Unit –
3: Government
policy and Legal Environment
New
Industrial Policy, 1991
In
order to solve economic problems of our country, the government took several
steps including control by the State of certain industries, central planning
and reduced importance of the private sector. The main objectives of India’s
development plans were:
a) Initiate
rapid economic growth to raise the standard of living, reduce unemployment and
poverty;
b) Become
self-reliant and set up a strong industrial base with emphasis on heavy and
basic industries;
c) Reduce
inequalities of income and wealth;
d) Adopt a
socialist pattern of development based on equality and prevent exploitation of
man by man.
As
a part of economic reforms, the Government of India announced a new industrial
policy in July 1991. The broad features of this policy were as follows:
a) The
Government reduced the number of industries under compulsory licensing to six.
b) Policy
towards foreign capital was liberalized. The share of foreign equity
participation was increased to 51% and in many activities 100 per cent Foreign
Direct Investment (FDI) was permitted.
c) Government
will encourage foreign trading companies to assist Indian exporters in export
activities.
d) Foreign
Investment Promotion Board (FIPB) was set up to promote and channelise foreign
investment in India.
e) Automatic
permission was now granted for technology agreements with foreign companies.
f) Relaxation
of MRTP Act (Monopolies and Restrictive Practices Act) which has almost been
rendered non-functional.
g) Dilution
of foreign exchange regulation act (FERA) making rupee fully convertible on
trade account.
h) Disinvestment
was carried out in case of many public sector industrial enterprises incurring
heavy losses.
i)
Abolition of wealth tax on shares.
j)
General reduction in customs duties.
k) Provide
strength to those public sector enterprises which fall in reserved areas of
operation or in high priority areas.
l)
Constitution of special boards to negotiate
with foreign firms for large investments in the development of industries and
import of technology.
Impact of Government Policy Changes
(New Industrial Policy, 1991) on Business and Industry
1. Increasing
competition: As a result of changes in the rules of industrial licensing and
entry of foreign firms, competition for Indian firms has increased especially
in service industries like telecommunications, airlines, banking, insurance,
etc. which were earlier in the public sector.
2. More
demanding customers: Customers today have become more demanding because they
are well-informed. Increased competition in the market gives the customers
wider choice in purchasing better quality of goods and services.
3. Rapidly
changing technological environment: Increased competition forces the firms to
develop new ways to survive and grow in the market. New technologies make it
possible to improve machines, process, products and services. The rapidly
changing technological environment creates tough challenges before smaller
firms.
4. Necessity
for change: In a regulated environment of pre-1991 era, the firms could have
relatively stable policies and practices. After 1991, the market forces have
become turbulent as a result of which the enterprises have to continuously
modify their operations.
5. Threat
from MNC Massive entry of multi
nationals in Indian marker constitutes new challenge. The Indian subsidiaries
of multi-nationals gained strategic advantage. Many of these companies could
get limited support in technology from their foreign partners due to
restrictions in ownerships. Once these restrictions have been limited to
reasonable levels, there is increased technology transfer from the foreign
partners
Liberalization,
Privatisation and Globalization
Liberalization: The
economic reforms that were introduced were aimed at liberalizing the Indian
business and industry from all unnecessary controls and restrictions. They
indicate the end of the license-permit-quota raj. Liberalization of the Indian
industry has taken place with respect to:
a) Abolishing
licensing requirement in most of the industries except a short list,
b) Freedom in
deciding the scale of business activities i.e., no restrictions on expansion or
contraction of business activities,
c) Removal of
restrictions on the movement of goods and services,
d) Freedom in
fixing the prices of goods services,
e) Reduction
in tax rates and lifting of unnecessary controls over the economy,
f) Simplifying
procedures for imports and experts, and
g) Making it
easier to attract foreign capital and technology to India.
Advantages of Liberalisation
1.
Industrial licensing
2.
Increase the foreign investment
3.
Increase the foreign exchange reserve
4.
Increase the consumption and control over price
5. Check
on corruption
6.
Reducing in dependence on external commercial borrowing
Disadvantages of liberalization
1. Increase in unemployment
2. Loss of domestic units
3. Increase dependence on foreign nations
4. Unbalanced development
Privatisation:
The
new set of economic reforms aimed at giving greater role to the private sector
in the nation building process and a reduced role to the public sector. To
achieve this, the government redefined the role of the public sector in the New
Industrial Policy of 1991. The purpose of the sale, according to the
government, was mainly to improve financial discipline and facilitate
modernization. It was also observe that private capital and managerial
capabilities could be effectively utilized to improve the performance of the PSUs.
The government has also made attempts to improve the efficiency of PSUs by
giving them autonomy in taking managerial decisions.
Benefits of Privatisation:
1.
Improved Efficiency: The main argument for privatisation is that
private companies have a profit incentive to cut costs and be more efficient.
