Implications of Foreign Trade Policy and Facilitation of Foreign Trade

S.R.Rao Chief General Manager Export-Import Bank of India

A Presentation

Where Does India Stand Globally?

Exim India

International Trade of Select Countries in 2003

Country Exports
(US$ bn.)

Imports
(US$ bn.)

GDP
(US$ bn.)

Trade as % of GDP 61.7 57.5 53.7 48.7 46.0 32.8 24.7 22.3

Korea 197.6 175.5 China 438.3 393.6 Mexico 165.4 171.0 Russia 135.9 75.4 South Africa 38.7 35.0 Argentina 29.4 13.1 Brazil 73.1 48.3 India 57.0 74.3 Source: Economist Intelligence Unit

605.0 1446.9 626.1 433.5 160.1 129.7 492.1 588.8

Indias share in global merchandise exports: 0.8% (2003)

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Indias Export Performance

Exim India

India's Export Performance (1999-2000 to 2003-04)

70000 60000 50000
US$ million

52856 36760 44147 43976

63623 47742

40000 30000 20000 10000 0

29751

1999-2000

2000-01

2001-02 Years

2002-03

2003-04

All Commodities Ores & minerals Petroleum & crude products

Agricultural & allied products Manufactured goods

Source: DGCIS, MOC&I

3

Indias Import Performance

Exim India

India's Import Performance (1999-2000 to 2003-04)

90000 80000 70000
US$ million

77237 61572 49799 50056 51588 56613

60000 50000 40000 30000 20000 10000 0

37172

1999-2000

2000-01

2001-02

2002-03

2003-04 Non-POL items

All Commodities

Years Petroleum crude & products

Source: DGCIS, MOC&I

4

Trade Policies in India

Exim India

Exim Policies Streamlined trade procedures Liberalised import regime Thrust on export orientation

Medium Term Export Strategy, 2002

1% share in global exports by 2007 Foreign Trade Policy 2004-2009
To double Indias share in global merchandise trade
by 2009

Role of Institutions
Exim India

Institutions

dedicated

for

promoting

foreign trade have played an important

role towards enhancing the process of internationalisation of Indian companies, viz. Export-Import Bank of India,

Export Credit Guarantee Corporation,

Indian Institute of Foreign Trade
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Exim Bank
Exim India

Set up

by an September, 1981

act

of

parliament

in

Wholly owned by Government of India Commenced

operations in march, 1982

Established for providing financial assistance

to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the countrys international trade
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Foreign Trade Policy 2004-09

Exim India

Quantum Jump in Merchandise Exports

Required:

Enhance exports of major export

commodities

Identify potential export commodities Diversify export destinations

8

Foreign Trade Policy 2004-09

Exim India

Exim Bank Study Strategy for Quantum Jump in Exports: Focus on Africa, Latin America and China
India

could aim to achieve:

US$ 18 billion in Africas Imports by 2007 from US$ 3.8 bn in 2003-04 US$ 4 bn in Chinas imports by 2007 (in 64 identified groups) from US$ 0.86 bn in 2000 US$ 1.8 bn in LACs imports by 2007 (in 100 identified groups) from US$ 0.6 bn in 2000

Share in Indias Exports in 2003-04: Africa (6%); Latin America (1.8%); China (4.7)
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Lines of Credit
Exim India

Overseas Governments Parastatal Organisations/ Govt. Agencies Commercial Banks Regional Financial Institutions Particularly relevant for SMEs Eligible items all items permissible under Exim Policy

Engineering Goods
Consumer Durables Commodities
10

LOCs Extended by Exim Bank

Exim India

AFRICA
ALGERIA PTA BANK covering GHANA BURUNDI KENYA COMOROS MALAWI DJIBOUTI MAURITIUS ERITREA, EGYPT NAMIBIA ETHIOPIA SEYCHELLES KENYA SOUTH AFRICA MALAWI SUDAN MAURITIUS TANZANIA RWANDA TUNISIA SOMALIA UGANDA SUDAN ZAMBIA TANZANIA UGANDA BOAD covering ZAMBIA BENIN ZIMBABWE BURKINA FASO COTE DIVOIRE MALI EADB covering NIGER KENYA SENEGAL TANZANIA TOGO UGANDA

ASIA

EUROPE

BANGLADESH INDONESIA KAZAKHSTAN IRAN , IRAQ BULGARIA SRI LANKA RUSSIA KOREA ROMANIA MALAYSIA HUNGARY THAILAND POLAND VIETNAM PHILIPPINES

LATIN AMERICA & CARIB.

