The Government of India, announced modifications in the Export-Import (EXIM) Policy 1997-2002 on March 31, 2000. While making the EXIM Policy announcement, the Minister of Commerce and Industry noted that reversing the sluggish export performance experienced since 1996-97, Indian exports have registered a turnaround during 1999-2000. Notwithstanding such improvements, it has been pointed out that during the recent years, India’s trade performance remains less marked than those exhibited by many East Asian economies and China. It has been argued that as an integral part of the country’s development policy, India’s foreign trade regime should be based on the strategy of export led growth and this could be achieved through optimal exploitation of India’s competitive advantage vis-à-vis the rest of the world. It has been pointed out that in many cases, the composition of India’s export basket is not in line with the structure of world demand. It has been felt that in order to achieve sustained high export growth to the range of 20-25 per cent, considerable diversification in India’s export basket in terms of commodity composition as well as direction would be required.

Against this background, the modifications in the EXIM Policy 1997-2002 have focused on four major areas. In the first place, efforts have been made to remove the restrictive export-import related regulations. An important step in this regard is the proposal to set up Special Economic Zones (SEZs). Secondly, conscious steps have been initiated to ensure that the process of trade liberalisation in India remains aligned with norms of multilateral trading agreements. Towards this end, the incentive structure for Indian exporters has been recasted to make them consistent with India’s commitment to the WTO. Thirdly, the recent modifications have initiated measures to simplify and decentralise the procedures associated with the administration of India’s foreign trade. Lastly, policy announcements have been made to provide special incentives to certain categories of Indian exports. Further, the policy also envisages to motivate and involve state governments in export promotion efforts.

Setting up of Special Economic Zones

Recent modifications in the EXIM Policy provides for setting up of Special Economic Zones (SEZs). The scheme for the establishment of SEZs envisages the creation of enclaves within the country where entrepreneurs would have full freedom to carry on their foreign trade operations without attracting the provisions of various EXIM procedures such as input-output norms, wastage norms, etc. Units based in the SEZs would be able to import capital goods and raw materials duty free. SEZ units shall be deemed to be foreign territory for the purpose of trade operations and tariffs. Goods going to the SEZ area will be treated as deemed exports. These units would also be able to source similar products from Domestic Tariff Area (DTA) without paying terminal excise duty. There would also be no permission requirement for sale/transfer of goods among the units based in the SEZs. These units would also be able to process their products in the DTA. The only condition, which would be imposed on SEZ units, would be that they will have to export the whole of their production. Any sale by these units to DTA would be treated as import into India and thereby it would attract all duties/taxes applicable for similar imported products. State governments, public, private or joint sector units can set up SEZs. Initially one SEZ each would be set up in Gujarat and Tamilnadu. There are proposals for converting the existing Export Processing Zones (EPZs) into SEZs. The main rationale for the creation of SEZs is to provide total flexibility in the operations of the units based in the SEZs.

Measures Aimed at Aligning EXIM Procedures with Multilateral Norms

The modifications in the EXIM Policy aimed at aligning the EXIM procedures in India with the country’s commitment at the multilateral forums.

Since early-1990s, India has taken significant unilateral steps to liberalise the trade regime. Due to the persistent gap between the country’s exports and imports, however, India maintained certain balance-of-payments related quantitative restrictions on imports. Such restrictions were mainly limited to consumer products and certain agricultural imports. During the late-1990s, India negotiated with a large number of countries and agreed to phase-out such restrictions by 2003. These offers, however, did not satisfy the US, which approached the Dispute Settlement Body (DSB) of the WTO for quicker phasing-out of quantitative import restrictions imposed by India. The Panel established by the DSB and subsequently the Appellate Body has upheld the US position. India has been requested to remove balance-of-payments related quantitative restrictions in a speedier manner. Reflecting India’s commitment to the WTO, the recent modifications of the EXIM Policy have initiated phasing out of balance-of-payments related quantitative restrictions on imports. Towards this end, half of such restricted products (714 out of a total of 1,429) have been brought out of quantitative restrictions by moving them from the Special Import License (SIL) List to Open General License (OGL) List. The other half of the commodities would be moved to OGL List by April 1, 2001. The SIL List would be abolished by March 31, 2001.

Simplification and Decentralisation of EXIM Norms

In order to streamline India’s export-import procedures, the modified EXIM Policy has initiated the following steps:

• Removal of threshold limit for Export Promotion Capital Goods (EPCG) Scheme and extension of such facilities to all sectors,
• Rationalisation of duty drawback schemes,
• Promotional measures as well as special incentive schemes for electronic filing of application forms,
• Simplification of norms for importing second hand capital goods,
• Decentralisation of the issue of trading house certificate,
• Extension of uniform norms for deemed exports to all sectors,
• Only positive value addition norms for Export Oriented Units (EOUs)/units in Export Processing Zones (EPZs) with an investment of Rs. 5 crore and above in fixed capital,
• Issue of duty exemption licence facility on the basis of self-declaration, and
• Extension of the period for filing of Registration-cum-Membership Certificate to 4 years.