If we work for a government run industry, managers do not usually share in any
profits. However, a private firm is interested in making profit and so it is
more likely to cut costs and be efficient.
2.
Lack of Political Interference: It is argued that governments make
poor economic managers. They are motivated by political pressures rather than
sound economic and business sense.
3.
Short Term view: A government many think only in terms of next
election. Therefore, they may be unwilling to invest in infrastructure
improvements which will benefit the firm in the long term because they are more
concerned about projects that give a benefit before the election.
4.
Shareholders: It is argued that a private firm has
pressure from shareholders to perform efficiently. If the firm is inefficient
then the firm could be subject to a takeover. A government owned firm doesn’t
have this pressure and so it is easier for them to be inefficient.
5.
Increased Competition: Often privatisation of state owned monopolies
occurs alongside deregulation – i.e. policies to allow more firms to enter the
industry and increase the competitiveness of the market. It is this increase in
competition that can be the greatest motivation for improvements in efficiency.
However, privatisation doesn’t necessarily increase competition; it depends on
the nature of the market.
6.
Government will raise revenue from the sale: Selling
government owned assets to the private sector raised significant sums for
government.
Disadvantages
of Privatisation
1.
Natural Monopoly: A natural monopoly occurs when the most
efficient number of firms in an industry is one. Privatisation would create a
private monopoly which might seek to set higher prices which exploit consumers.
Therefore it is better to have a public monopoly rather than a private monopoly
which can exploit the consumer.
2.
Public Interest: There are many industries which perform an
important public service, e.g. health care, education and public transport. In
these industries, the profit motive shouldn’t be the primary objective of firms
and the industry.
3.
Government loses out on potential dividends: Many of
the privatised companies in the India are quite profitable. This means the
government misses out on their dividends, instead going to wealthy
shareholders.
4.
Problem of regulating private monopolies: Privatisation creates private
monopolies, such as the water companies and rail companies. These need
regulating to prevent abuse of monopoly power. Therefore, there is still need
for government regulation.
5.
Fragmentation of industries: In India, rail privatization would lead
to breaking up the rail network into infrastructure and train operating
companies. This led to areas where it was unclear who had responsibility.
6.
Short-Term view of Firms: As well as the government being
motivated by short term pressures, this is something private firms may do as
well. To please shareholders they may seek to increase short term profits and
avoid investing in long term projects.
Globalisation: Globalizations are the outcome of the
policies of liberalisation and privatisation. Globalisation is generally
understood to mean integration of the economy of the country with the world
economy, it is a complex phenomenon. It is an outcome of the set of various
policies that are aimed at transforming the world towards greater
interdependence and integration. It involves creation of networks and
activities transcending economic, social and geographical boundaries.
Globalisation
involves an increased level of interaction and interdependence among the
various nations of the global economy.
Physical geographical gap or political boundaries no longer remain
barriers for a business enterprise to serve a customer in a distant
geographical market.
Foreign
Collaboration
Foreign
collaboration is such an alliance of domestic (native) and abroad (non-native)
entities like individuals, firms, companies, organizations, governments, etc.,
that come together with an intention to finalize a contract on some tasks or
jobs or projects.
“Foreign
collaboration includes ongoing business activities of sharing information
related to financing, technology, engineering, management consultancy,
logistics, marketing, etc., which are generally,
offered by a non-resident (foreign) entity to a resident (domestic or native)
entity in exchange of cheap skilled and semi-skilled labour, inexpensive
high-quality raw-materials, low cost hi-tech infrastructure facilities,
strategic (favourable) geographic location, and so on, with an approval
(permission) from a governmental authority like the ministry of finance of a
resident country.”
Features of Foreign Collaboration
a)
Foreign collaboration is a mutual co-operation between one or more
resident and non-resident entities. In other words, for example, an alliance (a
union or an association) between an abroad based company and a domestic company
forms a foreign collaboration.
b)
It is a strategic alliance between one or more resident and non-resident
entities.
c)
Only two or more resident (native) entities cannot make a foreign
collaboration possible. For its formation and as per above definitions, it is
mandatory that one or more non-resident (foreign) entities must always
collaborate with one or more resident (domestic) entities.
d)
Before starting a foreign collaboration, both entities, for example, a
resident and non-resident company must always seek approval (permission) from
the governmental authority of the domestic country.
e)
During an ongoing process of seeking permission, the collaborating
entities prepare a preliminary agreement.
f)
According to this preliminary agreement, for example, the non-resident
company agrees to provide finance, technology, machinery, know-how, management
consultancy, technical experts, and so on. On the other hand, resident company
promises to supply cheap labour, low-cost and quality raw-materials,
ample land for setting
factories, etc.
g)
After obtaining the necessary permission, individual representative of a
resident and non-resident entity sign this preliminary agreement. Signature
acts as a written acceptance to each other's expectations, terms and
conditions. After signatures are exchanged, a contract is executed, and foreign
collaboration gets established. Contract is a legally enforceable agreement.
