Foreign Trade Policy in INDIA

Foreign Trade Policy

1st September 2004-31st March 2009

Ministry of Commerce and Industry

Department of Commerce

Government of India

TO BE PUBLISHED IN THE GAZETTEE OF INDIA EXTRAORDINARY

PART-II, SECTION-3, SUB SECTION (ii)

GOVERNMENT OF INDIA

MINISTRY OF COMMERCE AND INDUSTRY

DEPARTMENT OF COMMERCE

NOTIFICATION No. 1(RE-2006)/ 2004-2009

NEW DELHI, DATED THE 7th April, 2006

In exercise of powers conferred by Section 5 of the Foreign Trade (Development &

Regulation) Act,1992 (No.22 of 1992) read with paragraph 1.2 of the Foreign Trade

Policy, 2004-2009, the Central Government hereby notifies the Foreign Trade Policy,

2004-2009 incorporating the Annual Supplement as updated on 7th April 2006 and

contained in Annexure to this notification. The policy shall come into force w.e.f.

1st April 2006.

This issues in Public interest.

( K.T. CHACKO )

Director General of Foreign Trade and

Ex Officio Additional Secretary to the Government of India

(Issued from F.No. 01/94/180/Foreign Trade Policy/AM07/PC-I)

CONTENTS

CHAPTER SUBJECT Page

PREAMBLE 7

1A LEGAL FRAMEWORK 9

1B SPECIAL FOCUS INITIATIVES 10

1C BOARD OF TRADE 14

2 GENERAL PROVISIONS REGARDING

IMPORTS AND EXPORTS 16

3 PROMOTIONAL MEASURES 27

4 DUTY EXEMPTION / REMISSION SCHEMES 39

5 EXPORT PROMOTION CAPITAL GOODS SCHEME 56

6 EXPORT ORIENTED UNITS (EOUs), ELECTRONICS

HARDWARE TECHNOLOGY PARKS (EHTPs),

SOFTWARE TECHNOLOGY PARKS (STPs) AND

BIO-TECHNOLOGY PARKS (BTPs) 63

7 SPECIAL ECONOMIC ZONES 76

7A FREE TRADE & WAREHOUSING ZONES 77

8 DEEMED EXPORTS 78

9 DEFINITIONS 83

FOREIGN TRADE POLICY

PREAMBLE

CONTEXT

For India to become a major player in world trade, an all encompassing, comprehensive view

needs to be taken for the overall development of the country’s foreign trade. While increase in

exports is of vital importance, we have also to facilitate those imports which are required to

stimulate our economy. Coherence and consistency among trade and other economic policies is

important for maximizing the contribution of such policies to development. Thus, while

incorporating the existing practice of enunciating an annual Exim Policy, it is necessary to go

much beyond and take an integrated approach to the developmental requirements of India’s

foreign trade. This is the context of the new Foreign Trade Policy.

OBJECTIVES

Trade is not an end in itself, but a means to economic growth and national development. The

primary purpose is not the mere earning of foreign exchange, but the stimulation of greater

economic activity. The Foreign Trade Policy is rooted in this belief and built around two major

objectives. These are:

(i) To double our percentage share of global merchandise trade within the next five

years; and

(ii) To act as an effective instrument of economic growth by giving a thrust to employment

generation.

STRATEGY

These objectives are proposed to be achieved by adopting, among others, the following strategies:

(i) Unshackling of controls and creating an atmosphere of trust and transparency to

unleash the innate entrepreneurship of our businessmen, industrialists and traders.

(ii) Simplifying procedures and bringing down transaction costs.

(iii) Neutralizing incidence of all levies and duties on inputs used in export products,

based on the fundamental principle that duties and levies should not be exported.

(iv) Facilitating development of India as a global hub for manufacturing, trading and

services.

(v) Identifying and nurturing special focus areas which would generate additional

employment opportunities, particularly in semi-urban and rural areas, and developing

a series of ‘Initiatives’ for each of these.

(vi) Facilitating technological and infrastructural upgradation of all the sectors of the

Indian economy, especially through import of capital goods and equipment, thereby

increasing value addition and productivity, while attaining internationally accepted

standards of quality.

(vii) Avoiding inverted duty structures and ensuring that our domestic sectors are not

disadvantaged in the Free Trade Agreements/Regional Trade Agreements/Preferential

Trade Agreements that we enter into in order to enhance our exports.

