UNIT 4 EXPORT PROMOTION IN INDM

Structure

Objectives
Introduction
The Rationale and Evolution of Export Promotion Policies in lndia
Organisations Involved in Export Promotion
Regulatory Mechanisms in Export Prolnotion
Export Pron~otionMeasures in lndia
Constraints Hampering Effective Export Promotion Effort
Guidelines for Effective Export Promotion Strategies
Let Us Sum Up
Key Words
Answers to Check Your Progress
Terminal Questions

4.0 OBJECTIVES
After studying this unit, you should be able to:
a explain the rationale for the increasing emphasis accorded to export promotion in India
a describe main organisation for export promotion

a discuss the regulatory mechanisms for export promotion

II a describe the export promotion measures adopted by the country

a outline some of the major constraints hampering effective export promotion effort
I
i
formulate guidelines for more effective export promotion policies to help India attain
national export obiectives

4.1 INTRODUCTION
You are by now familiar with some of the important facets of India's foreign trade and devel-
opment as also some of the'core issues in this sector. Some background has also been
provided to you about the recent trade policy measures and strategies that may need to be
evolved in tlie context of a greatly liberalised itlternational trading environment, You will
appreciate that while liberalised trade policy creates a more conducive trading environment, it
is the export promotion nleasures initiated by the Government of a country, in close coordina-
tion with the industry and trade that can help the nation realise targeted foreign trade
ob.iectives. The impetus to foreign trade and development comes largely through a well
conceived and properly articulated export promotion policies of any country. In this unit, you
will learn various export prolnotion measures, the major constraints and guidelines for
effective export promotion strategies in India.

4.2 THE RATIONALE AND EVOLUTION OF

EXPORT PROMOTION POLICIES IN INDIA
Inthe initial years after attaining independence, India's trade policy and programmes were
primarily oriented towards regulating imports, having regard to the nascent state of the
domestic industry. Indian supply capabilities were far too limited to cater effectively to the
needs of various export inwkets. Indian export capacity if any, was limited to supplying
certain prirnaly comlnodities which are nor~nallysubject to numerous constraints, including
 Institotiona1 1:rrmcwork low unit-value realisations. The industrial sector In particular bad suffered years of benign
Policic5
neglect at the hands of our erstwhile British rulers, perhaps as a matter of deliberate polic).
The accent of our policy planners immediately qfter independence was therefore on rapid
industrialisations of the country and attaining self sufficiency in the output of various
industrial goods and services.
There was, in this context, a definite need to discourags ImpstZs In general while encouragitlg
the domestic manufacturers goods and services through appropriate lmpofl qgbstituti~n
measures for a specific period of time. This policy was designed ts snable tlielfl lo build up
the required strength and resilience and build domestic capacities. The concept of @r_p~r?:
Promotion under these circumstances did not receive the importance and emphasis illat it
should normally receive as a component of trade policy, iq the earlier years. 1tnpo1.tsubstitu-
tion and provkion of adequate protection to the domestic industry were the primary cop-
cerns of our p o l h makers at that point of time rather than expolts and enpott prombtisn.
In due course, there was come shift in the policy emphasis when fur~igfltrade, particularly
export was recognised as an important factor for ecollomic progress and was Incnadngiy
regarded as the engine of the economic development of the country. The procasg 8f
industrialisation of the country and capacity building had also necessitated large scale
imports of capital goods and services which needed to be financed through increased
exports. The need to exp!oring export avenues and building up domestic supply capabilities
for the purpose therefore received greater stress particularly during the forrn~lqtionof the
successive 5-Year Economic Development Plans. A number of export promotion ifl~titutipng
and a fairly elaborate system of export incentives were set in place to fbrther the cause of
exports and export promotion in India. However, the results were found to be partially
satisfactory, since such export promotion policies and programmes were aften ~ e g a t e dby a
restrictive import licensing regime and high import tariffs, A restrictive import regime tended
to stifle export promotion efforts by virtue of the fact that it restricted ths scope for brlligirig
in new technologies and processes, prevented the rapid expansion and modernlsatl~rlof an
outmoded industrial infrastructure and the creation of appropriate quality norms wllhin the
country. It was only after the wide ranging economic reforms undertaken by the Oovernmcnt
of lndia in-early 1991 that there was a perceptible shift in the trade policy emphasis. Tha
restrictive system of administrative, discretionary control over imports (and many expert
items) were progressively dismantled. The high custom tariffs rates on several com~nodities
which supplemented the restrictive import regime were substantially reduced. The elimination
of all procedural hurdles in the way of exports was also regarded as an important adjunct o f
an effective export p~omotioneffort. In sum, there was a realisation that export prslnotiorl
policies cannot coexist with a protectionist regime which only stifled healthy competition,
created inefficient and high cost industries and caused distortions in the exchange rate
system. Export promotion has now virtually become an article of faith with the Governnient of
. lndia and an essential Fomponent of an integrated trade prolnotion strategy.
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It needs to be mentioned that creatj~nof appropriate institutions and a liberalised expdrt
promotion environment alone cannot automatically guarantee greater exports. It is also
important to draw up optimal programme by way ofproduct and market pro~notionstrategies
4.3 ORGANISATIONS INVOLVED
IN EXPOBT
PROMOTION
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At the Apex level it is the Department of Commerce in the Ministry of Commerce, wl~ict)i$
responsible for all policy decisions relating to infrastructure and export promotion !II l1141.4.
As an Apex body, the Department of Commerce in the Ministry is respo~~sible for India'~
external trade and other matter connected with it such as state trading, export prornolioli
measures and the developlnenc and regulation of certain export oriented industries and
commodities. It is also charged with the responsibility of maintaining and fostering commer-
cial relations with other countries ofthe world. The Department has also tlie principle
responsibility for the formulation and monitoring of the Export and Import policy of India.
G I
The efforts of the various Governmental organisations i l l export promotion are being supple-
mented by the different Chambers of Commerce and Trade Associations in the country who
send out trade delegations abroad, organise seminars and conferences on export related
issues and organise Buyers Sellers meets. In the recent years, the Indian mission abroad
have been required to play a more active role in promoting the country's comnlercial interests
apart fro111their traditional role of political diplomacy. The Indian foreign missions help the
potential exporters in locating overseas buyers, resolving buyer-seller disputes whenever
possible by sending out fairly comprehensive market report to the different Export Promotion
Cou~lcilsand Com~nodityBoards.
It is necessary to ~nentionthat the various State Governments have also been entreated t o be
equal partners and facilitators, along with the Central Government in boosting exports from
the countly. This is in recognition of fact that many of the national resources in terms of men
and material lie with the individual States. Their cooperation and active involvement is
therefore absolutely essential if such resources are to be effectively harnessed for exports.
Some of the states like Gujarat and Punjab have already set up Export Corporations to
catalyse export activities. Many others have started to organise training programmes on
exports development using the services of specialists organisations like the lndian Institute
of Foreign Trade to create an export climate at the state level. Most of the State Governments
have also established Export Pro~notionIndustrial Parks (EPIP) in an attempt to create the
required infrastructural facilities for export oriented production. At the suggestion of the
' Ministry of Coln~nercemany of the State Governments have set up Apex level Organisations
under the chair~nanshipo f the Chief Minister or Chief Secretary to consider and sort out
proble~nsfaced by the exporters1 importers in the respective States. They have also created
Cells in the State Secretariat for looking after export work. The State Governments have also
been appointed Nodal Officers (Niryat Bandhus) for export promotion work. Eight nodal
officers have been ~~olninated in the Commerce Ministry for maintaining liaison with State
Governments in export promotion matters, Thus, export promotion in the country has become
a total national effort in which the Government trade and industry and the individual State
Governments all have an important role to play.
4.4 REGULATORY MECHANISMS IN EXPORT
PROMOTION
Export Inspection Council which has been involved in inculcating quality consciousness and
self discipline among the exporting community is an important parameter of the export
promotion effort. Towards this objective, the Governlnent of lndia has established the
"Export Inspection Council" under Section 3 of the Export (Quality Control and Inspection)
Act, I963 to provide for the sound development ofexport trade in the country. The primary
Function of the Export lnspection Council (EIC) as outlined is to control the activities relating
to quality contt-ol and pre-shipment inspection of the con~moditiesmeant for export.
In order to have a more effective control on the exporting activities in d'ifferent parts of the
country, tlie Government of lndia has established five Export lnspection Agencies (ElA's)
one each at Calcutta, Chennai, Delhi and Mumbai under the technical and administrative
control oftlie Export Inspection Council (EIC). In addition to these five offices the EIA's have
a network of G 1 sub-offices located at important industrial centres and po1.t of shipment.
These EIA's have well ecluipped laboratory facilities for testing various export products. The
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EIA's also i~ndertalceinspection 011 a voluntary basis where desired by the foreign buyers.
'The Govern~iientof India has also recognised 21 private inspection agencies and 7 govern-
ment irispcction agencies to supplement the work of quality certification mder the Act, 15
ogencies have reportedly been recognised for fumigation of export cargo.
It is important to mention that for all com~noditiesnotified under the Act, quality standards
have been prescribed by tlie government. Although in a large number of cases, buyers
requil.ements have been recognised as the basis for inspection, for products involving safety
or health hazards, minimum standards have been stipulated. Commodities for which minimum
standards have been PI-escribedare not allowed to be exported unless such standards have
Illstitutionnl b ' r ~ ~ n c w o r k been attained, despite the fact that the foreign buyer may have conveyed his acceptance for
I'olicies
the product which had failed to meet such norms.
4.5 EXPORT PROMOTION MEASURES IN INDIA
A number of measures have been taken by the Government of India to improve export
performance of the country. In the overall ambit of export promotion measures, one can
broadly include some of the salient export assistance measures as contained in the current
Export -Import Policy; promotional and publicity campaigns undertaken in this country
relating to the export effort and the support facilities being created by the government by
way of infrastructural development and improving market capabilities to boost exports. Some
of the important export promotion measures initiated by governlne~~t over the years are as
follows:
Export Processing Zones and 100% Export-Oriented Units (EOUs): The Expo11Processing
Zones (EPZs) set up as special enclaves, seperated from the Domestic Tariff Area by fiscal
barriers, are attended to provide an internationally competitive duty free environment for
export production at low cost. This enables the product of EPZs to be competitive in terms of
both quality and price in the international markets. India has set up seven EPZs at various
centres like Kandla (Gujarat), Santacruz (Bombay), Falta (West Bengal), Noida (UP), Cochin
(Kerala), Chennai (Tamil Nadu) and Visakhapatnam (Andlira Pardesh). The Santa Cruz , are eligible to import their inputs by obtaining Replenishment Licence and Diamond Imprest
Electronics Export Processing Zone is meant exclusively for export of electronics goods and
gem and jewellery items whereas all other zones are multi-product zones.
Hundred per cent export-oriented unit scheme is complementary to the EPZ scheme. It means
an industrial unit offering for export its entire production excluding the rejects and items
otherwise specifically permitted to be supplied to the Domestic ~ a r i f Area
f (DTA). But unlike
the EPZs the 100% EOUs can be set up in any part of India subject to a locational criteria.
The locational is normally with reference such factors as source of raw materiqls, port of
export, hinterland facilities, availability of technological skills, existence of an iiidustrial park
and the need for a larger area of land for the project.
Major ~acilitiesto 100% EOUs IEPZs
a Proposals fulfilling certain conditions are granted automatic approvals with in 15 days. In
other cases, approvals are granted by Board of Approvals within 45 days.
@.. No import licence is required for import of Capital Goods, Raw materials, Consumables etc.
a They are exempted from the payment of customs duty on capital goods, raw materials,
consumables etc.
a Exemption is also given from payment of excise duty on capital goods, raw materials etc,
brought from the Domestic Tariff Area.
a 50% of production is permitted clearance for domestic sale at concessional rate of duty.
Export ~ t - o m o t i o n ~ n d u s t Park
r i ~ l Scheme (EPIP): A centrally sponsored "Export Prolnotion
Industrial Park" (EPIP) Scheme has been introduced with a view to i~~volving tlie State
Governments in the creation of infrastructural facilities for export oriented production.
Software Technolo.gy Parks (STPs) & Electronics Hardware Technology Parks (EHTPs)
Scheme: Software Technology Parks (STPs) are 100% Export Oriented Projects catering to
the needs of software development 100 per cent exports. No export licence is required for
import of equipment into Technology Park. All the imports into the Technology park are duty
free. Under the Hardware Technology Park Scheme, an Electronic Hardware Technology
Park may be set up by the Central Government, State Government, public or privates sector
undertakings. An EHTP unit may import free of duty all types of goods including all capital
goods required by it for its production operations.
. Special Economic Zones: Special Economic Zones have been permitted to set up with a view
to encourage free trade. It is a specifically delineated duty free enclave and shall be deemed
to be foreign territory for the purposes of trade operations and duties and tariffs. Goods Expor't P r o m o t i o ~irt
~ 111din
going into tlie SEZ area shall be treated as deemed exports. Goods coming from the SEZ area
into DTA shall be treated as imported goods.
Export Houses, Trading H o p e s and Star Trading Houses: The registered Exporters having a
record of export performance over a number of years are granted the status of ExportITrading
HousesIStar Trading HousesISuper Star Trading Houses subject to the fulfilment of minimum
annual average export performance in terms of FOB valce or net foreign exchange earnings
on physical exports prescribed in the Export Import (EXIM) policy. The objective of this
scheme is to provide a degree of national recognition to established exporters and the larger
export houses and spur then1 to greater efforts in the export sector,
These status holder houses are granted following facilities:
i) Duty Entitlement Pass Book Scheme.
ii) Advance licences for physical export, intermediate supplies and deenied exports.
iii) Automatic licence
iv) Legal ~~ndertaking
Diamond, Gem and Jewellery Export Promotion Schemes: Exporlers of Gems and Jewellery
Licence from the licensing authority. Exporters of goIdlsiIver1platinum jewellery and articles
thereof may import their esserltial inputs such as gold, silver, platinum, mountings, Findings,
rough gems, precious and semi-precious stones, synthetic stones and unprocessed pearls
etc, in accordance with the procedures specified in this behalf.
Export of Services: In order to increase the export of services, several facilities have been
provided to tlie service exporters. Service providers are eligible for recognition as Service
Export House, International Service Export I-Jouse, International Star Service Export House
and International Super Star Service Export House on achieving the prescribed export
perfor~nance.They will be allowed to avail the benefits as per the EXIM Policy.
Facilities for Deemed Exporters: Deemed Exports cover those transactions in which the
goods si~pplieddo not leave the country and the payment for the goods is received by the
supplier in India.
Deemed exports shall be eligible for the following benefits in respect of manufacture and
supply ol'goods qualifying as deemed exports:
i) advanced licence for intermediate supplyldeemed export
ii) deemed export drawback
iii) ref-~~nd
of terminal excise duty
Check Your Progress A
1) What is Export I-Iouse ?
,
2) What do you mean by Special Economic Zones ?

