Published on January 5, 2009
ExportImport Procedure & Documentation 1 Introduction The competitive advantage that India enjoys across a range of sectors has led to rapid increase in India's exports. Back on the robust 23.88 per cent growth in exports during 200607, cumulative value of exports during 200708 grew by 23.02 per cent to total US$ 155.51 billion as against US$ 126.41 billion in the corresponding period last year. Spice exports grew by 20 per cent in export volumes in AprilMay, totalling up to • 98,570 tonnes as against 82,210 tonnes a year back. Jewellery exports rose 22.27 per cent during 200708 compared to the • corresponding period last fiscal, to reach US$ 20.88 billion. Automobile Exports grew by 22.30 per cent during 200708 over 200607, with Two • Wheelers growing by 32.31 per cent and Commercial Vehicles by 19.10 per cent. Software and services exports grew by 26.33 per cent to register revenues of US$ • 27.49 billion during AprilDecember 2007 as against US$ 21.76 billion during same period last year. It is estimated that annual exports are likely to grow to US$ 43.89 billion during 200708. Foreign tourist earnings have increased by 30.1 per cent during 2007 to touch US$ • 11.62 billion compared to US$ 8.93 billion in 2006. During JanuaryApril 2008, foreign tourists earnings further rose by 28.9 per cent to US$ 4.84 billion. The new fiscal (2008–09) has continued the robust performance of the economy on the trade front. Exports have risen by a healthy 31.5 per cent to US$ 14.4 billion during April 2008, as against US$ 10.95 billion during the corresponding period last year. With such continued buoyancy on the trade front, the Government has set a target of US$ 200 billion in export earnings for the current fiscal year. Any item that is sent from India to a foreign destination is an export. Items include commodities, software or technology, such as clothing, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages and technical information. example, an item can be sent by regular mail or handcarried on an airplane. A set of schematics can be sent via facsimile to a foreign destination, software can be uploaded to or downloaded from an Internet site, or technology can be transmitted via email or during a telephone conversation. Regardless of the method used for the transfer, the transaction is considered an export for export control purposes. An item is also considered an export even if it is leaving the India temporarily, if it is leaving India but is not for sale, (e.g. a gift) or if it is going to a whollyowned Indian subsidiary in a foreign country. Even a foreignorigin
ExportImport Procedure & Documentation 2 item exported from the India, transmitted or transshipped through the India, or being returned from the India to its foreign country of origin is considered an export. Export- Import Bank of India ExportImport Bank of India is the premier export finance institution of the country, set up in 1982 under the ExportImport Bank of India Act 1981. Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the country’s foreign trade and investment with the overall economic growth. Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world, Exim Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalization efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, preshipment and postshipment and overseas investment. Objectives “… for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade…”
ExportImport Procedure & Documentation 3 “… shall act on business principles with due regard to public interest” Service Sector in India Service Sector in India today accounts for more than half of India's GDP. According to data for the financial year 20062007, the share of services, industry, and agriculture in India's GDP is 55.1 per cent, 26.4 per cent, and 18.5 per cent respectively. The fact that the service sector now accounts for more than half the GDP marks a watershed in the evolution of the Indian economy and takes it closer to the fundamentals of a developed economy. Services or the tertiary sector of the economy covers a wide gamut of activities like trading, banking & finance, infotainment, real estate, transportation, security, management & technical consultancy among several others. Types Service industry or service sector includes portions of a country's economy like tourism, banking, social services, social services and education. Persons working in the service sector collaborate to do work effectively. Knowledge is utilized to increase workplace performance and also for corporate sustenance. End product of service industry is advice (consultancy services), experiences (movies), attention (hospitality industry like hotels and restaurants), and discussion (interactive TV or radio programs). Examples of service sector are: Trade • Hotels and Restaurants • Railways • Other Transport & Storage • Communication (Post, Telecom) • Banking • Insurance • Dwellings, Real Estate • Business Services • Public Administration; Defense • Personal Services •
