Commerce and Industry Minister's speech
on introducing Foreign Trade Policy 2004-005

Ladies & Gentlemen,

For India to become a major player in world trade, an all encompassing, comprehensive view needs to be taken for the overall development of the country’s foreign trade. While increase in exports is of vital importance, we have also to facilitate those imports which are required to stimulate our economy. Coherence and consistency among trade and other economic policies is important for maximizing the contribution of such policies to development. It was felt that the Exim Policy with its limited focus may not be able to meet our objectives. Thus, while incorporating the existing practice of enunciating an annual Exim Policy, it is necessary to go much beyond and take an integrated approach to the developmental requirements of India’s foreign trade. This is the context of the new Foreign Trade Policy.

2. Trade is not an end in itself, but a means to economic growth and national development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity. The Foreign Trade Policy is rooted in this belief and built around two major objectives. These are:

1. To double our percentage share of global merchandise trade within the next five years; and

2. To act as an effective instrument of economic growth by giving a thrust to employment generation.

3. A multi-pronged strategy is needed to achieve these ambitious objectives. I decided that it was meaningless for me or my Ministry to attempt to devise this in isolation, within the four walls of Udyog Bhawan. I was very clear from the beginning that the process should be transparent, and that it could only happen in partnership with trade.

4. I began the process of consultation in the very first week of my assuming office. I attended presentations of all Export Promotion Councils, as well as various Industry Associations and Business Federations. Over 3000 suggestions were received and each was carefully considered. Regarding those which we found difficult to accept, we decided to obtain more information in order to develop clarity, and so we put them on the website for comments. We interacted with exporters, big and small, individuals and groups, in Delhi and in other places. I called for suggestions from experts and also from all of my Ministerial colleagues and received very valuable ones.

5. We decided to incorporate all the meaningful and feasible suggestions in the drafting of this Policy. Some of these, even though desirable, could not be incorporated at this stage due to the financial implications, but we are still working on them and we hope to bring about incremental improvements as we go along.

The two-fold objective of this Policy is proposed to be achieved by adopting, among others, the following strategies:

1. Unshackling of controls and creating an atmosphere of trust and transparency to unleash the innate entrepreneurship of our businessmen, industrialists and traders.

2. Simplifying procedures and bringing down transaction costs.

3. Neutralizing incidence of all levies and duties on inputs used in export products, based on the fundamental principle that duties and levies should not be exported.

4. Facilitating development of India as a global hub for manufacturing, trading and services.

5. Identifying and nurturing special focus areas which would generate additional employment opportunities, particularly in semi-urban and rural areas, and developing a series of ‘Initiatives’ for each of these.

6. Facilitating technological and infrastructural upgradation of all the sectors of the Indian economy, especially through import of capital goods and equipment, thereby increasing value addition and productivity, while attaining internationally accepted standards of quality.

7. Avoiding inverted duty structures and ensuring that our domestic sectors are not disadvantaged in the Free Trade Agreements/Regional Trade Agreements/Preferential Trade Agreements that we enter into in order to enhance our exports.

8. Upgrading our infrastructural network, both physical and virtual, related to the entire Foreign Trade chain, to international standards.

9. Revitalising the Board of Trade by redefining its role, giving it due recognition and inducting experts on Trade Policy.

10. Activating our Embassies as key players in our export strategy and linking our Commercial Wings abroad through an electronic platform for real time trade intelligence and enquiry dissemination.

6. Sectors with significant export prospects coupled with potential for employment generation in semi-urban and rural areas have been identified as thrust sectors, and specific sectoral strategies have been prepared.

For the present, Special Focus Initiatives have been prepared for Agriculture, Handicrafts, Handlooms, Gems & Jewellery and Leather & Footwear sectors. Further sectoral initiatives in other sectors will be announced from time to time.

The threshold limit of designated ‘Towns of Export Excellence’ is reduced from Rs.1000 crores to Rs.250 crores in these thrust sectors.

7. Since Agriculture has the potential to bring prosperity to millions of our rural citizens, and also the largest potential for enhancing employment in some of the poorest regions of our country, we have prepared a special package for it.

The Special Focus Initiative for Agriculture includes a new scheme called Vishesh Krishi Upaj Yojana, 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 entitlement is freely transferable and can be used for import of a variety of inputs and goods.

Capital goods imported under EPCG for agriculture shall be duty free, and permitted to be installed anywhere in the Agri Export Zone.

ASIDE funds to be utilized for development for Agri Export Zones also.

