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Implication of foreign trade policy
1. Implications of Foreign Trade
Policy and
Facilitation of Foreign Trade
A Presentation
S.R.Rao
Chief General Manager
Export-Import Bank of India
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2. 2
Exim India
Where Does India Stand Globally?
International Trade of Select Countries in 2003
Country Exports Imports GDP Trade as % of GDP
(US$ bn.) (US$ bn.) (US$ bn.)
Korea 197.6 175.5 605.0 61.7
China 438.3 393.6 1446.9 57.5
Mexico 165.4 171.0 626.1 53.7
Russia 135.9 75.4 433.5 48.7
South Africa 38.7 35.0 160.1 46.0
Argentina 29.4 13.1 129.7 32.8
Brazil 73.1 48.3 492.1 24.7
India 57.0 74.3 588.8 22.3
Source: Economist Intelligence Unit
India’s share in global merchandise exports: 0.8% (2003)
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5. 5
Exim India
Trade Policies in India
Exim Policies
Streamlined trade procedures
Liberalised import regime
Thrust on export orientation
Medium Term Export Strategy, 2002
1% share in global exports by 2007
Foreign Trade Policy 2004-2009
To double India’s share in global merchandise trade
by 2009
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6. 6
Exim India
Role of Institutions
Institutions dedicated for promoting
foreign trade have played an important
role towards enhancing the process of
internationalisation of Indian companies,
viz.
Export-Import Bank of India,
Export Credit Guarantee Corporation,
Indian Institute of Foreign Trade
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7. 7
Exim India
Exim Bank
Set up by an act of parliament in
September, 1981
Wholly owned by Government of India
Commenced operations in march, 1982
Established “for providing financial assistance
to exporters and importers, and for functioning
as the principal financial institution for
coordinating the working of institutions
engaged in financing export and import of goods
and services with a view to promoting the
country’s international trade…”
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8. 8
Exim India
Foreign Trade Policy 2004-09
Quantum Jump in Merchandise Exports
Required:
Enhance exports of major export
commodities
Identify potential export commodities
Diversify export destinations
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9. 9
Exim India
Foreign Trade Policy 2004-09
Exim Bank Study “Strategy for Quantum Jump in Exports:
Focus on Africa, Latin America and China”
India could aim to achieve:
US$ 18 billion in Africa’s Imports by 2007
from US$ 3.8 bn in 2003-04
US$ 4 bn in China’s imports by 2007 (in 64
identified groups) from US$ 0.86 bn in 2000
US$ 1.8 bn in LAC’s imports by 2007 (in 100
identified groups) from US$ 0.6 bn in 2000
Share in India’s Exports in 2003-04: Africa (6%); Latin
America (1.8%); China (4.7)
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10. 10
Exim India
Lines of Credit
Overseas Governments
Parastatal Organisations/ Govt. Agencies
Commercial Banks
Regional Financial Institutions
Particularly relevant for SMEs
Eligible items – all items permissible under Exim Policy
Engineering Goods
Consumer Durables
Commodities
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11. 11
Exim India
AFRICA ASIA EUROPE
ALGERIA PTA BANK covering BANGLADESH
GHANA BURUNDI INDONESIA KAZAKHSTAN
KENYA COMOROS IRAN , IRAQ BULGARIA
MALAWI DJIBOUTI SRI LANKA RUSSIA
MAURITIUS ERITREA, EGYPT KOREA ROMANIA
NAMIBIA ETHIOPIA MALAYSIA HUNGARY
SEYCHELLES KENYA THAILAND POLAND
SOUTH AFRICA MALAWI VIETNAM
SUDAN MAURITIUS PHILIPPINES
TANZANIA RWANDA
TUNISIA SOMALIA
UGANDA SUDAN LATIN AMERICA &
CARIB.
ZAMBIA TANZANIA
UGANDA BRAZIL MEXICO COLOMBIA
BOAD covering ZAMBIA JAMAICA VENEZUELA
BENIN ZIMBABWE
BURKINA FASO CAF covering BCIE covering
COTE D’IVOIRE BOLIVIA COSTA RICA
MALI EADB covering COLOMBIA EL SALVADOR
NIGER KENYA ECUADOR GUATEMALA
SENEGAL TANZANIA PERU HONDURAS
TOGO UGANDA VENEZUELA NICARAGUA
LOCs Extended by Exim Bank
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12. 12
Exim India
Foreign Trade Policy 2004-09
Simplifying procedures and bringing down
transaction costs
Transaction costs are incurred at the pre and post-
production stages, and arise out from several
procedural complexities associated with
administrative processes, availability of finance
and transportation problems.