ExportImport Procedure & Documentation 4 Community Services • Other Services • There was marked acceleration in services sector growth in the eighties and nineties, especially in the nineties. While the share of services in India's GDP increased by 21 per cent points in the 50 years between 1950 and 2000, nearly 40 per cent of that increase was concentrated in the nineties. While almost all service sectors participated in this boom, growth was fastest in communications, banking, hotels and restaurants, community services, trade and business services. One of the reasons for the sudden growth in the services sector in India in the nineties was the liberalization in the regulatory framework that gave rise to innovation and higher exports from the services sector. The boom in the services sector has been relatively jobless. The rise in services share in GDP has not accompanied by proportionate increase in the sector's share of national employment. Some economists have also cautioned that service sector growth must be supported by proportionate growth of the industrial sector; otherwise the service sector grown will not be sustainable. In the current economic scenario it looks that the boom in the services sector is here to stay as India is fast emerging as global services hub. Services industry or sector involves distribution, transport and sale of goods from producer to consumer. The service sector also includes the supply of a service like entertainment and cleaning services. Principal characteristic of a service industry is people to people interaction. Goods, however, may also be transformed when providing a service. For example, a restaurant cooks the Food before serving it to customers. Economic Progression Country economies tend to progress from agriculture to industry to services. The service industry is seen to be more opaque to international competition compared to manufacturing. Nations which undergoes faster economic development have greater labor costs than those countries lagging behind in the economic development road. This resultant shrinking of manufacturing in more developed economies force those nations to adopt services as a leading employment source. Problems Businesses who act as service providers encounter problems unique to the service sector. Services are intangible and cannot be judged by potential customers before the contract is completed. For example, efficiency of a mutual fund may only be judged after considerable
ExportImport Procedure & Documentation 5 investment of money and time. No guarantees are given for a specific outcome. Branded firms charge more for the same service. India ’s Growing Services Sector India’s services sector has matured considerably during the last few years and has been globally recognized for its high growth and development. This sector has been growing at an annual growth rate of about 28% during the last 5 years. Services exports amounted to a meager US$ 8.9 billion in 1997 but over the year’s services exports have grown substantially. There has been rapid growth in the services exports from the year 2002. The exports have grown up from US $ 19.1 billion to US $ 73 billion in 2006. Presently services sector account for about 55% of India’s GDP. India’s share in worldwide service exports is expected to almost triple itself from current 2.3 % to 6 % by 2012, if the present annual growth rate of 28% has been maintained. India’s global exports of commercial services during the last 10 years can be seen from the table below – India’s Global Exports of Commercial Services US $ (Billion) Years Exports
ExportImport Procedure & Documentation 6 1997 8.9 1998 11.0 1999 14.0 2000 16.0 2001 16.8 2002 19.1 2003 23.1 2004 38.5 2005 68.0 2006 73.0 Strong and consistent emphasis on selfreliance in its economic development programmes over the years by the Government of India have enabled India to build up a huge and versatile cadre of professionals with expertise and skills across a vast and wideranging spectrum of disciplines like Health Care, Tourism, Education, Engineering, Communications, Transportation, Information Technology, Banking, Finance, Management and a host of others. A sizeable part of this workforce of professionals makes up the country’s growing consultancy sector which is offering its accumulated experience and expertise at home and abroad. A noteworthy feature of India’s consultancy professionals is their capability and capacity to provide expertise especially suitable for developing countries, in addition to offering consultancy in sophisticated areas (information technology, advanced financial and banking services etc.) in developed countries like the USA, UK, France, West Germany and Australia, Russia and CIS countries, etc. FIEO is one of the important service organizations for helping the Indian consultancy firms engaged in exports. Most of FIEO’s member consultancy organizations are also registered with international and national consultancy organizations, reflecting the global acceptance of their high credentials. Facts The service sector now accounts for more than half of India's GDP: 51.16 per cent in • 199899. This sector has gained at the expense of both the agricultural and industrial sectors through the 1990s. The rise in the service sector's share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy (in the developed economies, the industrial and service sectors
