Foreign Trade Policy Project

7/31/2019 Foreign Trade Policy Project

1/24

[EXPORT-IMPORT POLICY OF INDIA 2009-2014 ] MBA (PHARMACEUTICAL)

BY: MILAN C. PADARIYA CMS- GANPAT UNIVERSITY 1

1. INTRODUCTION

Export-Import (EXIM) Policy alternatively known as Trade Policy refers to Policies adopted by acountry with reference to exports and imports. Trade; Policy can be free trade policy or protectivetrade policy. A free trade is one which does not impose any restriction on the exchange of goods andservices between different countries.

A free trade policy involves complete absence of tariffs, quotas, exchange restrictions, taxes andsubsidies on production, factor use and consumption. Though free trade, theoretically, offers severaladvantages, in reality, particularly underdeveloped countries were at a disadvantage in such a systemof international trade. As a result, in the early 20th century, international economy saw theemergence of protective trade policies.

A protective trade policy pursued by a country seeks to maintain a system of trade restrictions withthe objective of protecting the domestic economy from the competition of foreign products.Protective trade policy constituted an important plank in the commercial policies of underdevelopedcountries during the 50s, 60s, and 70s and to some extent in the 80s. Many of the underdevelopedcountries continue to have protective trade policies even today. Trade policies may be outwardlooking or inward looking. An outward looking trade policy encourages not only free trade but alsothe free movement of capital, workers, enterprises and students, a welcome to the multinationalenterprises, and an open system of communications. An inward looking trade Policy Framework andProcedural Aspects policy stresses the need for a country to evolve its own style of development andto be the master of its own fate, with restrictions on the movement of goods, services and people inand out of the country. An inward looking trade Policy encourages the development of indigenous

technologies appropriate to a countrys resource endowment. Given these, a developing country mayadopt commodity specific trade policies such as the following:

A. Primary outward looking polices: Aimed at encouraging agricultural and raw materialexport.

B. Secondary outward looking policies: Aimed at promoting manufactured exports.C. Primary inward looking polices: Objective is to achieve agricultural self-sufficiency.D. Secondary inward looking polices: Objective is attaining manufactured commodity self-

sufficiency through import substitution.

Trade Policy will strongly influence the direction, trend and growth of foreign trade of a country.This, in turn, will have a bearing on the economic development process. Therefore, trade policy is animportant economic instrument which can be used by a country, with suitable modifications fromtime to time, to achieve its long-term objectives.


2/24



2. INDIA'S EXIM POLICY: A BACKDROP

India's experience of the colonial past had major influence on Exim policy in the initial decades afterindependence. India's strategy towards, trade policy was driven by perceived foreign exchange scarcities andthe desire to ensure that scarce foreign exchange is used only for essential purposes for economicdevelopment. Industrialization and self-sufficiency in essential commodities were the important objectives of India's trade policy. This was because it was felt that dependence on other, more powerful countries forimports of essential commodities would lead to political dependence on them as well.

This was succinctly brought out by the National Planning Committee (NPC) in 1946 set up the IndianNational Congress, under the Chairmanship of Pt. Jawaharlal Nehru. "In the context of the modem world, nocountry can be politically and economically independent, even within the framework of internationalinterdependence, unless it is highly industrialized and has developed its power resources to the utmost Nor canit achieve or maintain high standards of living and liquidate poverty without the aid of modern technology inalmost every sphere of life. An industrially backward country will continually upset the world equilibrium and

encourage the aggressive tendencies of more developed countries. Even if it retains its political independence,this will be nominal only and economic control will tend to pass to others".

Earlier the NPC had said that, "The objective of the country as a whole was the attainment, as far as possible,of national self-sufficiency. International trade was certainly not excluded, but we were anxious to avoid beingdrawn into the whirlpool of economic imperialism."

These laid the broad framework for the formulation of EXIM policy in the subsequent years. On the whole,import substitution and protection to domestic industrialization through a system of tariff and non-tariff controls became highlights of India's EXIM Policy for the most of the period during 1950-51 to 1990-91.Since 1990-91, however, radical changes have been introduced.

3. THE FOREIGN TRADE REGIME: ANALYTICAL PHASESAND CHANGES OVER TIME

J.N. Bhagwati and A Krueger, in their comparative analysis of the impact of foreign trade regime andeconomic development in a number of countries, defined a set of analytical phases with reference to theEXIM policy of a country. These phases in the foreign trade regime were designed essentially as aclassificatory and descriptive device to capture meaningfully the evolution of foreign trade regime in terms of

its restrictionist content and the dimensions and patterns of its use of control and price instruments. There arebroadly five phases which are as follows:

Phase I: Characterized by the systematic and significant imposition of quantitative restrictions (QR). It mightstart in-response to an unsustainable balance of payments deficit. Throughout Phase I, controls are generallymaintained and often intensified

Phase II: Characterized by continued reliance upon quantitative restrictions and generally increasedrestrictiveness of the entire control system. Phase II is distinguished by two additional and related aspects of the QR system, both relatively unimportant during Phase I:

1. The detailed workings of the control system become increasingly complex, and


3/24



2. Price measures are adopted to buttress the functioning of the control system. Both these characteristicsof Phase II arise from dissatisfaction with the results of an undifferentiated system and are often theresult of many small decisions rather than an overall policy design.

Price measures are introduced to both exports and imports. The continuation or intensification of foreign

exchange shortage leads to the recognition that additional export earnings would be desirable. Rebateschemes, import replenishment schemes, special credits for exporters, and a variety of other devices may beinstituted that offset part or all the discrimination against exports implicit in an overvalued exchange rate. Asfor imports, price measures are also adopted to absorb part of the excess demand for imports. Tariffs may beincreased or surcharges added to the cost of importing.

The following aspects of the price situation in Phase II are then evident: (1) the exchange parity is overlaid bytariffs and subsidies, levied in lieu of formal parity change, (2) domestic currency is overvalued at the currentparity plus trade tariffs and subsidies, implying a premium on imports.

