Foreign Trade &
Trade Policy
Submitted to: Dr. Tanushree Mazumdar
Group 5:
Raghav Maheshwari – D005 | Prajesh Dey – D015 | Shubhangi – D035
Shoumitra Gupta – D045 | Snehal Savarn – D055
Indian Trade Policy
• India adopted “inward looking” strategy of industrialization.
• This resulted in an uncompetitive domestic industrial structure. 1
• India sought to minimize imports.
• Exports were used to cover part of import bill not covered by external
assistance. 2
• India’s participated declined during 2nd half of 20th century.
• Marginal improvement following 1990 reforms. 3
• Indian share of merchandise exports:
1948 – 2.2%
1983 – 0.5%
2000 – 0.7%
2020 – 3.6%* 4
• Look at total exports and imports to GDP ratio:
1980 – 16.6%
2000 – 21.8%
2013 – 44.1%
2020 – 27.8%** 5
2
Contd.
• Inward strategy led to declining overall growth and stagnating living
•
standards.
British colonial policy of laissez faire and free trade to be major causes. 6
• India used import tariffs to protect domestic industries.
• Investment in heavy industries at the start of 2nd Five Year Plan led
•
increase in imports.
It led to depletion of foreign exchange reserves and BoP crisis in 1957.
7
• QRs on imports were imposed and continued till early 2001.
• Graded import tariffs were also introduced in 1960s to contain deficits. 8
• Persistent deficits in the BoP were mitigated by increasing tariff levels and
QRs rather than rupee devaluation. 9
3
Indian Trade Policy Changes
• Simplification of import • Stressed upon the synchronization
licensing procedure of FT policies with other economic
• Providing framework to shift ones.
from ‘controls’ to • Favored announcement of trade
‘development’. policies for longer periods.
The Report of the
Committee on Import
• Selective import liberalization Export Policies and
in 1970s to make import of • Long term import-export policy
Procedures (Chairman: covering 1985-1988.
capital goods easier.
•
P.C. Alexander, 1978) • It aimed for boosting exports and
Imports of raw materials, not
available domestically, were import substitution.
placed under OGL.
The Report of the
Committee on Trade
Policies (Chairman: Abid • Following this, 2 more three-year
Hussain, 1984) policies were announced.
• Emphasis was on simplifying
• EXIM policy for 1992-1997 also
the procedures of Indian FT.
came into force.
• Special measures were taken to
boost export of project goods.
4
The Crisis of 1991 : A Turning Point
CAD in 1990 Debt service Barely enough Short term debts Inflation
3.5% of GDP payments 35.3% of Foreign exchange 146.5% of foreign 10%
current receipts reserves. exchange reserves
5
Contd.
• Govt. undertook major
macroeconomic policy reforms.
1. India abandoned the use of
quantitative controls.
• Withdrawal of deposits by NRIs. 2. Post 1991 reforms sought to ↓ Distinctive features of India’s FT policy:
the role of QRs and ↓ tariff rates. 1. Shift from Import substitution to
• Default on short loans and decrease in
3. Measures to enhance price export promotion.
credit rating.
competitiveness of exports. 2. Reach of export incentives has
• Push towards radical policy reforms by been broadened.
4. Significant changes in FDI
political factors:
policies. 3. Shift from direct export subsidy to
1. Limited deregulation rapid indirect promotional measures.
growth. 5. Multilateral commitments of
India to the WTO. 4. Introduction of market-based
2. The collapse of Soviet Union exchange rate regime.
6. Govt presented MTES for 2002-
2007 with indicative sector-wise
targets to achieve 1% of global
trade by 2007.
6
Structural Changes in India’s FT during 1980s
& 1990s
• Diversity of markets • In 1970s, India transformed from
• Higher degree of trade openness exporter of primary products to
• Various policy initiatives taken manufactured goods.
• Better export growth: overall & across
commodities.
Exports:
• India’s export basket changed in favor
of technology-intensive and industrial
products.
• Indian exports to developing countries • OECD is the largest market for India.
gained prominence. • The loss of Soviet Union market was
made up by increasing the shares in
Imports: developing countries and OPEC.
• Imports were affected by trade policy,
domestic demand and international
prices.
