Wt/tpr/M/313/Add. 1 31 July 2015

Question 1: Appreciate if India could provide on-line link to the revised Foreign Trade Policy (FTP) 2015-20.
Reply: Foreign Trade Policy 2015-20 is available at http://dgft.gov.in/exim/2000/ftp2015-20E.pdf.
Summary, para 15, p. 9.
India's WTO bound tariff levels are much higher than the applied rates, especially for many agricultural products. These gaps allow the Government to modify tariff rates in response to domestic and international market conditions, but at the same time, they reduce tariff predictability.
Question 2: Appreciate if India could share its level of ambition in reducing water between bound and applied duty for Agriculture products under the current DDA negotiations.
Reply: India's level of ambition in reducing water between bound and applied duty for agriculture would depend crucially upon the level of ambition in cutting domestic support by the developed countries and the extent to which S&D provisions are available for developing countries in the market access pillar.
Malaysia

Additional Questions

GOVERNMENT REPORT

2.6.2 The Manufacturing Challenge
2.32 India accounts for 1.8% of the world's manufacturing output. However, manufacturing growth, in recent years, has remained tepid. The share of manufacturing has stagnated at about 16% of GDP and manufacturing exports have remained stagnant at about 10% of GDP. While basic and capital goods appear to be on the path of recovery, intermediate goods are yet to emerge out of difficulties, and the consumer goods sector led by consumer durables continues to experience negative growth.
2.33 The Government's "Make in India" initiative aims to promote the country as an investment destination, spur manufacturing and promote employment. It also envisages the development of infrastructure including i-ways besides highways, ports, optical fibre networks, gas grids and water grids.
Question: Given the enmeshed nature of the current global supply chain, what are the steps that India is taking to facilitate the sourcing (particularly imports) of the materials needed for "make in India" to succeed?
Reply: "Make in India" initiative aims at improving competitiveness of Indian industry, making India a global hub for manufacturing, design and innovation. Design and innovation are two important factors that promote manufacturing in a country in a big way. However, other inputs are also required for carrying out these manufacturing activities. These inputs are to be obtained at a competitive price whether from India or outside India.
Under this initiative, 25 sectors in manufacturing, infrastructure and service activities which will be the focus for promoting the industrial base in the country. Some of these sectors include pharmaceuticals, biotechnology, chemicals& petrochemicals, textiles etc. Apart from promoting growth, India is also exploring the possibility of being part of part of regional value chains in these sectors.
2.6.3 Infrastructure Development
2.36 The Government also proposes to set up 5 new Ultra Mega Power Projects, each of 4,000 MWs in the "plug-and-play" mode, i.e. all clearances and linkages will be in place before the project is awarded by a transparent auction system. The Government is also considering a similar approach in other infrastructure projects such as roads, ports, rail lines, airports etc.
Question:  In the interest of transparency and efficiency, does India have any plans to consolidate all plans/auctions/awards of its nation-wide infrastructure projects in a single repository?
Reply: No. The inference that a single repository promotes "transparency and efficiency" is not understood.

• 
  Public procurement for goods and services in India is undertaken by Central Govt Depts and Ministries, State Govts (and State-related entities including local bodies) and SOEs. The effort is to ensure robust participation to discover competitive market prices at optimal cost to govt. Procurement is through open, competitive bidding, with all notices up on the relevant websites, major newspapers and journals, industry association sites, etc (including overseas for international, competitive bidding- with publicity through our Missions abroad). Indian NITs, RfQs, EOIs, including through e-procurement, receive among the most robust responses worldwide. Eligibility conditions address the need for project-specific expertise, execution-capability and technical skills.
  
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  The reference to "nation-wide" projects is probably to multi-State projects like Industrial Corridors or National Highways - procurement by the Authorities concerned is also through open, transparent bidding.
  

