India's External Sector performance

Composition of Trade:

Export growth in 2003-04 was broad based, with both commodity groups and manufacturing goods posting strong growth, though there was a marginal fall. The major contributor to this increase was the manufacturing sector, accounting for around ¾ of the incremental growth in exports. In addition, there was acceleration in exports of primary products namely wheat, vegetables and fruits, meat and meat preparations. A turnaround in exports of plantation sector, overall good performance in manufactured exports, a surge in exports of ores and minerals and continued robust growth in exports of petroleum products were the main reasons. Important exceptions to this broad-based growth, included exports of traditional agri- items such as marine products, cashew nuts, spices and rice, cotton yarn and fabrics, which registered declines during the year 2003-04.

But overall, the year 2004 witnessed a record surge in India's exports across all major commodities, with exports of merchandise goods registering the highest ever growth rate in over a decade of 24% in dollar terms during April-November 2004. This growth was witnessed in mfgd goods with substantial contributions from engineering goods, chemical and related products, gems and jewelry and textiles including readymade garments. Agriculture and allied goods like oilmeals, cereals like basmati rice, tobacco, spices nuts poultry, dairy and meal products also grew.

With this rate of growth in 2004, Shri Kamal Nath, Union Minister of Commerce and Industry, has said that India's exports for the full year 2004-05 would exceed the target of 16% to touch US $ 75 billion. Significantly, exports to all major destinations have shown record growth in 2004. According to provisional data of April-October 2004, exports to the European Union (EU) grew by 22.7%; to USA by 24%; and to Asia and Oceania by over 42%. India's exports to Africa witnessed a growth rate of 25.6% and to the United Arab Emirates (UAE) exports grew by over 52%. Bilateral trade with China during 2004 has crossed the $ 10 billion mark, while exports to Pakistan have trebled.

The rise in imports in 2003-04 was also broad based, except POL imports. Around 85% of the increase in absolute terms during the year was accounted for by gold and silver imports, manufacturing intermediates imports, consumer goods, capital goods and imports of food and allied products mainly edible oils. Imports of capital goods rose but import of project goods continued to decline for 5th consecutive year. Also fertilizer imports witnessed a turnaround after 3 years of declining trends. For the period April-November 2004-05 imports were valued at US $ 64265.79 million representing an increase of 34.47% over the level of imports in same period last year. Petroleum and petroleum products alone accounted for $20 billion that is 47% of the increase in imports in imports in 2004 (April-Nov). Besides oil, imported coal, gold and silver, electronics, capital goods, pearls, semi-precious stones and chemicals accounted for 81% of the incremental rise in imports during fiscal year 2004-05 so far.

As regards, trade in services India was 20th leading exporter in 2003. Software leads with miscellaneous services ( e.g. professional, technical and business service) are growing their potential for future. Travel and transportation, on the other hand have witnessed some decline in their share in the past few years. The EU, US and Japan contribute for nearly two thirds of the global trade in services. The trade deficit for April-Nov 2004-05 is estimated at US $17872.18 million, which is higher than last year's figure of US $10383.81 million.










Balance of Payments:

There has been a surplus in India's BOP in both current and capital accounts. The main driver behind India's current account surplus has been invisible inflows, particularly private transfers comprising remittances, along with software service exports. The surplus in both accounts since 2002, have resulted in accumulation in the foreign exchange reserves of the country. The trend is consistent with that of most economies of developing Asia, particularly East Asian economies. However, as a proportion of GDP, India's current account surplus in 2003 was much lower than those of Indonesia, Malaysia, Philippines, Thailand and China.

The year 2004-05 saw a reversal in current account trend when it showed a deficit for the first time after 4 years. This was mainly on account of huge merchandise trade deficit in the period April- Sep. Even surpluses in invisibles could not compensate for it. For the capital account surplus, steady growth in non-debt creating foreign investment inflows was the main factor. In 2004-05 (April-Sep), Capital account continued to show surplus, though, was about US $1.7 billion lower in size compared to that in same period last year.

A comprehensive Foreign Trade Policy (2004-09) was announced by Shri Kamal Nath on 31st August, 2004 aimed at doubling India's share of global merchandise trade by 2009 and to act as an effective instrument of economic growth by giving a thrust to employment generation. The key strategies adopted in the Policy to enhance exports included simplification of procedures, reduction in transaction cost, neutralisation of incidences of all levies and duties on inputs used for export production, facilitating development of India as a global hub for manufacturing, trading and services, identifying and nurturing special focus areas like agriculture, handlooms, handicraft, gems & jewellery and leather, footwear etc. In addition, export promotion schemes like 'Vishesh Krishi Upaj Yojna' and 'Served from India' scheme to accelerate the growth of agriculture and service exports were announced. Besides, an Export Promotion Council has been set up for Services.

To bring down transaction cost of exporters during the year 2004, procedures were simplified, issue of import-export licences online promoted and various community partners like banks, customs and Directorate General of Foreign Trade (DGFT) were linked through Electronic Data Interface (EDI). Time limits were prescribed for issuance of various licences and related operations have been fully computerized in 32 regional offices of DGFT. At present approximately 70% import-export licences are being issued online. A recent survey done by the Exim Bank indicates that the transaction costs of Indian exports have come down significantly due to these initiatives taken by the government.

