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1 Agarwal, A.N. (1975), Indian Economy: Problems of Development and Planning, Vikas Publishing House
Pvt. Ltd., New Delhi. p. 577.
2 Morton & Tulloch (1978), Trade and Developing Countries, The Overseas Development Institute, London,
pp. 16-17.
3 Kindleberger , Charles P. (1976), International Economics, D. B.Taraporevala Sons & Co. Pvt. Ltd.,
Bombay, p.20.
4 Bo Soder (1974), International Economics, Macmillan, London, p.1.
5 Meier, Gerald M. (1980), Development through Trade, Oxford University Press, London, p. 214.
2
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.
3
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 India’s 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 India’s
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
4
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, India’s 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 2005-
06, 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.
Pearson’s 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: Performance of Exports and Imports (1990-2010)
% change over Imports % change over
Exports (US
Year the previous (US $ the previous
$ billion)
year billion) year
1 2 3 4 5
1990-91 18.14 9.2 24.08 13.5
1994-95 26.33 18.4 28.65 22.9
1999-2000 36.82 10.8 49.67 17.2
2002-03 52.72 20.3 61.41 19.4
2003-04 63.84 21.1 78.15 27.3
2004-05 83.54 30.8 111.52 42.7
2005-06 103.09 23.4 149.17 33.8
2006-07 126.41 22.6 185.74 24.5
2007-08 163.13 29.0 251.65 35.5
2008-09 185.30 13.6 303.70 20.7
2009-10 178.66 -3.6 286.82 -5.6
7
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 India’s 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 India’s share in global trade has been deferred to 2020
as a long term objective, and doubling of India’s exports of goods and services by
2014 as another goal. India’s 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 2000-
01, 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
8
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. India’s 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 china’s explosive export growth.
Despite the demand induced moderation in export growth resulting from the
global recession, India’s exports performed relatively better as its rank among
leading exporters improved from 27th in 2008 to 22nd in 2009, with the share in
world exports at 1.2 per cent. India ranked 15th among leading importers in 2009,
with a share of 1.9 per cent, which also represents an improvement over 16th
position in 2008. Since India’s 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).
India’s 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).
India’s 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
9
the relatively greater fall in world export growth. The increase in China’s 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, China’s 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 India’s
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
China’s in 2008. While India’s exports were higher than those of China till 1954,
they started lagging thereafter. Ironically the gap started widening since the 1990s,
the period of India’s 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).
India’s 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
10
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.
11
Fig.1.1: Export and Import Growth Rates for values in US $ million (2000-10)
[Source: Table 1.1.(B) ]
(in per cent)
50.0
40.0
30.0
%
20.0
10.0
0.0
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 20009-
01 02 03 04 05 06 07 08 09 10
-10.0
Exports
Imports
12
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
1 2 3 1 2 3
2008-09 2009-10
April 63.0 65.0 April -32.4 -36.6
May 50.0 39.2 May -34.1 -32.0
June 58.5 44.6 June -29.1 -20.5
July 52.1 49.7 July -24.6 -31.4
August 40.5 64.6 August -23.5 -33.1
September 26.1 70.9 September -7.3 -31.1
October -3.7 18.5 October 4.8 -1.9
November -13.5 6.3 November 33.8 5.5
December -8.6 -3.3 December 23.5 44.9
January -13.6 -20.2 January 21.0 38.5
February -21.0 -27.6 February 31.6 72.5
March -25.1 -29.6 March 56.2 77.1
100
80
60
40
%
20
0
Ma y
Ma y
h
h
Ju ly
Ju ly
Ap ril
Ap ril
b er
b er
a ry
a ry
ua ry
ua ry
st
st
Ju ne
Ju ne
m b er
r
er
r
-09
-10
m b er
r
mb e
M a rc
M a rc
mb e
em b e
A u gu
A u gu
em b
Oc t o
Ja nu
Oc t o
Ja nu
2 00 8
2 00 9
Fe b r
Fe b r
N ove
N ove
D ece
D ece
-20
Se pt
Se pt
-40
-60
Exports Imports
13
The Trend equations for Overall Exports and Imports of India in US $ million for the period
1995-96 to 2009-10 are given below:
Fig.1.3: ##Trend lines fitted based on the derived trend values of overall Exports and Imports
of India
The Trend equations for overall Exports and Imports of India in US $ million for the period
1998-99 to 2008-09 are given below:
Fig. 1.4:## Trend lines fitted based on the derived trend values of overall Exports and Imports
of India
growth rate of imports in the past decade have been largely those with a medium-
to 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 India’s 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 WTO’s “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
18
at 12.5 per cent. The regional direction of India’s exports has experienced
significant changes between 2000 and 2008. First, the share of India’s 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, India’s 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 India’s 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 India’s exports. The increasing share of India’s 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 India’s 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 India’s imports are listed in Table 1.5(C); and
similarly Top 10 countries of India’s exports are listed in Table 1.6(C).