I n s t i t u t i o ~ ~ rFrrmework
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Policies
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3) What is deemed export ?
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4) State whether the following statements are True or False.
In the initial years, India's trade policy were primarily oriented towards regulating
i)
imports.
ii) The Central Government have appointed Nodal Offcers for export promotion
work.
iii) Commodities for which minimum standards have been prescribed are not allowed
to be exported unless such standards have been attained.
ib) Goods coming from the SEZ area into DTA shall be treated as imported goods.
v) ~d;anced licence shill not be available for deemed exports.
Export Promotion Capital Goods Scheme: Nnv capital goods including computer s o h a r e
systerns may be imported under the Export Promotion Capital Goods (EPCG) Scheme. Under
this provision, capital goods including jigs, fixtures, dies, moulds and spares upto 20% of the
CIF value of the capital goods may be imported at 5% custolns duty. This imporl is subject to
an export obligation equivalent to 5 times CIF value of capital goods on FOB basis or 4 times
the CIF value of capital goods on NFE basis to be fulfilled over a period of 8 years. Import of
capital goods shall be subject to actual user condition till the export obligation is completed.
Duty Exemption/Remission Scheme: Duty exemption scheme enables import of inputs
required for export production. An advance licence is issued for duty free import of inputs
subject to actual user condition. Such licences are exempted from payment of basic customs
duty, surcharge, additional customs duty, anti dumping duty and safeguard duty if any.
Advance licence can be issued for physical exports, intermediate supply and deemed exports.
Duty Remission scheme consists of Duty Free Replenishlnent Certificate and Duty Entilde-
I ment Pass'Book Scheme. The scheme allows drawback of import charges on inputs used in
#I) the export product.
, Export Finance: Export finance and credit are made available to the exporters for export
production and selling to overseas customers on credit. The pre-shipment finance is given
for financing the purchase, processing, manufacturing or packing of goods as defined by
RBI. The Post-Shipment fmancelcredit is provided to an exporter of goods from India from
the date of extending the credit after shipment of goods to the date of realisation of export
. proceeds. Both pre-shipment and post-shipment credits are also available in foreign currency.
Under the deferred payment, the credit is extended to exporters beyond the prescribed period
for realisation ~f export proceeds.
Export-Import Bank of lndia is the principal financial institution involved in both financing
and promoting India's foreign trade. The EXlM Bank's major operations include: providi~~g.
deferred payment credit for exports, guarantees and financing of overseas joint ventures and
turnkey contracts executed by Indian companies,
Duty Drawback: Customs and excise duties paid on raw materials, components and spares
10
including packaging material, imported or indigenous used in export products are refunded1
exempted to the exporters. ,
Tax Relief: Esport sales are not subject to sales tax. Excise duty is not payable on goods for
expol-ts, if paid can be refunded. Profits on merchandise exports including software exports
Export Pro~notioni n l ~ ~ d l a
are fully exempt from incolne tax. Foreign exchange earning from other heads as specified in
tlle policy also get income tax relief.
Brand Prornotiorl and Quality Awareness: With the objective of promoting exports of
branded products, a committee shall be constituted for identification of such products. When
SLICII brands are recognised by the committee, the exporters of such brands would be allowed
to avail the benetits as per the EXIM policy.
'I'lle Government of India aims to encourage manufacturers and exporters attain internation-
ally accepted standards of quality for their products. Government will extend support and
assistanck Lo trade and industry to launch a nationwide programme on quality awareness and
to pro~notethe concept of total quality management.
Market Development Assistance (MDA): The Scheme of Market Development Assistance
(MDA) originally known as the Market Development Fund was establiihed in 1963. The main
ob-jective of the scheme is to stimulate exports and diversify the pattern of export trade from
the country. The scheme also provides assistance in the marketing of various Indian com-
modities abroad. The various components under the umbrella of MDA are as follows:
Market research, commodity research, area survey and research.
Product Promotion and colnmodity development.
Export Publicity and dissemination of information.
Participation in Trade Fairs and Exhibitions.
Trade Delegations and Study Teams.
Establishment of offices and branches in countries abroad.
Grants-in aid to Export Promotion Councils and other approved organisations for the
I
development of exports and the promotion of foreign trade, and
Any other scheme which is designed to generally promote the development of markets for
Indian commodities in the overseas markets.
Crucial Balancing Investment Scheme: The Crucial Balancing Investment Scheme envis-
d
ages balancing capital invest~nentsforrelieving bottlenecks in infrastracture for export
production and conveyance. The Scheme has been introduced with view to boosting exports
through export facilitation and removal of impediments to exports with particular emphasis on
infrastructural bottlenecks.
( I -
Tlle Scheme would consider providing funding support to proposals involving bottlenecks
I
at ports, roads, airports, export centres etc. Some of the proposals which have been approved
1 in principle in this regard include, Establishment of an International Land Port at Petrapole in
West Bengal; Truck Terminus at Bongaoan and strengthening and widening of Bongaoan -
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I'anchpota Road in West Bengal; Power Systems Improvement at Moradabad in Uttar
Pardesh and InfiTlstructura] Facilities at Aroor, Alappuzha for the Marine Industry in Kerala.
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Electronic Data Interchange: The Government of India has identified use of ~lectronicDatq
Interchange (ED1) as high priority in trade facilitation. The specific steps taken to promote
! use of ED1 in the'country include:
I
I Creation of the institutional set up for ED1 through establishment of ED1 Council, India
I EDlFACT Committee and ED1 Working Group.
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~kderationof Indian ~ x p o rbrg'anisations
t (FIEO) has been nominated as the nodal
I
agency for promotion of ED1 in the private sector.
- Initiatives for alignnlent of Trade Documents and Trade Process in India in respect of
i International Trade has been taken. . 11
Institlltionsl Fr~lnurr.ork 0 The Regional Adviser UNIESCAP, at the request of Ministry of Commerce, Govt, of India,
Policics
has prepared reports on the framework for introduction of ED1 in India.
0 Implementation of ED1 in key depa~?ments/organisationsconnected with international
trade such as Customs, Ports, DGFT, Airport Authorities etc. is being carefully monitored
and coordinated for effective use of ED1 in International Trade.
The Government of India has periodically been organising major international ED1 events to
highlight the capabilities of Electronic Commerce.
States Cell: To step up the level of the various state governments in the country's export
effort, the Government has established a States Cell which acts as a nodal agency for
interacting with the StatesIUnion territories on matters concerning exports from their region.
At the suggestion of the Ministry of Commerce most of the State Governments have set up
Apex level organisations under the chairmanship ofthe Chief Minister or Chief Secretary to
consider and sort out the problems faced by the exporters in the respective States. Cells have
also been created in State Secretariats for looking after the export work. The State Govem-
rnents have also nominated Nodal Officers (Niryat Bandhus) for expol? pro~notionwork.
4.6 CONSTRAINTS HAMPERING EFFECTIVE
EXPORT PROMOTION EFFORT
In an era where international trade has become a highly complex and specialised operations,
export promotions calls for a high degree of skills and flexibility in approach to meet emerging
situations. There has been ageneral feeling among a section of lndian Industry and Trade
that the export promotion efforts initiated by the Government of lndia have been somewhat
fragmented and do not take into account certain ground realities.
It has been pointed out that export promotion, in the context of the increasing complexity of
international trading operation is no longer confined to participation in trade fairs and
exhibitions, sponsoring trade delegations abroad, holding buyer-seller meets or reproducing
popular designs in vogue in the overseas markets. No doubt that such activities are impor-
tant in any trade promotion programme but they may not be entirely effective in a situation
where certain realities are not duly recognised. In an era where technological progress and
strategic trade alliances are beginning to play a dominant role in securing product entry and
enhancing market shares, India's limitations in terms of technological competence and
marketing clout become obvious.
The Technology Gap: India's production capacity, for instance remains essentially limited in
terms of designs, range, finish and packaging etc. which has hindered the speedy growth of
manufactured exports. To cite one instance - automobile parts in the engineering sector is
reported to have considerable potential in markets like Germany, United Kingdom, France and
Italy which are bulk importers of such items. However, India's market share of the product, in
respect of each of these countries remains miniscule at below I per cent. The inability of
' lndian Manufacturers to conform to the'stringent product standards stipulated in these
markets is the oft-cited reason for this deficiency. Even with regard to products wherein this
country has the so called comparative advantage as for instance, handtools, gems and
jewellery, readymade garments etC., India's share in individual markets has not shown any
appreciable increase over the years. The Textiles and Garments sector which is regarded as
the showpiece in the Indian export sector remains as yet technologically obsolete by global
standards. This technology- gap can be regarded as the single most important reason for
lndia not being able to export high quality clothing, including men's suiting, winter wear,
sports wear etc, which have a continuous and volulne demand in the overseas markets and
which would have enabled India to move up the value chain in the garment sector.
Financial Stringency: Market Development in an era of intense global competition has not
only become a highly professional operation but involves large financial outlays which is
often beyond the individual capacities of the majority of Indian exporters, who are in the
small scale sector. Intensive market promotion programmes involve a continuous monitoring
of consumer needs, promotional campaigns if need, be at the store level, publicity campaigns Export Promotion i n ll~diil
through appropriate media like television, trade journals press releases and even lobbying
with opinion -makers in the government & trade and industry in selected countries. Markets
have also been cultivated through cross-border alliances, buy-back deals, frawhising
arrangements etc. Indian efforts at market development in this context remains as yet halting.
and ineffective. Financial constraints, absence of a nodal agency which can take charge of
sustained market development and greater emphasis accorded to short-term gains over long-
term interests have been some of the major stumbling blocks preventing lndia from realising
its export ambitions.
Infrastructure Hurdles: Lack of proper infrastructure has been one ofthe major factors
inhibiting the Indian industry and trade from realising its export ambitions. Even a well
designed and supported export promotion scheme will have minimal impact if it is not backed
up by appropriate infrastructural facilities in the country. Infrastructure is a generic term
encompassing many basic services deemed necessary for industrial growth and export
expansion. It generally covers sectors such as transport (railways, airports, airlines, shipping
and ports) power, water supply, telecommunication, sanitation etc. Some of the bottlenecks, .
especially in sectors like power, railways, roadways and ports have seriously eroded the
international competitiveness of several Indian industries. In India, recurring power short-
ages and cuts have already led to inadcquate capacity utilisations by industries and resulted
in unproductive expenditure such as back up generators in the manufacturing units, all of
which act as serious constraint to growth. Obviously it is difficult to plan an export campaign
under such adverse conditions.
In terms of cargo transportation, railways are regarqed as one ofthe most energy efficient
and least polluting transport modes. Therefore, several expert committees have stated that it
should account for major share traffic-passenger as well as freight. However share of rail-
ways has progressively decreased over the years. This reducing share of railways is one of
the major problelns affecting the competitiveness of Indian industries, as the operating cost
of freight transport by rail are generally cheaper than road. There are several reasons for this
trend such as shortage of track capacities on trunk routes, laclc of adequate resources for
capacity augmentation and superiority of road transport in terms of flexibility and conve-
nience due to -door to -door delivery. In regard to road transport, the road network in India is
presently highly saturated and further growth in this sector is full of bottlenecks, which
would have an adverse impact on industrial growth and expansion. Paucity of resources has
been cited as the major impediment in the progress of roadways in India. There has not been
a matching investment in this sector to cope rapid traffic growth. Inadequate road network
leads to higher transportation cost and improper maintenance of roads contributing to
econon~iclosses which ultimately erodes the competitiveness of Indian industries. As far as
Ports are concerned, there has been a tremendous surge in port traffic specially after
liberalisation of policies but there has no corresponding increase in the port capacities in all
the major ports of India. The situation of limited capacity and high demand has led to acute
congestion in all ports. The average turnaround time for ships in lndia has increased. Aver-
age output per ship bitth-day is extremely poor by international standards. Use of obsolete
equipment, inadequate container handling facilities, use of labour-intensive methods of bulk
handling of sensitive cargo like thermal coal, and lack of proper coordination of the logistic
chain are reported to have reduced the productivity of Indian ports to a very abysmal level.
Poor productivity and high freight transportation costs through Indian ports once again
reduces the colnpetitiveness of Indian exporters and tend to nullify all export promotional
prograllimes and activities. Strengthening infrastructure should therefore be an intrinsic
feature of any export promotion policy conceived by the Government.
4.7 GUIDELINES FOR EFFECTIVE EXPORT
PROMOTION STRATEGIES
It is felt that an effective export promotion strategy should take into account the existing
shortcolnings both at the micro and macro levels. In the ensuing portion, an attempt has been
made to draw up a few guidelines in the approach towards a more realistic export promotion
programme.

l h s t i t u t i o n r l Frrmcvvnrk
Policies
Product/Market Development: A detailed analysis of the inherent strengths and weaknesses
in respect of many of India's major export products and in regard to our marketing approach
to the major markets is considered necessary if the country is to achieve its objective in the
foreign trade sator. This is due to the fact that India's share in regard to most of its major
exports products in the selected markets has an average share of a meagre 2 to 3 per cent of
the total import by any of the importing countries. A proper investigation for the reasons for
such continued low shares therefore become imperative. Prima Facie the reasons for India's
poor performance in terms of its export products seem to indicate several shortcomings in
regard to technology requirements, finish, styling packaging and more recently in regard to
environment standards. Even in respect of readymade garments, an item which ranks as a star
performer in our merchandise exports, India's share has never exceeded a negligible 3 per
cent of world trade, whereas China's share of the world garment trade is reported to have
increased from a 4 per cent to a significant 15 per cent, during the span of a title over a
decade. India's low share of the large world trade in garments is attributed to the country's
inability to supply polyester cotton blended clothing and certain high-value items which
have a continued demand abroad. Once the weaknesses are properly diagnosed with refer-
ence to each of thrust export products, remedial measures need to be introduced with
minimum delay and without involving unnecessay complicated procedure. In other words
upgradation should form an impoMnt element of the export promotion policies of a
country.,
Similarly, market development programmes also needs to be well artic~~lated and there has to
be a gradual evolution from excessive reliance on ~onventionalstrategies like participation in
trade fairs and exhibitions, visits of sales delegations, buyer-seller meets etc. to longer-term
strategies including forging of strategic production and market alliances, brand publicity
campaigns and increasing direct presence in the overseas market through establishment of
warehouses, overseas branch offices and through company acquisitions abroad if need to
be. In fact, each of the major markets would warrant a seperate market entry plan which will
establish regional chapter in the various metropolitan cities of lndia to cater to this growing
Export Promotion i n India
need. Or alternately, of the leading business houses can take the initiative and establish top
class training Institutes for providing the required personnel for the export sector with the
assistance from the Statelcentral Governments if needed. Some ofthe major Indian Universi-
ties have recognised the need and include International Trade Management in their curricu-
lum. Apart from constantly seeking to update its course content to reflect the changes in the
global trading environment, such institutions have to act as change agents to bring about an
attitudinal change among its trainees who could be nascent exporters or officials From
various export promotion organisations. The transition from a protected domestic economy
to a highly colnpetitive and open world environment involves a total change in perception
and mental attitudes.
Accelerating Infrastructure Development: Any programme of trade development or promo-
tional starategy can come to griding halt, if it is not backed by a sound and vibrant infrastruc-
ture in terlns of power, transportation, port facilities and so on. It is however in the crucial
area of infrastructure that India has a large unfinished agenda of reforms. With respect to
power for instance, it had been pointed out that although the fast track approach that had
been adopted for several priority project areas, about five years ago, barely one or two
, pro-jects could get on -stream and that also partially. In the telecommunication sector for
instance, the process of opening up had run into various procedural bottlenecks and port
congestion remain as acute as ever in all the major Indian ports. It has been found that ships
entering Bombay or Calcutta need about 7 days to turn around as against half a day in most
of other international ports. Although the Government of India somewhat belatedly pre-
sented a new law in Parliament opening up the sector to private sector operators, here aho
the speed of the clearance process and process of implementation by bureaucracy have been
regarded as critical constraints. In all such factors the attitudinal factor will be the key
determinant of the success of all promotional reforms.
I
Check Your Progress B A-

more or less guarantee optimum results.

I) What is EPCG Scheme?
Revamping Trade lnforrnation System: The existing trade information network in India
consisting of several Export Promotion Councils, Federation of Indian Export Organisations
(FIEO), Chambers of Commerce & Industry etc. seem to somewhat unwieldy in the context of
a fast changing global trade scenario. Many of these organisations, particularly the EPC's
have been constrained in their trade information and development functions due to budget-
ary limitations. Many of these organisations had also been according more attention to
solving specific grievances of individual exporters and overcoming procedural bottlenecks in
what has hitherto a protected trade regime. Under these circumstances export promotion and
aspests like product and market development apparently received very little attention.
2) What do you mean by duty exemption scheme?
Although under the present liberalised regime many of these organisations are relatively freer P
to devote increased attention to trade promotion and development, paucity of resources and I
lack of professionalism raises many doubt on their effectiveness. I

If these organisations are to gain increasing recognition from trade and industry as effective
instruments of export promotion and development, some revamping may be needed in terlns ............................................................................................................
of services currently rendered by them, Apart From improving their conlmercial intelligence
networking in the overseas markets, such agencies need to hotlie their consultancy skills and ............................................................................................................
upgrade their specialisation in specific aspects of expoit promotion includi~lgprocure~nent
counselling, product adaptation and modification policies, branding and media adve~tising What is crucial balancing investment scheme?
policies, formulation of export marketing plans etc, to improve client servicing. Such im-
proved consultancy services will naturally involve an appropriate fee which should improve ............................................................................................................
the financial standing of many of the export promotion agencies. To impart a degree o f
professionalism to their services these agencies need to devise suitable personnel staffing
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.

policies with an inbuilt provision for continuous training.

