UNIVERSITY OF MUMBAI

PROJECT REPORT ON
FOREIGN TRADE POLICIES
IN PARTIAL FULLFILLMENT FOR MASTERS OF COMMERCE
2013-14
PROJECT GUIDE
PROF. Aarti Sharma
SUBMITTED BY:
PANKAJ.B.RATHOD
ROLL NO
3790

MAHATAMA EDUCATION SOCIETYS

PILLAIS COLLEGE OF ARTS, COMMERCE & SCIENCE
NEW PANVEL

DECLARTION
I, PANKAJ RATHOD student of M.COM-I, MAHATMA EDUCATION
SOCIETYS PILLAIS COLLEGE OF ARTS, COMMERCE &
SCIENCE, hereby declare that I have completed the project report on
FOREIGN TRADE POLICIES in the academic year 2013-2014. The
information submitted by me is true & original to best of my knowledge.

Signature

MAHATMA EDUCATION SOCIETYS

PILLAIS COLLEGE OF ARTS, COMMERCE, SCIENCE
NEW PANVEL
CERTIFICATE
To whomsoever it may concern
This is to certify that the work entered in this journal is the work of
PANKAJ RATHOD from MCOM PART-I have successfully completed a
project report on FOREIGN TRADE POLICIES.
Topic terms of the year 2013-2014 in the college as laid down by the
college authority

Professor /Guide name

MCOM Co-Ordinator

Mrs, Aarti Sharma

Mr. Gajanan Wader

_______________________

____________________

DATE: _________

________________
External Examiner
INDEX

SR

TOPIC
3

PAGE

NO.

NO.

1 PRE 1991 SCENARIO OF FOREIGN TRADE

Brief Review of Indias Trade Policy
Indias Share In World Trade
General Provisions Regarding Imports And Exports
2 JOURNEY OF EXIM POLICY
Exim Policy, 1992-97
Exim Policy, 1997-2002
Exim Policy 1999-2000
Exim Policy 2001-2002
Exim Policy 2002-2007
Exim Policy, 2003-2004
Mini EXIM Policy, Jan 2004
3 HIGHLIGHTS OF EXIM POLICY & ITS IMPACT
Special Economic Zone (SEZ)
Duty Free Replenishment Certificate (DFRC) Scheme
Quantitative Restrictions (QR)
Agricultural Export Zones (AEZ)
Status Holders
Export Promotion Capital Goods Scheme (EPCG)
Deemed Exports
4 EXPORTS, IMPORTS & TRADE BALANCE
5 INDIA V/S WORLD: ANNUAL EXPORT GROWTH RATE
6 FUTURE OF FOREIGN TRADE POLICY
8 CONCLUSION

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9
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15
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18
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20
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25
26
27
28
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30
31
32

PRE 1991 SCENARIO OF FOREIGN TRADE

Exim is the principal financial institution in the country for co-coordinating working
of institutions engaged in financing exports and imports. The import policy in the post
independence period was guided by consideration of a growth oriented policy which should
ultimately lead us to the objective of self reliance:
a) Imports should be limited as far as possible so as to conserve foreign exchange.
b) Imports of those items were to be encouraged which would help the

industrialization of

the economy and imports of such items which could be produced at home were
discouraged or completely banned. This distinction between essential and non-essential
items of imports were necessary in view of the fact that even the demand for imports of
4

capital goods and other equipment in a developing economy could be of such a

magnitude that it might become difficult to find foreign exchange for developmental
imports.
c) The nature of imports should be so modified that it helped export promotion, and thus
mitigate the deficit in the balance of payments position ultimately.

Brief Review of Indias Trade Policy

Indias foreign trade policy during the last five decades may be broadly split into
import substitution policy, export drive policy and export acceleration policy. The import
substitution was followed in the first two decades. With fears of external dominance, the
Indian planners adopted a somewhat introvert external trade strategy which relied on
encouraging domestic production for the domestic market with the help of high tariffs and
high degree of protection. Far from viewing foreign trade as an engine of growth, Indian
planners sought to minimise import demand by adopting an import substitution policy and
gave secondary place to exports primarily as a source to generate the foreign exchange
earnings to meet that part of the import bill not covered by external assistance. There were
controls over both imports and exports. However, this policy of import substituting
industrialisation and system of controls failed to produce rapid growth and self-reliance.
The second three-year policy (1988-91) carried forward the process of trade
liberalisation to make exports more competitive. The policy was designed to stimulate
industrial growth by providing easy access to essential imported capital goods, raw materials
and components to industry so as to sustain movements towards modernization, technological
upgradation and making Indian industry competitive internationally. The liberal imports of
capital goods and technology were viewed as a means to enable exporters to undertake
technological upgradation in order to compete more effectively in the international market.
From Independence in 1947 till mid 1990s, India with some exceptions, always faced
deficit in its balance of payments i.e. imports always exceeded exports. This was
characteristic of a developing country struggling for reconstruction and modernization of its
economy. Imports galloped because of increasing requirements of capital goods, defence
equipments, petroleum products, and raw materials. Exports remained relatively sluggish

owing to lack of exportable surplus, competition in the international market, inflation at

home, and increasing protectionist policies, of the developed countries.

