Annual Report

2006-2007

The Foreign Trade Policy (2004-09), announced by the Government in August 2004, had spelt out a bold vision to double India's trade within the next five years and making exports growth an engine for generating additional economic activity and employment generation with special focus on rural and semi-urban areas thus making economic growth process an inclusive one. The growth of exports so far has been in line with the targets set out in the Trade Policy. India's merchandise exports increased from US $ 53 billion in 2002-03 to US $ 103 billion in 2005-06. The sustained high growth rate of merchandise exports at more than 20 per cent during the last four years is more than twice the current growth of Gross Domestic Product (GDP). This has been possible as a result of stable policy framework provided by the Trade Policy and a continuous, conscious & concerted effort by the Government to reduce trade barriers, bring down transaction costs and facilitate a favourable international environment. During the current year, India's merchandise exports continued to maintain the tempo of high growth recorded during the previous four years. Keeping in view the continuing favourable trends, the export target of US $ 150 billion set in the Foreign Trade Policy for 2009 is likely to be exceeded.

After crossing the landmark figure of US $ 100 billion in 2005-06, exports in the current year touched US $ 89 billion during the first three quarters (April-December 2006). It is expected that the export target of US $ 125 billion for 2006-07 will be met at the current rate of growth of exports. Imports during the same period, i.e. April-December 2006, were valued at US $ 131 billion. During the last few years, the rising competitiveness of some of the sectors like engineering goods (auto parts) and high commodity prices (petroleum and metals) have been the driving force for high sustained growth of exports. The export growth during the current year was mainly driven by petroleum products, engineering goods and agriculture and allied products. On the imports side, petroleum crude and products continued to be the single most important item, constituting about 38 per cent of total imports during April-December 2006-07.

Annual Supplement to the Foreign Trade Policy

The Annual Supplement to the Foreign Trade Policy (FTP) announced in April 2006 introduced a number of measures for identifying and nurturing special focus areas which have large potential of generating additional growth and employment opportunities particularly in rural and semi-urban areas. Measures have also been introduced for unshackling of controls and creating an atmosphere of trust and transparency by further simplifying procedures and bringing down transaction costs. Some of the major initiatives introduced are given below:

Focus Product and Focus Market

The twin schemes of Focus Product and Focus Market were introduced with the basic objective that our national export strategy should focus not only on neutralizing duties and levies but also on providing additional stimulus to (a) promote export of products having large employment potential to achieve the objective of inclusive growth along with export promotion and (b) penetration of strategic markets by Indianproducts, especially markets in which our exports are comparatively low. The Focus Product Scheme seeks to provide incentives for export of products which have high employment potential in rural and semi-urban areas in order to offset the inherent infrastructure bottlenecks and other associated costs involved in marketing of such products. The Focus Market Scheme aims at offsetting the high freight cost and other disabilities faced in accessing select international markets.

Vishesh Krishi and Gram Udyog Yojana

A thrust was also given to employment intensive exports by launching the `Vishesh Krishi and Gram Udyog Yojana' to ensure that the benefits of foreign trade percolate to rural and semi-urban areas. The objective of the Scheme is to promote export of fruits, vegetables, flowers, minor forest produce, dairy, poultry and their value added products, and Gram Udyog products by providing incentives to exporters of such products. Mangoes were exported to Japan for the first time.

Export of Services

With a view to promote the export of services, a number of features have been added in the 'Served from India Scheme' to meet the requirements of service exports.

Gem and Jewellery Exports

India has the potential to become a Gems and Jewellery hub of the world. A number of measures have been introduced to facilitate the export of value added products catering to changing needs of the market, facilitating easier product movement across the borders and allowing import of precious metal scrap for refining. Specific measures like allowing export of jewellery on consignment basis and reduction in the value addition norm for export of gold/ platinum/ silver jewellery and articles from 7 per cent to 4.5 per cent would enhance the international competitiveness of the sector and help India's Gems and Jewellery to sparkle on the world stage.

