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EXIM POLICY 2003-2004
[Full Text of the speech delivered by Hon’ble Commerce & Industry
Minister on the 31st March 2003]
Exactly a year back, my distinguished predecessor, Thiru Murasoli Maran, had announced the Export and Import Policy for the five year period 2002-07 coinciding with the 10th Five year Plan. This Policy recognized that international trade is a vital part of development strategy and that it can be an effective instrument of economic growth, employment generation and poverty alleviation. In line with the Medium Term Strategy for Exports, the policy adopted the goal for India to reach 1% share of global merchandise trade by the year 2007, up from the level of 0.67%. For this, Indian exports have to grow at 12% per year and to double in dollar terms from roughly 40 billion U.S. Dollars per annum to 80 billion U.S. Dollars.
NEED FOR ANNUAL POLICY
2. A frequently asked question is the need for an Annual Exim Policy when a five year Policy has been announced and is in place. The basic objective of a Five Year Policy is two fold. It reflects the priorities for development of the economy as set out in the Five Year Plan. It also provides a stable policy environment to the exporters. This is essential for our objective of making India a significant player in the world market. However, today international trade is not only highly competitive but also dynamic. Market conditions change almost daily requiring quick response and more importantly, anticipation. Five year is too long a period of a Policy to continue without refinements. Therefore, it is imperative that we frame annual Exim Policies after assessment of the export performance and changes in the international market in the previous year and based on our anticipation of market movements in the short term.
REVIEW OF EXPORT PERFORMANCE
3. Let me first take stock of what has been achieved in the year since Five Year Policy was announced. It is gratifying that provisional figures of exports for the period April, 2002 to February, 2003 indicate that exports have grown by as much as 16.76% in dollar terms (and 18.8% in rupee terms) over the same period in the preceding financial year. Growth of exports from EOU, SEZ and erstwhile EPZ sector has been over 20% during this period. This growth has been contributed mainly by Textiles, Gems and Jewellery, Engineering products particularly Auto and Auto Ancillaries, Drugs and Pharmaceuticals, Chemicals and Agro Products. What is noteworthy is the significant contribution by high value-added manufacturing sectors. Moreover, sizeable growth is visible in our exports to major markets such as the United States, the European Union and South East Asia. This has been achieved in the face of global recession, particularly in the US market, following 9/11. It not only shows resilience of the Indian exporters but also underscores their growing confidence and competitiveness of Indian products. Lest we become complacent, let me caution that this growth has been achieved against the back-drop of near stagnation of exports in the earlier year. Hence, we have to pursue relentlessly our objective of improving our share of world trade.
4. In specific terms, exports during April, 2002 to February, 2003 amounted to Rs. 2,23,249 crores as compared to Rs. 1,87,876 crores during the same period in the previous year. Textiles contributed Rs. 45,509 crores as compared to Rs. 41,809 crores during the previous year representing a growth rate of 8.85% accounting for a share of 21.31% in the total exports. Gems and Jewellery contributed Rs.38,032 crores as compared to Rs. 30,453 crores in the previous year representing a growth rate of nearly 24.89% accounting for a share of 16.97%. Chemicals and related products contributed Rs. 32,805 crores as compared to Rs.27,518 crores with a growth rate of 19.21% and a share of 14.64%. Engineering goods contributed Rs. 31,152 crores as compared to Rs. 24,650 crores with a growth rate of 26.30% and a share of 13.90%. What is a matter of a particular satisfaction is that the export of agriculture and allied products contributed Rs. 18,907 crores as compared to Rs. 17,320 crores in the previous year with a growth rate of 9.16% and a share of 8.44%.
5. That brings me to the objective of achieving 1% of the world merchandise trade by 2007. If the present trend continues, we may not only reach the target but also surpass it. It is almost certain that the merchandise exports will cross the US Dollar 50 billion (approximately Rs. 2,42,300 crores) milestone this year. But for the uncertain conditions in the Middle East, we might even have reviewed our target. Suffice it to say, we shall strive to sustain the present rate of growth and to accelerate it through the initiatives and strategy in the Exim Policy 2003-04. Exports can act as the motive power of growth for a rapidly developing Indian economy and in making India a significant player in he world market. For this, exports have to be recognized as a national priority by the all agencies of Government of India and State Governments and the private sector. What is needed is a partnership between the Government machinery at all levels and all the stake holders in the process of exports. The media too has a significant role to play in bringing about a consensus on critical issues related to reforms, and promotion of investment including foreign direct investment, particularly in the manufacturing sector, without which high rate of export growth can not be sustained.
THE NEW POLICY
6. I shall now explain our approach in the new Policy. If I have to summarize this in one sentence, it is identification of engines of growth and provision of extra power to them and building on areas of our core competence. Therefore, the Policy aims to provide an impetus to one important engine which has not been covered earlier. This is services exports. The other engine that will receive continued attention is Special Economic Zones. An equally important sector namely agriculture and allied products which I believe to be an area of core competence will come in for some special treatment. This I hope, will enthuse our farming community who constitute the bulk of the country’s population. I also propose to encourage further those exporters who have been pillars of strength to us and urge them to attain greater heights. Last but not least, we shall simplify procedures sharply to further reduce transaction costs.