Three new Special Economic Zones (SEZs) were cleared during 2004, viz., establishment of a SEZ by M/s. WIPRO Limited for software development and IT enabled services at Salt Lake Electronic City, Kolkata at an estimated investment of Rs.125 crore; and two new sector-specific SEZs for IT and automobiles and auto-parts respectively at Sedarper-Karasur (Pondicherry). With this, the number of SEZs have so far approved comes to 36. An SEZ Bill is also on anvil.

WTO RELATED ISSUES: INDIA IN THE CANCURN MINISTERIAL MEETING

The fifth WTO Ministerial meeting held at Cancun, Mexico during September 10-14, 2003, reflected serious polarization of views and positions with wide divergence of views and lack of convergence amongst the developed and developing countries, esp on Agriculture and the Singapore issues, the Ministerial concluded on Sep 14, 2003 without reaching a consensus. But the members have adopted a Framework Agreement on 1 Aug, 2004 outlining the elements and principles that will guide the future negotiations. The framework is in preliminary stage and further negotiations including on detailed modalities and preparing specific commitments of each member in respect of agriculture and non-agricultural market access (NAMA) will be held before the Sixth ministerial conference of WTO scheduled to be held at Hong kong China during Dec 13-18, 2005.

India played a key role in forming two important coalitions, viz. G -20 on agriculture and G 16 on Singapore issues at the Cancurn meet. India sought elimination of distortions in world agriculture, created through high level of subsides in the developed countries. Protection in the developed countries faced by developing countries exporters in agriculture is 4 to 7 times higher than in manufactures, this causes over production in high cost rich countries at the expense of potentially more competitive products from developing countries and aggravates global income inequalities.

To secure for developing countries sufficient gains from globalisation, India underlined urgent need to bring down the high tariffs and non - tariff barriers on products of export interest to LDCs for rural development, food security & livelihood concerns, ensuring special and differential treatment for developing countries and policy space to deal with sensitive products, G 20 put forward their suggestions. G 20 held the view that mandatory tariff harmonization and elimination would be iniquitous to LDCs because substantial contribution would be made by developing countries. India opposed mandatory binding (Zero for Zero) of tariff in suggested 7 sectors (auto components, fish & fish products, textiles, gems & jewelry, leather products and electric and electronic goods). It was unfair because countries being in various stages of development, lacked the capacity to undertake such binding commitments.

In the service sector, India pointed out while liberalization of certain sectors was essential to accelerate growth in LDCs, there was need to deal with caution in other sensitive sectors. For benefits to accrue to developing countries, it is essential that service provider are allowed to supply services in important overseas markets either from remote locations or through temporary movement of persons. India also stressed restoring priority accorded to resolving the outstanding implementation issues. Similarly, the need for expediting making of all SDT provision precise, operational and effective and converting on mandatory provisions into mandatory ones was also emphasized. India also supported the issue of bringing transparency and participation in decision-making process in WTO taking into account the need of the developing countries.

Similarly, India negotiated successfully in the area of non-agricultural market access (NAMA), Services, and ensured that the Framework Agreement includes a firm commitment to addressing Implementation Issues and operationalisation of Special and Differential Treatment (S&DT) for developing countries on a time-bound basis

Regarding Singapore issues, traditional WTO principles of non-discrimination were not found appropriate & it was realized that trade negotiators could not be able to deal with the movement of dynamic capital. However, the emerging consensus appeared to be in the direction of finalizing modalities for, negotiations on trade facilitation by 'explicit consensus' where as the other 3 issues of Investment, Competition and Transparency in Government procurement would cease to be part of the Doha agenda.

One of the significant achievements in the August 1,Framework Agreement was the removal of 3 of the 4 Singapore issues on which India had raised objections - namely Investment, Government Procurement and Competition.

Recently, India hosted a meeting of the G-20 form March 17 to 19, 2005 in New Delhi. The G-20 memebers demanded a time frame to eliminate the agricultural export subsidies that the developed world provides to their rich farmers. The meeting also consolidated the G-20 alliance to establish an important outreach to other developing countries, Africa Group and Caribbean Group advance the genuine developmental objectives in the negotiations in the run-up to the Hong Kong Ministerial of the WTO, scheduled to be held in December 2005.

Regional Agreeements:

While attaching prime importance to a fair and rule based multilateral trading system, the year saw the launch of fresh initiatives for regional free trade agreements or comprehensive economic cooperation agreements. During the year, India continued to engage in transforming the Preferential Trade Arrangement (PTA) with SAARC countries into a SAARC Free Trade Area (SAFTA), which would come into existence from 1st January 2006. Besides, an Early Harvest Programme in BIMST-EC which covers countries on the rim of the Bay of Bengal, negotiations with ASEAN countries collectively and with countries with Singapore individually are nearing completion. Negotiations for a PTA with MERCOSUR grouping of Latin America are complete and talks on an agreement with SACU (South Africa Customs Union) are on.