EXPORT SUMMIT 2011Friday, 19 August 2011 : New Delhi

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Confederation of Indian Industry

Theme Paper

© 2011, Confederation of Indian Industry (CII)

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August 2011

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Confederation of Indian Industry

EXPORT SUMMIT 2011Friday, 19 August 2011 : New Delhi

Confederation of Indian Industry

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Contents

I. Introduction 1

II. Indian Manufacturing Sector 3

III. Government Policies 15

IV. Trade Facilitation 23

V. FTAs as a Tool for boosting Trade 27

VI. Conclusion 32

VI. Sponsors Profile 33

VI. Sponsors Advertisements 39

Introduction

01

India's merchandise exports for the last fiscal year (2010-2011) which stood at US$ 246 billion

witnessed a rising trend, recording a 37.5% increase over the previous year and exceeding the

Government’s target of US$ 200 billion. The Government is committed to doubling both India's

exports by 2014 and its percentage share in the world trade by 2020.

The key reason for the increase in exports is reportedly the shift in our export basket from raw

materials to manufactured goods, such as processed agricultural commodities, engineering

goods, pharmaceuticals, textiles etc. The manufacturing sector contributes to one fifth of our GDP

and nearly half of India’s exports. As per the Ministry of Commerce and Industry, over the next 5

years, the Indian manufacturing sector is expected to witness investments to a tune of US$ 200 1billion .

The Government is working extensively to boost manufacturing exports and achieve a target of

enhancing the sectoral share of manufacturing to atleast 25% of GDP within this decade. There

are currently three different policy blueprints. These include the National Manufacturing Policy

being prepared by the Department of Policy and Promotion (DIPP), the National Strategy for

Manufacturing prepared by the National Manufacturing Competitiveness Council (NMCC) and the

National Manufacturing Plan being prepared by the Planning Commission of India.

In May 2011, the Department of Commerce, Government of India released a strategy paper which

sets the road map for increasing India’s exports. The paper entitled ‘Strategy for Doubling Exports

in Next Three Years’, adopts a six-pronged approach:

1. Building on the intrinsic strengths of some important sectors such as

engineering, chemicals, leather, gems & jewellery, textiles and sports goods.

2. Moving beyond traditional markets and taking advantage of free

trade agreements negotiated with other trade partners.

3. Support and incentive to the pharmaceutical sector,

electronics sector, automobile sector particularly in upgrading to the medium car segment,

green technologies, the area of high technology including space and engineering, etc.

4. Building a brand strategy for global markets.

Product Strategy:

Market Diversification:

Support for Technology and R&D:

Building Brand India:

1Ministry of Commerce Press Release dated 17 Mar 2011

02

5.

6. Policies for continuation of export schemes, reducing transaction costs

and addressing infrastructure inadequacies.

The growth spurt of the manufacturing industry has been spearheaded by the auto sector. The

auto industry manufacturers over 11 million vehicles every year and exports about 1.5 million 2

vehicles . India is increasingly moving towards becoming the global base for small car

manufacturing operations.

India has also seen a significant increase in pharmaceutical exports. India is among the 10 largest

producers of pharmaceutical products in the world and exports to more than 65 countries at an

annual growth rate of 30%. According to the Pharmaceutical Exports Promotion Council, as a

result of an increasing number of drugs turning off-patent and greater acceptance of generic drugs

in regulated markets, pharmaceutical exports from India will reach Rs 500 billion ($11.06 billion)

soon.

Apart from these India is a major global player in sectors such as textiles, chemicals, energy, etc.

To provide further impetus to the manufacturing sector, the Government will be spending around

US$ 1 trillion on the development of infrastructure in the next Five Year Plan beginning in 2012 in a

bid to make the country a global manufacturing hub.

Reining Import Growth through Domestic Policy

Essential Support:

2Automobile Industry In India: Imagin Mor Pty Ltd

Export Summit 2011

The Indian Manufacturing Sector

03

The manufacturing sector which continues to experience steady growth is an important

component of the Indian economy, contributing to 16% of the GDP and engaging 11% of India’s 3

workforce . As per the UNIDO Industrial Development Report, 2009, India accounts for nearly 80% 4

of the Manufacturing Value Added (MVA) of South Asia, which is currently growing at 7.9%.

The manufacturing sector accounts for more than two-third of merchandise exports from India. Six

sectors including Gems and Jewellery, Textiles and Garments, Engineering Goods, Chemicals,

Leather and Leather Goods and pharmaceuticals account for nearly 60% of India's manufacturing

exports.

The above mentioned sectors being important contributors to the Indian economy, the following

sections of the paper briefly examine the export potential of these sectors, government policy and

some barriers identified by exporters.

3Ministry of Commerce Press Release dated 17th March, 20114Manufacturing Value Added (MVA) is the key indicator of a country's industrial production.

It is the sum of gross output less the value of intermediate inputs used in production.

04

5IBEF6Department of Commerce Strategy for Doubling Exports in Next Three Years

7Business Standard, April 14,2011: India may move WTO against US countervailing duty on steel

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I. Engineering Exports

The engineering sector is the largest segment of the Indian industrial sector and accounts for 12% 5of India's GDP . India’s engineering exports during the period 2003-08 have witnessed a CAGR of

31%. Engineering Exports have grown by 61% for the period April-December 2010 and have 6reached US$ 38.80 billion over US$ 24.08 billion in April- December 2009 . As per estimates

drawn out by the Department of Commerce, engineering exports amounted to US$ 51.5 billion in

2010-11. Further, exports are expected to reach $76 billion in the present fiscal year (2011-12),

witnessing a surge of 27% as compared to the last financial year. This growth is likely to take place

mainly due to the surge in demand from new markets in Latin America

The Government’s export strategy targets engineering exports worth US$ 125 billion by 2014.

Source: Department of Commerce Export Strategy

Value US$ Billion

Product 2009-10 2010-11 2013-14(Estimates) (Projected)

Iron & Steel and Products made 6.17 11.12 26.99of Iron & Steel

Non-Ferrous Metals and Products 3.43 4.93 11.96made of Non Ferrous Metals

Industrial Machinery 5.25 8.01 19.44

Electric Machinery and Equipment 3.46 5.3 12.86

Auto and Auto Components 5.77 8.03 19.49

Aircrafts, Spacecraft and Parts 1.03 1.75 4.24

Ships, Boats and Floating Structures 2.55 4.38 10.63

Miscellaneous 4.91 7.99 19.4

Exports of Engineering Products

Trade Barriers

Infrastructural Inadequacies

Protectionist measures by developed countries hamper exports. A recent example of this is

imposition of countervailing duty on India steel exports by the US. Countervailing duty is mainly

used to counteract the impact of subsidies given by exporting countries to their exporters. The US

government gives a very wide definition to countervailing duty. It includes within its scope all export

incentives given by the central or any state governments under any schemes, Special Economic 7Zones (SEZ), procurement from public sector units or loans from PSU banks .

Infrastructural inadequacy is another reason for uncompetitive Indian exports. The lack of proper

infrastructure, be it transport, communication or power effectively increases operating costs.

05

Despite having the highest rail-road density in the world inland transport is extremely slow. While

cost of electric power is comparable to other countries, reliability is poor. Overall infrastructure

inadequacies are estimated to translate into 5 per cent cost disadvantage of Indian engineering 8

manufacturers’ vis-à-vis foreign manufacturers .

Transactions costs in India are among the highest in the world. For instance as per the Doing

Business Report, 2011 of the World Bank, the cost of export per container in India in US$ 1055.

This is much higher than our Asian counterparts. This directly impacts competitiveness of Indian

goods in the global market. It is estimated that transaction cost in India is close to 10% of the value

of exports.

The Department of Commerce in its export strategy attempts to address the above issues. It

makes the following suggestion particularly with regard to the engineering sector:

• Formulation of a Technology Upgradation Fund Scheme for the MSME Engineering Industry.

Technology upgradation would involve induction of state of art technology in the MSME which

would improve productivity, and/or quality of products.

• Provide Credit at Low cost for investment in Capital Goods/Equipment.

• Establishment of a national shipping regulator. Freight constitutes a substantial portion of the

cost of exports. The Shipping Regulator would prevent cartelization and provide a level playing

field and fair competition.

High Transaction Costs

8A Study on Engineering Exports of Gujarat9Financial Times, May 19,2011: Drug industry: Nation aims for role as global pharmacy10ITC Trade Map

Export Summit 2011

II. Pharmaceuticals

According to the Pharmaceutical Export Promotion Council (Pharmexcil), pharmaceutical 9

exports have grown by 15 per cent to touch $10.3 billion in 2010-11 . India ranks 13 in world 10

pharmaceutical exports and Indian exports represent 1.59% of global pharma-exports .

