(IGP) GS Paper 1 - Economic & Social Development - "Foreign Trade"

Subject - Economic and Social Development
Chapter - Foreign Trade

Foreign Trade

• The exports and imports that a country makes together make up its foreign trade. If exports are more than imports, it is called trade surplus and if imports are more, it is called trade deficit. India almost every year since Independence had a trade deficit.
• Exports are foreign exchange earners. They stabilise and strengthen the exchange rate, if they grow. They may be necessary for some imports- for example, jems and jewellery industry imports stones and carves them into jewelry in India. Experts make the domestic economy efficient as international market requires high quality low price goods and services.
• Imports are important for exports, domestic capital formation and consumption. They make domestic producers competitive.

Exports 2011-12

• Export Composition: Great changes in the sectoral compostion of India’s export basket seen in the 2000s decade have accelerated in the beginning of this decade. While the share of petroleum crude and products increased by 11.8 percentage points during the 10-year period from 2000-1 to 2009-10, it further increased by 4.8 percentage points from 2009-10 to the first half of 2011-12. The share of the other two sectors, i.e. manufactures and primary products fell almost proportionately by 11.6 and 1.1 percentage points respectively during 2000-1 to 2009-10 and 1.4 and 2.2 percentage points from 2009-10 to the first half of 2011-12. The inter-sectoral composition changes within manufactures exports have also been great --with the bigest losers being labour-intensive manufactures like textiles, leather and leather manufactures, and handicrafts from 23.6, 4.4, and 2.8 per cent respectively in 2000-1 to 8.7, 1.6, and 0.3 per cent in the first half of 2011-12. The biggest gainer is the engineering goods sector with its share increasing from 15.7 per cent in 2000-1 to 22.2 per cent in the first half of 2011-12.
• India’s Services Exports: For more than a decade, Indian growth story has been dominated by the services sector. This domination was also evident from the trend in export of services (receipts) which grew at a CAGR of 23.4 per cent during 2000-1 to 2010-11 while merchandise exports grew at a CAGR of 18.6 per cent during the same period. While growth in exports of travel transportation, and insurance services services was higher in the first half of 2011-12 than in the first half of 2010-11, overall growth moderation in services exports in the first half of 2011-12 was due to low export growth (10.7 per cent) of miscellaneous services which accounted for nearly 72 per cent of total services exports.

Focus Market Scheme (FMS)

Under the FMS in the Foreign Trade Policy, fifty two (52) African countries, thirty one (31) Latin American countries, ten (10) Commonwealth of Independent States-Central African Republics, five (05) East European countries, eleven (11) Asia-Oceania block countries and one (01) Asian county have been notified for benefit on exports of all products.

Market Linked Focus Product Scheme (MLFPS)

Under the MLFPS in the Foreign Trade Policy, several non-traditional export markets in Africa, Middle East Asia, East Asia, Latin America, Central Asia such as Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Cambodia, Vietnam, Qatar, Singapore, Bahrain, Kuwait, Bangladesh, Philippines, Saudi Arabia, Iran, Korea PR, Japan and China have been notified for benefit on exports of select products.

Export Promotion Councils

There are at present eleven Export Promotion Councils under the administrative control of the Department of Commerce and nine export promotion councils related to textile sector under the administrative control of Ministry of Textiles These Council are registered as non -profit organisations under the Companies Act/Societies Registration Act. The Export Promotion Councils perform both advisory and executive functions. These Council are also the registering authorities under the Export Import Policy, 1997-2002 These Councils have been assigned the role and functions under the said Policy.

India’s trade reforms since 1991

One of the major dimensions of the economic reforms undertaken since 1991 was globalizing Indian economy of which liberalization of foreign trade is a central aspect. The following reforms were made

• Devaluation of the currency in 1991 to boost exports
• Rupee convertibility on the trade account since 1992 to incentivize exporters
• Cutting down the peak customs duty that stood at above 300% in 1991 to 10% in 2009 to import goods and services primarily for facilitating exports
• Simplification of procedures
• SEZs
• FTAs/Cepa/Ceca
• WTO-led schedule for global trade integration
• Incentives exporters like DEPB, interest rate subsidy (subvention) etc.
• Sector specific packages
• diversification

The effect is that exports have registered remarkable growth; created employment; given the country adequate forex; made the economy competitive; brought in FDI etc.

