1

Strategy Paper for the Department of Commerce

Submitted by

Jayant Dasgupta

&

Depinder Singh Dhesi

Phase V Training Programme, LBSNAA Mussoorie

January 7, 2011

2

Table of Contents

Page

1. Section 1: Ministry’s Vision, Mission, Objectives 3

and Functions

2. Section 2: Assessment of the situation 6

3. Section 3: Outline of the Strategy 11

4. Section 4: Implementation Plan 20

5. Section 5: Linkage between the Strategic Plan and RFD 22

6. Section 6: Cross Departmental and cross functional issues 23

7. Section 7: Monitoring and Reviewing arrangements 24

8. Annex 1: Strategic Targets for 2014-15 26

3

SECTION- 1

Ministry’s Vision, Mission, Objectives and Functions

The Department of Commerce has been tasked with the regulation, development and promotion of India’s international trade and commerce through the formulation of appropriate policies and their implementation. This has also been stated in the Annual Report (2009-10) of the Department as follows1:

“The basic role of the Department of Commerce is to facilitate the creation of an enabling environment and infrastructure for accelerated growth of international trade. The Department formulates, implements and monitors the Foreign Trade Policy which provides the basic framework of policy and strategy to be followed for promoting exports and trade.”

1.2 The Vision of the Department as enunciated in the Results Framework Document (RFD) 2010-11 is to make India a major player in world trade by 2020 and for India to assume a role of leadership in international trade bodies commensurate with its importance in the contemporary world.

1.3 The Mission of the Department outlined in the Foreign Trade Policy (2009-2014) and the RFD is to double India’s exports of goods and services by 2014 in the medium term along with doubling India’s share in global trade by 20202 as a long term goal, through appropriate policy support. The Department is targeting an annual growth rate of exports of 25% during the period 2011-12 to 2016-17 to achieve these twin targets3.

1.4 The Objectives formulated by the Department are as follows:

(i) Apart from focusing on increasing our exports in traditional sectors like textiles & clothing, gems & jewellery, handicrafts etc., sustained efforts would also be made to give a boost to our exports in hitherto non-traditional

1 Annual Report (2009-10) of the Department of Commerce, Government of India, New Delhi 2 Foreign Trade Policy (2009-2014) and Results Framework Document of the Department of Commerce, Government of India, New Delhi 3 Strategic Plan (2009-10), Department of Commerce, Government of India, New Delhi

4

areas like machinery and transport equipment (accounted for 37% of global trade between 2003-07), chemicals, pharmaceuticals and agro-products etc.

(ii) Special efforts would be undertaken to increase the production, productivity and profits of the plantation crops i.e. rubber, tea, coffee, spices and tobacco, which have been a traditional source of strength for our exports as well as providing employment to millions of workers.

(iii) Along with product diversification, efforts would also be directed to diversify our markets instead of concentrating just on the traditional ones like the US and the EU, because the advanced economies are expected to grow much slower than the developing and emerging economies in the next decade.

(iv) Steps would be taken to conclude our ongoing Free Trade Agreement (FTA) negotiations and to conclude the Doha Round negotiations, which would provide additional market access for our goods and services. Non-tariff measures (NTMs), which adversely impact exports, would be addressed both through the FTAs as well as the WTO.

(v) Concerted efforts would be made to reduce our trade related transaction costs.

(vi) Infrastructure bottlenecks, especially in respect of power, roads, railways and ports would be addressed on priority basis. The Assistance to States for Development of Export Infrastructure and Allied Activities (ASIDE) scheme would continue to be used to cover critical gaps in export infrastructure. More allocations would be sought for the ASIDE scheme coupled with improvements in quality of output and effective monitoring, which would help address the infrastructure deficit in a speedier manner.

(vii) The coverage of export credit as well as its quantum needs to be enhanced. This would be addressed in consultation with the Ministry of Finance, including the feasibility of utilizing the foreign exchange reserves of the country for the purpose.

5

(viii) Protecting sensitive sectors of the Indian economy against the adverse impact of trade liberalization.