Phase III: In this phase, attempts are made to systematize the change introduced during the previous phase. It

may consist of a mere "tidying-up" operation directed at replacing the diverse import premiums by reasonablyuniform tariffs such that the differential incentive effects caused by diverse premiums on different imports aregreatly reduced or virtually eliminated.

Alternatively, the tidying-up operations may replace the existing tariffs and export subsidies with a formalparity change, the result being that the effective exchange rates on exports and imports do not change muchbut the dispersion of tariffs is replaced by uniform devaluation.

On the other hand, Phase III may take the form of devaluation cum liberalization package. Such a packagemay have a gross devaluation large enough to leave a net devaluation despite the removal of trade tariffs andsubsidies, and measure of import liberalization.

Phase IV: The continued liberalization in Phase III leads to the emergence of Phase IV. There will beconsistent decline in QR and import tariffs. The effective exchange rate for exports will come closer to theeffective exchange rate for imports.

Phase V: The transition into Phase V occurs when the exchange regime is virtually liberalized. There will befull convertibility on current account and quantitative restrictions will not be employed as a means of regulating the balance of payments. Thus, Phase V represents a total alternative to the QR regimes of Phases Iand II. The pegged and exchange rate will be at its equilibrium level and a flexible exchange rate policy willbe in. operation.

The application of these phases to the Exim policies of India since independence would help to understand thepolicy developments in a proper perspective.


4/24



4. INDIA'S EXIM POLICY: PHASES OF CHANGES

In the early fifties (1950-56) there was a rough equilibrium in the balance of payments, with importdemand more or less equaling export earnings. During this period, there was no clear Exim policyand import restrictions of any kind were not in use. The conditions were, more or less, similar toPhase IV.

In the second half of the fifties (1956-61), due to heavy industry oriented industrial planning, therapid rise in imports put pressure on India's balance of payments. The Government imposedquantitative restrictions were selective so as to encourage the development of particular industriesthrough import licenses. Import substitution was stimulated while exports were not considered a lineof activity to be stimulated. Thus, this period resembled the characteristics of Phase I.

In the early sixties (1961-66) quantitative restrictions for imports continued. At the same time, effortswere made to boost exports by creating a favorable atmosphere to export industries, diversificationof export markets and the development of export support services. Export subsidization wasintroduced in 1962 primarily to offset the penalties that quantitative restrictions imposed, in effect,on exports. This period could be classified under Phase II.

The economy entered Phase III in the second half of the 60s (1966-68) with devaluation in dune1966 to systematize and rationalize the export incentive system. At the same time, export subsidieswere reduced, export duties imposed, and import duties were reduced. The net devaluation afterallowing for these changes was, on an average, less than the gross devaluation of 57.5 percent andvaried among commodities. The total net devaluation on the trade account was 21.6 percent for

exports and 42.3 percent for imports. Consequently, the net effect was a further stimulation of importsubstitution over export production.

At the end of sixties up to the mid-seventies (1968-75) the hesitant steps towards liberalizationintroduced with devaluation were abandoned. The country moved back to Phase II. Export subsidieswere reinstated and augmented. Import policy became increasingly restrictive and complex. This wasdue to various shocks which the economy experienced such as (1) refugee inflow due to Bangladeshwar in 1971 (2) stagnant agricultural production resulting out of adverse weather conditions, (3) oil-price hike shock of 1973, etc.

The foreign exchange reserves position improved in the latter half of the 70s, due to:

increased remittance from Indians working in West Asia, improved agricultural production and Decline in public investment.

The net result was a relaxation in the severity of import control regime during 1975-85, signifyingthe re-entry into Phase III. Import allocation rules were made simpler. Protective quotas, however,remained intact and domestic industry continued to be completely shielded from import competition.


5/24



In April 1985, in a significant departure, the Government announced new Export-Import Policy for aperiod of three years. The objectives were to bring some stability to the policy and thereby reduce theuncertainty about year to year changes that exporters and importers faced. However, in reality, thisdid not restrain the Government from announcing changes in the Exim policy from time to time.

Although the stringency of the import regime did not dilute substantially, the two three-year policies(i.e. Exim polices of 1985-88 and 1988-91), did represent some major simplifications. In particular,the number of items in the category of Open General License (OGL) for capital goods importsincreased from nil in 1975 to over 1,100 items in the 1988-91 policy. Similarly, many intermediategoods were put in the OGL category. Thus policy changes that occurred in the latter half of the 80still 1991 (1986-91) characterized the continuance of Phase III, which began in 1975.

However, it was since 1991 that radical changes were introduced in India's Exim policy. There hasbeen a gradual and steady curtailment of import tariffs and liberalization of quantitative restrictions.

All these signify that India has entered Phase IV with regard to the foreign trade regime.

5. SPECIAL FOCUS INITIATIVES

Higher Support for Market and Product Diversification

1. Additional benefit of 2% bonus, over and above the existing benefits of 5% / 2% under FocusProduct Scheme, allowed for about 135 existing products, which have suffered due torecession in exports. Major sectors include all Handicrafts items, Silk Carpets, Toys andSports Goods (all of which were earlier eligible for 5% benefits); Leather Products andLeather Footwear, Handloom Products and Engineering Items including Bicycle parts andGrinding Media Balls (all of which were earlier eligible for 2% benefit).

2. 256 new products added under FPS (at 8 digit level), which shall be entitled for benefits @2% of FOB value of exports to all markets. Major Sectors / Product Groups are Engineering,Electronics, Rubber & Rubber Products, Other Oil Meals, Finished Leather, PackagedCoconut Water and Coconut Shell worked items.

3. Instant Tea and CSNL Cardinol included for benefits under VKGUY @ 5% of FOB value of exports.

4. Nearly 300 products (at 8 digit level) from the readymade garment sector incentivized underMLFPS for further 6 months from October, 2010 to march, 2011 for exports to 27 EUcountries.

Support for Technological up-gradation

5. Zero duty EPCG scheme, introduced in August 2009 and valid for only two years up to31.3.2011, has been extended by one more year till 31.3.2012. In addition, to give a boost totechnological up-gradation for additional sectors as well, the benefit of the scheme has beenexpanded to cover paper & paperboard and articles thereof, ceramic products, refractories,

glass & glassware, rubber & articles thereof, Plywood and allied products, marine products,sports goods and toys and additional engineering products.