(viii) Upgrading our infrastructural network, both physical and virtual, related to the entire

Foreign Trade chain, to international standards.

(ix) Revitalising the Board of Trade by redefining its role, giving it due recognition and

inducting experts on Trade Policy.

(x) Activating our Embassies as key players in our export strategy and linking our

Commercial Wings abroad through an electronic platform for real time trade

intelligence and enquiry dissemination.

PARTNERSHIP :

The new Policy envisages merchant exporters and manufacturer exporters, business and industry

as partners of Government in the achievement of its stated objectives and goals. Prolonged and

unnecessary litigation vitiates the premise of partnership. In order to obviate the need for litigation

and nurture a constructive and conducive atmosphere, a suitable Grievance Redressal Mechanism

will be established which, it is hoped, would substantially reduce litigation and further a

relationship of partnership.

The dynamics of a liberalized trading system sometimes results in injury caused to domestic

industry on account of dumping. When this happens, effective measures to redress such injury

will be taken.

ROADMAP:

This Policy is essentially a roadmap for the development of India’s foreign trade. It contains the

basic principles and points the direction in which we propose to go. By virtue of its very dynamics,

a trade policy cannot be fully comprehensive in all its details. It would naturally require

modification from time to time. We propose to do this through continuous updation, based on

the inevitable changing dynamics of international trade. It is in partnership with business and

industry that we propose to erect milestones on this roadmap.

(KAMAL NATH)

MINISTER FOR COMMERCE & INDUSTRY

GOVERNMENT OF INDIA

NEW DELHI

31ST AUGUST, 2004

CHAPTER 1A

LEGAL FRAMEWORK

Preamble 1.1 The Preamble spells out the broad framework and is an integral

part of the Foreign Trade Policy.

Duration 1.2 In exercise of the powers conferred under Section 5 of The

Foreign Trade (Development and Regulation Act), 1992 (No.

22 of 1992), the Central Government hereby notifies the

Foreign Trade Policy for the period 2004-2009 incorporating

the Export and Import Policy for the period 2002-2007, as

modified. This Policy shall come into force with effect from

1st September 2004 and shall remain in force upto 31st March,

2009 unless as otherwise specified.

Amendments 1.3 The Central Government reserves the right in public interest

to make any amendments to this Policy in exercise of the

powers conferred by Section-5 of the Act. Such amendment

shall be made by means of a Notification published in the

Gazette of India.

Transitional 1.4 Any Notifications made or Public Notices issued or anything

Arrangements done under the previous Export/ Import policies, and in force

immediately before the commencement of this Policy shall,

in so far as they are not inconsistent with the provisions of

this Policy, continue to be in force and shall be deemed to

have been made, issued or done under this Policy.

Authorisations, certificates and permissions issued before the

commencement of this Policy shall continue to be valid for

the purpose and duration for which such Authorisation,

certificate or permission was issued, unless otherwise

stipulated.

1.5 In case an export or import that is permitted freely under this

Policy is subsequently subjected to any restriction or

regulation, such export or import will ordinarily be permitted

notwithstanding such restriction or regulation, unless

otherwise stipulated, provided that the shipment of the export

or import is made within the original validity of an irrevocable

letter of credit established before the date of imposition of

such restriction.

CHAPTER 1B

SPECIAL FOCUS INITIATIVES

Special Focus 1B.1 With a view to doubling our percentage share of global

Initiatives trade within 5 years and expanding employment opportunities,

especially in semi urban and rural areas, certain special

focus initiatives have been identified for the agriculture,

handlooms, handicraft, gems & jewellery, leather and Marine

sectors.

Government of India shall make concerted efforts to promote

exports in these sectors by specific sectoral strategies that shall

be notified from time to time.

New Sectoral Initiatives Further Sectoral Initiatives in other sectors will also be

to be announced announced from time to time.

For the present, the thrust sectors indicated below shall be

extended the following facilities:

(i) Agriculture and Village Industry

(a) A new scheme called the Vishesh Krishi and Gram

Udyog Yojana (Special Agricultural and Village

Industry Scheme) for promoting export of fruits,

Vegetables, Flowers, Minor Forest produce, Dairy,

Poultry and their value added products and Gram

Udyog products has been introduced (Para 3.8).

(b) Funds shall be earmarked under ASIDE for

development of Agri Export Zones (AEZ)

(c) Deleted.

(d) Deleted.

