Unit V Completed

Business Environment-Unit-VFEB-2014
Unit-V-EXIM policies & FEMA: Indias new EXIM policy- legal framework- initiatives, FEMA
Multi-national companies and FDI.
Case 1:- RBI Slaped Rs. 125 Crore on Reliance Infrastructure. A Case Study on FEMA, (Dr.
VivekMittal, page no.655)Case2:- China as an Expert Base, (David W. Conklin, page no.574
EXIMPOLICIES
Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established
by the DGFT - Directorate General of Foreign Trade, in matters related to the import
and export of goods in India.
The Foreign Trade Policy of India is guided by the Export Import in known as in short
EXIM Policy of the Indian Goernment and is regulated by the Foreign Trade
Development and Regulation Act, !!".
DGFT #Directorate General of Foreign Trade$ is the main goerning body in matters
related to !xim "olicy. The main ob#ectie of the Foreign Trade $Deelopment and
%egulation& 'ct is to proide the deelopment and regulation of foreign trade by
facilitating imports into, and expand exports from India. Foreign Trade 'ct has replaced
the earlier law known as the imports and !xports $(ontrol& 'ct )*+,.
EXIM Policy
Indian EXIM Policy contains arious policy related decisions taken by the goernment
in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country
and more especially export promotion mea%ure%, policies and procedures related
thereto. Trade "olicy is prepared and announced by the (entral Goernment $-inistry of
(ommerce&. India.s !xport Import "olicy also know as Foreign Trade "olicy, in general,
aims at deeloping export potential, improing export performance, encouraging foreign
trade and creating faorable balance of payments position.
&i%tory of Exim Policy of India
In the year )*/0, the Goernment of India appointed a special Exim Policy (ommittee to
reiew the goernment preious export import policies. The committee was later on
approed by the Goernment of India. -r. 1. ". 2ingh, then (ommerce -inister and
announced the !xim "olicy on the )0th of 'pril, )*34. Initially the !5I- "olicy was
introduced for the period of three years with main ob#ectie to boost the export 'u%ine%%
in india
(')ective% (f T*e EXIM Policy + ,
The main ob#ectie of the Goernment.s !5I- "olicy is to promote exports to the
maximum extent.
1 | P a g e * L a q s h y a c o l l e g e o f M g mt s t u d i e s * S a h a d e v a
A s s t . P r o f e s s o r
To accelerate the economy from low leel of economic actiities to high leel of
economic actiities by making it a globally oriented ibrant economy and to
derie maximum benefits from expanding global market opportunities.
To stimulate sustained economic growth by proiding access to essential raw
materials, intermediates, components,. consumables and capital goods re6uired for
augmenting production.
To enhance the techno local strength and efficiency of Indian agriculture, industry
and serices, thereby, improing their competitieness.
To generate new employment.
7pportunities and encourage the attainment of internationally accepted standards
of 6uality.
To proide 6uality consumer products at reasonable prices.
Governing -ody of EXIM Policy
The Goernment of India notifies the !xim "olicy for a period of fie years $)**,-0880&
under 2ection 4 of the Foreign Trade #Development and Regulation Act$, !!". The
current
Export Import Policy coers the period 0880-088,. The !xim "olicy is updated eery
year on the 9)st of -arch and the modifications, improements and new schemes became
effectie from )st 'pril of eery year.
'll types of changes or modifications related to the !5I- "olicy is normally announced
by the :nion -inister of (ommerce and Industry who co-ordinates with the -inistry of
Finance, the
Directorate General of Foreign Trade and network of DGFT Regional (ffice%.
.E/ F(REIG. TRADE P(0I12 "33!,"34

The ;on<ble :nion (ommerce = Industry -inister -r.'nand 2harma announced the
new Foreign Trade "olicy 088* - 08)+ in >ew Delhi on 0,
th
'ugust,
088*.-r.?yothiraditya -adharao 2cindia, -inister of 2tate for (ommerce@Dr. %ahul
Ahullar, (ommerce 2ecretary, -inistry of (ommerce = Industry and other dignitaries
were present on the occasion.

&IG&0IG&T5 (F T&E .E/ F(REIG. TRADE P(0I12 ARE A5 6.DER+
&ig*er 5upport for Mar7et and Product Diver%ification

Incentie schemes hae been expanded by way of addition of new products and markets.

0/ new markets hae been added under Focus -arket 2cheme. These include )/ new
markets in Batin 'merica and )8 in 'sia-7ceania.