3.3 Reforms in FDI policy
3.4 A major game changing reform in the near future would be the introduction of the Goods and Services Tax (GST) effective from 1 April 2016. The implementation of the GST would lead to the elimination of other taxes such as Central Excise duty, Service tax, State Value-Added tax, octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, turnover tax, tax on consumption or sale of electricity and taxes on transportation of goods and services, thus removing the multiple layers of taxation that currently exist in India.
Question: Can India provide more details on the proposed mechanism for implementation of GST on 1 April 2016, particularly on the proposed rates and exempted products?
Reply: In the 122nd Constitutional Amendment Bill, GST is proposed as a tax that will be levied both by the Union and the States. The mechanism for implementation of the same is delineated in the bill itself. Article 279A is proposed to be incorporated in the Constitution that provides for the creation of the Goods and Service Tax Council (GSTC), an all pervasive body that has the mandate of taking various important decisions relating to proposed GST regime including the taxes to be subsumed in GST, rate of taxes exempted products etc. The laws relating to GST both for the Centre and the States as well as for the Integrated GST would be legislated on the basis of the recommendations of the said GSTC.
Question:  Could India also deliberate on how the proposed GST system would simplify the current tax system, particularly on consolidation of central and state taxes? Are all the states in India on board with GST as a single tax mechanism?
Reply: The introduction of Goods and Services Tax (GST) is the most ambitious indirect tax reforms in India post its independence in 1947. This reform proposes to do away with a large number of taxes levied on different economic activities by the Central and State Governments. Presently the Central Government levies tax on manufacture (Central Excise duty), provision of services (Service Tax) interstate sale of goods (levied by the Centre but collected and appropriated by the States) and the States levy tax on retail sales (VAT), entry of goods in the State (Entry Tax), Luxury Tax, Purchase Tax etc. All these taxes are proposed to be subsumed in a single tax called the Goods and Services Tax (GST) which will be levied on supply of goods or services or both at each stage of supply chain starting from manufacture or import and till the last retail level. GST is proposed to be a dual levy where the Central Government will levy and collect Central GST (CGST) and the State will levy and collect State GST (SGST). The Centre will also levy and collect Integrated GST (IGST) for interstate supply of goods and services. For a temporary period of two years an Additional Tax not exceeding 1% is also proposed to be levied by the Centre on interstate supply of goods which will be collected and retained by the state from where the supply originates.
This tax reform will lead to creation of a single national market, common tax base and common tax laws for the Centre and States. Another very significant feature of GST will be that input tax credit (except for the Additional Tax) will be available at every stage of supply for the tax paid at the earlier stage of supply. This feature would mitigate cascading or double taxation in a major way. This tax reform will be supported by extensive use of Information Technology which will lead to greater transparency and accountability of the tax administrations of the Centre and the States and also improved compliance levels. The introduction of GST will be big step in improving cooperative federalism and most of the states are broadly in favor of the GST.
Question: Are there plans to address or streamline the import taxes?
Reply: The import taxes are reviewed in the context of annual Budget of the Government of India.
SECRETARIAT REPORT
Summary
6. As recognized by the Government, structural bottlenecks remain a barrier to achieve a higher growth. This includes delays in project approval, ill-targeted subsidies, low manufacturing base and low agricultural productivity, difficulty in land acquisition, weak transportation network and power supply, and strict labour regulations and skill mismatches. These bottlenecks are being addressed through investment in infrastructure and education, simplification of the business environment by eliminating overregulation, and increasing predictability in trade and investment regimes.
Question: What are the programmes and strategies which the Indian Government have drawn up to address structural bottlenecks?
Reply: The Government of India has its own reforms agenda to remove the structural bottlenecks that come in the way of attaining higher growth. Some of the bottlenecks have already been addressed to, while others are being tackled. Initiatives that have been taken by the government to de-bottleneck these constraints include using Direct Benefit Transfers for giving various subsidies; "Make in India" along with initiative attendant facilitatory measures to boost the manufacturing sector; "Skill India" initiative with an aim of providing training and skill development to millions of youth; efforts to amend the Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015 in order to facilitate acquiring land ; numerous measures to improve infrastructure that inter-a-lia include increased outlay on roads and rail in the budget 2015-16, focus on developing national waterways; revenue collected from hiked excise duty on petrol and diesel to be used directly for construction of highways ; "Deen Dayal Upadhaya Gram Jyoti Yojana" for feeder separation to be launched to augment power supply in rural areas; passing of Coal Mines (special provisions) bill, 2015 and Mines and Minerals (development and regulation) amendment bill, 2015 to ensure higher investments in the sectors and adequate supply of crucial inputs among many other initiatives

2.2.1 Trade policy formulation
2.9. Trade policy is formulated and implemented by the Department of Commerce in the Ministry of Commerce and Industry, with the assistance of other Ministries and agencies, including the Ministry of Finance, the Reserve Bank of India and other sectoral Ministries such as Agriculture, Consumer Affairs, Food and Public Distribution, Textiles, Petroleum and Steel. The role of the Department of Commerce, according to its Annual Report for 2012-13 is "to facilitate creation of an enabling environment and infrastructure for accelerated growth of exports"……………. The Department formulates, implements and monitors the Foreign Trade Policy (FTP) which is issued every five years and reviewed annually, and forms the basic policy framework for the promotion of exports and trade.
Question: Can India share with Malaysia the priorities and strategies on agricultural development that are reflected in India's Foreign Trade Policy documents? When will the next FTP be issued?
Reply: The desired details can be obtained at the following links:

I-Foreign Trade Policy Statement (2015-2020):

http://dgft.gov.in/exim/2000/FTPstatement2015.pdf

II-Foreign Trade Policy (2015-2020): http://dgft.gov.in/exim/2000/ftp2015-20E.pdf

