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Business Environment

Notes international prices to exporters of engineering goods was announced. Imports of some raw
materials were placed under an Open General Licence.
The import policy for 1968-69 was oriented to provide special import facilities for exporters.
Units in the priority industries which had exported at least 10 per cent of 'their productions in
1967-68 were given facilities to import their requirements from sources of their choice. Ten
priority industries were selected on the basis of their export potential and it was laid down that
units engaged in these industries would have to export 5 to 10 per cent of their production,
failing which they would be liable to cuts in their import entitlements.
In the field of export credit, the Reserve Bank of India introduced a scheme under which
preferential rates of discount were provided for refinancing of pre-shipment credits granted by
the commercial bank to certain categories of exporters at concessional rates. It also provided a
subsidy to banks on export credit granted by them in the shape of packing and post-shipment
advances.
During all these years there was absence of a long-term export strategy. During recent years,
international agencies like the IMF and World Bank have been pressuring the developing
countries to open up them in improving the economic efficiency of their industrial sector and
compete in the international markets.

11.1.2 EXIM Policy 1992-1997

When the Eighth Plan commenced, the three-year Import-Export policy (1990-93), valid until
March 1993 was in operation. With a view to reinforcing the trade policy reforms and
complementing the fiscal, industrial and investment measures, the new five-year Export-Import
Policy (1992-97) was introduced with effect from April 1992. For the first time, the policy was
given an export bias. Earlier this policy was known as Import-Export policy; the new policy was
titled Export-Import Policy (EXIM Policy). Several schemes were introduced or modified to
eliminate regulatory measures and discretionary controls impinging on free trade.
Just before the launching of the EXIM Policy 1992-97, on March 1, 1992, the Liberalised Exchange
Rate Management System (LERMS) was introduced. Under the LERMS, exporters were required
to surrender 40 per cent of the foreign exchange earning at the official exchange rate. The
Government would use the amount to import essential items such as petroleum, fertilisers and
life saving drugs. The exporters were allowed to sell the remaining 60 per cent of the foreign
exchange or use it to finance their own imports, which facility was not given to exporters in the
pre-reform period. This system acted as a self-correcting mechanism to keep trade deficit under
control. With effect from June 1992, the 15% Foreign Exchange Conservation (Travel) Tax was
abolished. The travel tax had become redundant with the introduction of partial convertibility
of rupee and Liberalised Exchange Rate Management System (LERMS) under which foreign
exchange for travel had to be obtained at the market rate.

Along with this change in the exchange rate regime, the import licensing system was abolished
for capital goods, intermediates and components; these items could be imported on Open General
Licence (OGL) subject to payment of tariffs (Ministry of Commerce).
To promote investment by Non-resident Indians, a new deposit scheme was introduced in June
1992, under which accounts in Indian rupees could be opened with authorized dealers by
remittance of funds in freely convertible foreign exchange from aboard or by transfer of funds
from the existing on-resident (external)/FCNR accounts. No penalty was to be levied for
premature withdrawal of existing non-resident deposits for the purpose of making investment
in the proposed scheme. Full convertibility of rupee on trade account (current account) was
introduced and dual or partial exchange rate was abolished. In March 1993, the exchange rate
was unified and transactions on trade account were freed from exchange control.

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