The thrust of the annual modifications to the Export Import (EXIM) Policy for 1997-2002 announced by the Government of India on March 31, 2001 has been twofold : (a) export promotion with a focus on agricultural products, and (b) complete removal of quantitative restrictions (QRs) on imports along with adequate safeguards to protect the interests of the domestic economy.

Against the background of an encouraging export growth during 2000-01 and looking forward to export-led growth as the strategy of development, the modified EXIM Policy aims at accelerating the growth rate of India's exports so as to achieve at least 1 per cent share of world exports by the year 2004-05. This would call for an annual export growth of roughly 18 per cent in US dollar terms. With this overall goal, two major export promotion schemes - Agricultural Export Zones and Market Access Initiative - have been announced. State Governments have been accorded a major role in export promotion activities. Significant changes have also been made in several existing export promotion schemes - notably the Special Economic Zones (SEZ) scheme and Export Promotion Capital Goods (EPCG) scheme. In addition, procedures relating to customs clearance have been streamlined and, annual advance licensing schemes have been strengthened.

The major highlights of the policy announcements covering export promotion initiatives, measures relating to the removal of the quantitative restrictions (QRs) on imports and those aimed at protecting the interests of the domestic economy, and measures involving simplification/rationalization in the rules/ procedures are presented in the following paragraphs^@.

A. Export Promotion Initiatives

Two important export promotion schemes announced in the Modified EXIM Policy are: (a) Agricultural Export Zones (AEZs), and (b) Market Access Initiative (MAI).

a) Agricultural Export Zones (AEZs)

The EXIM Policy envisages the setting up of Agricultural Export Zones, which are supposed to be the "Regional Rural Motors of Indian Export Economy". In order to give an impetus to agricultural exports, an appropriate agricultural policy would be evolved shortly and efforts would be made to provide improved access to the produce/products of the agriculture and allied sectors in the international market. State Governments would identify Agricultural Export Zones for export of specific products from a geographically contiguous area. State Governments would evolve a comprehensive package of services to be provided by State Government Agencies, State Agricultural Universities and all the institutions and agencies of the Union Government. Management and co-ordination of the services such as provision of pre/post harvest treatment, plant protection, processing, packaging, and related research and development would also be done by the State Governments, while the Agricultural and Processed Foods Exports Development Authority (APEDA) would supplement their efforts for facilitating such exports.

The benefits of the export promotion schemes such as Duty Exemption Scheme and the Export Promotion Capital Goods Scheme have been made applicable to the agriculture sector as well. Agricultural exporters shall also be entitled to being recognized as Export House/Trading House/Star Trading House/Super Star Trading House on achieving 1/3^rd of the threshold limit as prescribed for exporters of goods.

b) Market Access Initiative (MAI)

Under the Market Access Initiative (MAI) scheme, the Government would assist the industry in research and development, market research, market and product specific studies, warehousing and retail marketing infrastructure in select countries, and direct market promotion activities through media advertising and buyer-seller meets. The policy announcement also mentions about the decision to set up a Business-cum-Trade Facilitation Centre and Trade Portal in Pragati Maidan, New Delhi for building up a comprehensive information base and easy accessibility to relevant information for the exporters and importers.

B. Modifications in the Existing Schemes

The EXIM policy has announced certain major changes in the existing export promotion schemes, which aim at streamlining procedures relating to Special Economic Zones, Export Promotion Capital Goods scheme and strengthening of annual advance licensing.

a) Special Economic Zones (SEZs)

The Special Economic Zones (SEZs) scheme was announced on March 31, 2000 in order to promote export-production in a hassle-free atmosphere. The SEZs are specifically delineated duty-free enclaves, deemed as foreign territory for the purposes of trade operations and duties and tariffs. A new Chapter on the SEZs scheme has been incorporated in the modified EXIM Policy, giving details regarding eligibility, procedures for setting up of SEZs, exports/imports of goods and domestic tariff area (DTA) sales/ supplies by the units, entitlement of SEZ developers, and transitional arrangements (for existing EPZs) etc. The major changes regarding the SEZs scheme are:

