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Overall trends since independenceExports crossed US$ 100 billion during 2005-2006Export Sector is a core sector in economic growth of the countryIncentives offered by the export promotion package

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1947-2010 Trends 1947 –Typical of a colonial and agricultural

economy. Trade relations with Britain and Commonwealth countries.

Exports-Raw materials and plantation crops.

Imports-Light consumer goods and other manufactures

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1950-1990 Bureaucratic and discretionary controls License, Quota Permit Raj Foreign Exchange transactions controlled by

Government & RBI Exports-Wide range, traditional, non traditional Imports-Capital goods, petroleum products, raw

materials and chemicals & defence equipment Deficit in balance of payments as imports

always exceeded exports.

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Imports galloped because of needs of a developing country.

Exports sluggish because of Lack of exportable surplus Competition in international markets Inflation at home Increased protectionist policies of

developed countries.

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Economic reforms to liberalise and globalise the Indian Economy and integrate with the world economy.

The end of LQP Raj India’s approach cautiously contingent on

achieving preconditions to ensure macroeconomic stability.

Approach vindicated with growing incidence of financial crisis elsewhere in the world.

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A broader perspective in issues related to trade policy, export strategy, tariff policy, current account dynamics, exchange rate management, foreign exchange reserves, WTO etc.

Main task was to ensure an orderly process of liberalisation.

New export import (EXIM) policy-1992 EOU (Export Oriented Units) Scheme and

EPZ (Export Processing Zone) Scheme

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1995-1998 Agriculture/Allied Products-19% Ores and Minerals-3% Recent Trends Gradual increase in share of manufactured

exports in total exports close to 80%. Mainly electronic goods, machinery and

instruments and cotton yarn, fabrics

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Exports of agriculture & allied products and electronics showing impressive performance.

Within agricultural group items showing exemplary growth are Raw cotton, Oil Meals, Spices, Cereals

Growth of exports of ores and minerals sluggish. Revival of growth for exports of marine products.

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1997-98Raw Materials-38%

Capital goods-18.5%

Raw Materials still contribute to majority of imports

Relative share of manufactured products have been going up.

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Recent Trends High growth observed in import of fertilizers,

edible oils, paper board, manufactures and newsprint & capital goods.

Decline in import of cereals & transport equipment.

POL (Petroleum & Petroleum products imports) showing an increase.

Rising share in total imports of food & allied products.

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Asia accounts for one-fifths of India’s exports. OECD (USA,EU,JAPAN)-Half of exports. Floriculture, textiles, pharmaceuticals,

marine products and Basmati Rice to EU. Carpet Exports to Morocco Match Exports to Egypt. Mushroom exports to US. Sports goods and leather exports to

developed world. Meat products to West Asia.

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OECD countries (USA, EU, JAPAN) roughly half of imports.

OPEC Countries-about one fifths of imports depending on volatility of international crude prices.

East European Countries ASIA AFRICA LATIN AMERICA

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Recording a growth rate of about 17% per annum in US Dollar terms.

Rise in tourism earnings Payments of investment income Private transfer receipts. Liberalisation of Gold import policy.

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Aggregate absorption in the economy is in excess of domestically produced goods & services.

Measures to reduce excess demand in economy, an important policy ingredient.

In India, the fiscal deficit of the public sector associated with excess demand and consequent detioration of current account balance.

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CAD=Income-(Consumption investment +Government Expenditure)

=(Fiscal deficit) +(Private Saving-Investment Gap)

An improvement in current account balance can be achieved either by an improvement in the combined balances of the private and public secor or by an increase in national income relative to domestic absorption.

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A tight balance of payments situation is endemic for developing countries.

To be comfortable CAD should be at a level that can be financed by normal capital flows.

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1980’s-The regime for international portfolio in India restrictive & characterised by a measure of adminstrative discretion.

1991-Liberalisation for FDI. Repatriation of investment income and capital was subjected to controls.

1994-95-Significant slowdown in the gross disbursement of external assistance.

1997-98-Major changes in External commerial borrowings (ECB) guidelines introduced.

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ECBs provided an additional source of funds for Indian Corporate Houses for financing the expansion of existing capacity & new investment

1999-2000-100% Export Oriented Units were permitted ECB’s for any amount.

