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UNIT 1 Overview of Framework of Organization of Trade on India 1

Unit 1 Notes
__________________
__________________
Overview of Framework of __________________

Organization of Trade on India __________________

__________________
__________________
__________________
Objectives
__________________
After reading this unit you will be able to understand:
__________________
O The major provisions of the Export Import Policy 2004-2009
__________________
O Structure of the foreign trade organizational framework setup and
maintained by Govt. of India.
O Role of the individual departments in the export promotion and
other foreign trade related activities of the country.

A thorough understanding of Foreign Trade Policy of India

is essential for an international trader in order to formulate
an overall winning international marketing strategy.
Looking back, the entire focus of India’s foreign trade policy
till early 1990s had been on protecting domestic industry
and import substitution. The idea was to create a dynamic
Indian industry, which may be capable of taking the world
on its head in the future. The export promotion angle had
been more or less missing before 1990. Till that time India,
had such provisions in its foreign trade policy, which resulted
into international tariffs being among the highest in the
world, and the process of export and import involved a lot of
red tape, or outright ban on a number of items for imports. It
also resulted into stringent foreign exchange regulations,
which were not conducive to India’s foreign trade growth.
The approach was also to link export obligations with import
process.

This policy failed to do any good for the country. It resulted

rather in a wide spread corruption, backwardness,
uncompetitive and a protected local industry surviving with
political backing. Inflationary pressures in the economy were
frequent and wide spread. One could see lowering levels of
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Notes technology absorption and up gradation. There was a very

__________________ bad image of Indian traders around the world mainly due to
__________________ low domestic infrastructure, resulting into failed
__________________ commitments.
__________________ Luckily all these problems were sensed by Indian Policy
__________________ makers in early 90s and a new direction was given to
__________________ subsequent framework of Export- Import Policy of India,
__________________ which fortunately has helped in achieving a robust growth
__________________ of Exports and overall foreign trade of India, and also helped
__________________
improve image of India and “India as a brand” in the world
business. Today’s international marketer from India may not
__________________
face such kind of problems, which was faced by their counter
parts in the so called dark age for India’s exports efforts,
before 90s.

India’s subsequent foreign trade policies have consistently

aimed at creating a friendly regulatory environment by
eliminating redundant documentation and procedures;
simplifying processes involved in export sector; increasing
transparency in the related government departments and
moving away from quantitative restrictions. Further, all of
these are being done under the restrictions imposed by WTO.
Policy makers have ensured foreign trade policy’s
compatibility with provisions of WTO. All these efforts have
improved the competitiveness of the Indian industry and
have brought focus on the export promotion.

A critical outlook of Foreign Trade Policy of India

The foreign trade policy of India is formulated and
implemented chiefly by the Ministry of Commerce and
Industry. However other concerned ministries and RBI are
consulted before arriving at the final policy. The Directorate
General of Foreign Trade, under the Department of
Commerce, is the execution agency for the foreign trade
policy of India.

The export-import policy was earlier formulated under the

Import and Export (Control) Act, 1947, which was
promulgated on 25th March 1947. Initially, the Act was for a
three-year duration. It was later extended till 31 st March
1977. Subsequently it was extended to an indefinite period.
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UNIT 1 Overview of Framework of Organization of Trade on India 3
In 1992, the Import and Export (Control) Act, 1947, was Notes
replaced by the Foreign Trade (Development and Regulation) __________________
Act, 1992, whereby the Chief Controller of Imports and __________________
Exports (CCIE) was designated as the Director General of
__________________
Foreign Trade (DGFT). The current foreign trade policy came
__________________
into force on 1st April 2004 and is to remain in force till 31st
March 2009. The foreign trade policy primarily outlines and __________________
defines various policies, procedures and modification related __________________
to foreign trade. These modifications and announcement are __________________
done periodically, normally every year. It also lists various
__________________
new or continued export promotion measures.
__________________
An overview of current foreign trade policy 2004- 2009 is __________________
given later in this chapter.

For comparison purpose it is interesting to look into the

objectives of the foreign trade policy 2002-2007. The main
objectives of foreign trade policy 2002- 2007 of India were:

n To facilitate sustained growth in exports in order to

attain a share of India’s exports to the tune of not less
than 1% of the global merchandise trade.

n To provide consumers with good quality products and

services at internationally competitive prices while at
the same time create a level playing field foe the
domestic industry.

n To enhance the technological strength and efficiency of

the Indian agriculture sector, industry, and services, to
improve their competitive strength while generating
new employment opportunities, and to encourage the
attainment of internationally accepted standards of
quality.

n To stimulate sustained growth by providing firms an

access to essential inputs, intermediates, components,
consumables and capital goods required for augmenting
production and providing various services.