Import Substitution: Cornerstone of Trade Policy

India adopted an inward looking development strategy after independence wherein
import substitution constituted a major element of both trade and industrial policies. The
focus in the initial stages of planned development was on stimulating home grown
industrialization, essentially based on the infant industry argument ,wherein production for
domestic market was shielded behind high tariff walls and high effective protection .this
policy not only underestimated the export possibilities but also the import intensity of the
import substitution process itself.
Import substitution was the prime objective of Indias trade policy till the mid 1970s.
This policy was largely based on the imports and exports act of 1947. Liberal incentives were
granted to firms if they were undertaking production of an imported item that was not
domestically produced.
Protective quotas however remained more or less intact and domestic industry continued
to be shielded from import competition. Production for exports cannot be isolated from
production for the home market and trade policy would have to be integrated with the policy
for domestic industrialization.

A three year export import policy was introduced in 1985 to provide a definite focus to the
trade sector. A major ingredient of this policy was the provision of easy access to essential
capital goods, raw materials and component from abroad since these were viewed as a major
incentive for exporters in undertaking technological up gradation for reducing cost and
improving quality.
Balance of payment crisis, 1991

The balance of payment situation became very difficult in 1991-1992 despite of

softening of oil price in the world market. Even with a substantial import compression, the
pressure on the balance of payments persisted throughout the current financial year.
The government attempted to mobilize support for balance of payments for
multilateral financial institutions the international monetary fund, the World Bank and the
Asian development bank.
Another important initiative taken by the government to meet the urgent need for the
balance of payments financing was the announcement of two schemes designed to encourage
the inflow of capital funds from abroad .The India development bond scheme and the
immunity scheme for repatriation of funds held abroad were introduced in October1991.
Foreign currency assets, which had declined to $1.1 billion at their lowest point in
june1991, had risen to $4.4 billion by February1992.
The build up of the reserves in the course of 1991-92 was necessary to restore
confidence in the system, but it also meant the additional resources mobilized from the
multilateral financial institutions and the IDB and immunity schemes were primarily used for
building up reserves and not to liberalize imports, which remain severely constrained in
1991-92.
Following adjustments were called for a broad based, rapid and sustained growth of exports.

Reduction in the excess domestic demand-Domestic demand had to be restrained and

supply increased.
Enhanced Competiveness-This required two changes, a change in the exchange rate
of rupee and a reduction in a relative prices of those products which were costly vis-vis competing goods abroad. The first step was taken by means of a downward
adjustment of about 18 percent in the external value of the rupee .The second step
required a phasing down of import restrictions and a reductions in the high levels of

protection ,which characterize Indian industries.

Deregulation-One of the obstacles to exports lied in the cumbersome administrative
procedures involved, arising from controls over imports and exports, exchange
control and also procedures.
Measures which were taken for lowering the inflation rate in the economy are:7

Reducing subsidies and external support to production enterprises so as to make more

responsive to price and demand changes.

Ensuring that buffer stock operations for food grains and interventions in agricultural

markets were counter cyclical.

Encouraging savings to be high not only as a proportion of GDP but in relation to

demand for investment funds in the economy.

Keeping entry barriers low in the industrial sector and improving industrys access to
imported inputs at low tariffs.

Indias Share In World Trade

In 1950, India accounted for 1.8 percent (1.85 percent of exports and 1.71 percent of
imports) of world trade, gradually declining to 0.53 percent by 1991; it marginally improved
to 0.61 percent in 1994. The decline in Indias share in world trade has not only been arrested
but reversed. Below table shows trends in Indias share in the world trade during the postIndependence period.
Selected Years

(percent)

Year

Exports

Imports

Trade

1950

1.85

1.71

1.78

1960

1.03

1.69

1.36

1970

0.64

0.65

0.65

1980

0.42

0.72

0.57

1990

0.52

0.66

0.59

1991

0.50

0.56

0.53

1992

0.53

0.61

0.57

1993

0.58

0.60

0.59

1994

0.60

0.63

0.61

1998

0.60

2000

0.70

2001

0.70

2003

0.86

Sources: Government of India, Economic Survey, 1996-1997, p.88, and Economic Survey,
2005-2006 p. S-95
General Provisions Regarding Imports And Exports
Exports and Imports free unless regulated
2.1

Exports and Imports shall be free, except in cases where they are regulated
by the provisions of this Policy or any other law for the time being in force.
The item wise export and import policy shall be, as specified in ITC(HS)
published and notified by Director General of Foreign Trade, as amended
from time to time.