Package for Marine Sector

The list of specialized inputs used in the marine sector has been expanded to include additional items of chemicals and other additives within the present duty free entitlement. With a view to enhance the export of marine products, greater attention has been given to bring more area under aquaculture, increasing the share of value added products in the export basket, modernization of seafood plants, improving the basic infrastructure like landing centres and fishing harbours etc., prevention of diseases in the shrimp farms, exploitation of the potential of Tuna, etc. in the deep-sea areas and production of quality seafood under proper hygienic conditions.

Duty Free Import Authorisation (DFIA)

A new Scheme called DFIA was launched w.e.f 1st May 2006 which offers the facility of duty free imports for exports and allows the facility of transferability of scrip or the imported inputs once the export obligation is complete.

Advance Authorisation Scheme (AAS)

In addition to the existing facility under the Scheme, supply of stores to out-going vessels/aircraft is entitled for duty free import of inputs under the scheme.

Plantation Crops

Plantation crops have been the traditional exports of India supporting livelihood of millions of plantation workers. Ageing bushes/ plants are acting as a major constraint to the growth of this sector leading to decline in productivity, high cost of production and deterioration in the quality of products. With a view to ensure healthy growth and improved productivity in the plantation sector, the Government has initiated a number of measures during the year. A Special Purpose Tea Fund (SPTF) has been set up under the Tea Board for funding replantation and rejuvenation of old tea bushes with the goal of long term development of the tea industry. The proposal is to cover an area of 2.1 lakh hectares for rejuvenation and replantation activities over a period of 15 years. To begin with, the scheme would be implemented till the end of 11th Plan (including the remaining period of 2006-07) with an estimated outlay of Rs.567.10 crore covering an area of 85044 hectares. Under the SPTF, the Government would be providing a subsidy of 25 per cent of the cost. The Department of Commerce had also constituted a Task Force in July 2006 under the Chairmanship of Shri M. Rangachari to undertake a study to evolve a mechanism to protect the growers of tea, coffee, rubber and spices from the adverse effects of price volatility. The Task Force has submitted its Report. This report would be presented before the Group of Ministers constituted by the Government, inter alia, on restructuring of Special Purpose Fund for coffee, tea, rubber and tobacco growers.

Special Economic Zones (SEZs)

The Special Economic Zones (SEZ) policy aims at generating greater economic activity and employment by providing a stable, transparent and efficient policy framework for establishment and running of SEZs. The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to Central as well as State Governments. The main objectives of the SEZ Act are:

• generation of additional economic activity
• promotion of exports of goods and services
• promotion of investment from domestic and foreign sources
• creation of employment opportunities and
• development of infrastructure facilities.

With a view to attract larger investments including Foreign Direct Investment (FDI), a number of tax and other incentives have been offered to units in the SEZs. The Government has been constantly reviewing and revising the guidelines to take care of various emerging issues including acquisition of agricultural land for setting up of SEZs. The State Governments have been advised that in case of land acquisition for SEZs, the first priority should be for acquisition of waste and barren land and if necessary single crop agricultural land could be acquired for SEZs. If, per force, a portion of double cropped agricultural land has to be acquired to meet the minimum area requirements, especially for multi-product SEZs, the same should not exceed 10 per cent of the total land acquired for SEZs. All issues raised by various political parties are currently before the empowered Group of Ministers for consideration.

So far, formal approval has been granted to 234 SEZ proposals and in-principle approval to 162 SEZ proposals. Investment of the order of Rs.1,00,000 crore including FDI of US $ 5-6 billion is expected by end of December 2007 leading to creation of direct employment of 5 lakh jobs. Out of the 234 formal approvals, notifications have already been issued in respect of 63 SEZs. In the 63 notified SEZs which have come up after 10th February 2006, investment of Rs.13,435 crore has already been made in less than one year. These SEZs have, so far, provided direct employment to 18457 persons.

Export Oriented Units (EOUs)/ Electronic Hardware Technology Park (EHTP)/ Software Technology Park (STP)/ Biotechnology Park (BTP)

Units undertaking to export their entire production of goods and services, except prohibited items of export, can be registered under the Export Oriented Unit (EOU) scheme, Electronic Hardware Technology Park (EHTP) scheme, Software Technology Park (STP) scheme and Biotechnology Park (BTP) scheme.

