Chapter-6: External Sector

Which are India’s top trading partners?

• Among India’s trading partners, the top five countries with which India has negative bilateral trade balance are China, Switzerland, Saudi Arabia, Iraq and South Korea while the top five countries with which it has surplus trade balance are USA, UAE, Bangladesh, Nepal and UK. India has the highest trade deficit with China

What are trends in remittances?

• India has remained one of the major recipients of cross border remittances and according to the World Bank (October 2017), India will remain a top remittance recipient country in 2017, followed by China, the Philippines, and Mexico. However, the private transfers (gross) inflows to India declined by 6.1 per cent in 2015-16 and 6.5 per cent in 2016-17.
• This was due to constrained labour market conditions in the source countries, particularly GCC (Gulf Cooperation Council) countries, largely caused by the fall in international crude oil prices.

What are survey notes on Trade policy of India?

Two important developments on the trade policy front during the year relate to the mid-term review of Foreign Trade Policy (FTP) and the recent multilateral negotiations of WTO in December 2017.

FTP- Mid Term Review and subsequent trade related policies

In the mid-term review of FTP released on 5th December 2017, some additional measures have been taken to help India’s trade sector. Besides, on 15th December 2017, a special package for employment generation in leather and footwear sector was approved by the Government which is also likely to help exports from this sector

Highlights of the Mid Term Review of Foreign Trade Policy and subsequent trade related policies

• MEIS (Merchandise Exports from India Scheme) incentives for two sub-sectors of Textiles i.e. Ready Made Garments and Made Ups increased from 2% to 4% involving additional annual incentives of Rs. 2743 crore.
• Across the board increase of 2% in existing MEIS incentive for exports by MSMEs / labour intensive industries amounting to Rs. 4576 crore.
• To provide an impetus to the services trade, the SEIS (Service Export from India Scheme) incentives have been increased by 2% for notified services such as Business, Legal, Accounting, Architectural, Engineering, Educational, Hospital, Hotels and Restaurants amounting to Rs. 1140 crore.
• The validity period of the Duty Credit Scrips has been increased from 18 months to 24 months to enhance their utility in the GST framework. GST rate for transfer/sale of scrips has been reduced to zero from the earlier rate of 12%.
• New trust based Self Ratification Scheme introduced to allow duty free inputs for export production under duty exemption scheme with a self-declaration. Under this scheme, instead of getting a ratification of the Norms Committee for inputs to be used in the manufacture of export products, exporters will self-certify the requirement of duty free raw materials/ inputs and take an authorization from DGFT. The scheme would initially be available to the Authorized Economic Operators (AEOs).
• Contact@DGFT service for Complaint Resolution has been activated on the DGFT website (www.dgft.gov.in) as a single window contact point for exporters and importers for resolving all foreign trade related issues.
• To focus on improving Ease of Trading across Borders for exporters and importers, a professional team envisaged to handhold, assist and support exporters with their export related problems, accessing export markets and meeting regulatory requirements.
• New Logistics Division created in the Commerce Department to develop and coordinate implementation of an Action Plan for the integrated development of the logistics sector, by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps and introduction of technology in this sector.
• For clarity, a negative list of capital goods which are not permitted under the EPCG (Export Promotion on Capital Goods) scheme has been notified.
• The concept of Domestic Tariff Area (DTA) sale from Export Oriented Units (EoUs) on concessional and full duty has been removed and hence, the limit on entitlement of DTA sale has also been removed. Consequently, restriction on DTA sale of motor cars, alcoholic liquors, books and tea has been removed.
• Second Hand Goods imported for the purpose of repair/ refurbishing/re-conditioning or re-engineering have been made free, thereby facilitating generation of employment in the repair services sector.
• Issue of working capital blockage of the exporters due to upfront payment of GST on inputs has been addressed. Under advance authorization Export Promotion for Capital Goods (EPCG) Scheme, 100% EoU’s, exporters have been extended the benefit of sourcing inputs/capital goods from abroad as well as domestic suppliers for exports without upfront payment of GST. Further an e wallet will be launched from 1st April 2018 to make these schemes operational from 1st April, 2018.
• The Union Cabinet Committee on 15th December 2017, approved the special package for employment generation in leather and footwear sector. The package involves implementation of Central Sector Scheme “Indian Footwear, Leather & Accessories Development Programme” with an approved expenditure of Rs. 2600 crore over the three years from 2017-18 to 2019-20. The scheme would lead to development of infrastructure for the leather sector, address environment concerns specific to the leather sector, facilitate additional investments, employment generation and increase in production. The Special Package has the potential to generate 3.24 lakhs new jobs in 3 years and assist in formalization of 2 lakh jobs as cumulative impact in Footwear, Leather & Accessories Sector.

What are survey notes on Logistics Performance Index?

• India has improved its ranking in the “Logistics Performance Index” (LPI) from 54 in 2014 to 35 in 2016 (Table 7). However, compared to countries like Singapore (rank 5), South Africa (20), Taiwan (25) and China (27), India has some way to go.

Logistics: Challenges and suggested Action Plan

Some key challenges

• High cost of logistics – impacting competitiveness in domestic & global market
• Unfavorable modal mix (Roadways 60%, Railways 30%) and inefficient fleet mix
• Under-developed material handling infrastructure and fragmented warehousing
• Multiple regulatory/policy making bodies with procedural complexities including cumbersome and duplicate processes.
• High dwell time and lack of seamless movement of goods across modes.

Suggested Action Plan

• Formulation of National Integrated Logistics Policy to bring in greater transparency and enhance efficiency in logistics operations
• Develop integrated IT Platform as a single window for all logistics related matters. This portal will have linkages with the IT systems of Railways, Road transport & Highways, Shipping, Civil Aviation, CBEC, State Transport departments, etc. and act as a Logistics marketplace
• Usher in ease of documentation, faster clearance, digitization.
• Bring down logistics cost to less than 10% of GDP by 2022
• Faster clearances for setting up of logistics infrastructure like Multi-modal logistic parks (MMLPs), Container Freight Station (CFS), Air Freight Station (AFS) & Inland Container Depot (ICD).
• Introduce professional standards and certification for service providers
• Promote introduction of high-end technologies like high-tech scanning equipment, RFID, GPS, EDI, online Track & Trace systems in the entire logistics network.
• Improve Logistics skilling in the country and increase jobs in Logistics sector to 40 million by 2022.

What are survey notes on India’s external debt stock to Gross National Income (GNI) ratio?

• International comparison of external debt situation based on World Bank data shows that among the top 20 developing debtor countries in 2016, India’s external debt stock to Gross National Income (GNI) ratio at 20.4 percent was the second lowest after China’s 12.8 per cent.
• In terms of the foreign exchange reserves cover to external debt, India’s position is the fifth highest and India’s debt service rate is the eight lowest.
• As per the World Bank data, though India is the third largest debtor country among developing countries (after China and Brazil), India’s share of short term debt to total debt is only 18.6 percent and 18.3 per cent in 2017Q1 (end-March) and 2017 Q2(end-June) compared to China’s 59.0 per cent and 60.1 per cent respectively. India is not among the top debtor countries in the world (including developed and developing) with 26th position at end-June 2017.