Thursday, October 09, 2014

Government Policy and Legal Environment

Unit – 3: Government policy and Legal Environment
New Industrial Policy, 1991
In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:
a)   Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;
b)   Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries;
c)    Reduce inequalities of income and wealth;
d)   Adopt a socialist pattern of development based on equality and prevent exploitation of man by man.
As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:
a)      The Government reduced the number of industries under compulsory licensing to six.
b)      Policy towards foreign capital was liberalized. The share of foreign equity participation was increased to 51% and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
c)       Government will encourage foreign trad­ing companies to assist Indian exporters in export activities.

d)      Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
e)      Automatic permission was now granted for technology agreements with foreign companies.
f)       Relaxation of MRTP Act (Monopolies and Restrictive Practices Act) which has almost been rendered non-functional.
g)      Dilution of foreign exchange regulation act (FERA) making rupee fully convertible on trade account.
h)      Disinvestment was carried out in case of many public sector industrial enterprises incurring heavy losses.
i)        Abolition of wealth tax on shares.
j)        General reduction in customs duties.
k)      Provide strength to those public sector enterprises which fall in reserved areas of operation or in high priority areas.
l)        Constitution of special boards to negoti­ate with foreign firms for large investments in the development of industries and import of technol­ogy.
Impact of Government Policy Changes (New Industrial Policy, 1991) on Business and Industry
1.    Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.
2.    More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
3.    Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.
4.    Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
5.    Threat from MNC Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners
Liberalization, Privatisation and Globalization
Liberalization: The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions. They indicate the end of the license-permit-quota raj. Liberalization of the Indian industry has taken place with respect to:
a)      Abolishing licensing requirement in most of the industries except a short list,
b)      Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities,
c)       Removal of restrictions on the movement of goods and services,
d)      Freedom in fixing the prices of goods services,
e)      Reduction in tax rates and lifting of unnecessary controls over the economy,
f)       Simplifying procedures for imports and experts, and
g)      Making it easier to attract foreign capital and technology to India.

Advantages of Liberalisation
1. Industrial licensing
2. Increase the foreign investment
3. Increase the foreign exchange reserve
4. Increase the consumption and control over price
5. Check on corruption
6. Reducing in dependence on external commercial borrowing

Disadvantages of liberalization
1. Increase in unemployment
2. Loss of domestic units
3. Increase dependence on foreign nations
4. Unbalanced development

Privatisation: The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization. It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.
Benefits of Privatisation:
1. Improved Efficiency: The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If we work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making profit and so it is more likely to cut costs and be efficient.
2. Lack of Political Interference: It is argued that governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense.
3. Short Term view: A government many think only in terms of next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election.
4. Shareholders: It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A government owned firm doesn’t have this pressure and so it is easier for them to be inefficient.
5. Increased Competition: Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest motivation for improvements in efficiency. However, privatisation doesn’t necessarily increase competition, it depends on the nature of the market.
6. Government will raise revenue from the sale: Selling government owned assets to the private sector raised significant sums for government.
Disadvantages of Privatisation
1. Natural Monopoly: A natural monopoly occurs when the most efficient number of firms in an industry is one. Privatisation would create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer.
2. Public Interest: There are many industries which perform an important public service, e.g. health care, education and public transport. In these industries, the profit motive shouldn’t be the primary objective of firms and the industry.
3. Government loses out on potential dividends: Many of the privatised companies in the India are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders.
4. Problem of regulating private monopolies: Privatisation creates private monopolies, such as the water companies and rail companies. These need regulating to prevent abuse of monopoly power. Therefore, there is still need for government regulation.
5. Fragmentation of industries: In India, rail privatization would lead to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility.
6. Short-Term view of Firms: As well as the government being motivated by short term pressures, this is something private firms may do as well. To please shareholders they may seek to increase short term profits and avoid investing in long term projects.