The incentie aailable under Focus -arket 2cheme$F-2& has been raised from 0.4C to
9C.

The incentie aailable under Focu% Product 5c*eme #FP5$ has been raised from ).04C
to 0C.

' large number of products from arious sectors has been included for benefits under
F"2. These include, !ngineering products $agricultural machinery, parts of trailers,
sewing machines, hand tools, garden tools, musical instruments, clocks and watches,
railway locomoties etc.&, "lastic $alue added products&, ?ute and 2isal products,
Technical Textiles, Green Technology products $wind mills, wind turbines, electric
operated ehicles etc.&, "ro#ect goods, egetable textiles and certain !lectronic items.

Mar7et 0in7ed Focu% Product 5c*eme #M0FP5$ has been greatly expanded by
inclusion of products classified .
-BF"2 benefits also extended for export to additional new markets for certain products.
These products include auto components, motor cars, bicycle and its parts, and apparels
among others.

' common simplified application form has been introduced for taking benefits under
Focu% Product 5c*eme #FP5$, F-2, Mar7et 0in7ed Focu% Product 5c*eme
#M0FP5$ .
;igher allocation for Mar7et Development A%%i%tance #MDA$ and Mar7et Acce%%
Initiative #MAI$ schemes is being proided.

Tec*nological 6p,gradation

To aid technological up-gradation of our export sector, Export Promotion 1apital
Good% #EP1G$ 5c*eme at Dero Duty has been introduced. This 2cheme will be
aailable for engineering = electronic products, basic chemicals = pharmaceuticals,
apparels = textiles, plastics, handicrafts, chemicals = allied products and leather =
leather products $sub#ect to exclusions of current beneficiaries under Technological
:pgradation Fund 2chemes $T:F2&, administered by -inistry of Textiles and
beneficiaries of 2tatus ;older Incentie 2cheme in that particular year&. The scheme shall
be in operation till 9).9.08)).

?aipur, 2rinagar and 'nantnag hae been recognised as ETowns of !xport !xcellence< for
handicrafts@ Aanpur, Dewas and 'mbur hae been recognised as ETowns of !xport
!xcellence< for leather products@ and -alihabad for horticultural products.

EP1G 5c*eme Relaxation%

To increase the life of existing plant and machinery, export obligation on import of
spares, moulds etc. under !"(G 2cheme has been reduced to 48C of the normal specific
export obligation.

Taking into account the decline in exports, the facility of %e-fixation of 'nnual 'erage
!xport 7bligation for a particular financial year in which there is decline in exports from
the country, has been extended for the 4 year "olicy period 088*-)+.

5upport for Green product% and product% from .ort* Ea%t

Focus "roduct 2cheme benefit extended for export of Egreen products<@ and for exports of
some products originating from the >orth !ast.
5ta'ility8 continuity of t*e Foreign Trade Policy

To impart stability to the "olicy regime, Duty Entitlement Pa%%'oo7 #DEP-$
2cheme is extended beyond 9)-)0-088* till 9).)0.08)8.
Interest subention of 0C for pre-shipment credit for , specified sectors has been
extended till 9).9.08)8 in the Fudget 088*-)8.
Income Tax exemption to )88C !7:s and to 2T"I units under 2ection )8F and
)8' of Income Tax 'ct, has been extended for the financial year 08)8-)) in the
Fudget 088*-)8.
The ad#ustment assistance scheme initiated in December, 0883 to proide
enhanced !(G( coer at *4C, to the adersely affected sectors, is continued till
-arch, 08)8.
Marine %ector

Fisheries hae been included in the sectors which are exempted from maintenance
of aerage Export (riented 6nit% E(6 under Export Promotion 1apital
Good% #EP1G$!"(G 2cheme, sub#ect to the condition that Fishing Trawlers,
boats, ships and other similar items shall not be allowed to be imported under this
proision. This would proide a fillip to the marine sector which has been affected
by the present downturn in exports.
'dditional flexibility under Target Plu% 5c*eme #TP5$ GDuty Free 1ertificate of
Entitlement $DF(!& 2cheme for 2tatus ;olders has been gien to -arine sector.
Gem% 9 :e;ellery 5ector

To neutraliHe duty incidence on gold ?ewellery exports, it has now been decided to
allow Duty Drawback on such exports.
In an endeaor to make India a diamond international trading hub, it is planned to
establish IDiamond Fourse $s&J.
' new facility to allow import on consignment basis of cut = polished diamonds
for the purpose of gradingGcertification purposes has been introduced.
To promote export of Gems = ?ewellery products, the alue limits ofpersonal
carriage hae been increased from :2K 0 million to :2K 4 million in case of
participation in oerseas exhibitions. The limit in case of personal carriage, as
samples, for export promotion tours, has also been increased from :2K 8.) million
to :2K ) million.