All contracts are agreements, but all agreements need not necessarily be a
contract.
h)
After establishing foreign collaboration, resident and non-resident entity
starts business together in the domestic country.
i)
Collaborating entities share their profits as per the profit-sharing
ratio mentioned in their executed contract.
j)
The tenure (term) of the foreign collaboration is specified in the
written contract.
Foreign Collaboration is of two types:
When a
foreign company acquires equity shares of an Indian company for collaboration
it is known as Financial Collaboration. The extent to which the foreign company
can acquire equity shares depends upon the policies of the Government of India.
Technical
Collaboration means the transfer of information relating to the business of the
collaboration. It includes transfer of data, information, drawings, product and
tool designs, production engineering, between the collaboration companies.
FDI- Foreign Direct Investment
FDI- Foreign Direct Investment refers to international investment in
which the investor obtains a lasting interest in an enterprise in another
country. Most concretely, it may take the form of buying or constructing a
factory in a foreign country or adding improvements to such a facility, in the
form of property, plants, or equipment.
FDI
is calculated to include all kinds of capital contributions, such as the
purchases of stocks, as well as the reinvestment of earnings by a wholly owned
company incorporated abroad (subsidiary), and the lending of funds to a foreign
subsidiary or branch. The reinvestment of earnings and transfer of assets
between a parent company and its subsidiary often constitutes a significant
part of FDI calculations. FDI is more difficult to pull out or sell off.
Consequently, direct investors may be more committed to managing their
international investments, and less likely to pull out at the first sign of
trouble.
Competition Act’ 2002
The competition Act 2002 was formulated with
following objectives:
1.
To promote healthy competition in the market.
2.
To prevent those practices which are having adverse effect on competition.
3.
To protect the interests of concerns in a suitable manner.
4.
To ensure freedom of trade in Indian markets.
5.
To prevent abuses of dominant position in the market actively.
6.
Regulating the operation and activities of combinations (acquisitions, mergers
and amalgamation).
7.
Creating awareness and imparting training about the competition Act.
Salient features of the Competition Act, 2002
1. Competition Act is a very compact
and smaller legislation which includes only 66 sections.
2. Competition commission of India
(CCI) is constituted under the Act.
3. This Act restricts agreements
having adverse effect on competition in India.
4. This Act suitably regulates
acquisitions, mergers and amalgamation of enterprises.
5. Under the purview of this Act, the
central Government appointed director General for conducting detail
investigation of anti-competition agreements for arresting CCI.
6. This Act is flexible enough to
change its provisions as per needs.
7. Civil courts do not have any
jurisdiction to entertain any suit which is within the purview of this Act.
8. This Act possesses penalty
provision.
9. Competition Act has replaced MRTP
Act.
10. Under this Act, “Competition Fund”
has been created.
Exemption from Application of Competition Act,
2002
The
Central Government may, by notification, exempt from the application of this
Act, or any provision thereof, and for such period – as it may specify in such
notification:
(a)
any class of enterprises – if such exemption is necessary in the
interest of security of the state or public interest;
(b) any
practice or agreement – arising out of and in accordance with any obligation
assumed by India under any treaty, agreement or convention with any other
country or countries ;
(c) any
enterprise – which performs a sovereign function on behalf of the Central
Government or a State Government.
In
simple words, Competition Act is not applicable in the following cases:
1.
Public Financial Institutions.
2.
Foreign Institutional Investors (FIIs).
3.
Banks.
4.
Venture capital Funds (VCFs).
5.
Agreements related to intellectual property rights (IPRs) such as trademarks,
patents, copyrights etc.
6.
Central Government has the authority to exempt any class of enterprises from
the provisions of Act in the common interest of national security or public
interest.
Sec. 2(a) “Acquisition” means
Directly
or indirectly, acquiring or agreeing to acquire:
(i)
Shares, voting rights or assets of any enterprise; (or)
(ii)
Control over management or control over assets of any enterprise.
The
terms ‘acquiring’ or ‘acquisition’ – are relevant for “Regulation of Combinations”.
Sec. 2(b) “Agreement” includes any arrangement or understanding or action in concert:
(i)
Whether or not, such
arrangement, understanding or concert is formal or in writing; (or)
(ii)
Whether or not such arrangement, understanding or action is
intended to be enforceable by legal proceedings.
Sec. 2(f) “Consumer” means any Person who
(i)
Buys any goods
for a consideration which has been pair or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such
goods other than the person who buys such goods for consideration paid or
promised or partly paid or partly promised, or under any system of deferred
payment when such use is made with the approval of such person, – whether such purchase of goods
is for resale or for any commercial purpose or for personal use.
(ii)
Hires or avails of any
services for a consideration which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment and includes any
beneficiary of such services other than the person who hires or avails of the
services for consideration paid or promised, or partly paid or partly promised
or under any system of deferred payment, when such services are availed with
the approval of the first mentioned person – whether such hiring or availing
of services is for any commercial purpose or for personal use.
Sec. 2(h) “Enterprise” means
a
Person or a Department of the Government, – who or which is, or has been engaged in any
activity, relating to the production, storage, supply, distribution,
acquisition or control or goods or articles or the provision of services, of
any kind, or in investment, or in the business of acquiring, holding,
underwriting or dealing with shares, debentures or other securities of any body
corporate either directly or through one or more of its units or divisions or
subsidiaries – whether such unit or division or subsidiary is
located at the same place where the enterprise is located or at different
places.
Sec. 2(i) “Goods” means
Goods
as defined in the Sale of Goods Act, 1930 and includes:
(a)
Products manufactured, processed or mined ;
(b)
Debentures, shares and stocks after allotment
;
(c)
in relation to Goods supplied, distributed or
controlled in India – goods imported into India.
Sec. 2(u) “Service” means
service
of any description which is made available to a potential users and includes the
provision of services – in connection with business of any industrial or
commercial matters such as – banking, communication, education,
financing, insurance, chit funds, real estate, transport, storage, material
treatment, processing, supply of electrical or other energy, boarding, lodging,
entertainment, amusement, construction, repair, conveying of news or
information and advertising.
Sec. 2(y) “Turnover” includes value of sale of goods or
services. The definition of the term turnover, intra-alia, is
relevant and significant in determining whether the combination of
merging entities exceeds the threshold limit of the turnover specified in
Section 5 of the Act. It is also relevant – for the purpose of imposition of fines
– by the Commission.
“Competition Commission of India”
(CCI)
The
Competition Act provides for an adjudicating relief machinery – by way of
establishing the Competition Commission of India ( CCI ) which would be body
corporate having perpetual succession and common seal. CCI will have a
Chairperson and not less than two and more than ten other members to be
appointed by the Central Government. The Law provides that the Commission may
establish offices at other places (other than Head Office) in India.
A
quasi-judicial authority named ‘Competition Commission of India’ will be
constituted. The Commission will consist of judicial as well as non-judicial
persons to give Competition Commission of India (CCI) an overall perspective.
On
receipt of complaint or reference, CCI can issue order to Director General to
investigate. His report will then be considered by CCI. The CCI will hear the concerned
parties and then pass necessary orders. CCI will sit in benches. Each bench
will consist of at least one judicial person of rank of Judge of High Court.
CCI is empowered to recommend division of dominant enterprises. It can order
de-merger in case of merger / amalgamation that adversely affects competition.
Suitable powers are given to Commission and penalties are prescribed to ensure
that orders of Commission are obeyed. Jurisdiction of Civil Court is barred and
only appeal to Supreme Court only if substantial question of law are involved.
India’s Industrial Policy for North Eastern Region
In
view of the continuing backwardness of North East Region, the need for a new
and synergetic incentive package was widely felt to stimulate development of
industries. In 1997 a separate Industrial Policy was announced for the
industrial development of the North Eastern Region for which Expert groups /
committees were constituted by the Ministry of Industry and Planning
Commission. Based on the recommendations and proposals finalized by these
expert groups / committee the Government of India approved the new Industrial
Policy and other concessions for the North Eastern Region.
Features of the policy:
a) Development of Industrial infrastructure
growth centre: Currently the funding pattern of the growth centers envisages a
Central assistance of Rs. 10 crores for each Centre and the balance amount to
be raised by the State Government. Government has approved that entire
expenditure on the growth centers would be provided as Central assistance,
subject to a ceiling of Rs. 15 crores.
b) Integrated
Infrastructure Development Centre: In respect of the IID centres, the
funding pattern would be changed from 2:3 between Government of India and SIDBI
to 4:1, and the Government of India funds would be a grant.
c) Transport subsidy scheme: The
transport subsidy scheme will be extended further in so far as NE States are
concerned, for a period of another 7 years i.e. up to 31st March, 2007 being
coterminous with the Tenth Five Year Plan on same terms and conditions as per
applicable now.
d) Fiscal incentives to new industrial units
1) Total Tax
Free Zone: Government has approved for converting the growth centres and
IID centres into a Total Tax Free Zone for the next 10 years. State Government
would be requested to grant exemptions in respect of Sales Tax and Municipal
Tax.
2) Capital
Investment Subsidy: Industries located in the growth centres would
also be given Capital Investment Subsidy at the rate of 15% of their investment
in plant and machinery, subject to a maximum ceiling of Rs. 30 lakh. The
commercial banks and the North East Development Financial Corporation (NEDFi)
will have dedicated branches/ counters to process applications to term loans
and working capital in these centres.