The directional pattern of India’s 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 India’s 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 India’s 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 India’s major trading partner.
According to the WTO’s “International Trade Statistics 2009”, the global
recession reduced the trade imbalances of many countries. Japan’s trade surplus
fell from 2.1 per cent of GDP before the crisis to 0.4 per cent in 2008, turning into
20
a trade deficit of 0.02 per cent of GDP during the first quarter of 2009. Germany’s
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. China’s 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. India’s 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. India’s 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 India’s 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 India’s
exports in 2008-09 and 2009-10 (April-September) with an export share of 13.1
per cent and 14.4 per cent, respectively. India’s 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
September 2009. Region-wise, over half of India’s 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. India’s 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 India’s 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 India’s 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 India’s total
imports followed by the USA (5.95%), UAE (5.93%) and Saudi Arabia (5.5%).
As a result of global recession, India’s 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 India’s 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 India’s 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 India’s total merchandise trade (imports and exports) during
2004-05 and 2008-09.
22
2.99
Nigeria
2.78
3.23
Kuw ait
3.54
3.94
Sw itzerland
6.94
4.02
Germany
Country
5.05
2008-09
1998-99
4.18
Iran
1.12
6.25
USA
8.59
6.71
Saudi Arabia
4.32
7.1
UAE
4.06
10.79
China
2.59
0 5 10 15
% Share
23
2.41
Belgium 3.88
2.73
Saudi Arabia 2.33
3.43
Netherlands 2.3
3.47
Germany
5.58
3.61
UK
C o u n t ry
5.59 2008-09
3.64 1998-99
Hong Kong 5.66
4.49
Singapore 1.56
5.07
China 1.29
11.39
USA
21.67
13.09
UAE 5.62
0 5 10 15 20 25
% Share
24
CAGR Annual
Country
2000-06 2008
China 25.4 17.3
Hong Kong 7.8 5.3
Malaysia 8.5 19.1
Indonesia 7.9 24.4
Thailand 11.3 12.9
Singapore 12 13
India 19.1 20.4
Brazil 16.5 23.2
Mexico 7.1 7.3
Russia 19.3 33.1
Korea 11.2 13.6
World 11.2 16.2
2000-06
Export Growth of Select Countries
2008
35 33.1
30
25.4
24.4
25 23.2
20.4
19.1 19.1 19.3
20
17.3
16.5 16.2
%
15 13 13.6
12.9
12
11.3 11.2 11.2
10 8.5
7.8 7.9
7.17.3
5.3
5
0
China Malaysia Thailand India Mexico Korea
Country
25
10.6
9.8
10
8.6
8.2
8
6.5
6.1
%
6
5.1
3.8 3.7
4 3.5 3.43.3 3.3
3 2.82.7 2.6
2.3
2.6 2.6
2.3 2.5 2.7
2.2 2.2 2.1
2 1.7
1.4
0.8
0.4
0
UAE USA Germany Iran Korea RP Australia Japan Nigeria
Country
26
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.