ExportImport Procedure & Documentation 7 contribute a major share in GDP while agriculture accounts for a relatively lower share). The service sector's share has grown from 43.69 per cent in 199091 to 51.16 per • cent in 199899. In contrast, the industrial sector's share in GDP has declined from 25.38 per cent to 22.01 per cent in 199091 and 199899 respectively. The agricultural sector's share has fallen from 30.93 per cent to 26.83 per cent in the respective years. Some economists caution that if the service sector bypasses the industrial sector, • economic growth can be distorted. They say that service sector growth must be supported by proportionate growth of the industrial sector, otherwise the service sector grown will not be sustainable. It is true that, in India, the service sector's contribution in GDP has sharply risen and that of industry has fallen (as shown above). But, it is equally true that the industrial sector too has grown, and grown quite impressively through the 1990s (except in 199899). Three times between 199394 and 199899, industry surpassed the growth rate of GDP. Thus, the service sector has grown at a higher rate than industry which too has grown more or less in tandem. The rise of the service sector therefore does not distort the economy. Within the services sector, the share of trade, hotels and restaurants increased from • 12.52 per cent in 199091 to 15.68 per cent in 199899. The share of transport, storage and communications has grown from 5.26 per cent to 7.61 per cent in the years under reference. The share of construction has remained nearly the same during the period while that of financing, insurance, real estate and business services has risen from 10.22 per cent to 11.44 per cent. The fact that the service sector now accounts for more than half the GDP probably • marks a watershed in the evolution of the Indian economy. World Trade of Commercial Services World commercial services exports rose by 11% to $2.7 trillion in 2006. The expansion rate of global services trade was basically unchanged from the preceding year and that of the
ExportImport Procedure & Documentation 8 last six years. Since 2003, commercial services exports expanded less rapidly each year than merchandise trade. Among the three broad commercial services categories, transportation, travel and “other commercial services”, the latter is by far the largest and also the fastest growing category. In 2006, other commercial services categories expanded by 13% while transportation and travel services were up by 9% and 7% respectively. In the 1990s, transportation services expanded less rapidly than travel, but since 2000 the situation has been reversed. The relatively sluggish growth of travel services can be observed in all major exporting regions but is most pronounced in North America’s services trade. Table 1A World exports of commercial services trade by major category, 2006 (Billion dollars and percentage change) Value Annual percentage change 2006 200006 2004 2005 2006 Commercial services 2710 10 20 11 11 Transport 626 10 25 12 9 Travel 737 7 18 8 7 Other commercial services 1347 12 19 12 13 Commercial services trade by region is presented in Table 1B. Europe and North America, recorded — as in the preceding year — export and import growth below the world average. Within the European Union services trade developments by member differed widely: services exports of France and Finland are reported to have declined, while those of Luxembourg and Poland expanded by onequarter or more the CIS region reports export and import growth rates of commercial services of about 20%, the fastest growth of all regions. Asia’s commercial services exports continued for the third consecutive year to expand faster than the global average and faster than the region’s services imports, thereby reducing the region’s deficit in services trade. Japan, the region’s largest commercial services trader, increased its commercial services exports by 12% and its imports by 8%. Among the major Asian traders India continues to excel in terms of its services trade expansion. While the dynamic growth of India’s commercial — and in particular software services — exports are widely reported, the dynamic expansion of its services imports attracts less attention even though the growth rate in 2006 exceeded that of exports. According to the most recent numbers, India’s commercial services imports are only about 5% short of its commercial services exports.
