Introduction
Imports and exports are the two important components of a foreign trade. Foreign trade is the exchange of goods and services between the two countries, across their international borders. ’Imports’ imply the physical movement of goods into a country from another country in a legal manner. It refers to the goods that are produced abroad by foreign producers and are used in the domestic economy to cater to the needs of the domestic consumers.
Similarly, ‘exports’ imply the physical movement of goods out of a country in a legal manner. It refers to the goods that are produced domestically in a country and are used to cater to the needs of the consumers in foreign countries. Thus, the imports and exports have made the world a local market. The country which is purchasing the goods is known as the importing country and the country which is selling the goods is known as the exporting country. The traders involved in such transactions are importers and exporters respectively.
In India, exports and imports are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which replaced the Imports and Exports (Control) Act, 1947, and gave the Government of India enormous powers to control it. The salient features of the Act are as follows:-
It has empowered the Central Government to make provisions for development and regulation of foreign trade by facilitating imports into, and augmenting exports from India and for all matters connected therewith or incidental thereto.
The Central Government can prohibit, restrict and regulate exports and imports, in all or specified cases as well as subject them to exemptions.
It authorizes the Central Government to formulate and announce an Export and Import (EXIM) Policy and also amend the same from time to time, by notification in the Official Gazette.
It provides for the appointment of a Director General of Foreign Trade by the Central Government for the purpose of the Act. He shall advise Central Government in formulating export and import policy and implementing the policy.
Under the Act, every importer and exporter must obtain an ‘Importer Exporter Code Number’ (IEC) from Director General of Foreign Trade or from the officer so authorized.
The Director General or any other officer so authorized can suspend or cancel a license issued for export or import of goods in accordance with the Act. But he does it after giving the license holder a reasonable opportunity of being heard.
Salient features of foreign trade
The salient features of India's foreign trade are as under:
1. More Share of GNP:
India's foreign trade has great significance for its GNP. In 1980-81, India's foreign trade constituted 12% of its G.N.P. In 2001-02 it increased to 23.4% of gross national product.
2. Less Percentage of World Trade:
India's share in world trade has been sliding down. In 1950-51, India's share in total import trade of the world was 1.8% and in total export trade was 2%. In 2001-02, it came down to 0.5% in import trade and to 0.2% in export trade.
3. Change in Composition of Exports:
After independence, there was change in the composition of India's export trade. Before, independence, India used to export agricultural products and raw materials. Now on export side, various types of finished products have been added to the number of export commodities.
4. Change in the Composition of Imports:
In the post-independence era, composition of India's import trade has also undergone a change. Prior to independence, India used to import finished products comprising of medicines, cloth, motor vehicles, electrical goods, iron and steel etc. But now, its imports comprises of largely petrol, machines, chemical fertilizers, oilseeds, raw materials, steel, oil etc.
5. Dependence on Few Ports:
India's foreign trade is handled mainly by Bombay, Calcutta, Madras ports. Therefore, these ports remain over busy. During planning period Government of India has developed three more ports via; Kandla, Cochin and Vishakhapatnam.
6. Balance of Trade:
Prior to independence, India's balance of trade was favorable. But soon after independence, it became unfavorable. In 1995-96, balance of trade was Rs.42 crore which was favorable. From 1995-96 to onwards, it became unfavorable. Ending 1998-99, deficit of balance of trade was of Rs.28580 crore and Rs.36181 in 2000-01. It is again expected to decline to Rs.26014 crore in 2001-02.
7. Foreign Trade by Government:
In order to conduct foreign trade smoothly, Government has set up many corporations like State Trading Corporation (1946), Minerals and Metal Trading Corporation (1963) etc.
8. Oceanic Trade:
Most of India's foreign trade is by sea routes. India has very little trade relations with neighboring countries like Nepal, Afghanistan, Burma, Sri Lanka etc. About 68% of India's trade is by sea.
9. Export Import Ratio:
Export import ratio refers to the percentage of total bill that can be paid out of export earnings. In 1991-92, export-import ratio was 92%. It means that. 8% of total imports were paid either by foreign loans or by drawing from foreign exchange resources. In 1999-2000, export-import ratio has increased to 95.4 per cent.