28
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 India’s share in global trade
by 2020.
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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;
• The long term policy objective for the Government is to double India’s 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 India’s 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
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
(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
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 India’s 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
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) 3% Concessional Duty Scheme
The salient features of 3% concessional duty scheme are as under:
(i) The Scheme was initially introduced in the Import and Export Policy 1990-
93 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.
(ii) 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.
37
(iii) 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.
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.
1.8 First Annual Supplement of 2010 to the Foreign Trade Policy 2009-14
The first Annual Supplement 2010-11 to the Foreign Trade Policy (2009-
14) 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
40
• 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.
42
Annexure 1.1
Stimulus Package for Exports to Counter Effects of Global Economic
Slowdown (announced in Union Budgets of 2008-09 and 2009-10)
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. India’s 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 India’s exports and external
demand (GDP in world and advanced economies) were highly synchronised during
47
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 India’s 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 India’s 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 India’s 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 India’s 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 1980’s.
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.
48
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 export-
intensive 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,
49
while the real demand effect improved to 1.44. The contraction in India’s 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 India’s total exports in 2008-09. In 2009-10 (April-
September), the decline in engineering goods exports accounted for about a half of
the decline in manufactured exports, and a third of India’s 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.).
51
In order to further ascertain the role of the trade channel in India’s 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 India’s 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 India’s imports plunged sharply during the third quarter of 2008-09, and
subsequently contracted from the last quarter of 2008-09 to 2009-10 (April-
September). 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
52
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.).
Exports Imports
Region / Country
2007 2008 2009 2007 2008 2009
1 2 3 4 5 6 7
World 6.4 2.1 -12.2 6.1 -2.2 -12.9
North America 4.8 2.1 -14.4 2.0 -2.4 -16.3
United States 6.7 5.8 -13.9 1.1 -3.7 -16.5
South and Central America* 3.3 0.8 -5.7 17.6 13.3 -16.3
