Indias Foreign Trade Policy Essay

In the last five years India’s exports witnessed robust growth to reach a level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. India’s share of global merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. India’s share of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years. As the export sector has been a major casualty in this downturn the Indian Government has set in motion strategies and policy measures which will catalyse the growth of exports. The short term objective of the Foreign Trade Policy (2009-14) is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. The Policy Objectives are as follows: a) Achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011. b) In the remaining three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum. c) By 2014, the policy aims to double India’s exports of goods and services. d) The long term policy objective for the Government is to double India’s share in global trade by 2020. HIGHLIGHTS OF FOREIGN TRADE POLICY 2009-2014 Higher Support for Market and Product Diversification 1. Incentive schemes have been expanded by way of addition of new products and markets. 2. 26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania. 3. The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%. 4. The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. 5. A large number of products from various sectors have been included for benefits under FPS. 6. Market Linked Focus Product Scheme (MLFPS) has been greatly expanded. 7. MLFPS benefits also extended for export to additional new markets for certain products. 8. A common simplified application form has been introduced for taking benefits under FPS, FMS, MLFPS and VKGUY. 9. Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided. Technological Upgradation 1. To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced. EPCG Scheme Relaxations 1. To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation. 2. Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14. Stability/ continuity of the Foreign Trade Policy 1. To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12-2009 till 31.12.2010. 2. Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10. 3. Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10. 4. The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010. Introduction The gems and jewellery sector is a major foreign exchange earner. Due to its importance in India’s foreign trade, the government has taken many initiatives to boost the sector. The government, for instance, has declared this sector as a thrust area for exports. During the global economic meltdown especially the government has dealt out many initiatives for the badly-affected sector. This chapter focuses on the various policies and measures that were taken by the government for the gems and jewellery sector. Regulating Bodies Gems & Jewellery Export Promotion Council (GJEPC): Established in 1966, the GJEPC is the apex body of the Indian gems and jewellery industry, and has around 6,500 members across India. The primary goal of the Council is to introduce the Indian gems and jewellery to the international market and to promote their exports. The Council provides market information to its members regarding foreign trade inquiries, trade and tariff regulations, rates of import duties, and information about jewellery fairs and exhibitions. The roles played by the GJPEC are broadly highlighted below: Trade Facilitator The Council promotes the Indian gems and jewellery industry in the international market. It organises international jewellery shows, hosts trade delegations, and undertakes image-building exercises through advertisements, publications and audio-visual means. Advisory Role The Council also aids better interaction and understanding between traders and government. The Council takes up relevant issues with the government and agencies connected with exports. It also submits documents for consideration and inclusion in the Exim Policy. Nodal Agency for Kimberley Process Certification Scheme GJEPC works closely with the Indian government and the traders to implement and oversee the Kimberley Process Certification Scheme; in fact, the Council has been appointed as the nodal agency in India under the Kimberley Process Certification Scheme. Training and Research The GJEPC runs many institutes that provide training in all aspects of manufacturing and design in Mumbai, Delhi, Surat and Jaipur. Varied Interests The Council publishes many brochures, statistical booklets, trade directories and a bi-monthly magazine – Solitaire International, which is distributed internationally as well as to its members. Gem & Jewellery Trade Council of India (GJTCI): The GJTCI was founded in 2000, and is tasked with resolving any issue arising from trade in gems and jewellery. It plays an important role in showcasing the Indian gems and jewellery to the international as well as the domestic market. Like the GJEPC, GJTCI also provides information to its members through a monthly newsletter, various educative and trade-motivational events such as seminars, workshops, exhibitions, festivals etc. The Bureau of Indian Standards: The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory body set up under the Bureau of Indian Standards Act, 1986 and is responsible for hallmarking gold jewellery in India. Deregulation of Gold in India In the pre-liberalisation period (prior to 1991), severe restrictions on the export and import of gold from and into India were imposed. During that time only the State Bank of India (SBI) and the Metals Trading Corporation of India (MMTC) were allowed to import gold. The reasons for imposing these restrictions were: * To reduce demand for, as well as availability of gold * To alter the savings preferences of the population in favour of investments other than gold/silver * To stop smuggling of gold * To conserve foreign exchange resources * To prevent generation of or to unearth black money. It was thought that since gold was one of the most obvious choices for keeping undeclared/ill-gotten income and wealth, a policy to restrict supply of gold would be effective in curbing black money. Several schemes that restricted the export and import of gold were launched in various forms between 1947 and 1963, but the control regime finally took shape with the implementation of the Gold Control Act 1968. This Act did not allow goldsmiths to receive more than 100 grams of standard gold for manufacturing jewellery. Further, a certified goldsmith was not allowed to possess a stock of more than 300 grams of primary gold at any time. The quantity of primary gold possessed by a licensed dealer was limited between 400 grams and 2 kg, depending on the number of artisans employed. There was a legal ban on gold transaction between dealers. The government abolished the Gold Control Act when the balance of payment crisis occurred in 1990, after which the large export houses could import gold freely. Exporters in the export processing zones were allowed to sell 10% of their produce in the domestic market. In 1993, gold and diamond mining were opened up for private investors and foreign investors were allowed to own half of the equity in mining ventures. In 1997, overseas banks and bullion suppliers were also allowed to import gold into India. These measures led to the entry of foreign players such as De Beers, Tiffany and Cartier into the Indian market. Foreign Direct Investment Policy * At present, the Indian government allows 100% foreign direct investment (FDI) in gems and jewellery through the automatic route. * For exploration and mining of diamonds and precious stones FDI is allowed up to 74% under the automatic route. * For exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing, FDI is allowed up to 100% under the automatic route. Kimberley Process (KP) The Kimberley Process came into force when the South African diamond producing nations met at Kimberley in South Africa in May 2000. The Kimberly Process was set up to discuss ways to stop the trade in ‘conflict diamonds’ and to ensure that diamond purchases did not fund violence. As of November 2008, the KP had 49 members, representing 75 countries. The Kimberley Process Certification Scheme (KPCS) was implemented in India on January 1, 2003 to verify the legitimacy of the import / export of rough diamonds as per the UN resolution and to curb the entry of conflict diamonds into the global trade flow. The system of verification and issuance of KPC is administered from the Mumbai and Surat offices of GJEPC. In India’s Foreign Trade Policy 2009-14, the following measures related to the Kimberley Process Certification Scheme (KPCS) have been adopted: * No import or export of rough diamonds shall be permitted unless accompanied by the KP certificate as specified by the GJEPC. * The export and import of rough diamonds to and from Venezuela has been prohibited by the Indian government owing to the voluntary separation of Venezuela from the KPCS. Government Initiatives to Boost the Sector Measures taken by the government in the Union Budget 2009-10: Customs Duty on Gold and Silver * Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs 100 per 10 gram to Rs 200 per 10 gram. Customs duty on other forms of gold to be increased from Rs 250 per 10 gram to Rs 500 per 10 gram. * Customs duty on silver to be increased from Rs 500 per kg to Rs 1,000 per kg. These increases will also be applicable when gold and silver (including ornaments) are imported as personal baggage Central Excise Duty * Excise duty on branded articles of jewellery to be reduced from 2% to nil. * All categories within HS code 71 except the ‘diamonds whether or not worked but not mounted or set’ (HS code 7102) and certain sub-categories within HS code 7104 and 7106 currently have an excise duty rate of 16%. * The category ‘diamonds whether or not worked but not mounted or set’ (HS code 7102) currently does not attract any excise duty. * Sub-category ‘Piezo-electric quartz’ (HS code 71041000), silver (including silver plated with gold or platinum) in powdered form (HS code 71061000), unwrought (HS code 71069100) and other (HS code 71069290) do not attract any excise duty. Fiscal Stimulus Measures (December 2008) The Reserve Bank of India announced certain fiscal stimulus measures in December 2008 to revive the Indian economy during the