(e) Capital goods imported under EPCG shall be

permitted to be installed anywhere in the AEZ.

(f) Import of restricted items, such as panels, shall be

allowed under the various export promotion

schemes.

(g) Import of inputs such as pesticides shall be

permitted under the Advance Authorisation for agro

exports.

(h) New towns of export excellence with a threshold

limit of Rs 250 crore shall be notified.

(ii) Handlooms :

(a) Specific funds would be earmarked under MAI/

MDA Scheme for promoting handloom exports.

(b) Duty free import entitlement of specified trimmings

and embellishments shall be 5% of FOB value of

exports during the previous financial year.

(c) Duty free import entitlement of hand knotted carpet

samples shall be 1% of FOB value of exports during

the previous financial year.

(d) Duty free import of old pieces of hand knotted

carpets on consignment basis for re-export after

repair shall be permitted.

(e) New towns of export excellence with a threshold

limit of Rs 250 crore shall be notified.

(f) Government has decided to develop a trade mark

for Handloom on lines similar to ‘Woolmark’ and

‘Silkmark’. This will enable handloom products to

develop a niche market with a distinct identity.

(iii) Handicrafts:

(a) New Handicraft SEZs shall be established which

would procure products from the cottage sector and

do the finishing for exports.

(b) Duty free import entitlement of trimmings and

embellishments shall be 5% of the FOB value of

exports during the previous financial year. The

entitlement is broad banded, and shall extend also

to merchant exporters tied up with supporting

manufacturers.

(c) The Handicraft Export Promotion Council shall be

authorized to import trimmings, embellishments

and consumables on behalf of those exporters for

whom directly importing may not be viable.

(d) Specific funds would be earmarked under MAI &

MDA Schemes for promoting Handicraft exports.

(e) CVD is exempted on duty free import of trimmings,

embellishments and consumables.

(f) New towns of export excellence with a reduced

threshold limit of Rs 250 crore shall be notified.

(iv) Gems & Jewellery

(a) Import of gold of 8k and above shall be allowed

under the replenishment scheme subject to the

import being accompanied by an Assay Certificate

specifying the purity, weight and alloy content.

(b) Duty free import entitlement of consumables for

metals other than Gold, Platinum shall be 2% of

FOB value of exports during the previous financial

year.

(c) Duty free import entitlement of commercial samples

shall be Rs 300,000.

(d) Duty free re-import entitlement for rejected

jewellery shall be 2% of the FOB value of exports

(e) Cutting and polishing of gems and jewellery, shall

be treated as manufacturing for the purposes of

exemption under Section 10A of the Income Tax

Act

(v) Leather and Footwear

(a) Duty free import entitlement of specified items shall

be 5% of FOB value of exports during the preceding

financial year.

(b) The duty free entitlement for the import of

trimmings, embellishments and footwear

components for footwear (leather as well as

synthetic), gloves, travel bags and handbags shall

be 3% of FOB value of exports of the previous

financial year. The entitlement shall also cover

packing material, such as printed and non printed

shoeboxes, small cartons made of wood, tin or

plastic materials for packing footwear.

(c) Machinery and equipment for Effluent Treatment

Plants shall be exempt from basic customs duty.

(d) Re-export of unsuitable imported materials such as

raw hides & skins and wet blue leathers is permitted.

(e) CVD is exempted on lining and interlining material

notified at S.No 168 of Customs Notification No

21/2002 dated 01.03.2002.

(f) CVD is exempted on raw, tanned and dressed fur

skins falling under Chapter 43 of ITC (HS).

Package for Marine (vi) (a) Duty free import of specified specialised inputs /

Sector chemicals and flavouring oils etc. to be allowed to

the extent of 1% of FOB value of preceding

financial years export.

(b) To allow import of monofilament long line system

for tuna fishing at a concessional rate of duty.

(c) A self removal procedure for clearance of seafood

waste to be applicable subject to prescribed wastage

norms.

Optimum Development 1B.2 In order to showcase our industrial and trade prowess to its

programme for best advantage and leverage existing facilities to enhance the

Pragati Maidan quantity of space and service, Pragati Maidan will be

transformed into a world-class complex with visitor

friendliness ingress and egress system. The complex utilisation

will be improved, increased and diversified. There shall be

brand new, state-of-the-art, environmentally- controlled, airconditioned

exhibition areas, and Permanent Exhibition Marts.