Europe 4.2 0.0 -14.4 4.4 -0.6 -14.5
European Union (27) 4.0 -0.1 -14.8 4.1 -0.8 -14.5
Common Wealth of Independent States (CIS) (12) 7.5 2.2 -9.5 19.9 16.3 -20.2
Africa 4.8 0.7 -5.6 13.8 14.1 -5.6
Middle East 4.5 2.3 -4.9 14.6 14.6 -10.6
Asia 11.7 5.5 -11.1 8.2 4.7 -7.9
China 19.8 8.6 -10.5 13.8 3.8 2.8
Japan 9.4 2.3 -24.9 1.3 -1.3 -12.8
India 14.4 14.4 -6.2 18.7 17.3 -4.4
Newly industrialised economies(4)** 9.0 4.9 -5.9 5.3 3.5 -11.4
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
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
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 India’s 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. India’s 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
(Value in Rs. crore)
Exports Exports Imports
Total Trade
Year Exports % change Imports % change (% to (% to (% to
Trade Balance
Imports) GDP) GDP)
1 2 3 4 5 6 7 8 9 10
1950 -51 606 608 1214 -2 99.67 6.27 6.29
I PLAN
1951 -52 716 18.15 890 46.38 1606 -174 80.45 7.01 8.72
1952 -53 578 -19.27 702 -21.12 1280 -124 82.34 5.72 6.95
1953 -54 531 -8.13 610 -13.11 1141 -79 87.05 4.84 5.56
1954 -55 593 11.68 700 14.75 1293 -107 84.71 5.71 6.74
1955 -56 609 2.70 774 10.57 1383 -165 78.68 5.75 7.31
Annual
605 -0.17 735 20.89 1341 -130 82.65 5.81 7.06
Average
II PLAN
1956 -57 605 -0.66 841 8.66 1446 -236 71.94 4.82 6.70
1957 -58 561 -7.27 1035 23.07 1596 -474 54.20 4.36 8.04
1958 -59 581 3.57 906 -12.46 1487 -325 64.13 3.80 5.99
1959 -60 640 10.15 961 6.07 1601 -321 66.60 4.03 6.05
1960 -61 642 0.31 1122 16.75 1764 -480 57.22 3.69 3.45
Annual
606 0.17 973 32.38 1579 -367 62.82 4.14 6.05
Average
III PLAN
1961 -62 660 2.80 1090 -2.85 1750 -430 60.55 3.58 5.92
1962 -63 685 3.79 1131 3.76 1816 -446 60.57 3.46 5.70
1963 -64 793 15.77 1223 8.13 2016 -430 64.84 3.48 5.37
1964 -65 816 2.90 1349 10.30 2165 -533 60.49 3.07 5.08
1965 -66 810 -0.74 1409 4.45 2219 -599 57.49 2.88 5.03
Annual
753 24.26 1240 27.44 1993 -488 60.79 3.29 5.42
Average
ANNUAL
PLANS
1966 -67 1157 42.84 2078 47.48 3235 -921 55.68 3.65 6.55
1967 -68 1199 3.63 2008 -3.37 3207 -809 59.71 3.23 5.41
1968 -69 1358 13.26 1909 -4.93 3267 -551 71.14 3.45 4.85
Annual
1238 64.41 1998 61.13 3236 -760 62.18 3.44 5.60
Average
IV PLAN
1969 -70 1413 4.05 1582 -17.13 2995 -169 89.32 3.26 3.65
1970 -71 1535 8.63 1634 3.29 3169 -99 93.94 3.32 3.53
1971 -72 1608 4.76 1825 11.69 3433 -217 88.11 3.25 3.69
1972 -73 1971 22.57 1867 2.30 3838 104 105.57 3.61 3.42
1973 -74 2523 28.01 2955 58.28 5478 -432 85.38 3.80 4.45
Annual
1810 46.20 1973 -1.25 3783 -163 92.46 3.45 3.75
Average
V PLAN
1974 -75 3329 31.95 4519 52.93 7848 -1190 73.67 4.24 5.76
1975 -76 4036 21.24 5265 16.51 9301 -1229 76.66 4.79 6.25
1976 -77 5142 27.40 5074 -3.63 10216 68 101.34 5.67 5.59
1977 -78 5408 5.17 6020 18.64 11428 -612 89.83 5.26 5.86
1978 -79 5726 5.88 6811 13.14 12537 -1085 84.07 5.14 6.12
Annual
4728 161.22 5538 180.69 10266 -810 85.11 5.02 5.92
Average
(Contd.)
57
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.
Notes: R : Revised
1. % change mentioned in columns 5 and 6 is over the previous year for all years.
2. One US $ equals around Indian Rs.47 in 2010.
3. One billion equals 1000 millions or 100 crores; one million equals 10 lakhs.
4. 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.
