Speech
of Shri Arun Jaitley, Union Minister of Law & Justice and
Commerce and Industry on the occasion of announcement of Export
and Import Policy 2003-2004 on 31st March, 2003 at
Vigyan Bhawan, New Delhi
Exactly
a year back, my distinguished predecessor, Thiru Murasoli Maran,
had announced the Export and Import Policy for the five year period
2002-07 coinciding with the 10th Five year Plan. This
Policy recognized that international trade is a vital part of
development strategy and that it can be an effective instrument
of economic growth, employment generation and poverty alleviation.
In line with the Medium Term Strategy for Exports, the policy
adopted the goal for India to reach 1% share of global merchandise
trade by the year 2007, up from the level of 0.67%. For this,
Indian exports have to grow at 12% per year and to double in dollar
terms from roughly 40 billion U.S. Dollars per annum to 80 billion
U.S. Dollars.
NEED
FOR ANNUAL POLICY
2. A
frequently asked question is the need for an Annual Exim Policy
when a five year Policy has been announced and is in place. The
basic objective of a Five Year Policy is two fold. It reflects
the priorities for development of the economy as set out in the
Five Year Plan. It also provides a stable policy environment to
the exporters. This is essential for our objective of making India
a significant player in the world market. However, today international
trade is not only highly competitive but also dynamic. Market
conditions change almost daily requiring quick response and more
importantly, anticipation. Five year is too long a period of a
Policy to continue without refinements. Therefore, it is imperative
that we frame annual Exim Policies after assessment of the export
performance and changes in the international market in the previous
year and based on our anticipation of market movements in the
short term.
REVIEW
OF EXPORT PERFORMANCE
3. Let
me first take stock of what has been achieved in the year since
Five Year Policy was announced. It is gratifying that provisional
figures of exports for the period April, 2002 to February, 2003
indicate that exports have grown by as much as 16.76% in dollar
terms (and 18.8% in rupee terms) over the same period in the preceding
financial year. Growth of exports from EOU, SEZ and erstwhile
EPZ sector has been over 20% during this period. This growth has
been contributed mainly by Textiles, Gems and Jewellery, Engineering
products particularly Auto and Auto Ancillaries, Drugs and Pharmaceuticals,
Chemicals and Agro Products. What is noteworthy is the significant
contribution by high value-added manufacturing sectors. Moreover,
sizeable growth is visible in our exports to major markets such
as the United States, the European Union and South East Asia.
This has been achieved in the face of global recession, particularly
in the US market, following 9/11. It not only shows resilience
of the Indian exporters but also underscores their growing confidence
and competitiveness of Indian products. Lest we become complacent,
let me caution that this growth has been achieved against the
back-drop of near stagnation of exports in the earlier year. Hence,
we have to pursue relentlessly our objective of improving our
share of world trade.
4. In
specific terms, exports during April, 2002 to February, 2003 amounted
to Rs. 2,23,249 crores as compared to Rs. 1,87,876 crores during
the same period in the previous year. Textiles contributed Rs.
45,509 crores as compared to Rs. 41,809 crores during the previous
year representing a growth rate of 8.85% accounting for a share
of 21.31% in the total exports. Gems and Jewellery contributed
Rs.38,032 crores as compared to Rs. 30,453 crores in the previous
year representing a growth rate of nearly 24.89% accounting for
a share of 16.97%. Chemicals and related products contributed
Rs. 32,805 crores as compared to Rs.27,518 crores with a growth
rate of 19.21% and a share of 14.64%. Engineering goods contributed
Rs. 31,152 crores as compared to Rs. 24,650 crores with a growth
rate of 26.30% and a share of 13.90%. What is a matter of a particular
satisfaction is that the export of agriculture and allied products
contributed Rs. 18,907 crores as compared to Rs. 17,320 crores
in the previous year with a growth rate of 9.16% and a share of
8.44%.