Source: ITC Trade Map

Value in US$ Million

Product 2006 2007 2008 2009

Pharmaceutical Products (HS Code 30) 2,992 3,833 5,005 5,011

Pharmaceutical Exports

06

11Business Line, May 10, 2011: Pharma exports rebound to touch $10.3 bin 2010-1112Based on data from ITC Trade Map

Export Summit 2011

Source: ITC Trade Map

Value in US$ Million

Importers Exported Exported Exported Exported Exportedvalue in value in value in value in value in

2005 2006 2007 2008 2009

United States of America 267.78 466.04 855.81 971.73 1170.14

Russian Federation 212.16 273.28 278.25 336.32 262.03

United Kingdom 125.77 125.34 186.95 200.11 236.29

South Africa 47.62 68.51 109.33 192.16 189.97

Nigeria 106.68 121.87 132.47 182.19 167.61

Brazil 58.02 87.11 84.87 117.35 114.04

Ukraine 83.62 105.33 118.28 149.86 107.67

Germany 59.87 65.65 115.35 103.19 102.01

Viet Nam 51.74 63.01 76.12 79.19 94.46

Sri Lanka 62.20 75.56 76.99 90.01 91.28

Top Ten Pharmaceutical Export Destinations for India

The tables above indicate that there has been a steady increase in pharmaceutical exports since

2005. United States, Russia, United Kingdom, South Africa and Nigeria are the sector’s largest

export destinations. India is also the largest exporter of pharmaceuticals to Sri Lanka, Kenya,

Ghana, Uganda, Nepal and Ethiopia, among others.

Of the total pharma-exports from India, generics accounted for 58%, followed by active

pharmaceutical ingredients which accounted for 40% and ayurvedic/ herbal/ neutracueticals 11

which constituted 2% of exports .

However, Indian exports to some major markets are far less compared to other key exporters. For

instance, in 2009, India ranked 12 among countries exporting pharmaceuticals to the United

States. Indian exports stood at US$ 1.7 billion as compared to Germany, UK and Ireland, whose 12

exports to the US were valued at US$ 7.6 billion, 7.1 billion and 6.9 billion, respectively . An

important reason for this may be that while India’s pharmaceutical industry has emerged as a

global leader in supplying generic medicines, it has yet to establish a base for itself in the research

based pharmaceuticals area.

As per the Ministry of Commerce, going by the current CAGR, which stands at 19.3%, pharma-

exports would touch US$ 15.39 billion by 2013-14. The Government has, therefore, evolved a

strategy targeting exports of US$25 billion by 2014.

The strategy seeks to increase share of Indian exports to the European and a Chinese markets.

The strategy targets a growth of 20% in EU and address the issue of high bio equivalence cost for

product registration.

07

It also recognizes the need for a special financial package for pharma sector, which besides R&D

expenditure, requires large funds to complete regulatory requirements. The strategy suggests

establishment of Bioequivalence centers which would lower the costs of Bioequivalence tests. It

further suggests creation of an Indian Pharma Innovation Fund with the goal of generating at least

10-15 IPRs per year.

The strategy suggests improvement of the constitution of the export basket, to include New Drug

Delivery Systems and specialty formulations.

The Government also proposes establishment of Herbal industrial parks in line with the Jawaharlal

Nehru Pharma City, Vishakhapatnam, wherein 25 herbals are processed in GMP facilities and

infrastructure for necessary conversion into end use formulations is provided.

THMPD

The Traditional Herbal Medicinal Products Directive (THMPD), 2004/24/EC, was established to

provide a regulatory approval process for herbal medicines in the EU. In the past, each EU

member State regulated these products at the national level. Under the THMPD, all herbal

medicinal products are required to obtain an authorization to market within the EU. A person while

applying for authorization needs to demonstrate the safety and efficacy of the herbal medicine

through traditional use for at least 30 years out of which 15 years should be within the EU.

Products which were being marketed before the legislation came into force, could continue to

market their product until April 30, 2011. Herbal medicinal products that were not on the market

prior to April 30, 2004, were required to obtain prior authorization.

The Department of Ayush, Ministry of Health and Family Welfare, in cooperation with the

Department of Commerce has been vigorously taking the issue up with the EU. They have also

urged that the criteria of 15 years of safe documented traditional usage in the EU be replaced with

30 years safe usage anywhere in the world with supportive bibliographic evidence of safety.

ACTA

The Anti Counterfeiting Act that has been concluded between US, EU, Canada, Japan,

Switzerland, S Korea and New Zealand has several elements which may be harmful for the

pharmaceutical industry in developing countries. There is a strong possibility that this Agreement

may hamper exports of a very important sector from developing countries like India.

The Indian chemical industry is one of the fastest growing sectors of the economy. The industry 13

ranks 12th in world in terms of volume of production of chemicals and contributes to around 16 14

percent of the total manufacturing exports from India . USA, Germany, China and Korea are

India’s largest export destinations. The major segments of the industry include organic and

inorganic chemicals, agro-chemicals, tanning and dyeing extracts, essentials oils and perfumes.

Of these, organic chemicals constitute a major portion of the total export in chemicals. In 2009, 15organic chemicals constituted around 69% of the total chemical exports .

Trade Barriers

III. Chemicals

13Achema World News14World Development Indicators 201115Taking into account the categories below

Export Summit 2011

08

Export Summit 2011

Source: ITC Trade Map

Value in US$ Million

Code Product label 2006 2007 2008 2009

28 Inorganic chemicals, precious metal compound, isotopes 834.91 741.00 1249.63 837.46

29 Organic chemicals 5777.48 6515.98 7907.1 6967.47

31 Fertilizers 11.82 15.71 43.17 136.37

32 Tanning, dyeing extracts, tannins, derives, pigments etc 970.91 1199.14 1477.98 1186.81

33 Essential oils, perfumes, cosmetics, toiletries 529.89 609.23 779.99 858.49

Chemical Exports from India

Exports of agro-chemicals while comparatively lesser in value, have seen a tremendous growth of

more than 1000% since 2006. India is the second largest producer of agrochemicals in Asia, 16

particularly of generic pesticides .

The Department of Commerce in its export strategy sets an export target of US$ 19 billion by 2013-

14. Of the total chemical exports, 60% exports are made by the small and medium scale sector and

40% are by larger industries. The Government in its strategy aims to achieve its target through

empowerment of SMEs.

The strategy also suggests an action plan to enable the industry to achieve the targeted exports.

The strategy proposes the creation of a ‘Chemical Inventory’, i.e., a listing of the chemicals

manufactured and imported into the country. This would further assist in preparation of a

‘Chemical Management Programme’ (CMP). The CMP would be a science based programme

specially designed to human health and the environment. The CMP would be in line with the

Canadian Chemical Management Programme and the European Union’s REACH. The Minister of

State for Commerce and Industry, Mr. Jyotiraditya Scindia in his written reply to a question in the

Rajya Sabha, acknowledged that the REACH threatened around 24% of India's chemical exports

by pushing up the cost per exporter per chemical by Rs 50-60 lakh.

The strategy also suggests inclusion of certain basic and specialty chemicals with high growth

potential under the focus product scheme. It further proposes grant of incentives for innovative

products such as bio-pesticides.

However, the strategy fails to include any measures for encouraging R&D on process innovation

as well as product development. This would be a very important step towards achieving India’s

long term objective of doubling its export share by 2020.

REACH

The ‘Registration, Evaluation, Authorization and Restriction of Chemicals’ (REACH) is a

Regulation enacted by the European Union which deals with the production and use of chemical 17substances, and their likely impacts on human health and the environment . The Regulation’s ‘No

Trade Barriers

17Article 1 of REACH Regulation

09

18Article 5 of REACH Regulation19As per Article 3 of the Regulation, ‘Substance’ means a chemical element and its compounds in the natural state

or obtained by any manufacturing process, including any additive necessary to preserve its stability and any impurity

deriving from the process used, but excluding any solvent which may be separated without affecting

the stability of the substance or changing its composition

Export Summit 2011

data, no market’ provision states that substances , either on their own, or in preparations or in

articles shall not be manufactured in the EU or placed on the market unless they have been

registered in accordance with the REACH Regulation. REACH entered into force on 1st June

2007.

One of the main criticisms of the REACH is that only EU based companies can get products

registered under the REACH. Therefore, to be able to have their substances registered,

companies exporting to the EU, have to either rely on the importer or designate an ‘only

representative’ that will act on their behalf. Article 8 of the REACH regulation, provides that a

natural or legal person established outside the Community who manufactures a substance on its

own, in preparations or in articles, formulates a preparation or produces an article that is imported

into the Community may by mutual agreement appoint a natural or legal person established in the

Community to fulfill, as his only representative, the obligations on importers under this Title.

The REACH regulation has the potential to hamper not only chemical exports but exports from

other sectors as well. Thus, it is extremely important for the Government and industry to work

closely to ensure that the REACH does not turn into a trade barrier. An important step towards this

would be introduction of the CMP.

