ADDRESS BY SHRI KAMAL NATH
MINISTER OF COMMERCE AND INDUSTRY
AT THE RELEASE OF THE ANNUAL SUPPLEMENT TO THE FOREIGN TRADE POLICY 2004-2009
APRIL 19, 2007
INTRODUCTION
1. I am very happy to welcome all of you to the release of the third
Annual Supplement to the Foreign Trade Policy, 2004-09. Over the years, India’s
foreign trade has come to occupy a pivotal position in the economic scenario and
prosperity of the
country. Exports are no longer means of generating dollars, as was the position
in the country during our initial phase of development. Now exports are the
engines of growth and the drivers of employment generation. While the remarkable
growth in exports which we have witnessed in recent years has contributed
immensely to the higher rates of economic growth recorded in the country, our
imports have helped modernize the Indian industry and built capacities for
enhanced production.
2. Our Prime Minister has been a source of guidance and constant
encouragement for promoting India’s foreign trade. I am encouraged by the
efforts of our exporting community, which despite the spiralling oil prices,
strengthening of the Rupee and many other constraints, have achieved the
ambitious targets set by us in 2004. They have demonstrated that they are as
competitive and capable as the best in the world. My sincere gratitude to the
Prime Minister and congratulations to the
exporters.
TRADE PERFORMANCE
3. Three years ago while announcing the Foreign Trade Policy I set goals and
target and the vision I enunciated has borne fruit. When the UPA Government
assumed office, our merchandise exports were US$ 63.84 billion. In the year
ending March 2007, the exports surged to US$ 125 billion. This near doubling in
three years represents an annual compounded growth of 25% compared to 12.73% in
the previous three years. Our exports have become globally competitive and found
many new
4. With merchandise-imports growing faster than exports of goods, we do have
a trade deficit. But, taking into account the export of services, the position
improves substantially and the trade gap in goods and services becomes much
smaller and
more manageable. In fact, I find that our non-oil imports consist significantly
of capital goods, raw-materials and other critical inputs which are required for
sustaining our industrial growth, particularly the manufacturing process. As the
Minister in-charge of the Industry portfolio also, I would consider this as a
healthy development, which augurs well for creation of production capacity and
employment generation for the future.
EXPORTS FOR MORE INCLUSIVE GROWTH
5. Working for a more inclusive growth process, I am ensuring that the
Foreign Trade Policy becomes a vehicle for faster development of our rural areas
and of agriculture, on which over 60% of our people still depend for their
livelihood. Exports
of agriculture products like spices, fruits and vegetables are growing rapidly
at 35 to 40% annually. Incentivising Agri exports
6. Our ‘Vishesh Krishi and Gram Udyog Yojana’ (VKGUY) is being expanded to
include coconut oil, soyabean oil, potato flakes, meals and flours, cardamom,
food preparations like soups, sauces, pasta & bakery products, artistic wooden
furniture,
herbal extracts of forest products, malt and minor forest produce, etc.
7. I am also introducing a new Scheme for incentivising agro processing with
status holders being rewarded with duty credit scrips equal to 10% of the value
of agricultural exports, provided they use them for duty redemption on imports
of cold
storage, pack houses, reefer vans, etc. This would be over and above the
benefits available from the existing schemes of Ministries of Agriculture and
Food Processing, etc. Benefits under VKGUY would also be given to such EOUs
which do not avail direct tax benefits. I lay the highest emphasis on developing
agricultural exports to ensure that product diversification improves in Indian
agriculture. As we all know, we have widespread subsistence farming which has to
move towards producing marketable surpluses, be it for domestic or export
markets. Enlarging Focus Product & Focus Market Schemes
8. Buoyed with the success achieved by the Focus Product Scheme (FPS), I am not
only enlarging the items included under it, but also increasing the allocation
for it by more than 50% from the existing level of Rs.650 crores to Rs.1000
crores. Mica and
its variants, barley, oats, soyabean, cigar/cheroots, bovine fats and copra are
being included under it. Also, 16 new countries including 10 former CIS
countries are being included under the Focus Market Scheme (FMS). Thrust on
Handloom, Handicrafts, Cottage and Tiny Industries
9. Our handloom and handicraft industries will receive a special focus in
this year’s Trade Policy, and the new initiative will provide for tools,
machinery and equipment for handicrafts within the present duty-free entitlement
ceiling. This would
allow these rural-based activities to modernize and scale up operations to meet
the market challenges. Also, exemption from duty is being granted on the
machinery and equipment needed for effluent treatment plants required by
handloom and handicraft industries. In a similar measure to further support the
cottage and the tiny industrial sector, the export obligation period under EPCG
Scheme for them is being increased from 8 to 12 years.