5. That
brings me to the objective of achieving 1% of the world merchandise
trade by 2007. If the present trend continues, we may not only
reach the target but also surpass it. It is almost certain that
the merchandise exports will cross the US Dollar 50 billion (approximately
Rs. 2,42,300 crores) milestone this year. But for the uncertain
conditions in the Middle East, we might even have reviewed our
target. Suffice it to say, we shall strive to sustain the present
rate of growth and to accelerate it through the initiatives and
strategy in the Exim Policy 2003-04. Exports can act as the motive
power of growth for a rapidly developing Indian economy and in
making India a significant player in he world market. For this,
exports have to be recognized as a national priority by the all
agencies of Government of India and State Governments and the
private sector. What is needed is a partnership between the Government
machinery at all levels and all the stake holders in the process
of exports. The media too has a significant role to play in bringing
about a consensus on critical issues related to reforms, and promotion
of investment including foreign direct investment, particularly
in the manufacturing sector, without which high rate of export
growth can not be sustained.
THE
NEW POLICY
6. I
shall now explain our approach in the new Policy. If I have to
summarize this in one sentence, it is identification of engines
of growth and provision of extra power to them and building on
areas of our core competence. Therefore, the Policy aims to provide
an impetus to one important engine which has not been covered
earlier. This is services exports. The other engine that will
receive continued attention is Special Economic Zones. An equally
important sector namely agriculture and allied products which
I believe to be an area of core competence will come in for some
special treatment. This I hope, will enthuse our farming community
who constitute the bulk of the country’s population. I also propose
to encourage further those exporters who have been pillars of
strength to us and urge them to attain greater heights. Last but
not least, we shall simplify procedures sharply to further reduce
transaction costs.
EXPORT
OF SERVICES
7. India
has already emerged as a leading player in software exports. Apart
from software, a host of services now provide unprecedented opportunities
in global trade. With abundant skilled manpower, India is uniquely
placed to take full advantage of the growing opportunities of
services exports. This is an area which can be an engine for growth
referred to by me earlier. We are, therefore, taking a bold initiative
in not only recognizing the importance of service exports but
also introducing a scheme for the promotion of exports of services.
Already a strong message for the promotion and development of
this sector has been given by my esteemed colleague Shri Jaswant
Singhji while presenting the Budget for 2003 –04. I intend to
follow up with some specific steps for boosting services exports.
8. As
regards services exports, we have to recognize the fact that with
the possible exception of the software sector, we have not even
made a beginning. Keeping this in mind and in order to both facilitate
and promote export of services from other sectors, we propose
to allow import of consumables, office and professional equipments,
spares and furnitures up to 10% of the average foreign exchange
export earning in the previous three years. Since many of the
sectors have not even made a beginning in the direction of exports,
we propose to extend the facility even to new comers against Bank
Guarantee to the extent of the revenue sacrificed. This will be
subject to actual user condition. We expect that this would particularly
help the Health Sector for which the Finance Minister has already
given a strong signal for India to emerge as a major destination
for health services.
9. In
the services sector, only Tourism has received some attention
over the years although we are no where near realizing the full
potential the country offers. In this year’s Budget a strong signal
has been given for the development of this sector. This sector
already enjoys the benefit of the EPCG Scheme. However, we have
been receiving persistent representations from this industry to
extend to it the benefits of advance licence scheme. We have,
therefore, decided to allow recognized hotels of the category
of three star and above and other registered service providers
in this sector duty free import of consumables and spares upto
5% of their average foreign exchange earnings of the previous
three years. This will be subject to actual user condition. The
facility will not be available to certain sensitive items in a
negative list to be notified for this purpose.
ENTERTAINMENT
INDUSTRY
10. We
have immense potential for exports in certain services sectors
such as Entertainment and Education. Each sector has its own specific
problems such as lack of investment, inadequacy of laws relating
to piracy. Nonetheless, we have to leverage India’s obvious advantages
in these sectors. We propose to set up sector-specific Working
Groups with representatives of Ministry of Finance, the Administrative
Ministries concerned, the State Governments, Financial Institutions
and the Industry to work towards a common goal by framing Action
Plans to achieve the potential to be implemented within a specified
time schedule. For entertainment services, which is singularly
handicapped by lack of investment, but has tremendous opportunities
for exports, it is proposed to promote through suitable tax incentives
contributions to venture capital funds which will provide finance
to this sector. We are in dialogue with Ministry of Finance how
best this can be done.