3) Interest
subsidy on Working Capital Loan: An interest subsidy of 3% of working
capital loan would be provided of 10 years after the commercial production. The
working capital requirements would be worked out as per the Nayak Committee.
4) Excise
Benefits: Government of India has given sweeping concessions on excise duty.
All excisable goods produced in the factory located in the growth centres, IIDs
etc. in the state have been exempted from payment of excise duty. Goods
produced in specified industries located in areas outside the growth
centres/IIDs etc. have also been exempted from payment of excise duty.
e) Relaxation
of PMRY Norms: The PMRY
would be expanded in scope to cover areas of horticulture, piggery, poultry,
fishing, small tea gardens etc. so as to cover all economically viable
activities. PMRY would have a family income ceiling of Rs. 40,000.00 per annum
for each beneficiary along with his/her spouse and upper age limit will be
relaxed to 40 years. Projects costing up to Rs. 2 lakh in other than business
sector will be eligible for assistance. No collateral will be insisted for
project costing up to Rs. 1 lakh.
f) Other
Incentives Proposed: A comprehensive insurance scheme for
industrial units in the North East will be designed in consultation with
General Insurance Corporation of India Ltd. and 100% premium for a period of 10
years would be subsidized by Central Government. One time grant of Rs. 20
crores will be provided to the North East Development Financial Corporation
(NEDFi) by the Central Government through NEC to fund Techno-Economic studies
for industries and infrastructure best suited to this region.
The Government may consider setting u a "Debt Purchase
Window" by the NEDFi which buys the debt of the manufacturing units
particularly in respect of the supplies made to the Government Departments so
as to reduce the problem of blocking of funds for these units.
For development of markets in North East, possibilities of Export
of products of North East to the neighboring countries particularly,
Bangladesh, Myanmar and Bhutan would be explored.
North East Industrial and Investment Promotion Policy
(NEIIP, 2007)
Important Provisions of NEIIPP, 2007
(i)
Sikkim will be included under NEIIPP, 2007 and
the ‘New Industrial Policy and other concessions for the State of Sikkim’
announced earlier in December, 2002 will be discontinued from the date of
notification of NEIIPP, 2007.
(ii) Under
NEIIPP, 2007, all new units as well as existing units which go in for
substantial expansion, unless otherwise specified and which commence commercial
production within the 10 year period from the date of notification of NEIIPP,
2007 will be eligible for incentives for a period of 10 years from the date of
commencement of production.
(iii) The
incentives under the NEIIPP, 2007 will be available to all industrial units,
new as well as existing units on their substantial expansion, located anywhere
in the North Eastern Region. Consequently, the distinction between
‘thrust’ and ‘non thrust’ industries made in NEIP, 97 will be discontinued from
the date of notification of NEIIPP, 2007.
(iv) Under
NEIIPP, 2007 incentives on substantial expansion will be given to units
effecting ‘an increase by not less than 25% in the value of fixed capital
investment in plant and machinery for the purpose of expansion of
capacity/modernization and diversification’ as against an increase by 33
½ % prescribed at present.
(v) Under NEIIPP,
2007, 100% excise duty exemption will be continued as at present on finished
products made in the North Eastern Region. However, in cases, where
the CENVAT paid on the raw materials and intermediate products going into the
production of finished products (other than the products which are otherwise
exempt or subject to nil rate of duty) is higher than the excise duties payable
on the finished products, ways and means to refund such overflow of CENVAT
credit will be separately notified by the M/O Finance.
(vi) 100%
income tax exemption will continue under NEIIPP, 2007 as at present.
(vii) Capital
investment subsidy will be enhanced from 15% of the investment in plant and
machinery to 30% and the limit for automatic approval of subsidy at this rate
will be Rs. 1.5 crore per unit as against Rs. 30 lakhs at
present. Such subsidy will be applicable to units in the private
sector, joint sector, cooperative sector as well as the units set up by the
State Governments of the North Eastern Region. For grant of capital
investment subsidy higher than Rs. 1.5 crore but upto a maximum of Rs.30 crore,
there will be an Empowered Committee.
(viii) Interest
subsidy will be made available @ 3% on working capital loan under NEIIPP, 2007
as at present.
(ix) Under
NEIIPP, 2007, new industrial units as well as the existing units on their
substantial expansion will be eligible for reimbursement of 100% insurance
premium under the Comprehensive Insurance Scheme.
(x) To include
tobacco and tobacco products, pan masala, plastics carry bags and goods produced
by refineries, in a host of industries which would not be eligible for
incentives under NEIIPP, 2007.
(xi) To provide
incentives to service sector, bio-technology and power generating industries.
(xii) To
continue North Eastern Development Finance Corporation Ltd. (NEDFi) as the
nodal agency for disbursal of subsidies under NEIIPP, 2007.