• Favored developing countries as well
7
Average Share of Exports of Selected
Commodities
Category 1987-1990 1990-91 1992-97 1997-2002 2011-12 2013-14
Primary Products 24.2 20.123.8 21.9 18.5 15.0 15.4
Manufactured Goods 70.7 71.6 75.3 77.4 60.6 61.5
Of which:
Leather & manufacturers 7.5 8.0 5.8 4.6 1.6 1.8
Chemicals and Allied Products 5.9 7.2 7.2 9.1 12.1 13.2
Engineering Goods 11.0 12.4 13.8 14.7 22.2 22.2
Readymade Garments 11.2 12.3 12.0 12.2 4.4 4.6
Textile Yarn, Fabrics, Made-ups 8.0 8.5 10.9 11.2 4.8 5.5
Handicrafts including Gems and Jewelry 22.6 18.9 19.7 20.1 14.7 13.1
Petroleum Products 3.1 2.9 1.8 2.1 18.3 20.1
8
Directions of India’s Foreign Trade – Share in
Total Exports
Group/Country 1987-1990 1990-91 1995-96 1999-2000 2001-02 2013-14
I. OECD Countries 58.9 56.5 55.7 57.3 49.3 34.8
Of which:
a. EU 25.1 27.5 27.4 25.5 22.5 16.5
b. North America 19.7 15.6 18.3 24.4 20.8 13.2
Of which: USA 18.6 14.7 17.4 22.8 19.4 12.5
c. Asia and Oceania 11.6 10.4 8.3 5.8 4.5 3.0
d. Other OECD Countries 2.5 3.0 1.6 1.6 1.6 2.1
II. OPEC 6.1 5.6 9.7 10.6 11.9 19.4
III. Eastern Europe 16.5 17.9 4.2 3.5 2.9 1.2
IV. Developing Countries 14.2 17.1 28.9 28.4 30.9 41.5
a. Asia 11.9 14.4 23.0 22.3 23.6 29.0
b. Africa 2.0 2.2 4.8 4.2 5.2 8.4
c. Latin America Countries 0.3 0.5 1.2 1.9 2.1 4.1
9
India’s Share in World Imports & in Imports of
Major Trading Partners
Group/Country Annual Average
1981 1986 1990 1991-1995 1996-2000
World 0.5 0.7 0.6 0.6 0.7
Industrial Countries 0.4 0.6 0.5 0.5 0.5
Of which:
United States 0.5 0.6 0.7 0.8 0.9
Japan 0.7 1.0 0.9 0.9 0.8
Belgium 0.3 0.4 0.6 0.6 0.8
Italy 0.2 0.2 0.4 0.5 0.6
Germany 0.3 0.3 0.5 0.5 0.5
United Kingdom 0.6 0.5 0.6 0.8 0.8
Developing Countries 1.1 0.5 0.9 0.8 1.1
Of which:
Malaysia 0.7 0.8 0.7 0.8 0.9
Singapore 0.5 0.6 0.6 0.7 0.7
Thailand 4.0 0.6 1.6 1.3 1.0
Bangladesh 0.3 2.2 4.6 9.6 12.9
10
India’s Merchandise Trade Trends
• Merchandise exports tripled from less than $100bn to more than $300bn during the
period prior to 2005-06 to 2011-12. Fast growing exports of POL contributed to the
growth.
• Growth rate of imports > Growth rate of exports coupled with global commodity
price rise lead to high trade deficit in 2011-13
• Trade openness indicator : ratio of total merchandise trade to GDP
YEAR 1991-92 2004-05 2013-14 2014-15 2019-20
TRADE/
13.9% 27% 41% 37.1% 24.4%
GDP
• The fall in 2014-15 and later years can be attributed to falling exports witnessed
due to downward spiral in crude oil prices (Dec’14)
• India’s Export trends :
Declined by 1.3% in 2014-15 and 15.5% in 2015-16
During 2016-17(April-dec) increased by 0.7% to $198.8bn
In the same period POL exports fell by 9.8% and non POL exports grew by
2.2%
11
Role of Exports
Why do exports matter ?
• Global market in merchandise exports is huge at $17.7 (Y2020) trillions and India needs to capitalize on this massive demand for faster
productivity growth
• Indian firms complain of inadequate domestic demands
NITI Aayog’s 3 year action agenda 2017-18 to 2019-20 states :
• Only 4 developing countries have transformed significantly within 3 decades : South Korea, Taiwan, Singapore and China
Comparison between India and China’s exports in a few commodities :
• In 2015, China owned 13.72% of world exports of $16.6 trillions while India had 1.67%
• China’s GDP was 5.2 times of India still India lagged disproportionately in exports
COMMODITY INDIA(2015) CHINA(2015)
Apparel $18.2bn $175bn
Electrical and electronic $8bn $782bn
Footwear $2.5bn $51.2bn
12
Imports
• Volume of crude oil imports have shown an increasing trend over the years primarily because of 2 reasons
Increase in Stagnation in
domestic domestic
consumption production
• Share and absolute value have shown fluctuations due to changing international price levels
Period 1987-90 1992-97 2001-02 2020-21
Share of oil imports
17.1% 23.9% 27.2% 25.2%
in total
• Rise in oil import bills calls for a need to review the energy policy of the country by encouraging explorations, boosting production and refining
capacities
• Gold and silver imports picked up with the repeal of gold control order in 1991. it grew from $6mn in 1991-92 to $1.3bn in 1992-93 and to $5.9bn in
1997-98
• Capital goods imports increased from $4.5bn in 1992-93 to $10.3bn in 1995-96 but then declined for a few years.
