Minister's speech delivered on 31.3.2000

Let me first extend my warm welcome to all of you.
The annual Exim Policy this year is somewhat special because it is the first policy of the new
millennium and the first policy of the new government whose mission is to achieve a
tremendous breakthrough in economic development in this decade, when the world is waking
up to India's crucial role as the largest democracy and as a dynamic economy, while the new
technologies (especially information technology and biotechnology) are opening up new
opportunities. Our trade policy reforms are aimed at creating an environment for achieving rapid
increase in exports, raise India's share in world exports and make exports an engine for
achieving higher economic growth. If there has been one clear cut lesson of recent development
experience, it is that rapid overall economic growth and increase in employment depend on
rapid export growth and it is not surprising, therefore, that all fast-growing economies in the
developing world are also export success stories because they recognise the importance of
openness and they have either changed or are changing their trade policies accordingly. Our
strategy is - and needs to be - focussing on export-led growth which should be regarded as an
integral and important part of our development effort and our central policy is the optimal
exploitation of our country's comparative advantage vis-a vis the rest of the world.

2. The growth rate of 11.3% achieved during April-January this year though looks good when
compared with the last two years’ not-so-satisfactory export performance should not lull us into
complacency. Even this growth is partly due to good growth in world trade and revival of South
East Asian economies to which countries our export has shown an impressive increase this year
– 87% increase to Indonesia, 47% to Malaysia and 39% to Singapore, etc. Many countries have
done better than us. China, achieved 41% growth in the first two months of 2000. Thailand’s
exports grew by 23%. Most Asian countries have been clocking 20% plus growth during the
latter part of 1999. Hence, in spite of this year’s double digit growth, I don’t think our world
share will improve beyond 0.65%, quite insignificant for a country of our size and capabilities.

3. It is clear that if we have to achieve sustained high growth of, say over 20-25% every year, we
have to considerably diversify our export basket and the direction, for which we need to radically
rethink our policies and bring about a paradigm shift in our export policy and procedures and
also in the related fields. As is well known, there are many sectors in which we can make a mark
given our skills and entrepreneurial abilities. The world trade is growing in sectors like office
machinery and automatic data processing equipment, electrical machinery, auto parts, transport
equipment and the entire electronic sector from simple telephone sets and fax machines to high
tech items. In all these items, our share of world trade is 0.1% or less. The details are given in
the recently circulated discussion paper of the Department of Commerce on the need for a
radical strategy for merchandise exports from the year 2000 onwards. There is also great scope
for export of iron and steel, manufactures of metals, leather and manufactures, pharmaceuticals,
dyeing, tanning and colouring materials, toys and in plastic sector, in all of which we can
definitely do well. Even half-a-percent of world share of export in these sectors - which cannot be
considered an ambitious target - should help us to generate additional export of a few billion
dollars. In fact, I was just going through recently, the data on US general imports from our
neighbouring countries such as Malaysia, Philippines, Thailand, Indonesia, etc, and I see that
exports of items like toys, clothing, gift items, textiles, radio receivers, ordinary telecom
equipment, etc, from these countries run into billions of dollars whereas our share has been
quite insignificant.

4. A number of policy changes will have to be initiated if we have to exploit the vast opportunities
in the global market. We have to also unshakle the irksome procedures and do away with
needless restrictions. Mere tinkering with procedures, etc. will serve little purpose. I am
convinced that de novo thinking is necessary. For example, if we have to give a boost to
investment, especially FDI in electronics sector, we have to completely alter our customs
procedures, licensing system, duty structure, etc. Can we think of, say, a zero import duty
regime for all electronics inputs, remove all customs procedures and checks and withdraw all
regulations concerning the sector? Will such a policy help to attract investment in hardware
electronics which is world’s largest trading sector? If I am not taken to be sarcastic, I would say
that the recent phenomenon of the growth of software exports has been due to, apart from
Indian’s talent and knowledge in high-tech, "hands off" policy of the Government towards the
sector. Some critics say that it is because we did not get to know much about this sector so as to
device regulations which would have stifled the growth; but the issue is why not a similar
approach to hardware electronics? I am therefore setting up a small Group (not a committee
in the conventional sense) to quickly look into the various policy and procedural changes
that are required to be introduced in the various departments of Government so as to enable
us to achieve this objective.

