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EXIM Policy and Foreign Trade of India in Post Reform Era

Article · March 2010

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 EXIM Policy and Foreign Trade of India in Post Reform Era
By Murlidhar Lokhande*

In pre independence period, India’s foreign trade was confined to exports of foodstuff and raw material to
industrialized products from these countries. During post independence era, in order to accelerate the process of
industrialization developmental Imports were encouraged. For maximum utilization of production capacity created
and available resources, Maintenance Imports are encouraged. Many a times, to check inflation, Anti inflationary
Import are needed. India has been the major exporter of food stuff and raw material. Recently, engineering goods
have become a major component of Indian export.

Export-import policy – A review

India has announced the first industrial policy in the year 1948 that emphasized on industrialization
.Priority was given to import of machinery, equipments and raw material for boosting the process of
industrialization. On the other side, the government had created institutional set up for promotion of exports and
given support to exporters by way of fiscal incentives. During 1952-53 to 1956-57, liberal trade policy was
adopted. Import licenses were granted on large scale on one side and exports controls were relaxed to a grant on the
other side.
However, higher excess of imports over exports caused fast deterioration of foreign exchange. Mudliar
committee (1966) recommended setting up of EPAC (export promotion advisory council) and ministry for
international trade and increased supply of raw material to export oriented units, income tax relieves and removal of
disincentives. The major step taken up by the RBI was devaluation of rupee in 1966 which boosted exports and
restricted imports. During 1975-76 to 1978-79

Globalization has made the national markets more interdependent than earlier. Free flow of resources
including raw material, capital and technology not only facilitated large scale production of goods and services but
also developed a global market. India, having adoundant natural resources, can be a major player in international
market by adopting conducive policy measures for promotion of foreign trade, exploring new markets for her
products and services and creating world class manufacturing and trading centers.

The government had adopted import liberalization policy to check price level and correct the supply of
essential commodities. The export –import policy emphasized on export promotion, technology up-gradation, and
stimulus to the exporters. During 1985-86-1989-90, as a result of liberal policy, exports had increased at an annual
average growth rate of 17%.
A new Export-import policy was announced in 1990. The policy introduced star trading houses for the
explorers having net foreign exchange earning of Rs. 75 crores in the three preceding licensing years. The list of the
items to be imported under open general license, particularly the number of capital goods was increased from 1,261
to 1,343 items. The importers were permitted to get the benefit of automatic licensing i.e. 10% of the value of last
year’s licensed imports could be used.
Under Exim Policy, 2002-07 Indian banks were permitted to set up offshore banking units in SEZs, and
exempted them from CRR and SLR. Another significant aspect of the policy was that if removed all quantitative
restrictions on all agriculture product s, Preference was given to the exports of the products manufactured by small
manufactured by small industrial units. In order to boost the gems and jewellery industry, the government
announced zero custom duty on import of rough gems and jewellery. As a result of conducive environment, the net
exports of gems and jewellery had increased by Rs. 4,312 crore during 2006-07. Considering the huge market
potential, the exim policy focused on the exports to South African countries.
The Exim Policy (2004-09) aimed at achieving the target of 1.5% fhare in world trade, In order to achieve
the targete; the emphasis has been given on creating transparent and trustful environment. The investment limit for
creating infrastructure for facilitating export from the small towns who are exclusively engaged in manufacturing
such products has been reduced to Rs. 250 crore from Rs. 1,000 crore.