Globalisation: Globalizations are the outcome of the policies of liberalisation and privatisation. Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical boundaries.
Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy.  Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.
Foreign Collaboration
Foreign collaboration is such an alliance of domestic (native) and abroad (non-native) entities like individuals, firms, companies, organizations, governments, etc., that come together with an intention to finalize a contract on some tasks or jobs or projects.
“Foreign collaboration includes ongoing business activities of sharing information related to financing, technology, engineering, management consultancy, logistics, marketing, etc., which are generally, offered by a non-resident (foreign) entity to a resident (domestic or native) entity in exchange of cheap skilled and semi-skilled labour, inexpensive high-quality raw-materials, low cost hi-tech infrastructure facilities, strategic (favourable) geographic location, and so on, with an approval (permission) from a governmental authority like the ministry of finance of a resident country.”
Features of Foreign Collaboration
a)      Foreign collaboration is a mutual co-operation between one or more resident and non-resident entities. In other words, for example, an alliance (a union or an association) between an abroad based company and a domestic company forms a foreign collaboration.
b)      It is a strategic alliance between one or more resident and non-resident entities.
c)       Only two or more resident (native) entities cannot make a foreign collaboration possible. For its formation and as per above definitions, it is mandatory that one or more non-resident (foreign) entities must always collaborate with one or more resident (domestic) entities.
d)      Before starting a foreign collaboration, both entities, for example, a resident and non-resident company must always seek approval (permission) from the governmental authority of the domestic country.
e)      During an ongoing process of seeking permission, the collaborating entities prepare a preliminary agreement.
f)       According to this preliminary agreement, for example, the non-resident company agrees to provide finance, technology, machinery, know-how, management consultancy, technical experts, and so on. On the other hand, resident company promises to supply cheap labour, low-cost and quality raw-materials, ample land for setting factories, etc.
g)      After obtaining the necessary permission, individual representative of a resident and non-resident entity sign this preliminary agreement. Signature acts as a written acceptance to each other's expectations, terms and conditions. After signatures are exchanged, a contract is executed, and foreign collaboration gets established. Contract is a legally enforceable agreement. All contracts are agreements, but all agreements need not necessarily be a contract.
h)      After establishing foreign collaboration, resident and non-resident entity start business together in the domestic country.
i)        Collaborating entities share their profits as per the profit-sharing ratio mentioned in their executed contract.
j)        The tenure (term) of the foreign collaboration is specified in the written contract.
Foreign Collaboration is of two types:
When a foreign company acquires equity shares of an Indian company for collaboration it is known as Financial Collaboration. The extent to which the foreign company can acquire equity shares depends upon the policies of the Government of India.
Technical Collaboration means the transfer of information relating to the business of the collaboration. It includes transfer of data, information, drawings, product and tool designs, production engineering, between the collaboration companies.
FDI- Foreign Direct Investment
FDI- Foreign Direct Investment refers to international investment in which the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment.
FDI is calculated to include all kinds of capital contributions, such as the purchases of stocks, as well as the reinvestment of earnings by a wholly owned company incorporated abroad (subsidiary), and the lending of funds to a foreign subsidiary or branch. The reinvestment of earnings and transfer of assets between a parent company and its subsidiary often constitutes a significant part of FDI calculations. FDI is more difficult to pull out or sell off. Consequently, direct investors may be more committed to managing their international investments, and less likely to pull out at the first sign of trouble.
Competition Act’ 2002
The competition Act 2002 was formulated with following objectives:
1. To promote healthy competition in the market.
2. To prevent those practices which are having adverse effect on competition.
3. To protect the interests of concerns in a suitable manner.
4. To ensure freedom of trade in Indian markets.
5. To prevent abuses of dominant position in the market actively.
6. Regulating the operation and activities of combinations (acquisitions, mergers and amalgamation).
7. Creating awareness and imparting training about the competition Act.
 Salient features of the Competition Act, 2002
1. Competition Act is a very compact and smaller legislation which includes only 66 sections.
2. Competition commission of India (CCI) is constituted under the Act.
3. This Act restricts agreements having adverse effect on competition in India.
4. This Act suitably regulates acquisitions, mergers and amalgamation of enterprises.
5. Under the purview of this Act, the central Government appointed director General for conducting detail investigation of anti-competition agreements for arresting CCI.