5. The rapid growth of exports achieved by China and South East Asian countries has
demonstrated that given the right policies and freedom from interference, our entrepreneurs will
also ensure that we achieve sustained quantum growth in exports. My recent visit to the various
provinces of the People’s Republic of China has been an eye opener to me. The enormous
interest evinced by the various functionaries like Mayors of cities and of the provinces in matters
like GDP, foreign investment and export contribution of their cities, etc. is an exciting example
that we can emulate.

6. I am proposing a major step of establishing, as in China, Special Economic Zones in different
parts of the country. The idea basically is that in these areas export production can take place
free from the plethora of rules, and regulations governing import and export. The units
operating in these zones will have full flexibility of operations. They would be able to import
capital goods and raw materials duty free and would also be able to access the same from the
Domestic Tariff Area without payment of Terminal Excise Duty. No permission would be
necessary for inter unit sales or transfer of goods. There would be no wastage norms or
input-output norms. They would be able to undertake job work for the DTA units and would also
be able to get their goods processed in the DTA. The only condition would be that the units in
the Zone would have to export the entire production and that DTA sales would be permitted only
on payment of full applicable customs duties and additional duties without any concession. The
movement of goods from and to ports to and from Special Economic Zones will be unrestricted
and without any hindrance. Any State Government or corporate entity or individual can furnish
proposals for setting up such zones. The Government of Gujarat has given a proposal for a Zone
of 880 hectares at POSITRA and the Government of Tamilnadu has proposed a Zone of 1012
hectares at NANGUNERY for treating them as EPZs. Taking the size into consideration, I propose
to consider them as our country's two first Special Economic Zones which may come into
operation very soon. I want to create a healthy competition among all our States and Union
Territories and hope that they would offer still larger areas to be declared as Special Economic
Zones. I will be writing to the Chief Ministers to give special facilities to the units located in such
zones. We expect that the minimum size of the Special Economic Zone shall be 400-500
hectares or more. In the meanwhile, it is also proposed to convert the existing Export Processing
Zones into Special Economic Zones though the area of such Zones are limited due to historical
reasons. Immediately, SEEPZ, Kandla EPZ, Vizag EPZ and Cochin EPZ are proposed to be
converted into Special Economic Zones.

7. I am also convinced that we must fully involve the State Governments as in China in the
export efforts. As far back as 1962, the Report of the Import and Export Policy Committee has
pointed out that there was lack of export consciousness and it was not confined to businessmen
and that even the State Governments do not always seem to be alive to the primacy of export
promotion; and some of their policies, particularly in the fiscal field, have hindered the even
flow of exports' - Even today, it is true; we have to create an export consciousness among the
States to tap their full export potential. Foreign trade being a subject on the Union List, no
organised institutionalised arrangements currently exist for incorporating the States into the
export effort of the country. Even though the exports benefit the States from where they
originate, especially by way of employment generation, for the State Govts it is a drain on their
revenues because exports are by law exempt from all local levies. Perhaps this is the reason why
the States of Tamil Nadu and Kerala have not been in a position to promote exports to the extent
Sri Lanka has, despite having almost equal if not more potential for exports. This is also true of
West Bengal when we compare its exports with those of Bangladesh which is presently giving
our garment exporters a run for their money. There is no reason that the highly developed State
of Punjab and the industrialised State of Gujarat should not be able to match Pakistan in
exports. It is evident, therefore, that a way has to be found for motivating and involving State
Governments in this effort for realising the full export potential of the country.

8. When I mentioned this to my colleagues Thiru K.C. Pant, Deputy Chairman, Planning
Commission and Thiru Yashwant Sinha, Finance Minister, they readily agreed with me and
offered resources to the tune of Rs. 250 crores for this purpose at the time of supplementary
budget this year and also to improve upon the quantum of resources for this scheme in the
coming years. The details of the scheme will be announced shortly. Under the scheme the
States will be empowered with necessary resources and requisite flexibility and initiative in
decision making, to make valuable contribution to the export effort by way of creation of
necessary export infrastructure. I hope that the State Governments will take the initiative to
create the right atmosphere for export oriented units to be set up in their States and also involve
themselves actively in export promotion as these efforts will help create gainful additional
employment. I am also proposing to write to State Governments requesting them to issue
notification under the Industrial Disputes Act to declare units exporting more than 50% of their
turnover as public utility services to enable them to keep their international commitment
regarding delivery schedules.

