CHAPTER

REVIEW OF INDIAS FOREIGN TRADE: TRENDS AND POLICIES

I. Introduction
1.1 Importance of Foreign Trade for a Developing Economy Foreign Trade is a vital sector of a country's national economy, and contributes substantially to the economic welfare of the people and the development of resources. Economies of scale and international specialisation as also the fruits of scientific and technological progress in the world become more easily accessible through the foreign trade . In the context of planned economic development of developing nations, an appropriate trade policy has become very necessary and significant. Today no country in the world is self-sufficient in the sense that it does not possess facilities for economical production of all the goods and services that are consumed by its people. Probably no country can produce all the goods that it needs. Therefore, there is need to trade with others. Developing countries need more goods to feed a rapidly growing population. Exports can be a leading sector in growth.
3 2 1

This means that increased earnings from higher

marketability of a country's commodities in the international market would stimulate the indigenous industrial activity in the country. This in turn brings many distinct benefits, viz., greater utilisation of resources,
4

larger employment

opportunities, more foreign exchange, etc. Scholars stated that trade would make the country as a whole better off. Foreign trade would make an impressive contribution to a country's development. It is considered to be not simply a device for achieving productive efficiency; but it is also an engine of growth. When trade
5

1 2 3 4 5

Agarwal, A.N. (1975), Indian Economy: Problems of Development and Planning, Vikas Publishing House Pvt. Ltd., New Delhi. p. 577. Morton & Tulloch (1978), Trade and Developing Countries, The Overseas Development Institute, London, pp. 16-17. Kindleberger , Charles P. (1976), International Economics, D. B.Taraporevala Sons & Co. Pvt. Ltd., Bombay, p.20. Bo Soder (1974), International Economics, Macmillan, London, p.1. Meier, Gerald M. (1980), Development through Trade, Oxford University Press, London, p. 214.

is introduced into a primitive economy, it acts as a dynamic force widening the extent of the market and the scope for "division of labour.
6

Foreign trade also facilitates the dissemination of technical knowledge, transmission of ideas, and import of know-how/skills, managerial talents, and entrepreneurship. In addition, foreign trade encourages movement of foreign capital. In totality, foreign trade can have a profound impact on the growth of an economy in terms of production, employment, technology, resource utilisation, and so on. It is generally agreed that a country's economic position depends in some measure upon the character of its economic dealings with other countries. India cannot remain in isolation in today's world, even in the matter of development of its own economy, as the latter is inextricably inter-linked with direct and indirect consequences of what happens in, and in relation to, the rest of the world. In this context, one of the important economic aspects of development is international trade, which is linked with the World Trade Organisation (WTO), and Foreign Direct Investment (FDI). An economy which has decided to embark on a programme of development is required to extend its productive capacity at a fast rate. For this, it is essential to import machinery and equipment which cannot be initially produced in the country. Such imports either help to create new capacity in some lines of production or enlarge capacity in the other lines of production. They are called developmental imports. These imports are vital for a developing economy as many of the industrial projects are also held up for lack of maintenance imports. Such imports are anti-inflationary because they reduce the scarcity of consumer goods. There are a number of instances which necessitate import of raw materials, parts and components, semi-finished goods, and finished products needed for developmental purposes in industry and service sectors. Import of capital, technology and skilled manpower is also necessary at various stages of development. It is, therefore, inevitable that during the early years of development, imports have to be increased. It is natural that the balance of trade in
6 Robert Heller, H.K. (1973), International Trade : Theory and Empirical Evidence, Prentice-Hall of India Pvt. Ltd., New Delhi, p. 233. 7 Lorie Tarshis (1975), Introduction to International Trade and Finance, John Wiley & Sons, New York.
7

such a situation will turn heavily against the developing countries, and become adverse. This necessitates the enlargement of exports. External assistance can help to share the burden of growth in the short-run, but in the long period, the developing country itself has to bear the burden of development. To meet the growing foreign debt in view of inelastic imports, a developing country must necessarily increase its exports. Imports and exports are, thus, complementary, and need to be pursued vigorously by all countries at various stages of development 1.2 Trade Development Efforts in India The formulation of a new foreign trade policy with an objective to use it as an economic and foreign policy tool reflects the change in the perception towards the external sector, and its role in the overall strategy of development. Though the process of trade liberalisation in India has been underway for over two decades, the trade policy measures initiated since 1991 as a part of the economic reforms process have been more comprehensive. The chapter reviews the foreign trade of India through trends and policies in the recent post-reform period from early 1990s. Section I covers the trends in terms of percentage change of imports and exports from early 1990s, followed by composition commodity group-wise, and direction region-wise and for specific countries. Section II presents the foreign trade policies 2004-09, 2009-14, annual policy supplement of 2010, and stimulus measures announced by Government of India and Reserve Bank of India in the context of the global melt down that affected Indias trade sector from the second half 2008-09. Section III deals with impact of the Global Financial Crisis on India through trade channel covering exports and imports referring to trend, composition and direction. In order to further ascertain the role of trade channel in Indias growth, the firm-level export orientation information has been examined based on the database of the Centre for Monitoring Indian Economy (CMIE), Mumbai. Section IV presents heartening Rebound in World Trade. The Indian development strategy recognised the significance of liberal trade policy in the early 1980s, which was manifested in the form of a number of important recommendations made at that time by several Committees. The notable ones focussed on a shift in emphasis from control to deregulation through

simplification in import licensing system (Alexander Committee, 1978), clear recognition of dynamic comparative advantages associated with export growth (Tandon Committee, 1980), the need to harmonise foreign trade policies with the other macroeconomic policies, advantages of an export-led growth strategy, a phased reduction in effective protection (Abid Hussain Committee, 1984), and the need to discourage inefficient import substitution (Narasimham Committee, 1985). Notwithstanding these concerns, the trade regime continued to be characterised by a licensing system which together with a high tariff structure protected the economy from external competition. In addition, the trade performance was constrained by restrictive foreign investment policies (RBI, 1999). The process of trade liberalisation, however, gathered momentum only during the 1990s in the aftermath of the external payments crisis. The policy measures undertaken aimed at making domestic industry cost-efficient by enhancing efficiency in resource use under international competition, which was expected to derive a better export performance in the long-run. The major trade policy changes in the post-1991 period included simplification of procedures, removal of quantitative restrictions, and substantial reduction in the tariff rates as also their dispersion as recommended by the Tax Reforms Committee, 1992 (Chairman: Raja J. Chelliah). Furthermore, the reach of the export incentives was broadened, extending the benefits of various export-promotion schemes to a large number of non-traditional and non-manufactured exports. Following the announcements in the Export Import (EXIM) policies, various changes were effected such as the removal of quantitative restrictions, strengthening the export production base, removal of procedural bottlenecks, technological upgradation, and improvement of product quality. Various steps were also taken to promote exports through multilateral and bilateral initiatives, including identification of thrust areas and focus regions. The policy stance also marked a move away from the provision of direct export subsidy to indirect promotional measures. India also took several policy initiatives at the multilateral levels for tariffication of the nontariff barriers. As per Indias commitment to the World Trade Organisation

(WTO), India agreed to the phased removal of all balance-of-payments (BoP) related quantitative restrictions by end-March 2001, and acted accordingly.

II. Indias Foreign Trade Trends

1.3 Trends The impact of trade reforms is evident from the changing structure of Indias Foreign Trade in terms of diversity of market and products, and also in the form of higher degree of trade openness (resulting from higher export growth and the associated increase in the capacity to import). Tables 1.1(A) and 1.1(B) present the trends in Indias exports and imports over years in terms of Rs. crore, and US $ million, respectively. Table 1(C) presents the annual and monthly figures of recent years in US $ million. Figure 1.1 presents the trend of growth rates of exports and imports of 2000-2010. Figure 1.2 presents the month-wise growth rates of exports and imports for two years, 200809 and 2009-10. Growth rates referred to in the context of exports and imports are in US $ terms. During the 1990s, Indian exports have performed well in certain years, and not so well in a few other years. Using the method of least squares to find a regression line, trend lines of various parameters have been drawn based on the time series data for the countrys exports and imports for different periods. These are given in figures 1.3 and 1.4. The growth rate was high in 1993-94, 199495 and 1995-96 at 20%, 18.4%, and 20.8%, respectively, but declined sharply in 1996-97 to 5.3%, and became negative in 1998-99 at (-)5.1% on account of the South East Asian crisis and world wide recession. It again recovered to 10.8% in 1999-2000, and reached the highest growth rate for the decade at 21% in 2000-01. However, the global economic slow down and the events of September 11, 2001 led to a steep fall in the rate of growth of exports during 2001-02 (-1.6%). Liberalisation and trade reforms have also led to a compositional change in Indias export basket. Analysis of our export basket indicates an increase in the share of manufactured goods along with an overall widening and diversification of exports. The period since 2002-03 has recorded a steady export growth rate above 20% up to 2007-08; the highest performance during these years being 2004-05 at 30.8%,

and 2007-08 at 29%. Compound annual growth rate (CAGR) in US $ terms for 1994-2000 for exports was 6.94%, for 1999-2005 17.80%, for 1994-2005 12.24%, for 2004-09 22.04%, and for 2002-08, the highest average performance was 25.35%. For the first time, Indias exports crossed US $100 billion in 2005-06, and recorded US $103.09 billion; and later reached a record level of US $185.3 billion in 2008-09 (13.6% growth rate). It declined and turned negative in 2009-10 at (-)3.6%., in view of the global meltdown. The deceleration started from September 2008 and negative growth was recorded from October 2008 up to September 2009 (twelve consecutive months), as shown in Table 1(C) and Figure 1.2. Imports crossed US $100 billion for the first time in 2004-05, and has grown steadily thereafter. Percentage growth was 42.7 in 2004-05, 33.8 in 200506, and 35.5% in 2007-08. Deceleration started from October 2008, and led to low growth rate of 20.7% in 2008-09, and negative growth rate of (-)5.6% in 2009-10. Pearsons Correlation Coefficient between growth rates of exports and imports for the period 1994-95 to 2009-10 is 0.8671 (Table 1.1 B). The result is quite high and positive, indicating that both the growth rates move in the same direction, and quite often import growth rate tends to be higher than export growth rate. Negative growth rate of imports was recorded for eleven consecutive months from December 2008 to October 2009, as shown in Table 1.1(C) and Figure 1.2. Performance of exports and imports in recent years along with per cent change over the previous year is as follows:
Text Table 1.1: Year 1 1990-91 1994-95 1999-2000 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Performance of Exports and Imports (1990-2010) % change over the previous year 3 9.2 18.4 10.8 20.3 21.1 30.8 23.4 22.6 29.0 13.6 -3.6 Imports (US $ billion) 4 24.08 28.65 49.67 61.41 78.15 111.52 149.17 185.74 251.65 303.70 286.82 % change over the previous year 5 13.5 22.9 17.2 19.4 27.3 42.7 33.8 24.5 35.5 20.7 -5.6 Exports (US $ billion) 2 18.14 26.33 36.82 52.72 63.84 83.54 103.09 126.41 163.13 185.30 178.66

Trend lines have been drawn based on linear regression equations for exports and imports for 1995-2010 and 1998-2009, as shown in Fig.1.3 and 1.4, respectively. Linear trend based on least squares method has been considered. Annual average increase for the two periods for exports and imports, is as follows: For 1995-2010 trend line, exports: US $11,604 million; imports: US $19,321 million; For 1998-2009 trend line, exports: US $15,096 million; imports: US $25,143 million. Performance during 1998-2009 is better compared to the longer period. Imports have all along been higher than exports, resulting in trade deficit. Exports as per cent of Gross Domestic Product (GDP) improved from 5.72 in 1990-91 to 8.95 in 1995-96, 9.58 in 2000-01, 12.73 in 2005-06, and 16.0 in 2008-09. Simultaneously imports as per cent of GDP improved from 7.59 in 1990-91 to 10.33 in 1995-96, 10.86 in 2000-01, 18.41 in 2005-06, and 26.2 in 2008-09. Total foreign trade of the country (consisting of merchandise exports and imports) as per cent of GDP moved up from 13.32 in 1990-91 to 19.28 in 1995-96, 20.44 in 2000-01, 31.14 in 2005-06, 42.2 in 2008-09, and 36.7 in 2009-10 (Tables 1.1A and 1.1B). Exports as per cent of imports fluctuated from time to time. It was 75.4 in 1990-91, 86.7 in 1995-96, 88.2 in 2000-01, 69.1 in 2005-06, 61.2 in 2008-09, and 62.3 in 2009-10. From 2003-04, growth rate of imports has been higher than that of exports. It was sluggish in a number of earlier years. The Foreign Trade policy (FTP) (2004-09) envisaged doubling of Indias share in world exports from 0.75 per cent in 2004 to 1.5 per cent by 2009. However, as revealed by later developments, doubling of Indias share in global trade has been deferred to 2020 as a long term objective, and doubling of Indias exports of goods and services by 2014 as another goal. Indias share in world exports remained at 1.1 per cent from 2006. It was 0.7 per cent in 2000. Exports plus imports of goods and services as per cent of GDP improved from 17.2 in 1990-91, 25.5 in 1995-96, 29.2 in 200001, 43.8 in 2005-06, 53.7 in 2008-09, and 48.4 in 2009-10. Greater degree of integration with the world economy through foreign trade consisting of export and

import of merchandise goods, and services is thus evident. This has offered many advantages, and has also landed the country in troubled waters in certain periods as noticed from September 2008. Both external and domestic factors have contributed to the satisfactory performance of exports since 2002-03. While improved global growth and recovery in world trade aided the strengthening of Indian exports, firming up domestic economic activity, especially in the manufacturing sector, also provided a supporting base for strong sector-specific exports. Various policy initiatives for export promotion and market diversification seem to have contributed as well. The opening up of the economy and corporate restructuring have enhanced the competitiveness of Indian industry. Indias impressive export growth has exceeded world export growth in most of the years since 1995; but since 2003, it has lagged behind the export growth of developing countries taken together, mainly because of chinas explosive export growth. Despite the demand induced moderation in export growth resulting from the global recession, Indias exports performed relatively better as its rank among leading exporters improved from 27 in 2008 to 22
th th nd

in 2009, with the share in

th

world exports at 1.2 per cent. India ranked 15 among leading importers in 2009, with a share of 1.9 per cent, which also represents an improvement over 16 position in 2008. Since Indias GDP growth remained ahead of most of the

countries, its import growth would have been relatively higher, leading to higher rank among importers. (RBI, Annual Report 2009-10, p. 68). Indias exports and Imports contracted by 3.6 per cent and 5.6 per cent, respectively during 2009-10 as against a growth of 13.7 per cent in exports, and 20.8 per cent in imports in the previous year. As the decline in imports was steeper than decline in exports, the overall trade deficit was lower during 2009-10. On balance of payments basis, the trade deficit as a percentage of GDP was reduced from 9.8 per cent in 2008-09 to 8.9 per cent in 2009-10 (RBI, Annual Report 2009-10, p. 68). Indias share in world merchandise exports, after remaining unchanged at 1.1 per cent between 2007 and 2008, reached 1.2 per cent in 2009 mainly due to

the relatively greater fall in world export growth. The increase in Chinas share of world exports between 2000 and 2008 at 5.0 percentage points is around 39 per cent of the total increase in the share of emerging and developing countries over this period. However, Chinas export growth rate which was above 25 per cent in this decade till 2007 moderated to 17.3 per cent in 2008, and declined to (-) 21.7 per cent in the first half of 2009, as a result of global recession. Although Indias export growth was also negative at (-) 18.4 per cent in the first half of 2009, it was lower than the negative growth of the other major emerging and developing countries, and other select countries except Hong Kong. However, in absolute terms, India is way behind China with its exports constituting only 12.4 per cent of Chinas in 2008. While Indias exports were higher than those of China till 1954, they started lagging thereafter. Ironically the gap started widening since the 1990s, the period of Indias reforms. In 1990, the shares in world exports of China and India were 1.8 per cent and 0.5 per cent respectively; and in 2008, their respective shares stood at 8.9 per cent and 1.1 per cent. This growing gap between India and China calls for greater introspection on the part of India. (GOI, Economic Survey 2009-10, p. 155). Indias merchandise imports were also affected by the global recession though with a slight lag, and grew by 20.7 per cent to US $ 303 billion in 2008-09. This was due to the moderate growth of 23.5 per cent in import of non-petroleum, oil and lubricants (non-POL) products; and was low mainly due to both low volume growth by 6.2 per cent and low growth of import price of the Indian crude oil import basket by 5.5 per cent. International oil prices recorded unprecedented rise during 2008, and remained considerably volatile during the entire ensuing period. The price of Indian basket of crude oil which moved in tune with international oil prices was also volatile, averaging at US $83.57 per barrel during 2008-09 after reaching an unprecedented US $142 per barrel on July 3, 2008 before declining sharply following the global recession. Non-POL non-bullion imports grew by 23.6 per cent in 2008-09 reflecting relatively low demand for imports for industrial activity, partly due to low

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industrial growth and partly due to the use of inventories, and also for imports used as inputs for exports due to fall in global demand following the world economic recession. (GOI, Economic Survey 2009-10, p. 155). During 2009-10 import growth was negative at (-) 5.6 per cent accompanied by a decline in both POL and non-POL imports at (-) 7.0 per cent and (-) 4.9 per cent, respectively.

