernize and upgrade the textile industry. The objectives behind extending the scope and
tenure for support under the TUFS include the similar support for capacity expansion, extended in
competitor developing countries, and the need for upgradation / modernization of technologies in
Indian textile and clothing industry. It may be mentioned that China has plans to expand the
capacity in textile and garment industry, which is already five times greater than that of India.
Therefore in order to remain competitive, large investment is necessary in technology
upgradation and modernization of Indian textile industry. During 2006-07, the project cost
sanctioned under TUFS was around Rs 79,100 crores and the sanction value came up to around
Rs 32,000 crores. The growth in value of sanctions under TUFS has been significant over the
years, showing a CAGR of 371% in 2006-07 over the period 2005-06.
Creating Textile Specific Infrastructure: The Government of India has launched the Integrated
Textile Parks Scheme in August 2005, by merging two (then exiting) schemes, viz. scheme of
Apparel Park for Export and Textile Centres Infrastructure Development Scheme. The scheme
targets industrial clusters/locations with high growth potential, which require strategic
interventions through provision of world-class infrastructure. Under this scheme, already 30 parks
have been approved, to be set up through Special Purpose Vehicles (SPVs) of industry
associations / group of entrepreneurs. The estimated cost for common infrastructure and
common facilities is Rs. 2893.43 crores, of which Government of India assistance is going to be
Rs. 1054.76 crores. Over 2000 entrepreneurs are expected to put up their units in these parks.
These parks are expected to provide employment to 5.45 lakh people (2.02 lakh direct and 3.43
lakh indirect), attract investment of over Rs. 15,000 crore and generate annual production of over
Rs. 14,000 crore. These parks are expected to be developed by March 2009.
Textilpolis: To bring together the efforts of the different export promotion councils (EPCs),
Government of India has decided to set up a textile hub called Textilpolis that would also
integrate and make policies for the entire textile value chain. Textilpolis would act as trade
facilitation center for Indian image branding, and R&D. The objective is for setting up exhibition
and seller interaction center and common data resource center, which inter-alia includes export
infrastructure and marketing infrastructure, like global procurement center, international
merchandise center, single window center for regulatory services, center for brand administration,
and fashion development.
Controlling Domestic Cotton Prices: Government of India has scrapped import duty on cotton
and withdrew the export incentives to control the increasing cotton prices in the domestic market.
The import duty on cotton earlier stood at 14% (10% of basic customs duty and 4% special
countervailing duty). Export incentive earlier provided was in the form of duty drawback for cotton
exports at the rate of 1% of FOB price.
4.2.13 Conclusion
Globally, the Indian textile and clothing industry holds a competitive advantage with abundance of
raw materials, strong production base, cheap and skilled labour and strong design capabilities.
The Government has also been extending immense support to this sector. Also the growth
drivers for the industry are well established with the growth in the domestic market driven by a
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large young population, rising household incomes and increasing consumerism. The growth
drivers for the industry in external market include large fibre-base, presence in entire value chain,
cost competitiveness, especially in niche segments. However, India needs to concentrate more
on improving its technology and integration of industry. Apart from these, India needs to
strengthen and develop its supply chain, soft skills and infrastructure. The long-term outlook of
the Indian textile and garment industry is very favourable and it would be in a position to achieve
its targets, through proper implementation of appropriate strategies.
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Chapter 4.3
GEMS AND JEWELLERY
4.3.1 Introduction
Gems and jewellery are being used by the Indians since ages, for both aesthetic, as well as
investment purposes. India has the distinction of being one of the first countries to introduce
diamonds to the world. The country was also one of the first countries to mine, cut & polish, and
trade in diamonds. The two major segments of the gems and jewellery business in India are gold
and diamond jewellery. While a predominant portion of gold jewellery manufactured in India is for
domestic consumption, a predominant portion of rough, uncut diamonds processed in India are
exported either in the form of polished diamonds or in the form of finished diamond jewellery. The
gems and jewellery industry has an important role in the Indian economy. With an estimated
consumption of 713 tonnes of gold during the year 2008 (including jewellery consumption of 501
tonnes), India is one of the largest consumers of gold in the world.
4.3.2 Raw Material Base: Global Scenario - Production

Gold: The major producer of gold in the world in the year 2008 was China with a production of
295 metric tonnes (growth rate of 7.3% over the previous year); China held a share of 18.9% of
the total world production of gold during 2008, followed by South Africa (12.7%), USA (10.7%),
Australia (9.9%) and Peru (9.7%). Compared to 2007, during 2008, countries such as Indonesia
(-23.7%), Australia (-8.5%), USA (-3.4%), Canada (-1%) and South Africa (-0.8%) witnessed a
decline in production, and countries such as China (7.3%), Russia (5.1%) and Peru (2.9%),
witnessed an increase in production of gold. During the third quarter of 2009, the demand for gold
has shown a decline in almost all the segments. This may be partially owing to global economic
slowdown and increase in prices, reducing the disposable income with the consumers.
Diamond: During 2007, Botswana was the largest diamond producing country, in terms of value,
estimated at US $ 2.96 billion, recording a decline in growth of 7.7% over the year 2006.
Botswana constituted a share of 25% in the world production of diamonds. Botswana was
followed by Russian Federation (21.7%), Canada (13.7%), South Africa (11.7%) and Angola
(10.5%), as the worlds largest producers of diamond. Lesotho (growth of 96.4%), Canada
(17.5%) and Sierra Leone (13%) were countries, which showed impressive growth rates in their
production of diamonds during 2007. Russia was the largest diamond producer by volume with a
production of 38.3 million (23% of worlds diamond production) carats in 2007, followed by
Botswana (20%), Congo (17%), Australia (11%) and Canada (10%). In terms of growth in volume
of production, Guinea recorded 115% growth in 2007 (over 2006), followed by Canada (28%) and
Angola (5.7%).
Silver, Gemstones and Platinum: Major producers of silver in the world in the year 2008 include
Peru (19%), Mexico (15.8%), China (13.7%), Chile (10.5%), and Australia (9.5%). There has
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been an increase in the production compared to the previous year in almost all the major
countries, except USA and Australia, which witnessed a decline of () 11.1% and () 4.3%,
respectively. In the case of gemstones (other than diamond), major producers of the world
include: Botswana (26.5%), Russia (24.7%), Canada (19.1%), Angola (10.6%) and South Africa
(6.5%). Though most of the countries havent shown an increase in its production in 2008, over
2007, some countries such as Sierra Leone (66.7%), Guinea (35%), Central African Republic
(27%), and Angola (14.9%) have shown tremendous increase in production in the year 2008,
over the previous year. Brazil (-33.3%) and Australia (-0.4%) were the few major countries, which
showed a decline in production, over the previous year. The largest producer of platinum in the
world was South Africa, holding a share of 76.6% of the total world production, followed by
Russia (12.5%), Canada (3.6%), Zimbabwe (2.8%) and USA (1.9%). However, major producers
such as South Africa (7.8%), Russia ( 7.4%) and USA ( 4.1%) have shown a decline in their
production in 2008, over the previous year.
4.3.3 International Trade in Precious Metals, Gems and Jewellery

Exports and Imports of Precious Metals and Stones
Gold: The largest exporter of gold in the world in the year 2007 was USA with a share of 19.9%
in total world exports, followed by Australia (15.9%), Canada (9.3%), Hong Kong (7.3%) and Peru
(7.1%). The worlds largest importers of gold include Switzerland (25.7%), UK (19.6%), USA
(8.4%), India (7.5%), and South Africa (4.4%).
Diamond: Israel (with a share of 19.7%), Belgium (19.6%), India (14.3%), USA (12.8%), and UK
(9.1%) were the largest exporters of diamond in the world, in the year 2007. The largest importers
of diamonds include: USA (17.7%), Belgium (16.2%), India (13.1%), Israel (13%), and Hong Kong
(12.9%). India was an exporter as well as an importer of diamonds, with a respective share of
14.3% and 13.1% in the world. This may be because, India imports rough diamonds, for value
addition, and exports as cut and polished diamonds.
Precious Stones: Hong Kong, USA, Switzerland, Thailand and India were among the leading
exporters, as well as importers of precious stones (other than diamond) in the world in the year
2007. Hong Kong was the largest exporter of precious stones (other than diamonds) with a share
of around 17.1% of the total world exports, and was followed by USA (13.2%), Switzerland
(12.7%), Thailand (12.2%), and India (9%). In the case of imports, the leading importers include:
USA (26.5%), Hong Kong (14.4%), Switzerland (9.2%), Thailand (7.2%) and India (6.3%).
Pearls: In the case of Pearls, Hong Kong was the largest exporter, with the exports valued US $
482.92 million constituting a share of 30.2%, in the world exports of pearls in the year 2007.
Japan, China, Australia, and French Polynesia were the other major exporters of pearls. Hong
Kong was the largest importer with a share of around 33.2%, followed by Japan (18.3%), USA
(15.8%), Germany (4.4%), and Australia (4%).
Platinum: South Africa, constituting a share of 32.5% was the largest exporter of platinum in the
world in the year 2007. UK, USA and Germany were the other major exporters. USA was also a
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major importer of platinum constituting a share of 24.4% in the world, followed by Japan (19.2%),
Germany (12.7%) and UK (8.6%).
Silver: Major exporters of silver in the year 2007 include: China, with a share of 15.9% in the
world, followed by Mexico (11.2%), Hong Kong (8.7%) and Germany (8.1%). USA, Hong Kong,
UK, Germany and India were the major importers of silver in the world.
Exports and Imports of Jewellery
Articles of Jewellery: World exports of jewellery articles made of precious metals was valued at
US $ 42.5 billion in 2007; major exporters include: Italy (14.2%), India (11.9%), USA (10.5%), and
Hong Kong (9.9%). Major importers of jewellery include: USA (23.7%), UAE (13.7%), Hong Kong
(9.1%), and Switzerland (6.7%).
Articles of Natural / Cultured Pearls, Precious Stones: World exports of articles of natural and
cultured pearls, or made of precious stones was valued at US $ 1945.99 million in 2007. Major
exporters include USA (76.4%), Hong Kong (6.4%), China (5.4%), Switzerland (2%), and Japan
(1.3%); major importers under this category include: Hong Kong (15.7%), Switzerland (14.9%),
UK (9%), Netherlands Antilles (9%), and Japan (8.6%).
Articles of Imitation Jewellery: World exports of articles of imitation jewellery were valued at US
$ 4967.03 million in 2007. Major exporters of imitation jewellery include Hong Kong (21.9%),
China (17.2%), Austria (8%), France (6.4%), and Italy (5.7%); major importers under this category
include USA (19.6%), Germany (7.3%), France (7.3%), UK (6.4%), and Italy (6.2%).
4.3.4 Profile of Select Countries

Brazil
Brazil is known for its diversity and volume of precious stones deposits in its soil such as
tourmaline, aquamarine, agate, amethyst, citrine, topaz and quartz; Brazil is the only major
source of imperial topaz and paraiba tourmaline in the world. During 2007, Brazils exports, under
the HS Code 71 category, consisted mainly of gold (valued US $ 790.88 million), followed by
precious stones (with a value of US $ 111.57 million), and articles of jewellery and parts (with a
value of US $ 72.9 million). Major export destinations of gems and jewellery include: USA,
Germany, UK, Hong Kong and Mexico, and the major import sources include Peru, South Africa,
Germany, Belgium and UK Gold was largely exported to USA (around 95% of the total exports of
gold by Brazil). India was a major source country for import of diamonds, imitation jewellery and
articles of natural and cultured pearls.
China
China is one of the largest consumers of gold, with gold jewellery being the major item of
demand. In the year 2008, the total demand for gold in China was 392.7 tonnes, a growth of
19.8%, over the previous year. During the third quarter of 2009, the gold demand in China was
120.2 tonnes, a growth rate of 12% over the corresponding quarter of 2008. After diamond was
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found in the three provinces of Liaoning, Shandong and Hunan, the diamond industry in China
has been growing, since 1980s. The annual production of diamonds in 2008 was US $ 1.3 million
(69.4 thousand carats), an increase of 18% in value (13% in carat) since 2006. China is one of
the largest producers of silver in the world. In the year 2008, China produced silver worth 2600
tonnes, an increase of 1.6% over the previous year; China, in the year 2008, held a share of
13.7% in the world production of silver. Chinas exports of gems and jewellery have grown by
21% per annum since 2005; from US $ 5.5 billion to US $ 8.1 billion in 2007. The sub-item which
was largely exported (according to value) from China, under the HS Code 71 category, was
articles of jewellery and parts of precious metals with a share of 30.9% in the total exports of
gems and jewellery in the year 2007. However, silver (42%), and articles of natural or cultured
pearls and precious and semi precious stones (30.8%) were the items which showed highest
CAGR during the period 2005 2007. Exports of precious stones showed a decline (-26.4%) over
the years, from US $ 29.1 million in 2004 to US $ 15.8 million in 2007. Major destinations for
Chinas gems and jewellery exports include: Hong Kong, USA, Belgium, Switzerland and UK.
Israel
Diamond jewellery is the main sub segment of Israels gems and jewellery industry, followed by
gold, silver and imitation jewellery. The artists in Israel make use of most of their skills, innovative
technologies and techniques, which enable them to offer their products at very reasonable prices.
Exports of diamonds, according to the Central Bureau of Statistics, Government of Israel, showed
a decline following the economic recession. During January - September 2009 there was a
drastic decline in exports ranging above 40%. The economic slowdown was cited as the main
reason for this decline in exports. During 2007, the export of precious metals, gems and jewellery
by Israel touched US $ 19.1 billion, achieving a CAGR of 7.5%, during 2005-2007; and the
imports of Israel were US $ 12.6 billion in 2007. Israel was a major exporter of diamonds, which
constituted around 97% of the total gems and jewellery exports, and around 2% was accounted
by articles of jewellery. Major export destinations of diamonds from Israel include: USA,
constituting a share of 48.5%, followed by Belgium (16.7%), Hong Kong (15%), India (4.8%) and
Switzerland (4.7%). Major source countries for imports of diamonds by Israel include: USA (40%),
Belgium (24.8%), India (8.5%), Hong Kong (8.2%), and UK (8.1%).
Italy
Italy has a large gems and jewellery industry, mainly located in the regions, namely, Veneto,
Toscana, Lombardia, Lazio and Piedmont. These regions have captured more than half of the
Italian market of gems and jewellery. There are two major clusters in Italy for gems and jewellery
which are located in Vicenza and Arezzo. Constituting a share of 69.5%, articles of jewellery and
parts was the major jewellery export item, under the HS Code 71 category, in Italy. However all
the categories of precious metals, gems and jewellery have witnessed an increase in exports
from Italy, with platinum and diamonds witnessing the highest CAGR of 69.8% and 52%,
respectively, during 2005 to 2007. The exports of platinum increased from US $ 222.71 million to
US $ 642.17 million, and that of diamonds increased from US $ 56.83 million to US $ 131.45
million during this period. The total exports of precious metals, gems, and jewellery (HS Code 71)
witnessed a CAGR of 17.4%, since 2005, showing an increase from US $ 6.3 billion to US $ 8.7
billion, in value terms. Major export destinations of Italys precious metals, gems and jewellery
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industry include: USA, Switzerland, France, UAE and UK, and the major source countries for
import of precious metals, gems and jewellery include: USA, Switzerland, France, Belgium and
Hong Kong. Major export destinations of articles of jewellery and parts include: USA (15.4%),
UAE (13.6%), Switzerland (10.2%), France (6%) and UK (4.9%), and the major source countries
for articles of jewellery and parts include: Switzerland (29.6%), Hong Kong (13.9%), France
(8.8%), Poland (7.9%), and Turkey (7.7%).
Malaysia
Malaysia is another major producer and exporter of gems and jewellery, with the industry having
concentration in Penang. According to industry sources, approximately 75-80 percent of the gold
and jewellery in Malaysia are manufactured or fabricated in Penang, followed by Johor Bahru and
Kuala Lumpur, with activities ranging from manufacturing to import, export, retail and wholesale.
During 2007, exports of precious metals, gems and jewellery from Malaysia were valued at US $
2.1 billion, of which 64% constituted articles of jewellery and parts, followed by gold with 19%
share. Other export segments of gems and jewellery, namely, diamonds, precious stones, pearls,
and silver constituted marginal share in the total gems and jewellery exports from Malaysia. Major
export destinations for gold include: Thailand (27.9%), Australia (13.9%), Hong Kong (13.2%),
China (8.9%), and Taiwan (8.2%), whereas the major source countries for gold include: Japan
(71.3%), Singapore (19.2%), Indonesia (3.2%), USA (2.9%), and Hong Kong (1%). In the case of
articles of jewellery and parts, major export destinations include: UAE (71.2%), Singapore
(21.3%), USA (2.6%), China (1.7%), and Hong Kong (1%); and the major source countries
include: Singapore (60.1%), China (14%), Hong Kong (7%), USA (4.8%), and Switzerland (4.1%).
4.3.5 Status of Precious Metals, Gems and Jewellery Industry in India

Gold: The total resources of gold in the country, as on April 2005, were estimated at 390.28
million tonnes. Out of these, 19.25 million tones were under the reserve category, and the
balance 371.03 million tonnes were under the resources category. Besides, the total resources of
gold ore of placer type in the country were estimated at 26.12 million tonnes. Karnataka has the
largest known reserves of gold in India followed by Rajasthan and Kerala. Although there have
been significant ore resources, Indias gold production has shown a decline over the years. India
has been the largest consumer of gold jewellery in recent times, and in the year 2008, the gold
consumption in India was estimated to be 501 tonnes, accounting for 23% of world demand. In
the third quarter of 2009, the consumption of gold jewellery in India has declined by nearly 37%
and the total consumption of gold has declined by around 45% over the same period in the
previous year. During the year 2008-09, the export of gold (or jewellery) has witnessed a growth
rate of 51.1% over the previous year, from US $ 4.3 billion to US $ 6.5 billion, and the imports had
grown by 24.4%, from US $ 17.1 billion to US $21.2 billion. Major source countries for import of
raw gold by India include Switzerland, constituting 44.6% of the total imports of raw gold in the
year 2008-09, followed by Australia (19.7%), UAE (19.6%) and South Africa (10.4%). Main export
destinations of gold jewellery include UAE, Singapore and Hong Kong.
Diamond: According to USGS data, diamond production (gem and industrial) in India in the year
2007 was 55 thousand carats and has remained more or less stagnant over the years. As per
United Nations Framework Classification (UNFC) system, as on 1.4.2005, India had total
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resources of around 4.5 million carats, of which 1.2 million carats was reserves. By grades, about
17% of resources are of gem variety, 18% are of industrial variety, while bulk of the resources
(65%) is placed under unclassified category. Andhra Pradesh accounts for 40% of diamond
resources, followed by Madhya Pradesh (32%), and Chhattisgarh (28%). India imports rough
diamonds and process them for value addition and exports. As a result, India is a net exporter
under this category in value terms. India exported diamonds valued US $ 14.2 billion during 200708, an increase of 34% over the previous year. During the year 2008-09, the exports of diamonds
showed an increase of 10.6%, touching US $ 15.7 billion. Export of crushed industrial diamonds
showed a tremendous increase during this period. India imported diamonds valued US $ 7.7
billion in 2007-08; during the year 2008-09, the imports increased by 110% from US $ 7.7 billion
to US $ 16.3 billion. In the case of diamond exports, major destinations were: Hong Kong
(30.1%), UAE (22.5%), USA (17.6%), Belgium (11.4%), and Israel (5.0%). As regards diamond
imports, Hong Kong (27.6%), Belgium (24.4%), UAE (25.6%), UK (6.4%), and USA (4.8%) were
the major source countries for India.
Precious stones: Although traditional Indian gemologists have identified around 84 precious and
semi-precious stones, nine stones, namely: Ruby, Emerald, Pearl, Diamond, Red coral, Zircon,
Blue sapphire, Yellow sapphire, and Cats Eye, form the Navratnas or nine gems. India was
more an exporter of precious stones than an importer of the same, and the difference between
these two being minimal. During 2007-08, the exports of precious stones were US $ 280.8 million,
an increase of 6.5% over the previous year, and in the year 2008-09, exports of precious stones
witnessed a marginal decline of 0.1%, over the previous year. Import of precious stones has
grown marginally in the year 2008-09, by only 4.6% over the previous year. Major export
destinations for precious stones (other than diamonds, which were not worked or graded) include:
USA (30.5%), Hong Kong (22.7%) and Thailand (13.9%). The source countries for the same
include: Thailand (23.3%), Hong Kong (19.1%), and Zambia (13.9%). In the case of articles of
precious stones other than diamonds (natural/ synthetic), the major export destinations were USA
(38.8%), Germany (23.9%), and Switzerland (9%), and the source countries for the same include:
Hong Kong (27.8%), Sri Lanka (22.2%), and Germany (16.7%).
Platinum: The total resources of platinum group of metals in India, as on April 2005, was only
14.2 tonnes; the entire known resources are located in Niligiri, Boula-Nuasahi and Sukinda areas
in Orissa. The exports of platinum which had witnessed an increase of 175% in value terms,
during 2007-08, over the previous year, showed a tremendous increase of 1804% during the year
2008-09, over the previous year. Imports also showed a high increase during the year 2008-09, of
around 6542% over the previous year. During 2007-08, the imports had grown by 55% over the
previous year. UAE was the major export destination for Indias export of raw platinum,
constituting 49% of total exports; major source countries for raw platinum imports by India
include: UAE (78.7%), South Africa (15.3%), Switzerland (2.7%). UAE and Australia were the
major export destinations of platinum jewellery constituting a combined share of 43.8% and the
major source countries for imports by India were Thailand and Belgium with 69% and 13% share,
respectively.
Pearls: During 2007-08, the exports of pearls had witnessed an impressive performance, with the
export of cultured pearls showing a growth of 125%. During the year 2008-09, the imports of
pearls declined by 7.8% over the previous year. Major export destinations of pearls include: USA
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(38.6%), UAE (14.1%), Austria (12.0%), Japan (7.5%), and Hong Kong (10.8%). The source
countries for import of pearls by India include Japan (34.5%), China (31.9%) and Hong Kong
(21.1%).
Silver: During 2007-08, exports of silver (unwrought and semi-manufactured form) witnessed a
negative growth of 35.5%, and silver jewellery witnessed a growth of 19.5%. However, during the
year 2008-09, exports of silver (unwrought and semi-manufactured form) grew by 27.4%, and
export of silver jewellery witnessed a growth of 87%. During the year 2008-09, India imported
unwrought silver valued around US $ 2 billion, a growth of 79% over the previous year. Import of
silver jewellery witnessed a growth of 80.6%. Major export destinations of silver include: USA
(21.3%), Switzerland (29.7%), UK (13.8%), Iran (11.5%), and Japan (9.3%), and that of silver
jewellery include: USA (38.1%), China (12.6%), UAE (10.4%), Hong Kong (7.1%), and UK
(5.8%). The source countries for import of silver by India include: UK (38%), China (15.4%),
Russia (11.8%), Switzerland (11.6%) and Hong Kong (3.8%); and that of silver jewellery include:
USA (35.2%), Italy (17.6%), Hong Kong (12.3%), UAE (12.4%), and Thailand (6.1%).
4.3.6 Role of Exim Bank in Supporting Indian Gems and Jewellery Industry
Exim Bank of India seeks to create an enabling environment to promote two-way transfer of
technology, trade and investments and operates a wide range of lending, service and support
programmes. The Bank has a variety of loan products to cater to the financing requirements of
various enterprises. The credit facilities are available for financing at all stages of export cycle of
Indian firms. The Banks Lines of Credit (LOC), extended to commercial banks, financial
institutions, regional development banks, and entities overseas, serve as a market entry
mechanism to Indian exporters, and provide a safe mode of non recourse financing option to
Indian exporters. Apart from LOC, the Bank offers buyers credit and suppliers credit for exports
on deferred payment terms. These facilities help companies, especially the SMEs, to offer
competitive credit terms to the buyers and to explore new geographical markets.
Exim Bank has extended suppliers credit, pre shipment credit, post shipment credit, and foreign
currency packing credit (FCPC), to the firms engaged in the gems and jewellery sector, among
others. Exim Bank has signed an MOU with the Indian Diamond Institute, which envisages
development of human resources through professional training, and thereby support the export
efforts of the industry. Exim Bank has provided grant to IDI for upgrading LRS (Laser Raman
Spectroscopic Machine) equipment in order for the Institute to provide training to carry out indepth study of all types of gems. The MOU will also enable the institutions to exchange literature,
data, information and research output on the gems and jewellery industry, and also help in
exchange of foreign experts between the two institutions, in organizing their respective training
programmes.
4.3.7 Market Analysis

The product-country analysis shows that USA, EU, Japan and Hong Kong are the leading
importers of major gems and jewellery products. These countries have been sourcing their
jewellery import requirements mainly from countries such as Hong Kong, China, Italy, USA,
Germany and UK, of which USA, UK and Germany are importers as well as exporters. Hong
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Kong appears to be more of a trading hub in the Asian continent. India served as one of the major
source countries for diamonds, as also for articles of jewellery for select countries. In the case of
diamonds, India is one of the major importers of rough diamonds, and one of the major exporters
of cut/ polished diamonds.
Indias exports of cut and polished diamonds have been to all major markets in the world. India is
also a major exporter of articles of jewellery and parts, and the exports have been to all the major
importers in the world. However, some of the markets are not well-explored by Indian gems and
jewellery exporters. For example, India may endeavour to concentrate on markets like: UK and
Switzerland for articles of jewellery of gold and platinum group of minerals (HS code 711319);
USA, Germany, UK and Switzerland for articles of jewellery made of silver (HS code 711311);
USA, Japan, Switzerland and UAE for articles of natural and cultured pearls (HS code 711610);
Switzerland, UK and Japan for articles of semi-precious stones (HS code 711620); and USA,
Germany, France, UK and Italy for articles of imitation jewellery (HS code 7117).
India may leverage its traditional craft-skills, low-cost labour, and fabrication techniques in some
of the jewellery products (such as processing of small-sized diamonds), and replicate such
advantages in the production of other products, and thereby become a global player across the
gems and jewellery segments.
4.3.8 Challenges and Strategies