EXPORT OF SERVICES
7. India has already emerged as a leading player in software exports. Apart from software, a host of services now provide unprecedented opportunities in global trade. With abundant skilled manpower, India is uniquely placed to take full advantage of the growing opportunities of services exports. This is an area which can be an engine for growth referred to by me earlier. We are, therefore, taking a bold initiative in not only recognizing the importance of service exports but also introducing a scheme for the promotion of exports of services. Already a strong message for the promotion and development of this sector has been given by my esteemed colleague Shri Jaswant Singhji while presenting the Budget for 2003 –04. I intend to follow up with some specific steps for boosting services exports.
8. As regards services exports, we have to recognize the fact that with the possible exception of the software sector, we have not even made a beginning. Keeping this in mind and in order to both facilitate and promote export of services from other sectors, we propose to allow import of consumables, office and professional equipments, spares and furnitures up to 10% of the average foreign exchange export earning in the previous three years. Since many of the sectors have not even made a beginning in the direction of exports, we propose to extend the facility even to new comers against Bank Guarantee to the extent of the revenue sacrificed. This will be subject to actual user condition. We expect that this would particularly help the Health Sector for which the Finance Minister has already given a strong signal for India to emerge as a major destination for health services.
9. In the services sector, only Tourism has received some attention over the years although we are no where near realizing the full potential the country offers. In this year’s Budget a strong signal has been given for the development of this sector. This sector already enjoys the benefit of the EPCG Scheme. However, we have been receiving persistent representations from this industry to extend to it the benefits of advance licence scheme. We have, therefore, decided to allow recognized hotels of the category of three star and above and other registered service providers in this sector duty free import of consumables and spares upto 5% of their average foreign exchange earnings of the previous three years. This will be subject to actual user condition. The facility will not be available to certain sensitive items in a negative list to be notified for this purpose.
ENTERTAINMENT INDUSTRY
10. We have immense potential for exports in certain services sectors such as Entertainment and Education. Each sector has its own specific problems such as lack of investment, inadequacy of laws relating to piracy. Nonetheless, we have to leverage India’s obvious advantages in these sectors. We propose to set up sector-specific Working Groups with representatives of Ministry of Finance, the Administrative Ministries concerned, the State Governments, Financial Institutions and the Industry to work towards a common goal by framing Action Plans to achieve the potential to be implemented within a specified time schedule. For entertainment services, which is singularly handicapped by lack of investment, but has tremendous opportunities for exports, it is proposed to promote through suitable tax incentives contributions to venture capital funds which will provide finance to this sector. We are in dialogue with Ministry of Finance how best this can be done.
11. "Services" as defined in the Exim Policy in Para 9.46 include all the tradable services covered under the General Agreement on Trade in Services and earning free foreign exchange. Similarly, " Service providers" have been defined in Para 9.47. List of services has also been included in Appendix 36 of the Handbook which is based on the General Agreement on Trade in Services. Having said this, I must admit that we have not yet put in place a system for collecting reliable statistics for export of services. This will engage our attention on a priority basis. Since there is no uniform standard in the world for this purpose, we have decided to set up a Group consisting of representatives of Department of Commerce, Central Statistical Organization, RBI, DGFT and Director General of Commercial Intelligence and Statistics, Kolkata, to consider all aspects of this issue and recommend to the Government a system for collection and maintenance of data relating to export of services. Till such a system is finalized and put in operation, we propose to base the implementation of the Scheme of promotion of services exports on free foreign exchange earned by any of the service providers listed in the Handbook.
AGRI EXPORTS
12. Let me now turn to Agri and Allied Products Exports. I am convinced that unless we can ensure that the rural sector and Indian farmers receive visible benefits from economic reforms and the process of globalization, it may not be possible to accelerate economic growth. You would recollect that we had introduced the Scheme of Agro Export Processing Zones (AEZ) in the 2002-2007 Policy for end to end development of export of specific products from a geographically contiguous area. We are gratified that there has been an enthusiastic response to the scheme from the States and the rural community. As many as 45 AEZs have been notified so far in different parts of the country. We want to further accelerate this process. Agriculture and allied products is our core competence. Not only is it diversified with a large variety of crops, fruits, vegetables and flourishing dairy sector, but we are among the world leaders in output of many products.
13. As all of you are aware, one of the limiting factors in the increase in agricultural productivity and quality and for protecting it from the vagaries of monsoon is the lack of or inadequate investment in this sector for bringing to the farmer the latest technology and knowledge and for setting up critical infrastructure in the form of water harvesting and soil management, better quality of seeds and optimal use of inputs, adoption of scientific pre and post harvest treatment and storage and establishment of linkage with international marketing. In spite of the enthusiasm shown by many of the State Governments, availability of investible resources in creation of such critical infrastructure even in the AEZs has been a constraint. In view of this, we propose to also facilitate and promote association of corporates with proven credentials in the implementation of AEZs in order to give a boost to productivity and quality of specified agro products leading to accelerated exports. For this purpose, we are having consultations with Ministry of Finance who are receptive to the idea, to provide appropriate incentives to enable investments by these corporates to infrastructure, agricultural extension, processing, packing, storage, R&D and other facilities relating to exports in the approved AEZs.
14. Another major initiative to boost agri and allied products exports will be the modification of norms for fixing DEPB rates for export of agriculture, horticulture and allied products. In fixing DEPB rates for such products, we shall take into account inputs such as fertilizers, pesticides, certified seeds etc. used by the farmers prior to processing of the products for exports. This would also ensure that the Indian farmer uses the required inputs in a scientific manner to boost productivity and quality. To begin with, this facility will be extended only to selected products on the basis of the recommendation of an Inter-Ministerial Committee.
Click for Page 2 of EXIM POLICY 2003-04
Click for Page 3 of EXIM POLICY 2003-04
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