ExportImport Procedure & Documentation 9 The commercial services trade of Africa and the Middle East are provisionally estimated to have expanded close to the world average in 2006. But limitations in data availability could make these estimates subject to larger revisions than for the estimates provided for other regions. The trade performance of the leading commercial services exporter and importer differed widely in 2006. The shifts in ranking should be interpreted with caution as they might be due to changes in methodology, and given the incomplete data of major traders, will be subject to revisions. On the basis of the preliminary data, it appears that the three top leading traders, namely the United States, the United Kingdom and Germany, maintained their rank for both exports and imports. If the export contraction of France’s commercial services is confirmed, Japan would replace it as the world’s fourth largest services exporter. Italy moved ahead of Spain to rank as the sixth largest exporter. China’s commercial services exports are estimated to have surpassed those of the Netherlands and India, entering the group of the top ten exporters by moving ahead of Hong Kong, China On the import side, no change occurred among the top ten positions in 2006. According to the provisional data, India’s imports are estimated to have exceeded slightly those of the Republic of Korea, even though the latter imports also increased strongly in 2006. The details of world trade on Commercial Services for 2006 of important countries can be seen from the Table in the next page. From Middle East and Asia, important countries trading in commercial services are Israel, Japan, China and India. Table 1B World exports of commercial services by region, 2006 (Billion dollars and percentage) Exports Imports Annual percentage Value nnual percentage change Value change A 2000 2000 2006 06 2004 2005 2006 2006 06 2004 2005 2006 World 2710 10 20 11 11 2620 10 19 11 10 North America 460 6 13 10 9 401 7 15 9 9 United States 387 6 14 10 9 307 7 16 9 9 South and Central America a 77 9 16 18 14 80 7 14
ExportImport Procedure & Documentation 10 India’s Export of Commercial Services during the last few years India’s Global Trade of Commercial Services US $ (Billion) Years Exports Imports 1997 8.9 12.3 1998 11.0 14.2 1999 14.0 17.0 2000 16.0 18.9 2001 16.8 19.8 2002 19.1 20.8 2003 23.1 25.5 2004 38.5 38.4 2005 68.0 67.0 2006 73.0 70.0 Issues and Problems The potential of the services sector for India’s GDP growth, exports and employment being very high, there is a need to address some issues which need the immediate attention of policy makers at the highest level. This can facilitate further growth of the sector. Data Issues in Services One of the important issues in services sector is the issue of data. Unfortunately, while the importance of services is growing, statistical data and other relevant information on services is abysmally low. The word ‘invisibles’ seems very relevant for this sector in the context of data, as data are invisible or partially visible. Even where data are available, they are not qualitative and suffer from deficiencies related to definition, method of collection, suitability for pricing and construction of indices. There are many sectors within the services sector, and consequently the data collected are also diffused. WTO negotiations are taking place in 151 services and negotiators need statistics as a guide to negotiate specific commitments in services taking note of India’s export potential. But unlike merchandise trade, in services,
ExportImport Procedure & Documentation 11 such data are not available. Leave alone price data, even disaggregate value data, sector wise and countrywise are not available. As a result of the recommendations of the Committees on Services in the Reserve Bank of India (RBI) and Department of Commerce, a much better set of data is being currently given by RBI. But this is also far from adequate compared to our needs. Some of the important recommendations of the Services Committee of the Dept of Commerce, for the National Statistical Commission (Prasad Committee), related to international trade in services data (see Appendix 1) like sorting out definitional issues in services, conducting mandatory benchmark and annual surveys, classifying available data on services under different modes, collecting bilateral trade data on services, collecting export/import prices of important services, etc, need to be implemented in a fixed time period. Some recommendations like conducting benchmark surveys for software services by RBI and rationalizing the classification of services which has made the share of ‘others’ in the business services smaller are being implemented by RBI. It is however a matter of concern, that we have a ‘miscellaneous services’ category which consists among others the most dynamic services like ‘Business services’ which again has a subcategory of ‘others’. A lot of work needs to be done in the balance of payments data particularly related to services both in India & internationally, which includes basic definitional issues, classification issues and even verification of the work done in the different countries. Strategies: Harmonization of accreditation and titles. • Status of existing Mutual Recognition Agreements (MRAs) and MRAs under which • countries like India would like to be included. Removal of limitations like economic needs test, in state residency, citizenship, etc. • found in national schedules. Removal of subsidies given by developed members in services like shipping, • aviation, healthcare, etc. At present WTO negotiations are focused on farm subsidies. But the subsidies given by developed countries to services are also high. Extent of quantitative restrictions (QRs) on services, like quantitative limitations on • setting hospitals, educational institutions, etc.
