To give a fillip to the export sector, the five year Export and Import (EXIM) Policy for the period 2002-2007 was announced by the Government of India on March 31, 2002¹ . The Policy aims at raising the share of India’s exports to 1 per cent of the world’s exports by 2007 from the present level of 0.67 per cent. The substance, parameters, direction and strategy for the five year EXIM Policy have been provided by the recommendations of the High Level Committee for EXIM Policy 2002-2007 (headed by the former Commerce Secretary Shri P. P. Prabhu) and the Medium Term Export Strategy 2002-07 (MTES) announced by the Government in January 2002. The MTES sets out a road map for the export sector in the medium term and would be co-terminus with the Tenth Five Year Plan period.

The objectives and highlights of the EXIM Policy 2002-2007 are set out in the following paragraphs.

The major objectives of the EXIM Policy are as follows:

(i) to facilitate sustained growth in exports to attain a share of at least 1 per cent of global merchandise trade;

(ii) to stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services;

(iii) to enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality; and

(iv) to provide consumers with good quality goods and services at internationally competitive prices while at the same time creating a level playing field for all domestic producers.

These objectives are sought to be met through the co-ordinated efforts of the State Governments and all the departments of the Government of India in general and the Ministry of Commerce and Industry and the Directorate General of Foreign Trade (DGFT) and its network of Regional Offices in particular, with a shared vision and commitment and in the best spirit of facilitation, in order to promote trade in goods and services.

A. Policy Initiatives

The EXIM Policy for 2002-2007 has completely removed the quantitative restrictions on exports with the exception of a few sensitive items and also given a special thrust to the promotion of agricultural, cottage and handicrafts exports. Furthermore, two new schemes have been announced in the EXIM Policy: a programme called "Special Focus on Cottage Sector and Handicrafts" and a scheme for small scale industries coming under the industrial cluster towns.

(a) Removal of Quantitative Restrictions on Exports

All Quantitative Restrictions (QRs) on exports, except a few sensitive items, have been removed. Only a few items have been retained for exports through State Trading Enterprises.

(b) Agriculture

As promotion of agricultural exports is important for creating conditions for providing remunerative prices to farm products, the EXIM Policy proposes to give a boost to such exports and make a mark in international trade in agriculture with a farm-to-port approach as reflected in the Agri-Export Zones (AEZs) Scheme and in the proposed Agri-Export Policy. The major initiatives regarding agriculture planned for in the EXIM Policy are as follows:

(i) Export restrictions like registration and packaging requirement were removed with effect from March 31, 2002 on butter, wheat and wheat products, coarse grains, groundnut oil and cashew exports to Russia under Rupee Debt Repayment Scheme. Quantitative and packaging restrictions on wheat and its products, butter, pulses, grain and flour of barley, maize, bajra, ragi and jowar were removed with effect from March 5, 2002.

(ii) Restrictions on export of all cultivated (other than wild) varieties of seed, except jute and onion have been removed.

(iii) In order to help diversification of agriculture, transport assistance is proposed to be made available for export of fresh and processed fruits, vegetables, floriculture, poultry, dairy products and products of wheat and rice. It is also proposed to work out suitable transport assistance for export of accumulated stocks of rice and wheat from Food Corporation of India (FCI) to facilitate their liquidation.

In order to transform select rural regions as regional rural motors of export economy by promoting export of agro and agro -based products, the scheme of setting up of AEZs was announced last year and 20 AEZs have been sanctioned so far. The Central Government would assist the State Governments in the development of necessary infrastructure, flow of credit and other facilities for promoting agro exports. AEZs would be identified by the State Governments, who would evolve a comprehensive package of services provided by all State Government agencies, State agriculture universities and other institutions for intensive delivery in these zones. Such services, which would be managed and co-ordinated by State Governments, would include provision of pre/ post harvest treatment and operations, plant protection, processing, packaging, storage and related research and development, etc. Units in AEZs would be entitled for all facilities available for exports of goods in terms of the provisions of the respective schemes.