1.5 The major functions of the Department are as follows:-

(i) Formulation of the Foreign Trade Policy, setting annual targets of exports and implementation of programmes for increasing India’s exports

(ii) Implementation of Focus Market and Focus Product schemes for export diversification, both in terms of new markets as well as products

(iii) Undertaking export promotion activities through Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes

(iv) Negotiation of bilateral and regional trade agreements with different countries and trade partners for securing preferential access in their markets

(v) Negotiation of multilateral trade agreements in the WTO, UNCTAD etc.

(vi) Facilitating the creation of infrastructure for promoting exports through the implementation of the Special Economic Zones (SEZs) Act and Assistance to States for Development of Export Infrastructure and Allied Activities (ASIDE) Schemes

6

SECTION- 2

Assessment of the situation

2.1 External Factors

2.1.1 A country’s export performance depends on a number of external factors. First and foremost among these is the export competitiveness, including the level of technological sophistication, of the major global suppliers. On this count, the major threat facing the rest of the world is the manufacturing behemoth that China has been able to put up since 1979. Intertwined with its large capacities is the implicit and explicit subsidies that its industries receive, specially for exports. Though the Chinese subsidies are getting challenged lately in the WTO, because of the non-tranparent nature of many Chinese government procedures, it would take a long time before all the knots are unraveled. Another contributing factor to China’s competitiveness is the artificial pegging down of the renminbi, which makes imports from China additionally attractive. In 2009, China emerged as the largest exporting country in the world with 9.6% share of global trade, thereby displacing Germany. It has also surpassed Japan as the second largest economy, from the third quarter of 2010. Contrary to the dire predictions of many economists, the Chinese economy did not suffer much on account of the economic downturn and has bounced back to near 10% growth levels in the second half of 2010. The Chinese with their large pool of technical manpower and alleged reverse engineering skills and persistent violation of IPRs, are also among the front runners in the sunrise sector of green technology. With their IT skills and rapidly growing numbers of English speaking young persons (including the largest number of foreign students in the US, Australia, Canada, UK etc) are poised to move up in the Services field also from their current standing of 5.

2.1.2 The second factor impacting upon exports is the state of the global economy. India’s exports, which recorded an average annual growth rate of 23.9% during the period 2004-05 to 2008-09, came down to 13.6% in 2008-

7

09 and showed negative growth during 2009-104. The economies of the EU and the US, which are still our major markets, have not recovered completely from the economic downturn. Unemployment levels are still quite high in these countries, leading to contraction in demand for consumer goods. The EU has had to rescue Greece and Ireland from their sovereign debt problems in 2010 and the US has had to unfold a $600 billion package by way of Quantitative Easing 2 a few months ago to continue with its stimulus to the economy. The net result is that consumer spending in these countries is still low and luxury or gift items are not being purchased as much as in 2007. This has affected the exports of many of our traditional items like gems &jewellery, handicrafts and carpets. It has also impacted upon our textiles and clothing exports because consumers are now more likely to defer purchase of non-essential items.

2.1.3 Another fall-out of the economic downturn has been that investments in the developed countries have come down, resulting in a contraction in the demand for engineering goods, which is the largest sector of our exports currently.

2.1.4 Our traditional strengths in exports have been our comparatively low wages (steel forgings and castings, powerloom fabrics), our skilled workers (carpets, gems& jewellery, clothing), low cost of primary raw materials (cotton, tea, coffee, rubber, iron ore, hides and skins), low import intensity of raw materials (except rough diamonds) and low energy intensity of our export products (handicrafts, hand-knotted carpets, gems & jewellery, embroidered clothing). The typical Indian export oriented industry worker, most likely illiterate or non-matriculate, is intelligent, skillful, innovative and able to absorb and carry out instructions well. He is, however, saddled with a high morbidity burden and is most likely working on piece rate basis in the unorganized sector, staying away from his family and living in low rental housing in slum like surroundings.

2.1.5 With our rising wages, low levels of mechanisation and productivity, infrastructural bottlenecks and comparative lack of product development and 4 Annual Report (2009-10), Department of Commerce, Government of India, New Delhi

8

innovation, our exports have grown at a rate far lower than that of China or the other East Asian tigers in the nineties. Unless we are able to break out of this mould and provide products of greater technological sophistication and variety at globally competitive rates, it might be difficult to make a significant difference in our export performance in the years to come.