Dr. Murlidhar Lokhande is Professor & HOD of Commerce, dr. Babasaheb Ambedkar Marathwada University
Aurangabad-431 203

Southern Economist March 1, 2010, P. 33

Table-1- Share of selected countries in world trade

Country Exports Growth % Share in world trade

(US$ billions) Rate %
2008 (2008) (2008) (2007) (2006) (2000)
China 1,429 17.3 9.1 8.8 8.0 3.9
Hong Kong 363 5.3 2.3 2.5 2.6 3.2
Malaysia 210 19.1 1.3 1.3 1.3 1.5
Indonesia 148 24.4 0.9 0.9 0.9 1.0
Thailand 173 12.9 1.1 1.1 1.1 1.1
Singapore 338 13.0 2.2 2.2 2.2 2.2
India 176 20.7 1.1 1.1 1.0 0.7
Brazil 198 23.2 1.3 1.2 1.1 0.9
Mexico 292 7.3 1.8 2.0 2.1 2.6
Russia 512 44.3 3.2 2.6 2.5 1.7
Korea 422 13.6 2.7 2.7 2.7 2.7
Emerging, Developed economics 6,052 21.1 38.2 36.2 36.0 26.0
World 15,776 14.3 100.0 100.0 100.0 100.0
Source: Economic surveys, 2007, 2008 & 2009, Economic Times
For establishing and creating required infrastructure in Free Trade and Warehousing Zones 100% FDI has
been permitted. In order to increase the exports, Star Export houses which are benefited with fast track clearance and
exemption from furnishing bank guarantee. Besides, the government has been offering duty relaxations on
agricultural produces, handicrafts and handloom products.
Table-2 – India’s foreign trade (million $)
Year Export % change over Imports % Change over Trade deficit
2000-01 44,560 21.0 50,536 1.7 -5,976
2001-02 43,827, -1.6 51,413 1.7 -7,586
2002-03 52,719 20.3 61,412 19.4 -8,693
2003-04 63,843 21.1 78,150 27.3 -14,307
2004-05 83,535 30.8 1,11,516 42.7 -27,982
2005-06 1,03,092 23.4 1,49,167 33.8 -46,076
2006-07 1,26,360 22.6 1,85,747 24.5 -59,387
2007-08# 1,62,904 28.9 2,51,439 27.0 -88,535

2008-09* 1,66,749 2.4 2,83,846 12.9 -1,17,097

Source: DGC and SET, 03/07/09, Govt. of India, Economic Survey, 2007-08
Note:- # indicates revised figures * indicates provisional figures
As a result of global slowdown during 2008-2009, India’s exports and Imports have registered increase just
by 2.4% and 12.9% respectively. The government has announced stimulus packages for boosting foreign trade such
as, interest relaxation export oriented units such as, textiles, handicrafts, small enterprises, hems and jewellery,
export incentives of Rs. 350 crores, support under vishesh krishi and gram udyog yojana, provision of Rs. 1,100
crore for full refund of claim of central sales tax, terminal excise duty, assistance of Rs. 350 crore to Export credit
and guarantee corporation for giving guarantees for difficult markets/exports, additional support of Rs. 1,400 crores
to textile sector for technology up gradation, Fast track resolution of procedural issues to reduce delays, Excise duty
reduction by 4% for all products excluding petroleum products, Rs. 325 crore for promotion of export of leather and
textile products.Diamond India Ltd., MSTC Ltd. Gems and Jewellery Export Promotion Corporation, Star Trading
houses have been nominated agencies for imports of precious metals, Elimination of import duties on Naphtha used
in power sector. The policy measures resulted in to substantial growth in India exports in recent years.
India’s position in world trade
India’s share in world trade was 2.2 percent when it become independent, its share in world trade has shown a
declining growth trend over the period of last 55 years. During 1952-53, India exports constituted 1.3 per cent in the
decade i.e., 1973-1983. However, it had increased marginally to 0.6 in the year 1993 and 0.7 per cent in 2001. The
share of India in world exports accounted just 1.1% during 2007-08.