The Gems and Jewellery sector has been India’s largest foreign exchange earner over the past

few years. It contributes to around 16.67% of India’s total merchandise exports. India's exports

represent 4.19% of global gems and jewellery exports, it ranks 8th in the world in terms of value of

export.

As per the Gem and Jewellery Export Promotion Council’s annual export performance figures,

during 2010-11, export rose to US$ 43,139.24 million. The growth in the sector was primarily

driven by ‘cut and polished diamonds’ which registered an increase of 54.91%. Exports rose from

US$ 18,243.92 million in 2009-10 to US$ 28,251.92 million in 2010-2011. Cut and polished

diamonds accounted for 65.49% of the total jewellery exports, with gold jewellery comprising of

29.86%, while colored gemstones and other accounted for 4.69%.

18 19

IV. Gems and Jewellery

Value in US$ Million

Code Product 2006 2007 2008 2009

71 Pearls, precious stones, metals, coins, etc 15,787.46 19,100.98 20,175.39 32,598.06

Gems and Jewellery Export

20Ministry of Textiles Annual Report, 2010-1121Supra

10

Export Summit 2011

Value in US$ Million

Importers 2005 2006 2007 2008 2009

United Arab Emirates 3001455 3238202 3872017 4514977 15236082

Hong Kong, China 3301930 3318945 4679292 5471318 5579250

United States of America 4237992 4749243 5131794 4459200 4576101

Belgium 1466693 1462903 1823223 2063201 1552575

China 10658 14933 30230 25371 1111343

Singapore 1494825 152080 199934 302606 765946

Israel 787304 853605 1047938 901250 649427

United Kingdom 246886 282204 319410 360765 507167

Germany 111191 103858 126315 103853 318753

Thailand 320946 340019 383044 355163 288771

Top Ten Gems and Jewellery Export Destinations for India

The Department of Commerce’s export strategy targets export worth US$ 70 billion by 2014 in the

Gems and Jewellery sector. To achieve this target the strategy suggests creation of Special

currency reserves by the Reserve Bank of India for the sector, since it is an import based sector,

which requires foreign currency to ensure smooth and easy flow of inputs. It also recommends pro-

active involvement of the Government to enable the industry to source roughs directly from

Russia, Namibia and Zimbabwe.

The Strategy also proposes providing funding under the National Skill Development Corporation

(NSDC) to strengthen the infrastructure of training institutes and upgrade training methodology in

consultation with the industry

India's textiles and clothing industry is one of the mainstays of the national economy. According to

the Annual Report (2010-11) of the Ministry of Textiles, the Textile industry contributes about 14%

to industrial production and 4% to GDP. The industry accounts for nearly 12% of the country's total 20exports basket and provides direct employment to more than 35 million people .

Exports of textiles and clothing products from India have increased steadily over the last few years,

particularly after discontinuation of the textile export quota in 2004. Exports for the previous

financial i.e., 2010-2011 amounted to US$ 25.08 million.

The exports basket consists of a wide range of items comprising readymade garments, cotton

textiles, handloom textiles, man-made fibre textiles, wool and woolen goods, silk, jute and

handicrafts including carpets. India's textiles products, including handlooms and handicrafts, are

exported to more than a hundred countries. However, the USA and the EU, account for about two-

third of India's textiles exports. The other major export destinations are Canada, U.A.E., Japan,

Saudi Arabia, Republic of Korea, Bangladesh, Turkey, etc.

Readymade Garments account for almost 45% of the total textiles exports. Apparel and cotton 21

textiles products together contribute nearly 70% of the total textiles exports .

V. Textiles

11

Export Summit 2011

The Department of Commerce in its export strategy targets exports valuing US$ 45 billion by 2014.

However, the Annual Report of the Ministry of Textiles acknowledges that Indian textile and

clothing exports are suffering due to constraints such as infrastructure, high power and transaction

cost, incidence of state level cess and duties, lack of state-of-the-art technology etc. To address

such issues, the export strategy inter alia makes the following recommendations:

• Implementation of the 40 State Apparel Park projects which have been approved by the

Ministry of Textiles involving investment of Rs. 19459 crores.

• Increasing funding for the Textiles Centre Infrastructure Development Scheme and

Technology Up-gradation Fund Schemes.

• Creation of domestic production centres for sewing machines and machines for allied

activities.

• Setting up of more design studios for encouraging Indigenous Design Development.

• Engaging with trade partners and working towards reduction of tariffs.

• Dispense with the requirement of maintaining the average export performance under the

EPCG scheme.

• Taking steps to improve power supply for power intensive segments of the industry such as

cotton textiles.

• Expand the list in New Focus Market Scheme so as to include some more potential markets

like Brazil, Mexico, South Africa, Kenya, Australia, Middle East and South America, Vietnam,

Egypt, Morocco.

• Carpets being a major export under the segment, infrastructure needs to be improved in the

major carpet clusters particularly roads and power.

Value in US$ Million

Code Product label 2006 2007 2008 2009

50 Silk .38 .34 .35 .27

51 Wool, animal hair, horsehair yarn and fabric thereof .08 .10 .12 .11

52 Cotton 3.51 4.41 4.55 3.19

53 Vegetable textile fibres nes, paper yarn, woven fabric .16 .17 .20 .17

54 Manmade filaments .99 1.23 1.59 1.78

55 Manmade staple fibres .97 1.29 1.39 1.21

56 Wadding, felt, nonwovens, yarns, twine, cordage, etc .94 .12 .15 .16

57 Carpets and other textile floor coverings 1.22 1.22 1.19 .97

58 Special woven or tufted fabric, lace, tapestry etc .17 .19 .23 .19

59 Impregnated, coated or laminated textile fabric .07 .09 .09 .09

60 Knitted or crocheted fabric .07 .08 .11 .11

61 Articles of apparel, accessories, knit or crochet 3.58 4.13 4.38 5.18

62 Articles of apparel, accessories, not knit or crochet 5.43 5.24 5.88 6.13

63 Other made textile articles, sets, worn clothing etc 2.34 2.33 2.42 2.32

Exports of Textiles and Clothing from India

Source: ITC Trade Map

12

Trade Barriers

Concerns for India

Possible way forward for India:

The EU and the US are India’s largest markets for textiles. Both have recently enacted measures

which may hit Indian Textile and Clothing exports. It is important that the Government attempt to

address the issues on a priority basis.

REACH

Exporter and manufacturers of textile and other textile products, have inter alia certain obligations

under the REACH:

• Registering substances with the European Chemical Agency (ECHA) if they are intended to be

released during normal or reasonably foreseeable conditions of use of an article & this 22

substance exceeds the threshold of 1 ton per annum in the total exports to EU . 23

• Notifying the ECHA of the presence of a SVHC in excess of 0.1% of the total weight of the

product or where the total volume of a SVHC in a product is in excess of 1 ton per annum, if

exposure to this substance cannot be excluded during normal or reasonably foreseeable 24conditions of use or disposal .

• Informing the recipient of the presence of a SVHC where it is present in excess of 0.1% of the 25

total weight of the product and how to use the article safely .

• On request by a consumer, any supplier of an article containing a SVHC in a concentration

above 0.1% of the total weight of the product, shall provide the consumer with sufficient

information, available to the supplier, to allow safe use of the article including, as a minimum, 26the name of that substance .

Further, as stated above only EU based companies can register their substances.

As stated above the Indian textile sector largely consists of small and medium enterprises. It is

extremely difficult for such enterprises to carry out the obligations imposed by REACH. Fees

required to be paid at the time of registration, appointing an only representative and establishing

an information supply system for importers and consumers substantially increases expenditure for

producers, making it almost impossible, especially for small enterprises to export to the EU.

• The EU may accredit/appoint a nodal agency which may, based on EU regulations, carry out

the registration process for Indian textile manufacturers whose products fall under the above

stated criteria. Appointment of such an agency does away with requirement of appointing a

representative within the Community.

• Further, the EU may establish a contact point within the Community, which may monitor the

operations of the accredited agency in India.

• Information requested by a consumer under Article 33, may be provided by the nodal agency,

instead of placing the burden on the manufacturer of the Article.

22Article 7 of REACH23Substance of very high concern: A chemical substance, the use of which within the European Union is subject to

authorization under the REACH Regulation. A substance may be an SVHC if it is carcinogenic, mutagenic, toxic

for reproduction, persistent, bioaccumulative and toxic.24Supra

25Article 3326Supra

Export Summit 2011

13

United States Trafficking Victims Protection and Reauthorization Act (TVPRA) and

Executive Order 13126

Difference between the EO List and TVPRA

Executive Order 13126 on the "Prohibition of Acquisition of Products Produced by Forced or

Indentured Child Labor," was signed on June 12, 1999. It requires the US Department of Labor, to

publish and maintain a list of products (EO List), by country of origin, which the Department has a

reasonable basis to believe, might have been mined, produced or manufactured by forced or

indentured child labor.

A similar list is also required to be maintained under the TVPRA.

• The EO list intends to ensure that US Government agencies enforce laws relating to forced or

indentured child labour in the procurement process. The EO List differs from the TVPRA List,

which is intended to promote efforts to monitor and combat forced labour and child labour in

the production of goods in foreign countries. While the TVPRA List is designed to “raise public

awareness” and “promote efforts to eliminate” the worst forms of child labour, the EO listing

affects the ability of contractors to sell products on the list to agencies of the Federal

government. EO 13126 requires Federal contractors who supply products that appear on the

list to certify that a responsible official of the company has made a good faith effort to determine

whether forced or indentured child labour was used to mine, produce or manufacture any

products furnished under the contract, and on the basis of those efforts, the contractor is

unaware of any such use of child labour

• The EO on federal procurement applies only to the goods on the EO List, not to those on the

TVPRA List.

• In addition, the EO List covers forced or indentured child labour, while the TVPRA List focuses

on a broader population, including adults in forced labour and children in exploitive labour that

is not necessarily forced or indentured.

Both these lists may adversely impact Indian textile and other exports to the US. While the

government has been taking steps to tackle this issue there is a need for a greater industry

participation in ensuring that the US removes India from these lists. The TVPRA List includes zari

textiles, silk, silk threads, garments and carpets, while the EO List includes garments and zari

textiles. Carpets which earlier featured on the EO List also, have been provisionally removed

following efforts by the Carpet Council of India.

The leather industry occupies an important position in the Indian economy and contributes

substantially to the export basket. The export of leather and leather products increased manifold

over the past decades and touched US$ 3.84 billion in 2010-11. India ranks 12th in the world in

export of ‘raw hides, skins and leather’ (HS Code 41) and 4th in export of ‘articles of leather’ (HS 27

Code 42) .

VI. Leather and Leather Products

Export Summit 2011

27ITC Trade map Data

14

The Government targets leather exports of US$ 9 billion for the year 2013-14. To achieve this

objective the following suggestions were made in the export strategy:

• Creation of a Venture Capital Fund under a suitable Nationalized Bank to target export oriented

leather units.

• Explore new markets to meet the new markets for importing the leather to meet the Industry’s

requirements

The Union Budget 2011-2012 announced the setting up of Mega Leather Clusters in about seven

states. These leather clusters will house state-of-the-art manufacturing centers with all

infrastructural facilities including roads, power, water supply, effluent treatment plants, training 28

centers, export infrastructure etc. at one place .

The budget also widened the scope of the 3% Duty Free Import Scheme.

Leather goods and accessories feature on the TVPRA list of the US. The Council for Leather

Exports is engaged with the US Department of Labour to address this issue.

Export Summit 2011

28Strategy for Doubling Exports in Next Three Years

Government Policies

15

Despite there being a significant increase in manufacturing exports, India’s share of

manufacturing in its GDP is much lower than the other Asian economies like China, Thailand and

Malaysia where this percentage is 21% to 35%. The share of manufacturing in India’s GDP has

remained almost stagnant at about 17% since the nineties. This is contrary to the consistent rise

exhibited during 1950 to 1980. Further, Indian manufacturing contributes to only 11% of 29

employment compared 28% in China .

In order to ensure sustainability in economic growth, the government has realized that it is

essential to raise the share of manufacturing to 25% of GDP by 2025. This would require 30

manufacturing to grow at 3%-4% higher than GDP growth rate .

This following section analyses various Government policies and programmes aimed at

enhancing manufacturing exports.

29Summary Record of Discussions in the First Meeting of the Steering Committee on Industry held on 13th April, 2011.30Supra

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Export Summit 2011

I. Existing Policies and Programmes

(a) Advance Authorization Scheme

Advance Authorization is issued to allow duty free import of inputs, which are physically

incorporated in the export product. In addition, fuel, oil, energy, catalysts etc. which are

utilized in manufacturing the export product, may also be allowed under the scheme.

The Scheme is available to both physical and deemed exports.

(b) Duty Free Import Authorization Scheme (DFIA)

A Duty Free Import Authorization is issued to allow duty free import of inputs and fuel,

energy, catalyst etc., which are used in the manufacture of the export product. While

the purpose of the DFIA is similar to Advance Authorization, the key difference

between the two schemes is that while the former allows for transfer of the

Authorization or the inputs imported, once the export obligation has been completed,

the latter does not contain any such provision.

(c) Scheme for Gems and Jewellery

Gems and Jewellery constitute a major share of Indian exports. In 2009-10, the

segment constituted 16.34% of the total exports, amounting to US$ 29,202.93 million.

Under the Foreign Trade Policy 2009-14, as a part of the Special Focus Initiatives,

exporters of gems and jewellery can import/procure duty free inputs from nominated

agencies, either in advance or as replenishment. The Government has also expanded

the list of items that may be imported duty free. However, despite gems and jewellery

being an important item of export, the scheme is hardly being availed by exporters. A

perusal of the DGFT Annual Report, 2010-11, reveals that the share of the scheme in

the total number of authorizations issued under various schemes is practically

negligible. (Refer Table below). This may largely be due to lack of awareness

regarding the scheme.

a) Duty Entitlement Passbook Scheme

Duty Entitlement Pass Book Scheme (DEPB) is an export incentive scheme aimed at

‘neutralizing the incidences of custom duty on import content of the exported product’.

Under the post-export DEPB, the exporter is given a credit at a pre-determined rate on

the FOB value. The DEPB rates are allowed for import of any items except the items

which are otherwise restricted for imports. A predominant portion of exporters avail the

DEPB scheme for reasons of scheme’s simplicity. The DEPB scheme obviates the

maintenance of enterprise-specific records to be eligible for credit. Also, DEPB and / or

items imported against it are freely transferable.

b) Duty Drawback Scheme

Duty Drawback Scheme allows for refund of custom duty and excise duty on inputs

used in manufacture of the export product at a specified percentage of FOB value of

A. Pre-export Schemes

B. Post-export Schemes

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Export Summit 2011

exports. Duty drawback may be availed on physical as well as deemed imports.

Drawback rates for various products are fixed either on a general basis (all industry

rates) or for individual exporters (brand rates) as the case may be.

With the DEPB Scheme set to exit in September, 2011, the drawback scheme is being

touted as an alternative to the DEPB. However, there are some key differences in the

two schemes. Under the DEPB scheme, exporters get credit for customs duty paid on

inputs used in making export goods. Under duty drawback, they receive duty-free

scrips which can be used to pay import duties. DEPB is based on the assumption that

the exporter has used duty-paid imported inputs. Duty drawback, on the other hand,

neutralises levies paid on inputs.

The underlying principle of “Deemed Imports” in the DEPB Scheme seeks to ensure

level playing field for Indian exporters as we have multiplicity of taxes at different

levels. Current rough estimates of such un-neutralized indirect taxes would be in the

region of 4-6% without taking into account the cascading effect. DEPB in effect

addresses the issue of reimbursement of such indirect taxes.

In absence of an alternate tax reimbursement scheme, the drawback scheme in its

present form may not address the problems of the exporters adequately. The

compensation offered under all industry rate is miniscule and the Brand Rate scheme

is too cumbersome to be reckoned as an alternative to the DEPB Scheme. Also, brand

rate is not granted unless it is proved that it would be at least 1.25 times of all industry

rates and process of brand rate fixation at times takes up to 2-3 years. Further, duty

drawback does not cover Tier 2 imports, which are automatically covered under the

DEPB scheme since the re-imbursement made is larger.

c) Focus Market Scheme

The objective of the Focus Market Scheme is to offset the high freight cost and other

disabilities to select international markets with a view to enhance our export

competitiveness to these countries. Exports of all products to the notified countries

shall be entitled for duty credit scrip equivalent to 2.5% of the FOB value of exports for

each licensing year. The scrip and the items imported against it would be freely

transferable. The Duty Credit may be used for import of inputs or goods including

capital goods, provided the same is freely importable under ITC (HS).

Exporters shall have the option to apply for benefit either under the Focus Market

Scheme or under the Focus Product Scheme or under Vishesh Krishi and Gram

Udyog Yojana in respect of the same exported product/s.

d) Focus Product Scheme

The objective of the Focus Product Scheme is to incentivize export of such products

which have high employment intensity in rural and semi urban areas so as to offset the

inherent infrastructure inefficiencies and other associated costs involved in marketing

of these products. Exports of notified products to all countries shall be entitled for duty

credit scrip equivalent to 1.25% of the FOB value of exports for each licensing year.