BRAZIL JAMAICA MEXICO COLOMBIA VENEZUELA BCIE covering COSTA RICA EL SALVADOR GUATEMALA HONDURAS NICARAGUA 11

CAF covering BOLIVIA COLOMBIA ECUADOR PERU VENEZUELA

Foreign Trade Policy 2004-09

Exim India

Simplifying procedures and bringing down transaction costs Transaction costs are incurred at the pre and postproduction stages, and arise out from several procedural complexities associated with administrative processes, availability of finance and transportation problems. For enhancing the growth of exports it is important to reduce the transaction costs involved. Exim Bank Study on Transaction Costs of Indian Exports
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Foreign Trade Policy 2004-09

Exim India

Findings of Exim Banks Study

Sector No. of Firms Transaction costs as % of export revenue (2003 Survey) 3-10 <5 8 <5 1-5 1-2 5 5-10 5-7 1-2 13 Transaction costs as % of export revenue (1998 Survey) 15 10 10 14 10 7-8.5 -

Textile/Garments Engineering goods Pharmaceuticals Chemicals Computer software Agro-Industries Electronic & Electrical machinery Plastic components Paper Industry Others

23 18 9 7 9 2 3 2 2 7

Foreign Trade Policy 2004-09

Exim India

Transaction Costs: International Experience

Simplified and less stringent bureaucratic procedures like single window clearance and business friendly approach Better technology due to higher levels of foreign investment, faster loading/unloading methods Flexible labour laws Cheap availability of power and raw materials,

Freight incentives by the Government,

Lower ocean freight rates due to greater availability of vessels
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Foreign Trade Policy 2004-09

Exim India

Special package for agriculture

Duty free imports of capital goods

Will lower production cost and hence improve profitability

Exports of medicinal plants & herbal products facilitated

Global imports of medicinal plants: US$ 1 bn (2001) India second largest exporter after China Potential to increase export to Rs. 1750 crore by 2006-07 and more than Rs. 2500 crore by 200910. Global market for Herbal products: US$ 80 bn Indias exports of Herbal products: US$ 280 mn (2002-03)
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Foreign Trade Policy 2004-09

Exim India

Textile sector incentives

Duty free entitlement for garments & handicrafts increased from 3% to 5% Will help exporters to move up the value chain However, further incentives required to consolidate Indias position in the postMFA era Handicraft Special Economic Zone to be established Will contribute to strong growth in handicraft exports Will generate employment opportunities
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Foreign Trade Policy 2004-09

Exim India

Export Promotion Schemes

Target Plus scheme introduced Will further boost exports from the successful exporters

Vishesh Krishi Upaj Yojana to boost horticulture exports Global trade in horticulture: US$ 79 bn (1999) Indias exports: US$ Rs. 1830 cr (1999-2000) Success of AEZs for horticulture depend on the ability of the states to overcome existing shortcomings in infrastructure, institutional mechanism and policy and programme support to achieve desired export orientation
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Foreign Trade Policy 2004-09

Exim India

Export Promotion Schemes

Services Export Promotion Council to be set up Served from India scheme: Service providers

who earn forex of at least Rs. 5 lakhs will be

eligible for duty credit entitlement Will help small scale service providers Will enhance Indias share in global exports of services (1.4% in 2003)
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Exim Bank as a Consultant

Exim India

Sharing Institutional Building Capabilities World wide

Feasibility study for establishment of an export credit and

guarantee facility for Gulf Cooperation Council countries

Regional cooperation in export finance and export credit guarantees for ESCAP

Study on promotion of international competitiveness and

exports of manufactured goods for ESCAP

Setting up the Afrexim Bank Designing of Export Financing Programmes - Turkey

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Exim Bank as a Consultant

Exim India

Sharing Institutional Building Capabilities World wide

Setting up an Exim Bank in Malaysia

Design of Export Marketing Seminars for SMEs in Vietnam

Export Development Project : Ukraine Enterprise Support Fund : Armenia Establishing an Export Credit Guarantee Company in Zimbabwe