The foreign trade policy is published in five volumes:

n Export-import policy.

n Handbook of procedures (Volume I): It contains all

prescribed export – import procedures.
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Notes n Handbook of Procedures (Volume II): It contains all

__________________ input – output norms for exportable products.
__________________
n ITC (HS) Classification of Export and Import items. Here
__________________
one can find the exportability or importability of any
__________________ item of interest with reference to current FT policy.
__________________
n Schedule of DEPB Rates (Volume V): It provides DEPB
__________________
rate structure.
__________________
__________________ General Export Import Prohibition and
__________________ Restrictions
__________________
FT policies subsequent to 31 st March 2001 provided free
importability status to goods that can be freely imported by
any person or company registered with DGFT, unless
specifically prohibited or restricted in the schedule of the
policy. Exports from India are free except in case, the
provisions of FT policy or any other law in force regulates
these. The Indian government is authorized to maintain
import prohibition and restrictions due to the following
concerns:
1. Protection of human, animal, or plant life or health.
2. Protection of patents, trademarks, and copyrights, and
prevention of deceptive practices.
3. Protection of national treasures of artistic, historic, or
archaeological value.
4. Conservation of exhaustible natural resources.
5. Protection of trade of fissionable material or material
from which they are derived.
6. Prevention of traffic in arms, ammunition, and war
equipments
7. Protection of public morals
8. Protection of use of prison labor.
Under the foreign trade policy 2002 - 2007, export of birds,
wild animals, tallow, beef, certain wood products,
sandalwood products, certain species of sea shells, peacock
feathers, shaving of shed antlers of deer, human skeleton,
and certain endangered species of wild orchid and plants
are prohibited.
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UNIT 1 Overview of Framework of Organization of Trade on India 5
Exports to Libya are subject to certain conditions. Exports Notes
of restricted items are permitted only after obtaining license __________________
from the DGFT. The list of items restricted for exports __________________
include cattle, camel, horses, seaweeds, and chemical
__________________
fertilizers.
__________________
General Export Promotion Schemes and Incentives under __________________
FT policy __________________

Promotional Measures __________________

__________________
Central Assistance to States __________________
__________________
The State Governments is encouraged to fully participate in
encouraging exports from their respective states. For this
purpose, suitable provisions is made in the Annual Plan of
the Department of Commerce for allocation of funds to the
states on the twin criteria of gross exports and the rate of
growth of exports from different states. It is called Assistance
to States for Infrastructure Development for Exports
(ASIDE). The States are to utilize this amount for developing
complementary and critical infrastructure such as roads
connecting production centers with the ports, setting up of
Inland Container Depots and Container Freight Stations,
creation of new State level export promotion industrial
parks/zones, augmenting common facilities in the existing
zones, equity participation in infrastructure projects and any
other activities as may be notified by DGFT from time to
time.

Market Access Initiative

Financial assistance is available under the scheme to the
export promotion councils, industry and trade associations
and other eligible entities, as may be notified from time to
time, on the basis of the competitive merits of proposals
received in this regard for the following purposes which inter-
alia includes:

n Marketing studies on country product focus approach

basis.

n Participation in sales promotion campaigns through

international departmental stores.
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Notes n Publicity campaign for launching identified products in

__________________ selected markets.
__________________
n Participation in international trade fairs, seminars,
__________________
buyers-sellers meet.
__________________
__________________ n Setting up of common showrooms under one roof and
warehousing facility in the identified centers on the basis
__________________
of marketing studies in important cities abroad.
__________________
__________________ n Promotion of select brands.
__________________
n Registration charges for product registration abroad for
__________________ pharmaceuticals, biotechnology and agro chemicals and
testing charges for engineering products.

n Inland freight subsidies for units located in North East,

Sikkim and Jammu &Kashmir.

n Transport subsidies for select agriculture products.

n Setting up of “business center” in Indian missions abroad

for visiting Indian exporters/businessmen.

Towns of Export Excellence

A number of towns in various geographical locations have
emerged as dynamic industrial locations, appreciably
contributing to India’s exports. Some of these have become
globally renowned manufacturing bases. It is necessary to
grant recognition to these industrial clusters with a view to
maximize their export profiles and help in upgrading them
to move up in the higher value markets.

A number of such industrial cluster towns are exporting a

substantial portion of their products, which are world class.
For example, Tirupur is exporting 80% of its production of
hosiery. A beginning is being made to consider industrial
cluster towns such as Tirupur for hosiery, woolen blanket in
Panipat, woolen knitwear in Ludhiana to be eligible for the
benefits under Towns of Export Excellence.

Common service providers in these areas are entitled for

facility of EPCG scheme. The recognized associations of units
will be able to access the funds under the Market Access
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UNIT 1 Overview of Framework of Organization of Trade on India 7
Initiative scheme for creating focused technological services. Notes
Further such areas will receive priority for assistance for __________________
identified critical infrastructure gaps from the ASIDE __________________
scheme. The units in these notified areas would be eligible __________________
for availing all the FT policy schemes as per their choice and __________________
the provisions of those schemes shall stand relaxed.
__________________

Special Focus on Cottage and Handicraft Sector __________________

__________________
The small-scale sector along with the cottage and handicraft
__________________
sector has been contributing to more than half of the total
__________________
exports of the country. The cottage and handicrafts sector,
__________________
which mostly employs artisan and rural people, contributes
significantly to this effort. In recognition of the export
performance of this sector and to further increase its
competitiveness, the following facilities are extended to this
sector.

The unit in this sector is eligible for funds from Market Access
Initiative (MAI) scheme under the Policy. Funds are
earmarked for this sector in the MAI scheme. The funds is
to be utilized for developing their website for virtual
exhibition, among other activities,

Under the EPCG scheme, these units will not be required to

maintain average level of exports.

These units are entitled to the benefit of export house status

on achieving lower average export performance of Rs.5 crore
during the preceding three licensing years as given in the
Policy; and

The units in handicraft sector are entitled to duty free

imports of specified items unto 3% of FOB value of their
exports.