10. Dependent Trade:
India's foreign trade depends mostly on foreign shipping companies, insurance companies and banks. After independence, government has been paying special attention towards these aspects of foreign trade.
Special Focus Initiatives
With a view to doubling our percentage of share in global trade the following special Sectorial initiative was announced. Apart from the sector specific initiatives with focus on promoting our Agricultural and Village industry, following special schemes to incentivize product-specific and another country-specific schemes were introduced in order to promote exports of products and export to least developed and developing countries.
These are;
Focus Product Scheme (FPS)
Focus Market Scheme (FMS)
Market Linked Focus Product
High Tech Products Export Promotions Scheme (HTPEPS)
Vishesh Krishi and Gram Udyog Yojna (VKGUY) (Special Agriculture and Village Industry Scheme)
Impact of foreign trade
India, like other countries participating in globalization, has been exporting and importing products and services to and from other countries. The following discussion highlights the effects that foreign trade has on the Indian markets.
Foreign trade affects the domestic trade and markets of a country and India is not an exception in this scenario. India is a part of the globalization and any effects. It was until 1991 that India followed a socialist-democratic approach which kept it uncommitted to the foreign countries. The Swadeshi ideology enforced public ownerships and an approach of ‘India First’. In other words, self-sufficiency was the motive advocated by the governments that ruled the country till 1990s.
The India’s expedition towards economic liberalization began in 1991 and it opened the door for foreign trade and foreign investments. Within 10 years or so, India showed the potential of being a contender as the world’s fastest growing economy. In fact, the country secured its position as the second fastest growing economy in 2008.
The Indian markets have started entertaining increased number of foreign consumers, along with the domestic consumers. At least five important changes have been introduced in the Indian markets by this changed scenario:
• Rise in technological entrepreneurships.
• Growth of small and medium sized enterprises.
• Recognition of quality management as an important measure of manufacturing goods.
• Growth of rural areas as the participants in the Indian markets.
• Privatization of financial and lending institutions in the country.
The entry of the foreigners into the Indian markets was initially criticized but the scene is not the same anymore. The Indian Foreign Trade Policy of 2009-2014 has added 26 new markets to its aim of achieving the export target of US$ 200 billion and export growth target of 15 percent for the first two years. Other aims of the policy are to double India’s export of goods and services by 2014 and to double India’s share in global merchandise trade by 2020. The upcoming decade will play a significant role in fortifying the country’s trading capabilities.
EPCG Scheme for Technological Up gradation
The Zero Duty EPCG Scheme had previously ended on March 31, 2012. The program’s tenure has now been extended to March 31, 2013 and its main purpose is to help in the technological improvement of the various export sectors. However, the benefits of different sectors will stay the same.
The scope of the program has been increased. As of now units that are receiving the advantages of the Technology Up-gradation Fund Scheme (TUFS) are not covered by it but one applicant can use the Zero Duty EPCG Authorization for a different business line.
If a company surrenders or refunds the TUFS benefits with the appropriate interest then they will be able to use the Zero Duty program. Till March 31, 2012 companies that were availing the privileges of the Status Holder Incentive Scrip (SHIS) were not allowed to avail the Zero Duty EPCG scheme.
Now it has been decided that if a company hands back the SHIS benefits to the concerned RA with the proper interest then it will be allowed to avail the Zero Duty program.
New Post Export EPCG Scheme
From now on exporters will be able to import goods after paying the applicable duty in cash and then receiving the duty credit scrip once the export processes are completed. Duty will not be exempted or remitted for these transactions. The applicants will be required to provide necessary information regarding the import to the Regional Office of DGFT (RA).
The RA will determine the export obligation (EO) on the basis of this information. Under normal circumstances this EO is 85% of the normal EO as the duties have already been paid when the capital goods were imported.
The RA will provide a Duty Credit Scrip based on the way the export fares. It is expected that this would call for reporting and monitoring requirements since the program is basically self-monitored. Less EO and transaction expenses are expected to make this an attractive proposition.