6. This Act is flexible enough to change its provisions as per needs.
7. Civil courts do not have any jurisdiction to entertain any suit which is within the purview of this Act.
8. This Act possesses penalty provision.
9. Competition Act has replaced MRTP Act.
10. Under this Act, “Competition Fund” has been created.
 Exemption from Application of Competition Act, 2002
The Central Government may, by notification, exempt from the application of this Act, or any provision thereof, and for such period – as it may specify in such notification:
(a) any class of enterprises – if such exemption is necessary in the interest of security of the state or public interest ;
(b) any practice or agreement – arising out of and in accordance with any obligation assumed by India under any treaty, agreement or convention with any other country or countries ;
(c)  any enterprise – which performs a sovereign function on behalf of the Central Government or a State Government.
In simple words, Competition Act is not applicable in the following cases:
1. Public Financial Institutions.
2. Foreign Institutional Investors (FIIs).
3. Banks.
4. Venture capital Funds (VCFs).
5. Agreements related to intellectual property rights (IPRs) such as trademarks, patents, copyrights etc.
6. Central Government has the authority to exempt any class of enterprises from the provisions of Act in the common interest of national security or public interest.
Sec. 2(a) “ Acquisition ” means
Directly or indirectly, acquiring or agreeing to acquire:
(i) Shares, voting rights or assets of any enterprise ; ( or )
(ii) Control over management or control over assets of any enterprise.
The terms ‘ acquiring ’ or ‘ acquisition ’ – are relevant for “ Regulation of Combinations ”.
Sec. 2(b) “ Agreement ” includes any arrangement or understanding or action in concert:
(i)  Whether or not, such arrangement, understanding or concert is formal or in writing ; ( or )
(ii) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.
Sec. 2(f) “ Consumer ” means any Person who
(i) Buys any goods for a consideration which has been pair or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, – whether such purchase of goods is for resale or for any commercial purpose or for personal use.
(ii) Hires or avails of any services for a consideration which has been paid or promised or partly paid and partly  promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid or partly promised or under any system of deferred payment, when such services are availed with the approval of the first mentioned person – whether such hiring or availing of services is for any commercial purpose or for personal use.
Sec. 2(h) “ Enterprise ” means
a Person or a Department of the Government, – who or which is, or has been engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control or goods or articles or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any body corporate either directly or through one or more of its units or divisions or subsidiaries – whether such unit or division or subsidiary is located at the same place where the enterprise is located or at different places.
Sec. 2(i) “ Goods ” means
Goods as defined in the Sale of Goods Act, 1930 and includes:
(a)    Products manufactured, processed or mined ;
(b)   Debentures, shares and stocks after allotment ;
(c)    in relation to Goods supplied, distributed or controlled in India – goods imported into India.
Sec. 2(u) “ Service ” means
service of any description which is made available to a potential users and includes the provision of services – in connection with business of any industrial or commercial matters such as – banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising.
Sec. 2(y) “ Turnover ” includes value of sale of goods or services. The definition of the term turnover, intra-alia, is relevant and significant in determining whether the combination of merging entities exceeds the threshold limit of the turnover specified in Section 5 of the Act. It is also relevant – for the purpose of imposition of fines – by the Commission.
“ Competition Commission of India ” ( CCI )
The Competition Act provides for an adjudicating relief machinery – by way of establishing the Competition Commission of India ( CCI ) which would be body corporate having perpetual succession and common seal. CCI will have a Chairperson and not less than two and more than ten other members to be appointed by the Central Government. The Law provides that the Commission may establish offices at other places ( other than Head Office ) in India.
