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Trade & Export Policy and External Sector

January, 2015

Introduction

The integration of the domestic economy through the twin channels of trade and capital flows has accelerated in the past two decades which has seen the Indian economy grow from US$ 500 billion to about US$ 2 trillion, and the country’s per capita income has nearly trebled in that period. India’s trade and external sector has had a significant impact in this growth.

In recent developments, India has overtaken Italy, Germany and Bangladesh to emerge as the world's second largest textile exporter, as per data released by UN Comtrade. India’s share in global textiles increased by 17.5 per cent in 2013 compared to the previous year.

The Indian government is keen to improve on Indian exports and provide more jobs for the young, talented, well-educated and even the semi-skilled and unskilled people of India, according to Ms Nirmala Sitharaman, Ministers of State with Independent Charge for Commerce and Industry, Government of India.

Capital Inflows

Foreign exchange (Forex) reserves of India grew by US$ 3.16 billion for the week ended December 19, 2014, to reach US$ 320 billion, according to data released by Reserve Bank of India (RBI).

Foreign Direct Investments (FDI)

India received total foreign investment (including equity inflows, 're-invested earnings' and 'other capital') worth US$ 349,068 million in the period April 2000 - October 2014. The country was one of the top destinations for FDI inflows from Asian countries, with Mauritius contributing 36 per cent and Singapore 12 per cent; the UK contributed 9 per cent of the total foreign inflows during the mentioned period.

Foreign Institutional Investors (FIIs)

Net investment in the Indian equity market by foreign institutional investors (FIIs) is slated to exceed Rs 1 trillion (US$ 16.23 billion) for the third straight year in 2014.

Total net investment by FIIs (debt and equity segments) into India so far this year have touched US$ 41.79 billion. Their cumulative total flows into the country have reached US$ 212.79 billion.

The current calendar year will be fourth in the past two decades when foreign investors invested more than Rs 1 trillion (US$ 16.23 billion) in a year. Cumulatively, the foreign investors have made net inflows of Rs 785,297 crore (US$ 127.47 billion) in the Indian equity market since 1992.

Exports

According to data released by Ministry of Commerce, exports from India during November 2014 were valued at US$ 25,960.57 million which was 7.27 per cent higher than the US$ 24,201.83 million achieved during November 2013.

The cumulative value of exports for the period April-November 2014-15 was US$ 215.756 billion as against US$ 205.437 billion, registering a growth of 5.02 per cent in dollar terms over the same period last year.

India's exports of services during October 2014 were valued at US$ 12.14 billion.

External Sector

India has decided to use the existing road link between Iran and Azerbaijan to get easier access to the lucrative markets of Russia and other nations of the Commonwealth of Independent States (CIS).

India has signed its first bilateral advance pricing agreement (APA) with a Japanese company to bring certainty and uniformity in transfer pricing matters of multi-national companies and reducing litigation. The APA is valid for five years.

The Government of India signed Note of Exchange with Government of Germany for financial cooperation to support Green Energy Corridors (GEC) project under Indo German Bilateral Development Cooperation.

India and Russia have signed several agreements, some worth billions of dollars, in areas spanning civil nuclear cooperation, defence, energy and diamonds as the two nations strengthened their ties during the visit of Mr Vladimir Putin, President of Russia.

A ten member all Party Parliamentary delegation from Romania led by Mr Valeriu Stefan Zgone, President of the Chambers of Deputies, Parliament of Romania met Mr M Venkaiah Naidu, Union Minister for Parliamentary Affairs, Government of India, and explored possibilities of enhancing bilateral cooperation.

India and Israel are working towards their first agreement to cooperate in the renewable energy sector, expanding their strategic relationship to energy security. India is keen on leveraging Israel's leadership in clean energy technologies to help it meet its ambitious renewable power generation targets.

Foreign Trade Policy

All exports and import-related activities are governed by the Foreign Trade Policy (FTP), which is mainly aimed at enhancing the country's exports and use trade expansion as an effective instrument of economic growth and employment generation.

As part of the FTP strategy of market expansion, India has signed a Comprehensive Economic Partnership Agreement with South Korea which will give enhanced market access to Indian exports. These trade agreements are in line with India’s Look East Policy. To upgrade export sector infrastructure, ‘Towns of Export Excellence’ and units located therein will be granted additional focused support and incentives.

The Reserve Bank of India (RBI) has simplified the rules for credit to exporters, by which they can now get long-term advance from banks for up to 10 years to service their contracts. This measure will help exporters get into long-term contracts. It will also aid the overall export performance and help the rupee in the short to medium term.

Road Ahead

India is presently known as one of the most important players in the global economic landscape. Its trade policies, government reforms and inherent strengths in the economy have attributed to its standing as one of the most sought after destinations for foreign investments in the world. Also, technological and infrastructural developments which are being carried out throughout the country augurs well for the trade and economic sector in the years to come.

Boosted by the forthcoming FTP, India's exports are expected to cross the US$ 350 billion mark in 2014-15 and reach US$ 750 billion by 2018-19 according to FIEO. Also, with the Government of India striking important deals with the governments of countries such as Japan, Australia and China, the external affairs sector is contributing heavily to the economic development of the country and growth in the global markets. Moreover, by implementing the FTP 2014-19, India's share in world trade is expected to double from the present level of three per cent by the year 2020.

Exchange Rate Used: INR 1: US$ 0.0162 as on January 21, 2015

References: Department of Industrial Policy and Promotion (DIPP), Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade