FORE School of

Management
[EXPORTS HAVE LOST THEIR SHEEN, A
Group 7, FMG 18C
QUEST FOR SURVIVAL]
HISTORICAL PERSPECTIVE

The import policy of India was formulated as a part of the foreign trade policy of the country.
During the post independence period, the Import policy of India was formulated at different
times in order to limit the volume of items that are required for industrialization of the
country and modifying the same imports for a better export promotion.

The first phase pertains to the period 1947-48 up to 1951-52. India’s balance of payments
with the dollar area was heavily adverse, an effort was made to screen imports from hard
currency areas and boost up exports to this area so as to bridge the gap. This also necessitated
India to devalue her currency in 1949. Import policy continued to be restrictive during this
period. Besides this restrictions were also placed on exports in view of the domestic
shortages.

During the second phase (1952-53 to 1956-57) liberalisation of foreign trade was adopted as
the goal of trade policy. An effort was made to encourage exports by relaxing export controls,
reducing export duties, abolishing export quotas and providing incentives to exports.
Liberalisation led to a tremendous increase in our imports but exports did not rise
appreciably.

The third phase which began in 1956-57. A very restrictive import policy was adopted and
the import controls further screened the list of imported goods. On the other hand, a vigorous
export promotion drive was launched. In 1962, the Mudaliar Committee recommended the
import of raw materials and other components for various industries in power, transport,
EOU’s, import-substituting industries that are producing raw materials and components and
so on.

The fourth phase started after the devaluation of the rupee in June, 1966. The import policy
was liberalised for 59 priority industries which included export industries, capital building
industries and industries that are producing commodities for a mass consumption. Moreover,
after the introduction of a raw agricultural strategy, the government permitted the import of
agricultural inputs such as seeds, fertilizers, pesticides and so on.

During the fifth phase (1975-76 onwards), the Government adopted a policy of import
liberalisation with a view to encourage export promotion. There has been an increased
emphasis on enhancing maintenance imports in order to promote capacity utilization. This
was done in order to provide imported inputs to the industrial sector, stimulate investments,
support indigenous research and development programmes, expand export capacities, earn
international competitiveness and promote import substitutions and self reliance. Since the
principal purpose of the import policy was to encourage exports, it is characterised as export
–oriented import policy

In April 1985, for the first time, the Government announced the Export-import policy on a
three year basis. The basic aim of the new policy was to facilitate production through easier
and quicker access to imported inputs, impart continuity and stability of Exim Policy,
strengthen the export production base, facilitate technological up gradation and affect all
possible savings in imports.

On April 30th, 1990 a new Export-Import policy for a 3 year period was announced. The
salient features were list of items under Open General License (OGL) were expanded to
facilitate easy access to import of items that are not available within the country, import of
certain raw materials like fertilizers, oil, ammonia etc were channelized through public sector
in view of the essential character of these imports from the point of view of bulk consumption
and the requirements of small Actual Users.

The government came with a new EXIM policy for a 5 year period (2002-2007). The salient
features were: Creating Special Economic Zones (SEZ’s), augmenting exports of farm goods,
the small sector, textiles, gems and jewellery, electronic hardware etc. Besides these, the
policy aimed to reduce transaction cost to trade through a number of measures to bring about
procedural simplifications. But SEZ’s are saddled with excessive bureaucratic hurdles and
account for only 12% of the total exports. It may be noted that SEZ’s in China account for
over 40% of Chinese exports.

Ex Commerce and industry minister Mr Kamal Nath announced the foreign trade policy for
the five year period (2004-2009). Earlier known as the export-import (Exim) policy, it was
necessary for the policy to go beyond exports and imports and have an integrated approach to
the developmental requirements of India’s foreign trade. The FTP like the Exim policies of
the previous regime was for a five-year period. The commerce ministry will make annual
revisions to the policy, as was done with the Exim policies of the previous years.

The main thrust areas of the FTP were: Agriculture, handicrafts, handlooms, gems and
jewellery and leather and footwear sectors. Since these areas were dominated by small and
medium enterprises (SME’s), the thrust provided to SME’s was likely to boost exports as
well as generate more employment. Then provision was made for Duty free import of capital
goods under EPCG (Export Promotion Capital Goods) Scheme. Another initiative taken was
to establish Free Trade and Warehousing Zone (FTWZ) to improve infrastructure in the
foreign trade sector.

The new FTP (2009-2014) focuses on encouraging production and export of ‘green products’
through measures such as phased manufacturing programme for green vehicles, zero duty
EPCG scheme and incentives for exports, e-Trade project would be implemented in a time
bound manner to bring all stake holders on a common platform (Additional ports/locations
would be enabled on the Electronic Data Interchange over the next few years). The
Government seeks to promote Brand India through six or more ‘Made in India’ shows to be
organized across the world every year. Foreign Trade Policy is to help exporters for
technological up gradation export sector infrastructure, ‘Towns of Export Excellence’ and
units located therein would be granted additional focused support and incentives.
 Exports/Imports and Trade Balance of India
(1949-1950 to 2007-2008)
(Rs. in Crore)
Year Exports# Imports Trade
Balance
1949-50 485 617 -132
1950-51 606 608 -2
1951-52 716 890 -174
1952-53 578 702 -124
1953-54 531 610 -79
1954-55 593 700 -107
1955-56 609 774 -165
1956-57 605 841 -236
1957-58 561 1035 -474
1958-59 581 906 -325
1959-60 640 961 -321
1960-61 642 1122 -480
1961-62 660 1090 -430
1962-63 685 1131 -446
1963-64 793 1223 -430
1964-65 816 1349 -533
1965-66 810 1409 -599
1966-67 1157 2078 -921
1967-68 1199 2008 -809
1968-69 1358 1909 -551
1969-70 1413 1582 -169
1970-71 1535.3 1634.2 -98.9
1971-72 1608.2 1824.5 -216.3
1972-73 1971.5 1867.4 104.1
1973-74 2523.4 2955.4 -432
1974-75 3328.8 4518.8 -1190
1975-76 4036.3 5264.8 -1228.5
1976-77 5142.7 5073.8 68.9
1977-78 5407.9 6020.2 -612.3
1978-79 5726.1 6810.6 -1084.5
1979-80 6418.4 9142.6 -2724.2
1980-81 6710.7 12549.2 -5838.5
1981-82 7805.9 13607.6 -5801.7
1982-83 8803.4 14292.7 -5489.3
1983-84 9770.7 15831.5 -6060.8
1984-85 11743.7 17134.2 -5390.5
1985-86 10894.6 19657.7 -8763.1
1986-87 12452 20095.8 -7643.8
1987-88 15673.7 22243.7 -6570
1988-89 20231.5 28235.2 -8003.7
1989-90 27658.4 35328.4 -7670
1990-91 32558 43193 -10635
1991-92 44042 47851 -3809
1992-93 53688 63375 -9686
1993-94 69751 73101 -3350
1994-95 82674 89971 -7297
 1995-96 106353 122678 -16325
1996-97 118817 138920 -20103
1997-98 130101 154176 -24076
1998-99 139753 178332 -38579
1999-00 159561 215236 -55675
2000-01 203571 230873 -27302
2001-02 209018 245200 -36182
2002-03 255137 297206 -42069
2003-04 359108 293367 -65741
2004-05 501065 375340 -125725
2005-06 660409 456418 -203991
2006-07 840506 571779 -268727
2007-08 964850 640172 -324678
2008-09(R) 717934 1220824 -502890
2009-10(P) 631411 1043389 -411978

Abbr.: P: Provisional

       R: Revised

Note: #: Including Re-exports

Source: Economic Adviser to Govt. of Punjab. (10804)

INTERNAL AND EXTERNAL FACTORS RESPONSIBLE FOR WIDENING TRADE

DEFICIT

 During the seventies, as a result of the sharp hike in oil prices by the Organisation of
Petroleum Exporting Countries (OPEC) first during 1973-74 and then again in 1979-
80, the value of POL imports rose sharply not only during the seventies, but it’s
impact was felt even during the eighties as well.

 The economy also suffered a major draught in 1979-80.

 Several shortages on account of the unprecedented drought of 1987.

 The growing pressure of demand accompanied with the stepping up of the real growth
of the economy and the policy of liberalisation adopted by the Government.

 India underestimated the impact of South-East Asian crisis during 1997-98; this is
considered to be a major contributing factor among the causes of export growth
slump.

 Increasing competition from China and Taiwan.

  Exports of textiles have also been affected by the restrictive and protectionist policies
of developed countries on the one hand and increasing competition from China on the
other.

 Large industrial houses have miserably failed to boost exports. They account for only
5% of the total exports.

 Non tariff barriers have been created by the developed countries to slow down Indian
exports. The use of anti-dumping duties by these countries has also affected exports.

COMPOSITION OF EXPORTS

Exports constitute a key factor in economic development of a country. For a developing

country, it is essential to build up sizeable export surplus. The rate of economic growth is
largely determined by the rate at which a country can expand its export capacity.

Higher rates of economic growth tend to be associated with higher rates of export growth. A
country that tries to promote growth while ignoring its export performance may succeed in
the short-run, but it will be hard-pressed to sustain growth over a long period of time. Thus, it
can be concluded that exports are a key factor in the growth process, not one of political
astrology but of empirical fact. India’s foreign trade comprises export of goods and services
and import of machinery and technology.

A crucial aspect of the trade of a country is its composition. Exports indicate the facts about
the goods that we have and how much of them we can and are willing to sell. The changes in
the composition of trade mirror the developments taking place in the domestic structure of
production over a period of time.

In the early years of planning, traditional commodities alone were important but with the
success of industrialization and general improvement in the structure of the economy, new
commodities also became important. At present, India’s exports by major commodity groups
are:

 Manufactures which include engineering goods , Chemicals and allied products,

Cotton yarn, fabric etc, Jute manufactures, Leather and its manufacturers, Readymade
garments, Gems and jewellery
 Agriculture and allied products category includes cashew kernels, coffee, marine
products, raw cotton, rice, spices, sugar, tea and mate, tobacco etc
We will focus on few major items which are as follows:

1. Agriculture and allied goods

India’s agri-exports can be divided into three broad categories, i.e. export of

a) Raw products

b) Semi raw products

c) Processed and ready-to-eat products

Raw products exported are essentially of low value high volume nature, while semi processed
products are of intermediate value and limited volume and processed ready-to-eat products
are of high value but low volume nature. The major agri exports of India are cereals (mostly
rice Basmati and non-Basmati), spices, cashew, oilcake/meals, and tobacco, tea, coffee and
marine products. Value of agri-exports to total exports of the country has been ranging
between 15 to 20 per cent.

Agricultural exports were 44 % of total exports in FY 1960; they decreased to 32 % in FY

1970, to 31 % in FY 1980, to 18.5 % in FY 1988, and to 15.3 % in FY 1993. This drop in
share of agriculture in total exports was somewhat misleading because agricultural products,
such as jute and cotton, which were exported in the raw form in the 1950s, have been
exported as cotton yarn, fabrics, ready-made garments, coir yarn, and jute manufactures since
the 1960s.

The composition of agricultural and allied products for export changed primarily due to the
continuing increase of demand in the domestic market. This demand cut into the excess
available for export in spite of a continuing desire, on the part of government, to shore up the
invariant foreign-exchange shortage.