For enhancing the growth of exports it is
important to reduce the transaction costs involved.
Exim Bank Study on Transaction Costs of Indian
Exports
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13. 13
Exim India
Foreign Trade Policy 2004-09
Sector No. of
Firms
Transaction costs as %
of export revenue (2003
Survey)
Transaction costs as
% of export revenue
(1998 Survey)
Textile/Garments 23 3-10 15
Engineering goods 18 < 5 10
Pharmaceuticals 9 ≤ 8 10
Chemicals 7 < 5 14
Computer software 9 1-5 10
Agro-Industries 2 1-2 7-8.5
Electronic & Electrical
machinery
3 5 -
Plastic components 2 5-10 -
Paper Industry 2 5-7 -
Others 7 1-2
Findings of Exim Bank’s Study
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14. 14
Exim India
Foreign Trade Policy 2004-09
Transaction Costs: International Experience
Simplified and less stringent bureaucratic
procedures like single window clearance and
business friendly approach
Better technology due to higher levels of foreign
investment, faster loading/unloading methods
Flexible labour laws
Cheap availability of power and raw materials,
Freight incentives by the Government,
Lower ocean freight rates due to greater
availability of vessels
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15. 15
Exim India
Foreign Trade Policy 2004-09
Special package for agriculture
Duty free imports of capital goods
Will lower production cost and hence improve
profitability
Exports of medicinal plants & herbal products
facilitated
Global imports of medicinal plants: US$ 1 bn
(2001)
India second largest exporter after China
Potential to increase export to Rs. 1750 crore by
2006-07 and more than Rs. 2500 crore by 2009-
10.
Global market for Herbal products: US$ 80 bn
India’s exports of Herbal products: US$ 280 mn
(2002-03)
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16. 16
Exim India
Foreign Trade Policy 2004-09
Textile sector incentives
Duty free entitlement for garments &
handicrafts increased from 3% to 5%
Will help exporters to move up the value
chain
However, further incentives required to
consolidate India’s position in the post-
MFA era
Handicraft Special Economic Zone to be
established
Will contribute to strong growth in
handicraft exports
Will generate employment opportunities
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17. 17
Exim India
Foreign Trade Policy 2004-09
Export Promotion Schemes
Target Plus scheme introduced
Will further boost exports from the successful
exporters
Vishesh Krishi Upaj Yojana to boost horticulture
exports
Global trade in horticulture: US$ 79 bn (1999)
India’s exports: US$ Rs. 1830 cr (1999-2000)
Success of AEZs for horticulture depend on
“the ability of the states to overcome existing
shortcomings in infrastructure, institutional
mechanism and policy and programme support
to achieve desired export orientation”
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18. 18
Exim India
Foreign Trade Policy 2004-09
Export Promotion Schemes
“Services Export Promotion Council” to be set
up
“Served from India” scheme: Service providers
who earn forex of at least Rs. 5 lakhs will be
eligible for duty credit entitlement
Will help small scale service providers
Will enhance India’s share in global
exports of services (1.4% in 2003)
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19. 19
Exim India
Feasibility study for establishment of an export credit and
guarantee facility for Gulf Cooperation Council countries
Regional cooperation in export finance and export credit
guarantees for ESCAP
Study on promotion of international competitiveness and
exports of manufactured goods for ESCAP
Setting up the Afrexim Bank
Designing of Export Financing Programmes - Turkey
Exim Bank as a Consultant
Sharing Institutional Building Capabilities World wide
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20. 20
Exim India
Setting up an Exim Bank in Malaysia
Design of Export Marketing Seminars for SMEs in Vietnam
Export Development Project : Ukraine
Enterprise Support Fund : Armenia
Establishing an Export Credit Guarantee Company in
Zimbabwe
Advisory services to Industrial Development Corporation of
South Africa for international finance products
Mauritius – Study on Projecting Mauritius as an Investment
Hub for Indian Firms
Sharing Institutional Building Capabilities World wide
Exim Bank as a Consultant
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21. 21
Exim India
Tie-up with
International Finance Corporation, Washington D.C.
Africa Project Development Facility
Africa Enterprise Fund
Mekong Project Development Facility
South-East Europe Enterprise Development Facility
Private Enterprise Partnership (CIS Countries)
China Project Development Facility
South Asia Enterprise Development Facility
Eastern & Southern African Trade & Development Bank (PTA
Bank)
African Management Services Company (AMSCO)
Exim sponsors consultants under GoI-AfDB cooperation Agreement
Promoting Indian Consultancy
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22. 22
Exim India
Advisory Services
Multilateral Agencies Funded Projects Overseas (MFPO)
Information and support services to Indian companies to help
improve their prospects for securing business in multilateral
agencies funded projects.