Challenges
Unorganised Sector: Being an unorganized sector hampers the ability of Indian gems and
jewellery Industry to emerge as a world-class supplier. According to a FICCI study, the gold
processing industry has around 15,000 players, with only around 80 units having revenues over
US $ 5 million. India is also home to around 4,50,000 goldsmiths, over 100,000 gold jewellers,
along with about 6,000 diamond-processing players and 8,000 diamond jewellers.
Impact of Recession:There had been a loss of market for gems and jewellery exports due to
recession and global economic slowdown. During 2007-08, there was growth in export of gems
and jewellery by 23%, over the previous year. The growth trend continued even in 2008-09 during
which the exports showed a growth of 44% over the previous year. However, during the period
April-September 2009-10, due to economic slowdown, the demand for gems and jewellery
shrank, which resulted in export slowdown for India. Following the economic slowdown, asset
price devaluations, job losses and decrease in disposable income have happened, along with
escalation in gold prices, which have changed the consumption pattern of gems and jewellery.
Further, the economic slowdown has also affected the consumer buying pattern, with growing
demand for single-line jewellery, low-carat jewellery, and gems-studded jewellery.
Rise in Prices:As mentioned earlier, the prices of precious metals, especially gold and silver, has
been witnessing steep increase, since the last few years, which has been changing the buying
pattern of consumers. During the period December 2008 -December 2009, the price of gold per
ten grams, has increased from Rs 13,445 to Rs 16,870, showing an increase of 26%. Even
though the price of silver had witnessed a decline after February 2009, it again started rising after
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April 2009. From Rs 17,847 per kg in December 2008, the silver price increased to Rs 27,430 per
kg in December 2009.
Possible Threats from China and from Other Countries Producing Diamonds: Although
India currently enjoys dominance in the worlds cut and polished diamond market, China may
emerge as a rival in the long term, mainly because of the availability of cheap labour, growing
domestic demand, and also the improvement in the quality of workmanship in the country. It may
be added that increasing number of diamond processors are setting up their facilities in China
due to these reasons. Also, there has been growing pressure in major diamond producing
countries in Africa, like Botswana, Namibia and South Africa, to gain further economic benefits
from diamond value chain, seeking investments in cutting and polishing industry. Such
developments may affect the prospects of India.
Low Level of Technology Absorption: Utilization of hi-tech, speedy and efficient machinery and
software has led to the gradual replacement of traditional / manual methods of polishing,
manufacturing and designing of gems and jewellery. Proactive players in the Indian gems and
jewellery industry are always on the lookout for better technology for their units. However, such
technology absorption is relatively low in Indian gems and jewellery industry, due to the small
size, and unorganized nature of majority of the players in this industry. Also, mere absorption of
technology may not be helpful, without a proper blend of manual labour with machinery, to
provide ethnicity to the end-products. Usage of semi-skilled and unskilled workforce in operation
of such high end machines may result in significant under-utilization of the machinery /
technology, and may, at times, cause losses in operations. Skill development is therefore very
essential for proper reclassification of the workmen in this industry.
R&D and Product Development: Another major challenge faced by the industry is the low level
of R&D intensity, and facilities for undertaking R&D and product development. Proper R&D
solutions would help in improving product quality, reducing wastage, introducing new designs and
concepts, and innovation in supply chain management and marketing. The gap between hi-end
machines and unskilled labour can also be reduced with innovative R&D solutions.
4.3.9 Strategies
Branding of Jewellery: Branding of jewellery plays a very important role in the jewellery market
as it assures consumers that the products are of certain quality, durability, and conform to several
social, environmental and durability standards. Brand promotion is therefore one of the best
modes of market penetration. Though in its nascent stage, branded jewellery in India has been
showing encouraging signs, despite tough competition. According to an estimate by the Indian
Brand Equity Foundation (IBEF), the market for branded jewellery is expected to reach US $ 2.2
billion by 2010. Some of the jewellery brands in India are DeBeers, Ddamas, Tanishq,
Oyzterbay, and Gili. In order to gain market share, branded jewellers may have to come up with
designs that customers want, and win the trust and confidence of consumers by hallmarking and
demonstrating the purity of the gold used by them. To compete with traditional players, branded
players may also find some ways to differentiate themselves from others. While the success of a
particular brand may depend on differentiation and affordability, quality will be a key element in
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sustaining a brand. In addition, branded players require focused advertising and astute
salesmanship to compete with traditional jewellers.
Hallmarking of jewellery: Hallmarking is the accurate determination and official recording of the
proportionate content of precious metal in jewellery. Government of India has been protecting the
interests of consumers from adulteration, and irregular metal quality, and launched the
Hallmarking Scheme through Bureau of Indian Standards. The principal objectives of the
Hallmarking Scheme are to protect the consumers against the fraud of adulteration and to oblige
the manufacturers to maintain legal standards of fineness. However, it is difficult to make
Hallmarking of gold jewellery mandatory across the country due to insufficient number of
certification centres. At present, there are over 100 BIS-recognised assaying and hallmarking
centres in India, which are centred around Tier 1 and Tier 2 cities. It is proposed that India
may consider expanding the network of hallmarking infrastructure across the country, and help
penetrate quality products even in rural areas. India may also consider becoming a member of
International Hallmarking Convention, and derive the benefits of such Convention.
Increasing Market Presence of Platinum Jewellery: With the gold prices increasing at record
levels, consumers have started showing interest in ornaments made from other metals, like
platinum and palladium. The fall in prices of platinum has also triggered the demand for platinum
jewellery across the world, including India. During the past one year the prices of platinum have
witnessed decline, which is one of the main reasons for the consumers to opt for platinum
jewellery. During March 2008, the price of platinum stood at US $ 2005 per troy ounce (31.1
gms), and during November 2008, the price fell down to as low as US $ 844 per troy ounce. As of
December 2009, the price of platinum stood at US $ 1448 per troy ounce. As the demand for
platinum jewellery is increasing and especially when the consumer preferences are shifting to
platinum jewellery, due to rise in price of gold, Indian jewellers need to diversify their product
range and concentrate more in the manufacture of platinum-based jewellery. Leading retail
jewelers should also add exclusive space for platinum jewellery in their stores. According to
industry observers, at present, facilities for ore beneficiation and extraction of platinum group
metals do not exist in the country. Technology also has to be imported for extraction of platinum
group of metals, which should be promoted in India
Change in Product Portfolio: As the recession is reducing the demand for jewellery products
worldwide, it is necessary to diversify the export product portfolio, and concentrate more on
lesser-priced jewellery, such as imitation, fashion or costume jewellery. Indian gems and jewellery
industry may also diversify the export product portfolios on the lines of the change in perception
of the consumers. It may be mentioned that the new-age consumer perceives jewellery as a
personal accessory that manifests the wearers attitude, personality and lifestyle. Significant
opportunities may be available to the players in the Indian jewellery industry, if they leverage and
package the products with the blending of tradition and culture in designs that are universal and
contemporary in their aesthetic appeal. While the products with such blend would stand out with
resemblance of cultural and regional identity, they may not significantly look as ethnic products. In
other words, the products should be a new-look piece, but with traditional inspiration. Branding
and packaging are very important in marketing such products. Focusing on such product lines
would enable the players in establishing an edge over their competitors. Players should also have
desire for product innovation to catch-up with the change in consumer trends.
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Continuous Skill Development: Human resource is one of the critical factors for the gems and
jewellery industry, as the industry is labour-centric. Non-availability of skilled workers is often
cited as one of the major reasons for the inability of the players in this industry to scale up their
operations. Thus, the players need to constantly upgrade the skills of the workmen, through
training and retraining strategies, to enhance their productivity. Some of the focus areas for
imparting skill upgradation include: technology interface of design and product development,
innovation in manufacturing process and reduction of wastage, standardization and quality
control, and international networking and marketing. In addition to firm level strategies, the
industry also needs to address the challenge of skill development collectively. Supply of
craftsmen / artisans that come through generations need to be complemented by fresh talents,
trained in a professional manner, to have access to wider talent pool. The industry may establish
close linkages with the existing learning centres, and help them in imparting skills / training that
are needs of the hour. At present, there are few institutes which provide training in jewellery
design, viz., Indian Institute of Gems and Jewellery, Indian Diamond Institute, and National
Institute of Design. Also, the National Skill Development Corporation (NSDC), initiated by the
Government of India, is expected to give thrust on skill development of various sectors, including
gems and jewellery. It is also important for the players to accomplish greater degree of
professionalism and establish appropriate organization structure that would attract and retain best
talent in the industry.
Technology Upgradation: Players in this industry need to adopt latest technology, including the
ICT interface in all aspects, starting from mining, cutting and polishing, to fabrication and
marketing. Technological solutions are available for several of the challenges faced by the gems
and jewellery industry; these solutions include: innovations in designs (through CAD/CAM
machinery), quality and finish of products (through infrared, photo-typing, etching, wax-casting),
cost control in process and reduction of wastage (laser cutting, hollow-tube processing).
Imparting of technological solutions may reduce cost and time, which may not be feasible under
conventional methods. Technology also helps the fabricators to churn-out the new design
products in a much speedy way.
Establishing Diamond Bourses: At present, one diamond bourse, Bharat Diamond Bourse, has
been established in Mumbai. Nevertheless, the traders have to visit Antwerp, Israel, Hong Kong
and other locations to buy and sell rough and polished diamonds. Establishment of more diamond
bourses will give a major fillip to India to emerge as an international diamond trading hub, and
also to make trading in diamonds easier for the players in India. It will be easier to get the rough
diamonds through these trading centres and also for getting buyers for the cut and polished
diamonds. Government of India has already announced the plan for establishing more diamond
bourses to make the country an international trading hub to boost the gems and jewellery exports.
These diamond bourses are expected to provide a single platform for traders and it would help in
making India a trading centre for diamonds.
Increase in Exploration Activities: As per United Nations Framework Classification, total
resources (reserves and remaining resources) of gold ore (primary) in India as on April 1, 2005,
were estimated at 390.28 million tonnes, of which only 19.25 million tonnes are placed under
reserve category, and the rest, 371.03 million tonnes, under resources category. Besides, it has
141
been estimated that the total resources of gold of placer type in the country would be around 26
million tonnes. However, resource augmentation and gold production have not been significant in
India. This may require increase in exploration activities with improvements in technology and
know-how. According to a report by the Planning Commission, Government of India, the mining
sector also requires improved method of narrow-vein-mining for achieving full economic benefits.
Introduction of small-scale mining culture in the gold industry is also another requirement with
adoption of modern gold extraction technology. Cluster mining of small gold deposits may also
deserve consideration and should be encouraged. The metallurgical technique for extraction of
platinum group of elements from low grade ore is also required to be sourced from developed
countries, in order for India to become a producer of platinum. Efforts should be made to increase
the production of rough diamonds from India to partly meet the requirement of Indian diamond
cutting and polishing industry. Exploration activity in different states is required to be boosted for
discovering new economically viable kimberlite / lamporite rocks for indigenous production of
diamonds.
Enhancing Visibility through Continuous Participation in International Exhibitions:
Continuous participation in international trade shows and jewellery exhibitions is very important
for the Indian gems and jewellery industry; such strategy would help in projecting the industry as
a player in entire jewellery value chain, from cutting, polishing, fabricating of wide variety of plain
and stone-studded jewellery Participation in international exhibitions would also help establish
new business links for the Indian gems and jewellery industry, and would also pave the way for
the industry to develop further business links to enhance the level of their innovations in designs
and technology. This platform would also help in attracting and mobilizing the major buyers of
gems and jewellery internationally, and also provide exhibitors with learning opportunities and
exposure to new markets and trends. The recent foreign trade policy has increased the personal
jewellery carriage limit to US $ 5 million, from US $ 2 million, and 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. This would also help the industry promote exports, as the industry will be able
to showcase more jewellery in exhibitions abroad.
4.3.10 Conclusion
World gems and jewellery industry is on the verge of transformation due to both supply-side and
demand-side factors. Some of the recent trends in the global gems and jewellery industry include:
fragmentation of rough diamond supply positions; emergence of new mining areas; beneficiation
movement in mining countries, and ever-growing raw material prices. At fabrcation level, fashion
and styles have been changing significantly; the ratio of cost of raw materials to sales has been
coming down, squeezing the profit margin of the fabricators. There has been volatility in raw
material prices; the global slowdown led to low capacity utilization in this industry bringing down
the margins in the jewellery manufacturing. In some countries, including India, some of the
processing units have been partially shut down due to slackening demand. As a result, the value
chain in the gems and jewellery industry may witness consolidation; only select major players are
likely to cope with the trends and sustain the competitive pressures. It is expected that the spike
in gold and silver prices might change the consumer preferences, as also impact their demand
pattern.
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The growing consumer sophistication, decline in investment-driven (jewellery) demand, and

competition from other luxury goods are also likely to impact the demand pattern of gems and
jewellery. Further, the consumer awareness and consciousness, generated through the vigilant
measures adopted by various national Governments, are expected to drive the demand for
branded and hallmarked jewellery. At national level, India has been adopting various strategies to
cope with the global trends in gems and jewellery business. World Gold Council and the Indian
gems and jewellery industry have jointly introduced international jewellery designing competitions
among the Indian artisans to generate awareness about the skills of Indian artisans in the global
market, as also to expose Indian artisans to new design developments emerging around the
world. There have been initiatives taken by many designing centers to train Indian jewellers in
international manufacturing and designing skills. This is expected to enhance demand as well as
sales for the Indian gems and jewellery industry.
Indian gems and jewellery industry is increasingly building its ability to produce full range of sizes
and qualities of stones, utilizing not only the low-cost and abundant workforce, but also advanced
technologies. The industry has been seeking further growth through processing of larger size
stones and manufacture of diamond jewellery. Both the Government and the gems and jewellery
industry have recognized the use of IT in diamond clusters in order to enable seamless flow of
information between the functional areas, right from job contractors to small / mid-sized firms, to
large, integrated units. The IT interface would also provide the necessary platform for firms to
scale up their operations. While several such measures have been taken, at firm-level, industrylevel, and Government-level, there exists still a need to strengthen the position of India in the
global market place through a concerted strategy, addressing the challenges of raw material
sourcing, technological infusion at processing stage, adoption of dynamism in design and product
development, and sustainable market entry approach.
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Chapter 4.4
LEATHER AND LEATHER GOODS
4.4.1 Introduction
The Leather Industry holds a prominent place in the Indian economy. This sector is known for its
consistency in high export earnings and it is among the top ten foreign exchange earners for the
country. With an annual turnover of over US$ 7 billion, the export of leather and leather products
increased manifold over the past decades and touched US$ 3.40 billion in 2009-10, recording a
cumulative annual growth rate of about 5.43% (5 years). The Leather industry is bestowed with
an affluence of raw materials as India is endowed with 21% of world cattle & buffalo and 11% of
world goat & sheep population. Added to this are the strengths of skilled manpower, innovative
technology, increasing industry compliance to international environmental standards, and the
dedicated support of the allied industries.
The leather industry is an employment intensive sector, providing job to about 2.5 million people,
mostly from the weaker sections of the society. Women employment is predominant in leather
products sector with about 30% share. Though India is the second largest producer of footwear
and leather garments in the world, India accounts for a share of close to 3% in the global leather
import trade of US$ 137 billion (2008).
The major production centers for leather and leather products are located in Tamil Nadu Chennai, Ambur, Ranipet, Vaniyambadi, Trichy, Dindigul ; West Bengal Kolkata ; Uttar
Pradesh Kanpur, Agra & Noida ; Maharashtra Mumbai ;Punjab Jallandhar ; Karnataka
Bangalore ; Andhra Pradesh - Hyderabad ; Haryana - Ambala, Gurgaon, Panchkula and
Karnal; Delhi
4.4.2 Strengths of Indian Leather Sector

Own raw material source 2 billion sq ft of leather produced annually
Some varieties of goat / calf / sheep skins command premium position
Strong and eco-sustainable tanning base
Modernized manufacturing units
Trained / skilled manpower at competitive wage levels
World-class institutional support for Design & Product Development, HRD and R & D.
Presence of support industries like leather chemicals and finishing auxiliaries
Presence in major markets Long Europe experience
Strategic location in the Asian landmass
4.4.3 Emerging Strengths
144
Design development initiatives by institutions and individuals

Continuous modernization and technology upgradation
Economic size of manufacturing units
Constant human resource development programme to enhance productivity
Increasing use of quality components
Shorter prototype development time
Delivery compliance
Growing domestic market for footwear and leather articles
4.4.4 Government Support Measures

Leather sector is one of the Focus Sectors under Foreign Trade Policy of the Govt. of
India
Funding support provided towards export promotion & market development activities.
Funding support provided towards technological upgradation and modernization of
production units, leather industry infrastructure strengthening, environmental safeguard
measures, Human Resource Development and other development projects.
Entire leather sector is de-licensed facilitating for expansion on modern lines with stateof-the-art machinery and equipments. 100% Foreign Direct Investment permitted through
automatic route.
Import of specified machinery for use in leather and footwear industry allowed at a 5%
concessional import duty.
Duty free import of raw hides and skins, wet blue chrome tanned leather, crust leather
and finished leather of all kinds including splits and sides thereof.
Duty free import of specified critical inputs for manufacturers of leather garments and
other leather products including footwear under Duty Free Import Scheme (DFIS).
Basic customs duty exempted on machinery or equipment for Effluent Treatment Plants
in leather industry.
Duty neutralization/exemption/remission schemes are in place like Duty Drawback,
Advance Authorization, Duty Entitlement Passbook Scheme (DEPB), Duty Free Import
Authorization (DFIA) etc.,
Gradual lowering of import tariff current peak customs duty is 10%
Simplified import/export procedures quick customs clearances.
Estimated Production Capacities

ITEM
Hides
Skins
Leather Footwear
Leather shoe uppers
Non-leather footwear
Leather Garments
CAPACITY
65 million pieces
170 million pieces
909 million pairs
100 million pairs
1056 million pairs
16 million pieces
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Leather Goods
Industrial Gloves
Saddlery & Harness
Source: CLRI
63 million pieces
52 million pairs
12.50 million pieces
Product-Wise Brands Sourced From India

Footwear
Leather Garments
Acme, Ann Taylor, Bally, Charter

Club, Clarks, Coach, Colehann,
Daniel Hector, Deichmann,
DKNY, Double H, Ecco,
Elefanten, Etienneaigner,
Florsheim, Gabor, Geoffrey
Beene, Guess, Harrods, Hasley,
Hugo Boss, Hush Puppies,
Kenneth Cole, Liz Claiborne,
Marks & Spencer, Nautica, Next,
Nike, Nunn Bush, Pierre Carding,
Reebok, Salamander, Stacy
Adams, Tommy Hilfiger, Tony
Lama, Versace, Yves St. Laurent
Pierre Cardin, Tommy

Hilfiger, Versace, DKNY,
Hugo Boss, Liz Claiborne,
Ann Taylor, Nautica, Kenneth
Cole, Charter Club, Daniel
Hector
Leather Goods /
Accessories
Coach, Liz Claiborne,
Harrods, Yves St, Laurent,
Tommy Hilfiger, Etienne
Aigner, Geoffrey Beene,
Marks & Spencer, Guess,
Next, Pierre Cardin
Besides, major brands are sourced from India, MNC brands are sold in India and Indian brands
sold in India.
MNC Brands Sold
in India
Aldo, Bally, Clarks, Ecco, Florshiem, Ferragammo,
Hush Puppies, Lee cooper, Lloyd, Marks & Spencer,
Nike, Nine West, New Balance, Reebok, Rockport,
Stacy Adams
Indian Brands sold

in India
Red Tape, Bata, Liberty, Khadims,
Lakhani, Metro, Action
Indias Export of Leather and Leather Products for Five Years

(Value in Million US$)
2005-06
2006-07
2007-08
2008-09
2009-10
Finished Leather
636.27
724.00
807.19
673.37
625.54
Footwear
1045.24
1236.91
1489.35
1534.32
1507.51
Leather Garments
333.30
309.91
345.34
426.17
428.52
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Leather Goods
660.17
706.28
800.46
873.44
756.02
Saddlery & Harness
77.52
82.33
106.18
92.15
83.39
Total
2752.50
3059.43
3548.51
3599.46
3400.97
% Growth
10.30%
11.15%
15.99%
1.44%
-5.51%
Source: DGCI&S
Indias Leather & Leather Products Export Basket (2009-10)
Indias import of raw hides & skins and leather 5 years

CATEGORY
Raw Hides & Skins
2005-06
2006-07
2007-08
2008-09
2009-10
58.21
69.58
86.50
96.48
70.54
147
Leather (Wet-blue, Crust & Fin. Lthr) 233.11
288.85
347.49
362.47
335.57
TOTAL
358.44
433.99
458.96
406.12
291.32
Country-wise share in Total Leather & Leather Products Exports from India (2009-10)
Major Markets:
The major markets for Indian leather products are Germany with a share of 14.45%, UK 13.41%,
Italy 11.72%, USA 8.71%, Hong Kong 7.35%, France 7.53%, Spain 6.43%, Netherlands 4.03%,
Belgium 1.92%, U.A.E.2.03% and Australia 1.58%. These 11 countries together accounts for
nearly 79.16% of Indias total leather products export.
Country-wise export of leather & leather products 5 years
COUNTRY
2005-06
2006-07
2007-08
2008-09
2009-10
% Share
GERMANY
363.24
410.08
493.34
508.45
491.36
14.45%
ITALY
317.04
413.35
490.77
461.56
398.58
11.72%
U.K.
345.54
359.84
417.64
413.24
455.96
13.41%
U.S.A.
318.36
317.59
311.21
359.22
296.23
8.71%
HONG KONG
252.15
279.72
280.97
237.72
249.91
7.35%
SPAIN
200.18
185.78
216.07
219.18
218.63
6.43%
FRANCE
143.72
174.04
198.52
221.33
256.15
7.53%
NETHERLANDS
82.95
100.82
134.75
148.77
136.96
4.03%
U.A.E.
52.34
62.55
76.23
85.79
69.16
2.03%
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PORTUGAL
42.20
49.92
56.93
48.17
39.27
1.15%
BELGIUM
40.20
43.01
55.32
54.77
65.42
1.92%
CHINA
38.71
42.52
55.46
49.96
48.52
1.43%
AUSTRALIA
43.22
39.38
50.44
55.76
53.65
1.58%
DENMARK
40.46
42.30
49.58
60.12
55.68
1.64%
SWEDEN
25.82
29.01
38.99
38.03
36.02
1.06%
CANADA
34.80
32.17
36.92
35.29
27.65
0.81%
KOREA REP.
34.45
36.28
29.55
26.17
29.02
0.85%
S. AFRICA
24.38
35.23
27.90
22.45
24.55
0.72%
SWITZERLAND
21.54
21.92
25.79
26.07
27.11
0.80%
AUSTRIA
23.38
21.79
25.68
27.22
28.00
0.82%
GREECE
21.94
24.22
23.57
17.82
12.77
0.38%
SAUDI ARABIA
14.63
15.77
15.96
19.28
20.98
0.62%
JAPAN
12.37
12.26
15.95
20.24
17.08
0.50%
RUSSIA
11.49
17.18
15.77
12.01
6.68
0.20%
INDONESIA
12.66
12.17
15.31
13.45
9.55
0.28%
FINLAND
7.72
9.87
14.39
15.52
9.96
0.29%
IRELAND
4.56
5.46
8.15
6.44
5.78
0.17%
NEWZEALAND
5.64
6.05
5.61
5.46
4.28
0.13%
OTHERS
216.81
259.15
361.74
389.97
306.06
9.00%
TOTAL
2752.50
3059.43
3548.51
3599.46
3400.97
100.00%
Source : DGCI & S
4.4.5 Future Outlook

The Government of India had identified the Leather Sector as a Focus Sector in its Foreign Trade
Policy 2004-09 in view of its immense potential for export growth prospects and employment
generation. Accordingly, the Government is also implementing various Special Focus
Initiatives under the Foreign Trade Policy for the growth of leather sector. With the
implementation of various industrial developmental programmes as well as export promotional
activities, and keeping in view the past performance, and industrys inherent strengths, the Indian
leather industry aimed to augment the production, thereby enhance export to US$ 7.03 billion by
2013-14, and resultantly create additional employment opportunities for overall one million
people.
149
4.4.6 Policy Initiative: Indian Leather Development Programme (ILDP)

th
The ILDP for the 11 Five Year Plan comprise of the following components:
i) Integrated Development of Leather Sector (IDLS)- Outlay Rs.253.43 Crore
IDLS scheme is a capital subsidy scheme approved for the 10th Plan for technology up gradation,
modernization, capacity creation in all segments of the Leather Industry. The scheme was
implemented w.e.f. Nov 3, 2005. The scheme provided financial assistance of 30% of the cost of
plant and machinery for SSI units and 20% of the cost of the plant and machinery for Non-SSI
units, subject to a ceiling of Rs.50 lakh in case of both SSI and Non-SSI units. The IDLS scheme
is continuing in the XI plan period with certain modifications. The scope of the scheme is
enhanced to include new units. The financial assistance has been increased from the present
ceiling of Rs.50 Lakh (30% for SSI and 20% for Non-SSI units) to Rs.2 Crore @ 20% to all units
above the assistance of Rs.50 Lakh. The disbursement above Rs.25 lakh would be made in 4
equally annual installments.
ii) Leather Tanning Complex, Nellore Outlay Rs.29 Crore
The scheme aims at supporting the initiatives of State Government in the establishment of a
state-of-the-art Leather Complex for tanneries. The location for the complex is Nellore, Andhra
th
Pradesh. The project was proposed to be implemented during the 10 Five Year plan. However,
the project could not take off for want of decision from the Government of Andhra Pradesh. This
project aims to increase the capacity of the tanning sector. This project is proposed to be
th
implemented during the 11 Plan. The outlay of Rs.29 Crore is approved during XI plan as
assistance to develop the infrastructure of the Tanning Park. Leather Development Corporation of
Andhra Pradesh (LIDCAP) in association with Government of Andhra Pradesh is the
implementation agency for this project. Government of Andhra Pradesh has transferred the
required land to LIDCAP.
iii) Establishment of branch of FDDI at Fursatganj Outlay Rs.7.17 Crore
The Institute aims to develop human resources for footwear industry by imparting knowledge and
skill in accordance to the requirement of the industry. The Institute would be a branch of the
Footwear Design and Development Institute, noida, and would be equipped with facilities of latest
technologies to provide training of international standards with latest technology. The DIPP
assistance to the project is Rs.13.53 Crore out of which Rs.6.36 Crore was released during Xth
Plan. The balance Rs.7.17 Crore has been released during 2007-08.
FDDI- Fursatganj would be in a position to introduce six new long term training programmes for
training 600-700 students as Footwear Technologists, Designers, Footwear Production Managers
and Supervisors. In addition, short-term courses for operator/machine technicians would be
conducted in different footwear manufacturing operatiosn to train 300 persons per year. The
Institute spread over 10 acres, would have hostel facilities, computer & library centre and staff
quarters.
150
iv) Footwear Complex, Chennai Outlay Rs.3 Crore