Excellent export prospects, competitive pricing of agricultural products and standards, which
are internationally comparable have created enormous trade opportunities in the Indian agro
industry. 
 Exports of Agriculture Commodities vis-a-vis
Total National Exports from India
(1990-1991 to 2007-2008)
(Rs. in Crore)
Year Agriculture Total National % Agriculture Exports to
Exports Exports Total National Exports
1990-91 6012.76 32527.28 18.49
1991-92 7838.13 44041.81 17.80
1992-93 9040.30 53688.26 16.84
1993-94 12586.55 69748.85 18.05
1994-95 13222.76 82673.40 15.99
1995-96 20397.74 106353.35 19.18
1996-97 24161.29 118817.32 20.33
1997-98 24843.45 130100.64 19.09
1998-99 25510.64 139751.77 18.25
1999-00 25313.66 159095.20 15.91
2000-01 28657.37 201356.45 14.23
2001-02 29728.61 209017.97 14.22
2002-03 34653.94 255137.28 13.58
2003-04 37266.52 293366.75 12.70
2004-05 41602.65 375339.53 11.08
2005-06 49216.96 456417.86 10.78
2006-07 62411.42 571779.28 10.92
2007- 77769.71 640172.14 12.15
08(P)

Abbr.: P: Provisional.
Source: Ministry of Agriculture, Govt. of India.

From the above table it is evident that percentage of agriculture exports has fallen in total
exports. In the initial years it had been fluctuating but after that in 2006-06, it came to 10
percent and in 2007 it had been 12 percent which is considerably low if we compare the
figures from 1990s and in 2007 and onwards.

The following table gives the detailed description about export of agriculture products from
India from 2002 onwards till 2008.
Export of Agricultural Products from India
(2002-2003 to 2007-2008)
(Quantity in ' 000 Tonne, Value in Rs. Crore)
Commodity April-March
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 (P)
Qty. Value Qty. Value Qty. Value Qty. Value Qty. Value Qty. Value
Pulses 148.0 345.02 153.8 328.60 271.1 602.57 447.4 1115.2 250.7 773.34 163.6 526.95
8 8 8 4 1 0 7
Rice 708.7 2058.4 771.4 1993.0 1163. 2823.9 1166. 3043.1 1045. 2792.8 1181. 4334.77
Basmati 9 7 9 5 00 0 57 0 73 1 66
Rice (Other 4259. 3772.7 2640. 2174.9 3615. 3945.0 2921. 3178.1 3702. 4243.1 5314. 7396.23
than 08 7 57 4 10 2 60 7 22 0 18
Basmati)
Wheat 3671. 1759.8 4093. 2391.1 2009. 1459.8 746.1 557.53 46.64 35.35 0.23 0.23
25 7 08 5 35 2 8
Other 106.0 91.06 604.2 397.55 1178. 793.82 567.2 453.82 730.3 599.25 3227. 2978.86
Cereals 8 3 03 2 8 79
Tea 182.8 1652.0 177.7 1637.3 183.4 1840.3 162.8 1730.7 185.6 1969.5 198.5 2022.32
6 7 7 5 0 0 6 3 3 1 5
Coffee 184.8 993.98 188.4 1085.9 167.5 1069.0 177.6 1588.6 213.6 1969.0 178.1 1868.02
7 4 2 5 8 8 9 5 0 2
Tobacco 100.4 733.52 120.6 801.41 135.7 940.07 142.7 1021.3 158.2 1251.2 173.5 1430.49
Unmanufact 7 4 4 0 2 5 8 1
ured
Tobacco - 289.37 - 295.06 - 314.54 - 309.34 - 433.89 - 498.16
Manufacture
d
Poultry & - 176.45 - 161.56 - 458.79 - 794.61 - 497.09 - 921.18
Dairy
Products
Floriculture - 180.77 - 250.47 - 222.92 - 301.45 - 652.70 - 338.01
Products
Spices 277.0 1655.4 267.4 1544.1 364.5 1883.1 400.2 2115.9 482.8 3157.9 619.6 4176.07
2 9 7 8 3 8 4 8 0 0 1
Cashewnut 6.14 8.56 4.33 5.02 5.33 11.94 5.94 8.67 8.09 15.34 14.75 25.02
Shell Liquid
Cashew 129.4 2052.9 99.68 1699.8 118.1 2477.1 125.1 2584.7 122.7 2291.1 111.2 2209.73
3 4 2 1 8 0 0 8 8 8
Sesamum 118.3 372.89 189.1 708.90 168.2 708.95 199.8 746.60 233.3 939.58 314.1 1624.01
Seed 1 1 8 1 4 1
Nigerseed 36.13 77.99 17.89 45.41 26.14 64.74 28.42 60.25 30.02 66.87 21.68 90.03
Groundnut 67.89 178.30 176.9 179.11 177.1 547.02 190.0 513.69 251.4 79.86 268.1 1041.72
3 5 6 3 4
Guargum 111.9 486.64 119.3 120.56 131.3 689.48 186.7 1094.2 189.3 1125.7 207.8 1110.55
Meal 4 3 1 3 3 3 9 1
Oil Meals 1776. 1487.3 3172. 3249.8 3603. 3177.6 5976. 4875.0 6437. 5504.3 6690. 7953.79
13 5 31 9 38 0 00 1 43 2 84
Castor Oil 177.6 609.81 152.3 656.06 271.6 1077.9 254.7 939.74 294.8 1090.1 281.9 1274.58
9 6 9 8 2 7 1 9
Shellac 5.72 89.85 10.50 179.74 8.54 164.87 9.30 159.98 7.51 147.20 7.98 123.55
Sugar 1662. 1769.4 1200. 1216.5 108.6 149.53 321.2 569.10 1643. 3127.4 4641. 5404.18
37 9 60 9 9 0 40 7 14
Molasses 207.8 45.05 98.62 19.38 8.16 5.52 72.94 28.81 326.8 133.37 863.4 250.08
6 7 6
Fruits/Veget 8.92 97.96 5.18 53.61 6.74 66.04 7.52 92.96 8.10 121.59 10.30 142.66
able Seeds
Fresh Fruits - 447.32 - 784.03 - 862.26 - 1120.6 - 1413.9 - 1446.99
9 8
Fresh - 642.78 - 953.93 - 862.99 - 919.81 - 1546.5 - 1473.31
Vegetables 3
Processed - 256.73 - 291.15 - 362.46 - 494.48 - 650.23 - 605.54
Vegetables
Processed - 574.13 - 343.66 - 369.16 - 599.91 - 711.40 - 769.20
Fruit Juices
Miscellaneo - 910.08 - 1058.6 - 908.03 - 989.53 - 1125.0 - 1337.16
us Processed 9 5
Items
Meat & - 1377.1 - 1714.4 - 1905.2 - 2750.1 - 3314.0 - 3734.48
Preparations 9 1 7 7 3
Marine 527.8 6928.0 409.4 6105.6 483.5 6469.2 554.2 7035.9 611.5 8001.0 487.5 6854.68
Products 7 5 9 3 2 2 0 1 5 4 0
Cotton Raw 11.75 50.28 179.6 942.37 86.64 422.58 614.8 2904.3 1162. 6107.8 1417. 7999.69
including 1 0 5 22 1 46
Waste
Jute Hessian - 349.31 - 410.11 - 427.20 - 490.90 - 375.81 - 463.76
Poultry - 182.07 - 253.59 - 281.96 - 313.37 - 313.82 - 406.68
Products
Paper/Wood - 1950.3 - 2362.5 - 3236.6 - 3759.1 - 4915.2 - 4937.03
products 3 8 6 5 2
Total - 34653. - 37266. - 41602. - 49216. - 62411. - 77769.7
Agricultura 94 52 65 96 42 1
l Exports
Total   255137   293366   375339 - 456417 - 571779 - 640172.
National .28 .75 .53 .86 .28 14
Exports
% Share of   13.58   12.70   11.08   10.78   10.92   12.15
Agricultura
l
Exports in
National
Exports

Abbr.: Provisional.
Source: Ministry of Agriculture, Govt. of India.

The above table shows that though the total agricultural exports and national exports have
increased in absolute terms, the percentage of agricultural exports in national exports have
fallen considerably. The reason attributable to it is that though agricultural exports and
national exports both have increased but national exports have not increased at the pace at
which agricultural exports have grown.

Sanctioned Agri Export Zones at a Glance

(Rs. in Crore)
AEZs States Benefiting Districts Total Multi- Projected
agency Export Value
Investment per Year
Pineapple West Bengal Siliguri, Jalpaipuri 38.57 127
Litchi Uttranchal Nainital, Udham Singh 8.70 30
Nagar
Gherkins Karnataka Bangalore 11.00 200
Mango Uttar Lucknow, Unnao, Hardoi, 44.71 160
Pradesh Sitapur, Barabanki
Potato Uttar Agra, Farukkhabad, 10.41 37
Pradesh Kannauj, Meerut, Baghpat
Vegetable Punjab Fatehgarh Sahib 26.77 65
Potato Punjab Ludhiana, Jallandhar, 10.41 400
Amritsar, Rampura Phul,
Muktsar
Flower Tamil Nadu Tanflora Project Area 24.85 150
Grape & Maharashtra Nasik, Sangli, Pune, 3.50 461
Grape wine Solapur, Satara, Ahmed
Nagar
Mango Uttar Shahranpur 36.11 70
Pradesh
Total     215.03 1700
 Source: Agricultural and Processed Food Export Development Authority.

Year: Period of fiscal year in India is April to March, e.g. year shown as 1990-91 relates to
April 1990 to March 1991.

Units: (a) 1 Lakh (or Lac) = 100000.

(b) 1 Crore (or Cr.) = 10000000.

The above table shows the sanctioned Agri-export zones which have been set up in some
states to promote production of some fruits and vegetables by making some investments and
gaining produce and exporting a part of it which will not only enhance our exports but it will
also benefit some districts in the states where these Agri-export zones are sanctioned.

2. Handicrafts

Owing to the increasing handicrafts manufacturing and handicrafts exports, the Indian
traditional handicrafts culture has reached every nook and corner of the world. The legacy of
Indian handicrafts culture promises everything - beauty, dignity, form and style. Handicraft
items manufactured and exported from India largely consist of vases, candle stands,
Christmas ornaments, pen holders, brassware, paper mache gift items, ceramic pots and
handmade paper products, to name a few.

Exports of handicrafts (including hand-made carpets) during the year 1999-2000 amounted to
US$1277 million, and during the year 1998-1999, it stood at US$ 1177 million. The
percentage share of Indian handicrafts in the world exports of handicrafts during the year
1999-2000 in US$ was 3.6%, and during the period 2000-2001 (Apr-Oct), it was 3.1%. There
was an increase of 6.8% in India's share of world's total exports of handicrafts during the
period 1999-2000.

Export of Handicrafts (Excl. Carpets, Gems and Jewellery) from

India
(1990-1991 to 2004-2005)
Year All India Handicrafts (Excl. % Share in
Exports Carpets, Gems & India's
Jewellery) Exports
1990- 32553 712.99 2.19
1991
1991- 43828 1064.99 2.43
1992
1992- 53688 1495.25 2.79
1993
1993- 65500 2363.54 3.01
1994
1994- 82338 3159.62 3.84
1995
1995- 106465 3207.54 3.01
 1996
1996- 117525 3815.21 3.25
1997
1997- 132522 4254.60 3.21
1998
1998- 141604 6234.56 4.40
1999
1999- 162738 7170.30 4.41
2000
2000- 201674 8490.16 4.21
2001
2001- 207746 7709.33 3.71
2002
2002- 250130 9844.38 3.94
2003
2003- 291582 10465.14 3.59
2004
2004- 361879 13032.70 3.60
2005

Source: Export Promotion Council.

