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FDI Reforms and Trade Normalisation with Pakistan Mark 2012  
Year End Review of Commerce and Industry

New Delhi: December 14,2012

 

YEAR END REVIEW

 

 

The world is undergoing a challenging economic period. Economies and markets across the world have been in turmoil. Recovery if any has been feeble and negative sentiment has persisted, causing sharp contraction in international trade. This has adversely impacted the global investment flows. In the wake of global economic slowdown, India’s merchandise exports underwent significant adverse impact. Moderation in industrial growth was also witnessed during this period. The year that is coming to an end illustrates some of the efforts made by the Government of India to deal with the difficult climate.

India: An attractive investment destination

Despite a difficult year, India continues to remain an attractive investment destination and strategic investors continue to have confidence in India’s strong fundamentals. The fact that India is a preferred destination for Foreign Direct Investment (FDI) has also been acknowledged by international analysts who rank India highly in terms of attractiveness for FDI. The FDI inflows between April 2011 to March 2012 stood at USD 46.55 billion, showing a jump of 34 per cent than the previous year. After that, till September 2012, USD 18.70 billion of total FDI inflow has taken place.

The Government of India has undertaken progressive liberalisation moves over the years. Almost all sectors of the entire economy are open to the private sector. India has, over the years, liberalised the FDI framework, raising FDI caps. New sectors have been brought under the FDI umbrella. As a result of all these measures, the competitiveness of Indian companies across sectors has improved significantly and many of them are now going abroad to explore new horizons.

In the year 2012, Government of India made significant changes in the FDI Policy regime, which included, implementation of its decision to permit up to 51% FDI in multi-brand retail trading, liberalising policy for 100% FDI in single brand retail trading, permitting foreign airlines to invest up to 49% in the capital of Indian companies operating scheduled and non-scheduled air-transport services, and up to 49% in power exchanges under the government approval route. The foreign investment limit in companies engaged in providing broadcasting carriage services has also been increased.

The Non-Banking Financial Companies having foreign investment above 75% and below 100% have been permitted, to set up step down subsidiaries for specific NBFC activities, without any restriction on the number of rating subsidiaries and without bringing in additional capital.

Giving leverage to Manufacturing Sector

With the announcement of a National Investment and Manufacturing Zone (NIMZ) in the city of Nagpur in Maharashtra, the government took the total tally of NMIZs to nine. The proposed NIMZ area is situated in Kuhi and Umred Taluka of Nagpur district and has an area of 6280 hectares. It will attract an investment of approximately Rs. 25,000 crores and will provide gainful direct and indirect employment to nearly 2,60,000 people of the Nagpur district.

The first seven Investment Regions under NIMZs were:

·         Ahmedabad-Dholera Investment Region, Gujarat (900 sq km)

·         Shendra-Bidkin Industrial Park city near Aurangabad, Maharashtra (84 sq km)

·         Manesar-Bawal Investment Region, Haryana (380 sq km)

·         Khushkhera-Bhiwadi-Neemrana Investment Region, Rajasthan (150 sq km)

·         Pithampur-Dhar-Mhow Investment Region, Madhya Pradesh (370 sq km)

·         Dadri-Noida-Ghaziabad Investment Region, Uttar Pradesh (250 sq km); and

·         Dighi Port Industrial Area, Maharashtra (230 sq km).

Later, Jodhpur-Pali Region was added to the list.

In a big push to concretise the operational contours of the National Manufacturing Policy (NMP), the Government also established a Manufacturing Industry Promotion Board (MIPB) for matters pertaining to the implementation of the National Manufacturing Policy with the Union Minister for Commerce, Industry & Textiles Shri Anand Sharma in the Chair. Along with the MIPB, the Government also notified Board of Approval, Green Manufacturing Committee and High Level Committee.

Trade Normalisation with Pakistan

The bilateral meetings and discussions of the Trade and Commerce Ministers of India and Pakistan (September-2011, February-2012 and April-2012) provided a strong political impetus to enhanced economic engagement. The transition towards full normalisation of trade relations with India was initiated by moving from a ‘positive list’ regime to a ‘negative list’ regime. Following the visit of Commerce Minister Shri Anand Sharma to Pakistan in February 2012, the Pakistan side notified its negative list on 20th March 2012. This process needs be taken to its logical end by phasing out the negative list and eventually according the Most Favoured Nation status to India

In addition to this, more steps were taken to improve the bilateral trade relations, which included:

(i) A liberalised visa regime for business persons was also agreed between both the nations which is likely to be implemented soon.