Compliance with Laws

2.2

Every exporter or importer shall comply with the provisions of the Foreign
Trade (Development and Regulation) Act, 1992, the Rules and Orders made
there under, the provisions of this Policy and the terms and conditions of any
license/certificate/permission granted to him, as well as provisions of any
other law for the time being in force. All imported goods shall also be
subject

to

domestic

Laws,

Rules,

Orders,

Regulations,

technical

specifications, environmental and safety norms as applicable to domestically

produced goods.
Interpretation of Policy
If any question or doubt arises in respect of the interpretation of any
provision contained in this Policy, or regarding the classification of any item
in the ITC(HS) or Handbook (Vol.1) or Handbook (Vol.2), the said question
or doubt shall be referred to the Director General of Foreign Trade whose
decision

thereon

shall

be

final

and

binding.

If any question or doubt arises whether a licence/ certificate/permission has

been issued in accordance with this Policy or if any question or doubt arises
touching upon the scope and content of such documents, the same shall be
referred to the Director General of Foreign Trade whose decision thereon
shall be final and binding.
Procedure
9

The Director General of Foreign Trade may, in any case or class of cases,
specify the procedure to be followed by an exporter or importer or by any
licensing or any other competent authority for the purpose of implementing
the provisions of the Act, the Rules and the Orders made there under and this
Policy. Such procedures shall be included in the Handbook (Vol.1),
Handbook (Vol.2) and in ITC(HS) and published by means of a Public
Notice. Such procedures may, in like manner, be amended from time to time.
The Handbook (Vol.1) is a supplement to the EXIM Policy and contains
relevant procedures and other details. The benefits available under various
schemes of the Policy are given in the Handbook (Vol.1).
Principles of Restriction
DGFT may, through a notification, adopt and enforce any measure necessary
for:

Protection of public morals.

Protection of human, animal or plant life or health.

Protection of patents, trademarks and copyrights and the prevention of

deceptive practices.

Prevention of prison labour.

Protection of national treasures of artistic, historic or archeological

value.

Conservation of exhaustible natural resources.

Protection of trade of fissionable material or material from which they

are derived; and

Prevention of traffic in arms, ammunition and implements of war.

Terms and Conditions of a License / Certificate / Permission

Every license/certificate/permission shall be valid for the period of validity

specified in the license/ certificate/permission and shall contain such terms
and conditions as may be specified by the licensing authority which may
10

include:
a. The quantity, description and value of the goods;
b. Actual User condition;
c. Export obligation;
d. The value addition to be achieved; and
e. The minimum export price.
Licence/ Certificate/ Permission not a Right
No person may claim a license/certificate/ permission as a right and the
Director General of Foreign Trade or the licensing authority shall have the
power to refuse to grant or renew a license/certificate/permission in
accordance with the provisions of the Act and the Rules made there under.
Penalty
If a license/certificate/permission holder violates any condition of the
license/certificate/ permission or fails to fulfill the export obligation, he shall
be liable for action in accordance with the Act, the Rules and Orders made
there under, the Policy and any other law for the time being in force.
Importer-Exporter Code Number
No export or import shall be made by any person without an ImporterExporter Code (IEC) number unless specifically exempted. An ImporterExporter Code (IEC) number shall be granted on application by the
competent authority in accordance with the procedure specified in the
Handbook (Vol.1).
Trade with Neighboring Countries
The Director General of Foreign Trade may issue, from time to time, such
instructions or frame such schemes as may be required to promote trade and
strengthen economic ties with neighboring countries.
Transit Facility
Transit of goods through India from or to countries adjacent to India shall be
regulated in accordance with the bilateral treaties between India and those
countries.
11

Trade with Russia under Debt- Repayment Agreement

In the case of trade with Russia under the Debt Repayment Agreement, the
Director General of Foreign Trade may issue, from time to time, such
instructions or frame such schemes as may be required, and anything
contained in this Policy, in so far as it is inconsistent with such instructions
or schemes, shall not apply.
Actual User Condition
Capital goods, raw materials, intermediates, components, consumables,
spares, parts, accessories, instruments and other goods, which are importable
without any restriction, may be imported by any person. However, if such
imports require a license/certificate/ permission, the actual user alone may
import such goods unless the actual user condition is specifically dispensed
with by the licensing authority.
Second Hand Goods
All second hand goods shall be restricted for imports and may be imported
only in accordance with the provisions of this Policy, ITC (HS), Handbook
(Vol.1), Public Notice or a licence/certificate/permission issued in this
behalf.
Import of samples
Import of samples shall be governed by the provisions given in Handbook
(Vol.1).
Passenger Baggage
Bonafide household goods and personal effects may be imported as part of
passenger baggage. Samples of such items that are otherwise freely
importable under this Policy may also be imported as part of passenger
baggage without a licence/certificate/ permission. Exporters coming from
abroad are also allowed to import drawings, patterns, labels, price tags,
buttons, belts, trimming and embellishments required for export, as part of
their passenger baggage without a licence/certificate/ permission.
Import on Export basis
New or second hand capital goods, equipments, components, parts and
12

