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:-
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 :-
- 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.
- 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.