ExportImport Procedure & Documentation 12 Issue of reimbursement of medical expenditure incurred overseas. • Issue of social security contributions to be made by Indian professionals. • Issue of the impact of extension of negotiations in maritime services to multimodal • transport. Need to negotiate on trade barriers to services. • The need for India to emphasize on supply of services not only through temporary • movement of natural persons and cross border mode, but also by consumption abroad mode. Using FTAs/RTAs for coalition building in WTO while complementarities are not lost • sight of. Developed countries emphasize on improved commitments in mode 3 i.e. commercial presence so that service suppliers can choose their preferred form of doing business (e.g. as majority joint ventures, 100% foreignowned subsidiaries, or branches). They use the new WTO Accessions and Regional Initiatives for immediate gains e.g. the strategy for gaining from regional initiatives as in the case of USA like the Free Trade Areas of the Americas (FTAAs), the Transatlantic Economic Partnership(TEP) with the European Union, assisting the Japanese government's efforts in the financial services Big Bang and major capacitybuilding component to help African nations, the Everything But Arms (EBA) initiative by European Community (EC), and the recent Aid for Trade for LDCs initiative by developed countries. Need for a special negotiating team for services. Developed countries like US have • made a head start proactive agenda and the US has set up a Special Services Negotiating Committee. So, developing countries have to take quick actions, lest they lose in sectors which they consider to have a potential in future. Consultation with state governments on issues related to services standards and • regulations. The US has worked out model schedules or templates for sectors and held extensive consultations. There is greater involvement of State Governments as service standards and regulations are established by State Governments or private professional associations in US. Removal of Quantitative Restrictions • Special Economic Zones Scheme •
ExportImport Procedure & Documentation 13 Reduction of Transaction Cost • Some General Strategies for India to promote services exports Some of the ways in which the Indian government or export promotion agencies can support service exporters are the following. Helping service exporters to become known suppliers of quality services and • providing relevant export market information; Providing appropriate export financing with reduced transaction costs and reviewing • the common practice of collateral in the case of services. Following the Silicon Valley example where Banks securitise the CEOs of • companies. Marketing of services with the help of Indian Embassies/Industry associations, etc. • Anchoring people, particularly, committed specialists, for promoting services. • Leveraging India's potential purchasing power in services negotiations at multilateral • and bilateral levels. Concluding tantalization agreements with target countries to resolve the social • security benefits issue. Visa on arrival at least for selected countries. • Including appropriately issues related to services in Regional Trade Agreements • (RTAs), Free Trade Agreements (FTAs) and Comprehensive Economic Cooperation • Agreement (CECAs). • Focus on Services in some SEZs. • Stress should also be on developing front yard technology, in different services and • not focusing exclusively on the BPO industry coupled with a hardwaresoftware combination for computer services. Under the India Development Initiative, Government of India extends Lines of Credit • to many countries with an aim to enhance India’s economic interests abroad. These
ExportImport Procedure & Documentation 14 Lines of Credit are routed through Exim Bank. Though the lines are applicable for all • items covered under the Foreign Trade Policy, including services, the Government could consider extending specific dedicated lines focusing on promotion of service exports from India such as construction services, IT related services and education services. Export prospects in services depend on the realities of the past negotiations in WTO • on services and the ongoing negotiations in services. The export potentialities in services also influence the negotiating stands of different countries at WTO on services. With the Doha round of negotiations at a standstill, useful Comprehensive Economic Cooperation Agreements (CECAs) which include services can help in the • removal of many market access obstacles if negotiated well and also lead to higher inflow of foreign investment in services via commercial presence mode. The absence of a separate service category for outsourcing and the fact that many • developed countries did not realize the potential of outsourcing when they probably gave a more liberal commitment for different services under mode 1, highlights the need for India to make use of the opportunities thrown open by WTO. Sector-Specific Strategies for India India has a good potential for exports of different services, besides software in which it has already made an impact. While the importance of different modes differ for different services, with greater tradability of services leading to outsourcing, mode 1 i.e. crossborder supply mode is assuming greater importance for many services as it can do what can be done by mode 4, i.e. supply of services through natural persons mode, while avoiding the disadvantage in this mode related to visas. Some sector specific issues and Strategies for some services are indicated below. IT Services