EOU/EHTP/STP units are permitted duty free import of all types of goods, including capital goods required by them for their activities or in connection therewith, provided they are not prohibited items of imports in the ITC (HS). The units are also permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients. These units have to be net positive foreign exchange earners.

During 2005-06, exports from EOUs were of the order of Rs.47,425.87 crore. During the current year, i.e. April-December 2006-07, EOU exports are estimated to be Rs.37,034.75 crore.

Khadi and Village Industries Commission was declared as a deemed export promotion council.

e-Trade Project

The Government has taken a number of initiatives to simplify procedures relating to international trade and put in place an exporter friendly regime for obtaining import authorizations and disbursement of export linked incentives. The most important initiative for facilitating trade has been the implementation of the project called eTrade Project. The community project `eTrade' is being pursued in various trade regulatory and facilitating agencies like Customs, DGFT, Ports, Airports, RBI, Export Promotion Organisations (EPO), Exporters, Importers, Agents, CONCOR and Banks. The objectives of this project are to facilitate electronic delivery of services; to simplify procedures; to provide 24 hour access to users with their partners; to make procedures transparent; to reduce the transaction cost and time and to introduce international standards and best practices. The project has made good progress during the year. One of the major achievements was operationalisation of web based system for electronic interface between Airports Authority of India and importers, exporters, airlines, agents etc. All export transactions are being done through this system at the airports of Delhi, Chennai, Mumbai and Kolkata.

e-Procurement

The e-Procurement has been integrated as computerized online comprehensive process covering the identification of buyer requirements and requisition processing, soliciting and receiving bids of all sorts, negotiating and establishing contracts and processing overall purchases and also undertaking vendor registration and inspection of stores to ensure quality. It enables Directorate General of Supplies and Disposal (DGS&D) to provide a single point web enabled interface for Government users and vendors/suppliers for procurement of commonly used goods for Government. The web-based systems for Purchase, Registration and Inspection have been implemented and made operational in the DGS&D Headquarters and regional/zonal/field offices of DGS&D. Electronic Payment system for office of Chief Controller of Accounts (CCA) is operational. The system of on-line bidding through e-tendering is also operational in DGS&D. The requisite hardware in terms of servers, Local Area Network (LAN) and Wide Area Network (WAN) have already been installed and made operational in DGS&D and CCA Headquarters, New Delhi. Various regional, zonal & field offices of DGS&D and CCA are connected through Wide Area Network (WAN) to the centralized database installed at DGS&D Headquarters.

Online System of issuing IEC

To facilitate issuance of Import Export Code (IEC) number, an online system of issuing IEC by DGFT has also been made operational subject to verification of essential documents at a later stage.

Board of Trade

The Board of Trade was reconstituted to advise the government on policy measures connected with India's foreign trade promotion. The Board is to prepare and implement short term and long term strategies in response to emerging national and international trade scenarios. Three meetings of the Board of Trade have already been held.

MAI Scheme

The MAI Scheme has been revised by providing for certain additions relating to : Marketing projects, Capacity building, Support for statutory compliances, Studies, project development, etc. More agencies have been made eligible for assistance under the scheme. J&K Chamber of Commerce was given assistance from MAI Scheme for its members to participate in trade fairs/ exhibitions abroad.

International Trade Agreements

The Department of Commerce is also engaged in trade negotiations and agreements at multilateral, regional and bilateral levels. It interacts with international agencies such as the World Trade Organisation (WTO), the United National Conference on Trade & Development (UNCTAD), the Economic and Social Commission for Asia and Pacific (ESCAP), etc. as well as individual countries or group of countries on a wide range of issues including tariff and non-tariff barriers, international commodity agreements, preferential/ free trade arrangements, investment matters, etc. Some of the major initiatives taken by the Government during 2006-07 towards evolving improved trading relations at the bilateral, regional and multilateral levels are given below:

