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Export Promotion and import Substitution Notes of Entrepreneurship

Export Promotion and import Substitution Notes of Entrepreneurship

Export Promotion and import Substitution Notes of Entrepreneurship :- Hello friends in this post we are provided the materials of the b.com second part its name is fundamental of Business Entrepreneurship notes and its the first chapter of this subject and in this article you learn many more knowledge of Entrepreneurship like as Difficulties in export promotion, types of commercial policy, main features of export import policy 2002-07 , Problems of import substitution in india, suggestions to overcome the problem of import substitution, Meaning of export Promotion, Critical Evaluation of the policy of import substitution and export promotion


Export Promotion and Import Substitution

What do you mean by Export Promotion ? What are the difficulties in this regard ?


Export promotion comprises all those government and non-government efforts, rules, procedures, courses of action and techniques which are adopted to boost our exports in terms of value as well as in volume. Thus all those measures, schemes, policies, procedures and methods which are adopted for increasing export are known as export promotion measures. In order to attain the objective of self-reliance every country is keenly interested to expand its exports. 


If we view from the world angle we shall find that in the world export, India’s export have been regularly decreasing from the time of independence. India’s share in the total foreign trade of the world was 11% whereas now it has greatly decreased, A brief account, of the major drawbacks of India’s export sector is given below 

1. Technological Factors : Technological problems have very seri0US effect on India’s exports. The Tandon Committee and Alexander Committee have referred to the adverse ‘impact of technological backwardness on India’s exports through poor  quality, low productivity, high costs, etc.

2. High Costs : In a large number of cases, high domestic costs are an inhibiting factor. This problem has been clearly stated by Abid Hussain Committee, “India is often at a disadvantage vis-a-vis competing countries because its costs of production, and hence export price, are higher than in competing countries. It is not only because of the higher prices of importable and non-traded inputs, or because of time and cost over-runs implicit in managerial  inefficiency, but also because of much lower level of productivity, all of which stem from the aforesaid problems.”

3. Poor Quality Image : India has a poor quality image abroad. Despite the measures taken under the Exports (Quality Control and Inspection) Act and other laws, our exports continue to suffer because ofquality problems. Poor quality and inadequacy of inputs, technology and facilities affect the product quality. In several instances,  carelessness or lack  of commitment on the part of the exporters is also responsible. Adulteration and dumping are also not uncommon. There is a general impression that a proper export culture is lacking in India. 

4. Unreliability : Besides quality, Indian exporters have been regarded as unreliable on certain other factors. As the Tandon Committee has observed, a very important black mark on the Indian exporters is reneging a term used in the USA to refer to going back on a contract and refusing to fulfil it on its original terms. 

5. Supply Problems : A serious drawback of the Indian export sector is its inability to provide continuous and smooth supply in adequate quantities in respect of several products. The problem is that much of the exporting is the result of the residual approach rather than conscious effort of producing for export. The tendency for exporting what we produce rather than producing for export still continues to characterise the export behaviour. 

6. Faceless Presence Although India is an important SUpplier of several commodities in foreign markets, her presence in these markets is faceless in the sense that the consumers do not,  know that these commodities are Indian. Major export items of India like sea-foods, leather manufactures, spices, etc., have in many cases, a faceless presence in foreign markets. Although these exports may undergo further processing or repackaging in many cases. In several cases the Indian exports are sold in the foreign markets in the same condition as they are exported but under  foreign brand names. It has also been found that when the product carries a foreign brand name sometimes they fetch a much higher price than the same product with an Indian name. This is indeed a vicious circle. The poor quality image of the Indian products, many a time apparent than real, makes it difficult to sell under Indian brand names. The faceless presence, on the other hand, perpetuates the problem. The faceless presence is the result of the failure of the exporters and- export promotion agencies in India to build up an image for Indian goods abroad. In fact, most bulk importers of Indian goods want this situation to be perpetuated as this enables them to hold control over the market while the exporters, being at the mercy of the foreign traders, lose bargaining power. 

