Export Promotion and import

Substitution Notes of Entrepreneurship

Export Promotion and import Substitution Notes of Entrepreneurship :- Hello friends in
this post we are provided the materials of the b.com second part its name is fundamental
of Business Entrepreneurship notes and its the first chapter of this subject and in this article
you learn many more knowledge of Entrepreneurship like as Difficulties in export
promotion, types of commercial policy, main features of export import policy 2002-07 ,
Problems of import substitution in india, suggestions to overcome the problem of
import substitution, Meaning of export Promotion, Critical Evaluation of the policy of
import substitution and export promotion

Export Promotion and Import Substitution

What do you mean by Export Promotion ? What are the difficulties in this regard ?

MEAN EXPORT PROMOTION

Export promotion comprises all those government and non-government efforts, rules,
procedures, courses of action and techniques which are adopted to boost our exports in
terms of value as well as in volume. Thus all those measures, schemes,
policies, procedures and methods which are adopted for increasing export are known as
export promotion measures. In order to attain the objective of self-reliance every country
is keenly interested to expand its exports.

DIFFICULTIES IN EXPORT PROMOTION

If we view from the world angle we shall find that in the world export, India’s export have
been regularly decreasing from the time of independence. India’s share in the total
foreign trade of the world was 11% whereas now it has greatly decreased, A brief
account, of the major drawbacks of India’s export sector is given below

1. Technological Factors : Technological problems have very seri0US effect on India’s

exports. The Tandon Committee and Alexander Committee have referred to the adverse
‘impact of technological backwardness on India’s exports through poor quality, low
productivity, high costs, etc.
2. High Costs : In a large number of cases, high domestic costs are an inhibiting factor.
This problem has been clearly stated by Abid Hussain Committee, “India is often at a
disadvantage vis-a-vis competing countries because its costs of production, and
hence export price, are higher than in competing countries. It is not only because of the
higher prices of importable and non-traded inputs, or because of time and cost over-
runs implicit in managerial inefficiency, but also because of much lower level of
productivity, all of which stem from the aforesaid problems.”

3. Poor Quality Image : India has a poor quality image abroad. Despite the measures
taken under the Exports (Quality Control and Inspection) Act and other laws, our exports
continue to suffer because ofquality problems. Poor quality and inadequacy of inputs,
technology and facilities affect the product quality. In several instances, carelessness or
lack of commitment on the part of the exporters is also responsible. Adulteration and
dumping are also not uncommon. There is a general impression that a proper export
culture is lacking in India.

4. Unreliability : Besides quality, Indian exporters have been regarded as unreliable on

certain other factors. As the Tandon Committee has observed, a very important black
mark on the Indian exporters is reneging a term used in the USA to refer to going
back on a contract and refusing to fulfil it on its original terms.

5. Supply Problems : A serious drawback of the Indian export sector is its inability to
provide continuous and smooth supply in adequate quantities in respect of several
products. The problem is that much of the exporting is the result of the residual
approach rather than conscious effort of producing for export. The tendency for
exporting what we produce rather than producing for export still continues to
characterise the export behaviour.

6. Faceless Presence Although India is an important SUpplier of several commodities in

foreign markets, her presence in these markets is faceless in the sense that the
consumers do not, know that these commodities are Indian. Major export items of India
like sea-foods, leather manufactures, spices, etc., have in many cases, a faceless presence
in foreign markets. Although these exports may undergo further processing or
repackaging in many cases. In several cases the Indian exports are sold in the
foreign markets in the same condition as they are exported but under foreign brand
names. It has also been found that when the product carries a foreign brand name
sometimes they fetch a much higher price than the same product with an Indian
name. This is indeed a vicious circle. The poor quality image of the Indian products,
many a time apparent than real, makes it difficult to sell under Indian brand names. The
faceless presence, on the other hand, perpetuates the problem. The faceless presence is
the result of the failure of the exporters and- export promotion agencies in India to build
up an image for Indian goods abroad. In fact, most bulk importers of Indian goods want
this situation to be perpetuated as this enables them to hold control over the market
while the exporters, being at the mercy of the foreign traders, lose bargaining power.
7. Infrastructural Bottlenecks : Infrastructural shortages such as energy shortages,
inadequate and unreliable transport and communication facilities hinder growth in
exports. Power shortages and breakdowns disrupt production schedules, increase cost
and adversely affect timely shipments.