Next Foreign Trade Policy will be due in 2020.
2.2.2 Trade policy goals
2.15. Import policy is also largely driven by domestic supply considerations. In the case of sugar for instance, import duties were lifted temporarily in 2012 to allow an increase in imports but reinstated at 10% in July 2012. Such frequent changes to policy are disruptive and reduce predictability in India's trade policy. In a report prepared on sugar policy, headed by the Chairman of the Economic Advisory Council to the Prime Minister on 5 October 2012, it was stated that "the export-import policy of the Government does not allow firms to have a long-term relation internationally and impedes the growth of the sector. The policies are unanticipated and create uncertainty for the firms. Also the short term cyclicality, which is largely a consequence of Government intervention, adversely affects the long-term strategic development of the sector". The authorities note that India's autonomous measures are occasionally taken to provide a stable and predictable policy regime for agricultural trade. In February 2013, some of the major processed and/or value added agricultural products such as wheat of meslin flour (HS 1101), cereal flours (HS 1102), milk products (HS 3501), butter and other fat derivatives from milk (HS 0405) etc. were exempted from export restrictions/bans.
Question: Can India share if there is a mechanism of consultation between business and Government which is conducted regularly and how can comments from the private sector be lodged digitally?
Reply: Consultation with stakeholder is an integral part of Foreign Trade Policy formulation. Representations from stakeholders can also be made through emails.
2.3 Trade Agreements and Arrangements
2.3.1 WTO
2.17. India's most recent notifications (Table 2.1) include those for domestic support for agriculture, import licensing procedures, and quantitative restrictions with regard to the WTO Trade Facilitation Agreement. India has not yet submitted its Category A notification.
Question: Malaysia commends India's trade facilitation measures as stated in the Government Report from para 4.8 to 4.12. Can India share when is the targeted date for India to submit its Category A notification and deposit the Instrument of Acceptance to WTO?
Reply: India is finalizing categorization of commitments and the date for notification will be decided by the competent authority.
2.4.2.1 Policy
2.40 …the introduction of FDI up to 51% in multi-brand trading subject to Government approval; for single- and multi-brand retailing, other conditions also apply including local sourcing of up to 30% from Indian "small industries" and establishment only in cities with a population of above 1 million (Table A2.2)
Question 1: Can India provide more details on the other conditions imposed for FDI on multi-brand retail?
Question 2: Also, it is currently widely reported in the Indian media that the current government led by BJP is opposing FDI on multi-brand but has not reversed the policy decision. Could India confirm that the FDI policy on multi-brand retailing is still applicable? If so, how many applications have been approved to be implemented and how many are being processed?
Replies to Question 1 & 2:
As per Para 6.2.16.4 of the Consolidated FDI Policy, 2015, FDI upto 51% is allowed under Government approval route subject to certain conditions.. No decision has been taken by the Government with regard to change of the FDI policy in Multi Brand Retail Trading (MBRT). Only one proposal for investment in MBRT was approved by the Government. No other proposal for investment in MBRT has been received.

For further details, the Consolidated FDI Policy Circular dated 12th may, 2015 available on DIPP website may be referred.

3.1.1 Customs procedures and requirements
3.3. Imports into India can be classified as: imports for home consumption, warehousing, transhipment, transit, re-importation, and imports for special economic zones (SEZs).3 All imports for home consumption require clearance of goods after payment of the duties and charges. Importers must file a bill of entry, which may be processed manually or through the electronic data interchange system. As at end October 2014, 126 customs offices out of the total of 377 offices had electronic data interchange (EDI) facilities; about 98% of declaration documents were processed electronically.4 The bill of entry may be filed prior to the arrival of the goods to allow for faster clearance, but no earlier than 30 days before the arrival date of the vessel or aircraft carrying the goods.
3.4. India uses a risk management system (RMS) as a trade facilitation measure to selectively screen only high and medium-risk cargo for customs examination. As at end October 2014, about 97.6% of India's imports was processed via RMS.5 The authorities indicate that RMS for processing imports is operational at almost all customs offices.
Question: Malaysia understands that India has implemented the electronic data interchange (EDI) and risk management systems (RMS) as measures for trade facilitation. Malaysia would like to learn more about the system. Is there any trade facilitation problems encountered and how are they resolved?
Reply: The exponential growth in trade volumes means that the traditional approach of scrutinizing every document and examining every consignment will simply not work, as it would neither be desirable nor possible to constantly increase the resources with the increasing workload. Also, there is a need to reduce the dwell-time of cargo at the ports and airports and to reduce the transaction costs in order to enhance the competitiveness of Indian businesses, by expediting release of cargo where compliance is high. This necessitates that the customs department should be selective in its approach to deployment of its resources. The advances in Information Technology offer an opportunity to address these challenges faced by the department by putting in place an effective risk management system. The primary objective of the Risk Management System (RMS), therefore, is to strike an optimal balance between facilitation and enforcement and to promote a culture of compliance. It is intended to improve the management of the resources of the department to enhance the efficiency and effectiveness in meeting stakeholder expectations and to bring the Customs processes at par with the best international practices. The Risk management System (RMS) has been adopted for both imports and exports. In view of the above it can be said that RMS is a Trade Facilitative measure and it has improved the efficiency of Custom clearances. More details on RMS can be found at http://www.cbec.gov.in
3.1.3 Rules of origin
3.17. Changes in India's rules of origin since 2011 include the adoption of preferential rules of origin with regard to imports from Malaysia and Japan under bilateral FTAs, which entered into force on 1 July 2011 and 1 August 2011, respectively. India does not apply non-preferential rules of origin. Preferential rules of origin are applied under regional and bilateral trade agreements (Table 3.2). Maximum foreign-content requirements range from 30% to 70%; other criteria to determine origin are sufficient transformation and change in tariff classification.
Question: Since 2012, Malaysia has received more than 300 requests to verify the signatures and Regional Value Content (RVC) under ASEAN-India FTA and Malaysia-India CECA. Malaysia is concerned on the frequent requests made by Indian Customs to verify compliance to Rules of Origin. While it is beneficial to conduct verifications from time to time, too-frequent verification requests often delay shipments and affect the efficiency of our bilateral trading system. Further, as per the Agreements, such enquiries should be channelled through the proper mechanism/country focal point.
Could India explain the reason for Indian Customs' extensiveness in disputing/questioning the COs issued by Malaysia?