Human Resource Development in Foreign Trade Sector: AJI often neglected aspect of
export promotion and development is the need for qualified and competent personnel in
such areas. In India, the demand for qualifikd ~ e p o rpersonpel
t far exceed the supply. There is
a felt need for the premier organiiation like the Indian Institute of Foreign Trade (IIFT) which
presently focuses on Human Resource Development for manning the foreign trade sector to
lA
I n s t i t ~ ~ t i o n n1:rnmcwnrk
l 4) State whether the following statements are True or False. lechnology-gap in respect of many of its export products and improve the financial capabili- Export Promotion in India
I'olirics ties and marketing clout of its several export promotional organisations. It has also to
9 EXIM Bank provides deferred payment credit for exporters.
improve s~~bstantially its infiastructure'facilities in terms of transportation of cargo, telecom-
ii) Export sales are subject to sales tax. munication networking and port handling facilities. Otherwise marly of the country's well-
intentioned efforts at export promotion could fail to realise cherished goals.
iii) Duty exemption scheme enables import of inputs required for export production
iv) China's share of world garment trade has increased froin 4% to 15% during the
span of over a decade. 4.9 KEY WORDS
v) Textiles and garments sector is regarded as technologically advance by global
standard. Advanccd Licence: The licence granted to a merchant-exporter or manufacturer exporter for
the imports of input required for the manufacture of goods without payment of basic customs
duty.
4.8 LET US SUM UP Deemed export: The specified sales in India which are considered as exports.
Duty'Drawback: The scheme under which import duty and central excise duty on raw
'The accent or export promotion in lndiagnined momentum once it was recognised that the
materials, con~ponentsand packing materials used in export products are refunded back to
foreign trade particularly exports, is an important element in the econo~nicprogress and was
the espolter.
in fact instrumental in the economic growth ofseveral countries, particularly in South East
Asia. The process of India' s industrialisation and capacity building has necessitated large Third Party Export: Exports made by an exporter or manufacturer en behalf ofa third party.
scale import of capital goods and services which had to be financed through exports and
promotion of an export culture. A number of export pfomotion institutions and a fairly
elaborate system of export incentives were therefore set in place to further the cause of 4.10 ANSWERS TO CHECK YOUR PROGRESS
exports.
A4 i) True ii) False iii) True iv) True v) False
The wide ranging economic reforms including reforms in trade policy underthken by the
Government of lndia in early 1991 can be regarded as the turning point in India's foreign 04 i) True ii) False iii) True iv) True v) False
trade sector. The earlier somewhat restrictive import regime was totally clis~nantled.Export
promotiGn become an article of faith with the Government and has formed the cornerstone of
an integrated export strategy. 4.1 1 TERMINAL QUESTIONS
The key elelnnt of the Indian Export Promotion Strategy include: creation of specialised I. What is the rational behind the importance accorded to Export Promotion by the
Government of India? I-Ias export pro~notionalways been an integral part of India's
commodity based Export Pro~notionCouncils/Commodity Boards under the overall supcrvi-
overall trade policy?
sion and control of the Ministry of Commerce, directing some of the major Public Sector
organisations like the State Trading Corporation and the Minerals and Metal Trading Corpo- 2. What is the need to establish regulatory mechanism in the export sector ? To what
rations to play a co.tnplementary and catalytic role in the export effort besides devisiilg a este~std o they complement export promotion activities?
variety of policy measures including publicity campaigns to expand exports. Special type of
3. Describe soine of the important export promotion measures initiated by the
OrganisationslInstitutionswere also created to look after specific aspects rclating to export
Government of India to boost the national export effort. What are the major areas in
and export promotion which include the Export Credit and Guarantee Corporation (ECGC),
the export sector that such measures have sought to address?
Export Inspection Council (EIC), Directorate-General of Com~nercialIntelligence & Statistics
(DGCI&S), lndia Trade Promotion Organisation (ITPO), Indian Institute of Forcign Trade 4. Do you consider that the export promotion measures initiated so far have been
(IIFT) etc. The efforts of the different export related organisations is being supplemented by entirely satisfactory? If not what have been the major constraints and the reforms
the different Chambers of Commerce and Trade Associations. The Indian missions abroad that need to be carried out so that such measures have a better impact on the foreign
have also been required to play a more active role in promoting commercial diplomacy. 'The trade sector?
various State Governments in India have on their part, set up Export Promotion Industrial
Parks and "Niryat Bandhus" for speeding up export promotion work. In sum, export promo-
tion has become a total national effort in which the Central Government, private industry and
thelndividual State Governments all have an important role to play. The trade policy changes
effected by the government have, in fact, been regarded as the showpiece of the econolnic
. reform process, and showed its commitment to export promotion. 'The stifling system of
administrative controls on imports and most of the' export items were re~novcdand tlie
customs tariffs substantially reduced so as to enable the Indian industry to import much
needed capital goods and equipment to build up export capacities, The new Export-Import
policy has placed greater emphasis on linking import entitlements to export performance. A
new category of Super Star trading houses was created in respect of exporters with a spcci-
fied turnover. Procedures were also greatly simplified under the duty exemption scheme.

However it has been felt that the growing complexities in international trade calls for adop-
tion of more dynamic and result-oriented export promotion strategies which could include
export CO-productionventures and strategic marketing alliances besides the conventional
export promotion measures like participation in trade fairs and exhibitions and organising
'buyer-seller meets. Towards this objective it is necessary for'lndia to bridge the existing
 T E POLICY was i~nmediatelybanned by the import control authorities. In particular, through tlie powerful Trsde Policy
Directorate-General of Technical Development (DGTD), an all out drive was launched to
establish indigenous capacities in respect of every important item which was being imported.
Structure
During tlie period from 1 962 to 1966, some export promotion policies were introduced, but
0b.jectives these were related lnalnly to and integrated with the system of import controls. The devalua-
Introduction tion of the rupee in June 1966, was intended to help exporters but because of the follow-up
Evolution of Trade Policy in India measures it failed to serve its purpose.
Export Policy
Import Policy TIILIS,till tlie end of the sixties not much stress was laid on export drive. In 1977-78, the
Tariff Policy import policy was Iiberalised and this policy continued in the following two years. On the
WTO Regime and India's Policy Making basis of the recommendations of the Alexander Committee, the Trade Policy for 1979-80 and
Let Us Sum Up 1980-8 1 carried forward tlle policy of import liberalisation and simplification of procedures to
Key Words a great extent. This trade policy aimed at to increase domestic production and efficiency
Answers to Check Your Progress while at the same time providing incentives to exporters.
Terminal Questions
The import-export policy 198 1-82 allowed flexible and liberal access to import requirements
for Act~lalUsers, consistent with the aims of strengthening and diversifying the production
base of the economy. Trading Houses were encouraged to increase their export activity and
5.0 OBJECTIVES to promote exports of products manufactured in the small scale sector. During this period the
role of Public Sector canalising agencies was also strengthened. The proposal to establish an
After studying this unit, you should be able to: Expol-t-Import Bank (EXIM Bank) to provide assitance to exporters and importers was
approved by the Parliament.
0 describe the evolution of trade policy in India

a explain the export policy Tlie import liberalisation attempted in the early eighties was in consonance with the eco-
nomic liberalisation introduced in !ndia and covered also fiscal and industrial policy of the
a describe the import policy Government. In the s~tbsequentfew years, the import-export policy was continuously
modified, so as to provide a framework for a flexible and liberal response to the growing
a discuss the tariff policy
needs of the economy for increasing production and exports. In particular, the policy was
a explain the WTO Regime and India's Policy making. aimed at provitling Actual Users adequate access to raw materials, intermediates and cornpo-
nents needed for the nlaintenance and enl~a~lce~nent of production.

Tlie goverliment of India announced sweeping changes in the trade policy during the year
5.1 INTRODUCTION 199 1. As n result, the new Expolt-Import policy came into force fiom April 1, 1992. This was
an important step towards the economic reforms of India. In order to bring stability and
In the initial years, Jndia followed a policy of protectionism. Subsequently, import substitu-
continuity, the policy was made for the duration of 5 years. Jn this policy import was
tion was encouraged. The growing adverse balance of payment colnpelled to explore mea-
liberalised and export promotion measures were strengthened. The steps were also taken to
sures to earn foreign exchange. As a result, export promotion measures started getting
boost the domestic industrial production. The major aspects of the export-import policy
prominence in the trade policy. The recent EXIM policy has further strengthened the export
(1 992-97) include: introduction of the duty-free Export Promotion Capital Goods (EPCG)
promotion measures and liberalised tlie trading environment, In this unit, you will learn the
sclierne, strengthening of the Advance Licensing System, waiving ofthe condition on export
evolution oftrade policy and the recent export, import and tariff policy. You will also'be
acquainted with the progress made in fulfilment of India's commitment to WTO.

5.2 EVOLUTION OF TRADE POLICY IN INDIA

I
I
I
proceeds realisation, rationalisation of schemes related to Export Oriented Units and units in
tlie Export Processing Zones. The thrust area of this policy was to liberalise imports and
boost esports.

Protection of indigenous industry thiough a variety of controls, like import duties and
preference for indigenous goods in respect of government purchases, were accepted as the
, main plank of the trade policy of free India. This protectionism came to be enorn~ously
strengthened when during 1956 a serious foreign exchange crisis co~npelledtlie Government
to tighten!^ the import controls. Since then, prolectionisni in India's foreign trade policy has
The need for filrther liberalisation of ilnports and promotion of exports was felt and the
Government of' India announced the new Export-Import Policy (1 997-2002). 'I'llis policy has
lilrther simplified the procedures and reduced the interface between exporters and the
Dircctor General of Foreign Trade (DGFT) by reducing the number of documents required for
export by half, Import has been fitrther liberalised and efforts have been made to promote
exports.
I

operated more through the foreign exchange controls and through customs duties on the
imports.
Subsequently, The Government adopted a policy aimed at attaining as rapidly as possible a
virtual self-sufficiency with regard to capital equipment and important raw materials. Begin-
ning with 1956, it was also realised that tllroughout this period foreign exchange constraint
would continue to be a major problem. In yiew ofthese factors, it was but logical that import
substitution became the keystone of India's foreign trade policy. Whenever any Indian
manufacturer could produce an itern which was previously imported, the import o f this item
The new EXllCl Policy 1997-2002 aims at consolidating the gains made so far, restructuring
the scl~emesto achikve furtller liberalisation and increased transparency in the changed
1
trading environment. 11 focusses on the strengthening the domestic industrial growth and
esports and cnabliny Iiiglier level of elnployment with due recognition of the key role played
I
by tlie SSI sector. It recognises the fact that there is no subst~tutefor growth which creates
.jobs and generates income. Such trade activities also help in stimulating expansion and
divessiiicatio~ol'production in the country. The policy has focussed on the need to let
~I exporters concentrate 011 the tnanufacturing and marketing of their products globally and
I ~ ~ s t i t ~ ~ t iVo~ :~I ~
I I iI ~t U
I \VO~~ operate in a hassle free environment. 'The effort has been made to simplify and streamline the
I'c~lirira
procedure.
Tlie principal objectives of Export Import Policy 1997-2002 are:
to accelerate the country's transition to a globally oriented vibrant economy with a
i)
view to derive maximum benefits from expanding global market opportunities.
ii) to enhance the technological strength and efficiency of Indian agriculture, industry
and services, thereby improving their competitive strength while generating new
employment opportunities. It encourages the attainment of internationally accepted
standards of quality.
iii) to provide consumers with good quality products at reasonable prices.
The objectives will be achieved through the coordinated efforts of all the departments of the
government in general and tlie Ministry of Commerce and the Directorate General of Foreign
Trade and its network of Regional Offices in particular. Fufther it will be achieved with a
shared vision and commitlnent and in the best spirit of facilitation in the interest ofexport.
5.3 EXPORT POLICY
You have learnt tlie evolution of trade policy. Let us now learn the policy related to export.
Free Exports: All goods may be exported without any restriction except to the extent such
expods are regulated by ITC (HS) or any other provision of this policy or any other law for
the time being in force.
Denomination of Export Contracts: All export contracts and invoices shall be denominated in
freely convertible currency and export proceeds shall be realised in freely convertible cur-
rency. Contracts for which payments are received through the Asian Clearing Union (ACU)
shall be denominated in ACU dollar.
Realisation of Export Proceeds: If an exporter fails to realise the export proceeds within the
time specified by the Reserve Bank of India, he shail be liable to action in accordance with
the provisions ofthe Act and the policy.
Export of Gifts: Goods including edible items of value not exceeding rupees one lakh in a
licensing year may be exported as a gift. Those itenis mentioned as restricted for exports in
ITC(HS) shall not be exported as gift without a licence except edible items.
Export of Spares: Warranty spares, whether indigenous or imported, of plant, equipment,
machinery, automobiles or any other goods niay be kxported upto 7.5% of the FOB value of
the exports of such goods alongwith the main eqi~ipmentor subsequently. This shall be done
within the contracted warranty period of such goods.
Export of Passenger Baggage: Bonafide personal baggage niay be exported either alongwitll
the passenger or if unaccompanied, within one year before or after the passenger's departure
from India. Those items mentioned as Restricted in ITC(1-IS) shall require a licence except in
case of edible items.
Export of Imported Goods: Goods imported in accordance with this policy, may be exported in
the same or substantially the same forms without a licence. This can be done provided that
tlie item to be imported or exported is not mentioned as restricted for import or export in this
ITC (HS), except items imported under Special Import Licence.
Export of Replacement Goods: Goods or parts thereoron being exported and found defec-
tiveldanaged or otherwise unfit for use may be replaced free of charge by the exporter. Such
goods shall be allowed clearance by the customs authorities provided that the replacelnent
goods are not mentioned as restricted items for exports in 1TC (HS).
Export of Repaired Goods: Goods or parts thereof on being exported and found defective, Trnde Policy
damaged or otherwise unfit for use may be imported for repair and subsequent re-export.
Such goods shall be allowed clearance without a licence and in accordance with customs
I notification issued in this behalf.
Private Bonded Warehouse: Private bonded warehouse exclusively for exports may be set up
in Domestic Tariff Area as per the norms and conditions of the notifications issued by
Department of Revenue. Such warehouse shall be entitled to procure the goods from domes-
tic manufacturers without payment of duty. The supplies made by the domestic supplier to
the notified warehouses shall be treated as physical exports provided the payments for the
same are made in free foreign exchange.
Deemed Exports: Deemed Exports refer to those transactions in which the goods supplied do
not leave tlie country. The following categories of supply of goods by the mainlsub-contrac-
tors shall be regarded as deemed exports under the policy, provided tlie goods are manufac-
I
tured in India.
I i) Supply of goods against advance IicenceIDFRC under the duty exemptio~ilremission
scheme.
ii) Supply of goods to units located in EOU/EPZ/SEZ/STP/ENTP.
iii) Supply of capital goods to holders of licences under EPCG scheme.
iv) Supply of goods to proIects financed by multilateral or bilateral agencieslfunds as
notified by the Ministry of Finance.
v) Supply of capital goods which are used for installation purposes till the stage of
co~nmercialproduction and spares to the extent of 10% of the FOR value to fertiliser
plants.
vi) Supply of goods to any project or purpose in respect of which the Ministry of
Finance permits the import of such goods at zero customs duty coupled with the
extension of benefits under this chapter to domestic supplies.
vii) Supply of goods to the power and refineries and coal hydrocarbons, rail, road, port,
civil aviation, bridges other infrastructure projects provided minimum specific
investment is Rs. I00 crores or more.
viii) Supply of marine freight containers by 100% EOU (domestic freight containers
rf
I
1
manufacturers) provided the said containers are exported out of India within G
months or SLICII fi~rtlierperiod as permitt~dby the customs. Supply to projects
funded by UN agencies.
Deemed exports shall be eligible for the following benefits.
i) Advance licence for intermediate supplytdeemed export
ii) Deenied exports drawback
II iii) Refund of terminal excise duty
I
I
Export of Services: Services include all the 161 tradable services covered under the General
Agreement on Trade in services where payment for such services is received in free foreign .
exchange. Tlie service providers shall be eligible for the facility of EPCG scheme. They shall
be eligible for the facility of EOUJEPWSEZISTP scheme of the EXIM policy. Service provid-
ers shall also be eligible for recognition as Service Export House, InternationaI Service Export
I
House, International Star Service.Export House, International Super Star Service Export
House on achieving tlie performance level as prescribed in the policy.
Green Card: All status holders and manufacturer exporter exporting more than 50% of their
production subject to a minimum turnover of Rs. I crore in preceding year, shall be issued a
green card by Directorate General of Foreign Trade. This card will also be issued to the
I service providers rendering services in free foreign exchange for more than 50% of their
services turnover, subject to a minimum value of Rs. 35 lakhs in free foreign exchange in the
I
 Institutionrl Framework Import of Gifts: 11iipo1-tof gifts shall be permitted where such goods are othelwise freely Trnde Policy
preceding year. This card provides automatic licensing, automatic custom clearance and
Policies importable under this policy.
other facilities mentioned in the EXIM policy. ,

Electronic Data Interchange: In an attempt to speed up transactions and to bring about
transparency in various activities related to exports, electronic data interchange would be
encouraged. Applications received electronically shall be cleared within 24 hours.
Check Your Progress A
1) Enumerate hsro objectives of EXIM policy 1997-2002.
Import on Export Basis: New or second hand jigs, fixtures, dies, moulds, patterns, press tools
and lasts, construction machinery, containerstpackages meant for packing of goods for
export and other equipments, may be imported for export without a licence on execution of
legal undertakingtbank guarantee with the customs authority.
Re-import of Coods Abroad: Capital goods, aircraft including their components, spare parts
and accessories, whether imported or indigenous may be sent abroad for repairs, testing,
quality i~nprovenientor upgradation of technology and re-imported without a licence.

Import of Machinery and Equipment used in Project Abroad: After completion ofthe
projects abroad, project contractors may import used construction equipment, machinery,
related spares ~ ~ p20%
t o ofthe CIF value of such machinery, tools and accessories without a
licence.

Sale on High Seas: Sale of goods on high seas for import into India may be made subject to
this policy 01-ally other law for the time being in force.
2) What is protectionism policy?
Import under Lease Financing: Permission of licensing authority is not required for import of
new capital goods under lease financing.