th
This is an ongoing scheme of the 10 Plan. The scheme aims to build a Footwear Complex and
provide infrastructure facilities for housing large footwear manufacturing units. The complex is
being established at SIPCOT Industrial Park near Chennai in a total area of 153.65 acres, and
there would be 20-22 units in the Complex. Infrastructure development towards design and
testing centers, display centre, warehousing, common power plants etc would be provided.
State Industries Promotion Corporation of Tamil Nadu Ltd (SIPCOT) is the implementation
agency. Total Central Assistance is Rs.14 Crore, out of which Rs.11 Crore was already released
during Xth Plan. The balance Rs.3 Crore would be released during the XIth Plan.
v) Saddlery Development Outlay Rs.10 Crore
Harness & Saddlery comprise a wide range of products. The industry has identified upgradation
and development of skilled manpower, standardization and development of components
accessories and tools, development of low cost indigenous machinery, and improvement in
production techniques and processes as major areas of concern. IIT - Kanpur was the
implementing agency for saddlery development during the Xth Plan. International Institute of
Saddlery Technology and Export Management (Kanpur), a SPV constituted under the overall
guidance and superintendence of IIT, Kanpur would continue to provide skilled human resources
to meet the need of saddlery industry, and would function as an R & D base for the industry. In
the XIth Plan, it is proposed to up-scale skill upgradation programmes in view of the demand of
the sector and conducting various long term and short term duration courses in saddlery
segment.
vi) Support for rural Artisans Outlay Rs.40 crore
This scheme would provide necessary design and product development support to the artisans
and also market linkages for the better positioning of the ethnic products to ensure better return to
the artisans. The ethnic clusters and rural footwear producers need support for improvising their
designs as per the changing trends and fashion, and also marketing support.
The aim of this scheme is to promote the clusters at various forums as they are an integral part of
rural Indian economy and have potential for generating local employment and export. The artisan
clusters (both urban and rural) would be supported for enhancing their designs as per the
changing trends and fashion, corpus of revolving funds for obtaining bulk raw material, grant
based livelihood support, marketing support / linkages and also bank linkages. The broad
objective of this component would be to ensure better and higher returns to the artisans.
vii) Human Resource Development - Outlay Rs.60 Crore
HRD Mission would target the potential work force in the rural areas and would lay stress on skill
development and technical development. The scheme would address the human resource needs
of the industry. Scheme would cover the full range of training programme through output linked
financial assistance to cover the Primary Training and Secondary Training courses. The project
would train and prepare individuals in the rural areas to be fit to work in medium to large industrial
151
units that are likely to be set up. Upgradation of skills of persons already employed in the sector
besides training for trainers/ supervisors would also be undertaken. The training proposed under
the scheme would be output linked where at least 75% of those trained would be placed in the
industry.
viii) Upgradation of facilities of FDDI and establishment of other such institutes and
centers Outlay Rs.300.07 Crore
As of now about 3800 people are trained every year in leather and leather products sector.
Against this supply, the demand of the industry is around 100,000 skilled persons every year for
the next 5 years. In order to increase the uptake of the student in each category and to train
them in the latest technology, upgradation of the facilities in the existing units has become
absolutely essential.
Footwear Design & Development Institute (FDDI), Noida is a premier institute providing training,
consultancy services in the footwear and leather industry. It is therefore proposed that at least 3
campuses of FDDI would be established in Tamil Nadu, West Bengal and Haryana, during the
th
11 Plan at a cost of Rs.96.69 crore each. Besides, Rs.10 crore would be provided for
upgradation of existing FDDI campus at Noida. The assistance would be in the form of one time
grant for creation of capital assets and permanent infrastructure and no recurring cost would be
provided.
ix) Up gradation / installation of infrastructure for environmental protection in the Leather
sector - Outlay Rs.200 Crore
Leather Industry and tanning activity in particular, all over the world, is linked to environmental
concerns. The environmental issues are slowing gaining ground and measures would need to be
put in place for industries to cope with the stringent norm. An allocation of Rs.200 Crores has
th
been made in the 11 Plan to address these concerns. Projects for meeting environmental
concerns would be funded with 50% grant from Central Government, with the remaining fund
coming from State Government 15% and from the Industry 35%. The entire operation and
maintenance costs would be borne by the industry.
x) Mission Mode Scheme - Outlay Rs.10 Corre
(a) Investment Promotion activities: This scheme envisages attracting investment into the
sector by undertaking investment promotion activities. The Road Shows will be organized in the
foreign markets with the basic objective to create awareness about the Indias manufacturing
capabilities and growth potential and motivate the foreign entrepreneurs to invest in India either
through foreign direct investments or through joint venture and technical collaborations with
leather sector entrepreneurs. International leather Experts / Resource Persons will be invited to
visit India to India, to make presentations on subject of their specializations to Indian
entrepreneurs. Journalists / Opinion makers from international Trade Magazines will be invited
during Delhi International Leather Fair (DILF), India International Leather Fair (IILF), International
Leather Goods Fair (ILGF) for adequate media coverage of the leather industry in their
magazines abroad.
152
(b) Research, Evaluation and Consultancy: Besides, provision has been made for research,
programme support, survey and concurrent evaluation etc in the field of leather. Besides,
provision has also been made for cost on account of advisory and consultancy services in respect
of various projects under ILDP being implemented during XI Plan.
4.4.7 Indian Footwear Industry

The footwear sector is a very significant segment of the leather industry in India; rather it is the
engine of growth for the entire Indian leather industry.India is the second largest global producer
of footwear after China, accounting for 13% of global footwear production of 16 billion pairs. India
produces 2065 million pairs of different categories of footwear (leather footwear - 909 million
pairs, leather shoe uppers - 100 million pairs and non-leather footwear - 1056 million pairs). India
exports about 115 million pairs. Thus, nearly 95% of its production goes to meet its own domestic
demand.
The major production centers in India are Chennai, Ranipet, Ambur in Tamil Nadu, Mumbai in
Maharastra, Kanpur in U.P., Jalandhar in Punjab, Agra, Delhi, Karnal, Ludhiana, Sonepat,
Faridabad, Pune, Kolkata, Calicut and Ernakulam. About 1.10 million are engaged in the footwear
manufacturing industry. Footwear exported from India are Dress Shoes, Casuals, Moccasins,
Sport Shoes, Horrachies, Sandals, Ballerinas, Boots, Sandals and Chappals made of rubber,
plastic, P.V.C. and other materials.
MNC Brands sourced from MNC Brands Sold in India
Indian Brands sold in India
India
Acme,
Clarks,
ColeHann, Aldo, Bally, Clarks, Ecco, Red
Tape,
Bata,
Liberty,
Deichmann, Ecco, Elefanten, Florshiem, Ferragammo, Hush Khadims, Lakhani, Metro, Action
Florsheim,
Gabor,
Hasley, Puppies, Lee cooper, Lloyd,
Hush Puppies, Double H, Marks & Spencer, Nike, Nine
Justin, Marks & Spencer, West, New Balance, Reebok,
Nautica, Nike, Nunn Bush, Rockport, Stacy Adams
Reebok, Salamander, Stacy
Adams, Tony, Lama, Next,
Bally
US Retail giant Wal-Mart has also begun sourcing footwear from India since the last two years.
The Footwear sector is now de-licensed and de-reserved, paving the way for expansion of
capacities on modern lines with state-of-the-art machinery. To further assist this process, the
Government has permitted 100% Foreign Direct Investment through the automatic route for the
footwear sector. Conducive Investment climate towards attracting overseas investments and
increasing cost competitiveness. The Government of India is setting up dedicated Footwear
Complex and Footwear Components Part where footwear clusters are located. There has been
active interest in collaborating with Indian Footwear companies from European countries like Italy,
Spain and Portugal.
153
Footwear Global Scenario and Indias Share

The global import of Footwear (both made of leather as well as non-leather) increased from US$
59.77 billion in 2004 to US$ 87.23 billion in 2008, growing at a CAGR of 9.91%. During 2008, the
Indias share in the global import is 1.76%.
Global import of Footwear

India's export of Footwear
& Footwear Components
% Share of India
(In Million US$)

2004
2005
2006
2007
2008
59779.52 67066.21 72747.35 80722.29 87234.28
910.77
1.52%
1045.24
1.56%
1236.91
1.70%
1489.35
1.85%
1534.32
1.76%
Source: ITC, Geneva & DGCI &S, Kolkata

Footwear is the engine of growth of the leather industry in India. Indias export of Footwear
touched US$ 1507.51 million in 2009-10, with a share of 44.33% in Indias total export from the
leather sector. Indias Footwear export (leather, uppers & non-leather) is growing at a CAGR of
9.58% in the last five years ending 2009-10
Major Markets:
During 2009-10, the main markets for Indian Footwear are UK with a share of 19.66%, Germany
14.88%, Italy 13.93%, USA 8.20%, France 9.58%, Spain 6.37%, Netherlands 4.32%, Portugal
1.50%, U.A.E 2.63% and Denmark 1.13.%. These 10 countries together accounts for 82.20%
share in Indias total footwear export. Nearly 90% of Indias export of footwear goes to European
Countries and the USA. Future growth of Indian footwear in India will continue to be market
driven. The European countries and the US are major consumers for the Indian footwear.
Indias Footwear Export Growth over the last Four Decades
Export of footwear from India increased manifold over the last four decades. Today, Indias
footwear export is valued at US$ 1507.51 million, constituting 44.33% share in total export of
leather & leather products.
154
Footwear exports have increased from US$ 82.56 million in 1979-80 to US$ 1507.51 million in
2009-10
Partnerships that spell success
Formas Kunz Brazil - This facility is coming up in the Footwear Component Park.
Chennai, India.
Feng-Tay Enterprises Co. Ltd., Taiwan - This is an SEZ-proposed facility in an area of
275 acres, coming up in SIPCOT Industrial Estate, Cheyyar (TN). Feng Tay is a
manufacturer of sports shoes, skate shoes and casual shoes for Nike and other global
brands.
Apache Footwear, China - This FDI is coming up in Tada Mandal, Nellore (AP), in an
area of 340 acres. Apache is a supplier of shoes for Adidas and has manufacturing
facilities in China.
A few other examples are, Mondial (Italy), Suolificio Malaspina (Italy), Fagus(Germany),
Zahonero Virgili SL, (Spain), Top Fondi (Italy), Xie Zhan Moulds (China)
Indian footwear industry poised for growth
India has state-of-the-art manufacturing plants. The footwear sector has matured from the level
of the manual footwear manufacturing method to the automated footwear manufacturing systems.
Footwear production units are installed with world class machines. Manned by skilled
technicians, these machines help to turn any new innovative idea into reality. Support systems
created for the sector have indeed served the footwear industry well. India has a well developed
footwear component manufacturing industry.
The future growth of the footwear industry in India will continue to be market-driven, and oriented
towards EU and US markets. With technology and quality of the footwear improving year after
year, Indian Footwear industry is stamping its class and expertise in the global footwear trade.
Indias Export of Footwear to different countries:
Country
2005-06
2006-07
2007-08
2008-09
2009-10
% Share
155
Germany
UK
Italy
USA
France
Spain
Netherlands
Portugal
UAE
Denmark
Australia
Sweden
Canada
South Africa
Japan
Others
Total
170.97
195.78
134.35
131.07
74.48
63.7
32.96
22.15
25.78
18.37
11.58
6.77
11.95
8.26
3.17
133.9
1045.24
217.23
208.2
186.11
127.15
99.81
64.57
48.57
35.03
34.64
14.65
10.11
7.99
10.91
12.11
3.07
156.76
1236.91
246.84
241.37
229.81
136.92
116.03
76.69
72.91
37.34
39.23
17.48
12.52
12.04
10.41
8.52
4.63
226.61
1489.35
229.65
247.06
221.09
163.03
119.2
91.86
76.2
28.21
39.4
14.78
13.34
12.64
8.96
8.49
8.23
252.18
1534.32
224.27
296.45
209.95
123.6
144.45
95.99
65.13
22.63
39.61
17.02
15.49
12.2
9.3
9.87
5.45
216.37
1507.51
14.88%
19.66%
13.93%
8.20%
9.58%
6.37%
4.32%
1.50%
2.63%
1.13%
1.03%
0.81%
0.62%
0.65%
0.36%
14.35%
100.00%
4.4.8 Indias Leather Garments Industry

Leather garments form a significant segment of the Leather Industry in India. Leather garments
production capacity is estimated to be 16 million pieces annually. India produces different types of
leather garments i.e., jackets, long coats, waist coats/shirts, pant/shorts, motorbike jackets,
industrial leather garments, leather aprons etc.
India is the second largest producer of leather garments, next only to China, which produces 70
million pieces of the total global trade volume of about 120 million pieces.
It is a matter of great pride that Indian leather garments have been making giant strides in the
world of fashion. National Institute of Fashion Technology and National Institute of Design lends
design support to make continuous fashion statements. These Institutes provides well trained
personnel and imaginative designers. Indias acknowledged strength is leather tanning and its
ability to produce a wide variety of fashion leathers.
A Statement showing global import of leather Garments, Indias export and share during
2004-08 (Value in Million US$)
Leather Garments
2004
2005
2006
2007
2008
WORLD IMPORT
4007.04
3836.92
3768.09
3980.21
4128.33
INDIA'S EXPORT
329.44
8.22%
333.30
8.69%
309.91
8.22%
345.34
8.68%
426.17
10.32%
% SHARE OF INDIA
156
Indias export of Leather Garments increased from US$ 333.30 in 2005-06 to US$ 428.52 million
in 2009-10, growing at a CAGR of 6.48%. Indias export of leather garments accounts for a share
of 12.60% in Indias total leather trade of US$ 3400.97 million in 2009-10.
Indias position as the fourth largest global supplier of leather garments is only going to
strengthen given the availability of quality raw material coupled with skilled craftsmanship.
Major markets for Indian leather garments are the USA, Germany, France, Italy, Spain, UK,
Japan, Netherlands, Hong Kong, Switzerland, Belgium, Canada, Austria, Denmark, Russia,
Greece, Sweden and Portugal. These 18 countries account for a share of 93.83% in Indias total
leather garments exports.
In the global leather garments imports, the USA alone accounts for a share of 15.54%, followed
by Germany 12.67% and France 8.75%
Major brands like Pierre Cardin, Tommy Hilfiger, Versace, DKNY, Hugo boss, Liz Claiborne, Ann
Taylor, Nautica, Kenneth Cole, Charter Club, Daniel Hector source Leather Garments from India.
With modern technology with state-of-the-art machinery installed in the production units, India is
come to be recognized as a major producer of quality leather garments in the globe. Leather
Garments industrys accelerated development and growth is being aided by the capacity
expansion and modernization efforts of the private industry and the Government of Indias
encouraging policy measures.
Indias Export of Leather Garments Country-wise
LEATHER GARMENTS
COUNTRY
APR-MAR
% share
% change
2008-09
2009-10
2009-10
GERMANY
100.26
109.16
25.47%
8.87%
U.S.A.
22.20
17.03
3.97%
-23.32%
U.K.
27.92
25.07
5.85%
-10.18%
ITALY
70.13
64.95
15.16%
-7.38%
FRANCE
42.28
55.55
12.96%
31.39%
HONG KONG
2.02
1.67
0.39%
-17.37%
SPAIN
48.47
51.09
11.92%
5.40%
RUSSIA
0.51
1.09
0.25%
112.96%
NETHERLANDS
15.72
16.88
3.94%
7.35%
AUSTRALIA
3.60
5.48
1.28%
52.16%
NEWZEALAND
0.13
0.13
0.03%
0.32%
DENMARK
23.86
19.73
4.60%
-17.30%
GREECE
3.61
2.64
0.62%
-26.76%
157
CANADA
7.86
8.65
2.02%
9.96%
SWITZERLAND
3.92
4.08
0.95%
4.23%
SWEDEN
7.96
6.46
1.51%
-18.90%
S. AFRICA
0.44
1.04
0.24%
135.67%
AUSTRIA
4.30
4.63
1.08%
7.73%
BELGIUM
7.45
8.47
1.98%
13.66%
JAPAN
1.18
1.34
0.31%
13.23%
PORTUGAL
4.19
3.63
0.85%
-13.48%
CHINA
0.05
0.26
0.06%
396.89%
IRELAND
0.00
0.03
0.01%
14344.61%
U.A.E.
4.13
4.39
1.03%
6.52%
INDONESIA
0.00
0.00
0.00%
0.00%
KOREA REP.
0.13
0.11
0.03%
-15.37%
FINLAND
1.05
0.56
0.13%
-46.82%
SAUDI ARABIA
0.10
0.63
0.15%
531.08%
OTHERS
22.71
13.79
3.22%
-39.27%
TOTAL
Source : DGCIS
426.17
428.52
100.00%
0.55%
4.4.9 Indian Finished Leather Industry

India has amongst the largest livestock population in the world, providing a strong raw material
base in goat, buffalo, cow and sheep leather. In terms of raw material availability in pieces, India
is endowed with 12.55% of Bovine hides & skins, 12.29% of goat and kid skins, and 3.48% of
Sheep and Lamb skins in the world. The range of finished leathers include classic finishes
(polish, glazed, aniline, patent), matt surfaces (suedes, nubuck), nappa, burnished & oily leathers,
crackled & distressed finishes etc
Amongst the major producers of finished leather in the world, the Indian Leather Industry has a
long tradition of supplying high quality leather for the global market. Indian tanning industry
produces over 2 billion square feet of leather per annum. The Industry has the tanning capacity to
fulfill 10% of global leather requirements.
Major tanning clusters in the country are Chennai, Ambur, Ranipet, Kolkata, Kanpur, Jalandhar
etc. There are approximately 2091 tanneries in the country 45% in Tamil Nadu, 26% in West
Bengal, 18% in Uttar Pradesh. The global import of finished leather increased from US$ 19784.34
million in 2004 to US$ 20631.73 million in 2008, growing at a CAGR of 1.05%. Indias share has
increased from 3.07% to 3.26% during the said period.
158
(In Million US$)

2004
2005
2006
2007
2008
Global import
19784.34
19893.53
21700.85
23151.85
20631.73
India's export
% Share of India
607.73
3.07%
636.27
3.20%
724.00
3.34%
807.19
3.49%
673.37
3.26%
Source: ITC, Geneva & DGCI & S, Kolkata

Indias export of finished leather touched US$ 625.54 million in 2009-10, with a share of 18.39%
in Indias total export. Major markets for Indian Finished Leather are Germany, USA, Italy,
France, Hong Kong, Spain, Russia, Netherlands, South Africa, Portugal, China, Indonesia and
Korea Rep. These 13 countries account for a share of about 75% in Indias total finished leather
export of US$ 625.54 million. Strong infrastructures are in place for the leather tanning in the
country. Eco-sustainable tanning processes are being followed in the tanning industry. The
tanning industry is well supported by the presence of chemicals and auxiliaries industry. In the
MODEUROP Congress, colours presented by the India are selected continuously, which
reinforces the quality of Indias leather processing techniques. Indian finished leather finds the
pride of place in the global fashion markets, and is a much sought after raw material for premium
leather product brands.
Indias Export of Finished Leather Country-wise (Value in Million US$)

LEATHER
COUNTRY
GERMANY
APR-MAR
2008-09
26.77
2009-10
22.02
% share
2009-10
3.52%
% change
-17.77%
159
U.S.A.
U.K.
ITALY
FRANCE
HONG KONG
SPAIN
RUSSIA
NETHERLANDS
AUSTRALIA
NEWZEALAND
DENMARK
GREECE
CANADA
SWITZERLAND
SWEDEN
S. AFRICA
AUSTRIA
BELGIUM
JAPAN
PORTUGAL
CHINA
IRELAND
U.A.E.
INDONESIA
KOREA REP.
FINLAND
SAUDI ARABIA
OTHERS
TOTAL
Source : DGCIS
7.64
3.42
99.40
6.28
219.80
23.46
6.95
8.82
1.63
0.24
1.33
0.60
2.51
0.29
0.06
9.29
1.53
1.08
5.22
12.34
45.79
0.00
6.81
12.75
23.49
0.40
0.19
145.28
673.37
7.67
2.68
75.06
8.71
234.86
18.70
3.35
11.56
1.41
0.12
0.31
0.43
0.65
0.18
0.32
8.48
1.28
0.11
4.37
9.71
45.93
0.00
3.24
9.16
27.62
0.22
0.08
127.32
625.54
1.23%
0.43%
12.00%
1.39%
37.55%
2.99%
0.53%
1.85%
0.22%
0.02%
0.05%
0.07%
0.10%
0.03%
0.05%
1.36%
0.21%
0.02%
0.70%
1.55%
7.34%
0.00%
0.52%
1.46%
4.42%
0.03%
0.01%
20.35%
100.00%
0.47%
-21.62%
-24.49%
38.65%
6.86%
-20.30%
-51.87%
31.01%
-13.46%
-50.82%
-76.90%
-28.78%
-74.13%
-36.54%
411.50%
-8.81%
-15.77%
-89.49%
-16.29%
-21.32%
0.30%
0.00%
-52.42%
-28.18%
17.60%
-45.79%
-59.96%
-12.36%
-7.10%
4.4.10 Leather Goods & Accessories

Leather Goods form an important segment of the leather industry in India. Leather goods
production capacity is estimated to be 63 million pieces annually. The different types of Leather
Goods and accessories are manufactured in India i.e., Trunks, suit-cases, vanity-cases,
executive-cases, brief-cases, school satchels, traveling bags / luggage, Portfolio and similar such
items, Hand Bags, shopping bags and similar such items, Wallets, Purses, Pouches, Passport
Holders, Credit Card Holders, Diary covers and similar such items, Leather Belts, Caps etc. India
also produces Leather Upholstery Sofa Seat Covers, Car Seat Covers etc. Most of the units
manufacturing leather goods are located in Kolkata, Chennai, Mumbai, Kanpur, Bangalore and
Puducherry. Industry is situated in few other clusters also. India is the fifth largest exporter of
leather goods and accessories (inclusive of Gloves) in the world. Indias share in global leather
160
Goods & Accessories segment is 4.84% in 2008. Leather Goods and accessories manufactured
in India bear brand names like Coach, Pierre Cardin, Yves St Laurent, Etienne Aigner, Geoffery
Beene, Harrods, Marks & Spencer, Liz Caliborne, Guess, Next, Tommy Hilfiger, Kieffer,
Waldhausen, Biemen, Nederinum, Zaldi, Kallquists, Shires, GFS, Millers, Eisers, Weco, Ukal and
Decalthon.
With the availability of quality raw materials coupled with skilled craftsmanship, India is now
poised to make itself a major destination for global sourcing of leather goods and accessories.
State-of-the-art production units and in-house Design Studios will strengthen the industry in
producing products with exquisite design and quality. The industrys accelerated development
and growth is being aided by the ambitious capacity expansion & modernization plans of private
industry and the Indian Governments encouraging policy measures.
Leather Gloves:
Leather gloves of all categories like fancy/fashion gloves, sports gloves, industrial gloves and
other leather gloves is a thrust product among the items of small leather goods being
manufactured and exported from India. India is the fourth largest exporter of Leather Gloves to
the world. India produces about 52 million pairs of industrial gloves annually.
India offers the world the largest technically trained manpower in leather craft at the most
competitive costs. Its association with respected product testing institutions such as SATRA in the
UK and PFI in Germany ensures the finest quality leather in the manufacturing of gloves.
Indias share in global leather gloves import during 2008 was 9.52%. Indias export of leather
gloves increased from US$ 118.77 million in 2004 to US$ 232.05 million in 2008, growing at a
CAGR of 18.22%. Indian Leather Gloves are engineered to provide long lasting comfort and
protection.
Global Import and Indias share
Global import of Leather Goods including Gloves increased from US$ 10786.59 million in 2004 to
US$ 18034.94 million in 2008, growing at a CAGR of 13.71%. During 2008, the Indias share in
the global leather goods & accessories import is 4.84%.
Leather Goods (Including
Gloves)
WORLD IMPORT
INDIA'S EXPORT
% SHARE OF INDIA
2004
2005
2006
2007
2008
10786.59
585.72
5.43%
12278.19
660.17
5.38%
13743.57
706.29
5.14%
16386.40
800.47
4.88%
18034.94
873.44
4.84%
161
Indias export of leather goods & accessories including Gloves touched US$ 756.02 million in
2009-10, with a share of 22.23% in Indias total export.
The major markets for Indian leather goods are the USA, Germany, the UK, Italy, Spain, France,
Russia, Netherlands, UAE and Australia. Nearly 79.36% of Indias export goes to these
countries.
Indias Export of Leather Goods & Accessories Country-wise
COUNTRY
GERMANY
U.S.A.
U.K.
ITALY
FRANCE
HONG KONG
SPAIN
RUSSIA
NETHERLANDS
AUSTRALIA
NEWZEALAND
DENMARK
GREECE
CANADA
SWITZERLAND
SWEDEN
S. AFRICA
AUSTRIA
BELGIUM
JAPAN
PORTUGAL
CHINA
IRELAND
U.A.E.
INDONESIA
KOREA REP.
FINLAND
SAUDI ARABIA
OTHERS
TOTAL
Source : DGCIS
LEATHER GOODS
APR-MAR
2008-09
2009-10
132.08
117.88
155.02
137.86
125.77
122.45
67.51
45.00
45.04
39.86
4.22
5.56
52.33
50.98
1.01
0.57
41.91
37.97
32.72
25.90
2.02
1.55
17.02
16.11
5.36
3.86
13.51
6.73
10.30
11.95
11.42
12.04
3.65
4.61
7.65
5.77
14.88
12.37
5.45
5.81
3.38
3.24
0.48
0.51
2.31
1.63
34.97
21.53
0.09
0.12
0.45
0.53
4.62
3.64
8.28
8.45
70.00
51.53
873.44
756.02
% share
2009-10
15.59%
18.24%
16.20%
5.95%
5.27%
0.74%
6.74%
0.07%
5.02%
3.43%
0.20%
2.13%
0.51%
0.89%
1.58%
1.59%
0.61%
0.76%
1.64%
0.77%
0.43%
0.07%
0.22%
2.85%
0.02%
0.07%
0.48%
1.12%
6.82%
100.00%
% change
-10.75%
-11.07%
-2.64%
-33.35%
-11.49%
31.86%
-2.57%
-43.91%
-9.40%
-20.83%
-23.35%
-5.30%
-27.97%
-50.16%
15.95%
5.42%
26.13%
-24.59%
-16.83%
6.75%
-4.23%
7.94%
-29.46%
-38.43%
32.00%
15.95%
-21.36%
2.04%
-26.39%
-13.44%
162
4.4.11 Indian Saddlery & Harness Industry

Harness & Saddlery goods are being manufactured in Kanpur for more than last 100 years. The
Saddlery manufacturing started in the 19th century at the British Indian Corporation in its Copper
Alan branch in Kanpur and simultaneously the British Government started the Ordinance
Equipment Factory at Kanpur to cater to the needs of the Army. The craft of making saddlery was
imparted to the local artisans by the master saddlers brought from the UK, whose generations
now formed the workforce of the present industry. Kanpur, a city in Northern India, is a short
flight from the countrys capital-New Delhi. By virtue of Kanpurs specialization in vegetable
tanned buffalo hides, and due to the presence of trained manpower, this has become the most
important centre for manufacture of saddlery goods in India. In fact, Kanpur is the only centre in
India which produces the harness & saddlery goods. Almost all the units operating in Kanpur are
100%
export-oriented.
Indian Saddlery and Harness industry is now becoming globally competitive and brand
dominated, awash with designs. India is positioned as the third largest exporter of Saddlery &
Harness to the world, accounting for a share of 8.12% in the global saddlery import of US$
1135.00million.
2004
Saddlery & Harness
WORLD IMPORT
714.59
INDIA'S EXPORT
61.71
% SHARE OF INDIA
8.64%
2005
2006
2007
2008
828.41
77.52
9.36%
918.42
82.33
8.96%
1099.82
106.18
9.65%
1135.00
92.15
8.12%
During 2009-10, Indias export of Saddlery & Harness was US$ 83.39 million, and this accounted
for a share of 2.45% in Indias total export from leather sector. Indian Saddlery and Harness
products are gaining an ever-increasing recognition in the highly competitive global saddlery &
harness leather arena. Estimated production capacity of the Saddlery & Harness industry in India
is 12.50 million pieces per annum. Technology, work craftsmanship, product quality are the
hallmarks of the Indian Saddlery & Harness industry. The major markets for Indian Saddlery &
Harness products are Germany with a share of 21.61%, USA with a share of 12.06%, UK
11.16%, France 9.09%, Netherlands 6.50%, Sweden 6.00%, Belgium 4.97%, Australia 6.44%,
Denmark 3.01%, Finland 1.24%, Canada 2.77%, Italy 4.34%, Spain 2.26%. These 13 countries
together accounts for a share of 91.45% in Indias total export of saddlery & harness.
Indias Export of Saddlery & Harness Country-wise(Value in Million US$)
COUNTRY
GERMANY
U.S.A.
SADDLERY & HARNESS