accessories, containers meant for packing of goods for exports may be

imported for export without a licence/certificate/permission on execution of
Legal Undertaking/ Bank Guarantee with the Customs Authorities.
Re-import of goods repaired abroad
Capital goods, equipments, components, parts and accessories, whether
imported or indigenous, may be sent abroad for repairs, testing, quality
improvement or upgradation or standardization of technology and reimported without a licence/certificate/permission.
Import of goods used in projects abroad
After completion of the projects abroad, project contractors may import,
without a licence/certificate/permission, used goods including capital goods
provided they have been used for at least one year.
Sale on High Seas
Sale of goods on high seas for import into India may be made subject to this
Policy or any other law for the time being in force.
Clearance of Goods from Customs
The goods already imported/shipped/arrived, in advance, but not cleared
from Customs may also be cleared against the licence/ certificate/
permission issued subsequently.
Execution of BG/LUT
Wherever any duty free import is allowed or where otherwise specifically
stated, the importer shall execute a Legal Undertaking (LUT)/Bank
Guarantee (BG) with the Customs Authority before clearance of goods
through the Customs, in the manner as may be prescribed. In case of
indigenous sourcing, the licence/certificate/ permission holder shall furnish
BG/LUT to the licensing authority before sourcing the material from the
indigenous supplier/nominated agency.
Realisation of Export Proceeds
If an exporter fails to realise the export proceeds within the time specified by
the Reserve Bank of India, he shall, without prejudice to any liability or
penalty under any law for the time being in force, be liable to action in
13

accordance with the provisions of the Act, the Rules and Orders made there
under and the provisions of this Policy.
Free movement of export goods No seizure of Stock
2.42.1

No seizure of stock shall be made by any agency so as to disrupt the

manufacturing activity and delivery schedule of export goods. In exceptional
cases, the concerned agency may seize the stock on the basis of prima facie
evidence. However, such seizure should be lifted within 7 days.
Export Promotion Council

2.43

The basic objective of export promotion councils is to promote and develop

the exports of the country. Each Council is responsible for the promotion of
a particular group of products, projects and services. The list of the councils
and their main functions are given in Handbook (Vol.1).

Registration -cum-Membership Certificate

2.44

Any person, applying for (i) a licence/ certificate/ permission to import/

export, [except items listed as restricted items in ITC(HS)] or (ii) any other
benefit or concession under this policy shall be required to furnish
Registration-cum-Membership

Certificate

(RCMC)

granted

by

the

competent authority in accordance with the procedure specified in the

Handbook (Vol.1) unless specifically exempted under the Policy.

JOURNEY OF EXIM POLICY

India`s foreign trade is regulated by the foreign trade (Development and Regulation)
Act, 1992 which replaced the import and export (control) Act, 1947. The act of 1992
empowers the central government to formulate and announce from time to time the export
and import policy and to amend it in like manner.

14

Prior to mid -1991, foreign trade of India suffered from strict bureaucratic and
discretionary controls. However, the new government which took over at the centre in June
1991 soon realised that Indias foreign trade policy must respond to the changes
(liberalization and openness) sweeping across the world. To reduce controls, simplify
procedures and to create a congenial environment for trade, the government made a statement
on trade policy in parliament on august 13, 1991, ushering a new era in the foreign trade
policy of India. Instead of controls and regulations, the focus shifted to promotion and
development of foreign trade.
Before 1985-86, the annual export-import policy was announced at the beginning of
the financial year. In 1985-86 , a three year export-import policy was announced for the
period April 1985 through march 1988, providing a reasonable degree of stability to the
policy framework. On its expiry, the new policy for three years 1988-91 was announced in
March 1988 which laid even greater emphasis on promotion of exports.

EXIM POLICY, 1992-97

On March 31, 1992, the government announced the export and import policy for a period
of five years (April 1, 1992 to march 31, 1997), coinciding with the period of eighth five year
plan. The chief controller of imports and exports was re-designated as director general of
foreign trade. EXIM Policy, 1992-97 made a conscious effort to dismantle various
protectionist and regulatory policies and accelerate India`s transition towards a globally
oriented economy. The export-import policy was further liberalized by the government on
March 31, 1993. Substantial concessions were announced to boost agricultural exports. The
government also announced a centrally sponsored scheme to set up industrial parks in
different states.