10. By enlarging and better funding, the VKGUY, FPS, FMS, handloom and
handicrafts and the cottage and tiny sectors, our endeavour is to reach out to
the over 650 million people who live in the rural areas and whose lives have not
been really touched by the process of industrial and services led growth we are
currently witnessing. I am of the firm conviction that if our growth has to be
sustainable over time, it should not remain urban-centric or be confined to only
a few cities and their
peripheral areas.
SECTOR-SPECIFIC INITIATIVES
Gems & Jewellery
11. Sectors like gems and jewellery, which are in the forefront of our export
efforts, are being given greater attention in the New Policy. Tools, machinery
and equipment needed by it would be covered within the present duty-free
entitlement limit and
keeping in view the increase in global prices of precious metals, the duty-free
entitlement for consumables for export of rhodium plated finished silver
jewellery has been increased to 3% of FOB value of exports. To ensure quality
and competitiveness of our diamond exporters, we have included the testing
facility at Dubai in our approved list of Certifying Agencies.
Export of Services exempted from Service Tax
12. With a view to facilitating the export of services from India, all the
services rendered abroad and charged on exports from India would henceforth be
exempted from payment of service tax. This was a long pending demand of our
exporting
community and I am happy to be able to accede to it. Similarly, service tax on
services rendered in India, but utilized by exports would be exempted or
remitted. A remission mechanism, where exemption is not available, is being put
in place in consultation with Department of Revenue.
13. India’s IT sector had so far led the Business Process Outsourcing (BPO)
boom and made India one of the leading players in export of services. With
increasing competition in the BPO sector emerging from China, East European
countries and
others, we need to evolve new avenues for exports of services. Knowledge Process
Outsourcing (KPO) and Engineering Process Outsourcing(EPO) are fast emerging as
the new areas of opportunity. The current global EPO market is estimated at 2 to
3 per cent of the total global expenditure and is likely to become 5 per cent by
2010 and 9 to 10 per cent by 2015. Given our comparative advantage in manpower,
skills and design capabilities, we should aspire to capture 20 to 25 per cent of
the global market share. Several initiatives in this regard would need to be
taken, both at the Central and State Government levels.
GENERAL EXPORT PROMOTION SCHEMES
14. Though the DEPB(Duty Entitlement Pass Book) Scheme stands extended for another year upto 31.3.2008, I am aware of the need to have a new scheme in its place by next year. I hope that all stakeholders particularly Export Promotion Councils and Commodity Boards would give their views to DGFT regarding the new scheme latest by May 31, 2007.
15. Realising the growing potential of India to export high-tech items, an
Export Promotion Scheme for them is being launched under which a duty credit of
10% of incremental export growth would be given as an incentive. The list of
eligible products
is being drawn up in consultation with the concerned scientific Ministries.
16. We have also been able to meet another pending demand of the exporters, who would now become eligible for reimbursement of cost of duty on Fuel and Special Additional Duty (SAD).
17. I am also increasing the limit for duty free import of samples from Rs.60,000 to Rs.75,000.
18. Import of spares, tools, spare refractories for all the existing imported plant and machinery would also be now allowed under Export Promotion Capital Goods (EPCG) Scheme. This should allow the manufacturers to replace and more optimally utilize their machinery imported earlier.
19. I am now doing away with the present restrictive requirement of block-wise fulfillment of export obligations. This should not only reduce transaction cost and paper work, but also minimise the effect of cyclical fluctuations in international markets. I am further directing that wherever more than one concurrent EPCG authorization has been issued, the fresh EPCG authorization would build upon the last required average export obligation only, notwithstanding the actual achievements of the previous year. This way better performance would not be penalized. Additionally, we are providing for waiving the outstanding export obligations, where force majeure and other unforeseen circumstances have prevented the fulfillment of the export obligations.
20. Developers and co-developers of SEZs would be notified for benefits for
duty neutralization under DEPB, DFIA (Duty Free Import Authorization) and
Advanced Authorization Schemes. Supplies of accessories, such as buttons and
hangers by
REDUCING TRANSACTION COSTS & DELAYS
21. I am fully aware that trade transaction costs in India tend to be high
and can erode our competitiveness. If we have to continue to grow through the
trade route, it is of utmost importance that we streamline our procedure and
processes and adopt
global best practices, including in port handling, customs clearances, and
transportation arrangements. To start with, the following measures are being
introduced to reduce the transaction costs: Verification of documents under
various export promotion schemes would be done in the same manner as under DEPB,
which has now been online for quite some time.
Second verification by the customs authorities under EPCG and advanced
authorization scheme would be resorted to only on random basis. Installation
certificate on imported capital goods can now be obtained from a Chartered
Engineer instead of only from an Excise official. The length of the existing
‘Aayat Niryat Form’ has also been reduced substantially. The word
‘manufacturing’ is being clearly defined in the new Income Tax Code to ensure
greater predictability and stability in determining direct tax liability of
domestic manufacturers.
TRADE POLICY & FOREIGN DIRECT INVESTMENT
22. I must mention here about the robust growth in our Foreign Direct
Investment. A liberal Trade Policy has a direct effect on FDI flows and the two
are closely interrelated. The year 2006-07 has seen our FDI equity inflow go up
to almost US$ 16
billion from US$ 5.5 billion in the previous year – almost tripling of the
inflows in one year. The last three years of our Government has seen a
staggering 725% increase in FDI inflows – up from US$ 2.22 billion in 2003-04 to
US$ 16 billion in 2006-07! In line with the international practice of including
the retained earnings reinvested, our FDI touches US$ 19 billion in 2006-07,
constituting 2.3% of our GDP. This is about 6.8% of the gross capital
formation or gross investment in the economy. I am sure, you would agree, that
this is quantum jump compared to only 0.5% of GDP and about 1.5% of gross
investment three years ago. The directional flow of FDI into manufacturing and
export of goods and services is contributing immensely to our export efforts.
Special Economic Zones (SEZs)
23. Our SEZs are also receiving considerable foreign investments and becoming
instruments of employment generation and export promotion. 92 SEZs have been
notified till date and 50 of these are at various stages of implementation. Over
18,000
direct jobs have already been created and it is expected that as many as 15 lakh
jobs would be created in the SEZs already approved. The total investment so far
in these SEZ’s is Rs 13,500 crores. During the current year, it is expected that
an additional investment of over Rs 40,000 crores and 10 lakh jobs would be
created in SEZ’s.
24. I would like to conclude by recalling the long way we have come in
developing our export capabilities and enhancing our global competitiveness.
Till the early 90’s, our focus was on import substitution measures and
minimizing the trade gap. Since
then we have crossed many milestones to emerge as a major trading nation with
over one-third of our GDP coming from foreign trade. In this background,
merchandise export target of US$ 160 billion is being set for the current year
2007-08 and US$ 200 billion for 2008-09. This upward revision in our goal – up
from US$ 150 billionenvisaged earlier – should not be too difficult to attain,
given our strong economic fundamentals, the entrepreneurship of our exporting
community and the collective
resolve of government and trade & industry.
25. Thank you.
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