Advisory services to Industrial Development Corporation of South Africa for international finance products
Mauritius Study on Projecting Mauritius as an Investment Hub for Indian Firms
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Promoting Indian Consultancy

Tie-up with
International Finance Corporation, Washington D.C.
Africa Project Development Facility Africa Enterprise Fund Mekong Project Development Facility South-East Europe Enterprise Development Facility
Exim India

Private Enterprise Partnership (CIS Countries)

China Project Development Facility South Asia Enterprise Development Facility

Eastern & Southern African Trade & Development Bank (PTA Bank) African Management Services Company (AMSCO)
Exim sponsors consultants under GoI-AfDB cooperation Agreement
21

Advisory Services
Multilateral Agencies Funded Projects Overseas (MFPO)
Information and support services to Indian companies to help improve their prospects for securing business in multilateral agencies funded projects. Dissemination of business opportunities in funded projects Providing detailed information on projects of interest Information on Procurement Guidelines, Policies, Practices of
Exim India

Multilateral Agencies
Assistance for Registration with Multilateral Agencies Advising Indian companies on preparation of Expression of Interest, Capability Profile Bid Intervention
22

Foreign Trade Policy 2004-09

Exim India

Export Oriented Units

Exemption from service tax

EOUs permitted to retain 100% of export earnings in EEFC accounts

Income tax benefits to DTA units which convert to EOUs

All these should considerably increase

export growth from the EOUs
23

Exim Bank: Financing of Export-Oriented Companies

Exim India

Term Loans

Project Finance

Equipment Finance

Working Capital
Short Term < 1 year Term Loans for 1-2 years Long Term upto 5 years

Overseas Other Investment Finance Programmes

Loans to Indian companies for Equity Investment in their ventures overseas Loans to Indian companies to olden to their overseas ventures Direct Equity stake
24

EOU Projects & TUFS

Export Marketing Finance Export Product Development Finance for R&D

Software Training Institutes

Minor Ports Technology Parks

Institutional Linkages
Multilateral Agencies
World Bank

Exim India

Asian Development Bank African Development Bank European Bank for Reconstruction & Development Multilateral Investment Guarantee Agency (MIGA) International Finance Corporation (IFC) UNIDO - Industrial Promotion Offices Afrexim Bank Eastern & Southern African Trade & Development Bank (PTA Bank)
25

Institutional Linkages
Exim India

Export Credit Agencies

The Export-Import Bank of China.

Croatian Bank for Reconstruction and Development. Czech Export Bank. Hungarian Export-Import Bank Ltd. Uzbekinvest National Export-Import Insurance Company. Exim Bank of Romania. Export-Import Bank of the Russian Federation. Forum of Asian ECAs
26

Institutional Linkages
Trade & Investment Promotion Agencies

Board of Investment of Sri Lanka Hatton National Bank, Sri Lanka China National Technical Import & Export Corporation Polish Agency for Foreign Investment (PAIZ). Hungarian Investment and Trade Development Agency UNIDO Industrial Cooperation & Investment Promotion Service, Economic Development Board, Bahrain
Exim India

Poland

Investment & Trade Promotion Centre, Vietnam

Centero Estero Vineto, Italy Centro Estero Camere Commercio Piemontesi, Italy. Netherlands Council for Trade Promotion. Board of Investment of Mauritius
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Exim Bank : Partner in Globalisation

Technology
Exim India

Final Products

Capital (Foreign Investment)

Raw Materials Capital Goods
I

Capital Goods
Capital (Overseas Ventures)

Product Development Production Marketing Pre shipment Post shipment

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Foreign Trade Policy 2004-09

Exim India

Final Observations
Import of second hand capital goods allowed without age restrictions No outdated imported technology should be

Special Focus Initiatives Could be extended to other sectors of high export orientation like chemicals & pharmaceuticals Export orientation of FDI should be increased
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FDI and Exports

Exim India

Low share of FDI in major export sectors Sector Transportation industry Computer software industry Share in FDI (%) 7.50 6.46

Chemicals & pharmaceuticals

Textiles Leather & leather goods Services (incl. Hotels & Tourism)
Source: SIA, MOC&I

5.70
1.20 0.20 8.37

30