8. Uncertainties, Procedural Complexities and Institutional Rigidities : One of the defects

of our trade policy regime has been the uncertainty about future policies,
incentive schemes etc. The procedural complexities of the Indian trade regime have been
indisputably acknowledged. There is a general feeling that not only that there are too
many controls and overlapping of policies but also “the principle of Indian policy is to
elaborate rule (and exceptions) to them, which are not only detailed and specific, but
also subject to wide discretion.” These are vindictive of the structural weakness of the
institution system in India,

9. Inadequacy of Trade Information System : An efficient Trade Information System is

essential for success in the dynamic global market. But, “our marketing infrastructure as
well as marketing techniques are neither effective nor efficient. We do not have any
machinery to keep prompt track of business informati0n overseas, as done by JETRO in
Japan, KOTRA in Korea, CETDC in Hong Kong and STDB in Singapore with a wide
network of offices abroad. These organisations have evolved an efficient system,
which help them to get information pertaining to tenders and the like much before these
are released officially. In India, we get this information, at times, after the expiry date.
India has, no doubt, a plethora of organisations; governmental, semi-governmental and
also non-governmental engaged in this task in one way or other. Yet we do not have an
easy access to market intelligence and information.

Discuss various measures taken by Government of India for promotion of exports.

Ans. Export promotion refers to the policy of the govt. designed to encourage the
exporters to export more goods from the country than before. In the words of Sh. L. N.
Mishra, Former Union Minister of Foreign Trade, “Exports are life line and motive
power for economic growth and development.” Export promotion refers to those policies
and measures which can result into maximum increase in the exports of a country.

Main objectives of export promotion comprise of (i) correcting unfavourable balance of

trade (ii) to reduce foreign loans, (iii) to achieve self-reliance (iv) export of new products
(v) to defray the cost ofdefence imports, to ensure successful planning etc. Increasing
number of entrepreneurs are taking benefit of incentives and facilities offered by the
government to 100% export oriented units or units set up in Export Processing Zones
(EPZ) or Free Trade Zones (FTZ). Such units may be engaged in manufacture, software
development, horticulture, agriculture, animal husbandary etc. In order to help
entrepreneurs to promote exports oriented units, government of India has helped the
entrepreneurs to set up following types of exporting units/zones.
(1) Export oriented Units : The entrepreneurs can set up unit of any type for export
purpose anywhere in the country. If the exports are 75 percent or more of production it
is called export oriented unit. Such units are allowed to import inputs without payment
of import duty and are allowed to produce for exports without payment ofexcise duty,
otherwise leviable on such goods. It provides the facility to an entrepreneur to reduce its
working capital needs and also saves the botheration first to pay the customs and excise
duties and then claim refund on that part which is exported.

(2) Export Processing Zone (EPZ) and Special Economic Zone (SEZ) : Export Processing
Zone (EPZ) is an industrial estate established by the Central Government. On
the contrary, Special Economic Zone (SEZ) is an industrial estate established by State
Government. -In both these estates, Export oriented units are established, developed and
expanded. Important facilities provided in these estates are .

(i) Plant, land and building either on purchase price at cheaper rate or on lease.

(ii) Duty free import of capital goods and equipments.

(iii) No licence needed for import. of capital goods, raw-materials, consumables, spare-
parts etc.

(iv) Export finance at concessional rate of interest.

(v) Automatic approval to proposals by the Development commissioner.

(vi) Complete exemption from income tax. Assur

(vii) ed power supply.Teleph

(viii) one, Telex, cement, steel etc. on priority basis.

(3) Establishment of Export Development Centres : A network of Export Development

Centres has been established through the Small Industries Development Organisation
(SIDO) to boost promotion of export by small scale business entrepreneurs. A number of
Export Promotion Councils have been set up to render advice on various aspects of
export promotion such as price, quality, packaging, marketing, transport, etc. It provides
the following types of assistance :

(i) Conducting market surveys.

(ii) Help ingin establishing trade contacts.

(iii) Settlement of trade disputes

(iv) Arranging trade fairs and exhibitions in foreign countries

(v) Publication of information, reports and directory Of exporters.

(vi) Administration of special export promotion schemes.

(4) Establishment of National Small Industries Corporation Ltd. (NSIC) : National Small
Industries Corporation Ltd. (NSIC) has been established as an Export House: It
has adopted a ‘single window’ service approach. NSIC renders the following services to
the entrepreneurs :

(5) (i) Assisting in obtaining enquiries, specifications and samples.

(ii) Assisting in development of product samples and sending them for approval of the
importers abroad.

(iii) Negotiating with foreign buyers. Handling documentation work. Rendering financial
assistance.

(iv) Arranging import of goods where ever necessary.

(v) Advance payment up to 90% of export incentives allowance.