60
(in US $ million)
Year/month Export Import Trade Balance
1 2 3 4
2004-05 83536 (30.8) 111517 (42.7) -27981
2005-06 103091 (23.4) 149166 (33.8) -46075
2006-07 126414 (22.6) 185735 (24.5) -59321
2007-08 163132 (29.0) 251654 (35.5) -88535
2008-09 185295 (13.6) 303696 (20.8) -118401
2009-10 (R) 178662 (-3.6) 286823 (-5.6) -108161
2007-08
April 11327 18371 -7044
May 12456 21150 -8694
June 12101 20016 -7915
July 12513 21129 -8616
August 12641 20366 -7725
September 12521 18217 -5696
October 14675 21833 -7158
November 12909 22104 -9195
December 14625 20117 -5492
January 14889 22844 -7955
February 15116 20804 -5688
March 17254 23574 -6320
2008-09
April 18460 (63.0) 30317 (65.0) -11857
May 18687 (50.0) 29444 (39.2) -10757
June 19181 (58.5) 28951 (44.6) -9770
July 19030 (52.1) 31625 (49.7) -12595
August 17759 (40.5) 33523 (64.6) -15764
September 15789 (26.1) 31136 (70.9) -15347
October 14131 (-3.7) 25869 (18.5) -11738
November 11163 (-13.5) 23488 (6.3) -12325
December 13368 (-8.6) 19456 (-3.3) -6088
January 12869 (-13.6) 18228 (-20.2) -5359
February 11941 (-21.0) 15062 (-27.6) -3121
March 12916 (-25.1) 16597 (-29.6) -3681
2009-10 (R)
April 12475 (-32.4) 19228 (-36.6) -6753
May 12316 (-34.1) 20011 (-32.0) -7695
June 13606 (-29.1) 23013 (-20.5) -9408
July 14341 (-24.6) 21683 (-31.4) -7343
August 13586 (-23.5) 22440 (-33.1) -8854
September 14624 (-7.3) 21464 (-31.1) -6840
October 14805 (4.8) 25390 (-1.9) -10585
November 14933 (33.8) 24787 (5.5) -9855
December 16512 (23.5) 28191 (44.9) -11679
January 15569 (21.0) 25245 (38.5) -9675
February 15717 (31.6) 25980 (72.5) -10263
March 20181 (56.2) 29391 (77.1) -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
(in US $ million)
CAGR (%) during
Group / Region 1995-96 2000-01 2005-06 2007-08 1996-01 2001-06 2006-08
1 2 3 4 5 6 7 8 9
I. OECD Countries 19209 (52.4 ) 20158 (39.9) 51797 (34.7) 87445 (34.8) 1.0 20.8 29.9
a. EU 10303 (28.1) 10510 (20.8) 25151 (16.8) 36810 (14.7) 0.4 19.1 21.0
b. North America 4243 (11.6) 3412 (6.8) 10375 (7.0) 22992 (9.1) -4.3 24.9 48.9
c. Asia & Oceania 3552 (9.7) 2984 (5.9) 9226 (6.2) 14496 (5.8) -3.4 25.3 25.3
d. Other OECD
Countries 1112 (3.0) 3251 (6.4) 7045 (4.7) 13147 (5.2) 23.9 16.7 36.6
II. OPEC 7644 (20.8) 2689 (5.3) 11171 (7.5) 76076 (30.2) -18.9 33.0 61.0
III. Eastern Europe 1674 (4.6) 850 (1.7) 3794 (2.6) 5264 (2.1) -12.7 34.9 17.8
IV. Developing Countries 8145 (22.2) 11156 (22.1) 37891 (25.4) 80648 (32.0) 6.5 27.7 45.9
a. Asia 6426 (17.5) 8460 (16.8) 30451 (20.4) 64142 (25.5) 5.7 29.2 45.1
(i) SAARC 257 (0.7) 466 (1.0) 1413 (0.9) 2111 (0.8) 12.6 24.8 22.2
(ii) Other Asian