Agri Export Zones (AEZ)

With a view to promoting agricultural export from the
country and remunerative returns to the farming community
in a sustained manner, AEZ as announced earlier are to be
set up for end-to-end development for export of specific
products from a geographically contiguous area.
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Notes AEZ are to be identified by the State Government, who may

__________________ evolve a comprehensive package of services provided by all
__________________ State Government agencies, State agriculture universities
__________________ and all institutions and agencies of the Union Government
for intensive delivery in these zones.
__________________
__________________ Such services, which would be managed and coordinated by
__________________
State Government, would include provision of pre/post
harvest treatment and operations, plant protection,
__________________
processing, packaging, storage and related research &
__________________ development etc. APEDA will supplement, within its
__________________ schemes and provisions, efforts of State Governments for
__________________ facilitating such exports.

Units in AEZ are entitled for all the facilities available for
exports of goods in terms of provisions of the respective
schemes.

State Programs
The Central Government encourages and assists State
Governments in launching similar program in their
respective States, particularly for the small scale and
handicraft sectors.

Brand Promotion and Quality

The Central Government aims to encourage manufacturers
and exporters to attain internationally accepted standards
of quality for their products. The Central Government
extends support and assistance to trade and industry to
launch a nationwide program on quality awareness and to
promote the concept of total quality management (TQM).

Duty Exemption / Remission Schemes

The Duty Exemption Scheme enables duty free import of
inputs required for export production. An Advance License
is issued under Duty Exemption Scheme. The Duty
Remission Scheme enables post export replenishment /
remission of duty on inputs used in the export product. Duty
Remission scheme consist of:
n Advance Licenses
n DFRC (Duty Free Replenishment Certificate) and
n DEPB (Duty Entitlement Pass Book Scheme).
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UNIT 1 Overview of Framework of Organization of Trade on India 9
Advance License Notes
__________________
An Advance License is issued to allow duty free import of
__________________
inputs, which are physically incorporated in the export
product (making normal allowance for wastage). In addition, __________________

fuel, oil, energy, catalysts etc., which are consumed in the __________________
course of their use to obtain the export product, may also be __________________
allowed under the scheme. Duty free import of mandatory __________________
spares up to 10% of the CIF value of the license, which are
__________________
required to be exported / supplied with the resultant product
may also be allowed under Advance License. __________________
__________________
Duty Free Replenishment Certificate
__________________
DFRC permits duty free replenishment used in the export
product. DFRC is issued to a merchant-exporter or
manufacturer-exporter for the import of inputs used in the
manufacture of goods without payment of basic customs duty,
and special additional duty. However, such inputs are subject
to the payment of additional customs duty equal to the excise
duty at the time of import.

Duty Entitlement Passbook Scheme

The DEPB scheme allows drawback of import charges on

inputs used in the export product. The objective of DEPB is
to neutralize the incidence of Customs duty on the import
content of the export product. The neutralization is provided
by way of grant of duty credit against the export product.

Under the DEPB, an exporter may apply for credit, as a

specified percentage of FOB value of exports, made in freely
convertible currency. The credit is available against such
export products and at such rates as may be specified by the
Director General of Foreign Trade by way of public notice
issued in this behalf, for import of raw materials,
intermediates, components, parts, packaging material etc.

The holder of DEPB has the option to pay additional customs

duty, if any, in cash as well.

Scheme for Gem and Jewellery

Exporters of gem and jewellery are eligible to import their
inputs by obtaining Replenishment (REP) Licenses from the
licensing authorities in accordance with the procedure
specified in this behalf.
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Notes Replenishment License

__________________
The exporters of gem and jewellery products listed in
__________________
Appendix-26 of the Handbook (Vol.1) are eligible for grant
__________________
of Replenishment Licenses at the rate and for the items
__________________ mentioned in the said Appendix to import and replenish their
__________________ inputs. Replenishment license may also be issued for import
__________________ of consumables as per the details given in paragraph 4.80 of
__________________ Handbook (Vol.1).
__________________
Export of Cut & Polished Diamonds for Certification /
__________________ Grading
__________________
Gems and Jewellery exporters with a track record of at least
three years and having an annual average turnover of Rs.5
crores and above during the preceding three licensing years
or the authorized offices /agencies in India of Gemological
Institute of America (GIA), The Robert Mouawad Campus,
International Gemological Institute (IGI) and European
Gemological Laboratory (EGL) in USA, Hoge Road Voor
Diamond, Antwerp, (HRD), World Diamond Center of
Diamonds High Council, Antwerp, Belgium may be permitted
to export cut & polished diamonds each weighing 0.50 of a
carat and above to the said laboratories/agencies, for the
purpose of certification/grading reports by them with a
condition that the same should be re-imported with the
certificate/grading reports issued by them without any
import duty at the time of re-import.

Schemes for Gold/ Silver/ Platinum Jewellery

Exporters of gold/silver/platinum jewellery and articles

thereof may import their essential inputs such as gold, silver,
platinum, mountings, findings, rough gems, precious and
semi-precious stones, synthetic stones and unprocessed
pearls etc. in accordance with the procedure specified in this
behalf.

Export Promotion Capital Goods (EPCG) Scheme

The scheme allows import of new capital goods including
CKD/SKD thereof as well as computer software systems at
5% customs duty subject to an export obligation equivalent
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UNIT 1 Overview of Framework of Organization of Trade on India 11
to 5 times CIF value of capital goods to be fulfilled over a Notes
period of 8 years reckoned from the date of issuance of license __________________
over a period of 8 years. __________________
__________________
However, in respect of EPCG licenses for Rs.100 crore or
more, the same export obligation shall be required to be __________________

fulfilled over a period of 12 years. __________________

__________________
The capital goods include jigs, fixtures, dies and moulds.
__________________
Spares may also be imported under the scheme up to 20% of
__________________
the CIF value of capital goods. EPCG license is also issued
for import of components of such capital goods required for __________________

assembly or manufacture of capital goods by the license __________________

holder.

