International Business

Implications of Foreign Trade

Policy and
Facilitation of Foreign Trade
 Where Does India Stand Globally?

International Trade of Select Countries in 2003

Country Exports Imports GDP Trade as % of GDP
(US$ bn.) (US$ bn.) (US$ bn.)
Korea 197.6 175.5 605.0 61.7
China 438.3 393.6 1446.9 57.5
Mexico 165.4 171.0 626.1 53.7
Russia 135.9 75.4 433.5 48.7
South Africa 38.7 35.0 160.1 46.0
Argentina 29.4 13.1 129.7 32.8
Brazil 73.1 48.3 492.1 24.7
India 57.0 74.3 588.8 22.3
Source: Economist Intelligence Unit

 India’s share in global merchandise exports: 0.8% (2003)

2
 India’s Export Performance

India's Export Performance (1999-2000 to 2003-04)

70000
52856 63623
60000
44147 43976
50000 47742
36760
US$ million

40000
30000
29751
20000

10000

0
1999-2000 2000-01 2001-02 2002-03 2003-04
All Commodities Years Agricultural & allied products
Ores & minerals Manufactured goods
Petroleum & crude products

Source: DGCIS, MOC&I

3
 India’s Import Performance

India's Import Performance (1999-2000 to 2003-04)

90000
80000 77237
70000 61572
60000 50056 51588
49799 56613
US$ million

50000
40000
30000 37172
20000
10000
0

1999-2000 2000-01 2001-02 2002-03 2003-04

All Commodities Petroleum crude & products

Years Non-POL items

Source: DGCIS, MOC&I

4
 FDI and Exports
Low share of FDI in major export sectors
Sector Share in FDI (%)
Transportation industry 7.50
Computer software industry 6.46
Chemicals & pharmaceuticals 5.70
Textiles 1.20
Leather & leather goods 0.20
Services (incl. Hotels & Tourism) 8.37
Source: SIA, MOC&I

5
 Direction of India’s Exports
(Total exports in 2001-02: US$ 43.9bn)

6% 3%
8% 34%

15%

33%

Europe Asia (excl. Middle East)

Middle East Africa
Others Latin America
Oceania

Latin
Latin America
America :: 2.3%
2.3% of
of the
the total
total export
export basket
basket
6
 Composition of India’s Exports
(Total Exports in 2001-02: US$ 43.9 bn,
excl. software exports of US$ 7.8 bn)
Textiles

Gems & jewellery

Engineering goods
5%4% 3% 24%
5% others
13%
Agricultural & allied
products
17%
14% 15% Chemicals & related
products (excluding
drugs)
Drugs, pharmaceuticals
& fine chemicals

Leather & leather

manufactures

Electronic Goods 7
 Trends in India’s Exports
Select Products
Products 1996-97 2001-02 CAGR
(US$ mn) (US$ mn) (%)

Drugs
Drugs and
and pharmaceuticals
pharmaceuticals 1224.08
1224.08 2051.59
2051.59 10.8
10.8

Chemicals 2841.85 4275.67 8.5

( including drugs & pharma)

Machinery and Instruments 1057.99 1731.75 10.3

Transport Equipment 969.53 994.24 0.5

8
 Trade Policies in India
 Exim Policies
 Streamlined trade procedures
 Liberalised import regime
 Thrust on export orientation
 Medium Term Export Strategy, 2002
 1% share in global exports by 2007
 Foreign Trade Policy 2004-2009
 To double India’s share in global merchandise trade
by 2009

9
 Foreign Trade Policy 2004-09

Quantum Jump in Merchandise Exports

Required:
 Enhance exports of major export

commodities
 Identify potential export commodities
 Diversify export destinations