11. "Services"
as defined in the Exim Policy in Para 9.46 include all the tradable
services covered under the General Agreement on Trade in Services
and earning free foreign exchange. Similarly, " Service providers"
have been defined in Para 9.47. List of services has also been
included in Appendix 36 of the Handbook which is based on the
General Agreement on Trade in Services. Having said this, I must
admit that we have not yet put in place a system for collecting
reliable statistics for export of services. This will engage our
attention on a priority basis. Since there is no uniform standard
in the world for this purpose, we have decided to set up a Group
consisting of representatives of Department of Commerce, Central
Statistical Organization, RBI, DGFT and Director General of Commercial
Intelligence and Statistics, Kolkata, to consider all aspects
of this issue and recommend to the Government a system for collection
and maintenance of data relating to export of services. Till such
a system is finalized and put in operation, we propose to base
the implementation of the Scheme of promotion of services exports
on free foreign exchange earned by any of the service providers
listed in the Handbook.
AGRI
EXPORTS
12. Let
me now turn to Agri and Allied Products Exports. I am convinced
that unless we can ensure that the rural sector and Indian farmers
receive visible benefits from economic reforms and the process
of globalization, it may not be possible to accelerate economic
growth. You would recollect that we had introduced the Scheme
of Agro Export Processing Zones (AEZ) in the 2002-2007 Policy
for end to end development of export of specific products from
a geographically contiguous area. We are gratified that there
has been an enthusiastic response to the scheme from the States
and the rural community. As many as 45 AEZs have been notified
so far in different parts of the country. We want to further accelerate
this process. Agriculture and allied products is our core competence.
Not only is it diversified with a large variety of crops, fruits,
vegetables and flourishing dairy sector, but we are among the
world leaders in output of many products.
13. As
all of you are aware, one of the limiting factors in the increase
in agricultural productivity and quality and for protecting it
from the vagaries of monsoon is the lack of or inadequate investment
in this sector for bringing to the farmer the latest technology
and knowledge and for setting up critical infrastructure in the
form of water harvesting and soil management, better quality of
seeds and optimal use of inputs, adoption of scientific pre and
post harvest treatment and storage and establishment of linkage
with international marketing. In spite of the enthusiasm shown
by many of the State Governments, availability of investible resources
in creation of such critical infrastructure even in the AEZs has
been a constraint. In view of this, we propose to also facilitate
and promote association of corporates with proven credentials
in the implementation of AEZs in order to give a boost to productivity
and quality of specified agro products leading to accelerated
exports. For this purpose, we are having consultations with Ministry
of Finance who are receptive to the idea, to provide appropriate
incentives to enable investments by these corporates to infrastructure,
agricultural extension, processing, packing, storage, R&D
and other facilities relating to exports in the approved AEZs.
14. Another
major initiative to boost agri and allied products exports will
be the modification of norms for fixing DEPB rates for export
of agriculture, horticulture and allied products. In fixing DEPB
rates for such products, we shall take into account inputs such
as fertilizers, pesticides, certified seeds etc. used by the farmers
prior to processing of the products for exports. This would also
ensure that the Indian farmer uses the required inputs in a scientific
manner to boost productivity and quality. To begin with, this
facility will be extended only to selected products on the basis
of the recommendation of an Inter-Ministerial Committee.
SEZs
15.
Let me now turn to my next engine for growth viz. the SEZ scheme.