9. I now come to some of the specific features of the Exim Policy, a note on which is being
circulated separately. I will only touch upon some of the major changes which have been
effected this year.

a) Removal of Quantitative Restrictions: We have proposed to withdraw Quantitative Restrictions
in respect of 714 items with effect from 1.4.2000. The list of such items has been put on the
Ministry’s web-site. In this connection, I would like to point out that Quantitative Restrictions
were being maintained ever since 1947 on balance of payments grounds under the GATT to
which we were a signatory. We participated in the Uruguay Round negotiations and became a
founder-member of WTO and subscribed to all the Agreements but we continued to maintain
QRs on the same balance of payments grounds. However, with the improvement in the balance
of payments position, certain members of the WTO had disputed our need or justification to
continue Quantitative Restrictions for BOP reasons. India could negotiate with most of the
trading partners, with the exception of USA, to arrive at a mutually agreeable solution for
phasing out these Quantitative Restrictions. USA filed a dispute and the Dispute Settlement
Panel constituted in November 1997 ruled against India. India filed an appeal before the
Appellate Body of WTO against the findings of the Panel but the Appellate Body also upheld the
findings of the Panel challenged by India. Consequently, we are now obliged to withdraw
Quantitative Restrictions. An agreement was signed between India and USA for determining the
reasonable period of time, under which the Quantitative Restrictions on the remaining 1429
tariff lines were to be removed by 1.4.2001, of which 714 before 1.4.2000.



The tariff line-wise import policy was first announced on 31.3.1996 and at that time itself 6161
tariff lines were made free. Since then 1905 tariff lines have been made free till now. In this
connection, I would like to point out that the QRs in respect of these 1429 tariff lines were
withdrawn preferentially for imports from SAARC countries w.e.f. 1st August, 1998 itself. It is to
be noted that tariff protection will continue to be available. Further in the event of unfair trade
practices like dumping or subsidisation of exports by other countries causing injury to the
Indian industry, adequate protection under anti-dumping or anti-subsidy mechanisms or if
there is a sudden surge in imports causing serious injury to the industry, protection under
safeguard provisions will always be available. The industry can always approach either the
Anti-dumping Directorate or the Safeguard Directorate for appropriate relief.

b) I also realise that in the context of the withdrawal of QRs, we have to be more alert and an
institutional mechanism will have to be evolved to study, analyse and recommend appropriate
tariff structure to maintain balance between the interests of producers and users/consumers.
The suggestion given is that may be the Tariff Commission could be strengthened to play the
role of an independent expert body to advise on these matters. While we have been able to
strengthen the Anti-dumping Directorate to make it effective, perhaps adequate attention has
not been paid to the strengthening of the Tariff Commission to make it a useful and purposeful
organisation. I am looking into this aspect also. I am confident that scrapping of QRs will not
hurt Indian industry and the doubts and apprehensions now exhibited in some quarters are
exaggerated and not well founded. On the other hand, I would request the industry to consider
this as an opportunity and initiate steps to increase their competitiveness.

c) Rationalisation of Schemes:

I. As part of simplification and rationalisation, the following schemes are being abolished:

i.PREEXPORT DEPB SCHEME:

ii.SPECIAL ADVANCE LICENCES FOR ELECTRONIC SECTOR CONTAINED IN APPENDIX
53 OF THE HAND BOOK OF PROCEDURES (VOL. II)

-These schemes are being abolished as unnecessary because very few exporters are
using the same.

iii.TRANSFERABLE ADVANCE LICENCES UNDER PARA 7.3 is also being abolished and
replaced by a more efficient and simpler scheme.

iv.SIL: It has to be abolished because there will be no SIL list after 31.3.2001. No SIL will be
admissible in respect of exports / supplies made on or after 1.4.2000. In respect of exports
/ supplies effected upto 31.3.2000, SILs with a validity period upto 31.3.2001 will be issued
immediately on request without waiting for the realisation of export proceeds.