ExportImport Procedure & Documentation 15 Strategies for IT services include steps to move to systems software and not merely application software or Business Process Outsourcing (BPO), negotiating with EU regarding 'Data Protection Act in EU' as half of offshore work does not come to India and other countries due to this Act and fully exploiting the great outsourcing revolution in services. R&D, Design and Engineering Services The Strategies in the case of R&D, Design and Engineering Services are setting up R&D labs in SEZs, examining the possibility of cheaper loans taking note of gestation period in R&D services, patent funding to reimburse costs of patenting, promoting lab testing services for use of South Asian countries in India, setting up design, engineering, consultancy parks. Accounting, Auditing and Bookkeeping Services In the case of these services where India has a good potential for exports, the limitations are mainly in the form of licensing, accreditation, instate residency and state level restrictions in countries like US. The horizontal limitations on the entry for speciality occupations, automatically restricts opportunities in this sector. These need to be addressed and the potential of outsourcing many components of these services has to be fully tapped. Unskilled labor Services A large number of Indians work in the Gulf area mostly as unskilled workers. If they are trained and skill certified before going abroad, they will get better jobs, earn more and have higher disposable income, leading to higher GNDI. Countries like Philippines, Thailand and even Sri Lanka provide such training and skills. Insurance Services The Indian insurance sector was opened to private and foreign participation as suggested in the report of the Committee on Reforms in Insurance Sector (Malhotra committee). As a result, today there are 16 companies licenced in Life Insurance and 15 in nonlife insurance sectors. Though GIC Re is the only reinsurer operational in India as of now, even this area is open to entry for foreign and private participation. In the case of Insurance services, there is the main issue of 26% cap on foreign investment besides restrictions like minimum capitalization norms, funds of policy holders to be retained within the country, compulsory exposure to rural and social sectors and backward classes. The regulatory restrictions
ExportImport Procedure & Documentation 16 mentioned here are within the purview of Government and Insurance Regulatory & Development Authority. A consensus is needed in some of these issues to make further headway Legal Services The Advocates Act, 1961 and the Bar Council of India Rules, 1975 are the rules which regulate the legal services sector in India and the Bar Council constituted under Advocates Act, acts as the final regulating body. In India, legal services can be provided only by natural persons who are citizens of India, who are on the rolls of the advocates in the states where the services are being provided. Some of the current restrictions, which severely limit the scope of growth in the legal profession, are: Partnerships are the only permitted model of practice for law firms in India. • Further modes of practice such as limited liability partnerships or Limited Liability • Corporation are not permitted. Limitation on the number of partners to 20. This limits the growth and size of Indian • law firms. Bar on advertising, even having entries in law directories. • Practice of law is treated as a profession and not an industry resulting in lack of • finance for lawyers. Ban on advertising. • Multidisciplinary practicing firms not allowed • Education Sector Some issues in the case of education services are the following: While, India needs large investments in the higher education sector, sound • regulatory framework with transparent rules, stringent accreditation mechanism and protecting the interests of students are also needed. So a viable financing model, with a mix of public and private participation has to be put in place. There is also a
ExportImport Procedure & Documentation 17 need is to see that Foreign Educational Institutions (FEIs) who may have low stakes in the overall system and make minimum investments in infrastructure and faculty do not misuse the system. Instead they should be encouraged to give quality education. Foreign governments should also be encouraged to fund their Indian campuses for sensitive, cuttingedge research. Another issue needing attention is the multiple controls and regulations by the • central and state governments and statutory bodies. The regulations with respect to establishment of new medical colleges, patient load • factors should be reviewed to be in tune with present day equipment intensive patient care and modern practices and procedures of medical education. Policy reforms should actively encourage Public Private Partnership (PPP) both in higher medical education and healthcare. Quality of education and demand supply mismatch are other issues. Quality of education and demand supply mismatch are other issues. While a select number of institutions in the country do offer, worldclass education, in most institutions the quality of education is quite unsatisfactory without a continuous effort to upgrade standards, teaching methods, content of learning, and the quality of teachers. There is also a serious mismatch between institutional output and the demand in the • market. In some areas there is a surplus, whereas in many others shortages are felt. There are some serious mismatches between states. For example, there is high demand for medical and engineering colleges/seats in Delhi. But there