6/24



6. Additional Towns of Export Excellence (TEEs) announced viz.Barmer (Rajasthan) forHandicrafts; Bhiwandi (Maharashtra) for Textiles; and Agra (Uttar Pradesh) for LeatherProducts.

Benefit and flexibility to Status Holders

7. Status Holders contribute to a substantial part of our exports. To support them to upgradetheir technology, 1% Status Holder Incentive Scheme (SHIS) introduced in August 2009 andvalid for only two years up to 31.3.2011, has been extended by one more year for 2011-12exports. In addition, to give a boost to technological up-gradation for additional sectors aswell, the benefit of the scheme has been expanded to cover chemical & Allied products,paper, paperboard and articles thereof, ceramic products, refractories, glass & glassware,rubber & articles thereof, plywood and allied products, electronics products, sports goods andtoys and additional engineering products.

8. Additional flexibility provided for transferability of Duty Credit Scrips being issued to StatusHolders under paragraph 3.13.4 of FTP under VKGUY scheme by allowing transfer of scripfor import of cold chain equipments to unit(s) in the Food Park.

Stability / Continuity of the Foreign Trade Policy

9. The popular and exporter friendly Duty Entitlement Passbook (DEPB) scheme has beenextended beyond 31.12.2010 till 30.06.2011.

10. Availability of concessional Export Credit: Interest subvention of 2% for pre-shipment creditfor export sectors namely, Handloom, Handicraft, Carpet and SMEs for all export sectors,have been allowed till 31.3.2011 in the budget 2010-11. This facility has now been extendedto a number of additional products pertaining to sectors like Engineering, leather, textiles,

Jute.11. Advance Authorization for Annual Requirement shall also be exempted from payment of anti-dumping & Safeguard duty in line with the underlying principle that goods and servicesshould be exported and not the taxes and levies.

Procedural Simplification and Reduction of Transaction Cost

12. Exporters shall now have the flexibility to get a high value EPCG authorization by filing theirEPCG application on Annual basis, without the need to file the application for individualcapital goods from time to time. It will reduce transaction time and cost.

13. Exporters shall now have the flexibility to Club Advance authorization with AdvanceAuthorization for Annual Requirement for the purpose of account closure.

14. To impart flexibility to exporters and to facilitate smooth clearance of consignments, a Singlecustoms notification for the two variants of Advance Authorization scheme namely advanceauthorization for physical exports & deemed exports shall be issued. It will also eliminate theambiguity in clubbing of such exports.

15. Adhoc Norms ratified under Advance Authorization scheme shall henceforth apply to allcases for the same export product up to one year not only prospectively but alsoretrospectively.

16. Clarification on the availability of 4% SAD refund benefit, as given by DOR in terms of customs Notification No. 102/2007, only to trader importers, to be also extended tomanufacturers, who sell the imported items like traders.


7/24



17. Chartered Engineer Certificate for Advance Authorization on self-declared basis has beendispensed with. This will reduce documentation and the transaction cost.

EDI Initiatives

18. To reduce the transaction cost and time, the scope and domain of EDI is endeavored to becontinuously broadened. To remove redundancy of repeated submissions of RCMC, an e-RCMC initiative has been commenced. Under this, the Export Promotion Councils wouldupload the RCMC data of their members on DGFTs website only once, thus reducing theprocedural burden of repeated submissions and associated cost and time.

19. Facility of a data preparation module for Advance Authorization and Export PromotionCapital Good (EPCG) has been provided on an offline mode, which would reduce the need of continuous online interaction for long and address the connectivity and server response issuessignificantly.

20. In order to provide wider choice to the users and enlarge access for online filing, additionallicensed certifying authorities for digital signatures and banks for electronic fund transfer(EFT) operations have been included in the gamut of EDI operations.

21. The online message exchange for Annual Advance Authorization and Duty Free ImportAuthorization (DFIA) shall also be made operational with Customs w.e.f. 1.12.2010.

Leather Sector

22. Leather sector shall be allowed re-export of unsold imported raw hides and skins and semi-finished leather from Public bonded warehouses, without payment of any export duty. Thiswill facilitate the logistics for establishment of such warehouses and easy access to rawmaterial for the leather sector.

23. Finished Leather export shall be entitled for Duty Credit Scrip @ 2% under FPS.24. Additional 2% bonus benefits over and above the existing benefits under Focus ProductScheme would significantly benefit the Leather Sector.

Handloom sector

25. Duty free import of specified trimmings, embellishments etc. shall be available on Handloommade-ups exports @ 5% of FOB value of exports.

26. Additional 2% bonus benefits over and above the existing benefits under Focus ProductScheme would significantly benefit the Handloom Sector.

Textiles sector

27. Duty free import of specified trimmings, embellishment etc. shall be available @ 3% onexports of polyester made-ups in line with the facility available to sectors like Textiles &Leather. It will promote export of products such as micro cloth, which has become popular inhome textiles.

28. Readymade Garment sector granted enhanced support under MLFPS for a period of further 6months from October, 2010 to March, 2011 for exports to 27 EU countries.


8/24



Gems & Jewellery sector

29. The list of items allowed for duty free import by Gems & Jewellery sector has been expandedby Inclusion of additional items such as Tags and labels, Security censor on card, Staple wire,Poly bag. This will reduce the cost of the product to some extent.

Handicraft Sector

30. The facility of duty free import of tools under Duty Free Import scrips for Handicraft sectorshall be made operational.

31. Additional 2% bonus benefits over and above the existing benefits under Focus ProductScheme will significantly benefit the Handicrafts and Silk Carpets sectors.

Service sector

32. Scrips issued under Served from India Scheme (SFIS) can now be used for payment of dutyon import of Vehicles, which are in the nature of professional equipment.

Agriculture and Plantation

33. Instant Tea and CSNL Cardinol included for benefits under VKGUY @ 5% of FOB value of exports.

34. Oil Meals (Cotton, rape seed, and groundnut), Castor Oil derivatives, Packed Coconut Waterand Coconut Shell worked items shall be entitled for benefits @ 2% of FOB value of exportsto all markets under FPS.