(vi) Monitoring production and quality control. Arranging export.

(vii) Arranging deferred payment facility from EXIM Bank.

(5) Training Programmes : The govt. has also been supporting and providing assistance
to exporters for exhibiting their products in various international exhibitions. It has also
organised many training programmes on latest packaging standards, techniques etc. Not
only this, govt. providbs technical and managerial consultancy services to the
entrepreneurs through its institutions like NSIC, SIDO, TCOs, DICs etc. Besides, govt.
.has also given preference to SSIS in allocation of credit •through inclusion in priority
sector for lending purposes, provision of raw-materials, marketing support, facilities for
technology upgradation etc.

(6) Help to small scale sectors in exporting : Following schemes have been formulated to
help SSI in exporting their products :
(i) Products of SSI exporters are displayed in international exhibitions and the
expenditure incurred is met by the Government. The trade enquiries generated are
widely circulated;

(ii) In order to promote exports from the small-scale sector, manufacturer, exporters are
given triple weightage for the purpose of recognition as Export House Trading
House/ Star ‘Trading House/ Super Star Trading House;

(iii) In order to enable SSI units to avail benefits of Export Promotion Capital Goods,
imports of jigs, fixtures, dies, moulds to be allowed för the full ie value of the
licence instead of restricting it to 20 percent;

(iv) To acquaint SSI exporters with latest packaging standards, techniques, etc., training
programmes on packaging for exports are organised in various parts of the country,
in association with the Indian Institute of Packaging;

(v) Reimbursement of expenses incurred on adopting bar coding by EAN India up to Rs.
20,000.

MEANING OF EXPORT-IMPORT POLICY

International trade plays a vital role in the economic development of a country. The
policy which is framed to regulate, control and given right direction to foreign trade is
known as ‘Export-Import Policy’. This policy is also known as commercial policy of the
country. According to Prof. Haberler, “Trade policy or commercial policy refers all those
measures which regulate external economic relations of a country. These measures are
used by such Regional or Provincial Government which has power to either obstruct or
assist the export and import of goods and services. ” Generally, trade policy and
commercial policy are used as synonymous, but in real sense both differ from each
other. Commercial policy study the matters related to export and import only, whereas
trade policy in addition to this includes all other problems related to international
trade. Most of the developing countries have facing •the problem Of deficit in their
balance of trade, therefore they have to make efforts to reduce their imports and
promote exports. An appropriate and suitable trade policy can help the country to
reduce imports, increase exports, encourage import of foreign capital, encourage import
substitution, help domestic industry to compete better and protect it against dumping,
and administer foreign exchange properly.Thus, commercial policy is a reflector of
developmental plans and affects the ovarall economic development of a country.

TYPES OF COMMERCIAL POLICY

Commercial policy may be of following two types :

(1) Free Trade Policy : When no restrictions are imposed on imports and exports of
goods and services, it is known as free trade policy. In simple words, it is a situation
where nations do not impose custom duties or other taxes on the imports of goods from
other countries. In such a case, if country impose some taxes on imports,then it aims to
increase its revenue and not to restrict the imports.

(2) Protectionist Trade Policy : This policy refers to that situation in which government
impose restrictions on imports and exports of goods and services. According to H. L.
Hanson, the theory of protection refers to imposition of duties on imports in order
to protect home producers of these commodities by making foreign produced goods
dearer. This policy helps the developing countries in increasing investment and capital
formation and reducing the deficit of balance of payment.

MAIN FEATURES OF EXPORT-IMPORT POLICY (2002-07)

With the aims to increase India’s share in world trade to one percent from 0.6 percent,
the new Export-Import Policy (2002-07) was declared to 31st March, 2002. The policy is
all about exports, Imports have already been freed of quota and licensing
restrictions. The new policy now free, easy and possibly rewarding. Salient features of the
New EXIM policy are :

(1) Encouragement to Agricultural Exports : To promote agricultural exports, following

efforts have been made by the government :

(i) All quantitative restrictions on exports except a few sensitive item, have been removed

(ii) Transport subsidy for all processed fruits and vegetable, poultry and dairy products,
wheat and rice etc.

(iii) Special preference to agricultural exports by removing exports restrictions on

designated items.

(iv) To promote export of agro-based products in the floriculture and horticulture sector
have been sustained with the notification of Agriexport rt zones across the country.

