VI. Trade regulations and standards The dramatic changes since 1991 in India's regulation of international trade have created new commercial opportunities for U.S. firms. International trade continues to be regulated to prevent a sudden drop in India's foreign exchange reserves. India also seeks to limit the import of nonessential and luxury items. The Indian rupee (INR or Rs.) has been made fully convertible on the trade account, though not on the capital account. Tariffs and import taxes India controls the import of goods into its market through the Import Trade Control Organization (ITCO), part of the Ministry of Commerce. The ITCO is headed by the Director General of Foreign Trade, New Delhi, and Joint Chief Controllers are stationed in Bombay, Calcutta, Madras, etc. In the IFY 1994-95 budget, import duties were reduced to 65 percent on most goods. Favored capital goods used in projects or as production equipment for export industries will be subject to 25 percent duties. Excise taxes on imports are comparable to the levels charged India's domestic producers of such goods and may be as much as 40 percent, for example. A guide to current import tariffs, arranged by Harmonized Schedule (HS) number, is available from: Chief Controller of Imports and Exports Ministry of Commerce Udyog Bhawan Maulana Azad Road New Delhi 110 001 Telephone: 91-11-301-1938 or 301-1275 The India Desk at the U.S. Department of Commerce (Washington, D.C.) may also be able to give you the specific rate of duty if you know the HS number for your product. Telephone: (202) 482-5149 Fax: (202) 482-5330. Special import licenses and foreign exchange balancing Special licensing permits the import of capital goods at lower duty rates if these will be required for the production of exports. The raw material inputs for such export production are also permitted to enter duty-free. The import of god and specified consumer goods is permitted under special import license. These licenses are issued to certain categories of exporters on the basis of net foreign exchange earnings. The government announced changes in export-import policies effective April 1, 1994. These changes will reward Indian exporters with import licenses for high- value, popular consumer items and needed industrial intermediate goods. New commercial opportunities for U.S. business will be generated as a variety of imports expand, including second-hand machinery and certain consumer durables. India's negative list of prohibited imports has been trimmed. Indian business groups and the Indian exporting community welcomed the changes as a continuation of the liberalization process. India's export and import policy, 1992-97: In keeping with the economic reform and liberalization direction taken by the Government of India (GOI) since 1991, private firms are facing fewer restrictions and less administrative control on their international trade transactions. GOI seeks to increase exports of agriculture and services, contributing to a steady expansion of the economy. Its policy objectives include: globalization of India's trade; an increase in productivity and competitiveness of Indian industry; raising quality to international standards; access to raw materials, intermediates, components, consumables, and capital goods from international suppliers; deregulation of foreign trade; reduction or elimination of quantitative licensing and other discretionary controls on trade; simplifying and speeding-up procedures. Changes for Indian fiscal year 1994-95: The GOI has established classes of exporters named a) export houses, b) trading houses, and c) star trading houses. Private firms, merchants, manufacturers, and traders -- including those organized under India's companies act with foreign equity ownership -- are classified into the three classes on the basis of their actual export performance. Exporters recording export sales of rupees 15 crore (usd 4.8 Million at 31:1) fob value in the past year are export houses; with exports valued at rupees 75 crore (usd 24.2 Million) they graduate to trading houses; above 300 crore (usd 96.8 Million) they become star trading houses; above 1,000 crore (usd 322.6 Million) they reach the top as super star trading houses. Promoting export growth by permitting imports: Changes went into effect on April 1, 1994. They seek to encourage export growth and economic efficiency by simplifying the procedural requirements for exporters and importers and by easing the access of exporters to needed imports. Import entitlements earned by export houses may also be traded for profit. The export house is to be the main vehicle of export growth. Import liberalization is to be achieved in a controlled manner through negotiable instruments named "special import licenses" (SIL's) for export houses. The import of desirable, high-value consumer goods, especially cars, refrigerators and air-conditioners, will be allowed. SIL's are earned by export houses on the basis of actual export performance. They can then be freely transferred as import entitlements to brokers and other traders. Export houses: merchant and manufacturer exporters and trading companies, including those with foreign equity, export oriented units and units located in export processing zones/electronic hardware technology parks, have been recognized as export houses, trading houses, star trading houses or super star trading houses under criteria which have been laid down by the government and may be changed from time to time. More successful exporters earn more import licenses. Export performance is determined on the basis of either fob value of exports or net foreign exchange earned on export of goods and services. The role of the trading house: trading is recognized by the GOI as essential to the structural development of exports. Previous policies tended to favor the manufacturer-exporter over the trader-exporter. The policy continues to retain the