As per the EPCG Scheme, as of now, certain sectors do not need to maintain a certain average when it comes to exports:
• Handicraft
• Horticulture
• Handlooms
• Pisciculture
• Cottage sector
• Viticulture
• Tiny sector
• Poultry
• Agriculture
• Sericulture
• Aquaculture – this also includes fisheries
Now three sectors – carpet, jute, and coir – have been added to the above mentioned list. This addition is expected to assist labor intensive industries that find it hard to maintain a certain level of exports on an annual basis.
At present the EPCG program allows only one usage of the catalysts for an initial charge. Companies will now be given the permission to use a second charge. From now on Common Service Providers (CSP) will be allowed to provide Bank Guarantees so that Common Service Centers can be established at towns that have good potential for exports.
The amount of duty will be equal to the duty that has been exempted. The CSP can provide the bank guarantee by them or share it with other entities that use the common service.
Supporting Export of Products from Northeastern India
Products from Arunachal Pradesh, Mizoram, Assam, Nagaland, Manipur, Tripura, Meghalaya, and Sikkim will now carry an EO of 25% as per the EPCG Scheme. This will be done to foster employment and manufacturing activities in this part of the country.
In case of export of certain products through certified Land Customs Stations of North Eastern Region, there will be an extra incentive of 1 percent of the exports’ FOB value. This benefit will be an additional one.
Supporting Export of Environment Friendly Products
16 green technology products have been identified and they will now have a manufacturing EO of 75% of the normal EO. The facility being provided as part of the EPCG program aims to promote the export of these. The products may be mentioned as below:
• Equipment for solar energy decentralized and grid connected products
• Solar Collector and Parts
• Bio-Mass Gasifies
• Water Treatment Plants
• Bio-Mass/Waste Boilers
• Wind Mills
• Vapor Absorption Chillers
• Wind Turbines/Engines
• Waste Heat Boilers
• Waste Heat Recovery Units
• Electrically Operated Vehicles – Motor Cars
• Unfired Heat Recovery Steam Generators
• Electrically Operated Vehicles – Lorries and Trucks
• Wind Turbines
• Electrically Operated Vehicles – Motor Cycles and Mopeds
• Solar Cells
Infrastructure Support for Agricultural Sector
Export products that fall under Chapters 1-24 of the ITC (HS) will be provided Duty Credit Scrip that will be equal to 10 percent of the agricultural produce being exported. These scrip’s are normally provided for importing pack house and cold storage equipment and capital goods but will, now, also include the aforementioned equipment that are necessary for creating pack houses:
• Packing grading equipment for fruits and vegetables
• Nitrogen generators
• Equipment for ripening of fruits including ethylene generator
• Gas controlling systems for CA stores
• Adiabatic humidifies for cold rooms
• Bulk bins for CA stores
• Gas sensor and controlled system covering CO2, ethylene and oxygen levels, ethylene scrubbers
• Reach stakes for cold stores and warehouses
• CO2 Scrubbers
• Belt driven conveyors for bulk handling of cargo
• Blast freezers for IQF plants
• Gantry cranes
• Doors for gastight rooms, applications like CA, Banana/fruit ripening
• Unloading, mechanized loaders for bulk and break bulk cargo
Incentives for Promotion of Investment in Labor Intensive Sectors
Status holders will be provided Status Holders Incentive Scrip (SHIS) for importing capital goods. This is expected to foster investment that will assist in the technological improvement in some sectors that have been classified as labor intensive such as the following:
• Leather
• Engineering
• Textile and Jute
• Plastics
• Handicraft
• Basic chemicals
The authorities have now opted to provide a maximum limit of 10% of the worth of this Scrip to be used for importing spares and components of previously imported capital goods. This is a new facility. As of now these scripts will be subjected to Actual User Condition rules and cannot be transferred.
All the status holders may not own a manufacturing unit. So for the time being it has been decided to permit the SHIS Scrip to be transferred on a limited basis. However, Scrip can only be transferred between status holders and the recipient should have manufacturing unit.
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