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Foreign Currency Assets held by RBI Gold Holdings of the RBI Special Drawing Rights (SDR’s) The trend in reserves is largely governed by

the foreign currency assets component which tends to move in either direction on a day to day basis.

US $291.59 billion on Sep 24/2010 as per RBI statistical supplement

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India’s external indebtedness represents the accumulation of deficits in the current account over the past years.

Current External debt hovering around US$230 billion

We have come along way from crisis years of 1990-91 and 1991-92

Aim at a level of current account deficit which can be sustained by normal capital inflows.

Key is in stepping up exports.

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Exchange Rate Policy Exchange Rate-Fixed & Flexible 1944-IMF at Bretton Woods provided for

fixed exchange rate between countries.

Exchange Rate Complimentary to trade policy.

Bretton Woods Exchange Rate Rules abandoned, exchange rates of miost countries floating since 1971

India has a market determined exchange rate in phases.

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Convertibility of the Rupee Rupee was made convertible in the current

account of the balance of payments in August 1994.

Current Account refers to transactions in goods and services.

1997-Major relaxations in exchange control.

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Capital Account convertibility implies the right to transact in financial assets with foreign countries without restrictions.

Rupee not fully convertible on the capital account

Capital Account convertibility exists for foreign investors and NRI’s for undertaking direct and portfolio investment in India.

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Management of exchange rate Convertibility means the ability to exchange

domestic currency for foreign currency without limit.

Influencing the exchange rate movement is one of the instruments available for correcting the imbalances in the current account.

Capital account convertibility has risk of Capital flight Macroeconomic instabilty from movement

of short term capital.

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Devaluation Two step downward adjustment of the

Rupee undertaken in July 1991. This was described as devaluation and as a

need to improve the functioning of the financial system.

Certain imports were permitted only against export entitlement.

The effect was that the exchange rate remained stable for a long period of time.

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TRADE POLICY Objectives of new Export Import (EXIM) policy Accelerate the country’s transition to a

globally oriented vibrant economy. Stimulate sustained economic growth by

providing access to essential raw materials, inputs, capital goods etc.

Enhance technological strength and efficiency of Indian agriculture, industry and service

To provide consumers with good quality products at reasonable prices.

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Import controls & liberalization policies New Economic Policy (NEP) announced in

June 1991 by Dr Manmohan Singh. NEP aimed at reduction of fiscal deficits,

current account deficit, rationalisation of subsidies, control of inflation, alleviation of poverty and achievement of social equality.

Two sets of economic reforms A) Containment of inflation, reduction in

fiscal deficit correcting adverse BOP. B) Poverty alleviation & global justice

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FDI NEP of 1991 gives a clear cut approval for

foreign direct investment-up to 51% foreign equity in case of high priority industries

Cordial invitation to MNC’s Inject the course of new technology and

marketing into the economy and provide for interaction with some of the largest international marketing houses and marketing firms.

MRTP act did away with threshold limit of assets

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49% of govt share holdings in PSU’s can be disinvested and proceeds used for social services like education, health.

Chronic PSU’s referred to BIFR for rehabilitation.

Exit policy for industry.

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Consumer goods imports World Bank has called for A) Liberalization of import of consumer

goods B) Compression and rationalisation of

tarrifs. Consumer goods imports have not been

opened up fully and special care has been taken to see that only those items are allowed which are not reserved for production by the small scale sector.

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FICCI & ASSOCHAM-The Indian consumer goods industry must first come at par with the International industry before imports can be opened up.

CII-Consumer goods imports should be welcomed.

India’s official EXIM policy-All consumer goods are not permitted to be imported except against a license or in accordance with a public notice issued on its behalf.

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Export promotion in India Institutions engaged in export effort A) Dept of Commerce & Ministry of

Commerce B) Deliberative & Consultative organisations C) Commodity specific organisations D) Service institutions-reach out more

effectively to world markets E) Govt trading organizations F) Agencies at the state level

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Main task of Trade Policy Division is to be in touch with international organisations like

United Nations Conference on trade & development (UNCTAD)

WTOEconomic Commission for Europe, Africa, Latin

America and Asia & Far East (ESCAP)Export products division pays attention to problems

connected with production, generation of surplus and development of markets for various products under its jurisdiction.

