Tuesday, May 17, 2011

Growth Prospects of Thrust Areas of Indian Exports

Growth Prospects of Thrust Areas of Indian Exports

Part - A

  1. Describe the composition of India's exports. Discuss India’s the key objectives and strategies of India’s Foreign Trade Policy 2009-2014?

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  1. What are the benefits and facilities provided to units located in Special Economic Zone (SEZ)?

  1. Describe the avenues and prospects for India's leather and leather goods exports. What are the competitive advantages and disadvantages of leather and leather goods exports?

  1. Explain the constraints that are hampering effective export promotion effort in India.

  1. What are the various items of agricultural commodities exporting from India? Explain the measures initiated by the government to enhance agricultural exports.

Part - B

  1. Write notes on the following:
    1. MDA and MAI Scheme
    2. India’s export of services

  1. Discuss the initiatives taken by the Indian government in promoting India’s trade with Latin American Countries?

  1. Analyze briefly how India’s trade has developed with European Union (EU) during the last decade. What are the likely implications of the expansion of EU on the Indian exports?

Case Study: India’s Food Processing Industry

Background

While the Indian economy’s growth in the recent years, has been propelled by the growth of the service and manufacturing sectors, agriculture still plays a significant role by contributing 17% of the GDP and providing employment to 60% of the population. With the increasing focus and investments from the large national and international food and retail companies, the sector is bound to grow much faster in the coming years. As this sector has a strong social implication, it has also been accorded a high priority status by the Government, which is facilitating its growth by charting favorable initiatives at different policy levels. The changing consumption dynamics coupled with the growth of modern retail, the processed food industry offers tremendous opportunities for all stakeholders in the areas of production, processing, marketing, supply chain, infrastructure development, technology up gradation and education.

Food Industry Overview

The size of the Indian food industry is estimated at about US$ 236 bn. It is growing at about 5% year on year (YoY) and will reach US$ 314 bn by 2015. The processed food segment’s contribution is currently at about 43% i.e. US$ 120 bn, this is expected to grow much faster, and contribute about 50% to the total food market by 2015. The processed food industry is highly fragmented and is dominated by the unorganized sector. The organized food processing segment contributes about 30% of the market; however with the entry of large players both domestic and international, the market is expected to growing at 25% per annum and will account for 40% of the market by the next 5 years. At the moment the Indian food market is still dominated by the staples like wheat, rice and pulses followed by fruits & vegetables and dairy products with minimal value addition before being consumed by the masses. Though India has a strong agricultural production base, the wastage in the sector is very high. The lack of storage & processing facilities leads to significant wastage, especially in categories like fruit and vegetables with an estimated wastage of about 35% (estimated value of US$ 8 bn annually). The level of food processing varies considerably across sub-sectors in the country. In the case of perishables like fruit and vegetables, only 2% of production is processed, it is more than 90% of non perishable products such as cereals and pulses. However, the processing in staples involves very little value addition, and is mostly confined to grading, cleaning, milling, and packing; with negligible use of additives, preservatives, and flavours etc.

Major Initiatives

Government Initiatives

The Ministry of Food Processing Industries (MoFPI) is the nodal agency established by the Government to ensure development of the food processing sector in India. The key objectives of the MoFPI includes improving utilization & value addition of farm produce, minimizing wastage, technology introduction & upgrades, promoting R&D, initiatives for policy development and development of critical infrastructure for supply chain. With an intention to grow the food processing sector, the Government has made a sharp increase in the plan outlay and expenditure in the last couple of years and has approved outlays of over US$ 1 bn in the 11th plan.