A quasi-judicial authority named ‘Competition Commission of India’ will be constituted. The Commission will consist of judicial as well as non-judicial persons to give Competition Commission of India (CCI) an overall perspective.
On receipt of complaint or reference, CCI can issue order to Director General to investigate. His report will then be considered by CCI. The CCI will hear the concerned parties and then pass necessary orders. CCI will sit in benches. Each bench will consist of at least one judicial person of rank of Judge of High Court. CCI is empowered to recommend division of dominant enterprises. It can order de-merger in case of merger / amalgamation that adversely affects competition. Suitable powers are given to Commission and penalties are prescribed to ensure that orders of Commission are obeyed. Jurisdiction of Civil Court is barred and only appeal to Supreme Court only if substantial question of law are involved.
India’s Industrial Policy for North Eastern Region
In view of the continuing backwardness of North East Region, the need for a new and synergetic incentive package was widely felt to stimulate development of industries. In 1997 a separate Industrial Policy was announced for the industrial development of the North Eastern Region for which Expert groups / committees were constituted by the Ministry of Industry and Planning Commission. Based on the recommendations and proposals finalized by these expert groups / committee the Government of India approved the new Industrial Policy and other concessions for the North Eastern Region.
Features of the policy:
a)      Development of Industrial infrastructure growth centre: Currently the funding pattern of the growth centers envisages a Central assistance of Rs. 10 crores for each Centre and the balance amount to be raised by the State Government. Government has approved that entire expenditure on the growth centers would be provided as Central assistance, subject to a ceiling of Rs. 15 crores.
b)      Integrated Infrastructure Development Centre: In respect of the IID centres, the funding pattern would be changed from 2:3 between Government of India and SIDBI to 4:1, and the Government of India funds would be a grant.
c)       Transport subsidy scheme: The transport subsidy scheme will be extended further in so far as NE States are concerned, for a period of another 7 years i.e. up to 31st March, 2007 being coterminous with the Tenth Five Year Plan on same terms and conditions as per applicable now.
d)      Fiscal incentives to new industrial units
1)      Total Tax Free Zone: Government has approved for converting the growth centres and IID centres into a Total Tax Free Zone for the next 10 years. State Government would be requested to grant exemptions in respect of Sales Tax and Municipal Tax.
2)      Capital Investment Subsidy: Industries located in the growth centres would also be given Capital Investment Subsidy at the rate of 15% of their investment in plant and machinery, subject to a maximum ceiling of Rs. 30 lakh. The commercial banks and the North East Development Financial Corporation (NEDFi) will have dedicated branches/ counters to process applications to term loans and working capital in these centres.
3)      Interest subsidy on Working Capital Loan: An interest subsidy of 3% of working capital loan would be provided of 10 years after the commercial production. The working capital requirements would be worked out as per the Nayak Committee.
4)      Excise Benefits: Government of India has given sweeping concessions on excise duty. All excisable goods produced in the factory located in the growth centres, IIDs etc. in the state have been exempted from payment of excise duty. Goods produced in specified industries located in areas outside the growth centres/IIDs etc. have also been exempted from payment of excise duty.
e)      Relaxation of PMRY Norms:  The PMRY would be expanded in scope to cover areas of horticulture, piggery, poultry, fishing, small tea gardens etc. so as to cover all economically viable activities. PMRY would have a family income ceiling of Rs. 40,000.00 per annum for each beneficiary along with his/her spouse and upper age limit will be relaxed to 40 years. Projects costing up to Rs. 2 lakh in other than business sector will be eligible for assistance. No collateral will be insisted for project costing up to Rs. 1 lakh.
f)       Other Incentives Proposed: A comprehensive insurance scheme for industrial units in the North East will be designed in consultation with General Insurance Corporation of India Ltd. and 100% premium for a period of 10 years would be subsidized by Central Government.  One time grant of Rs. 20 crores will be provided to the North East Development Financial Corporation (NEDFi) by the Central Government through NEC to fund Techno-Economic studies for industries and infrastructure best suited to this region.