We have great hope for attracting Foreign Direct Investment and
increasing our export through this scheme. SEZs are required to
provide a trouble free congenial and investment friendly environment
where units, both Indian and foreign can manufacture their products
at internationally competitive prices for exports or sale to domestic
tariff area. Though most of the notified green field projects
have not yet got off the ground due to delay in land acquisition,
the Indore SEZ is very close to coming into operation. It is important
to realize that unless we convince the potential investors that
location in these SEZs can give them competitive edge over similar
units in other countries, we shall not be able to attract any
worthwhile investment. Therefore, our endeavor will be to bless
our SEZs with facilities comparable to those obtaining elsewhere
in the world. To enable exporters to access funds at international
rates, we are inh consultation with RBI and Finance Ministry for
a suitable fiscal package for off-shore banking units (OBUs) set
up in SEZs.
All
the Ministries and agencies of Government of India as well as
the concerned State Governments will have to work unitedly with
a shared vision for the success of SEZ programme. While we shall
continue our efforts including bringing in a comprehensive legislation,
we will simultaneously explore the possibility of developing a
scheme with features similar to the SEZ regime, for Export Oriented
Units in selected sectors with capital investment in plant and
machinery over Rs. 25 crores.
EPCG
SCHEME
16. I
would like all of you to appreciate the fact that our growth in
exports in the recent past has taken place in the background of
a somewhat slow down at home. Since we are aiming to be a significant
player in the world trade, we have to build up deliberately and
quickly the manufacturing base in order to sustain a high rate
of growth of exports. The EPCG Scheme has contributed significantly
to exports by facilitating expansion of the manufacturing base
with limited gestation period and at a comparatively lower capital
investment. We recognize that the long term solution for the building
up of a competitive manufacturing base would be to bring down
the levels of import tariff on capital goods comparable to those
prevailing in the countries which are considered as our competitors.
Till that happens, EPCG Scheme will have to be continued. At the
same time, we have to make it more flexible and attractive so
that even the small scale sector is able to set up and expand
its manufacturing base for exports. We have, therefore, decided
to take the following steps :-
(i) The
Scheme will now be more flexible and allow import of capital
goods for pre-production and post production facilities also.
(ii) Export
obligation will be rationalized by linking it to duty saved.
The export obligation would now be 8 times the duty saved.
All other conditions will remain unchanged.
(iii) In
order to facilitate upgradation of existing plant and machinery,
import of spares will be allowed under the Scheme subject
to the same conditions. Consequently, the condition of allowing
only 20% of spares along with the import of capital goods
becomes redundant.
(iv) In
order to facilitate higher value addition in exports, the
existing condition of increase in Export Obligation by 50%
in case of export of a product higher up in the value chain
is being done away with.
(v) In
order to give flexibility in fulfillment of Export Obligation,
a manufacturer exporter would now be permitted flexibility
to fulfill his obligation through any other product being
manufactured by him. This is being done to allow for changing
conditions in the international market in which the export
of a particular product may not be remunerative or feasible
at a particular point of time. This facility will be subject
to the condition that average export of the substitute product
will be taken into account in fixing the revised export obligation.
The facility will be confined to the products being manufactured
by the same company/ legal person.
(vi) In
line with the general policy, capital goods upto to 10 years
old will be allowed under this scheme.
(viii) To
facilitate diversification into software sector, existing
manufacturer-exporters will be allowed to fulfill export obligation
arising out of import of CG under EPCG Scheme for setting
up of Software units through export of manufactured goods
of the same company.
EXPORT
OF ELECTRONIC HARDWARE
17. Export
of electronic hardware is going to be one of our major thrusts.
In order to give a boost to the export of electronic hardware,
we are modifying the EHTP Scheme to allow counting of all 217
ITA-I items by EHTP units to DTA units for fulfillment of their
export obligation. Similarly, in the software sector, procedure
and formalities applicable to status holders amongst STP units
will be greatly simplified. This should facilitate free movement
of laptop, computer and other professional equipments and provide
required flexibility to the software professionals.