The modifications in the EXIM Policy are aimed at rationalisation/simplification of the export-import procedure. Towards this end, important steps have been initiated to modify the existing EPCG schemes. So far there were various EPCG schemes with different duty rates, export obligations, etc. available to specific sectors. The modified policy has unified such schemes and enabled all sectors to enjoy such benefits.

Furthermore, the threshold limits for availing the EPCG schemes have been removed.

There has been considerable simplification of the duty exemption and the duty drawback schemes for imports. Efforts have been made to do away with multiplicity of duty drawback schemes and replace them with unified schemes which enables exporters to get full relief from duties on the inputs used for export production. Under the changed procedures, imports under advance licence for all exports except for deemed exports would be exempted from basic customs duty, surcharge, additional customs duty, anti-dumping duty and safeguard duty, if any. Duty drawback/exemption schemes that were sparsely used by exporters such as pre-export Duty Exemption Pass Book (DEPB) Scheme, Special Advance Licence for electronic sector, certain types of transferable Advance License Schemes have been discontinued under the modified EXIM Policy. In the context of duty exemption/drawback, the modified policy has provided the exporters a choice to go through either the advance licence scheme or the duty free replenishment scheme. Exporters of the products for which standard input-output norms have been announced can avail the duty replenishment scheme. There would be a uniform value addition requirement of 33 per cent under this scheme.

In order to make the trade administration procedure in the country transparent and speedy, larger emphasis has been put on the increased use of the innovation in information and communication technologies. In order to improve efficiency, the use of Electronic Data Interchange (EDI) between the government agencies and private parties has been encouraged. Special incentive measures have been proposed to promote electronic filing of license applications.

The norms for importing second hand capital goods have been simplified. Second hand capital goods which are less than 10 year old are allowed to be imported directly on surrender of SIL without obtaining import license. Uniform norms have been framed for deemed exports from all sectors. Furthermore, value addition norms for Export Oriented Units (EOUs)/Export Processing Zones (EPZs) have been simplified and special incentive schemes have been framed for such units with more than Rs. 5 crore investment in fixed capital. In order to increase decentralisation of Indian trade administration, the power to issue Export House Certificate has been delegated to the regional authorities.

A major focus of India’s trade liberalisation since early-1990s has been the creation of a trust-based as opposed to a regulation-based trade administration mechanism. Such measures have aimed at creation of a transparent system and reduction of the procedural hardships faced by Indian exporters and importers. Towards this end, the recent modifications in the EXIM Policy have made the issuance of several duty exemption licenses on the basis of self-declaration by the exporters/importers. In a similar move, the period of validity of the Registration-cum-Membership Certificate of the exporters and importers has been increased to four years.

Special Promotional Measures

The modified EXIM Policy has provided special incentives to specific export products or exports originating from specified regions. Such measures include:

• Special import benefits to agro-chemicals, biotechnology and pharmaceuticals for research purposes,
• Rationalisation of input-output norms for silk products,
• Extention of limits on specific imports for leather, handicraft and garment exporters,
• New package of benefits for gems and jewellery exports,
• Special incentives for exports from Jammu and Kashmir, and
• Creation of fund for export promotion by the Indian States.

The modified EXIM Policy has extended special import benefits to agro-chemicals, biotechnology and pharmaceuticals for research purposes. New packages of benefits have been announced for gems and jewellery, leather, handicraft and garment exports. In line with special benefits extended to special geographic territories such as the North-East Indian States, exports originating from Jammu and Kashmir have been made eligible for special incentives and promotional measures. Furthermore, input-output norms for silk products have been rationalised and limits on specific imports have been extended for leather, handicraft and garment exporters.

The modified EXIM Policy has recognised that the existing level of participation by the State Governments in the promotion of exports is not sufficient. It has been pointed out that under the existing arrangements, the state governments may have certain disincentives to promote foreign trade because it may lead to reduction in sales tax revenue of the States. In order to provide concrete incentives to the Indian States for adopting a more active role in export promotion, special fund has been created with which the States would be able to create necessary infrastructure for export promotion within their jurisdictions. States also have been encouraged to create an environment of healthy competition for export promotion by initiating innovative steps in establishing SEZs within their territories.

The major features of the modifications of the EXIM Policy announced on March 31, 2000 and the corresponding situations that existed before such modifications were announced are summarised in the following table.

