Foreign Trade Policy

of India
What is an FTP…
 A policy instrument used by the Ministry of
Commerce and Industries to provide
basic, medium or long term framework for
enhancing trade of India

 Procedures and guidelines pertaining to

exports and imports given here through
•

EXIM policy objectives…

 To facilitate sustained growth in exports from and
imports in India.

 To stimulate sustained economic growth by providing

access to essential raw materials, capital goods, etc.

 To enhance the technological strength and efficiency

of Industry, Agriculture and Services

 To provide clients with high-quality goods and services at

globally competitive rates.
EXIM announcement
 The Government of India notifies the Exim
Policy for a period of five years under
Section 5 of the
Foreign Trade (Development and Regul
ation) Act, 1992
.
 EXIM policy is updated every year on 31st
March in which modifications, changes
etc. are announced
The trade facilitators…
 Minister for Industry and Commerce works
closely with MoF and announces the EXIM
policy
 Also works out details with DGFT and its
regional network of offices
 DGFT responsible for giving IEC, issuing
licenses, monitoring status etc.
Several schemes exist for promoting exports
from India
Basic philosophy..

We should export only goods and services

and not taxes thereon
Duty Drawback Scheme
 Gives relief from Customs and Central Excise
Duties paid on the inputs used in the
manufacture of export product to Exporters
 Drawback claimed at time of export
 Admissible duty drawback amount deposited
into nominated bank account of exporters
 Exporter can opt for All Industry Rate (AIR) or
Brand Rate (BR)
AIR calculation…
 AIRs notified every year after an assessment of “average”
incidence of Customs and Central Excise duties on Inputs
utilized in the manufacture of export products.

 No proof of actual duties paid is required to be produced:

So normally availed by exporters

 AIRs are fixed as a percentage of FOB price of export

product

 If AIR not notified for a product or if insufficient to

compensate actual duties, then exporters may opt for a BR
Duty Exemption Scheme (Advance
License Scheme)
 Enables import of inputs required for export
production free of Customs duty
 Advance Licences are issued for Physical
exports, Intermediate supplies and Deemed
exports.
 Also issued on the basis of annual requirement
for exports/supplies
 Use of SIONs for determining proportion of
inputs required in production of various goods
AL features…
 AL: Not transferable
 Have a VA stipulation
 AL holder to file bond/ BG with Customs department
 AL + Duty Entitlement Exemption Certificate to exporter
for recording actual M and X
 Only on submission of DEEC, Export Obligation i.e. EO
discharge certificate is issued
 Required for redemption of BG
 DEEC abolished under FTP 2002-07
 Redemption on basis of shipping bills and bank
realization certificate
Duty Remission Schemes…
 Duty Free Replenishment Certificate
DFRC
 Duty Entitlement PassBook Scheme
DEPB
DFRC
 Introduced in 2000
 Replenishment of duty paid on inputs post-
exports
 Inputs have to be indicated in shipping bills for
mfg an export item that appears under SIONS
 DFRC license and the materials imported there
through are freely transferable
 Replaced in 2006 by Duty Free Import
Authorization (DFIA) Scheme
DEPB Scheme…
 Credit Entitlement to an exporter at the time of export at an ad-valorem rate
notified by DGFT

 Entitlements for more than 2000 export products have been worked out
individually and not on an industry basis

 All the inputs listed in the Standard Input-Output Norms are deemed to have
been imported and to have suffered Customs duties

 For a certain amount of DEPB credit, “DEPB scrips” are issued

 Within 12 months, credit on this scrip can be utilized for adjusting Customs
Duties (Basic or CVD) against import of any products into India, without the
necessity of any co-relation between the export product and the import
goods

 DEPB and items imported against it freely transferable

EPCG…
 Import of capital goods which are required for
the manufacture of resultant export product
specified in the EPCG Licence is permitted at
concessional rate of Customs duty.
 EPCG licence holder is permitted to import
capital goods at 5% Customs duty
 Export obligation is 8 times the duty saved to be
completed in 8 years
Agreement on Subsidies and
Countervailing Measures
 Export subsidies that are contingent upon export
performance are prohibited
 DEPB, DFRC, EPCG are hence dis-allowed
 Seen to be subsidies rather than incentives
 Remission by itself is not a subsidy
 Excess of remission over input duty actually paid
is a subsidy and hence countervailable if found
to cause injury in the importing country
Under the WTO scanner..
 Since DEPB scheme does not connect
subsidy given to the actual inputs borne by
the exporter, it is deemed to be
countervailable under the Agreement on
SCM of the WTO
 India has been increasingly facing CVD
charges on this account
Backdrop for FTP 2009-14
 Indian exports have shown decline recently.
 The overall growth in exports in 2008-09 has been just 3.4 % against over
20 % in the preceding 4 years.
 India’s export volume in 2008-09: $168 billion
 In the first four months of the current fiscal exports have come down by 34%
to $49.65 billion compared to $75.2 billion in the corresponding period in the
last financial year.
 Imports too registered an even steeper fall of 37% in July, the 7th
consecutive month for falling imports, which reduced the trade deficit by as
much as 50 percent to $6 billion.
 Primarily due to fall in crude oil prices in the international market.
 Non-oil imports fell by 24.5% which means there was less import of
machinery and capital goods.
 Indicative of lower trade and lower economic activity
Objectives of FTP 2009-14

 To double share of India in global trade

 To achieve $200 billion exports by March
2011 as compared to $168 billion in March
2009
 No big bang announcements but
continuation of policies
FTP 2009-14 : Highlights
 New markets and products added in the Focus Market and Focus
Products Schemes; incentive levels raised

 Markets such as South Africa, Brazil, Mexico, Australia and NZ are

added since perceived to be least affected by the slowdown

 EPCG scheme @ zero duty introduced

 Export obligation on import of spares, moulds etc reduced to 50% of

the normally specified obligation

 Payment of customs duty for Export Obligation (EO) shortfall under

Advance Authorisation / DFIA / EPCG Authorisation allowed by way
of debit of Duty Credit scrips. Earlier the payment was allowed in
cash only.
FTP 2009-14: Highlights contd..