The scrip and the items imported against it would be freely transferable. The Duty

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Export Summit 2011

Credit may be used for import of inputs or goods including capital goods, provided the

same is freely importable under ITC (HS).

e) EPCG Scheme

The EPCG scheme allows import of capital goods for pre production, production and

post production at 3% Customs duty subject to an export obligation equivalent to 8

times of duty saved on capital goods imported to be fulfilled over a period of 8 years

reckoned from the date of issuance of the authorization.

The capital goods include spares (including refurbished/ reconditioned spares), tools,

jigs, fixtures, dies and moulds. EPCG authorization may also be issued for import of

components of such capital goods required for assembly or manufacturer of capital

goods by the authorization holder. An EPCG authorization can also be issued for

import of capital goods for supply to projects notified by the Central Board of Excise

and Customs under wherein the basic customs duty on imports is 10% with a CVD of

14%. From 2009, payment of duty under EPCG scheme is allowed by way of debit of

DEPB or other duty credit scrips.

f) Zero duty EPCG Scheme

Under the zero duty EPCG Scheme, import of capital goods at zero percent Customs

duty, subject to an export obligation equivalent to 6 times of duty saved on capital

goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from

Authorization issue-date.

Source: DGFT Annual Report 2010-11

Share of Export Promotion Schemes

Sr. No. Schemes 2009-10 (April-Dec) 2010-11 (April-Dec)

1 Advance Authorization 9.1% 8.7%

2 DEPB 56.7% 50.4%

3 DFIA 1.6% 1.6%

4 Focus Market Scheme 3% 4.8%

5 Focus Product Scheme 4.8% 13%

6 EPCG Scheme 7.9% 7.4%

7 Zero duty EPCG Scheme 0.9% 2.7%

8 Gems and Jewellery 0.0% 0.0%

9 Others 16% 11.4%

C. National Strategy for Manufacturing

The National Strategy for Manufacturing (NSM) was prepared by the NMCC in 2006. The NSM

identifies policy and outlines possible strategy for growth of the manufacturing sector. It

recognizes the challenges faced by the manufacturing sector and provides possible solutions.

The NSM inter alia made following recommendations for boosting manufacturing exports from

India:

19

• The NSM recognized domestic indirect taxes as a major reason for Indian manufacturing

exports being uncompetitive.

• Procedures connected with export incentives/subsidies continue to be cumbersome.

These need to be simplified on a priority basis

• The small industries sector also contributes substantially to the exports. Therefore,

ensuring the competitiveness of small scale sector is important as it would help in overall

growth of manufacturing sector as also the national economy.

• Encouraging innovation and creation of IPRs in the manufacturing sector

• The Government should consider the concept of economic regions with world class

infrastructure but with no or minimal fiscal concessions.

• Government should consider setting up a ‘Global Technology Acquisition Fund’ to enable

Indian industry to acquire very high technology intensive companies abroad, when ever

such opportunities arise.

In 2006, the Department of Heavy Industries released the Automotive Mission Plan (2006-

2016), with the aim of making India a global hub of vehicle manufacturing, designing and

component making, and achieving a turnover of $145 billion by the year 2016. It laid special

emphasis on export of small cars, MUVs, two and three wheelers and auto components.

The Plan recognizes that despite its rapid growth the share Indian automotive export in global

trade was very small. India's automotive exports represent 0.66% of world exports and India

ranks 25 in the world in terms of value of export. The Plan also recognizes the sector’s

potential to increase the share of the manufacturing sector in GDP, exports and employment.

D. Automotive Mission Plan

Export Summit 2011

20

The Plan identifies that incentivizing exports, encouraging development of domestic

competitiveness and establishing the Indian brand were important to boost automotive exports.

In order to encourage exports the Government took up the following issues raised by the Industry

for examination:

• Three tier tariff structure for raw materials, intermediate products and finished products.

• Bringing in a country-wide VAT and at the same time withdrawing all other central and state

taxes.

• Implementation of GST and reduction of tariff on raw materials.

The Plan recommends creation of Special Auto-Component Parks for promoting auto-component

exports.

The Plan also states that the Government would examine the possibility of refurbishing Export

Promotion Schemes. Further, special initiatives would be encouraged under the Market Access

Initiative schemes.

The Plan also recommended examining the Industry’s request for creation of virtual SEZs for

existing manufacturing units.

The Plan further recommended sprucing up of Road, Rail, Port and Power infrastructure.

The Government is currently working on two plans to drive the manufacturing sector.

The National Manufacturing Policy (NMP) has been formulated by the DIPP with the aim to

raise the share of manufacturing activity to 25% of GDP by 2022. The NMP seeks to create

National Manufacturing and Investment Zones (NMIZs), to drive the growth of the sector. As

per the draft paper on the policy issued by the DIPP, NMIZs shall have a fourfold objective:

• To promote investments in the manufacturing sector and make the country a hub for both

domestic and international markets;

• To increase the sectoral share of manufacturing in GDP to 25% by 2022.

• To double the current employment level in the sector

• To enhance global competitiveness of the sector

A NMIZ would be an area specifically demarcated for the establishment of manufacturing

facilities for domestic and export led production, along with the associated services and

infrastructure. The NMIZ would provide good physical infrastructure, a progressive exit policy,

structures to support clean and green technologies, appropriate investment incentives and

business friendly approval mechanisms and each zone would have a combination of

production units, public utilities, logistics, environment protection mechanisms, residential 31areas and administered services .

Upcoming Policies

A. National Manufacturing Policy

Export Summit 2011

31Department of Commerce Press Release dated May 7, 2010

21

The NMIZ would have a governing body which would be in the form of a Special Purpose

Vehicle (SPV) formed with the constituents of that specific NMIZ. The SPV would have the

delegated authority from the State Government, Ministries in the Central Government and

other Government agencies for issuing necessary clearances for the inception and

continuation of business ventures inside the NMIZ. Thus, the concept of NMIZ combines the

framework for more business friendly policy, procedures and approval ecosystem, combined 32

with superior physical infrastructure .

The processing area of the NMIZs i.e., where the manufacturing facilities, along with

associated logistics and other services and required infrastructure will be located may include

one or more Special Economic Zones, Industrial Parks & Warehousing Zones, Export

Oriented Units, DTA units duly notified under the relevant Central or State legislation or policy.

All the benefits available under the relevant legislation or policy will continue to remain

available to the said Zones.

The Policy also recognizes the potential of ‘green technologies’ for the emerging Indian

manufacturing sector. As per the draft paper, the focus on sustainable development means

the emergence of a growing market for ‘Green Products’. It is estimated that there is a global

market for such products valued at around US$ 190 billion and it is expected to grow at 15%

every year across segments like alternative energy, construction of green buildings and green

consumer products like organic food and cotton. An increasing number of consumers in both 33developed and developing economies are turning towards greener products .

The policy also seeks to implement a skill development programme to meet the needs of the

sector in terms of workforce.

The Planning Commission has identified manufacturing as a key growth sector for the

purposes of the 12th Five Year Plan and is working on a National Manufacturing Plan. The five

core objectives of the Plan are:

• Increasing growth of the manufacturing sector to 12-14% over the medium term to make it

the engine of growth for the economy.

• Increasing the rate of job creation in manufacturing to create 100 million additional jobs by

2025.

• Increasing ‘depth’ in manufacturing, with focus on the level of domestic value addition, to

address the national strategic requirements.

• Enhancing global competitiveness of Indian manufacturing through policy support.34• Ensuring sustainability of growth, particularly with regard to environment .

B. National Manufacturing Plan

32Supra33Supra34Arun Maira: An Approach To National Manufacturing Plan35Supra

Export Summit 2011

22

The National Plan shall have three components :

• Special focus on those sectors of manufacturing which will enable the country to more

rapidly achieve its goals for manufacturing.

• An identification of the constraints that affect manufacturing sector, and policies to relieve

these constraints.

• Active attention to improving the processes of implementation.

The Planning Commission has appointed which ten working groups have been set up which

are headed by industry including Tata Steel vice chairman B Muthuraman, Godrej group

chairman Jamshyd Godrej, Vedanta Aluminium managing director SK Roongta and Maruti

Suzuki India chairman RC Bhargava and senior bureaucrats including Commerce Secretary,

Mr. Rahul Khullar. These working groups will be advising the Commission on policy measures 36

required for the growth of the sector .

As per a paper by the Planning Commission entitled ‘An Approach to National Manufacturing

Plan’, despite a steady growth in exports, India’s merchandise trade deficit and continues to

rise, as import growth regularly outpaces export growth. Further, if a growth rate of 9% is to

maintained and domestic supply constraints are to be tackled, a high growth of imports is

going to be inevitable. Thus, it is important to focus on higher export growth, and devise a

strategy for rapidly increasing merchandise exports to ensure that the Balance of Trade and

Current Account Deficit remain within manageable limits.