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Fig.1.1: Export and Import Growth Rates for values in US $ million (2000-10) [Source: Table 1.1.(B) ] (in per cent) Year 1 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 20009-10 Exports 2 21.0 -1.6 20.3 21.1 30.8 23.4 22.6 29.0 13.6 -3.6 Imports 3 1.7 1.7 19.4 27.3 42.7 33.8 24.5 35.5 20.8 -5.6

50.0

40.0

30.0

20.0

10.0

0.0
200001 200102 200203 200304 200405 200506 200607 200708 200809 2000910

-10.0
Exports Imports

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Fig 1.2:

Month-wise Variation in Export and Import in 2008-09 and 2009-10 over the corresponding month of the previous year (Values in US $ million) [Source: Table 1.1(C)] (in per cent) Month Exports Imports Month Exports Imports 2 63.0 50.0 58.5 52.1 40.5 26.1 -3.7 -13.5 -8.6 -13.6 -21.0 -25.1 3 65.0 39.2 44.6 49.7 64.6 70.9 18.5 6.3 -3.3 -20.2 -27.6 -29.6 1 2009-10 April May June July August September October November December January February March 2 -32.4 -34.1 -29.1 -24.6 -23.5 -7.3 4.8 33.8 23.5 21.0 31.6 56.2 3 -36.6 -32.0 -20.5 -31.4 -33.1 -31.1 -1.9 5.5 44.9 38.5 72.5 77.1

1 2008-09 April May June July August September October November December January February March

100

80

60

40

20

-20

-40

-60 Exports Im ports

13 13 Fig.1.3: ## Overall Exports and Imports of India Source: Table 1.1(B) The Trend equations for Overall Exports and Imports of India in US $ million for the period 1995-96 to 2009-10 are given below: Trend Equation EXPORTS = - 11808 + 11604 t IMPORTS = - 38602 + 19321 t R2 84.6 80.9 Sig 0.000 0.000 Remarks Good Fit Good Fit

Fig.1.3: ##Trend lines fitted based on the derived trend values of overall Exports and Imports of India

1. The annual average increase in Overall Exports of India is US $ 11,604 million. 2. The annual average increase in Overall Imports of India is US $ 19,321 million.

14 14 Fig.1.4: ## Overall Exports and Imports of India Source: Table 1.1(B) The Trend equations for overall Exports and Imports of India in US $ million for the period 1998-99 to 2008-09 are given below: Trend Equation EXPORTS = - 5442 + 15096 t IMPORTS = - 29461 + 25143 t R2 89.4 84.8 Sig 0.000 0.000 Remarks Good Fit Good Fit

Fig. 1.4:## Trend lines fitted based on the derived trend values of overall Exports and Imports of India

1. The annual average increase in Overall Exports of India is US $ 15,096 million. 2. The annual average increase in Overall Imports of India is US $ 25,143 million.

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1.4

Composition of Trade An analysis of the shift in the composition of Indias commodity exports

reveals some interesting facts. Before the reforms, Indias exports were significantly driven by exports of primary agricultural commodities and a few manufacturing commodities such as textiles, and gems and jewellery; while the commodity composition at the global level was shifting to technologyintensive manufacturing commodities such as engineering goods and chemicals. The reforms and favourable trade policy brought a shift in the composition of Indias commodity exports. Technology-intensive exports comprising engineering goods such as metals, machinery and transport equipment, and chemicals, including pharmaceuticals emerged as the leading export sector for the country, signifying rising prominence of exports in Indias GDP growth. Besides a shift towards technology intensive exports, exports of petroleum products (which showed spectacular growth) emerged as a major contributor to total exports, reflecting the impact of India becoming the sixth largest refinery in the world. 1.4.1 Indias Exports of Engineering Goods During the reform period, Indias merchandise exports witnessed a notable shift in terms of commodity composition, led by engineering goods. In an environment of increasing openness of the economy and a supportive policy framework since the early 1990s, exports of engineering goods accelerated from US$ 1.2 billion (9.5 per cent of total merchandise exports) in 1987-88 to US$ 47.3 billion in 2008-09 (25.5 per cent of total merchandise exports). The rapid growth of engineering goods exports at a trend growth rate of 27.7 per cent during 200102 to 2008-09 was attributed to the growing competitiveness and increasing technological sophistication of Indias manufacturing exports. In 2004-05, engineering goods emerged as the largest item of manufacturing exports, surpassing exports of textiles, and gems and jewellery. Within engineering goods, transport equipment emerged as the key driver of exports growth, attributable to the increasing global competitive advantage of Indias automotive industry. According to the Automobile Component Manufacturers Association of India (ACMA), since mid-1990s, Indias automobile industry has witnessed rapid

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transformation from a low-volume and fragmented sector into a highly competitive sector characterised by world class technology, large and assured volumes, and strict delivery schedules in response to the demand from global vehicle manufacturers. Further Indias automobile components industry is highly diversified with a capacity to produce as many as 150 different products. The technology intensity of Indias exports compared with the emerging economies in East Asia and Latin America has the potential for substantial growth. However, in terms of the global positioning of the automotive industry, the share of Indias exports in the global automotive market remains very low (US $5 billion against the world total of US $1234 billion, with Korea, Mexico, and China as world leaders in that order). During 2001-07, Indias exports of machinery and transport equipments posted a trend growth rate of 33.0 per cent compared with the global trend growth rate of the sector at 12.1 per cent. Thus, the share of Indias exports of machinery and transport equipment, and automotive components at the global level increased from 0.10 per cent in 2000 to 0.33 per cent by 2007. According to ACMA, the automotive components industry has to accelerate measures towards improving quality and its competitive position in the global market (RBI. 2010. Report on Currency and Finance 2008-09). 1.4.2 Composition of Imports by Broad Economic Categories (BEC) There have been a number of subtle compositional shifts in imports within the broad aggregation during the past decade that need to be recognised. For instance, within petroleum imports, there has been a shift from petroleum products to crude oil, following the large-scale increase in refinery capacity within the country. Further, since 2001-02, India has transformed itself from a net importer of petroleum products to a net exporter of the same. Another significant development during the 1990s has been the channelising of gold imports through official routes. Since 1997 when banks were allowed to import gold, the import of gold through passenger baggage has declined significantly. Industries that have shown the least import propensity since the 1990s and, thereby have gradually been phased out of the import commodity basket, were mainly in the medium-tolow technology, labour-intensive sectors. Similarly, industries with the highest

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growth rate of imports in the past decade have been largely those with a mediumto high-technology content that produced intermediary products needed for exports. The classification of imports as per BEC introduced by the UN shows that most of Indias imports consist of intermediate goods followed by capital goods. While the share of intermediate goods is still dominant, it fell from 83.5 per cent in 2001 to 76.8 per cent in 2006. In 2007, there was a marginal rise to 77.2 per cent. Share of capital goods imports has increased from 8.9 per cent in 2001 to over 14 per cent in 2006 and 2007. The share of consumption and other goods is quite low; Contrary to the general belief, not only is the share of consumer goods low, it has fallen from 4.3 per cent in 2001 to 3.5 per cent in 2007. The WTOs International Trade Statistics 2009 has indicates that increasing trade in intermediate goods is one of the major reasons for world trade experiencing larger changes than world GDP. The higher composition of intermediate goods also has tariff policy implications as higher duties on these items make our exports and manufacturing less competitive. 1.4.3 Export Diversification In 2008, India had a global export share of 1 per cent or more in 42 out of a total of 99 commodities at two digit Harmonised System (HS) level, but a significant share of 5 per cent or more in eleven items. Three items, vegetable textile fibres not elsewhere specified (n.e.s); paper yarn, woven fabric; vegetable plaiting materials, vegetable products, n.e.s.; and residues, wastes of food industry and animal fodder, had an increase in global share by 0.5 per cent point or more in 2008 over 2007. Four items lost global shares which include carpets and other textiles floor coverings; other made textile articles, sets, worn clothing, etc; lac, gums, resins, vegetable saps and extracts, n.e.s.; and pearls, precious stones, metals, coins, etc. One item, namely, silk had stagnant growth. In the remaining 31 items, 10 lost their shares in 2008 over 2007. While India has diversified its export basket as well as export markets, a more systematic approach of diversification of dynamic products to developed countries and non-dynamic products to developing countries could pay better

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dividends (GOI, Economic Survery 2009-10). A compositional change has been witnessed in the export basket with the opening of the economy - Tables 1.4(A) and 1.4(B). The commodity composition of our export basket can be divided into four main categories - agriculture and allied products, ores and minerals, manufactured goods, and crude petroleum products.
Text Table 1.2: Percentage Share of Principal Exports (in terms of US $ million) 1995-96 2 19.1 3.7 74.7 1.4 2000-01 3 13.5 2.6 78.0 4.2 2005-06 4 10.2 5.2 72.0 11.5 2007-08 5 9.9 5.5 64.1 17.8 2008-09 6 9.1 4.2 66.4 14.9 Category 1 Agriculture and allied products Ores and minerals Manufactured goods Crude and petroleum products

The share of manufactured products has improved, along with crude petroleum products. Decline in manufacturing goods share in recent years is due to the increase in exports of crude and petroleum products. Shares of agriculture and allied products, and ores and minerals have declined over years. Share of top five commodity groups in Indias exports in US $ terms in 2008-09 is as follows, with the share in 2007-08 given in brackets: engineering goods 22.5% (18.8%), petroleum products 14.9% (17.8%), chemicals and related products 4.7% (4.7%), gems and jewellery 15.1% (12.1%), textiles and clothing 8.1% (8.8%). Shift in share in recent years is as follows.
Text Table 1.3: Shift in Percentage Share of Exports of Top Five Product Groups Category 1 Engineering goods Petroleum products Chemicals and related products Gems and jewellery Textiles Readymade garments 2000-01 2 14.1 4.2 4.3 16.6 7.9 12.5 2007-08 3 18.8 17.8 4.7 12.1 2.9 5.9 2008-09 4 22.5 14.9 4.7 15.1 2.2 5.9

1.5

Direction of Trade During 2008-09, Asia and ASEAN region accounted for 58 per cent of

Indias total trade of exports and imports, and is Indias largest trading partner region. Europe and America together accounted for around 43 per cent, with America (North America, Latin America and Caribbean region) remaining stable

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at 12.5 per cent. The regional direction of Indias exports has experienced significant changes between 2000 and 2008. First, the share of Indias exports in traditional markets such as the EU and North America witnessed a significant decline. Second, there was a structural shift in favour of Latin America, ASEAN, West Asia, North Africa and South Asia. In terms of growth, Indias exports to developing countries accounted for the largest downturn to (-)0.5 per cent during 2008-09 from 33.6 per cent in 2007-08, which was mainly driven by a sharp fall in exports to China. The second largest deceleration in growth of Indias exports was to OECD countries during 2008-09. The US led the deceleration in exports to OECD countries during 2008-09; nevertheless, the US continued to be the single largest contributor to Indias exports. The increasing share of Indias trade with the above regions could be attributed to factors such as the distance and size of the economies as described in the Gravity Model of International Trade. The Model is increasingly used to derive measures of divergence in the expected volumes of trade between trading partners and their actual trade (ibid.). Value of Indias imports from major regions / countries are given in Tables 1.5(A) and (B); and exports to major regions / countries are given in Tables 1.6(A) and (B). Top 10 countries of Indias imports are listed in Table 1.5(C); and similarly Top 10 countries of Indias exports are listed in Table 1.6(C). The directional pattern of Indias total trade (imports and exports) has been changing constantly during the decade with the share of the top 15 trading partners increasing by 9.5 percentage points to 61.3 per cent between 2004-05 and 2008-09 (Table 1.8). In the first half of 2009-10, their share was 59.6 per cent. The major development in the direction of Indias trade is that USA which was in the first position in 2007-08 has been relegated to the third position in 2008-09, with UAE becoming Indias largest trading partner, followed by China. However, in the first half of 2009-10, with oil prices moderating, China has gained a slight edge over the UAE to become Indias major trading partner. According to the WTOs International Trade Statistics 2009, the global recession reduced the trade imbalances of many countries. Japans trade surplus fell from 2.1 per cent of GDP before the crisis to 0.4 per cent in 2008, turning into

20 20

a trade deficit of 0.02 per cent of GDP during the first quarter of 2009. Germanys trade surplus of 8 per cent of GDP until 2008 fell to 7 per cent in 2008, and United States trade deficit of 6.8 per cent of GDP in 2006 fell to 6.2 per cent in 2008, and further to 3.4 per cent in the first quarter of 2009. For the BRIC (Brazil, Russia, India, and China) countries, trade balance as per cent of GDP was more volatile due to trade in primary commodities, Russia and Brazil being specific examples. The report states that India has faced a structural deficit in merchandise trade that has grown especially from 2000 onwards. Chinas trade surplus of 7.6 per cent of GDP in 2007 fell to 6.7 per cent in 2008, and 4.7 per cent in the first quarter of 2009, though initial monthly figures indicate that it is benefiting noticeably from the initial recovery of trade. Export-Import ratios (Table 1.8) show that among its top 15 trading partners, India had bilateral trade surplus with five countries, namely the UAE, USA, Singapore, the UK and Hong Kong in 2008-09 and the first half of 2009-10. Indias trade deficit with the USA and Singapore in 2007-08, turned into trade surplus thereafter. The export-import ratio fell in 2008-09 in the case of Hong Kong, though it recovered in the first half of 2009-10. The fall in export-import ratio from 0.8 in 2004-05 to the present 0.3 in the case of China needs special attention. Among the countries not in the top 15, Brazil is an interesting case. Indias export-import ratio which had stabilised at above 2 till 2008-09 indicating a high trade surplus for India has suddenly turned into a trade deficit at 0.64 in the first half of 2009-10. The disaggregated data for April-June 2009 indicate that this was probably due to the sudden fall in Indias exports of refined POL to Brazil because of softening of crude oil prices and the sudden high rise in import from Brazil of crude petroleum, besides sugar to meet domestic needs. High growth in import of beverages, iron and steel, fats and oils from Brazil also seems to have contributed to the trade deficit. The UAE has displaced the USA as the topmost destination of Indias exports in 2008-09 and 2009-10 (April-September) with an export share of 13.1 per cent and 14.4 per cent, respectively. Indias exports to all the top three export destinations the UAE followed by the USA and China registered negative growth of (-) 28.7, (-) 25.3 and (-) 21.9 per cent, respectively during April-

21 21

September 2009. Region-wise, over half of Indias exports (55 per cent) in the first half of 2009-10 were to Asia (including ASEAN), up from around 40 per cent in 2001-02. During 2009-10 (April-September), exports to Asia (including ASEAN) declined by 27.6 per cent, and to Europe by 30.9 per cent. Indias merchandise exports of South Asian countries declined by 30.4 per cent. State-wise contribution of exports in India (Table 1.9) reveals that Maharashtra and Gujarat, followed by Tamil Nadu, Karnataka, and Andhra Pradesh top the list. Maharashtra and Gujarat are far ahead of other states. Since the opening up of the Indian economy, imports are increasingly sourced from a wider range of countries. Traditional key trading partners like Germany, Japan, UK and US have subsided in terms of their market share and new import partners from East Asia (especially China) have emerged. Another important development has been a gradual dissipation of the East European countries as a major source of Indias imports. The high share of OPEC countries in the recent period reflects the magnitude of crude oil imports due to the rising oil-intensity of the Indian economy and high oil prices. Finally, imports from China have increased significantly during recent years from almost minuscule level in the early 1990s. In 2009-10 (April-September), Asia and ASEAN continued to be the major source of Indias imports accounting for 61.3 per cent of the total. Country-wise, China remained the largest source with a share of 12 per cent in Indias total imports followed by the USA (5.95%), UAE (5.93%) and Saudi Arabia (5.5%). As a result of global recession, Indias import growth from 14 of the top 15 trading partners was negative, Indonesia being the exception. Figures 1.5 to 1.8 present the direction of Indias exports and imports during 1998-99 and to 2008-09. Fig.1.5 and Fig.1.6 cover the share of top 10 countries of Indias imports and exports, respectively. Fig.1.7 deals with export growth of select countries during 2000-06 and 2008. Fig.1.8 indicates the share of select countries in Indias total merchandise trade (imports and exports) during 2004-05 and 2008-09.