onset of the global financial crisis. The following measures were announced for the Indian gems and jewellery sector: * Increasing the post-shipment Rupee export credit period from 90 days to 180 days from November 28, 2008 * Increasing the pre-shipment rupee export credit period from 180 days to 270 days from November 15, 2008 * Providing an interest subvention of 2% up to March 31, 2009, subject to minimum rate of interest of 7% per annum, to make pre and post-shipment export credit for gems and jewellery more attractive * Allowing exporters to avail refund of service tax on foreign agent commissions of up to 10% of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme * Banks will charge interest rate not exceeding Benchmark Prime Lending Rate (BPLR) minus 4.5% on pre-shipment credit up to 270 days and post-shipment credit up to 180 days on the outstanding amount for the period December 1, 2008 to September 30, 2009. Export Facilitation Measures by the Ministry of Commerce and Industry Further, in February 2009, the gems and jewellery sector got a special boost from the Ministry of Commerce with the following announcements: Gems and jewellery, diamonds and precious metals were given a special boost by the Ministry of Commerce and Industry, the Export Promotion Council for Gems and Jewellery and Star Trading Houses (in the gems and jewellery sector). Besides, the Diamond India Ltd, MSTC Ltd and STCL Ltd were added under the list of nominated agencies notified under Para 4 A.4 of foreign trade policy for the import of precious metals. * Surat, Gujarat has been given the recognition of a town of export excellence, because it is home to thousands of diamond units that employ many diamond workers. * The authorised persons of gems and jewellery units in export-oriented units will be allowed to carry personal carriage of gold in primary form up to 10 kg in a financial year subject to the RBI and customs guidelines. * Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporters. Foreign Trade Policy 2009-2014 Foreign Trade Policy has identified the gems and jewellery sector as a thrust area with prospects for export expansion and employment generation. The highlights of the policy are: a. Import of gold of 8 carat and above allowed under replenishment scheme subject to import being accompanied by an Assay Certificate specifying purity, weight and alloy content. b. Duty Free Import Entitlement (based on FOB value of exports during the previous financial year) of consumables and tools, for: 1. Jewellery made out of: i. Precious metals (other than gold and platinum) – 2% ii. Gold and platinum – 1% iii. Rhodium finished silver – 3% 2. Cut and polished diamonds – 1% 3. Duty free import entitlement of consumables for metals other than gold, platinum will be 2% of FOB value of exports during the previous financial year. c. Duty-free import entitlement of commercial samples shall be Rs 300,000. d. Duty free re-import entitlement for rejected jewellery shall be 2% of FOB value of exports. e. Import of diamonds on consignment basis for certification/ grading and re-export by the authorised offices/agencies of Gemological Institute of America (GIA) in India or other approved agencies will be permitted. f. To promote export of gems and jewellery products, the value limits of personal carriage of gems and jewellery products in case of holding/participating in overseas exhibitions increased to US$ 5 mn and to US$ 1 mn in case of export promotion tours. Further, the limit in case of personal carriage, as samples, for export promotion tours, has been increased from US$ 0.1 mn to US$ 1 mn. g. Extension in number of days for re-import of unsold items in case of participation in an exhibition in the US increased to 90 days. h. In an endeavour to make India a diamond international trading hub, diamond bourses will be planned. i. Gems and jewellery units may sell up to 10% of FOB value of exports of the preceding year in Domestic Tariff Area (DTA), subject to fulfilment of positive Net Foreign Exchange (NFE). In respect of sale of plain jewellery, recipient shall pay concessional rate of duty as applicable to sale from nominated agencies. In order to boost the gems and jewellery sector, the value addition norms were reduced in the FTP 2009-14. Earlier, owing to abrupt fluctuation in gold prices, exporters were unable to comply with the previous high value addition norms. Under the scheme for export of jewellery, value addition shall be calculated as per paragraph 4 A.6 of FTP. Minimum value addition shall be: Special Economic Zones (SEZ) In order to boost foreign trade and investment, the Indian government introduced the SEZ policy in April 2000 under the Export-Import (EXIM) policy. Under the policy, the government allowed companies to set up units in SEZ to manufacture goods or provide services that facilitated a hassle-free environment for exports. However, it was the SEZ Act 2005 – passed in February 2006 – that laid down regulatory frameworks and rules for setting up and for the operation of SEZs. With extended tax holidays up to 15 years – from previous tax holiday of 10 years, the SEZ Act managed to generate considerable level of interest; as