Commerce Ministers Speech

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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.

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.


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.


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.


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.