22 22
Figure 1.5: Share of Top 10 Countries of India's Merchandise Imports (%) (1998-99 and 2008-09) (Source: Table 1.5(c)) Country China UAE Saudi Arabia USA Iran Germany Switzerland Kuwait Nigeria Korea Republic (South) 1998-99 2.59 4.06 4.32 8.59 1.12 5.05 6.94 3.54 2.78 3.29 2008-09 10.79 7.1 6.71 6.25 4.18 4.02 3.94 3.23 2.99 2.96

Korea Republic (South)

2.96 3.29

Nigeria

2.99 2.78

Kuw ait

3.23 3.54

Sw itzerland

3.94 6.94

Countr y

Germany

4.02 5.05

2008-09 1998-99

Iran

4.18 1.12

USA

6.25 8.59

Saudi A rabia

6.71 4.32

UA E

7.1 4.06

China

10.79 2.59

5
% Sha re

10

15

Fig. 1.6:

Share of Top 10 Countries of India's Merchandise Exports (%) (1998-99 and 2008-09) (Source: Table 1.6(c)) Country UAE USA China Singapore Hong Kong UK Germany Netherlands Saudi Arabia Belgium 1998-99 5.62 21.67 1.29 1.56 5.66 5.59 5.58 2.3 2.33 3.88 2008-09 13.09 11.39 5.07 4.49 3.64 3.61 3.47 3.43 2.73 2.41

Share of Top 10 Countries of India's Merchandise Exports

Belgium Saudi Arabia Netherlands Germany 2.41 3.88

2.73 2.33 2.3 3.43 3.47

5.58 5.59 5.66

Countr y

UK

3.61 3.64

2008-09 1998-99

Hong Kong

Singapore China USA UAE 0

1.56 1.29

4.49 5.07 11.39 13.09

21.67

5.62 5 10

15 % Share

20

25

Fig. 1.7: Export Growth of Select Countries (2000-06 and 2008) (Source: Table 1.7) (%) Country China Hong Kong Malaysia Indonesia Thailand Singapore India Brazil Mexico Russia Korea World CAGR 2000-06 25.4 7.8 8.5 7.9 11.3 12 19.1 16.5 7.1 19.3 11.2 11.2 Annual 2008 17.3 5.3 19.1 24.4 12.9 13 20.4 23.2 7.3 33.1 13.6 16.2

Export Growth of Select Countries

35

2000-06 2008 33.1

30

25.4
25

24.4 20.4 19.1

23.2 19.3 16.5 12.9 11.3 13 12 13.6 11.2 7.17. 3 11.2 16.2

20

19.1 17.3

%
15

10

7.8 5.3

8.5

7.9

China

Malays ia

Thailand

India Country

Mexico

Korea

Fig. 1.8: Share of Select Countries in India's Total Merchandise Trade (Imports and Exports) (%)(Source: Table 1.8)

Partner Country UAE China USA Saudi Arabia Germany Singapore Iran Hong Kong Korea RP UK Australia Switzerland Japan Malaysia Nigeria

2004-05 6.1 6.5 10.6 1.4 3.5 3.4 0.8 2.8 2.3 3.7 2.3 3.3 2.7 1.7 0.4

2008-09 9.8 8.6 8.2 5.1 3.8 3.3 3 2.7 2.6 2.6 2.6 2.5 2.2 2.2 2.1

Share of Se le ct Countr ie s in India's Total M e r chandis e Trade (%) 12 10.6 10 9.8 8.6 8 6.1 6.5 5.1 3.8 3.5 3 2.6 2 1.4 0.8 0 UA E USA Germany Iran Nigeria Countr y Korea RP A ustralia 2.82.7 2.3 2.6

2004-05 2008-09

8.2

%
6

4 3.43.3

3.7 2.6 2.3

3.3 2.7 2.5 2.2 2.2 1.7 2.1

0.4

Japan

III. Foreign Trade Policies

1.6 Foreign Trade Policy 2004-09 The new Foreign Trade Policy (FTP) 2004-09 takes an integrated view of the overall development of Indias foreign trade, and essentially provides a roadmap for the development of this sector. It is built around two major objectives of doubling Indias share of global merchandise trade by 2009, and using trade policy as an effective instrument of economic growth with a thrust on employment generation. Key strategies to achieve these objectives, inter alia, include: unshackling of controls and creating an atmosphere of trust and transparency; simplifying procedures and bringing down transaction costs; neutralising incidence of all levies on inputs used in export products; facilitating development of India as a global hub for manufacturing, trading and services; identifying and nurturing special focus areas to generate additional employment opportunities, particularly in semi-urban and rural areas; facilitating technological and infrastructural upgradation of the Indian economy, especially through import of capital goods and equipment; avoiding inverted duty structure and ensuring that domestic sectors are not disadvantaged in trade agreements; upgrading the infrastructure network related to the entire foreign trade chain to international standards; revitalising the Board of Trade by redefining its role and inducting into it experts on trade policy; and activating Indian Embassies as key players in the export strategy. 1.6.2 Special Focus Initiatives The FTP 2004 has identified certain thrust sectors having prospects for export expansion and potential for employment generation. These thrust sectors include agriculture, handlooms and handicrafts, gems & Jewellery, and leather and footwear sectors. Sector specific policy initiatives for the thrust sectors include, for agriculture sector, introduction of a new scheme called Vishesh Krishi Upaj Yojana (Special Agricultural Produce Scheme) to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products. Under the scheme, exports of these products qualify for duty free credit entitlement (5 per cent of f.o.b value of exports) for importing inputs and other goods. Other 1.6.1 Objectives and Strategy

components for agriculture sector include duty free import of capital goods under Export Promotion Capital Goods (EPCG) scheme, permitting the installation of capital goods imported under EPCG for agriculture anywhere in the Agri-Export Zone (AEZ), utilising funds from the Assistance to States for Infrastructure Development of Exports (ASIDE) scheme for development of AEZs, liberalisation of import of seeds, bulbs, tubers and planting material, and liberalisation of the export of plant portions, derivatives and extracts to promote exports of medicinal plants and herbal products. The special focus initiative for handlooms and handicraft sectors includes extension of facilities like enhancing (to 5 per cent of f.o.b. value of exports) duty free import of trimmings and embellishments for handlooms and handicrafts, exemption of samples from countervailing duty (CVD), authorising Handicrafts Export Promotion Council to import trimmings, embellishments and samples for small manufacturers, and establishment of a new Handicrafts Special Economic Zone. Major policy announcements under gems and jewellery sector encompass: permission for duty free import of consumables for metals other than gold and platinum up to 2 per cent of f.o.b value of exports; duty free re-import entitlement for rejected jewellery allowed up to 2 per cent of f.o.b. value of exports; increase in duty free import of commercial samples of jewellery to Rs.1 lakh, and permission to import of gold of 18 carat and above under the replenishment scheme. Specific policy initiatives in leather and footwear sector are mainly in the form of reduction in the incidence of customs duties on the inputs and plants and machinery. The major policy announcements for this sector include: increase in the limit for duty free entitlements of import trimmings, embellishments and footwear components for leather industry to 3 per cent of f.o.b. value of exports and that for duty free import of specified items for leather sector to 5 per cent of f.o.b. value of exports; import of machinery and equipment for Effluent Treatment Plants for leather industry exempted from customs duty; and re-export of unsuitable imported materials (such as raw hides and skin and wet blue leathers) has been permitted. The threshold limit of designated Towns of Export Excellence has also been reduced from Rs.1,000 crore to Rs.250 crore in the above thrust sectors.

1.6.3 New Export Promotion Schemes A new scheme to accelerate growth of exports called Target Plus has been introduced. Under the scheme exporters achieving a quantum growth in exports are entitled to duty free credit based on incremental exports substantially higher than the general actual export target fixed. Rewards are granted based on a tiered approach. For incremental growth of over 20 per cent, 25 per cent and 100 per cent, the duty free credits are 5 per cent, 10 per cent and 15 per cent of f.o.b value of incremental exports. Another new scheme called Vishesh Krishi Upaj Yojana has been introduced to boost exports of fruits, vegetables, flowers, minor forest produce, and their value added products. Export of these products qualify for duty free credit entitlement equivalent to 5 per cent of f.o.b value of exports. The entitlement is freely transferable, and can be used for import of a variety of inputs and goods. To accelerate growth in export of services so as to create a powerful and unique Served from India brand instantly recognised and respected the world over, the earlier duty free export credit (DFEC) scheme for services has been revamped and re-cast into the Served from India scheme. Individual service providers who earn foreign exchange of at least Rs.5 lakh, and other service providers who earn foreign exchange of at least Rs.10 lakh are eligible for a duty-credit entitlement of 10 per cent of total foreign exchange earned by them. In the case of stand-alone restaurants, the entitlement is 20 per cent, whereas in the case of hotels, it is 5 per cent. Hotels and restaurants can use their duty credit entitlement for import of food items and alcoholic beverages. To make India into a global trading-hub, a new scheme to establish Free Trade and Warehousing Zone (FTWZs) has been introduced to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in convertible currencies. Besides permitting FDI up to 100 per cent in the development and establishment of these Zones, each zone would have minimum outlay of Rs.100 crore and five lakh square meters built up area. Units in the FTWZs qualify for all other benefits as applicable for units in Special Economic Zones (SEZs).

1.7

Foreign Trade Policy (FTP) 2009-14 For India to become a major player in world trade, an all encompassing and

1.7.1 Basic Approach, Objectives and Strategy comprehensive vision is required for the overall development of the countrys foreign trade. Trade is not an end in itself, but a means to economic growth and national development. Coherence and consistency among trade and other economic policies is important for maximising the contribution of such policies to development. Thus, while incorporating the existing practice of enunciating a stable Five Year Policy, it is necessary to go much beyond and take an integrated approach to the developmental requirements of Indias foreign trade. In 2008-09, the world faced an unprecedented economic slow-down and witnessed one of the most severe global recessions in the post-war period that affected countries across the globe in varying degrees. All major economic activities like industrial production, trade capital flows, unemployment, investment and consumption took a hit. India has not been affected to the same extent as other economies of the world during this phase. Yet our exports have suffered a decline since October 2008 significantly due to shrinkage of demand in the traditional markets of our exports due to global economic slowdown, and the reduced international prices of commodities. Indias exports in dollar terms showed a growth of about 48.1% from April to September, 2008 whereas from October, 2008, it started declining, bringing down the annual growth to 13.6% in 2008-09. After showing a negative growth for six consecutive months in 2009-10, in continuation of six months of the previous year, Indias exports have entered the positive territory (growing at 4.8% during the month of October 2009). Agriculture and industry have shown remarkable resilience and dynamism in contributing to a healthy growth in exports. Similarly, imports have shown declining trend from December 2008 up to October 2009 (eleven consecutive months), and recorded positive growth of 5.5 per cent in November 2009, and improved thereafter. Month-wise variation of exports and imports from 2007-08 to 2009-10 are given in Table 1.1(C) and Figures 1.1 and

30 30

1.2 at the end of the chapter. It is in this context and background that the current Foreign Trade Policy (FTP, 2009-14) was announced on 27th August 2009. The short term objective of FTP (2009-14) is to arrest and reverse the declining trend of exports, and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. The long term policy objective for the Government is to double Indias share in global trade by 2020. --------------------------------------------------------------------------------------------------Objectives of FTP 2009-14 An annual export growth of 15% with an annual export target of US $200 billion by March 2011; To come back on the high export growth path of around 25% per annum in the remaining three years of this Foreign Trade Policy, i.e., up to 2014; To double Indias exports of goods and services by 2014; The long term policy objective for the Government is to double Indias share in global trade by 2020. --------------------------------------------------------------------------------------------------In order to meet the objectives stated above, the major thrust areas of strategy spelt out in FTP (2009-14) comprise a mix of policy measures including fiscal incentives, institutional changes, procedural rationalisation, enhanced market access across the world, and diversification of export markets. The FTP envisages three basic pillars for supporting Indias exports. These are (i) infrastructure related to exports, (ii) bringing down transaction costs, and (iii) providing full refund of all indirect taxes and levies. The prime importance here is on a stable policy environment conducive to foreign trade by way of continuation of exporter friendly and transparent schemes/ facilities. In addition, after the operationalisation of the Goods and Services Tax (GST) regime, the Government will make concerted attempts to see that the GST rebates are given on all indirect taxes and levies on exports. A special thrust would be provided to employment intensive sectors which have witnessed job losses in the wake of this recession, especially in the fields of textile, leather, handicrafts, etc.

31 31

Given the current economic climate, policy measures initiated in the FTP 2009-14 would basically be in force for a two year period after which mid-course corrections could be undertaken, if required. In the meantime, sectoral reviews to assess the impact of these measures on Indian exports would be carried out, and accordingly appropriate initiatives would be taken. One area of concern the FTP 2009 has not highlighted is the fall in imports in tandem with exports, with declining negative growth continuing from December 2008 UP TO October 2009. Lower non-oil imports indicate a slowdown in domestic investment. Lower imports have narrowed the merchandise trade deficit in the balance of payments, an outcome that would be favourable had it been achieved through robust export performance. The FTP could have presented a strategic vision for a global India in the newly emerging economic order. It is, however, long on short term expedients, and short on long term strategic vision. The immediate objective is to reverse the decline in exports, and provide succour to exporters. One other worry relates to growing protectionism abroad, especially in developed countries. 1.7.2 Major Initiatives Taken in the FTP 2009-14 Higher Support for Market and Product Diversification 1. 27 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 11 in Asia-Oceania. 2. A large number of products from various sectors including Engineering products, value added Plastic products, Jute and Sisal products, Technical Textiles, Green Technology products, Project goods, vegetable textiles, Electronic items etc. have been included for benefits under Focus Product Scheme (FPS). 3. The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%. 4. The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. 5. Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of products classified under more than 3600 ITC(HS) Codes at 8 digit level. Benefits to these products will be provided, if exports are made to 15 identified markets (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia, New Zealand, Japan, and China). A common simplified application form has been introduced for taking benefits under Focus Product Scheme (FPS), Focus Market Scheme

32 32

(FMS), Market Linked Focus Products Scheme (MLFPS) and Vishesh Krishi and Gram Udyog Yojna (VKGUY). Technological Upgradation EPCG Scheme at Zero Duty has been introduced for certain sectors like engineering & electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied products and leather & leather products (subject to exclusions as provided in HBP Vol. 1). The scheme shall be in operation till 31.3.2011. Jaipur, Srinagar and Anantnag recognised as Towns of Export Excellence for handicrafts; Kanpur, Dewas and Ambur recognised for leather products; and Malihabad for horticultural products. Support for Green Products and Products from North East Focus Product Scheme benefit extended for export of green products; and for exports of some products originating from the North East. Status Holders To accelerate exports and encourage technological upgradation, additional Duty Credit Scrips shall be given to Status Holders @ 1% of the FOB value of past exports for certain specified sectors. This facility shall be available for export up to 31.3.2011. Transferability for the Duty Credit Scrips being issued to Status Holders under paragraph 3.8.6 of FTP under VKGUY Scheme permitted among status holders. Stability / Continuity of Foreign Trade Policy Duty Entitlement Passbook (DEPB) Scheme extended beyond 31-12-2009 till 31.12.2010. DEPB rate shall also include factoring of custom duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norms. Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010. Income Tax exemption to 100% EOUs and to STPI units has been extended for the financial year 2010-11. Other Measures The adjustment assistance scheme initiated in December 2008 to provide enhanced ECGC cover at 95% to the adversely affected sectors is continued till March, 2010. Export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.

33 33

Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, extended for the 5 year Policy Period, 2009-14. Scheme-wise Details Details in respect of a few of the major scheme-wise initiatives announced under the Foreign Trade Policy, 2009-14 are given here. A. (i) Duty Neutralisation / Remission Schemes Duty Entitlement Passbook (DEPB) Scheme In its constant endeavour to provide a stable Foreign Trade Policy and to remove uncertainty about the future of the most popular exporter friendly scheme i.e., the DEPB scheme, Government extended the validity of the scheme till 31
st

December 2010. One of the major initiatives taken to keep its promise to neutralize duties on all the inputs used in the manufacture of the export product and to meet the basic of DEPB scheme to neutralize incidence of customs duty on import content of export product, the Custom duty component, of the consumable fuel, has been allowed in the DEPB rate. Further since DEPB scheme allows duty credit, which for all practical purposes is equivalent to cash, utility of DEPB scheme for payment of customs duty, in case of default in fulfillment of export obligation under various schemes, has been allowed. DEPB rates for certain items have been notified and to allow the exporters to avail the DEPB benefit on the prevailing international prices, value cap for certain products have been revised upwards. (ii) Advance Authorization Scheme To promote value added product, minimum value addition under the scheme has been raised to 15% in lieu of earlier positive value addition. Exemption from payment of excise duty in lieu of refund in case of downstream product manufacturer, supply against invalidation letter by the Intermediate manufacturer up to 2 stages have been allowed, provided the finished product is physically exported by the ultimate exporters. To reduce the transaction time and cost, henceforth, advance authorization holder shall be able to take the imported components direct to the site of project site instead of taking the same through the manufacturing premises of the exporter. Further for the first time, a specific

34 34

facility has been spelt out in the FTP allowing disposal of the manufacturing waste prior to fulfillment of export obligation. B. Vishesh Krishi and Gram Udyog Yojna (Special Agriculture and Village Industry Scheme) Keeping in view the objective of Foreign Trade Policy 2009-14 to promote employment generation in rural and semi urban areas, Vishesh Krishi And Gram Udyog Yojana has been expanded to include export of Agricultural Produce and their value added products; Minor Forest Produce and their value added variants; Gram Udyog Products; and Other products, as notified from time to time. Duty Credit Scrip benefits are granted with an aim to compensate high transport costs, and to offset other disadvantages. Exporters, of products notified in Appendix 37A of HBP vol.1, shall be entitled for Duty Credit Scrip equivalent to 5% of FOB value of exports (in free foreign exchange) for exports made from 7.8.2009 onwards. Higher Incentive for Status holders is available in the form of duty credit scrip equal to 10% of FOB value of agricultural exports, limited to Rs. 100 crore per annum, for products covered under ITC HS Chapters 1 to 24, to permit import of Capital Goods/equipments like Cold Storage Units; Pre-cooling Units and Reefer Van/Containers, etc. C. Focus Market Scheme (FMS) For offsetting high freight cost and other externalities to select international markets with a view to enhance Indias export competitiveness in these countries, Focus Market Scheme has been launched w.e.f. 1.4.2006. Exporters of all products to notified countries (as in Appendix 37C of HBP vol.1) shall be entitled for Duty Credit Scrip equivalent to 3% of FOB value of exports. So far, the Scheme covers a total of 110 markets (52 markets in Africa, 31 in Latin America, 10 in CIS-CAR Block, 5 in East Europe, 1 in Asia, and 11 in Asia-Oceania Block). D. Focus Product Scheme (FPS) To accelerate export promotional efforts of such products which have high export intensity / employment potential, so as to offset infrastructure inefficiencies