are few medical colleges and new colleges do not come up despite the potential for many institutions/hospitals to set up medical colleges. Neighbouring states are capitalizing on this situation. In fact, the higher education system has not yet prepared itself to meet the new challenges posed by the increase in the pace of liberalization of the Indian economy and its gradual integration with the world economy. Worldwide there is a shortage and many countries are taking active measures to import talent. France has introduced a “Scientist Visa” and Singapore and China are offering a range of incentives. Countries are also actively encouraging expatriates to return. China is going through a massive expansion in technical education aimed at creating 100 world class Universities with a growth in Research and Development expenditure from US$12 billion in 1990 to US$85 billion in 2003. Tourism Services
ExportImport Procedure & Documentation 18 Tourism contributes over 10 per cent of global GDP and its potential in India, given the country’s enormous natural, human and technological resources, is wellrecognized The sector’s backward and forward linkages, are felt particularly in hotels, restaurants, and handicrafts. While a recent study by National Council of Applied Economic Research estimates tourism’s contribution towards GDP (both direct and indirect) in India at only 5.9 per cent, India has already emerged as a very fast growing tourist destination in the world. Given its biodiversity, variety of unique destinations and natural locales, India can transform itself into a 365 days a year destination with increased emphasis on new products like medical tourism, rural tourism, and wellness tourism, and marketing India as a destination for Conventions and Exhibitions through a network of India Trade Promotion Organization (ITPO) like institutions. Some issues related to Tourism sector include reducing the overall tax impact on tourism which is around 3035% in India, and is high compared to other countries, easing barriers on travel through easy visa on arrival for select countries, establishing a special tourism police force at important tourist destinations, establishing Budget hotels at identified railway sites with private sector participation, upgrading airport infrastructure in a time bound manner, cleaning drives in tourist spots and metros, etc. Banking Services The predominance of government ownership in the banking sector is considered to have led to insufficient competition in the Indian banking system and increased cost of intermediation. Corporate customers today face a highly competitive environment where they need to cut costs, maintain quality of products, adhere to international standards and keep up strict delivery schedules. So banks and FIs have to cut down on the time taken for project appraisals and disbursements which can possibly be done by promoting within themselves special appraisal skills meant for specific industries as in the case of the RABO Bank of Netherlands specializing in financing agrobased and processed foods industries and capitalizing on the information base built up in the past. In this context, the idea of setting up a Credit Information Bureau, designed to obtain and share data on borrowers to facilitate sound credit decisions is a welcome move that can enhance the speed of sound credit related decisions. Merging of the core competencies of FIs with those of commercial banks will also bring in the much needed consolidation in the domestic financial sector. Indian public and private sector banks and FIs have to adopt and imbibe international norms and practices and strengthen their capital base by mergers and acquisitions before
ExportImport Procedure & Documentation 19 launching their operations in the highly mature international financial markets. The operationalisation of the offshore financial centers can possibly be the first step. Consultancy Services Consultancy is another important service sector with promising signs for India. A new opportunity that is coming up is in the form of offering back office consultancy and sub contracting work from foreign consultancies. International accreditation is an important issue for consultancy and recognition of either CDC or IMCI could help as there would be proper accreditation which is internationally recognized. Thus, India’s services sector has many restrictions and removing some of the restrictions could help in the growth of the different services. However, there is a need to carefully examine which domestic regulations should continue for achieving socials goals, which regulations can be removed as a quid pro quo in WTO and bilateral negotiations and which regulations can be removed voluntarily to facilitate growth and trade in services. Entering into mutual recognition agreements (MRAs) for the recognition of qualifications, titles & standards and getting accreditation for Indian institutions in target countries is another area for focus. Service Exports Duty free import facility for service sector having minimum foreign exchange earnings of Rs.10 lakhs. The duty free entitlement shall be 10% of the average foreign exchange earned in the preceding three licensing years. However, for hotels, the same shall be 5% of the average foreign exchange earned in the preceding three licensing years. This entitlement can be used for import of office equipments, professional equipments, spares and consumables. However, imports of agriculture and dairy products shall not be allowed for imports against the entitlement. The entitlement and the goods imported against such entitlement shall be nontransferable.