Engineering and Electronics

35. Additional 2% bonus benefits over and above the existing benefits under Focus ProductScheme will significantly benefit Bicycle parts and Grinding Media Balls exporters.

36. Additional items of Engineering, namely, Pipes & Tubes, Electric Generating Sets, CastArticles of Iron & Steel, Ferro Manganese and Ferro Silicon shall now be entitled for benefit@ 2% under FPS.

37. A number of engineering items namely, Machine Tools, Compressors, Iron & SteelStructures including Transmission Towers and Scaffolding, LPG Cylinders, Ductile Tubes &Pipes shall now be entitled for benefits @ 2% of FOB value of exports to all markets under

FPS instead of their exports to specific markets under MLFPS earlier.38. Telecom Equipments, Color TVs, Audio Systems, Optical Media, Semi-conductors,Capacitors, Resistors, PCBs, LEDs, Conductors, Desktops and Notebooks shall now beentitled for benefits @ 2% of FOB value of exports to all markets under FPS instead of theirexports to limited market under MLFPS earlier.

Toys and Sports goods

39. Additional 2% bonus benefits over and above the existing benefits under Focus ProductScheme will significantly benefit the Toys and Sports Goods Sector.

40. 40. Benefits under Zero duty EPCG and SHIS schemes will significantly promotetechnological up gradation of Toys and Sports Goods sectors.


9/24



6. BOARD OF TRADE (BOT)

BOT has a clear and dynamic role in advising government on relevant issues connected with ForeignTrade

BOT has following terms of reference:

1. To advise Government on Policy measures for preparation and implementation of both shortand long term plans for increasing exports in the light of emerging national and internationaleconomic scenarios;

2. To review export performance of various sectors, identify constraints and suggest industryspecific measures to optimize export earnings;

3. To examine existing institutional framework for imports and exports and suggest practicalmeasures for further streamlining to achieve desired objectives;

4. To review policy instruments and procedures for imports and exports and suggest steps torationalize and channelize such schemes for optimum use;

5. To examine issues which are considered relevant for promotion of Indias foreign trade, andto strengthen international competitiveness of Indian goods and services; and

6. To commission studies for furtherance of above objectives.

Composition: Commerce & Industry Minister will be the Chairman of the Board of Trade (BOT). Governmentshall also nominate up to 25 persons, of whom at least 10 will be experts in trade policy. In addition,

Chairmen of recognized EPCs and President or Secretary-Generals of National Chambers of Commerce will beex-officio members. BOT will meet at least once every quarter.

7. GENERAL PROVISIONS REGARDING IMPORTS ANDEXPORTS

Exports andImports free unlessregulated

Exports and Imports shall be free, except in cases wherethey are regulated by the provisions of this Policy or anyother law for the time being in force. The item wise exportand import policy shall be, as specified in ITC (HS)published and notified by Director General of ForeignTrade, as amended from time to time.


10/24



Compliance withLaws

Every exporter or importer shall comply with the provisionsof the Foreign Trade (Development and Regulation) Act,1992, the Rules and Orders made thereunder, the provisionsof this Policy and the terms and conditions of anylicense/certificate/permission granted to him, as well asprovisions of any other law for the time being in force. Allimported goods shall also be subject to domestic Laws,Rules, Orders, Regulations, technical specifications,environmental and safety norms as applicable todomestically produced goods. No import or export of roughdiamonds shall be permitted unless the shipment parcel isaccompanied by Kimberley Process (KP) Certificaterequired under the procedure specified by the Gem &Jewellery Export Promotion Council (GJEPC).

Interpretation of Policy

If any question or doubt arises in respect of the interpretationof any provision contained in this Policy, or regarding theclassification of any item in the ITC (HS) or Handbook (Vol.1) or Handbook (Vol.2), or Schedule Of DEPB Ratethe said question or doubt shall be referred to the DirectorGeneral of Foreign Trade whose decision thereon shall befinal and binding. If any question or doubt arises whether alicense/ certificate/permission has been issued in accordancewith this Policy or if any question or doubt arises touchingupon the scope and content of such documents, the sameshall be referred to the Director General of Foreign Tradewhose decision thereon shall be final and binding.

Procedure The Director General of Foreign Trade may, in any case orclass of cases, specify the procedure to be followed by anexporter or importer or by any licensing or any othercompetent authority for the purpose of implementing the

provisions of the Act, the Rules and the Orders madethereunder and this Policy. Such procedures shall beincluded in the Handbook (Vol.1), Handbook (Vol.2),Schedule of DEPB Rate and in ITC (HS) and published bymeans of a Public Notice. Such procedures may, in likemanner, be amended from time to time.

The Handbook (Vol.1) is a supplement to the EXIM Policyand contains relevant procedures and other details. Theprocedure of availing benefits under various schemes of thePolicy are given in the Handbook (Vol.1).


11/24



Exemption fromPolicy/ Procedure

Any request for relaxation of the provisions of this Policy orof any procedure, on the ground that there is genuinehardship to the applicant or that a strict application of thePolicy or the procedure is likely to have an adverse impacton trade, may be made to the Director General of ForeignTrade for such relief as may be necessary. The DirectorGeneral of Foreign Trade may pass such orders or grant suchrelaxation or relief, as he may deem fit and proper. TheDirector General of Foreign Trade may, in public interest,exempt any person or class or category of persons from anyprovision of this Policy or any procedure and may, whilegranting such exemption, impose such conditions as he maydeem fit. Such request may be considered only afterconsulting ALC if the request is in respect of a provision of Chapter-4 (excluding any provision relating to Gem &Jewellery sector) of the Policy/ Procedure. However, anysuch request in respect of a provision other than Chapter-4and Gem & Jewellery sector as given above may beconsidered only after consulting Policy RelaxationCommittee.