35

36The Financial Express, July 6, 2011: Ten working groups formed to increase share of manufacturing in GDP by 2025

Export Summit 2011

Trade Facilitation

23

Exports play a key role in the growth of the economy. Trade facilitation in turn is the key to

competitive exports. The ‘Doing Business Report, 2011’ published by the World Bank which

analyses 183 countries, ranks India at 134th place in terms of ‘ease of business’ and at 100th

place in terms of ‘trading across borders’.

37Ministry of Commerce Press Release dated 17 Mar 201138World Trade Report 2011

Source: Doing Business Report 2011

Trading Across Borders

Economy Documents to Time to export (days) Cost to exportexport (number) (US$ per container)

China 7 21 500

India 8 17 1,055

Japan 4 10 1,010

Korea, Rep. 3 8 790

Malaysia 7 18 450

Thailand 4 14 625

Vietnam 6 22 555

The table above compares India with other Asian economies in terms of ‘trading across borders’. It

looks at the procedural requirements for exporting a standardized cargo of goods, time required

for completion and cost of export. India at present is far behind its counterparts in almost all

categories, thus impacting competitiveness of Indian products in the global market. As a result 37

while Indian exports recorded an increase of 37.5% in 2010-11 , their share in global exports was 38

only around 1.4% .

With the view to address trade facilitation issues, the Ministry of Commerce in 2009, constituted a

Task Force on Transaction Cost in Exports. The Task Force intended to look into issues affecting

the export competitiveness and provide recommendations to the Government to reduce costs

associated with export.

The Task Force identified three important steps to achieve the Government’s objective of doubling

India's share in global trade by 2020:

• Improvement in export related infrastructure

• Lowering of transaction costs

• Providing full refund of all indirect taxes and levies

Infrastructure

Transaction Costs

Infrastructure development is the key to trade facilitation. The Task Force Report recognized that

infrastructure development is a key area of reform that needs to be addressed to bring India up to

par with its Asian counterparts in terms of export facilitation.

The Department of Commerce’s strategy for doubling exports recognizes the problem of

infrastructural inadequacies. Keeping in view the projected exports for 2013-2014, the strategy

estimates the gap in infrastructure needs and makes the following projections:

The strategy estimates that there exists a gap of 598.50 million metric tonnes in the capacity

requirements of Ports. An approximate investment of Rs. 24,191 crores would be required to

fill this gap.

As per the strategy the total road length at present is 70,934 km and the ideal road length

should be 94342 km, reflecting a gap of 33%. At present 6 lane roads are only 1% of the total

road network and lane roads are 20.6%. By 2014, share of 6 lane roads should increase to 3%

and share of 4 lane roads should increase to 50%. This requires an expenditure of Rs 636672

crore in case of 4 lane roads and Rs. 44370 crore for 6 lane roads.

The strategy projects freight traffic to a tune of 2044 million tonnes based on the India’s

projected exports by 2014. It estimates a gap of 746 million tonnes in capacity. Taking into view,

the Railway Vision 2020 document, it projects addition of 11677km of new railway lines and

13759 km of doubling of railway lines by 2014 amounting to an expenditure of Rs. 237809

crores.

The strategy estimates growth at the rate of 12.1% in international cargo. Based on this rate,

Indian Airports by 2013-14 are expected to handle international cargo traffic to a tune of 2668

thousand metric tonnes. Accordingly, as per the strategy, cargo handling capacity of Airports

would need to be increased by 2.5 times by 2014.

The Task Force recognized that despite the existence of a large number of export promotion and

incentive schemes to provide stimulus to exports, transaction cost was an estimated 8 to 10% of

the value of exports. Based on the Doing Business Report, 2010, the Task Force estimated the

total extent of transaction cost to be approximately US$ 17 billion. It was estimated that while 39approximately 50% of the total cost was structural cost and the remaining was addressable cost .

Task Force identified a set of 44 issues relating to transaction cost spanning across seven

Ministries. Of these 44 issues, 32 issues were agreed to, and 21 were implemented by the

• Ports

• Roads

• Railways

• Airports

24

Export Summit 2011

39Report by Task Force on Transaction Cost in Exports

25

concerned Ministries. Some important suggestions made to the Ministries of Finance, and

Commerce and Industry were as follows:

• Advance authorization under Ad-hoc norms to be issued without the present requirement

of submission of Chartered Engineer Certificate.

• Ad-hoc norms ratified by Norms Committee should be made applicable to all earlier cases

for the same export product for other advance authorizations issued within one year of date

of ratification.

• Removal of requirement of submission of Proforma Invoice for issue of import and export

license for restricted items.

• Clubbing of Annual Advance Authorization with Advance Authorization should be allowed.

• Better EDI facilitation to be provided by DGFT i.e.

– offline software for filing advance authorization and EPCG applications on DGFT

server,

– online status holder application facility.

• Abolition of application fee levied by DGFT for issuance of authorizations under export

promotion schemes

• Shift-wise working system should be developed for customs and excise officials especially

to cater to import /export workload on weekends.

• Relaxation of eligibility criteria for Accredited Client Programme (ACP) to enable more

firms to be enlisted for faster import/export clearances and decongestion at Ports.

• Clear procedures and guidelines to be prescribed by CBEC for grant of refund of credit

balance lying in CENVAT Credit beyond a period of 3 months.

• Penal interest for export payments\received beyond due date should be charged only for

the delayed period instead of from the date of shipment.

• Pre-shipment credit in foreign currency may be made available on a priority basis to MSME

export sector.

• A suitable mechanism to provide refund of service tax in the form of All Industry Service Tax

Rate like All Industry rate of Duty Drawback needs to be developed.

• In line with the provisions of Foreign Trade Policy, payments received through

ECGC/General Insurance Companies and specific write-off from RBI on account of default

by buyer (for not remitting export proceeds) should be counted for providing Duty

Drawback benefits also and exporter not to be penalized by asking for refund of export

incentives.

• Banks compulsorily charge exporters ECGC premium on pre-shipment credit, which is a

risk that banks should cover (or claim from ECGC) and not recover from exporters, unlike

the post-shipment credit. Banks should declare the Inter-Bank rate (IBR) and the

applicable margins levied on the exporter while purchasing foreign bills.

40• Ministry of Commerce and Industry

• Ministry of Finance

Export Summit 2011

40Supra

26

• There should be no restriction on the bank customers in shifting their account from one

bank to another. At present, many banks are imposing a penalty clause when their

customer closes his limit and goes to other banks where he is getting more favorable

terms.

• RBI stipulates that Form 15 CA and Form 15 CB should be filed for all transactions

requiring payment to foreign suppliers. Submission of this CA certified form leads to

increase in transaction time and costs and its submission should be required only if

transactions cross a designated amount in a year.

A basic premise of liberalized international trade is that taxes are not exported. Adherence to this

principle is essential to any regime of free and fair international trade. As mentioned earlier, rough

estimates of un-neutralized indirect taxes in India would be in the region of 4-6%. This severely

affects India’s export competitiveness.

To address this issue, the Government in March, 2011 introduced a Bill for introduction of a Goods

and Services Tax (GST). GST would subsume most major Central and State taxes. Further, there

would be a complete and comprehensive set¬off of input goods and services thereby reducing the

cost of manufactured goods. This would increase India’s competitiveness in the global market and

provide impetus to exports.

However, failure of State and Central authorities in reaching a consensus resulted in pushing the

deadline for implementation of GST to 2012. Despite the Central Government’s assurance of a

US$ 10.8 billion incentive to States, if required, State Governments are apprehensive they will lose

their fiscal autonomy if GST is implemented.

As per a Report by the National Council of Applied Economic Research, implementation of GST is 41expected to provide gains to India's GDP somewhere within a range of 0.9 to 1.7 per cent.

Refund of all indirect taxes and levies

Export Summit 2011

41Moving to Goods and Services Tax in India: Impact on India's - NCAER

An important component of the Government’s strategy to double exports by 2014 is market

diversification. It aims to move beyond traditional markets and take advantage of free trade

agreements negotiated with other trade partners. The Government has so far concluded 10 free

trade agreements (FTAs), five limited scope preferential trade agreements and is in the process of

negotiating 16 more agreements. Several proposals for FTAs are also under consideration. As per

the Department of Commerce when completed, these agreements would cover over a 100 42

countries spread across five continents, adding to the diversification strategy .

The following sections briefly examine some recently negotiated FTAs with important trade

partners.

Malaysia is the 3rd largest trading partner of India amongst the ASEAN countries. During 2005-

2010, India-Malaysia trade increased from US $ 3.52 billion to US $ 9.03 billion. In February, 2011,

India and Malaysia signed a Comprehensive Economic Cooperation Agreement (CECA). The

CECA seeks to achieve a bilateral trade target of US $ 15 billion by 2015. It is in a way an ASEAN

‘Plus’ agreement since it gives access not only to goods but also makes provisions for Trade in

Services and Investment.