The above table shows the total India exports, exports of handicrafts and percentage share of
handicrafts exports in total India’s exports. The above table shows that both total Indian
exports as well as handicrafts exports have been increasing but they are not moving at the
same pace thereby the percentage of handicrafts exports in total Indian exports have
decreased in period onwards 2001 as compared to period earlier to it where exports have
always been showing growth.

Handicrafts Items Exported from India

(1998-1999 to 2007-2008)
(Rs. in Crore)
Items 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007-
99 2000 01 02 03 04 05 06 07 08
(upto (April-
Jan. Dec.
07) 07)
Carpet &
Other
Floor
Coverings
Woolen 1783.3 1888.4 2045.9 2152.6 2293.79 2015.11 1974.00 2512.11 2571.05 1165.16
2 5 6 9
Handmade - - - - - - - - - 735.33
Woolen
Tufted
Carpets
Silk 136.46 153.93 167.03 198.27 209.42 198.69 187.25 181.70 215.23 171.35
Synthetic 94.16 93.65 102.16 85.17 87.05 86.24 61.95 56.05 62.15 50.86
Total 2013.9 2136.0 2316.1 2436.1 2590.26 2300.04 2223.20 2749.86 2848.43 2122.70
4 3 5 3
Other
Handicraf
ts
Art Metal 1329.1 1497.1 1778.1 1758.9 2165.21 2642.42 3364.93 3662.98 3391.04 2704.36
ware 6 8 0 0
Wood 286.04 394.95 434.44 431.88 511.35 609.07 721.18 853.06 803.72 574.62
ware
H.P. 1033.9 1158.0 1276.7 1221.5 1466.52 1611.43 1848.76 2053.70 2182.97 1598.25
Textiles 8 5 5 9
Scarves
Embroider 1209.4 1584.3 1964.7 1931.9 2477.75 3286.05 4199.86 4711.45 4117.84 3185.98
ed & 2 6 8 7
Crochet
Goods
Shawls as 48.48 21.50 27.20 27.01 32.70 43.27 53.65 110.23 152.62 145.76
Art wares
Zari & 74.95 83.52 142.32 134.04 159.47 210.54 252.28 347.05 237.18 230.07
Zari Goods
Imitation 104.10 113.64 121.68 117.53 138.79 161.90 200.56 274.86 259.45 245.16
Jewellery
Misc. 1057.5 1116.4 1210.0 1146.5 1391.62 1900.46 2391.48 2513.52 2124.13 1773.84
Handicraft 7 0 8 8
s
Total 5143.7 5969.6 6955.3 6769.5 8343.41 10465.1 13032.7 14526.8 13268.9 10458.0
0 0 5 0 4 0 5 5 4
Grand 7157.6 8105.6 9270.5 9205.6 10933.6 12765.1 15255.9 17276.7 16117.3 12580.7
Total 4 3 0 3 7 8 0 1 8 4

Source: Ministry of Textiles, Govt. of India.

The above table shows the export of handicraft items from India from 1998-2008. It is
evident from above table that total exports have been increasing till 2005-06 with minor
fluctuations in 2001-02 but after 2005-06 total handicrafts exports have decreased and fallen
substantially in 2007-08 as compared to exports in 2005-06.

Growth in Export of Handicrafts by India 

(1986-1987 to 2002-2003)
(Rs in Crore)
Year Growth in Exports
1986-87 387
1987-88 415
1988-89 551
1989-90 589
1990-91 713
1991-92 1065
1992-93 1412
1993-94 1970
1994-95 2636
1995-96 3020
1996-97 3569
1997-98 4353
1998-99 5058
1999-00 5923
2000-01 6955
2001-02 6770
2002-03 8343

Compiled from the statistics released by : 17th Annual Report 2002-2003, Export Promotion
Council for Handicrafts.
 Year: Period of fiscal year in India is April to March, e.g. year shown as 1990-91 relates to
April 1990 to March 1991.

Units: (a) 1 Lakh (or Lac) = 100000.

(b) 1 Crore (or Cr.) = 10000000.

The above table shows the growth of exports in handicrafts by India from 1986-87 to 2003-
03 which shows that the exports of handicrafts have been showing an increasing trend. The
exports of handicrafts have grown from Rs.387 crores in 1986-87 to Rs.8343 crores in 2002-
03 and the story after 2002-03 was seen in the above tables where the absolute exports of
handicrafts have been increasing but they have not been keeping pace with the total exports
from India due to which the growth rate of exports have been falling. The percentage of
handicrafts in total exports was 3.60 in 2004-05.

3. Small scale industries (SSI)

SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian
Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for
nearly 35% of total exports. The number of small scale units that undertake direct exports
would be more than 5000.

Besides direct exports, it is estimated that small scale industrial units contribute around 15%
to exports indirectly. This takes place through merchant exporters, trading houses and export
houses. They may also be in the form of export orders from large units or the production of
parts and components for use for finished exportable goods.

It would surprise many to know that non traditional products account for more than 95% of
the SSI exports.

The exports from SSI sector have been clocking excellent growth rates in this decade. It has
been mostly fuelled by the performance of garment, leather and gems and jewellery units
from this sector.
The lucrative product groups where the SSI sector dominates in exports are sports goods,
readymade garments, woolen garments and knitwear, plastic products, processed food and
leather products.

The story so far of the Small Scale Industries has been following:

Exports from SSI Sector at Current Prices

(During 1971-72 to 1999-2000)
Year Exports at current prices SSI Exports as SSI Exports as
(US $ Million) (Rs. Crore) Percentage of Total Percentage of
Exports Rs./Crore (%) Production in %
1971-72 - 155 9.6 -
1973-74 500 393 15.6 5.5
1974-75 678 541 16.2 5.9
1975-76 615 532 13.2 4.8
1976-77 857 766 14.9 6.2
1977-78 987 845 15.6 5.9
1978-79 1303 1069 18.7 6.8
1979-80 1518 1226 19.1 5.7
1980-81 2078 1643 24.5 5.9
1981-82 2309 2071 26.5 6.4
1982-83 2116 2045 23.2 5.8
1983-84 2093 2160 22.2 5.2
1984-85 2137 2541 21.6 5.0
1985-86 2263 2769 25.4 4.5
1986-87 2851 3643 29.3 5.0
1987-88 3372 4372 27.9 5.0
1988-89 3790 5489 27.1 5.2
1989-90 4579 7625 27.6 5.8
1990-91 5386 9664 29.7 6.2
1991-92 5632 13883 31.5 7.8
1992-93 6141 17785 33.1 8.5
1993-94 8068 25307 36.3 10.5
1994-95 9258 29068 35.2 9.9
1995-96 10904 36470 34.3 10.2
1996-97 11560 39248 33.0 9.5
1997-98 11893 44442 34.2 9.6
1998-99 (P) 11660 48979 35.0 9.3
1999-00 (E) N.A. 54200 33.0 9.2
2000-01 - 69797 - -
2001-02 - 71244 - -
2002-03 - 86013 - -

Abbr.: P: Provisional.
          E: Estimated.
Compiled from the statistics released by : Report of the Study Group on Development of Small
Scale Enterprises,
             Planning Commission, March 2001, Govt. of India.

The above table shows the exports from Small Scale Industries from India at current prices. It
is evident from above table that small scale industrial export both as a percentage of total
exports and as percentage of production in percentage have shown a fluctuating trend,
increasing in some years and falling in another years but in the year 1999-2000 the exports
from small scale industries have fallen.
 Growth of SSI Exports in India
(1951-1952, 1961-1962, 1971-1972, 1976-1977,
1981-1982, 1986-1987, 1991-1992 to 2001-2002)
Year Total Exports Exports Percentage
(Rs. in Crore) from SSI Share
sector (Rs. in
Crore)
1951-52 716 Negligible -
1961-62 660 Negligible -
1971-72 1608 155 9.6
1976-77 5142 766 14.9
1981-82 7809 2071 26.5
1986-87 12567 3644 29
1991-92 44040 13883 31.5
1992-93 53688 17785 33.1
1993-94 69547 25307 36.4
1994-95 82674 29068 35.1
1995-96 106353 36470 34.2
1996-97 118817 39249 33.4
1997-98 126286 44442.18 35.19
1998-99 141603.53 48979.23 34.59
1999-00 159561 54200.47 33.97
2000-01 202509.7 69796.5 34.47
2001-02 207745.56 71243.99 34.29

Source: Small Scale Industries in India, Ministry of SSI, Govt. of India.

Year: Period of fiscal year in India is April to March, e.g. year shown as 1990-91 relates to
April 1990 to March 1991.

Units: (a) 1 Lakh (or Lac) = 100000.

(b) 1 Crore (or Cr.) = 10000000.

The above table shows the growth of Small Scale Industrial exports in India, the percentage
share of small scale industrial exports in total exports have shown a fluctuating trend. Though
total exports and exports from small scale industries have been increasing but they are not
moving at the same pace due to which the percentage figure has shown a downward trend and
has fallen to 34.29 percent in 2001-02 from 35.19 percent in 1997-98.

4. India Automobile Industry Ready to Rule Export Market

Indian automakers are likely to see good response for their products in the international
market due to low cost advantage.
 
According to KPMG, Indian auto manufacturers are likely to soon join the bandwagon of
established international automobile giants, such as Toyota, Hyundai, Volkswagen and
Honda, as they are well positioned to significantly increase their market share in the coming
five years (till 2014), as per the news published by Press Trust of India.
 
Automobile exports from India registered growth of 23.61% in 2008-09 to 1.53 Million
Units. Separately, exports of passenger vehicles stood at 335.74 Thousand Units and that of
commercial vehicles and two-wheelers at 42.67 Thousand and over one million Units
respectively.
 
One of the key factors responsible for the growth of the Indian automobile industry is its low
cost advantage. On the back of cheap labour and raw material cost, the cost of production
becomes extremely less. This ultimately leads to low cost of end product, thereby luring
people who are not in a position to own expensive luxury cars. Moreover, the cost
competition, which is getting increasingly tough in the developed markets under the pressure
of high input cost, will provide an additional edge to the Indian automobile industry in
increasing its passenger car sales in overseas markets.
 
Besides this, India is rapidly emerging as a quality auto component manufacturing base,
which is further supporting the country’s auto industry. There are several well-equipped
small passenger car assembling plants, as a result of which India-manufactured small
passenger cars are gaining good response in the overseas markets.
 
Exports of passenger cars from India are expected to chip in a CAGR of around 20% between
2009-10 and 2012-13, reaching 610 Thousand Units, up from 335.74 Thousand Units in
2008-09, predicts a market research pioneer RNCOS in its report “Indian Automobile Sector
Analysis”.
 
According to a Research Analyst at RNCOS, “India is highly capable of surfacing as a
pioneer of a new stream of emerging economy automobile innovators, but the way to this will
not be easy. The country has to confront a number of challenges, one of them being to
improve its quality and simultaneously build and retain automotive R&D skills. Indian
automakers need to give attention to innovation rather than simply manufacturing. Suppliers
also need to meet the international quality standards so as to make India a world leader in
global automobile market.”

Current Scenario

 Foreign auto makers, including Ford Motor Co. , General Motors Corp., Honda Motor
Co. Ltd., Toyota Motor Corp., DaimlerChrysler AG and Hyundai Motor Co. Ltd., are
looking to increase their presence in India and use it as an export hub.
 Exports of auto components, whose manufacturing costs are 30-40 per cent lower
than in the West, have grown at 25% a year between 2006 to 2008.

Snippets
The automobile industry in India is the ninth largest in the world with an annual production
of over 2.3 million units in 2008. In 2009, India emerged as Asia's fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand.
Facts & Figures

Domestic Sales

The cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008
was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent
and Multi Purpose Vehicles by 21.39 percent in this period.

The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy
Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a
growth of 12.29 percent.

Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically
by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008
compared to the last year.

Two Wheelers registered a negative growth rate of 7.92 percent during this period, with
motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93 percent
respectively. However, Scooters and Mopeds segment grew by 11.64 percent and 16.63
percent respectively.

Exports

Automobile Exports registered a growth of 22.30 percent during the current financial year.

The growth was led by two wheelers segment which grew at 32.31 percent. Commercial
vehicles and Passenger Vehicles exports grew by 19.10 percent and 9.37 percent respectively.
Exports of Three Wheelers segment declined by 1.85 percent.

 
Export of Auto Components:
Investments in the auto ancillary sector are rising rapidly. In 1997, the size of the auto
component industry was US$ 2.4 billion and now in 2004-05 it has become US$ 8.7 billion
industry. The export of auto components has grown at a compounded growth rate of 19 per
cent over the past six years.

Jai Parabolic Springs (JPSL) is a leading manufacturer of parabolic springs in India and has
bagged two major orders from international auto majors, General Motors (GE) and Ford.

Robert Bosch, auto parts maker of Germany has relocated manufacture of certain products to
MICO, India. Crosslink International Wheels, Malaysia's leading automobile security
provider Wheels Electronic SDN, is setting up its manufacturing unit at Baddi to make India
the export hub for the SAARC region.

PSA Peugeot Citroën, French automobile group has placed orders for components worth US$
10 million with Indian companies.

Fiat India exported components worth US$ 8.3 million in 2004-05 to its operations in South
Africa. GKN Driveline and Dubai based auto ancillary major Parts International plans for an
investments in India.

Analysis of Indian Exports:

 Cost competitiveness in terms of labour and raw material.
 Established manufacturing base. Economics of scale due to domestic
market.
Strengths
 Potential to harness global brand image of the parent company.
 Global hub policy for small car like Hyundai, Suzuki, etc.

 Perception about quality.

Weakness  Infrastructure bottlenecks.

 Huge export markets such as Europe, America, Africa, and others for
Opportunities Indian cars.

 China, Malaysia, Thailand, etc.

Threats  Many other countries also have strategies for export promotion.

Export Imperatives:
Internal Factors:

 Attaining high quality for global standards.

 Continuous cost reduction for global competitiveness.
 Supply chain management (logistics).
 Attaining economies of scale & scope.

External Factors:

 Improve infrastructure (ports, roads, etc).

 Improve EXIM regulations.

AUTO POLICY (VISION)

TO ESTABLISH A GLOBALLY COMPETITIVE AUTOMOTIVE INDUSTRY IN

INDIA AND TO DOUBLE ITS CONTRIBUTION TO THE ECONOMY BY 2010

  1. POLICY OBJECTIVES

This policy aims to promote integrated, phased, enduring and self-sustained growth of the
Indian automotive industry. The objectives are to:-

(i) Exalt the sector as a lever of industrial growth and employment and to achieve a high
degree of value addition in the country;

(ii) Promote a globally competitive automotive industry and emerge as a global source for
auto components;

(iii) Establish an international hub for manufacturing small, affordable passenger cars and a
key centre for manufacturing Tractors and Two-wheelers in the world;

(iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy and
local industry;
(v) Conduce incessant modernization of the industry and facilitate indigenous design,
research and development;

(vi) Steer India's software industry into automotive technology;

(vii) Assist development of vehicles propelled by alternate energy sources;

(viii) Development of domestic safety and environmental standards at par with international
standards.

2. BACKGROUND

2.1 Automotive industry has universally emerged as an important driver in the economy.
Although the automotive industry in India is nearly six decades old, until 1982, only three
manufacturers - M/s. Hindustan Motors, M/s. Premier Automobiles and M/s. Standard
Motors tenanted the motor car sector. Owing to low volumes, it perpetuated obsolete
technologies and was out of sync with the world industry. In 1982, Maruti Udyog Ltd.
(MUL) came up as a government initiative in collaboration with Suzuki of Japan to establish
volume production of contemporary models. After the lifting of licensing in 1993, 17 new
ventures have come up of which 16 are for manufacture of cars. This industry currently
accounts for nearly 4% of the GNP and 17% 0f the indirect tax revenue.

3. EXTANT POLICY

3.1 Before the removal of QRs with effect from 01-04-2001, the policy placed import of
capital goods and automotive components under open general licence, but restricted import of
cars and automotive vehicles in Completely Built Unit (CBU) form or in Completely
Knocked Down (CKD) or in Semi Knocked Down (SKD) condition. Car manufacturing units
were issued licences to import components in CKD or SKD form only on executing a
Memorandum of Understanding (MOU) with the Director General Foreign Trade (DGFT). 11
companies signed MOUs with DGFT under which they agreed to:

i. Establish actual production of cars and not merely assemble vehicles;

ii. Bring in a minimum foreign equity of US $ 50 Million if a joint venture
involved majority foreign equity ownership;
iii. Indigenise components up to a minimum of 50% in the third and 70% in the
fifth year or earlier from the date of clearance of the first lot of imports.
Thereafter the MOU and import licensing will abate;
iv. Neutralise foreign exchange outgo on imports (CIF) by export of cars, auto
components etc. (FOB). This obligation was to commence from the third year
of start of production and to be fulfilled during the currency of the MOU.
From the fourth year imports were to be regulated in relation to the exports
made in the previous year.
4. CURRENT STATUS OF INDIAN AUTOMOTIVE INDUSTRY

4.1 The industry encompasses commercial vehicles, multi-utility vehicles, passenger cars,
two wheelers, three wheelers, tractors and auto components. There are in place 15
manufacturers of cars and multi utility vehicles, 9 of commercial vehicles, 14 of Two/Three
Wheelers and 10 of Tractors besides 5 of engines. With an investment of Rs.50, 000 crores,
the turnover was Rs. 59,500 crores in Automotive Sector during 1999-2000. It employs 4,
50,000 people directly and 100, 00,000 people indirectly and is now inhabited by global
majors in keen contention.

4.2 India manufactures about 38,00,000 2-wheelers, 5,70,000 passenger cars, 1,25,000 Multi
Utility Vehicles, 1,70,000 Commercial Vehicles and 2,60,000 tractors annually. India ranks
second in the production of two wheelers and fifth in commercial vehicles.

4.3 India’s automotive component industry manufactures the entire range of parts required by
the domestic automobile industry and currently employs about 250,000 persons. Auto
component manufacturers supply to two kinds of buyers – original equipment manufacturers
(OEM) and the replacement market. The replacement market is characterised by the presence
of several small-scale suppliers who score over the organised players in terms of excise duty
exemptions and lower overheads. The demand from the OEM market, on the other hand, is
dependent on the demand for new vehicles.

4.4 The auto sector (excluding Tractors) attained a steep cumulative annual growth of 22%
between 1992 and 1997. The Tractors achieved a cumulative annual growth of 16%.
Component production grew by 28%. There has been a slowdown in the automobile sector in
the past two years. However, the component industry maintained a low but positive growth
rate mainly due to its export performance. Over the years, the component industry has
maintained a 10% - 12% share of exports in the total production.

4.5 Roads occupy an eminent position in transportation as they, as per the present estimate,
carry nearly 65% of freight and 87% of passenger traffic. Although, India has 3.3 million
kilometres of road network, which is the second largest in the world, the Indian highways are
getting overpopulated. Traffic management and road sense also need attention.

5. NEED FOR A COMPREHENSIVE AUTOMOTIVE POLICY

5.1 The extant policy has drawn many overseas companies into India but needs to be more
investor friendly, address emerging problems and be WTO compatible. The Indian car market
is full of possibilities; but present demand profile inhibits volume production, saves by a few,
and conduces contention rather than competition. World over, the majors have consolidated
to elevate technology, enlarge product range, access new markets, cut costs and in graft
versatility. They have resorted to common platforms, modular assemblies and systems
integration by component suppliers and E-Commerce.
5.2 The automotive industry is in the midst of a major structural transformation in today's
globalised scenario. "System Supply" of integrated components and sub-systems is becoming
the order of the day, with individual small components being supplied to the system
integrators instead of the vehicle manufacturers. In this process, most of the SSI units
manufacturing smaller individual components are on their way to become tier 2 and tier 3
suppliers, while the larger companies including most MNCs are being transformed into tier 1
companies, which purchase from tier 2 & 3, and sell to the auto manufacturers.

5.3 Indian auto sector needs to grow collaterally and in harmony with world industry. India
has the potential to be a global automotive power. However, concerted efforts will be
required to take auto manufacturing to a self-sustaining level where they shall have volumes,
generate requisite technology and meet evolving emission requirements.

5.4 Volume is important for any manufacturing enterprise. However, it is more important for
automobile sector, both for the manufacture of vehicles as well as auto components. Lack of
volume will not only inhibit efficient manufacture but also R&D and introduction of new
models. The investment and fiscal policies should create an environment for volume
production and indigenous capability for innovation for small cars and auto components.

5.5 Auto components manufacturers have been slowly gaining global recognition and
maintaining a certain level of exports despite the recent downturn. It should be possible to
achieve an export target of US $ 1 billion by 2005 and US $ 2.7 billion by 2010. This would
require three pronged marketing strategy: exports through OEMs for their global sourcing
requirements, export to tier I manufacturers as a part of their international supply chain and
direct exports to aftermarket. The main challenges are lower volume – low scale,
fragmentation, inadequate R&D/technology support, lower productivity levels, limited
resources for international marketing and establishment of an efficient supply chain.

6. MEASURES TO REALIZE THE POLICY OBJECTIVES

6.1 Initiatives relating to investment, tariffs, duties and imposts will be the instruments to
achieve the Policy objectives. These path government’s economic reform and are in harmony
with the commitments made to WTO.

6.2 Increased resource allocation to the highways sector to ensure collateral up gradation and
development of road infrastructure in step with the increase in the population of vehicles.

6.3 An appropriate regulatory framework for smooth movement of traffic, safety and
environmental aspects.

7. FOREIGN DIRECT INVESTMENT

7.1 Automatic approval for foreign equity investment up to 100% of manufacture of

automobiles and component is permitted.
8. IMPORT TARIFF

8.1 The incidence of import tariff will be fixed in a manner so as to facilitate development of
manufacturing capabilities as opposed to mere assembly without giving undue protection;
ensure balanced transition to open trade; promote increased competition in the market and
enlarge purchase options to the Indian customer.

8.2 The Government will review the automotive tariff structure periodically to encourage
demand, promote the growth of the industry and prevent India from becoming a dumping
ground for international rejects.

8.3 In respect of items with bound rates viz. Buses, Trucks, Tractors, CBUs and Auto
components, Government will give adequate accommodation to indigenous industry to attain
global standards.

8.4 In consonance with Auto Policy objectives, in respect of unbound items i.e., Motor Cars,
MUVs, Motorcycles, Mopeds, Scooters and Auto Rickshaws, the import tariff shall be so
designed as to give maximum fillip to manufacturing in the country without extending undue
protection to domestic industry.

8.5 The conditions for import of new Completely Built Units (CBUs) will be as per Public
Notice issued by the Director General Foreign Trade (DGFT) having regard to environment
and safety regulations.

8.6 Used vehicles imported into the country would have to meet CMVR, environmental
requirements as per Public Notice issued by DGFT laying down specific standards and other
criteria for such imports.

8.7 Appropriate measures including anti dumping duties will be put in place to check
dumping and unfair trade practices.

9. EXCISE DUTY

9.1 Motor Cars

9.1.1 The ownership of cars in India is just 6 per thousand of population as

against 500 in the developed economies. The contribution of the auto sector to
the GDP and employment is likewise low. Expansion of local demand holds
great potential and is vital to install scale volumes of production.

9.1.2 Domestic demand mainly devolves around small cars not exceeding 3.80
meters in length. Small cars occupy less of road space and save on fuel. These
capture more than 85% of the market. India can build export capability and
 become an Asian hub for export of small cars. The growth of this segment
needs to be spurred.

9.2 Multi Utility Vehicles

9.2.1 MUVs are an important mode of economical mass transport in rural

India due to poor road infrastructure and lack of good State transport system.
They are the first vehicle purchased by a number of farmers, traders, small
businessmen in rural and semi-urban markets. The Government will
endeavour to provide fiscal incentives to this sector.

 9.3 Commercial Vehicles

9.3.1 Presently excise duty on commercial vehicles sold by a manufacturer

whether as a chassis or with a complete body is 16%. However, no duty is
levied on the body that is built by an independent body builder on chassis
bought from a manufacturer. This dispensation inveigles production of the
complete trucks and buses by the chassis manufacturer and is detrimental to
safety standards. The duty imposed on the construction of bodies by an
independent body builder, small or organised sector shall be equal to that of
bodies built by a chassis manufacturer.

9.3.2 The Government will encourage fabrication of bus body on bus chassis
designed for better passenger comfort instead of truck chassis as is the current
practice.

9.3.3 The Government will promote the use of multi-axle vehicles for carriage
of goods as they cause reduced environmental pollution and lesser wear and
tear on road surface in comparison to the existing 2-axle trucks.

10. IMPROVING ROAD INFRASTRUCTURE

10.1 Traffic on roads is growing at a rate of 7 to 10% per annum while the vehicle population
growth for the past few years is of the order of 12% per annum. Poor road infrastructure and
traffic congestion can be a bottleneck in the growth of vehicle industry. A balanced and
coordinated approach will be undertaken for proper maintenance, up gradation and
development of roads by encouraging private sector participation besides public investment
and incorporating latest technologies and management practices to take care of increase in
vehicular traffic.

10.2 For the convenience of travelling public the Government shall also promote multi-modal
transportation and the implementation of mass rapid transport systems.

11. INCENTIVE FOR RESEARCH AND DEVELOPMENT

11.1 The Government shall promote Research & Development in automotive industry by
strengthening the efforts of industry in this direction by providing suitable fiscal and financial
incentives.

11.2 The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored
research and in-house R&D expenditure. This will be improved further for research and
development activities of vehicle and component manufacturers from the current level of
125%.

11.3 In addition, Vehicle manufacturers will also be considered for a rebate on the applicable
excise duty for every 1% of the gross turnover of the company expended during the year on
Research and Development carried either in-house under a distinct dedicated entity, faculty
or division within the company assessed as competent and qualified for the purpose or in any
other R&D institution in the country. This would include R & D leading to adoption of low
emission technologies and energy saving devices.

11.4 Government will encourage setting up of independent auto design firms by providing
them tax breaks, concessional duty on plant/equipment imports and granting automatic
approval.

11.5 Allocations to automotive cess fund created for R&D of automotive industry shall be
increased and the scope of activities covered under it enlarged.

12. BUILDING BYE LAWS FOR RESIDENTIAL, COMMERCIAL AND OTHER

USES

12.1 With the growth of vehicles, smooth traffic movement has come under severe strain.
The problem has been aggravated because of inadequate provision of parking facilities
generally. Starting with metropolitan and important towns, the Government will pursue with
State Governments and Local bodies amendments to bye laws for upward revision of the
parking norms for new residential buildings, construction of common parking for existing
residential areas besides parking up gradation in all commercial areas. Multi-storied parking
shall also be encouraged.

13. ENVIRONMENTAL ASPECTS

13.1 The automotive and oil industry have to heave together to constantly fulfil environment
imperatives. The Government will continue to promote the use of low emission fuel auto
technology.

13.2 The Government after considering the recommendations of the Expert Committee on
Auto Fuel Policy headed by Dr. R.A. Mashelkar, have approved a road map for
implementation for the auto fuel quality consistent with the required levels of vehicular
emissions norms and environmental quality. The Government will formulate a
comprehensive auto fuel policy covering the other related aspects and ensure availability of
appropriate auto fuel/fuel mixes at minimum social costs across the country. Suitable
institutional mechanism will be put in place for certification, monitoring and enforcement of
different technologies/fuel mixes. Appropriate fiscal measures will be devised to achieve
milestones in the roadmap for implementation of auto fuel policy.

13.3 In the short run, the Government will encourage the use of short chain hydrocarbons
along with other auto fuels of the quality necessary to meet the vehicular emissions norms.

13.4 There is prime need to support the development and introduction of vehicles propelled
by energy sources other than hydrocarbons by promoting appropriate automotive technology.
Hybrid vehicles and vehicles operating with batteries and fuel cells are alternatives to the
conventional automobile, which in their early beginnings, lay in treasured. As an impetus for
the development of such vehicles, an appropriate long-term fiscal structure shall be put in
place to facilitate their acceptance vis-à-vis vehicles based on conventional fuels.

13.5 Internationally, the practice is to levy higher road tax on older vehicles in order to
discourage their use. In India, the road tax on vehicles varies in nature and quantum among
the states. Lifetime road tax is also in vogue. The endeavour will be to move to the
international model.

13.6 In order to facilitate faster up gradation of environmental quality, the Govt. will consider
having a terminal life policy for commercial vehicles along with incentives for replacement
for such vehicles.

14. SAFETY

14.1 Government will duly amend the Central Motor Vehicles Rules, Bureau of Indian
Standards (BIS) and other relevant provisions and introduce safety regulations that conform
to global standards.

14.2 Testing and certification facilities need to be revised and strengthened in accordance
with safety standards of global order. Government, in partnership with industry, will tend to
this requirement.

15. HARMONISATION OF STANDARDS:

15.1 Government recognises the need for harmonisation of standards in a global economy
and will work towards it.

5. Gems and jewellery

The Gems and Jewellery Export Promotion Council (GJEPC) has urged the Central
government to come up with pragmatic policies in its forthcoming budget for the
development of Indian gems and jewellery sector.

In its pre-budget proposals submitted to the ministry of commerce and the ministry of
finance, the GJEPC has urged the government to effect structural changes in the direct tax
code (DTC) system by excluding the powers of the authorized officer to seize any bullion
including precious and semi-precious stones or jewellery.

Other demands include the introduction of presumptive tax system for the gems and jewellery
industry in order to remain in competition with Belgium, Israel, Dubai and Thailand,
restoration of Generalized System of Preference (GSP) withdrawn by the US, continuation of
the fiscal stimulus package till the industry fully recovers from the global economic
recession, creation of diamond, gem and jewellery dollar fund.

Chandrakant Sanghavi, regional chairman of GJEPC, said, "The Surat diamantaires in

particular and the Indian gems and jewellery industry in general have high hopes from the
budget. We have urged the Central government to take a pro-active approach for the diamond
industry's development."

Scheme for Gem and Jewellery 8.1

Exporters of gem and jewellery are eligible to import their inputs by obtaining Replenishment
(REP) Licences and Diamond Imprest Licences from the licensing authorities in
accordance with the procedure specified in this behalf.

Replenishment Licence 8.2

The exporters of gem and jewellery products listed in Appendix 30-A of the shall be eligible
for grant of Replenishment Licences at the rate and for the items mentioned in the said
Appendix to import and replenish their inputs. Exports through third party are also admissible
for REP Licences. The exports made in fulfillment of export obligation against Diamond
Imprest Licences shall not qualify for this benefit. Replenishment licence may also be issued
for import of consumables or for plain/studded jewellery as per the details given in paragraph
8.88 of Handbook (Vol.1).

Eligibility
An exporter may apply for a licence for import of rough diamonds:

(a)Equal to the best export performance of cut and polished diamonds in the licensing year
during the preceding three licensing years, if he has a minimum of three licensing year of
export performance.
(b)Against a valid export order in his own name. An exporter of cut & polished diamonds
who is status holder may also be issued a licence for import of cut & polished diamonds up
to 5% of the export performance of the preceding year of cut & polished diamonds.

Export Obligation
The export obligation against each consignment shall be fulfilled within a period of five
months from the date of clearance of such consignment through Customs. Exports made from
the date of receipt of an application under this scheme by the licensing authority may be
accepted towards discharge of export obligation. However, at no point of time, the importer
shall be required to maintain records of individual import consignments nor will they be
required to co-relate export consignments with the corresponding import consignments
towards fulfillment of export obligation.

Items of Export
The following items, if exported, would be eligible for the facilities under these schemes:

(a) Gold jewellery, including partly processed jewellery and any articles including medallions
and coins (excluding the coins of the nature of legal tender), whether plain or studded,
containing gold of 8 carats and above;

(b) Silver jewellery including partly processed jewellery and any articles including
medallions and coins (excluding the coins of the nature of legal tender and any engineering
goods) containing more than 50% silver by weight;

(c) Platinum jewellery including partly processed jewellery and any articles including
medallions and coins (excluding the coins of the nature of legal tender and any engineering
goods) containing more than 50% platinum by weight.

Replenishment Licence
An exporter is eligible for freely transferable Replenishment (REP) Licence at the rate of
87% of the FOB value of exports of plain gold/ platinum jewellery and articles thereof, and
80% of the FOB value of export of studded gold/platinum jewellery and articles thereof.
Besides, the exporter will be eligible for freely transferable Replenishment (REP) Licence at
the rate of 70% of the FOB value of exports of plain silver jewellery and articles thereof, and
65% of the FOB value of export of studded silver jewellery and articles thereof. Such REP
licences are valid for import of items as given in.

Gem REP Rate and Item

The scale of replenishment and the item of import will be as prescribed in Appendix 30-B of
Handbook (Vol.1).
Trade Policy
Exporters of gems and jewellery are eligible to import their inputs by obtaining
Replenishment (Rep) Licences, Diamond Imprest Licences and Bulk Licences for rough
diamond from the licensing authorities. Diamond Imprest Licence can be obtained in advance
for import of rough diamonds from any source. Imports of gold, silver and other coin are
restricted whereas all other items in this chapter can be freely imported.