The Import of seeds, bulbs, tubers and planting material has been liberalized to help in modernization and improving breeds and yields; while the export of plant portions, derivatives and extracts has also been liberalized with a view to promote export of medicinal plants and herbal products.

8. The Gems and Jewellery sector has tremendous potential to provide employment to our artisans, while simultaneously preserving and developing our traditional skills. Our package for this sector includes:

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

Duty free re-import entitlement for rejected jewellery up to 2% of FOB value of exports.

Duty free import of commercial samples of jewellery increased to Rs.1 lakh.

Import of gold of 18 carat and above shall be allowed under the replenishment scheme.

9. Handlooms and Handicrafts are the mainstay of our cottage sector, and a significant number of workers are women. Increased exports from these sectors take benefits down to the grass-roots level. Our package includes:

Duty free import of trimmings and embellishments increased to 5% of FOB value of exports. These shall also be exempt from CVD.

The Handicraft Export Promotion Council shall be authorised to import trimmings, embellishments and samples for small manufacturers, who are unable to do this on their own, and so get deprived of this facility.

A new Handicraft Special Economic Zone shall be established.

10. We have a package for the Leather & Footwear industry too. The new facilities include:

Duty free entitlements of import trimmings, embellishments and footwear components increased to 3% of FOB value of exports.

Duty free import of specified items for leather sector increased to 5% of FOB value of exports.

In order to enable the leather industry to meet the requirements of pollution control, machinery and equipment for Effluent Treatment Plants for leather industry shall be exempt from Customs Duty.

11. A new scheme to accelerate growth of exports called ‘Target Plus’ has been introduced.

Exporters who have achieved a quantum growth in exports would be entitled to duty free credit based on incremental exports substantially higher than the annual export target fixed. (Since the target fixed for 2004-05 is 16%, the lower limit of performance for qualifying for rewards is pegged at 20% for the current year).

Rewards will be granted based on a tiered approach. For incremental growth of over 20%, 25% and 100%, the duty free credits would be 5%, 10% and 15% of FOB value of incremental exports.

12. To accelerate growth in export of services so as to create a powerful and unique ‘Served from India’ brand instantly recognized and respected the world over, the earlier DFEC scheme for services has been revamped and re-cast into the ‘Served from India’ scheme.

Individual service providers 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.

In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of hotels, it shall be 5%.

Hotels and Restaurants can use their duty credit entitlement for import of food items and alcoholic beverages.

13. A number of improvements have been made to the EPCG Scheme. Among them are the following:

(i) Additional flexibility for fulfillment of export obligation in order to reduce difficulties of exporters of goods and services.

(ii) Technological upgradation has been facilitated and incentivised.

(iii) Transfer of capital goods to group companies and managed hotels now permitted under EPCG.

(iv) In case of movable capital goods in the service sector, the requirement of installation certificate from Central Excise has been done away with.

(v) Export obligation for specified projects shall be calculated based on concessional duty permitted to them. This would improve the viability of such projects.

14. It was brought to our notice that the facility for import of fuel under DFRC was being rendered meaningless since individual exporters found it impractical, in fact impossible, to import fuel on their own. To address this, the import of fuel under DFRC entitlement shall be allowed to be transferred to marketing agencies authorized by the Ministry of Petroleum and Natural Gas.

15. We are also aware of the concern among exporters about the proposed discontinuation of the DEPB scheme. Let me assure you that DEPB would be continued until replaced by a new scheme – and this new scheme will be drawn up in consultation with exporters. We look forward to receiving constructive suggestions on how best this can be done.

16. A new rationalized scheme of categorization of status holders as Star Export Houses has been introduced, designating them from One Star to Five Star, depending on their total exports during the current and previous three years. The entry level for qualifying for status is now Rs. 15 crores in three years. We are confident that this will bestow status on a large number of hitherto unrecognized small exporters.

17. Star Export Houses shall be eligible for a number of privileges including fast-track clearance procedures, exemption from furnishing of Bank Guarantee, eligibility for consideration under Target Plus Scheme etc.

18. We recognize that EOUs perform the same role as SEZ units in boosting exports, and so, as far as practicable, we want to give them as many of the benefits that are possible and feasible.

(a) EOUs shall be exempted from Service Tax in proportion to their exported goods and services.

(b) EOUs shall be permitted to retain 100% of export earnings in EEFC accounts.

(c) Income Tax benefits on plant and machinery shall be extended to DTA units which convert to EOUs.