Under the India-ASEAN Agreement the main classes of products where tariff were reduced were

electronics, chemicals, machinery, textiles, leather, pharmaceutical products and certain

categories of motor vehicles. Under the ASEAN ‘plus’ India-Malaysia CECA, Malaysia gets access

for fruits, cocoa, palm oil products and synthetic textiles, while India gets access for basmati rice,

mangoes, eggs, trucks, motorcycles and cotton garments. India has received liberal commitments

for 140 products.

Both countries have also agreed to reduce timelines for elimination/reduction of tariffs.

India is one of the largest producers of motorcycles. With Indian companies looking at new

destinations and Malaysia being a large market for the product, lowering of tariffs in this segment

gives impetus to Indian exports. Similarly, India is the fifth largest exporter of garments in the world,

cotton in particular being India’s strength in the textile and clothing sector. Reduction of tariff may

help boost Indian garment exports to Malaysia.

India Malaysia CECA

42Asia Times, March 9, 2011: Scindia sets out growth strategy

FTAs as a Tool for Boosting Trade

27

The table above signifies the top ten exports from India to Malaysia. Product code 89 i.e., ships,

boats and other floating structures, displays a tremendous increase from 2006 to 2009. This may

be attributed to reduction of tariffs under the India-ASEAN FTA. Similarly, in case of electrical and

electronic equipment, owing to reduction in tariff, exports have doubled from 2006-2009.

43The CECA entered in to force from July 1, 2011 .

44Japan is the 7th largest export destination for India . Indian exports to Japan have increased from

US$ 2.8 billion in 2006-07 to US$ 3.2 billion in 2009-10. In 2010-11, exports to Japan are estimated 45

to have been US$ 5.67 billion dollars . In February, 2011, India and Japan signed the

Comprehensive Economic Partnership Agreement (CEPA). Under the CEPA tariffs on more than

90 percent of goods traded between the two countries shall be eliminated over the next decade.

Bilateral trade between the two countries, which was worth $10.3 billion in 2009-10, will get a

substantial boost with close to 9,000 products ranging from steel and apparel to drugs and 46

machinery set to be traded at zero or substantially reduced tariffs . The CEPA seeks to achieve a

bilateral trade target of US $ 25 billion by 2014.

India-Japan CEPA

Value in US$ Million

Code Product 2006 2007 2008 2009

89 Ships, boats and other floating structures 1.42 3.67 21.96 1,131.20

27 Mineral fuels, oils, distillation products, etc 71.36 161.33 394.62 346.37

29 Organic chemicals 174.15 114.45 229.86 192.35

85 Electrical, electronic equipment 62.16 62.004 92.56 159.49

84 Machinery, nuclear reactors, boilers, etc 60.24 109.44 118.99 149.16

02 Meat and edible meat offal 106.52 87.52 113.44 131.35

10 Cereals 10.003 183.96 326.12 129.52

73 Articles of iron or steel 20.35 56.35 85.97 99.62

09 Coffee, tea, mate and spices 55.66 107.04 85.65 93.4

74 Copper and articles thereof 116.84 229.73 345.03 88.70

Top Ten exports from India to Malaysia

Source: ITC Trade Map

28

Export Summit 2011

43Department of Commerce Press Release, July 1, 2011 44Based on 2010 export data

45ITC trade data46International Business Times, February 16, 2011: India-Japan free trade agreement: A win-win deal

With almost 87% Japanese tariff lines being liberalized with immediate effect, Indian exports to

Japan stand to become more competitive than before. A large number of these items are of India’s

export interest e.g. seafood, agricultural products such as mangoes, citrus fruits, spices, instant

tea, most spirits such as rum, whiskies, vodka etc, textile products such as woven fabrics, yarns,

synthetic yarn, readymade garments, petro-chemical & chemicals products, cement jewellery, 47etc .

The sectors which would benefit the most include textile, pharmaceutical and agricultural products

which would get substantial reduction of tariffs and non-tariff barriers.

The tariffs on import of pharmaceuticals by Japan are eliminated with immediate effect. Further,

Article 54 of the Agreement makes provisions for cooperation on Generic Medicine. Clause (3) of

Article 54 lays down that:

“Applications by a person of a Party for registration and other approvals required for release of a

generic medicine in the market of the other Party shall be considered by the relevant authorities of

the other Party. Such applications shall be accorded, in the relevant procedure, treatment no less

favourable than that accorded to like applications by its own person, where they fulfill all the

requirements under the laws and regulations of the other Party. Such procedure shall be

completed within a reasonable period of time from the date of such application.”

The growing healthcare needs of a fast ageing Japanese population make the Japanese pharma

market extremely lucrative for Indian pharma companies which manufacture high quality and

inexpensive generic drugs.

Value in US$ Million

Code Product label 2006 2007 2008 2009

27 Mineral fuels, oils, distillation products, etc 470.66 752.4 699.95 871

26 Ores, slag and ash 383.96 351.74 313.19 373.63

71 Pearls, precious stones, metals, coins, etc 450.23 462.01 391.77 280.46

23 Residues, wastes of food industry, animal fodder 127.65 188.91 368.01 212.34

03 Fish, crustaceans, molluscs, aquatic invertebrates nes 236.04 243.2 211.46 187.78

29 Organic chemicals 115.79 144.9 166.03 145.44

62 Articles of apparel, accessories, not knit or crochet 114.51 92.75 113.51 125.855

72 Iron and steel 58.4 143.83 308.45 110.69

84 Machinery, nuclear reactors, boilers, etc 81.37 90.65 117.98 85.87

99 Commodities not elsewhere specified 23.52 17.06 13.69 78.72

Top Ten Exports to Japan

Source: ITC Trade Map

29

Export Summit 2011

47Department of Commerce Press Release dated July 31, 2011

The Agreement, under Article 103, also makes provisions for streamlining administrative

procedures concerning intellectual property.

In case of textiles there is a complete elimination of tariffs (with the exception of 2 categories at the

6 digit level under Chapter 50) as soon as the CEPA comes into force. India, which is one of the

world’s largest exporters of textile and clothing, can draw tremendous benefit from this and

significant enhance textile exports to Japan.

48The CEPA entered into force on August 1, 2011 .

49Republic of Korea is the 6th largest export destination for India . India’s exports to Korea have

increased from US$ 2.32 billion in 2006-07 to US$ 5.67 billion in 2010-11. In August 2009, India

and Korea signed a Comprehensive Economic Partnership Agreement.

India-Korea CEPA

Value in US$ Million

Code Product label 2006 2007 2008 2009

27 Mineral fuels, oils, distillation products, etc 742.33 677.97 1,554.55 2,110.03

29 Organic chemicals 159.17 226.49 235.48 243.49

26 Ores, slag and ash 261.92 316.61 75.53 173.39

52 Cotton 225.31 182.61 158.7 166.64

72 Iron and steel 145.97 184.47 456.67 160.74

71 Pearls, precious stones, metals, coins, etc 99.74 127.17 57.85 117.43

84 Machinery, nuclear reactors, boilers, etc 60.52 93.57 106.72 102.89

23 Residues, wastes of food industry, animal fodder 172.26 193.75 254.53 100.01

76 Aluminium and articles thereof 25.79 10.23 2.70 61.58

79 Zinc and articles thereof 11.31 1.44 35.3 46.49

Top Ten Exports to Japan

Source: ITC Trade Map

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Export Summit 2011

48Department of Commerce Press Release August 1, 201149Based on 2010 ITC Trade Data

50Mint, July 16, 2009: India, South Korea to ink trade pact on 7 Aug51ANI: India, Korea trade set to double in next five years

Out of the 5300 tariff lines, in 70% items tariffs will be completely eliminated within a period of 8

years. While India maintains a negative list of 15% of items, Korea has included 8% of its items in

the negative list. In 10% of items, tariff will be reduced up to 5% while in 10% items tariff will be 50

halved from their current rate . Bilateral trade which stood at 11,997.12 million dollars during the 51

year 2009-10, is likely to double in the next five years .

An important feature of the CEPA is that it makes provisions specifically for trade facilitation and

customs cooperation. Both countries are inter alia required to adopt or maintain simplified customs

procedures and use information technology to ensure the efficient release of goods. The CEPA

also makes provisions for cooperation in the area of science and technology, infrastructure and

transportation.

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Export Summit 2011

The CEPA also recognizes the fundamental role played by small and medium enterprises (SMEs)

in the economy and makes provisions for promoting close cooperation among SMEs as well as the

relevant agencies of the Parties. These include

• Establishing networking opportunities for SMEs in both countries to facilitate collaboration or

sharing of best practices;

• Facilitating the investment flows by the Parties;

• Supporting the organization of fairs and exhibitions; and

• Encouraging relevant agencies to discuss, cooperate and share information and experiences

in the development of SMEs policy and programmes.