(ii) Separate Joint Expert Groups were set up to examine the feasibility of trade in electricity and initiate trade in petroleum products.

(iii) Central Banks of both countries are working out modalities for opening of bank branches in each other’s countries.

(iv) Inauguration in April 2012 of the state of the art Integrated Check Post at Attari helped businessmen on both sides to expand trade by the Attari-Wagah land route.

The Government of India also approved the reduction of 30% (264) tariff lines from the South Asian Free Trade Area (SAFTA) Sensitive list for Non Least Developed Countries (NLDCs) allowing the peak tariff rates to reduce to five per cent within three years, as per agreed SAFTA process of tariff liberalisation. This shall reduce India’s Sensitive list for Pakistan from 878 to 614 tariff lines. With this decision, India has effectively performed its lead role in harmonising the SAFTA framework and ensuring move towards a vibrant economic community and move towards normalisation of trade relations with Pakistan.

India has, in the last one year, steered the trade liberalisation process under SAFTA so as to accelerate the pace of the process for SAFTA Economic Integration. A major step taken in this direction was to unilaterally reduce its sensitive list for the Least Developed Countries (LDCs) under SAFTA, in November 2011, to 25 tariff lines thus allowing all other imports at zero basic customs duty. Afghanistan, Bangladesh, Bhutan, Maldives and Nepal benefited as a result of this trade liberalisation move.

Trade related issues

 

The Cumulative value of exports for the period April-November 2012 -13 was USD 189222.20 million (Rs 1030488.22 crore) as against USD 201185.40 million (Rs 933049.70 crore) registering a negative growth of 5.95 per cent in Dollar terms and growth of 10.44 per cent in Rupee terms over the same period last year. Imports during the same period stood at USD 318722.38 million (Rs. 1734998.17 crore) as against USD 323823.75 million (Rs. 1503492.73 crore) registering a negative growth of 1.58 per cent in Dollar terms and growth of 15.40 per cent in Rupee terms over the same period last year.

The Annual Supplement to the Foreign Trade Policy 2009-2014 envisages supporting measures for exporters. The Commerce Secretary has indicated that further measures to boost exports can be expected soon. The measures enumerated in the FTP Supplement include among others:

1.       Two per cent Interest Subvention Scheme was available only to Handlooms, Handicrafts, Carpets and SMEs till 31st March 2012. Now this Scheme would continue till 31st March 2013. It is also being extended to labour intensive sectors, namely, Toys, Sports Goods, Processed Agricultural Products and Ready-Made Garments, in addition to four sectors benefitting from the scheme earlier.

 

2.            Though the coverage of the sectors remains unchanged, scope of Zero Duty EPCG Scheme has been enlarged. Earlier, Zero Duty EPCG Scheme was not available to units that were availing the benefits of Technology Up-gradation Fund Scheme (TUFS). Henceforth, even if the benefit of TUFS has been availed, additionally the Zero Duty EPCG Authorisation can be availed for another line of business by the same applicant. Further, if it is the same line of business, Zero Duty EPCG Scheme could still be availed if the benefits of TUFS already availed are surrendered/refunded with applicable interest.

 

3.            Introduction of A new Post-Export EPCG Scheme: Exporters if they choose to, may import Capital Goods on payment of duty in cash and subsequently receive duty credit scrip on completion of export obligation. Thus there would be no duty remission / duty exemption at the time of import of the Capital Good (CG). Applicant will have to inform the Regional Office of DGFT (RA) about the import of CG and based on which RA will fix export obligation. Since the duties have been paid upfront at the time of import of CG, the EO would be 85 % of normal EO. On the basis of export performance, a Duty Credit Scrip will be issued subsequently, by RA, in proportion to export obligation so fixed. This would obviate the monitoring and reporting requirements, as the scheme would be self-monitored. Reduced transaction cost coupled with comparatively reduced EO would make this scheme attractive.

 

4.            To promote manufacturing activity and employment in the North Eastern Region of the country, export obligation under the EPCG Scheme shall be 25% of the normal export obligation. This would be applicable to the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, and Sikkim.