(2) Various concessions to Special Economic Zones (SEZS) : Various concessions and
facilities provided in the special economic zones are as follows :

(3) These zones are exempted from the central sales tax. Permission for setting up the
offshore banking units which will provide financial facilities at international rates. To ease
the power situation in and around the SEZs, units for generation and distribution of
power have been permitted to be set up in these zones. The units established in these
regions will be exempted from income tax alongwith the exemption of excise duty. Banks
established in SEZs also enjoy the liberty in cash-reserve ratio and statutory liquidity
ratio. Small Scale and Cottage Industries : The new import-export policy gives emphasis
to improve the productivity and export competitiveness of small scale, cottage and
handicraft sector. For achieving the Export House status, the limit is reduced from Rs. 15
crore to Rs. 5 crore.

(4) Software and Hardware Sector : To promote hardware sector in the international
market, a special package has been announced for this sector. Electronic Hardware
Technology Park scheme has been modified to enable hardware sector to face the
zero duty regime and other export obligation for units in Electronic Hardware
Technology Parks. To increase exports of gems and jewelry, license regime has been
abolished.

(5) Export Promotion Schemes : To promote exports, more attractive and- flexible
schemes have been launched. Simple procedure has been introduced which include
abolition of DEEC Book and withdrawal ofAnnual Advance License, dispensation
with technical characteristics for audit purpose and 12 years export obligation period for
export promotion capital goods licenses of Rs. 100 crore or more.

(6) Emphasis on Market Access : The new EXIM Policy 2002-07 give emphasis to the
widening of the scope of the market access. It includes activities considered necessary
for a focused market promotion of exports, setting up of “Business Centre” in India for
ensuring a facilitatory environment for exporters transport subsidy for exports to units
located in specific areas and introduction offocus Africa to diversify markets.

(7) Other Improvements To reduce transaction, customs and banks costs,

procedural simplifications have been made in the new policy.

8 digits commodity classification system has been adopted for imports to eliminate the
classification disputes. This policy operationalise the procedure for duty free import of
fuel under the Advance Licensing Scheme, provided the license holder has a captive
power plant. Thus, it becomes clear that this policy is very liberal and export oriented,
but its success depends on the development of competitive power of the domestic
industries, labour productivity, quality and the minimum interferance of bureaucrates.
The free and liberal environment exert competitive pressure on domestic producers
and to that, extent, should help in keeping domestic prices under check and encourage
efficiency in the economy.

Q. What do you mean by import substitution Now-a-days what are the problems
of import substitution in India ? Suggest measures to overcome them.
Ans. Import Substitution : Import substitution means production of those goods which
are imported from foreign countries. Import substitution is essential for achieving
self sufficiency. Import substitution (i) reduces imports, (ii) increases self sufficiency, (iii)
source of earning valuable foreign currency like dollar, (iv) reduces imbalance in foreign
trade, (v) encourages industrial development, (vi) creates new sources of
employment, (vii) reduces foreign debts, (viii) save local currency, (ix)
reduces dependence on foreign countries, and (x) overall assistance in increasing
exports and rapid economic development of the country.

Entrepreneurs can play a vital role in the field of import substitution by establishing,
developing and expanding industries which can take up of production of such goods
which can be easily used as import substitution. Government is also providing
every Possible help both financial and non-financial to. entrepreneurs who are taking
interest in the production of those goods which can be used as import substitution.

PROBLEMS OF IMPORT-SUBSTITUTION IN INDIA

Following are the main problems of import substitution in India :

(1) High Production Cost at Initial Stage: Besides the raw material, certain other cost like
interest rates, higher price of importable and non traded inputs, technological factors
and low product,civil,y contribute to the high cost, of production in India Therefore,
commodities produced in the country have high prices in comparison to the imported
goods and consumers show, no interest in buying the goods produced for the intention
of import-substitution.

(2) Poor Quality of Production : Poor quality and inadequacy of inputs, technology and
facilities affect the product quality. Policy of import substitution proves unsuccessful due
to poor quality products.

(3) Ignorance of Consumers : Generally, people believe that imported goods are better
than the home products. This view attract them towards the imported goods and they
do not take interest in buying goods produced in the country. Policy of

(4) Lack of Essential Resources import-substitution becomes impractical due to lack of

resources essential for production. Inadequacy of capital and raw material, backwardness
of technology create hinderane in the way of import substitution.

(5) Dampens Innovation : Critics observe that such subsidised import substitution
generally limits competition, dampens innovation and productivity growth, and keeps
the country’s real income low.
(6) Ignores Specialisation : This approach ignores the benefits of specialisation and
comparative advantage. The consumers and the entire economy might be better off if
the emphasis on import substitution were replaced by an emphasis on outward
orientation.

