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Trade & Export Policy and External Sector

April, 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 in turn led to the Indian economy growing from Rs 32 trillion (US$ 500 billion) in 2004 to about Rs 129.57 trillion (US$ 2.01 trillion) by 2015. Simultaneously, the per capita income also nearly trebled during these 11 years. India’s trade and external sector had a significant impact on the GDP growth as well as expansion in per capita income.

Recently, India overtook Italy, Germany and Bangladesh to emerge as the world's second largest textile exporter, as per the data released by Apparel Export Promotion Council (AEPC). According to The Cotton Textiles Export Promotion Council (Texprocil), India’s textile and clothing exports stood at US$ 41.4 billion in 2015 as compared to US$ 39.3 billion in 2014, growing by 5.34 per cent over the previous year.

According to Ms Nirmala Sitharaman, Minister of State (Independent Charge) for Commerce and Industry, the Government of India is keen to grow exports and provide more jobs for the young, talented, well-educated and even semi-skilled and unskilled workforce of India.

Capital Inflows

According to data released by the Reserve Bank of India (RBI), India’s foreign exchange reserves increased by US$ 408 million to US$ 352.5 billion for the week ended December 11, 2015.

Foreign Direct Investments (FDI)

During April 2000–September 2015, India received total foreign investment (including equity inflows, re-invested earnings and other capital) worth US$ 392.2 billion. The country was one of the top destinations for FDI inflows from Asian countries, with Mauritius contributing 34 per cent, Singapore 15 per cent and the UK contributing 9 per cent of the total foreign inflows.

Foreign Institutional Investors (FIIs)

FIIs’ net investments in Indian equities and debt touched record high in last financial year (2014-15), on the back of factors such as expectations of recovering economy, falling interest rates and improving earnings outlook. FIIs invested net US$ 42 billion in FY 2014-15 which was their highest investment in any fiscal year so far. Of the total investment, US$ 25.2 billion was invested in debt while the rest US$ 16.8 billion was invested in equities.

External Sector

India has expressed interest in signing a preferential trade agreement with Iran once international sanctions on the Persian Gulf nation are lifted which would make it India's first trade agreement with a country in West Asia.

India and South Africa are considering prospect of setting up a joint venture (JV) for mining and owning coal blocks in South Africa.

India and the United Arab Emirates (UAE) will set up a joint working group to forge stronger linkages in the hydrocarbon, chemicals and fertiliser sectors.

India is looking to develop the Chabahar port project in Iran by signing an international transit corridor agreement with Iran and Afghanistan.

India and Belarus set a trade target of US$ 1 billion by 2018 during the Seventh Session of the India-Belarus Intergovernmental Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation.

Arab-India Economic Forum (AIEF), to be held in November 2015, would help open up new opportunities for trade and commerce between India and the Middle East.

The US has restored its program for concessional duty treatment to Indian products, called ‘Generalised System of Preferences’, till 2017.

India and Japan are expected to sign a pact of cooperation in the field of intellectual property. The pact will aim to enhance efforts to support innovation in both the countries and will be renewed automatically every four years.

According to Mr Andrew Robb, Australia's Trade and Investment Minister, Australia's top trade priority is to conclude the Comprehensive Economic Cooperation Agreement (CECA) with India by 2015 which has major focus on services and investment.

At the fourth session of the bilateral Joint commission on Economic cooperation held in Warsaw, India and Poland have set an ambitious target to increase bilateral trade from US$ 2.3 billion in 2014 to US$ 5 billion by 2018. India was praised by several members of the World Trade Organisation (WTO) for following liberal and open macroeconomic policies while increasing its global presence at the same time.

During the visit of Mr Vladimir Putin, President of Russia, to India, the two countries signed several agreements, in areas spanning civil nuclear cooperation, defense and energy.

Foreign Trade Policy

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

The Department of Commerce has announced increased support for export of various products and included some additional items under the Merchandise Exports from India Scheme (MEIS) in order to help exporters to overcome the challenges faced by them.

As part of the FTP strategy of market expansion, India has signed a Comprehensive Economic Partnership Agreement with South Korea which will provide 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, through 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 while aiding the overall export performance.

The Government of India is expected to announce an interest subsidy scheme for exporters in order to boost exports and explore new markets.

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 economic strengths have attributed to its standing as one of the most sought after destinations for foreign investments in the world. Also, technological and infrastructural developments being carried out throughout the country augur 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 the year 2015 and reach US$ 750 billion by 2018-2019 according to Federation of India Export Organisation (FIEO). Also, with the Government of India striking important deals with the governments of Japan, Australia and China, the external sector is increasing its contribution to the economic development of the country and growth in the global markets. Moreover, by implementing the FTP 2014-19, by 2020, India's share in world trade is expected to double from the present level of three per cent.

Exchange Rate Used: INR 1: US$ 0.015 as on December 17, 2015