• Share of these imports dropped in 2001-02 due to slow paced industrial activity. Fertilizers, non ferrous metals, iron and steel showed declining trend
post reform years.
• OECD and eastern Europe’s share declined while that of OPEC and developing nations increased.
13
Composition of Trade
• The top eight export sectors dominating the basket are petroleum products, gems and jewelry, textiles, chemicals and related products,
agriculture and allied sector, transport equipment, base metals and machinery
• These sectors accounted for 86.4% share in 2014-15 with respect to 78.1% in 2010-11
CATEGORY SHARE IN 2010-11 SHARE IN 2014-15
Petroleum, crude and products 14.6% 18.3%
Gems and jewelry 17% 13.3%
Agriculture and allied 7.1% 9.7%
Chemicals 8.3% 10.2%
Transport equipment 6.6% 8.6%
• Overall export growth rate declined by 1.3% in 2014-15 with high growth in sectors like transport equipment, base metals and
machinery
• Exports witnessed a growth in 2016-17 in all major categories except textiles, leather and leather manufacture
• 2017-18 witnessed good growth in engineering goods, petroleum crude and products, chemicals and textiles but negative growth in
gems.
• Fall in international crude oil prices in 2014-15 14% fall in POL imports total imports declined by 0.5%
14
Sector wise share and growth of exports Sector wise share and growth of imports Contd.
15
Contd.
• In 2014-15, petroleum, crude and products, chemical and related products, gold, electronic goods and machinery accounted for 62.5% share
of total exports
CATEGORY GROWTH RATE In 2014-15
Chemical and related 8.2%
Electronic goods 13.8%
Gold 19.9%
Petroleum -16%
Transport equipment -5.4%
Precious and semi precious stones -5.8%
• Imports fell by 15.9% in 2015-16 to $295.8bn (detailed figures in the table)
• POL imports rose by 4.8% in 2016-17 and 21.9% in 2017-18(Apr-Nov) due to rising crude oil prices from $46.2/barrel in 2015-16 to
$53.6/barrel in 2017-18
• Low or negative growth registered in most items in 2016-17 except electronic goods, minerals and agricultural goods
• In 2017-18, most sectors had positive growth with 11.3% rise in capital goods import necessary for industrial activity
16
Contd.
17
Direction of Trade
• Advanced economies that were affected by the global slowdown after 2008 had their share reduced in India's total exports
Country/Group of Share in total exports Share in total export Share in total export
countries (2004-05) (2014-15) (2020-21)
EU, EFTA, European
23.6% 18.1% 18.93%
countries
America 20.1% 19% 23.23%
CIS and Baltics 1.3% 1.1% 1.78%
Asia 47.9% 49.6% 46.54%
Africa 6.7% 10.6% 9.49%
• During 2015-16, exports to all the five regions declined
• India’s export to USA, UAE, Hongkong increased by 8.4%, 8.2%, 6.8% respectively in 2014-15 and that of china, Saudi Arabia,
Singapore, UK declined by 19.6%, 8.7%, 21.6% and 4.8%. These 7 countries have a combined share of 42.3% in 2014-15 and 43.2% as
in 2020
18
Top Exporting Destinations (2020-21)
19
Top Import Regions (2020-21)
• Imports from Europe declined from 23% share to 16.5% share from 2004-
05 to 2014-15
• Imports from Africa, America and Asia increased in the same period.
• Import from Europe and Africa increased by 4.1% and 5.5% in 2014-15
over the previous year
• While from America and Asia declined by 2.7% and 3.4%
• China has been the top importing country for many years with a share of
13.5% in 2014-15 and current share of 16.5%
• Imports from Switzerland, Indonesia, Korea moved positively while from
Saudi Arabia, UAE, USA declined.
• Imports from all the 5 major regions declined in 2015-16, America
witnessing the highest decline.
20
Trade Deficit
• Trade deficit trends for India have been as follows
Year 2004-05 2012-13 2015-16 2019-20
Trade deficit $28bn $190.3bn $44.2bn $160.77bn
• The deficit showed negative trends after 2012-13 due to measures taken by the
govt. to restrict trade and also fall in global crude oil prices by 20.2% in 2014-15.