developing countries 6169 (16.8) 7994 (15.8) 29037 (19.5) 62030 (24.7) 5.3 29.4 46.2
b. Africa 1132 (3.1) 1996 (3.9) 4742 (3.2) 10356 (4.1) 12.0 18.9 47.8
c. Latin America 587 (1.6) 701 (1.4) 2698 (1.8) 6151 (2.4) 3.6 30.9 51.0
V. Other / Unspecilfied
countries 3 (-) 15683 (31.0) 44514 (29.8) 2221 (0.9) ----- 23.2 -77.7
Grand Total 36675 (100) 50537 (100) 149166 (100) 251654 (100) 6.6 24.2 29.9
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
(in US $ million)
Share April-September
%
Region / Country 2007-08 2008-09 2008-09 % Share
Change 2008 2009
(%) Change 2009 (%)
1 2 3 4 5 6 7 8 9
I. Europe 51579 57262 11.0 18.9 35015 23712 -32.3 19.1
a. EU 38450 42733 11.1 14.1 24716 16805 -32.0 13.5
a.1 Germany 9885 12006 21.5 4.0 6325 4751 -24.9 3.8
a.2 UK 4954 5872 18.5 1.9 3360 2099 -37.5 1.7
II. Africa 14928 18904 26.6 6.2 11961 8657 -27.6 7.0
III. America 29606 30984 4.7 10.2 17796 11740 -34.0 9.5
a. North America 23048 21020 -8.8 6.9 11382 8328 -26.8 6.7
a.1 USA 21067 18561 -11.9 6.1 10197 7393 -27.5 6.0
b. Latin America 6557 9964 52.0 3.3 6414 3411 -46.8 2.7
IV. Asia and ASEAN 149949 188474 25.7 62.1 115879 76188 -34.3 61.3
a. East Asia 8356 11788 41.1 3.9 6857 5409 -21.1 4.4
b. ASEAN 22675 26203 15.6 8.6 14621 11857 -18.9 9.5
c. Wana 72015 90208 25.3 29.7 60034 33695 -43.9 27.1
d. North East Asia 44785 58456 30.5 19.2 33297 24443 -26.6 19.7
d.1 China P RP 27146 32497 19.7 10.7 18853 14907 -20.9 12.0
d.2 Japan 6326 7886 24.7 2.6 4448 3123 -29.8 2.5
e, South Asia - SAARC 2117 1818 -14.1 0.6 1070 783 -26.8 0.6
V CIS and Baltics 3788 6627 75.0 2.2 3681 2813 -23.6 2.3
VI. Unspecified Region 1805 1445 -20.0 0.5 663 1085 63.6 0.9
Total Imports 251654 303696 20.7 100.0 184996 124194 -32.9 100.0
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
1 2 3 4 5 6 7 8 9 10 11 12
World 42379 49799 50056 51588 61533 78203 111472 149144 185081 249791 290667
China 1096 1288 1495 2043 2798 4056 7095 10866 17449 27116 31384
UAE 1721 2337 654 918 959 2061 4639 4353 8652 13477 20638
Saudi Arabia 1831 3021 619 466 506 738 1301 1632 13375 19411 19524
USA 3639 3568 2844 3160 4452 5038 6998 9453 11728 21030 18192
Iran 474 1253 212 285 259 267 410 702 7623 10921 12153
Germany 2140 1844 1752 2035 2409 2921 4014 6023 7541 9875 11713
Switzerland 2942 2603 3149 2881 2334 3315 5937 6555 9117 9834 11465
Kuwait 1501 1915 113 74 180 143 306 462 5988 7694 9408
Nigeria 1177 2932 63 87 78 76 48 72 7022 7620 8710
Korea Republic
(South) 1394 1275 891 1145 1525 2831 3507 4563 4803 6041 8605
Sources: CMIE, Foreign Trade and Balance of Payments, July 2005 and October 2009 Volumes, Mumbai.