Industry Policy
Al l industrial undertakings of gems and jewellery are exempt from obtaining an industrial
licence to manufacture. They are required to file an Industrial Entrepreneur Memoranda
(IEM) in Part 'A' (as per prescribed format) with the Secretariat of Industrial Assistance(SIA),
Department of Industrial Policy and Promotion, Government of India, and obtain an
acknowledgement. No further approval is required. Immediately after commencement of
commercial production, Part B of the IEM has to be filled in the prescribed format.

Industrial undertakings are free to select the location of a project. In the case of cities with
population of more than a million (as per the 1991 census), however, the proposed location
should be at least 25 KM away from the Standard Urban Area limits of that city unless, it is
to be located in an area designated as an "industrial area" before the 25th July, 1991.
Relaxation in the aforesaid location restriction is possible if an industrial license is obtained
as per the notified procedure. Small scale units are, however, exempt from the location
restrictions.

Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and
Environment for setting up an industrial project.

100 per cent Export Oriented Units (EOUs) and units in the Export Processing Zones
(EPZs)/Special Economic Zones(SEZs), enjoy a package of incentives and facilities, which
include duty free imports of all types of capital goods, raw material, and consumables in
addition to tax holidays against export.

FDI up to 100 per cent is allowed through the automatic route for all manufacturing activities
in Special Economic Zones (SEZs).

The Development Commissioners (DCs) of Export Processing Zones (EPZs) /Free Trade
Zones (FTZS)/Special Economic Zones (SEZs) accord automatic approval to projects where
(a) Activity proposed does not attract compulsory licensing or falls in the services sector
except IT enabled services;
(b) Location is in conformity with the prescribed parameters;
(c) Units undertake to achieve exports and value addition norms as prescribed in the Export
and Import Policy in force;
(d) Unit is amenable to bonding by customs authorities; and
(e) Unit has projected the minimum export turnover, as specified in the Handbook of
Procedures for Export and Import.
Processed foods are a delicensed industry. The delicensed undertakings, however, are
required to file an Industrial Entrepreneur Memoranda (IEM) with the Secretariat of
Industrial Assistance (SIA). No further approval is required. No restrictions are imposed
regarding the location of the industrial undertaking. Certain items are reserved for small scale
industry.

Tariff-non-tariff Policy
The import duty on most of the items under this group is 35.2 to 56.832 per cent. This
includes a basic duty and a special additional duty. However, in case of certain items like dust
and powder of precious or semi-precious stones, waste and scrap of precious metal, gold and
silver coins, imitation jewellery etc. attract higher duty.

Statistics

Production
Year Value

1997 40801.7

India's Exports of Gems and Jewellery

SI.No Product 2000-2001 2001-2002 2002-2003
1 Agate cut 0.992 0.3455 1.6076
2 Agate uncut 0.0275 0.0138 0.0358
All other semi manufactured
3 0.0258 0.0116 0.0455
forms of silver
Articles of goldsmith's or
silversmith's wares and parts
4     0.002
thereof of base metal clad
with precious metal.
5 Articles of goldsmiths or 1.4799 0.1289 0.3522
silversmith's wares and parts
thereof of other precious
metal, whether or not plated
 or clad with precious metal.
Articles of goldsmiths or
silversmith's wares and parts
6 thereof of silver, whether or 1.9283 3.054 7.0639
not plated or clad with other
precious metal.
Articles of goldsmiths or
silversmith's wares and parts
7 thereof, of precious metal or 3.4082 3.1829 7.4181
of metal clad with precious
metal.
Articles of jewellery and
8 parts thereof of base metal 0.2219 0.2589 0.1773
clad with precious metal
Articles of jewellery and
parts thereof of other
9 precious metal, whether or 914.0818 1100.3975 1309.1444
not plated or clad with
precious metal.
Articles of jewellery and
parts thereof of silver,
10 40.8221 58.9766 87.6507
whether or not plated or clad
with other precious metal.
Articles of jewellery and
parts thereof, of precious
11 955.1258 1159.6331 1396.9724
metal or of metal clad with
precious metal.
Articles of natural or
cultured pearls, precious or
12 semi-precious stones 0.2449 0.2479 8.3373
(natural, synthetic or
reconstructed).
Articles of natural/cultured
13 0.0023 0.0642 0.0034
pearls
Articles of precious or semi
14 precious stones (natural, 0.2426 0.1837 8.3339
synthetic/reconstructed)
Bangles of base metals
15 whether or not plated with 4.1253 3.626 3.7397
precious metal
Base metals clad with silver,
16 not further worked than 0.0261 0.0071 0.071
semi-manufactured
Base metals or silver, clad
with gold, not further
17 0.0001 0.0009 0.0905
worked than semi-
manufactured
Base metals, silver or gold,
clad with platinum, not
18   0.094 0.0113
further worked than semi-
manufactured.
Catalysts in the form of wire
19 1.5232 2.0649 0.1845
cloth or grill, of platinum
20 Chaloidony cut 0.0833 0.0522 0.3041
Coin (excl. gold) not being
21 0.013 0.0213 0.0038
legal tender
22 Coin. 0.1283 0.0549 0.0365
23 Crushed industrial diamonds 0.0019 0.0137 0.0016
Cuff links & studs of base
24 metal whether or not plated 0.2199 0.45 1.6
with precious metal
25 Cultured pearls unworked 0.0205 0.0329 0.2363
26 Cultured pearls worked 0.431 0.6437 0.7296
Diamond (other than
industrial diamond) cut or
27 6153.1873 5807.9295 7343.9818
otherwise worked but not
mounted or set
Diamonds, whether or not
28 worked, but not mounted or 6193.3944 5934.6556 7427.8853
set.
Dust and powder of
29 27.1222 16.8771 7.8819
diamonds
Dust and powder of natural
30 or synthetic precious or 28.3069 17.044 9.967
semi-precious stones.
Dust and powder of other
31 1.1848 0.1669 2.0851
precious stones
32 Emeralds, uncut 0.1691 0.0162 2.2784
33 Emeralds, cut 67.2772 41.1261 25.1696
34 Feldspar (moon stone) cut 1.6653 7.5419 9.639
35 Feldspar (moon stone) uncut   0.017 0.0248
36 Garnet cut 1.4997 3.4659 1.1351
37 Garnet uncut   0.037 0.0013
38 German silver jewellery 0.269 0.1139 0.314
Gold (including gold plated
with platinum) unwrought or
39   0.0058 0.0053
in semi-manufactured forms,
or in powder form.
40 Green venturing, uncut 0.0029 0.0003  
Imitation jewellery of base
41 metal, whether or not plated 43.4641 33.7822 40.5997
with precious metal
Industrial diamonds
42 unworked or simply sawn, 0.0209 0.0554 0.269
cleaved or bruited.
Iridium, osmium and
43      
ruthenium, other.
Iridium, osmium and
44 ruthenium, unwrought or in      
powder form.
Jewellery of gold set with
45 472.5212 554.936 720.4635
diamonds
Jewellery of gold set with
46 76.9189 131.1665 81.5036
pearls
Jewellery of gold set with
47 precious and semi precious 30.8739 31.1479 36.5308
stones other than diamonds
48 Jewellery of gold unset 324.7348 372.9739 467.6348
Jewellery of platinum group
49 9.0259 10.0012 2.8582
metals unset
Jewellery set with imitation
50 pearls or imitation or 7.2588 5.2506 9.0445
synthetic stones
COMPARISON BETWEEN INDIA AND CHINA

India and China are on different development paths. While China is focusing on the export of
manufactured goods, India is a strong contender in the export of services. Due to rapid
globalization and the opening up of their economies, India and China have seen a trade boom
and an increased inflow of foreign investment. China’s surging goods production laid the
foundation for a rapidly expanding export sector, while India built up its niche in the global
services market.

China has emerged as the major trading partner of India in the last decade, both in terms of
exports and imports. From almost the tenth position in India’s exports during the early 1990s,
China has gone up to fifth position now. As far as imports are concerned, China has gone up
to third position from ninth.

India is trying to work out a free trade agreement (FTA) with China. The FTA is expected to
be signed between within a year or two. India has already signed bilateral trade agreements
with Thailand, Sri Lanka, Nepal and Singapore. On trade front, the US continued to be
India’s largest trading partner in terms of exports and imports.

According to an analysis by the National Council of Applied Economic Research, top ten
export destination countries are the US, the United Arab Emirates, Hong Kong, the UK,
China, Germany, Singapore, Belgium, Japan and Italy. During 1999-2000 to 2003-04, these
countries accounted for about 56% share in India’s exports to the world.

The US, the analysis adds, remains India’s top trading partner, accounting for about one-fifth
of country’s merchandise exports and one-tenth of non-oil imports. India, however, accounts
for a tiny share in the US global merchandise trade. About 0.5% of US exports are directed to
India and about 1% of US imports originate from India.

During the last decade there have been major shifts in the relative positions of Japan,
Germany and the UAE. Japan, the second top export destination for India from 1993-94 to
1995-96, recently dropped down to seventh place during 2002-04, immediately above
Belgium at number eight and Singapore at number nine. During the same period, Germany
dropped from third to sixth place while China climbed from tenth to fifth place. India has
made impressive gains in its exports to China.

In terms of imports, the relative share positions of the US, the UK, South Korea and
Indonesia have remained the same between 1993-96 and 2002-04. However, there have been
major shifts in relative positions of Japan, China, Belgium, Germany and Australia. Japan
was the third top import source country for India during 1995-96 but dropped to seventh
place during 2002-04. During the same period, China rose from ninth to third place and
Belgium from fifth to second position.

AUTOMOBILE INDUSTRY

China may be the world's shop floor, but India is rolling it out faster when it comes to
automobile exports.

India exported a total of 2.30 lakh cars, vans, SUVs and trucks between January and July
2009, a growth of 18% even as China’s exports tumbled 60% in the same period to 1.65 lakh
units.

The Indian domestic market may be just 19% of China’s which has overtaken the US to
become the world’s largest but the ‘Made In India’ tag, especially on small cars, has clearly
acquired a global cachet, helping auto exports grow even as other countries suffered a slump.

Industry experts pointed out that India scores due to its liberal investment policies and high
quality manufacturing which stems from its growing prowess in research and development.
India’s biggest advantage is its edge in small cars and the way companies — including global
giants — is using the market for selling, as well as developing, new compact models.

India itself presents a big opportunity in small cars given their big-volume status in the
domestic market. But the global recession and incentives offered for fuel-efficient low-
emission vehicles in big markets like Europe and the US have also made India a focal point
for companies.

Cheap labour costs and especially-tailored lower manufacturing tax (8% excise duty) make
small car manufacturing in India a highly-competitive option which more and more
companies are padding up for — Suzuki, Hyundai, Nissan, General Motors, Toyota, to name
a few. China, in contrast, is more of a big car producer and has been hit by the global slump
in demand following the economic recession.

