Foreign Trade Policy

In India, the main legislation concerning foreign trade is the Foreign Trade (Development and
Regulation) Act, 1992. The Act provides for the development and regulation of foreign trade
by facilitating imports into, and augmenting exports from, India and for matters connected
therewith or incidental thereto. As per the provisions of the Act, the Government :- (i) may
make provisions for facilitating and controlling foreign trade; (ii) may prohibit, restrict and
regulate exports and imports, in all or specified cases as well as subject them to exemptions;
(iii) is authorised to formulate and announce an export and import policy and also amend the
same from time to time, by notification in the Official Gazette; (iv) is also authorised to
appoint a 'Director General of Foreign Trade' for the purpose of the Act, including
formulation and implementation of the export-import policy.

Accordingly, the Ministry of Commerce and Industry has been set up as the most important
organ concerned with the promotion and regulation of foreign trade in India. In exercise of
the powers conferred by the Act, the Ministry notifies a trade policy on a regular basis with
certain underlined objectives. The earlier trade policies were based on the objectives of self-
reliance and self-sufficiency. While, the later policies were driven by factors like export led
growth, improving efficiency and competitiveness of the Indian industries, etc.

With economic reforms, globalisation of the Indian economy has been the guiding factor in
formulating the trade policies. The reform measures introduced in the subsequent policies
have focused on liberalization, openness and transparency. They have provided an export
friendly environment by simplifying the procedures for trade facilitation. The announcement
of a new Foreign Trade Policy for a five year period of 2004-09, replacing the hitherto
nomenclature of EXIM Policy by Foreign Trade Policy (FTP) is another step in this direction.
It takes an integrated view of the overall development of India’s foreign trade and provides a
roadmap for the development of this sector. A vigorous export-led growth strategy of
doubling India’s share in global merchandise trade (in the next five years), with a focus on
the sectors having prospects for export expansion and potential for employment generation,
constitute the main plank of the policy. All such measures are expected to enhance India's
international competitiveness and aid in further increasing the acceptability of Indian exports.
The policy sets out the core objectives, identifies key strategies, spells out focus initiatives,
outlines export incentives, and also addresses issues concerning institutional support
including simplification of procedures relating to export activities.

The key strategies for achieving its objectives include:-

 Unshackling of controls and creating an atmosphere of trust and transparency;

 Simplifying procedures and bringing down transaction costs;

 Neutralizing incidence of all levies on inputs used in export products;

 Facilitating development of India as a global hub for manufacturing, trading and

services;

 Identifying and nurturing special focus areas to generate additional employment

opportunities, particularly in semi-urban and rural areas;

 Facilitating technological and infrastructural upgradation of the Indian economy,

especially through import of capital goods and equipment;
  Avoiding inverted duty structure and ensuring that domestic sectors are not
disadvantaged in trade agreements;

 Upgrading the infrastructure network related to the entire foreign trade chain to
international standards;

 Revitalizing the Board of Trade by redefining its role and inducting into it experts on
trade policy; and

 Activating Indian Embassies as key players in the export strategy.

The FTP has identified certain thrust sectors having prospects for export expansion and
potential for employment generation. These thrust sectors include: (i) Agriculture; (ii)
Handlooms & Handicrafts; (iii) Gems & Jewellery; and (iv) Leather & Footwear.
Accordingly, specific policy initiative for these sectors has been announced.

 For the agriculture sector :-

• A new scheme called "Vishesh Krishi Upaj Yojana (Special Agricultural

Produce Scheme)" to boost exports of fruits, vegetables, flowers, minor forest
produce and their value added products has been introduced. Under the scheme,
exports of these products qualify for duty free credit entitlement (5 per cent of Free
On Board (f.o.b) value of exports) for importing inputs and other goods;

• Duty free import of capital goods under Export Promotion Capital Goods
(EPCG) scheme, permitting the installation of capital goods imported under EPCG
for agriculture anywhere in the Agri- Export Zone (AEZ);

• Utilizing funds from the 'Assistance to States for Infrastructure Development

of Exports (ASIDE) scheme' for development of AEZs;

• Liberalization of import of seeds, bulbs, tubers and planting material, and

liberalization of the export of plant portions, derivatives and extracts to promote
export of medicinal plants and herbal products.

 For the handlooms and handicraft sector :-

• Enhancing to 5 per cent of Free On Board (f.o.b) value of exports duty free
import of trimmings and embellishments for handlooms and handicrafts;

• Exemption of samples from countervailing duty (CVD);

• Authorizing Handicraft Export Promotion Council to import trimmings,

embellishments and samples for small manufacturers; and

• Establishment of a new Handicraft Special Economic Zone.

 For the gems and jewellery sector :-

• Permission for duty free import of consumables for metals other than gold and
platinum up to 2 per cent of Free On Board (f.o.b) value of exports;

• Duty free re-import entitlement for rejected jewellery allowed up to 2 per cent
of f.o.b value of exports;

• Increase in duty free import of commercial samples of jewellery to Rs. 1 lakh;

and

• Permission to import of gold of 18 carat and above under the replenishment

scheme.

 For the leather and footwear sector, the specific policy initiatives are mainly in
the form of reduction in the incidence of customs duties on the inputs and plants
and machinery. These include:-

• Increase in the limit for duty free entitlements of import trimmings,

embellishments and footwear components for leather industry to 3 per cent of Free
On Board (f.o.b) value of exports and that for duty free import of specified items for
leather sector to 5 per cent of f.o.b value of exports;

• Import of machinery and equipment for Effluent Treatment Plants for leather
industry exempted from customs duty; and

• Re-export of unsuitable imported materials (such as raw hides and skin and
wet blue leathers) has been permitted.