(c) Cottage Sector and Handicrafts

The small scale sector along with the cottage and handicrafts sector accounts for over 50 per cent of India’s exports. With a view to further increase its competitiveness, a programme called "Special Focus on Cottage Sector and Handicrafts" has been introduced under which the following facilities would be made available to these sectors:

(i) An amount of Rs. 5 crore has been earmarked for promoting cottage sector exports coming under Khadi and Village Industries Commission (KVIC).

(ii) Units in handicrafts sector would be eligible for funds from Market Access Initiative (MAI) Scheme. The funds would be utilised for developing the small scale sector’s websites for virtual exhibition, among other activities.

(iii) Under the Export Promotion Capital Goods (EPCG) Scheme, units would not be required to maintain average level of exports.

(iv) Units in small scale industry/tiny sector/ cottage sector/units exporting handicrafts would be entitled to the benefit of export house status on achieving lower average export performance of Rs. 5 crore during the preceding three licensing years instead of the prescribed average export performance level of Rs. 15 crore for other units.

(v) Units in handicrafts sector would be entitled to duty free imports of specified items as embellishments up to 3 per cent of the free-on-board (f.o.b.) value of their exports.

In addition, it has been proposed that a programme of identifying places with a strong propensity for economic activities with export possibilities would be taken up (like Khujra in Uttar Pradesh famous for its pottery).

(d) Towns of Export Excellence

A number of towns in specific geographical locations have emerged as dynamic industrial locations contributing enormously to India’s exports. With a view to maximize their export profiles and help in upgrading them to move up in the higher value markets, it has been proposed to grant recognition to industrial cluster-towns with export potential like Tirupur (for hosiery), Panipat (for woollen blankets) and Ludhiana (for woollen knitwear) and provide them the following facilities:

(i) Entitlement of facility of EPCG scheme for common services providers in these areas.

(ii) Access to funds under MAI scheme for creating focused technological services.

(iii) Priority for assistance for identified critical infrastructure gaps from the scheme on Central Assistance to States.

(iv) The units in these notified areas would be eligible for availing all the EXIMPolicy schemes as per their choice.

B. Modifications in the Existing Schemes

The EXIM Policy for 2002-07 has continued the earlier schemes like Duty Entitlement Passbook (DEPB), Export Promotion Capital Goods (EPCG), Duty Free

Replenishment Certificate (DFRC), and Advance Licences, etc. The modifications to these schemes announced in the EXIM Policy are as follows:

(a) Assistance to States for Infrastructural Development for Exports (ASIDE)

During the year 2000, a scheme for participation of States in the export endeavour was announced. This new Scheme "ASIDE" would provide funds to the States based on the twin criteria of gross exports and the rate of growth of exports from different States. Eighty per cent of the total funds would be allotted to the States based on the above criteria and the remaining twenty per cent would be utilised by the Centre for various infrastructure activities that cut across State boundaries, etc. The States would utilise the funds available to them for developing complementary and critical infrastructure such as roads connecting production centers with the ports, setting up of Inland Container Depots and Container Freight Stations, creation of new State level export promotion industrial parks/zones, augmenting common facilities in the existing zones, equity participation in infrastructure projects, etc. A sum of Rs.49.5 crore has been sanctioned for the year 2001-02 and a sum of Rs.330 crore has been approved for the year 2002-03.

(b) Market Access Initiative (MAI)

The Market Access Initiative Scheme was launched in March 2001 for undertaking marketing promotion efforts abroad on country-product focus approach basis. An allocation of Rs.14.5 crore was made in 2001-02, which has been increased to Rs.42 crore in 2002-03.

Financial assistance would be available under the scheme to the export promotion councils, industry and trade associations and other notified eligible entities on the basis of the competitive merits of proposals received, inter alia, for the following purposes:

(i) Marketing studies on country-product focus approach.

(ii) Setting up of common showrooms under one roof and warehousing facility in the identified centres on the basis of marketing studies in important cities abroad.

(iii) Participation in sales promotion campaigns through international departmental stores.

(iv) Publicity campaign for launching identified products in selected markets.