2.1.6 In order to achieve this breakthrough, we have, however, a very able ally in the shape of our new generation of entrepreneurs/stakeholders, who are young, energetic and willing to take risks. What they expect of the government and the planners to do is to provide an enabling and facilitating environment for them to go out into the global arena and climb new peaks. These stakeholders want to have world class infrastructure, an inspector Raj -free and hassle-free working environment and predictability and transparency in government policies and functioning. This in essence is what we need to deliver.

2.2 A SWOT analysis of our exports is presented below against the backdrop of the above general discussion.

Strengths

Availability of most natural resources and long coastline

Diversified Industrial Base

Skilled manpower, including entrepreneurial ability

English language skills

Growing middle class and disposable incomes represent a robustly growing domestic market

Low wages compared to all developed and emerging developing countries like China and Brazil

Younger population as compared to all developed countries and China

9

Weaknesses

Major infrastructural deficit in terms of power, ports, roads, railways

Lack of state of the art technology in many manufacturing sectors

Low investments in R& D

Low literacy levels and generally poor quality of technical education (except in a few colleges)

Low productivity and high morbidity burden on labour

High transaction costs and cost of lending

Red tape and procedural delays (including in the judicial proceedings)

Corruption

Opportunities

Good combination of skilled manpower and comparatively lower wage costs could act as a catalyst to attract FDI for a wide range of manufacturing activities, provided we bridge the infrastructural deficit

Improvement in farm productivity and establishment of cold chain could transform into an agro-products exporting power, specially in fruits and vegetables

Large greying population among wealthier countries would compel them to outsource many of their activities to lower cost suppliers like India

The availability of large numbers of skilled IT professionals could be leveraged to turn India into the global back-office

10

Threats

Higher labour productivity, world class infrastructure and large manufacturing base of China could make it difficult for India to gain a larger share of global exports. India’s bilateral trade with China is also currently running an annual trade deficit of $17 billion.

Lower cost competitors like Bangladesh (in textiles and clothing) and Vietnam (for textiles, clothing, tea, coffee and some spices) could erode India’s share in global trade.

11

SECTION - 3

Outline of the Strategy

3.1 Projections for exports

3.1.1 India’s exports of goods and services in 2009 were $ 155 billion and $ 86 billion and its share of global trade was 1.2% and 2.6% in goods and services respectively5. Including intra-EU trade, India’s standing was 22 and 12 among the world’s leading exporters of goods and services.

3.1.2 Based on WTO data on global trade in goods pertaining to 1990-2009 and taking the trend growth rate for this period, which was 13.27%, global exports projection for 2014 and 2020 work out to $18450 billion and $29,450 billion respectively6. India’s exports share as a proportion of global exports in goods in 2014 and 2020 works out to 1.64% ($303 billion) and 2.17% ($640 billion) respectively.

3.1.3 As regards Services, the projections indicate that global trade would increase to $5050 billion and $8060 billion in 2014 and 2020 respectively, in which India’s share would be 4.42%($223 billion) and 8.1% ($653 billion).

3.1.4 Thus the secular growth projections would appear to indicate that India should be able to meet its twin export growth objectives for 2014 and 2020 respectively. However, there are some major caveats to this, which are discussed below. Before we proceed to discuss them, however, it would be pertinent to point out that there are some gains to be made if we align the timelines for meeting our objectives, to coincide with the 12th Plan period (2012-17). This would be especially relevant for the areas where inter-departmental coordination and joint efforts are required. It is for the Department of Commerce to take a call on this issue.

3.2 Outline of Potential Strategies

5 World Trade Report 2010, World Trade Organisation, Geneva 6 Unpublished joint report of the Centre for WTO Studies and FIEO, December 2010

12

3.2.1 At present, engineering goods, gems & jewellery and textiles & clothing account for 19.8%, 17.8% and 11.3% respectively of our exports basket. Petroleum products account for another 13.8% of our exports. The value addition in gems & jewellery exports is low at present, because it is mainly concentrated in the diamond polishing business. However, with better design inputs and product innovation and diversification, we can increase our exports in this sector.