3) What is deemed export.
............................................................................................................
Export Promotion Capital Coods Scheme: New Capital goods including computer software
systems, may be imported under the Export Promotion Capital Goods (EPCG) scheme. Under
this provision, capital goods including jigs, fixtures, dies, lnoulds and spares upto 20% of the
CIF value of tlie capilal goods may be imported at 5% custonis duty. This import is subject to
an export obligation equivalenl to 5 limes CIF value of capital goods on FOB basis or 4 times
the CIF value of capital goods on NFE basis to be fulfilled over a period of 8 years. This
period is reckoned froni the date of issuance of licence. Import of capital goods shall be
subject to Actual User condition till thc export obligation is completed.

Duty ExemptionIRemission Scheme: The duty exemption scheme enables impoh of inputs
......................
.........................................................................
required for export production. The duty remission scheme enables post export replenish-
rnent/remission of duty 011 inputs used in the export product:Let us now discuss about them.
I. D~ltyExemption Scheme: Under duty exemption scheme, an advance licence is
issued to allow import of inputs which are physically incorporated in the export
4) State whether the following statements are True or False. product. Advance licelice is issued for duty free import o f h p u t s as defined in the
i) India followed export promotion policy since beginning. policy sub-ject to aclual user condition. Such licences are exempted from payment of
basic custolns duty, surcharge, additional customs duty, anti-dumping duty and
I ii) New EXlM policy 1997-2002 has liberalised the trading environment.
iii) All goods have been allowed for free export except the negative list.
safeguard duty, if any. Advance licence can be issued for (i) physical exports
(ii) intermediate supplies and (iii) deemed exports.

I iv) Goods up to Rs. 10 lakhs in a licensing year may be exported as a gift.

v) Deemed exports refer to those transactions in which goods supplied do not Ieave
The above paragraph discusses the provision of advance licence for physical
exports. Under the scheme of advance licence for intermediate supply, advance
licence may be issued for intermediate supply to a manufacturer-exporter. This is
the country. done for tlie import of inputs required in the manufacture of goods to b e supplied to
.*, tlie ultimate exporterldeemed exporter holding another advance licence.

5.4 IMPORT POLICY
You have learnt the provisions of export in detail. Let us now discuss the provisions of
Import.
Actual User Condition: Capital goods, raw materials, intermediates, components,
consumables, spares, parts, accessories, instruments and other goods, which are importable
without any restriction, may be imported by any person. If such imports require a licence, the
Actual User alone may import such goods unless exempted.
Second Hand Goods: All second hand goods shall be restricted for imports and may be
imported only in accordance with the provisions of EXlM Policy.
Under the scheme of advance licence for deemed export, advance licence can be
i ~ s u e d ~ f odeemed
r export to the main contractor. This is done for the import'of inputs
. required in the manufacture of goods to be supplied to the categories mentioned in
tlie policy.
2. Duty Remission Scheme: This scheme consists of duty free replenishment
certificate and duty entitlement passbook scheme. Let us learn them.
Duty Free Replenishment Certificate (DFRC): Duty free replenishment certificate is issued
to a merchant-exporter or manufacturer exporter for the import of inputs used in the manufac-
ture of goods without payment of basic customs duty, surcharge and special additional duty.

Inutit~~tiu~
Frw~oeworli
~al Such inputs shall be subject to tlie payment of additional custonis duty equal to the excise
Pnlicies
duty at the time of import.
Duty Entitlement Passbook Scheme: For exporters not desirous of going through the
licensing route, an optional facility is given under duty entitlement passbook scheme. Tlie
objective of DEPB scheme is to neutralise the incidence of customs duty on the import
content of the export product. The neutralisation shall be provided by way of grant of duty
credit against the export product. Under this scheme, an exporter may apply for credit as
specified percentage of FOB value of exports, made in freely convertible currency. The credit
shall be available against such export products and at such rates as may be specified by
Director General of Foreign Trade. The DEPB shall be valid for a period of 12 months from the
date of issue. The DEPB and/or the items imported against it are freely transferable. The
exports llnder the DEPR scheme shall not be entitled for drawback. Tlie holder of DEPB shall
have the option to pay additional custorns duty in cash as well.
Importability of Goods by EOU/EPZ/EHTP/STP Unit: Export Oriented Units (EOU), units in
Export Processing Zones (EPZs), Special Economic Zones (SEZs), Electronics Hardware
Technology Parks (EHTPs) and Software Teclinology Parks (STPs) unit ]nay import all types
of goods without payment of duty. This includes capital goods as defined in the policy,
required by it for manufacture, services, trading or in connection therewith. These goods
should not be prohibited items.
5.5 TARIFF POLICY
The basic approach of the government since 199 1 while reforming the custom duty structures
has been to gradually reduce the high rate of import duty, so as to lower costs of production
and improve competitiveness of user industries. However, this gradual reduction of import
tariff allowed reasonable time to domestic producers to adjust to competition from similar
goods.
The Indian import tariff system is based on the Customs Cooperation Council (Brussels)
Nomenclaiure. Over the last few years most of the import tariffs have been made a d valorem.
Total duties on imports include basic duty, auxiliary, and/or countervailing duties.
Countewailing duties are levied in order to link the import tax burden with India's internal
excise duties. Usually, consumer goods, and components and parts that can be made in India
bear higher import duties.
Duty drawback is available for imported raw materih used in the products exported. Duty-
free imports of raw materials required for export production are also permitted under certain
conditions.
The following major changes have been introduced in the new EXIM Policy: Quantity Based
Advance Licence scheme will continue but Value Based Advance Licence and the old pass
book schemes have been replaced by a new scheme 'Duty Entitlement Pass Book Scheme'
which combines the positive features of both the schemes, besides being easy to administer
and more transparent. Under the new scheme exporters, on the basis of notified entitlement
rates, will be granted duty credits, which will entitle them to import goods duty free.
The changes in the import tariff regime have been in accordance with the recommendations
of the Tax Reforms Committee headed by Dr. Raja Chelliah. According to the Committee, a
phased reduction should be carried out in tariffs so that the ad valorem import duty rates on
industrial inputs would range from 5 per cent to 30 per cent, while the import duty on non-
essential consumer goods should be 5 0 per cent. This means that the import tariff reforms
can be expected t o continue in the coming years.
The major features of recent tariff poIicy are as follows:
0 . The focus has been to reduce multiplicity of duty rates and rationalisation of the rate
structure.
Tile scope of discretion has been drastically cut.tiiiled by tiboii~fringtlxe power t o Trade Pollry
ii)
grant ad hoc duty exemptions.
iii) An Authority for Advrll~cekuiih$l hit5 b a n set up for Excise and Customs. This will
inject greater transparency arid provide binding ruleb, Tlli! will also help intending
investors about their duty liability in advance.
iv) Custom tariff has been further reduced frdm 45% to 40%.
v) To bring out a morc rationsr! and simplified duty stmcture, there has been S4Vdn'
mrijor ad v~rlorc.mrates of custonrs duty.
vi) import duty structure hns been rationajl5od fui- project imports.
vii) 1mpoi.t d1.1ey on nurnber of items wed In IT sobfor has been reduced and rationalised.
-- ---- " .-
5.6 WTO REGIME AND INDIA'S POLICY MAKING
The major progress in fulfilment of our committnents to tlre World Trade ~rgafiisath'l
(W.T.0) are as follows:
Quantintive Restrictions (QRs): QRs on imports maintained on Balance of Payments (BOP)
grVoundswere notified to WT'O in 1997 for 2714 tariff lines at the eight level. In view of the
i~nprovelnelitin our BOP, the Conimittee on BOP Restriction had asked India for a phase out
plan for thcse QRs. Based on presentatiotis before thlg ComrltIttere and subsequent consulta-
tions with our main trading partners, an agreement wns teachcd with thoge countries, except
, USA, to phase out tlie QRs over a period of six years beginning 1997. The US preferred a
dispute under the WTO's Dispute Settlement Mechanism. Pilrsuant ta the report o f the Panel
and the Appellate body, India and the USA have agreed to a bilateral settlement for determi-
nation ofa reasonable period of time up to I .4.2001, within which India has to implement the
rulings and recommendations of tlie Dispute Settlement Body to remove the existing QRs in a
phased milnner. As on date, the number of tariff lines on which QKs exiat have come down to
1429 at the eight digit level.
Trade Related Intellactual Property Rights (TRIPS): Ihe Agreement sets out the minimum
standards of protection to be adopted by the parties, in respect of (a) Copyrights and related
rights; (b) Trade Marks; (c) Geographical Indications; (d) industrial designs; (e) Patents;
(f) ~a~
out designs of integrated circuits; and (g) Protection of undisclosed information
(trade secrets) and the etiforcement of these. A transition period of five years is availale to all
developing countries to give effect to the provisions of tlie TRIPS Agreement, Countries that
do not provide product patent in certain areas can delay fhe provisions of product patents
for another five years. However, they have to provide exclusive niarlteting rights for products
which obtain paterlts after 1.1.1995. As per our obligations under the WTO Agreement, the
Patents (Amendments) Act, 1999 was passed in March 1999 to provide for exclusive market-
ing rights,
Patents: The basic obligation in tho area of patents is that inventions in all fields of technol-
ogy, whether products or processes, shall be patentable if they meet the three tests of being
capable of industrial application, In addition to the general security exemption which applies
to tlie entire TRIPS Agreement, exclusion from patentability are permissible for inventions
wl.lose commercial eacploitation is necessary to protect public order or morality; human,
animal, plant life or health: or to avoid serious prejudice to tlie environment. Diagnostic,
therapeutic ancl surgical methods for the treatment of humans o r animals and plants and
animals other than micro-organism may also be excluded from patentability. The patent term
provided for in the TRlPS Agreement is 20 years, A bill to make these and other changes was
introduced in lJarliament and has been referred to a Joint Select Comqittee of the Houses.
In respect of plant varieties, there is an obligation to provide for protection by patents or b y
an effective sui generies or by any combination thereof. The Agreement does not spell out
the elements of a s ~generis
~ i system and it is left to each Government to determine the
eleliients wliich could be deemed to be providing effective protection. A decision has been
taken to put in place a sui generis system as it is perceived to be in our national interest. A
Institutional F r ~ m e w o r k legislation to this effect tabled in the Parliament by the Ministry of Agriculture has been
I'olicies
referred to a Joint Parlizmentary Colnmittee.
Lay-out designs of Integrated circuits: India is asignatory to the international agreement
(The Washington Treaty) administered by the WIPO. The main obligations of the Washing-
ton Treaty are also incorporated in the TRIPS Agreement with some enhancement and cover
the protection of intellect~~alproperty in respect of lay-out designs that are original in tlie
sense of being the result of their creator's own intellectual efforts. The obligations include
national treatment to foreign right holders and a term of protection of 10 years. A legislation
giving protectiot~to lay-out designs, was introduced in the Rajya Sabha on 20 December,
1999 by the Department of Electronics.
Copyright and related rights: In the area ofcopyright and related rights, i.e., rights of
performers, producers of phonogrammes and broadcasting organisations, the Agreement
requires compliance with the provisions of the Berne Convention. Colnputer progralnmes are
to be protected as literary works. The term of protection for copyrights and rights of perfor-
mance and producers of phonogram is to be no less than 50 years. In case of broadcasting
organisations, however, tlie term of protection is to, be at least 20 years.
India is a signatory to the Berne Convention. The Copyright Act, 1957 as amended in 1993
takes care of our own concerns and meets with the requirements of the TRIPS Agreement
except in the case of terms of protection of performers' rights. A Bill to increase this term to
50 years was passed by Parliament in December, 1999.
Trade Marks: Our trade marks law, The Trade and Merchandise Marks Act (TMMA), 1958
is in its essential features, in accordance with international law. A Bill to amend the TMMA
was introduced in Parliament in 1993 so as to provide for protection to service marks also.
The Bill could not be passed and subsequently lapsed. A Bill in this regard, however, was
passed by Parliament in December, 1999 which, infer alia,provides for protection to service
marks.
Geographic Indications: The Agreement contains a general obligatioti that parties shall
provide the legal means for interested parties to prevent tlie use of any means in tlie designa-
tion or presentation of a good that indicates or suggest that the good in question originates
in a geographical area other than the true place of origin of the good. In India, we do not
have any specific law on geographical indications. Case law, however, enables legal action
for protection of geographical indications. It was decided to enact a new law on the subject
to take advantage of the provisions of the TRIPS Agreement. A Bill in this regard was passed
by the Parliament in December, 1999.
Industrial designs: Obligations envisaged in respect of industrial designs are that indepen-
'
dently created designs that are new or original shall be protected. There is an option to
exclude from protection, designs dictated by technical or functional considerations, as
against aesthetic consideration which constitutes the coverage of industrial designs. Our
law, the Designs Act, 191 1 is a very old enactment and needs updating. The Department of
Industrial Development a Bill in this regard, which was passed by thc Rajya Sabha in Decem-
ber, 1999 and wi l I now have to be passed by the Lok Sabha.
Trade Related Investment Measures (TRIMS): Under the TRIMS Agreement, developing
countries have a transition period of 5 years up to 3 1 December, 1999 during which they can
continue to maintain measures inconsistent with the Agreement provided these are duly
notified. We notified two TRIMS, viz, that relating to loca[ content requirements in the
production of certain pharmaceutical products and dividend balancing requirement in the
case of investment in 22 categories of consumer items. In view of the inconclusiveness of the
Seattle Ministerial Conference, where no final decision on the request of developing coun-
tries for extension of transition period for elimination of the notified TRIMS was taken, it
needs to be seen what final decision is taken by the General Council on this issue.
'8s nds lDo16cy
Tpriffs: Our c o ~ ~ ~ ~ ~ l i to
t ~rcduce
l l e ~ l ttariffs
s to the bound levels by l.3.2UOQexists in respect
of no~i-ngricuIt~~ral
and non-textiles items and necessary action will be taken to fulfil tl~ese
obligations.
=IYI-FI-., . - W n > n - - - - - * ~ ~ = ~ ~ v&.'LL'LLmil
Check Your Progress B
/
What is duty exemption scheme?
1)
, ............................................................................................................
............................................................................................................
I
"( ............................................................................................................
............................................................................................................
2) What do you mcnn by duty free replenishment cet-tificate?
.............................................................................................................
............................................................................................................
............................................................................................................
............................................................................................................
3) Enumerate three ~nnjorfeaturns [$recent tariff policy.
.........................................
..I......l..*.............,..(.......,.,......l................I..O
............................................................................................................
............................................................................................................
............................................................................................................
State whether the following statellierlts are T r u e or FaBsc,
4)
i) Pcnnission of licensing authority is required for import of new capital goods under
lease financing.
ii) Advance licence is issued for duty free ittiport of inputs.
iii) Duty free replenishment certificate is issucd only to t l ~ cmar~~tfacti~rer
exporter.
iv) Custom tariff has been reduced from 45% to 40%,
v) Import duty on IT iteins has been reduced.
5.7 LET US SUM UP .*
In the initial year, India followed Protectionism policy mid irnporls were restricted. Subse-
quently, a policy of self-sufficiency was followed, and dotncstic products wherever, it became
possible, were substituted for the imports. This ~.ec~~iired
a protectionist policy and consc-
quently tariff walls were raised. This policy more or less continued till the late seventies.
Starting with the eighties a more open policy was startcd. Imports were liberalised in a limited
way, In order to meet the payment requirements due to trade deficit, exports were encour-
aged. Therefore, import incentives were introduced.
The new trade policy, effective July 4, 1991 (and changcs being subsequently announced),
marks a radical departure from the trade policy regime of the preceding four decades. The
new policy is a bold policy and represents a radical break from the trade plici regime
followed over the past four decades. There is a shift from discretionary controls and bureau-
 cratic intervention to an increasing role for "market-oriented" trade policy over time. The
Millistry of Con~merceis performing the role of facilitator by quickly responding to the needs
and suggestions of the exparring community, to ensure a selfst~staininggrowth in exports at
a Iligl~level. POLICY
India's tariff rates have been reduced and rationalised. Jndia has started progress in fulfiln~ent
of her colnlnitments to the World Trade Qganisation. Structure

- - Objectives
5.8 KEY WORDS Introduction
Evolution of Industrial Policy
Advalorem duty: A duty assessed as a percentage ofthe value of the item. New Industrial Policy, 1991
Nature and Importance of Foreign Investment
Advance Licence: Licence issued for duty free import of inputs as defined in the policy. Foreign Investment Policy in India
Inflow of FDI in lndia
Deemed Export: Refers to those transactions in which the goods supplied do not leave the 6.6.1 Country-wise Inflow
country. 6.6.2 Industry-wise Distribution
An Evaluation of Investment Policy
Import Substitution: An industrialisation policy whereby new industrial development Let Us Sum Up
emphasises products that would otherwise be imported. Key Words
, Answers to Check Your Progress
TarisT: A government tax levied on goods, usually imports. . Terminal Questions

WTO: A voluntary organisation through which groups of countries negotiate trading

agreement and which has authority to overseas trade disputes among countries.
6.0 OBJECTIVES
5.9 ANSWERS TO CHECK YOUR PROGRESS After studying this unit, you should be able to:

A4 i) False ii) True iii) True iv) False v) True discuss the evolution of industrial policy
explain various aspects of new industrial policy
B4 i) False ii) Tnle iii) False iv) True v) True
examine the nature and importance of foreign investment

5.11 0 TERMINAL QUESTIONS 4 describe the foreign investment policy in lndia

I. a analyse the FDI inflow in India

Describe the evolution of trade policy. What are tile objectives of EXIM Policy 1997-
2002. evaluate the foreign investment Policy.
2. Explain the major provisions of recent Export Pdicy.
5. Describe the major provisions of recent h ~ p ~ Policy.
rk
6.1 INTRODUCTION
4. Explain India's trade policy response to WTO regime.
5. Write a note on India's Tariff Policy, Industrialisation is an important element of economic growth. Considering the impo~anceof
industrialisation, Government of India announced the first lndustrial Policy in 1948. M P ~ Y
changes were made in the policy several times and the new economic policy was brought in
1991. The present industrial policy focusses on the globalisation of Indian economy. In tune,
with the globalisation the foreign investment policy has been further liberaslised. Consider-
able effort has been made to attract the foreign investment in India for accelerating the .
economic development of the country. In this unit, you will learn the evolution of industrial
policy, the recent foreign investment policy in lndia and the inflows of FDI in India. YOUwill
further learn about the\evaluation of investment policy.