(d) Import of capital goods shall be on self-certification basis for EOUs.

(e) For EOUs engaged in Textile & Garments manufacture leftover materials and fabrics upto 2% of CIF value or quantity of import shall be allowed to be disposed of on payment of duty on transaction value only.

19. A new scheme to establish Free Trade and Warehousing Zones 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 free currency. This is aimed at making India into a global trading-hub.

FDI would be permitted up to 100% in the development and establishment of the zones and their infrastructural facilities.

Each zone would have minimum outlay of Rs.100 crores and five lakh sq. mts. built up area.

Units in the FTWZs would qualify for all other benefits as applicable for SEZ units.

20. The application of biotechnology would pay rich dividends in terms of new products and technologies. To harness this frontier of science, we propose to establish Biotechnology Parks in the country which would get all the facilities of 100% Export Oriented Unit.

21. It is estimated that Services today constitute more than half the total GDP of the country. .An exclusive Services Export Promotion Council shall be 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 sectoral players and recognized nodal bodies of the services industry.

22. 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 developers etc., in State and District-level towns, to draw in a vast multitude of home-based professionals into the services export arena.

23. We are committed to reducing transactional costs and simplifying procedures. A number of rationalisation measures have been introduced.

(a) All exporters with minimum turnover of Rs.5 crores and good track record shall be exempt from furnishing Bank Guarantee in any of the schemes, so as to reduce their transactional costs.

(b) Cost effective capital goods are an important component of industrial growth, and so import of second-hand capital goods shall be permitted without any age restrictions.

(c) Minimum depreciated value for plant and machinery to be re-located into India has been reduced from Rs.50 crores to Rs.25 crores.

(d) All goods and services exported, including those from DTA units, shall be exempt from Service Tax.

(e) Validity of all licences and entitlements issued under various schemes has been increased to a uniform 24 months.

(f) The number of returns and forms to be filed have been reduced. This process shall be continued in consultation with Customs & Excise.

(g) Enhanced delegation of powers to Zonal and Regional offices of DGFT for speedy and less cumbersome disposal of matters.

(h) Time bound introduction of Electronic Data Interface (EDI) for export transactions. 75% of all export transactions to be on EDI within six months.

24. In order to showcase our industrial and trade prowess to its best advantage and leverage existing facilities, Pragati Maidan will be transformed into a world-class complex. There shall be state-of-the-art, environmentally-controlled, visitor friendly exhibition areas and marts. A huge Convention Centre to accommodate 10,000 delegates with flexible hall spaces, auditoria and meeting rooms with high-tech equipment, as well as multi-level car parking for 9,000 vehicles will be developed within the envelope of Pragati Maidan.

25. As you are all aware, yesterday India has entered into a Framework Agreement for Free Trade Area with Thailand. The importance of such arrangements both with other countries as well as with regional grouping for boosting our foreign trade is well recognized. We are also holding discussion with other countries/ groupings on such framework arrangements. These framework agreements are directed towards increased trade with more countries/groupings.

26. The dynamics of a liberalized trading system sometimes results in injury caused to domestic industry on account of dumping. When this happens, effective measures to redress such injury will be taken. Financial assistance would be provided to deserving exporters, on the recommendation of Export Promotion Councils, for meeting the costs of legal expenses connected with trade-related matters.

27. The new Policy envisages merchant exporters and manufacturer exporters, business and industry as partners of Government in the achievement of its stated objectives and goals. Prolonged and unnecessary litigation vitiates the premise of partnership. In order to obviate the need for litigation and nurture a constructive and conducive atmosphere, a new mechanism for grievance redressal has been formulated and put into place by a Government Resolution to facilitate speedy redressal of grievances of trade and industry, which, it is hoped, would substantially reduce litigation and further a relationship of partnership.

28. The Board of Trade shall be revamped and given a clear and dynamic role. There would be a process of continuous interaction between the Board of Trade and Government in order to achieve the desired objective of boosting India’s exports. An eminent person or expert on trade policy shall be nominated as President of the Board of Trade, which shall have a Secretariat and separate Budget Head, and will be serviced by the Department of Commerce.

29. This Policy is essentially a roadmap for the development of India’s foreign trade. It contains the basic principles and points the direction in which we propose to go. By virtue of its very dynamics, a trade policy cannot be fully comprehensive in all its details. It would naturally require modification from time to time. We propose to do this through continuous updation, based on the inevitable changing dynamics of international trade. It is in partnership with business and industry that we propose to erect milestones on this roadmap.

Thank you