Export Policy of India: Pre-Reform and Reform Period

In this article we will discuss about the Export Policy of India. After reading this article you will learn about: 1. Export Policies followed during Pre-Reform Period 2. Export policies followed during the Reform Period. 

Export Policies followed during Pre-Reform Period:

The export policy of India as formulated since independence is all along guided by export promotion measures. At various times, the Government introduced different types of measures for the promotion of exports.

All these measures can be broadly classified under the following heading:

(a) The duty drawback system, i.e., reimbursing exporters for tariff paid on imported materials and excise duties paid on inputs;

(b) Market development assistances, i.e., providing cash compensatory support (CCS) to exporters, and providing grant in aid to Export promotion councils and other organisations for exploring new export markets;

(c) Fiscal concessions for exports i.e., exempting export earning from income tax partially or fully;

(d) Import policy for exports, i.e., providing imported inputs to export sector at international prices through Import Entitlement scheme and Import Replenishment scheme; and

(e) Developing Export Processing Zones (EPZs) and 100 per cent Export-Oriented Units (EOUs) for providing necessary open environment for export production.

Three Phases of Export Policy:

The export policy of the Government of India in the pre-reform period has been classified by Bimal Jalan into three distinct phases. Phase I covered up to the first oil shock of 1973; Phase II covered the period from 1973 up to a decade or so; and Phase III covered the period after the above mentioned period and covered roughly the latter half of the Sixth Plan and the whole of the Seventh Plan.

Phase I was mostly characterised by export pessimism with a stagnant demand for exports. This was mostly attributable to domestic policies leading to falling share of India’s traditional exports and insufficient expansion of non-traditional exports.

Phase II covered the period starting from 1973 and continued for a decade. In this phase, exports were accorded high priority and the policies were followed accordingly. Thus in Phase II, export growth picked up considerably.

Phase III experienced a more positive approach to export promotion strategy. During this phase government, enhanced incentives for export production and exports were incorporated as an integral part of industrial and development policies.

Considering the conditions of balance of payments in the country, the Government of India has been adopting certain special measures for the promotion of exports in our country since the Third Plan Period.

Various export promotion measures introduced by the Government were mainly related to:

(a) Institutionalisation of our efforts to export through commodity specialisation and service specialisation;

(b) Fostering the competitive capacity of Indian exports and making the export business more attractive.

In the mean time, the Government set up various committees for recommending measures to promote exports. In 1962, the “Imports and Export Policy Committee” or the “Mudaliar Committee” appointed by the government submitted its recommendations for export promotion which included mainly:

(a) Increased allocation of raw materials,

(b) Income tax relief on export earnings

(c) Export promotion through import entitlement and

(d) Removal of disincentives through withdrawals of import duties and rebates of sales tax on exported goods. But all these measures could not increase the volume of export to the desired level leading to a devaluation of the rupee in 1966.

In 1979, the Government appointed a thirteen-member “Tandon Committee” which submitted its reports in 1981. The Tandon Committee recommended various measures for export promotion so that India’s share in world trade could be increased from 0.5 per cent to 1 per cent by 1990-91.

These measures included:

(a) Encouraging industries including MRTP companies for increased production of export goods;

(b) Permitting import of restricted and banned items of export production;

(c) Inviting transnational corporations for formulating a five year concrete, export plan for India on the basis of cost-benefit analysis;

(d) Exempting export houses from MRTP;

(e) Recommending automatic licensing of additional production capacity up to 50 per cent;

(f) Allowing import duty-free capital goods to those units exporting more than 50 per cent of their production for three consecutive years;

(g) Reviving the scheme of tax credit;

(h) Exempting excise duties on raw materials and intermediaries used by export-oriented industries;

(i) Extending more liberal import of latest technology to export industries; and

(j) Recommending more involvement of the states in the plan for producing export- based agricultural commodities.

But the critics of the report of Tandon Committee are of the opinion that most of the above mentioned recommendations will benefit the big industrial houses and multinationals.

Thus later on the Government set up Abid Hussain Committee for examining the effectiveness of the existing export promotion measures and the committee submitted its report in 1984 to plug the loopholes in the existing trade policy and also to attain self reliance.

Moreover, the liberalisation policy introduced by the Government in 1991-92 would also help towards successful implementation of export promotion measures.

Thus we can now conclude that the export promotion measures introduced by the Government include various incentive schemes, fiscal relief or tax concessions, relaxation of controls or export restrictions, simplification of procedures, price stabilisation of export commodities, compulsory gradation of commodities, granting of additional inducements and incentives for the export to non-traditional markets, special ship and rail facilities, credit arrangements, signing trade agreements, and finally setting up of various export institutions, viz-, Export-import Council, Export Promotion Council, State Trading Corporation, Export Credit and Guarantee Corporation, Trade Development Authority, Export-Import (EXIM) Bank etc.