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Export Industries Division responsible for export promotion activities relating to textiles, woolens, handlooms,ready made garments, jute and jute products, handicrafts, coir and coir products.

Export Services Division deals with problems of export assistance like cash assistance, export credit, export houses, marketing development assistance, transport, quality control and pre shipment inspection.

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The Export Services Division also helps in setting up joint ventures abroad and capacity creation in export-oriented industries including assistance to import capital goods and essential raw materials.

The Economic Division headed by the Economic Advisor is responsible for the formation of export strategies, export planning, periodic appraisal and review of policies.

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The Economic Division also monitors work relating to technical assistance management services for export and overseas

investment by Indian entrepreneurs.

It also maintains constant coordination with the other divisions as well as various organisations which have been set up under the Commerce Department to assist the export drive.

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Director General of Foreign Trade is responsible for the execution of the import and export policies of the Government of India.

Consultative And Deliberative Body-Board of Trade-Highest forum for Govt Industry interface. Members Presidents of FICCI, Assocham, CII, Chairman of SBI and Director General Foreign Trade. Presided over by Commerce Minister.

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Commodity organisations-Export promotion councils and Commodity Boards

19 export promotion councils and 9 statutory boards

Service Institutions-Established to meet requirements of industry and trade, development of export management personnel, market research, export credit insurance, export publicity.

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TDA (Trade Development Authority)-emphasis on specific buyers and import houses in US, Canada, UK and Western Europe.

Indian Trade Promotion Organisation (ITPO)Trade fairs in India and abroad. Four foreign

offices located at New York, Frankfurt, Tokyo And Dubai.

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Indian Institute of Foreign Trade Provides training of high standard, short

term and long term for executives and personnel employed in trade and industry, export houses, export organisations, government departments, government trading corporations and Indian embassies and consulates abroad.

Provides consultancy to business firms in matters relating to foreign trade.

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National Centre for Trade Information (NCTI)Joint venture of ITPO and National Informatics

Centre. Connected to 200 networks in 160 countries.

Export Credit Guarantee Corporation (ECGC) Facilitate flow of finance from banks to exporters.

Federation of Indian Export Organisations (FIEO)-Common platform for commodity councils and boards & service institutions.

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Govt Trading Organisations STC (subsidiaries are Handicrafts and Handloom Exports

Corporation & Tea Trading Corporation of India. MMTC Projects and Equipment Corporation Spices Trading Corporation

These Corporations arrange exports where bulk handling and long term contracts are advantageous.

They facilitate exports by linking essential imports with additional exports under barter, link and parallel deals.

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STATE GOVERNMENTS Have created independent departments of

commerce and a minister has been put in charge of it

Have set up Export Promotion Boards and Export Corporations

Liaison officers have been appointed by states to develop export trade and maintain links with central govt departments.

States have set up export promotion Advisory Commitees.

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NEW TRADE REGIME POST 1991 Govt of India, Ministry of Commerce

announces export import policy every 5 years

Aims at developing export potential, improving export performance, encouraging foreign trade and creating favourable balance of payments situation.

Covered perod 2004-2009, updated every year on 31st March.

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New Foreign Trade Policy 2009-2014 & Latest EXIM Policy Achieving an annual export growth of 15%

with an annual export target of US $200 billion by March 2011.

By 2014 High export growth path of 25% per annum

By 2014 double India’s export of goods and services.

By 2020 double India’s share in global trade. Improvement in infrastructure related to

exports, bringing down transaction costs, full refund of all indirect t axes and levies

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New emerging markets have been given special focus to enable competitive exports

Comprehensive Economic Partnership with South Korea.

Trade in Goods Agreement with ASEAN FROM JAN 2010

Promote Brand India through 6 or more trade shows across the world every year.

Status Holder exporters will be permitted to import capital goods duty free.

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Foreign Trade Policy 2009-14Additional features 1. 26 new markets added under Focus

Market Scheme. 16 in Latin America 10 in Asia

2. Higher Allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes

3. Export Promotion Capital Goods Scheme (EPCG) available at zero duty has been introduced to aid technological upgradation of export sector.

Jaipur, Srinagar & Anantnag are ‘Towns of Export Excellence” for handicrafts.

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Decanalisation, rationalisation of tariffs Previously a number of items were exclusively or

principally imported by public sector agencies (canalising agencies). All canalised imports decanalised except for a negative list related to national security and health reasons.

Policy to move to a situation where imports regulated through appropriate tariffs. Therefore import bans, discretionary import licensing and other barriers to be eliminated and replaced by a tariff based protection system. The objective of tariff reduction has to be achieved with broader objective of fiscal policy reform.

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First, the average level of tariffs would be reduced substantially to international comparable levels.

Second, the maximum level of tariffs would be progressively reduced in a sequence of yearly adjustments over the next five years.

Thirdly the structure of tariff rates would be simplified with a view to substantially reducing their variability and the incidence of exemptions and partial exemptions.

Fourth, the use of specific tariffs will be minimised.

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EOU & EPZ An Export House is a registered exporter

holding a valid Export House Certificate issued by Director General of Foreign Trade.

Established exporters recognized as export houses,Trading Houses, Star Trading Houses and Superstar Trading Houses. Criteria for recognition is NFE value of goods and services during the preceding three years or the preceding licensing year at the option of the exporter.

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EPZ Export Processing Zones set up as enclaves

separated from domestic tariff areas by physical barriers are intended to provide an internationally competitive duty free environment for export production at low costs.

Each Zone provides basic infrastructural facilities like developed plots for construction of factory buildings, roads, power, water supply, drainage. Customs clearance facilities at no extra charge.

Banking, post office and clearing agencies available in service centre.

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EPZ

1. Kandla Free Trade Zone-First EPZ set up in 1965. Utilising Kandla port facilities

2. Santa Cruz Electronics Export Processing Zone-1974 initially for electronics. Subsequently gems and jewellery comples set up in 1988

3. Noida Export Processing Zone-19864. Madras Export Processing Zone-1984 at

Tambaram near Chennai.5. Visakhapatnam Export Processing Zone-

1989

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Economic liberalization in India and restructuring of the entire export processing zone framework in 1991 led to measures

More Fiscal incentives Simplification of policy provisions Incorporation of more industries like

horticulture, re-engineering, agriculture aqua culture.

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SEZ Concept of special economic zones in EXIM policy of

1997-2002. Presently most of EPZ transformed to SEZ (Noida,

Chennai, Visakhapatnam and Falta converted from Jan 01, 2003.

Special Economic Zones extended their scope to incude private companies together with govt organizations and offered space to be used for both residential and industrial purpose.

Offer various fical and non fiscal benefits in form of tax exemptions, relaxation in duties and various incentives to enhance Indian Economy.

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EOU The scheme of 100 percent EOU’s was

introduced in 1980 with a view to generating additional production capacity for exports by providing an appropriate policy framework, flexibility of operations and incentives.

Allowed to import machinery, raw material, components and consumables free of custom duties.

These Units have to achieve value addition fixed by board of approval.

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Recent modifications to EOU & problems Automatic approval is given for new units by

development commissioner of Zone to those who fulfill minimum specified conditions.

1992-All export realisation of 100 percent EOU can be on market determined exchange rate.

Sometimes domestic demand curbed and items exported just to earn foreign exchange, like sugar.

Lack of adequate transport, like shipping

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Financial incentives to Indian Exporters Market Development Assistance (MDA) –1963 by

Ministry of Commerce and Industry for Market Research, commodity research,area survey and research, participation in trade fairs and exhibitions, export publicity and dissemination of information, trade delegation and study teams.

Market Access Initiative (MAI)-2001-Govt shall assist industry in R & D, market research, specific market and product studies in select countries and direct market promotion activities.

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Central Assistance to States Towns of Export Excellence like Panipat for

Woollen Blankets and Ludhiana for Woolen Knitwear.

EPZ Exim Bank Finance-Financial assistance to

promote Indian exports through direct financial assistance. Overseas investment finance, term finance for export production, export development pre shipment credit, lines of credit.

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Govt Policy towards foreign capital Foreign Direct Investment (FDI) Parent Enterprise and foreign associate

unites to form an MNC. Parent Enterprise has power and control

over foreign affiliates. Indian govt has permitted Foreign

Investment Promotion Board (FIPB) to sanction tenders upto US $ 358 million.

Above that go to Cabinet Committee of Economic Affairs (CCEA) for authorisation.

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Govt Policy towards foreign capital FDI POLICY AND ADVANTAGES OF FDIa) Host country incurs no fixed chargesb) Repatriation occurs only after factory has

begun operation and made profits.c) If host country recession then no profits

and no pressure on BOP.d) On average 50% profits reinvested on

local operationse) Bring technological advances, financial

resources & advanced engineering & management skills

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FDI during post liberalisation period has taken a quantum leap.

Government policies for attracting a higher quantum of FDI

a) Further liberalisation of foreign trade policy and lowering of import duties.

b) Development of infrastructurec) Rationalisation of labor policyd) Develop Industrial townshipse) Developing free ports like Hong Kong.f) Capital Account convertibility

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Cumulative FDI stands at USD 166 billion twice the amount of FII’s.

Current year FDI USD 37 billion Telecom & Media have been key sectors for

FDI & several companies including NDTV, Verizon Communications, Unitech Wireless, UTV Software, Devas Multimedia and others have applied t Foreign Investment Promotion Board (FIPB) for approvals.

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Consolidated FDI Policy 2010 100% FDI is permitted under the automatic route in most

sectors. Sectoral Caps in case of Banking (74%), Insurance (26%),

Telecom (49%),Aviation (74%) and single brand retail (51%).

In sectors like Atomic Energy, Lottery, Gambling and Betting, Multi Brand Retail FDI not permitted

Top 3 regions attracting highest FDI (2000 to 2010) have been Mumbai region, followed by Delhi Region and Karnataka region

Other regions in last 5 years are Gujarat and Tamil Nadu Bombardier (Canada), McCain Foods (Canada) and General

Motors (USA) have set up operations in the state.

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FII POLICY FII is a institution established outside India that

allows investors to invest in Indian securities Includes Institutional Portfolio Managers, Asset

Management companies, Pension Funds, Charitable societies, Mutual Funds, Insurance companies etc.

Two main bodies regulating portfolio investment in India SEBI & RBI.

FIIs, NRIs AND PIOs can invest in Indian Capital Markets through Portfolio Investment Scheme.(PIS). Shares/Debentures of Indian companies can be acquired through stock exchanges in India.

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FII FII can invest only upto 24% of paid up

capital of Indian company whereas for NRIs and PIOs ceiling is upto 10%. Both can invest upto 20% of paid up capital in banks.

FII’s are allowed to purchase and sell securities on stock exchanges.

Till date FIIs have purchased domestic equities worth $22 billion in 2010.

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FII Eg $3.4 billion Coal India IPO, 50% of issue

reserved for qualified institutional buyers. Parameters on which SEBI decides FII

applicants eligibilitya) Applicant’s track record, professional

competence, financial soundness, experience.

b) Whether applicant is registered with and regulated by an appropriate Foreign Regulatory Authority same as with SEBI

c) Whether applicant is fit and proper person.

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Foreign Collaboration and MNCs JV-ownership and management are shared

between a foreign firm and local firms. Pepsi with Voltas and Punjab Agro Industries

Corporation.• Local interest split between partner and public

sector firms.1. Equity holding by public gets public support.2. Favourable treatment from government.3. Right local partner serves as a cultural bridge

between manufacturer and government.

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Govt policy for JV

1. JV is an important medium for promoting exports, trade, expansion and economic cooperation.

2. Earning of foreign exchange by dividends, technical knowhow royalties and exports.

3. Outlet for Indian exporters to latest technological development and management practises

4. Participate in the process of third world countries of Asia and Africa.

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Major Ventures1. Mahindra Ford Limited 50:50 JV Nashik 19772. Maruti Udyog Limited3. GM and Birla-Opel Astra4. Premier Automobiles Ltd.-Fiat Uno5. DCM Daewoo Motors-Cielo 6. P & G and Godrej SoapP & G-Strength in R & DGodrej-Receipent of P& G knowhow.

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Conclusion for JV• For success of JV’s1. Indian companies will have to make

products internationally competitive, quality price and other parameters

2. Bridge gaps in technology, productivity quality and infrastructure

3. Indian companies must exploit advantages in natural resources and labor

4. Change over from domestic to international business involves a great deal of organizational adjustment.