3.2.2 Similarly, there are natural limits to growth in the traditional products of our textiles & clothing sector because of the structure of our industry (still mostly in the small or unorganized sector) and our rising wages. Lower cost producers like Vietnam and Bangladesh have already overtaken us in textiles and clothing and we can only improve our position in this sector if we move up the value chain by establishing brand names and designer labels as well as venturing into the production of hitherto non-traditional items like men’s and women’s business suits for example.

3.2.3 In the case of the leather sector, which provides employment to lakhs of workers, our exports are mainly confined to exports of finished leather, men’s shoes, garments and accessories. We have negligible exports in children’s and ladies footwear as well as non-leather footwear, which together account for more than 80% of global trade. There is tremendous scope for improving our position in leather products and non-leather footwear exports, provided we take the right policy initiatives.

3.2.4 It is most unlikely that we would be able to double our exports in the medium term by just producing “more of the same”. It appears imperative to have a paradigm shift in our manufacturing and exports strategy, so as to move onto a different growth path. For this, we have to significantly diversify our product basket in addition to putting in efforts to produce higher value added products in our traditional exports sectors. The new areas in which we could provide a thrust could, for instance, include engineering goods, chemicals and pharmaceuticals (including biosimilars), electronic goods, agro-products etc.

13

3.2.5 In order for us to move up the value chain, we would need to : (i) provide R&D and state of the art testing facilities (ii) marketing support for thrust sectors and countries, (iii) attract foreign investments and technology through further liberalization of our investment regime and schemes like the Special Economic Zones and (iv) build up a brand image of quality and reliability for India, through use of the India Brand Equity Fund and other appropriate schemes.

3.2.6 In view of the low growth rate projections for the advanced economies in the next 4-5 years, the intense competition for market share in these countries as well as the robust growth projected for the emerging economies and some other developing countries, we could be benefited by focusing our attention also on penetrating new markets. The bilateral Free Trade Agreements (FTAs) and the Regional Trade Agreements, could provide the right platform for moving into non-traditional markets, through preferential access. Thus the emphasis has to be to conclude the FTAs that India is negotiating as soon as possible along with entering into fresh FTA negotiations with new trade partners where careful analysis indicates mutual benefits for both partners. Efforts must also be made to conclude the Doha Round as soon as possible because of the promise it holds for further trade liberalization.

3.2.7 With the progressive reduction in tariffs, specially in the developed country markets (the average tariffs in both the US and the EU are currently at 4% for industrial products) and with further reductions proposed in the Doha Round negotiations, tariffs are going to play a much reduced role in inhibiting exports in future. On the other hand, non-tariff barriers (NTBs) and Sanitary and Phytosanitary (SPS) measures are going to play an increasing role in determining trade flows. In order to address these issues, we would need to include a fast track mechanism for their resolution in our FTAs. We would also need to push vigorously for reduction and elimination of NTBs in the Doha Round negotiations.

3.2.8 Inadequate availability (specially to the MSME sector) and comparatively high cost of export credit (as compared to the developed

14

country or Chinese exporters) pushes up the costs of our exporters. In the absence of Indian bank branches in many of our export destinations, our exporters also have to rely on expensive third country banking services. Consolidation of our nationalized banks (on the lines of what the SBI is trying to do through mergers of its associates) will enable our banks to attain a critical mass and provide some of these facilities in our export destinations. One of the ways of providing low cost short term credit in foreign currency could be to access part of our foreign exchange reserves, which is invested in foreign treasury bonds and other securities. The whole issue of adequacy and cost of borrowing needs to be addressed urgently in consultation with the Finance Ministry and RBI.

3.2.9 Another factor impacting our global competitiveness is our high transaction costs. A part of this is infrastructure related but another part is largely procedural. The latter could be addressed effectively through appropriate IT solutions. Computerisation of clearances by Customs, DGFT and other associated agencies and integration of their networks to facilitate timely payment of duty drawback and other export incentives is imperative to reduce transaction costs.

3.2.10 In Services, we would need to diversify beyond IT/ITES and Tourism to get deeper into Financial Services, Telecom Services, Audio Visual Services, Professional Services (e.g. medicine, dentistry, nursing, law, accountancy, management consulting, architecture, medical diagnostics) etc. as well as developing better infrastructure for the Tourism sector, which contributes significantly to our exports earnings. In order to make further gains in both IT/ITES as well as professional services, we would need to press hard for liberalization of Mode 4 (movement of natural persons) by the developed countries in the Doha Round negotiations.