35 35

and other associated costs involved in marketing of these products, a Scheme called Focus Product Scheme, has been introduced w.e.f. 1.4.2006. Under the Scheme, exports of notified products (as in Appendix 37D of HBP vol.1) to all countries (including SEZ units) would be entitled for Duty Credit scrip equivalent to 2% of FOB value of exports (in free foreign exchange) for exports made from 27.8.2009 onwards. However, Special Focus Product (s) / sector (s), covered under Table 2 and Table 5 of Appendix 37D [toys and sports goods, carpets and handicrafts, at present], shall be granted Duty Credit Scrip equivalent to 5% of FOB value of exports. Over 1150 products have so far been covered at 8 digit level under the Scheme, which include leather products and footwear, handloom products, handmade carpets, and other textile floor coverings, handicrafts, coir and jute products, technical textiles, engineering products, Green technology products, electronic products, value added plastic and Glass products etc. E. Market Linked Focus Products Scheme (MLFPS) To give significant boost to market penetration of specific product in specified markets, a variant under Focus Product Scheme called Market Linked Focus Products was introduced from 1.4.2008. Under the Scheme, export of products /sectors of high export intensity / employment potential (which are not covered under the FPS List) would be incentivised at 2% of f.o.b value of exports (in free foreign exchange) under FPS when exported to the Linked Markets countries), which are not covered in the present FMS List, as notified in Appendix 37D of HBPv1, for exports made from 27.8.2009 onwards. Presently, the products covered under the scheme include Motor vehicles, autocomponents, apparels, knitted and crocheted fabrics, pharma products, value added plastic and rubber goods, Glass products, dyes and chemicals, household articles of Aluminium, Machine Tools, Earth moving equipments, Transmission Towers, Electrical & Power equipments, steel tubes/pipes/galvanized sheets, compressors, Iron & Steel structures, three wheelers etc. The countries covered under the Scheme include Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania,

36 36

Brazil, Mexico, Ukraine, Australia, New Zealand, Cambodia, Vietnam, Japan and China. There are over 3600 products so far covered at 8 digit levels. F. Served from India Scheme The objective of the Scheme is to accelerate growth in export of services so as to create a powerful and unique Served from India brand, instantly recognised and respected the world over. All Indian Service Providers, of services listed in Appendix 10 of HBP vol.1, who have free foreign exchange earning of at least Rs.10 lakh in preceding financial year / current financial year shall qualify for Duty Credit. G. Status Holders Incentive Scheme (SHIS) With an objective to promote investment in upgradation of technology of some specified sectors such as Leather, Textiles, Jute, Handicrafts, Engineering, Plastics, Basic Chemicals, Status Holders shall be entitled to incentive scrip @ 1% of FOB value of exports made during 2009-10 and 2010-2011, of these specified sectors, in the form of duty credit [subject to prescribed exclusions as specified] for procurement of capital goods for technology upgradation, with actual user condition. This shall be over and above any duty credit scrip claimed/availed under Chapter-3 of FTP. This facility is available for exports made up to 31.3.2011. H. Export Promotion Capital Goods (EPCG) Scheme In order to facilitate augmentation of imports under the Scheme, at present, there are two EPCG Schemes, that is, 3% concessional duty scheme and Zero duty concessional EPCG Scheme. (a) (i) 3% Concessional Duty Scheme The salient features of 3% concessional duty scheme are as under: The Scheme was initially introduced in the Import and Export Policy 199093 for import of Capital Goods at a concessional rate of Customs Duty @ 25%. The concessional rate of duty has been reduced gradually to 3% since 1.4.2008. The scheme allows import of capital goods for pre-production, production and post production as well as for computer software systems subject to an export obligation equivalent to 8 times of duty saved amount (50% of Export Obligation-EO - in case of import of spares),to be fulfilled in 8 years reckoned from Authorization issue date.

(ii)

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The scheme also requires maintenance of average level of exports achieved by the exporter in the preceding three licensing years for the same and similar products within the overall export obligation period including extended period, except for categories mentioned in para 5.7.6 of Hand Book of Procedure. (iv) To encourage exports from the tiny and cottage sector, an export obligation period of 12 years is granted for fulfillment of export obligation. (v) EPCG authorization can also be issued for import of spares, tools and refractory for initial lining and catalyst for initial charge for existing plant and machinery. (imported earlier under the EPCG Scheme or otherwise). (vi) In case of agro units, the export obligation is equivalent to 6 times duty saved on imported capital goods to be completed within a period of 12 years. (vii) In case of SSI Units, the EO is equivalent to 6 times duty saved to be fulfilled over a period of 8 years provided the value of such imported capital goods does not exceed Rs.50 lakh and total investment in plant and machinery after such imports does not exceed the SSI limits. (viii) For EPCG authorizations with a duty saved amount of Rs.100 crore or more, the export obligation period is 12 years. (ix) Import of second hand capital goods is allowed without any age restriction. (b) Zero Duty EPCG Scheme The scheme has been introduced in the new Foreign Trade Policy 2009-14 for specified sectors, viz, for exporters of engineering & electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied products and leather & leather products; subject to exclusions as provided in HBP vol. I. The salient features of the scheme are as under: Under zero duty EPCG Scheme, EO equivalent to 6 times of duty saved amount on capital goods is required to be fulfilled in 6 years from authorization issue date. The validity period for import of capital Notification and concessional duty under the EPCG Scheme. EO period of 6 years can be extended for a maximum period of 2 years only. All other provisions pertaining to 3% duty EPCG scheme, to the extent they are not inconsistent with the above provisions of zero duty EPCG Scheme, are applicable to the zero duty EPCG Scheme also. The zero duty EPCG Scheme will be in operation till 31.3.2011.

(iii)

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1.7.3 Observations on FTP 2009-14 Confederation of Indian Textile Industry felt that even while inclusion of 17 technical textile products in the focus product scheme was a welcome step, limiting benefits such as one per cent additional duty scrips for status holders and zero duty for imports under the EPCG scheme to units that had not taken benefit under the Technology Upgradation Fund Scheme was disappointing, as most textile units were covered under the scheme, and they would be denied the benefits. The specific provisions of various schemes announced in the FTP should be examined in the light of the feedback presented by the concerned all India bodies of exporting units, to enable the exporters to become competitive in the global market in the present global slowdown climate. Exporters have been urged to improve their competitiveness, besides pushing up sales in domestic markets. Through the FTP and in earlier stimulus packages, India announced a number of measures to counter the global slowdown through interest subvention, reduction in excise duties (to stimulate demand), and reduction in service tax. However, it is observed that countries in the neighbourhood have announced such measures on a much larger scale as compared to Indias. The Government announced a new package of incentives to exporters on 12 January 2010. This seeks to aggressively pursue export of products under Market Linked Focussed Programme (MLFP) Scheme to China and Japan, along with an incentive package of about Rs.500 crore for exporters, especially those in the labour intensive sectors. This would expand the horizon for exporters hit by dwindling orders from recessionary markets. The sectoral package includes expansion of Focussed Product Scheme (FPS) and Special FPS under which exporters are given 2-3 per cent incentives by including 2,000 new products. The measures announced so far should be supplemented by a few more steps as listed here, based on the viewpoints presented by specific industry associations and Federation of Indian Export Organisations (FIEO). The government can not generate demand for exports but it can certainly help exporters

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to be more competitive so that they seize orders which they are losing by thin margins. It can also impress upon banks to be more proactive for exports. 1. An Export Development Fund should be created with a corpus equivalent to 0.5 per cent of the preceding years exports. The facility available under focus market scheme may be increased to 5 per cent. 2. The postshipment credit now available up to 180 days should be extended to 365 days, keeping in view the financial crunch faced by overseas buyers at present. 3. The government should provide a moratorium on term loans to exporters for two years in view of the present difficult position. 4. The pre-shipment and post-shipment credits in foreign currencies are virtually not available particularly to micro, small and medium enterprises (MSMEs). The RBI should facilitate the process. The government may stand guarantee for exporters receiving orders from abroad so as to encourage banks to provide credit to such genuine exporters. 5. Insurance companies should adopt a flexible stand on single buyer policy, and adopt case by case approach rather than taking a rigid stand. In the light of the fact that the growth of exports on a monthly basis is steadily improving, by shifting from negative growth rate to a positive growth rate in the near future, it is urged that the stimulus package in operation from the Government of India and the Reserve Bank should be continued for some more time. Exit from these measures should be gradual in line with global economic recovery, particularly in developed countries. It should be a cautious and calibrated withdrawal. 1.8 First Annual Supplement of 2010 to the Foreign Trade Policy 2009-14 The first Annual Supplement 2010-11 to the Foreign Trade Policy (200914) was announced in August 2010, in the background of the Indian industry and trade having moved out of recession, and made a beginning on the road to recovery from the third quarter of 2009-10 (October 2009 onwards). The Centre announced incentives worth Rs.1052 crore mainly to the labour-intensive export oriented industries including textiles, handlooms, handicrafts, leather, bicycles, tea, silk carpets, marine, toys and sports goods to help them cruise through the fragile global economic recovery phase. These industries are still not yet out of the woods. The focus of the changes made in the incentives is on continuity of existing

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schemes, support to labour-intensive sectors, and reduction in transaction cost and time by simplifying procedures and streamlining decision making. The Government expressed confidence of achieving the US $200 billion export target for 2010-11. During 2009-10, exports touched US $178.7 billion, decline by 3.6 per cent over the previous year. Imports for 2009-10 recorded US $286.8 billion, decline by 5.6 per cent over the previous year. Total foreign trade was US $465.5 billion in 2009-10. After declining for 12 months in a row since October 2008, exports has shown positive growth from October 2009. Imports, after declining for 11 months in a row since December 2008, has shown positive growth from November 2009. Though India can claim with humility that the immediate objectives of the Foreign Trade policy were realised, it should be noted that the global recovery so far has been fragile, and the economies around the world are still emerging out of the shadows of grim recessionary period. Given the uneven recovery in the world economy, Indias export performance needs to be closely monitored. It is a happy augury that the declining trend in exports and imports has been arrested before the close of 2009, facilitating faster growth of foreign trade. Export incentives announced in the first annual supplement are listed here. Many of them are in the nature of continuity of existing facilities announced in the context of global meltdown. Zero duty Export Promotion Capital Goods (EPCG) scheme extended by one year up to March 31, 2012, and more products added. The scheme was announced in August 2009, and was valid for two years, up to March 2011. Duty Entitlement Passbook (DEPB) scheme under which taxes are reimbursed to exporters extended by six months, till June 30, 2011, for the last time, recognising the fragile recovery, and the prevailing uncertainties in global markets. This is designed to neutralise import duty on inputs. Number of additional products from sectors like leather, engineering, textiles and jute added to two per cent interest subvention scheme for pre-shipment credit for export sectors. Handlooms, handicrafts, carpets, and small and medium enterprises (SMEs) have been getting this facility, which will now be available till March 31, 2011. Additional benefit of 2 per cent bonus for 135 products covered under Focus Product Scheme (FPS), over and above the existing benefit of 5 per cent (3 per cent for Focus Market Scheme and 2 per cent for Focus Product Scheme of f.o.b.- free on board - value).

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One per cent Status Holder Incentive scheme (SHIS) for technology upgradation extended till 2011-12, and more products added. Special flexibility for transferability of duty credit scrips issued to Status Holders (recognised exporters) has been provided under VKGUY (Vishesh Krishi and Gram Udyog Yojana) for import of cold chain equipment to units in the Food Parks. Benefits under two per cent duty benefit to garment exporters under the market linked Focus Product Scheme to 27 countries of the European Union (EU) extended from October 2010 to March 2011. To the existing 21 Towns of Export Excellence, three more centres would be added - for handicrafts in Barmer (Rajasthan), for textiles at Bhiwandi (Maharashtra), and for leather products at Agra (Uttar Pradesh). Steps announced to reduce transaction cost of exports which is at present estimated at 7-8 per cent of the exports value. Leather sector allowed to re-export unsold imported raw hides and skins and semi-finished leather from public bonded warehouses, without export duty. List of items allowed for duty free import of gems and jewellery sector expanded. Scrips issued under Served from India Scheme (for service sector) can be used for payment of duty on import of vehicles in the nature of professional equipment. Instant tea and CSNL Cardinol (Cashew nut liquid) included for 5 per cent duty benefit under VKGUY (Vishesh Krishi and Gram Udyog Yojana). Exporters availing themselves of advance authorisation for annual requirement of imports would also be exempt from payment of anti-dumping and safeguard duty. The Apparel Export Promotion Council (AEPC) has welcomed extra incentives given for the labour-intensive sectors. Describing the new package as enriching the policy, the AEPC stated that the package could, however, be made better if the additional benefit of two per cent bonus as a higher support for market and product diversification was extended to the readymade garments segment too, besides silk carpets, toys and sports goods, leather products, and engineering items. The Council also wanted the Market Focus Product Scheme to be extended to the US market too, and suggested that the one per cent scrip be made available to status holder exporters.

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Annexure 1.1
Stimulus Package for Exports to Counter Effects of Global Economic Slowdown (announced in Union Budgets of 2008-09 and 2009-10) (i) Measures taken by the Government: Interest subvention of 2% provided till 30.09.2009, extended up to 31.3.2010, to the following labour intensive sectors for exports:- Textiles (including Handlooms), Handicrafts, Carpets, Leather, Gems & Jewellery, Marine Products and SMEs; Additional funds of Rs 350 crore provided (in December 2008) for Handicraft items etc. in Vishesh Krishi and Gram Udyog Yojana (VKGUY); Market Linked Focus Product Scheme extended for bicycle parts, Motor Cars and Motor Cycles, Apparels and Clothing accessories, Auto Components etc. for exports from 1.4.09 to 30.09.09; Higher Support for Market and Product Diversification extended in FTP, 2009-14: The incentive available under Focus Market Scheme (FMS) raised from 2.5% to 3%; The incentive available under Focus Product Scheme (FPS) raised from 1.25% to 2%; 26 new markets added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania; A large number of products (527 new products at 8 digit level and 82 new Handicraft products) from various sectors included for benefits under FPS; Market Linked Focus Product Scheme (MLFPS) greatly expanded by inclusion of products classified under as many as 1500 products at 8 digit level for export to 13 new countries (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand); MLFPS benefits also extended for export to additional new markets for certain existing products, like auto components, motor cars, bicycle and its parts and apparels, among others; Focus Product Scheme benefit extended for export of green technology products; and for exports of some products originating from the North East; Project Exports and a large number of manufactured goods covered under FPS and MLFPS;

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Adequate funds provided to ensure full refund of pending claims of CST / Terminal Excise duty /Duty drawback on deemed exports; Exporter friendly and the popular Duty Neutralization Scheme, i.e. Duty st Entitlement Passbook (DEPB) Scheme extended up to 31 December, 2010; DEPB rates for all items where they were reduced in November, 2008, restored to higher rates with retrospective effect and the ad hoc increase in DEPB rates from 1% to 3% since 2007, continued; Duty Drawback rates on certain items restored to higher rates effective from 1st September, 2008; Duty drawback rates retained at the same level in spite of reduction in Excise tariff across the board and customs tariff for few items; Duty drawback rates announced for the first time for precious metal jewellery items; DEPB and Freely Transferable Incentive Schemes provisionally allowed without awaiting receipt of Bank Realization Certificate (BRC); Export Obligation Period under Advance authorization Scheme enhanced from 24 months to 36 months without payment of composition fee; To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced for certain sectors. The scheme shall be in operation till 31.3.2011; To accelerate exports and encourage technological upgradation, additional Duty Credit Scrips shall be given to Status Holders @ 1% of the FOB value of past exports of certain sectors for procurement of capital goods. This facility shall be available up to 31.3.2011. Facility of non-recovery of incentives granted to exporters, subject to RBI specifically writing off the export proceed realization along with a certificate from Indian Missions abroad; A number of measures taken to reduce transaction cost for the exporters such as abolition of application fee on all incentive schemes; application fee reduced for duty neutralization schemes; target to implement e-Trade Project in a time bound manner to bring all stakeholders including Customs, DGFT, Banks, Ports, Airlines etc. on a common platform; Duty Neutralization Schemes such as Advance authorization and EPCG schemes brought under E-commerce mechanism; To promote Brand India through six or more Made in India Shows, to be organized across the World every year; Back-up guarantee made available to ECGC (Export credit Guarantee corporation) to the extent of Rs 350 crore to enable it to provide guarantees for exports to difficult markets/ products. ECGC is now able to widen its coverage; Additional funds provided to the Ministry of Textiles to clear the backlog claims of textile units under Technology Upgradation Fund (TUF);

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Additional resources made available under MDA (Marketing Development Assistance) and MAI (Market Access Initiative) Schemes; Additional items allowed within the existing duty free imports entitlement for the following employment oriented sectors: 5 additional items for sports goods sector; Additional items for leather garments and footwear and textile items. Fringe Benefit Tax (FBT) abolished; Sections 10A and 10B (Sunset clauses for STPI and EOUs schemes respectively), extended for the financial year 2010-2011. Anomaly removed in Section 10AA relating to taxation benefit of unit vis--vis assessee; Time period for filing refund claim increased to 1 year from the date of export (as against half-yearly). For Fast Track Resolution of a number of procedural issues thereby reducing delays for the exporters, a Committee constituted under the Chairmanship of Finance Secretary including Secretaries of Department of Revenue and Commerce; A number of issues sorted out accordingly; A Committee under the Chairmanship of Finance Secretary has been constituted to resolve all problems related to Non-availability of Dollar Credit to exporters by the concerned Banks; To enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments, a Directorate of Trade Remedy Measures proposed to be set up; Excise duty reduced across the board by 4 per cent, for all products except petroleum products and those products where current rate was less than 4%. Excise Duty was further reduced by another 2% on certain products like Leather etc.; The guarantee cover under Credit Guarantee Scheme for Micro and Small Enterprises on loans doubled to Rs. 1 crore, with a guarantee cover of 50%. The guarantee cover extended by Credit Guarantee Fund Trust increased to 85% for credit facility up to Rs. 5 lakh. The lock-in period for such collateral-free loans reduced. Adjustment Assistance Scheme, initiated in December 2008 to provide enhanced ECGC cover at 95% to the badly hit sectors, continued till March, 2010; To protect the domestic manufacturing industry from dumped/cheap imports, in particular, from China, import restrictions imposed on some items like auto forged components, HR coil, Carbon Black, Polyester Filament Yarn (PFY) and Radial Tyres (Bus & Trucks); subsequently withdrawn for PFY, HR Coils and Carbon black. Mega Handloom clusters in West Bengal and Tamil Nadu and Power loom cluster in Rajasthan and New Mega clusters for carpets in Srinagar and