basic framework that was established in 1992 - free imports of most goods other than consumer goods, and duty-free import for exports under the advance licensing scheme, have been maintained. According to the local press and industry sources, there was intense pressure from domestic industry led even by some of the giant industrial groups (reliance, for example) to drop the value-based advance licensing scheme. Consumer goods: the special import license (SIL) entitlement of export houses has been raised by one per cent. The permitted percentage now ranges from three to five per cent, depending upon export turnover. For the super star trading house - a new category covering exporters with export sales over approx. USD 323 million - will be eligible for SIL's at the rate of 10 percent. India's Commerce Secretary Tejendra Khanna said at a recent press conference that as yet none of the 16 recognized star trading houses had reached the qualifying mark to become super stars. Tata exports is closest to achieving this goal. Desirable, high-value and popular import additions: some 51 items have been added to the new sil list of permissible imports. Imports of consumer goods through the SIL route are unlikely to exceed usd 470 million in the coming year, despite the increases in entitlement rates. The Commerce Secretary has said that USD 375 million worth of SIL's were issued this year. The premium obtained by owners when selling SIL's will increase because goods added for 1994-95 are on the high end of the tariff schedule. The present premium ranges from 8-10 percent. Applicable duty and new benefit: Consumer goods imports under SIL's will be assessed customs duty at the peak rate of 65 per cent with minimum 20 per cent countervailing duty. This countervailing duty will not be eligible for the modified value added tax benefit. According to the Commerce Ministry, trading houses will now be permitted to invest a specified percentage of their foreign exchange earnings in trade between foreign countries. List of import items: the following is a list of items which will now be allowed to be imported against SIL's: a. Health related equipment. Aerobic stair climber/stepper; crude drugs as listed in Appendix XIV of the GOI Handbook of Procedures (and subject to 10 percent of the value of license); stationary bicycle; stationary rowing machine; treadmill machine; wheelchairs (including motorized ones). B. Sports equipment. Air and aviation sports equipment like balloons, gliders, para-sailing equipment; balls for golf, tennis, squash and billiards; golf equipment (including golf carts), graphite rackets - all types; water sports equipment including sailing boats. C. Communication equipment. Cellular phones; cordless telephones; radio paging system; satellite receivers; d. Automobiles. While extra incentives for large exporters mean that they can now import a motor car against the SIL, the measure is circumscribed by a number of conditions to limit the import competition for domestic manufacturers. This step will result in a one-time import of only 2,000 cars. E. Spares and components. All items appearing in Section F of Paragraph 156 (electronic items), Part 11 of Chapter XV - negative list of imports of the Export and Import Policy 1992-97 (revised edition, March 1994); air conditioning units for buses; button cells; outboard motors; rechargeable cells and dry batteries - all types; reconditioned components of photocopiers/computers; spare parts of the following - automobile and tractors (excluding car air conditioners, audio system and tires other than bus and truck tires), consumer goods including consumer durables, telecommunication equipment (except in semi- knock down or complete-knock down condition); spare parts of dot matrix printers; watch movements (mechanical) watch cases above Rs. 50 (C.I.F.) and watch dials above Rs. 15 (C.I.F.). F. Office equipment. Addressing machines; electronic iron safes, electronic typewriter; electronic white board; franking machine (electronic); vending machines- tickets. G. Consumer goods and consumer durables. Burglar alarm and fire alarm; camcorder; color TV sets - size 30 inches and above; compact disc players; compact florescent lamps; currency counting machines; deep freezers; chest freezers; ice cream cabinets; dry refrigeration - all types; electronic cameras; electronic food processors; electronic games/toys; electronic musical instruments/key board; fully automatic washing machines above the capacity of 5 kgs; high-end audio systems of value exceeding USD 500 (C.I.F.) per set (a set consists of a rack and a pair of speakers); industrial kitchen machines; musical equipment; diabetic foods; projection tv's; professional beauty care equipment; refrigerators having more than 2 doors and capacities above 200 liters; retroreflective safety sheeting; split air conditioners - 2 tons and above; still cameras; video cameras; video projector system. H. Miscellaneous. All oils other than vegetable oils specifically listed at serial number 3 of the canalized items appearing in paragraph 157 part 111 of Chapter XV - negative list of imports of the Export and Import Policy 1992-97 (revised edition March 1994); diesel generating sets up to 1500 KVA (excluding DC sets with no-break system) and their spares; electronic portable generators up to 3.5 KVA; gold; integrated monocoque buses; polyester staple fibre/tow; sawn timber; silver; stallions and brood mares - import shall be permitted only to eligible importers subject to health regulations, fitness certificate from veterinary officer and norms for land as laid down in paragraphs 67 and 68 of the Handbook of Procedures, 1992-97; synthetic essential oils; time switches including motorized types; voltage regulators and stabilizers (other than domestic type). Imports of second-hand machinery: Second-hand capital goods less than five years old can now be imported without a license. The