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ANNUAL SUPPLEMENT 2006 TO THE FOREIGN
TRADE POLICY 2004-09
FOREWORD
Context
The Annual Supplement 2006 is the second in the annual series supplementing the
Foreign Trade Policy 2004-09. In line with the Government’s promise of a stable
Foreign Trade Policy regime, the supplement does not alter the broad contours of
the Policy. However, recognizing the dynamic nature of international trade and
the consequent need for continuous realignment of our international trade
strategies, contemporary issues are being addressed in this initiative.
Measures to support the key strategies
The Annual Supplement 2006 introduces a number of measures for identifying and
nurturing special focus areas which would generate additional employment
opportunities particularly in semi urban and rural areas. Measures have also
been introduced
for unshackling of controls and creating an atmosphere of trust and transparency
by further simplifying procedures and bringing down transaction costs. These
measures broadly fall within the framework provided by the five year Foreign
Trade Policy, and strive to achieve the twin objectives of doubling India’s
share of global merchandise trade by 2009 over its 2004 level, and in the
process, enhancing employment opportunities substantially.
A need was felt to look at those products and markets which
suffer inherent bottlenecks. Based on the understanding that certain traditional
rural industry products can generate large employment per unit of investment
compared to other products, it was resolved that such products should be given a
further fillip. It was further realized that in spite of our very satisfying
growth rates in exports, there remained a large number of countries,
particularly in the developing world, to which our exports were alarmingly low.
Our competitors have been wooing these markets aggressively, and it is necessary
for India to step in and occupy ‘space’, in order to ensure a balanced
international spread in our trade as well as to secure future markets. This
recognition led to the formulation of Focus Market and Focus Product schemes.
To take the benefits of foreign trade further to rural areas, the Vishesh Krishi
Upaj Yojana is being expanded to include village industries products for export
benefits.
Policy the result of consultative mechanism
A large portion of the changes in the Annual Supplement resulted from the inputs
received through interactive sessions with various Export Promotion Councils,
Industry organizations, Apex Chambers of Commerce & Industry and sister
Departments of Government. The Board of Trade has emerged as an effective
institutional mechanism and idea generator
for the Foreign Trade Policy. A number of useful inputs have been obtained
through the Working and Study Group reports and brain storming sessions of the
reconstituted Board of Trade. The specific initiatives undertaken in this Annual
Supplement to the Foreign Trade Policy, 2004-09 are given in this compendium.
They will, of course, be incorporated in the revised version of the principal
document.
KAMAL NATH MINISTER OF COMMERCE & INDUSTRY GOVERNMENT OF INDIA
New Delhi
April 7, 2006
HIGHLIGHTS OF ANNUAL SUPPLEMENT TO THE FOREIGN TRADE POLICY 2004-09
1. PRODUCT- MARKET FOCUS
The twin schemes of Focus Product and Focus Market are being introduced with the
understanding that our national export strategy should focus not only on
neutralizing duties and levies but also on providing additional stimulus to (a)
promote export of products having large employment potential and (b) penetration
of strategic markets by Indian products, especially markets
in which our exports are comparatively low.
1.1 Focus Product
The Scheme provides incentives to export of products which have high employment
potential in rural and semi urban areas in order to offset the inherent
infrastructure bottlenecks and other associated costs involved in marketing of
such products. The Scheme allows duty credit facility @ 2.5% of the FOB value of
exports to fifty percent of the export turnover of notified products such as
value added fish and leather products, stationery items, fireworks, sports
goods, handloom products bearing handloom mark and handicraft items.
1.2 Focus Market
The Scheme aims at offsetting the high freight cost and other disabilities faced
in accessing select international markets. The initiative will enhance India’s
export competitiveness in these regions. The Scheme allows duty credit facility
@ 2.5% of the FOB value of exports of all products to the notified countries.
1.3 Common features
The scrip and the items imported against it would be freely transferable.The
Duty Credit, thus obtained may be used for
import of inputs or goods including capital goods, provided the same is freely
importable under ITC(HS). Exporters will have the option to avail of the
benefits in respect of the same exported product/s under only one of the 3
schemes i.e. the Focus Market Scheme, the Focus Product Scheme or the Vishesh
Krishi and Gram Udyog Yojana. The benefits of the Scheme will accrue to exports
made with effect from 1st April, 2006.
2. PROMOTING RURAL AND AGRO PRODUCTS
2.1 Vishesh Krishi and Gram Udyog Yojana
Keeping in view the objective of Foreign Trade Policy to promote employment
generation in rural and semi urban areas, it has been decided to incentivise the
export of village and cottage industry products by awarding a duty free scrip @
5% of FOB value of exports under the expanded Vishesh Krishi Upaj Yojana, which
has been renamed as Vishesh Krishi and Gram Udyog Yojana.
2.2 Encouraging indigenous procurement of inputs Government is seized of the
need for promoting the use of domestic farm produce in agricultural
exports. A built-in incentive has therefore been introduced under Vishesh Krishi
and Gram Udyog Yojana for exporters utilizing domestic raw material for export
production. Such exports would now get additional benefits under the Vishesh
Krishi and Gram Udyog Yojana @ 1.5% of FOB value of exports compared to those
who use imported agricultural inputs who shall get benefits at a reduced rate of
3.5%. This will encourage indigenous procurement of inputs for agricultural
exports and help the farming community.
3. PROMOTING SERVICES EXPORT
A number of features have been added in the Served from India Scheme to meet the
requirements of Service Exports:
I. Service exports in Indian Rupees, which are otherwise considered as having
been paid for in free foreign exchange by RBI, will now qualify for benefits
under the Served from India Scheme. In addition, the foreign exchange earned
through International Credit Cards and other instruments as permitted by RBI for
rendering of service by the service providers shall be taken into account for
the purposes of computation of entitlement under the Scheme.
II. Benefits of the Scheme earned by one service provider of a Group company can
now be utilized by other service providers of the same Group Company including
managed hotels. The measure aims at supporting the Group service companies not
earning foreign exchange in getting access to the international quality products
at competitive price and providing services of international standards. This new
initiative allows transfer of both the scrip and the imported input to the Group
Service Company, whereas the earlier provision allowed transfer of imported
material only.
III. Stand-alone restaurants will now be eligible for benefits under Served from
India Scheme @ 10% of FOB value of exports (instead of the earlier 20%).
4. INDIA EMERGING AS GEM AND JEWELLERY HUB
Because of a rich tradition of craftsmanship, enterprise and availability of
skilled, low cost manpower India has the potential to become a Gems and
Jewellery hub of the world. This Supplement introduces a number of measures for
facilitating export of value added products catering to changing needs of the
market, facilitating easier product movement across the borders and allowing
import of precious metal scrap for refining. Such measures will help Indian Gems
and Jewellery to sparkle on the world stage.
4.1 Import of precious metal scrap/used Jewellery for melting and re-export of
Jewellery.
Large melting, refining and jewellery making production capacity has been set up
to cater to fast changing jewellery fashion. Such activity in India will
generate employment and will help India in evolving as a base for export of
jewellery. To enable such capacities to be used in productive manner, import of
precious metal scrap/used Jewellery will now be allowed for melting, refining
and re-export of Jewellery. However, such import will not be allowed through
hand baggage.
4.2 Re-import of rejected Jewellery
Gems & Jewellery exporters will now be allowed to re-import the rejected
precious metal jewellery subject to refund of duty exemption benefits on the
inputs only and not the duty on jewellery as was being done earlier.
4.3 Export of Jewellery on consignment basis
Many a times exporters faced the dilemma of unsold jewellery in the foreign
markets because of changing designs and other such factors. To overcome this
problem, Gems & Jewellery exporters will now, be allowed to export jewellery on
consignment basis. The measure will give a marketing thrust to Indian jewellery
sector.
4.4 Export of cut & polished stones for treatment and re-import
Treatment of cut and polished precious and semi- precious stones enhance the
quality and afford higher value in the international market. For this purpose,
Gems & Jewellery exporters will now be allowed to export such items for
treatment and subsequent re-import, within a period of 120 days.
4.5 Value addition on jewellery exports reduced
Increase of gold and silver prices in the international market over the past few
years has made the present value addition norms on export of gold & silver
jewellery unrealistic. To boost export of plain gold/platinum/silver jewellery,
articles and ornaments and enhance their internation competitiveness, the value
addition norm for such items is being reduced from 7% to 4.5%.
5. AUTOMOTIVE HUB-ALLOWING IMPORT OF VEHICLES FOR R & D
India is fast emerging as an important centre for sourcing auto components.
Foreign Trade Policy already extends a number of facilities for the sector.
Provision to allow import of new vehicles by auto component manufacturers for R
& D purposes without homologation is being introduced. However, as the facility
is for promoting R&D in the sector, the imported vehicle can not be registered
under the Motor Vehicle Rules in the country and will not be allowed to ply on
Indian roads.
6. AVIATION SECTOR- INDIA AS A MAJOR REFUELLING STOP FOR INTERNATIOANL
FLIGHTS
Supplies of stores (food, beverages and other supplies) and refueling of long
distance flights has emerged as a big business opportunity. Currently, most
airlines on this route replenish supplies or refuel at Thailand, Malaysia or
Singapore. Since these supplies were not treated as exports in India and the
suppliers could not obtain the duty neutralisation benefits available to other
export products the store supplies from India became largely uncompetitive. Now
such supplies are being brought on equal footing with other exports and supplies
of stores on board of the foreign going vessel/aircraft shall be treated as
exports for the purpose of availing benefits under various Export Promotion
Schemes. This will enable India offer competitive fuel prices and will attract
mid route stops of the international flights.
7. BPO/ ITES SECTOR
Procedural changes have been effected in order to enable BPO/ITES Companies to
avail of refund of Central Sales Tax. Earlier these units were not able to avail
of this benefit and they preferred to source their inputs from abroad rather
than domestically.
8. DUTY FREE INPUTS TO MARINE SECTOR
The list of specialized inputs used in the marine sector has been expanded to
include additional items of chemicals and other additives within the present
duty free entitlement of 1%.
9. DUTY NEUTRALIZATION
10. EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME
10.1 Providing flexibility in maintaining Average Export performance
Exporters under the scheme are required to maintain the level of their base
export performance and undertake additional export obligation for availing the
facility of importing capital goods at reduced custom duty. However, in a number
of situations exporter finds it difficult to maintain average export
performance. This could be because of sickness of the unit, international market
dynamics or technology changes which diminish the market of earlier products
etc. To address the issue, it
has been decided to provide some flexibility in maintenance of average export
performance under EPCG Scheme. Details would be announced separately.
10.2 Settlement of Old EPCG Cases
In many cases exporters may face difficulty in fulfilling the export obligation
it has undertaken under the EPCG Scheme and approach the Government for
extending the time period permitted to complete such exports. Such cases are now
being decided on a case-to-case basis. It has been decided as an export
facilitation measure to extend the export obligation period by a further period
of 2 years on payment of 50% of the duties payable in proportion to the
unfulfilled Export Obligation.
11. EXPORT ORIENTED UNITS (EOUs)
II. In order to facilitate the smooth functioning of the EOU
units, Development Commissioners will fix time limits for finalizing the
disposal of matters relating to EOUs.
III. New units engaged in export of agriculture/ horticulture/ acquaculture
products have been now allowed to remove capital goods/inputs to the DTA farm on
producing bank guarantee equivalent to the duty foregone on the capital
goods/input proposed to be taken out.
IV. The EOU units in the Textile sector are allowed to dispose off the left over
material/fabrics upto 2%
of CIF value of imports, on consignment basis. Recognising that settling the
accounts for every consignment is complex and time consuming it has been decided
to allow disposal of left over material on the basis of previous year’s imports.
12. IMPORT POLICY FOR GENETICALLY MODIFIED (GMO) MATERIAL
For benefit of the consumer, clear guidelines for import of Genetically Modified
Material are being laid down. While making such imports, products which have
been subjected to Genetic Modification will carry a declaration stating that the
product is genetically modified. In case a consignment does not carry such a
declaration and is later found to contain genetically modified material the
importer is liable for penal action under Foreign Trade (Development &
Regulation) Act, 1992.
13. TRADE FACILITATION
13.1 Interest Payment on refunds
It has been decided that interest for delayed payment of refunds would be made by the Government to ensure accountability and cut delays.
13.2 Fast Track Clearance procedure for units in Export Oriented
Units(EOUs)
Foreign Trade Policy provides for a Fast Track Clearance procedure for Status
holders. To operationalise this provision, Department of Revenue is issuing
similar instructions. Now units having physical turnover of Rs. 15 Crores will
be allowed the facility of submitting consolidated procurement certificate and
pre- authenticated procurement certificates.
13.3 Advance Licensing liberalised where norms are not fixed
In cases where standard input output norms are not fixed, Advance Licences can
now be obtained for 5 times the value of previous year’s export instead of the
earlier limit of 200%.
13.4 Pre-shipment certificates in lieu of test report for faster clearances
Clearance of import/export consignments are held up for want of test reports of
samples drawn at the time of import/export. Therefore to accelerate cargo
clearances, it has been decided to allow pre-shipment test certificates from
accredited international agencies in lieu of test reports.
13.5 Transaction cost of Gems and Jewellery exporter comes down as Legal
Undertaking replaces Bank Guarantee
Recognizing transaction costs involved in obtaining Bank Guarantees, the
eligible Gems & Jewellery exporters have been exempted from compulsory Bank
Guarantee requirements on imports effected which will bring this sector at par
with other sectors.
13.6 EDI Initiatives
DGFT is committed to simplify procedures relating to international trade and put
in place an exporter friendly regime for obtaining import authorizations and
disbursement of export linked incentives. A single consolidated ‘Aayaat Niryaat
Form’ has been devised for different categories of applications. A web based
online system of filing import/export applications is also in place.
Requests for obtaining authorizations relating to Advance Licence, EPCG Licence
and DEPB are to be filed on the DGFT website www.dgft.gov.in with a digital
signature and payment of licence fee through the electronic fund transfer mode (EFT)
and no manual applications and supporting documents are required to be submitted
to DGFT regional offices now. All EDI applications are processed within one
working day. We propose to take the following EDI initiatives in the next six
months to take the process further:
a. Bring all the community partners dealing with international trade on a EDI
enabled platform to reduce transaction costs;
b. Extend the online web enabled application procedure for issuance of licences/
authorisation to other categories of licences / authorisation also;
c. Consolidating the message exchange system with Customs and extending its
scope to cover all categories of Shipping Bills relating to different export
promotion schemes.