The Government may consider setting u a "Debt Purchase Window" by the NEDFi which buys the debt of the manufacturing units particularly in respect of the supplies made to the Government Departments so as to reduce the problem of blocking of funds for these units.
For development of markets in North East, possibilities of Export of products of North East to the neighboring countries particularly, Bangladesh, Myanmar and Bhutan would be explored.
North East Industrial and Investment Promotion Policy (NEIIP, 2007)
Important Provisions of NEIIPP, 2007
(i)         Sikkim will be included under NEIIPP, 2007 and the ‘New Industrial Policy and other concessions for the State of Sikkim’ announced earlier in December, 2002 will be discontinued from the date of notification of NEIIPP, 2007.
(ii)       Under NEIIPP, 2007, all new units as well as existing units which go in for substantial expansion, unless otherwise specified and which commence commercial production within the 10 year period from the date of notification of NEIIPP, 2007 will be eligible for incentives for a period of 10 years from the date of commencement of production.
(iii)      The incentives under the NEIIPP, 2007 will be available to all industrial units, new as well as existing units on their substantial expansion, located anywhere in the North Eastern Region.  Consequently, the distinction between ‘thrust’ and ‘non thrust’ industries made in NEIP, 97 will be discontinued from the date of notification of NEIIPP, 2007.
(iv)     Under NEIIPP, 2007 incentives on substantial expansion will be given to units effecting ‘an increase by not less than 25% in the value of fixed capital investment in plant and machinery for the purpose of expansion of capacity/modernization and diversification’ as against an increase by 33 ½  % prescribed at present.
(v)       Under NEIIPP, 2007, 100% excise duty exemption will be continued as at present on finished products made in the North Eastern Region.  However, in cases, where the CENVAT paid on the raw materials and intermediate products going into the production of finished products (other than the products which are otherwise exempt or subject to nil rate of duty) is higher than the excise duties payable on the finished products, ways and means to refund such overflow of CENVAT credit will be separately notified by the M/O Finance.
(vi)     100% income tax exemption will continue under NEIIPP, 2007 as at present.
(vii)    Capital investment subsidy will be enhanced from 15% of the investment in plant and machinery to 30% and the limit for automatic approval of subsidy at this rate will be Rs. 1.5 crore per unit as against Rs. 30 lakhs at present.  Such subsidy will be applicable to units in the private sector, joint sector, cooperative sector as well as the units set up by the State Governments of the North Eastern Region.  For grant of capital investment subsidy higher than Rs. 1.5 crore but upto a maximum of Rs.30 crore, there will be an Empowered Committee.
(viii)  Interest subsidy will be made available @ 3% on working capital loan under NEIIPP, 2007 as at present.
(ix)     Under NEIIPP, 2007, new industrial units as well as the existing units on their substantial expansion will be eligible for reimbursement of 100% insurance premium under the Comprehensive Insurance Scheme.
(x)       To include tobacco and tobacco products, pan masala, plastics carry bags and goods produced by refineries, in a host of industries which would not be eligible for incentives under NEIIPP, 2007.
(xi)     To provide incentives to service sector, bio-technology and power generating industries.
(xii)    To continue North Eastern Development Finance Corporation Ltd. (NEDFi) as the nodal agency for disbursal of subsidies under NEIIPP, 2007.
 The provisions of the NEIIPP, 2007 would provide the requisite incentives as well as an enabling environment to speed up the industrialization of the North Eastern Region which is otherwise less than 4% p.a. against a national average of 8%.
Export – Import Policy or Foreign Trade Policy
No country is self-sufficient in the world today.  Therefore, every country has to import goods and to pay for imports it has to export goods to other countries.  The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage.  But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports. 