EXIM POLICY, 1997-2002

The export and import policy, 1997- 2002 (coinciding with the period of ninth five year
plan) sought to consolidate the gains of the previous policy and further carry forward the
15

process of liberalization by deregulating and simplifying procedures and removing

quantitative restrictions in a phased manner. It set an ambitious target of attaining an export
level of US$ 90-100 billion by the year 2002 and achieving 1 per cent share in world trade.
Objectives:
The principal objectives of the policy were the following:
1. To accelerate the country`s transition to a globally oriented vibrant economy to derive
maximum benefits from expanding global market opportunities.
2. To stimulate sustained economic growth by providing access to essential raw materials,
intermediates, Components, consumables and capital goods required for augmenting
production.
3. To enhance the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities, and encourage the attainment of internationally accepted standards of quality.
4. To provide consumers with good quality products at reasonable prices.

Salient Features:
Following were the salient features of the policy:
1. Exports and imports shall be free, except to the extent they are regulated by the provisions
of this policy.
2. The Central Government may in public, interest, regulate the import or exports of goods
by means of a negative list of imports or a negative list of exports, as the case may be.
3. The negative list may consist of goods, the import or export of which is prohibited,
restricted through licensing, or canalised.
4. Prohibited items in the Negative list of Imports shall not be imported and prohibited items
in the Negative list of exports shall not be exported.
16

 EXIM POLICY 1999-2000

In its effort to further dismantle the import control regime and hasten the integration of
the Indian economy with the world economy, the government announced a revised exportimport policy on March 31, 1999 which came into force on April1, 1999.
The new export import policy freed import of 894 items of consumer goods,
agricultural products and textile from licensing requirements. In other words a number of
Consumer items could now be imported license-free subject only to the payment of import
duty. Physical controls on imports were removed and the only control over imports was fiscal
in nature, i.e. adjusting import duty to regulate imports. These adjustments were to be made
within the upper limit prescribed by WTO.

EXIM Policy, 2001-2002

The union commerce And industry minister unveiled on march 31, 2001, the export import
policy for the year 2001-2002.
Removal of Quantitative restrictions: The process of removal of import restrictions, which
began in 1991, was completed in a phased manner bye the Export-Import Policy 2001-2002
with the removal of restriction on the remaining of 715 items. This was in tune with the
commitments made to the WTO. Out of these 715 items 342 were textile products, 147 were
agricultural products and 226 were other manufactured products.
However, import of agricultural products like wheat, rice, maze, copra and coconut oil was
placed in the category safe trading . the nominated state trading enterprise will conduct the
import of this commodity solely as per commercial consideration . similarly, import of
petroleum products including petrol , diesel & ATF was placed in the category of state trading
in all 27 out of 715 items taken of the quantitative restrictions list were put under the state
trading category.

17

 EXIM Policy , 2002-2007

The EXIM Policy 2002-07 was unveiled on march 31, 2002. The policy entailed several
institutional, infrastructural and fiscal measures intended to promote exports which are
conductive to the economic development of the country. The following were the salient
features of the policy.
Special Economic zones (SEZs): Offshore banking units (OBUs) were permitted in SEZs.
Units in SEZ were permitted to undertake hedging of commodity price risks, provided such
transactions are undertaken by the units on stand-alone basis. This will impart security to the
returns of the unit.
It has also been decided to permit external commercial borrowings (ECBs) for tenure of less
than three years in SEZs. The detailed guidelines will be worked out by RBI. This will
provide opportunities for accessing working capital loan for these units internationally
competitive rates.
Employment Generation: In an effort to generate additional employment, the following
announcements were made pertaining to agricultural and small industry sectors.
Exports restrictions like registration and packaging requirement were removed forthwith on
butter, wheat & wheat products, coarse grains groundnuts oil and cashew to Russia.
Quantitative and packaging restrictions on wheat and its products, butter, pulses, grains and
flour of barley, maize, bajra, ragi and jowar had already been removed on March 5, 2002.
Technology Upgradation: Electronic Hardware Technology Park (EHTP) scheme

was

modified to enable the sector to face the zero duty regime under ITA(Information Technology
Agreement)-1.The units shall be entitled to following facility.
Net Foreign Exchange as a Percentage of Exports (NFEP) positive in 5 years.
No other export obligation for units in EHTP.
Supplies of ITA-1 items having zero duty in the domestic market to be eligible for
counting of export obligation.
Growth-oriented: The status holders shall be eligible for the following new/special facilities.

18

 License/Certificate/Permissions and customs clearance for both exports imports on selfdeclaration basis.
Fixation of input-output norms on priority.
Priority finance for medium and long-term capital requirement as per conditions notified
by R.B.I
EXIM Policy, 2003-2004
It had the following provisions:
The policy provided a massive thrust to export of services by introducing duty free export
facility for the service sector units having a minimum foreign exchange earning of Rs 10
lakh.
Encouragement of corporate sector with proven credential to sponsor Agri-Export Zones
for boosting farm exports.
Fixing of input-output norms for status holders on priority basis within a period of 60 days
and permission to status holders in Software Technology Parks India(STPI) for free
movement of professional equipments.