3.2.11 Our infrastructure, be it power, road, rail or port related, is already under tremendous pressure because of the demands placed on it on account of our robust economic growth between 2003-08. With the anticipated growth in exports as well as concomitant increase in imports in the current decade, the pressure on our infrastructure is bound to get accentuated and

15

hinder exports, unless we take advance action. A brief overview of our infrastructural requirements is provided below.

3.2.12 Power

In order to meet our export targets, we would need to diversify our exports basket significantly and get into more energy intensive manufacturing processes as compared to handicrafts, gems & jewellery, textiles & clothing etc. at present. This would require high quality and uninterrupted power for our manufacturing hubs as well as for our rail transportation network. There is already a significant energy deficit in the country and even the modest target for additional power generation during the 11th Plan is not likely to be achieved. This sector requires concerted efforts for improvement otherwise it can act as a huge drag on our exports.

3.2.13 Ports

Ports handle 95% of our total trade in terms of volume and 70% in terms of value. As per world benchmarking, efficient working is achieved when the handling capacity of ports is 30% more than the actual traffic handled. By 2020, our capacity requirement has been estimated to be 3025 Million Tonnes (MT), whereas the planned capacity for 2020 currently is only 1685 MT- a shortfall of 1340 MT. The Ministry of Shipping is going to come out with a Revised Perspective Plan for 2020 shortly, which is expected to aim for a capacity of 3200 MT for 2020. This Perspective Plan would need adequate and timely financing for execution.

It has been noticed that even when our ports are able to handle the cargo at their berths, a huge bottleneck is faced in the shape of inadequate landside evacuation facilities. Thus there would have to be simultaneous development of the feeder rail and road networks along with port development.

16

Currently a lot of time and money is wasted by Indian exporters because their goods have to be transshipped through either Colombo, Singapore or Dubai. Effective steps need to be taken to reduce the pre-berthing and turn around times of vessels, so as to attract mainline vessels to Indian ports and reduce transportation costs and time.

3.2.14 Roads

Roads carry 61% of freight currently. With the anticipated growth in export and import volumes by 2020, the road network would need to be strengthened significantly. In India, expressways are nearly non-existent, while China’s highway network consists of over 45,000 kms of 4 or 6 lane access controlled expressways linking its major cities. Currently 6 lane highways constitute only 1% of national highways in India.

India does not fare well in speed comparisons of its trucks as well. According to a World Bank study7, the transit time between major cities in India, on average, is about 33% more as compared to the US. Moreover, Indian trucks are used for 60000-100000 km a year, which is less than a quarter of those in developed countries. A joint study8 by the Transport Corporation of India and IIM, Kolkata has estimated that the average effective speed of trucks on Indian roads is only about 20 kmph, because of poor roads and check post delays. Apart from increasing the width of the highways, the riding quality of the roads needs to be improved and check posts across state borders need to be eliminated.

3.2.15 Railways

As per the Ministry of Railways Vision 2020, the target for freight traffic for 2020 has been pegged at 2165 MT. However, it has been estimated that the projected traffic would be 4787 MT by 2020,

7 Road Transport Service Efficiency Study, November 2005, Energy and Infrastructure Operations Division, South Asia Regional Office, World Bank 8 Operational Efficiency of National Highways for Freight Transportation in India, TCI and IIM Kolkata

17

showing a large capacity deficit of 2622 MT. Thus a major thrust has to be imparted to doubling and quadrupling of lines along major freight paths and setting up dedicated rail freight corridors from the hinterland to the major ports.

The size of freight rakes would need to be increased and they would also need to travel at higher speeds to transport the cargo faster and reduce transaction costs.

3.2.16Along with rapid and orderly growth of our exports, we have to also ensure a level playing field for our domestic industry, vis a vis imports. Large idle capacities and ability to subsidise products heavily (like China for instance) can wreak havoc for the domestic industry through dumped/subsidized imports. In order to counter this, we have to strengthen our import monitoring mechanism and act quickly with appropriate trade defense measures, to limit the damage.