6.2 EVOLUTION OF INDUSTRIAL POLICY

After independence, the "Industrial Policy Resolution of 1948" was the 6rst formal official
pronouncement,of the Indian Government. The aim of the 1948 lndushial Policy was that the
"State must play a progressively active role in the development of industries". It also
conceded that the mechanism and the resources of the State may not permit it to function
forthwith in industry as widely as may be desirable. Hence, it allowed the establishment of
 lartitlltil'llill ~ r 1 l l ~ ~ ~ o r P
Ptrlieirs cratic intervention to an increasing role for "market-oriented" trade policy over time. The
Ministry of Conlmerce is performing the role of facilitator by quickly responding to the neecis
and suggestions of the exporting community, to ensure a self sustaining growth in exports c
i0 high level.

India's tariff rates have been reduced and rationalised. lndia has started progrers in fulfilnlent
of her commitme~ltsto the World Trade Oganr'sation. Structure
Objectives
5.8 KEY WORDS Introduction
Evolution of Industrial Policy
Advalorem duty: A duty assessed as a percentage of the value of the item. New Industrial Policy, 1991
\
/' Nature and Importance of Foreign Investment
Advance Licence: Licence issued for duty free import of inputs as defined in the policy. Foreign Investment Policy in lndia
Inflow of FDl in lndia
Deemed Export: Refers to those transactions in which the goods supplicd do not leave the 6.6. I Country-wise Inflow
country. 6.6.2 Industry-wise Distribution
An Evaluation of Investment Policy
Import S u b s t i t ~ t i ~An
n : industrialisation policy whereby new industrial development Let Us Sum Up
emphasises products that would otherwise be imported. , . Key Words
Answers to Check Your Progress
TariR A government tax levied on goods, usually imports. . Terminal Questions

WTO: A voluntary organisntion through which groups of countries negotiate trading

agreement and which has authority to overseas trade disputes among countries.
6.0 OBJECTIVES
5.9 ANSWERS TO CHECK YOUR PROGRESS After studying this unit, you should be able to:

A4 i) False ii) True iii) True iv) False v) True discuss the evolution of industrial policy
explain various aspects of new industrial policy
B4 i) False ii) True iii) False iv) True v) True
examine the nature and importance of foreign investment

5.10 TERMINAL QUESTIONS describe the foreign investment policy in India ,8

1. Describe the evolution of trade policy. What are the objectives of EXlM Policy 1997- analyse the FDI inflow in lndia
2002. evaluate the foreign investment Policy.
I 2. Explain the major provisions of recent Export Policy.
3. Describe the major provisions of recent Imyofi Policy.
6.1 INTRODUCTION
4. Explain India's trade policy response to WTO regime.
5. Write a note on India's Tariff Policy. lndustrialisation is an important element of economic growth. Considering the importme of
industrialisation, Government of lndia announced the first Industrial Policy in 1948.Many
changes were made in the policy several times and the new economic policy was brought in
1991. The present industrial policy focusses on the globalisiition of lndian economy. In tune,
with the globalisation the foreign investment policy has been further liberaslised. Consider-
able effort has been made to attract the foreign investment in lndia for accelerating the .
economic development of the country. ln this unit, you will learn the evolution of industrial
policy, the recent foreign investment policy in lndia and the inflows of FDI in lndia YOUwill
further learn about the\evaluation of investment policy.

-
6.2 EVOLUTION OF INDUSTRIAL POLICY
After independence. the "lndustri~tlPolicy Resolution of 1948'' was the first formal official
pronouncement of the lndian Government. The aim ofthe 1948 Industrial Policy was that the . .
"State must play a progressively active role in the development of Industries". It also
conceded that the mechanism and the resources ofthe State may not permit it to function
forthwith in industry as widely as may be desirable. Hence, it allowed the establishment of
 industries in the private sector in a wide field. Later, however, more stress was laid by the
government on the attainment of a "socialistic pattern of society".
The Industrial Policy ~esolutionof 1956, which was the first comprehensive policy sQtement
after 1954 Parliament Resolution of Socialistic Pattern of Society, laid the stress on:
i) accelerating thespeed of industrialisation; in particular heavy industries,
ii) expansion of public sector and growth of the cooperative sector,
iii) state to progressively assume a predominant and direct responsibility for setting up
new industrial undertakings and developing transport facilities, and
iv) state trading was stressed by the Policy Resolution.
These policies were followed upto the middle of the seventies. Thereafter, started a rethink-
ing and modification ofthe policies. This led to the "Industrial Policy Statement, 1980".
The lndustrial Policy was restated in July, 1980. The announcement e~npliasisedthe commit-
ment of the government to rapid and balanced industrialisation of the country with a view to
benefiting the common man by increasing availability of goods at fair prices, larger e~llploy-
ment and higher per capita income. A dynamic industrial economy capable of distribution of
benefits of industrialisation to the maximum number of people was emphasised. The sacio-
economic objectives of the policy were:
I) Optimum utilisation of the installed capacity.
ii) Maximising production and achieving higher productivity.
iii) Higher employment generation.
L I
iv). Correction of regional imbalance through a preferential treatment to agro-based
industries, and promoting optimum inter-sectoral relationship.
v) Faster promotion of export-oriented and import substitution industries.
vi) Promotingeconomic federalism with an equitable spread o f investment and the
dispersal of returns amongst widely spread-over of small but growing units in rural
as well as urban areas.
vii) Consumer protection against high prices w d bad quality.
Maximisation of productivity, growth, export and gelleation of adequate employment were
considered the need of the hour. The wave of globalisation and liberalisation were also
realised. Considering these aspects, the new policy was announced. Let us discuss them in
detail.
6.3 NEW INDUSTRIAL POLICY, 1991
Even though, India attained self-sufficiency in a wider range of consumer goods, the indus-
trial growth was not rapid enough to generate sufficient employment to reduce regional
disparities and to alleviate poverty. Lack of adequate competition resulted in inadequate
emphasis on reduction of costs, upgradation of technology and improvement of quality
standards. It is to reorient and accelerate industrial development to achieve international
competitiveness that the industrial policy 1991 was announced.
Industrial policy of 1991 reviewed its emphasis an removal of povelfy, attaining social and
econotnic justice, the need to integrate the domestic economy with that of international
economy and building a prosperous India. This policy aimed at self-reliance but with grater
stress on the ability to pay far balance of trade. It has recognised the need for development
of indigenous tecllnology and manufacturing capabilities to world standards. It also as-
signed importance for development and promotion of SSI through technology upgradation
and efficiency improvement.
In the light ofthese issues, Industrial Policy 1991 has the following objectives:
e to build on the gains already made
l n d u s t r i ~ land
e to maintain a sustained gi.u\+tIi in productivity and employment .Investment Policy
e to correct the distortions or \weaknesses that have crept in, and
to attain international competitiveness.
The Policy de-regulated the industries in a substantial manner. The main features of the
policy are as follows:
i) Domestic Regulatory Reforms: The Industrial Policy, 1991, reduced the number of
reserved industries. Industries which continue to be reserved for the Public Sector
are in areas where security and strategic concerns predominate,
'I Abolition of Industrial Licensing: The new policy has abolished all industrial
ii)
licensing, irrespective of the level of investnment, except for certain industries related
to security and strategic concerns, social concerns, related to safety, overriding
environmental issues, and manufacture of products of hazardous nature.
iii) Removal of Mandatory convertibility Clause: A substantial portion of industrial
investment in India is financed by loans from banks and financial institutions. These
institutions have so far followed a mandatory practice of including a convertibility
clause in their lending operations for new projects, with Industrial Policy, 1991,
financial institutions will not impose this mandatory convertibility clause.
iv) Removal of Investment Controls on Large Business House: Since the enactment of
the Monopolies and Restrictive Trade Practices Act (MRTP Act) in 1969 all firms
with assets above a certain size were classified as MRTP firms. This assets limit has
been applied to the sum of the assets of firms interconnected through equity shares
for management control. Such firms were permitted to enter selected industries only
and that also on a case-by-case approval basis. In the new policy this clause has
bee11 removed.
V) Foreign Investment: As with domestic industrial investment, foreign investment has
also been traditionally regulated tightly in India. Now in the case of foreign
investment, automatic permission will be available for foreign equity up to 5 1 per
cent in the high priority industries. Foreign investment policy so far has also
generally discouraged foreign equity holdings in service areas except for hotels. The
government lias decided to invite foreign equity holding up to 51 per cent by
intel-notional trading companies also. In addition to hotels, now 51 per cent equity
will also be allowed in other tourist related areas.
Evaluation of New lndustrial Policy
The new industrial policy has opened the door of the lndian economy. The major impact may
be evaluated in the following way:
i) It has altered the industrial scenario of india. In extent and scope, the policy is a
watershed which has been significant for the economic development of the country.
Tlie working of industrial enterprise, efficiency, productivity and market have
become important determinants of industrial advances.
ii) The delicensing of a host of industries and the abolition ofall registration schemes
has enabled entrepreneurs to quicken decision-making and more quickly to seige the
business opportunities .
iii) Tlie involvenient of foreign participation in industry and external trade has been
instr~~mental in the economic growth of the country. Easier facilitation of foreign
technology agreements and other related measures has a favourable impact on the
industry. It requires further effort to create conducive envrionment for attracting
foreign investment in India.
iv) As far BE the policy related to public sector is concerned, the policy evaluate the role
of the public sector in the economy. The public sector has also entered in those
areas in which no commercial logic is served nor is there broader concrete welfare
mechanism that is being met. Therefore, it makes sense to disinvest the governments
 holding in these industries. 771;swill bring competition and the commercial logic industrial and
would dictate their functioning. 4) State whether the following statements a n True or Fake. Investment Policy

v) The policy on phased manufacturing programme has been scrapped. In this way the i) The aim of 1948 industrial policy was that the state must play a progressively
case by case approach has been removed. The suitable financial incentives for active role in the development of industries.
indigenisation have been built into the external value of rupee and the trade oolicv:
' d -
ii) The industrial policy resolution of 1956 laid stress on private sector.
vi) The new policy is a step towards globalisation. The removal of restrictions and iii) The industrial policy 1980 emphasised the commitment of the government to rapid
creation ofcompetitive environment may be helpful in improving the productivi$ of
and balanced industrialisation.
the industry.
iv) New industria]policy 1991 focussed on the attainment of international competi-
Present Industrial Policv tiveness.
New industrial policy did not remove the invesblent control On large business
I n continuationof the policy of 1991. sonle fiscal and monetary reforms, help tl,e industrial b. house.
policy liberalisation, were taken in 1992-93. The Industrial Policy ,991
992-93 and as modified in
in fact form the basis of the current industrial policy. ~h~ salient
feature ofthe present industrial policy are as folfows: 6.4 NATURE AND IMPORTANCE OF
the conditionsstipulated in the letters of intent and industrial licences issued earlier INVESTMENT
to indusb'ies are delicensed and waived.
On capital account, inflow of net foreign assistance has receded over the period. Thus, the
The 'yStem of choice is leffbetween borrowing and inviting foreign investment. g his is a sihation, with
ofcapacit)' expansion under ~ ~ d ~ m i r a ~ i o n / r e n o v aist i o n some maRinal differences, like that of a corporate body which in order to expand has either
discontinued in the case of industries which are still under c o m p u j s o ~ licensing or
are located in restricted areas. to raise debt or equity capital.

lt that for at least the next about a decade, lndia will have to pay backfits debt and
scale industriesengaged in the manufacture ofde]icensed items were exempted from
, interest on this by generating surpluses On capital account. Cunenf account s " ~ i u sOn a
On their graduation to medim scale industries.
On Business l~cel'lces
baris, specially in tile context of globalisation policy, is not foreseable in the near
future. Therefore, the choice for India, to amortize L e external debt is not between current
The privateSectorhas been invited to invest in oil exploration and refiningwhich is oUler
wise reserved for the Public Sector. account and capital account, but between borrowing and liberalising foreign investment.

The power sector is now open to both domestic and foreign private investment. The merit of borrowing is that the return on the amount borrowed is given. A country
borrows, like acorporate body, at a given interest rate. Therefore, the outt'iows in the form of
Thus, the objective ofthe present Industrial Policy is b globalise the Indian economy and interest on the amount borrowed by the country is known. Since the liabilities are given, it
provide freer pJay of market forces in the domestic ecnnnmv
........... J.
provides a shield to the borrowing country from the excessive exploitation by the lending
country or institution.
Check Your Progress A
However, borrowing also carry with it a demerit that it is a debt and has to be returned along
1) Emnerate three objectives of industrial policy resolution of 1956. with the interest. The amount borrowed is used wisely or foolishly, productively or
............................................................................................................ unproductively is not a responsibility of the lender. In case the amount is used productively.
and the productivity of the bornwed capital exceeds the rate of interest, it is wise to borrow.
...."....... .....................................................................................
'.''...I, However, if the interest rate paid exceeds the productivi~of the c a p i ~employed
l it becomes
............................................................................................................ difficult to pay back. In fact lndia faced a problem of this type. The amount bonowed by
lndia, somehow, was not used in a way that the productivify exceeded the interest paid. Till
............................................................. the middle of the eighties lndia borrowed from the International institutions though at a very
nominal rate, still the productivi@was lower and this led to the repayment problem. Added to
2) Enumerate four objectives of new industrial policy 1991. this was the current account payment problems and consequently the situation worsened.
................................................. .........................................................
7."
Foreign investment has the advantage that it does not create any liability for the receiving
..............'..........-... .............................................................................. country. The investments, as in the domestic economy, even in foreign countries are made at
the investors risk. There may be difference jn the risk intensity for the investment made in the
............................................................................................................ domestic economy and abroad, but qualitatively there is a little difference. As far investment
in lndia is concerned, the risk element may be lower thaathat in the industrialised countries.
...*.''.'.....''......- .................................................................................. Given a rising demand and a mnal life span of production equipment, the risk element is
. 3) Enumvte impactr of new industrial policy. very low because long term cyclical down wend is unlikely. Foreign investment may bring
. , , canital..new technoloc~and new management into the host country. It may further help in
............................................................................................................
w.

stimulating the economic activities and creating employment avenues.

