Trade & Export Policy and External Sector

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Last updated: Jul, 2014

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, Union Minister for Commerce and Industry, Government of India.

Capital Inflows

India's foreign exchange (Forex) reserves stood at US$ 312,382 million as on May 30, 2014. Foreign currency assets aggregated to US$ 285,291 million and the value of gold reserves stood at US$ 20,965 million, as on May 30, 2014, according to the weekly statistical data released by Reserve Bank of India (RBI).

Private equity firms in India invested about US$2,273 million across 89 deals during the January-March quarter of 2014.

Foreign Direct Investments (FDI)

India received total amount (including equity inflows, 're-invested earnings' and 'other capital') of foreign investment worth US$ 323,912 million in the period April 2000 - March 2014 and a cumulative amount of US$ 217,581 million in the same period. The country remains one of the top destinations for FDI inflows from Asian countries, with Mauritius contributing 36 per cent and Singapore 12 per cent of the total foreign inflows in the aforesaid period.

Foreign Institutional Investors (FIIs)

The total number of FIIs registered in India was 1,710 in FY 14. In 2013, foreign investors infused a net Rs 1,130 billion (US$ 18.79 billion) in equities. FIIs started this year on a positive note and infused more than US$ 4.33 billion in the first two months of FY 14 on the back of various reforms initiated by the Government of India.

A recent HSBC report quoted that Indian equities markets have seen FII net inflow of US$ 2.3 billion in May 2014, taking the total to US$ 7.8 billion so far in 2014. "India still the most loved market in the region," the report quoted.

Foreign investment inflows are expected to more than double to US$ 60 billion level this fiscal, as per an industry study. The net foreign investment inflows are expected to cross the US$ 46.17 billion during 2012-13 which was one of the best years for overseas investment inflows.

Exports

Indian exports were valued at US$ 25.6 billion in April while the exports grew 5.26 per cent in dollar terms in April 2014 from a year back. Some of the recent developments in the exports sector of India are as follows:

  • China has become the biggest importer of coir-based products from India replacing the US, according to Mr G Balachandran, Chairman, Coir Board, India. India exported 537,040 tonnes of coir and coir products, valued at Rs 1,476 crore (US$ 245.51 million) during FY14, registering a growth of 32 per cent.
  • Indian basmati rice processing and marketing companies such as KRBL Ltd and LT Foods Ltd have seen their profits grow. Basmati exports to countries such as South Africa, Egypt, Azerbaijan, Tanzania, Poland and Ukraine, among others, have grown more than three fold in the past three years.
  • Marine product exports from India touched US$5 billion during FY 14, according to MsLeena Nair, Chairperson, Marine Products Export Development Authority (MPEDA).
  • Apparel exports from India grew by 14 per cent in April 2014 with business deals of over US$ 1.3 billion.

External Sector

India and China have planned to enhance bilateral cooperation in the field of films, TV serials and new age media. Both the countries had extensive discussions on issues pertaining to the mutual exchange of products, services and knowledge in the field of media and entertainment.

India and Israel have pledged to take up joint research programmes amounting up to US$ 5 million per year. Mr Alon Ushpiz, the Ambassador of Israel to India met MrsSmritiIrani, Minister of Human Resource Development (HRD), Government of India, to discuss strengthening of educational relations between the two countries.

Japan has planned to create closer economic ties with India under the new Modi-led Government. "We expect to further deepen our political and economic relation with India," said Mr Yoshihide Suga, Chief Cabinet Secretary, Japan. Japan is also India's 11th largest export destination and has committed US$ 4.5 billion for the Delhi-Mumbai Industrial Corridor (DMIC) project.

In a bid to promote dairy business in Kenya, Kenya Dairy Farmer Foundation (KDFF) and East Africa Dairy Development Project of Heifer International has sought assistance from the National Dairy Development Board (NDDB) on forming co-operatives for milk procurement, processing and marketing.

Foreign Trade Policy

As part of the Foreign Trade Policy's (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.

To attract more investments into the equity and debt markets, the RBI has also decided to put in place a framework for investments which allows foreign portfolio investors to participate in open offers, buyback of securities and disinvestment of shares by Central or State governments.

The new FTP would focus on a range of issues, including the services sector, and standards and branding of products, and is expected to be released after the budget in July 2014. India's exports in the past three years have hovered at about US$ 300 billion. The policy is aimed at boosting overseas shipments and enhancing the country's share of world trade.

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.

Exchange Rate Used: INR 1: US$ 0.0166 as on July25, 2014

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

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