II. Inputs/Raw materials for exports: For neutralising duties on inputs for the export products
the following schemes will be available henceforth:

i.Actual user non-transferable advance licence for physical exports, deemed exports and for
intermediate supplies. This advance licence except the one for deemed exports will be
exempt from payment of all kinds of duties like basic customs duty, countervailing duty,
special additional duty, anti-dumping duty and safeguard duty. The advance licence, if
taken for deemed exports shall be exempt only from basic customs duty.

ii. For those who do not wish to go through the advance licensing route, post export
duty free replenishment certificate will be available. Under this scheme after the
completion of exports the exporters will be able to obtain transferable duty free
replenishment certificates for importing inputs used in the export products as per
standard input-output norms. This scheme will be available for all the 5000 plus
products listed in the Handbook of Procedures (vol. II) with a uniform value addition of
33%.

III. Every year there is speculation – and I hope no betting – as to whether 80 HHC and DEPB
will continue or not. The Finance Minister has ended the speculation regarding 80 HHC. I wish
to do the same for DEPB. The post export DEPB will continue until 31.3.2002. In other words by
2002, DEPB scheme will be subsumed into one Drawback Scheme. Meanwhile, to cheer up the
exporting community, we are removing the threshold limit of Rs.20 crores for fixing new DEPB
rates and therefore making DEPB more accessible. However, for all the products where the
DEPB rate is 15% or more, value caps are being fixed and will be prescribed. But the value caps
will not apply to products being exported under brand names approved by an inter-ministerial
committee in the office of the DGFT. Wherever such value caps exist there will be no system of
verifying present market value.

IV. I am aware that it has not been possible to achieve full simplification of duty neutralisation
mechanisms and procedures and that we are still continuing most of the old schemes. The
multiplicity of schemes, I find, is unavoidable because of the structure of customs duties. If there
were to be a single VAT, there could be real simplification of procedure as
reimbursement/rebate of duties will be simple. Till such a single VAT scheme is introduced, we
are forced to continue the system of Advance Licence for actual users who need to import
specific items and/or where the incidence of customs and additional customs duty is very high.
All other exporters will have to be reimbursed the actual taxes and duties on the inputs. For this
purpose, we have two schemes at present viz. Duty Drawback and DEPB. As DEPB will be
phased out by 2002, we have been examining how to streamline the system to introduce a
common Drawback Scheme which ensures refund of all taxes and duties on inputs at the
time of shipment itself. Well before the abolition of DEPB scheme, the Finance Ministry will
be strengthening the Drawback system to extend the facility to as many items as possible
plus also introduce a quick and efficient system of awarding brand drawback rate. Also a
provision for appeal to an inter-departmental committee against drawback determination is
being contemplated.

V. Capital Goods: The Export promotion Capital Goods Scheme has been extended uniformly to
all sectors and to all capital goods, without any threshold limits on payment of 5% customs duty.
The 10% countervailing duty on imports under EPCG has been withdrawn. This will also benefit
domestic suppliers to EPCG holders because they will be able to get raw materials for
manufacture of these goods without payment of duty. The changes in the EPCG Scheme will
particularly benefit the small Scale units because earlier they could import Capital goods under
this Scheme only on payment of 10% duty.

d) Rationalisation of procedures:

i) Duty exemption licence facility on the basis of self-declaration has been extended to deemed
exports and intermediate supplies. Thus all types of licences for import of capital goods and raw
materials and inputs where there are no standard norms can now be obtained on the basis of
self-declaration.

ii) Registration-cum-Membership Certificate shall now be required to be filed only once in 4
years instead of filing it with each application.

iii) Trading House Certificates can now be obtained from the regional offices of the DGFT,
instead of applying to the headquarters office in Delhi.

iv) Second hand capital goods, which are less than 10 years old, can now be imported directly on
surrender of SIL without obtaining an import licence.

e) Deemed export benefits: have been made uniform for all sectors. Definition of capital goods
has been expanded to include all items / components / spares / accessories / tools etc. which
go into the making of capital goods. These benefits have been extended for supplies to all UN
organisations as also for the modernisation and renovation of power plants.

