Indian Foreign Trade Policy 2004-09

Kamal Nath Unveils Major Trade Initiatives In Annual Supplement To Foreign Trade Policy

Kamal Nath Unveils Major Trade Initiatives In Annual Supplement To Foreign Trade Policy

Shri Kamal Nath, Union Minister of Commerce & Industry, unveiled a series of important trade initiatives to put Indian exports on a trajectory of quantum growth and announced that India’s merchandise exports had crossed the magic figure of US $ 100 billion 2005-06. “In fact, they have touched US $ 101 billion, with an annual growth rate of 25%”, he said while releasing the Annual Supplement to the Foreign Trade Policy (2004-09) at a press conference here. Describing it as a ‘grand leap forward’ by India’s exports, Shri Kamal Nath mentioned that within just two years, India’s exports had jumped 60% — from US $ 63 billion to US $ 101 billion. “The Foreign Trade Policy has served us well…. Merchandise trade in the very first year of the policy period (2004-05) grew at the rate of 26% and this year’s export figures are unprecedented”, he said.

Shri Kamal Nath announced the introduction of two new schemes to give a push to employment generation, particularly in semi-urban and rural areas – a key objective of the Foreign Trade Policy. These 2 schemes are: the “Focus Product Scheme” to give a thrust to the manufacture and export of certain industrial products which could generate large employment per unit of investment compared to other products; and the “Focus Market Scheme” to penetrate markets to which India’s exports were comparatively low and which Indian exporters had perhaps been neglecting due to high freight costs and undeveloped networks but which were markets of the future.

The Focus Product Scheme would allow duty-credit facility at 2.5% of the FOB value of exports on 50% of the export turnover of notified products, such as value added fish and leather products, stationery items, fireworks, sports goods and toys, and handloom & handicraft items. The Focus Market Scheme, on the other hand, allows duty credit facility at 2.5% of the FOB value of exports of all products to the notified countries. The scrip and the items imported against it for both these schemes would be freely transferable.

These two Schemes would replace the Target Plus Scheme, the Minister said.

In order to take the benefits of foreign trade further to rural areas, the Minister announced that the Krishi Vishesh Upaj Yojana was being expanded to include village and cottage industries and was being renamed as the Vishi Krishi Upaj Aur Gram Udyog Yojana. Thus, it had been decided to incentivise export of village and cottage industry products by awarding a duty-free scrip at the rate of 5% of FOB value of exports under the expanded scheme, he said. In another major initiative, Shri Kamal Nath announced that the incidence of unrebated Service Tax and Fringe Benefit Tax on exports would be factored in the various duty neutralisation and remission schemes, adding that details of this were being worked out and would be announced separately.

In order to promote services exports which account for 52% of India’s GDP, and provide jobs to a large number of urban educated youth, a number of features were being added in the Served from India Scheme to promote services exports, he said. “The Scheme will now allow transfer of both the scrip and the imported input to the Group Service Company, whereas earlier transfer of imported material only was allowed”.

Announcing a slew of measures to exploit India’s potential to become an international hub for gems & jewellery, Shri Kamal Nath said: “The diamond trade, which was concentrated in Antwerp, is moving out – to Dubai, to Tel Aviv. I want Mumbai be right up there, and not lose out to its fellow Asian cities. This Supplement now introduces a number of measures for facilitating export of value added products catering to changing needs of the market and facilitating easier product movement across the borders and allowing import of precious metal scrap for refining”. The measures include allowing import of precious metal scrap and used jewellery for melting, refining and re-export of jewellery; and reduction in value-addition norm on export of gold and silver jewellery from 7% to 4.5% in view of the increase of gold & silver prices in the international market in recent years which had made the present value-addition norms unrealistic.

In order to help India emerge as a hub of auto components, import of new vehicles by auto component manufacturers for R&D purposes would now be allowed without homologation (i.e. testing for fitness on Indian roads required for import of new models of cars) so as to give the sector easier access to latest technologies.

In order to tap the business opportunity in supplies of stores (food, beverages and other supplies) and refueling of long distance flights, it has been decided to treat such supplies on an equal footing with other exports, making them eligible for benefits under various export promotion schemes. This would enable India to offer competitive fuel prices and attract mid-route stops of international flights, the Minister said. Currently, most airlines replenish supplies or refuel at Thailand, Malaysia or Singapore since these supplies were not treated as exports in India.

Further, the salient features of the Advance Licensing Scheme (which allows imports of inputs before exports) and Duty Free Replenishment Certificate (which allows transfer of import entitlements) have been clubbed to launch a new scheme called “Duty Free Import Authorisation Scheme”. The rationale is that export production requires use of many inputs in small quantities as per the standard input-output norms, and though such inputs were allowed to be imported duty-free under the Advance Licence Scheme, exporters generally were not importing such items because of lack of economies of scale and were forced to source them locally at a higher price. The new scheme addresses the issue by offering the facility to import the required inputs before exports and allows the transfer of scrip once the export obligation is complete. The scheme will be effective from 1st May, 2006. Simultaneously, the DFRC scheme would be phased out and shall be available only for exports effected upto 30th April, 2006.

The Supplement introduces certain flexibilities in the conditions relating to maintenance of average export performance under the Export Promotion Capital Goods (EPCG) scheme as in a number of situations exporters were finding it difficult to maintain average export performance and undertake additional export obligations either because of sickness or international market dynamics or technology changes. Further, as an export facilitation measure, it has been decided to extend the period of export obligation fulfilment by a further period of two years based on certain condition.

As a trade facilitative measure, it has been decided that interest on delayed payment of refunds would be paid by the government to ensure accountability and cut delays. Further, fast track clearance procedures would be put in place for units of Export Oriented Units (EOUs) having turnover of Rs.15 crore.

Announcing major initiatives on the Electronic Data Interchange (EDI) or e-commerce front, Shri Kamal Nath said: “We are committed to simplifying procedures relating to international trade and putting in place an exporter friendly regime for obtaining import authorizations and disbursement of export linked incentives. A web based online system of filing import & export applications is functional. Requests for obtaining authorizations relating to Advance Licence, EPCG Licence and DEPB are to be filed on the DGFT website with a digital signature and payment of licence fee through the Electronic Fund Transfer mode. No manual applications and supporting documents are required to be submitted. All EDI applications are processed within one working day. We propose to take more EDI initiatives in the next six months to take the process further”.