FOREIGN TRADE POLICY AND BALANCE OF PAYMENTS Advanced Countries:
restrict their imports and provide a sheltered market for their own industries
promote their exports so that their expanding industries could secure foreign markets.
Discriminating Protection – Import restriction since 1923 to protect domestic industries against foreign competition
Features Restricted imports using import licensing, import quotas, import duties etc. Banning or keeping to the minimum the import of non-essential consumer goods Comprehensive control of various items of imports Liberal import of machinery, equipment, and other developmental goods to support heavy industry-based economic growth Afavourable climate for the policy of import substitution. Setting up of trading institutions and through other fiscal measures, subsidies etc. the promotion of exports
PHASES OF INDIA’S TRADE POLICY Five distinct phases in India’s trade policy can be noted as follows:
The first phase: 1947–48 to 1951–52
BOP with dollar adverse boost exports in above dollar area
The second phase: 1952–53 to 1956–57
Import licenses liberalized
Reducing export duties
Abolishing export quotas
The third phase: 1957–58 to June 1966
Export promotion drive launched
Import – substitution industries encouraged
The fourth phase started after devaluation of the rupee in June 1966
Liberalized imports and expand exports
Last phase after 1975–76
Import liberalization to encourage export promotion
MAJOR TRADE REFORMS REP (Exim Scrip) the principal instrument for export-related imports All exports to have a uniform REP rate of 30 per cent of the FOB value. 3. Maximum incentive to exporters whose import intensity is low. 4. All supplementary licences shall stand abolished except in the case of the small-scale sector and for producers of life-saving drugs/equipment. All additional licences granted to export houses shall stand abolished. OGL items to be imported through REP route Unlisted OGL category abolished and all items to be imported through REP scheme Cash Compensatory Scheme (CCS) abolished Financial institutions allowed to trade in eximscrips
The Export Promotion Capital Goods (EPCG) scheme - It was one of the several export-promotion initiatives launched by the government in the early '90s. The basic purpose of the scheme was to allow exporters to import machinery and equipment at affordable prices so that they can produce quality products for the export market.
Cash Compensatory Scheme – Cash subsidy scheme designed to compensate the exporters for unrebated indirect taxes and to provide resources for product development.
Import Replenishment Licenses (REP) – It enabled exporters to import inputs where the domestic substitutes were not adequate in terms of price, quality etc.
International Price Reimbursement Scheme (IPRS) – Designed to make available specific inputs at international prices
Duty Entitlement Passbook Scheme DEPB – It’s aim is to neutralize the incidence of basic and special customs duty on import content of export product. Under the post-export DEPB, which is issued after exports, the exporter is given a duty entitlement Pass Book at a pre-determined credit on the FOB value. The DEPB allows import of any items except the items which are otherwise restricted for imports.
Status Holder Incentive Scheme (SHIS) – It entitles the status holders such as trading houses, star trading houses etc for additional duty scrip @ 1% of the FOB value of exports.
Freight On Board (FOB) - specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred.
Government confident of $200 billion exports this fiscal. Zero duty Export Promotion Capital Goods (EPCG) scheme extended by one year to March 31, 2012; more products added. Duty Entitlement Passbook (DEPB) scheme extended by six months till June 30, 2011. Number of additional products from sectors like leather, engineering, textiles, jute added to 2 per cent interest subvention scheme. Additional benefit of 2 per cent bonus for 135 products under Focus Product Scheme. One per cent Status Holder Incentive Scheme (SHIS) for technology up-gradation extended till 2011-12; more products added in the scheme. Benefits under Market Linked Focus Product Scheme to garment exports to EU extended till March, 2011. Foreign Trade Policy Review 2010
Barmer (handicrafts), Bhiwandi (textiles) and Agra (leather goods) declared Towns of Export Excellence. Steps announced to reduce transaction cost of exports. Leather sector allowed to re-export of unsold imported raw hides and skins and semi-finished leather from public bonded warehouses, without export duty. List of items allowed for duty-free import of gems and jewellery sector expanded. Scrips issued under Served From India Scheme (for services sector) can be used for payment of duty on import of vehicles. Instant tea and CSNL Cardinol included for five per cent duty benefit.