Exim Policy

Introduction
Meaning: ‘Exim Policy or Foreign Trade Policy is a set of guidelines, terms and instructions,
established by the Directorate General of Foreign Trade in/for matters related to the import and
export of goods in/from India’
The EXIM Policy of India contains several policy measures and related decisions taken by the
government (central) in the sphere of imports and exports to/from the country. In addition, it also
describes the various export promotion measures, policies and procedures related thereto. The
Foreign Trade Policy is prepared and announced by the Central Government (Ministry of
Commerce) of the country. India's Export Import Policy also known as Foreign Trade Policy, in
general, aims at developing export potential, improving export performance, encouraging foreign
trade and creating favorable balance of payments position. The Directorate General of Foreign
Trade is the chief governing body for the matters pertaining to such a policy. In addition the
policy is steered according to the regulations stated in the Foreign Trade Development and
Regulation Act. The current, Foreign Trade Act has replaced the earlier law in this regard,
known as the imports and Exports (Control) Act 1947.

History of EXIM Policy in India

Whilst the trade policies during 1950s and 1960s were designed to lay emphasis on self reliance
and self sufficiency of the country; the policies during (and post) 1970s were driven by the
objectives of export led growth and increased efficiency and competitiveness. In the year
1962, the Government of India appointed a special EXIM Committee to review the previous
export import policies of the Government. Later, Mr. V. P. Singh, the then Commerce Minister
announced the Exim Policy on the 12th of April, 1985. Initially, the EXIM Policy was
introduced for the period of three years with main objective to boost the export business in India.
The trade policy, however during this period was of a restrictive sort. In this context, the year
1991 is considered as a ‘watershed’ as far as the trade sector of the country is concerned. It was
in/during this year that the country evidenced massive trade liberalization measures and departed
from the prevalent protectionist trade policies.

The period, after the year 1991 is therefore considered as the post reform period. Major
milestones in the progression from individual import and export policies to composite EXIM
policies have been summarized in the chart below:
With this backdrop, the trade policies of the country have been divided into the following phases:
Phase I: Import Restriction and Import Substitution (From 1950’s to 1970s) Phase II: Export
Promotion & Import Liberalization (From 1970s to 1990s) Phase III: Outward Orientation –
(From 1990 onwards).
Phases I and II can be considered as the Pre Reform Period, and Phase III as the Post Reform
Period.

FTPs in the Pre Reform Period (Phases I and II)

Following can be considered as the areas of major focus of the Foreign Trade Policies in the pre
reform era:
 Import Substitution

India entered into planned development era in 1950’s. During that time, Import Substitution was
a major element of India’s trade and industrial policy. In 1950, India’s share in the total world
trade was 1.78%, which reduced to 0.6% in 1995. Import substitution was thrust upon to protect
and promote indigenous industries.

 Simplification of Import Licensing

The very first committee to review and recommend the Import–Export policies and procedures in
the country was the PC Alexander Committee (1978). This committee recommended
simplification of the Import Licensing procedure and provided a framework involving a shift in
the emphasis from “control” to “development”.

 Export Promotion
Under the EOU (1981), several Export Oriented Units were set up. These were set up to offer
benefits to the export houses, in order to boost the country’s exports. Additionally, the Export
and Import Bank of India (EXIM Bank) was set up in 1982. This bank, subsequently took over
the operations of international financing of the IDBI.

 Focus on Exports as Catalysts for Growth

In the Trade Policy of 1985-88, some measures were taken based upon the recommendation of
Abid Husain Committee (1984). This committee envisaged “Growth Led Exports, rather than
Export Led Growth”. The recommendation of this committee stressed upon the need for
harmonizing the foreign trade policies with other domestic policies. Additionally, the Committee
recommended announcement of foreign trade policies for longer terms.

Other Features of the pre reform FTPs included the following:

 Financial assistance to exporters
 Simplification of procedural formalities
 Minimization of the role of quantitative restrictions and reducing the tariff rates
substantially.
 Import Liberalization
 Setting up of Export Processing Zones to push up exports ( now SEZ )
2.2 Trade Policies in the Reform Period (Phase III: Post 1990s)
Salient Features of the FTPs post the reform period include the following:
 Freer Imports and Exports:
Substantial simplification and liberalization was carried out in the reform period. During this
period, the tariff line wise import policy was first announced on March 31, 1996. Subsequently,
6,161 tariff lines were made free. Also, in line with India’s commitment to the WTO,
quantitative restrictions on all import items were withdrawn.

 Rationalization of Tariff Structure:

Acting on the recommendations of the Chelliah Committee (1991), the Government, over the
years, reduced the maximum rate of duty. More specifically, the Budget of 1993-94, reduced it
from 110 per cent to 85 per cent. The successive Budgets reduced it further (in stages). The peak
custom duty on non-agricultural goods (w.e.f. 1-3-2007) was also reduced to only 10 per cent.

