Speech: Exim Policy 2002-2007

Full text of the speech by Murasoli Maran, UnionMinister of Commerce & Industry

Let me first extend my warm welcome to all of you.

2. I am here with you today to announce the first Five YearEXIM Policy of the New Millennium. But I want to be realistic and state that ifsome commentators feel that the presentation of Five Year EXIM Policy is just aritual, they may be right because every year at the end of March, we attempt tomake about 200 amendments in the full policy-set of 5 volumes and otherDepartments too have their own contribution of changes which they deem fit.

3. Nonetheless, the fact remains that this ritual underscoresthe necessity of taking a telescopic view of the future and reformulate thegoals accordingly, after due introspection. Naturally, we have to take intoaccount the changing dynamics of international trade. Sometimes, even oneincident like September 11 of last year had catastrophic effect whichnecessitated mid-course changes and needs necessary corrections even now.

4. I had constituted a High Level Committee headed by formerCommerce Secretary Thiru P.P. Prabhu comprising eminent economists,business-leaders representing the Chambers of Commerce, the Export PromotionCouncils and experienced professionals. This Committee had made importantrecommendations regarding various schemes and procedures of differentdepartments handling exports. Those recommendations of the Committee have guidedus as the pole star in formulating this EXIM Policy. In addition, the report ofthe Medium Term Export Strategy (2002-2007) of our Ministry released in January,2002 provides a mine of Market Intelligence Information and industry-specificinitiatives. I think that both the documents may make the ‘ritual’meaningful and effective by providing the substance, parameters, direction, andstrategy for the Five Year Policy.

5. The Prime Minister has directed the Planning Commission toexamine the feasibility of doubling our per capita income in the next ten years.The Approach Paper to the Tenth Five Year Plan aims at an intermediateindicative target of 8.0% (instead of 8.7% needed). Almost all the experts areof the opinion that 8 to 9 % annual growth for the next ten years whiletechnically feasible, cannot be achieved through "a business as usual"approach. We will need to take radical steps. In line with this approach, ourMedium Term Export Strategy has a mission to capture 1% of the globalshare of trade by 2007, up from the present level of 0.67%. Translated in value,the projected growth will mean doubling the present exports of 46 billiondollars to more than 80 billion dollars over the Tenth Five Year Plan, requiringa Compound Annual Growth Rate (CAGR) of 11.9% in dollar terms.

6. To achieve this, we should wake up from the stuporof export fatalism of the earlier years, release ourselves from the feelings ofexport pessimism and apathy and employ international trade as an engine ofgrowth. Although the empirical debate on the growth effects of trade policyreforms remains unsettled, there is a strong co-movement between exports andoutput growth in a liberalised trade environment. This lends support to the needfor persisting with an open trade system. Anti-export bias - both in policiesand mind-set - needs to be corrected. Unless capacities are created inIndia specifically for the export market, it is unlikely that the export growthexpectations can be met.

7. With this Mission Statement, let me proceed with myproposals.

8. Last year’s EXIM Policy evoked a lot of interest,because we removed the QRs on imports and the ‘Quota Raj’ it symbolised. Wecreated an Inter-Ministerial Standing Group to track 300 sensitive itemsand to swing into immediate action, if necessary. I appreciate the vigilantattitude of this "War-Room". Contrary to theapprehensions expressed, I find that there has not been any surge in importsduring the year.

9. This year we propose to remove all QuantitativeRestrictions on exports – except a few sensitive items. Only a few itemshave been retained for exports through State Trading Enterprises.

10. It is estimated by some economists that every one percent switch in the terms of trade in favour of agriculture will result indiversion of about Rs.8,500 crores annually in favour of agriculture from thenon-agriculture sector. This additional rural purchasing power will create aphenomenal effective demand. Promotion of agricultural exports is important forcreating conditions for providing remunerative prices to farm products. I haveno doubt that our farmers will rise to the occasion, and that we shall be ableto make a mark in international trade in agriculture with a farm-to-portapproach as reflected in the Agri Export Zones Scheme and in the proposed Agri-ExportPolicy which are but small steps forward in the right direction. I am happyto state that the actions initiated in earlier years have begun to bear fruits.