Principles of Restriction

DGFT may, through a notification, adopt and enforce anymeasure necessary for:-

i. Protection of public morals.ii. Protection of human, animal or plant life or health.

iii. Protection of patents, trademarks and copyrightsand the prevention of deceptive practices.

iv. Prevention of prison labor.v. Protection of national treasures of artistic, historic

or archaeological value.vi. Conservation of exhaustible natural resources.

Restricted Goods Any goods, the export or import of which is restrictedunder ITC(HS) may be exported or imported only inaccordance with a license/ certificate/ permission or apublic notice issued in this behalf.


12/24



Terms andConditions of aLicense/ Certificate/ Permission

Every license/certificate/permission shall be valid for theperiod of validity specified in the license/ certificate/ permission and shall contain such terms and conditions asmay be specified by the licensing authority which mayinclude:

(a) The quantity, description and value of the goods;

(b) Actual User condition;

(c ) Export obligation;

(d) The value addition to be achieved; and

(e) The minimum export price.

License/ Certificate/ Permission not aRight

No person may claim a license/certificate/ permission as aright and the Director General of Foreign Trade or the

licensing authority shall have the power to refuse to grant orrenew a license/certificate/permission in accordance withthe provisions of the Act and the Rules made thereunder.

Penalty If a license/certificate/permission holder violates anycondition of the license/certificate/ permission or fails tofulfill the export obligation, he shall be liable for action inaccordance with the Act, the Rules and Orders made thereunder, the Policy and any other law for the time being inforce.

State Trading Any goods, the import or export of which is governedthrough exclusive or special privileges granted to StateTrading Enterprise(s), may be imported or exported by theState Trading Enterprise(s) as specified in the ITC (HS)Book subject to the conditions specified therein. TheDirector General of Foreign Trade may, however, grant alicense/certificate/permission to any other person to importor export any of these goods.

In respect of goods the import or export of which isgoverned through exclusive or special privileges granted toState Trading Enterprise(s), the State Trading Enterprise(s)shall make any such purchases or sales involving imports orexports solely in accordance with commercialconsiderations, including price, quality, availability,marketability, transportation and other conditions of purchase or sale. These enterprises shall act in anondiscriminatory manner and shall afford the enterprises of other countries adequate opportunity.


13/24



Importer-ExporterCode Number

No export or import shall be made by any person without anImporter-Exporter Code (IEC) number unless specificallyexempted. An Importer-Exporter Code (IEC) number shallbe granted on application by the competent authority inaccordance with the procedure specified in the Handbook (Vol.1). However, if an IEC holder has not imported orexported in the preceding licensing year, such IEC shall bemade inoperative by DGFT.

Trade withNeighboringCountries

The Director General of Foreign Trade may issue, from timeto time, such instructions or frame such schemes as may berequired to promote trade and strengthen economic ties withneighboring countries.

Transit FacilityTransit of goods through India from or to countries adjacentto India shall be regulated in accordance with the bilateraltreaties between India and those countries.

Trade with Russiaunder Debt-RepaymentAgreement

In the case of trade with Russia under the Debt RepaymentAgreement, the Director General of Foreign Trade may

issue, from time to time, such instructions or frame suchschemes as may be required, and anything contained in thisPolicy, in so far as it is inconsistent with such instructions orschemes, shall not apply.

Actual UserCondition

Capital goods, raw materials, intermediates, components,consumables, spares, parts, accessories, instruments andother goods, which are importable without any restriction,may be imported by any person. However, if such importsrequire a license/ certificate/permission, the actual user

alone may import such goods unless the actual usercondition is specifically dispensed with by the licensingauthority.

Second Hand Goods All second hand goods shall be restricted for imports andmay be imported only in accordance with the provisions of this Policy, ITC (HS), Handbook (Vol.1), Public Notice or alicense/certificate/permission issued in this behalf.

Passenger Baggage Bonafide household goods and personal effects may be

imported as part of passenger baggage. Samples of suchitems that are otherwise freely importable under this Policy


14/24



may also be imported as part of passenger baggage withouta license/certificate/permission. Exporters coming fromabroad are also allowed to import drawings, patterns, labels,price tags, buttons, belts, trimming and embellishmentsrequired for export, as part of their passenger baggagewithout a license/certificate/permission.

Import on Exportbasis

New or second hand capital goods, equipments,components, parts and accessories, containers meant forpacking of goods for exports, jigs, fixtures, dies and mouldsmay be imported for export without license/ certificate/ permission on execution of Legal Undertaking/Bank Guarantee with the Customs Authorities provided that theitem is freely exportable without any conditionality/ requirement of license/ permission as may be required under

ITC (HS) Schedule II.

Re-import of goodsrepaired abroad

Capital goods, equipments, components, parts andaccessories, whether imported or indigenous, may be sentabroad for repairs, testing, and quality improvement or upgradation or standardization of technology and re-importedwithout a license/certificate/permission.

Import of goodsused in projectsabroad

After completion of the projects abroad, project contractors

may import, without a license/ certificate/ permission, usedgoods including capital goods provided they have been usedfor at least one year.

Sale on High Seas Sale of goods on high seas for import into India may bemade subject to this Policy or any other law for the timebeing in force.

Clearance of Goodsfrom Customs

The goods already imported/shipped/arrived, in advance,but not cleared from Customs may also be cleared againstthe license/ certificate/ permission issued subsequently.

Execution of BG/LUT

Wherever any duty free import is allowed or whereotherwise specifically stated, the importer shall execute aLegal Undertaking (LUT)/Bank Guarantee (BG) with theCustoms Authority before clearance of goods through theCustoms, in the manner as may be prescribed. In case of indigenous sourcing, the license/ certificate/ permissionholder shall furnish BG/LUT to the licensing authoritybefore sourcing the material from the indigenoussupplier/nominated agency.


15/24



Private/ PublicBondedWarehouses for

Imports

Private/Public bonded warehouses may be set up in theDomestic Tariff Area as per the terms and conditions of notification issued by Department of Revenue. Any personmay import goods except prohibited items, arms andammunition, hazardous waste and chemicals and warehousethem in such private/public bonded warehouses. Such goodsmay be cleared for home consumption in accordance withthe provisions of this Policy and against License/certificate/ permission, wherever required. Customs duty as applicableshall be paid at the time of clearance of such goods. If suchgoods are not cleared for home consumption within a periodof one year or such extended period as the customauthorities may permit, the importer of such goods shall re-export the goods.