Reply: The question raised by Malaysia is essentially bilateral and relates to Regional Trade Agreements that India and Malaysia are party to. India has previously clarified to Malaysia in appropriate fora that Indian Customs only made requests for verification through nominated government authorities. Since the process of verification of genuineness of a COO in a Custom House, as also the processing of an import declaration (Bill of Entry), is a transparent one, the importer may, through the exporter or otherwise, request confirmation from the issuing authorities of genuineness of the COO. Such requests should not be treated as having been made at the behest of the Indian Customs. FTAs contain provisions for the importing country to make enquiries with the importer regarding the claim for preferential treatment. This process is however distinct from a Government to Government request for retroactive check on compliance with Rules of Origin.
Indian Customs has made requests for verification of origin in fourteen instances to Malaysia up to May, 2015. It is also relevant that in none of these cases, sufficient details of compliance with the Rules of Origin have been provided by Malaysia. In many of these cases, no response has been provided at all.
It would not be out of place to mention that during the year 2014-15, the Indian administration has received 1019 requests for verification under various agreements, which have been responded most expeditiously by government authorities.
Question: The Customs department of India in Chennai requires importers of jewellery to provide bond based on the assessable value for imports from Malaysia. On top of that, importers are also required to provide bank guarantee for the import duty difference (normal duty minus MICECA duty). The bank guarantee will only be refunded around 2 to 3 months which will affect the importers' financial.
What steps are being taken by India to expedite the refund to the importers?
Reply: The question raised by Malaysia is essentially bilateral and relates to Regional Trade Agreements that India and Malaysia are party to. MICECA provides that in case of reasonable doubt as to the authenticity or accuracy of the COO. The customs authority of the importing Party may suspend provision of preferential tariff treatment while awaiting the result of verification. However, it may release the good to the importer subject to any administrative measures deemed necessary, provided that they are not held to be subject to import prohibition or restriction and there is no suspicion of fraud.
3.1.4.1 Applied tariffs
3.22. The simple average applied MFN tariff in 2014-15 is 13%, up from 12% at the time of the last Review (2010-11). The overall increase is mainly due to a rise in tariffs in agriculture (WTO definition), whose overall average at 36.4% remains considerably higher than the average for non-agricultural products (9.5%). The increase in the average tariff for agriculture is mainly due to an increase in tariffs for cereals and preparations thereof (from 30.4% in 2010-11 to 40.9% in 2014-15), oilseeds and fats (from 18.5% to 33.2%), and sugars and confectionary (from 33.4% to 41%). Above average tariff protection is also found in a number of other products such as beverages, spirits and tobacco (77.5%), and coffee and tea (74.8%).
Question: According to para 3.22 the overall increase of applied MFN tariff in 2014-2015 is mainly due to rise in tariff in agriculture. Can India please advise the reasons behind the increment in tariff for mentioned products in agriculture (eg: cereals, oilseeds, sugar & etc)?
Reply: The tariff rate for cereals was increased as a response to the price volatility in the domestic market. Duty rates are calibrated keeping in view various relevant factors such as domestic and international demand and supply situation and price trends and projection of crop yields etc. Agriculture continues to be the sector employing the largest percentage of India's working population (56%), with health of the agricultural sector being a crucial determinant of the health of the economy and economic well-being of a large chunk of the population.