a result, the number of SEZs witnessed a sharp rise in a matter of few years. The Act envisages promoting exports of goods and services, promoting FDI, creating employment, generating economic activity and most importantly, developing infrastructure. To promote the exports of gems and jewellery, the government has set up various SEZs with specific incentives. Some important government policies relating to SEZs in the gems and jewellery sector are highlighted below: * No import or export of rough diamonds will be permitted unless the shipment parcel is accompanied by the Kimberley Process Certificate issued by the Development Commissioner. * Cut and polished diamonds and precious and semi-precious stones (except rough diamonds, precious or semiprecious stones having zero duty) shall not be allowed to be taken outside the SEZ for sub-contracting. * A gem and jewellery unit may receive plain gold or silver or platinum jewellery from the Domestic Tariff Area or from an EOU or from a unit in the same or another SEZ in exchange of equivalent content of gold or silver or platinum contained in the said jewellery after adjusting permissible wastage or manufacturing loss allowed under the provisions of the Foreign Trade Policy read with the handbook of procedures. * The DTA Unit undertaking sub-contracting or supplying jewellery against exchange of gold or silver or platinum shall not be entitled to export entitlements. ————————————————- Sector Overview India has significant reserves of gold, diamond, ruby and other gemstones. Key states with gemstone reserves and mining potential are Maharashtra, Madhya Pradesh, Orissa, Chattisgarh, Bihar and Andhra Pradesh. Orissa has deposits of ruby and has about 20 varieties of various gemstones such as rhodoline, garnet, aquamarine, etc. Andhra Pradesh has gold and diamond bearing areas, as well as occurrences of semi-precious and abrasive stones spread over different districts. Diamonds are mined only at Panna in Madhya Pradesh by the National Mining Development Corporation. The two major segments of the sector in India are gold jewellery and diamonds. The country is the largest consumer of gold, accounting for more than 20% of the total world gold consumption. Gold jewellery forms around 80% of the Indian jewellery market, with the balance comprising fabricated studded jewellery that includes diamond and gemstone studded jewellery. A predominant portion of the gold jewellery manufactured in India is consumed in the domestic market. India is world’s largest cutting and polishing centre for diamonds; the cutting and polishing industry is well supported by government policies and the banking sector with around 50 banks providing nearly USD 3 billion of credit to the Indian diamond industry. It is considered to be diamond polishing and processing capital of the world as its artisans are skilled in processing small-sized diamonds. At present, India exports 95% of the world’s diamonds, according to statistics released by the Gems and Jewellery Export promotion Council (GJEPC). A major portion of the rough, uncut diamonds processed in India is exported, either in the form of polished diamonds or finished diamond jewellery. The size of the Indian gems and jewellery market is was USD 30.1 billion in 2011 and is expected to be USD 45 billion by 2015 on the back of increasing domestic demand. The country is one of the largest exporters of gems and jewellery and the industry is considered to play a vital role in the Indian economy as it is a leading foreign exchange earner. The sector is expected to generate up to USD 35 billion of revenue from exports by the year 2015. The countries where demand is increasing for Indian jewellery include the UAE, the US, Russia, Singapore, Hong Kong, Latin America and China. The sector provi des employment to around 1.8 million people. In the next five years, the sector is expected to create additional employment for around 1.1 million people. FDI into the diamond and gold ornaments sector was USD 302 million from April 2000 to April 2011, as per statistics released by the Department of Industrial Policy and Promotion (DIPP), which is part of the Ministry of Commerce and Industry, and is charged with the framing of the country’s FDI policy. The hub of India’s jewellery industry is Mumbai that receives the majority of the country’s gold and rough diamond imports. Mumbai has a considerable number of modern, semi-automatic factories and laser-cutting units, the majority of which are located in the special economic zone. Most of the diamond processing, though, is undertaken in Gujarat, (primarily in Surat, Bhavnagar, Ahmadabad and Bhuj) and in Rajasthan (Jaipur). Policy and Promotion The government has announced several measures for the promotion of the gems and jewellery sector in the New Foreign Trade Policy (2009-2014), some of the important ones being: ï‚ · To neutralize duty incidence on gold jewellery exports, duty drawback on such exports is now allowed. ï‚ · Import of diamonds on consignment basis for certification/grading and re-export by the authorized offices/agencies of Gemological Institute of America (GIA) in India or other approved agencies to be permitted. ï‚ · To promote exports of gems and jewellery products, the value limit of personal carriage has been increased from USD 2 million to USD 5 million in case of participation in overseas exhibitions. The limit in case of personal carriage as samples for export promotion tours has also been increased from USD 0.1 million to USD 1 million. ï‚ · The number of days for re-import of unsold items in the case of participation in an exhibition in the US has been increased to 90 days. The gover nment plans to establish diamond bourses in an endeavour to make India an international diamond trading hub. ï‚ · 100% FDI is permitted in the gems and jewellery sector through the automatic route. ï‚ · Gems and jewellery SEZs have been set up to promote investments in the sector. The names of operational SEZs in the sector are SEEPZ Special Economic Zone, Mumbai; Manikanchan SEZ, West Bengal; Jaipur SEZ; and Hyderabad Gems SEZ Ltd. Further, formal approval has been given to 13 SEZs in the sector — three have got in-principal approval and seven have been notified, as per the SEZ Board of Approval statistics. Major Players The gems and jewellery market essentially comprises sourcing, processing, manufacturing and selling of precious metals and gemstones such as gold, platinum, silver, diamond, ruby, sapphire, among others. This industry is highly unorganised and fragmented with 96% of the total players being family-owned businesses. Currently there are more than 500,000 gems and jewellery players across the country, with the majority being small players. Modern retail players have only 4% to 6% share, which is perhaps one of the lowest when compared to other sectors such as apparel, footwear, books and music. At the same time, India is gaining prominence as an international sourcing destination for high-quality designer jewellery. Global companies such as Walmart and JC Penney procure jewellery from India. Some of the major brands in the Indian jewellery segment are Gili, Tanishq, Carbon, Oyzterbay and Trendsmith. The major players in the Indian gems and jewellery retail sector are Reliance Retail, Damas Jewellery, Gitanjali Gems Ltd., Swarovski, Diamond Trading Company, Vardhaman Developers, Dubai-based Joy Alukkas, Viswa and Devji Diamonds and Gold Souk India. Sector Outlook A FICCI-Technopak report estimates that gems and jewellery exports will grow to USD 58 billion by 2015. It also estimates that the domestic market for gems and jewellery will touch USD 35 billion to USD 40 billion by 2015. India has several strengths that have made it a significant force in the global gems and jewellery business. These are: ï‚ · Highly skilled, yet low-cost labour. ï‚ · Established manufacturing excellence in jewellery and diamond polishing. ï‚ · India is the most technologically advanced diamond cutting centre in the world. ï‚ · Opportunity to address one of the world’s largest and fastest-growing gems and jewellery markets. ï‚ · Opportunity to leverage India’s strengths to address the global market. One of the most encouraging trends visible in the Indian gems and jewellery market is that the country is now beginning to move towards branded jewellery and consumers are increasingly accepting modern retail formats. According to the FICCI-Technopak report, this would act as a catalyst for change and may impact traditional players, who would need to upgrade to keep pace with changing market trends. It is expected that, going forward, traditional players will coexist with modern players — this is, in fact, the trend in international markets where independent jewellers still hold significant market share. (b) Gems and Jewellery sector ï‚ · Export of Gems & Jewellery by Personal carriage through Mumbai and Jaipur Airports: Export of diamonds, gemstones and gold jewellery through personal carriage through Mumbai and Airports stopped though it is allowed in other airports. Customs authorities have stopped the facility of personal carriage of gems and jewellery both for export and import at Mumbai and Jaipur. → Mumbai Customs Commissionerate opines that the facility can be started only if the safe deposit vault is installed by the Bharat Diamond Bourse (BDB). BDB has requested Mumbai International Airport Private Limited for allocating space of 200 sq ft for constructing the safe deposit vault for custody of personal carriage of import and export of precious cargo. Exporters want this to start immediately by using the available vault of customs at Airport. Recently, export by personal carriage was allowed in Mumbai Airport. However, customs authorities need to sort this out for smooth and continuous functioning of this facility. → Jaipur has limited international flights and there is no problem in personal carriage of these facilities for such flights. When Gateway ports other than Jaipur (like Delhi) are used the problem arises. Customs authorities in these airports do not accept the sealing of goods done in Jaipur. Exporters feel that gems and jewellery parcels may be allowed to be appraised by Jaipur customs and the Gateway airports may be instructed to accept the documents signed by Jaipur customs appraiser. This is a procedural issue and customs need to resolve it.