Export oriented units (EOUs); units in export processing

zones (EPZs), electronics hardware technology parks
(EHTPs) and software technology parks (STPs)

Units undertaking to export their entire production of goods

and services may be set up in the provisions of the Export
Processing Zone (EPZ) Scheme, the Export Oriented Unit
(EOU) Scheme, Electronic Hardware Technology Park
(EHTP) Scheme or Software Technology Park (STP) Scheme.
Such units may be engaged in manufacture, services, repair,
reconditioning, remaking, re-engineering including making
of gold/ silver/ platinum jewellery and articles thereof,
agriculture, including agro-processing, aquaculture, animal
husbandry, bio-technology, floriculture, horticulture,
pisciculture, viticulture, poultry, sericulture and granites
and may export all products except restricted and prohibited
items of exports in ITC (HS). Units for generation/distribution
of power may also set up in EPZs. Under this scheme no
trading units are permitted.

An EOU/ EPZ/ EHTP/S TP unit may export goods and

services including agro-products, partly processed jewellery,
sub-assemblies and components. It may also export by-
products, rejects, and waste scrap arising out of the
production process.

An EOU/ EPZ/ EHTP/ STP unit may import without payment

of duty all types of goods, including capital goods, as defined
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Notes in the Policy, required by it for its activities or in connection

__________________ therewith, provided they are not prohibited items of imports
__________________ in the ITC (HS). The units are also permitted to import goods
__________________ required for the approved activity, including capital goods,
__________________ free of cost or on loan from clients.
__________________ EOU/ EPZ/ EHTP/ STP units may procure goods required by
__________________ it for its activities or in connection therewith, without
__________________ payment of duty, from bonded warehouses in the DTA
__________________ (Domestic Tariff Area) set up under the Policy and from
__________________
International Exhibitions held in India.
__________________ STP/ EHTP/ EPZ may import without payment of duty all
types of goods for creating a central facility for use by
software development units in STP/ EHTP/ EPZ. Units in
the DTA for export of software can also access the central
facility for software development.

EOUs in agriculture and horticulture engaged in contract

farming are permitted to import/procure from DTA specified
goods as at Appendix 14-B of Handbook (Vol.1) and take out
the same to the fields of contract farmers for production or
in connection therewith and bringing back the produce for
exports.

An EOU engaged in agriculture, animal husbandry,

floriculture, horticulture, pisciculture, viticulture, poultry
or sericulture may import without payment of duty only such
goods as are permitted to be imported duty free under a
Custom Notification issued in this behalf.

EOU/ EPZ gem and jewellery units may also source gold/
silver/ platinum through the nominated agencies.

EOU/ EPZ/ EHTP/ STP unit, other than service units, may
also export to Russian Federation in Indian Rupees against
repayment of State Credit/Escrow Rupee Account of the
buyer subject to RBI clearance, if any.

Special Economic Zones (SEZs)

Special Economic Zone (SEZ) is a specifically delineated duty
free enclave and is deemed to be foreign territory for the
purposes of trade operations and duties and tariffs. Goods
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UNIT 1 Overview of Framework of Organization of Trade on India 13
going into the SEZ area from DTA are treated as deemed Notes
exports and goods coming from the SEZ area into DTA are __________________
treated as “imports”. SEZ units may export goods and __________________
services including agro-products, partly processed jewellery, __________________
sub-assemblies and component. It may also export by- __________________
products, rejects, and waste scrap arising out of the
__________________
production process. SEZ units may be set up for the
__________________
manufacture of goods and rendering of services, processing,
__________________
production, assembling, trading, repair, remaking,
reconditioning, re-engineering including making of gold/ __________________

silver/ platinum jewellery and articles thereof or in __________________

connection therewith. __________________

Like in the case of EOUs, SEZ units (other than trading/

service unit) may also export to Russian Federation in Indian
Rupees against repayment of State Credit/Escrow Rupee
Account of the buyer, subject to RBI clearance, if any. SEZ
unit may import without payment of duty all types of goods,
including capital goods, as defined in the Policy, whether
new or second hand, required by it for its activities, provided
they are not prohibited items of imports in the “import
restriction schedule”. Goods may include raw material for
making capital goods for use within the unit. The units are
also permitted to import goods required for the approved
activity, including capital goods, free of cost or on loan from
clients. SEZ units may procure goods required by it without
payment of duty, from bonded warehouses in the DTA set
up under the Policy and from International Exhibitions held
in India. SEZ may import, without payment of duty, all types
of goods for creating a central facility for use by software
development units in SEZ. Units operating DTA for “100%
export of computer software” can also access the Central
facility for software development. Gem and Jewellery units
under SEZ may also source gold/ silver/ platinum through
the nominated agencies. SEZ units may also import/procure
goods from DTA without payment of duty for setting up of
units in the Zone.