 

5.            To promote exports of 16 identified green technology products, export obligation for manufacturing of these products, under the EPCG Scheme, is being reduced to 75% of the normal export obligation. The 16 products are: Equipment for Solar Energy decentralized and grid connected products, Bio-Mass Gassifier, Bio-Mass / Waste Boiler, Vapour Absorption Chillers, Waste Heat Boiler, Waste Heat Recovery Units, Unfired Heat Recovery Steam Generators, Wind Turbine, Solar Cells, Solar Collector and Parts thereof, Water Treatment Plants, Wind Mill, Wind Turbine/Engine, Other Generating Sets; wind powered, Electrically Operated Vehicles – Motor Cars, Electrically Operated Vehicles – Lorries and Trucks, Electrically Operated Vehicles – Motor Cycles / Mopeds.

 

6.            Status holders are issued Status Holders Incentive Scrip (SHIS) to import Capital Goods for promoting investment in up-gradation of technology of some specified labour intensive sectors like Leather, Textile & Jute, Handicrafts, Engineering, Plastics and Basic Chemicals. It is now decided that up to 10% of the value of these scrips will be allowed to be utilized to import components and spares of capital goods imported earlier. Such a dispensation was not available earlier.

 

7.            Visakhapatnam Airport has been identified as a new Port for the purpose of benefits under Export Promotion Schemes.

 

8.           Three new towns are being declared as Towns of Export Excellence (TEE). These are Ahmedabad (Textiles), Kolhapur (Textiles), and Shaharanpur (Handicrafts).

 

9.            An extremely challenging and significant EDI initiative, “e-BRC” has been launched by DGFT. “e-BRC” would herald electronic transmission of Foreign Exchange Realisation from the respective Banks to the DGFT’s server on a daily basis. Exporter will not be required to make any request to bank for issuance of Bank Export and Realisation Certificate (BRC). This will establish a seamless EDI connectivity amongst DGFT, Banks and Exporters. “e-BRC” would facilitate early settlement and release of FTP incentives / entitlements. This is a significant step to reduce transaction cost to the exporters. Approximately eight lakh Electronic Bank Realisation Certificates (eBRCs) have been issued in the first three months since the introduction of eBRC on August 17, 2012.

Special Economic Zones

In a short span of about six years since SEZs Act and Rules were notified in February, 2006, formal approvals have been granted for setting up of 585 SEZs out of which 385 have been notified. Out of the total employment provided to 9,45,990 persons in SEZs as a whole, 8,11,286 persons is incremental employment generated after February, 2006 when the SEZ Act came into force. This is apart from millions of man days of employment generated by the developers for infrastructure activities. Physical exports from the SEZs has increased from Rs.3,15,867.85 crore in 2010-11 to Rs.3,64,477.73 crore in 2011-12, registering a growth of 15.39%. There has been an overall growth of export of 2,531% over past nine years (2003-04 to 2011-12). The total physical exports from SEZs as on 30th September, 2012 i.e. in the first two quarter of the current financial year 2012-13, has been to the tune of Rs.2,39,628.78 crore approximately registering a growth of 36% over the exports of corresponding period of the previous financial year. The total investment in SEZs till 30th September, 2012 is Rs.2,18,795.41 crore approximately, including Rs.1,99,332.54 crore in the newly notified SEZs set up after SEZ Act, 2005. 100% FDI is allowed in SEZs through automatic route.

 

A total of 160 SEZs are exporting at present. Out of this 93 are IT/ITES, 17 Multi product and 50 other sector specific SEZs. There are a total of 3,622 units setup in the SEZs.

 

Free Trade Agreements

 

Till date, India has signed Bilateral Investment Promotion and Protection Agreements (BIPAs) with 82 countries, starting with the United Kingdom in 1994. Of these 82 countries, BIPAs with 72 countries have been enforced. Besides, India has signed 17 Free Trade Agreements (FTAs)/Comprehensive Economic Partnership Agreement (CEPA)/Comprehensive Economic Cooperation Agreement (CECA)/Preferential Trade Agreements (PTAs).

 

India and ASEAN are currently negotiating Agreement on Trade in Services. Indications are that the Agreement will be concluded in the forthcoming ASEAN Summit. The Agreements would lead to growth in bilateral trade. Indian exporters would gain additional market access in these countries and Indian manufacturers would be able to source products at competitive prices from these markets. Investments would increase and Indian Professionals would gain access in the Services Sectors. This will result in increased business opportunities and closer economic co-operation with these countries.

 

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PIB Release/DL/1260

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