Southern Economist March 1, 2010, P. 34

 After opening her economy, India has enhanced its performance in foreign trade but still her share in world
trade is much lower than other developing countries. It can seen from the data (table-1) that except Indonesia, other
countries had comparatively higher share in world trade than India.
Growth of import and export trade
India’s foreign trade has changed significantly after liberalization of Indian economy. The EXIM policies focused
on simplification of procedures, creation of quality infrastructure, offering incentives to exporters and creating
conducive environment during 1991-92 India’s exports were $ 17,865 million which increased to $ 44,560 million
in 2000-01, posting an increase by 149.43% during 10 years period. During the same period, Indi’s imports being $
19,411 million in 1991-92, had reached to $ 50,536 million in 2000-01, registering an increased by 160.35%.
However, year on year basis, there had been considerable variations in growth of exports as well as imports during
1991-92 to 2000-01.
Another matter of concern is that in spite of concerted efforts, the gap in exports and imports has been
widening continuously. During 1991-92 to 2000-01 the trade deficit had increased by 286.54% (Table-2). As result
of conducive Export-Import policies, the exports and imports have registered a positive growth trend. The same
trend is seen to be continued during 2001-02 to 2007-08. During this period, the exports and imports grew by
271.70% and 389.06% respectively. The trade deficit had registered an alarming increase by 1067% during 2001-02
to 2007-08. In this regard, India needs to explore new markets for her products and services and have cordial trade
relations with other countries. In addition, India becomes member of trade blocs.
Factors responsible for slow growth of foreign trade
As a result of global recession, the exports and imports increased by 2.4% and 12.9% respectively during
2008-09. In the year 2009-10, the exports and imports have registered declining growth trend. The trade deficit
posted an increase of 32% in 2008-09 over the previous year.
Some of the major reasons of India’s dismal performance in foreign trade were: the disintegration of the
USSR affected adversely the exports from India, as a member of WTO had to reduce the custom duties on import
from other countries. On the other hand, number of hurdlies in the in the form of trade and non-trade barriers
adversely affected the exports from India.
The south East Asia crisis (1997-98), Russia’s economic crisis (1998), continuous showdown in world
economy badly affected India’s exports. Terrorist activities in J & K, Cargill War, and 11 September, 2001 attack on
world center, SARSE epidemic, Iraq-US war, spread of bird flue, Mumbai bomb blasts (2004) and latest in the
series was terrorist attack (Mumbai, 11 Sept, 2008) certainly affected India’s foreign trade in recent years. Latest in
the series is the global recession, panic of seine flu which have adversely affected the growth of Indian economy.
India’s imports have shown an increasing growth trend during trend during 1991-92 to 2002-03 due to
various factors viz. high demand for cheap but quality foreign goods, continuous increase in oil prices at
international level. During 1991-92 to 2002-03 Indian rupees was devalued against US dollar in the year 1991-92,
Rs. 36 in 1997-98 and Rs. 47 per dollar in the year 2000-01. So increasing imports in India has been the effect of
rupee devaluation against dollar. According to the survey conducted by the Delhi School of Business, majority of
the establishments involved in international trade did not have training programs in international marketing.
Inadequacy of trained and professional manpower with the export houses has been one of the major reasons of
India’s slow growth of exports.
The survey revealed that lack of export marketing information, inadequate infrastructural facilities,
procedural delays, delay in clearance at port are the major bottlenecks. As far as shipments are concerned, the major
constraints have been: high incidence of warehousing facilities, low frequency of selling and inadequate shipping
space. In order to boost foreign trade, India need to build up world class infrastructure to facilities and trading
activities trading activities coupled with liberal credit policies.
India’s exports of principal commodities: It is disclosed from the data (table-3) that engineering goods
have the highest share of the aggregate exports during 2006-07, 2007-08 and 2008-09 i.e. 23.46%, 22.06% and
26.85% respectively. The exports of petroleum products and chemicals accounted more exports during 2007-08 to
2008-09.
India’s exports of principal commodities: It is disclosed from the data (table-3) that engineering goods
have the highest share of the aggregate exports during 2006-07, 2007-08 and 2008-09 i.e. 23.46%, 22.06% and
26.85% respectively. The exports of petroleum products and chemicals accounted more exports during 2007-08 to
2008-09. As far as growth of exports of specific items is concerned, handicrafts, gems and jewellery and ores and
minerals registered negative growth while engineering goods posted substantial growth of 29.12% during 2008-09
over the previous year. However, the growth rate of Indian exports during 2008-09 was much lower (i.e. 10.92%) in
comparison of the growth (i.e. 25.01%) in 2007-08 (table-3)
Southern Economist March 1, 2010, P. 35
 Table-3- India’s exports of principal commodities (US Million $)
Commodities group 2006-07 2007-08 2008-09 % Variation % Variation
Col. 3/2 Col. 4/3
Agricultural & Allied 9900.3(9.74) 14091.8(11.09) 14627.4(10.38) 42.34 3.80
products
Ores & minerals 5486.6(5.40) 6528.7(5.14) 6471.8(4.60) 18.99 -0.87
Leather products 2479.1(2.44) 2884.7(2.27) 3046.9(2.16) 16.35 5.63
Chemical 14069.8(13.84) 16686.6(13.13) 19063.1(13.52) 18.59 14.24
Engineering goods 23844.0(23.46) 29306.6(22.06) 37841.7(26.85) 22.91 29.12
Textiles & textile 14245.4(14.01) 15668.5(12.33) 19132.7(11.35) 9.98 2.96
products
Gems & jewellery 13043.2(12.83) 16280.4(12.81) 15778.7()11.19 24.8 -3.1
Handicrafts 368.6(0.36) 440.6(0.36) 256.7(0.18) 19.53 -41.74
Petroleum products 15756.6(15.50) 21919.6(17.25) 23973(17.00) 39.11 9.37
Other 2456.6(2.42) 3268.7(2.57) 3765.5(2.67) 33.04 15.20
Total 1,01,649.80 1,27,075.6 1,40,957.90 25.01 10.92
Source: Economic surveys of India, Economic and Political Weekly, April 28- May 4, and Press Release on 1st May 2008.