Free Exports All goods may be exported without any restriction except tothe extent such exports are regulated by ITC (HS) or anyother provision of this Policy or any other law for the timebeing in force. The Director General of Foreign Trade may,however, specify through a public notice such terms andconditions according to which any goods, not included in theITC (HS), may be exported without a license/ certificate/ permission.

Export of Samples Export of samples and Free of charge goods shall begoverned by the provisions given in Handbook (Vol.1).Bonafide personal baggage may be exported either alongwith the passenger or, if unaccompanied, within one yearbefore or after the passenger's departure from India.However, items mentioned as Restricted in ITC (HS) shallrequire a license/certificate/permission, except in the case of edible items.

Export of GiftsGoods, including edible items, of value not exceedingRs.1,00,000/- in a licensing year, may be exported as a gift.However, items mentioned as restricted for exports in ITC(HS) shall not be exported as a gift, without alicense/certificate/permission, except in the case of edibleitems.

Export of SparesWarranty spares, whether indigenous or imported, of plant,equipment, machinery, automobiles or any other goods maybe exported along with the main equipment or subsequently


16/24



but within the contracted warranty period of such goodssubject to approval of RBI.

Third Party ExportsThird party exports, as defined in paragraph 9.55 shall beallowed under the Policy.

Export of ImportedGoods

Goods imported, in accordance with this Policy, may beexported in the same or substantially the same form without alicense/certificate/permission provided that the item to beimported or exported is not mentioned as restricted forimport or export in the ITC (HS). Exports of such goodsimported against payment in freely convertible currencywould be permitted against payment in freely convertiblecurrency.

Goods, including those mentioned as restricted item forimport (except prohibited items) may be imported underCustoms Bond for export in freely convertible currencywithout a license/ certificate/ permission provided that the

item is freely exportable without any conditionality/ requirement of license/permission as may be required underITC (HS) Schedule II.

Export of Replacement Goods

Goods or parts thereof on being exported and founddefective/damaged or otherwise unfit for use may bereplaced free of charge by the exporter and such goods shallbe allowed clearance by the customs authorities providedthat the replacement goods are not mentioned as restricteditems for exports in ITC(HS).

Export of RepairedGoods

Goods or parts thereof on being exported and founddefective, damaged or otherwise unfit for use may beimported for repair and subsequent re-export. Such goodsshall be allowed clearance without a license/ certificate/ permission and in accordance with customs notificationissued in this behalf.

Private BondedWarehouses for

Private bonded warehouse exclusively for exports may beset up in DTA as per the terms and conditions of the


17/24



Exports notifications issued by Department of Revenue. Suchwarehouse shall be entitled to procure the goods fromdomestic manufacturers without payment of duty. Thesupplies made by the domestic supplier to the notifiedwarehouses shall be treated as physical exports provided the

payments for the same are made in free foreign exchange.

Realization of Export Proceeds

If an exporter fails to realize the export proceeds within thetime specified by the Reserve Bank of India, he shall,without prejudice to any liability or penalty under any lawfor the time being in force, be liable to action in accordancewith the provisions of the Act, the Rules and Orders madethereunder and the provisions of this Policy.

Free movement of export goods

Consignments of items meant for exports shall not bewithheld /delayed for any reason by any agency of theCentral/State Government. In case of any doubt, theauthorities concerned may ask for an undertaking from theexporter.

No seizure of Stock No seizure of stock shall be made by any agency so as todisrupt the manufacturing activity and delivery schedule of export goods. In exceptional cases, the concerned agencymay seize the stock on the basis of prima facie evidence.However, such seizure should be lifted within 7 days.

Export PromotionCouncil

The basic objective of export promotion councils is topromote and develop the exports of the country. EachCouncil is responsible for the promotion of a particulargroup of products, projects and services. The list of thecouncils and their main functions are given in Handbook (Vol.1).

Registration -cum-MembershipCertificate

Any person, applying for (i) a license/ certificate/ permission to import/ export, [except items listed asrestricted items in ITC(HS)] or (ii) any other benefit orconcession under this policy shall be required to furnishRegistration-cum-Membership Certificate (RCMC) grantedby the competent authority in accordance with theprocedure specified in the Handbook (Vol.1) unlessspecifically exempted under the Policy.


18/24



8. Export Promotion Capital Goods(EPCG) Scheme

Zero dutyEPCGScheme

Zero duty EPCG scheme allows import of capital goodsfor pre production, production and post production(including CKD/SKD thereof as well as computersoftware systems) at zero Customs duty, subject to anexport obligation equivalent to 6 times of duty saved oncapital goods imported under EPCG scheme, to befulfilled in 6 years reckoned from Authorization issue-date.

The scheme will be available for exporters of engineering

& electronic products, basic chemicals & pharmacy,apparels & textiles, plastics, handicrafts, chemicals &allied products and leather & leather products; subject toexclusions as provided in HBPv1.

Validity period for import of capital goods and provisionfor extension in export obligation period will be asseparately provided in the HBPv1. All other provisionspertaining to concessional 3 % duty EPCG scheme underthis Chapter, to the extent they are not inconsistent withthe above provisions of zero duty EPCG scheme, shall be

applicable to the zero duty EPCG scheme also. The zeroduty EPCG scheme will be in operation till 31.3.2011 .

Concessional3% DutyEPCGScheme

Concessional 3 % duty EPCG scheme allows import of capital goods for pre production, production and postproduction (including CKD/SKD thereof as well ascomputer software systems) at 3 % Customs duty, subjectto an export obligation equivalent to 8 times of dutysaved on capital goods imported under EPCG scheme, tobe fulfilled in 8 years reckoned from Authorizationissuedate.

In case of agro units, and units in cottage or tinysector,import of capital goods at 3 % Customs duty shallbe allowed subject to fulfillment of export obligationequivalent to 6 times of duty saved on capital goodsimported, in 12 years from Authorization issue-date.