18. To
promote the growth of software exports in the area of embedded
programs, procedure for the import and re-export of the hardware
including automobiles in which such programmes are embedded for
testing and development will be greatly simplified in consultation
with Ministry of Finance. Henceforth such hardware for embedding
upto the value of U.S. Dollar 10,000 will be allowed to be imported
duty free and permitted to be disposed of after testing subject
to certification by Software Technology Parks India (STPI). In
order to allow both hardware and software sectors to remain up-to-date
in sectors with high rate of obsolescence, accelerated rate of
depreciation will be allowed in conformity with accepted international
practice. Similarly, procedural formalities governing donation
and destruction of obsolete hardware and inventory will be simplified.
INCENTIVE
FOR FAST GROWING STATUS HOLDERS
19. The
status holders have been a pillar of strength in increasing exports.
There is a feeling among them that under the Exim Policy, substantive
benefits are no longer available to them since the earlier benefits
such as fast track clearance and relaxation from certain procedures,
are now universally applicable in the liberalized environment.
We recognize that the status holders will continue to play a significant
and increasing role in boosting exports, particularly from the
small scale sector, as most of the small scale units will not
be in a position to directly access the international markets.
Moreover, it will be our endeavor to facilitate India emerging
as a major base for outsourcing products and services for the
rest of the world. They are also critical to our strategy for
accelerating the rate of incremental growth of exports. Therefore,
we intend to give a premium to the status holders who achieve
high growth rate in their exports. It is proposed to give a duty
free entitlement to them for import of capital gods, spares, office
equipments and consumables. This will be available to status holders
who achieve a growth rate of 25% or more in the current year with
a minimum export performance of Rs. 25 crore. They would be entitled
to a duty free entitlement of 10% of the incremental growth in
exports during the current financial year. This entitlement would
be subject to actual user condition which can be passed on to
associate manufacturers.
DEVELOPMENT
OF EXPORT CLUSTERS
Coming
to the specific initiatives, the 2002-07 Policy had recognized
three major industrial clusters at Tirupur, Panipat and Ludhiana
as Towns of Export Excellence with a view to maximizing their
export profile. It is also recognized that pro-active steps need
to be taken to enhance the productivity, quality, cost effectiveness
of Indian Industry by bridging the gap in critical physical infrastructures
by providing back up support of common facilities such as design
centres, training for essential skills in the workforce, testing
facilities to upgrade quality and market linkages etc. This will
increase the overall competitiveness of the selected industrial
locations which are predominantly export oriented. The Department
of Industrial Policy & Promotion (DIPP) as a nodal department
has formulated Industrial Infrastructure Upgradation Scheme which
is in final stage of approval. This scheme envisages upgradation
of infrastructure in existing clusters/ industrial locations that
have developed on account of local skills, market and resources.
Efforts under the scheme will be supplemented by the ASIDE Scheme
of this Ministry and similar schemes being implemented by other
departments. To start with ten clusters/ locations with high growth
potential would be supported to bridge technology and productivity
gaps. Areas of intervention in the selected clusters / locations
would include, inter-alia Technology & Skill Upgradation,
Physical infrastructure, environmental mitigation facilities etc.
The user industry would identify the needs and implementation
would be based on a participatory approach.
EXTENSION
OF EO FOR REHABILITATION OF SICK UNITS
21. Like
other developing countries, India is a capital scarce country.
We can not afford the luxury of dragging on indefinitely the process
of either rehabilitation or winding- up of a sick unit. We have
to ensure that a sick unit is quickly rehabilitated in case it
is possible to do so. To facilitate this, we already have a provision
for extension of the period of fulfillment export obligation in
case a sick unit is taken over. However, there is no such provision
for the existing management bringing a unit back to health on
the basis of an approved rehabilitation programme. To remove this
lacunae, we propose to allow extension of the period of export
obligation of sick units on the basis of the draft rehabilitation
schemes prepared by operating agencies appointed by BIFR. Similar
facility would be available for units outside the scope of BIFR
and under the scheme of rehabilitation of the concerned states.