f) Agro-chemicals, Biotechnology and Pharmaceuticals: We are recommending that these
knowledge-intensive sectors be allowed to import laboratory equipment, chemicals and reagents
upto 1% of the FOB value of exports duty free for research and development. For products
conforming to the standard pharmacopoeia as per the declaration on the label, the reqirement of
NOC from the Drug Controller has been dispensed with.

g) Silk: Input -output norms have been rationalised to promote the export of silk and silk
products. Pre-export inspection of silk products by the Central Silk Board has been
discontinued. The import of silk has been allowed under SIL.

h) Leather, handicrafts and garments: Duty free import of trimmings, embellishments and
other items has been increased from 2% to 3% of FOB value of exports. Requirement of
endorsement from Export Promotion Councils for export of non-quota textile items to quota
countries and textile items to non-quota countries has been dispensed with.

i) Granites & minerals: Export Oriented Units engaged in export of granite, marble and other
mineral products have been allowed to move the capital goods outside their manufacturing
premises for the purpose of excavation.

j) EOU/EPZ units having an investment of Rs.5 crore and above in plant and machinery will be
required to maintain only positive value addition. All EOU/EPZ units have been allowed to carry
out job works for DTA units in all sectors. Earlier this facility was available only for agriculture,
marine and garment sectors.

k) Projects: Project exporters / construction companies / service providers with a domestic
turnover of more than Rs.100 crores can apply for International Service House Status on signing
an MOU with the DGFT undertaking to achieve export performance of Rs.15 crores per year over
the next three years. This is being done to enable such companies with a proven track record to
participate effectively in overseas construction projects.

l) SIL: All items on the SIL list shall be freely importable on surrender of SILs equivalent to 5
times the cif value of the imported goods.

m) Gem and Jewellery: In order to develop India as a major trading centre for diamonds the
following steps have been taken:

i.A Diamond Dollar Account Scheme has been introduced, wherein export proceeds will
be retained in Dollar Account and such DDA holder will be allowed to utilise funds in
this account for import of rough diamonds and for purchase of rough diamonds/cut
and polished diamonds from another Diamond Dollar Account holder. This will go a
long way in developing India as a major trading centre for diamonds.

ii.EPZ/SEZ units have been allowed to import studded jewellery for repairs, re-make
and re-export.

iii.Personal carriage of import parcels for Gems & Jewellery has been allowed.

iv.Replenishment licence, for duty free import of consumables required for Gems and
Jewellery items, has been introduced.

v.Replenishment licence for import of Jewellery samples, upto 2.5% of exports of
preceding year, has been introduced.

vi.Status holders have been allowed to import Gold directly from foreign buyers to make
jewellery and re-export. They have also been allowed to import semifinished jewellery
directly for re-export.

vii.Exporters have been extended the facility of exporting jewellery by Speed Post.

viii.Value addition norms for export of plain jewellery have been rationalised further to
permit export of plain jewellery with imitation stones/cubic zirconia etc. with the
same value addition.



m) Lastly, as a gesture of bonhomie to my colleague in the Ministry, Thiru Omar Abdullah, I
have decided to give double weightage to exports from Jammu and Kashmir for the purpose of
determining the entitlement for status certificates. This facility is already available for exports
from the North-East. The Government attaches great importance to the development of border
areas. For this purpose it has been decided that apart from the barter trade at the land customs
checkpost at Moreh on the Indo-Burmese border, the normal imports and exports on payment of
applicable duties will also be permitted.

10. I am of the view that Custom clearance should be based on self-declaration and even random
checking of such consignments should be rare and only when there is credible information of
possible malpractice; and further such right should be exercised only by officers of certain rank.
Meanwhile, I am happy to announce that Green Channel facility is being extended to all
manufacturer exporters who are Green Card holders. I am sure that this facility will help speedy
turnaround of all import and export cargo of Green Card holders.

11. After I joined this Ministry, I have been receiving large number of representations seeking
resolution of past issues. I see that most of the issues are pending for quite sometime and I find
that no solution could be found so far. Finance Minister and myself have discussed the issues
and have decided to examine the various alternative solutions so that once for all these old cases
could be disposed of one way or the other. We hope to issue final orders in all these cases in 3
months’ time.