APR-MAR
2008-09
2009-10
19.67
18.02
11.31
10.06
% share
2009-10
21.61%
12.06%
% change
-8.40%
-11.11%
163
U.K.
ITALY
FRANCE
HONG KONG
SPAIN
RUSSIA
NETHERLANDS
AUSTRALIA
NEWZEALAND
DENMARK
GREECE
CANADA
SWITZERLAND
SWEDEN
S. AFRICA
AUSTRIA
BELGIUM
JAPAN
PORTUGAL
CHINA
IRELAND
U.A.E.
INDONESIA
KOREA REP.
FINLAND
SAUDI ARABIA
OTHERS
TOTAL
Source : DGCIS
9.08
3.43
8.54
0.31
3.07
0.14
6.12
4.48
1.05
3.13
0.17
2.45
0.27
5.93
0.58
0.39
4.67
0.16
0.05
0.18
1.02
0.49
0.00
0.10
1.91
0.10
3.34
92.15
9.31
3.62
7.58
0.22
1.88
0.08
5.42
5.37
1.23
2.51
0.27
2.31
0.24
5.00
0.55
0.35
4.15
0.11
0.06
0.28
0.77
0.40
0.01
0.06
1.03
0.17
2.34
83.39
11.16%
4.34%
9.09%
0.26%
2.26%
0.09%
6.50%
6.44%
1.48%
3.01%
0.32%
2.77%
0.29%
6.00%
0.66%
0.42%
4.97%
0.14%
0.07%
0.34%
0.92%
0.47%
0.01%
0.07%
1.24%
0.21%
2.80%
100.00%
2.52%
5.45%
-11.25%
-29.14%
-38.67%
-45.91%
-11.53%
19.98%
17.38%
-19.95%
59.16%
-5.78%
-9.87%
-15.73%
-3.93%
-9.62%
-11.19%
-30.24%
16.65%
56.70%
-25.07%
-18.93%
93.89%
-36.51%
-46.12%
67.50%
-29.98%
-9.51%
4.4.12 Analysis of Export Performance of Leather and Leather Products

During April-September 2010 Vis--Vis April-September 2009
As per officially notified DGCI& S monthly export data, the export of leather and leather products
for the first six months of the current financial year 2010-11 ie. April-September 2010 touched
US$ 1864.27 million against the performance of US$ 1630.78 million in the corresponding period
of last year, registering a positive growth of 14.32%. In rupee terms, the export touched
Rs.85863.73 million in April-Sept 2010 against the previous years performance of Rs.79260.74
million registering a positive growth of 8.33%.
A Statement showing the Product-wise Export performance during April-September 2010
vis--vis April-September 2009 is given below:
164
(Value in Million Rs)

CATEGORY
APR-SEPT
APR-SEPT
% VARIATION
2009
2010
FINISHED LEATHER
13365.73
18705.34
39.95%
LEATHER FOOTWEAR
29473.30
32188.04
9.21%
FOOTWEAR COMPONENTS
5250.50
4881.27
-7.03%
LEATHER GARMENTS
10895.40
8835.94
-18.90%
LEATHER GOODS
17284.82
18080.16
4.60%
SADDLERY AND HARNESS
1906.69
1883.17
-1.23%
NON-LEATHER FOOTWEAR
1084.30
1289.81
18.95%
TOTAL
79260.74
85863.73
8.33%
Source : DGCI &S

CATEGORY
APR-SEPT
APR-SEPT
% VARIATION
2009
2010
FINISHED LEATHER
275.00
406.13
47.69%
LEATHER FOOTWEAR
606.41
698.87
15.25%
FOOTWEAR COMPONENTS
108.03
105.98
-1.89%
LEATHER GARMENTS
224.17
191.85
-14.42%
LEATHER GOODS
355.63
392.56
10.38%
SADDLERY AND HARNESS
39.23
40.89
4.23%
NON-LEATHER FOOTWEAR
22.31
28.00
25.53%
TOTAL
1630.78
1864.27
14.32%
Major Highlights:
In Rupee terms, export of finished leather, leather footwear, leather goods and non-leather
footwear have recorded positive growth. Export of footwear components, mainly shoe
uppers, leather garments and saddler & harness had recorded a decline of 7.03%,
18.90% and 1.23% respectively.
In Dollar terms, export of footwear components shows a marginal decline of 1.89% and
leather garments recorded a declining trend of 14.42%.
All other leather products are showing positive export growth during the first six
months of 2010-11.
165
Country-wise analysis
The major markets for Indian leather products are Germany with a share of 13.27%, UK
12.54%, Italy 11.87%, USA 9.03%, Hong Kong 9.10%, France 6.87%, Spain 6.28%,
Netherlands 4.03%, Belgium 1.93%, U.A.E.1.91%, Australia 1.22%
These 11 countries together accounts for nearly 78.05% of Indias total leather
products export.
Export of leather & leather products to Germany, USA, UK, Italy, France, Hong Kong, Spain,
Netherlands, Russia, New Zealand, Canada, South Africa and Japan are showing positive
growth during April-September 2010
Export of leather & leather products to Australia, Greece, Switzerland, Portugal, Ireland, and
UAE have shown a decline in exports
Trend in Indias Export of Leather & Leather Products to difference countries during AprilSeptember 2010 (Value in Million US$)
COUNTRY
APR-SEPT
% change
2009
2010
GERMANY
230.87
247.37
7.15%
U.S.A.
146.61
168.33
14.81%
U.K.
216.27
233.87
8.14%
ITALY
194.82
221.20
13.54%
FRANCE
118.70
128.08
7.91%
HONG KONG
115.82
169.56
46.40%
SPAIN
104.03
117.16
12.62%
RUSSIA
1.57
7.73
391.90%
NETHERLANDS
67.10
75.21
12.08%
AUSTRALIA
26.35
22.79
-13.53%
NEWZEALAND
1.50
2.36
57.08%
DENMARK
28.14
25.72
-8.59%
GREECE
6.57
4.92
-25.07%
CANADA
13.99
14.33
2.45%
SWITZERLAND
13.26
11.03
-16.79%
SWEDEN
17.51
17.54
0.21%
S. AFRICA
11.44
14.26
24.69%
AUSTRIA
14.87
12.68
-14.74%
166
BELGIUM
31.64
35.89
13.41%
JAPAN
8.68
9.56
10.04%
PORTUGAL
19.17
18.67
-2.63%
CHINA
22.76
35.33
55.23%
IRELAND
2.78
2.38
-14.53%
U.A.E.
37.10
35.58
-4.11%
INDONESIA
3.92
8.48
116.24%
KOREA REP.
15.03
15.04
0.07%
FINLAND
4.32
6.03
39.62%
SAUDI ARABIA
11.99
11.62
-3.05%
OTHERS
143.96
191.57
33.08%
TOTAL
1630.78
1864.27
14.32%
Port-wise export performance: As per the Port-wise compilation for the month of AprilSeptember 2010, export of leather & leather products from South, West, East and Central
Regions are showing positive trend. However, exports from Northern Region had shown a
declining trend.
Region
APR-SEPT
Share in
APR-SEPT
Share in
% Variation
2009
Total Export
2010
Total Export
Southern
678.01
41.58%
763.94
40.98%
12.67%
Western
336.74
20.65%
425.62
22.83%
26.40%
Eastern
185.15
11.35%
227.54
12.21%
22.89%
Northern
221.85
13.60%
202.06
10.84%
-8.92%
Central
44.22
2.71%
53.08
2.85%
20.02%
Others
164.80
10.11%
192.03
10.30%
16.53%
Total
1630.78
100.00%
1864.27
100.00%
14.32%
Note: This is purely based on port-wise compilation and does not reflect the accurate
regional performance: Source: DGCI& S
Conclusion:
167
Indias export of leather & leather products during the first six months of the current year
2010-11 ie. April-September 2010 touched US$ 1864.27 million as against US$ 1630.78
million in the corresponding period last year, recording a positive trend of 14.32%.
Footwear alone holds a major share of 44.67% in Indias total leather products export trade.
168
Chapter 4.5
AUTOMOTIVE & AUTOCOMPONENTS INDUSTRY
4.5.1 Introduction
The automotive industry is increasingly becoming the cynosure of the manufacturing sector
across the globe. The attention and importance to the automotive industry in the economic
development and planning policies of Government and its agencies has also witnessed significant
uprise. The industry has been evolving over the years, meeting up with challenges as diverse as
transitions, consolidations and restructuring, and thereby adapting to the new market conditions.
In the last few years, the world automotive industry has changed its locational preferences due to
various reasons. Earlier, the automotive industry was largely confined to the triad - North
America, Europe and Japan; however, with the emergence of some vibrant developing
economies, like Brazil, India and China, the global automotive industry has been considering a
different growth perspective, and has been relocating the operations. These growing developing
economies has been evolving as the manufacturing hub, as also the newfound markets, for the
global majors like Ford, General Motors, Chrysler, Toyota, Honda, Nissan and BMW, who are
competing to enhance their market share in these markets.
Increasing growth in GDP and the growing disposable income has catapulted these emerging
economies as market for automotives, while the low cost of operations and skills in design and
R&D made them as destinations for investment and manufacturing operations. The entry of
global auto-majors into India has significantly altered the automobile-manufacturing scenario in
the country. The changes in design and adaptation of international technologies have enabled the
Indian automotive industry to compete globally, and thus are also exposed to global challenges.
Alongside the challenges, the trend also presents a plethora of opportunities to Indian automotive
industry, which needs to be capitalized, so as to emerge as a successful global player.
4.5.2 Global Scenario

Global Automobile Industry
In the initial years, most of the manufacturing activities were concentrated in the USA and in
some of the European countries. Though, these countries still account for a significant share in
the production, more and more volume of production comes from other parts of the world, like
China, Japan and Korea. Around three-fourths of the global production is being carried out in top
10 producing countries, in 2007. Of these, Japan, USA and China, cumulatively constitute over
40% of global production.
The last decade has experienced a growing level of motorization, as reflected by the production
of automobiles. According to International Organization of Motor Vehicle Manufacturers (OICA),
in the year 2007, the turnover of the world automotive industry is estimated to be Euro 2 trillion,
169
with the production of 73 million vehicles. The Compounded Annual Growth Rate (CAGR) of
world production of automobiles during the period 2000-2007 was a modest 3.82%, while the
annual production growth in the year 2007 was 5.4%, over the previous year.
According to OICA, Japan is the largest producer of cars in the world followed by China,
Germany, USA, South Korea and France. India ranks 9th in the production of cars in the world
ahead of UK, Canada, Russia and Mexico. USA is the largest producer of commercial vehicles;
close competitors in production of commercial vehicles are China, Japan, Canada, Thailand and
Mexico. India ranks 8th in the production of commercial vehicles and is ahead of countries like
Brazil, Germany, France and Turkey. As per the statistics collated by World Trade Organisation,
global automotive exports were in the order of nearly US $ 1.2 trillion in 2007, a growth of around
17% over the previous year. The CAGR of world automotive exports during the periods 20002007 was around 11%.
Region-wise data on export of automotive products indicate that Europe is the worlds largest
exporter in the world, with a share of over 55%. In 2000, Europes share in world exports was
about 50%. The share of automotive products in EUs total merchandise exports remained at over
11% in 2007, without much change from the share witnessed in the year 2000. A large chunk of
exports is intra Europe constituting 78% of total in 2007. Asia exported automotive products
valued at around US $ 265 billion in 2007.
Asias share in world automotive exports has increased from 19.9% in 2000 to 22% in 2007. The
Asian market has largely been dominated by Japan with exports worth US $ 159 billion in 2007.
Though the share of Japan in world exports have been around 13% in 2007, the share has
decreased from 15.3% witnessed in 2000. North Americas export of automotive products was
worth at around US $ 220 billion in 2007, with a share of around 19%.
In terms of imports, EU, as a bloc, was one of the largest importers of automotive products in the
world with a share of almost 46% in the year 2007, with import in value terms being US $ 543
billion. In terms of individual countries, USA was the largest importer with a share of around 19%,
valued at US$ 221 billion, in 2007, followed by Canada, at a distant second position, with imports
worth US $ 67 billion, and a share of 5.6%. Other top importers of automotive products were
Mexico (2.5%), China (2.0%), Australia (1.6%) and Japan (1.3%).
Global Auto-Components Industry
The trends in auto-components industry are dependent on the trends in the automobile industry,
as the original equipment manufacturers are the principal customers for the auto components
industry. Though there is a replacement market as well, the trends in automobiles industry still
influences the growth of auto-components industry. Since automobile industry is more
concentrated in developed parts of the world, like US, Europe and Japan, the market for auto
components is also concentrated in these countries. It is estimated that there are around 25003000 tier-I suppliers in the world, who account for more than 80% of the total value of production.
The global auto components industry is in the process of undergoing a structural change. Industry
is being influenced by strategies of OEMs, globalization, business and technology trends. In
addition, the auto components industry is faced with rising input costs. Hence, there is a shift
170
occurring in the industry with more and more companies moving to low cost destinations, so as to
be cost efficient. Due to this trend, countries like China, India and Thailand stand to gain
significantly. Several global players have already established their bases in these countries while
the local companies are also upgrading themselves to face the competition.
Auto-component industry is also witnessing mergers and acquisition trends. The large sized
companies are acquiring small sized companies to grow even bigger as global presence is of
extreme importance in this industry. There is a consolidation wave sweeping across the
countries; most of the companies are hiving-off their peripheral businesses and concentrating on
their core business. There is also a change in trend with more and more companies becoming as
system integrators rather than being mere suppliers. The size of world auto components industry
has grown in the last few years principally due to growth in automobile market and replacement
market. However, the major portion of components production is meant to cater to the demand of
OEMs and only a small portion goes towards replacement market.
4.5.3 Select Trends in Global Automotive Industry

Addressing the Challenge of Volatility in Fuel Prices: One of the major challenges of the
world automotive industry is the volatile oil prices. The year 2008 witnessed crude oil prices
breaching the US $ 140 mark per barrel, and thereafter slipped below US $ 40, in the later part of
the year. The volatility in oil prices does not directly affect the growth in automotive industry;
however, volatility in oil prices is one of the influential factors in automobile demand. In order to
address the challenge of volatility in oil prices, the automotive industry is innovating new
technologies and inventing usage of alternative energy. Hydrogen cars, driven either by a
combination of fuel cells and an electric motor; hybrid electric technology; electric vehicles with
rechargeable batteries; or alternatively, compressed air technology to drive the pistons in a
specially designed engine, are thought to be replacing fossil fuel powered motors in the decades
to come.
Emergence of New Generation Automobiles: Innovation is expected to drive the automotive
industry in future as the producers are involved in differentiating their products and services.
There are already growing interface of electronics and IT in the automotive functionalities, such
as entertainment, navigation and safety. According to a survey, conducted by IBM across the
auto majors, majority of them felt that by 2020 the level of innovation would be greater in software
and electrical systems of automobiles. It is also expected that by 2020 the vehicles may become
another node on internet, connecting with other vehicles, the transportation infrastructure, homes
and businesses. However, there are challenges associated with this trend, with regard to
consumer acceptance, technological development and adoption of standards.
Supply Chain Management in the World of Global Sourcing: Global auto-component firms
are giving greater level of thrust in supply chain management to address the challenge of cost
pressures. This is particularly important in the context of global sourcing. Though there is a
perceived belief that global sourcing helps in reduction of cost of components, there are logistical
challenges. Thus, it is being recognised that collaboration between the OEMs and component
producers are crucial to develop capabilities and solve the challenges associated with global
171
delivery, especially in the areas of inventory management, scheduling, and timely delivery. In
addition, both OEMs and suppliers view that the collaborative efforts in supply chain management
enhances the capacity and performance visibility.
Customer Management Systems: Earlier, automotive manufacturers had to get feedback from
the customers through intermediaries, such as vendors or service workshops. This trend has
been changing with the introduction of customer management systems through ICT interface.
Even vehicle buyers are also browsing the net to know the features of a new model, evaluate
them with the existing models, and compare the prices. IT firms are developing customer
relationship management (CRM) tools that help the manufacturers to realise and optimize
individual customer value, increase the post-warranty service retention, predict model demand
and provide supply chain solutions.
Growing Small Car Segment: The volatility in crude oil prices witnessed during the year 2008
re-emphasized the need for small and fuel-efficient vehicles. Some of the automobile majors have
plans to hike their R & D budget for designing of small and fuel efficient vehicles. Added to this is
the need for reduction in prices to target the middle income groups of population/ new buyers,
especially in developing countries like India, where the vehicle penetration is low as compared to
the population. An auto research firm CSM Worldwide Inc. has estimated that global demand for
small cars would grow by 30% per annum to 27 million vehicles a year by 2013. The fast growing
small cars market has encouraged several global auto majors (such as Renault, Toyota, and
Nissan) to plan for launch of small cars.
Green Motoring: Automobile manufacturers are increasing the thrust on fuel efficiency than
before; the initiatives are mainly through improvements in technology and introduction of new fuel
variants, thereby reducing toxic emissions. It may be mentioned that China, the EU, Japan and
the USA have already established fuel economy rules or agreements of varying stringency. The
FIAs1 declaration for green motoring has set a fuel economy target of 140 gCO2/km for
passenger cars. Such a global fuel economy target could be used as an international benchmark
to assess progress in the fuel efficiency of the global fleet of new motor vehicles. Some countries
are also undertaking Green Rating of automobiles.
Cross Border M&A Deals: The global automotive industry is increasingly getting more active in
cross border mergers and acquisition (M&A) deals. On a global basis, the number of cross border
deals has grown in the past few years, and this trend is expected to continue after the recovery of
economic activity in the world. The expansion outside the home markets of some of the major
automotive companies from traditional low-cost countries, such as China and India, is bringing in
new capital and a fresh look at certain sectors of the automotive market. With the recession in the
US market and its consequent impact in other markets, automotive assets in developed countries
are becoming attractive to buyers from emerging economies, as well.
Entry of Private Equity Players: The traditional funding model in the automotive industry is
slowly being replaced with aggressive funding structures. There has been a structural change in
the automotive industry with the entry of private equity players in the past. Traditional and familyowned businesses were taken over by the private equity players and hedge funds, which are
expecting more profit or investment realization from the industry. Though the business activities
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of private equity players have come down, following the financial market meltdown, this is
expected to be revived soon, either when the market sentiments improve or once consolidation
happens among the private equity players.
Growing Collaboration for Technology Enhancement: Technology-enhancing collaboration in
the automotive sector helps in preserving design integrity, despite minor engineering
adjustments. There are also softwares/ programmes that make the global data sharing possible
among designers, engineers, suppliers, partners and even customers. Such better and faster
integration of design/ engineering ideas help in necessary adjustments and adaptations in
designs to suit the requirements.
Trendy Cars, Shorter Life-spans: An automobile is a highly engineered collection of complex
components, each of which has its own lifespan and longevity characteristics. While some
components require frequent replacement, others that are relatively expensive are expected to
have longer lifespan to justify the economics of a vehicle buyer. However, change in fashion and
design trends may outweigh the pure economics, which may lead to planned obsolescence. In
the world of changing fashion trends, auto manufacturers are developing new designs meeting
the changing consumer preferences. More frequently the new models are introduced, the shorter
will be the life span of the old models.
Preserving Brand Identity: With growing mergers and takeovers in automobile industry, players
are carefully devising strategies to strengthen the backroom operational synergies, in terms of
common logistics and supply chain management, but avoid losing the brand identities. A group
owning different brands prefers not to use the same platform that has same kind of technology,
management, and designers to preserve the brand identity. In this sense, the automobile sector is
different from monolythic branding strategies of consumer goods.
Design for Recycling: It is being increasingly realized that natural resources of the earth are
depleting fast. Hence, there is a growing concern amongst manufacturers as also the consumers
to conserve the resources; one such way is through recycling. The automobile industry is one of
the pioneers in usage of recyclable materials. Also, the rising input prices are making the
automobile manufacturers to design the vehicles that can be easily recycled.
Emergence of Design Studios: As efficiency in design and manufacturing improves, vehicle
manufacturers across the world are focusing on making models for niche market, though the sale
would be in lower volume. This is in contrast to the earlier strategy of designing models for mass
consumption. With the increase in number of models to be designed and developed, auto majors
are outsourcing the designing jobs to independent design studios who take care of the design
and execution of the process management in the value chain.
Outsourcing: Stiff competition to enhance the market share forces the OEMs in developed
countries to outsource their engineering requirements to low cost countries like India. Global
auto-majors such as General Motors, Ford, Toyota, BMW are increasingly outsourcing the vehicle
design and engineering services to developing countries such as India, either through their
captive centers or through third-party vendors. Long term trends indicate that global autocomponent outsourcing from the US is expected to reach US $ 25 billion by 2015, and India,
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China and Mexico are likely to benefit the most from such trend. An online survey conducted by A
T Kearney, revealed that around one-fourth of global auto-majors have considered India as a
favorable destination for automobile-engineering outsourcing.
Advanced RFID Practices in Auto Manufacturing: RFID has been in use in the automotive
industry for several years, though to a limited extent. The trend is changing now with adoption of
technology in wide variety of applications, the dominant being vehicle entry and security.
According to a study by ABI Research, 40% of new cars manufactured in North America are
equipped with RFID immobilizers and the worldwide revenue generated by this application alone
was estimated to be US $ 3.7 billion. In addition, RFID solutions are increasingly being used in
automobile manufacturing processes and supply chain applications.
4.5.4 The Indian Scenario

Indian automobile and auto-components industry, barring downtrends in few years, was on a
growth trajectory, aided by robust economic activity and infrastructure development; growing
middle-class population with disposable income; and growing consumer demand. The Indian
automobile and auto components industry produces a wide range of models and products. The
industry has witnessed high sales turnover, in the last few years, and the exports too have surged
over the years. The industry has also started establishing manufacturing and marketing bases
abroad. However, the recessionary trends in world market and financial sector meltdown has
affected the growth trend of the industry during 2008-09.
The norms for foreign investment and import of technology have also been progressively
liberalized over the years for manufacturing of vehicles, including passenger cars, in order to
make this sector globally competitive. With the gradual liberalization of the automobile sector,
since 1991, the number of manufacturing facilities in India has grown progressively. At present
there are about 15 manufacturers of passenger cars & multi utility vehicles, around 10
manufacturers of commercial vehicles, around 15 manufacturers of 2/3 wheelers, besides 5
manufacturers of engines.
It is estimated that the Indian automotive industry contributes more than 5% of the national GDP,
and tax contribution of the sector to the exchequer is estimated to be Rs. 25,000 crores. The
industry provides direct and indirect employment to over 1.3 crore people. The turnover of the
automobile industry was estimated to be around US $ 35 billion and that for components industry
was at US $ 18 billion in 2007-08. The investment in automotive industry, comprising of the
automobile and the auto component sectors, which was estimated to be at Rs. 50,000 crore in
2002-03, has gone upto Rs. 80,000 crore by the year 2007-08. With the saturation of traditional
automobile markets, such as EU, USA and Japan, the growth opportunities for emerging markets
such as India have been increasing. India is aggressively looking forward to take advantage of its
inherent strengths in automotive design and manufacturing capabilities and position itself as an
export base for vehicles as well as components.
Automobile Industry
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Over the last few years there has been an increasing trend in the production of vehicles, both in
value and quantity terms. The only lean patch in production was during the year 2001-02 and
recently in 2007-08, during which the growth in absolute numbers declined marginally. It is
estimated that the decline in production would continue in the year 2008-09 also. The volume of
production of Indian automobile industry has increased at a CAGR of over 12% during the period
2000-01 to 2007-08. The production activity is poised to be on the lines of the economic growth in
the world and it is likely that the momentum in production may slowdown, though India is being
considered favourably as an outsourcing destination.
In the past, keeping in pace with the growing demand for automobiles, the production has
increased over the years. However, sub-segments such as scooters and mopeds have witnessed
decline in production. It may be mentioned that the technological advances and change in
consumer preferences might be the possible reasons for the decline in demand for scooters and
mopeds, and increase in demand for motorcycles. Commercial vehicle and passenger vehicle
production have seen a significant rise in the last couple of years, thus implying growth in these
segments.
The two-wheelers segment constitutes the lump of the total production of automobiles in the
country with a production share of almost 75% in the year 2007-08, followed by the passenger
vehicles segment, with a share of around 16%. The commercial vehicles constitute 5%, followed
by the three wheelers at 4%. The growth in two wheelers production has been more or less
consistent amongst all categories of vehicles. The production of passenger vehicles segment on
the other hand has grown slowly, though consistently, perhaps due to the growth in middle class
population in the country, indicating the demand for cars. There was an increasing trend in the
sales of all the category of automobiles, in the past, except in the year 2007-08, wherein a dip in
sales was witnessed in all categories, except passenger vehicles. The sales in commercial
vehicles have witnessed a marginal growth, though in the later few years the growth rate was
accelerated. The sales of two wheelers have been increasing almost linearly in the last five years.
Though, there has been a robust demand for two wheelers, especially for motorcycles, both in
urban as well as rural areas, the year 2007-08 remained sluggish due to model fatigue and
uninviting rates. The demand is further sluggish in the year 2008-09 due to overall slowdown in
economic activity and non-availability of automobile finance.
India exports almost all types of vehicles; among the major categories of export items, in 200708, two wheelers accounted for around two-third share in total vehicles exports, in terms of
number of units. Infact, two wheelers have, over the years, been the top most export item among
the various automobile segments, in terms of number of units. Passenger vehicles, three
wheelers and commercial vehicles account for 17.6%, 11.3% and 4.7% share, respectively in
Indias total vehicle exports in volume terms. The export orientation of the industry has been
continuously growing; from a level of 3.5% in 2001-02 to over 11% in 2007-08. During the period
2001-02 to 2007- 08, the automobile exports from India witnessed a CAGR of over 31%. Nearly
half of the two-wheeler exports in 2007-08 were to Asia region. While a sizeable volume of
passenger vehicles were exported to Europe, other regions such as Africa and Latin America
were also the target regions for export of passenger vehicles by India. Following the global
financial meltdown and recessionary trends in world economy, there has been a slowdown in
demand and supply of vehicles. This has also reflected in the production, domestic sales and
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exports of vehicles from India. During the period April-November 2008, though there has been
over 6.5% growth in vehicles production (from 7.21 million units during April-November 2007 to
7.68 million units during April-November 2008), domestic sales have grown by only 2% (from 6.46
million units during April-November 2007 to 6.60 million units during April-November 2008).
Auto Components Industry
According to Auto Component Manufacturers Association of India (ACMA), the size of the Indian
auto components industry is estimated to be around US $ 18 billion in 2007-08. India is estimated
to have the potential to become one of the top auto component economies by 2020, according to
a study by IBM. According to another study, the auto component industry in India has potential to
grow at a CAGR of 13% to reach US $ 40 billion by 2015. Indias share in world auto components
would thus grow from around 1%, at present, to over 2.5% by 2015. Domestic market is projected
to grow at around 8-10% per annum in the next 10 years. Exports are projected to grow at over
30% per annum in the long term.
The automotive market in India has grown significantly owing to the growth in income and in the
living standards of the middle class population, and a significant increase in their disposable
incomes. However, there has been a slowdown in demand for vehicles, in 2008-09, which is
impacting the auto-component industry adversely. Responding to emerging scenario, Indian auto
component sector has shown great advances in recent years in terms of quality, spread,
absorption of newer technologies and flexibility. Availability of skilled manpower, reasonably
priced workforce, together with the strengths gained by the country in IT and electronics, have
built-up an environment for significant leap in the auto component industry.
The turnover of the auto component industry, over a period of time, has grown impressively.
During the year 1996-97, the turnover of the industry was US $ 3.3 billion, which breached the US
$ 10 billion mark, to reach US $ 12 billion, in 2005-06. In the year 2007-08, the turnover of the
auto component industry has reached US $ 18 billion. Indian auto component industry has a
comprehensive range of products catering to the market. During the year 2007-08, engine parts
accounted for the bulk of production in the Indian auto components industry, followed by
transmission and steering parts. The combined production in these two categories was around
50% of the total value of the production.
Export growth in Indian auto components industry was around 25% during the year 2007-08, with
value of exports being US $ 3.6 billion. India is also an importer of auto-components; according to
the Ministry of Heavy Industries, Government of India, the total imports of auto components by
India in the year 2006-07 were US $ 3.3 billion (Rs. 14,644 crore). India has been emerging as a
significant exporter of auto components since the last decade. From a level of US $ 330 million in
1997-98, exports of auto components have reached to over US $ 3.6 billion in 2007-08. Export
orientation of Indian auto-component industry has also increased from a level of 11% in 1997-98
to over 20% in 2007-08. Export of auto components have grown at a CAGR of 24% during this
period. India exports its auto components to almost every part of the world, the major markets
being developed countries such as USA, Germany and UK. Some of the important Asian markets
for auto-components include Bangladesh, Sri Lanka and Nepal. According to ACMA, the export
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potential of auto components industry is expected to post a CAGR of around 24% to reach US $
20-22 billion by 2015.
4.5.5 Export Competitiveness of the Industry