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Mirzapur approved; Jaipur, Srinagar and Anantnag recognized as Towns of Export Excellence for handicrafts; Kanpur, Dewas and Ambur recognized for leather products; and Malihabad for horticultural products; Basic customs duty of 5% on Rough / Un-worked corals abolished; Regular monitoring mechanism:The situation is regularly monitored at the highest level of Government, so that immediate further corrective measures, can be taken as may be required. In this regard, the Government constituted the following Two High Level Committees for deliberating the issues on regular basis: An Apex Group chaired by Prime Minister with Finance Minister, Commerce Minister, Deputy Chairman (Planning Commission), and RBI Governor; Committee of officers chaired by Cabinet Secretary, including Finance Secretary, Commerce Secretary, Secretary(DIPP), Secretary (Planning Commission) - to meet regularly to look into the suggestions made by Trade and Industry, and the respective Administrative Ministries in respect of the current global economic and financial crisis, and to recommend action to the Apex Group. Department of MSME and Department of Financial Services to jointly monitor the progress of the monthly meetings of State level Bankers Committee for resolution of credit issues of MSME. (ii) (a) Measures taken by RBI: (Announced by RBI in the Monetary and Credit Policies) Increase in Liquidity to the Banks for Improving Credit Flow by Reducing CRR, SLR, Repo rate and Reverse Repo rate (from Oct 08, CRR reduced from 9% to 5% (now modified to 5.5% on 13.02.10 and to be enhanced to 5.75% w.e.f. 27.2.2010), SLR reduced from 25% to 24% (restored to 25% in Oct.09), Repo Rate reduced from 7.5% to 4.75%, and Reverse Repo Rate reduced from 6% to 3.25%). Refinance facility to the EXIM Bank for an amount of Rs. 5000 crore for providing pre-shipment and post-shipment credit in Rupees or US Dollars; A special re-finance facility put in place for banks for the purpose of extending finance to exports, micro and small enterprises, mutual funds and NBFCs. Provisioning requirements had been lowered. Export Credit Refinance facility for commercial banks increased to 50% (now restored to 15% on 27.10.2009) of the outstanding Rupee Export Credit. (b) Increase in FOREX Liquidity RBIs assurance for continued selling of foreign exchange (US $) through banks, to augment supply in the domestic foreign exchange market;

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Interest rates on export credit in foreign currency have been reduced to LIBOR + 200 basis points in February 2010 from the earlier LIBOR+350 basis points. (c) Easing of Credit Terms The period of pre-shipment and post-shipment Rupee Export Credit is enhanced by 90 days each; Time period of export realization for non-status holder exporters increased to 12 months, at par with the Status holders. This facility which was available up to 03.06.09 has been extended for one more year. PSU Banks, consequent to measures announced by RBI, reduced the margin money on Guarantees for export units.

IV. Impact of Global Financial Crisis on Indian Economy through Trade Channel
1.9 Impact through Exports 1.9.1 World Income and Exports The outlook for international trade was strongly affected during the global financial crisis, and world trade performance weakened considerably from the last quarter of 2008. The rising trend witnessed in the growth of world trade was reversed during the crisis, and it fell sharply and traversed to the negative zone from the fourth quarter of 2008. Advanced economies led this sharp deterioration in the initial period; however, the emerging and developing economies also caught the downswing. The contracting external demand from advanced economies on account of falling disposable income and heightened uncertainty spilled over to emerging markets and developing countries, concomitantly manifested in the declining international trade of these countries. Indias merchandise trade was also impacted by the falling consumption, particularly in advanced countries, and the slump in trade credit following tightening of international credit market conditions in the aftermath of the collapse of Lehman Brothers in USA in mid-September 2008. The cyclical co-movements between growth in Indias exports and external demand (GDP in world and advanced economies) were highly synchronised during

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the current global crisis. This shows that during normal times, other factors besides world income also play a pivotal role in driving the growth in exports, while the impact stemming from world GDP becomes overriding during a crisis. In view of Indias exports being highly elastic to world income, the effect of the contracting world income was reflected in the overall decline in merchandise exports from the third quarter of 2008-09. As per the export demand function estimated by Agarwala (1970), the income and price elasticity coefficients were 0.35 and -0.44, respectively. Another study by RBI (2003) found that short-term and long-term elasticity of demand for Indias exports with respect to world GDP growth was at 0.8 and 1.5, respectively. Further, with the latest data, the long-term elasticity of Indias exports demand was estimated at 3.7 with respect to world GDP (RBI, 2009). This confirms that with high global growth, the pull factor operating on Indias exports could be sizeable. The high income elasticity of exports with respect to world income is reflected across commodities, with their elasticity improving significantly during the reform period (1993-2008) compared with the 1980s. 1.9.2 Export and Economic Growth As discussed in the previous section, despite the dominant role of domestic demand in shaping the growth path, the role of trade in conditioning the growth process became increasingly important over time, which was also evident from a significant rise in the trade-GDP ratio in the recent period. The direct impact of exports on economic growth could be determined by trade openness and the acceleration in the growth of exports, which in turn could be determined by the elasticity of exports with respect to world income. Within the framework of growth accounting, the contribution of exports to economic growth was negligible during the first two decades after independence. Though it showed some improvement in the 1970s, this could not be sustained during the 1980s. During the reform period, the contribution of exports to economic growth increased during the 1990s, and more than doubled during the 2000s. It was 2.7% during 2003-08, 4.2% in 2008-09, and -3.9% during 2009-10.

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In order to further explore the relationship between exports and growth, the Granger causal analysis between GDP growth and exports growth, and trade deficit to GDP ratio was undertaken based on annual data during 1950-2008. The Granger Causality results provided two insights: first, the direction of causal relation between exports and GDP growth rates was from the former to the latter but not vice versa and, second, the direction of the causal relationship between the trade deficit ratio and economic growth was from the latter to the former, which is attributable to the role of imports demand driven by domestic economic activity. The compositional shift in the exports baskets towards technology-intensive commodities during the past few years, spurred by the prominence of exports in the Indian economy, is reflected in their increased contribution to growth. 1.9.3 Exports and Consumption The direct contribution of exports to aggregate demand assumed a critical mass and has become a crucial conduit of the trade channel of transmission. Several domestic and external developments which followed the global crisis contributed to the moderation of private consumption growth. Apart from the direct impact of exports on aggregate demand and growth, exports could indirectly affect growth through consumption and investment. In India, exports and private consumption demand seem to have displayed a close relationship during the recent period. There could be a number of indirect channels through which export demand could affect consumption. First, the manufacturing sector has become exportintensive over the period. The share of manufactured exports in manufacturing GDP in India has risen from 27.1 per cent in 1990-91 to 52.2 per cent in 2000-01, and further to 72.3 per cent in 2008-09. This significant export-orientation of manufacturing has also exposed the sector to external demand shocks. Furthermore, a large part of manufacturing exports (42 per cent) is accounted for by leather and manufactures, textile and textile products, gems and jewellery, and handicrafts, which are employment-intensive, and a major part of exports in these sectors is contributed by small and medium enterprises (SMEs). Thus, an external demand shock has a larger impact on output and employment in such industries,

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which has a direct bearing on domestic consumption demand. Furthermore, there are a number of small and medium enterprises (SMEs) that are dependent on the supply chain of the manufacturing export firms, which are also indirectly affected by the external demand shocks. 1.10 Impact on Exports: Trend and Composition The trade channel of the contagion that intensified in the post-September 2008 phase of the global financial crisis adversely impacted Indias merchandise trade, with exports declining with greater intensity and more swiftly than during the recession of the early 2000s, in tandem with the steeper recession in the developed countries. During 2008-09, the deceleration in growth of exports was modest in the case of manufacturing goods. As a result, share of non-oil exports as well as manufacturing goods exports in total exports increased by around 8 percentage points during 2008-09 over the past year. and productivity. In sum, this implies the cost competitiveness of the manufacturing sector on account of enhanced efficiency At a more disaggregated level, the major commodities that witnessed a decline in exports during 2008-09 were handicrafts, petroleum products, ores and minerals, and agricultural and allied products. The global crisis, however, had a more pronounced impact on Indias exports during 2009-2010 (April-September). All sectors including engineering, chemicals, gems and jewellery, and petroleum exports witnessed a decline in export growth. 1.10.1 Impact on Direction of Exports An empirical analysis is undertaken to assess how the broad direction of Indias exports to emerging market economies relative to developed countries was determined by the relative price competitiveness effect and real demand conditions. The long-run elasticity of the direction of Indias exports with respect to relative price was statistically significant and positive at 1.88, higher than the almost unitary elasticity coefficient with respect to relative real demand conditions. However, a significant structural shift since 1991-92 in the model led to a significant moderation of the relative price effect and improvement in the relative real demand effect. The price elasticity coefficient was reduced to 0.49,

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while the real demand effect improved to 1.44. The contraction in Indias exports since October 2008 was mainly conditioned by real demand effects emanating from the sharp fall in real activities in advanced and emerging market economies during the current global crisis (Reserve Bank of India. 2010. Report on Currency and Finance 2008-09). 1.10.2 Leading Exports by Commodities and Firms Engineering goods exports have assumed critical proportion in merchandise exports of India during the post-reforms period. The critical role of engineering and chemicals goods exports was evident during the global crisis. The exports of engineering goods maintained their growth momentum in 2008-09, with a significant acceleration in the growth of transport equipment. The exports of chemicals also remained resilient in 2008-09, albeit with some moderation in growth. The expansion of exports in these two sectors in 2008-09 accounted for the overall expansion of Indias total exports in 2008-09. In 2009-10 (AprilSeptember), the decline in engineering goods exports accounted for about a half of the decline in manufactured exports, and a third of Indias total exports. The significance of the engineering goods, chemicals and textiles industries within the manufacturing sector is evident from their principal economic characteristics. According to the Annual Survey of Industries (ASI) 2007-08 of the Central Statistical Organisation (CSO), the engineering goods sector accounted for about a third of aggregate investment, output, value added, and employment in the manufacturing sector. Engineering goods, chemicals, and textiles together accounted for 55 to 60 per cent of investment, output, value added, and employment in the manufacturing sector. The textiles sector, the third sector in importance after engineering and chemicals, accounted for 10 per cent of investment, 7.2 per cent of output, 6.3 per cent of value added, and over 22 per cent of employment. Therefore, engineering goods assume a critical proportion in the growth of the manufacturing sector in India, and the relative resilience displayed by the performance of engineering goods exports somewhat insulated the Indian industry from the shocks stemming from sagging external demand during the crisis (ibid.).

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In order to further ascertain the role of the trade channel in Indias growth, firm-level export orientation information was examined. The firm level export orientation also demonstrates the growing importance of trade channels in the growth of Indias manufacturing sector. An analysis of 1,500 companies from the CMIE database showed that the number of companies with exports-to-sales ratios of 20 per cent or above more than doubled between 1993-94 and 2007-08. Their share in manufacturing exports also increased substantially during this period. This trend in firm-level export orientation was the outcome of the increasing internationalisation of Indian companies. On the back of an increased export orientation, the global shocks spilled over to firms in the manufacturing sector through declining external demand for their products from the third quarter of 2008-09 (ibid.). 1.11 Impact through Imports Merchandise imports also caught the global downswings in the second half of 2008-09, offsetting part of the adverse impact of contracting exports. The growth in Indias imports plunged sharply during the third quarter of 2008-09, and subsequently contracted from the last quarter of 2008-09 to 2009-10 (AprilSeptember). A massive weakening of imports was witnessed in the case of crude oil, capital goods, and gold and silver. Imports, especially those of capital goods, are often considered a leading indicator of industrial activity and the near-term investment climate. A sizeable portion of imports gets channelised as inputs for industrial production. A definite relationship between imports and industrial production, however, may be difficult to establish as imported commodities could be either complements or substitutes to domestic industry. As a result, an empirical test of these relations remains largely country-specific. In the Indian case, however, non-oil imports, thus far, have been mostly in the form of capital goods, raw materials and intermediate goods, which complement industrial production. An analysis of import elasticity of output in India suggests that imports have grown at a much faster rate with respect to GDP in the 1990s compared to the 1980s, which is consistent with the liberalisation of external trade. The vital

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importance of imports for the producing sector was evident from the firm-level evidence. According to the CMIE database, the top 100 importing companies accounted for about half of the manufacturing exports in the late 1990s. By 2008, these companies accounted for 80 per cent of manufacturing exports. The import intensity of these firms, as percentage to sales, almost doubled during 1999 to 2008 (ibid.).

V. Heartening Rebound in World Trade

1.12 World Trade by Regions The World Trade Oranisation, in a recent report, has said that global trade is set to rebound in 2010 by 9.5 per cent, after witnessing the sharpest decline in 70 years during 2009 (Source: The Hindu, 5 April 2010).
Text Table 1.4: World Merchandise Trade by Regions, 2007-2009 (Annual % change at constant prices 2005 calculated in terms of trade volume) Region / Country 1 World North America United States South and Central America* Europe European Union (27) Common Wealth of Independent States (CIS) (12) Africa Middle East Asia China Japan India Newly industrialised economies(4)** 2007 2 6.4 4.8 6.7 3.3 4.2 4.0 7.5 4.8 4.5 11.7 19.8 9.4 14.4 9.0 Exports 2008 3 2.1 2.1 5.8 0.8 0.0 -0.1 2.2 0.7 2.3 5.5 8.6 2.3 14.4 4.9 2009 4 -12.2 -14.4 -13.9 -5.7 -14.4 -14.8 -9.5 -5.6 -4.9 -11.1 -10.5 -24.9 -6.2 -5.9 2007 5 6.1 2.0 1.1 17.6 4.4 4.1 19.9 13.8 14.6 8.2 13.8 1.3 18.7 5.3 Imports 2008 6 -2.2 -2.4 -3.7 13.3 -0.6 -0.8 16.3 14.1 14.6 4.7 3.8 -1.3 17.3 3.5 2009 7 -12.9 -16.3 -16.5 -16.3 -14.5 -14.5 -20.2 -5.6 -10.6 -7.9 2.8 -12.8 -4.4 -11.4

* Includes the caribbean ** Hong Kong, China; Republic of Korea; Singapore; and Chinese Taipei. Source: W TO Secretariat, as published in The Hindu dated April 5, 2010.

Exports from developed countries are expected to increase by 7.5 per cent in volume terms over the rest of the year (2010). Exports from the rest of the world (including developing economies) will go up by 11 per cent. These projections are in line with the overall growth estimates for the current year.

53 53

All international organisations expect the developing economies to be in the forefront of global economic recovery. A robust expansion in global trade is one of the key ingredients of the economic recovery. To place this in its proper perspective, it must be noted that while trade is expanding at a fast clip this year, it will not be quite sufficient to recover the ground lost in 2009. Last year, trade contracted by 12.2 per cent, the largest decline since World War II. The WTO, which compares trade volumes rather than the value of trade there will be no distortions due to exchange rate or commodity price variations says it will take another year of fast trade volume growth to surpass the level of 2008. On a positive note, a report prepared jointly by the WTO, the Organisation for Economic Co-operation and Development (OECD), and the United Nations Conference on Trade and Development (UNCTAD) says that the feared surge in protectionism has not happened even as economic recovery is proceeding apace. However, in the U.S. and a few other developed countries, it has been mostly a jobless recovery. If the recovery does not make a dent in unemployment numbers, there will be a clamour for protection. But on the whole the multilateral system of trade under the WTO has enabled an orderly conduct of trade both during the recession and the recovery phase. The WTO report found fewer instances of protectionism, at least in the recovery phase. It was a threat during the down turn. Most countries have managed the political process of keeping protectionism at bay despite growing unemployment and shrinkage of employment opportunities. Over the past six months, the number of restrictions on international trade has dropped sharply. Member countries of the WTO have resorted to emergency measures to block imports on fewer occasions. Such measures included antidumping levies, recourse to special safeguards mechanism, and imposition of countervailing duties. However, critics of the report contend that protectionism exists but in less traditional forms. For instance, the bailout of financial institutions and car companies, and Buy American procurement rules in the U.S are cited as examples of protectionism. The failure to move ahead with the Doha round of

54 54

trade talks is perhaps the most relevant example of lack of commitment among industrialised countries to free trade. 1.13 Sharp decline in 2009 The decline in trade volumes during 2009 was larger than the 10 per cent forecast earlier by the WTO. In dollar terms, the extent of fall was greater than the fall in volume terms (-23 per cent). To a large extent, that was due to fall in the prices of oil and other primary commodities. The U.S. dollar is used extensively in invoicing trade in these commodities. The principal cause has been a sharp fall in global demand. In rich countries, private demand was weak, a direct consequence of the financial crisis. Also, trade finance practically dried up, and that in turn weakened demand further. This was aggravated by the synchronized decline across many countries. No region or group of countries was spared. Exports and imports of countries fell at the same time. Also, at the height of the recession, households postponed buying of consumer durables and corporates deferred investing in capital goods. Two other factors that aggravated the decline were the large global supply chains and the fact that some products have a disproportionately large share of world trade compared with their share in overall output. The spread of global supply chains most probably exaggerated the fall in trade. This is because goods cross national boundaries several times in their production process leading to inflated trade statistics, both during trade booms and sharp declines. Some products, notably consumer durables, account for a significant percentage of trade. But their contribution to the GDP is much less. A decline in the trade of such goods has a significant impact on trade statistics but much less on gross output. World trade and output are now in a recovery phase. According to the WTO, without any further upheavals in the global economy, world merchandise trade should resume its normal upward trajectory through the end of 2010, although some deviation from its previous trend line will persist for a long time.