19/24



For SSI units, import of capital goods at 3 % Customsduty shall be allowed, subject to fulfillment of exportobligation equivalent to 6 times of duty saved on capitalgoods, in 8 years from Authorization issue-date, providedthe landed cif value of such imported capital goods underthe scheme does not exceed Rs. 5 0 lakhs and totalinvestment in plant and machinery after such import doesnot exceed SSI limit. However, in respect of EPCGAuthorization with a duty saved amount of Rs. 1 00crores or more, export obligation shall be fulfilled in 12years.

In case CVD is paid in cash on imports underEPCG,incidence of CVD would not be taken forcomputation of net duty saved, provided the same is notCENVATed.

Capital goods shall include spares (including refurbished /reconditioned spares), tools, jigs, fixtures, dies andmoulds.

Second hand capital goods, without any restriction onage, may also be imported under EPCG scheme.

However, import of motor cars, sports utility vehicles/allpurpose vehicles shall be allowed only to hotels, travelagents, tour operators or tour transport operators andcompanies owning/operating golf resorts, subject to thecondition that:

(i) total foreign exchange earning from hotel, travel &tourism and golf tourism sectors in current and precedingthree licensing years is Rs. 1 .5 crores or more.

(ii) duty saved amount on all EPCG A uthorizationsissued in a licensing year for import of motor cars,sportsutility vehicles/ all purpose vehicles shall not exceed 5

0% of average foreign exchange earnings from hotel,travel & tourism and golf tourism sectors in precedingthree licensing years.

(iii) vehicles imported shall be so registered that thevehicle is used for tourist purpose only. A copy of theRegistration certificate should be submitted to concernedRA as a confirmation of import of vehicle. However,parts of motor cars, sports utility vehicles/ all purposevehicles such as chassis etc. cannot be imported under theEPCG Scheme.

Import of Restricted items of imports mentioned under


20/24



ITC(HS) shall only be allowed under EPCG Scheme afterapproval from EFC at Headquarters.

Spares (including refurbished/reconditioned spares),moulds, dies, jigs, fixtures, tools, refractory for initiallining and catalyst for initial charge; for existing plantand machinery (imported earlier, under EPCG orotherwise),shall be allowed to be imported under theEPCG scheme subject to an export obligation equivalentto 5 0% of the normal export obligation prescribed inpara 5 .1 and 5 .2 above (for import of capital goods), tobe fulfilled in 8 years (6 years for zero duty EPCGscheme), reckoned from Authorization issue date. Thiswould however be subject to the condition that the c.i.f.value of import of the above spares etc. will be limited to1 0% of the value of plant and machinery imported underthe EPCG scheme. In case of plant and machinery notimported under the EPCG scheme, c.i.f. value of importof the spares etc. will be limited to 1 0% of the book value of the plant and machinery.

EPCG forProjects

An EPCG Authorization can also be issued for import of capital goods under Scheme for project Imports notifiedby the Central Board of Excise and Customs underS.No.441 of Customs Exemption Notification No.

21/2002 dated 01.03.2002

Export obligation for such EPCG Authorizations wouldbe eight times (6 times for zero duty EPCG scheme) of duty saved. Duty saved would be difference between theeffective duty under aforesaid Customs Notification andconcessional duty under the EPCG Scheme.

EPCG forRetail Sector

To create modern infrastructure in retail sector,concessional duty benefits under EPCG scheme shall beextended for import of capital goods required by retailershaving minimum area of 1 000 sq. meters. Such retailershall fulfill export obligation i.e. 8 times of duty saved, in8 years.

Eligibility

EPCG scheme covers manufacturer exporters with orwithout supporting manufacturer(s)/ vendor(s), merchantexporters tied to supporting manufacturer(s) and serviceproviders.

Export Promotion Capital Goods (EPCG) Scheme alsocovers a service provider who is designated /certified as aCommon Service Provider (CSP) by the DGFT,


21/24



Department of Commerce or State Industrial Infra-structural Corporation in a Town of Export Excellencesubject to provisions of Foreign Trade Policy/Handbook of Procedures with the following conditions:-

(i) EPCG licence to be given to the CSP should have aclear endorsement giving the details of the users and thequantum of Export Obligation (EO) which each userwould fulfill;

(ii) Such exports will not count towards fulfillment of other specific export obligations ; and

(iii) Each one of the users of the CSP apart from the CSPshould furnish 1 00% bank Guarantee (BG) equivalent totheir portion of duty foregone apportioned in termsof quantum of EO to be discharged by them and the B.G.will be enforced in the event of the obligation not beingfulfilled.

Conditionsfor import of Capital

Goods

Import of capital goods shall be subject to Actual Usercondition till export obligation is completed.

Following conditions shall apply to the fulfillment of theexport obligation:-

Exportobligation

(i) Export Obligation shall be fulfilled by export of goodsmanufactured/services rendered by the applicant.

Export obligation under the scheme shall be, over andabove, the average level of exports achieved by him inthe preceding three licensing years for the same andsimilar products within the overall export obligationperiod including extended period, if any; except forcategories mentioned in paragraph 5 .7.6 of HBP v1.Such average would be the arithmetic mean of exportperformance in the last three years for the same andsimilar products provided that Premier Trading House(PTH) shall have option of fixing average level of exportsbased on arithmetic mean of export performance in thelast five years instead of three years.

Upto 50% Export Obligation may also be fulfilled byexports of other good(s) manufactured or service(s)provided by the same firm / company, or group company

/ managed hotel, which has the EPCG authorization.


22/24



However, EPCG authorization issued prior to 1 .4.2008will be governed by earlier policy provisions.

However, in such cases, additional export obligationimposed shall be over and above average exportsachieved by the unit / company / group company

/managed hotel in preceding three years for both theoriginal and the substitute product(s) / service(s), despiteexemptions in Para 5.7.6 of HBP v1.

(ii) Shipments under Advance Authorization,DFRC,DFIA, DEPB or Drawback scheme, or incentiveschemes under Chapter 3 of FTP; would also count forfulfillment of EPCG export obligation.