71
(in US $ million)
CAGR (%) during
Group / Region 1995-96 2000-01 2005-06 2007-08
1996-01 2001-06 2006-08
1 2 3 4 5 6 7 8 9
I. OECD Countries 17705 (55.7) 23474 (52.7) 45837 (44.5) 62643 (38.4) 5.8 14.3 16.9
a. EU 8708 (27.4) 10411 (23.4) 22385 (21.7) 32861 (20.1) 3.6 16.5 21.2
b. North America 5826 (18.3) 9962 (22.3) 18375 (17.8) 21977 (13.5) 11.3 13.0 9.4
c. Asia & Oceania 2652 (8.3) 2264 (5.1) 3444 (3.4) 5162 (3.2) -3.1 8.8 22.4
d. Other OECD Countries 519 (1.6) 838 (1.9) 1633 (1.6) 2642 (1.6) 10.1 14.3 27.2
II. OPEC 3079 (9.7) 4850 (10.9) 15242 (14.8) 26671 (16.4) 9.5 25.7 32.3
III. Eastern Europe 1340 (4.2) 1318 (3.0) 1980 (1.9) 3384 (2.1) -0.3 8.5 30.7
IV. Developing Countries 9198 (28.9) 13013 (29.2) 39736 (38.5) 69572 (42.6) 7.2 25.0 32.3
a. Asia 7308 (23.0) 10038 (22.5) 30981 (30.0) 51477 (31.6) 6.6 25.3 28.9
(i) SAARC 1721 (5.4) 1929 (4.3) 5548 (5.4) 9617 (5.9) 2.3 23.5 31.7
(ii) Other Asian developing
countries 5587 (17.6) 8109 (18.2) 25434 (24.7) 41860 (25.7) 7.7 25.7 28.3
b. Africa 1513 (4.8) 1956 (4.4) 5699 (5.5) 12494 (7.7) 5.3 23.8 48.1
c. Latin America 378 (1.2) 1018 (2.3) 3056 (3.0) 5601 (3.4) 21.9 24.6 35.4
V. Other / Unspecilfied
countries 472 (1.5) 1906 (4.3) 295 (0.3) 863 (0.5) 32.2 -31.1 71.0
Grand Total 31795 (100) 44560 (100) 103091 (100) 163132 (100) 7.0 18.3 25.8
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
(in US $ million)
Share April-September
Region / Country 2007-08 2008-09 % Change 2008-09 Share
2008 2009 % Change
(%) 2009 (%)
1 2 3 4 5 6 7 8 9
I. Europe 37288 42076 12.5 22.7 23730 16406 -30.9 21.4
a. EU 34535 29351 13.9 2.2 22035 15345 -30.4 20.0
a.1 UK 6706 6650 -0.8 3.6 3676 2808 -23.6 3.7
a.2 Germany 5122 6389 24.7 3.4 3469 2343 -32.4 3.1
II. Africa 11540 11391 -1.3 6.1 6745 4912 -27.2 6.4
III. America 27671 28686 3.7 15.5 16358 11708 -28.4 15.3
a. North America 21998 22514 2.3 12.2 12491 9323 -25.4 12.2
a.1 USA 20731 21150 2.0 11.4 11766 8794 -25.3 11.5
b. Latin America 5673 6172 8.8 3.3 3867 2385 -38.3 3.1
IV. Asia and ASEAN 84338 96605 14.5 52.1 58183 42120 -27.6 55.0
a. East Asia 1413 1754 24.2 0.9 1013 780 -23.0 1.0
b. ASEAN 16414 19141 16.6 10.3 11568 8331 -28.0 10.9
c. Wana 30372 41694 37.3 22.5 26014 18668 -28.2 24.4
d. North East Asia 26502 25449 -4.0 13.7 14527 10821 -25.5 14.1
d.1 China P RP 10871 9354 -14.0 5.0 4998 3903 -21.9 5.1
d.2 Japan 3858 2026 -21.6 1.6 1680 1429 -15.0 1.9
e, South Asia - SAARC 9638 8567 -11.1 4.6 5061 3521 -30.4 4.6
V. CIS and Baltics 1740 1925 10.6 1.0 1154 693 -39.9 0.9
VI. Unspecified Region 555 4612 730.3 2.5 2736 749 -72.6 1.0
Total Exports 163132 185295 13.6 100.0 108907 76589 -29.7 100.0
Table 1.6(C): Top 10 Countries of India's Exports: 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
1 2 3 4 5 6 7 8 9 10 11 12