55 55

The WTO concedes that its trade forecasts may be overoptimistic. There may be a large appreciation or depreciation of currencies, and the resultant volatility in foreign exchange markets is not good for orderly trade. There could be a further rise in oil prices. World merchandise exports after declining for a year witnessed a turn around in November 2009. According to the latest monthly data available from International Monetary Funds (IMF) International Financial Statistics (IFS), since November 2009, the exports of the world, emerging and developing economies, and advanced economies have been following a continuous rising trend. Its influence is felt on India as well with the growth of exports becoming positive from October 2009, and moving faster from November 2009, and growth of imports becoming positive from November 2009, and moving faster from December 2009 (Table 1.1-C and Fig. 1.2) (Reserve Bank of India Bulletin, August 2010, p. 1693).

VI. Summing Up
The chapter covers the trends in the composition and direction of foreign trade of India during 1995-2010, gives a gist of recent foreign trade policies from 2004, deals with the impact of global financial crisis on Indias foreign trade during 2008-10, lists measures taken by Government of India and Reserve Bank of India during the period of recession, and reviews the global trends in merchandise trade during 2007-10. Indias efforts at diversification of export and import baskets, and export and import markets are in the desirable directions. Enhancing competitiveness of Indian enterprises for facing competition in the global markets, and also within the country is a pre-requisite for the success of enterprises. It is important that the Government of India in close consultation with industry associations periodically monitors global industrial environment, and takes appropriate measures for safeguarding the Indian industry in the era of greater integration with the global economy.

56

Table 1.1(A-1): Trends in India's Foreign Trade (1950-51 to 2009-10) - Year-wise and Plan Period-wise

Year 1 1950 -51 I PLAN 1951 -52 1952 -53 1953 -54 1954 -55 1955 -56 Annual Average II PLAN 1956 -57 1957 -58 1958 -59 1959 -60 1960 -61 Annual Average III PLAN 1961 -62 1962 -63 1963 -64 1964 -65 1965 -66 Annual Average
ANNUAL PLANS

Exports 2 606 716 578 531 593 609 605 605 561 581 640 642 606 660 685 793 816 810 753

% change 3

Imports 4 608

% change 5

(Value in Rs. crore) Exports Exports Imports Total Trade (% to (% to (% to Trade Balance Imports) GDP) GDP) 6 7 8 9 10 1214 -2 99.67 6.27 6.29 1606 1280 1141 1293 1383 1341 1446 1596 1487 1601 1764 1579 1750 1816 2016 2165 2219 1993 -174 -124 -79 -107 -165 -130 -236 -474 -325 -321 -480 -367 -430 -446 -430 -533 -599 -488 80.45 82.34 87.05 84.71 78.68 82.65 71.94 54.20 64.13 66.60 57.22 62.82 60.55 60.57 64.84 60.49 57.49 60.79 7.01 5.72 4.84 5.71 5.75 5.81 4.82 4.36 3.80 4.03 3.69 4.14 3.58 3.46 3.48 3.07 2.88 3.29 8.72 6.95 5.56 6.74 7.31 7.06 6.70 8.04 5.99 6.05 3.45 6.05 5.92 5.70 5.37 5.08 5.03 5.42

18.15 -19.27 -8.13 11.68 2.70 -0.17 -0.66 -7.27 3.57 10.15 0.31 0.17 2.80 3.79 15.77 2.90 -0.74 24.26

890 702 610 700 774 735 841 1035 906 961 1122 973 1090 1131 1223 1349 1409 1240

46.38 -21.12 -13.11 14.75 10.57 20.89 8.66 23.07 -12.46 6.07 16.75 32.38 -2.85 3.76 8.13 10.30 4.45 27.44

1966 -67 1967 -68 1968 -69 Annual Average IV PLAN 1969 -70 1970 -71 1971 -72 1972 -73 1973 -74 Annual Average V PLAN 1974 -75 1975 -76 1976 -77 1977 -78 1978 -79 Annual Average

1157 1199 1358 1238 1413 1535 1608 1971 2523 1810 3329 4036 5142 5408 5726 4728

42.84 3.63 13.26 64.41 4.05 8.63 4.76 22.57 28.01 46.20 31.95 21.24 27.40 5.17 5.88 161.22

2078 2008 1909 1998 1582 1634 1825 1867 2955 1973 4519 5265 5074 6020 6811 5538

47.48 -3.37 -4.93 61.13 -17.13 3.29 11.69 2.30 58.28 -1.25 52.93 16.51 -3.63 18.64 13.14 180.69

3235 3207 3267 3236 2995 3169 3433 3838 5478 3783 7848 9301 10216 11428 12537 10266

-921 -809 -551 -760 -169 -99 -217 104 -432 -163 -1190 -1229 68 -612 -1085 -810

55.68 59.71 71.14 62.18 89.32 93.94 88.11 105.57 85.38 92.46 73.67 76.66 101.34 89.83 84.07 85.11

3.65 3.23 3.45 3.44 3.26 3.32 3.25 3.61 3.80 3.45 4.24 4.79 5.67 5.26 5.14 5.02

6.55 5.41 4.85 5.60 3.65 3.53 3.69 3.42 4.45 3.75 5.76 6.25 5.59 5.86 6.12 5.92 (Contd.)

57

Table 1.1(A):

Trends in India's Foreign Trade (1950-51 to 2009-10) (Contd.) (Value in Rs. crore) Exports Exports Imports Trade (% to (% to (% to Balance Imports) GDP) GDP) 7 8 9 10

Year 1 ANNUAL PLAN 1979-80 VI PLAN 1980 -81 1981 -82 1982 -83 1983 -84 1984 -85 Annual Average VII PLAN 1985 -86 1986 -87 1987 -88 1988 -89 1989 -90 Annual Average ANNUAL PLANS 1990 - 91 1991 - 92 Annual Average VIII PLAN 1992 - 93 1993 - 94 1994 - 95 1995 - 96 1996 - 97 Annual Average IX PLAN 1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02 Annual Average X PLAN 2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07 Annual Average XI PLAN 2007 - 08 2008 - 09 2009 - 10 (R)

Exports 2

%change 3

Imports 4

%change 5

Total Trade 6

6418 6711 7806 8803 9771 11744 8967 10895 12452 15674 20232 27658 17382

12.09 4.60 16.32 12.77 11.00 20.19 89.66 -7.23 14.29 25.88 29.08 36.70 93.84

9143 12549 13608 14293 15831 17134 14683 19658 20096 22244 28235 35328 25112

34.24 37.25 8.44 5.03 10.76 8.23 165.13 14.73 2.23 10.69 26.93 25.12 71.03

15561 19260 21414 23096 25602 28878 23650 30553 32548 37918 48467 62986 42494

-2725 -5838 -5802 -5490 -6060 -5390 -5716 -8763 -7644 -6570 -8003 -7670 -7730

70.2 53.48 57.36 61.59 61.72 68.54 60.54 55.42 61.96 70.46 71.66 78.29 67.56

5.25 4.62 4.57 4.61 4.39 3.87 4.41 3.87 3.96 4.38 4.77 5.67 4.53

7.48 8.63 7.97 7.48 7.12 6.87 7.61 6.99 6.38 6.22 6.65 7.24 6.70

32553 44041 38297 53688 69751 82674 106353 118817 86257 130100 139752 159561 203571 209018 168400 255137 293367 375340 456418 571779 390408 655864 840755 845125

17.70 35.29 120.33 21.90 29.92 18.53 28.64 11.72 125.23 9.50 7.42 14.17 27.58 2.68

43198 47851 45525 63375 73101 89971 122678 138920 97609 154176 178332 215236 230873 245200

22.28 10.77 81.29 32.44 15.35 23.08 36.35 13.24

75751 91892 83821.5 117063 142852 172645 229031 257737

-10645 -3810 -7227.5 -9687 -3350 -7297 -16325 -20103

75.36 92.04 83.70 84.71 95.42 91.89 86.69 85.53 88.85 84.38 78.37 74.13 88.17 85.24 82.06 85.85 81.69 74.91 69.11 68.03 75.92 64.79 61.2 62.3

5.72 6.73 6.23 7.13 8.06 8.14 8.92 8.62 8.17 8.52 7.98 8.15 9.58 9.17 8.68 10.39 10.65 11.92 12.73 13.85 11.91 14.44 16.08
na

7.39 7.31 7.35 8.42 8.45 8.86 10.29 10.08 9.22 10.10 10.18 11.04 10.86 10.76 10.59 12.11 13.04 15.91 18.41 20.30 15.95 22.29 26.29
na

114.41 183865.6 -11352.4 10.98 15.67 20.69 7.27 6.21 284276 318084 374797 434444 454218 -24076 -38580 -55675 -27302 -36182 -36363 -42069 -65741 -125725 -203991 -268727 -141251 -356448 -533681 -511343

95.23 204763.4 22.06 14.98 27.94 21.60 25.28 297206 359108 501065 660409 840506

109.78 373163.8 21.21 552343 20.83 652475 39.53 876405 31.80 1116827 27.27 1412285 159.65 922067

131.83 531658.8 14.71 1012312 28.19 1374436 0.52 1356469

20.44 1668176 35.77 2215191 -1.31 2201594

(Concld.)

58

R: Revised Sources: 1) Reserve Bank of India (2009), Handbook of StatIstics on Indian Economy 2008-09 , Mumbai. www.rbi.org.in 2) RBI (2010), Reserve Bank of India Bulletin, vol.64 No.8, August 2010, p. s 848. 3) Economic Survey 2009-10 , Government of India, New Delhi, and earlier Issues. 4) Exports and Imports as % of GDP obtained from CMIE volume on Foreign Trade and Balance of Payments , October 2009. Wherever necessary, figures have been updated, using RBI sources.

Table 1.1(A-2):

CAGR for Exports and Imports (%) Value in US $ million Exports 6.94 17.80 12.24 22.04 25.35 Imports 11.63 17.56 14.56 28.46 32.59

Period 1994-00 1999-05 1994-05 2004-09 2002-08

Value in Rs. crore Exports 14.05 18.66 16.33 22.34 20.78 Imports 19.06 18.41 18.74 28.69 27.78

59 Table 1.1(B-1): Trends in India's Foreign Trade (1960-2010) (broad periods up to 1994-95, and year-wise thereafter) (Value in US $ million) Trade Exports Imports (% Exports Imports Exports Imports Balance (% change) change) (% to GDP) (% to GDP) 2 3 4 5 6 7 8 1346 2353 -1007 0.2 16.7 3.69 6.45 2031 2162 -131 8.8 3.5 3.32 3.53 8486 15869 -7383 6.8 40.2 4.62 8.63 18143 24075 -5932 9.2 13.5 5.72 7.39 26330 28654 -2324 18.4 22.9 8.14 8.86 31797 36678 -4881 20.8 28.0 8.92 10.29 33470 39133 -5663 5.3 6.7 8.62 10.08 35006 41484 -6478 4.6 6.0 8.52 10.1 33218 42389 -9171 -5.1 2.2 7.98 10.18 36822 49671 -12849 10.8 17.2 8.15 11.84 44560 50536 -5976 21.0 1.7 9.58 10.86 43827 51413 -7587 -1.6 1.7 9.17 10.76 52719 61412 -8693 20.3 19.4 10.39 12.11 63843 78149 -14307 21.1 27.3 10.65 13.04 83536 111517 -27981 30.8 42.7 11.92 15.91 103091 149166 -46075 23.4 33.8 12.73 18.41 126414 185735 -59321 22.6 24.5 13.87 20.37 163132 251654 -88522 29 35.5 13.9 21.4 185295 303696 -118401 13.6 20.7 16 26.2 178662 286823 -108161 -3.6 -5.6 na na Table 1.1(B-2): Period 1994-00 1999-05 1994-05 2004-09 2002-08 Notes: R : Revised % change mentioned in columns 5 and 6 is over the previous year for all years. One US $ equals around Indian Rs.47 in 2010. One billion equals 1000 millions or 100 crores; one million equals 10 lakhs. CAGR (Compound Annual Growth Rate) is worked out for specified periods of a few years indicating the annual average during each period, whereas change of one year over the previous year is presented annually. Both are expressed as percentages, and refer to annual changes. For purposes of analysis, per cent change and per cent share are extensively used. 5. Karl Pearson's correlation coefficient (r): between % change in exports and imports for the period 1994-95 to 2009-10 (in terms of values in US $) reveals very high degree of positive correlation between the two variables ---- r = 0.8671. Sources: 1) GOI, Economic Survey 2009-10 , and earlier issues, New Delhi. 2) Reserve Bank of India (RBI) (2010), Reserve Bank of India Bulletin, Vol.64 No.8, August 2010, p. S 849. 3) Exports and Imports as % of GDP obtained from CMIE volume on Foreign Trade and Balance of Payments, October 2009. Wherever necessary, figures have been updated using RBI sources. 1. 2. 3. 4. CAGR for Exports and Imports (%) Value in Rs. crore Exports Imports 14.05 19.06 18.66 18.41 16.33 18.74 22.34 28.69 20.78 27.78

Year 1 1960-61 1970-71 1980-81 1990-91 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(R)

Value in US $ million Exports Imports 6.94 11.63 17.80 17.56 12.24 14.56 22.04 28.46 25.35 32.59

60 Table 1.1(C): India's Foreign Trade - Annual and Monthly (2004-10) (in US $ million) Year/month 1 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (R) 2007-08 April May June July August September October November December January February March 2008-09 April May June July August September October November December January February March 2009-10 (R) April May June July August September October November December January February March Export 2 83536 (30.8) 103091 (23.4) 126414 (22.6) 163132 (29.0) 185295 (13.6) 178662 (-3.6) 11327 12456 12101 12513 12641 12521 14675 12909 14625 14889 15116 17254 18460 (63.0) 18687 (50.0) 19181 (58.5) 19030 (52.1) 17759 (40.5) 15789 (26.1) 14131 (-3.7) 11163 (-13.5) 13368 (-8.6) 12869 (-13.6) 11941 (-21.0) 12916 (-25.1) 12475 (-32.4) 12316 (-34.1) 13606 (-29.1) 14341 (-24.6) 13586 (-23.5) 14624 (-7.3) 14805 (4.8) 14933 (33.8) 16512 (23.5) 15569 (21.0) 15717 (31.6) 20181 (56.2) Import 3 111517 (42.7) 149166 (33.8) 185735 (24.5) 251654 (35.5) 303696 (20.8) 286823 (-5.6) 18371 21150 20016 21129 20366 18217 21833 22104 20117 22844 20804 23574 30317 (65.0) 29444 (39.2) 28951 (44.6) 31625 (49.7) 33523 (64.6) 31136 (70.9) 25869 (18.5) 23488 (6.3) 19456 (-3.3) 18228 (-20.2) 15062 (-27.6) 16597 (-29.6) 19228 (-36.6) 20011 (-32.0) 23013 (-20.5) 21683 (-31.4) 22440 (-33.1) 21464 (-31.1) 25390 (-1.9) 24787 (5.5) 28191 (44.9) 25245 (38.5) 25980 (72.5) 29391 (77.1) Trade Balance 4 -27981 -46075 -59321 -88535 -118401 -108161 -7044 -8694 -7915 -8616 -7725 -5696 -7158 -9195 -5492 -7955 -5688 -6320 -11857 -10757 -9770 -12595 -15764 -15347 -11738 -12325 -6088 -5359 -3121 -3681 -6753 -7695 -9408 -7343 -8854 -6840 -10585 -9855 -11679 -9675 -10263 -9211

Notes: 1. Monthly data may not add up to the annual data on account of revision in figures. (R): Revised 2. Figures in parentheses denote percentage variation over the corresponding period of the previous year (year-on-year variation). Source: Director General of Commercial Intelligence and Statistics (DGCI & S), as published in Reserve Bank of India Bulletin , August 2010, Vol. 64 No. 8, p. S849.