(iii) Export obligation can also be fulfilled by the supplyITA-I items to DTA, provided realization is in freeforeign exchange.

(iv) Exports shall be physical exports. However, deemedexports as specified in paragraph 8.2 (a), (b), (d) (f), (g)& (j) of FTP shall also be counted towards fulfillment of export obligation, alongwith usual benefits availableunder paragraph 8.3 of FTP.

Royalty payments received in freely convertible currencyand foreign exchange received for R&D services shallalso be counted for discharge under EPCG. Paymentreceived in rupee terms for port handling services, interms of Chapter 9 of FTP shall also be counted forexport obligation discharge.

Provision forBIFR units

Any firm/ company registered with BIFR or any firm/ company acquiring a unit, which is under BIFR, may beallowed EO extension, as per rehabilitation packageprepared by operating agency and approved by

BIFR/Rehabilitation Department of State Government,upto 12 years if not specified.

Above provisions apply also to SSI units as perrehabilitation scheme of concerned State government.

EPCG foragro units

LUT/Bond or 15 % BG ( as applicable) may be given forEPCG Authorization granted to units in Agri ExportZones provided EPCG Authorization is taken for exportof primary agricultural product(s) notified in Appendix 8or their value added variants.


23/24



IndigenousSourcing of CapitalGoods and

benefits toDomesticSupplier

A person holding an EPCG Authorization may sourcecapital goods from a domestic manufacturer. Suchdomestic manufacturer shall be eligible for deemedexport benefit under paragraph 8.3 of FTP. Suchdomestic sourcing shall also be permitted from EOU s andthese supplies shall be counted for purpose of fulfillmentof positive NFE by said EOU as provided in Para 6.9 (a)of FTP.

Fixation of ExportObligation

In case of direct imports, export obligation shall bereckoned with reference to actual duty saved amount. Incase of domestic sourcing, export obligation shall bereckoned with reference to notional Customs duties savedon FOR value.

TechnologicalUpgradationof existingEPCGmachinery

EPCG Authorization holders can opt for TechnologicalUpgradation of existing capital good imported underEPCG Authorization. Conditions governing Tech-nological Up-gradation of existing capital goods are asunder:

(i) Minimum time period for applying for TechnologicalUp-gradation of existing capital goods imported underEPCG is 5 years from Authorization issuedate.

(ii) Minimum exports made under old capital goods mustbe 4 0% of total export obligation imposed on first EPCGAuthorization.

(iii) Export obligation would be re-fixed such that totalexport obligation mandated for both capital goods wouldbe sum total of 6 times of duty saved on both the capitalgoods, to be fulfilled in 8 years from new authorizationissue-date.

(iv) Facility for technological up-gradation shall beavailable only once and the minimum imports to be madeshall be at least 1 0% of the existing investment in plantand machinery by applicant.

(v) Capital Goods to be imported must be new andtechnologically superior to earlier CG.

Incentives forFast TrackCompanies

To incentivize fast track companies with a view toaccelerate exports, in cases where Authorization holder

has fulfilled 75% or more of specific export obligationand 1 00% of Average Export Obligation till date, if any,
http://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspxhttp://www.eximguru.com/exim/eou/default.aspx


24/24


BY MILAN C PADARIYA CMS GANPAT UNIVERSITY 24

9. SPECIAL ECONOMIC ZONES

Special Economic Zones (SEZs) Scheme in India was conceived by the Commerce and IndustriesMinister Murosoli Maran during a visit to Special Economic Zones in China in 1999. The schemewas announced at the time of annual review of EXIM Policy effective from 1.4.2000. SEZ isbasically a geographically distributed area or zones where the economic laws are more liberal ascompared to other parts of the country. Within SEZs, units may be set-up for the manufacture of goods, provisioning of services, and other activities including processing, assembling, trading and

repairing etc. A SEZ may be set-up in the public, private, or joint sector and /or by a stategovernment and even by a foreign country. The minimum land area requirement for establishing aSEZ is 1000 hectares. Out of this total area, only 30-35% of area is used for setting up plants and restof the area is used to provide housing facilities, malls, multiplexes etc. The area under 'SEZ' covers abroad range of zone types, including Export Processing Zones (EPZ), Free Zones (FZ), IndustrialEstates (IE), Free Trade Zones (FTZ), Free Ports, Urban Enterprise Zones and others. Usually thegoal of an SEZ structure is to increase foreign investment. In Indian, at present there are eightfunctional Special Economic Zones located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandlaand Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal)and Nodia (Uttar Pradesh) in India. Further a Special Economic Zone at Indore ( Madhya Pradesh )is also ready for operation. In addition 18 approvals have been given for setting up of SEZ at Positra

(Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and Salt Lake(West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida(U.P.), Vishakhapatnam and Kakinada (Andhra Pradesh), Vallarpadam /Puthuvypeen (Kerala)Hassan (Karnataka), Jaipur and Jodhpur (Rajasthan) on the basis of proposals received from the StateGovernments. Any new policy or amendment related to the Special Economic Zones (SEZs) will bevery soon released with the new Exim Policy 2008-2009 on or after 31st March 2008. The policyrelating to Special Economic Zones is governed by SEZ Act 2005, and the Rules framed thereunder

10. FREE TRADE & WAREHOUSING ZONES

Free Trade and Warehousing Zone was introduced in the Exim Policy with the objective to facilitateimport and export of goods and services. Basically The Free Trade & Warehousing Zones (FTWZ) isa special category of Special Economic Zones with a focus on trading and warehousing. Each Zoneto have Rs. 100 crores outlay and 5 lakh sq.mts built up area. For development and establishment of FTWZ the government has permitted 100% Foreign Direct Investment. Any new policy oramendment related to the Free Trade and Warehousing Zone will be released with the new EximPolicy 2008-2009 on or after 31st March 2008.

The policy relating to Free Trade and Warehousing Zones is governed by SEZ Act 2005, and the

Rules framed there under .

in half or less than half the original export obligationperiod specified , remaining export obligation shall becondoned and the Authorization redeemed .

Documents

Foreign Trade Policy Project