Scheme/Procedure			Features Prior to the	Features Effected through
(Relevant clauses of			Current Revisions	the Current Revisions
the EXIM Policy as
Modified up to
March 31, 2000)
Definitions used by the EXIM Policy
Powers to recommend			Special Advance	Advance Licensing
Input-Output norms and			Licensing Committee	Committee has been vested
value addition norms to			used to recommend	with these responsibilities
the Directorate General			such norms.	over and above their current
of Foreign Trade (DGFT)				responsibilities.
(Chapter 3, Paragraphs 7
and 46)
General Provisions Regarding Imports and Exports
Compliance with laws			Exporters and importers	All imported goods would
			had to comply with	be subject to domestic laws,
(Chapter 4, Paragraph 12)			certain laws but there	rules, orders, regulations,
			were no explicit	technical specifications,
			compliance	environmental and safety
			requirements for the	norms as applicable to
			imported products.	domestically produced
				goods.
Bonded warehouses for			There were provisions	These provisions have been
imports			relating to private	extended to public bonded
			bonded warehouses.	warehouses as well.
(Chapter 4, Paragraph 15)
Third party exports			There were no general	An import licence holder
			provisions relating to	may export directly or
(Chapter 4, Paragraph 23)			third party exports for	through third parties and
			discharge of export	discharge export obligations.
			obligations.

Clearance of goods from				Though similar	Such imports may be cleared
customs				facilities were available	by customs against licence
				under specific schemes	issued subsequently.
(Chapter 4, Paragraph 24)
				(e.g. Export Promotion
				Capital Goods (EPCG)
				Scheme, Chapter 6,
				Paragraph 6), there was
				no general provision on
				clearance of goods
				already imported/
				shipped/arrived, in
				advance, but not cleared
				from customs against
				licence issued
				subsequently.
Green card				Service providers were	Service providers rendering
				not eligible for such	services in free foreign
(Chapter 4, Paragraph 25)				cards. There were no	exchange for more than 50
				explicit specifications	per cent of their service
				about the facilities	turnover, subject to
				available to such	minimum value of Rs. 35
				cardholders.	lakhs in the preceding year
					shall be issued a green card.
					Apart from facilities to be
					announced from time to
					time, green cardholders
					would be entitled to
					automatic licensing,
					automatic customs clearance
					for exports and export
					related imports and legal
					undertaking facility for duty
					free imports.

Electronic Data			There was no specific	Participation to EDI would
Interchange (EDI)			incentive scheme for	be encouraged. Applications
			participation in EDI.	received electronically shall
(Chapter 4, Paragraph 26)				be processed within 24
				hours.
Export Promotion Capital Goods Scheme
Import of capital goods			There were zero duty	The threshold limit for
at concessional duty			and 10 per cent duty	eligibility has been removed.
under Export Promotion			schemes for various	All the schemes have been
Capital Goods (EPCG)			sectors. Export	merged with uniform (5 per
Scheme			obligation, period for	cent) customs duty, export
			fulfilling such	obligation (5 times CIF
(Chapter 6, Paragraph 2)			obligations, threshold	value of on FOB basis or 4
			limit and sectors	times CIF value of capital
			eligible to avail such	goods on NFE basis) and
			schemes were	period of fulfillment (8
			categorised separately	years) for export obligations.
			under different
			schemes.
Duty Exemption/Remission Schemes
Duty exemption/			Duty exemption	These schemes have been
remission schemes			schemes included duty	recasted as Duty exemption/
			free licence (advance	remission schemes and
(Chapter 7, Paragraphs 1			licence, advance	would include advance
and 2)			intermediate licence and	licence, Duty Free
			special imprest licence),	Replenishment Certificate
			annual advance licence	and DEPB Scheme.
			and Duty Entitlement
			Pass Book (DEPB)
			Scheme.

Advance licence				Import of inputs required	Advance licence (except those
				for manufacture of goods	issued for deemed exports)
(Chapter 7, Paragraph 3)
				were exempt from basic	shall be exempt from the
				customs duty but	payment of basic customs
				payments had to be made	duty, surcharge, additional
				for additional customs	customs duty, anti-dumping
				duty. The additional	duty and safeguard duty, if
				customs duty was	any. Advance licence issued
				adjusted under specific	for deemed exports would be
				provisions and	exempt from basic customs
				mechanisms. Advance	duty, surcharge and additional
				licence with actual user	customs duty.
				condition issued to
				specific types of
				exporters was exempt
				from additional customs
				duty and anti-dumping
				duty.
Duty Free Replenishment				No specific provision in	DFRC would be issued to a
Certificate (DFRC)				this regard.	merchant-exporter or
					manufacturer-exporter for
(Chapter 7, Paragraph 4)
					import of input without payment
					of basic customs duty, surcharge
					and special additional duty.
					However, such inputs would be
					subject to the payment of
					additional customs duty. DFRC
					would be issued only in respect
					of export products covered
					under standard input-output
					norm and the issue of DFRC
					shall be subject to a minimum
					value addition of 33 per cent.