".....:"."" ................................................ ............................................
............................................................................................................
........ .................................................................................................
i..
However. for the receiving economy whereas no liability to pay back is created, in another
sense the liability is not specified and this could lead to excessive outflow of resources in the
for111of profits. Given the demand for goods and services, the economy may be exploited
excessively. There is also a danger of adverse impact on lmai enterprixs specially as in

l ~ l s t i t ~ ~ t i ~o ~ i~i ~ ~; ~ j ~ ~ ~ ~ v ~ ~ k
I f'olicies India' In the case foreign investlnent, investnlent may not take
I as in fie best interest
\ the investment decision by the MNCs are on
basis which
Over a period may not prove in the best interest ofa country.
1
Of late, International produclion and trade have been growing fast in the recent years. This
requires increased amount of international investment. The counby requires international
investment for enhancing the production, trade and distribution capabilities. The need for
international investment is felt more in developing countries where the capital is in scarce.
The international investment may be in the form of foreign direct investment and portfolio
investment. You have already learnt them in detail in Unit 6. Block 2,180-01. To recapitulate,
Wreign ~ i r e cInvestment
t occurs when a investor based in the country acquires an asset in
another cou~urywit11 the interest to manage the asset. Whereas, po~ffolioinvestment
normally moves to investment in financial stocks, bonds and other financial instruments.
~ m a d l yof
, the two types of investments, direct and portfolio, the former is better than the
latter. in the case of FDI at least it brings with it the new technology. The local production
and over the period there is a transfer of technology, how slow it may be. On the other hand
foreign protfolio investment (FPI) is devoid of this virtue, at least over a sl~olfto medium
terms of investments. In the hee play foreign investor through FPI may acquire the manage-
ment rights in the local units and exist whenever they like. There is no permanent stake in the
case of portfolio holding.
6.5 FOREIGN INVESTMENT POLICY IN INDIA
The liberalised foreign direct investment policy was brought in July 1991. The policy pro-
vided for automatic approval by RBI for projects with foreign equity participation upto 51%
of equity in 35 high-priority sectors. For all other proposals of foreign investment, permission
was granted on a case by case basis by the FlPB or SIA. The liberalised policy also provided
for automatic permission for foreign technology agreements in high priority industries.
Supporting reforms have further strengthened the policy milieu. These include:
e Amendment of Foreign Exchange Regulation Act;
e Reduced list of industries requiring industrial licensing;
e Dilution of MRTP;
e Reduction in number of industries reserved for public sector;
e Liberalisation of imports and reduction in tariffs;
* Convertibility of r ~ ~ p e e ;
e Opening up of tlle capital market to foreign investors.
Additionally, as pan of its initiatives to promote and protect invesments, lndia became a
member of Multilateral lnvestment Guarantee Agency. Bilateral investment promotion and
protection agreements have also been signed with U.K., Russia, Germany, Malaysia, and
Denmark. Several others are in the process of being finalised.
Liberalisation of policy and procedural framework has in general been accompanied by
revising of special policy-cum-incentive packages for key industrial sectors like teleeom,
hydrocarbons, tourism, drugs and pharmaceuticals, etc,
The subsequent restructured Foreign Investment Promotion Board (FIPB) and streamlini~lg
of procedures is another positive endeavour in the direction of augmenting foreign direct
investment. A new Foreign Investment Promotion Council has been constituted to formularc
policy guidelines and to devise an approach for enlarging FDI into the coulrry. T l ~ eCou~lcil
comprises of mainly professionals from the corporate sector.
Industrial r n d
Recent Foreign Investment Policy lnvestment .Policy
Tile foreigninvestlnent plays on important role in the growtll of the economy. Let us study
foreign investment policy. They are dixussed as be'ow:
--.I . of
,aior asrxcts
several initiatives have been taken by the government of lndia to enhance the flow
of FDI into the country. A Foreign lnvestment Implementation Authority has been
established within the Ministry of Industry in order to ensure that approvals for
foreign investments are quickly translated into actual projects. The approval time
has been reduced to 30 days in case of FIPB clearance.
ii) The government has permitted foreign corporates and high net worth individuals to
invest t~rougllSEE1 registered FIIS. Such investments will be subject to a sub-limit
4 of 5% withi11the aggregate limit for FII portfolio invest~nentsof 24% in a single
company. SEBl registered do~nesticfund managers have been permitted to manage
foreign funds for investment in the lndian capital market through the portfolio
I
investment route. These funds should be channeled through internationally
recognised financial institutions and subject to the reporting requirements as
applicable to FIIS.
iii) RBI has granted general permission to Mutual Funds for issuing units to NRlslPIOsl
OCBs subject to certain specified norms. The approval procedures have been
simplified by the RBI in respecf'of NR~S/PIOS/OCBS by granting them general
~ermissionin lieu of a case by case approval procedure in a large number of areas.
iv) Foreign owned Indian holding companies have been permitted to make downstream
investments within permissible equity, limitsthrough the automatic route. Such
holding companies must bring the requisite funds from abroad. The need to obtain
prior approval of the FlPB for increasing foreign equity within already approved
limits bas been dispensed with in all cases where the minimum original project cost
was upto Rs. 600 crore.
V) -
The O ~ L itional
.(
I norms of software companies regarding overseas investments and
mode oS fiiiancing acquisition of overseas software companies have been liberalised.
Indian Software Co~npanieslisted in foreign e x c h a ~ ~ gand
e have already floated
ADRiGDR issues have beeo permitted to acquire foreign software c o n ~ p a ~ i cThey
s.
have been allowed to issue ADRsIGDRs without reference to the Government of
lndia or the RBI up to US$ 100 million. The proposals beyond US$100 million would
be examined by special composite committee in the RBI.
vi) Indian companies have been allowed to access the ADWGDR markets through an
automatic route without the prior approval of the Ministry of Finance subject to the
specified norms and post-issue reporting requirement. Such issues would need to
conform to tile existing FDI policy and permissible only in areas where FDI is
permissible.
vii\ An [nsurance Regulatory Development Act (IRDA), 1999 has been passed by
Parliament. It seeks to promote private sector participation in the insurance sector.
Foreign equity stake in the domestic private insurance co~npanieshas been permined
upto a ~naxi~num of 26% of the total paid up capital,
viii) The Government of India has taken a major decision to place all items under the
automatic route for FDIMRIIOCB investment except for a small negative list.
) The automatic route would be available to all foreign and NRI investors with the
facility to bring in 100% FDlMRllOCB investment subject to sectoral policies and
sectoral caps. All proposals for investment in public sector units and EOUlEPU
EHTPISTP units would qualify for automatic approval.
'6.6 INFLOW OF FD1 IN INDIA
Flow of Foreign Direct Investment in lndia till the end of the eighties has been negligible low.
It is only with theNew Economic Policy and policy of globalisation in 1991, that the flow of
FDI started looking up. Look at Table 6.1 which shows foreign investment flow in India. The
'"8titnti1)n*l
Yr*tncnhr~ county has witnessed progress in the inflow of foreign investments. The foreign investmenl
I'olicicu Industrial nnd
has increasedfrom 133 million dollar in 1991-92 to 6133 million dollar in the year 1996-97,~t Table 6.3 Industry-wise Distribution of FDI Inflows investment Policy
(Rs. Crores)
has further decelerated in two subsequent years and reached 240 1 million dollar in 1 998-99,

Table 6.1 Foreign Investment Flow in India Sectors 1994-95 1995-96 1996-97 1997-38 1998-99
Engineering 413.2 842.5 2592.2 2155.1 1799.1
956.2 1579.7
Year Direct lnvestment Portfolio Investment
Totnl
- C:llemical8L allied products 443.3
2513.2
423.8
336.0
1078.5
53.9 1194.1 1550.3
Z
Scrviccs
199 1 -92 129 4 133 177.1 433.6 545.4 2395.6 960.4
Eleclronics&
~leclronicsequipment
Fina~~ce 306.9 903.3 770.4 549.7 777.6
Co~nputers 32.0 174.3 208.4 5 17.2 446.7
pharmnccudcals 31.7 183.2 169.0 125.6 11 9.6
4743 .o 7312.0 10985.9 8414.3
Total 2738.0
Source: StntisticaI Outline of India, 1999-2000.
1998-99 2462 -6 1 2401
Source: Economic Survey, 1999-2000, GOI.
6.7 AN EVALUATION OF INVESTMENT POLICY
The major causes of less FDI inflow are: non-availability of the infrastructure: like wnspon
and power, indifference of some of the states to the policy of liberalisation and globalisation There is evidence to show that India has managed to occupy a quasi- "top of n~ind"slot in
and political instability at the cenbe.
the preceding years ainong foreign investon. The impact of these developments may take
sonle time to be felt, especially because FDI means a long-term commitment for a company
6.6.1 Country-wise Inflow and is made only when evaluated and accepted within its strategic planning framework. This
is especially true because the "bandwagon effcctl' appears to be high in the case of FDI
The country-wise analysis of FDI shows that Mauritius is the dominant source of inflows. flows, The fact that a investor has a wide array of locational choices complicates the situa-
followed by uSA, Japan. Netherlands and Germany in the year 1998. O n e possible explana- tion. It is, therefore, necessary to evaluate whether the policy package and the operating
tion for the dominance of Mauritius is the double taxation treaty between the two countries, environment need modification to push the FDI flows to a higher trajectory. Let us discuss
which favours the routing of investment through this country. Although inflows from tlie lna.ior issues related to FDI flows.
different source countries fluctuate from time to time. It is seen that inflows from Mauritius,
I ~ i FDI ~ Policy
e determines the ease of accessing the domestic market and the terms
Germany, Netherlands. Singapore, and Korea are steadily increasing over the last three yean.
and conditions of entry. But the other policy regime and the operating environment
Table 6.2 Country-wise FDI Inflows determine tlie project viability, the progress of project implementation and succassful
business operations. An investor, therefore, cannot concern himself with only what
the New Industrial Policy provides but he must evaluate the entire spectrum of rules,
Name of Countries 1994-95 regulations and operating conditions once he is in. Consequently, issues like law
1995-96 1996-97 1997-98 1998-99 and order conditions, labour policy, etc., become as important as the FDI Policy
Mauritius 6 17.7
1697.0 3004.7 3346.3 2482.2 itself.
USA 636.9 650.9
857.6 ?554.7 1904.9 2 The State-level policies and procedures require to be considered. in the Indian
Japan 298.1 203.8
343.3 607.5 989.0 polity, tile States provide the location, the infrastructure, and the works. They also
Netherlands 140,2
166.7 439.3 extend, increasingly these days, a host of incentives to attract investment,
Germany 590.5 224.2
108.5 333.6 irrespective of their origin. State Governments and their agencies are responsible for
UK 589.9 562.7 477.7
450.5 237.1 the numerous clearances, approvals and operating procedures. It is this whole
192.4 467.7 N,A.
Hongkong 67.1 334.6 147.4 231.8 N.A. package of laws, systems and procedures and not the FDI Policy as such which is
Singapore 76.8 201.1
considered by any far-sighted investor. And this is where India seems to lose out to
France 268.4 N.A. . N.A. other competing countries.
44.6 210.9 N.A.
Total N.A. N.A. 3. A policy may be evaluated in terms of transparency. It appears that on this counts,
2738.0 ' 4743.0 73 12.0 10985.9
Source: Statistical Outline of India 1999-2000. 8 4 14.3 foreign investors have some reservations. This means that the ground rules are
required to be clearly laid out.
0

6.6*2 Industry-wise Distribution 4, t any policy appraisal' Unless the corporate

Stability is another important ~ l e m e nin
body is sure that the present policy will continue for some time, i t is in a position
to take a decision, Unfo*unately, the record with respect to stability is rather
Tab1e6'3which indusby-wisedis~ibutionO ~ F Dinnows
I in It shows
The classic case relates to tax laws, some of which are changed in every
that during the year 199&99, engineering sector confinued to remain at fie
ofthe
Omong the FDr recipientsfollowed by chemicals and allied products. Services sector were the
someti~neswith retrospective effect.
third and electr0nics and Allotller issue is that the incremental character and adhocism in
finance equipment *ere fou*h largest recipients of FDI. The 5.
hasimproved in the area of^^^ recipients and become the fim largestrecipi- sllould be avoided as far ap possible. Policy relating to foreign investment in the
Computers and pharmaceuticals, power sector is a clas~iocase where policies and procedures have been in a state of
flux for a long time. SO is the case of the ~elecommunication
Illstitllticrnal Frw 1newo1.k 111dustriri nnd
Policies The purpose may not be served by attempting a linkage between FDI and export Investment Policy
promotion through tile policy. It is quite clear that some firms, in fact the majority, is Check Your Progress B
contemplating coming to India to take advantage of the burgeoning domestic market.
This is not necessarily the case with respect to India only. A recent UN Study on 1 Distinpuisll between foreign direct investment and poflfolio investment-

............................................................................................................
FDI, which found China to be largest recipient of FDI among developing countries
concluded that attractions of China are high growth rate, rising income and large
............................................................................................................
domestic market. However, since labour is cheap, some firms arc also using China as
a production centre for export There are precisely the attractions of lndia as well,
though the magnitudes of the parameters are lower except that of labour cost.
Whether a firm will use its foreign iilvlnnlent to servlee a domestic market or its
............................................................................................................
global operations, is a part of its strategic decisions and it may be left to thetn. It is ............................................................
................................................
definitely possible to influence this decision-making by appropriately redefining the
policy and building in an incentive package for its expoit-orientation. 2) ~~~~~~~t~four major refom, areas related to foreign investment P O ~ ~ CillY India.

............................................................................................................
The importance cumntly being accorded to FDI proposals for infrastructure
development, the export-orientation ofthe policy will be ab-initio infructuous. Any
incentive-based policy suffers from the deficiency that it can be ineffective if other
..................................................I......
(..,,,,.,,.,.........,...I................I.......

contending countries change their policy package and, therefore, a certain amount of
competitive bargaining creeps in the system.,The export angle is best left to the ................................
...t....s........................I........I...............I.04....".4..1..'

potential investing firtns. Given the low cost and high skill factor of Indian labour, it
is alrnost inevitable that lndia will be rated high by many firms as an off-rllore ...........#.......................r....1..........(......................(I............................
I."

production-cum-sourcing centre, The role'of the Government in this context will be

to create an enabling environment which facilitates global trading, v i r transport/ 3) Enumerate three benefits of foreign investment.
communication facilities of international class, efficient management of customs
procedure, liberal, transparent and simple export-import policies and procedures. The
......................................................
.....................................................
resultant export endeavour of the foreign firms would be self-motivated and more
permanent than any ipcentives/obligation-based export behaviour. ............ .................................................................
The liberalisation policies should be directed in sucl~a way a s to encourage the ............................................................................................................
North to invest in sectors involving high and sophisticated technology and both the
North & South in Portfolio investment. Further encouragelnent should be given to .
..........................................................
....................................................
the NRIs to invest in India. There is also a need to woo the OECDs to invest in india.
Since the balance-of-payments effects, export-intensity and import-intensity effects 4) State whether the following statements are True or Fabe.
of different investors differ, while actually wooing foreign investors, finns wit11 better
i) Tile Inerit of borrowing is that the return on the alno~lntborrowed is given.
track-records should be selected. Therefore, foreign investment sl~ouldbe directed
by types o f investors and cou~ltries.Foreign investment should also be directed by ij) Foreign investment create liability for the receiving COUntrY-
uses. As pointed out, the cheap labour, the country is constantly flaunting to the
iii) A Foreign Investment implementation Authority has been established within the
foreign investor, no longer commands the kind of attraction constantly it did
previously. A second look at India's self-portrayal giving priority to the rising stock Ministry of Commerce.
of skilled manpower at a fairly cheaper rate will be a better strategy. So a change is iv) The foreign investment flow in lndia has been decreasing Since 1996-97
needed to woo foreign investment to skill-oriented technology ventures. All-out
USA is the dominant soune O ~ F Dinflow
I in india.
efforts must be made to liberalise in the context of foreign technology ventures while
greater encouragement for domestic firms should be given in other types of
investment,
Foreign investment should be directed to sectors involving high and sophisticated
6.8 LETUSSUMUP
technology which in turn can lead to greater transfer of hard technology. All-out
Tl~efirst industrial policy was announced in 1948. The aim of the policy was that the State
efforts to liberalise in this direction including even higher royalty payments or l u ~ n p
m s t piny n progressively active role in the development of the industries. The subsequent
sum payments to acquire latest technology or tax concession on technical fees a n d
industrial policy 1956 further stressed on industrialisation and expansion 0 g P ~ b l i c,r3ect0ra
royalties is desirable. In fact greater foreign investment in oil exploration without
Many changes were made in the industrial policy several times. The industrial policy 1980
forsaking India's majority share and control in such ventures is desirable. The
ndvocated the n-mximiration of productivity, growth, expo" and generation of adequate
analysis of linkages leads as to the inference that foreign investment should be
employment. The industrial policy 1991 emphasised on the removal of poverty, attainment of
directed to the right sectors after considering both the direct and linkage effects on
social and economic justice and integration of the domestic economy with that of interna-
production, employment and income generation. Foreign investment should not only tional econo~~ly.
be directed to sectors with high linkages, but these linkages should also be reaped
by India.
.mreign investment has been considered as an important vehicle of economic growth.
10. While foreign investment in consumer goods sector has to be allowed to make the Foreign investment brings capital, new technology and new management in to the host,
.. country. It helps i n stimulating the economic activities and creates employment. There are
package more attractive for foreign investori, this should be like the butter applied
on bread to make it more palatable. But if this is in excess, then the gains already two types of foreign investment. One is foreign direct investment and the other is portfolio
made by domestic firms in particufar, and lndia in general, may be lost. investment. Foreign direct investment is better because it accelerates the production activi-
ties in the host country,
 -
-.-+
0 "

r
Frumemrk
r'lstitltinu'l
I'olicies Foreign investment policy has been further liberalised in India, In order to augmentforeign
investment,Foreign investment Promotion Board has been restructured and the pmcedurer
have been streamlined. A new Foreign Investment Promotion Council has been constibted
to fornu late policy guidelines and approach for enlarging FDl into the country,
foreigo the recent
policy, several initiatives have been taken by the government to enhance EXPORT HOUSES
the flow of FDI in India.