EFFECTS OF TRADE POLICIES ADOPTED

China has adopted trade policies that have helped it to become more integrated with the
world economy. Throughout the 1990s, the government lowered tariffs and other trade
barriers to many agricultural products, and repealed state-trading companies’ monopoly on
imports and exports. Since joining the WTO in December 2001, China has rapidly become a
large agricultural importer, and now is ranked as the fourth largest U.S. market.
China’s liberalized trade policy was borne out of the overall economic reforms that began in
the late 1970s. Reforms in the agricultural sector changed collective production to a
household responsibility system where farmers had autonomy to make production decisions.
Marketing also shifted to the private sector, facilitating the creation of independent markets
and fostering greater inter-regional trade. Although self-sufficiency, particularly for strategic
commodities like food grains, is still paramount to the Chinese government, the reforms have
unleashed an inexorable tide of market liberalization. Both imports and exports have boomed
under the reforms. With scarce arable land and relatively abundant and inexpensive labour,
the country’s agricultural economy has benefited greatly by importing land-intensive bulk
and intermediate commodities and exporting labour-intensive consumer-oriented products.
Cotton and textiles are a prime example of this development model. China’s export-driven
textile and apparel industry is the world’s largest, which depends on imported cotton, hides,
and skins to fuel its burgeoning growth. The government has provided support to this
industry by, among other measures, allowing cotton imports well above China’s Tariff-Rate
Quota under its WTO obligations without imposing the prohibitive 40 percent out-of-quota
tariff. Since its WTO accession, growth of China’s agricultural imports has outstripped that
of exports, resulting in a widening trade deficit.

Prospects

Agricultural exports to India, though much lower than China, are expected to continue the
impressive growth seen over the past few years, particularly in the high value categories.
While Chinese imports are mostly driven by bulk commodities, India’s growth is likely to
continue in fruits, nuts, and processed products due to a booming middle class, emergence of
organized retail outlets, and the positive image of U.S. products. Additionally, some growth
is expected in pulses and to a lesser extent cotton. A major driver behind increased demand
for agricultural imports in both countries is the growing middle class. Projections from
Global Insight’s consumer markets data indicate that India and China together will account
for nearly 75 percent of the global growth of middle class households over the next ten years.

Recommendations and relevance of Chinese development strategy for India:

1. Export oriented development: Till lately, economists contested the relevance of export
led growth strategy for economies which have vast captive markets of their own. It is
no longer in dispute after the success of China’s open door policies. Empirical
evidence suggests existence of a large domestic market by itself is not a sufficient
condition for development, modern management practices and technology are also
necessary for accelerating growth rates. These can be sourced only through linkages
with the world economy. Global integration through outward orientation has to be the
main plank of the development strategy. Foreign investment is required to supplement
domestic savings for achieving the desired growth rates. Besides, with capital and
technology becoming increasingly mobile, opening up has become a much more
viable proposition for accelerating growth.
China opted for an export led growth strategy for speeding up modernization in 1979.
This has given it a head start over India, which initiated reform measures much later
 in 1991. An important lesson for India is to recognize the role of exports in spear-
heading economic growth.
2. Rationale for Area based Development: The success of any development strategy is
circumscribed mainly by three factors, viz., policy, infrastructure and operating
environment. While policy and operational environment constitute the software,
physical infrastructure can be likened to the system hardware. For the system to run
efficiently there has to be proper harmonization of these three key elements. However,
in the existing dispensation in India, only one or the other gets provided. As all three
seldom work in unison, the overall performance is adversely affected. All the same, it
is not for want of resources and the problem of reorienting the mindset. Besides,
regional differences in natural resources and human endowments have also to be
reckoned with. There is no alternative but to concentrate on selected areas for
intensive development for providing a conducive policy framework, developed
infrastructure and hassle free operating environment. That constitutes the basic
rationale for “area based” development strategy.
Pursuit of such a policy is however, likely to result in inequities in the per capita
income between regions, and urban and rural areas, at least in the short run. Quick and
rapid development of some areas does pose equity concerns, but the alternative option
of balanced regional development may not yield any better results.
Planners in large economies are faced with the dilemma of choosing between for
balanced or uneven regional development. The choice is often influenced by political
rather than purely economic considerations. On balance, however, the policy of giving
priority to areas which have location specific advantage or developed infrastructure
seems to be pragmatic and viable option. The impact of intensive economic activity
becomes visible in these areas through multiplier effect. This course of development
may be skewed but it generates synergy for the development of the hinterland through
“ripple effect” and linkages. China, therefore, decided to concentrate initially on the
development of coastal regions which enjoyed the location edge of proximity to
international markets and had good potential for attracting expatriate investment. The
Indian experience, on the other hand, confirms that it is futile to pursue a dogmatic
policy of balanced regional development. Promotion of regional balance in India has
been guided more by political consideration than by economic logic. However, in
reality large investments have actually been absorbed by the western and southern
states which have relatively developed infrastructure and offer a more conducive
investment climate. This pattern of regional investment flows has not changed much
even after liberalization. About 50% of all direct foreign investment since 1990 has
gone to Delhi, Maharashtra, Tamil Nadu, Karnataka and Gujarat. Keeping in view the
regional dispersal of domestic and foreign investment in India and the empirical
evidence of Chinese success, area specific development strategy appears to be suited
to India as well. It implies that there is a need to concentrate in the first instance on
regions with high growth propensity for intensive development and outward
orientation.
Area based development strategy has been experimented in India on a limited scale
by setting up a few EPZs. Their performance has remained lack lustre on account of
 inherent limitations of location and infrastructure and restrictive macroeconomic
policies. For implementing area based development strategy, a mix of ‘first
generation’ and ‘second generation’ zones need to be set up at identified locations.
Besides, the existing EPZs need to be restructured. In addition to SEZs which became
most prominent, China set up many variants of zone, including EDTZs, technology
parks and EPZs. First generation zones are like traditional EPZs which are usually set
up in areas with a plentiful low cost skilled labour force. Second generation zones are
relatively skill intensive which can be planned for locations with sound industrial and
institutional base. Second generation zones should be large sized for promoting
linkages with the local economy.
We may designate identified areas as Export Oriented Townships (ETOs)/ Export
Oriented Areas (EOAs). ETOs may be planned to be set up in relatively developed
areas which have a nucleus of export activity and developed infrastructure. Areas with
export potential can be earmarked for setting up EOAs. While Export Oriented Units
base on local skills and raw materials may be encouraged in the EOAs like open areas
of China, the investment pattern for EOTs should more or less correspond to SEZs.
Locations for the proposed EOTs/EOAs should be carefully determined keeping in
view the potential for overseas linkages, availability of skills, and raw materials,
besides infrastructure and other trade related logistics. Macroeconomic policies
should be conducive for directing foreign investment to these townships/areas for the
development of critical infrastructure. Besides, the micro policy regime, including
labour laws, should be liberal and transparent, and simplified operational procedures
should be evolved. Investment should focus on exports, technology transfer and
development of physical, service and supportive infrastructure. Foreign investors
should be given preference for locating export oriented enterprises in these enclaves.
FDI policy should provide incentives for attracting investment in sectors which could
grow faster and generate larger employment. These measures will generate multi-
sectoral economic activity and serve the twin purpose of integrated area development
and rapid export growth leading to massive incremental employment. These
townships/areas would eventually emerge to be preferred for investment like
SEZs/ETDZs in China.
3. Decentralization of Economic Powers: The Chinese experience highlights tremendous
possibilities of tapping local and regional initiatives by delegating responsibility for
implementing policies to the provincial and local authorities. Macro policy framework
in India stifled local initiatives which remained dormant on account of centralized
planning and implementation of policies. Besides, well conceived policies are
rendered a casualty during implementation on account of tedious procedures leading
to inordinate delays and corruption at the local level. Investment projects invariably
involve large number of clearances and sanctions which fall mostly within the domain
of state governments. Since state authorities are neither meaningfully associated with
the process of policy formulation nor are they vested with the authority for
implementing it, their attitude remains indifferent. They fail to identify themselves
with the policy in the formation of which they have had no role nor have any stake in
its implementation. While the macro policy framework has undergone a sea change in
 India since liberalization, there has been little reform of procedures at the micro level.
Besides, at the operational level there is lack of appreciation and understanding of
policies on account of communication gaps.
Provincial and local authorities in China have been delegated powers for setting up
and managing SEZs/ETDZs and negotiating incentives and concessions. They enjoy
flexibility in formulating investment policies as per local requirements. They are also
allowed to retain incremental revenues. Decentralization has enthused, motivated and
involved the provincial governments and encouraged local initiatives for regional
economic development. This has also generated competition amongst the provinces
for attracting investment.
The lesson from China is loud and clear. It is high time in India, that authority for
approving foreign investment in EPZs set up by state government is delegated to state
government and local authorities. Besides, they should be entrusted the responsibility
for setting up and promoting proposed EOTs and EOAs.
4. Evolving Pragmatic Operational Strategy: In India, though the policies are well
hought out, their implementation has remained half-hearted for want of pragmatic
operational strategy. China has pursued flexible policies for grant of incentives,
domestic market access and operation of labor laws. We will have to seriously
consider relaxing labor laws for these enclaves. Package of incentives will have to be
made attractive. State governments should be vested with authority to set up and
manage these enclaves. They should have the freedom to formulate innovating
preferential policies.
5. Thrust on Infrastructure Development: Realizing the crucial role of infrastructure in
accelerating growth, China evolved innovative means for financing it. In the initial
phase, substantial foreign investment was diverted for strengthening the infrastructure
through a judicious mix of preferential policies. Later, schemes were formulated for
development of infrastructure on self financing basis by levy of tolls, fees and service
charges. Self fianancing has now emerged as an important source. We should take a
cue from the Chinese experience and formulate an aggressive policy for augmenting
infrastructure of telecom, power, roads, bridges, ports and means of transportation in
and around the proposed locations for EOTs/EOAs.
6. Tapping Expatriate Potential: Chinese expatriates have provided capital, technology
and access to international markets. They have contributed over 70% to total FDI.
Expatriates with ethnic and cultural links are usually amongst the major investors in
the first phase of opening up. India is, however, not so well placed in relation to
expatriates, since it does not have a Hong Kong or Taiwan next door. Sustained
promotional and marketing efforts will be needed for mobilizing investment from the
widely dispersed diasporas. A favourable investment climate has emerged since 1991
and perceptions about India are changing dramatically. This needs to be further
capitalized for attracting expatriate investment, their expertise and skill. Besides, the
foreign policy requires to be fine tuned to encourage investment in export related
sectors for which India enjoys dynamic comparative cost advantage.
7. Electronic Data Interchange: EDI allows seamless Business to Business data transfer.
The developed countries use EDI all the time to ease paper works, red tape and
 smoothen business processes. EDI is business version of Internet. It is secured, works
with a shared private network and is a standard form database transaction all over the
world. It will go long way to boost Indian exports and reduce unnecessary hassles.

8. SMEs and Indian Banks:

i. There is a need for attitudinal change in the approach of banks’ officials. While
posting officials, banks may keep in view the attitude of officials to exporters' credit
requirements, especially the small and medium exporters. 

ii. The banks should put in place a control and reporting mechanism to ensure that the
applications for export credit especially from Small and Medium Exporters are disposed
of within the prescribed time frame. The banks should ensure that this recommendation is
implemented in letter and spirit. The Internal / Concurrent audit in banks should comment
on whether or not the prescribed time frame for disposal of export credit applications are
being adhered to by the banks. The Regional Managers of banks during branch visits ,
should also look into this aspect.

iii. Banks should raise all queries in one shot and should avoid piece-meal queries in
order to avoid delays in sanctioning credit.

iv. SMEs especially in the upcountry centres should be properly trained by SSI / export
organizations with technical assistance from banks regarding correct filling up of forms
and furnishing all required information to banks to avoid delay.

v. IBA may take initiative to devise a simplified loan application form in consultation
with FIEO and other Export Promotion which should serve a model for all banks. 

vi. Alternatives to collateral security should be found and fully made use of.

vii. State Level Export Promotion Committees which have been reconstituted as sub-
committees of the SLBCs should play a greater role in promoting coordination between
banks and exporters in the respective states and Export Promotion Organizations should
take initiative in coordinating the meetings.