World 33211 36760 44147 43976 52823 63886 83502 103075 126276 162988 182922
UAE 1867 2082 2586 2500 3334 5129 7345 8591 12024 15635 23959
USA 7198 8394 9252 8542 10917 11498 13760 17351 18853 20723 20852
China 427 539 830 955 1979 2957 5614 6758 8288 10834 9290
Singapore 517 670 862 976 1424 2126 3999 5424 6065 7371 8220
Hong Kong 1880 2494 2636 2374 2618 3264 3690 4471 4677 6308 6672
UK 1855 2034 2276 2168 2501 3025 3680 5059 5614 6702 6605
Germany 1852 1735 1887 1794 2111 2546 2825 3586 3977 5119 6354
Netherlands 763 886 876 867 1050 1290 1604 2474 2668 5228 6290
Saudi Arabia 774 743 810 829 943 1124 1411 1810 2586 3708 4996
Belgium 1288 1340 1456 1395 1665 1807 2509 2871 3472 4211 4422
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)
2009 2009
2008 2000-06 2007 2008 2000 2007 2008 2008/2000
(Jan-Jun) (Jan-Jun)
1 2 3 4 5 6 7 8 9 10 11
China 1429 25.4 25.6 17.3 -21.7 3.9 8.8 8.9 9.1 5.0
Hong Kong 363 7.8 8.7 5.3 -16.7 3.2 2.5 2.3 2.5 -0.9
Malaysia 210 8.5 9.6 19.1 -31.2 1.5 1.3 1.3 1.2 -0.2
Indonesia 148 7.9 14.7 24.4 -28.3 1.0 0.9 0.9 0.9 -0.1
Thailand 173 11.3 17.0 12.9 -23.4 1.1 1.1 1.1 1.2 0.0
Singapore 338 12.0 10.1 13.0 -31.7 2.2 2.2 2.1 2.1 -0.1
India 177 19.1 21.4 20.4 -18.4 0.7 1.1 1.1 1.2 0.4
Brazil 198 16.5 16.6 23.2 -22.8 0.9 1.2 1.2 1.2 0.4
Mexico 292 7.1 8.6 7.3 -30.3 2.6 2.0 1.8 1.8 -0.8
Russia 472 19.3 16.6 33.1 -46.8 1.7 2.6 2.9 2.2 1.3
Korea 422 11.2 14.1 13.6 -22.7 2.7 2.7 2.6 2.9 -0.1
Emerging & Developing
Economies 6218 17.3 15.2 25.7 -27.6 25.9 35.9 38.9 38.4 12.9
World 16001 11.2 14.1 16.2 -29.5 100 100 100 100 -----
Source: Computed from International Financial Statistics, IMF, November 2009; obtained from GOI,
Economic Survey 2009-10 , p.155.
75
Table 1.8: Share in India's trade and export-import ratio with major trading partners (2004-10)
Source: Computed from DGCI&S data, obtained from GOI, Economic Survey 2009-10, p.163.
76
(US $ million)
(April-September) Growth rate (%)
Share (%)
State 2007-08 2008-09 2009-10
2008-09 2009-10 2008-09 2008-09
(Apr-Sept)
1 2 3 4 5 6 7 8
Maharashtra 44841 44667 25612 20180 24.1 -0.4 -21.2
Gujarat 34736 40272 26802 16433 21.7 15.9 -38.7
Tamil Nadu 14816 18540 10654 7770 10.0 25.1 -27.1
Karnataka 14641 12296 7877 4181 6.6 -16.0 -46.9
Andhra Pradesh 7427 9897 5231 4585 5.3 33.3 -12.3
Delhi 5183 8467 4936 2214 4.6 63.4 -55.2
Uttar Pradesh 4295 7571 5284 2586 4.1 76.3 -51.1
West Bengal 5679 5583 3554 1808 3.0 -1.7 -49.1
Haryana 4414 4792 2478 2481 2.6 8.6 0.1
Kerala 2364 4753 2544 2778 2.6 101.0 9.2
Orissa 3024 3351 2189 1220 1.8 10.8 -44.3
Rajasthan 3276 3313 1815 1365 1.8 1.1 -24.8
Punjab 2598 3016 1628 1175 1.6 16.1 -27.9
Madhya Pradesh 2915 2946 1596 904 1.6 1.1 -43.4
Goa 1387 1781 640 554 1.0 28.4 -13.5
India's total exports 163132 185295 108907 76589 100.0 13.6 -29.7