The India-Korea CEPA came into force from January 1, 2010.

India is currently in process of negotiating several other trade agreements including the India-

SACU Preferential Trade Agreement, India-Australia FTA, India-New Zealand FTA, India-EU BITA

and India-Canada FTA. Some of these agreements, such as the India-EU BITA are in final stages

of negotiations and may be concluded by the end of 2011. It is estimated that due to these

agreements, by 2018, India will have access to 75% of large markets either on a preferential or

zero-duty basis.

FTAs under Negotiations

ConclusionExports form a very important part of the Indian economy. While Indian industry focuses on the

large domestic market to grow it also has shown tremendous keenness in the last few years to

increase its global foot print and align with global markets to benefit from the large opportunities

that have emerged in the last decade.

The government of India, especially the Department of Commerce has been very supportive of the

industry’s efforts to improve export performance. However, given the dynamic nature of the export

industry there is a need for continuous interaction between the policy makers and the industry to

ensure that India remains competitive in global markets and exports continue to hold an important

stake in India’s GDP.

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Sponsor Profile

35

DHL Express: Excellence. Simply Delivered.

With India’s changing dynamics and increasing exposure to international markets, one name is

constantly called upon to deliver: DHL.

DHL is part of the Deutsche Post DHL group, and a high-ranking Fortune 500 company with

revenues of more than 51 billion Euros in 2010), DHL Express network connects more than 1.2

lakh destinations worldwide. Documents or parcels, Same Day, Time Definite or Day Definite

delivery, DHL Express has it all – and it’s the same world-class service anywhere.

DHL Express India has over 40,000 customers serviced through its international network with

1,500 employees, fleet of over 250 LPG vehicles and a combination of DHL-owned airlines, DHL

network alliance airlines and commercial airlines. With over 430 exclusive DHL-Blue Dart retail

outlets in India, DHL Express has the widest retail footprint in the logistics sector. Acknowledged

since 1979 for its innovative and pioneering initiatives, DHL Express India has many firsts to its

credit. In the logistics sector, India had the first 24-hour customer call centre. It was the first to

introduce customized solutions such as Jumbo Box now termed as Express Easy Jumbo, Import

Express as well as the first to provide track and trace services via email, SMS, Internet and

WAP/GPRS phones.

DHL’s mission is to positively shape the future and contribute to environmental protection

(GoGreen), championing education (GoTeach) and disaster management (GoHelp). The entire

DHL India fleet has been converted to LPG; a more eco-friendly alternative . Under Plantlife – a

major green cover project – over 500 trees have been planted in Mysore. DHL’s initiative ‘You

Donate DHL Delivers Drive’ reaches out to people who are on the move and wish to participate or

donate for a good cause. Over 10,000 people across India have benefited from this project.

Export Summit 2011

Reliance Industries Limited is India's largest private sector enterprise, with businesses in the

energy and materials value chain with a turnover of INR 2,58,651 crore (US$ 58.0 billion), cash

profit of INR 34,530 crore (US$ 7.7 billion), net profit of INR 20,286 crore (US$ 4.5 billion) and net

worth of INR 1,51,540 crore (US$ 34.0 billion) in FY2011.

RIL is the first Indian private sector company to feature in the Fortune Global 500 list of 'World's

Largest Corporations' and ranks 119th in terms of profits. RIL ranks 68th in the Financial ‘Times FT

Global 500’ list of the world's largest companies. In 2010, Boston Consulting Group ranked RIL as

the second highest ‘Sustainable Value Creators’ for creating the most shareholder value over the

decade in the world.

Backward vertical integration has been the cornerstone of the evolution and growth of Reliance.

Starting with textiles in the late seventies, Reliance is today backward vertically integrated – from

polyester to oil and gas exploration and production. The Group's activities span E&P, refining and

marketing, petrochemicals, textiles, retail, financial services, communications and SEZs.

In 2008, just over two years of its discovery, Reliance commenced oil production in its KG-D6 block

off East Coast of India making it the world's fastest green-field deepwater oil development project.

In April 2009, it commenced gas production from India’s first deep water production facility

significantly impacting key sectors. Recently, RIL has forged a transformational agreement with

global major BP which will enable to develop the full potential of its domestic oil & gas portfolio.

Reliance operates two of the world’s most complex refineries and is the largest refiner at any single

location in the world, refining 1.24 MBPD of crude.

Reliance has also emerged as one of the leading foreign investors in the emerging unconventional

hydrocarbon opportunity of shale gas in the United States of America.

Reliance Retail is one of the largest organized retail player in the country with over 1000 stores

serving over 2.5 million customers in every week. Reliance Industries is also developing the

broadband opportunity which will take India to be on the forefront of providing world-class 4G

network and services.

Reliance considers ‘Corporate Social Responsibility’ as an integral part of its corporate

framework. The CSR activities are spread across several areas including education, health, rural

infrastructure development, livelihood support training, environment and promoting sports and

sportspersons to name a few.

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Export Summit 2011

PATTON is an ISO 9001:2008 Company, a Government recognized EXPORT HOUSE, STAR EXPORTER and United States Border & Customs validated CTPAT (Customs Trade Partnership Against Terrorism) Compliant Company. Consecutive Winner of Productivity Awards, FIE Award and recipient of NATIONAL Awards both from the President and the Prime Minister of India for Excellence in EXPORTS of sophisticated products like Precision Electrical Stampings, Industrial Fasteners, Builders’ Hardware, Pressed Steel & Plastic Water Tanks, Material Handling Containers, PUF Insulated Boxes, PVC Pipes, Pallets etc., having state-of-the-art manufacturing facilities at different locations. PATTON products have received very wide acceptance and acclaim in the international markets having received approval from world renowned quality institutions like Underwriters Laboratories Inc. USA (“UL"), Canadian Standards Association, Canada (“CSA"), GERMANISHER Lloyd GmbH.

What is ECGC?

Export Credit Guarantee Corporation of India Limited (ECGC), was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risks faced by Indian exporters who are exporting on credit.

Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community.

ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs 900 Crores and authorized capital is Rs 1000 Crores.

The Corporation has completed 54 years of providing the services to exporters and banks. Over the years it has introduced different export credit risk insurance products to suit the requirements of Indian exporters and commercial banks.

VISION “To excel in providing export credit insurance and trade related services”.

MISSION “To support the Indian Export Industry by providing cost effective insurance and trade related services to meet the growing needs of Indian export market through the optimal utilisation of available resources”.

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Export Summit 2011

APJ-SLG Law Offices is a full service law firm with a broad range of specialized legal services and

expertise. The Firm has a strong practice base comprising government and corporate consulting,

infrastructure, real-estate, WTO and international trade, anti-dumping, banking, competition,

finance, direct and indirect taxation.

The Firm adopts a multi-disciplinary approach to resolve the most critical business and legal

issues facing its clients. Owing to the varied background of our team members, the Firm is

uniquely placed to advise clients on regulatory matters and the corresponding business strategies

by analyzing domestic and foreign laws and regulations, international and multilateral treaties.

Significant achievements of the Firm include drafting of legislations and policies for India as well as

other countries, training of officials of foreign governments and advising on the negotiations on

behalf of the Government of India in international organizations like the WTO.

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Export Summit 2011

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Export Summit 2011

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Export Summit 2011

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Export Summit 2011

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the

growth of industry in India, partnering industry and government alike through advisory and consultative

processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a

proactive role in India's development process. Founded over 116 years ago, it is India's premier

business association, with a direct membership of over 8100 organisations from the private as well as

public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from

around 400 national and regional sectoral associations.

CII catalyses change by working closely with government on policy issues, enhancing efficiency,

competitiveness and expanding business opportunities for industry through a range of specialised

services and global linkages. It also provides a platform for sectoral consensus building and

networking. Major emphasis is laid on projecting a positive image of business, assisting industry to

identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the

country carry forward our initiatives in integrated and inclusive development, which include health,

education, livelihood, diversity management, skill development and water, to name a few.

CII has taken up the agenda of “Business for Livelihood” for the year 2011-12. This converges the

fundamental themes of spreading growth to disadvantaged sections of society, building skills for

meeting emerging economic compulsions, and fostering a climate of good governance. In line with

this, CII is placing increased focus on Affirmative Action, Skills Development and Governance during

the year.

With 64 offices and 7 Centres of Excellence in India, and 7 overseas offices in Australia, China, France,

Singapore, South Africa, UK, and USA, as well as institutional partnerships with 223 counterpart

organisations in 90 countries, CII serves as a reference point for Indian industry and the international

business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)

T: 91 11 24629994-7 • F: 91 11 24626149

E: ciico@cii.in • W: www.cii.in

Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244

CII Helpline Toll free No: 1800-103-1244