Comments on India’s FT Policy Direction till Date

The FT policy direction of India is still to go a long way in
tapping the real global advantage, India has in the global
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Notes place today. Indian business has the potential of becoming

__________________ the world’s “back office” as well as “the factory of the world
__________________ businesses”; the second title now enjoyed by our neighbor,
__________________ China, because what we are doing today had been started by
__________________ China in 1979 itself. Even though we have learnt from our
mistakes, the slow pace of many emerging global concepts
__________________
like SEZs and development of world infrastructure of roads,
__________________
ports, railways etc. has resulted in India lagging behind in
__________________
the world market, vis-à-vis China. Further FT policy of India
__________________ has miserably failed to attract right kind and quantum of
__________________ foreign investments in various business ventures, which can
__________________ bring much needed “increased share of India’s trade in the
world trade”. This share is still insignificant to the tune of
less than 1% of global trade. Further many of the pressing
issues, with regard to international business, addressed in
the past in the various older FT policy of India, have
miserably failed at the “implementation / execution stage”.
Dynamic and forceful provisions complemented by a real
commitment from the future governments and modifications
in its other regulatory provisions, can bring the necessary
changes required in the present “not-so-good” situation of
India’s exports of goods and services as a whole.

Foreign Trade Policy 2004 – 2009: Policy

Overview and Highlights
It is for the first time that a comprehensive Foreign Trade
Policy is formulated. The Foreign Trade Policy 2004-2009 has
acquired an integrated view of the overall development of
India’s foreign trade.

The main objectives of the Foreign Trade Policy 2004-2009

are:

1. To double India’s percentage share of global

merchandise trade by 2009; and

2. To act as an effective instrument of economic growth by

giving a thrust to employment generation, especially in
semi-urban and rural areas.
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UNIT 1 Overview of Framework of Organization of Trade on India 15
The key approach is decentralization of controls by creating Notes
an atmosphere of trust and transparency. Some of the aspects __________________
of this policy in this direction are: __________________
__________________
A. Simplifying procedures and bringing down export
transaction costs; __________________
__________________
B. Identifying and developing different special focus areas
__________________
to facilitate development of India as a global hub center
__________________
for trading, manufacturing and services.
__________________
C. Adopting the main principle that duties and levies __________________
should not be exported __________________

Initiatives taken for Special Focus

1. Sectors with significant export prospects along with
potential for additional employment generation in semi-
urban and rural areas have been identified as thrust
sectors, and specific sector-wise strategies have been
introduced.

2. More sector-wise initiatives in other sectors are

announced. Special Focus Initiatives have been prepared
for sectors related to Agriculture, Gems & Jewellery,
Handlooms, Handicrafts, and Leather & Footwear
sectors.

3. The threshold limit for deciding status of ‘Towns of

Export Excellence’ is brought down from Rs.1000 crores
to Rs.250 crores in these thrust sectors.

Initiative for Agriculture

The Special Focus Initiative for Agriculture comprise of:

1. New scheme, Vishesh Krishi Upaj Yojana, has been

introduced to boost exports of vegetables, flowers, fruits,
minor forest produce and related value added products.

2. Provision for duty free import of capital goods related

to this sector under EPCG (export promotion capital
goods scheme).

3. Provision for capital goods imported under above

scheme permitted to be installed anywhere in the “Agri
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Notes Export Zones” (same as free trade zone but specializing

__________________ in Agriculture products).
__________________
4. Export of plant derivatives, plant portions and plant
__________________
extracts has been liberalized with an idea to promote
__________________ export of medicinal plants and herbal products.
__________________
5. Import of seeds, bulbs, tubers and planting material has
__________________
been further liberalized.
__________________
__________________ 6. ASIDE (Assistance to States for Infrastructure
__________________ Development for Exports) funds to be utilized for
__________________
development for Agri Export Zones also

Initiatives for Handlooms & Handicrafts

1. Provision for duty free import of trimmings and
embellishments for Handlooms & Handicrafts sectors
increased to 5% of FOB (free on board) value of exports.

2. A new Handicraft Special Economic Zone to be

established.

3. Handicraft Export Promotion Council authorized to

import embellishments, trimmings and samples for
small manufacturers, to get the benefit of consolidation.

4. Import of trimmings and embellishments and samples

shall be exempt from CVD (Counter Veiling Duty).

Initiatives for Gems & Jeweler

1. Duty free import of consumables for metals other than
gold and platinum has been allowed up to 2% of FOB
value of exports.

2. Import of gold of 18 carat and above shall be allowed

under the replenishment scheme.

3. Duty free import of commercial samples of jewellery has

been increased to Rs.1 lakh.

4. Duty free re-import entitlement for rejected jewellery

has been allowed up to 2% of FOB value of exports.
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UNIT 1 Overview of Framework of Organization of Trade on India 17
Initiatives for Leather & Footwear Notes
__________________
1. Duty free entitlements of import embellishments,
__________________
trimmings and footwear components for leather industry
__________________
increased to 3% of FOB value of exports.
__________________
2. Machinery and equipment for Effluent Treatment Plants __________________
for leather industry shall be exempt from Customs Duty.
__________________
3. Duty free import of specified items for leather sector __________________
increased to 5% of FOB value of exports. __________________
__________________
Export Promotion Schemes
__________________
1. Vishesh Krishi Upaj Yojana: This is another new
scheme called Vishesh Krishi Upaj Yojana (Special
Agricultural Produce Scheme) which has been
introduced to boost exports of fruits, vegetables, flowers,
minor forest produce and their value added products.
Export of these products shall qualify for duty free credit
entitlement equivalent to 5% of FOB value of exports.
The important feature of this scheme is that the
entitlement is freely transferable and can be used for
import of a variety of inputs and goods required in this
sector.

2. Target Plus: A new scheme to accelerate growth of

exports called ‘Target Plus’ has been introduced. Under
this scheme, exporters who have achieved a quantum
growth in exports would be entitled to duty free credit
based on incremental exports substantially higher than
the general original export target. (Target and lower
performance limit are to be notified every year during
the current policy. E.g. the target fixed for 2004-05 was
16%, the lower limit of performance for qualifying for
rewards was pegged at 20% for the year 2004). Rewards
will be granted based on a multi tiered approach. For
incremental growth of over 20%, 25% and 100%, there
is provision for duty free credits of 5%, 10% and 15% of
FOB value of incremental exports.

3. ‘Served from India’ Scheme: In order to accelerate

growth in export of services and to create a powerful
and unique ‘Served from India’ brand instantly
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Notes recognized and respected the world over, the ‘Served

__________________ from India’ scheme has been introduced. This is the
__________________ improved version of an old DFEC (duty free entitlement
__________________ certificate) scheme. Individual service exporters who
__________________ earn foreign exchange of at least Rs.5 lakhs and other
service providers who earn foreign exchange of at least
__________________
Rs.10 lakhs will be eligible for a duty credit entitlement
__________________
of 10% of total foreign exchange earned by them. As a
__________________
special case, for stand-alone restaurants, the
__________________ entitlement shall be 20%, whereas in the case of hotels,
__________________ it shall be 5%. Apart from other items, Hotels and
__________________ Restaurants can use their duty credit entitlement for
import of food items and alcoholic beverages.

4. New provisions in DFRC: Import of fuel under DFRC

(Duty Free Replenishment Certificate Scheme)
entitlement shall be allowed to be transferred to
marketing agencies authorized by the Ministry of
Petroleum and Natural Gas.

5. New provisions in DEPB: The DEPB (Duty

Entitlement Pass Book) scheme would be continued until
replaced by a new scheme to be drawn up in consultation
with exporters.

6. New Provisions in EPCG:

a. Additional flexibility for fulfillment of export

obligation under EPCG scheme has been introduced.

b. Transfer of capital goods to group companies and

managed hotels now permitted under EPCG.

c. Technological up gradation under EPCG scheme has

been facilitated and incentives given for it.

d. Export obligation for specified projects shall be

calculated based on concessional duty permitted to
them. This would improve the viability of such
projects.

e. In case of movable capital goods in the service sector,

the requirement of installation certificate from
Central Excise has been done away with.
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UNIT 1 Overview of Framework of Organization of Trade on India 19
6. New provisions in Star Export House Status Holder Notes
Categories: A new scheme of categorization of status __________________
holders as Star Export Houses has been introduced as __________________
under __________________
Category Total performance over three years __________________
One Star Export House 15 crores __________________
Two Star Export House 100 crores __________________
Three Star Export House 500 crores __________________
Four Star Export House 1500 crores __________________
Five Star Export House 5000 crores __________________

Depending upon specific status at a given time, Star __________________

Export Houses shall be eligible for a number of

privileges including exemption from furnishing of Bank
Guarantee, fast-track clearance procedures, eligibility
for consideration under Target Plus Scheme etc.

7. New provisions for EOUs (Export Oriented Units):

a. EOUs shall be permitted to retain 100% of export

earnings in EEFC (Exchange Earner’s Foreign
Currency) accounts.

b. EOUs shall be exempted from Service Tax in

proportion to their exported goods and services.

c. Income Tax benefits on plant and machinery shall

be extended to DTA (Domestic Tariff Area) units,
which convert to EOUs.

d. For EOUs engaged in Textile & Garments

manufacturing, leftover materials and fabrics up to
2% of CIF (Cost Insurance and Freight) value or
quantity of import shall be allowed to be disposed of
on payment of duty on transaction value only.

e. A minimum investment criterion is not applied to

Brass Hardware and Hand-made Jewellery EOUs
(this facility already exists for Handicrafts,
Aquaculture, Animal Husbandry, Agriculture,
Floriculture, IT and Services).

f. Import of capital goods shall be on self-certification

basis for EOUs.
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Notes 8. New provisions for Import of Second hand Capital

__________________ Goods:
__________________
a. Import of second-hand capital goods shall be
__________________
permitted without any “age of the material”
__________________ restrictions.
__________________
b. Minimum depreciated value for plant and machinery
__________________
to be imported in India has been reduced from Rs.50
__________________
crores to Rs.25 crores.
__________________
__________________ 9. New provisions for Free Trade and Warehousing
__________________
Zone:

a. A new scheme to establish Free Trade and

Warehousing Zone (FTWZ) has been introduced to
create trade-related infrastructure to facilitate the
import and export of goods and services with
freedom to carry out trade transactions in freely
convertible currencies. This is aimed at making India
into a global trading-hub.

b. Units in the FTWZs would qualify for all other

benefits as applicable for SEZ units.

c. Each zone would have minimum outlay of Rs.100

crores and five-lakh sq. mts. built up area.

d. FDI would be permitted up to 100% in the

development and establishment of the zones and
their infrastructural facilities.

Common Facilities Centre

Government shall promote the establishment of Common
Facility Centres for use by “home-based service providers”,
particularly in areas like engineering & architectural design,
multi-media operations, software development, photo-
finishing jobs etc., in state and district-level towns, to bring
in a vast multitude of home-based professionals into the
services export gamut.
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UNIT 1 Overview of Framework of Organization of Trade on India 21
Services Export Promotion Council Notes
__________________
In order to boost the exports in services, exclusive Services
__________________
Export Promotion Council is to being set up in order to map
__________________
opportunities for key services in key markets, and develop
strategic market access programmes, including brand __________________

building, in co-ordination with sector-wise players and __________________

recognized nodal bodies of the services industry. __________________
__________________
Procedural Simplification and Rationalization Measures
__________________
1. All exporters having good track record and minimum __________________
turnover of Rs.5 crores shall be exempt from furnishing __________________
Bank Guarantees in any of the schemes, so as to reduce
their overall transaction costs.

2. All goods and services exported, including those from

DTA units, shall be exempt from Service Tax.

3. Enhanced delegation of powers to Zonal and Regional

offices of DGFT (Directorate General of Foreign Trade)
for speedy and less cumbersome disposal of matters.

4. Time bound introduction of Electronic Data Interface

(EDI) for export transactions.

5. Number of returns and forms to be filed has been

reduced. This process shall be continued in consultation
with Customs & Excise.

6. Validity of all licenses / entitlements issued under

various schemes has been enhanced to a period of 24
months.

Towards a World Class Pragati Maidan

In order to showcase our industrial and trade prowess to its
best advantage and leverage existing facilities, Pragati
Maidan is to be transformed into a world-class complex
during the period of this policy. There shall be state-of-the-
art, environmentally friendly and visitors friendly exhibition
areas and marts. There is plan to have a huge Convention
Center to accommodate 10,000 delegates with expandable
hall spaces, meeting room and auditoria with high-tech
equipments, as well as provision for multi-level car parking
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Notes for 9,000 vehicles will be developed within the envelope of

__________________ Pragati Maidan. There is also plan to shift some of the regular
__________________ events held in Pragati Maidan to new complex of similar expo
__________________ at other places in the NCR region. One such world-class expo
__________________ is already functional in Greater Noida. Another one is coming
up in New Delhi.
__________________
__________________ Legal Aid
__________________
Provision has been made for providing financial assistance
__________________
to deserving exporters, as per the recommendation of Export
__________________
Promotion Councils, for meeting the costs of legal expenses
__________________
connected with trade-related matters. A separate fund is to
be maintained for this purpose.

Grievance Redressal
Provision has been made for a new mechanism for grievance
redressal formulated and put into place by a Government
Resolution to facilitate speedy redressal of grievances of
trade and industry.

New Quality Policy

In order to improve quality of the administration and
implementation of foreign trade policy provisions, following
vision/mission has been adopted:

1. DGFT shall be a business-driven, transparent, corporate

oriented organization.

2. All DGFT offices shall be connected via a central server

making application processing faster. DGFT Head
Quarter in Delhi has obtained ISO 9000 certification by
standardizing and automating procedures.

3. Exporters can file digitally signed applications and use

Electronic Fund Transfer Mechanism for paying
application fees.

Co-acceptance/ Avalisation
Co-acceptance / Availisation as equivalent to irrevocable
letter of credit to provide wider flexibility in financial
instrument for export transaction.
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UNIT 1 Overview of Framework of Organization of Trade on India 23
Board of Trade Notes
__________________
The Board of Trade shall be revamped and will be given a
__________________
dynamic role. An eminent person who is an expert on trade
__________________
policy shall be nominated as President of the Board of Trade,
which shall have a secretariat and a separate head of budget, __________________

and will be serviced by the Department of Commerce. __________________

__________________
Bio Technology Parks __________________
New Biotechnology Parks to be set up which would be granted __________________
all facilities available to 100% EOUs. __________________
__________________
Institutional Framework of India’s Foreign Trade
The primary government agency responsible for formulating
and directing foreign trade policy and program, maintaining
commercial relations with other countries, supervising and
monitoring state trading, initiating various trade promotions
schemes, and developing & regulating export oriented
industries, is the Department of Commerce (DOC), which
function under the aegis of Ministry of Commerce.

Role and Functions of the Department of Commerce

The primary function of the Department of Commerce is to
create an appropriate institutional framework and policy
environment for facilitation and growth of India’s external
trade. In order to do this the DOC formulates foreign trade
policy including policies for export promotion. The export
effort of the Department is supported by a large number of
organizations and institutions viz.,

n Commodity Boards,

n Export Inspection Councils,

n Export Credit and Guarantee Corporation,

n Export Promotion Councils,

n India Trade Promotion Organization, etc.,

These institutions work as either the autonomous bodies or

functions under the direct administrative control of the DOC.
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Notes The DOC also has the responsibility of development,

__________________ operation and maintenance of Special Economic Zones (SEZs)
__________________ including its fiscal regime, investment policy and regulatory
__________________ framework. The Directorate General of Foreign Trade
__________________ (DGFT), an attached office of the Department of Commerce,
implements and administers the Foreign Trade Policy (FTP).
__________________
__________________ In addition to the above, the Department of Commerce also
__________________ engages itself in the trade negotiations and agreements at
__________________ multilateral, regional and bilateral levels. It interacts with
__________________
international agencies such as the World Trade Organization
(WTO), the Economic and Social Commission for Asia and
__________________
Pacific (ESCAP), the United Nation Conference on Trade &
Development (UNCTAD) etc. as well as individual countries
or group of countries on a wide range of issues including
tariff and non-tariff barriers, international commodity
agreements, preferential / free trade arrangements,
investment matters, etc.

Functioning under the DOC are Commercial Offices attached

to Indian Missions abroad, who help in shaping international
trade policy framework.

In addition, The DOC also oversees policies of state trading

through Corporations established for this purpose, i.e., the
State Trading Corporation (STC) and the Minerals and
Metals Trading Corporation (MMTC). Some of its other
functions include carrying out investigations related to anti-
dumping (AD) duties and counter veiling duties (CVDs)
through the Directorate General of Anti-dumping and Allied
Duties (DGAD). Also it is function of DOC to look after
production, distribution and development of plantation crops
(tea, coffee, rubber and cardamom).