10
 Foreign Trade Policy 2004-09
Exim Bank Study “Strategy for Quantum Jump in Exports:
Focus on Africa, Latin America and China”
India could aim to achieve:
 US$ 18 billion in Africa’s Imports by 2007 from
US$ 3.8 bn in 2003-04
 US$ 4 bn in China’s imports by 2007 (in 64
identified groups) from US$ 0.86 bn in 2000
 US$ 1.8 bn in LAC’s imports by 2007 (in 100
identified groups) from US$ 0.6 bn in 2000
 Share in India’s Exports in 2003-04: Africa (6%); Latin
America (1.8%); China (4.7)
11
 Foreign Trade Policy 2004-09

Simplifying procedures and bringing down

transaction costs
 Transaction costs are incurred at the pre and post-
production stages, and arise out from several
procedural complexities associated with
administrative processes, availability of finance
and transportation problems.
 For enhancing the growth of exports it is
important to reduce the transaction costs involved.
 Exim Bank Study on Transaction Costs of Indian
Exports
12
 Foreign Trade Policy 2004-09
Findings of Exim Bank’s Study
Sector No. of Transaction costs as % Transaction costs as
Firms of export revenue (2003 % of export revenue
Survey) (1998 Survey)
 
Textile/Garments 23 3-10 15

Engineering goods 18 <5 10

Pharmaceuticals 9 8 10

Chemicals 7 <5 14

Computer software 9 1-5 10

Agro-Industries 2 1-2 7-8.5

Electronic & Electrical 3 5 -

machinery
Plastic components 2 5-10 -

Paper Industry 2 5-7 -

Others 7 1-2  

13
 Foreign Trade Policy 2004-09

Transaction Costs: International Experience

 Simplified and less stringent bureaucratic
procedures like single window clearance and
business friendly approach
 Better technology due to higher levels of foreign
investment, faster loading/unloading methods
 Flexible employee-employer relationship
 Cheap availability of power and raw materials,
 Freight incentives by the Government,
 Lower ocean freight rates due to greater
availability of vessels
14
 Foreign Trade Policy 2004-09
Special package for agriculture
 Duty free imports of capital goods
 Will lower production cost and hence improve
profitability
 Exports of medicinal plants & herbal products
facilitated
 Global imports of medicinal plants: US$ 1 bn
(2001)
 India second largest exporter after China
 Potential to increase export to Rs. 1750 crore by
2006-07 and more than Rs. 2500 crore by 2009-10.
 Global market for Herbal products: US$ 80 bn
 India’s exports of Herbal products: US$ 280 mn
(2002-03)

15
Foreign Trade Policy 2004-09
Textile sector incentives
 Duty free entitlement for garments &
handicrafts increased from 3% to 5%
 Will help exporters to move up the value
chain
 However, further incentives required to
consolidate India’s position in the post-MFA
era
 Handicraft Special Economic Zone to be
established
 Will contribute to strong growth in
handicraft exports
 Will generate employment opportunities
16
 Foreign Trade Policy 2004-09

Export Promotion Schemes

 Target Plus scheme introduced
 Will further boost exports from the successful
exporters
 Vishesh Krishi Upaj Yojana to boost horticulture
exports
 Global trade in horticulture: US$ 79 bn (1999)
 India’s exports: US$ Rs. 1830 cr (1999-2000)
 Success of AEZs for horticulture depend on
“the ability of the states to overcome existing
shortcomings in infrastructure, institutional
mechanism and policy and programme support
to achieve desired export orientation”
17
 Foreign Trade Policy 2004-09

Export Promotion Schemes

 “Services Export Promotion Council” to be set
up
 “Served from India” scheme: Service providers
who earn forex of at least Rs. 5 lakhs will be
eligible for duty credit entitlement
 Will help small scale service providers
 Will enhance India’s share in global
exports of services (1.4% in 2003)

18
Foreign Trade Policy 2004-09

Export Oriented Units

 Exemption from service tax
 EOUs permitted to retain 100% of export
earnings in EEFC accounts
 Income tax benefits to DTA units which
convert to EOUs
 All these should considerably increase
export growth from the EOUs

19
 Foreign Trade Policy 2004-09

Final Observations
 Import of second hand capital goods allowed
without age restrictions
 No outdated technology should be
imported
 “Special Focus Initiatives”
 Could be extended to other sectors of high
export orientation like chemicals &
pharmaceuticals
 Export orientation of FDI should be increased

20
 Indian Financial Sector

Reserve Bank of India (Central Bank)

Financial Commercial Banks Investment State Level Non

Institutions -Public Sectors Banks Institutions Financial -Banking
-- Exim
Exim Bank
Bank (27) -UTI Corporations/ Financial
-IDBI -Private Sector Banks -LIC Industrial Companies
-ICICI (25 Old, 9 New) Development (641)
-GIC
-IFCI -Foreign Banks Corporations
-NHB (44) (SFCs – 18)
-NABARD -Regional Rural Bank (SIDCs – 28) Co-operative
(196) Banks
(95,000)

21
 Role of Institutions

 Institutions dedicated for promoting

foreign trade have played an important
role towards enhancing the process of
internationalisation of Indian companies,
viz.
 Export-Import Bank of India,
 Export Credit Guarantee Corporation,
 Indian Institute of Foreign Trade
22
 Exim Bank
Apex Financial Institution, established in 1982 under an Act
of Parliament, to finance, facilitate and promote India’s
international trade & investment

Principal financial institution in India for coordinating working

of institutions engaged in financing exports and imports

Range of Financing Programmes

Export Credits
Finance & Investment for Export Oriented Companies

Export Advisory Services

23
 Exim Bank
 Set up by an act of parliament in
September, 1981
 Wholly owned by Government of India
 Commenced operations in march, 1982
 Established “for providing financial assistance
to exporters and importers, and for functioning
as the principal financial institution for
coordinating the working of institutions
engaged in financing export and import of goods
and services with a view to promoting the
country’s international trade…”
24
 M Exp
rt n ar o
o
p ti o k e rt
x
E uc tin
r od g
Export Product P

nt
Development

hipme
EXIM AT ALL

Pre-s
STAGES OF THE
BUSINESS CYCLE

s t- n t
Po me
Im hn
Te

ip
po olo

h
c

S
rt gy
of

Investment
Abroad

25
A Network of 14 Offices in India and
Overseas

Head Office
Delhi
+
8 Domestic Offices

Ahmedabad Kolkata

Mumbai
Hyderabad
Pune

Bangalore
Chennai

26
 A Network of 14 Offices in India and
Overseas Cont..

Budapest
Milan
Washington D.C.

Singapore

Johannesburg

27
 Exim Bank:
Financing of Export-Oriented Companies

Term Loans

Project Equipment Working Overseas Other

Finance Finance Capital Investment Finance Programmes

Short Term Loans to Indian Export

EOU Projects companies for Equity Marketing
< 1 year
Investment in their Finance
Software Training Term Loans ventures overseas
Institutes for 1-2 years Export Product
Loans to Indian Development
Long Term
Minor Ports upto 5 years companies to hold on
to their overseas Finance for
ventures R&D
Technology Parks
Direct Equity stake

28
 Institutional Linkages
Multilateral Agencies
 World Bank
 Asian Development Bank
 African Development Bank
 European Bank for Reconstruction & Development
 Multilateral Investment Guarantee Agency (MIGA)
 International Finance Corporation (IFC)
 UNIDO - Industrial Promotion Offices
 Afrexim Bank
 Eastern & Southern African Trade &
 Development Bank (PTA Bank)

29
 Institutional Linkages

Export Credit Agencies

 The Export-Import Bank of China.

 Croatian Bank for Reconstruction and Development.

 Czech Export Bank.

 Hungarian Export-Import Bank Ltd.

 Uzbekinvest – National Export-Import Insurance Company.

Exim Bank of Romania. 30

 Institutional Linkages
Trade & Investment Promotion Agencies

 Board of Investment of Sri Lanka

 Hatton National Bank, Sri Lanka

 China National Technical Import & Export Corporation

 Polish Agency for Foreign Investment (PAIZ).

 Hungarian Investment and Trade Development Agency

 UNIDO Industrial Cooperation & Investment Promotion Service, Poland

 Economic Development Board, Bahrain

 Investment & Trade Promotion Centre, Vietnam

Centero Estero Vineto, Italy 31

 Lines of Credit
 Overseas Governments

 Parastatal Organisations/ Govt. Agencies

 Commercial Banks

 Regional Financial Institutions

 Particularly relevant for SMEs

 Eligible items – all items permissible under Exim Policy

 Engineering Goods
 Consumer Durables
 Commodities

32
 LOCs Extended by Exim Bank
AFRICA ASIA EUROPE

ALGERIA BANGLADESH
GHANA BURUNDI INDONESIA KAZAKHSTAN
KENYA COMOROS IRAN , IRAQ BULGARIA
MALAWI DJIBOUTI SRI LANKA RUSSIA
MAURITIUS ERITREA, EGYPT KOREA ROMANIA
NAMIBIA ETHIOPIA MALAYSIA HUNGARY
SEYCHELLES KENYA THAILAND POLAND
SOUTH AFRICA MALAWI VIETNAM
SUDAN MAURITIUS PHILIPPINES
TANZANIA RWANDA
TUNISIA SOMALIA
UGANDA SUDAN LATIN AMERICA & CARIB.
ZAMBIA TANZANIA
UGANDA BRAZIL MEXICO COLOMBIA
ZAMBIA JAMAICA VENEZUELA
BENIN ZIMBABWE
BURKINA FASO
COTE D’IVOIRE BOLIVIA COSTA RICA
MALI COLOMBIA EL SALVADOR
NIGER KENYA ECUADOR GUATEMALA
SENEGAL TANZANIA PERU HONDURAS
TOGO UGANDA VENEZUELA NICARAGUA
33
 Exim Bank as a Consultant
Sharing Institutional Building Capabilities World wide

 Feasibility study for establishment of an export credit and

guarantee facility for Gulf Cooperation Council countries
 Regional cooperation in export finance and export credit
 guarantees for ESCAP
 Study on promotion of international competitiveness and
exports of manufactured goods for ESCAP
 Setting up the Afrexim Bank
 Designing of Export Financing Programmes - Turkey

34
 Exim Bank as a Consultant
Sharing Institutional Building Capabilities World wide
 Setting up an Exim Bank in Malaysia

 Design of Export Marketing Seminars for SMEs in Vietnam

 Export Development Project : Ukraine

 Enterprise Support Fund : Armenia

 Establishing an Export Credit Guarantee Company in

Zimbabwe

 Advisory services to Industrial Development Corporation of

South Africa for international finance products

 Mauritius – Study on Projecting Mauritius as an Investment

Hub for Indian Firms
35
 Promoting Indian Consultancy
Tie-up with
 International Finance Corporation, Washington D.C.
 Africa Project Development Facility
 Africa Enterprise Fund
 Mekong Project Development Facility
 South-East Europe Enterprise Development Facility
 Private Enterprise Partnership (CIS Countries)
 China Project Development Facility
 South Asia Enterprise Development Facility
 Eastern & Southern African Trade & Development Bank (PTA
Bank)
 African Management Services Company (AMSCO)
 Exim sponsors consultants under GoI-AfDB cooperation Agreement
36
 Advisory Services
Multilateral Agencies Funded Projects Overseas (MFPO)

Information and support services to Indian companies to help

improve their prospects for securing business in multilateral
agencies funded projects.
 Dissemination of business opportunities in funded projects
 Providing detailed information on projects of interest
 Information on Procurement Guidelines, Policies, Practices of
 Multilateral Agencies
 Assistance for Registration with Multilateral Agencies
 Advising Indian companies on preparation of Expression
of Interest, Capability Profile
 Bid Intervention
37
LINES OF CREDIT EXTENDED BY
EXIM BANK OF INDIA
Lines of Credit: A catalyst for export promotion