Moreover, during the Seventh Plan Period a multi-pronged strategy for the promotion of exports was adopted in order to identify sectors, industries and products which had export potentials along with providing necessary policy framework for those identified sectors.

Accordingly, fourteen broad sectors were identified for providing special thrust in overseas markets. In order to facilitate these sectors, various measures were included in the trade policy, industrial policy, fiscal policy, export finance policy.

Moreover, two specific measures which were undertaken, include:

(a) Duty Exemption scheme, i.e., permitting duty free imports of inputs required for export production and

(b) Blanket Exchange Permit Scheme (introduced in June 1987) for permitting 5 to 10 per cent of their foreign exchange earnings for export promotion activities.

Overall View on Export Promotion Policies.

During the pre-reform period, the Government of India undertook the some important export promotion measures which include:

(i) Cash Compensatory support (CCS),

(ii) Duty Drawback System,

(iii) Import Entitlement Scheme for easy access to importable inputs,

(iv) Advance Licenses and Duty Exemption Scheme,

(v) Setting up to Export Processing Zones (EPZs) and 100 per cent Export Oriented Units (EOUs),

(vi) Subsidies on domestic raw materials,

(vii) Fiscal Concessions for exports,

(viii) Export credit and assistance to Export Promotion Councils (EPCs), and

(ix) introducing Blanket Exchange Permit Scheme in June 1987.

Critical Evaluation:

However, the export promotion policies followed by the government during the pre-reform period are subjected to following critical assessments. These includes:

(i) Total absence of long-term export strategy,

(ii) Internal and external problems confronting primary exports,

(iii) Problems confronting non-traditional exports crises out of serious trading problems, production problems due to lack of technological dynamism, faulty domestic policies and insufficient efforts, and

(iv) Over valued exchange rate leading to cheaper imports and unprofitable exports.

Export Policies Followed during the Reform Period:

Considering the various problems faced by the exporters and also to raise the volume of exports, the Government of India introduced new export promotion policies during the reform period in order to address both production and trading related problems.

Moreover, the Government devalued rupee again by 18 per cent in July 1991 which was expected to boost up the exports. Again in May 1993, the Parliamentary Standing Committee on Commerce proposed allocation of special funds to the State Governments out of the export earning from the units located in those states to enable the states to develop infrastructure facilities for export promotion.

However, with the onset of liberalisation, the importance of globalisation through trade and taking exports as engine of growth of the economy has been broadly recognised. Export promotion has now been considered as a continuous and sustained effort and in this direction, specific steps have been taken and achievements have also been recorded in recent years.

Trade policy reforms such as simplification and streamlining of procedure and additions of items in the Special Import Licence (SIL) so as to improve premium and incentive to exports have so far created a freer environment for trade, strengthened production base of export goods and removed procedural irritants.

Imports are also gradually being liberalised to facilitate flow of raw materials and inputs to the exports sector besides widening and modernising the indigenous production base of the country. India has also become a founder member of rule based World Trade Organisation (WTO) and significant gains are expected in exports of agricultural and various labour intensive products and also in services.

Moreover, the regional bilateral initiatives include a comprehensive agreement with European Commission, indo-US Commercial Alliance, formation of South Asian Association for Regional Co-operation (SAARC), operationalization of SAARC Preferential Trading Agreement (SAPTA) and finally efforts to promote Indian Ocean Rim Bloc Country specific initiatives have been taken to promote trade with several countries and introducing border trade with Myanmar.

Moreover special thrust is also being given to Latin America, Africa and Central Asian Republics. Special growth Centres and export promotion industrial park schemes and also Export Processing Zones (EPZs) and Special Economic Zones (SEZs) have been implemented to support the state government efforts in export promotion.

Besides, Indian Broad Equity Fund has also been launched so as to create brand image for India export products abroad. Encouragement is also being given for achieving higher quality standards in exports and also ISO norms.

New Export Strategy:

New export strategy has been announced by the government on January 2, 1998 which includes a medium term export strategy for achieving an annual exports of 90 billion dollars by 2002 A.D. through removal of infrastructural bottlenecks, reducing cost of credit and initiating steps to develop sectoral and specific markets.

The strategy to get a one per cent share for India in world exports would focus on improving competitiveness by enhancing production base for exports in tune with trends in world trade focusing on quality and technology upgradation.

Recognising that availability of infrastructural facilities was crucial for increasing exports, the strategy at the initial stage would remove bottlenecks responsible for delay at ports, shortage of air cargo capacities, road congestion etc.

Air cargo facilities are proposed to be upgraded and efforts would be made to introduce a green card system for loaded trucks and containers to move without checks enroute subject to verifications of destinations.

The strategy further envisages continued efforts to reduce cost and availability of export credit through RBI and commercial banks, speeding up credit risk assessment process in a time bound manner, operationalization of electronic fund transfer system and increasing net bank credit flow to export sector.

Sectorally, the twin objective was to widen exports of existing products particularly by tapping new markets and diversifying the exports basket in line with the trends in world exports.