The year-on-year growth rates in vehicles production achieved by the Indian automobile industry
has been outstanding as compared to the growth rate achieved by the global automobile industry.
In the year 2007, the automobile production growth rate in India stood at around 14% as
compared to the world production growth rate of 5.4%. Except in the year 2000, when there was
a slump, the Indian automobile industry has performed better than the global average, at the back
of both domestic as well as global demand.
In the auto-components segment, steered by the countrys high engineering skills, established
production lines, and competitive manufacturing costs, global auto majors are increasingly
ramping up the value of components they source from India. Over 20 OEMs have set up their
International Purchase Offices (IPOs) in India to source their global component requirements.
These include firms like General Motors, Ford Motors, Cummins International, Bosch,
Volkswagen, BMW, MAN (trucks) and JCB (earthmoving equipment), among others. This number
is expected to double by the year 2010. The auto component industry was estimated to achieve
an export level of around US $ 5 billion in 2008-09. However, the slowdown in demand for
automobiles, both in India and in its export markets, may downsize the projections marginally. In
such a scenario, it may be pertinent to analyse the export competitiveness of India in the
international market. In this chapter, an attempt has been made to analyse the export
competitiveness of India in order to identify potential markets for Indian automotive industry in
select markets / regions. The markets / regions identified for this purpose were USA and Europe
for auto-components, and developing countries of Africa, Asia and Latin America for automobiles.
The competitiveness of Indian automotive industry in the identified markets have been analysed
using some of the competitiveness indicators, such as penetration index, contribution index, and
specialization index.
Auto-components
In the USA market, the penetration index for components such as bumpers, drive axles, and
radiators have grown significantly indicating rise in share of India in USAs total imports. The
contribution index has also increased for bumpers indicating growing share of its exports in
Indias total exports to USA. As a result of such trends, the specialization index has increased
significantly for bumpers, drive axles, and steering wheels. While the specialization index has
decreased significantly for road wheels and parts, marginal decline has been witnessed for
components such as brakes and parts, non-driving axles and parts, and suspension shock
absorbers. In the European market, the penetration index has grown significantly for autocomponents such as bumpers, drive axles, suspension shock absorbers and radiators. The
contribution index has also increased for bumpers and drive axles and radiators indicating
growing share of its exports in Indias total exports to Europe. As a result of such trends, the
specialization index has increased significantly for bumpers, drive axles, suspension shock
absorbers and radiators. While the specialization index has decreased significantly for road
wheels and parts, and parts and accessories of bodies, marginal increase has been witnessed for
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components such as brakes and parts, non-driving axles and parts, suspension shock absorbers,
and steering wheels and parts.
Automobiles
The analysis of international competitiveness of Indian automobile sector in Africa market reveal
that the penetration index has grown over the years, between 2001 and 2006, for sub-segments
such as tractors, motor cars, transport vehicles for goods, special purpose vehicles, and chassis
fitted with engines. The growth in penetration index, however, has not been much for public
transport type passenger vehicles, while it has come down for motorcycles. The contribution
index has also increased in these sub-categories (except the public transport type passenger
vehicles, and motorcycles), indicating growing share of these categories in Indias exports to
Africa. The share of import of identified categories of vehicles in total import of Africa has also
increased over the years indicating growing African market.
As a result of these trends, the specialization index has grown for all types of vehicles, except
public transport type passenger vehicles and motorcycles. Indias automobile penetration into the
Latin American region is slowly gaining momentum. The analysis of international competitiveness
of Indian automobile sector in Latin America region reveals that the penetration index has grown,
between 2001 and 2006, for sub-segments such as tractors, motor cars, and motor cycles. The
growth in penetration index, however, has not been much for public transport type passenger
vehicles, and special purpose motor vehicles, while it has come down for motor vehicles for
goods transport and chassis fitted with engines. The contribution index has also increased in the
sub-categories where penetration index has grown (and vice versa), indicating growing share of
these categories in Indias exports to Latin America. The share of import of identified categories
of vehicles in total import of Latin America has also increased over the years in most of the subcategories, indicating growing Latin American vehicles market. As a result of these trends, the
specialization index has grown for all types of vehicles, except motor vehicles for transport of
goods, chassis fitted with engines, and motorcycles.
Indias automobile penetration in the developing Asian market has been quite modest across all
the segments. This could be seen from the growing penetration index during the analysed period
(years 2001 and 2006), in almost all segments. The contribution index has also grown in all
vehicle segments (except motor vehicles for transport of goods, which has remained constant),
indicating growing share of these vehicle segments in Indias exports to developing Asia.
However, the share of import of identified categories of vehicles in total import of developing Asia
has declined over the analyzed period, in most of the sub-categories, indicating growing
manufacturing and self-sufficiency in the region. In spite of such a trend, the specialization index
has grown for all types of vehicles, with some categories, such as tractors, and chassis fitted with
engines, well pronounced than the others.
4.5.6 Challenges
Rising Input Costs: Prices of core inputs in the manufacture of vehicles, like steel, non-ferrous
metals and rubber, have grown over the last few years, which in turn has increased the
production cost of vehicles. Though the raw material prices have cooled in the last few months,
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they still prevail more than the prices that have prevailed few years ago. Such cost escalation in
input prices has impacted the growth of the Indian auto industry.
Fuel Price Volatility: Volatility in fuel prices affects the growth of the automotive industry all over
the world. The effects of volatility in fuel prices are multipronged. Firstly, the cost of inputs in car
manufacturing increases with the increase in oil prices. Polymers, one of the inputs used in
manufacture of vehicles, is a derivative of crude oil. Bulk commodities, such as steel and
aluminium, are also used in manufacture of vehicles; the transportation cost of which is
influenced by oil prices. Secondly, the oil price has an impact on inflation, affecting the saving and
disposable income of the consumers, thereby affecting the demand for automobiles. Thirdly, the
fuel price influences the overall running cost of the vehicle owners; there could be switch in
demand among the vehicle variants, as also research in use of alternative fuels. Thus, the
volatility in oil prices affects the prospects of the industry.
Slowdown in Demand: As per the RBIs data on sectoral deployment of gross bank credit, the
automotive industry received gross bank credit of Rs. 29,152 crores in 2007-08, a growth of 39%
over the corresponding period of the previous year. In addition, credit has been extended to
transport operators and retail consumers (as vehicle buyers) to support the growth of sales by the
automotive industry. However, the penetration rate of vehicle ownership in India (per thousand
population) is estimated to be less than 10 for car owners and around 40 for two wheelers. This is
low as compared to the world standards, and indicates the potential demand for automobiles in
the country. Following the recent financial sector crisis, the euphoria of easier / better availability
of auto finances in India has declined. The recent trends in vehicle sales also corroborate with
this contention. During the period April-November 2008, the sales growth in passenger vehicles
segment was marginally negative at (-) 0.59% over the corresponding period of 2007-08; the
growth in sales of commercial vehicles was negative at around (-) 9.23%. Similarly, three
wheelers sales have also registered a negative growth ( 3.37%). The two-wheelers segment
registered a positive growth of 3.76% during this period; however, the two wheelers sales in the
month of November 2008 witnessed a negative growth (-14.73%), over the corresponding month
of 2007.
Slowdown in USA: North America has been a traditional market for the Indian auto component
manufacturers with exports to the region accounting for around 27% of Indian auto component
exports. The region is affected by the global financial crisis, which led to the slowdown in demand
for vehicles, especially in USA. As the global financial crisis makes consumers increasingly
reluctant to part with cash and lenders unwilling to offer credit, carmakers across the world face
challenges in finding buyers to keep their production lines running. It may be mentioned that
industry wide auto sales in USA in the month of November 2008 were down nearly by 37%. In
annualized terms, according to analysts, the US auto industry recorded sales of 10.2 million
vehicles in November 2008, down from 16.07 million vehicles sold in the same month of last year.
With the Detroit majors like, General Motors, Ford and Chrysler seeking a bailout from the
Federal Government, the auto component industry in India is feeling the brunt with slack in
demand. An emergency bail-out offering of US $ 17.4 billion loans to the three auto majors has
been announced with the condition that within three months restructuring plans are prepared by
them, including cutting down on costs. The restructuring plan and cost cutting measures may
affect the export prospects of Indian auto component firms. The Indian auto components sector,
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which is one of the major vendors for the global auto majors, and to the US in particular, face the
challenges of slowdown in the US automobile market.
Production Cuts: The production activity in the automotive industry is poised to be on the lines
of the economic growth in the world and it is likely that the momentum in production may
slowdown in the year 2008-09. The slowdown in demand for vehicles, both in domestic and
export market has led to the announcement of production cuts by many vehicle manufacturers. In
the month of November 2008 (over the month of October 2008), there has been decline in
production across all segments. Production of passenger vehicles have witnessed a negative
growth (-8.50%), commercial vehicles production declined by 44.27%, three-wheelers production
declined by 5.65%, and two wheelers by 8.79%. Overall, the production in November 2008 (over
October 2008) has come down by 9.94% (from 0.95 million units to 0.86 million units).
Commercial vehicles producer, Ashok Leyland, has reduced its proudction of vehicles to around
1500 units in November 2008 (as compared to an average of 6400 units produced during AprilOctober 2008). Another major vehicle manufacturer, Tata Motors has decided to cut production of
medium and heavy commercial vehicles by around 50%, while its passenger cars segment is
contemplating a production cut; as of now, Tata Motors is undertaking partial shutdown to match
the production and demand for passenger cars. In the two-wheelers segment also, major
producers are mulling over production cuts to reduce their inventory levels and match with the
market demand trends. Bajaj auto has already announced a prolonged shut down as part of the
exercise to reduce the inventory levels. Such trends also affect the market prospects of Indian
auto-component manufacturers. Several auto component units that are catering to the demand of
OEMs in India are also in line with the production cuts intended by these OEMs. Several autocomponent manufacturers are scheduling maintenance holidays to tackle the situation.
Growing Competition: Competition in Indias automobile and auto-parts industry has been
growing in the recent years. Earlier, the regulatory framework and market conditions positioned
the Indian OEMs in monopolistic or oligopolistic market structure. As the automotive market in
India is evolving through the dynamics of open market and deregulation, many new players have
entered the market. Since liberalisation, over 20 new players entered the market in the passenger
car segment alone. Though, there has been depletion of market share for Maruti Suzuki, it still
dominates the passenger car segment. In the two-wheelers segment too, foreign majors have
their presence through joint ventures as also through their wholly owned subsidiaries. Hero
Honda is the largest player in the two-wheeler segment, followed by Bajaj Auto and TVS Motors.
In the commercial vehicles segment, though the market is dominated by home-grown companies
such as Ashok Leyland and Tata Motors, competition is augmented through the entry of foreign
players such as Nissan and Volvo. Indian players are entering into joint ventures with these
companies to gain access to the technological advancement and design engineering. In the autoparts segment, though there are vibrant units producing high-quality products and supplying to
global OEMs, the market is attracting global players such as Delphi Systems, Visteon, Denso and
Bosch, to mention a few. These global majors have been expanding their product portfolio and
enhancing their production capacities, thereby increasing the competition among domestic
players.
Changing Consumer Preferences: There has been continuous change in consumer demand in
the motor vehicle industry, making the companies to focus on innovation continuously. With
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growing purchasing power among Indian consumers, the demand for better and comfort vehicles
with greater efficiency is growing. Intense industry competition has led to design of hybrid
vehicles and development of new vehicle concepts. Apart from customers, new technology also
allows the designers to change every aspect of car design. According to a study by KPMG,
product quality, cost reduction, new technologies and environmental issues, influences the
consumer demand for vehicles and thereby innovation in the automotive industry.
Chinese Competition: Of late, low-cost imports from China threaten the business prospects of
domestic auto-component manufacturers. According to ACMA, auto-component imports from
China have grown rapidly in the last few years. From around 3.3% of share in all component
imports in 2003-04, China now accounts for close to 10%. Significant growth in component
imports has been contributed by China in the last three years, while Indias exports to China have
stagnated at around Rs 120-170 crore in the last 5 years. Such imports from China have set new
benchmark prices and the component manufacturers from India face challenges in the scenario
of rising input prices.
Environmental Issues: The automobile sector affects the environment in multiple ways, starting
from the use of materials that causes environmental degradation, and ending with the
management of scrap. However, it is estimated that much of the environmental damage during
the lifespan of a car happens during driving, and thus is associated with fuel emissions. That is
why many countries are discouraging sale of fuel-inefficient cars, as also polluting cars, through
suitable taxation policy. It is reported that Chinese Government has increased sales tax on cars
with engine capacities more than 1 litre, and reduced on cars with engine capacity of less than 1
litre. EU is proposing to penalize cars that are emitting more than 130 gms of CO2 per kilometer.
There are estimates that the automobile industry accounts for approximately one-fourth of global
anthropogenic GHG emissions. Therefore, in order to combat the environmental challenge, firms
(as well as environmentalists and national Governments) are focussing on avoidance of polluting
substances in production, in addition to concentrating on fuel efficiency and emission standards.
The industry is also contributing to combat this challenge by undertaking research in improving
fuel efficiency and reducing CO2 emissions. In the EU, an end-of life of vehicles Directive
(2000/53/EC) is in force to prevent polluting substances in manufacture of vehicles. Also, a
dialogue between regulators and the automotive industry in EU inspired a voluntary commitment
for the industry to reduce emissions.
Low R&D Orientation: It is being realized all over the world that the competitiveness is not
dependent on factors like availability of skilled labour, low-cost operations and infrastructure. The
sustained competitiveness in the automotive industry comes through improvement in productivity,
which calls for continuous innovation by the players. However, Indian automobile companies
spend a relatively low amount on R&D; thus, their R&D orientation (R&D spending as a
percentage of total sales) is low relative to the global standards. Developing new designs is an
expensive proposition, unless the market for the new design is on a global scale. Indian firms are
mainly focussing on, and designing the vehicles for domestic market or for other developing
country markets, but not completely focusing on designing a vehicle for a truly global market, or
to create a niche for them and compete with international brands. Also, the efforts of Indian
automobile manufacturers are mainly oriented towards value engineering or modification in the
existing models to improve performance, and are not focused on developing new models.
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Infrastructure Constraints: Insufficient road infrastructure and traffic congestion could be a

bottleneck in the growth of the automotive industry. In India, capacity addition in roads has been
lagging behind the traffic growth. It is reported that China witnessed a phenomenal growth in
automotive industry due to rapid development in road infrastructure. Poor port connectivity is
another bottleneck faced by the industry, especially when it comes towards exports. The Chennai
and Mumbai Ports handle bulk of the vehicle export. In addition to the insufficient port handling
infrastructure, there are also challenges associated with space especially for parking and setting
up of repair shops in the port yard. According to a comparative analysis3 on cost structure of
Indian automotive sector and that of Malaysia, Thailand and China, the deficiencies in logistics
and infrastructure adds about 1.1% to 2% in the total cost structure.
Incidence of Levies / Duties: On vehicle sales, currently taxes are levied at multiple levels at
city level (octroi), state level (sales tax) and at the central level (excise). It is estimated that the
incidence of levies and taxes on a vehicle averages to be around 30% of the cost of vehicle. The
incidence of taxes increases in cases where the octroi is also levied. The high incidence of taxes
increases the cost of ownership of vehicles, thereby affecting the vehicle penetration level in
India.
Low ICT Interface: The adoption of ICT in the Indian automotive sector is at low level as
compared to international standards. According to a study by NASSCOM, many SME firms in the
auto-component sector is facing the challenges of IT adoption, which is important for enhancing
their productivity and competitiveness, and the growth of the industry.
Human Resources Challenges: One of the critical enablers for the growth in the Indian
automobile industry would be adequate availability of trained manpower. It is estimated that the
industry would require large numbers of trained personnel, if our country has to become an automanufacturing hub for the world. Countries in North America and Europe, which has been the hub
for automotive industries over the years, are increasingly feeling the pinch of the aging workforce
impacting employment levels from factory workers to middle and top-level management, thereby
creating a talent vacuum in the industry. This crunch in manpower in these economies is slowly
luring the much-required human capital from India. This challenge needs to be addressed on
priority basis so that the country does not loose out on critical talent that may be important for
positioning India as an automotive manufacturing hub of the world.
4.5.7 Strategies
Tackling the Rising Input Costs: The increase in the cost of crucial raw materials (such as
steel, aluminium, rubber) that are used in manufacture of vehicles has affected the margins of the
Indian automotive industry. Though the raw material prices are cooling down, they are still higher
than the prices that prevailed few years ago. In order to tackle this problem of rising input costs,
and to improve margins and price realisations, players in the automotive industry need to adopt
multi-pronged strategies. These include reallocation of product mix, cost reduction through better
adoption of lean manufacturing solutions, and renegotiation with suppliers and vendors. Some
automobile manufacturers have already strengthened their strategy in tweaking the product-mix,
giving greater emphasize on product segments that is expected to provide better margins.
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Strengthening lean manufacturing solutions would help the Indian automotive industry to tackle
the challenge of input cost escalations. Some automobile manufacturers in India have already
established programmes to avoid wastages in production and thereby cut down the cost of
production. Firms also need to renegotiate the prices (for purchases with the suppliers) and
margins (for sales with the dealers), so that the hike in the end price at the hands of consumers is
minimized due to hike in input prices.
R&D on Alternate Energy Sources and Hybrid Vehicles: The share of automobiles on road,
using petroleum products as fuel, has almost remained the same (at over 95%) in the past
several decades. This is despite the fact that the vehicles on road have been evolving in every
other aspect. In other words, product development has happened in all other aspects, except in
utilization of alternate energy sources. The industry, together with the Government, may provide
greater thrust on development of products that uses alternate energy sources, and R&D on hybrid
vehicles.
Market Presence in All Segments: Globalization is making every player in the industry to look
beyond its borders. Ironically, in spite of the increasing number of models being manufactured,
the PLC of the vehicles are decreasing everyday, thus putting pressure on the players to find
ways to diversify their product offerings. Recently, Tata Motors had acquired the Jaguar-Land
Rover brands from Ford thereby making an imprint into the niche segment, eyeing the European
and the developed country market. This has made the Tata Motors a truly global player in the
automobile market with a diversified product offerings, ranging from the entry level segment Nano
to the much-touted ownership of premier brands, like Land Rover and Jaguar, thus catering to all
segments of the market. Market presence and product offerings need not be in one category of
vehicles (say passenger cars) alone; it could also be across multiple vehicle categories. Such
strategies build brands and visibility across segments, as also reduce the risks associated with
market concentration and economic slowdown to some extent.
Enhancing Competitiveness: Cost efficiency is necessary for Indian automobile industry to
enhance its global competitiveness. Many global auto-majors, especially from Japan, have
initiated cost reduction exercises. Some firms have also shifted from standard costing to Kaizen
costing and target costing. Some of them have even established target-costing offices across the
world and established office structure for implementing Kaizen. Cost containment strategies may
also include working with suppliers to reduce the costs in their processes, implementing low cost
designs / segments of the product, or through reduction of wastages. Strengthening the lean
manufacturing practices, being adopted in India as also across the world, would also help
improve competitiveness of Indian industry. Such practices show greater efficiencies in machine
utilization, fewer labour hours per machine, shorter machine setup times and identification of
bottlenecks and cost reduction opportunities swiftly. Both the automobile and the auto component
industry are interlinked and are dependent on each other for survival, and hence the hub and
spoke model may be another approach for both of them to contain the cost. In the hub and spoke
model, the automobile industry help in establishment of auto-component units around its
assembly plants, and help them in technological improvement, R&D, and identification of
machineries and equipments. The auto-component units concentrate on on-time supply and
servicing of orders and cost containment in production, and thereby promote competitive pricing
among the industry players.
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Addressing Consumer Preferences: The dynamics of Indian automobile market is changing