The
provisions of the NEIIPP, 2007 would provide the requisite incentives as well
as an enabling environment to speed up the industrialization of the North
Eastern Region which is otherwise less than 4% p.a. against a national average
of 8%.
Export – Import Policy or Foreign Trade Policy
No country is self-sufficient
in the world today. Therefore, every country has to import goods and to
pay for imports it has to export goods to other countries. The ideal
situation would be if every country specialized in the production of those
goods in which it has a comparative cost advantage. But in addition to
comparative cost several other factors including political considerations have
played an important part in determining the pattern of imports and exports. To
protect domestic industries, many countries in the past had imposed heavy
tariffs to restrict imports.
India's Foreign Trade Policy
also known as Export Import Policy (EXIM) in general, aims at developing export
potential, improving export performance, encouraging foreign trade and creating
favorable balance of payments position. Foreign Trade Policy is prepared and
announced by the Central Government (Ministry of Commerce). Foreign Trade
Policy or EXIM Policy is a set of guidelines and instructions established by
the DGFT (Directorate General of Foreign Trade) in matters related to the
import and export of goods in India.
The foreign trade policy,
has offered more incentives to exporters to help them tide over the effects of
a likely demand slump in their major markets such as the US and Europe. Foreign trade is exchange of capital,
goods, and services across international borders or territories. In most
countries, it represents a significant share of gross domestic product (GDP).
While international trade has been present throughout much of history, its
economic, social, and political importance has been on the rise in recent
centuries.
EXIM Policy Governing Body
EXIM Policy or Foreign
Trade Policy is a set of guidelines and instructions
established by the Directorate
General of Foreign Trade in matters related to the import and export of
goods in India. The Foreign Trade Policy of India is guided by the Export Import
in known as in short EXIM Policy of the Indian Government and
is regulated by the Foreign
Trade Development and Regulation Act, 1992.
The EXIM Policy is updated every year on the 31st of
March and the modifications, improvements and new schemes became effective from
1st April of every year. All types of changes or modifications related to the EXIM
Policy is normally announced by the Union Minister of Commerce and
Industry. Union Minister of Commerce and Industry co-ordinates with
the Ministry of Finance, the Directorate
General of Foreign Trade and network of DGFT Regional Offices.
DGFT (Directorate General of
Foreign Trade) is
the main governing body in matters related to EXIM Policy. The main objective
of the Foreign Trade (Development and Regulation) Act is to provide the
development and regulation of
foreign trade by facilitating imports into, and augmenting exports
from India. Foreign Trade Act has replaced the earlier law known as the imports
and Exports (Control) Act 1947.
Indian EXIM Policy contains
various policy related decisions taken by the government in the sphere of
Foreign Trade, i.e., with respect to imports and exports from the country and
more especially export promotion measures, policies and procedures related
thereto.
The principal objectives of the policy
are:
1) To
facilitate sustained growth in exports of the country so as to achieve larger
percentage share in the global merchandise trade.
2) To provide
domestic consumers with good quality goods and services at internationally
competitive prices as well as creating a level playing field for the domestic
producers.
3) To
stimulate sustained economic growth by providing access to essential raw
materials, intermediates, components, consumables and capital goods required
for augmenting production and providing services.
4) To enhance
the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitiveness to meet the requirements of
the global markets.
5) To
generate new employment opportunities and to encourage the attainment of
internationally accepted standards of quality.
6) To
establish the framework for globalization.
7) To promote
the productivity competitiveness of Indian Industry.
8) To augment
export by facilitating access to raw material, intermediate, components,
consumables and capital goods from the international market.
9) To promote
internationally competitive import substitution and self-reliance.
Export- Import (EXIM) Policy 2002-07
In order to maintain the
balance of payments and to avoid trade deficit the government of India has
announced a trade policy for imports and exports. After every five years the
government of India reviews the import and export policy in view of the
changing international economic situation. The policy relates to
promotion of exports and regulation of imports so as to promote economic growth
and overcome trade deficit. Accordingly, the export-and import policies (EXIM
Policy) were announced by the government first in 1985 and then in 1988 which
was again revised in 1990. All these policies made necessary provision
for extension of import liberalisation measures. All these policies made necessary
provision for import of capital goods and raw materials for industrialization,
utilisation and liberalisation of REP (Registered Exporters Policy) licenses,
liberal import of technology and policy for export and trading houses.
The government announced its new EXIM policy for 2002-2007 which is mainly a
continuation of the EXIM policy of 1997-2002. The new export-import policy for
2002-2007 aims at pushing up growth of exports to 12 per cent a year as
compared to about 1.56 per cent achieved during the financial year
2001-2002.