11. Government have made major break-through in the export offood grains. As against the anticipated export of 80 lakh MTs of foodgrainsduring the year we have exported about 73 lakh MTs. India is now exportingfoodgrains to about 16 countries of the world and according to theInternational Grain Council reports, in respect of wheat export, we are at the 7^thposition amongst the wheat exporting countries.

12. The major initiatives being planned in the EXIM Policyare as follows:

1. Export restrictions like registration and packaging requirement are being removed today on Butter, Wheat & Wheat Products, Coarse Grains, Groundnut Oil and Cashew exports to Russia under Rupee Debt Repayment Scheme. Quantitative and packaging restrictions on wheat and its products, Butter, Pulses, Grain and flour of Barley, Maize, Bajra, Ragi and Jowar have already been removed on 5^th March, 2002.
2. To transform select rural regions as regional rural motors of export economy by promoting export of agro products and agro-based processed products, 20 Agri Export Zones have been sanctioned so far. (The Zones and their speciality agri-products are given in Annexure-I.) This will provide enhanced international market access to Indian farmers. On invitation and in consultation with the State Governments, we will catalyse development of necessary infra-structure, flow of credit and other facilities for promoting agro exports.
3. Transport assistance is proposed to be made available for export of fresh and processed fruits, vegetables, floriculture, poultry, dairy products and products of wheat & rice. This will also lead to diversification of agriculture activity. Further, it is also proposed to work out suitable Transport Assistance for export of accumulated stocks of rice and wheat from FCI to facilitate their liquidation.

13. The word ‘Exports’ brings to our mind sophisticatedarticles, urban centres and a privileged few at the upper crest of the society.But it is the small scale sector, which forms 50% of our exports. Therefore,with a view to strengthen them we have embarked on a programme this year called"SPECIAL FOCUS ON COTTAGE SECTOR AND HANDICRAFTS".

14. The following facilities will be made available to them:-

Initially an amount of Rs. 5 crores has been earmarked for promoting cottage sector exports coming under the KVIC.

The units in the handicrafts sector can also access funds from Market Access Initiative (MAI) scheme for normally permissible activities including development of website for virtual exhibition.

Under the EPCG scheme, these units will not be required to maintain average level of exports.

These units shall be entitled to the benefit of export house status on achieving lower average export performance of Rs.5 crores as against Rs. 15 crores for others; and

The units in handicraft sector shall be entitled to duty free imports of specified items as embellishments upto 3% of FOB value of their exports.

15. In addition, since they have a very strong propensity foreconomic activities with export possibilities, we are embarking on a programmeof identifying those places. To begin with, places like Khurja (U.P.) famous forits pottery will be undertaken for an in-depth study for their revealed andpotential special characteristics for developing an export market.

16. I have not forgotten the small scale sector also. Anumber of towns in specific geographical locations have emerged as dynamicindustrial locations and handsomely contributing to India’s exports. These‘industrial clusters’, rooted in history, symbolise the bursting force ofthe free market spirit and are essentially collective response to commonproblems of competitiveness. Some have become globally renowned manufacturingbases. It is necessary to grant recognition to these industrial cluster-townswith a view to maximize their export profiles and help in upgrading them to moveup in the higher value markets.

17. A number of such industrial cluster-towns areexporting a substantial portion of their products which, are world-class. Forexample, Tirupur is exporting 80% of its production of hosiery. A beginning isbeing made to consider industrial cluster towns such as Tirupur for hosiery,Panipat for woollen blanket, Ludhiana for woollen knitwear to be eligible forthe following benefits:-

18. Common service providers in these areas shall be entitledfor facility of EPCG scheme. The recognised associations of units will be ableto access the funds under the Market Access Initiative scheme for creatingfocused technological services. Further, such areas will receive priority forassistance for identified critical infrastructure gaps from the scheme onCentral Assistance to States. The units in these notified areas would beeligible for availing all the EXIM policy schemes as per their choice and theprovisions of these schemes shall stand relaxed to the extent provided in thispara in respect of such units.

19. Special Economic Zones, announced in 2000 after visit toChina is taking up roots and four existing EPZs have been converted into SEZs.13 New SEZs have already been given approval, list of which is at Annexure-II.

20. In a world dominated by the WTO, India cannot be leftbehind and SEZs are the symbols of Indian endeavour to remain internationallycompetitive and relevant. They are our best dream-projects and are firmly basedon success everywhere.