Agriculture 5ector

To reduce transaction and handling costs, a single window system to facilitate
export of perishable agricultural produce has been introduced. The system will
inole creation of multi-functional nodal agencies to be accredited by .
Aggricultural 9 Proce%%ed food Product% Export Development
Aut*ority$'"!D' &
0eat*er 5ector
Beather sector shall be allowed re-export of unsold imported raw hides and skins
and semi finished leather from public bonded ware houses, sub#ect to payment of
48C of the applicable export duty.
!nhancement of F"2 rate to 0C, would also significantly benefit the leather sector.
Tea

-inimum alue addition under adance authorisation scheme for export of tea has
been reduced from the existing )88C to 48C.
DT' sale limit of instant tea by !7: units has been increased from the existing
98C to 48C.
| P a g e * L a q s h y a c o l l e g e o f M g mt s t u d i e s * S a h a d e v a
!xport of tea has been coered under 1AG:L 2cheme benefits.

P*armaceutical 5ector

!xport 7bligation "eriod for adance authoriHations issued with /-'"' as input has been
increased from the existing / months to 9/ months, as is aailable for other products.

"harma sector extensiely coered under -BF"2 for countries in 'frica and Batin
'merica@ some countries in 7ceania and Far !ast.

&andloom 5ector

To simplify claims under F"2, re6uirement of E;andloom-ark< for aailing benefits
under F"2 has been remoed.

Export (riented 6nit% ,E(6%

!7:s hae been allowed to sell products manufactured by them in DT' upto a
limit of *8C instead of existing ,4C, without changing the criteria of Esimilar
goods<, within the oerall entitlement of 48C for DT' sale.
To proide clarity to the customs field formations, D7% shall issue a clarification
to enable procurement of spares beyond 4C by granite sector !7:s.
!7:s will now be allowed to procure finished goods for consolidation along with
their manufactured goods, sub#ect to certain safeguards.
During this period of downturn, Foard of 'pproals $F7'& to consider, extension
of block period by one year for calculation of >et Foreign !xchange earning of
!7:s.

T*ru%t to <alue Added Manufacturing

To encourage 1alue 'dded -anufactured export, a minimum )4C alue addition on
imported inputs under 'dance 'uthoriHation 2cheme has now been prescribed.

(oerage of "ro#ect !xports and a large number of manufactured goods under F"2 and
-BF"2.
DEP-, Duty Entitlement Pa%%'oo7
! | P a g e * L a q s h y a c o l l e g e o f M g mt s t u d i e s * S a h a d e v a

D!"F rate shall also include factoring of custom duty component on fuel where fuel is
allowed as a consumable in 2tandard Input-7utput >orms.
Flexi'ility provided to exporter%