Diamond, Gems and Jewellery Export Promotion Schemes
Diamond Dollar Account				No specific provision in	Firms and companies dealing
(DDA)				this regard.	in the purchase/sale of cut
					and polished diamonds with
(Chapter 8, Paragraph					a track record of at least 3
13(a))					years in import or export of
					diamonds and having an
					annual average turnover of
					at least Rs. 5 crore during
					preceding 3 licensing years
					may also carry out their
					business through designated
					DDAs. Dollars in DDAs
					available from bank finance
					and/or export proceeds can
					be used only for designated
					purposes.
Items of export				Specific types of	List of items eligible for
				jewellery made of gold,	availing facilities under such
(Chapter 8, Paragraph 15)
				silver and platinum	schemes has been broadened
				were allowed to be	and made more explicit.
				exported for availing
				the facilities under the
				diamond, gem and
				jewellery export
				promotion schemes.
Export through				There were various	Such restrictions have been
exhibition/export				ceilings on the amount	removed and personal
promotion tours/export of				of such exports in form	carriage of such products
branded jewellery				of samples and re-	has been allowed.
				import of unsold
(Chapter 8, Paragraph 20)
				jewellery.

Export Oriented Units, Units in Export Processing Zones, Special Economic
Zones, Electronic Hardware Technology Parks and Software Technology Parks
Sale in Domestic Tariff					There were various	Such stipulations have been
Area (DTA) by electronic					stipulations on the	removed.
hardware units under					portion of DTA sale
Export Oriented Unit					depending upon the
(EOU)/Export Processing					amount of Net Foreign
Zone (EPZ)/Electronic					Exchange as a
Hardware Technology					Percentage of Exports
Park (EHTP)/Software					(NFEP) by the units.
Technology Park (STP)
Scheme
(Chapter 9, Paragraph 9(d)
and (f))
Special Economic Zone					No specific provision in	SEZ is a specially delineated
(SEZ)					this regard.	duty free enclave and shall be
						deemed to be foreign territory
(Chapter 9, Paragraphs 30-
						for the purpose of trade
43)
						operations, duties and tariffs.
						Goods going into the SEZ
						area shall be treated as
						deemed exports and goods
						coming from the SEZ area
						into DTA shall be treated as
						if the goods are being
						imported. A SEZ may be set
						up in the public, private and
						joint sector and existing EPZs
						can be converted into SEZ.
						All these would be done
						under the notification of the
						Ministry of Commerce and
						Industry. New SEZs should
						have minimum investment of
						Rs. 50 lakhs in fixed assets
						and shall achieve positive
						NFEP annually and
						cumulatively and trading SEZ
						units shall achieve a turnover
						of US $ 1 million in 5 years.
Exports
Special Import License					The DGFT could specify	Such schemes have been
(SIL) benefit					class or category of	discontinued.
					export/exporters for SIL
(Chapter 11, Paragraphs					benefits. SIL was freely
12 and 13)					transferable and could be
					used to import specified
					products.
Exports Houses, Trading Houses, Star Trading Houses and Super Star Trading
Houses
Export performance level					The export performance	The export performance
of Export House (EH),					criterion (in Rs. crore) for	criterion (in Rs. crore) for
Trading House (TH), Star					EH, TH, STH and SSTH	EH, TH, STH and SSTH
Trading House (STH) and					under average FOB value	under average FOB value of
Super Star Trading House					of exports made during	exports made during the
(SSTH)					the preceding three	preceding three licensing
					licensing years were 12,	years have been revised to
(Chapter 12, Paragraph 5)
					60, 300 and 900,	15, 75, 375 and 1,125,
					respectively. Under FOB	respectively. Under FOB
					value of exports made	value of exports made during

				during the preceding	the preceding licensing year
				licensing year the	the criterion have been
				criterion were 18, 90,	revised to 22, 112, 560 and
				450 and 1,350,	1,680, respectively. Under
				respectively. Under the	the average net foreign
				average net foreign	exchange value of exports
				exchange value of	made during the preceding
				exports made during the	three licensing years the
				preceding three licensing	criterion have been revised
				years the criterion were	to 12, 62, 312 and 937,
				10, 50, 250 and 750,	respectively. Under the net
				respectively. Under the	foreign exchange value of
				net foreign exchange	exports made during the
				value of exports made	preceding licensing year the
				during the preceding	criterion have been revised
				licensing year the	to 18, 90, 450 and 1,350,
				criterion were 15, 75,	respectively.
				375 and 1,125,
				respectively.
Brand Promotion and Quality
Bar coding using				No specific provision in	In order to facilitate timely
international symbologies/				this regard.	and accurate capturing of
number system					product information and its
					communication across
(Chapter 14, Paragraphs 8-					supply chain, the date for
10)					mandatory incorporation of
					bar coding using
					international symbologies/
					number system by Indian
					exports would be announced
					by the DGFT.

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