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Unit 31 : India’s Trade Policy : Recent Developments

31.3 Foreign Trade Policy Notes

Union Commerce and Industry Minister Mr. Kamal Nath announced the Foreign Trade Policy for
the 5-year period (2004-09) on 31st August 2004 which aimed at doubling India’s percentage share in
global merchandise trade from 0.7 per cent in 2003 to 1.5 per cent 2009. During 2003-04, India’s
merchandise exports were valued at $ 61.8 billion accounting for about 0.7 per cent of world’s exports.
If this share was to be doubled, it would imply that the country’s exports would have to reach $ 195
billion by 2009, assuming a 10 per cent compound annual growth rate in world trade. For this purpose,
India’s exports should grow at the annual average growth rate of 26 per cent. Besides this, the service
sector is also expected to increase its share in export of invisibles to over $ 100 billion. Together, the
two sectors are expected to reach the target of $ 300 billion by 2009.
The objective of the Foreign Trade Policy is two-fold :
(i) To double India’s percentage share of global merchandise trade from 0.7 per cent in 2003 to 1.5
per cent in 2009; and
(ii) To act as an effective instrument of economic growth by giving a thrust to employment
generation, especially in semi-urban and rural areas.
Key strategies to achieve the these objectives are :
1. Unshackling of controls;
2. Creating an atmosphere of trust and transparency;
3. Simplifying procedures and bringing down transaction costs;
4. Adopting fundamental principle that duties and levies should not be exported; and
5. Identifying and nurturing special focus areas to facilitate development of India as a global hub
for manufacturing, trading and services.
Special Focus Initiatives : Sectors with significant export prospects coupled with potential for
employment generation in semi-urban and rural areas have been identified as thrust sectors. These
include agriculture, handicrafts, handlooms, gems and jewellery and leather and footwear sectors.
The threshold limit of designated “Towns of Export Excellence” is reduced from ` 1,000 crores to `
250 crores in these thrust sectors.
Package for Agriculture : A new scheme called Vishesh Krishi Upaj Yojana (Special Agricultural
Produce Scheme) was introduced to boost the exports of fruits, vegetables, flowers, minor forest
produce and their value added products. Export of these products shall qualify for duty free credit
entitlement equivalent to 5% of FOB value of exports.
Handlooms and Handicrafts : Duty free import of handlooms and handicrafts sector was increased
to 5% of FOB value of exports.
Gems and Jewellery : Imports of gold of 18 carat and above shall be allowed under the replenishment
scheme.
Export Promotion Scheme : A new scheme to accelerate growth of exports called “Target Plus” has
been introduced. Exporters would be entitled to duty free credit based on incremental exports
substantially higher than the general export target. For incremental growths of over 20 per cent, 25
per cent and 100 per cent, the duty free credit would be 5 percent, 10 per cent and 15 per cent
respectively, of FOB value of incremental exports.
Service Exports : For services export, a “Served from India” scheme as a brand instantly recognized
abroad, under which individual service providers earning foreign exchange of ` 10 lakh would be
eligible for duty free credit entitlement of 10 per cent of total foreign exchange earned by them.
Duty free Import under EPCG : Duty free import of capital goods under EPCG (Export Promotion
Capital Goods) Scheme. Capital good imported under EPCG for agriculture would be permitted to
be installed any where in agri export zone.
EOUs : Export Oriented Units (EOUs) shall be exempted from service tax in proportion to their
exported goods and services.

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