3.3 Consultation with Stakeholders

3.3.1 The stakeholders would broadly comprise the industry representatives in different sectors, the concerned administrative ministries and state governments, research institutions, financial institutions, service providers like Customs, DGFT, Power, Shipping, Road Transport & Highways, Civil Aviation etc.

3.3.2 The Department of Commerce would need to play the role of a coordinator and facilitator among the various stakeholders. The questions that need to be asked of the industry and administrative ministries would be directed towards identification of new thrust areas. The research institutions would need to be involved in the discussions and asked for technical solutions to problems that are perceived in the path forward. The industry’s feedback about reforms and procedural changes as well as infrastructure strengthening would also need to be factored in appropriately. The mode of interaction could be through open house sessions followed by brainstorming and then formal meetings of a task force.

18

3.4 Building up Knowledge and Capabilities

3.4.1 We need to continuously update both our technology as well as our management practices to be globally competitive. The obvious source for access to both the latest technology and management practices in the short to medium term would be through FDI, joint ventures and outright purchases. However, in the long run, we need to invest in R&D on our own to provide our industry with a competitive edge. China has done this spectacularly in recent times and in an earlier era Japan and Korea have done it. This would need to be coordinated by the administrative ministries with the industry and research institutions and the PPP model would be ideally suited for this endeavour.

3.4.2 On another front, we need to build up our brand image and inculcate quality consciousness throughout our supply and production chain. As far as brand building is concerned, the Department of Commerce has a vital role to play in this endeavour, in association with the industry associations. On inculcating quality consciousness, the major initiative would have to come from the industry associations and administrative ministries.

3.4.3 We also need to have a sufficiently large number of trained personnel in different departments of the government, who can take part in international trade negotiations and contribute to the preservation and building up of an institutional memory. For this we need to build up our own training institutions, groom young officers and send them for specialized training courses in India as well as other countries/international institutions. We also need to build up our capabilities in the Universities and research institutions to conduct applied research on trade issues. Finally, we need to groom a set of lawyers in international trade law, who can represent the government as well as individual firms in the trade defense proceedings initiated by other countries against us.

3.4.4 We also need to sensitise and inform government departments and the industry about the NTBs, SPS standards etc. prevailing in important export destinations and in building up our own infrastructure and testing capabilities to bring up our own domestic as well as export oriented industry

19

segments to adopt global standards and best practices. The Apex Industry Associations and the Export Promotion Councils and Commodity Boards would have a leading role to play in this effort.

3.4.5 One of the other important points on which we would need to focus on is sensitization of our service providers to the impact of delays in eroding our competitiveness in the global market and the national loss that it entails. This would need to be carried out through Open House Sessions and Partnership Building Exercises with the participants being the client group and the service providers. This would need to be carried out under the joint leadership of the field offices of the service providers as well as the local industry associations.

3.5 Priorities in Strategic Initiatives

3.5.1 Based on the three criteria of suitablility, feasibility and acceptability, we would suggest that the following weights be given to the strategic initiatives listed in the foregoing paragraphs:-

Strategic Initiative 1 (Diversification of export product basket)-30

Strategic Initiative 2 (Diversification into non-traditional markets and conclusion of ongoing FTA negotiations and initiating new FTAs)-20

Strategic Initiative 3 (Strengthening export related infrastructure)-10

Strategic Initiative 4 (Enhancing credit flows for exports at lower cost)-10

Strategic Initiative 5 (Reducing Transaction Costs)-10

Strategic Initiative 6 (Diversification of Services exports)- 10

Strategic Initiative 7 (Building up a Brand Image of India)- 05

Strategic Initiative 8 (Support to the Plantation Sector)- 03

Strategic Initiative 9 (Protection to sensitive domestic industries) - 02

20

SECTION- 4

Implementation Plan

4.1 The Potential Strategic Initiatives have already been dealt with in some detail in Section 3 and suggestions regarding their prioritization have also been provided. The issue of stakeholder engagement and the learning agenda has been discussed in paragraphs 3.3 and 3.4 of Section 3.