61

Table 1.2: Indices of Quantity and Unit Value of Exports and Imports (Base : 1978-79 = 100) Quantum Index Unit Value Index Net terms Year Exports Imports Exports Imports of trade 1 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2 55.7 59.0 59.2 66.5 69.5 73.7 81.7 96.8 93.2 100.0 106.2 108.1 110.1 116.7 113.0 120.8 111.3 121.3 140.0 152.1 174.9 194.1 208.6 222.9 257.5 292.7 384.3 411.8 386.0 399.2 461.0 (Base 125.0 126.0 150.0 161.0 179.0 206.0 227.0 245.0 267.0 3 4 64.9 44.0 67.2 45.0 80.6 46.0 76.7 51.2 87.2 62.2 77.2 78.0 76.0 83.9 76.1 89.4 100.0 100.3 100.0 100.0 116.4 105.4 137.9 108.5 150.6 124.1 154.6 132.0 185.4 151.0 156.1 169.8 182.3 170.8 212.3 179.4 204.8 195.4 224.2 232.2 227.8 276.6 237.7 292.5 228.0 369.5 282.0 421.5 329.1 474.1 408.3 494.6 514.8 484.2 511.8 504.7 562.1 589.4 644.2 611.7 704.8 604.5 : 1999-2000 = 100) 99.0 102.0 103.0 103.0 109.0 106.0 128.0 114.0 150.0 131.0 174.0 139.0 191.0 158.0 218.0 166.0 262.0 194.0 5 35.2 35.3 32.8 34.2 48.9 84.5 99.1 96.3 88.0 100.0 114.1 134.2 133.1 136.3 125.8 161.7 158.8 139.4 160.0 185.5 228.4 267.7 309.1 331.0 327.2 324.6 351.0 399.8 404.2 407.8 450.5 109.0 112.0 128.0 132.0 157.0 179.0 206.0 210.0 239.0 6 125.0 127.4 140.2 149.7 127.2 92.3 84.7 92.9 114.0 100.0 92.4 80.8 93.2 96.8 120.0 105.0 107.6 128.6 122.1 125.2 121.1 109.3 119.5 127.3 144.9 152.4 137.9 126.2 145.8 150.0 134.2 94.0 92.0 83.0 86.0 83.0 78.0 77.0 79.0 81.0

Source: DGCI&S, obtained from Government of India, Ministry of Finance, Economic division (2010), Economic Survey 2009-10 , and earlier issues, Oxford University Press, New Delhi

62

Table 1.3(A): Composition of Principal Imports (1995-2010) Commodity Group I. 1 Food and live animals chiefly for food (excl. cashew raw), of which: 1. Cereals and cereal preparations Raw materials and intermediate manufactures 2. Cashewnuts (unprocessed) 3. Crude rubber (including synthetic and reclaimed) 4. Fibres, of which: 4.1 Raw wool 4.2 Raw cotton 5. Petroleum, oil and lubricants 6. Animal and vegetable oils fats, of which: 6.1 Edible oils 7. Fertizers and chemicals products, of which: 7.1 Fertizers and fertilizer mfg 7.2 Chemicals 8. Non-metallic mineral manufactures, of which: 8.1 Pearls, precious and semi precious stones, unworked or worked 9. Iron and steel 10. Non-ferrous metals Capital goods Total Imports 1995-96 2 ----24 ----227 215 ----145 156 7526 ----676 ----1683 2811 ----2106 1446 904 8458 36678 ----211 152 ----100 259 15650 ----1334 ----664 338 ----4838 781 539 5534 50536 2000-01 3 ----20 ----472 414 ----204 159 43964 ----2024 ----1091 8037 ----9135 4572 13162 23523 149167 2005-06 4 ----36 2007-08 5 ----705 ----426 786 ----271 227 79645 ----2559 ----5044 11522 ----7972 8689 21372 49007 251654 ----581 861 ----225 368 91316 ----3440 ----12953 2090 ----16554 9466 27544 47080 303696 ----153 195 63337 ----1458 ----7571 8857 ----10455 5128 20169 25411 184996 2008-09 (April-Mar) 6 ----47 ----409 570 ----94 110 37338 ----2443 ----3071 6727 ----5432 3872 13059 17744 124194 (in US $ million) 2008-09 2009-10 (April-Sep.) (April-Sep) 7 8 ----22 ----361 479 ----21

II.

III. IV.

Source : GOI, Economic Survey 2009-10 , and earlier issues.

63

Table 1.3(B):

Percentage Share of Principal Imports (1995-2010) Percentage Share ( in terms of US $ million) 2008-09 2008-09 2000-01 2005-06 2007-08 (April-Mar) (April-Sep) 3 4 5 6 7 3.7 2.5 ----0.4 0.3 1.4 32.1 2.6 29.5 1.3 2.3 0.3 0.5 0.2 1.0 34.2 2.6 31.6 2.0 2.1 0.0 0.4 0.2 1.1 33.4 3.3 30.1 4.3 1.5 0.0 0.3 0.2 0.8 37.3 3.1 34.2 4.1

Commodity Group 1 Food and allied products, of which: 1. Cereals 2. Pulses 3. Cashew nuts 4. Edible oils II. Fuel, of which 5. Coal 6. POL III. Fertilizers IV. Paper board manufactures & newsprint V. Capital goods, of which: 7. Machinery except elec & machine tool 8. Electrical machinery except electronic goods I. 9. Transport equipment 10. Project goods VI. Others, of which: 11. Chemicals 12. Pearls, precious and semi-precious stones 13. Iron & steel 14. Non-ferrous metals 15. Gold & Silver 16. Professional instruments, optical goods, etc. 17. Electronic Goods Total Imports

1995-96 2 neg 0.1 0.6 0.6 1.8 na 20.5 2.5 4.6

2009-10 (April-Sep) 8 3.5 0.0 0.6 0.3 2.0 33.2 3.1 30.1 2.5

neg 0.2 0.4 2.6 33.2 2.2 31.0 1.5

1.3 28.2 10.7

0.9 11.0 5.4

0.6 15.8 7.4

0.6 19.5 8.8

0.6 15.5 7.8

0.5 13.7 7.3

0.6 14.3 8.2

1.1 3.0 6.5 na 7.6

1.0 1.9 1.5 29.6 6.7

1.0 5.9 0.6 43.7 5.7

1.1 8.0 0.5 38.9 4.9

1.2 4.4 1.1 40.0 5.0

1.2 3.6 0.8 40.8 5.1

1.2 2.3 1.7 43.4 5.8

5.7 3.9 2.5 na

9.6 1.4 1.1 9.2

6.1 3.1 1.2 7.6

3.2 3.5 1.4 7.1

5.5 3.1 1.9 7.2

5.7 2.8 2.6 8.3

4.4 3.1 1.2 9.3

1.8 4.8 100.0

1.7 ----100.0

1.3 9.5 100.0

1.5 8.0 100.0

1.4 7.7 100.0

1.3 7.0 100.0

1.5 8.6 100.0

Source : GOI, Economic Survey 2009-10 , and earlier issues. neg: Negligible na : Not Avaliable

64

Table 1.3(C):

Percentage Change of Principal Imports (1995-2010)

Commodity Group 1 Food and allied products, of which: 1. Cereals 2. Pulses 3. Cashew nuts 4. Edible oils II. Fuel, of which 5. Coal 6. POL III. Fertilizers IV. Paper board manufactures & newsprint V. Capital goods, of which: 7. Machinery except elec & machine tool 8. Electrical machinery except electronic goods I. 9. Transport equipments 10. Project goods VI. Others, of which: 11. Chemicals 12. Pearls, precious and semi-precious stones 13. Iron & steel 14. Non-ferrous metals 15. Gold & Silver 16. Professional instruments, optical goods, etc. 17. Electronic Goods Total Imports

Percentage Change over the previous year ( in terms of US $ million) 2008-09 2008-09 2009-10 1995-96 2000-01 2005-06 2007-08 (April-Mar) (April-Sep) (April-Sep) 2 3 4 5 6 7 8 na -18.4 8.5 3.2 240.1 na 27.0 30.6 59.9 -35.0 -91.3 33.4 -23.8 -28.2 23.0 9.7 24.1 -46.1 -4.7 36.8 41.3 17.5 -17.9 44.8 21.0 47.3 59.4 8.5 -46.8 55.2 5.8 21.4 39.4 40.4 39.4 66.2 9.1 -93.3 -2.4 36.4 34.4 17.7 55.5 14.7 156.8 9.7 32.6 -10.3 78.7 4.7 84.1 99.3 22.8 249.4 52.9 -6.7 40.0 -11.9 67.6 -40.3 -32.2 -41.0 -59.4

92.3 35.2 43.8

1.1 -7.3 -0.9

29.8 62.5 49.0

18.1 62.7 43.9

24.2 -3.9 7.7

44.3 71.7 46.6

-29.0 -30.2 -24.2

53.8 -0.7 29.0 na 21.8

11.3 -16.2 -23.0 -8.1 -14.7

25.9 104.2 48.0 21.1 23.2

46.5 113.1 -28.0 22.7 25.8

27.7 -34.3 146.6 23.8 23.0

82.3 134.9 142.1 46.5 59.0

-29.1 -57.3 35.3 -28.6 -23.3

29.2 24.2 25.9 na

-11.0 -13.1 -1.5 4.1

-3.1 71.3 40.8 1.5

6.5 35.2 34.6 22.0

107.7 8.9 62.5 22.3

122.2 14.5 197.2 32.3

-48.0 -24.5 -69.1 -24.9

36.0 42.7 28.0

-1.4 na 1.7

28.9 32.5 33.8

66.6 26.5 35.5

12.7 15.3 20.7

31.1 31.1 55.1

-22.7 -17.7 -32.9

Source : GOI, Economic Survey 2009-10 , and earlier issues.

65

Table 1.4(A): Composition of Principal Exports (1995-2010) Commodity Group 1 I. 2 Agricultural and allied Products, of which: 1. Raw cotton 2. Tobacco 3. Spices 1995-96 3 6320 61 134 237 915 515 23984 ----2577 3676 1731 6129 5275 2945 4358 526 31797 2000-01 4 6256 448 191 354 906 358 35181 ----3509 5577 1951 1116 7384 5002 6976 1931 44560 2005-06 5 10549 656 300 478 5361 3801 74200 ----3945 8572 2691 1284 15529 11935 21315 11867 103092 2007-08 6 16202 2202 480 1072 9051 5812 104618 ----4653 9687 3396 1434 19679 17371 37220 29030 163132 (in US $ million) 2008-09 2008-09 2009-10 (April-Mar) (April-Sep) (April-Sep) 7 16914 623 753 1378 7726 4724 123110 ----4116 10936 3464 1063 27958 18635 47155 27686 185295 8 9955 387 390 773 4428 2508 70559 ----2353 5409 2016 600 17370 10238 27018 19397 108907 9 6878 258 454 567 2851 1685 52967 ----1528 4862 1529 398 13596 8345 18239 10859 76589

II.

Ores and minerals (excl. coal), of which: 4. Iron ore (million tonnes) III. Manufactured goods, of which: 5. Textile fabrics & manufactures (excl. carpets hand-made), of which: 6. Cotton yarn, fabrics, made-ups, etc. 7. Readymade garments of all textile materials 8. Leather & leather manufactures, incl. leather footwear, leather travel goods & leather garments 9. Handicrafts (incl. carpets hand-made), of which: 9.1 Gems and Jewellery 10. Chemicals and allied products 11. Machinery, transport & metal manufactures including iron and steel IV. Mineral fuels and lubricants (incl.coal) V. Total Exports

Source : GOI, Economic Survey 2009-10 , and earlier issues.

66 Table 1.4(B): Percentage Share of Principal Exports (1995-2010) Percentage Share (in terms of US $ million) 2008-09 2008-09 2000-01 2005-06 2007-08 (April-Mar) (April-Sep) 3 4 5 6 7 13.5 0.1 0.3 0.8 1.7 1.0 3.1 2.6 0.8 78.0 2.9 0.9 16.6 10.2 0.6 0.2 0.5 0.1 1.1 1.5 5.2 3.7 72.0 1.7 1.0 15.1 9.9 1.3 0.2 0.6 2.2 1.2 1.1 5.5 3.6 64.1 2.1 0.7 12.1 9.1 0.3 0.3 0.7 1.8 1.2 0.8 4.2 2.5 66.4 1.9 0.7 15.1 9.1 0.4 0.3 0.7 1.9 1.0 0.7 4.1 2.3 64.8 1.9 0.6 15.9

Commodity Group 1 Agricullture & allied, of which: 1. Raw Cotton 2. Unmfg. Tobacco 3. Spices 4. Cereals 5. Oil Meals 6. Marine Products II. Ores and Minerals, of which: 7. Iron Ore III. Manufactured goods, of which: 8. Leather & Manufactures 9. Leather footwear I. 10. Gems & Jewellerly 11. Drugs, Pharmaceuticals & fine chemicals 12. Cotton yarn, fabs, made-ups, etc. 13. Readymade Garments 14. Handicrafts 15. Electronic Goods 16. Manufactures of metals 17. Machinery & instruments 18. Transport equipments 19. Primary & semifinished Iron & Steel IV. Crude & Petroleum Products (incl. Coal) V. Other & unclassified items Total Exports

1995-96 2 19.1 0.2 0.4 0.7 na 2.2 3.2 3.7 1.6 74.7 5.5 na 16.6

2009-10 (April-Sep) 8 9.0 0.3 0.5 0.7 2.2 0.9 1.0 3.7 2.2 69.2 2.0 0.8 17.8

3.2 8.1 11.6 na na na na na na

4.3 7.9 12.5 3.1 2.4 3.6 3.7 2.4 2.0

4.8 3.8 8.3 1.2 2.1 4.1 4.7 4.2 2.9

4.7 2.9 5.9 0.3 2.1 4.3 5.6 4.3 2.5

4.7 2.2 5.9 0.2 3.9 4.1 5.9 6.0 2.6

4.0 2.2 5.0 0.2 3.5 3.7 5.4 5.5 3.1

5.2 2.2 6.3 0.1 4.0 2.5 6.1 6.4 1.5

1.4 na 100.0

4.2 1.7 100.0

11.5 1.1 100.0

17.8 2.5 100.0

14.9 4.0 100.0

17.8 4.0 100.0

14.2 3.9 100.0

Source : GOI, Economic Survey 2009-10 , and earlier issues.

67

Table 1.4(C): Percentage Change of Principal Exports (1995-2010) Percentage Change over the previous year (in terms of US $ million) 2008-09 2008-09 2009-10 1995-96 2000-01 2005-06 2007-08 (April-Mar) (April-Sep) (April-Sep) 2 3 4 5 6 7 8 43.9 36.6 64.7 21.6 na 22.6 -10.3 18.9 24.6 16.4 8.8 na 17.2 7.1 175.8 -22.8 -13.1 2.8 18.4 17.9 26.5 31.9 16.9 33.5 1.6 -1.5 19.8 596.7 10.2 14.0 -42.0 55.7 10.4 17.4 16.0 19.6 7.4 18.1 12.8 43.0 63.1 28.7 49.6 116.2 66.2 -2.7 30.5 49.0 21.8 16.1 20.5 23.2 4.4 -71.7 69.0 32.0 -10.5 10.4 -10.7 -14.6 -18.7 17.7 1.5 6.0 42.1 53.7 35.0 84.8 55.5 65.8 141.3 -9.2 27.2 33.7 45.4 17.6 20.5 82.4 -30.9 -33.3 21.2 -26.6 -19.8 -41.0 -3.3 -35.6 -32.8 -24.9 -24.2 -14.4 -21.7

Commodity Group 1 Agricullture & allied, of which: 1. Raw Cotton 2. Unmfg. Tobacco 3. Spices 4. Cereals 5. Oil Meals 6. Marine Products II. Ores and Minerals, of which: 7. Iron Ore III. Manufactured goods, of which: 8. Leather & Manufactures 9. Leather footwear I. 10. Gems & Jewellery 11. Drugs, Pharmaceuticals & fine chemicals 12. Cotton yarn, fabs, made-ups, etc. 13. Readymade Garments 14. Handicrafts 15. Electronic Goods 16. Manufactures of metals 17. Machinery & instruments 18. Transport equipments 19. Primary & semifinished Iron & Steel IV. Crude & Petroleum Products (incl. Coal) V. Other & unclassified items Total Exports

69.8

15.7

27.4

28.5

15.0

26.2

-9.3

15.4 12.0 na na na na na na

13.6 17.0 2.2 57.5 31.3 37.7 30.5 20.8

14.3 30.6 30.3 18.5 24.6 30.6 52.8 -14.4

10.2 8.9 16.0 19.1 38.8 35.8 41.9 -5.1

-11.5 12.9 -40.8 104.2 7.1 19.9 58.8 14.0

4.2 14.3 -36.4 139.9 31.3 41.0 86.5 69.8

-35.1 -10.1 -43.6 -19.7 -34.5 -20.8 -18.4 -65.8

8.8 na 20.8

6212.4 35.9 21.0

66.2 12.0 23.4

53.6 21.0 29.0

-4.6 84.5 13.6

49.9 109.6 48.1

-44.0 -31.3 -29.7

Source : GOI, Economic Survey 2009-10 , and earlier issues.

68

Table 1.5(A) : Direction of India's Imports by Regions (1995-2008) (in US $ million) CAGR (%) during 1996-01 2001-06 2006-08 7 8 9 1.0 20.8 29.9 0.4 19.1 21.0 -4.3 24.9 48.9 -3.4 25.3 25.3 23.9 -18.9 -12.7 6.5 5.7 12.6 5.3 12.0 3.6 ----6.6 16.7 33.0 34.9 27.7 29.2 24.8 29.4 18.9 30.9 23.2 24.2 36.6 61.0 17.8 45.9 45.1 22.2 46.2 47.8 51.0 -77.7 29.9

1 I.

II. III. IV.

Group / Region 2 OECD Countries a. EU b. North America c. Asia & Oceania d. Other OECD Countries OPEC Eastern Europe Developing Countries a. Asia (i) SAARC (ii) Other Asian developing countries b. Africa c. Latin America Other / Unspecilfied countries Grand Total

1995-96 3 19209 (52.4 ) 10303 (28.1) 4243 (11.6) 3552 (9.7) 1112 (3.0) 7644 (20.8) 1674 (4.6) 8145 (22.2) 6426 (17.5) 257 (0.7) 6169 (16.8) 1132 (3.1) 587 (1.6)

2000-01 2005-06 2007-08 4 5 6 20158 (39.9) 51797 (34.7) 87445 (34.8) 10510 (20.8) 25151 (16.8) 36810 (14.7) 3412 (6.8) 10375 (7.0) 22992 (9.1) 2984 (5.9) 9226 (6.2) 14496 (5.8) 3251 (6.4) 2689 (5.3) 850 (1.7) 7045 (4.7) 13147 (5.2) 11171 (7.5) 76076 (30.2) 3794 (2.6) 5264 (2.1)

11156 (22.1) 37891 (25.4) 80648 (32.0) 8460 (16.8) 30451 (20.4) 64142 (25.5) 466 (1.0) 1413 (0.9) 2111 (0.8) 7994 (15.8) 29037 (19.5) 62030 (24.7) 1996 (3.9) 4742 (3.2) 10356 (4.1) 701 (1.4) 2698 (1.8) 6151 (2.4)

V.

3 (-) 15683 (31.0) 44514 (29.8) 2221 (0.9) 36675 (100) 50537 (100) 149166 (100) 251654 (100)

Note: Figures in parentheses indicate percentage share to column totals. Compound annual growth rate (CAGR) has been worked out for specified periods. Source : RBI (2009), Handbook of Statistics on Indian Economy 2008-09 , Mumbai.