Mini EXIM policy, Jan 2004

Preceding the dissolution of the 13th Lok Sabha on Feb. 6, 2004 the government of India
announced mini EXIM policy on Jan 28, 2004. It included facilitation and simplification
measure to sustain the momentum of export growth. Specifically it was aimed at providing
boost to exports of gems and jewellery, encouraging tourism and making energy generation
cheaper. Highlights of new policy were.
Objective and strategy
The new FTP takes an integrated view of the overall development of Indias foreign
trade and essentially provides a roadmap for the development of this sector. It is built around
two major objectives of doubling Indias share of global merchandise trade by 2009 and using
19

trade policy as an effective instrument of economic growth with a thrust on employment

generation. Key strategies to achieve these objectives, inter alia, include: unshackling of
controls and creating an atmosphere of trust and transparency; incidence of all levies on input
used in export products; facilitating development of India as a global hub of manufacturing,
trading and services; identifying and nurturing special focus area to generate additional
employment opportunities, particularly in semi urban and rural areas; facilitating
technological and infrastructural up gradation of the Indian economy, epically and ensuring
that domestic sector are not disadvantage in trading agreements upgrading the infrastructural
network related to the entire foreign trade chain to international standards revitalizing the
board of trade by redefining its role and inducting into it experts on trade policy.

HIGHLIGHTS OF EXIM POLICY & ITS IMPACT

SPECIAL ECONOMIC ZONE (SEZ)
Special economic zone is a particular area inside a state which acts as foreign territory for
tariff and trade operations. Govt. provides tax exemption (IT, Excise, customs, sales etc.),
subsidised water and electricity etc.
SEZ can be sector specific or multi product SEZ. It helps in the development of infrastructure
of the area around the SEZ, provides employment to people, makes the exports more viable.
All this will helps the country's products to become more competitive vis-a-vis providing all
round development of region.
20

It should be noted that if 100 acres are allotted for SEZ, then only 30-35% of area is used for
setting up plants. rest of the area is used to provide housing facilities, malls, multiplexes etc.
Also Tax exemption is for specific period say for 10 yrs or so
Units in SEZ would be permitted to It has also been decided to permit Special Economic
Zones (SEZs)
Offshore Banking Units (OBUs) shall be permitted in SEZs. Detailed guidelines are being
worked out by RBI. This should help some of our cities emerge as financial nerve centres of
Asia & undertake hedging of commodity price risks, provided such transactions are
undertaken by the units External Commercial Borrowings (ECBs) for a tenure of less than
three years in SEZs. The detailed guidelines will be worked out by RBI. This will provide
opportunities for accessing working capital loan for these units at internationally competitive
rates.
The SEZ scheme has undergone few changes:
FDI permitted under automatic route for all manufacturing sectors, except a small
negative list.
No licence required to set up units for items reserved under SSI.
Units in SEZs can bring back their proceeds in 365 days and retain 100 per cent of
proceeds in EEFC account.
No CR waiver is required for sending sample goods for participation in exhibitions.
SEZ developers will be given infrastructure status under the Income-Tax Act, as
provided in the Finance Bill, 2001, and will be entitled to concessional duty for
procuring goods for setting up SEZs.
All the necessary steps were initiated to give permission to set up SEZs to the States, the
private sector and the joint sector.
Special Economic Zones Scheme

21

Sales from Domestic Tariff Area (DTA) to SEZs to be treated as export. This would
now entitle domestic suppliers to Drawback/ DEPB benefits, CST exemption and
Service Tax exemption.

Agriculture/Horticulture processing SEZ units will now be allowed to provide inputs

and equipments to contract farmers in DTA to promote production of goods as per the
requirement of importing countries. This is expected to integrate the production and
processing and help in promoting SEZs specialising in agro exports.

Foreign bound passengers will now be allowed to take goods from SEZs to promote
trade, tourism and exports.

Domestic sales by SEZ units will now be exempt from SAD.

SEZ units can capitalise import payables.

Wastage for subcontracting/exchange by gem and jewellery units in transactions

between SEZ and DTA will now be allowed.

According to the Exim Policy (1997-2002), SEZs may be set up for manufacture of goods
and rendering of services, production, processing, assembling, trading, repair, remaking,
reconditioning, re-engineering, including of making of gold/silver/platinum jewellery and
articles.
Thus, there should be necessary `check posts' and Customs duty vigilance as in the case of
airport and ports. However, there are many advantages, and of course, one or two
disadvantages.

Major advantages
SEZs may export goods and services, including agro-products, partly processed
jewellery, sub-assemblies and components. It may also export by-products, rejects, waste
from the production process.
SEZs may import all types of goods without payment of duty. This includes capital
goods, but not prohibited items for imports.
22

 Even SEZ units can lease capital goods from a domestic/foreign leasing
Major disadvantages
The SEZ shall execute a legal undertaking with the Development Commissioner that if it
fails to achieve positive foreign exchange earnings, it will be liable to penalty in terms of
the legal undertaking, or under any other law for the time being in force.
SEZ units may be debonded with the approval of the Development Commission.
Debonding shall be subjected to payment of applicable Customs and excise duties and
the imported and indigenous capital goods, raw materials, finished goods in stock, and so
on.