EXIM policy refers to the policy measures adopted by a country with reference to its exports and imports. Such a policy become particularly important in a country like India, where the import and export of items plays a crucial role not just in balancing budgetary targets, but also in the over all economic development of the country.
The principal objectives of the policy are:
Ø  To facilitate sustained growth in exports of the country so as to achieve larger percentage share in the global merchandise trade.
Ø  To provide domestic consumers with good quality goods and services at internationally competitive prices as well as creating a level playing field for the domestic producers.
Ø  To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services.
Ø  To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitiveness to meet the requirements of the global markets.
Ø  To generate new employment opportunities and to encourage the attainment of internationally accepted standards of quality.
Ø  To establish the framework for globalization.
Ø  To promote the productivity competitiveness of Indian Industry.
Ø  To augment export by facilitating access to raw material, intermediate, components, consumables and capital goods from the international market.
Ø  To promote internationally competitive import substitution and self-reliance.
Export- Import (EXIM) Policy 2002-07 
In order to maintain the balance of payments and to avoid trade deficit the government of India has announced a trade policy for imports and exports. After every five years the government of India reviews the import and export policy in view of the changing international economic situation.  The policy relates to promotion of exports and regulation of imports so as to promote economic growth and overcome trade deficit. Accordingly, the export-and import policies (EXIM Policy) were announced by the government first in 1985 and then in 1988 which was again revised in 1990.  All these policies made necessary provision for extension of import liberalisation measures.  All these policies made necessary provision for import of capital goods and raw materials for industrialization, utilisation and liberalisation of REP (Registered Exporters Policy) licenses, liberal import of technology and policy for export and trading houses.  The government announced its new EXIM policy for 2002-2007 which is mainly a continuation of the EXIM policy of 1997-2002. The new export-import policy for 2002-2007 aims at pushing up growth of exports to 12 per cent a year as compared to about 1.56 per cent achieved during the financial year 2001-2002.  
The main features of this export- import policy are given below:
a)      Concessions to exporters: To enable Indian companies to compete effectively in the competitive international markets and to give a boost to sagging exports various concessions had been given to the exporters in this new EXIM policy 2002-2007.  These concessions are:
i)        Exporters will now have 360 days to bring in their foreign exchange remittances as compared to the earlier limit of 180 days.
ii)       Exporters will be allowed to retain the entire amount held in their exchange earner foreign currency (EEFC) accounts.
iii)     Exporters will now get long-term loans at the prime lending rate for that tenure.
b)      Duty Entitlement Pass Book (DEPB) and Export Promotion Capital Goods (EPCG) Schemes: DEPB and EPCG are important tools of promoting exports.  These schemes have been made more flexible.  In the DEPB and EPCG schemes new initiatives have been granted to the cottage industries, handicrafts, chemicals and pharmaceuticals, textile and leather products.
c)       Strengthening Special Export Zones (SEZ): The new long-term EXIM policy has sought to enable Indian SEZs to be at par with its international rivals.  The EXIM policy has given a boost to the banking sector reforms by permitting Indian banks to set up overseas banking units in SEZs. 
d)      Soft options for computer hardware industry: The export import (EXIM) policy has put the Indian computer manufacturers at par with manufacturers in other parts of the world. Companies manufacturing or assembling computers in the country will be able to import both capital and raw materials at lower duty rates to sell in the domestic market.
As per the information technology agreement which is part of the world trade organisation zero duty the agreement on I. T. sector, 217 I. T. components would attract a zero duty by 2005.  Therefore, foreign companies can import these products into the country while Indian manufacturers who did the same had to meet export obligations on their imports.  Now, the new EXIM policy states that domestic sales will be considered as a fulfillment of the export obligation, thereby freeing the domestic manufacturers from exports completely.