Policy Initiatives

To help promote the food processing industry, the Government has over the years taken various policy initiatives. Key policy initiatives include:

  • Exemption of most processed food items (except items reserved for SSI & Alcoholic Beverages) from purview of licensing under the Industries (Development & Regulation) Act, 1951
  • Food processing industry covered under priority sector bank lending
  • Foreign investments of up-to 100% allowed under the automatic route
  • Excise & Customs Duty reduction in processed items & plant and machinery
  • Income Tax holiday for certain categories of processing industries
  • Delegation of licensing powers to regional authorities

Infrastructure Initiatives

One of the major factors hindering the growth of the food processing industry relates to inadequate infrastructure. To meet this challenge of inadequate infrastructure, the MoFPI in its 10th Plan has focused on developing various food related infrastructure that include:

  • Food Parks - This initiative of the Government is targeted to provide common infrastructure for the industry. As per the 10th Plan schedule a total of 56 Food Parks were planned. The 11th Plan has a target of establishing 30 mega food parks across the country. The key objectives of this initiative includes providing infrastructure, support value addition of agricultural commodities, establish raw material supply chain, induction of latest technology, integration of complementary resources and improved quality assurance.
  • Integrated Cold Chain Facility - This scheme is targeted to improve viability of cold storages and add capacity.
  • Packaging Centre - The Government intends to develop packing centers facilities so as to help enhance the shelf life of food products and bring international acceptability.
  • Value Added Centre - The value addition centre’s are intended to bring about value addition leading to higher realization along with enhancing shelf life.
  • Irradiation Facilities - The meet the challenges brought about by infestation, the Government has plans to setup irradiation facilities.
  • Modernization of Abattoir - For the 11th Plan, the Government is planning a comprehensive scheme for modern abattoirs across the country.

Growth Drivers

The changes in the consumer preferences and inclinations have had a definite impact on the level and directions of food processing. The reasons for the change in the Indian consumer are:

  • Rising Income Levels - In India, the per capita income has almost doubled in the last 7 years and is now about US$ 1000 per annum. The consistent rise in the middle class income has resulted in a consuming class with higher disposable income.
  • Changing Food Habits - With growing affluence, the eating out incidences has increased in the urban India. The ‘Young India’ is also experimenting with new tastes and preferences and tastes are getting diffused across geographies. Pan-Indian cuisines as well as cuisines from other countries have also found their way into people’s kitchen across the country. There is a growing trend towards balanced and health consciousness diet in the new generation of consumers.
  • Growing Need for Convenience Food - Increased income levels, urbanization and a greater proportion of urban working women in India is leading to increased convenience-seeking behaviour of Indian consumers. There has been an increasing demand for processed & convenience foods such as in ready-to-eat, ready-to-cook, ready-to-serve and ready-to heat categories.
  • Growth in Organized Retailing - The organized retail accounts for about 1.5% of the total food & grocery market in the country, however with growing investments in this sector, it is expected that the organized retail will account for more than 7.5% of the market by 2013. The organized retail with modern supply chain and temperature controlled stocking will lead to increased distribution of imported foods, branded foods and processed foods etc.

Challenges Faced

The Indian food processing industry currently faces a lot of challenges addressing current gaps in the value chain as well as leveraging on various advantages the country provides. Investors in the sector need to be aware of these factors and build required capabilities in their business to ensure success.

  • Fragmented Supply Base - Indian agriculture is predominantly a production driven market supply instead of market driven production, leading to inconsistency in quality of produce and supply. With more than 70% of the landholding smaller than 1.5 hectares, the average land holding in India is very small leading to poor economy of scale for the farmers to apply modern techniques in their farms.
  • Poor Quality Control - Though Indian growers and exporters have now been able to match up to global standards, meeting these standards with up-scaled production will be big challenge. The challenge becomes much bigger where there are differences in standards and consumer preferences across potential markets. The issues of traceability in fresh produce and poor hygiene generated infections in packaged foods need to be addressed.
  • Inadequate Infrastructure and Supply Chain - While India is the leading producer of many of the crops in the world, nearly 25% to 35% of this production is spoiled due to the lack of inadequate supply chain and poor infrastructure. Non-availability of core infrastructure like high-tech controlled production facilities, grading, packaging, cold chains, logistics, warehousing, integrated processing units, inefficient supply chain, poor transportation and erratic power supply are the major concerns in the country. Also, there are very few specialized distribution companies, providing refrigerated transport and warehousing for perishable produce/ processed food products.
  • Food Regulations and Taxation Issues - Both the Indian food industry and the processing industry are governed by multiple legislations. Though many initiatives have already been taken by the Government, there is still need and scope for harmonization of taxation norms and systems across the country.
  • Limited Market Linkages - The food value chain in India is highly fragmented leading to poor quality, lower price realization and increased wastage of produce at the farm level. Improvement in the marketing infrastructure and also identification of new export markets for their produce, are the two major issues facing the industry.

Key Success Factors

  • Growth of Domestic Market - The overall penetration of processed foods in the domestic market is low. This leads to a large untapped market with propensity to consume processed food.
  • Appropriate Product Concept - For any successful business, it is important to have the right product concept that meets consumer expectations and the food industry is no exception. Innovative products, leading edge technology, fast hanging consumer needs and preferences, are all aspects that need to be focused.
  • Competitive Pricing of Products - Processed food companies need to understand the price sensitivityof the Indian consumer. The market demand is for competitively priced products with multiple pack sizes & price points.
  • High Quality Raw Material with Sustainable Supply Chain - This is the first and foremost prerequisite to determining the final quality of a product. In the food industry, the supply chain has to be sustainable so that the right quality product reaches the consumer.
  • World Class R&D and Manufacturing Resources - In a global business environment to keep pace with fast changing technology/ innovations, it is essential have a world class R&D and manufacturing facility. This is the key to building capacity.
  • A Qualified Manpower Resource - Adequate resource of qualified manpower is another aspect ofcapacity building and is a very important asset for success in business.
  • Safe and Healthy Products - Consumption of food products pertain directly to the health of people. Hence, it is of utmost importance to have quality systems like Hazard Analysis & Cuticle Control Points (HACCP) to deliver safe and healthy products to consumers.
  • Continuous Investment in Training and Technology Up-Gradation - This is a vital step to capacity building and is applicable to the food industry as well.
  • Innovative Packaging - In a highly competitive business environment, innovative packaging is another important facet of capacity building that can provide a leading edge.
  • Conducive Regulatory Framework - In addition to the above, proactive support from lawmakers to amend and modify laws that accommodate new innovations Genetically Modified Organism (GMO),concepts (Nutraceuticals) etc is critical for capacity building in the food industry.

Creating Appropriate Market Environment

To be a market leader, it is essential for the industry to create an appropriate market environment for selling products. These are exciting times for the food processing industry in India, and the opportunity to enter the market is huge. The domestic market consumption is changing and the level of processing will increase significantly, and at the same time, India remains disproportionately a small player in the export market compared to its production capability in various raw products. The opportunity is also huge for back-end infrastructural companies, as product and brand companies looking at increasing investments in this sector

Questions:

a) Agriculture sector contributes approximately 17% to the GDP of India. It is hence one of the thrust sectors for promoting exports. Discuss the nature and composition of exports from your respective country?

b) The article above mentions several growth drivers for India’s food processing Industry. Briefly describe the factors that are likely to influence the growth of food processing industry in your respective country?

c) Outline the challenges faced by Indian food processing industry?

d) Discuss the initiatives taken by Indian government to promote the growth of food processing industry?

Part - C

1) The Foreign Trade Policy in India is announced by

  1. Ministry of Finance, Government of India
  2. Ministry of Commerce, Government of India
  3. Ministry of External Affairs, Government of India
  4. Director General of Foreign Trade

2) Which of the following is NOT a part of the European Union?

  1. France
  2. Germany
  3. Iceland
  4. Slovenia

3) Focus LAC programme lays emphasis on India’s major trading partners. The major trading partners include:

  1. Brazil, Venezuela, Chile
  2. Argentina, Peru, Colombia
  3. Bahamas, Trinidad, Ecuador
  4. All of the above

4) Export Promotion Capital Goods (EPCG) Scheme is for:

  1. Import of Raw Materials by Manufacturers
  2. Import of Capital Goods by Manufacturers and Merchant Exporters
  3. Export of Capital Goods by Manufacturers only
  4. Export and Import of Capital Goods by merchant as well as manufacturers