with the changing consumer preferences. For example, earlier, the two wheeler segment was
dominated by scooter (with a market share of 70- 80%), which has been taken over by
motorcycles. The change in consumer preference was mainly due to fuel efficiency, as also
design and technological improvement. Though, the newer versions of scooters (scooty concept
with ignition start) are slowly reviving the market for scooters, the market share may not reach to
the previous level. Similarly, consumer preferences have changed the demand pattern in other
vehicle segments too, driven mainly by design and technology. Indian auto-majors need to
address the changing consumer preferences and suitably modify the design or technological
improvement to augment their market share. Collaborative Product Development (CPD) is being
adopted as a business strategy by global automobile majors to address the challenge of changing
consumer preferences. Dealers are also need to be roped in the design or product development
process as they are ideal gateway agencies between the customer and the firm. Hence, a
stronger relationship is required to be established by the vehicle makers with the dealers.
Synergies are to be created between the vehicle manufacturers and dealers though better
communication and understanding in order to offer not only enhanced customer services but also
to understand the trends in consumer preferences.
Environmental Compliance: Environmental challenges in automobile manufacturing does not
relate to emission standards alone. There are also challenges associated with end-of-life in
vehicles, especially waste management. Though sufficient steps are being taken in India towards
achieving international emission standards, adequate steps are still required to be taken in
environmental compliance in vehicle manufacturing. Significant amount of resources are required
as investment to undertake R&D programmes to address these environmental challenges.
Enhancing R&D Orientation: Indian automotive industry needs to develop a proactive culture
with regard to investments in R&D rather than responsive culture. This would help the industry to
understand the complexities of vehicle users and bring in product innovation through changes in
design and vehicle engineering. The R&D orientation in the Indian auto-component industry is not
comparable with world standards. However, few firms that are having large operations are
increasing their stake in innovation to compete in the global map. There is also a need to initiate a
programme for research and development in the Indian automotive industry, concentrating on
development of intelligent vehicles adhering to safety standards, energy efficiency and emission
norms, and alternate fuels. The programme may also stretch down to component manufacturers
with active involvement of OEMs.
Infrastructure Development: Infrastructure constraints are common to all industry; however
there are few specific infrastructure constraints affecting the growth of Indian automotive industry.
Poor road infrastructure and traffic congestion can be a bottleneck in the growth of vehicle
industry. Therefore, in general, improvement in road infrastructure would help enhance the
demand for automobiles in India. Secondly, road infrastructure associated with last-mile port
connectivity would help enhance supply chain management strategies of the vehicle
manufacturers. More importantly, there is a need for building vehicle terminals in India for
smoother handling of vehicle exports.
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Supply Chain Management: Supply chain management in the automotive industry helps in
integration of the partners to improve operational performance, materials flow and manufacturing
flexibility. Implementing supply chain solutions as one more module after Enterprise Resource
Planning (ERP) is not enough. Theres a need for enterprise-wide process improvement. This
calls for inculcating mutual respect with the vendors, dealers and consumers. Just-In-Time (JIT)
production processes, identification of shorter transportation routes, e-sourcing are some of the
supply chain strategies that may be adopted in large scale by the Indian automotive industry.
Enhancing ICT Interface: IT sector has a major role to play in development of Indian automotive
industry to achieve its global aspirations through enhanced productivity and product efficiency. In
addition, ICT interface help the manufacturers to interact frequently with vendors and consumers
also, and leverage their ideas / preferences into vehicle design. Increased IT adoption in the
automotive industry not only enhances the competitiveness of the industry in the existing
markets, but also creates new markets for the Indian automotive industry.
Human Resources Development: The cost pressure on global auto majors, who are mainly
present in developed countries, viz., USA, Europe and Japan, is making the industry shift to
developing nations. In addition, these countries are facing shortages of skilled manpower, which
is expected to grow multi-fold in the years to come. India has large human resource base;
however, India needs to enhance the skill-sets that are required for the industry in order to
become a global automotive hub. The Government and industry need to come together and
address the challenges related to skill development and workforce shortages, both in terms of
quantity and quality. In this regard, it may be mentioned that USA established, over three
decades ago, a National Institute for Automotive Service Excellence, to provide training, testing,
and certification of auto-service and repair-professionals to ensure continuous availability of
trained technicians for the industry. Government of India, through the Automotive Mission Plan,
has proposed the setting up of an Automotive Training Institute to train people for the automotive
industry. The Society for Indian Automobile Manufacturers (SIAM) has plans to set up an online
university, first of its kind in Asia, to cater to the education needs of the industry. SIAM is
associating with US-based institute, Adayana, who will provide course content and certify these
courses.
4.5.8 Conclusion
The global financial meltdown of the year 2008 has created a precarious condition across various
sectors, which has forced countries and industries to take a fresh look at their future strategies;
automotive sector did not remain unscathed from this turmoil. In the early part of the year 2008,
the rise in crude oil prices sent shockwaves amongst various sectors; the automotive sector was
one of them to receive adverse impact. The financial crunch, in the later part of the year 2008,
slowed-down the supply of credit and simultaneously increased the cost of credit, both to
corporates and consumers, and thereby impacted both the supply and demand for automobiles. It
may be mentioned that the global as also the Indian automotive industry, benefited from the credit
flow provided by the banks and financial institutions, both at corporate level and at consumer
level. The operations of several global auto-majors are affected and they are seeking bailout plan
from their national governments for their survival. With the government institutions across the
world infusing large amount of liquidity into the respective markets, the core issue of credit crunch
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may slowly be resolved. However, cost associated pressures may prevail on the margins of the
global auto-majors, making them vigorously to focus on emerging markets, for sourcing
components, vehicle design and manufacturing. It is expected that the recessionary trends in the
economy and the resultant increase in margin pressures would further enhance the need for
locational shift in manufacturing of automobiles. It is also expected that the volume of outsourced
jobs coming to India may further rise in the long term. Such market opportunities also provide the
Indian automotive industry to acquire assets of beleaguered companies abroad with a potential
for turnaround and value creation in the years to come.
It may be mentioned that the Indian automotive industry holds significant scope for expansion,
both in the domestic market, where the vehicle penetration level is on the lower side as compared
to world average, and in the international market, where India could position itself as a
manufacturing hub. The current level of share, viz., less than 5% of global production and less
than 1% of global trade, also corroborates the potential for expansion in this industry. At the same
time, it should be recognized that Indias exports of automobiles have largely been confined to
few countries in Asia and Africa, and to a very limited extent in Latin America. Indian automobile
companies are required to accelerate their momentum and increase their penetration among
other countries in these regions. Similarly, the auto components industry in India, which is now
known across the globe for its quality deliverables, should try and capitalize on the European and
the US market either trough the process of acquisitions of firms in these countries or
simultaneously enhancing their quality and augmenting the number of outsourcing businesses
from these regions. Indian auto component industry distinguishes itself with winning more number
of Deming prize and adopting global quality management procedures, and thereby have an edge
over other emerging economies, like China and Thailand.
Indian economy, which benefits from strong fundamentals and sound regulatory framework, is
expected to grow at around 7% in the year 2008-09; the economy may rebound once the global
economy recovers, and the domestic automotive industry would simultaneously regain its growth
momentum. In the interim period, the Indian automobile and component industry needs to look
out for opportunities to cut cost, undertake value engineering and enhance disciplines into the
system. The industry may also use the interim period to upgrade the skills of the employees and
enhance the focus on market research, product development and customer interactions. An
institutional mechanism, under public-private partnership model, may be needed to address such
requirements of the industry in the years of downturn, with the industry having a lead role to play.
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UNIT 5
CHARACTERISTICS OF INDIAS
MAJOR EXPORT MARKETS
Chapters:
USA: World biggest importer and Exporter
EU: Single Largest market
Focus LAC: Potential Market for Export from
India
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Chapter 5.1
UNITED STATES: WORLD'S LARGEST IMPORTER
AND EXPORTER
5.1.1 Introduction
Through most of Independent Indias economic history, the US remained its foremost trading
partner, a primary source of investments, the first resort for technology acquisition, and significant
in funds and aid support. Since 2000, India-US economic relations have moved into a new phase
of intensive interaction. Mutual respect and close intellectual linkages were maintained between
the two countries as India gained Independence in 1947. India was much influenced by American
ideas of human freedom and democracy in drafting its Constitution, while in turn the ideals of
Gandhi impacted the American civil rights movement. However, divergent foreign policy views led
to somewhat of an estrangement during the Cold War. Indias first nuclear test in 1974 became
the defining point for bilateral relations, dominating other issues till the end of the century. Despite
this, USA was Indias largest trading partner in 1975 and second largest investor after UK. India
also received timely assistance from US for wheat imports when drought forced a ship-to-mouth
existence in the 1960s. USA worked closely with India in the Green Revolution that transformed
Indias agriculture sector. Thus, in this period India received technology and capital from the US.
The 1980s brought a gradual liberalization of the socialist economic policies that India had in
place, especially since the young and dynamic Rajiv Gandhi became Prime Minister in 1984. His
visit to the US in 1988 was a landmark, eliciting widespread enthusiasm and acclaim. His
emphasis on modern industries laid the foundation for Indias knowledge economy, and
reinstated the US as a preferred economic partner. In 1985, Texas Instruments arrived in India to
set up an R&D facility in Bangalore, changing perceptions about India. Indias sweeping
economic reforms in 1991, together with the collapse of the Soviet Union, and a new desire for
strengthening relations between two of the worlds strongest advocates of democracy, set the
stage for a new paradigm in economic interaction. American companies were attracted by Indias
large consumer markets, but their progress was slow. Again, the nuclear test conducted in 1998
led to a set-back in economic relations, but this was short-lived. During the visit of President
Clinton in 2000, a vision document was signed to institutionalize dialogue through dedicated
platforms and regular summit-level meetings, with high priority to economic relations. The
sanctions ended in September 2001. President Bush built on this for close engagement with
India, culminating in the nuclear energy agreement.
There is a need to further strengthen the relationship between US and India. India is a large
emerging economy, a key driver of the global economy, and a major player in Asia. It has been
active in global negotiations on trade, climate change and economic crisis, and articulates the
views of many developing countries. It is therefore important that going forward, the strategic
partnership of India and the US be strongly reiterated, and the two countries develop
mechanisms for working together on emerging global challenges, as India would be a key part of
global response. The US can play a role in facilitating greater economic exchanges between India
and its neighbors by helping develop gateways or trade infrastructure. This may have to be
sequenced in a manner that builds confidence and takes into consideration on-the-ground
security and political situation.
5.1.2 Global Economic Crisis
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India has minimal exposure to toxic assets arising from securitization in the West. Nevertheless, it
has been hit hard due to shock transmission via financial sector, real sector and confidence.
Industrial production and exports have plunged and jobs have been lost. However, the situation is
not alarmingly dire so far due to high savings and investment rates, consistent internal demand,
low exports in relation to GDP, and strong measures to counteract the crisis. Recovery in India is
expected to be faster and steeper than the global norm. In the US, mitigation and containment is
the immediate urgency. Indicators are expected to show positive signs from the third quarter of
2009. A crisis of demand, following on the heels of financial and confidence seizure, will be the
key factor to be resolved, going forward. Within this scenario, US companies may consider it
profitable to examine opportunities in Indias infrastructure and consumer durables sectors. It is
important that US and India do not indulge in protectionist measures and lower each others
market access. Proposals that limit H1-B visas, create non-tariff barriers to trade, mandate use of
local products, etc should not dominate for a protracted period. Business should be left unfettered
to re-energize respective economies.
5.1.3 Overview of Economic Relations between US and India

Economic relations are just one aspect of the overall multi-dimensional bilateral cooperation
between India and the US. As such, although accorded significance, they do not carry primary
status and for many years, did not receive deserved policy impetus. Thus, the level of economic
engagement, although closer in recent years, is far lower than the potential and the aspiration,
given institutional commonalities such as democracy, diversity, language, etc. There are
differences in the trade and investment statistics of the two countries. According to figures from
the US Bureau of Economic Analysis, total economic cooperation, as measured by aggregate
trade in goods and services and direct investments, has increased from $19.3 billion in 2000 to
$66 billion in 2007. However, this does not reflect the complete picture of rapidly-intensifying
engagement as significant proportions of trade may be routed through third countries. Similarly,
FDI from one country to the other also passes through other countries.
A key factor impeding economic engagement may be the information gap. Grassroots knowledge
of doing business in the countries, both of which are large and diverse, is still incomplete,
complicated by federal government systems in both countries. To overcome this, an institutional
arrangement for promoting trade was established following the Vision Statement of 2000 and
includes both government and business participation.
Indo-US Economic Dialogue: The Indo-US Economic Dialogue is chaired by Deputy Chairman
Planning on the Indian side and by Deputy National Security Advisor on the US side. It includes a
financial and economic forum, commercial dialogue and a working group on trade.
India-US Financial and Economic Forum: The Forum looks at issues pertaining to financial
sector developments, investment and macroeconomic policies. The Forum has annual Cabinet
level meetings at Finance Minister/ US Treasury Secretary level and sub-cabinet level
discussions.
India-US Commercial Dialogue: The 2008 Work Plans under the India-US Commercial
Dialogue include Entrepreneurship Work Plan and US-India Standards Programme.
Indo-US CEOs Forum: The Indo-US CEOs forum was formed in 2006 to provide the two
Governments with private sector inputs for revitalizing the economic partnership. The Indo-US
CEOs forum has submitted its second set of recommendations in April 2008 to both the
Governments. Both Governments have prepared a list of feasible items based on the
recommendations, which are being acted upon.
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Trade Policy Forum: The India-US Trade Policy Forum set up in 2005 meets at the Ministerial
and Senior Official level. A range of issues have been discussed including the Social Security
Agreement and Bilateral Investment Treaty between the two countries and providing market
access for items of interest to both sides. India is only one of three countries with which the
United States has such a cabinet-level chaired trade forum. It seeks to double bilateral trade in
three years and includes five focus groups on trade in agricultural products, tariff and non-tariff
barriers to trade, services, investment, and innovation and creativity.
Private Sector Advisory Group: This was set up in April 2007 for the private sector perspective
on the Trade Policy Forum. PSAG has identified the following intermediate targets for the two
governments:
1. Negotiate a mutually agreeable bilateral investment treaty by the end of 2008.
2. Continue to promote sectoral openings.
3. Promote regulatory cooperation.
4. Cooperate on all aspects of protection of intellectual property and promotion of
technology transfer.
India-US High Technology Cooperation Group: The HTCG works on the broad agenda of high
technology commerce and strategic trade. Focus is on information technology, nanotechnology,
biotechnology and defense technology through awareness, interaction and identifying regulatory
issues.
Defense Procurement and Production Group: The DPPG has held industry roundtables, with
recommendations on technical assistance agreements, procurement procedures, export control,
and co-development. Since the Indian defense industry is now open to FDI and defense
procurement has substantially gone up, this is a large area of potential engagement.
Agriculture Knowledge Initiative: The Initiative was launched in 2005 with a three-year financial
commitment to link universities, technical institutions, and businesses to support agriculture
education, joint research, and capacity building projects including in biotechnology. It seeks to
promote technology transfer, investment, and policy reforms that will lead to greater agricultural
productivity.
Other high-level dialogue platforms including aviation, energy, health, agriculture, defence, etc
also have business components. Industry associations CII and FICCI as well as USIBC are
actively engaged in these dialogues. It may be reiterated that substantial increase in economic
engagement would require intensive policy measures on both sides. More particularly, India
would need to progress much faster on overall trade and economic liberalization and reforms to
facilitate greater participation of overseas businesses in its economy. Areas that need to be
addressed include agriculture, infrastructure, direct and indirect taxes, investment facilitation,
administrative procedures, financial sector, services including retail trade, mining, etc.
5.1.4 Trade in Goods

USA was Indias largest trading partner in 2000. It accounted for over 10% of Indias nonoil imports, and about 20% of its exports.
India ranked 21 among USAs import sources, and accounted for less than 1% of its
global trade in 2000.
Indias exports to USA doubled between 2000 and 2007-08 to $20.7 billion. Imports from
USA rocketed up from $3.7 billion in 2000 to $21 billion in 2007-08.
Total trade nearly tripled from $14.3 billion in 2000 to $41.7 billion in 2007-08.
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In 2006, USA continued to be Indias premier destination for exports, with 17.4% share of
Indias exports. However, its share in Indias exports declined to below 12% by Dec 2008
as India diversifies its trade destinations.
USAs position in Indias imports came down to fourth by Dec 2008. However, this may
not take into account large purchases concluded in Q4 2008-09. Imports rose sharply in
Q4 2007-08 due to purchase of aircraft. It is also noteworthy that during Apr - Dec 2008,
when the US economy experienced high fallout from the global economic crisis, India
increased imports from USA by 38%, proving to be a resilient and strong trade partner for
US goods.
India accounted for 1.2% of US imports and 1% of its exports in 2006. India continues to
be USAs 21st largest export market and 17th largest import supplier.
The average annual growth of Indias exports to US from 2002 - 2007 is 15 %. The
average annual growth of the imports from US over the same period is 28 %.
The balance of trade, which was in favor of India for years, turned in favor of USA in
2007-08 due to Indias purchase of aircraft.
To gauge the potential of India-US merchandise trade, it is illustrative to examine their trade with
China, a country which has expanded its trade relations with the rest of the world proactively. US
exports to China went up from $16.3 billion in 2000 to $65.2 billion in 2007, while its imports from
China expanded from $71.2 billion to $321.5 billion. In comparison, Indias total trade with China
expanded from less than $3 billion in 2000 to $10.8 billion of exports and $27 billion of imports in
2007-08. China is now Indias largest trade partner, displacing US. Thus, both countries trade
with China has been growing rapidly, indicating that India and USA have unexplored potential in
their trade.
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5.1.4.1 Composition
192
In 2000, Indias exports to the USA consisted primarily of cut and polished non-industrial
diamonds, jewelry, textiles and clothing, carpets, and shrimp and other marine products. These
items constituted over 70% of Indias export basket to USA. The imports in 2000 included
machinery, fertilizers, aircraft and aeronautical equipment, medical equipment and organic
chemicals. In Jan-July 2008, the top exports of India to USA were: diamonds and precious stones
(22%), textiles (22.4%), pharmaceutical products (6.7%), organic chemicals (5.6%), machinery
(5.4%), and electrical machinery (4.8%). The export profile has shifted markedly towards more
value added goods and engineering products. The top imports from USA were: aviation and
aircraft (20.8%), engineering goods and machinery (19.8%), precious stones and metals (11.9%),
organic chemicals (3.7%), and optical instruments and equipment (4.8%). Import composition has
not seen much change over the period, although the ranking of items has changed. Examining
trade with China, US top traded items with China are by far electrical machinery and power
generation equipment. It also imports large volumes of toys and games, apparel and furniture
from China, and exports air and spacecraft, oil seeds and oleaginous fruits, and plastics. Indias
imports from China are dominated by electrical machinery and equipment, machinery and
mechanical appliances, organic chemicals and mineral fuels and products. Thus, it appears that
the two countries are not concentrating on their most-traded items for increasing bilateral trade
.
5.1.4.2 Impediments to Merchandise Trade

The CRS paper on India USA Economic Relations August 2007 identifies several sectors where
trade impediments are operative. In the agricultural sector, unfair Indian SPS norms, cultural
beliefs in importing beef, and high tariffs on produce are cited as hampering US exports.
Similarly, Indian agricultural exports to USA also attract SPS norms. In the clothing and textile
sector, it suggests that rupee appreciation and lower demand in USA might have affected exports
from India despite the end of the WTO textile trading regime.
A CII paper on high-technology trade between the two countries comments that lack of
transparency and information on US Exports Control Regime, which controls trade in sensitive
items and subjects them to licensing, may be acting as a deterrent. On the Indian side, high
tariffs, complex customs and administrative procedures, and incomplete protection to intellectual
property rights, act against increasing exports. Other factors are lack of infrastructure,
governance, lack of sanctity of contracts, etc.
5.1.5 Trade in Services

Indias progress in trade in services over the last decade has truly been remarkable. A good part
of this success has come from increase in software services exports to USA. This has been
instrumental in bringing about a sea-change in the way USA, and the world in general, perceives
India, and in building a very positive brand image of a globalizing India at the forefront of the
emerging knowledge economy. On the other hand, the tremendous success in software exports
has detracted attention from other forms of service exports.
In 2000-2001, Indias total services exports were $16.3 billion, two-fifths of which came from
software exports. In 2007-08, services exports stood at $87.7 billion, and the share of software
had increased to 46%. Exports to USA accounted for 61% of the software exports in 2006-07,
according to RBI. Business services, travel and transportation contribute the bulk of other
services exports from India.
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USA is by far the leading service exporter of the world, aggregating $497 billion in 2007. Its
imports of services are also the largest in the world at $378 billion in 2007. Its main services trade
partners are other developed countries such as EU, Canada and Japan. Top sectors of US
service imports are infrastructure services imports such as financial services,
telecommunications, and transportation; travel; and business, professional and technical
services. Indias business, professional and technical services are its largest export category.
According to Bureau of Economic Analysis, USA, services trade between India and USA stood at
$20.0 billion in 2007. US exports to India stood at $9.4 billion, while Indian exports to USA were
at $9.6 billion. Total trade in 2007 was almost double the figure in 2005 ($10.2 billion). Service
trade balance was in favor of USA in 1999-2004. However, it turned in Indias favor in 2006. In
2007, India had a slight edge as its exports picked up.
There are major discrepancies between Indian and USA data in services trade due to differences
in definitions. These should be resolved in order to get the correct picture.
In imports from USA, the major share was constituted by travel, passenger fares and other
transport category of $4.1 billion. Educational services formed almost a quarter of the imports at
$2.3 billion. Business, professional and technical services added up to $1.3 billion. India also
pays close to $1 billion to USA for purchase of intellectual property in the form of royalties and
license fees.
Exports of services to USA are dominated by computer and information services of over $4
billion. USA imported $14.8 billion of these services from all countries; therefore over 27% of its
computer and software requirements come from India, its largest source. India ranks 10th in all
countries as a source of services for USA; in the category of other private services, which
includes business, professional and technical services, India ranks 6th at $6.9 billion.
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A key consideration in expanding services trade with India has been its relatively slow pace of
reform in many sectors. For example, retail trade in the large multi-brand supermarket format is
still not open to foreign investment due to considerations about livelihood of small traders, who
are the largest segment of Indias workforce after the agricultural workers. Single-brand retail is
also not fully open to FDI. Similarly, the financial services sector is also relatively closed. Foreign
banks expansion plans are restricted by central bank regulations. Insurance, pension and other
financial markets are severely regulated, while development of sophisticated financial instruments
has been slow. Capital convertibility is still incomplete. Visa restrictions in both countries are an
impediment to movement of workers for service provision. Mutual recognition of professional
degrees is lacking, requiring re-certification. Market access issues for lawyers, accountants, and
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financial services are being discussed under the Trade Policy Forum. Notwithstanding the issues
of contention, there are several areas where services trade does not require government
intervention. Dialog on these matters must be accelerated and intensified.
5.1.6 Investments
India, which has been considered as one of the top three global investment destinations on A T
Kearneys attractiveness rankings since 2004, is now firmly placed on the global FDI map. The
country has received $87 billion of overseas funds since April 2000, of which $23.3 billion was
received in April-November 2008. 2007-08 witnessed FDI worth $25 billion. The top source of
investments is Mauritius, through which over two-fifths of Indias total FDI is routed.
Bilateral investment has stepped up considerably since 2000 and more particularly in 2006 and
2007. The policy encouragement on the Indian side to facilitate overseas investments by Indian
companies in particular has transformed the operating landscape as the corporate sector has
rushed to avail of business opportunities in the US. At the same time, business interest from US
in India has intensified and a robust flow of funds is now taking place in both directions.
USA was the foremost source for Indias FDI after Mauritius until 2007-08, when it was displaced
by Singapore as the Comprehensive Economic Partnership Agreement between India and
Singapore came into effect. Information on how much investment from US companies is actually
making its way to India is not available due to complex routing of funds through various means.
As per data from BEA, investment by USA in India in 1999 was $270 million, but this went up
sharply to $3.7 billion in 2007. Cumulative investment by US into India was $ 9 billion in 20002007.
One indication of the worth of US investments in India is the level of direct investment receipts,
which has gone up to $3.2 billion in 2008. The key takeaway is that mutual interest in investments
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has intensified considerably. The American Chamber of Commerce in India, set up in 1992, now
has 550 members. US companies have invested in the sectors of manufacturing, financial and
non-financial services, including IT, and agriculture.
Some large investments announced recently:
GM will expand its $1 billion auto investment by another $500 million to manufacture a
small car and grab greater market share.
Ford also plans a similar investment for its car manufacture operations.
Chip-maker AMD already has four production facilities and plans a total investment of $3
billion.
Intel and Indian IT companies will invest together for Indias healthcare sector.
Coca Cola plans to invest $250 million in equipment and marketing.
PepsiCos plans in India are to triple its business with $500 million of investments in the
next three years
GE Healthcare will invest $200 million in diagnostics and equipment.
Reliance Entertainment has tied up with Dreamworks for co-production of films.
The chief impediments to expanding investments into India for US investors are:
Constraints on FDI in many sectors: Sectors such as banking, retail, and financial
services are not open to FDI, while in others there are caps on FDI permissible.
Poor infrastructure: Roads, ports, airports, power, urban infrastructure, tourism
infrastructure, etc. place high transaction cost burden.
Lengthy bureaucratic procedures: Administrative clearances to projects take too long and
are too cumbersome.
Dispute resolution mechanisms: Court procedures and arbitration are difficult.
Labour and other policies: Retrenchment and bankruptcy rules deter investors.
Tariff and non-tariff barriers to trade: Trade facilitation is incomplete, hence it is difficult to
make India a manufacturing hub for exports.
Intellectual property rights: Laws are inadequate and enforcement is poor
Corruption: Economic atmosphere is illiberal
These have been consistently taken up by the US Government over the years, which has been
stressing the importance of economic reform and liberalization. However, the above factors
should not be allowed to dominate other considerations such as rapid economic growth, large
consumer market, skilled workforce, etc. The key factor is unfamiliarity with means of doing
business in India. Companies which have been operating in India have found it to be tough but
profitable. The need is to percolate the India message beyond large companies. Industry
associations with government aid will best be able to carry this out.
5.1.7 Future Considerations

Considering that India, a country with a GDP of around $1 trillion, accounts for a mere 1.3% of
US trade, there is substantial potential to increase bilateral trade. The two countries should set a
target of doubling bilateral trade every three years, which would mean a trade level of $320
billion by 2018, an eight-time increase over nine years.
Trade in areas where there is sufficient market access should be rapidly escalated. Some of the
steps that should be taken are:
(A) Trade in Goods
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Demand-led trade: Indias manufacturing exports prowess has not been as impressive as its
services exports. For example, its exports of electronic machinery and equipment constitute less
than 0.4% of world imports. India and USA need to identify items of mass demand in each others
markets, and attempt to meet these demands. Indias top exports to the US generally consist of
value-added products. However, USA imports large volumes of items such as mineral fuels and
products, vehicle parts, machinery, electrical equipment, etc. and Indias exports in these
products can be significantly ratcheted up.
Among items that USA can export to India are high-technology products such as computer
hardware, semiconductors, telecommunications equipment, etc. Also, India has high need for
defense products, power and construction equipment, aviation, and electrical products which can
boost bilateral trade. There is a major need in India to upgrade civil aviation capabilities and the
US is best placed to assist and collaborate in this regard. While the scope in aviation is
tremendous, one concrete, actionable item on the agenda should be to conclude a Bilateral
Aviation Safety Agreement (BASA).
Investment-led trade: India as a stable democracy with a high proportion of young workforce
and a competitive economy offers an excellent platform for investments for the export market.
However, the country lacks the capital and managerial expertise for large-scale manufacturing
projects. American companies could fill the investment gap, addressing Asian markets from India,
and fitting India into the overall global value chain.
American companies need to explore India as a manufacturing hub for export goods, and invest
accordingly. While manufacturing has become a sector of choice for American investments, it is
chiefly in order to address the domestic markets rather than export markets. There are several
sectors where India has already demonstrated high capability in exports, including textiles and
clothing, organic chemicals, pharmaceutical products, auto components and automotives, and
some electronic products. Some products that were earlier reserved for production in the smallscale sector in India have now been de-reserved, opening up to foreign investments as per
overall sectoral norms.
The new export-promotion strategy of Special Economic Zones reduces administrative
procedures, tariffs and taxes, and infrastructure gaps to export-oriented factories. Singapore is
setting up its own SEZ of Singaporean companies. Japan is partnering with India for a dedicated
rail freight corridor and an investment corridor alongside. The corridor is expected to attract $90
billion of investments and Japan has inked a $4.6 billion loan package for tied development.
American companies could also consider such a strategy.
Technology-led trade: Indias import of high-technology items from the USA has doubled from
2001-02 to 2006-07, but from the rest of the world, it has multiplied sixfold. The India US High
Technology Cooperation Group was set up to address the information gap, promote hightechnology commerce, and examine tariff and non-tariff barriers. HTCG has identified four
industries for special focus, viz, information technology, nanotechnology, biotechnology and
defense. While security considerations and export control regimes hamper trade in strategic
items, there is a large segment of high-technology products that may not be under their preview.
Indias technology-adaptation in manufacturing sectors is low, and it needs high transfusion of
technology to upgrade and modernize production in many areas. It needs strong assistance from
USA through exports of machinery and equipment to do this.
SME involvement: Both countries have large and vibrant SME segments that contribute
significantly to exports of manufactured goods. However, these sectors have not fully explored
each others potential as suppliers. In India, liberalization has recently opened up the SME sector
for FDI. The lack of information and clarity has deterred overseas companies from investing in
Indian SME or in sectors earlier reserved for small units. A special platform for increasing SME
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engagement needs to be instituted to overcome the information gap. Angel and venture funds
should be encouraged to invest in Indian SME for export markets. Many Indian SME companies
are at the forefront of technology adaptation, while many others have yet to become IT-ready.
There are tremendous opportunities in partnering both kinds of SMEs for maximum benefit.
Trade facilitation Tariff and non-tariff barriers need to be addressed keeping in mind the
sensitivities of each country. For instance, agricultural produce remained a major sticking point in
the Doha round negotiations. Trade facilitation measures would need to be jointly instituted. USA
should also examine developing quality and standards institutes in India on a large scale to
enable Indian businesses to meet rigorous SPS and other norms. US assistance in setting up a
system to match its requirements would be invaluable.
Regional engagement Trade promotional efforts from both sides are currently operating at the
macro country level, and have not yet reached adequately into the hinterland. Thus, the major
cities are targeted, but cooperation at the regional level is insufficient. While large US companies
have India-strategies, and most Indian companies have high operations in US, the tier 2 and 3
entities in smaller towns are barely aware of the opportunities arising from economic
engagement.
Trade promotion activities at the government level cannot conduct matchmaking for businesses in
regions. More support needs to be accorded to interaction between national and local level
industry associations on both sides. Clear schemes and mechanisms for intensifying connectivity
between such associations are necessary. State governments on both sides should also actively
engage with each other, after carrying out exercises to determine sectors of opportunity.
(B) Trade in Services
Identify sectors of cooperation: As in the merchandise sector, areas where trade in services is
relatively easier need to be identified, and stepped up. For instance, tourism between the two
countries could be significantly stepped up provided US visas were easier to obtain, and the
Indian tourist infrastructure could be vastly upgraded. Similarly, the logistics sector in India is
opening up [DHL is Indias largest express delivery and logistics provider]. Indias telecom sector
is the worlds fastest-growing telecom market. Healthcare can be a sector of cooperation as India
can supply drugs, undertake clinical trials, and engage in medical tourism, all at lower costs. The
financial sector can be an area of great potential if the Indian side was more liberal, and can be
stressed in policy discussions. Finally, after the success of Slumdog Millionnaire, entertainment,
animation and related industries can benefit from Indias competitive technical capabilities.
Institutionalize facilitative platforms: The service sectors in both countries have complex rules
and regulations. To navigate these, institutional platforms are needed. Industry associations such
as CII can help by hand-holding in each country.
Build the Serviced from India brand: Brand development exercises need to be carried out in
USA to position India as a valuable service provider. Service outsourcing has drawn greater
attention than manufacturing outsourcing which has been a practice for decades. Thus, India is
being perceived adversely as a threat to US jobs. However, outsourcing has helped US firms
deliver quality services at lower costs and has increased overall benefits to the US consumer.
The process of reverse outsourcing has begun as Indian companies hand out multimillion dollar
contracts to US companies. Also, Indian companies have been acquiring US companies in
trouble, thereby preserving jobs. The Tata Group has invested $3 billion in USA, employing
19,000 people. Indian companies employ some 30,000 in manufacturing and services businesses
across the US. These developments need to be highlighted.
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Greater connectivity: More information sources need to be created between Indian and USA
companies to avail of the services opportunity. Events and conferences can help the process.
Road shows and services trade missions need to be considered.
A Comprehensive Economic Cooperation Agreement (CECA): This agreement would
address all the issues related to trade in goods as well as services. It would help in achieving a
trade level of $320 billion by 2018, an eight- fold increase over the next decade.
5.1.8 Strengthening Partnership

India and the US have much in common diversity, language, democracy, commitment to global
causes, etc. Economic engagement can be the fulcrum for the evolving strategic partnership of
India and USA. There is vast untapped potential for deeper economic engagement in trade,
investment, and services. Each component of the current bilateral engagement has economic
spin-offs, including energy, science and technology, agriculture, space cooperation, etc.
A Comprehensive Economic Cooperation Agreement encompassing goods and services, as well
as agreements for bilateral investment and movement of personnel would greatly cement the
emerging economic partnership of the two countries. The private sectors of both countries should
be closely associated with the economic engagement policy process, reaching down to all levels
of enterprise, including SMEs. Greater interconnectivity of enterprises needs to be fostered
through government guidance and assistance, both central and federal, to industry associations,
sectoral platforms, businesses, etc. Most important, by partnering ever more closely with each
other, the two countries can jointly stage a fresh paradigm for peace and prosperity for troubled
parts of the world. The model of two large democracies successfully matching different
development levels for the progress of both would be inspirational to the rest of the world.
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Chapter 5.2
EUROPEAN UNION: SINGLE LARGEST MARKET
FOR EXPORTS FROM INDIA
52.1 Introduction
Europes single most important contact with the world beyond its borders is through trade. Every
day, Europe exports millions of euros worth of goods and imports hundreds of millions more.
Europe is the world's largest exporter of manufactured goods and services, and is itself the
biggest export market for more than one hundred countries. Europe's prosperity flows directly
from this extraordinary As new technologies, faster communications and more efficient means of
transport have made it possible to produce, buy and sell goods around the world, Europe has
become deeply integrated into global markets both for the products it sources and the exports it
sells. Trade is at the centre of Europe's place in the world.
Because the 27 member states of the European Union share a single market and a single
external border, they also have a single trade policy. Both in the World Trade Organisation, where
the rules of international trade are agreed and enforced, and with individual trading partners, EU
Member States speak and negotiate collectively and are represented by the European Trade
Commissioner. By working together, Europe's member states have the weight to shape an open
global trading system based on fair rules and to ensure that those rules are respected.
The Indian economy has witnessed phenomenal growth since the last decade. Despite the global
slowdown which triggered in September 2008, the country continued to hold its ground exhibiting
robustness and strong resilience. Since then, the economic growth has not only regained
momentum but has also overcome concerns of sustainability with reinvigorated investment
across sectors. In 2009-10, the Indian economy posted a growth rate of 7.4 percent led by
manufacturing and agriculture. India is fast emerging as a modern economy and aims for a faster,
sustainable and a more inclusive growth path in the years to come. Over the next 5-6 years, India
aims at achieving an average annual growth rate of 9-10 percent.
European Union (EU) remains by far Indias largest trade and investment partner. During the last
decade, the trade between the two partners has more than doubled. Further, the foreign direct
investments into the country account for approximately 20 percent share of Indias total foreign
direct investments.
5.2.2 About the European Union

The European Union needs no introduction. The formation of European Union, about half a
century ago, helped in bringing political stability and economic prosperity to Europe. It has
created a frontier-free single market and a single currency, the euro. The European Union is a
major economic and commercial power and the worlds biggest donor of development aid to
poorer countries. Its membership grew from six founding members to 27 nations, bringing the
EUs population to nearly half a billion.
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All European countries are not members of the EU members. With 27 member countries and a
population of nearly half a billion, the European Union covers a large part of Europe. The EU
began life in the 1950s as the European Economic Community with six founding members
Belgium, Germany, France, Italy, Luxembourg and the Netherlands. They came together to
manage their joint interests, based essentially on economic integration. The EEC was joined by
Denmark, Ireland and the United Kingdom in 1973, Greece in 1981, and Spain and Portugal in
1986. Unification of Germany in 1990 brought in the Lnder from eastern Germany. In 1992, a
new treaty gave more responsibilities to the Community institutions and introduced new forms of
cooperation between national governments, thus creating the European Union as such. The EU
was enlarged in 1995 to include Austria, Finland and Sweden. The Czech Republic, Estonia,
Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia joined in 2004, followed
in 2007 by Bulgaria and Romania. Three candidates, Croatia, the former Yugoslav Republic of
Macedonia and Turkey, have applied for membership. Europe has always been home to different
peoples and cultures. Every member state includes people from other countries usually with
close historical ties to the host country. The EU sees ethnic and cultural diversity as an asset, and
promotes tolerance, respect and mutual understanding
Member Countries: European Union

1. Austria
2. Latvia
3. Belgium
4. Lithuania
5. Bulgaria
6. Luxembourg
7. Cyprus
8. Malta
9. Czech Republic
10. Netherlands
11. Denmark
12. Poland
13. Estonia
14. Portugal
15. Finland
16. Romania
17. France
18. Slovakia
19. Germany
20. Slovenia
21. Greece
22. Spain
23. Hungary
24. Sweden
25. Ireland
26. United Kingdom
27. Italy
Candidate Countries
1. Croatia
2. The former Yugoslav
Republic of Macedonia
3. Turkey
4. Iceland
Potential candidate Countries
1. Albania
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2. Bosnia and Herzegovina

3. Kosovo under UN Security
Council Resolution 1244
4. Montenegro
5. Serbia
Source: European Union
5.2.3 Economic Activity and Trade

One of the EUs main aims is economic progress. Over the last 50 years, and especially since the
1980s, much has been done to break down the barriers between the EUs national economies
and to create a single market where goods, people, money and services can move around freely.
Trade between EU countries has greatly increased and, at the same time, the EU has become a
major world trading power. The EUs gross domestic product (GDP) i.e. the economys output
of goods and services is steadily growing. Following the entry of new member states in 2004,
the EUs GDP is now greater than that of the United States. In all EU countries, over 60% of GDP
is generated by the service sector (this includes things such as banking, tourism, transport and
insurance). Industry and agriculture, although still important, have declined in economic
importance in recent years. Although the Unions GDP continues to rise, it has grown more slowly
than that of the United States in recent years, but faster than that of Japan.
The single market is one of the EUs greatest achievements. It has broken down economic
frontiers in Europe and has increased competition, which has resulted in better quality and lower
prices for goods and services. Some of the most dramatic price reductions have been in areas
like air travel and communications.
Although the EU makes up only 7% of the worlds population, its trade with the rest of the world
accounts for approximately a fifth of global exports and imports. Trade between EU countries
themselves represents two thirds of all EU trade, although levels vary between the member
states. The single market has made trade between them much easier as goods, services, capital
and people can now move freely across national borders.
The EU is the main exporter in the world and the second biggest importer. The United States is
the EUs most important trading partner, followed by China. In 2005, the EU accounted for 18.1%
of world exports and 18.9% of global imports. The European Union is also an important trading
partner for less developed countries, most of whose exports enter the EU duty-free or at reduced
rates of duty. This preferential access to the EU market is aimed at boosting the economic growth
of poorer countries around the world
5.2.4 EU-India Trade Soaring To New Heights

The dynamism of the EU-India economic co-operation is best demonstrated by the fact that the
EU remains by far Indias largest trade and investment partner. The EU-India partnership has
been elevated to the level of Strategic Partnership since 2005 and it rests on the foundations of
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mutual interest in the areas of trade, investment and economic co-operation, among others. This
partnership has grown over time and provides a framework for both India and the EU to develop
new opportunities. With the growing trade, India ranks among the top 10 trading partners of EU.
Since the first EU-India Summit held in the year 2000 in Lisbon, trade in goods between both
partners has more than doubled from 25.6 billion in 2000 to 52.3 billion in 2009. EU.s exports
to India during the same period increased from 13.3 billion to 27 billion and EU imports
increased from 12.3 billion to 25.3 billion.
As mentioned in the beginning, the European Union remains Indias largest trading partner,
accounting for 21 percent of Indias total exports and 14 percent of Indias total imports during the
year 2008-09. Trade with the EU accounts for almost 17 percent of Indias trade. On the other
hand, in 2009, India only accounted for 2.05 percent of EU.s total exports and 2.1percent in EU.s
total imports. EU.s top five trading partners are USA, China, Russia, Switzerland and Norway.
EU-India trade relations are backed by the Cooperation Agreement on Partnership and
Development signed in December 1993 and the Strategic Partnership agreed in 2004. However,
diplomatic relations were established way back in 1963. All these initiatives are further
strengthened by the annual EU-India Summits which take place every year. The launch of the
negotiations of Trade and Investment Agreement between India and the EU in July 2007 is
another milestone in EU-India relations. This agreement will aim to further facilitate and open
bilateral trade in many different areas: goods, services, investment, non-tariff barriers, intellectual
property, public procurement, etc. The last round, which was the ninth in the series, was held in
Brussels on 28-30 April 2010.
Trade relations between EU and India were further boosted with the joining of ten new Member
States . Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia
and Slovenia - on 1 May 2004 and two new Member States - Romania and Bulgaria on 1 January
2007 taking the membership of the European Union to 27. The enlargement has resulted in more
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markets for Indian exporters and more job opportunities. In addition to a single set of trade rules,
the enlarged EU offers a single tariff and a single set of administrative procedures.
A very important instrument of the European Union is its Generalized System of Preferences
(GSP). The European Union was the first to implement a GSP scheme in 1971. The EU GSP
grants products imported from GSP beneficiary countries either duty-free access or a tariff
reduction. Since 2004 India became the first beneficiary of the EU.s GSP scheme out of 180
countries. In 2008, preferential imports entering EU from India under the GSP reached 13.7
billion. The main sectors responsible for Indias top position are industrial goods which accounts
for 8.749 million followed by textile 4177 million and agriculture 852 million.
5.2.5 EU as Leading FDI Source in India

The EU still has a leading share of foreign direct investment (FDI) inflow into India accounting for
one quarter of total investment. Many reputed European companies are investing in India in
diverse sectors like energy, civil aviation, ports, IT, telecom, automobiles, pharmaceutical,
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financial services and retail. Some leading EU companies already investing in these sectors
include BMW, Fiat, Bosch, Nokia, Siemens, Philips, British Telecom, EADS, Vodafone, Novartis,
Astra Zeneca, Standard Chartered, BNP, Deutsche Bank, HSBC, Aviva, Alstom and British Gas.
The EU is also becoming the prime destination for India.s outward investment with several
acquisitions underway and extending to sectors like steel, pharmaceuticals, automobiles, IT and
energy (wind & petroleum). EU Financial institutions and banks played a crucial role in funding
nearly all major European acquisitions by Indian companies. It is quite apparent that Indias rising
exports and international trade as well as investment are closely associated with growing EU
participation.
A perceptible jump in Indias outward FDI is seen as the most significant development in recent
times. Interestingly, the focus of this outward investment has been Europe with an estimated 55
percent of this capital flowing out to across EU. Due to corporate restructuring taking place in
Europe, Indian firms are targeting EU companies that offer cost competitiveness and strategic
access to market as well as resources.
5.2.6 Growing Trade in Services between the EU and India

In 2009, EU-India commercial services trade stood at 16.1 billion. EU exports to India accounted
for 8.6 billion, while EU services imports from India were 7.5 billion. Though in 2009, trade in
services remained more or less stagnant between the EU and India, it had grown rapidly between
2000 and 2008. The balance of trade is in EUs favor. Within trade in Services, the key areas are:
sea and air transport, other business services and computer and information services.
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Chapter 5.3
LATIN AMERICAN COUNTRIES: POTENTIAL
MARKETS FOR EXPORTS FROM INDIA
5.3.1 Overview of the Latin American Region
The Latin America of today has changed fundamentally and irreversibly. The Governments of
Latin America have opened up their markets and reduced import tariffs. They are privatizing their
state enterprises. They are according priority to the modernization/improvement of existing
infrastructure and creation of new infrastructure for the growth and development of the region.
The Latin American countries are convinced and have realized Indias export capabilities and the
advantages of doing business with India. The Latin American countries look forward to countries
like India more seriously for imports at affordable prices.
5.3.2 Opportunities in the Latin American region

The trade opportunities present in the Latin America emanate from following facts:
According to the Economic Commission for Latin America and the Caribbean (ECLAC),
Latin America and the Caribbean grew by around 1.9 % in 2009, after a growth of 4.6 %
in 2008. Growth for 2010 is projected at 4.1% for the region.
During 2009, twelve countries in Latin America and the Caribbean recorded positive
growth, ranging from 3.5% to 0.9 %. These countries are Argentina, Bolivia, Brazil,
Colombia, Cuba, Dominican Rep, Guyana, Haiti, Panama, Peru, Suriname and Uruguay.
The Latin American and Caribbean (LAC) region comprising 43 countries, accounts for
about 3.67% of the total world trade in 2009 (source WTO).
According to ECLAC, total merchandise exports of Latin America in 2009 were US$ 676.
49 billion and their total merchandise imports were US $ 640.01 billion.
Indias exports to Latin America were US$ 6.21 billion in 2009-10. The imports from the
region were US $ 10.39 billion.
Brazil, Venezuela, Chile, Argentina, Bahamas, Colombia, Panama, Peru, Trinidad and
Ecuador are amongst Indias top trading partners in LAC region constituting
approximately 85 % of the total trade with the region, in 2009-10.
India has signed two Preferential Trade Agreement (PTAs) in LAC region one with
MERCOSUR (trade bloc of Argentina, Brazil, Paraguay and Uruguay) and the other with
Chile.
The Latin American countries are welcoming the entry of Indian companies in their
markets. IT, pharmaceuticals, energy, steel etc. are the main sectors of Indian
investments in the region.
Activation of regional trade arrangements such as MERCOSUR (Southern Cone
Common Market), Andean Pact (Andean Common Market), CACM (Central American
Common Market), CARICOM (Caribbean Community), EAI (Enterprise for the Americas
Initiative), LAIA (Latin American Integration Association) and NAFTA (North American
Free Trade Agreement).
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Traditionally, relations between India and the countries of Latin America have remained close and
cordial. However, commercial relations have not grown commensurately. The main reasons
affecting our trade with this region are: distance, language barriers, inadequacy in the exchange
of information and the absence of economic shipping and air links.
5.3.3 Countries in the Latin American Region

The Latin American region comprises of following 43 South American, Central American and
Caribbean countries. The list of the Latin American Countries is provided in the table below:
Latin American Countries (LAC)

1. Argentina
16. Belize
31. British Virgin Islands
2. Brazil
17. Barbados
32. Dominican Republic
3. Chile
18. Jamaica
33. Cuba
4. Uruguay
19. Guyana
34. French Guiana
5. Paraguay
20. Antigua
35. Falkland Islands
6. Bolivia
21. Trinidad & Tobago
36. Haiti
7. Venezuela
22. Grenada
37. Guadeloupe
8. Ecuador
23. Dominica
38. Netherlands Antilles
9. Colombia
24. St. Kitts-Nevis-Anguilla
39. Martinique
10. Costa Rica
25. Montserrat
40. Suriname
11. Peru
26. St. Vincent
41. Panama
12. Guatemala
27. St. Lucia
42. Turks and Caicos Island
13. El Salvador
28. Bermuda
43. US Virgin Islands
14. Nicaragua
29. Bahamas
15. Honduras
30. Cayman Islands
5.3.4 International Trade of the Latin American region

The international trade of the Latin American countries has been showing an increasing trend,
except during 2009 (which has been attributed to the recession in United States and global
financial meltdown), as may be seen from the following data:
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The total global export of the Latin American region gone up from US$ 367.08 billion in 2000 to
US$ 676.49 billion in 2009 recording an increase of 84.29%. The global imports of the Latin
American region have grown from US$ 367.72 billion in 2000 to US$ 640.01 billion in 2009
recording an increase of 74.05 %.
5.3.5 Focus LAC Programme: An Integrated Effort

Considering the potential of the market in the Latin American region, an integrated programme
Focus: LAC was launched in November 1997 by the Commerce Ministry. The Programme has
been reviewed from time to time and extended up to March, 2014.
5.3.5.1 Objectives Of Focus: LAC Programme

This programme aims at:
Sensitizing the organizations viz. Export Promotion Councils, Chambers of Commerce &
Industry, EXIM Bank, ECGC etc. involved in trade promotion efforts.
Granting various incentives to Indian exporters and launching of export promotion
measures
Focusing on the Latin American region with added emphasis on major trading partners of
the region
Focusing on the following major product groups for enhancing Indias exports to the Latin
American region:
o Textiles including ready-made garments, carpets and handicrafts
o Engineering products and computer software
o Chemical products including drugs/pharmaceuticals
5.3.5.2 Components Of Focus: LAC Programme

The Focus: LAC programme may be broadly categorized as under:
A. Institutional mechanism.
B. Improved market access.
C. Economic infrastructure facilities.
Indias exports to the Latin American region are proposed to be enhanced through integrated
efforts of the Government of India, India Trade Promotion Organisation, Export Promotion
Councils, Apex Chambers of Commerce & Industry, Indian Missions and Institutions such as
EXIM Bank, ECGC etc. Meetings with CII, FICCI, EPCs and other trade bodies are held with a
view to organizing seminars, securing participation in fairs, holding catalogue shows/BSMs and
sending/inviting delegations. Similarly, meetings are held in the sectors of shipping and civil
aviation to initiate measures to improve the transport links. Discussions are held with Exim Bank,
ECGC etc for effecting improvements in the financial and banking sectors.
A. Institutional Mechanisms
1. Measures taken by the Government of India
(i) Preferential Trade Agreement (PTA) with MERCOSUR
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A Framework Agreement was signed between India and MERCOSUR on June 17, 2003 at
Asuncion, Paraguay. The aim of this Framework Agreement is to create conditions and
mechanisms for negotiations in the first stage, by granting reciprocal tariff preferences. As a
follow up to the Framework Agreement, a Preferential Trade Agreement (PTA) was signed in
New Delhi on January 25, 2004. The aim of this Preferential Trade Agreement is to expand and
strengthen the existing relations between MERCOSUR and India and promote the expansion of
trade by granting reciprocal fixed tariff preferences. The India-MERCOSUR PTA provides five
Annexes. These five Annexes have been signed on March 19, 2005. The five Annexes are: Offer
List of MERCOSUR, Offer List of India, Rules of Origin, Safeguard Measures and Dispute
Settlement Procedure. Under this PTA, India and MERCOSUR have agreed to give tariff
concessions, ranging from 10% to 100% to the other side on 450 and 452 tariff lines respectively.
The major product groups covered in the offer of MERCOSUR are food preparations, organic
chemicals, pharmaceuticals, essential oils, plastics & articles thereof, rubber and rubber products,
tools and implements, machinery items, electrical machinery and equipments. The major
products covered in Indian offer list are meat and meat products, inorganic chemicals, organic
chemicals, dyes & pigments, raw hides and skins, leather articles, wool, cotton yarn, glass and
glassware, articles of iron and steel, machinery items, electrical machinery and equipments,
optical, photographic & cinematographic apparatus. India- MERCOSUR PTA came into effect
from 1st June, 2009. Meanwhile, through IBSA Declaration made by the Heads of India, Brazil
and South Africa on September 13th 2006, it was agreed that India-MERCOSUR PTA would be
expanded by increasing the number of products covered and increasing the tariff concessions
agreed by each side. The first meeting of joint administrative committee (JAC) on IndiaMERCOSUR PTA was held in November, 2009 wherein various aspects of the implementation
and expansion of the agreement were discussed. The 2nd meeting of JAC on India-MERCOSUR
PTA was held in June, 2010. In the said meeting, both sides discussed the modalities of the
expansion of the PTA and exchanged their respective wish list in the matter.
(ii) Preferential Trade Agreement (PTA) with Chile
A Framework Agreement to Promote Economic Cooperation between India and Chile was signed
on January 20, 2005. The Framework Agreement envisaged a Preferential Trade Agreement
(PTA) between the two countries as a first step. As a follow up to the Framework Agreement,
India and Chile had signed a Preferential Trade Agreement (PTA) in March, 2006. The PTA has
two Annexes relating to the list of products on which the two sides have agreed to give fixed tariff
preferences to each other and three Annexes relating to the Rules of Origin, Preferential
Safeguard Measures and Dispute Settlement Procedures. While India has offered to provide fixed
tariff preferences ranging from 10% to 50% on 178 tariff lines at the 8 digit level to Chile.
Likewise, Chile hase offered us a similar range of tariff preferences on 296 tariff lines at the 8 digit
level. The products on which India has offered tariff concessions relate to meat and fish products
(84 tariff lines), rock salt (1 tariff line), iodine (1 tariff line), copper ore and concentrates (1 tariff
line), chemicals (13 tariff lines), leather products (7 tariff lines), newsprint and paper (6 tariff
lines), wood and plywood articles (42 tariff lines), some industrial products (12 tariff lines), shorn
wool & noils of wool (3 tariff lines) and some others (7 tariff lines). Chiles offer covers some
agriculture products (7 tariff lines), chemicals and pharmaceuticals (53 tariff lines), dyes and
resins (7 tariff lines), plastic, rubber and miscellaneous chemicals (14 tariff lines) leather products
(12 tariff lines), textiles and clothing (106 tariff lines), footwear (10 tariff lines), some industrial
211
products (82 tariff lines) and some other products (5 tariff lines). India- Chile PTA came into force
from August, 2007 in Chile and from September, 2007 in India. During the first meeting of Joint
Administrative Committee held in New Delhi on 2nd February, 2009 to review the implementation
of India-Chile PTA, both sides agreed to initiate the process of deepening and widening of the
agreed lists of the existing PTA. The First meeting on expansion of India-Chile PTA was held in
January, 2010 in which both parities exchanged their wish lists. The 2nd meeting on expansion of
India-Chile PTA was held in August, 2010. In the said meeting, both sides discussed the
modalities of the expansion of the PTA.
(iii) Enhanced Interaction
Frequent interactions with important trading partners shall act as a catalyst for the private sector
to explore and tap the export potential. The Government shall have increased frequency of
interaction at the highest level with important trading partners. Trade/Economic Missions result in
creating awareness in the region regarding Indias economic reforms, strengths of the Indian
industry and its export capabilities. They also provide an impetus for businessmen to explore new
markets. High-level trade missions are being mounted to the LAC region under the programme.
(iv) Joint Commissions/Committees
The following Joint Commissions/Committees exist with countries of the Latin American region:
a) Indo-Argentine Joint Commission
b) Indo-Argentine Joint Trade Committee
c) Indo-Mexican Joint Commission
d) Indo-Brazilian Commercial Council
e) Indo-Cuban Joint Commission
f) Indo-Cuban Trade Revival Committee
g) Indo-Suriname Joint Commission
h) Indo-Guyana Joint Commission
i) Indo-Venezuela Joint Commission
j) Indo- Trinidad Joint Commission
k) India- Brazil Trade Monitoring Mechanism (TMM)
In order to have increased frequency of interaction with important trading partners in the LAC
region, the meetings of the Joint Commissions have to be held on a regular basis. Further, efforts
would be made to set up consultative machineries with the other major countries in the region
with a view to enhancing two-way trade.
(v) Commercial Attach
At present, India Missions are functioning in 14 major countries in the LAC region. Recently, an
Indian Embassy has been set up in Guatemala in 2009. However, there was no commercial post
in any of these Missions, to exclusively look after the trade related matters. Recently posts of one
Marketing Assistant each, in ten missions in the LAC region has been provided. Efforts are being
made to further strengthen these Missions for commerce and trade.
(vi) Measures by ITPO
212
A cell in the ITPO has been created to act as a centre for Trade Development with the Latin
American region. The role of the cell in the ITPO is (a) to deal exclusively with export promotion
and development matters pertaining to the LAC region, (b) Organising fairs/exhibitions as a tool
of market development & (c) Organising Buyer-Seller Meets (BSMs).An office of the ITPO
opened, in Sao Paulo in 2001, is acting as a central point for organising fairs/delegation visits to
LAC. This office is also doing trade analysis in consultation with product specific EPCs.
2. Measures by apex trade bodies
Joint Business Councils
FICCI/ASSOCHAM have increased interaction with their counterparts and hold meetings of the
Joint Business Councils (JBCs) at regular intervals. CII also has regular interaction with their
counterparts in the LAC region with whom they have signed MOUs. Simultaneously, seminars &
conferences are being organized within India for creating awareness on the emerging markets of
Latin America.
B. Improved Market Access