Features of EXIM Policy (2009 – 2014)
The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India’s foreign trade and goes beyond the traditional focus on pure exports. This would be clear from the following statement in the policy document, “Trade is not an end in itself, but a means to economic growth and rational development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity.” The government unveiled a mix of procedural measures and fiscal incentives to trade with non- traditional destinations to bolster export order books drying out in two top regional markets-the US and the European Union.
New emerging markets have been given a special focus to enable exports to be competitive. Incentive schemes are being rationalised to identify leading products which would catalyse the next phase of export growth.
The government plans to introduce a nation-wide uniform GST from next year that would subsume the complex web of indirect taxes imposed by state governments. The introduction of zero duty capital goods scheme will add to expansion and modernization of production base at a time when investment is drying up in export industries.
Other important features of the policy include:
(i) $ 200 billion or Rs 98,000 crore is the export target for 2010-11.
(ii) 100% growth of India’s export of goods and services by 2014.
(iii) 15% growth target for next two years; 25% thereafter.
(iv) 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%.
(v) Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence.
(vi) 26 new markets added to focus market scheme.
(vii) Provision for state-run banks to provide dollar credits.
(viii) Duty entitlement passbook scheme extended till Dec. 2010. Etc.
Special Economic Zone- Introduction
Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. 
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005.
The main objectives of the SEZ Act are:
(a) Generation of additional economic activity 
(b) Promotion of exports of goods and services; 
(c) Promotion of investment from domestic and foreign sources; 
(d) Creation of employment opportunities; 
(e) Development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
a)         Generation of additional economic activity across all the states 
b)         Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities
c)          Promotion of investment from domestic and foreign sources 
d)         Creation of employment opportunities across India 
e)         Development of world class infrastructural facilities in these units 
f)          Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities 
g)         Single window clearance cell for the establishment of Special Economic Zone 
h)         Single window clearance cell within each and every Special Economic Zones 
i)           Single window clearance cell relating to formal requirements of Central as well as all State Governments.
j)           Easy and simplified compliance procedures and documentations with stress on self certification.
a)         Exemption from duties on all imports for project development 
b)         Exemption from excise / VAT on domestic sourcing of capital goods for project development 
c)          Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership 
d)         Income tax holidays on business income 
e)         Exemption from import duty, VAT and other Taxes 
f)          10% FDI allowed through the automatic route for all manufacturing activities 
g)         Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution 
h)         Simplification of procedures and self-certification in the labor acts
i)           Artificial harbor and handling bulk containers made operational throughout the year
j)           Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations 
k)         Well connected with network of public transport, local railways and cabs 
l)           Pollution free environment with proper drainage and sewage system 
m)       In-house Customs clearance facilities 
n)         Abundant supply of technically skilled manpower 
o)         Abundant supply of semi-skilled labor across all industry vertical 
p)         Easy access to airport and local Railway Station 
q)         10-year tax holiday in a block of the first 20 years 
r)          Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis 
Key Advantages of SEZ Units in India
Ø  10-year tax holiday in a block of the first 20 years
Ø  Exemption from duties on all imports for project development
Ø  Exemption from excise / VAT on domestic sourcing of capital goods for project development
Ø  No foreign ownership restrictions in developing zone infrastructure and no restrictions on repatriation
Ø  Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership
Ø  Income tax holidays on business income
Ø  Exemption from import duty, VAT and other Taxes
Ø  10% FDI allowed through the automatic route for all manufacturing activities
Ø  Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution
Ø  Simplification of procedures and self-certification in the labor acts
Ø  Artificial harbor and handling bulk containers made operational through out the year
Ø  Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations
Ø  Has host of Public and Private Bank chains to offer financial assistance for business houses
Ø  A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise
Ø  Well connected with network of public transport, local railways and cabs
Ø  Pollution free environment with proper drainage and sewage system
Ø  In-house Customs clearance facilities
Disadvantages of SEZ
Ø  Revenue losses because of the various tax exemptions and incentives.
Ø  Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for themselves.
Ø  The number of units applying for setting up EOU's is not commensurate to the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectations.