Economic Article. Buoyant Trade Scenario in India —Dr. Anupam Agrawal The size of merchandise as well as service trade in India has been increasing steadil recent years, reflecting greater integration in the economy with rest of the world. Such integration can expand manifold through regional trading arrangements. India has been actively pursuing such arrangement neighbouring Asian Countries which have emerged as its leading trading partners. Over the years, Indian Trade Policy has undergone fundamental shifts to correct the earlier anti-export bias through the withdrawal of quan- titative restrictions (QRs), reduction and rationalisation of tariffs, libera- lisation in the trade and payments regime and improved access to export incentives. To put a basic thrust on export promotion and improving competitiveness of Indian industry to meet global requirements, Govem- ment presented a Medium Term Export Policy (2002-07) on March 31, 2002. The policy had put the focus on consolidating the gains of the previ- ‘ous EXIM policies and set a challeng- ing target of achieving one per cent share in global trade by 2007. This Policy was replaced by a new Foreign Trade Policy announced by UPA Government for the period 2004-09 ‘on Aug. 31, 2004. The basic objective of this policy is to double India’s share in world trade and to make exports an effective instrument of ‘economic growth by giving thrust to ‘employment generation through a number of policy initiatives. These include simplification of procedures, reduction in transaction cost, neutra- lisation of incidence of levies and duties on inputs used for exports and development of global hubs for manufacturing, trading and services. ‘Two consecutive annual supplements of this trade policy have also been announced—for the year 2005-06 on ‘April 8, 2005 and for the year 2006-07 fon April 7, 2006, “Export for Employment’ is the new slogan of the recently announced Foreign Trade Policy 2006-07. Creat- ing jobs has emerged as a guiding principle of India’s Foreign Trade Policy. This year's stress on incen- tivising exports of products, which hhave employment potential in rural and semi-urban areas, indicates a ‘major shift towards an employment oriented export strategy. Even if purely as a new slogan exports for employment and how the common man must benefit from trade was the underlying theme with leather, fish, ‘gems and jewellery, Khadiitems, fire ‘works and stationery getting picked for special incentives. The salient features of the recent Foreign Trade Policy are— © The target growth rate of exports fs fixed at 20% for 2006-07. © By 2010, country’s exports are targeted to be 165 billion dollar. © By 2010, additional 2:10 crore job opportunities are to be created in export sector. rarget Plus Scheme’ (introduced in 2004-09 Foreign Trade Policy) is abondoned and two new schemes ‘Focus Product” and “Focus Market’ have been intro- duced for promoting employment opportunities in rural and urban the extended scope “Krishi Vishesh Upaj Yojana’ has been renamed 25 ‘Krishi Upaj and Gram Udyog Yojana’ and goods from rural and cottage industries have also been included within the renamed scheme. © Concessions are granted to exporters of gems and jewellery and auto spare parts, © Exporters have been granted exe- ‘mption from service tax and FBT. © Greater flexibility granted to ex- porters under EPCG scheme. © Duty free Import Authorisation scheme has been introduced wef. May 1, 2006 by merging ‘Advanced Licensing Scheme’ and ‘Duty Free Replenishment Certificate Scheme’. Latest Trends in India’s Foreign Trade © The merchandise exports touc- hhed the Tevel of 100-6 billion dollar during 2005-06 which is 24.7% more than that of the last ‘year’s exports. ‘© The merchandise imports got the height of 1402 billion dollar dur- ing 2005-06 which shows a 315% growth over the last year’s level © Trade deficit for the year 2005-06 ‘was 396 billion dollar, up from 25958 billion dollar in the pre~ vious year. Foreign Trade in India a US Million $) Export | Import | Trade Deficit 2003-04 | 6384300 | 7814900 | 1430600 '80672-41 | 10563051 2004-05 2595810 2005-06 | 10060692 |140237:65 | 3963073, © During 2005-06 there was signi- ficant increase in the exports of many items and also a negative trend was observed in exports of a few commodities. © Trade in services has been grow- ing faster than merchandise trade ~for example in 2004-05, growth in services trade was 786% com- pared to 336% in merchandise trade. The share of services in total trade increased from 235% in 2003-04 to 29-1% in 2004-05 and further to 344% in the first half of 2005-06. © Composition of India’s trade during 2005-06 shows that Engg. goods and Gems & Jewellery possess the highest share in exports with 183% and 173% respectively, Crude petroleum remains the highest import item in value term having 32-1% share in total Yearimports in the country during 2005-06. Data related to the direction of Indian trade during 2005-06 Pasion | reveals that Asia and Oceania “Lwont barope of which regions get the highest share in Direction of India’s Foreign Trade during 2005-06 Sharehinindia : (a) European Union Nations zum 15755 we ase Se repecovly in CDE sel Net ae 206% 53%) individual nations America has Hast EUPe ital es IIL CIS and Batic States of which | 121 | 220 pegm the top trading partner with (3) Russia | ons 159%) . ; sn _ @PRestof CIS nations 050% 066%) onde hee mmeromed in eceng i IV, Astaand Oveasia | 4670 nn usps anal Ltporte by V. Africa 709) 33 to become the 30th leading mer ¥/ of | chandise exporter and 23rd lead ¥ Aeveni of hich 22 1s meee dice inmonter of he @)North America | 112% 598% ie a The wenentenincepan @)Latin America | 298% 11% th continued, though at a) Restof America | 003% | oor, decelerated pace in 2005-06. i ooo} a India's merchandise exports con- high export-growth of more than _(i.e.75 billion dollars). The target tinued to record doubledigit dur- ing 2005-06 touching 20%. This was even more significant com- _dise exports at US $ 80672 billion ing in he wake of consistently far exceeded the export target Exports during 2005-06 ook Shoering Positive Gane: |" \Genile Showing i Coffee, Rice, Pulses, Guargum, Meals.| Tea, Wheat, Castor oil, Spices, Nut and_ Meat and Meat Products, Poultry and | Seeds, Sugar and Molasses, Leather and Dairy Products, Spirit and Beverages, | Manufactures. Plastic and Linoleum, Shellac, Ores and Minerals, Gems and | Fruits/ Vegetables, Floriculture Pro- Jewellery, Sports Goods, Project Goods, | ducts, Cotton Yarn Made-ups, Fabrics, Carpets, Raw Cotton, Petroleum Pro-| Manmade Textiles Made-ups, Natural ducts. Silk Teatil, Silk Carpets Composition of India’s Foreign Trade during 2005-06 20% during the last three years, During 2004-05 India’s merchan- ive Growth for 2005-06 was revised from 88 billion US dollar to 92 billion US dollar but as per the latest avai- lable data, Indian exports tou- ched the height of 1006 billion dollar during 2005-06. Important Commercial Relations (A) With ASEAN Countries India’s Trade with East Asia and ASEAN region comprising the ASEAN countries (viz. Indonesia, Malaysia, Singapore, Thailand, Phil- TXPORTS IMPORTS rs ——s pines, Brunei, Vietnam, Myanmar, Commodiies Shaee Commodies Share Laos and Combodia). Australia, New i %__ Zealand and countries of Oceania, 1. Plantation 075 | 1.Bulk import 4387 stood at US$ 21.38 billion during the 2. Agri. and Allied Products| 7.08 | [Mainly year 2004-05 registering a growth of 3. Marine Products 152 | + Iron and Steel 328% 27-97% over the previous year. 4. Ores and Minerals 536 | + CradePetroleum — 3212% Export to ASEAN region grew 5. Leather and Mérs. 264 | «Fertiliser 143% by 37:3% during the year 2004-05 6, Gems and Jewellery 1726 | EdibleOit 153%) ‘over the previous year and imports 7. Sports Goods 013 | 2.Peatis, Precious and Semi 777 witnessed a growth of 1847% in the ‘8. Chemicals and Related Precious Stones same period. As regards East Asia Products 1470 | 3. Machinery 999 region the comparable figures are 9. Engg. Goods | 1827 | 4. projec Goods | cose SODA ER Sete eetectinety. 1, Electronic Goods 211 | 5. Others 3793 (B) With SAARC Countries 1, Project Goods O13 ‘([Mainiy 12 Teles | s432 |S Contcote 206% | fangda piles diated 13, Handicrafts | 046 | = Org.and tnorg.chem. 467% Pitan aciay et 14. Carpets | 077 | = EnectronicGoods 825% Lanka. 15. Cotton Raw 032 | + Goda siiver 851% Trade with SAARC 16 Petroleum Products. | 1133 | * Chemical Prods. © O73% em 7. Unclasiied Exports | 287 | + Wood and Wood — SS | Products 063% Trade 2004-05 _APril-November = Cashewnuts 036% Fares | 2005-06 + Pulses 039%) Export] 195222] t2son4| 13869-9 Total [ooo otal oom _Inport_ 405722010] 30639During 2004-05 India’s trade with SAARC countries accounted to 2.8% of India's global trade. During this year, while India’s exports to these countries amounted to 54%, the imports from these countries amoun- ted to 0.85% of India’s global imports. (C) With United States (i) The US is India’s largest trading partner and the foremost export destination, At present it ac- counts for 16-48% of India’s exports and around 626% of India’s imports. India accounts for only about 1.06% of the USA's total exports and imports. India’s export and import to/ from the US have been as under. (US$ Mion) ‘Year| Exports | Imports sor | i192 | sass | = | assx) motos | ies | osxa2 55% _| 572%) Tigers a brackets chow the growih fate over previous year. Commodity composition of Indo- US trade is __Exports to US Gems and lery, Cotton, Man- tufactures of Metals, Primary and Semi- finished Iron and Steel, Drugs, Pha- rma, Fire __|Imports from US_ Electronic Goods, Machinery (except lee. and Electro- nic), organic che- rmicals, Transport exuipments (Gil) The US ranks first and accounts for about 244% (US $ 1640 billion) of the total FDI approvals of US § 674 billion accorded since 1991. The leading sectors attracting FDI from the US are fuels (Power and Oil Refinery) Telecommunications, Electrical Equipments, Food Processing Industries and Services. (D) With European Union Nations (i) European Union is India’s largest trading partner accounting for around 20% of India’s global trade. ‘Trade with EU Nations (ii) Top Five Items of Indo-EU Trade Exports to EU_| Imports from EU Readymade Gar-| Pearls/Precous ments, Cotton. | Stones, Gold, Gems and Jewel-| Machinery (Except lery Primary and | Electrical & Elec- ‘Semi Finished Iron | tronics) Electronic and Steel, Machi-| Goods, Organic nery. Chemicals. (Gil) FDI approved from EU countries from August 1991 to june 2005 is of the order of US$ 17-19 billion. ‘The actual inflow of FDI during the same period is US $ 7-12 Billion. The top sectors attracting FDI and technology transfer from EU are Fuels (Power and Oil Refinery), Electrical Equip- ments (including Computer Soft- ware and Electronics) Telecom- munications, Transportation Ind- ustries, Chemicals (Other than Fertilisers and the Service Sector. “Focus Africa’ Programme ‘The ‘Focus Africa’ programme ‘was launched on 31st March, 2002 {alongwith the announcement of EXIM Policy 2002-07) with effect from April 1, 2002, to increase bilat- eral trade and investment focusing fon Seven African Countries (viz Chana, Nigeria, South Afften Tanzania, Kenya, Ethiopia and Mauritius). From 2003-04, Govern- ment extended this pros to cover the entire continent of Africa including six North African coun- tries. This programme is still conti- Export Promotion Measure— ASIDE Scheme ASIDE (Assistance to State for Development of Export Infrastructure and other activities) Scheme aims at encouraging the active involvement of State Governments for develop- ‘ment of export infrastructure through assistance linked to export perfor- ‘mance. The scheme provides an out- lay for development of export infra structure which is distributed among the States interalia, on the basis of the State's export performance in the previous year. ‘The specific purposes for which the funds are allocated under the scheme are : © Creation of new Export Promot- ion Industrial Parks / Zones (including SEZs / Agri Business Zones) and augmenting facilities in the existing zones. © Setting up of electronic and other related infrastructure in export conelaves. @ Equity participation in infra- structure projects, including the setting up of SEZs. @ Development of complementary infrastructure such as roads, power supply etc. © Projects of national and regional importance. Special Economic Zone (SEZ) (With a view to creating an envi. ronment for achieving rapid growth in exports and to provide an internationally competitive and hassle-free environment for boosting exports, a Special Economic Zone Policy was announced in the EXIM Policy 2000. ‘The Salient features of Policy are: * A designated duty free enclave to be treated as forei- gn territory only for trade operations and duties and tariffs. + No license required for im- port. ‘+ Manufacturing, trading and service activities allowed. + SEZ units tw be positive net foreign exchange earners within three years ‘+ Full freedom for sub-contract- ing. ‘+ Duty free goods to be utilised over the approved period of 5 years. * No routine examination by customs authorities of ex- port/ import cargo. * Minimum size of multi- product SEZ, not to be less than 1000 hectares. ‘At present all the eight EPZs (Export Processing Zones) loca- ted at Kandlaand Surat (Gujarat), Santa Cruz (Maharashtra), Cochin (Kerala), Chennai (Tamil Nadu), Noida (U. P.), Falta (West Bengal) and Vishakhapatinam (Andhra Pradesh) have been con- verted into SEZs and are func- tional at present. In addition, 7 new SEZs became operational in 2004/2005. These SEZ « newly created SEZs are : 1. Manikanchan Gems and (West Bangel) Jewellery 2 Jaipur Gems and (Rajasthan) Jewellery 3. Indore (Madhya Pradesh) Multi Products4, Salt Lake SoftwareDeve (V¥) Al present, 75 units are in ii) During 2006-05 EOUs registered Electronic City elopment é& IT operation in the SEZs providing a growth of 27-7% in exports (Kolkata-West enabled Services direct employment to about 110 over the previous year. Bengal) lakh persons (about 40% of them (iv) Recent policy changes in the EOU 5. Mahindra City IT, Hardware are women). Private investment"? Scheme (effective from 8th April, (Chennai, Tamil and Bio- by entrepreneurs for establishing 2905) are Nadu) informatics units in the SEZs is about Rs. Sweet se so see 6 Minds Ciy, Apparel and 200) cps ty free spares upt (Chennai, Tamil Fashion = . saicae the value of capital goods Nadu) “Acoessories port Oriented Units (EOUs) imported for excavation pur- 7. Jodhpur Handicratts (® EOU scheme introduced in early poses in the Granite Sector (ajasthan) 2981 Jig complementary to the will beallowed to be remaved (iii) Approvals have so far been given Eiders ts declares to the quarries. for setting up of 117 new SEZs Gide option th locations with * The de-bonding procedure including 3 free Trade ware- reference to factors like source of for EOUs has been simplified. housing zones) spread over 15 raw Foor material: posts of epee. '* Capital goods will be allowed States and 2 Union Territories in hinterland facilities, availability to be teumsfened or given on the Private/Joint Sector or by _of technological skills, existence Joan basis to other units under State Governments and its agen- of an industrial base and the Tonasstinn 1 boll Eacee cies of the 117 SEZs approved for _eed for a larger area of land for Deptt. and Development = 7 ats @ fore Decenter, 2005, 1924 Sembee, on 31st esr boone era Se seh emertbe + Trane of ample oar operation and the other are at EOU, scheme. mee 5 EOUs on returnable basis mainly concentrated in textiles within a to arious stages ‘of implementa- and yarn, food poe tea ys ion. fonda cherucdly planta gra «EUs Ne be permitted to (iv) Exports from the SEZs during the nites and minerals/ores. claim income tax exemption last three years are as follows Export Performance of EOUs in respect of income on export (Rs. Crore) A teenie Proceeds realised within a ee, period of 12 months from —_Yer_|_ Export a5 2359060 date of export. aans-04 aed 2003-04 2382758 The size of merchandise as 2004-05 18.309 2001-05 3680617 well as service trade in India 2005-06 (Apri-Dec) | 1558179 _ 2008-06 (April-Decy | 2254173 has been increasing steadily in recent years, reflecting 7 7 greater integration in ‘Special Economic Zone Act, 2005 Seecey wih ths teat ok ie As a major step forward meant to instil confidence in investors and world. Such integration can signal the government’s commitment to a stable SEZ policy regime, a expand manifold through comprchensive Special Economic Zones Act, 2005 was passed by the regional trading arrange Parliament in May 2005. It received Presidential assent on the 23rd of June ments. India has been actively 2005, This Act came into force w.e.f. February 10, 2006. pursuing such arrangements Ticcdoi alesse ae with neighbouring Asian countries, which have emer- Exemption from customs duty, excise duty etc. on import/ domestic ged as ite leading treding procurement of goods for the development, operation and maintenance i 5 Of SEZs and the units therein Srangements ih Singer 100% income tax exemption for 5 years, 50% for the next 5 years and 50% pore and Thailand are expec- of ploughed back export profits for 5 years thereafter for SEZs units. ted to enlarge opportunities Exemption from capital gains on transfer of an undertaking from an for Indian exports in near urban area to SEZs. term, Such prospects, indeed, 100% income tax exemption to SEZ developers for a block of 10 years in appear to be robust as more 15 years. pemcieirg exports eas : ‘ ‘ resurgent Indian indus Exemption from dividend distribution tax to SEZ developers. a pene reer y 1100% income tax exemption for 5 years and 50% for next five years for off Geeral export batkeh = shore Banking units located in SEZ. slveady hew.a leading sage in Exemption to SEZ developer and units from Minimum Alternate Tax. saves’ CST exemption to SEZ developer and units on inter-state purchase of The above trade scenario in goods. India clearly indicates that Constitution of an authority for each SEZ with a view to providing India is not only on the right greater administrative, financial and functional autonomy to these zones. path but is approaching the Establishment of designated courts and a single enforcement agency to pase ensure speedy trial and investigation of offences committed in SEZs. ‘The target of doubling India’s trade within five years as spelt out in Foreign Trade Policy 2004-09 seems to be achievable. a Encouragement to State Governments to liberalise State laws and delegate their powers to the Development Commissioners to the SEZs to facilitate single window clearance. Prativovita Darpan/Julv/2006/82.