21. Besides the fiscal packages already announced, I am happyto state the following entitlements that will be allowed:-

22. For the first time in India, Overseas Banking Units(OBU’s) will be permitted to be set up in SEZs. These units wouldbe virtually foreign branches of Indian banks but located in India. TheseOverseas Banking Units, inter alia would be exempt from CRR, SLR and would giveaccess to SEZ units and SEZ developers to international finances atinternational rates. This, I need to mention, is a very significant decision inmaking SEZs internationally competitive.

23. You may all remember that during 2000, I have announced ascheme for participation of States in the export endeavour. This new Scheme"ASIDE" would provide funds to the States based on the twin criteriaof gross exports and the rate of growth of exports from different States. 80% ofthe total funds would be allotted to the States based on the above criteria andthe remaining 20% will be utilised by the Centre for various infrastructureactivities that cut across State boundaries etc. A sum of Rs.49.5 crores hasalready been sanctioned for this year. Further, a sum of Rs.330 crores has alsobeen approved for the year 2002-03.

24. I had also announced last year the launching of theMarket Access Initiative Scheme for undertaking marketing promotion effortsabroad on country-product focus approach basis. This Scheme is in line withmarket promotion and development schemes being implemented by many othercountries. A beginning has already been made this year with a small allocationof Rs.14.50 crores, which has been increased to Rs.42.0 crores in 2002-03. Iintend to further broaden the scope of this scheme to include activitiesconsidered necessary for focussed market promotion efforts.

25. In software, India is a global player. But in hardwareout presence in international arena is insignificant. Therefore, to give a boostto the hardware industry, we propose to modify the Electronic HardwareTechnology Park (EHTP) scheme to enable the sector to face the zero duty regimeunder ITA-1. The units shall be entitled to following facility:-

domestic market to be eligible for counting of

export obligation.

J. RE-LOCATION OF INDUSTRIES

26. To encourage re-location of industries to India, plantand machineries would be permitted to be imported without a licence, where thedepreciated value of such relocating plants exceeds Rs.50 crores.

27. In our Medium Term Export Strategy, we have given a listof 47 potential items in the top imports of major markets. A five percentageshare for these items in major markets would mean an increase in our exports bymore than 18 billion dollars. We have also identified a list of 59 itemsfiguring in the top imports of major markets and India’s exports. A 5% sharein these items in major markets would mean an addition of 36 billion dollarsexports. These 106 items are mainly Engineering/Electrical/Electronics items,Instruments, Watches etc., Footwear items, Marine & Poultry items, someTextiles and Chemical items, Jewellery items and items for repairs.

28. We will give special focus to these items through ourExport Promotion Schemes and continue to monitor their progress.

29. Our disadvantages arising from the state of theinfrastructure, power tariffs, interest rates, industrial relations, taxationstructure etc. are well known. The new policy contains several initiatives toimmunise atleast the export sector against these disadvantages. Thus whileairports, ports and roads are looked after say the ministries of Civil Aviationand Shipping and Surface Transport which are grappling with these issues, ourscheme for assistance to the states will take care of the complementaryinfrastructure. Similarly, even while the power situation continues to confrontour industries, the export industry can go for captive power generation and ourscheme announced to day will provide duty free fuel for such power ranging fromthree to seven percent of the fob value of exports. The packing credit rate hasalready been linked to PLR so that the benefits of any further softening ofinterest rates shall pass on automatically to the exporters. The Reserve Bank ofIndia is examining the question of requesting Banks to treat at least the Statusholders as prime borrowers even for term loans. Some states have taken stepstowards differential treatment for export oriented units in matters pertainingto industrial relations to enable them to adhere to rigorous delivery schedules.The simplification of Exim policy schemes being announced today will moreeffectively rebate all indirect taxes on imports. The export sector will thus besubstantially immunised against the constraints affecting domestic economy.