(v) Participation in international trade fairs, seminars, buyers sellers meet.

(vi) Promotion of select brands.

(vii) Transport subsidies for select agriculture products.

(viii) Registration charges for product registration abroad for pharmaceuticals, bio-technology and agro-chemicals and testing charges for engineering products.

(ix) Inland freight subsidies would be given to units located in North East, Sikkim and Jammu and Kashmir.

(x) "Business Centres" would be set up in Indian missions abroad for visiting Indian exporters/businessmen.

(c) Special Strategic Package for Status holders

A "Status holder" is an exporter recognised as "Export House/Trading House/Star Trading House/Super Star Trading House" or service provider recognised as "Service Export House/ International Service Export House/International Star Service Export House/International Super Star Service Export House" by the Director General of Foreign Trade (DGFT). As announced in the EXIM Policy, these Status holders would be eligible for the following new/special facilities:

(i) Licence/Certificate/Permissions and Customs clearances for both imports and exports would be on self-declaration basis.

(ii) Fixation of Input-Output norms would be done on priority.

(iii) Priority Finance would be extended for medium and long-term capital requirements as per conditions notified by Reserve Bank of India.

(iv) Status holders would be exempted from compulsory negotiation of documents through banks. The remittance, however, would continue to be received through banking channels.

(v) 100 per cent retention of foreign exchange allowed in Exchange Earners’ Foreign Currency (EEFC) account.

(vi) Enhancement in normal repatriation period from 180 days to 360 days.

(vii) The threshold for obtaining status certificate as Export House has been brought down to Rs. 5 crore for tiny, cottage, small scale, handloom, handicraft, agri -exports, services, units having ISO:9000 (series) status, exporters exporting to Latin American countries, Sub-Saharan Africa and Commonwealth of Independent States (CIS) countries.

(d) Special Economic Zones²

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. Four existing Export Promotion Zones (EPZs) have been converted into SEZs and 13 new SEZs have been given approval. SEZ units can be set up for the manufacture of goods and rendering of services, production, processing, assembling, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof or in connection therewith. The following entitlements would be allowed to the SEZs:

(i) It has been proposed that Offshore Banking Units (OBUs), which would, inter alia, be exempt from CRR, SLR stipulations, would be permitted to be set up in SEZs. They would give access to SEZ units and SEZ developers to international finances at international rates.

(ii) Income tax concessions would be extended to units in SEZs.

(iii) SEZs would be exempted from Central Sales Tax (CST) to supplies from DTA.

(iv) Drawback /Duty Entitlement Pass Book (DEPB) scheme would be available to DTA suppliers.

(v) Transactions from DTA to SEZ s would be treated as exports under Income Tax Act and Customs Act. (vi) SEZ units would be permitted for relaxation from external commercial borrowing restrictions and would be allowed to make overseas investment and carry out commodity hedging.

(e) Duty Exemption Scheme³

The Duty Exemption Scheme enables import of inputs required for export production. An Advance Licence is issued under Duty Exemption Scheme to allow duty free 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. The changes proposed in respect of Advance Licence are as follows: (i) Duty Exemption Entitlement Certificate (DEEC) book is to be abolished.

Redemption would be on the basis of Shipping bills and Bank Realisation Certificates.

(ii) Advance Licence for Annual Requirement (AAL) Scheme has been withdrawn as problems were encountered in closure of AAL and the significance of scheme has considerably reduced due to dispensation of DEEC.The exporters can now avail Advance Licence for any value.

(iii) Mandatory spares would be allowed in the Advance Licence up to 10 per cent of the cost, insurance and freight (c.i.f.) value.

(f) Duty Remission Scheme⁴

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 major changes in the DFRC and DEPB Schemes are as follows:

(i) Duty Free Replenishment Certificate (DFRC)

DFRC permits duty free replenishment used in the export product. 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. As per the EXIM Policy for 2002-2007, technical characteristics are to be dispensed with for audit purpose.