ExportImport Procedure & Documentation 20 Service sector seeks government attention ECONOMIC REFORMS for the past 15 years have mainly focused on the manufacturing sector. Lately, reforms in the financial sector have received some attention. Regrettably, neither the service sector nor the agricultural sector has received any serious thought from the government. Every budgetary proposal has widened the service tax net. But it has given no sop to this sector, even though it would help tackle our chronic unemployment problem in a big way. It does beg for the government’s serious attention. Firstly, experience of many developed countries shows that with increasing urbanization and after a certain point in economic development, it is the service sector that grows at a relatively faster pace than either the manufacturing or the agricultural sector. It can be said that India too has reached a point where its service sector can expect to grow at a relatively faster pace and needs to be provided with not only all the necessary support but also perhaps a gentle push. The fact is that this sector is growing at a faster pace than either the manufacturing or the agricultural sector. Secondly, it has been observed that this sector generates the greatest number of jobs and has the capacity to absorb a large labor force, i.e., it has the biggest employment generation potential. In most of the developed countries, less than 10 per cent of the population is engaged in agriculture, less than 30 per cent in manufacturing and the rest in the service sector. Thirdly, the role of imported inputs like machinery, equipment etc in the service industry is limited and most of it can be easily procured from within the country for a number of service subsectors. Certain specialized or latest equipment could be imported, if need be, but it will not be a drain on foreign exchange. Besides, the equipment, once imported will have less wear and tear compared to the use of equipment in the manufacturing or agricultural sector. Fourthly, the service sector has high potential of earning foreign exchange, especially in the tourism sector, like hotels, travel agencies, restaurants, specialized transport of all kinds, services of guides and so on. In fact, the foreign exchange that imports certain equipment
ExportImport Procedure & Documentation 21 to modernize the service industry would be only a small proportion of potential hard currency earnings. Service sector expected to grow more than 9.5 percent New Delhi: Despite an economic slowdown, India's services sector is expected to grow at more than 9.5 percent this year, according to the Confederation of Indian Industry (CII). The CII's projection is based on a survey conducted among services sector chief executive officers (CEOs). About 66 percent of the services sector CEOs said the industry would grow above 9.5 percent. About 94 percent of the CEOs expected employment to increase in health care sector, followed by retail and tourism sectors. About 66 percent of the participants said employment would increase in IT, IT enabled services (ITES) and telecom sectors, while 64 percent expected employment to increase in financial services. The major impediments to growth are global economic slowdown, deceleration in the economy and shortage of talent and skills, said the survey. The CII snap poll reveals robust services growth expectation during the current year and supports GDP (gross domestic product) growth expectation of eight percent plus, CII director general Chandrajit Banerjee said. Both investment and employment are expected to increase in the services sector despite pressure on profitability during the current year, Banerjee added. Regarding the investment expansion for the entire services sector, 87 percent of the CEOs felt that expansion would continue during the current year. While the growth and investment outlook look healthy, the margins are expected to be under pressure, the poll said. The main reasons for pressure on margins are high interest rates, stiff domestic competition, increase in staff costs and stiff global competition.
ExportImport Procedure & Documentation 22 Conclusion In short the strategy for the services sector should include the following major issues mentioned above. Identifying the burdensome domestic regulations in India and reforming them which • also include many fiscal issues. Since different services differ in nature, the issues are varied as given in the indicative examples and involve different institutions, departments and even governments (central & states), the policy responses will also differ. Identifying the different market access barriers to India’s exports of services and • focusing on the important ones for negotiations at bilateral and multilateral levels taking note of India’s domestic growth, export potential of services and import basket analysis of trading partners. Greater synergy is needed not only between trade strategies and multilateral/bilateral negotiations, but also between growth and development strategies and multilateral/bilateral negotiations. Focus should be on export of untapped services and markets and services with high • linkage effects with manufacturing, growth of the economy and employment. Resolving in a fixed time period, the data and definitional issues in services both in • the national accounts and external sector including balance of payments. This will also involve issues related to prices for services.
ExportImport Procedure & Documentation 23 Including services in the inflation index to give a realistic picture of inflation and also • in domestic terms of trade to reflect the actual change in distribution of income between all the three sectors. All this would involve coordinated strategy and policy making for which a single • nodal department/division/institution for services is needed. The above calls for not only hard and systematic work but also some unconventional decision making at the highest level. Acknowledgement I, Tejas Dinesh Karia, would like to take this opportunity to thank Prof. Shital Mody for giving us such an interesting topic for our presentation which has enlightened our knowledge on ExportImport (EXIM) Management. You have always being a source of inspiration and have always guided me throughout the assignment. I hope that this will be helpful to me in my near future. Thank you madam for all your support provided to me.
ExportImport Procedure & Documentation 24
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