India’s imports of principal commodities

It can be observed that imports of POL and Non-POL commodities have registered a remarkable growth by
464.90% and 460.46% responsively during 2000-01 to 2008-09. This growth in imports can be attributed to
remarkable economic growth of India during this period.
During 2000-01, POL and Non-POL imports constituted 31.83% and 68.17% respectively of the aggregate
imports of $50536 million. Continuing somewhat the same trend, the POL import accounted 31.98% and Non-POL
imports of $283846 million during 2008-09.

Table-4 India’s Imports of Important commodities (Value in million)

Year POL Non-POL Total imports
2000-01 16,086 34,450 50,536
2001-02 14,684 36,729 51,413
2002-03 18,872 42,540 61,412
2003-04 20,599 57,672 78,251
2004-05 34,745 76,772 11,151
2005-06 52,773 96,393 1,49,166
2006-07 57,144 1,28,606 1,85,740
2007-08# 78,645 1,71,795 2,51,439
2008-09* 90,768 1,93,078 02,83,846
Source Economic and Political Weekly, April 28- May 4, and Press Release on 1st May 2008.
Note:- # indicates revised figures * indicates provisional figures

Conclusion
Globalisation has made the national markets more interdependent than earlier. Free flow of resources including raw
material, capital and technology not only facilitated large scale production f goods and services but also developed a
global market is very comparative having a huge abundant natural resources, can be a major player in international
market by adopting conducive policy measures for promotion of foreign trade, exploring new markets for her
products and services and creating world class manufacturing and trading centers.
References
1. Dhar P.K., Indian Economy, Kalyani Publishers, 2008, New Delhi.
2. Economic Surveys, 2002-03 to 2008-09.
3. Misra S.K., Puri V.K., Indian Economy, 2008, Himalaya Publishing House, New Delhi.
4. Subb Rao P., International Business, 2007, Himalaya Publishing House, New Delhi.
5. Joshi Rakesh Mohan, International Marketing, 2007, Oxford University Press.

Southern Economist March 1, 2010, P. 36

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