(ii) Duty Entitlement Passbook (DEPB)

The DEPB Scheme allows drawback of import charges on inputs used in the export product. 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 following changes have been announced in case of DEPB:

(i) While the value cap exemption would continue, there would be no Present Market Value (PMV) verification except on specific intelligence.

(ii) Uniform DEPB rate would be applicable for exports, whether as Completely Built Units (CBU) or in Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) form.

(iii) There would be no mid-term reduction of DEPB rates except in exceptional circumstances.

(iv) DEPB rates for composite items would have lowest rate applicable for such constituent.

(g) Export Promotion Capital Goods (EPCG) Scheme⁵

The EPCG Scheme allows import of new capital goods including CKD/SKD form thereof as well as computer software systems at 5 per cent customs duty, subject to an export obligation equivalent to 5 times c.i.f. value of capital goods to be fulfilled over a period of 8 years, which is reckoned from the date of issuance of licence.

The capital goods would include jigs, fixtures, dies and moulds. Spares can also be imported under the scheme up to 20 per cent of the c.i.f. value of capital goods and furthermore, EPCG licence can also be issued for import of components of such capital goods required for assembly or manufacture of capital goods by the licence holder. The modifications proposed under the EPCG Scheme are as follows:

(i) EPCG licences of Rs.100 crore or more would have 12 year export obligation (EO) period, with 5 year moratorium period.

(ii) Supplies under Deemed Exports would be eligible for export obligation fulfillment along with deemed export benefit.

(iii) Refixation of EO in respect of past cases of imports of second hand capital goods would be allowed under EPCG Scheme.

(iv) Board for Industrial and Financial Reconstruction (BIFR) units would be given additional period of export obligation

(h) Export Oriented Units (EOUs)/Units in Export Processing Zones (EPZs)/ Electronics Hardware Technology Parks (EHTPs)/Software Technology Park s (STPs)⁶

Under EOU/EPZ/EHTP/STP Schemes, units undertaking to export their entire production of goods and services can be set up. Such units can be engaged in activities like manufacturing, services, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granites and can export all products except restricted and prohibited items of exports mentioned in Indian Trade Classification (Harmonised System), [ITC(HS)]. Units for generation/distribution of power can also be set up in EPZs. However, trading units are not permitted to be set up under these schemes.

In order to give a boost to the hardware industry, it has been proposed to modify the Electronic Hardware Technology Park (EHTP) scheme to enable the sector to face the zero duty regime under ITA (Information Technology Agreement)-1 and the following facilities have been extended to the units in EHTP:

(i) Net Foreign Exchange earnings as a Percentage of Exports (NFEP) to be positive in 5 years only, instead of every year.

(ii) No other export obligation for EHTPs.

(iii) Supplies of ITA-1 items having zero duty in the domestic market would be eligible for counting of export obligation.

(i) Gems and Jewellery Sector

The concessions announced in the EXIM Policy for this sector are:

(i) In order to help India emerge as a major international centre for diamonds, customs duty on imports of rough diamonds has been reduced to zero per cent and licensing regime for rough diamonds has been abolished.

(ii) In order to give an impetus to jewellery exports, the value addition norm for export of plain jewellery has been reduced from 10 per cent to 7 per cent.

(iii) Mechanised unstudded jewellery exports would be allowed at a value addition of only 3 per cent.

(iv) The provisions of personal carriage of jewellery would be allowed through Hyderabad and Jaipur airports also, in addition to Delhi, Mumbai, Kolkata, Chennai and Bangalore.

(j) Leather

Duty free imports of trimmings and embellishments up to 3 per cent of the free-onboard (f.o.b.) value which were earlier confined to leather garments have been extended to all leather products.

(k) Textiles

The following entitlements would be available to the textiles sector:
(i) Imports of sample fabrics permitted duty free within the 3 per cent limit for trimmings and embellishments.

(ii) 10 per cent variation in GSM (grams per square metre) would be allowed for fabrics under Advance Licence.
(iii) Additional items such as zip fasteners, inlay cards, eyelets, rivets, eyes, toggles, velcro tape, cord and cord stopper included in input-output norms.