Exports and Employment

• In recent years, one of the important objectives of trade policy has been to integrate it with the process of economic development and creation of more employment opportunities.

• However, in recent years, the exports have not been doing well and their share in the country’s exports has been declining.

• Government identified 12 export sectors as employment intensive textiles and garments, leather goods, gems and jewellery, cereals, horticulture, flowers, fruits and vegetables, dairy products, processed foods, toys and sports goods, pharmaceuticals, automobiles and auto-components consumer electronics and electronic hardware.

• Special efforts are needed to promote exports from these labour-intensive sectors.

Market Access Initiative (MAI)

MAI scheme is intended to provide financial assistance for medium term export promotion efforts with sharp focus on a country / product.

Financial assistance is available for Export Promotion Councils (EPCs), Industry and Trade Associations (ITAs), Agencies of State Governments, Indian Commercial Missions (ICMs) abroad and other eligible entities as may be notified.

A whole range of activities can be funded under MAI scheme. These include, amongst others

• Setting up of showroom / warehouse,

• Sales promotion campaigns,

• International departmental stores,

• Publicity campaigns etc.

Focus Market Scheme (FMS)

• Objective is to offset high freight cost and other externalities to select international markets with a view to enhance our export competitiveness in these countries. Duty Credit scrip benefits are one available.

• FOCUS (LAC), Focus (Africa), Focus (CIS) and Focus (ASEAN + 2) programmes are operating.

• Helps the country diversify the geographical base and withstand any economic crisis.

Focus Product Scheme (FPS)

Objective is to incentivise export of such products, which have high employment intensity in rural and semi urban areas, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products. Some Special Focus Initiatives are for Agriculture, Handicrafts, handlooms, Gems & Jewellery and Leather & Footwear sectors.

Export-Import Bank

The Export-Import Bank of India (Exim Bank) is a public sector financial institution created by an Act of Parliament, the Export-import Bank of India Act, 1981. The business of Exim Bank is to finance Indian exports. Bank’s primary objective is to help export-related companies by offering them a comprehensive range of products and services.

Foreign Trade Policy Measures 2011-2012

• The Duty Entitlement Pass Book (DEPB) scheme was discontinued with effect from 30.09.2011. Since a Duty Drawback Scheme was already in existence, the erstwhile DEPB products were incorporated in the Duty Drawback Schedule (DDS) 2011-12 with effect from 01-10-2011. Approximately 1100 additional entries were made in the DDS for those erstwhile DEIB products that were not already specifically mentioned in the DDS. Appropriate rates of duty drawback were provided across the DDS. These range from 1 per cent to 17 per cent of FOB value. Many of the export goods with duty drawback rates more than 3 per cent have been provided with drawback caps.

• Special Bonus Benefit Scheme, within the Focus product Scheme, covering 49 products in Engineering, Pharmaceutical and Chemical sectors, was introduced to provide special assistance @1 per cent of FOB value of exports for 6 months from 1.10.2011 to 31.3.2012.

Global Standards

• GSI (Global Standards) India is a not-for-profit standards body promoted by the Ministry of Commerce and Indian Industry to spread awareness and provide guidance on adoption of global standards in Supply Chain Management by Indian Industry for the benefit of consumers, Industry, Govt. etc.

• GSI India is the only organisation in India authorised to issue company prefix numbers for use in barcodes, RFID tags etc. for unique, unambiguous and universal identification of products, cartons, containers etc. GSI standards find wide application in Supply Chains across sectors. GSI standards are the de-facto global standards in identification of consumer products in Retail. GSI India is an affiliate of GSI Global Office, twin headquartered at Brussel (Belgium) and New Jersey (U.S.A.).

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