Dissemination of business opportunities in funded projects
Providing detailed information on projects of interest
Information on Procurement Guidelines, Policies, Practices of
Multilateral Agencies
Assistance for Registration with Multilateral Agencies
Advising Indian companies on preparation of Expression
of Interest, Capability Profile
Bid Intervention
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23. 23
Exim India
Foreign Trade Policy 2004-09
Export Oriented Units
Exemption from service tax
EOUs permitted to retain 100% of export
earnings in EEFC accounts
Income tax benefits to DTA units which
convert to EOUs
All these should considerably increase
export growth from the EOUs
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24. 24
Exim India
Software Training
Institutes
Minor Ports
Technology Parks
EOU Projects &
TUFS
Exim Bank:
Financing of Export-Oriented Companies
Term Loans
Project
Finance
Equipment
Finance
Working
Capital
Overseas
Investment Finance
Long Term
upto 5 years
Term Loans
for 1-2 years
Loans to Indian
companies for Equity
Investment in their
ventures overseas
Loans to Indian
companies to olden to
their overseas
ventures
Other
Programmes
Export
Marketing
Finance
Export Product
Development
Finance for
R&D
Short Term
< 1 year
Direct Equity stake
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25. 25
Exim India
Multilateral Agencies
World Bank
Asian Development Bank
African Development Bank
European Bank for Reconstruction & Development
Multilateral Investment Guarantee Agency (MIGA)
International Finance Corporation (IFC)
UNIDO - Industrial Promotion Offices
Afrexim Bank
Eastern & Southern African Trade &
Development Bank (PTA Bank)
Institutional Linkages
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26. 26
Exim India
Board of Investment of Sri Lanka
Hatton National Bank, Sri Lanka
China National Technical Import & Export Corporation
Polish Agency for Foreign Investment (PAIZ).
Hungarian Investment and Trade Development Agency
UNIDO Industrial Cooperation & Investment Promotion Service, Poland
Economic Development Board, Bahrain
Investment & Trade Promotion Centre, Vietnam
Centero Estero Vineto, Italy
Institutional Linkages
Trade & Investment Promotion Agencies
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27. 27
Exim India
Export Credit Agencies
The Export-Import Bank of China.
Croatian Bank for Reconstruction and Development.
Czech Export Bank.
Hungarian Export-Import Bank Ltd.
Uzbekinvest – National Export-Import Insurance Company.
Exim Bank of Romania.
Institutional Linkages
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28. 28
Exim India
Board of Investment of Sri Lanka
Hatton National Bank, Sri Lanka
China National Technical Import & Export Corporation
Polish Agency for Foreign Investment (PAIZ).
Hungarian Investment and Trade Development Agency
UNIDO Industrial Cooperation & Investment Promotion Service, Poland
Economic Development Board, Bahrain
Investment & Trade Promotion Centre, Vietnam
Centero Estero Vineto, Italy
Institutional Linkages
Trade & Investment Promotion Agencies
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29. 29
Exim India
Exim Bank : Partner in Globalisation
Technology
Capital (Foreign
Investment)
Raw Materials
Capital Goods
Final Products
Capital Goods
Capital
(Overseas
Ventures)
Product
Development
Production
Marketing
Pre shipment
Post shipment
VALUE
ADDITION
EXPORT
M
P
O
R
I
T
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30. 30
Exim India
Foreign Trade Policy 2004-09
Final Observations
Import of second hand capital goods allowed
without age restrictions
No outdated technology should be
imported
“Special Focus Initiatives”
Could be extended to other sectors of high
export orientation like chemicals &
pharmaceuticals
Export orientation of FDI should be increased
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31. 31
Exim India
FDI and Exports
Sector Share in FDI (%)
Transportation industry 7.50
Computer software industry 6.46
Chemicals & pharmaceuticals 5.70
Textiles 1.20
Leather & leather goods 0.20
Services (incl. Hotels & Tourism) 8.37
Source: SIA, MOC&I
Low share of FDI in major export sectors
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The Bank offers a wide range of lending and service programmes to assist Indian companies at all stages of the business cycle. Through import of technology, capital, goods and raw materials, the Bank facilitates the upgradation of technology and capabilities of Indian companies to enable them to enhance their competitiveness. The broad array of support programmes offered by the Bank for product development, production marketing, as also preshipment and postshipment ,enables Indian companies to add value resulting in exports of products, capital goods, services. The Bank has also been instrumental in promoting ventures overseas in the fields of manufacturing, assembly, marketing and trading.