4.2 The resources required, whether in terms of human, capital or infrastructure, for implementing the strategic initiatives, can only be worked out after holding in-depth meetings with all the concerned stakeholders. Many of the administrative ministries and state governments as well as research institutions already have plans, schemes and projects under implementation, which could be fine-tuned to fit the specific requirements of each strategic initiative.

4.3 As far as the Department of Commerce (DOC) is concerned, it already has both a Focus Product and a Focus Market Scheme in operation, for diversification of export products and penetrating new markets. However, an independent evaluation of these schemes, if not already undertaken, should be immediately taken up to enable mid-course corrections as required. The Market Development Assistance (MDA) and Market Access Initiative (MAI) Schemes of DOC may also require a similar remodeling to meet the emerging requirements of different sectors.

4.4 In order to have quantifiable parameters to assess progress, detailed sub-sector and year wise targets would need to be worked out in consultation with the Export Promotion Councils, Commodities Boards, administrative ministries and other stakeholders. By way of an indicator, we have attempted broad sectorwise targets for 2014-15, which is at Annex 1. The annual targets could be worked out from the overall milestones fixed, with a certain amount of backloading towards the end of the period. In addition to the quantifiable targets, the outcomes of the strategic initiatives would have certain non-quantifiable targets as well, achievements against which would have to be assessed in terms of the completion of

21

certain activities. These activities would also need to be broken down into elements and both financial and physical targets fixed, as far as practicable, for each of these elements.

4.5 DOC would have to coordinate with the administrative ministries and other stakeholders to closely review the progress made against each element of activity as well as the quantifiable targets, preferably on a quarterly basis, and to examine suggestions for making mid-course corrections/amendments to policies as appropriate. Currently, DOC brings out Annual Supplements to the Foreign Trade Policy (FTP) by way of such mid-course amendments to the five year FTP. If the requirements of major sectors so require, the Annual Supplements could be converted to ones of a shorter periodicity.

22

SECTION-5

Linkage between the Strategic Plan and RFD

5.1 Though there is a considerable degree of convergence between the Strategic Plan proposed here and the RFD of the Department of Commerce, there are a few differences as well.

5.2 First, the convergence. Both the Strategic Plan and RFD emphasise the importance of policy support in increasing India’s annual export growth by a CAGR of around 25%. Both speak about diversification of India’s exports through exploration of new and emerging markets as well as promoting employment intensive products and products of high export potential. The importance of leveraging the SEZ and ASIDE schemes to narrow the infrastructure deficit is also underscored. Both documents acknowledge that the FTAs should be used to gain additional market access and trade facilitation measures are required to reduce transaction costs. Also support for the plantation sector and increased exports of agro-products is part of both the approaches.

5.3 On the differences between the two, the RFD prioritises the protection of sensitive sectors of the Indian economy against the adverse impacts of trade liberalization and facilitating improvement in the functioning of STC, PEC, MMTC, ECGC and ITPO. On the other hand, the Strategic Plan lays emphasis on increasing the availability and lowering the cost of export credit; export related infrastructure development in the power, roads, rail and ports sectors; building up a brand image of India and diversification of Services exports as being essential for the fulfilment of the Mission of the Department. It also mentions protection to sensitive sectors of the domestic industry as one of the initiatives, though low in order of priority.

23

SECTION-6

Cross Departmental and cross functional issues

6.1 International trade (exports plus imports) today accounts for more than 40% of India’s GDP. Because of the rising prices of oil and our increasing current account deficit, we have very few options but to focus on exports growth to reverse the trend.

6.2 Increased exports, especially in labour-intensive sectors like carpets and handicrafts, gems & jewellery, leather, textiles & clothing, plantation crops and other agro-products, provides an ideal marriage between our twin goals of economic growth and greater employment opportunities for our youth. Thus exports growth would contribute to partially meeting the challenges of enhancing the capacity for growth as well as enhancing skills and faster generation of employment, which have been listed out as two of the challenges to be addressed in the Twelfth Plan.

6.3 As regards meeting the Mission and Objectives of the Department of Commerce, it would be essential to seek larger Plan allocations for departmental schemes like ASIDE, MDA and MAI. Apart from this, larger allocations for other departments to narrow the infrastructure deficit for export related infrastructure as well as for meeting the requirements of R&D support and capacity building, would also be needed.