69

Table 1.5(B): Direction of India's Imports by Regions and Countries (2007-10) (in US $ million) April-September % Share 2009 Change 2009 (%) 7 8 9 23712 -32.3 19.1 16805 -32.0 13.5 4751 -24.9 3.8 2099 -37.5 1.7 8657 -27.6 7.0 11740 -34.0 9.5 8328 -26.8 6.7 7393 -27.5 6.0 3411 -46.8 2.7 76188 -34.3 61.3 5409 -21.1 4.4 11857 -18.9 9.5 33695 -43.9 27.1 24443 -26.6 19.7 14907 -20.9 12.0 3123 -29.8 2.5 783 -26.8 0.6 2813 -23.6 2.3 1085 63.6 0.9 124194 -32.9 100.0

Region / Country 1 Europe a. EU a.1 Germany a.2 UK Africa America a. North America a.1 USA b. Latin America Asia and ASEAN a. East Asia b. ASEAN c. Wana d. North East Asia d.1 China P RP d.2 Japan e, South Asia - SAARC CIS and Baltics Unspecified Region Total Imports

2007-08 2 51579 38450 9885 4954 14928 29606 23048 21067 6557 149949 8356 22675 72015 44785 27146 6326 2117 3788 1805 251654

2008-09 3 57262 42733 12006 5872 18904 30984 21020 18561 9964 188474 11788 26203 90208 58456 32497 7886 1818 6627 1445 303696

I.

II. III.

IV.

V VI.

Share % 2008-09 Change (%) 4 5 11.0 18.9 11.1 14.1 21.5 4.0 18.5 1.9 26.6 6.2 4.7 10.2 -8.8 6.9 -11.9 6.1 52.0 3.3 25.7 62.1 41.1 3.9 15.6 8.6 25.3 29.7 30.5 19.2 19.7 10.7 24.7 2.6 -14.1 0.6 75.0 2.2 -20.0 0.5 20.7 100.0

2008 6 35015 24716 6325 3360 11961 17796 11382 10197 6414 115879 6857 14621 60034 33297 18853 4448 1070 3681 663 184996

Source: GOI, Economic Survey 2009-10 , pp. A90 - A94.

70

Table 1.5(C): Top 10 Countries of India's Imports: All Commodities - Value and Percentage Share (1998 - 2009) (value in US $ million) 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2 3 4 5 6 7 8 9 10 11 12 42379 49799 50056 51588 61533 78203 111472 149144 185081 249791 290667 1096 1288 1495 2043 2798 4056 7095 10866 17449 27116 31384 1721 2337 654 918 959 2061 4639 4353 8652 13477 20638 1831 3021 619 466 506 738 1301 1632 13375 19411 19524 3639 3568 2844 3160 4452 5038 6998 9453 11728 21030 18192 474 1253 212 285 259 267 410 702 7623 10921 12153 2140 1844 1752 2035 2409 2921 4014 6023 7541 9875 11713 2942 2603 3149 2881 2334 3315 5937 6555 9117 9834 11465 1501 1915 113 74 180 143 306 462 5988 7694 9408 1177 2932 63 87 78 76 48 72 7022 7620 8710 1394 100.00 2.59 4.06 4.32 8.59 1.12 5.05 6.94 3.54 2.78 3.29 1275 100.00 2.59 4.69 6.07 7.17 2.52 3.70 5.23 3.84 5.89 2.56 891 100.00 2.99 1.31 1.24 5.68 0.42 3.50 6.29 0.22 0.13 1.78 1145 100.00 3.96 1.78 0.90 6.13 0.55 3.94 5.58 0.14 0.17 2.22 1525 100.00 4.54 1.55 0.82 7.23 0.42 3.91 3.79 0.29 0.12 2.47 2831 100.00 5.18 2.63 0.94 6.44 0.34 3.73 4.23 0.18 0.09 3.62 3507 100.00 6.36 4.16 1.16 6.27 0.36 3.60 5.32 0.27 0.04 3.14 4563 100.00 7.28 2.91 1.09 6.33 0.47 4.03 4.39 0.30 0.04 3.05 4803 6041 8605

1 World China UAE Saudi Arabia USA Iran Germany Switzerland Kuwait Nigeria Korea Republic (South) World China UAE Saudi Arabia USA Iran Germany Switzerland Kuwait Nigeria Korea Republic (South) Sources:

(% share in total imports) 100.00 100.00 100.00 9.42 10.85 10.79 4.67 5.39 7.10 7.22 7.77 6.71 6.33 8.41 6.25 4.11 4.37 4.18 4.07 3.95 4.02 4.92 3.93 3.94 3.23 3.08 3.23 3.79 3.05 2.99 2.59 2.41 2.96

CMIE, Foreign Trade and Balance of Payments, July 2005 and October 2009 Volumes, Mumbai.

71

Table 1.6(A): Direction of India's Exports by Regions (1995-2008) (in US $ million) CAGR (%) during 1996-01 2001-06 2006-08 7 8 9 5.8 3.6 11.3 -3.1 10.1 9.5 -0.3 7.2 6.6 2.3 7.7 5.3 21.9 32.2 7.0 14.3 16.5 13.0 8.8 14.3 25.7 8.5 25.0 25.3 23.5 25.7 23.8 24.6 -31.1 18.3 16.9 21.2 9.4 22.4 27.2 32.3 30.7 32.3 28.9 31.7 28.3 48.1 35.4 71.0 25.8

Group / Region 1 I. 2 OECD Countries a. EU b. North America c. Asia & Oceania d. Other OECD Countries II. III. OPEC Eastern Europe

1995-96 3

2000-01 4

2005-06 5

2007-08 6

17705 (55.7) 23474 (52.7) 8708 (27.4) 10411 (23.4) 5826 (18.3) 2652 (8.3) 519 (1.6) 3079 (9.7) 9962 (22.3) 2264 (5.1) 838 (1.9) 4850 (10.9)

45837 (44.5) 62643 (38.4) 22385 (21.7) 32861 (20.1) 18375 (17.8) 21977 (13.5) 3444 (3.4) 5162 (3.2) 1633 (1.6) 2642 (1.6) 15242 (14.8) 26671 (16.4) 1980 (1.9) 3384 (2.1) 39736 (38.5) 69572 (42.6) 30981 (30.0) 51477 (31.6) 5548 (5.4) 9617 (5.9) 25434 (24.7) 41860 (25.7) 5699 (5.5) 12494 (7.7) 3056 (3.0) 295 (0.3) 5601 (3.4) 863 (0.5)

IV. Developing Countries a. Asia (i) SAARC (ii) Other Asian developing countries b. Africa c. Latin America V. Other / Unspecilfied countries Grand Total

1340 (4.2) 1318 (3.0) 9198 (28.9) 13013 (29.2) 7308 (23.0) 10038 (22.5) 1721 (5.4) 1929 (4.3) 5587 (17.6) 1513 (4.8) 378 (1.2) 472 (1.5) 31795 (100) 8109 (18.2) 1956 (4.4) 1018 (2.3) 1906 (4.3) 44560 (100)

103091 (100) 163132 (100)

Note: Figures in parentheses indicate percentage share to column totals. Compound annual growth rate (CAGR) has been worked out for specified periods. Source : RBI (2009), Handbook of Statistics on Indian Economy 2008-09 , Mumbai.

72

Table 1.6(B): Direction of India's Exports by Regions and Countries (2007-10) (in US $ million) April-September Share 2009 % Change 2009 (%) 7 8 9 16406 -30.9 21.4 15345 -30.4 20.0 2808 -23.6 3.7 2343 -32.4 3.1 4912 -27.2 6.4 11708 -28.4 15.3 9323 -25.4 12.2 8794 -25.3 11.5 2385 -38.3 3.1 42120 -27.6 55.0 780 -23.0 1.0 8331 -28.0 10.9 18668 -28.2 24.4 10821 -25.5 14.1 3903 -21.9 5.1 1429 -15.0 1.9 3521 -30.4 4.6 693 -39.9 0.9 749 -72.6 1.0 76589 -29.7 100.0

Region / Country 1 Europe a. EU a.1 UK a.2 Germany Africa America a. North America a.1 USA b. Latin America Asia and ASEAN a. East Asia b. ASEAN c. Wana d. North East Asia d.1 China P RP d.2 Japan e, South Asia - SAARC CIS and Baltics Unspecified Region Total Exports

2007-08 2 37288 34535 6706 5122 11540 27671 21998 20731 5673 84338 1413 16414 30372 26502 10871 3858 9638 1740 555 163132

2008-09 3 42076 29351 6650 6389 11391 28686 22514 21150 6172 96605 1754 19141 41694 25449 9354 2026 8567 1925 4612 185295

% Change 4 12.5 13.9 -0.8 24.7 -1.3 3.7 2.3 2.0 8.8 14.5 24.2 16.6 37.3 -4.0 -14.0 -21.6 -11.1 10.6 730.3 13.6

I.

II. III.

IV.

V. VI.

Share 2008-09 (%) 5 22.7 2.2 3.6 3.4 6.1 15.5 12.2 11.4 3.3 52.1 0.9 10.3 22.5 13.7 5.0 1.6 4.6 1.0 2.5 100.0

2008 6 23730 22035 3676 3469 6745 16358 12491 11766 3867 58183 1013 11568 26014 14527 4998 1680 5061 1154 2736 108907

Source: GOI, Economic Survey 2009-10 , pp. A95 - A99.

73

Table 1.6(C):

Top 10 Countries of India's Exports: All Commodities - Value and Percentage Share (1998 - 2009)

1 World UAE USA China Singapore Hong Kong UK Germany Netherlands Saudi Arabia Belgium

(value in US $ million) 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2 3 4 5 6 7 8 9 10 11 12 33211 36760 44147 43976 52823 63886 83502 103075 126276 162988 182922 1867 2082 2586 2500 3334 5129 7345 8591 12024 15635 23959 7198 8394 9252 8542 10917 11498 13760 17351 18853 20723 20852 427 539 830 955 1979 2957 5614 6758 8288 10834 9290 517 670 862 976 1424 2126 3999 5424 6065 7371 8220 1880 2494 2636 2374 2618 3264 3690 4471 4677 6308 6672 1855 2034 2276 2168 2501 3025 3680 5059 5614 6702 6605 1852 1735 1887 1794 2111 2546 2825 3586 3977 5119 6354 763 886 876 867 1050 1290 1604 2474 2668 5228 6290 774 743 810 829 943 1124 1411 1810 2586 3708 4996 1288 1340 1456 1395 1665 1807 2509 2871 3472 4211 4422 (% share in total exports) 100.00 100.00 100.00 9.52 9.59 13.09 14.93 12.71 11.39 6.56 6.64 5.07 4.80 4.52 4.49 3.70 3.87 3.64 4.44 4.11 3.61 3.14 3.14 3.47 2.11 3.20 3.43 2.04 2.27 2.73 2.74 2.58 2.41

World UAE USA China Singapore Hong Kong UK Germany Netherlands Saudi Arabia Belgium

100.00 5.62 21.67 1.29 1.56 5.66 5.59 5.58 2.30 2.33 3.88

100.00 5.66 22.83 1.47 1.82 6.78 5.53 4.72 2.41 2.02 3.65

100.00 5.86 20.96 1.88 1.95 5.97 5.15 4.28 1.98 1.83 3.30

100.00 5.69 19.43 2.17 2.22 5.40 4.93 4.08 1.97 1.89 3.17

100.00 6.31 20.66 3.74 2.69 4.95 4.73 3.99 1.98 1.78 3.15

100.00 8.02 17.99 4.62 3.32 5.10 4.73 3.98 2.01 1.75 2.82

100.00 8.79 16.47 6.72 4.78 4.41 4.40 3.38 1.92 1.69 3.00

100.00 8.33 16.83 6.55 5.26 4.33 4.90 3.47 2.40 1.75 2.78

Source: CMIE, Foreign Trade and Balance of Payments, July 2005 and October 2009 Volumes, Mumbai.

74

Table 1.7:

Export growth and share in world exports: India and other select countries (2000-09) Growth rate % CAGR 2000-06 3 2007 4 25.6 8.7 9.6 14.7 17.0 10.1 21.4 16.6 8.6 16.6 14.1 15.2 14.1 Annual 2008 5 17.3 5.3 19.1 24.4 12.9 13.0 20.4 23.2 7.3 33.1 13.6 25.7 16.2 2009 (Jan-Jun) 6 -21.7 -16.7 -31.2 -28.3 -23.4 -31.7 -18.4 -22.8 -30.3 -46.8 -22.7 -27.6 -29.5 2000 7 3.9 3.2 1.5 1.0 1.1 2.2 0.7 0.9 2.6 1.7 2.7 25.9 100 Share in world exports (%) 2007 8 8.8 2.5 1.3 0.9 1.1 2.2 1.1 1.2 2.0 2.6 2.7 35.9 100 2008 9 8.9 2.3 1.3 0.9 1.1 2.1 1.1 1.2 1.8 2.9 2.6 38.9 100 2009 (Jan-Jun) 10 9.1 2.5 1.2 0.9 1.2 2.1 1.2 1.2 1.8 2.2 2.9 38.4 100 Change in shares (%) 2008/2000 11 5.0 -0.9 -0.2 -0.1 0.0 -0.1 0.4 0.4 -0.8 1.3 -0.1 12.9 -----

Value (US $ billion) 2008 1 China Hong Kong Malaysia Indonesia Thailand Singapore India Brazil Mexico Russia Korea Emerging & Developing Economies World Source: 2 1429 363 210 148 173 338 177 198 292 472 422 6218 16001

25.4 7.8 8.5 7.9 11.3 12.0 19.1 16.5 7.1 19.3 11.2 17.3 11.2

Computed from International Financial Statistics, IMF, November 2009; obtained from GOI, Economic Survey 2009-10 , p.155.

75

Table 1.8: Partner Country 1 UAE China USA Saudi Arabia Germany Singapore Iran Hong Kong Korea RP UK Australia Switzerland Japan Malaysia Nigeria Total ( 1 to 15) Total trade
a

Share in India's trade and export-import ratio with major trading partners (2004-10) Export / Import ratio Share in India's total trade (%) 2008-09 2009-10 2008-09 2009-10 2007-08 2008-09 2004-05 2007-08 2008-09 (Apr-Sep) (Apr-Sep) (Apr-Sep) (Apr-Sep) 3 4 5 6 7 8 9 10 11 7.0 9.8 8.7 9.2 1.6 1.2 1.0 1.5 1.5 9.2 8.6 7.4 9.4 0.8 0.4 0.3 0.3 0.3 10.1 8.2 6.9 8.1 2.0 1.0 1.1 1.4 1.2 5.6 5.1 5.6 4.4 1.1 0.2 0.3 0.3 0.3 3.6 3.8 3.1 3.5 0.7 0.5 0.5 0.6 0.5 3.7 3.3 3.3 3.2 1.5 0.9 1.1 1.4 1.1 3.1 3.0 3.2 3.3 3.0 0.2 0.2 0.2 0.2 2.2 2.7 1.8 2.5 2.1 2.3 1.0 2.8 2.1 2.1 2.6 2.2 1.9 0.3 0.5 0.5 0.5 0.0 2.8 2.6 2.2 2.4 1.0 1.4 1.1 1.3 1.3 2.2 2.6 2.5 2.9 0.2 0.1 0.1 0.1 0.1 2.5 2.5 3.1 2.8 0.1 0.1 0.1 0.0 0.0 2.5 2.2 2.0 2.3 0.7 0.6 0.4 0.4 0.5 2.1 2.2 1.9 1.9 0.5 0.4 0.5 0.4 0.7 2.1 2.1 2.3 1.9 13.3 0.1 0.2 0.1 0.2 60.7 61.3 56.3 59.6 1.0 0.6 0.5 0.6 0.6 100.0 100.0 100.0 100.0 0.7 0.6 0.6 0.6 0.6
a

Sl.No.

2004-05 2 6.1 6.5 10.6 1.4 3.5 3.4 0.8 2.8 2.3 3.7 2.3 3.3 2.7 1.7 0.4 51.8 100.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

A coefficient of export and import ratio between 0 and 1 implies that India's imports are greater than exports, and a coefficient greater than one implies that India exports more than what it imports.

Source: Computed from DGCI&S data, obtained from GOI, Economic Survey 2009-10, p.163.

76 Table 1.9: State-wise exports of top 15 States (2007-10) (April-September) State 1 Maharashtra Gujarat Tamil Nadu Karnataka Andhra Pradesh Delhi Uttar Pradesh West Bengal Haryana Kerala Orissa Rajasthan Punjab Madhya Pradesh Goa India's total exports 2007-08 2 44841 34736 14816 14641 7427 5183 4295 5679 4414 2364 3024 3276 2598 2915 1387 163132 2008-09 3 44667 40272 18540 12296 9897 8467 7571 5583 4792 4753 3351 3313 3016 2946 1781 185295 2008-09 4 25612 26802 10654 7877 5231 4936 5284 3554 2478 2544 2189 1815 1628 1596 640 108907 2009-10 5 20180 16433 7770 4181 4585 2214 2586 1808 2481 2778 1220 1365 1175 904 554 76589 (US $ million) Growth rate (%) 2009-10 2008-09 (Apr-Sept) 7 8 -0.4 -21.2 15.9 -38.7 25.1 -27.1 -16.0 -46.9 33.3 -12.3 63.4 -55.2 76.3 -51.1 -1.7 -49.1 8.6 0.1 101.0 9.2 10.8 -44.3 1.1 -24.8 16.1 -27.9 1.1 -43.4 28.4 -13.5 13.6 -29.7

Share (%) 2008-09 6 24.1 21.7 10.0 6.6 5.3 4.6 4.1 3.0 2.6 2.6 1.8 1.8 1.6 1.6 1.0 100.0

Source: DGCI&S, obtained from GOI, Economic Survey 2009-10 , p.171