Direct exposure on recipient institutions which repay

on deferred terms

No recourse to exporters

Exporters get payment on shipment

Particularly relevant for small and

medium exporters

38
 Lines of Credit
Cont..
1
COMMERCIAL BANK(S) OVERSEAS BORROWER
5 9

8 4 On-lending
7 EXIM BANK
2
3
INDIAN EXPORTER(S) OVERSEAS IMPORTER(S)
6
1. Exim Bank signs agreement with Borrower 6. Exporter ships goods
2. Exporter checks procedures and Service fee with 7. Commercial bank negotiates shipping
Exim Bank and negotiates contract with Importer documents and pays exporter
3. Importer consults borrower and signs contract 8. EXIM Bank reimburses Commercial bank
with exporter on receipt of claim by debit to borrower
4. Borrower approves contract 9. Borrower repays EXIM Bank on due date
5. Exim Bank approves contract and advises
borrower and also exporter and commercial bank
39
 Basic terms of Exim Bank’s LOCs

Advance Payment: 10% of CIF value

Credit offered: 90% of CIF value

Credit Period: 5 years for capital and engineering goods

and 2 years for industrial manufactures and consumer
durables

Availability period: 12 months for opening L/c

18 months for disbursement

40
 Indian Ventures Overseas

Equity finance to Indian companies towards their equity contribution

in overseas ventures

Direct equity participation in Indian overseas joint ventures & wholly

owned subsidiaries

Guarantees for JVs/WOS

Loans to Indian promoters for on lending to their JVs/WOS

41
 Indian Ventures Overseas (contd.)
Finance for setting up new ventures or acquisition of existing
overseas companies
ACTIVITIES
- Manufacturing
- Marketing
- Warehousing and Trading
Exim Bank’s aggregate support: for 90 ventures
* Steel Production - Sri Lanka * Marketing - Netherlands
* Fine Blanking Tools - U.K. * Knitting Needles - Malaysia
* Phosphoric Acid - Jordan, Morocco * Watches - Netherlands
* Software - U.S.A., U.K. * Denim Fabrics - Mauritius
* Pharmaceuticals - U.S.A., Zimbabwe * Jute Mills - Scotland

42
Advisory Services
ADVISORY
SERVICES
- Multilateral Agencies-
Funded Projects Overseas
- Exim Bank as Consultant

KNOWLEDGE BUILDING
- Eximius Centre for Learning
- Research Studies
INFORMATION
Markets, Products, Countries

SUPPLEMENTS FINANCING PROGRAMMES

43
 Advisory Services
Exim Bank as a Consultant
Sharing Institutional Building Capabilities World wide

 Feasibility study for establishment of an export credit and guarantee

facility for Gulf Cooperation Council countries.

 Regional cooperation in export finance and export credit guarantees

for ESCAP.
 Study on promotion of international competitiveness and exports of
manufactured goods for ESCAP.
 Setting up the Afrexim Bank

44
 Advisory Services
Exim Bank as a Consultant
Cont..

Sharing Institutional Building Capabilities World wide

 Setting up an Exim Bank in Malaysia

 Design of Export Marketing Seminars for SMEs in Vietnam

 Export Development Project : Ukraine

 Enterprise Support Fund : Armenia

 Establishing an Export Credit Guarantee Company in Zimbabwe

 Advisory services to Industrial Development Corporation of South

Africa for international finance products 45
 Exim Bank : Partner in
Globalisation
Technology  Final Products
Capital (Foreign Investment) EX
PO
 Capital Goods
Raw Materials RT
Capital Goods  Capital
(Overseas
I Ventures)
M
P
O
R  Product
T Development
N
 Production
O
I TI  Marketing
D D
VALUE A  Pre shipment
 Post shipment
46