(7) Discriminates Against Agriculture : Import substitution discriminated against

agriculture and favoured industry. It led to stagnation and impoverishment in rural This,
in turn, led to migration to the cities, necessitating the ‘unproductive’ type of
investments.

SUGGESTIONS TO OVERCOME PROBLEM OF IMPORT SUBSTITUTION

Import subStitution cannot followed indiscriminately in future plans, Following

considerations would have to tv given weight in any effective judicious choice of import
substitution :

(1) The guiding principle, which should outweigh all whether import-substituting
industries will make a contribution to India’s economic development through effcient
utilisation of local resources and also realise foreign exchange for more essential uses.

(2) Those industries should be included in the programme of import substitution where a
clear-cut cost advantage could be established.

(3) Only those industries should be included in the programme of import substitution
whose products have adequate domestic or international demand existing or potential.

(4) Import substitution programme should be chalked out in totality rather than in terms
of fragments and the growth of selected industries should be assisted through
appropriate investment policy and promotional measures.

(5) Cost and quality control should be the keynote of future policy.

(6) Government and industries should encourage research and development to improve
the quality ofgoods,

Question : What do you understand by import substitution and export promotion

? Which of the two is more appropriate for the development of Indian economy ?

Ans. MEANING OF IMPORT SUBSTITUTION

Import substitution means production of those goods which are imported from foreign
countries. Import substitution is essential for achieving self sufficiency. Import
substitution (i) reduces imports, (ii) increases self sufficiency, (iii) source of earning
valuable foreign currency like dollar, (iv) reduces imbalance in foreign trade,
(v) encourages industrial development, (vi) creates new sources of employment, (vii)
reduces foreign debts, (viii) saving local currency, (ix) reduces dependence on foreign
countries, and (x) overall assistance in increasing exports and rapid economic
development of the country.

MEANING OF EXPORT PROMOTION

Export promotion comprises all those government and non-government efforts, rules,
procedures, courses of action and techniques which are adopted to boost our exports in
terms of value as well as in volume. Thus all those measures, schemes,
policies, procedures and methods which are adopted for increasing export are known as
export promotion measures. In order to attain the objective of self-reliance every country
is keenly interested to expand its exports.

CRITICAL EVALUATION OF THE POLICY OF IMPORT SUBSTITUTION AND EXPORT

PROMOTION

The goal of self-reliance in vital sectors has been a long term objective of India since the
beginning of the planning. The goal can be attained through foreign trade policy in two
ways as given under :

1. Import substitution policy, 2. Export promotion policy.

The two broad objectives of the programme of import substitution in India were : (a) to
Save scarce foreign exchange for the import of more important goods, and (b) to
achieve self-reliance in the production of as many goods as possible. The policy in
India has gone through various phases. Broadly speaking, we can discern three distinct
phases

(i) in the earlier phase, import substitution mostly took the form of domestic production
of Consumer goods;

(ii) in the second phase, emphasis shifted to the replacement of the import of capital
goods and

(iii) in the third phase emphasis was on reducing the dependence on imported
technology by developing and encouraging the use of indigenous techniques. As a result
of the policy of import substitution, the structure of imports has undergone significant
changes. Many items which were previously imported are now being produced in the
country itself. As a result of this policy, the country has been able to increase the
production of many industrial products like iron and steel, automobiles, railway wagons,
machine tools, diesel engines, power transformers, etc. and in the case of many other
products has achieved a stage of self-sufficiency. As stated earlier, import substitution
enabled the country to achieve diversification and depth so necessary for further
growth• However, many economists have argued that the indiscriminate extension of
import substitution to a wide range of sectors in India without regard to costs, was not
the ‘best’, or the ‘most efficient’ policy. In this context Jaleel Ahmed states, “Valuable
resources could have been saved if the process of import substitution had been more
selective with a limited number of strategically chosen sectors and industries, where a
concentration of effort and resources could have maximised the gains in efficiency. In
the heavy industry sector, in particular, simultaneous development of a plethora
of manufacturing activities may have deprived the economy of the advantages of large-
scale production and of meeting the minimum critical thresholds. In short, the policy of
import substitution was followed during sixties and up to early seventies whereas the
export promotion policy was followed since early seventies. In order to
succeed government of India has changed her EXIM policy from time to time to attain
export promotion policy. In the year 1973, OPEC countries raised the prices of crude oil
about four times. India has shifted her policy from import substitution to export
promotion so that she could meet the challenge of sharp hike in oil •prices by the
OPEC. Export promotion and import substitution are the two important measures for
narrowing down and ultimately wiping out the balance of payments deficit. Infact,
Import-substitution and Export Promotion are the two aspects of the coin.”