The main features of this
export- import policy are given below:
a) Concessions
to exporters: To
enable Indian companies to compete effectively in the competitive international
markets and to give a boost to sagging exports various concessions had been
given to the exporters in this new EXIM policy 2002-2007. These
concessions are:
i)
Exporters
will now have 360 days to bring in their foreign exchange remittances as
compared to the earlier limit of 180 days.
ii) Exporters will be allowed to retain the
entire amount held in their exchange earner foreign currency (EEFC) accounts.
iii) Exporters will now get long-term loans at
the prime lending rate for that tenure.
b) Duty Entitlement
Pass Book (DEPB) and Export Promotion Capital Goods (EPCG) Schemes: DEPB and EPCG are important tools of
promoting exports. These schemes have been made more flexible. In
the DEPB and EPCG schemes new initiatives have been granted to the cottage
industries, handicrafts, chemicals and pharmaceuticals, textile and leather
products.
c) Strengthening
Special Export Zones (SEZ): The new long-term EXIM policy has sought to enable Indian SEZs
to be at par with its international rivals. The EXIM policy has given a
boost to the banking sector reforms by permitting Indian banks to set up
overseas banking units in SEZs.
d) Soft
options for computer hardware industry: The export import (EXIM) policy has put the Indian computer
manufacturers at par with manufacturers in other parts of the world. Companies
manufacturing or assembling computers in the country will be able to import
both capital and raw materials at lower duty rates to sell in the domestic
market.
As per the
information technology agreement which is part of the world trade organisation
zero duty the agreement on I. T. sector, 217 I. T. components would attract a
zero duty by 2005. Therefore, foreign companies can import these products
into the country while Indian manufacturers who did the same had to meet export
obligations on their imports. Now, the new EXIM policy states that
domestic sales will be considered as a fulfillment of the export obligation,
thereby freeing the domestic manufacturers from exports completely.
Salient Features
of Foreign Trade Policy 2009-14
1.
$ 200 billion or Rs 98,000 crore is the export
target for 2010-11.
2.
100% growth of India’s export of goods and
services by 2014.
3.
15% growth target for next two years; 25%
thereafter.
4.
3.28% targeted India’s share of global trade by
2020 double from the current 1.64%.
5.
Jaipur, Srinagar Anantnag, Kanpur, Dewas and
Ambur identified as towns of export excellence.
6.
26 new markets added to focus market scheme.
7.
Provision for state-run banks to provide dollar
credits.
8.
Duty entitlement passbook scheme extended till
Dec. 2010.
9.
Tax sops for export-oriented and software export
units extended till March 2011.
10.
New directorate of trade remedy measures to be
set up.
11.
Plan for diamond bourses.
12.
New facility to allow import of cut and polished
diamonds for grading and certification.
13.
Export units allowed to sell 90% of goods in domestic
market.
14.
Export oriented instant tea companies can sell
up to 50% produce in domestic market.
15.
Single-window scheme for farm exports.
16.
Number of duty-free samples for exporters raised
to 50 pieces.
17.
Value limits of personal carriage increased to
$5 million (Rs 24.5 core) for participation in overseas exhibitions.
Salient Features of the
present Foreign Trade Policy 2015-2020
1. Increase
exports to $900 billion by 2019-20, from $466 billion in 2013-14
2. Raise India's
share in world exports from 2% to 3.5%.
3. Merchandise
Export from India Scheme (MEIS) and Service Exports from India Scheme (SEIS)
launched.
4. Higher level
of rewards under MEIS for export items with High domestic content and value
addition.
5. Chapter-3
incentives extended to units located in SEZs.
6. Export
obligation under EPCG scheme reduced to 75% to Promote domestic capital goods
manufacturing.
7. FTP to be
aligned to Make in India, Digital India and Skills India initiatives.
8. Duty credit scrip’s
made freely transferable and usable For payment of custom duty, excise duty and
service tax.
9. Export
promotion mission to take on board state Governments
10. Unlike annual
reviews, FTP will be reviewed after two-and-Half years.
11. Higher level
of support for export of defence, farm Produce and eco-friendly products.
Special Economic Zone- Introduction
Special Economic Zone (SEZ)
is a geographical region that has economic laws that are more liberal than a
country's typical economic laws. The category 'SEZ' covers a broad range of
more specific zone types, including Free Trade Zones (FTZ), Export Processing
Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban
Enterprise Zones and others. Usually the goal of an SEZ structure is to
increase foreign investment.
One of the earliest and the
most famous Special Economic Zones were founded by the government of the
People's Republic of China under Deng Xiaoping in the early 1980s. The most
successful Special Economic Zone in China, Shenzhen, has developed from a small
village into a city with a population over 10 million within 20 years.
Following the Chinese examples, Special Economic Zones have been established in
several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan,
the Philippines, Poland, Russia, and Ukraine.