30. In the last few years we have taken several steps tosimplify the rules and procedures and improve the speed of transactions in theDirectorate General of Foreign Trade with the help of information technology. Asa result all the 32 offices of the DGFT have been fully computerised and theexporters can transact all business with the DGFT on-line without having tovisit these offices and in fact 75% of the licence applications are alreadybeing filed and processed on-line. All the rules and notifications are availablereal time on the DGFT website which is recording more than a million hits everyyear. I consider this as a remarkable achievement indeed and I must complimentthe DGFT and his staff. Even three years ago no one would have believed that youcould obtain a licence in India on the same day you made the application. Butthis miracle has actually happened and while saying this I am not being guidedby official reports alone. Exporters all over the country have endorsed thisperception in the Open Houses in my presence. In fact, so confident has thisorganisation become of its performance and its potential that it has applied forISO:9000 certification. This is a remarkable instance of how a wholeorganisation can transform itself from a "dyed in the wool" regulatorand controller to a service organisation and a facilitator – given the rightleadership and mandate.

31. With a view to further reducing transaction costs,various procedural simplifications have been introduced. These include:-

(b) CUSTOMS

(c) Banks

iii) The repatriation period for realisation of exportproceeds extended from 180 days to 360 days. The facility is alreadyavailable to units in SEZ and exporters exporting to Latin American countries.

N. Duty neutralisation instruments

32. I know exporters will be eagerly awaiting to know aboutthe fate of DEPB and other schemes like Advance Licences, EPCG and DFRC.

33. Let me now end the suspense and say that DEPB and allother schemes will continue along with existing dispensation of not having anyvalue caps. The changes in those schemes are as follows :-

34. Duty free imports of trimmings and embellishments upto 3%of the FOB value hitherto confined to leather garments extended to all leatherproducts.

36. Over the last few decades certain areas of strength haveemerged in the export sector. Definite export surpluses have emerged in sectorslike food grains, sugar, yarn, garments, steel, cement, aluminium &petroleum products and pharmaceuticals. Certain Small & Medium Enterprises (SMEs)and other units in DTA have been exporting more than 75% of their production.Similarly export oriented units and units in export processing zones have beencontributing significantly to exports. Certain industrial clusters have evolvedon their own without any significant official assistance, each of themcollectively producing goods and services worth more than Rs.1,000 crore peryear and exporting a substantial part thereof. Status certificates have beenissued to units on the basis of their export performance. Based on all theseparameters and the results expected from the new initiatives announced in thelast two years, I envision a critical mass emerging on the country’s exporthorizon. In the new policy I propose to nurture this mass so that thecountry’s exports can reach a stage of criticality from where onwards theywould perhaps not require even the policy support.

37. Keeping the above in mind, the status holders shall beeligible for the following new/ special facilities:

1. Licence/Certificate/Permissions and Customs clearances for both imports and exports on self-declaration basis.
2. Fixation of Input-Output norms on priority;
3. Priority Finance for medium and long term capital requirement as per conditions notified by RBI;
4. Exemption from compulsory negotiation of documents through banks. The remittance, however, would continue to be received through banking channels;
5. 100% retention of foreign exchange in EEFC account;
6. Enhancement in normal repatriation period from 180 days to 360 days.

38. As is evident from the details mentioned above, a numberof new initiatives have been launched and existing initiatives strengthened.Some may ask: where are the resources? The answer is as follows: in the currentBudget, the outlay of Deptt. of Commerce for 2002-2003 has been increased by 55%to Rs.775 Crore. Further, as already mentioned there has been a quantum jump inthe funds allocated for both the MAI and the ASIDE schemes. It is expected thatthese budgetary enhancements will allow us to provide the financial back-up tothe various initiatives mentioned herein.

39. In sum, I would say that the EXIM Policy announced todayis comprehensive in scope encompassing Agri-Sector, Cottage and Handicrafts andSmall Scale sectors, thus taking care of more than 80% of the population livingin the rural areas and will also benefit a wide range of people and give anadditional fillip to exports. Most importantly, I have tried to forge a lastingpartnership amongst the Union Government, the State Governments, exporters andpeople at large. I also wish to say that we have further simplified the processof exporting to such an extent that even the small artisans feel motivated toexport.

40. Needless to say, our SEZs now will be second to none, inthis part of the world regarding incentives offered. They will act as magnetand glue – magnet to attract FDI and glue to identify andbind strategies that will benefit a large number of people and organizations,thereby creating a bright future for India. Altogether our efforts will, wehope, expand our competitiveness, broaden horizons and hold up a comparativemirror against world standards.

Thank you.

 ANNEXURE-I