6.4 On the subject of Citizen’s Charter, the Department of Commerce has a clearly enunciated Charter9 and has shown its commitment to continuously strive to evolve procedures in the Foreign Trade Policy that would be of maximum benefit to the public. The Department has also put in place a Grievances Cell, a quasi-judicial Appellate Committee and a Grievance Redressal Committee.

9 Annual Report (2009-10), Department of Commerce, Government of India, New Delhi

24

SECTION-7

Monitoring and Reviewing Arrangements

7.1 The Department of Commerce interacts with a variety of stakeholders on a regular basis. Officers of the Department are members on the Board of Directors of all the Export Promotion Councils and are abreast of the developments/problems faced by the industry on almost a day to day basis. All the Commodity Boards like the Tea Board, Coffee Board, Tobacco Board etc. have officers of the Department as their chief executives, who raise problems faced by the plantation crop growers or exporters with the Department at the earliest opportunity.

7.2 There is, however, a lacuna in terms of absence of industry bodies in various segments of the domestic industry, which can effectively communicate their concerns to the government. To a certain extent this is reflective of the small and decentralized nature of many sectors of our industry. Nevertheless, this gap needs to be bridged and an effective feedback loop needs to be established, perhaps through the agency of the respective State Governments.

7.3 In addition to the mechanisms mentioned in paragraph 7.1, the Department of Commerce organizes Open House sessions with exporters, industry associations and apex industry bodies before finalizing the Foreign Trade Policy (FTP) or the Annual Supplements to the FTP. Meetings with industry representatives are also held before each Budget Session.

7.4 The three major bodies under the standing institutional mechanism for consultations on various issues and review are as follows.

(i) Board of Trade (BOT)- This provides an effective mechanism to maintain a continuous dialogue with trade and industry in respect of major developments in the field of international trade and make recommendations to the Government for the various measures required for increasing the competitiveness of Indian exports. The Board meets every quarter and is chaired by the Commerce and Industry Minister.

25

(ii) Export Promotion Board (EPB)- The Board is chaired by the Cabinet Secretary to provide policy and infrastructural support through coordination among different Ministries for boosting exports.

(iii) Inter-State Trade Council (ISTC)- The Council provides a platform for dialogue between the Centre and the States in matters relating to trade facilitation and to create a framework for making States as partners in the national export effort.

7.5 The Department of Commerce has resolved to hold regular meetings of all the three bodies to make them more effective instruments in shaping policy and in reviewing the situation on the ground.

7.6 It needs to be mentioned that the RFD itself is a review mechanism and needs to be used to monitor the progress made in the achievement of the objectives on a periodic basis. The MOUs signed with the PSUs , viz. STC, MMTC, PEC, ECGC, ITPO need also to be reviewed regularly in terms of the achievement against each and subsidiary RFDs could be drawn up for subordinate organizations of the Department.

26

Annex I

Strategic Targets for 2014-15

(in billions of US Dollars)

Product 2010-11 (Estimated)

2014-15

Gems and Jewellery 32.75 64.00

Engineering Goods 45.00 92.00

Textiles

Cotton Yarn and Made- ups 5.00 9.00

Manmade Yarn and Made-ups 3.75 7.00

Clothing 11.00 17.00

Other Textile Products

Carpets 0.90 2.00

Jute Goods 0.45 0.75

Petroleum Products 35.00 61.00

Drugs, Pharma and Fine Chemicals 9.60 21.00

Other Basic Chemicals 7.60 17.00

Electronic Goods 5.50 10.00

Leather Goods 3.75 8.25

Plastic and Linoleum 4.20 8.00

Iron Ore 5.00 8.00

Mica and other minerals 3.10 5.00

27

Marine Products 2.20 4.00

Agricultural Products

Fruits and Vegetables 1.20 2.50

Oil meals 1.70 2.80

Processed Cashew nuts 0.60 1.00

Rice 2.00 4.00

Spices 1.60 3.00

Tobacco 0.90 1.40

Tea 0.55 0.80

Coffee 0.55 0.80

Miscellaneous 16.00 50.00

TOTAL 200.00 400.00