Doha Round

The Doha Round, which was launched in November 2001, achieved an important milestone with the Declaration issued at the Sixth Ministerial Conference of the WTO held in Hong Kong in December 2005 with WTO members agreeing to establish modalities for negotiating agriculture access and Non-Agricultural Market Access (NAMA) and to conclude the negotiations across all areas of the Doha Round by 2006 end. Intensive discussions through January to July 2006 had focused mainly on the triangular issues of domestic support, Agricultural Market Access (AMA) and NAMA. Negotiations under the Doha Round in the WTO have been stalemated primarily over agricultural trade. As the gap remained too wide, the formal meeting of the Trade Negotiating Committee (TNC) held on 24th July 2006 recommended for suspension of the negotiations across the Round as a whole. The WTO General Council at its meeting held on 27th July 2006 supported this recommendation for suspension of the Doha Round negotiations as a whole. A soft resumption of negotiations across the board was agreed on the basis of TNC decision held on 16th November 2006. Full-scale resumption of the negotiations across the board was reported by the Chairman of the TNC in the meeting of the General Council held on 7th of February 2007.

India has welcomed the soft resumption and the subsequent full-scale resumption of the negotiations. Throughout the negotiations, India has continued to pursue its national interests across all the areas under the Doha Work Programme. It continued to work constructively with its coalition partners, particularly, the G-20 and the G-33 in the agriculture, NAMA-11, and other developing country groupings including the African Group, ACP countries, CARICOM, and LDCs in order to secure its development imperatives.

India is of the view that failure of the Doha Round would weaken the WTO's role as the anchor of the global trading system and lead to the weakening of the momentum of multilateralism. It favoured resumption of negotiations based on a shared understanding of clear principles that should guide the efforts, namely, (i) adhering faithfully to the Doha mandate, as further complemented by the July 2004 FrameworkAgreement and the Hong Kong Ministerial Declaration; and (ii) taking on board the progress embodied in important proposals and understandings reached among Members since the commencement of negotiations.

Negotiations have intensified in February 2007 among the major players. India has made it clear that substantial elimination of trade distorting subsidies and protection of subsistence farmers in developing countries, among other development issue remain the core of the Doha Development Round.

South Asian Free Trade Area (SAFTA)

The Agreement on South Asian Free Trade Area (SAFTA) has come into force from 1st January 2006. SAFTA, inter alia, prescribes a phased Tariff Liberalization Programme (TLP) according to which all the member states would reduce their existing tariffs to zero to five percent within ten years of its coming into force. This TLP would cover all tariff lines except those items kept in the Negative List by each country. The TLP for the first two years was completed on 31.12.2006. All the member states have accordingly notified SAFTA tariff concessions except Pakistan. With the SAFTA Agreement coming into force, there would be no more negotiations under SAPTA. The SAPTA concessions would be available till the completion of TLP irrespective of whether the products are included in the sensitive lists or not.

Framework Agreement with the Southern African Customs Union (SACU)

India has decided to enter into a Framework Agreement with the Southern African Customs Union (SACU) with a view to promote expansion of trade and provide a mechanism to negotiateand conclude a comprehensive Free Trade Agreement within a reasonable time.

CECPA with Mauritius

A Comprehensive Economic Cooperation and Partnership Agreement (CECPA) aimed at boosting bilateral trade, investment and general economic cooperation between India and Mauritius is being negotiated.

India-EU Trade and Investment Agreement

The 7th India-EU Summit was held in Helsinki in October 2006. The Summit agreed that both sides move towards negotiations for such an agreement. The European Commission is seeking a mandate from its Council of Ministers for the launch of negotiations on a bilateral broad based Trade and Investment Agreement. Negotiations for the Agreement are expected to begin thereafter.

Comprehensive Economic Cooperation Agreement (CECA) with East Asian Countries

During the year, a review of the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) was undertaken and fruitful discussions took place for smooth and purposeful implementation of the Agreement. Negotiations for conclusion of the Free Trade Agreement with ASEAN are well under way. Both sides have shown flexibility to conclude the agreement as early as possible and against this backdrop, three meetings of India-ASEAN Trade Negotiating Committee were held during the year. It is hoped to conclude the FTA with ASEAN by July 2007. A Trade and Economic Framework (TEF) Agreement has also been signed with Australia for enhancing bilateral trade and investment on a comprehensive basis.