 DEPB extended till 31.12.2010

 Interest rate subvention of 2% on pre-shipment credit for 7
sectors till 31.3.2010 already announced under Budget
2009-10

 I-T exemption to 100% EOUs and STPI extended to 2010-

11 under S 10B and 10A of I-T Act already announced
References…
 http://www.business-standard.com/india/news/web-exclusiveround-
upthe-foreign-trade-policy-2009-2014/368621/

 http://www.ximb.ac.in/vilakshan/vilakshan-4.2/art_1.pdf#page=161

 http://www.icrier.org/pdf/agree-f.pdf
Special Economic Zones…
 India one of first Asian countries to introduce the concept of EPZs

 Kandla EPZ in 1965 to create an enclave that would provide an

environment in which exporting companies could compete with their
foreign counterparts effectively.

 SEEPZ in 1963

 Limited benefits to units and limited powers to the zone authorities:

The two zones did not add substantially to the export growth in
India.
 It is only between 1980 and 1991 that EPZs were recognized for the
benefits that they could potentially provide and 5 more zones were
set up in the country.

 These were at Noida (Uttar Pradesh), Falta (West Bengal), Cochin

(Kerala), Vishakhapatnam and Surat. Whereas the former four
zones were set up by the Government itself, the EPZ at Surat was
the first private sector EPZ in India.

 In EXIM policy 1997-02, new initiative called SEZs were rooted by

the then Commerce Minister Murasoli Maran
 SEZs were introduced with the intent of providing bigger
duty-free enclaves for export promotion with world class
infrastructure.

 SEZs would be based on a minimum land size of 1000

hectares and could be set up by the private or public
sector or through a joint undertaking.

 Following this announcement, the earlier EPZs were

converted into SEZs
SEZ Bill passed
 Conversion from EPZ to SEZ was not
really effective
 Bill placed in public domain for discussion
 SEZ Act passed in 2005
Setting up formalities…
 SEZs can be set up either by private “Developers” or as joint
projects with Government entities or by Government agencies
themselves.
 The Developer has to submit the proposal for developing the SEZ to
the State Government, which then forwards it within 45 days to the
“Board of Approvals”.
 The Developer is also allowed to directly approach the BoA for
approvals.
 The BoA conveys an “in-principle” approval to the Developer, after
which the actual land acquisition is expected to start.
 Formal approval is granted once the land is under possession.
 After scrutinizing all the land and other documents, the SEZ then
gets “notified”. It is after this notification that the actual process of
developing the project starts.
Land Acquisition Act 1894…
 SEZ Act silent on how the acquisition is to be done
 LAA 1894 allows the state to acquire land for “public
purposes” under which the fact that land is being
acquired cannot be contested by the land owner; only
the price can be contested
 Used by several developers to their advantage
 State Govt agencies MIDC becomes minority partner or
acquisition partner in the project
 This has become the main bone of contention
 Case of the Pen village in Raigad district
Benefits to SEZ units
 Duty free import/domestic procurement of goods for development,
operation and maintenance of SEZ units
 100% Income Tax exemption on export income for SEZ units under
Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years
thereafter and 50% of the ploughed back export profit for next 5 years.
 Exemption from minimum alternate tax under section 115JB of the Income
Tax Act.
 External commercial borrowing by SEZ units upto US $ 500 million in a
year without any maturity restriction through recognized banking channels.
 Exemption from Central Sales Tax and Service Tax
 Single window clearance for Central and State level approvals.
 Exemption from State sales tax and other levies as extended by the
respective State Governments (Please note that since the Maharashtra
SEZ Act is not yet passed, this issue remains ambiguous)
Benefits to SEZ developers
 Exemption from customs/excise duties for development of SEZs for
authorized operations approved by the BOA.
 Income Tax exemption on export income for a block of 10 years in
15 years under Section 80-IAB of the Income Tax Act.
 Exemption from minimum alternate tax under Section 115 JB of the
Income Tax Act.
 Exemption from dividend distribution tax under Section 115O of the
Income Tax Act.
 Exemption from Central Sales Tax (CST).
 Exemption from Service Tax (Section 7, 26 and Second Schedule of
the SEZ Act).
Area Requirements

 Type of SEZ Minimum Area (hectares)

 Electronic Hardware and Software 10 hectares with 1 lac sq. mtr

built-up area
 Bio-Technology/ Non- Conventional 10 hectares with 40,000 sq. mtrs
Energy built-up area
 Free Trade and Warehousing Zone 40 hectares with 1 lac sq. mtr
built-up area
 Specific Sector 100 hectares
 Multi-services 100 hectares
 Multi-product 1000 hectares