 Decanalisation:
Earlier, public sector agencies used to canalize a large number of exports and imports in India.
The supplementary trade policy, announced on August 13, 1991, reviewed these canalized items,
and decanalised 16 export items and 20 import items. The 1992-97 policy decanalised imports of
a number of items including newsprint, non-ferrous metals, natural rubber, intermediates and raw
materials for fertilizers.

However, 8 items (petroleum products, fertilizers, edible oils, cereals, etc.) remained in the
canalized list. Further, the Exim Policy of 2001-02, put 6 items (rice, wheat, maize, petrol, diesel
and urea) in the special list. items were put under special list. As a result, imports of these items
began to be allowed only through State trading agencies.

 Devaluation and Convertibility of Rupee on Current Account:

The government made a two- step depreciation adjustment of 18-19 per cent in the exchange rate
of the rupee on July 1 and July 3, 1991. This in turn was followed by the introduction of Liberal
Exchange Rate Mechanism (LERMS: partial currency convertibility) in 1992-93; and further,
full convertibility on the trade account in 1993-94, and full current account currency
convertibility in August 1994.
Since then, substantial capital account liberalization measures have been announced. Currently,
the exchange rate of the rupee is market-determined. Thus, exchange rate policy in India has
evolved from the rupee being pegged to a market related system (since March 1993). The RBI
however intervenes to check against speculative activities and to check excess volatility. The
current exchange rate policy is therefore known as ‘managed floating’ policy.

 Trading Houses:
The 1991 policy allowed export houses and trading houses to import a wide range of items. The
government also permitted the setting up of trading houses with 51 per cent foreign equity for the
purpose of promoting exports.
The 1994-95 policy introduced a new category of trading houses called ‘Super Star Trading
Houses’. These houses were entitled to various benefits that included membership of apex
consultative bodies concerned with trade policy and promotion, representation in important
business delegations, special permission for overseas trading and special import licenses at
enhanced rate.
The third supplementary FTP (2004-09), divided the export houses into five classes, namely,
‘Export House’, ‘Star Export House’, ‘Trading House, Star Trading House’ and ‘Premium
Trading House’. This stature was given to the exporters on reaching the export limits of Rs. 20,
100, 500, 2500 and 10,000 Crores respectively. These export houses were and continue to be
granted a variety of export benefits by the government.

 Special Economic Zones:

The Government of India, in the Export and Import Policy of March 31, 2000, announced setting
up Special Economic Zones (SEZs) in the country to promote exports out of the country. As a
corollary to this, the SEZs were/are to provide an internationally competitive and hassle-free
environment for exports and are expected to give a boost to the country’s exports.

 EOU Scheme:
The scheme has been aiming to provide the export units, wide options in locations for sourcing
of raw materials, ports of export, hinterland facilities, availability of technological skills,
existence of an industrial base and the need for a larger area of land for the project. The EOUs
have although, put up their own infrastructure.

 Agriculture Export Zones:

In order to give primacy to promotion of agricultural exports, the Exim Policy of 2001
introduced the concept of Agra- Export Zones. These zones were set to effect a reorganization of
export efforts on the basis of specific products and geographical areas.
The focus of the scheme was to provide for a cluster approach for identification of the potential
products, the region of their growth, and adoption of an end-to-end approach of integration of the
entire production process. These zones were to have the state-of-the-art services such as pre-post
harvest treatment and operations, plant protection systems, and research and development for the
processing, packaging, storage functions.

 Market Access Initiative Scheme:

The Market Access Initiative Scheme was launched in 2001- 02. It was introduced for the
purpose of undertaking marketing promotion efforts abroad. The scheme attempted to provide
in- depth market studies for select products in chosen countries to generate data for promotion of
exports from India. It also helped to assist in promotion of Indian products and Indian brands in
the international market by display through showrooms and warehouses set up in rental premises
by identified exporters, display in identified leading departmental stores, exhibitions, trade fairs,
etc.

 Focus on Service Exports:

The amended Export-Import Policy, 2002-07, announced on March 31, 2003, specifically
emphasized on the exports of services as an engine of growth. Accordingly, it announced
a number of measures for the promotion of exports of services. For instance, under this
scheme, import of consumables, office and professional equipment, spares and furniture
was allowed up to 10 per cent of the average foreign exchange export.

 Concessions and Exemptions:

A large number of tax benefits and exemptions were granted during the 1990s to
liberalize imports and promote exports. The policy thus, Exim Policy 1992-97 and Exim
Policy 1997-2002 served as the basis for such concessions.