1. Foreign Trade Policy initiatives
Double Weight: For the purpose of recognition as Export House (EH), Star Export House (SEH),
Trading House (TH), Star Trading House (STH) and Premier Trading House (PTH), double
weight is given to exports being made to Latin American countries.
Focus Market Scheme (FMS): To offset high freight cost and other externalities to select
international markets with a view to enhance our export, exporters of all products through EDI
enabled ports to notified countries (including 31 Latin American countries as mentioned in
Appendix 37 C of Handbook of Procedures Volume 1) shall be entitled for Duty Credit scrip
equivalent to 3.0% of FOB value of exports for each licensing year.
Details of above initiatives are available at website of Director General of Foreign Trade:
www.dgft.delhi.nic.in.
2. Market Development Assistance (MDA): The MDA guidelines have been revised from 1st
April 2006 and the following provisions have been made in respect of Focus LAC:
(a) Grant to Individual Exporters
Under the Focus:LAC programme, the cost of built up stalls along with international air fare in
economy/excursion class, shall be reimbursable to the member-exporting companies of Export
Promotion Councils (EPCs), if eligible under MDA Guidelines, with an upper ceiling of Rs.
1,80,000/- per company per event for participating in Trade Fairs/Exhibitions in LAC led by EPCs,
etc. . For EPCs, etc, led Trade Delegations/BSMs to LAC, only airfare by economy class upto a
maximum of Rs. 1,00,000 shall be reimbursable.
(b) Participation in Fairs/Exhibitions in LAC region by EPCs:
213
Councils will be given 60% of the rent of the Councils central stall and other organising expenses
for their participation in Fairs/Exhibitions in the LAC region, subject to a limit of Rs. 15 lakh per
event. The airfare in economy/excursion class (excluding visa charges), DA as per MEA rates,
Hotel Charges will be given on 100 % basis to one official of the Council for participation in the
said events. Entertainment charges will also be given @ US$ 500 for the Chairman of the Council
and US$ 250 for V.C./E.D./Add.ED as per MDA Guidelines. However, if the event is conducted in
more than one country during the same tour, additional expenses @ 60% of the rent and
organizing expenses not exceeding Rs. 15 lakhs per country shall be allowed.
(c) BSMs/Trade Delegations to LAC sponsored by EPCs:
Assistance will be given to the Councils as applicable for participation in Fairs/Exhibitions.
(d) Reverse Trade visits of prominent foreign buyers/delegates/journalists to India for
participation in BSMs/Exhibitions etc.
Return airfare of each delegate in economy class upto the entry point in India shall be
reimbursable @ 100% subject to a ceiling of Rs. 1,00,000. 60% of the venue charges and other
organizing expenses (excluding stay, DA, local travel, etc of the delegates) of the Reverse BSM
will also be provided with a ceiling of Rs. 15 lakhs.
(e) Translation Facilities in foreign languages and vice versa:
60% of the total cost will be reimbursable.
(f) Product Catalogues in CD Rom:
60% of the total cost will be reimbursable.
3. Market Access Initiative (MAI) Scheme
Market Access Initiatives (MAI) Scheme is envisaged to act as a catalyst to promote Indias
export on a sustained basis. The scheme is formulated on focus product-focus country approach
to evolve specific market and specific product through market studies/survey. Assistance would
be provided to Export Promotion Organizations/ Trade Promotion Organizations/ National Level
Institutions/ Research Institutions/ Universities/ Laboratories, Exporters, etc., for enhancement of
export through accessing new markets or through increasing the share in the existing markets.
Under the Scheme the level of assistance for each eligible activity has been fixed. The following
activities will be eligible for financial assistance under the Scheme:
i.
Marketing Projects Abroad
ii.
Capacity Building
iii.
Support for Statutory Compliances
iv.
Studies
v.
Project Development
vi.
Miscellaneous
Under the Scheme, financial assistance may be given to:
214
Departments of Central Government and Organization of Central/ State Governments

including Indian Missions abroad
Export Promotion Councils
Registered Trade Promotion Organization
Commodity Boards
Apex Trade Bodies recognized under Foreign Trade Policy of Government of India
Recognized Industrial & Artisan Clusters
Individual Exporters (only for statutory compliance etc.)
National Level Institutions (e.g. Indian Institute of Technologies (IITs), Indian Institute of
Management (IIMs), National Institute of Designs (NIDs), NIFT etc.) Research
Institutions/ Universities/Recognized laboratories, etc.
4. Information support
NCTI shall provide: - Information support in co-ordination with UNCTAD Trade Points. - Product
Catalogues - Trade Data
C. Economic infrastructure facilities

1. ECGC Cover
The Export Credit Guarantee Corporation of India (ECGC) undertakes periodically a
comprehensive review of the grading of the countries based on the methodology of risk scoring.
As per ECGC Country Risk and Cover Policy on LAC region ( reviewed as on 30.06.2010 ),
sixteen (16) Latin American countries have been placed in low risk categories of A1 and A2. No
country has been placed in very high-risk category of D. Details of ECGC cover are available at
website of ECGC: www.ecgcindia.com
2. Lines of Credit
EXIM Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional
development banks, sovereign governments and other entities overseas, to enable buyers in
those countries, to import goods and services from India on deferred credit terms. The Indian
exporters can obtain payment of eligible value from EXIM Bank, without recourse to them, against
negotiation of shipping documents. LOC is a financing mechanism that provides a safe mode of
non-recourse financing option to Indian exporters, especially to SMEs, and serves as an effective
market entry tool. Details of Lines of Credit are available at website of EXIM Bank:
www.eximbankindia.com The EXIM Bank has currently extended thirteen lines of credit to the
following banks/Governments in the LAC region (as on -01.09.2010):-
215
The EXIM Bank shall continue to explore the possibilities of extending further lines of credit to
selected commercial banks in Latin American countries.
5.3.5.3 Effectiveness of the Focus LAC Programme

Indo-Latin American Trade
In spite of various constraints, Indias trade with the region during the last few years has been
growing rapidly. Our total trade with the region increased from US$ 1732.55 million in 2000-01 to
216
US$ 16602.09 million in 2009-10, registering an increase of approx 858 % in a decade. Indias
trade with the region during these years has been as follows:
This region accounts for about 3.67% of world trade. However, the region is not a significant
trading partner of India. During 2009-10 Latin America had a share of 3.48 % in Indias global
exports and a share of 3.62 % in Indias global imports. During 2004-05 to 2008-2009, our
exports with the LAC region had shown a continuously rising trend.
Indias Exports to Latin America
The percentage share of Indias exports to this region has also shown an increasing trend. The %
age share of Indias exports to Latin America in its global exports has increased from 2.28 % in
2000-01 to 3.48 % in 2009-10. The growth of our exports and the share of exports to the region in
Indias global exports during the last 10 years are as follows: (Values in million US$)
Indias Imports from Latin America

Indias imports from the Latin American region have increased from US$ 713.64 million in 200001 to US$ 10391.43 million in 2009-10. The imports from the Latin American region and the share
of that in Indias global imports during the last 10 years are as follows:
217
Major Trading Partners

In 2009-10, Brazil, Venezuela, Chile, Argentina, Bahamas, Colombia, Panama Republic, Peru,
Trinidad and Ecuador are amongst Indias top ten trading partners in LAC region constituting
approximately 85 % of the total trade with the region. The FOCUS: LAC programme aims at
focusing on the Latin American region, with added emphasis on the major trading partners of the
region. Indias trade with these trading partners in LAC in 2009-10 is given below:
Major Items of Exports to LAC countries (2009-10)

The important items of export to this region are - Petroleum (crude & products) , drugs,
pharmaceuticals & fine chemicals , transport equipments , machinery and instruments ,
inorganic/organic/agro chemicals, manmade yarn, fabrics, madeups, cotton yarn, etc ,
manufactures of metals , primary & semi-finished iron & steel , plastic & linoleum products ,RMG
cotton including accessories , dyes/intermediates & coal tar chemical etc. List of the major items
with value of export to Latin America is annexed (Annex-I).
218
Major items of Imports from LAC countries (2009-10)

Indias major imports from the region are - Petroleum, crude & products , metal ores & metal
scrap ,sugar ,vegetable oils fixed (edible) , iron & steel , organic chemicals ,electronic goods ,
machinery except electrical & electronic , transport equipments ,wood and wood products ,
artificial resins, plastic material etc. , project goods , inorganic chemicals etc. List of the major
items with value of imports from LAC region is annexed (Annex-II).
Extreme Focus Product Groups
Three product groups, viz., textiles, engineering products and chemical products constitute nearly
60% of Indias exports to the region. In the textiles sector, ready-made garments, made-ups,
fabrics, yarn, carpets, handicrafts, etc. are fast moving export items. In the engineering sector,
automobiles, auto components, electrical appliances, machinery, computer software etc. have
good scope for exports. Bulk drugs, pharmaceuticals, dyes and intermediates, agrochemicals,
plastic products, naphtha, resins, essential oils, molasses, tyres for buses, trucks & cycles are
also important items in the chemical products sector. The Programme aims to focus on the
following major product groups for enhancing Indias exports to the Latin American region:
i.
Textiles including ready-made garments, carpets & handicrafts;
ii.
Engineering products including computer software;
iii.
Chemical products including drugs/pharmaceuticals.
Based on the feedback from the Indian Missions in the LAC region and the trends in exports
during the last few years, a list of specific products for promoting exports to the identified
countries has been prepared. The National Centre for Trade Information (NCTI) has carried out a
detailed study/trade analysis of the select countries and the specific focus products identified for
each country are at Annex-III.
5.3.5.4 Role of ITPO/ EPCs/ Apex Chambers/ Missions in Focus LAC

Programme
The success of the FOCUS: LAC Programme would require a proactive role and involvement of
Apex Chambers and Export Promotion Councils. Their role would include:
Role of ITPO
Participation in specialized and commodity specific fairs & exhibitions in the countries of
the LAC region.
Special promotion and publicity in the Latin American countries.
Promotion of Indian consumer products in Departmental Stores in LAC
Organizing Buyer Seller Meets.
Promotion by Indian Missions by organizing catalogue/brochure exhibitions.
Awards to leading exporters to the Latin American region.
Export Promotion Councils
219
To carry out market surveys for the items with export potential in the Latin American
countries and disseminate information to their members through their publications.
To encourage members to participate in specialized International Fairs.
To bring out promotional literature in Spanish/Portuguese.
To hold commodity specific seminars in selected industrial centres.
To prepare compendia of main importers/associations in the Latin American countries
and disseminate this information to their members.
The Councils will have separate Chapters on LAC on their websites and will add separate
sections in their newsletters.
The Department of Commerce will sponsor one or two officials from each Council for
courses in Spanish/Portuguese at Indian Institute of Foreign Trade.
Every Buyer Seller Meet (BSM) in India/LAC will be followed by a press conference by
the Council/Missions in the respective countries for projecting the capabilities of Indian
Exporters.
A Made in India show should be preceded by BSMs and catalogue shows in the
countries adjoining the country where such an exhibition is being organized.
The services of the ITPO office at Sao Paulo will be utilized for trade information in LAC.
Each EPC may fix an indicative export target for the LAC region.
The LAC region is to be explored as a centre for investments for export promotion.
EPCs may source trade analysis from NCTI.
Apex Chambers Of Commerce/Industry
To establish and strengthen ties with their counterparts in the LAC region and ensure that
there is a frequent exchange of delegations.
To widely disseminate information among Indian businessmen through their publications,
bulletins and other periodicals regarding the potential of Indian exports to Latin America.
To organize seminars and workshops at regular intervals to create awareness regarding
the untapped potential that exists in the region for exporting goods. These
seminars/workshops shall be held in industrial centres for wider coverage.
Indian Missions in Latin American Countries
To organise catalogue/brochure exhibitions.
To provide regular feedback on the implementation of the programme.
To play a proactive role in coordinating promotional measures like organization of BuyerSeller-Meets, visit of delegations and participation in trade fairs.
To carry out market surveys for the specified products in collaboration with the ITPO and
concerned EPCs.
To send processed/usable information in bulletins to the EPCs of focus products.
5.3.5.5 Other Developments

1. Warehouse facility at Sao Paulo (Brazil)
220
With the objective to set up infrastructure in the Latin American Region to support our exporters,
Ministry of Commerce has extended assistance under MAI Scheme to UPICO to hire space at
Sao Paulo (Brazil ) in Sept, 2007 to set up a warehouse cum showroom centre and to market and
display products/goods of Indian exporters in three Departmental stores with a view to enhance
our trade with Brazil and other countries of LAC region.
2. Waiving off outstanding dues on Cuba
Indian companies namely PEC Ltd, CIMMCO Birla Limited, EXIM Bank etc. had not received their
dues in respect of exports to Cuba for over the last fifteen years. The issue of non-payment of
outstanding dues of Indian companies by Cuba was taken up for discussions at various fora like
Indo-Cuban Trade Revival Committee, India-Cuba Joint Commission but the matter could not be
resolved. This issue of non-payment was being perceived as deterrent in growth of bilateral trade
between two countries . Thus, in May, 2008, Government of India decided to waive off
outstanding dues on Cuba and reimbursement to the respective Indian companies to revive and
strengthen the bilateral trade and commercial relations between India and Cuba. Necessary
funds have been released by Ministry of Commerce to ECGC in February, 2009 for making
payment to the concerned Indian companies.
3. Setting up of Business Centres in Indian Missions in LAC
To help business fraternity and promoting bilateral trade and economic relations with LAC, a
Business Centres has been set up in Indian Embassy, Buenos Aires in June, 2008 and other
Centre set up in High Commission of India, Port of Spain in June 2009 under MAI scheme of this
Department. These business centres have been set up to provide facilities like conference hall for
meeting, communication equipments, presentation accessories etc to various Indian business &
trade delegations visiting to LAC region
221
222
223
ANNEX III
Specific Focus Products Identified For Exports
ARGENTINA
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
Vehicles other than railways or tramways rolling stocks & parts & accessories thereof.
Organic Chemicals.
Miscellaneous Chemical products.
Articles of Apparel & Clothing accessories not knitted or crocheted.
Tanning or dyeing extract; tannings and their derivatives; dyes, pigments & other
colouring matter; paints & varnishes; putty & other mastics; inks.
Cotton.
Pharmaceutical products.
Essential oils & resinoids; perfumery cosmetics or toilet preparations
Other made-up textile articles; sets; worn clothing & worn textile articles; rags.
Animals or vegetable fats and oils and their cleavage products; prepared edible fats;
animal or vegetable waxes.
Electrical machinery & equipment & parts thereof; sound recorders & reproducers, TV
image & sound recorders & reproducers & parts accessories of such articles.
Other vegetable textile fibres; paper yarns & woven fabrics of paper yarns.
Articles of iron & steel.
Carpets & other textile floor covering.
LAC; gums; resigns & others vegetable. saps & extracts.
Nuclear reactors, boilers, machinery appliances, parts thereof.
Tools implements, cutlery, spoons & forks, of base metals parts thereof of base metals.
Plastic & articles thereof.
Iron & steel.
Mineral fuels, mineral oil & products of their distillation, bituminous substances, and
mineral waxes.
Paper & paper products.
Optical photographic, cinematographic, measuring checking precision, parts &
accessories thereof.
Rubber & articles thereof.
Ships, boats & floating structures.
Aircraft, space craft & parts thereof.
Oil seeds & oleaginous fruits, etc.
Inorganic chemicals, etc.
Fertilizers.
BRAZIL
1.
2.
3.
4.
5.
Organic Chemicals.
Articles of Apparel & Clothing accessories not knitted or crocheted
Cotton.
Tanning or dyeing extracts; tannigs & their derivatives; dyes, pigments & other colouring
matter; paints & varnishes; putty & other mastics; inks.
224
6. Vehicles other than railways or tramways rolling stocks & parts and accessories thereof.
7. Electrical machinery & equipment & parts thereof; sound recorders & reproducers, TV
image & sound recorders & parts accessories of such articles.
8. Nuclear reactors, boilers machinery appliances, parts thereof.
9. Carpets & other textile floor covering.
10. Other made-up textile articles; sets; worn clothing & worn textile articles; rags.
11. Miscellaneous chemical products.
12. Essential oils & resinoids; perfumery cosmetics of toilet preparations.
13. Plastic & articles thereof.
14. Lac; gums; resigns &other vegetable saps & extracts.
15. Rubber & articles thereof.
16. Tools implements, cutlery, spoons & forks, of base metals parts thereof of base metals.
17. Silk.
18. Articles of iron & steel.
19. Articles of Apparel and Clothing accessories, knitted or crocheted.
20. Manmade staple fibres.
21. Optical, photographic, cinematographic instruments.
22. Mineral fuels, mineral oil & products.
23. Cereals.
24. Fertilizers.
25. Paper & paper products.
26. Inorganic chemicals.
27. Iron & Steel.
28. Copper & Articles thereof.
29. Oil seeds & oleaginous fruits, etc.
30. Prints books, newspaper.
31. Manmade filaments.
32. Fish & crust, moll.
33. Ores, Slags & Ash.
34. Beverages spirits & vinegar.
35. Edible vegetables.
36. Products of milling industries.
37. Edible fruits & nuts.
38. Animal or vegetable fats.
39. Toys, games & sports requisites.
40. Photographic or cinematographic goods.
41. Glass & glassware.
42. Miscellaneous articles of base metals.
43. Salt, sulphur, earth & stone.
44. Furniture & bedding.
CHILE
1. Articles of Apparel & Clothing accessories not knitted or crocheted.
2. Vehicles other than railways or tramways rolling stocks & parts and accessories thereof.
3. Cotton.
225
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
Fish & crust, moll & other aqua Invert.

Organic Chemicals.
Articles of Apparel and Clothing accessories knitted or crocheted.
Residues & wastes from the food industries; prepared animal fodder.
Articles of leather, saddlery & harness; travel goods, hand bags & similar containers;
articles of animal guts (other than silk worm guts).
Raw hides & skins (other than fur skins) & leather.
Electrical machinery & equipment & parts thereof; sound recorders & reproducers, TV
image & sound recorders & parts accessories of such articles.
Carpets & other textile floor covering.
Prepared feather & down & articles made of feathers or of down; artificial flowers; articles
of human hairs.
Footwear, gaiters & the like; parts of such articles.
Plastic & article thereof.
Mineral fuels, mineral oil & products.
Iron & Steel.
Miscellaneous chemical products.
MEXICO
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.

Organic Chemicals.
Lac; gums; resigns & other vegetable saps & extracts.
Cotton.
Iron & Steel.
Vehicles other than railways or tramways rolling stocks & parts and accessories thereof.
Tanning or dyeing extracts; tannings & their derivatives; dyes, pigments & other colouring
matter; paints & varnishes; putty & other mastics; links.
Coffee, tea, mete & spices.
Articles of Apparel and Clothing accessories knitted or crocheted.
Plastic & articles thereof.
Electrical machinery & equipments & parts thereof; sound recorders & reproducers, TV
image & sound reproducers & parts accessories of such articles.
Essential oils & resinoids; perfumery cosmetics or toilet preparations.
Oil seeds & oleaginous fruits; misc. grains, seeds & fruits; industrial & medicinal plants;
straw and fodder.
Wool, fine or coarse, animal hair, horse hair, yarn & woven fabrics.
226
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery.
Raw hides & skins (other than fur skins) & leather.
Nuclear reactors, boilers, machinery appliances.
Rubber & articles thereof.
Aluminium & articles thereof.
Cereals.
Copper and articles thereof.
Mineral fuels, mineral oil & products.
Miscellaneous articles of base metal.
Manmade filaments.
Furniture & bedding etc.
Inorganic chemicals.
Animal or vegetable fats & oils etc.
Glass & Glassware.
Printed books, news paper, etc.
Tool implements, cutlery, etc.
Pulp of wood.
Wood & articles of wood.
Photographic or cinematographic goods.
Manmade staple fibres.
Salt, sulphur, etc.
Misc. Manufactured articles.
PERU
1. Iron & Steel.
2. Vehicles other than railways or tramways rolling stocks & parts & accessories thereof.
3. Electrical machinery & equipments & parts thereof; sound recorders & reproducers, TV
images & sound recorders & reproducers & parts accessories of such articles.
4. Pharmaceutical products.
5. Organic Chemicals.
7. Tanning or dyeing extract; tannins & their derivatives; dyes, pigments & other colouring
8. Rubber and articles thereof.
9. Nuclear reactors boilers, machinery appliances, parts thereof.
11. Tools implements, cutlery, spoons & forks, of base metals parts thereof of base metals.
12. Miscellaneous Chemical products.
13. Coffee, tea metes & spices.
14. Other vegetable textile fibres; paper yarn & woven fabrics of paper yarns.
15. Explosives, pyrotechnic products; matches; pyrophoric alloys; certain combustible
preparations.
227
16. Optical, photographic cinematographic, measuring, checking, precision, medical or

surgical instruments & apparatus; parts & accessories thereof.
17. Tobacco & manufactured tobacco substitutes.
18. Articles of Apparel and Clothing accessories knitted or crocheted.
21. Cereals.
22. Plastic & articles thereof.
TRINIDAD & TOBAGO
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Cereals.
Vehicles other than railways or tramways rolling stocks & parts and accessories thereof.
Cotton.
Coffee, tea metes & spices.
Electrical machinery & euipment & parts thereof; sound recorders & reproducers, TV
image & sound recorders & reproducers & parts accessories of such articles.
Natural of cultured pearls, precious or semi-precious stones, precious metals, metals clad
with precious metals and articles thereof; imitation jewellery; coin.
Man made filaments.
Toy, games & sports requisites, parts and accessories thereof.
Edible fruit & nuts & peel of citrus fruits or melon.
Organic chemicals.
Essential oils & resinoids; perfumery cosmetics or toilet preparations.
Plastic and article thereof.
Articles of iron and steel.
Fish & Crust, Moll & other aqua Invert.
Tobacco & manufactured tobacco substitutes.
VENEZUELA
2. Vehicles other than railways of tramways rolling stocks & parts and accessories thereof.
3. Electrical machinery and equipment & parts thereof; sound recorders and reproducers,
TV image and sound recorders and reproducers and parts accessories of such articles.
4. Salt; sulphur; earth and stone; plastering materials, lime & cement.
5. Cotton.
7. Articles of Apparel and Clothing accessories knitted or crocheted.
8. Organic Chemicals.
9. Iron and Steel.
10. Rubber and articles thereof.
228
11. Raw hides and skins (other than fur skins) and leather.
12. Tanning or dyeing extracts; tannings and their derivatives; dyes, pigments and other
colouring matter; paints and varnishes; putty and other mastics; inks.
13. Plastic & article thereof.
15. Knitted or crocheted fabrics.
16. Nuclear reactors, boilers, machinery appliances, parts thereof.
18. Fish & Crust, Moll and other aqua Invert.
19. Articles of leather, saddlery and harness; travel goods, hand bags and similar containers;
articles of animal guts (other than silk worm guts).
COLOMBIA
1. Cotton.
2. Vehicles other than railways or tramways rolling stocks and parts and accessories
thereof.
3. Organic chemicals.
4. Articles of apparel & clothing accessories not knitted or crocheted.
8. Nuclear reactors, boilers, machinery appliances, parts thereof.
9. Man made filaments.
10. Electrical machinery & equipments and parts thereof; sound recorders and reproducers,
TV image and sound recorders & reproducers & parts accessories of such articles.
11. Wool, fine or coarse, animal hair , horse hair, yarn & woven fabrics.
12. Tanning or dyeing extracts; tannings & their derivatives; dyes, pigments & other colouring
13. Articles of apparel and clothing accessories, knitted or crocheted.
14. Plastic and article thereof.
16. Optical, photographic cinematographic, measuring, checking, precision, medical or
surgical instruments and apparatus; parts and accessories thereof.
17. Coffee tea mete and spices.
18. Carpets and other textile floor covering.
19. Articles of iron and steel.
20. Cereals.
22. Aircraft, spacecrafts.
23. Iron & steel.
24. Rubber & articles thereof
229
BIBLIOGRAPHY
Text:
Garg Pawan Kumar, 2002, Export of Indias major products : Problem & Prospects, New
Century Publications
References:
Pratima, Dikshit, Dynamics of Indian Export Trade, Deep & Deep Publications, 2002
Weiss Kenneth D., Building an Import/Export Business, 3rd Edition, Wiley
Authors:, 2002
Website of Ministry of Commerce, www.commin.nic.in
Centre for Promotion of Imports from Developing Countries; www.cbi.nl
Annual Economic Survey of India
RBI Bulletins
Newsletters of Trade Promotion Organisations and Export Promotion Councils.
Khurana, P K, Export management, Galgotia Publication, New Delhi, 2001
Jain, R K, Foreign trade policy and handbook of procedures 2004-2009 (vol. 1), 9th Centax
Publication, New Delhi,2006
Mathur, Vibha, India : foreign trade policy & W T O, New Century, New Delhi, 2003
Garg, Anand, Foreign trade policy and handbook of prodeduess 2006-07, usiness Data pub.
Comp., New Delhi, 2006
Websites:
www.fao.org
www.comtrade.org
www.wto.org,
www.fieo.com
www.bisnetindia.com
www.indianindustry.com
www.igep.org
www.apeda.com
www.aepcindia.com
www.chemexcil.org
www.capexil.com
www.texprocil.com
www.reservebank.com
www.cbi.nl
www.tdctrade.com
www.intracen.org
www.worldbank.org
230
www.apectariff.org
www.china.org.cn
www.cgcc.org.hk
www.agmarknet.nic.in
www.eanindia.com
www.indianemarketplace.com
www.customs.ustreas.gov
www.mkaccdb.eu.int
www.wcoomd.org
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Module II: Focus on Specific Growth Sectors

Module III: Foreign Trade Policy-2004-09

Module IV: Study of Specific Markets

Module V: Institutional Framework for Export Promotion of Thrust Sectors

India's International Trade

Trends in Indias Exports and Future Outlook

India's Foreign Trade Policy

Indias Foreign Trade Policy

Highlights of Foreign Trade Policy (2004-2009)

Highlights of Foreign Trade Policy (2009-2014)

Institutional Framework for Export Promotion

Institutional Framework for Export Promotion in India

Export Promotion Council for EOUs and SEZs

Export Oriented Units

Special Economic Zones

India's Thrust Exports

Indias Exports: Thrust Sectors

Thrust Areas Of Indian Exports: Agriculture & Food Processing Sector

Thrust Areas Of Indian Exports: Textiles

Thrust Areas Of Indian Exports: Gems & Jewellery

Thrust Areas Of Indian Exports: Leather & Leather Good

Thrust Areas Of Indian Exports: Automotive & Auto-components Industry

Characteristics of India's Major Export Markets

USA: World biggest importer and Exporter

EU: Single Largest market

Focus LAC: Potential Market for Export from India

INDIAS INTERNATIONAL TRADE

Export, Imports & Balance of Trade

Value in Rs. Crore

1.1.4 Trade Balance

Trade Balance Foreign Trade Policy, 2009-14

1.1.5 Exports by Principal Commodities

Leather and Leather Manufactures

1.1.6 Direction of Indias Foreign Trade

1.1.7 Import of Sensitive Items during April 09- September 09

INDIAS FOREIGN TRADE POLICY

2.1.2 Import Substitution: Cornerstone of Trade Policy

2.1.3 Balance of payment crisis, 1991

2.1.4 Indias Share in World Trade

2.1.5 History of Indias EXIM Policy

EXIM Policy, 1992-97

EXIM Policy, 1997-2002

2. To stimulate sustained economic growth by providing access to essential raw materials,

Modified EXIM Policy, April 1998

EXIM Policy, 1999-2000

EXIM Policy, 2000-2001

For agrochemicals, biotechnology and pharma units (considered as knowledge-intensive), the

EXIM Policy, 2001-2002

EXIM Policy, 2002-2007

EXIM Policy, 2003-2004

Simplification and codification of rules, regulations and procedures application on SEZ

Mini EXIM Policy, Jan 2004

Foreign Trade Policy, 2004-2009

Special Focus Initiatives

4. Gems & Jewellery:

DFRC: Import of fuel under DFRC entitlement shall be allowed to be transferred to

New Status Holder Categorization:

Total performance over three years

One Star Export House

Two Star Export House

Three Star Export House

Four Star Export House

Five Star Export House