9. Education is Critical: There should be incentives for skill development and secondary
education in Tier 2 and Tier 3 cities so that more skilled man power is available for
booming BPO and KPO sectors in India. Besides, a new generation of skilled
machinists and technicians need training to design, build, and operate low carbon
technologies.
10. Brand Equity, Market Research and Technology Up gradation Fund : A brand equity
fund can be setup. This can be aimed at building strong globally competitive brands
for products manufactured /produce originating from India. A market research fund
can be setup at VITC to activate a mechanism for providing live and timely market
 information on products and markets which will help the SME exporters to enter the
export market directly.
11. E-Governance for International Trade: Since many industries / traders do not have
the wherewithal to take up export activity due to lack of knowledge on the trade, an
E-Governance facility can be established which would facilitate the existing and
potential exporters to have online chatting / video conferencing with experts,
concerned departments / organizations and obtain online updating of latest
notifications / circulars, clarifying doubts / questions related to exports, generate
online trade enquiries etc., at one single place without travelling.
12. Encouraging Research and Development: Encourage investment research and
development targeting quality improvement, higher value addition through
technology and know-how transfers.

Conclusion

The Foreign Trade with clearly enunciated objectives & strategies taken by the Government
from time to time has been instrumental in putting exports on a higher growth trajectory.
With merchandise exports growing at an average rate of more than 25 percent per annum
during 2004-08 periods, India has improved its rank in world merchandise exports from 30 in
2004 to 26 in 2008. During this period, the imports grew at a much higher pace, increasing at
an average rate of 32 percent per annum to meet the expanding requirements of a growing
economy.

During the last five year period i.e. 2004-2008, Indian exports have done very well in
comparison to the performance recorded by some of the major exporting nations both
developed as well as emerging markets. In fact, India’s average annual growth rate of
merchandise exports at 25.0 percent was the third fastest after Russia (28.5 percent) and
China (26.8 percent).

In the face of global slowdown and financial crisis, Indian exports have shown a good
measure of resilience during 2008 as the deceleration in the exports growth was less marked
in case of India as compared to a sharp decline in exports growth recorded by other leading
exporting countries like USA, Germany, Japan, China etc. In fact, India recorded a
marginally higher growth rate of 21.8 percent during 2008 as compared to 21.5 percent
during 2007. As compared to this, export growth of China, the fastest growing economy in
the world, in 2008 dropped sharply to 17.2 percent as compared to 25.8 percent in 2007
reflecting a greater effect of the global slowdown on its exports. Russia also experienced a
higher rate of growth of exports in 2008 at 33.1 percent as compared to 16.7 percent in 2007.
However, this is due to high petroleum prices during the first half of 2008 resulting in a
higher value of petroleum exports of Russia. The chart below shows a comparative picture of
average growth rate of merchandise exports of major countries of the world.
During 2008-09, India’s exports reached a level of US $ 168.7 billion, registering a growth of
3.5 percent as compared to a growth of 29.1 percent during the previous year. The growth of
exports during the year has exhibited a significant slow-down from September 2008 onwards.
While, during the first half of the year 2008-09, April-September, exports increased by 31.3
percent with almost all the major commodity groups, except marine products, handicrafts and
carpets, recording significant growth. In the second half of the year 2008-09, October-March,
exports recorded a decline of (-) 19.2 percent with almost all the major commodity groups
recording significant negative growth. In fact, commodities like Engineering Goods,
Petroleum Products, Chemicals & related Products, Agriculture & Allied Products and
Plantation which recorded overall positive growth during the year as a whole, also recorded
negative growth during the second half.

Impact of global Slowdown Global Slow-down on India’s Exports

Global economy has witnessed one of the most severe downturn following the worsening of
financial crisis since September 2008. A Press Release 23rd March 2009 has indicated
deceleration in the growth of Real Global Output to 1.7 percent in 2008 as compared to 3.5
percent in 2007 and Merchandise Trade, in volume terms, to 2 percent in 2008 as compared
to 6 percent in 2007. Similarly, IMF’s World Economic Outlook, April 2009 has also
estimated growth in World Output only by 3.2 percent in 2008 (down from 5.2 percent in
2007) and World Trade Volume, both Goods & Services, by 3.3 percent in 2008 (down from
7.2 percent in 2007). 

The global slowdown has affected India’s exports by way of 

 default in payment or delayed realization for exports resulting in cash flow difficulties
for the exporters; 

 difficulty in executing orders in hand owing to lack of additional credit limit;

 difficulty in providing covers for high risk countries/ buyers by Export Credit
Guarantee Corporation (ECGC); 

 reluctance of exporters to execute orders for fear of defaults; and 

 Tougher ‘due diligence’ by Banks in extending Pre and Post-shipment credit and
insurance cover by ECGC

Imports

 Imports, in US $ terms, registered a growth of 35.5 percent during 2007-08 over the
previous year. While the import of POL increased by 39.6 percent, the Non-POL
import registered a growth of 33.7 percent. The commodities which registered
 significant growth are POL, Transport Equipment, Machinery, Iron & Steel, Organic
Chemicals, Coal, Fertilizer, Artificial Resin, Manufactures of Metals, Machine Tools,
Pulses, etc.

 During 2008-09, imports reached a level of US $ 287.8 billion registering a growth of

14.4 percent. Oil imports were valued at US $ 93.2 billion, which was higher by 16.9
percent over the previous year. Non-Oil imports increased to US $ 194.6 billion,
which was higher by 13.2 percent. Items which registered significant growth are
Pearl, Precious & Semi-Precious Stones, Crude & Manufactured Fertilizer, Coal,
Inorganic Chemicals, Project Goods, etc. Import of Gold and Transport Equipment
registered significant decline.

Exports

Plantation Crops

Export of plantation crops during 2008-09 (April–February), increased by 29.7 per cent in
rupee terms compared with the corresponding period of the previous year. Export of Coffee
registered a positive growth of 31.3 per cent, the value increasing from Rs. 1496.95 crore to
Rs. 1966.11 crore. Export of Tea also increased by 28.4 per cent. 

Agriculture and Allied Products

Agriculture and Allied Products as a group include Cereals, Pulses, Tobacco, Spices, Nuts
and Seeds, Oil Meals, Guargum Meals, Castor Oil, Shellac, Sugar & Molasses, Processed
Food, Meat & Meat Products, etc. During 2008-09 (April–February), exports of commodities
under this group registered a growth of 22.2 per cent with the value of exports rising from Rs.
48,542.30 crore in the previous year to Rs. 59,312.03 crore during the current year.

Ores and Minerals

Exports of Ores and Minerals were estimated at Rs. 32,965.35 crore during 2008-09 (April-
February) registering a growth of 3.0 per cent over the same period of the previous year. Sub
groups viz. Processed Minerals, and Coal have recorded a growth of, 30.7 per cent and -2.9
per cent respectively. Mica and Processed Minerals have registered significant growth of 61.8
and -4.8 percent respectively.

Leather and Leather Manufactures

Export of Leather and Leather Manufactures recorded a growth of 16.3 per cent during 2008-
09 (April-February). The value of exports increased to Rs. 15,011.43 crore from Rs.
12,908.45 crore during the same period of the previous year. Exports of Leather and
Manufactures have registered a growth of 17.5 per cent whereas Leather Footwear registered
a growth of 14.8 per cent. 

Gems and Jewellery

The export of Gems and Jewelry during 2008-09 (April-February), increased to Rs. 78,260.37
crore from Rs. 71,868.27 crore during the corresponding period of last year showing a growth
of 8.9 per cent. 

Impact Of Rupee Appreciation On India's Export

In 2006-07, India witnessed large trade deficits to the tune of US $ 65 billion and current
account deficit was as high as US $ 10 billion. The level of trade deficit should have been
enough to depreciate the rupee, as supposed in traditional exchange rate theories. However,
interest rate cuts by the US Federal Reserve led to higher inflow of portfolio investments into
the country resulting in unprecedented and continuous rupee appreciation. Foreign portfolio
investment recorded an inflow of US $ 20.7 billion during April-July 2007. FDI inflow was
also significantly high and recorded US $ 6.6 billion during April-July 2007 (US $ 3.7 billion
in April-July 2006).

Rupee depreciated steadily for a decade after being floated in 1993, dropping from an
average annual rate of Rs. 31.37 per US Dollar in the 1993-94 fiscal year (April-March) to
Rs. 48.40 per US Dollar in 2002-03 (an average annual depreciation of nearly 5%). From
2003-04 to 2005-06, however, the rupee appreciated against the US Dollar by 3% on average
a year. But the rate of appreciation of Indian Rupee has been unprecedentedly high from July
2006 till date, falling by about 16.3 % (46.97 to 39.25 per US Dollar). The average rupee-US
dollar rate in November 2007 was the lowest since 1999-2000.

Since April 2007, as there has been sharp rise in the value of Rupee, there is a severe impact
on the export growth rate (Table 3.1). The cumulative exports during the period April-
October in 2005 was US $ 57 billion (Rs. 2.5 trillion) which increased to US $ 71 billion and
(Rs.3.2 trillion) in April-October of 2006 registering a growth rate of almost 24.4% in US
Dollar terms (30% in Rupee terms). The cumulative exports during April-October of 2007
have been US $ 85.5 billion (Rs.3.5 trillion). In US Dollar term the growth was around 21%
but in Rupee terms the growth declined to only 7% implying a serious blow in terms of rupee
realization of Indian exports.

Impact on Textile Sector

Textile is an important sector in India’s export basket. This sector has negligible use of
imported inputs and is employer of large number of people in India. Rupee appreciation has
indicated loss in export growth both in textile as well as in readymade garment (RMG) sector.
Graph 3.6 and 3.7 provides trend picture of exports from this two sectors. A comparison
between April-June in 2006 and 2007 reveals that textile sector exports dropped by 0.66% in
terms US Dollar (by 10.13% in rupee terms). The decline in RMG exports has been more
severe. The exports fell by 4.21% in US Dollar terms and by 13.19% in Rupee terms

Impact on Gems and Jewellery

The sector is highly labor intensive but at the same time import intensity is equally high.
Exports in this sector have produced spikes with upward trend since mid 2006. There was big
drop in exports in November 2006, February and April 2007. Details of this are described in
Graph 3.9 below. The sector has experienced a rising export trend during the period April-
June 2007. Comparing the same period in 2006, exports in 2007 has grown by 27% in US
Dollar terms and 15% in terms of Rupee. However, exports in Rupee having relatively slower
growth imply that sector is not immune from the rupee appreciation despite having high
import intensity. This is mainly due to the fact that exporters were unable to neutralize risk
considering a forward contract. As rupee has appreciated after the contract has been signed,
exporters lost in terms of actual value received. The industry is significantly driven by SME
players who operate on a thin margin of 3-6%. Loss in realization of export values while
converting into rupee has eroded their margin significantly. The industry requires large
working capital in view stocking of important raw materials and finished goods. Erosion of
export earnings has also created a strain in terms of availability of working capital.
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