12. Let me also explain the steps we are taking in my Ministry in particular and the Government
in general in the matter of internal automation and computerisation so as to improve efficiency
and ensure transparency in exporters’ interface with the government regulatory agencies.
Though there has been some delay in the internal automation of various regulatory agencies, in
perfecting the software and in establishing connectivity between the organisations, I am happy
to declare that the Directorate General of Foreign Trade has been able to achieve commendable
success in its efforts towards computerisation. I must compliment the officers and staff for their
dedication in this direction. Already electronic filing of applications has been introduced in six
major offices. I have directed that licences for the applications filed electronically shall, in the
normal course, be delivered within 24 hours. I am even contemplating to reduce the application
fee for electronically filed applications so as to encourage the exporters to do so. For all status
and Green Card holders, the electronic filing of applications shall become mandatory w.e.f
1.7.2000. This facility will be available for others also and they will be given the same efficient
and quick service if they also follow electronic filing. I hope that during the course of this year
electronic filing of applications would become the norm. The benefits to the exporters are
well-known especially the transparency it will bring, the speed of disposal and the efficiency it
will bring about in offices which should be of great benefit to all. The customs, ports, airports,
banks, and CONCOR are also making all out efforts to computerise their operations and I hope
that EDI will become operational in a few months time. Cabinet Secretary is personally
monitoring the implementation. I have been assured that in the next few months and positively
before the end of the year EDI will be fully operational. Then it will be possible for the Drawback
to be credited to exporter’s Bank Account instantly, the logging of DEEC can be done
electronically and it should be possible to issue export replenishment licence, etc. automatically.
I am sure everyone will agree that at the dawn of the 21st century, we cannot continue with
the communication modes of the 19th and 20th centuries.

13. Last year all the facilities available to merchandise export were also extended to the entire
service sector. As services exports are going to be important part of our export basket, special
attention is being given to export of services. Hence, all service providers whether tourism,
health services, or accountancy can avail all the applicable benefits under the Exim Policy like
the information technology sector. In this connection, information technology and other service
sectors have been representing that customs bonding should be done away with. I am happy to
inform that the necessary amendments are proposed to be issued shortly for the information
technology sector.

14. I am also conscious that to make businessmen turn to exports we have to make export effort
hassle free besides being profitable. I recall what Thiru A. Ramaswamy Mudaliar who chaired the
Export Promotion Committee in 1961 said in his report "Mercantile community cannot be
expected to be guided by altruistic or patriotic motives and will expect to receive for its
efforts in the export market, a return which stands in reasonable relation with the profits on
domestic sale." - These words are true even today.

15. India, by not following vigorous policies, is undoubtedly ceding billions of dollars of FDI to its
East Asian neighbours each year - flows that otherwise would have come to India. I learn that
our cumbersome procedures, delays, changing incentives packages, anti-FDI bias in some
quarters, etc are the explanations why foreign direct investment is not forthcoming into India for
export purposes. The alternate locations are more attractive. I hope that with the Special
Economic Zones, the procedural constraints and delays will be taken care of and FDI for exports
will also be attractive.

16. The Government machinery is being reoriented to the new task of encouraging, assisting
and facilitating exports. The mind-set will have to be transformed from one of authority and
powers to functions and responsibility. The DGFT organisation will be reoriented in the coming
years to cease to be a licensing office and regulator and function as a facilitator. Government is
committed to bringing about the necessary changes in all regulatory agencies to make India an
important player in world trade. We as a nation have the most enterprising business community;
we have the technical skills and rich history of trading. We have to only free the business from
needless restrictions and enthuse them to channelise their energies towards exports.

17.The Exim Policy is only a small but important beginning of the overall Government strategy
to bring about a special focus on export for creation of employment and to achieve high
economic growth. India is a unique place - there is a modern India which exports
knowledge-intensive products; there is also the traditional India which continues to export
some of the finest handicrafts. We can thus maximise our comparative advantage over the
entire spectrum of goods and services. What is needed is change in our thinking and
mind-set and action to pave way for a quantum jump. India's moment has come; Let us not
blow it now.

l) Public Utility Services All manufacturing units exporting more than 50% of their turnover are
being declared as public utility services under the Industrial Disputes Act.

i.Exporters have been extended the facility of exporting jewellery by speed post.