SEZ AT INDIA
India was one of the first in
Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model
in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a
view to overcome the shortcomings experienced on account of the multiplicity of
controls and clearances; absence of world-class infrastructure, and an unstable
fiscal regime and with a view to attract larger foreign investments in India,
the Special Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make
SEZs an engine for economic growth supported by quality infrastructure
complemented by an attractive fiscal package, both at the Centre and the State
level, with the minimum possible regulations.
To instill confidence in
investors and signal the Government's commitment to a stable SEZ policy regime
and with a view to impart stability to the SEZ regime thereby generating
greater economic activity and employment through the establishment of SEZs, a
comprehensive draft SEZ Bill prepared after extensive discussions. The Special Economic Zones Act, 2005, was
passed by Parliament in May, 2005.
The main objectives of the SEZ Act are:
(a) Generation of additional
economic activity
(b) Promotion of exports of
goods and services;
(c) Promotion of investment
from domestic and foreign sources;
(d) Creation of employment
opportunities;
(e) Development of
infrastructure facilities;
It is expected that
this will trigger a large flow of foreign and domestic investment in SEZs, in
infrastructure and productive capacity, leading to generation of additional
economic activity and creation of employment opportunities.
OBJECTIVES OF SEZ AT INDIA
a)
Generation of additional economic activity across all the states
b)
Promotion of exports of goods and services across all Indian sates according
to their indigenous capabilities
c)
Promotion of investment from domestic and foreign sources
d)
Creation of employment opportunities across India
e)
Development of world class infrastructural facilities in these units
f)
Simplified procedures for development, operation, and maintenance of the
Special Economic Zones and for setting up units and conducting such business
activities
g)
Single window clearance cell for the establishment of Special Economic
Zone
h)
Single window clearance cell within each and every Special Economic
Zones
i)
Single window clearance cell relating to formal requirements of Central
as well as all State Governments.
j)
Easy and simplified compliance procedures and documentations with stress
on self certification.
THE SALIENT FEATURES OF THE SEZ POLICY OF INDIA
a)
Exemption from duties on all imports for project development
b)
Exemption from excise / VAT on domestic sourcing of capital goods for
project development
c)
Freedom to develop township in to the SEZ with residential areas,
markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership
d)
Income tax holidays on business income
e)
Exemption from import duty, VAT and other Taxes
f)
10% FDI allowed through the automatic route for all manufacturing
activities
g)
Procedural ease and efficiency for speedy approvals, clearances and
customs procedures and dispute resolution
h)
Simplification of procedures and self-certification in the labor acts
i)
Artificial harbor and handling bulk containers made operational
throughout the year
j)
Houses both domestic and international air terminals to facilitate
transit, to and fro from major domestic and international destinations
k)
Well connected with network of public transport, local railways and cabs
l)
Pollution free environment with proper drainage and sewage system
m)
In-house Customs clearance facilities
n)
Abundant supply of technically skilled manpower
o)
Abundant supply of semi-skilled labor across all industry vertical
p)
Easy access to airport and local Railway Station
q)
10-year tax holiday in a block of the first 20 years
r)
Full authority to provide services such as water, electricity, security,
restaurants and recreational facilities within the zone on purely commercial
basis
Key
Advantages of SEZ Units in India
Ø
10-year tax holiday in a block of the first 20
years
Ø
Exemption from duties on all imports for
project development
Ø
Exemption from excise / VAT on domestic
sourcing of capital goods for project development
Ø
No foreign ownership restrictions in
developing zone infrastructure and no restrictions on repatriation
Ø
Freedom to develop township in to the SEZ with
residential areas, markets, play grounds, clubs and recreation centers without
any restrictions on foreign ownership
Ø
Income tax holidays on business income
Ø
Exemption from import duty, VAT and other
Taxes
Ø
10% FDI allowed through the automatic route
for all manufacturing activities
Ø
Procedural ease and efficiency for speedy
approvals, clearances and customs procedures and dispute resolution
Ø
Simplification of procedures and
self-certification in the labor acts
Ø
Artificial harbor and handling bulk containers
made operational through out the year
Ø
Houses both domestic and international air
terminals to facilitate transit, to and fro from major domestic and
international destinations
Ø
Has host of Public and Private Bank chains to
offer financial assistance for business houses
Ø
A vibrant industrial city with abundant supply
of skilled manpower, covering the entire spectrum of industrial and business
expertise
Ø
Well connected with network of public transport,
local railways and cabs
Ø
Pollution free environment with proper
drainage and sewage system
Ø
In-house Customs clearance facilities
Disadvantages of SEZ
Ø Revenue losses because of the various tax
exemptions and incentives.
Ø Many traders are interested in SEZ, so that
they can acquire at cheap rates and create a land bank for themselves.
Ø The number of units applying for setting up
EOU's is not commensurate to the number of applications for setting up SEZ's
leading to a belief that this project may not match up to expectations.
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