5) APEDA is associated with:

  1. Promotion of agriculture and improving agricultural practices
  2. Promotion of exports of packaged products from India
  3. Promotion of exports agricultural and processed food products
  4. Promotion of exports of organic agricultural products from India

6) Foreign Trade (Development and Regulation) Act, was introduced in:

  1. 1991
  2. 1992
  3. 2002
  4. 2004

7) DGCI&S is:

  1. Director General of Commercial Intelligence and Statistics
  2. Directorate General of Commercial Intelligence and Statistics
  3. Director General of Central Improvement and States
  4. None of the above

8) The objectives of Foreign Trade Policy 2004-2009 were:

  1. To double India's percentage share of global merchandise trade by 2009; and
  2. To act as an effective instrument of economic growth by giving a thrust to employment generation, especially in semi-urban and rural areas
  3. Both A and B
  4. None of the above

9) MDA refers to _______________:

  1. Market Development Assistance
  2. Market Discovery Assistance
  3. Marketing Development Assistance
  4. None of the above

10) The objectives of MDA are to:

  1. Assist Export Promotion Councils (EPCs) to undertake export promotion activities for their product(s) and commodities
  2. Assist Focus export promotion programmes in specific regions abroad like FOCUS (LAC), Focus (Africa), Focus (CIS) and Focus (ASEAN + 2) programmes.
  3. Assist approved organizations/trade bodies in undertaking exclusive nonrecurring innovative activities connected with export promotion efforts for their members
  4. All of the above

11) Which of these is the eligible activity for assistance provided under MAI scheme?

  1. Assist exporters for export promotion activities abroad
  2. Residual essential activities connected with marketing promotion efforts abroad.
  3. Opening of Showrooms & Warehouses
  4. Assist approved organizations in undertaking exclusive nonrecurring innovative activities connected with export promotion efforts

12) Under MAI scheme, financial assistance MAY NOT be provided to:

  1. Export Promotion Councils
  2. All individual exporters
  3. Registered Trade Promotion Organisation
  4. Commodity Boards

13) Which of these countries is NOT a part of Focus LAC programme?

  1. Barbados
  2. Guyana
  3. British Virgin Islands
  4. Fiji

14) FOCUS LAC programme is to promote India’s trade with:

  1. Least-developed African countries
  2. Latin American Countries
  3. Both A and B
  4. None of the above

15) Which of these commodities is NOT a principal commodity exported by India:

  1. Gems & Jewellery
  2. Textiles
  3. Pulses
  4. Engineering Goods

16) Which of these is a ‘thrust sectors for exports’, as identified by the Government of India include:

  1. Leather and Leather goods
  2. Chemicals
  3. Education Services
  4. Petroleum products

17) There are 9 Commodity Boards for all EXCEPT one of the following commodities:

  1. Coffee
  2. Tea
  3. Rubber
  4. Wheat

18) Which of these is NOT an incentive provided to units in an SEZ?

A. Duty free import/domestic procurement of goods for development, operation and maintenance of units

  1. Exemption from export commitments
  2. Exemption from Central Sales Tax
  3. Exemption from Service Tax

19) Which of these is the correct combination for minimum area requirements for setting up a SEZ?

1

IT/ITES/handicrafts SEZ Bio-technology/ non-conventional energy/gems and jewellery Sector

A

100 hectares

2

Sector Specific SEZ

B

40 hectares

3

FTWZ

C

1000 hectares

4

Multi Sector SEZ

D

10 hectares

  1. 1A; 2B; 3C; 4D
  2. 1D; 2A; 3B; 4C
  3. 1C; 2A; 3D; 4B
  4. 1A; 2D; 3B; 4C

20) Export Credit Guarantee Corporation (ECGC) provides the following types of cover to the exporters?

  1. Standard policies
  2. Special policies
  3. Financial guarantees
  4. All of the above

21) The functions of India Trade Promotion Organisation (ITPO) include:

  1. Providing information and market intelligence to the business community
  2. Issuing insurance policies to exporters
  3. Financing India’s imports and exports

D. Providing financial guarantees to banks against the risks involved in providing credit to exporters

22) Indian Institute of Foreign Trade (IIFT) is located in?