• The SEZ developers would be allowed duty-free import/ procurement from the DTA for development of SEZs in order to give a boost to the development of integrated infrastructure for exports.
• Duty-free import/procurement from DTA of goods would also be permitted for setting up of factory in these Zones.
• The SEZ developers would be eligible for various entitlements as provided for in the Income Tax Act for developing SEZs.
• The trading units in SEZs have been permitted to sell goods in DTA in accordance with the import policy in force.
• SEZs would be permitted to subcontract a part of their production or production process through units in the DTA or through other SEZ/Export Oriented Unit (EOU)/Export Processing Zones (EPZ)/Electronics Hardware Technology Parks (EHTP)/Software Technology Parks (STP). Subcontracting of part of the production process abroad would also be permitted.
• The items reserved for small-scale industries (SSI) would not require any licence for setting up units in SEZs.
• The units in SEZs would be allowed to bring back their export proceeds in 365 days as against the normal period of 180 days, and can retain 100 percent of the proceeds in the Exchange Earners' Foreign Currency (EEFC) account.
• To facilitate greater flexibility and to attract capital-intensive units into the SEZs, amortization of value of imported capital goods is being spread over a period of 8 years instead of 5 years at present.

b) Export Promotion Capital Goods (EPCG) Scheme

The EPCG scheme is applicable to the import of new capital goods, including computer software systems. Under the scheme, manufacturer exporters with or without supporting manufacturers/vendors, merchant exporters tied to supporting manufacturers and service providers are eligible to import capital goods. The modifications effected in the scheme are:

• The imports of capital goods under this scheme (including jigs, fixtures, dies and moulds) on concessional duty would be allowed for the full 'cost of insurance and freight' (CIF) value of the licence instead of restricting it to 20 per cent of the CIF value of licence.
• For consideration of applications, a time limit of six months has been prescribed for finalization of the nexus norms by the EPCG Committee, failing which the nexus as applied for shall be treated as final.
• The export obligation period for the licences issued under this scheme during the period 1990-1996 has been extended up to March 31, 2002, upon execution of Bank Guarantee with the licensing authority.
• There will be no penalty for value-wise shortfall in exports under the EPCG scheme, except for payment of the customs duty together with the interest.
• The facility for partial fulfillment of export obligation has been extended under EPCG scheme to reduce transaction time.
• For redemption, the licence holder has been extended the facility to submit either a consolidated statement signed by all banks or separate statements signed by individual banks.

c) Duty Exemption Scheme

The Duty Exemption Scheme enables import of inputs required for export production. An Advance Licence is issued under Duty Exemption Scheme to allow imports of inputs, which are physically incorporated in the export product. In addition, fuel, oil, energy, catalysts etc., which are consumed in the course of their use to obtain the export product, are also allowed under the scheme. Advance licences can be issued for physical exports, intermediate supplies and deemed exports. Advance licences can also be issued on the basis of annual requirement for exports/supplies. The changes incorporated under Annual Advance Licence/ Advance Licence are:

(i) Annual Advance Licence

• The Annual Advance Licence facility has been extended for deemed exports and intermediate supplies.
• This facility has also been extended to exports other than Standard Input Output Norms (SION) exports.
• The entitlement for Annual Advance Licence has been increased from 125 per cent to 200 per cent of the 'free on board' (FOB) value of preceding year exports.
• Clubbing all imports and exports of more than one Annual Advance Licence has been allowed provided the imported inputs are properly accounted for.
• The need of technical characteristics for inputs has been dispensed with, except for items in the sensitive list.

(ii) Advance Licence (AL)

• Duty free import/procurement of fuel allowed under SION for sectors where the same costs more than 10 per cent of the manufacturing cost.
• The facility of AL has been extended even to the cases where the buyer supplies some of the inputs free of cost.
• The entitlement for AL where SION does not exist has been raised from 100 per cent to 200 per cent of the "free on board" (FOB) value of preceding year's exports for Export House/Trading House/ Star trading House/Super Star Trading House.
• Additional facility has been extended for AL where SION does not exist beyond entitlement, against execution of Bank Guarantee.
• The need of technical characteristics for inputs has been dispensed with, except for items in the sensitive list.
• The facility of back-to-back inland letter of credit for AL, which hitherto was confined to one bank and one branch, has now been extended to cover any bank and branch.
• Expired AL would be revalidated in cases where export obligation has been completed by six months.
• There would be no penalty for value-wise shortfall under AL, except for the customs duty together with the interest, provided the licence holder has achieved positive/ minimum value addition.

d) Duty Remission Scheme

The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product. Duty Remission Scheme consists of Duty Free Replenishment Certificate (DFRC) Scheme and Duty Entitlement Passbook (DEPB) Scheme. The DFRC is issued to a merchant-exporter or manufacturer-exporter for the import of inputs used in the manufacture of goods without payment of basic customs duty and special additional duty. However, such inputs are subject to the payment of additional customs duty equal to the excise duty at the time of import. The DEPB Scheme is available to exporters who do not want to go through the licensing route. The objective of the DEPB Scheme is to neutralize the incidence of customs duty on the import content of the export product. The neutralization is provided through grant of duty credit against the export product. The major changes in the DFRC and DEPB Schemes are set out below.

(i) Duty Free Replenishment Certificate (DFRC) Scheme

• The validity of this scheme has been extended from 12 months to 18 months.
• The need of technical characteristics for inputs except for items in the sensitive list has been dispensed with.
• Automatic calculation of CIF value under this scheme would be done without reference to the international price of individual inputs.
• Provision for claim of DFRC against advance payment has been incorporated.

(ii) Duty Entitlement Passbook (DEPB) Scheme

• Validity of the DEPB has been extended up to the last day of the month of expiry.
• Provision has been made for claiming of DEPB against advance payment.
• Rationalization of the DEPB rates has been made in line with the changes in customs duty on account of Union Budget.
• Additional ports have been covered under DEPB.
• Telegraphic Release Advice (TRA) facility has been extended to all the notified ports under DEPB scheme.

e) Export Oriented Units (EOUs)/Units in Export Processing Zones (EPZs)/ Electronics Hardware Technology Parks (EHTPs)/Software Technology Park (STPs)

Units set up under EOU/EPZ/EHTP/STP Schemes are units undertaking to export their entire production of goods and services. Such units can be engaged in manufacture, services, trading, repair, remaking, reconditioning, re-engineering, agriculture, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granites and can export all products except prohibited items of export mentioned in Indian Trade Classification (Harmonised System), [ITC(HS)]. The modifications under these schemes aimed at overall rationalization and simplification of procedures are as follows:

• EOU/EPZ units have been allowed to achieve a minimum Export Performance (EP) of 3 times the value of capital goods (CG) over 5 years instead of 5 times the value of capital goods.
• The highest Net Foreign Exchange earning as a percentage of exports (NFEP) requirement has been pegged at 10 per cent.
• The supplies made to bonded warehouses set up by EOU/EPZ units would be treated as exports for the purpose of domestic sales entitlement.
• Sub-contracting of production process abroad would be permitted. Previously, sub-contracting was permissible only within the country.
• For fulfillment of NFEP/EP, the supplies effected in Domestic Tariff Area (DTA) against payment from Exchange Earners Foreign Currency (EEFC) Account of the buyer would be counted.
• The EOU/EPZ units would henceforth be able to account for the entire quantity of duty-free goods imported. They would not have to co-relate every import consignment with its exports.
• E-Mail address is being made compulsory for approving EOU/EPZ units from April 1, 2001.
• The value restriction (US $ 20 million) on the powers of the Development Commissioners (DC) to approve EOU/EPZ projects, has been withdrawn.
• Conversion of existing DTA units into EOU/EPZ/EHTP/STP scheme has been permitted. In case there is an outstanding export commitment under advance licensing scheme, the unutilized material imported against the advance licensing scheme may be carried forward to the EOU/EPZ/ EHTP/STP scheme.
• A Committee consisting of the DC and customs/central excise officers shall do joint monitoring of EOU/ EPZ units.

f) Gems and Jewellery Sector

Under the Diamond, Gem and Jewellery Export Promotion Schemes, exporters of gem and jewellery are eligible to import their inputs by obtaining Replenishment (REP) licence and Diamond Imprest Licences from the licensing authorities in accordance with the procedure specified in this behalf. In addition the policy relating to Bulk licence and schemes for gold/ silver/platinum jewellery are also spelt out. Some of the important changes in these schemes are given below.

• The Diamond Dollar Account Scheme (DDAS) has been extended to the diamond studded jewellery exporters having an average annual turnover of Rs.5 crore or above during the preceding three licensing years.
• The DDAS holders would be allowed to operate up to five bank accounts as against maximum of two accounts prescribed earlier.
• The non-DDAS holders would be allowed to supply cut and polished diamonds to DDAS holders, which would be counted towards discharge of their export obligations or entitle them to Replenishment licence, as the case may be.
• With a view to facilitating certification/grading by international laboratories/ agencies, cut and polished diamonds weighing 0.50 carats and above have been permitted for export and return of such diamonds for certification purposes.
• More flexibility has been given to the exporters under the Gold Loan Scheme by allowing them to fix the price and repay the gold loan within 180 days from the date of export, subject to this price being also confirmed by the final buyer and the nominated agency supplying gold.
• The foreign buyer scheme, under which precious metals could be supplied free of cost to the Indian manufacturers for job working, has been extended to exporters having an annual average turnover of Rs.5 crore during the preceding three years.
• Exporters would be allowed to personally carry gems and jewellery valued up to US$ 2 million for purposes of holding/participating in overseas exhibitions. The provisions of personal carriage of gems and jewellery export and import parcels would be available from the Bangalore airport also, in addition to Delhi, Mumbai, Kolkata and Chennai.

g) Deemed Exports

"Deemed Exports" refers to those transactions in which the goods supplied do not leave the country. Following changes have been effected under this category :

• Suppliers have been given the option to file application either project-wise or covering supplies to all projects during a month/quarter/ half-year while claiming Terminal Excise duty/Drawback facility.
• The suppliers have also been given the option to file claims covering all the supplies to a project.
• A standard format has been prescribed for receipt of payment through normal banking channel.
• For supplies under certain specified categories of the Policy, the subcontractor has been given the facility to file Terminal Excise duty refund without waiting for payment from the main contractor.

C. Removal of Quantitative Restrictions (QRs) and Related Measures

A major policy initiative of the modified EXIM policy is the complete removal of quantitative restrictions (QRs). India was maintaining QRs for balance of payments reasons under the GATT principles. However, under the WTO Agreement, India had begun the process of phased dismantling of QRs since the latter half of the nineties. As per the phase-out plan in respect of the balance of payments related QRs on imports (1,429 items) announced on March 31, 2000, QRs on 714 items were removed on March 31, 2000 and QRs on the remaining 715 items were removed on March 31, 2001. These included 342 textile products, 147 agricultural products, including alcoholic beverages and 226 other manufactured products, including automobiles. However, in order to guard against any surge in imports causing injury to domestic industry, the Government announced several safeguard measures. Prominent among them are institutional mechanisms such as adjustment of tariffs, imposition of temporary QRs, safeguard duties and anti-dumping duties. In addition, importers have to comply with all the conditions of Standard of Weights and Measures (Packaged Commodity) Order, 1977, on imports as applicable to domestic producers.

The imports of agricultural products like wheat, rice, maize, other coarse cereals, copra and coconut oil have been placed in the category of State Trading. Nominated State Trading Enterprises would conduct the import of these commodities "solely as per commercial considerations". Imports of petroleum products including petrol, diesel and Aviation Turbine Fuel (ATF) and those of urea have also been placed in the category of State Trading.

In order to ensure a level playing field to the domestic producers and in conformity with the "National Treatment Principle" of GATT, imports have been subjected to the following regulations:

• Import of all food products will be subject to compliance of all the provisions of Food Adulteration Act and Rules thereunder;
• Import of meat and poultry products will be subject to compliance of all the provisions of Meat Food Product Order;
• Import of tea waste will be subject to compliance of Tea Waste (Control Order);
• Import of textile material using the prohibited dyes like azo dye shall not be allowed. For this purpose, a pre-shipment inspection certificate has been made mandatory.

To ensure that the import of agricultural products do not lead to unwanted infiltration of exotic diseases and pests into the country, the import of primary products of plant and animal origin would be subjected to 'Bio Security & Sanitary and Phyto-Sanitary Permit'.

This permit will be issued by the Department of Agriculture and Co-operation, based on Import Risk Analysis of the product to be conducted on scientific principles and in accordance with the WTO Agreement on Application of Sanitary and Phyto-Sanitary Measures.

In view of road safety and environment considerations, imports of second hand automobiles would be allowed subject to the following conditions:

• Imported vehicles would need to conform to Central Motor Vehicle Rules;
• For ensuring the requirements, pre-shipment as well as post-shipment certification has been made mandatory;
• Import of left hand drive vehicles not allowed;
• Import of automobiles older than three years not allowed;
• Imported automobiles to have a minimum residual life of five years and the importer to ensure supply of spares and service during this period; and
• Such imports allowed only through customs port at Mumbai.

Imports of new automobiles would be allowed subject to following conditions:

• Imports would be allowed only from the country of manufacture;
• Import of left hand drive vehicles not allowed;
• Imported vehicles would have to conform to the provisions of Motor Vehicles Act, 1988; and

Prototype of the vehicle to be approved by the notified agencies in India.

In order to gather data rapidly, an Early Warning System has also been put in place. For monitoring the imports, measures are being taken to reduce the gap in data collection to one month as against two/three months at present. Furthermore, a Standing Group consisting of Commerce Secretary, Revenue Secretary, Secretary SSI&ARI, Secretary Animal Husbandry Department (AHD) and Director General of Foreign Trade has been constituted, which will function as a "War-room" for tracking, collating and analysing data on 300 sensitive items which are of importance to the public. Moreover, it is proposed to publish a monthly statement in the media about import-status of the said 300 items.

D. Other Measures

The important changes suggested/carried out in respect of Computerisation/Electronic Data Interchange (EDI), procedural simplification and other miscellaneous measures are listed below.

a) Computerisation/EDI

• The facility of electronic filing of applications has been extended to 29 out of 31 offices of the Directorate General of Foreign Trade (DGFT).
• Electronic filing facility shall be extended to all categories of licences.
• The facility of offline filing has been introduced.

b) Procedural Simplification

• The profile of importer/exporter would need to be submitted once. However, only in case of any change in the information already furnished it has to be resubmitted.
• The facility of clarifications/ interview through e-mail has been introduced.
• Exporters who have attained Export House, Trading House, Star Trading Houses and Super Star Trading Houses status for three terms or more and continue to export are eligible for golden status certificate which enables them to enjoy benefits of status certificate irrespective of their performance thereafter. There would now be no last date for filing of application for golden status.
• Restricted Import Licensing Committee, Export Licensing Committee, and Classification Committee have been abolished.

c) Miscellaneous

• Double weightage on 'free on board' (FOB) or net foreign exchange earning (NFE) on exports shall be given for grant of status to the units exporting marine products with 'Q' mark Certification. This facility already exists for units having ISO 9000(series) or IS/ISO 9000(series) or ISO 14000(series).
• Prospective/potential exporters would be allowed to become associate members of the export promotion councils.
• Free import of second hand capital goods up to 10 years old allowed.

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* Prepared in the Division of International Trade of the Department of Economic Analysis and Policy.

@ For details please refer to : (1) Export and Import Policy - 1997-2002; and (2) Handbook of Procedures -1997-2002 (incorporating Amendments made up to March 31, 2001), published by the Ministry of Commerce and Industry, Department of Commerce, Government of India.