India & Japan EPA/ CEPA Negotiations

During the visit of the Indian Prime Minister Dr. Manmohan Singh to Japan in December 2006, it was decided to launch negotiations for conducting an Economic Partnership Agreement/ Comprehensive Economic Partnership Agreement (EPA/CEPA). A Joint Task Force has been constituted for this purpose headed by Deputy Minister of Foreign Affairs, Japan and Commerce Secretary, Government. of India as the Chief Delegate. The Terms of Reference for negotiations were finalized in the first meeting of the JTF held from January 31st to 2nd February, 2007 in New Delhi. The second round of negotiations is scheduled to be held in April 2007. During the Indian Prime Minister's visit, the Prime Ministers of India and Japan also announced that an "India-Japan Special Economic Partnership Initiative" (SEPI) should be undertaken in order to widen and deepen economic engagements. During this visit, Memorandum of Understanding (MOUs) for establishment of Delhi-Mumbai `Industrial Corridor' and to raise the Japan-India Policy Dialogue to the ministerial level were also signed between the Indian Commerce & Industries Minister and Minister for Economy, Trade and Industry of Japan.

India and Korea CEPA Negotiations

The Joint Task Force set up for the negotiations had four meetings during the year and has made considerable progress in finalizing the text of the Agreement. There has been general agreement on the modalities of tariff concessions for trade and goods. Talks are in progress for arriving at a consensus on trade in services, investment, rules of origin, customs cooperation and bilateral cooperation in otherareas. The negotiations are likely to conclude by end of 2007.

India-China Joint Task Force for RTA Feasibility

This Joint Task Force has been constituted to study the feasibility of and the benefits that may derive from a possible China-India Regional Trade Agreement. During the visit of the Chinese President during November 20-23, 2006, it was agreed that India and China would endeavour to raise the volume of bilateral trade to US $ 40 billion by 2010. It was also agreed that the JTF will finalise its report by October 2007.

India-Bhutan Bilateral Trade Agreement

The Bilateral Trade Agreement between India and Bhutan was signed in New Delhi on 28.07.2006 and will be in force for a period of 10 years with effect from 29.7.2006. Under this Agreement, India also provides transit facilities to landlocked Bhutan to facilitate its trade with third countries and movement of goods from one part of Bhutan to another through Indian territory.

Treaty of Transit between India and Nepal

A Treaty of Transit between India and Nepal was renewed in January 2006 for a further period up to 5.1.2013. Under the Treaty, India will provide transit facilities to Nepal for its trade with third countries. Fifteen entry/ exit points have been designated for this purpose.

Negotiations between India and Pakistan

India and Pakistan have no formal trade agreement. India granted MFN status to Pakistan but Pakistan is yet to reciprocate. Pakistan has so far maintained a list of importable items from India, called Positive List, as notified from time to time. For the present, the Government of Pakistan has expanded this list from 773 to 1075 items. Both countries have set up a Joint Study Group (JSG) for adopting a strategy to boost trade and economic cooperation between the two countries. Apart from JSG, discussions on trade and economic cooperation are also held within the frame work of composite dialogue between the two countries.

Asia Pacific Trade Agreement (APTA)

The Asia Pacific Trade Agreement (APTA) signed on 2nd November, 2005 is operational among five countries namely, Bangladesh, People's Republic of China, India, Republic of Korea and Sri Lanka. Three Rounds of Trade Negotiations have taken place so far. The third round of tariff concessions were implemented from 1st September 2006 which has consolidated the concessions granted in all the three rounds of negotiations. The revised Rules of Origin under APTA have been notified on 31st August, 2006.

Economic and Social Commission for Asia and Pacific (ESCAP)

The 62nd Annual Session of ESCAP was held in Jakarta in April, 2006 with a theme "Enhancing Regional Cooperation in Infrastructure Development including that related to Disaster Management". The Session was attended by delegates from 50 member countries and associate member countries. Various issues relating to poverty reduction, emerging economic and social issues, institutional reforms managing migration, development of health systems etc. were also deliberated upon in the senior officials meetings of the Annual Session. India has worked in close cooperation with ESCAP during the year and has committed financial support
Global System of Trade Preferences (GSTP)

A meeting of the senior officers of the Negotiating Committee on GSTP was held on 11-12 December 2006 in Geneva. Several countries including India have indicated their preference to conclude the Third Round by end of 2007.