A. New Delhi

B. Kolkata

C. New Delhi and Kolkata

D. None of the above

23) The products covered by APEDA include all, EXCEPT:

  1. Meat and meat products
  2. Seafood and marine products
  3. Poultry and poultry products
  4. Dairy products

24) There are 19 Export Promotion Councils. The products which are not covered by Export Promotion Councils are?

  1. Basic Chemicals, Pharmaceuticals and Cosmetics
  2. Gems and Jewellery, Leather and Leather goods
  3. Coffee, Tea, Spices
  4. Electronics & Computer software Engineering

25) The objectives of the Export Promotion Council for EOUs and SEZs (EPCES) are:

  • To promote exports from India and to earn more foreign exchange for the country.
  • To facilitate interaction between the exporting community and government both at the Central and State level
  • To canalize financial assistance rendered by the Central Government to members for assisting their export market development efforts.
  • All of the above
  • None of the above

26) Asia's first Export Processing Zone (EPZ) was set up in:

  1. Mumbai in 1965
  2. Kandla in 1965
  3. Chennai in 1965
  4. Kolkata in 1965

27) Which of these are the purposes of setting up EOU’s/ SEZs:

  1. Promotion of investment - from domestic and foreign sources
  2. Creating employment opportunities
  3. Developing infrastructure facilities
  4. All of the above
  5. None of the above

28) Exports and Imports come under the purview of:

  1. Ministry of Finance
  2. Ministry of Commerce
  3. Ministry of External Affairs
  4. Ministry of International Affairs

29) Which one of the following is not a cause but a consequence of Globalisation?

  1. Deregulation abroad
  2. Integration of Markets
  3. Greater institutionalization abroad
  4. Greater Risk Exposure

30) An OBU set up in SEZ by a bank in India is subject to:

  1. CRR/SLR stipulation of RBI
  2. No Capital Adequacy Norms
  3. No CRR/SLR stipulation of RBI
  4. No restrictions from Government of India.

31) If a country is having more exports than imports in value terms, it can be said that the country is having:

  1. BOP crisis
  2. Deficit under BOT
  3. Surplus under BOT
  4. Surplus under BOP

32) An appreciation of the Rupee relative to the US Dollar would be expected to have which of the following effects?

  1. Increase US exports to India
  2. Increase US imports from India
  3. Raise the cost to Americans for Indian imports
  4. Create Balance of Payments surplus for India

33) India is among the 15 leading exporters of agricultural products in the world. It had a share of ____ per cent in world trade in agriculture in 2008.

  1. 1.2
  2. 0.76
  3. 1.6
  4. 1.8

34) The largest importer of agricultural products in 2008 was ____________?

  1. European Union (27)
  2. United States
  3. Japan
  4. China

35) The largest exporter of agricultural products in 2008 was ____________?

  1. European Union (27)
  2. United States
  3. Brazil
  4. Canada

36) Consumer food industry does not include:

  1. packaged foods
  2. packaged drinking water
  3. alcoholic beverages
  4. fresh fruits and vegetables

37) Challenges faced by India’s gems and jewellery sector are:

  1. Unorganized sector
  2. Low level of R&D and product development
  3. Possible Threats from China and from Other Countries Producing Diamonds
  4. All of the above

38) Which of these is the strength of Indian Leather and Leather goods sector?

  1. World-class institutional support for Design & Product Development, HRD and R & D
  2. Presence of support industries like leather chemicals and finishing auxiliaries
  3. Presence in major markets
  4. All of the above

39) Which of these is NOT a focus product group for enhancing India‘s exports to the Latin American region:

  1. Textiles including ready-made garments, carpets and handicrafts
  2. Engineering products and computer software
  3. Chemical products including drugs/pharmaceuticals
  4. Gems and jewellery
  5. All of the above

40) The state with the major share in production of leather and leather products is_________?

  1. Tamil Nadu
  2. Kerala
  3. Manipur
  4. Assam

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