In order to review the progress and policy measures, each year, "Annual
Supplements" to the five year Foreign Trade Policy (FTP) have been announced
by the Ministry :-

• The Annual Supplement announced in April, 2005 incorporated additional

policy initiatives and further simplified the procedures. It provided for an
active involvement of the State Governments in creating an enabling
environment for boosting international trade, by setting up an Inter-State
Trade Council. Also, different categories of advance licences were merged
into a single category for procedural facilitation and easy monitoring. The
supplement provided renewed thrust to agricultural exports by extension of
'Vishesh Krish Upaj Yojna' to poultry and dairy products and removal of cess
on exports of all agricultural and plantation commodities.
• The Annual Supplement put forward in April 2006, announced the twin
schemes of 'Focus Product' and 'Focus Market'. To further meet the objective
of employment generation in rural and semi urban areas, export of village and
cottage industry products were included in the 'Vishesh Krishi Upaj Yojana',
which was renamed as "Vishesh Krishi and Gram Udyog Yojana". Also, a
number of measures were introduced in order to achieve the objective of
making India a gems and jewellery hub of the world. These include:- (i)
allowing import of precious metal scrap and used jewellery for melting,
refining and re-export; (ii) permission for export of jewellery on consignment
basis; (iii) permission to export polished precious and semi precious stones for
treatment abroad and re-import in order to enhance the quality and afford
higher value in the international market.

• Likewise, the third Annual Supplement to the Foreign Trade Policy was
announced on 19 April,2007 (effective from 1 st April, 2007). Some of the
important measures introduced by it are:- (i) exemption from service tax on
services (related to exports) rendered abroad; (ii) service tax on services
rendered in India and utilized by exporters would be exempted/remitted; (iii)
categorization of exporters as 'One to Five Star Export Houses' has been
changed to 'Export Houses & Trading Houses', with rationalization and change
in export performance parameters; (iv) expansion of ceiling, scope and
coverage under the 'Focus Market Scheme (FMS)' and 'Focus Product Scheme
(FPS)'.

• The final annual supplement to the Foreign Trade Policy for 2004-2009 was
announced in April 2008 in which several innovative steps were proposed.
They included the following:

• Import duty under the EPCG scheme is being reduced from 5% to 3%,
in order to promote modernization of manufacturing and services
exports.

• Income tax benefit to 100% EOUs available under Section 10B of

Income Tax Act is being extended for one more year, beyond 2009.

• To promote export of sports and toys and also to compensate

disadvantages suffered by them, an additional duty credit of 5% over
and above the credit under 'Focus Product Scheme' is being provided.

• Our export of fresh fruits and vegetables and floriculture suffers from
high incidence of freight cost. To neutralize this disadvantage, an
additional credit of 2.5% over and above the credit available under
Visesh Krishi and Gram Udyog Yojana (VKGUY) is proposed.

• Interest relief already granted for sectors affected adversely by the

appreciation of the rupee is being extended for one more year.

• DEPB scheme is being continued till May 2009.

Trade Facilitation Measures (Supplement To Foreign Trade Policy 2004-09)

Announced On 26th February 2009,
 • DUTY CREDIT SCRIPS under DEPB scheme to be issued without waiting
for realization of export proceeds;

• Special package of Rs. 325 crore for leather and textiles sector;

• STCL, DIAMOND INDIA, MSTC, GEM & JEWELLERY EPC and STAR
TRADING HOUSES added as nominated agencies for import of precious
metals;

• Gem and Jewellery export: import restrictions on worked corals removed;

• Bhilwara and Surat recognized as towns of export excellence for textiles and
diamonds;

• Threshold limit for recognition as premier trading houses reduced to Rs. 7500
crore;

• Under EPCG scheme, export obligation extended till 2009-10 for exports
during 2008-09;

• DEPB/DUTY CREDIT SCRIP utilization extended for payment of duty for

import of restricted items also;

• Procedure for claiming duty drawback refund & refund of terminal excise duty
further simplified;

• Re-credit of 4% SAD for VKGUY, FPS and FMS allowed;

• A new office of DGFT to be opened at Srinagar;

• Value cap under DEPB revised for two products;

• Electronic message transfer facility for advance authorization and EPCG to be

established;

• Gem & Jewellery units in EOU to be allowed – personal carriage of gold up to

10 kg;
• Advance licenses issued prior to 1.4.2002 requiring MODVAT/CENVAT
certificate dispensed with;

• Export obligation period against advance authorizations extended up to 36

months;

• Reimbursement of additional duty of excise levied on fuel to be admissible for

EOUS;

• Early refund of service tax claims & further simplification of refund

procedures on the anvil;

In accordance with the provisions of the Act, a "Directorate General of Foreign Trade
(DGFT)" has been set up as an attached office of the Ministry of Commerce and
Industry. It is headed by the 'Director General of Foreign Trade' and is responsible for
formulating and executing the Foreign Trade Policy/Exim Policy with the main
objective of promoting Indian exports. The DGFT also issues licences to exporters
and monitors their corresponding obligations through a net work of 32 regional
offices located at the following places:- Ahmedabad; Amritsar; Bangalore; Baroda
(Vadodara); Bhopal; Kolkata; Chandigarh; Chennai; Coimbatore; Cuttack;
Ernakulam; Guwahati; Hyderabad; Jaipur; Kanpur; Ludhiana; Madurai; Moradabad;
Mumbai; New Delhi; Panaji; Panipat; Patna; Pondicherry; Pune; Rajkot; Shillong;
Srinagar(Functioning at Jammu); Surat; Thiruvananthapuram; Varanasi; and
Vishakhapatnam.