The organizations working under jurisdiction of the

Department also disseminate various information about their
respective activities through a large number of websites. A
list of websites related to the Department and its
organizations is given below:

List of organizations and their websites hosted by the

Department / Organizations under the jurisdiction of
Department of Commerce.
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UNIT 1 Overview of Framework of Organization of Trade on India 25
Name of the Organisation Notes
__________________
Agency Website Address __________________

1. Department of Commerce __________________

__________________
http://commerce.gov.in
__________________
2. EC/EDI for Trade in India __________________
__________________
http://eTrade.gov.in
__________________
Attached and Subordinate Offices __________________

1. Directorate General of Foreign Trade (DGFT) __________________

http:/dgft.delhi.nic.in

2. Directorate General of Commercial Intelligence and

Statistics, Kolkata

http://www.dgciskol.nic.in

Special Economic Zones

1. Seepz Special Economic Zone

http://www.seepz.com

2. Kandla Special Economic Zone

http://www.kasez.com

3. Cochin Special Economic Zone

http://www.csez.com

4. Madras Special Economic Zone

http://www.mepz.gov.in

5. Visakhapatnam Special Economic Zone

http://www.vepz.com

6. Falta Special Economic Zone

http://www.fepz.com
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Notes 7. Noida Export Processing Zone

__________________
http://www.nepz.org
__________________
__________________ 8. Surat Special Economic Zone
__________________
http://www.sursez.com
__________________
__________________ Autonomous Bodies
__________________
1. Export Inspection Council
__________________
__________________ h ttp://www.eicindia.org
__________________
2. Indian Institute of Foreign Trade

http://www.iift.edu

3. Indian Institute of Packaging

http://www.iip-in.com

4. Marine Products Export Development Authority

http://www.mpeda.com

5. Agricultural and Processed Food Products Export

Development Authority

http://www.apeda.com

6. Federation of Indian Export Organisations

http://www.fieo.com

7. Indian Diamond Institute

http://www.diamondinstitute.net

8. National Centre for Trade Information

http://www.ncti-india.com

9. National Numbering Organisation (Ean-india)

http://www.eanindia.com
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UNIT 1 Overview of Framework of Organization of Trade on India 27
Public Sector Undertakings Notes
__________________
1. State Trading Corporation of India Ltd
__________________
http://www.stcofindia.org __________________
__________________
2. MMTC Ltd.
__________________
http://www.mmtclimited.org __________________

3. PEC Ltd. __________________

__________________
http://www.peclimited.com
__________________
4. Export Credit Guarantee Corporation of India Ltd. __________________
(ECGC)

http://www.ecgcindia.com

5. India Trade Promotion Organisation (ITPO)

http://www.indiatradepromotion.org

COMMODITY BOARDS
1. Rubber Board

http://rubberboard.org.in

2. Coffee Board

http://www.indiacoffee.org

3. Tea Board

http://tea.nic.in

4. Tobacco Board

http://www.indiantobacco.com

5. Spices Board

http://www.indianspices.com

Export Promotion Councils

1. Engineering Export Promotion Council

http://www.eepc.gov.in
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Notes 2. Project Exports Promotion Council Of India

__________________
http://www.projectexports.com
__________________
__________________ 3. Basic Chemicals, Pharmaceuticals and Cosmetics
__________________ Export Promotion Council
__________________ http://www.chemexcil.gov.in
__________________
4. Chemicals and Allied Products Export Promotion
__________________
Council
__________________
__________________ http://www.capexil.com
__________________
5. Council for Leather Exports

http://www.leatherindia.org

6. Sports Goods Export Promotion Council

http://www.sportsgoodsindia.org

7. Gem and Jewellery Expor Promotion Council

http://gjepc.org

8. Shellac Export Promotion Council

http://www.shellacepc.com

9. Cashew Export Promotion Council

http://www.cashewindia.org

10. Plastics Export Promotion Council

http://www.plexcon.org

11. Export Promotion Council for Eous & Sez Units

http://eouindia.com

Summary
As opposed to non existence of an absolute international
authority with standardized international rules and
regulations, a country specific institutional and policy
framework already exists which very clearly defines the rules
and regulations for carrying out international marketing
activities from that country.
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UNIT 1 Overview of Framework of Organization of Trade on India 29
In India, there exist very well defined agencies and Notes
departments with specific functions related to India’s foreign __________________
trade. An international marketer must understand their role __________________
and facilities available from each such institution in order __________________
to formulate the overall international marketing strategy. __________________

Taking into consideration various promotions measures and __________________

incentives available for exports, an international marketer __________________
may be able to offer lower prices to it buyers abroad. __________________
__________________
Apart from lower prices, an international marketer may also
be able to offer various additional financial and commercial __________________

facilities to the foreign buyers with the help of various __________________

government agencies.

Although India’s foreign policy now is much more favorable

for the exporting environment, still it needs to go a long way
to catch up with the world business.

India’s share in the world business is still abysmally low at

less than 1%. With committed implementation of various
provisions of the current export-import policy of India, it is
possible to enhance India’s foreign trade many fold in near
future.

Review Questions
1. What is the direction of India’s current foreign policy.

2. List and discuss the role of various government and non government
bodies which are part of India’s foreign trade framework.

3. Critically discuss various export promotion measures in India’s Foreign

Trade Policy with regard to their effectiveness in boosting India’s share
in world trade.