India has witnessed an increase in foreign investment fiom 1991-92 to 1996-97. Thereafier, it
has decelerated. Mauritius is the dominant source of inflow followed by USA. Japan, Nether-
lands and Germany in 1998. Engineering sector has been the largest recipient of FDI followed Objectives
by Chemical & allied, Services and Electronics and electronics equipment. introduction
What are EPZs and EOUS?
7.2.1 Eligibility and Approvals
6.9 KEY WORDS 7.2.2 Benefits and Facilities
7.2.3 ~ x p o r Pcrforrnmce
t
Foreign Direct investment: Refers to investment in a foreign country where investor retains Special Economic Zone (SEZ)
control over the investment. 7.3.1 Approvals and Criteria
7.3.2 Benefits and Facilities
~ ~ ~H o f ~Tradingi ~ Houses,
~ Star~ Trading
~ Houses
, and Superstar Trading
Foreign Institutional Investor: Financial institutions who invest money in a foreign country.
Houses
Portfolio Investment: An investment in a foreign country where the investing paay does not 7.4.1 Eligibility Criteria
seek control over the investment. 7.4.2 Benefits and Facilities
Let Us S u ~ nUp
Key Words
Answers to Check Your Progress
6.10 ANSWERS TO CHECK YOUR PROGRESS
Terminal Questions
A4 i) True ii) False iii) True iv) True v) False

EL4 i) True ii) False iii) Rise iv) True v) False

7.0 OBJECTIVES
6.1 1 TERMINAL QUESTIONS After studying this unit, you should be able to:

I. r define EPZs and EOUs

What are the objectives of new industrial policy? Analyse the main features of the
policy. 9 describe the eligibility and approval criteria
Do you think that the new industrial poiicy has a favourable impact on the economy.
explain the benefits and facilities providedto such units
Discuss.
3. Do you think that the foreign investment is better than borrowings. Discuss. describe the export performance of EPZs & EOUs
4. Describe the main features of the recent foreign investment policy of India. e define the Special Economic Zone
5. Analyse the inflow of FDI in reference to countries and the industries. e explain the benefits and facilities given to SEZs
6. Evaluate the foreign investment policy of India. r describe various status of Export Houses

r discuss the benefits and facilities provided to Export Houses.

7.1 INTRODUCTION
Expon promotion policy is directed to ensure larger exportable supluses. Larger surplus
requires more production activity. EPZiEOUISEZ units have been created to increare produc-
y import of all types of inputs are ermined to
tion base for the export purposes. ~ u t free
such units alongwith several incentives to enhance the exports. Besides exporters having a
record of export performance over the years are granted the status of various categories of
Export Houses. In this unit, you will learn the procedures, facilities and benefits of EPZS,
EOUEand S,EZs. You will be further acquainted with the criteria, benefits and facilities of
various categories of Export Houses.
m lnstit"tin"u' Pmmer~w"
I'c~licica
Foreign investment
invesmentl
policy has been further liberalired in India In order to augment foreign 7 EXPORT PROCESS^^
lnvesment f'romotion Board has been restructured and the pmcedures
have been streamlined A new Foreign Investment Promotion Counci] has been constituted NTED UNITS
policy guidelines and approach for enlarging FDI into the counby, in the recent
foreign illvestmentpolicy, several initiatives have been taken by the government to enhance EXPORT HOUSES
the flow of FDI in India.

India has witnessed an increase in foreign investment from 1991-92 to 1996-97 Thereafter, it ~truciure
hasdecelerated. Mauritius is the dominant source of inflow followed by USA, Japan, Nether-
lands and Germany in 1998.Engineering sector has been the largest recipient of FDJfollowed 7.0 Objectives
by Chemical 8: allied, Services and Elecwonics and electronics equipment. 7.1 introduction
,-,
,
What are EPZS and EoUs7
7.2.1 Eligibility and Ap~roval~
6-9 KEY WORDS 7.2.2
7.2.3
Benefits and Facilities
~xportPerformance
7.3 Special Economic Zone (SEZ)
Foreign Direct Refers to investment in a foreign countrywhere investor
control over the investment, 7.3.1
7.3.2 A ~ ~ ~ O Vand
D ~Criteria
S
Benefits and Facilities
Trading Houses, star Trading Houses and SuperstarTrading
7a
Institutional Investor: Financial Instihtions who invest money in a foreign countw, Houses
Portfolio Investment: An investment in a foreign counny where the investing pa@ does not 7.4.1 Eligibility Criteria
seek control over the investment. 7.4.2 Benefits and Facilities
7.5 Let Us Sum Up
7.6 Key Words
Answers to Check Your Progress
6.10 ANSWERS TO CHECK YOUR PROGRESS 7.7
. 7.8 Terminal Questions
A4 i) True ii) False ni) True iv) True v) False

84 i) True ii) h l s e iii) False iv) True v) False

7.0 OBJECTIVES
6.1 1 TERMINAL QUESTIONS After studying this unit, you should be able to:

I. What are the objectives of new industrial policy? Analyse the main features of the 0 define EPZs and EOUs
policy. e describe the eligibility and approval criteria
2. Do you think that the new industiial policy has a favourable impact on the economy.
e explain the benefits and facilities provided .to such units
Discuss.
3 Do you think that the foreign investment is better than borrowings. Discuss. e describe the export.performance of EPZS & EOUs

4. Describe the main features ofthe recent foreign investment pplicy of India. define the Special Economic Zone
5. Analyse the inflow of FDI in reference to countries and the industries. e explain the benefits and facilities given to SEzs
6. Evaluate the!oreign investment policy of India. e describe various status of Export Houses

e discuss the benefits and facilities provided to Expon Houses.

7.1 INTRODUCTION
Export promotion policy is directed to ensure larger exportable sutPluses. Larger surplus
requires more production activity. EPZIEOUISEZ units have been created to increase produc-
tion base for the export purposes. Duty free import of all types of inputs are permiced t~
such units alongwith several incentives to enhance the expolts. Besides expartern having
record of export performance over the years are granted the stabs of various categories of
Export Houses. In this unit, you will learn the procedures, facilities and benefits of EPZs,
EOUs and SEZs. You will be further acquainted with the criteria, benefits and facilities of
various categories of Export Houses.
I~lstitutional Framework
Export Processing Zones,
Policies 7.2 WHAT ARE EPZs AND EOUs? -
Export Oriented Units
Export Oriented Units and Export Houses
--
Free Trade Zones1Exp01-tProcessing Zones are industrial estates which f o m enclaves within
the national customs territory and are usually situated near international port andlor ailpoa. Thescl~eineof Export Oriented Units (EOUs) came into being on Decelnber 31, 1980 as an
The entire production of such Zones is normally exported. Imports of raw materials, jnterme- extension of the scheme of Free Trade Zones. It is complementa~to the EPZ Scheme. There
diate products, equipment & machinery required for export production are not subject to the is hardly any difference between an Export Oriented Unit located inside the Zone and an
payment of customs duty. A characteristic feature of EPZs is the speed and simplicity of ExportOriented Unit located outside the Zone or say Domestic Tariff Area (DTA). It adopts
import and export transactions. Time consuming customs procedures on import into the the same production regime but offers a wide option in locations with reference to factors like
Zones and exports from the Zones are kept to minimum. source of raw materials, ports of export hinterland facilities, availability of tecl~nological
existence of an industrial base and the need for a large area of land for the project.
EPZs are created by developing countries for the purpose of promoting the development of ExDon
-.
- Oriented Units irrespective of their location are treated like any unit located in EPZ as
export-oriented manufacturing industries. The zones are intended to pmvided an intemation- far as incentives and facilities are concerned.
ally competitive duty-free environment forexport production at low cost. This enables the
products of EPZs to be competitive both quality-wise and price-wise, in the international In matters of infrastructure, Expo" Processing Zones provide basic infrastructure such as
market. Foreign investment is expected to provide the main impetus. The objectives for developed land for construction of factory sheds, standard design factory buildings provid-
setting up of EPZs generally are as follow: ing ready-built sheds, roads, power, water supply and drainage. In addition, customs clear-
ance is arranged with the zones at no extra charge. Provision is made for locating banking1
i) Generating foreign exchange earnings post facilities and offices of clearing agents in the Service Centres located in each of
ii) Creating employment opportunities the zones. In the case of EOUs they have to put up their own infrastructure. Basic facilities
such ss developed plots, ready built factory pre~nises,power, water supply, sewerage and
iii) Attracting foreign capital internal roads have been provided in all the zones.
iv) Transfer technology (anracting advanced technology) Expan Proeessi,Ig Zones and ~ ~ oriented
~ ~ , Units - t Schemes are conceived as instrumentsOf
Oriented Units
V) A W i r i n g and upgrading labour lnanagrment is, and export proll,otion, Various incentives and facilities are offered to the
produds internationallycompetitive. Siace the EOUs operate in a duty free'
make
vi) Linkages between EPZ industries and the domestic economy. competitive environmentwit11 various incentives and facilities? they are
hassle-free of
truly as instrLlmentsof export promotion with the main
The
established in India in 1965 was known by the name ofKandla Free Trade foreign exchange.
Zone' The 'Ones that were set up subsequently were named as E~~~~ processing Zones to
emphasise that the zones must concentrate on production and value-addition.
7.2.1 Eligibility and AI?provals
Export Processing Zones in India
Units undertaking to export their e'ntirs production of goods and services may be set up
Seven Export Processing Zones are operating in the country. ~hese'are: under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ) Scheme.
1. Kandla Free Trade Zone (KFTZ), Kandla, Gujarat. Electronic Hardware Tecl~noloaPark (EHTP) Scheme or Software Technology park (STP)
Scheme. St~chunits may be engaged in ~~~aaufacture, services trading, development of
2 Santa Cruz Electronics Export Processing Zone (SEEPZ), Santa Cruz, Mumbai. software, agriculture, including agro-processing, aquaculture, animal husbandry, bio-technol-
3. Noida Export Processing Zones, Noida, UP. ogy, floriculture, l~orticulture,pisciculture, viticulture, poulhy, sericulture and granties and
may export all products except prohibited items of exports in 1TC (HS).
4. Madras Export Processing Zones, Chennai.
5. Cochin Export Processing Zones. Cochin, Kerala. Net Foreign Exchange Earning as a Percentage of Exports (NBEP) and Minimum Export
Performance (EP): The unit shall be a net foreign exchange earner. The minimum Net
6. Falta Export Processing Zones, Falta, West Bengal. Foreign Exchange earning as a Percentage of Exports (NEEP) and the minimum Expo&
7. Visakhapatnom Export Processing Zone. Visakhapaham. Performance (EP) shnll be as specified in the Policy.

The Government has permitted develop~nentof Export processing Zones by the private. Stale Legal Undertaking: The unit shall execute a legal undenaking'with the Development
or joint sector. The Government of India appointed inter-Ministerial Committee already Com~nissioner
3
concerned and in the event of failure to fulfil the performance, as stipulated
cleared two proposals for setting up ofprivate EPZs in Mumbai and Surat. Establishtne~ilof would be liable to penalty.
another EPZ at Greater Noida by Covernn~e~~t of Umr Pradesh has also been cleared.
Approvals: Applications for EOUIEPZIEHTPISTPunits, satisfying the conditions may be
Export Promotion Industrial Park Scheme (EPLP) given approval within fifteen days by the concerned Development omm missioner of the EPZ.
In other cases, approval may be granted by the Board(s) of Approval (BOA) set up for this
A Centrally sponsored Export Promotion Industrial Park (EPIP) Scheme has been introduced purpose or Secretariat for lndustrial Assistance within 45 days, as the case may be.
in August 1994 with a view to involving the State Governments in the creation of
infrasbuctural facilities for export oriented production. 7.2.2 Benefits and Facilities
of EPZ and EOU. Let us discuss the benefits and
You have learnt the concept
The has far approved mafly for the establishment ofEPlps
in the StatesOf Punjab, Havan% Himachal Pradesh, Rajasthan, ~ ~Kerala,Tamil
~ ~ ~ bprovided,to them.
Nadu' Andhra pradeshy Uttar Pradesh, GujarZIt, Bihar, J&K, Assam,
Ben~al,Orissa and Meghalaya.
pradesh, ,nporta~i~ity of ~ ~An EOUWPZ~EHTPISTP
~ d ~ :unit may import without payment of dufy
types of goods, includillg capital goods required for manufacture, services*trading Or in
connEction therewith, g,he goods should not be prohibited ~kmsofirnpornin the IT' (")'

'nsti"'""n'l' ""~wrlrk These units may also procure goods required for manufacture, services, trading or in canner.
Policirs
tion therewith, without payment of duty, from bonded warehouses in the DTA. These units
may import, without payment of duty, all types of goods for creating a ckntrat facility for use
by software development units in STPIEHTPIEPZ. The central facility for software develop-
ment can also be accessed by units in the DTA for export of software. A n EOU engaged in
agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry or
sericulture may import without payment of duty only such gocds as are permitted to be
imported duty free under a Custom Notification issued in this behalf.
Second Hand Capital Goods: Second hand capital goods may also be imported.
DTA Sales: The entire production of EOUIEPZIEHTPISTP units shall be exported althogh,
DTA sale upto 50% of the FOB value of exports may be made subject to payment of appli-
cable duties and fulfilment ofminimum NFEP. No DTA sale shall be permissible in respect of
motor cars, alcollolic liquors and such other items as may be stipulated by Director General of
Foreign Trade by a Policy Notice issued in this behalf.
For services, including software units, sale in the DTA in any mode, including on-line data
communication, shall be permissible up to 50% of FOB value of exports andlor 50% of
foreign exchange earned, where payment for such services is received in free foreign ex-
change.
Rejects may be sold in the domestic tariff area (DTA), on prior intimatio'n to the customs
authority. Such sales shall be counted against. DTA sale entitlement
Other Supplies in DTA: The following supplies in DTA shall be counted towards fulfilment
of export performance and NFEP.
i) Supplies effected in DTA in terms of the policy.
i Supplies effected in DTA against payment in foreign exchange.
-
iii) Supplies to other EOUIEPZISEZIEHTPISTP units provided that such goods are
permissible for procurement in the Policy.
iv) Supplies made to bonded warehouses set up under the Policy. I improvement, up-gradation of technology and re-engineering activities for export in freely
V) Supply of goods against special entitlement of duty free import of goods.
vi)
-
Supply of goods to defence and internal security forces, foreign missionsldiplomats
provided they are entitled for duty free imports of such items in'terms of general
exemption notification issued by Minishy of Finance,
Export Through Status Holder: An EOUIEPZIEHTPISTPunit may expolt goods manufac-
tured by it through a merchant exporterlstatus holder recognised under this Policy or any
other EOU/EPZ/EHTP/STPunit.
Samples: EOUIEPZIEHTPISTP units may, on the basis ofrecords maintained by them, and or
prior intimation to custom authority:
supply or sell samples in the DTA for displaylmarket promotion; and
a) transfer goods to DTA for repairlreplacement, testing or calibration, quality testing
and R & D purpose.
Entitlement f o r s u ~ p l from
b the DTA: Supplies from the DTA to EOU/EPZ/EHTp/STp
units will be regarded as "deemed exports" and, besides being eligible for the relevant
entitlements of this Policy, will be eligible forthe followine:
u
0 Reimbursement of Central Sales Tax;
ii) Exemption from payment of Central Excise Duty on capital goods, components and
raw materials; and
iii) Discharge of EP, if any, on the supplier.
Export Processil~gZolles.
inter Unit Transfer: Transfer of manufactured goods fmm O ~ ~ E O U ~ E P Z ~ E H T unit
P ~ StoT P Export Oriented Units
and Export Hou!seu
EOUIEPZ~EHTPISTPunit will be allowed.
sub Contracting: The EOUIEPZIEHTPISTP units may, on the basis of annual permission
from the Assistant commissioner of Customs, sub-contract part of their production process
in DTA, This may also i n ~ o l v echange of form or nature of the goods, through job work by
.nits in the DTA. These units may also sub-contract up to 50% of production for job work in
DTA with the permission of Assistant Commi~~ioner of Customs. Sub-contracting of both
production and production process may also be undertaken through other EOUIEPZIEHTPI
STP units on the basis of records maintained in the unit.
sale of Un-Utilised Material: In case an EOUIEPZIEHTPISTP unit is unable, for valid
reasons, to utilise the goods, it may dispose them in the DTA on payment of applicable
duties and submission of irnport licence, by DTA unit, whereever applicable, or kxport.
Supply from one EOUIEPZIEHTPISTP unit to another such unit would also be treated as
import. Capital goods and spares that have become obsoletelsurplus may either be exported
with the prior permission of the Development Commissioner or disposed of in the DTA
subject to payment of applicable duties.
Disposal of Scrap/WastelRemnants: Scraplwastelremnants arising out of production
process or in connection therewith may be sold or disposed of in the DTA on payment of
applicable duties or exported. However, there shall be no dutiesltaxes on su& scraplwastel
remnants in case the same are destroyed with the permission of Customs authotity.
Trading Units: Trading units may be set up subject to achievement of positiveNFEP and
prescribed export performance. Trading units may impolflprocure from domestic tariff area all
types of goods without payment of customslexcise duty for the purpose of exports or supply
to other EOUIEPZIEHTPISTP units or against valid advance licences o r specific duty fiee
import entitlements.
Reconditioning Repair and Re-Engineering: EWIEPUEHTPISTP units may be permitted to
import goods of any origin to carry out reconditioning repair, testing, calibration, quality
convertible foreign currency.
Period of Bonding: The initial bonding period for units under the EOUIEPZEHVISTP
Schemes shall be 5 years. This period may be extended further by the Development Comrnis-
Debonding: Subject to the approval of the Development Commissioner, EOUIEPWEHTPISTP
units may be debonded. Such debonding shall be subject to penalty, if any, that lnay be
imposed and payment of duties of Customs and Excise applicable at the time of debonding.
An EOUIEPZIEHTPISTP unit may also be permitted by the Development Commissioner, as a
one time option, to debond on payment of duty on capital goods under the prevailing EPCG
Schemes, subject to the unit satisfying the eligibility criteria and standard conditions.
7.2.3 Export Performance
The export from India's Export Processing Zones has increased from Rs. 907 crore in 1990-91
to Rs. 4817 crore in 1997-98. The export from EPZs has been increasing but the contribution
in total Indian export is marginal. In the year 1997.98, the contribution of EPZs export to total
India's expan was only 3.8%. The expod from EOUs has also increased from Rs. 698 crore in
1990-9l to Rs. 9697 crore in 1997-98. The share of EOUs export to India's total export
7.7%in the year 1997-98, Adequate effort and conducive environment require to be created
to enhance the ~ubstantialshare of export of EPZ & EOUs units to the total expoe of India.
Look at Table 7,1 which shows export Ram EPZs and EOUs.
 Table7-) Exports from EpZs and E O U ~ Export Proeessl?g Zones,
/"ay be imported procured fmln DTA, without payment of duty for the puvose of manuface Export Oriented Units
(Rs. crore) services, production, processing, assembling, trading, repair, ~ - a ~ n d i t i o n - and Export Houses
prb,-,f goods
Ycar EPZs in,,, re-enpineerinp, packaging,or in connection therewith and expod thereof. A SEZ may be
1990-91 907
EOUs
698
Total
1605
- up in the private, joint sector or by State Government as notified by the Ministry
1993-94 1960 DfC~mmerce and industv. The existing Export Processing Zone3 (EpZs) may also be
3086 5046
1995-96 converredinto SEZ by the Ministry of Commerce and 111du~Wythrough issue of a notifica-
3236 7009
1996-97 10245 tioq.
4339 8729 13068
1997-98 4817 9697 14514 3.3.1
*. Approvals
- and Criteria
Source: Statistical Outllne of lndia, 1999-2040.
*
pmposnls for setting up of units in SEZ will be approved by the Development Commis-
Clleck Your Progress A sioner Specific approval will be for (a) manufacturing. (b) trading, including re-
lqbelling, lninqr processing, (c) reconditioning, repair, re-engineering etc. and (d) for
What do you mean by Export Processing zone? !k~ice-acfivity.