DUTY FREE REPLENISHMENT CERTIFICATE (DFRC) SCHEME

DFRC Scheme announced in 2002-07 EXIM Policy has been continued in 2003-04 Policy.
Henceforth supplies made under Deemed Export Scheme in terms of Para 8.2 of the EXIM
Policy would also be entitled for benefit of DFRC Scheme. Import of inputs against DFRC
License (issued against supplies made under Deemed Export Scheme) shall also be permitted
from sea-ports, airports, ICDs and CFSs specified in the DFRC Notification as usual. For this
purpose, DFRC licence issued under Deemed Export Scheme shall inter-alia contain details
of excise certified invoice number and date with value of supplies in Indian rupees. All other
conditions of the DFRC Scheme remain unchanged.
In order to monitor revenue outflow under DFRC scheme, the concerned Custom Houses
shall send a monthly report containing details of CIF value of goods imported and amount of
duty foregone under the Scheme on the 10 th of the succeeding month to JS(DBK). The first
such report shall be sent by 10th May, 2003.

Validity of DFRC to be extended from 12 months to 18 months.

Dispensing with the need of technical characteristics for inputs except for items in the
sensitive list.

Automatic calculation of CIF value under DFRC scheme without reference to

international price of individual inputs.

Provision incorporated for claim of DFRC against advance payment.

23

Coverage of additional ports under DFRC

Split up facility extended to DFRC scheme to give operational flexibility to the holder
of DFRC.

QUANTITATIVE RESTRICTIONS (QR)

Quantitative Restrictions are explicit limits usually by volume on the amount of a specified
commodity that may be imported into a country sometimes also indicating the amounts that
may be imported from each supplying country. Compared to tariffs the protection afforded by
QRs tend to be more predictable being less affected by changes in competitive factors.
Quotas have been used at times to favour preferred sources of supply.
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.
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 April 1, 2001, of
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.

AGRICULTURAL EXPORT ZONES (AEZ)

In a fast changing international trade environment and with a view to providing
remunerative returns to the farming community in a sustained manner the concept of the
24

agri export zones (AEZ) was floated. These zones have been set up for end to end
development for export of specific products from a geographically contiguous area.
AEZ are to be identified by the State Government, who would evolve a comprehensive
package of services provided by all State Government agencies, State agriculture
universities and all institutions and agencies of the Union Government for intensive
delivery in these zones. Corporate sector with proven credentials would be encouraged to
sponsor new agri export zone or take over already notified agri export zone or part of such
zones for boosting agri exports from the zones.
Agriculture Export
Unless we 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.

STATUS HOLDERS
"Status holder" means an exporter recognised as "Export House/Trading House/Star trading
House/ Super Star Trading House" or service provider recognised as "Service Export House,
International Service Export House, International Star Service Export House International
Super Star Service Export House" by the Director General of Foreign Trade.
25

Over the last few decades certain areas of strength have emerged in the export sector. Definite
export surpluses have emerged in sectors like 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 been
contributing significantly to exports. Certain industrial clusters have evolved on their own
without any significant official assistance, each of them collectively producing goods and
services worth more than Rs.1,000 crore per year and exporting a substantial part thereof.
Status certificates have been issued to units on the basis of their export performance.
Keeping the above in mind, the status holders shall be eligible for the following new/ special
facilities:
Licence/Certificate/Permissions and Customs clearances for both imports and exports
on self-declaration basis.
Fixation of Input-Output norms on priority;
Priority Finance for medium and long term capital requirement as per conditions
notified by RBI;
Exemption from compulsory negotiation of documents through banks. The
remittance, however, would continue to be received through banking channels;
100% retention of foreign exchange in EEFC account;
Enhancement in normal repatriation period from 180 days to 360 days.
Status holders with a minimum export turnover of Rs 250 mn entitled to duty-free
import of capital goods, spares, office equipments and consumables, upto 10% of the
incremental growth in exports subject to their achieving more than 25% growth in
value of exports.
Status holders to be given Annual Advance Licence facility to enable them to plan for
their imports of raw material and components on an annual basis and take advantage
of bulk purchases.

EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG)

26

The Export Promotion Capital Goods Scheme (EPCG) has been for several years now
instrumental in promoting exports. The high growth rate of East Asian countries was
facilitated by the transformation of their exports from producing cheap-labour intensive to
high technology intensive manufacturing goods.
The Exim Policy has announced a series of steps to make the EPCG scheme more flexible
and attractive, so that even the small-scale sector can set up and expand its manufacturing
base for exports. This is considered essential, as manufactured goods account for more than
77 per cent of India's total exports in the last five years.
Thus, allowing the import of up to 10-year-old capital goods for pre- and post-production,
removal of use conditions, and allowing import of spares to facilitate the upgradation of
existing plant and machinery will make export sectors, such as textile, more competitive.
Moreover, the relatively low value exports obligation will be a boon to investment in the
domestic economy. Therefore, the EPCG scheme along with the reduction of transaction cost
through the EDI will give a boost to the manufacturing sector and over all export growth.

DEEMED EXPORTS
Deemed Exports" refers to those transactions in which the goods supplied do not leave the
country.
The following categories of supply of goods by the main/ sub-contractors shall be regarded as
"Deemed Exports" under this Policy, provided the goods are manufactured in India:

27

 Supply of goods against Advance Licence/DFRC under the Duty Exemption

/Remission Scheme;
Supply of goods to Export Oriented Units (EOUs) or units located in Export
Processing Zones (EPZs) or Special Economic Zone (SEZs) or Software Technology
Parks (STPs) or to Electronic Hardware Technology Parks (EHTPs);
Supply of capital goods to holders of licences under the Export Promotion Capital
Goods (EPCG) scheme;

Benefits for Deemed Exports

Deemed exports shall be eligible for the following benefits in respect of manufacture
and supply of goods qualifying as deemed exports

Advance Licence for intermediate supply/ deemed export.

Deemed Exports Drawback.

Refund of Terminal Excise duty.

EXPORTS, IMPORTS & TRADE BALANCE

Year

199091
1991-

Exports Imports Trade

($
($
mln.)
mln.) Balances
($ mln.)
18148
17998

23464
19551

-5316
-1553

Exports
(%
change)

Imports
(%
change)

Exports
(% to
GDP)

Imports
(% to
GDP)

9.25
-0.83

10.59
-16.68

5.72
6.73

7.39
7.31

28

92
199293
199394
199495
199596
199697
199798
199899
199900
200001
200102
200203
200304
200405
200506
200607

17437

20583

-3146

-3.12

5.28

7.13

8.42

22213

23305

-1092

27.39

13.22

8.06

8.45

26337

28662

-2325

18.57

22.99

8.14

8.86

31842

36730

-4888

20.9

28.15

8.92

10.29

33498

39165

-5667

5.2

6.63

8.62

10.08

35049

41535

-6486

4.63

6.05

8.52

10.1

33211

42379

-9168

-5.24

2.03

7.98

10.18

36760

49799

-13039

10.68

17.51

8.15

11.04

44147

50056

-5909

20.1

0.52

9.58

10.86

43958

51567

-7609

-0.43

3.02

9.16

10.75

52823

61533

-8710

20.17

19.33

10.38

12.09

63886

78203

-14316

20.94

27.09

10.61

12.99

83502

111472

-27970

30.7

42.54

12

16.03

103075

149144

-46068

23.44

33.8

12.79

18.51

126246

190438

-64192

22.48

27.69

13.86

20.9

29

INDIA V/S WORLD: ANNUAL EXPORT GROWTH RATE

7. FUTURE OF FOREIGN TRADE POLICY

30

The new five-year Exim policy is expected to bring about a positive growth in exports in the
days to come. The policy was the result of a paradigm shift from narrow issues of mere
procedural formalities to much larger aspects of exports which would work as the ``true
engine of growth''. The policy was clear and required involvement of the state government to
make it successful. Adequate measures have been taken to curtail transaction costs. the
concept of using special economic zone (SEZ) and agriculture export zones to boost exports
of goods, services and agricultural products is a positive step. Processed foods such as marine
products, coconuts, cashews, areca nuts and fruits like mangoes need to be encouraged. In
order to catch up with the changing world scenario in the export trade, he felt that there was a
requirement of a mindset change in government officials as well as in the industry. The
participants concentrate on policy-related matters and understand the subject thoroughly and
make use of seminars and workshops to update them with the latest changes and techniques.
referring to the SEZ for Goa.

It is required to have a proper study by international

consultants, and the involvement of competent persons to push the proposal further Goa has a
natural advantage and it can have a unique SEZ in the service sector.

8. CONCLUSION

31

This project was conducted study the foreign trade policy of India. This study
has provided me an insight into the Exim policies.
This study is conducted by searching from various books, newspaper, internet
etc. This study was undertaken for a period of three weeks.. The collected datas
are consolidated through using t-test. The graph and table were used for
representation.
The researcher has tried his best to make the study realistic and suggestive, but
does not claim the findings and suggestions in the report are perfect. If time
available were more the study would have been extended to a large portion of the
universe, which would help the findings to be more accurate.
The key learning from this project study is that in an extremely competitive
world Exim policy of India is very strong to deal in this world trade to keep a
balance of payment and help the nation to flourish.

32