"ayment of customs duty for !xport 7bligation $!7& shortfall under 'dance
'uthorisation G DFI' G !"(G 'uthorisation has been allowed by way of debit of
Duty (redit scrips. !arlier the payment was allowed in cash only.
Import of restricted items, as replenishment, shall now be allowed against
transferred DFI's, in line with the erstwhile DF%( scheme.
Time limit of /8 days for re-import of exported gems and #ewellery items,
for participation in exhibitions has been extended to *8 days in case of :2'.
MMMMMMMM
FEMA,Foreign Exc*ange Management Act, !!!
-ac7Ground
%eplaced F!%' N Foreign Exc*ange Regulation Act !=4
F!%' had become incompatible with the pro-liberalisation policies of the Got. of
India
This was done in order to relax the controls on foreign exchange in India, as a
result of economic liberaliHation.
F!-' sered to make transactions for external trade $exports and imports& easier
N transactions inoling current account for external trade no longer re6uired
%FI<s permission.
Foreign Exc*ange Regulation Act #FERA$ v% #FEMA$
Foreign Exc*ange Regulation Act
The ob#ectie of Foreign Exc*ange Regulation Act $F!%'& was to consere
forex and preent its misuse. The ob#ectie of F!-' is to facilitate external trade
and payments and maintenance of foreign exchange in India.
1iolation of F!%' was considered a criminal offence. Ohereas iolation of
F!-' was considered a ciil offence.
:nder F!%' citiHenship was a criteria while determining a person as resident of
India whereas under F!-' stay of more than )30 days is a criteria to determine
residential status of a person.
" | P a g e * L a q s h y a c o l l e g e o f M g mt s t u d i e s * S a h a d e v a
(')ective% of FEMA
Facilitating external trade
For promoting the orderly deelopment and maintenance of foreign exchange
market in India.
MNCs-Multinational corporations
An enterprise operating in several countries but managed from one (home)
country.
First ->( in world N!ast India (ompany, First ->( in India NIF-, !xample
Indian ->(-I>F72L2.
FEAT6RE5 (F M.1
! Fig siHe
! ;uge intellectual capital
! 7perates in many countries
! Barge number of customer
! Barge number of competitors
! 2tructured way of decision making
! ;uge market potential of the country
! FDI attractieness
! Babor competitieness
! -acro-economic stability
! 7ne billion plus population
Multinational 1orporation% #M.1%$+ -enefit% and pro'lem% to t*e &o%t 1ountry
2eeral factors hae contributed for the growth of multinational corporations during the
last 08 years.
The important among them areP
i& -omentum created by the process of globaliHation.
ii& Financial superiorities of ->(s oer >ational (ompanies.
iii& Technological capabilities of the ->(s
-enefit% to &o%t 1ountry
a) The income leel and the inestment leel increases conse6uent upon the entry on
->(s.
# | P a g e * L a q s h y a c o l l e g e o f M g mt s t u d i e s * S a h a d e v a
b) The ;ost country<s industry gets latest technology from other countries through
the ->(s.
c) The host country<s business firms and people get to know about best international
management practices.
d) The work to e6ualiHe the cost factors of production around the world.
e) ->(s proide an efficient means of integrating national economies.
f) It also helps increase competition and break domestic monopolies.
g) ->(s enable the host countries to increase their exports and decrease their
imports.
h) ;elp to improe standard of liing
i) !mployment of highly sophisticated management techni6ues.
j) ->(s stimulate domestic enterprise.
k) The reasons resources of ->(s enable them to hae ery efficient research and
deelopment systems.
Pro'lem% to &o%t country
2ince ->(s are not operating within the national territory, their operations affect the
rule of the host country.
a& 2mall -edium scale domestic industries find it difficult to compete with ->(s
b& ->(s, sometimes, withdraw their capital and shutdown their production units
suddenly, which create labour problems in the host country.
c& The ->(<s main ob#ectie is profit maximiHation, not the deelopment needs of
the countries.
d& ->(<s may destroy competition and ac6uire monopoly powers.
e& ->(<s retard growth of employment in the home country.
f& Interference in the other affairs of the country.
g& Faulty technology transfer.
h& Depletion of non-renewable resources.
i& They undermine the local culture and traditions, change the consumption habits
for their benefits against interest of local community.
F(REIG. DRE1T I.<E5TME.T I. I.DIA >FDI?
Foreign inestment is playing an increasing role in economic deelopment. !conomic
reforms and the far reading political changes hae resulted in ery substantial changes in
international capital flows. FDI now contributes to a significant share of the domestic
inestment, employment, exports etc. the India began to experience a surplus on the
balance of payment and ery remarkable improement in the reseres positions. Foreign
inestment has assisted and is assisting the economic growth of country.
). FDI shifts the burden of risks of inestment from domestic to foreign inestors.
0. FDI is only capital inflow that has been strongly associated with higher GD" since
)*,8.
9. FDI generated large employment opportunity.
1$ | P a g e * L a q s h y a c o l l e g e o f M g mt s t u d i e s * S a h a d e v a
The flow of direct foreign inestments to India has been comparatiely limited because
of the type industrial deelopment strategy and the ery cautious foreign inestment
policy followed by nation.
Foreign Direct Inve%tment in India i% adver%ely affected 'y t*e follo;ing factor%+,
). The public sector was assigned as monopoly or dominant position in most important
industries, and therefore, the scope of priate inestment, both domestic and foreign was
limited.
0. Ohen the public sector needed foreign inestment, there was a marked preference for
the foreign got. sources.
9. Foreign inestment was normally permitted only in high technology industries.
4. "ayment of diidends abroad, repatriation of capital etc., as well as inward payment
was sub#ect to stringent laws like Foreign !xchange %egistration 'ct $F!%'& )*,9.
These discourage foreign inestments.
/. (orporate taxation was high and tax laws and procedures were complex.These factors
either limited the scope of foreign inestment in India.

Unit V Completed

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Business Environment-Unit-VFEB-2014

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