provision that the remaining life of seven years must be certified for such equipment has been done away with. Machinery valued at Indian Rs. 10 million (USD 322,000) or less will be freely importable, while imports of machinery valued above this limit will require a valuation certificate from an inspection and certification agency. All imports will be permitted only on the condition that they are for actual use by the importer. While the heavy hand of the Indian bureaucracy continues to constrain international trade transactions, the modest changes announced for 1994-95 represent helpful moves in the direction of liberalization. The measures in the new policy strive to create an exporter-friendly environment by creating import entitlements as rewards. They may also simplify the procedural nightmare surrounding imports and exports, while increasing export incentives for indian manufacturers. These, by and large, are facing increased foreign competition in their domestic markets and are still uncompetitive internationally. Results of the changes will be visible in the export growth rate for 1994-95, which the government hopes will rise to 25 percent from the present 21 percent in dollar terms. India's domestic industry will probably not like the continuing liberalization of imports and can be expected to orchestrate an anti-import media campaign. Yet some big houses may be tempted to join importers and profit from the sale of special import licenses. They will then begin selling imported goods through established distribution channels. The new rules for import of second-hand capital goods will remove a major irritant to small-scale industry which would like to obtain economical and serviceable second- hand equipment. The U.S. Embassy joins Indian trading houses in welcoming new commercial opportunities for U.S. export expansion as a result of these changes. The complete text of the 1994 amendments are incorporated in the Ministry of Commerce publication "Export and Import Policy" which runs to 86 pages, two appendices, and costs Rs. 100. Export licenses India carried out a "peaceful nuclear demonstration" in the Rajasthan desert in 1974. On the evidence of this test, India must be considered a nuclear power. India refuses to sign the Nuclear Non-Proliferation Treaty (NPT). As a result, the U.S. seeks to limit the export of U.S. technology that could assist India's nuclear program. India's record on efforts to prevent the spread of weapons of mass destruction is mixed. It has signed the Chemical Warfare Convention and has refused to permit the export of controlled chemical pre-cursors to areas of conflict. The U.S. continues to require U.S. firms seeking to export dual use items in sensitive categories to obtain individual validated licenses. The restrictions on the transfer of U.S. technology to India, and the lengthy, non-transparent process of U.S. review of an export license application have been raised in bilateral government dialogues and during meetings of the private business representatives of India and the U.S. Import/Export documentation U.S. firms seeking to move goods in and out of India are advised to obtain the advice of an experienced international freight forwarder. The administrative discretion of customs officers is wide and the procedures at each port of entry vary. The U.S. Embassy has received reports from U.S. firms that customs officials in the past have insisted on receiving a form which they cannot provide or locate. Customs officials are often overwhelmed by the quantities of goods now flowing in and out of India. Their working conditions are inadequate and they often lack such essentials as working telephones and proper offices. Temporary entry of goods for display or exhibition The U.S. Embassy and our Consulates-General can often assist U.S. firms to obtain a customs bond guarantee to allow the import of equipment for display or exhibition duty-free. While the U.S. Embassy cannot recommend or guarantee any specific firm which offers freight forwarding services, we can supply a list of firms known to us on request. Export Oriented Units and Free-trade zones Industries set up in free-trade and export-processing zones or as 100 percent export oriented units (EOU's) are exempt from Indian income tax during any five consecutive years of their first eight years of operations. Labeling and marking requirements India uses the metric system of weights and measures. There is no uniform system for labeling and marking consumer goods. The U.S. Embassy is not aware of any problems encountered by U.S. firms selling in India with labeling or marking requirements. Prohibited imports Addictive drugs, weapons and explosives, and a variety of other dangerous, obscene, or injurious products are prohibited. Standards and certification systems India has a national institute of standards and many national laboratories. Data which complies with the scientific and technical standards of such U.S. regulatory agencies as the Federal Aviation Administration or the Food and Drug Administration is acceptable in India. Free trade zones As of June 1994, the following areas of India are export-processing zones: Table 8. India. Export-processing zones, June 1994. Name State Cochin Kerala Falta West Bengal, near Calcutta Kandla Gujarat Madras Tamil Nadu NOIDA Haryana, near Delhi Santa Cruz Maharashtra, near Bombay Visakhapatnam Andhra Pradesh Source: Price Waterhouse. Doing Business in India, 1993. Membership in regional free trade arrangements India is a member of the South Asia Association for Regional Cooperation (SAARC). As of June 1994, SAARC has not agreed to provide reciprocal trade concessions among its member countries. India was a founding member of the General Agreement on Tariffs and Trade (GATT) and is a member of the Commonwealth and the United Nations. India signed the Final Act of the GATT Uruguay Round at Marrakesh, Morocco, on April 15, 1994.