(iv) Duty Entitlement Passbook (DEPB) rates for all kinds of blended fabrics would be permitted. Such blended fabrics would have the lowest rate as applicable to different constituent fabrics.

C. Other Important Measures

The EXIM Policy has announced two other important measures, viz., Action Plan under the MTES and measures undertaken for diversification of markets for India’s exports.

(a) Action Plan Under Medium Term Export Strategy (MTES)⁷

The Medium Term Export Strategy 2002-07 (MTES) was announced by the Government in January 2002 to provide a stable and conducive environment for exporters. Major features of the MTES are product identification (220 commodities) and market identification for export focus and indicative sector-wise strategies for identified potential sectors to, inter alia, remove bottlenecks and increase exports.

Out of the 220 items, the MTES has set out a list of 47 potential items in the top 100 imports of the major markets and a list of 59 items figuring in the top 100 imports of the major markets and top 100 exports of India to the major markets. Special focus would be given to these items through export promotion schemes and their progress would be monitored.

(b) Diversification of Markets

The EXIM Policy has announced several measures to tap overseas markets for India’s exports and prominent among them are:

(i) A programme called Focus Africa has been launched with effect from March 31, 2002 to tap the potential for trade with the Sub-Saharan African region.The first phase of the Focus Africa programme would include 7 countries, namely, Nigeria, South Africa, Mauritius, Kenya, Ethiopia, Tanzania and Ghana. The exporters exporting to these markets would be given Export House Status on export of Rs. 5 crore.

(ii) Links with CIS countries are to be revived. In this group, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, Ukraine and Azerbaijan would be given special focus in the first phase.

(iii) Focus LAC (Latin American Countries) which was launched in November 1997 in order to accelerate India’s trade with Latin American countries has been extended up to March 2003.

D. Procedural Simplification and Other Measures

In the last few years, several steps have been taken to simplify the rules and procedures and improve the speed of transactions in the DGFT with the help of information technology.

As a result, all the 32 offices of the DGFT have been fully computerised whereby the exporters can transact all business with the DGFT online and 75 per cent of the licence applications are already being filed and processed on-line. All the rules and notifications are available real time on the DGFT website. In an attempt to speed up the transactions, reduce physical interface, and bring about transparency in various activities related to exports, electronic data interchange would be encouraged. The procedural simplifications introduced in the EXIM Policy with a view to reducing transaction time and cost in respect of DGFT and Customs are as follows:

(a) DGFT

(i) With a view to reducing transaction time and costs in obtaining licences/ permission/certificate from the DGFT, electronic filing and electronic processing of licence application has been introduced. This facility would be available to all exporters.

(ii) A new 8-digit commodity classification for imports has been adopted with effect from April 1, 2002. This classification would also be adopted by the Central Board of Excise & Customs (CBEC) and DGCI&S shortly and this use of the common classification by DGFT and Customs would eliminate the classification disputes and help reduce transaction costs and time.

(iii) Maximum fee limit for electronic application under various schemes has been reduced.

(iv) Same day licensing has been introduced in all regional offices.

(b) Customs

(i) Adoption and harmonisation of the 8-digit ITC(HS) code.

(ii) The percentage of physical examination of export cargo has been reduced to less than 10 percent, except for a few sensitive destinations.

(iii) The application for fixation of brand rate of drawback would be finalised within 15 days

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

1. For details please refer to: (1) Export and Import Policy 2002-2007 and (2) Handbook of Procedures (Volume I)– 2002-07, published by the Ministry of Commerce and Industry, Department of Commerce, Government of India.

2. For details please refer to Chapter 7 of the Export and Import Policy 2002-2007.

3 & 4 For details please refer to Chapter 4 of the Export and Import Policy 2002-2007.

5. For details please refer to Chapter 5 of the Export and Import Policy 2002-2007.

6. For details please refer to Chapter 6 of the Export and Import Policy 2002-2007..

7. For details please refer to the Medium Term Export Strategy 2002-2007, Department of Commerce, Ministry of Commerce and Industry, Government of India.