OUR
APPROACH
22. In
keeping with our policy to do away with unnecessary restrictions
which increase transaction costs, there will be further simplification
of procedures in order to reduce these costs to a minimum. A study
carried out by Exim Bank in October 2002 indicates a significant
reduction in the transaction cost in all the sectors covered from
levels prevailing as per an earlier survey in 1998. I have no
doubt that simplifications and liberalization in earlier Exim
Policies contributed substantially to this reduction. However,
the fact remains that transaction cost levels in India still remain
at unacceptably high levels. This seriously detracts from the
competitiveness of our exports. Recognizing this, we have taken
on board the specific suggestions received from the exporters
in the Open Houses to effect further simplification. As part of
these efforts, we are now giving high priority to the implementation
of the EDI programme covering all the major community partners
in the export process in order to minimize transaction time and
to reduce discretion. We are now aiming at providing on-line approvals.
This can be possible only with the full implementation of the
EDI programme by all the community partners as per the agreed
schedule. We shall try to ensure that this takes place.
CODIFICATION
OF SEZ/EOU RULES
23. In
recognition of the importance of SEZ Scheme to our strategy for
accelerated export growth and the contribution of 100% EOUs, to
the export performance of the country, we are taking a major step
in the simplification and codification of rules, regulations and
procedures applicable to SEZ and EOU units. All these rules and
regulations are being put in one place. This should greatly facilitate
both potential investors as well as existing units in these sectors.
ANNUAL
ADVANCE LICENSE FOR STATUS HOLDERS
24. There
are certain procedural simplification and flexibility which are
being introduced in the new Policy. As part of our efforts at
reduction of transaction cost, we are introducing annual advance
licence facility for status holders so that they can plan for
their imports of raw material and components on an annual basis
and take advantage of bulk purchases. Similarly, we are introducing
diamond dollar account for the convenience of gem and jewellery
exporters.
25. Along
with the promotion of agro and service exports, which I have already
covered, we intend to give special focus to certain sectors of
merchandise export which hold the potential for accelerated growth.
These sectors are textiles, particularly garments, auto components,
gems and jewellery, drugs and pharmaceuticals and chemicals. We
will work closely with the concerned administrative ministries
and the industry not only to remove any possible hurdles in the
way of accelerated growth of exports but also undertake measures
for vigorous trade promotion to boost export of these items.
26. You
may recollect that my esteemed predecessor in his address on the
occasion of announcement of Exim Policy 2002-2007, had mentioned
"Focus: Latin American countries" and "Focus: Africa"
Initiatives for the diversification of markets for Indian goods
and services. I am happy to say that these initiatives have led
to creation of awareness of the members of the non traditional
market for the Indian goods amongst Indian exporters and consequently
led to increase in Indian exports in these regions. The "Focus:
Africa" programme was launched on 1st April, 2002
to cover countries in Sub-Saharan African Region covering the
first phase of seven countries mainly Nigeria, South Africa, Mauritius,
Kenya, Ethiopia, Tanzania and Ghana. India’s trade with Sub-Saharan
Region was US$ 3.63 Billion in 1996-97 which grew to US$ 4.2 Billion
in 2001-02 with a growth rate of 16%. In view of this, I am happy
to announce that in addition to the seven countries included in
"Focus: Africa", we are extending the Programme to the
remaining 11 countries of the Region where India has diplomatic
Missions. These are Angola, Botswana, Ivory-Coast, Zambia, Zimbabwe
and six countries of North Africa namely Egypt, Sudan, Algeria,
Libya, Morocco and Tunisia. The "Focus: Africa" Programme
will now cover 24 countries of the African continent with effect
from 1.4.2003.
My
predecessor had announced that we propose to launch a "Focus
CIS" Programme in view of our traditional ties with CIS countries.
It took a little time in getting the programme sanctioned. I am
happy to announce that we are launching "Focus: CIS"
Programme with effect from 1st April, 2003.
26. I
shall end here by stating that our Approach would be to relentlessly
pursue the goal or making India a significant player in the world
market by leveraging India’s undoubted strength viz. intelligence,
innovation and entrepreneurship of every Indian. This will be
our national objective. We in Ministry of Commerce and Industry
shall play the lead role in co-ordinating with other Ministries
of Government of India and the State Governments as well as the
exporters to succeed in this national endeavour.