~ostive.Foreign Exchange Earning: SEZ unit, including gem and jewellery unit, shall
qchicre
.., , - positive NFEP innually and cumulatively as per the policy. Trading SEZ units shall
c

afljieye ;turoier of US$ 1 ?nillionin 5 years.

............................................
--**-**.......-. .........E..................................... pimu mum investmcny: The lninimum investment in building plant and machinery by unit in
existing
......................................................................... Bpecial ~conolnic Zone shall be Rs. 50.00 lakhs. "l%is would, howevery not
................................... pe&unit
. , . cooverting
. inti's^^ scheme,
2) What is S~b-cofitractin~?
7. ..3.2 Benefits and Facilities
.....~.~...~....~.'...........)..".....I........~.~........................~....~....~.............)...~
YPU have lerrmt tl,e concept of EPZ. Let us now discuss the benefits facilities provided
................................................................................. ...........
t~ thev :
.....................'... ...........-., 7.-.*...-...........)..................,..,....,a..,e...,a Tp@ingIveld i1,g Labling, Re-Packing. Minor Processing: Units set up in SEZ for
., . .

qq4~g~;il,c!udingiabel[ilg, re-packing, minor pmcessing, may i l l l ~ o r t Or procure goods from

..
...*4~.~~~..~.....~~..m...~~...~....-................(.......................I~.....................~....
DTA or froln 9tber , $ ~ ~ / F O U / E J Junits
Z without payolent of duty for physical exportsOr sale
3, What do YOU mean by DTA sale? to (lt17grS E Z I E Q
units ~ ~~~
or against d ~fa i
n Licences
ce and special duty free

Heconditioning Repair and Re-Engineering: Goods may be impolfed or procured locally for
physical export in freely convertible foreign currency after reconditioning, repair or re-
engineering.

4) State whether the following statements are True or False.
i) An EOUIEPZIEHTPISTP unit nray impon without payment of duty aU types of
goods.
2) Applications for EPZ units satisfying the conditions, may be given approval
within 7 days by the concerned DC.
ii0 DTA sales upto 80% of the FOB value ofexports may be made by EPZ units.
iv) The units located in EPZ may export goods through a merchant exporter.
v) Supplies from the DTA to EPZ units will be regarded as deemed expocs.
7.3 SPECIAL ECONOMIC ZONF (SFZ)
Special Economic Zone (SEZ) is a specifically delineated duty m e e~~glave an4 shall be
deemed to be foreign territory for the purposes of trade operations and duties pnd tariffs.
Goods going into the SEZ ares shall be treated as deemed expons and goods coming from
46
the SEZ area into DTA shall be treated as if the goods are being imported. In any SEZ.goods
sale in QTA: SEZ unit may sell goods, including by-products, and services inDTA. The sale
s!~quldbe in accordance with the import policy in force, subject to achievement of positive
NFEP.
.-. annually and cumulatively, and on payment of applicable duty. No DTA sale sl~allbe
permitted to trading SEZ unit.
Sale/Disposnl of RgiactsNYaste/ScraflRemn.nb in DTA: Scrap/wastelremnants/fejects
arising out of production process or in connection therewith may be sold in the DTA on
payment of applicable duty. No duty shall be payable in case scrap/waste/remnsnts~rejects
are destroyed within the Zone after intimation to the Customs authorities or.des~oyed
outside tlie SEZ with prior permission of the Custom authorities.
Syb(pgtraeting: SEZ unit may subcontract a part oftheir product or production process in
file C)TA ydth ills pennission of custom authorities. ~b subcontracting shall be permissible
f.* ~-&m
; and jewellev uijts.
.Iq$gr5vgitTra~sf$r:[qter-upit transfer of goodf a ~ ~ n gSEz
S t units shall not require any
permission bui the units'ihall'maibtain proper account of the transaction.
Bp(f-Ccrtifi:qti~n: All activities of the SEZ unit, unless otherwise specified, will be through
alf-certificatim pmcedur? and shall be monitored by a committee headed by the Develop-
~nentCommissioner and consisting of officials of the Zone and Customs.
 E x p o r t Processing Z o ~ l e s ,
illstilliun a ' E x p o r t Oriented Units
I'olicics Administration of SEZ: SEZ shall be under the administrative conk01 of the Develop~neot ~iiadeby the person. However, the value of freely transferable SIL, EPCG licences and the mnd Export I i o u ~ e S
Commissioner. value of licences surrendered during the validity of licence shall not be deducted.
Recognition for State corporation^: With a view to encouraging pa*icipation of State
Transitional Armngements: An existing EPZ unit will have the following options: Governments and union ~ ~ ~ ~ ini exportt ~ ~promotion,
i e s one state cor~orationnominated by
i, . conversion, its previous obligations as an E ~ unit
It can Opt for SEZ s ~ h t m eOn Z the respective State ~ ~ ~ ~ ~ ~Terrimry ~ ~ may / U n asi an~ n
~ bel rec0gnised
be subsumed be
its obligations under the SEZ scheme. even il,ough the criterion for such recognition is no! fulfilled by it. This hefit
only for such period and in accordance with such termsand conditions as may be
ii) In case an existing EPZ decides not to opt for SEZ, it can either conven into an EOU
Or debOnd*In both the cases the unit shall physica]ly move out ofthe SEZ. specified from time to time.

period: Status certificate shall be valid for aperiod of three Years stafiing
In
April,of the licensing year during which the application for the grant Of such recognition is
7*4 HOUSES, TRADING HOUSES, STAR unless otherwise specified.
TRADING HOUSES AND SUPERSTAR TRQDING
HOUSES 7.4.2 Benefits and Facilities
Theobjective O f t h e scheme is to recognise established exporters as ~~~~nH ~~ ~ ~ ~ ~~ ,d ~i ~~ ~~Houses/Star
~ Trading
~ Houses
~ and
/ ~
Star Trading
~
Houses
~
are
d i ~ ~
Star Trading FIouse and Super Star Trading House wifh a view to building marketing entitled to following benefits and facilities:
infrastructure and expertise required for export promotioll, such Houses should operate as
~h~~ are entitled to avail the facilities of Duty Entitlement Passbook Scheme'
highly professional and dynamic institutions and act as imponant instruments ofexporf 9 Advance licence for physical export, intermediate supplies and deemed
growth.
- .-
automatic licence and legal undertaking.
7.4.1 Eligibility Criteria They are permitted to maintain foreign currency accounts for settlement of payment
ii)
for import, repayment of foreign currency loans and expenditure to be incurred for
Merchant as well as Manufacturer exporters, Service providers, Export Oriented Units certain purpose approved by RBI. Alternatively they may open, maintain and operate
(EOUs)/units located in Export Pmcessing Zones (EPZs)/ Special Economic Zone (SEZ'sY Exchange Earners ~ d r e i ~currency
n Accounts at designated branches of authorised
Electronic Hardware Technology Parks (EHTPs)/Soflware Technology Parks (STPs) shall be dealers in India.
eligible for such recognition.
iii) Tliey may avail the facility of marketing development assistance.
Criterion for Recognition: The eligibility criterion for such recognition shall be on the basis iv) Tlie other facilities include: preference in training of personnel, trade delegations.
of the FOBflFE value of export of goods and services, including software exports made ~ne~itbership of apex body, exemption from pre-shipment inspection, green channel
directly, as well as on the basis of services rendered by the service provider during the facility, etc.
preceding three licensing years or the preceding licensing year, at the option of the exporter.
The exports made, both in free foreign exchange and in lndian Rupees, shall be taken into Golden Status Certificate: Exporters who have atfained Export House. Trading House, Star
account for the purpose of recognition. TradinqHouses and Super Star Trading Houses status for three terms or more and continue
to export shall be eligible for golden status certificate. This certificate would enable them to
Exports made by Subsidiary Company: The exports made by a subsidiary of a limited com- eniov the benefits of status certificate irrespective oftheir actual performance thereafter as
pany shall be counted towards export performance ofthe limited company for the purpose of
recognition. For this purpose, the company shall have the majority share holding in the .
subsidiary company. The level ofexport performance for the purpose of recognition has been Check Your Progress B
shown in Table 7.2.
. 1) What do you mean by Special Economic Zone?
Table 7.2 Level of Export Performance

Category Average FOB FOB value during Average NFE NFE earned
value during the preceding earnings made during the
the preceding licensing year, during the preceding
three licensing in Rupees preceding licensing yen r,
years, in Rupees three licensing in Rupees
years, in Rupees ............................................................................................................
Export House 15 crores 22 crores I 2 crores 18 crores
Trading Hause 75 crores 1 12 crores 2) Distinguish between Export Houses and Trading Houses.
62 crores 90 crores
Star Trading House 375 crores 560 crores 3 12 crores 450 crores
Super Star Trading 1125 crores 1680 crores 937 crores 1350 crores
House

csleulation o?Net Foreign Exchange: For the purpose of calculation of the Net Foreign
Exchange earned on exports, the value of all the licences including the value of 2.5 times of
the DEPB Credit eamedfgranted and the value of duty free gold/silver/platinum taken from
nominated agency or from foreign supplier shall be deducted from the FOB value of exports
 i ~ i s t i t u t i n t i1il.anlcwork
~~ 3) What is golden status certificate? 1Srptrrt Proccuni~~gZoncs,
PoIicies - Export Orlented 1111its
............................................................................................................ 7.7 ANSWERS TO CHECK YOUR PROGRESS and Expot-t llousrs

iv) True v) True

............................................................................................................ A4 i ) True ii) False iii) False
# i) false i i ) True iii) False iv) True v) True

7.8 TERMINAL QUESTIONS

4) State whether the following statements are True or False. I. Wlint do you mean by Export Processins Zone? Explain the benefits and facilities
i) Trading SEZ units shall achieve a turnover of US$ 1 million in 1 year. nrovided to tlie units located in EPZ.
I-

ii) No DTA sale shall be permitted to trading SEZ unit. Do you think thct EPZs and EOUs have contributed substantially to India's total
expo1.t. Discuss.
iii) An existing EPZ unit cannot opt for SEZ scheme.
what is soccinl Economic Zone? Describe the benefits and facilities provided to
iv) Status certificate for Export House shall be valid for a period of three years.
-..... - .

v) Exporters who have attained the status of Export House for three tenns or more Wliat are the eligibility criteria for various categories of Export Houses. ~ e s c r i b ethe
4
and continue to expor-t shall be eligible for golden status certificate.
benefits and facilities provided to such Export Houses.

--
7.5 LET US SUM UP
The EPZ/EOU/SEZ Scheme as well as the Export Houses, Trading Houses, Star Trading
Houses and Super Star Trading Houses Scheme are designed to act as important instnrments
of export growth.

Both the EPZ and EOU Schemes have been essentially encouraging export production with
value addition. They have helped entrepreneurs to undertake production exclusivety for
export purposes, with the help of many incentives and facilities while imposing certain
obligations.

The Scheme of Export Houses, Trading Houses, Star Trading Houses and Super Star Trading
Houses was mainly intended to build up the marketing infrastructure and expertise required
for export promotion. The Scheme has achieved the objective as around 75 per cent of
country's exports are handled by these houses. The increasing number of these houses over
the years reflects the success of the scheme. In the context of globalisation, the Governtnerlt
and the industry and trade should endeavour to streamline the number of these houses in
such a manner as to ensure global competitiveness. !ndia may have to learn some lesson
from Japanese trading houses.

7.6 KEY WORDS

Actual User: A person who utilise tlie imported goods for manufacturing in his own indus-
trial unit or manufacturing for his own use in another unit including a jobbing unit.

Capital Goods: Any plant, machinery, equipment or accessories required for manufacture or
production of goods or for rendering services.

Manufacturer Exporter: A person who exports goods manufactured by him or intend to

export such goods.

Merchant Exporter: A person engaged in trading activity and expol-ting or intending to

export goods.

Third Party Export: Exports made by an exporter or manufacturer on belialf ofa third party.

a .

50
~ ~ ~ ~ ~ I ~III ,v~ II II I ~~ . IN I< II ~
~ ~I
I * I $ I Il r~\ SOME USEFUL BOOKS
fisport l~nportPolicy, Ministry of Commerce, Government of India (Recent edition), New
1)clhi. J ~ ~ < ( ] ) gz , ~/ip5j
~ jJ) /j A,
'1 3, !if"t i ,<, L\<. jy
~""'~~.,~:? J,!!
%
.
4' K tb4,I l l I'E
"
XI i
"-I ,

N;lbhis's Expot-ters Manual and Documentation, A Nabhi Publication (Recent edition), New
Dehi

Ram Paras, Export- What, Where, How (Recent edition), Anupam Publisher, DeIhi. I'dO%
Ministry of Finance, Government of India, Economic Survey, 1999-2000,New DeIhi.
I tI:bBUJtRIiGP4'FTlkAEaadK: APJ OVi~~IWl!K,'9/"i~
Unit-1 India's Foreign Trade
Unit-' India's Balance of Payments
Unit-3 India and World Trade
- -
2 INr$'tru-Q'uj$IQIh.SAfl, [i;'P?,Al;ldB3\%'OB?B<ANBP BbO\l,[( 'IIIl*:Bi
Uni t-4 Export Prornotitln in India
Uni t-5 Trade Policy
Utli t-6 Industrial and Investtncnt Policy
Uni t-7 Export Processing Zones, Expart Oriented Units and Jispor~I~IOLISCS~

3 WlTtiEl SEI,GC'iT %'Rf1lBEiJC"f S - B

T@jr\DF;:PBPOSPEC.'"$I'R
Unit-& Agricultural Products (Tncluding Marine Products)
Unit-9 Textiles a d Garments .
Unit-10 Gems and Je~ellery& hnndicrafts
Unit-1 I Leather Products

4 TRADE PCBOSPKCTS Wl'l'BB GEKEEJEC'EI' ef'PtlB.lI)ELIC'FTS 11

Unit-1 2 Electronics Commodities
Unit- 13 Engineering Goods
Unit-14 Chcmical Goods
Unit-15 Sellricei

5 T M D E PROSPECTS OF SELECT h4ARMIYB S

Unit-16 United States of America
Unit- 17 European Union and CIS Coul~trics
Unit-1 8 Japan
Unit-1 9 ASEAN and SAARC
Unit-20 West Asia