In addition, a large Convention Centre to accommodate ten

thousand delegates will be developed, with multiple and

flexible hall spaces, auditoria and meeting rooms with hi-tech

equipment. A year-round Food and Beverage destination will

be developed, with a large number of outlets covering all

cuisines and pricing levels. There will be a multi- level park

to accommodate over nine thousand vehicles within the

envelope of Pragati Maidan.

CHAPTER-1C

Board of Trade

Board of Trade 1C.1 The Board of Trade has been revamped and given a clear and

dynamic role in advising government on relevant issues

connected with Foreign Trade Policy. There would be a process

of continuous interaction between the Board of Trade and

Government in order to achieve the desired objective of

boosting India’s exports.

Terms of Reference 1C.2 The Board of Trade would have the following terms of

reference:

I To advise the Government on Policy measures for

preparation and implementation of both short and

long term plans for increasing exports in the light

of emerging national and international economic

scenarios;

II To review export performance of various sectors,

identify constraints and suggest industry specific

measures to optimize export earnings;

III To examine the existing institutional framework for

imports & exports and suggest practical measures

for further streamlining to achieve the desired

objectives;

IV To review the policy instruments and procedures

for imports & exports and suggest steps to

rationalize and channelise such schemes for

optimum use;

V To examine issues which are considered relevant

for promotion of India’s foreign trade, and to

strengthen the international competitiveness of

Indian goods and services; and

VI To commission studies for furtherance of the above

objectives.

Composition 1C.3 Government shall nominate an eminent person or expert on

trade policy to be Chairman of the Board of Trade.

Government shall also nominate 25 persons, of whom at least

10 will be experts in trade policy. In addition, Chairmen of

recognized Export Promotion Councils and President or

Secretary-Generals of National Chambers of Commerce will

be ex-officio members.

Meetings 1C.4 The Board will meet at least once every quarter and make

recommendations to Government on issues pertaining to its

terms of reference.

Sub- committee 1C.5 The Board of Trade will have the power to set up subcommittees

and to co-opt experts to these, to make

recommendations on specific sectors and objectives.

Secretariat and 1C.6 The Board of Trade will have a Secretariat and Budget Head

Budget Head and shall be serviced by the Department of Commerce.

CHAPTER-2

GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS

Exports and Imports 2.1 Exports and Imports shall be free, except in cases where they

free unless regulated are regulated by the provisions of this Policy or any other law

for the time being in force. The item wise export and import

policy shall be, as specified in ITC(HS) published and notified

by Director General of Foreign Trade, as amended from time

to time.

Compliance with Laws 2.2 Every exporter or importer shall comply with the provisions

of the Foreign Trade (Development and Regulation) Act, 1992,

the Rules and Orders made thereunder, the provisions of this

Policy and the terms and conditions of any Licence/certificate/

permission/Authorisation granted to him, as well as provisions

of any other law for the time being in force. All imported

goods shall also be subject to domestic Laws, Rules, Orders,

Regulations, technical specifications, environmental and

safety norms as applicable to domestically produced goods.

No import or export of rough diamonds shall be permitted

unless the shipment parcel is accompanied by Kimberley

Process (KP) Certificate required under the procedure

specified by the Gem & Jewellery Export Promotion Council

(GJEPC).

Interpretation of Policy 2.3 If any question or doubt arises in respect of the interpretation

of any provision contained in this Policy, or regarding the

classification of any item in the ITC(HS) or Handbook (Vol.1)

or Handbook (Vol.2), or Schedule Of DEPB Rate the said

question or doubt shall be referred to the Director General of

Foreign Trade whose decision thereon shall be final and

binding.

If any question or doubt arises whether a licence/ certificate/

permission has been issued in accordance with this Policy or

if any question or doubt arises touching upon the scope and

content of such documents, the same shall be referred to the

Director General of Foreign Trade whose decision thereon

shall be final and binding.

Procedure 2.4 The Director General of Foreign Trade may, in any case or

class of cases, specify the procedure to be followed by an

exporter or importer or by any licensing or any other competent

authority for the purpose of implementing the provisions of

the Act, the Rules and the Orders made thereunder and this

Policy. Such procedures shall be included in the Handbook

(Vol.1), Handbook (Vol.2), Schedule of DEPB Rate and in

ITC(HS) and published by means of a Public Notice. Such

procedures may, in like manner, be amended from time to

time.

The Handbook (Vol.1) is a supplement to the Foreign Trade