This majorly reduced the POL deficits.
• Restrictions were placed on imports of items such as pearls, gems, precious stone
which led to decline in Non-POL deficit as well
• In 2017-18, POL deficit grew by 27.4% and non POL deficit by 65% leading to
overall deficit shooting up by 46.4% to $114.9bn
• Top 5 countries with which India has positive trade balance are USA,
Bangladesh, Sri Lanka, Kenya, France
• Top 5 countries with negative trade balance are China, Switzerland, Saudi
Arabia, Iraq and Indonesia.
21
Foreign Trade Policy:
2015-2020 Salient Features
• Merchandise Export from India Scheme (MEIS)
Manufacturing and Service Export • Service Export from India Scheme (SEIS)
Improving ‘Ease of Doing Business”
• Incentives to be available for SEZs
• Duty Credit Scrips
Increase India’s Export to US$900B by FY20
• Other:
o Under EPCG scheme, specific export obligation reduced to 75% for capital
goods procured from indigenous manufactures
Make In India
Digital India o Under MEIS, level of incentives increased (under certain considerations)
Ease of Trade o No more hard copies required for incentive and duty exemption schemes
o Digital media adoption for landing documents proof
o One time permanent record upload facility for exporter/importer profile
o Paperless communication with various committees of DGFT
22
Contd.
MEIS
• Clubbed 6 schemes of earlier FTP, which were conditional as per sector or
mostly users, into 1
• Notified good exported to notified market -> incentivized (on realized FOB
Duty Credit Scrip
value)
Country A Country B Country C • All scrips under MEIS & SEIS & goods imported are fully
• .
Traditional Market Emerging & Focus Other Market transferable
Market
• Scrips issues can be used for:
• 110 new items added o Payment of custom duty on imports of all goods except
certain listed items.
SEIS o Payment of excise duty on domestic procurement of inputs as
per DoR notification
• Replaced Service from India Scheme
o Payment of Service Tax on procurement of services as per
• Applied to:
notification of DoR
o Service providers located in India and not Indian Service Providers
• Rate of incentivization based on net foreign exchange earned
23
Contd.
Recent Measures for Trade Facilitation
• Simplification of procedures/processes, digitization and e-governance
o Online Application, Online Payment, Electronic fund transfer from 53 Banks
• Custom Single Window Project
o Online custom clearance and permissions from other regulatory bodies
• 24x7 Custom Clearance
• Online filing of documents/ applications and Paperless trade in 24x7 environment
• Simplification of “Aayat Niryat” forms
• DGFT is working on more forthcoming e-Governance Initiatives
o Launched new website with features like e-filing, real-time updates
o Launched mobile application
• Training outreach Programs for exporters:
o Niryat Bandhu Scheme – objective of skill India, Outreach activities at MSME clusters DGFT IIFT
o Outreach programs by DoC for exporters of major export clusters/cities
• Council for Trade Development & Promotion constituted
• State/UT govt. to develop strategy and appoint regulators and build infrastructure
24
FTP: Mid Term Review & Subsequent Trade
Related Policies
Special Package Approved by GOI
Employment generation in leather and footwear sector
Review – Highlights
• MEIS incentives for Ready-Made Garments and Made Ups increased by 2 per cent points to 4%, annualized involvement of 2743Cr
• 2% increase in existing MEIS incentive for exports amounting to 4576Cr
• SEIS incentives increased by 2% for notified services
• Validity of Duty Credit Scrips increased to 24months
• GST rate for transfer/sale of scrips reduced to 0
• Intensive use of DGFT digitization
25
Contd.
Subsequent Policies – Highlights
• Self Ratification Scheme – To allow duty free inputs for export production under Duty Exemption Scheme
o Initially being available to Authorized Economic Operators (AEOs)
• Professional team – To focus on ease of trading across borders
• Introduced Logistic Division – DoC – To develop and coordinate integration of logistics sector
• Export Promotion on Capital Goods (EPCG) scheme notified
o Under EPCG scheme, all EoU’s exporters have be equipped to source goods from foreign or domestic suppliers without upfront payment of GST
• Domestic Tariff Area (DTA) sale from Export Oriented Units (EoUs) on concessional and full duty is removed
• Second hands goods imported for re-work purposes is free now
• .
Special Package
• Approved on 15th Dec’17, for employment generation in leather and footwear sector
• Implementation of Central Sector Scheme: “Indian Footwear, Leather & Accessories Development Programme”
• Expenditure: 2600Cr over 3 years [FY18-FY20]
• Potential to generate 3.24L new jobs in 3 Years
26
THANK YOU
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