7. Infrastructural Bottlenecks : Infrastructural shortages such as energy shortages, inadequate and unreliable transport and communication facilities hinder growth in exports. Power shortages and breakdowns disrupt production schedules, increase cost and adversely affect timely shipments. 

8. Uncertainties, Procedural Complexities and Institutional Rigidities : One of the defects of our trade policy regime has been the uncertainty about future policies, incentive schemes etc. The procedural complexities of the Indian trade regime have been indisputably acknowledged. There is a general feeling that not only that there are too many controls and overlapping of policies but also “the principle of Indian policy is to elaborate rule (and exceptions) to them, which are not only detailed and specific, but also subject to wide discretion.” These are vindictive of the structural weakness of the institution system in India, 

9. Inadequacy of Trade Information System : An efficient Trade Information System is essential for success in the dynamic global market. But, “our marketing infrastructure as well as marketing techniques are neither effective nor efficient. We do not have any machinery to keep prompt track of business informati0n overseas, as done by JETRO in Japan, KOTRA in Korea, CETDC in Hong Kong and STDB in Singapore with a wide network of offices abroad. These organisations have evolved an efficient system, which help them to get information pertaining to tenders and the like much before these are released officially. In India, we get this information, at times, after the expiry date. India has, no doubt, a plethora of organisations; governmental, semi-governmental and also non-governmental engaged in this task in one way or other. Yet we do not have an easy access to market intelligence and information.

Discuss various measures taken by Government of India for promotion of exports.

Ans. Export promotion refers to the policy of the govt. designed to encourage the exporters to export more goods from the country than before. In the words of Sh. L. N. Mishra, Former Union Minister of Foreign Trade, “Exports are life line and motive power for economic growth and development.” Export promotion refers to those policies and measures which can result into maximum increase in the exports of a country.

Main objectives of export promotion comprise of (i) correcting unfavourable balance of trade (ii) to reduce foreign loans, (iii) to achieve self-reliance (iv) export of new products (v) to defray the cost ofdefence imports, to ensure successful planning etc. Increasing number of entrepreneurs are taking benefit of incentives and facilities offered by the government to 100% export oriented units or units set up in Export Processing Zones (EPZ) or Free Trade Zones (FTZ). Such units may be engaged in manufacture, software development, horticulture, agriculture, animal husbandary etc. In order to help entrepreneurs to promote exports oriented units, government of India has helped the entrepreneurs to set up following types of exporting units/zones. 

(1) Export oriented Units : The entrepreneurs can set up unit of any type for export purpose anywhere in the country. If the exports are 75 percent or more of production it is called export oriented unit. Such units are allowed to import inputs without  payment of import duty and are allowed to produce for exports without payment ofexcise duty, otherwise leviable on such goods. It  provides the facility to an entrepreneur to reduce its working capital needs and also saves the botheration first to pay the customs and excise duties and then claim refund on that part which is exported. 

(2) Export Processing Zone (EPZ) and Special Economic Zone (SEZ) : Export Processing Zone (EPZ) is an industrial estate established by the Central Government. On the contrary, Special Economic Zone (SEZ) is an industrial estate established by State Government. -In both these estates, Export oriented units are established, developed and expanded. Important facilities provided in these estates are .

(i) Plant, land and building either on purchase price at cheaper rate or on lease.

(ii) Duty free import of capital goods and equipments.

(iii) No licence needed for import. of capital goods, raw-materials, consumables, spare-parts etc.

(iv) Export finance at concessional rate of interest.

(v) Automatic approval to proposals by the Development commissioner.

(vi) Complete exemption from income tax. Assur

(vii) ed power supply.Teleph

(viii) one, Telex, cement, steel etc. on priority basis.

(3) Establishment of Export Development Centres : A network of Export Development Centres has been established through the Small Industries Development Organisation (SIDO) to boost promotion of export by small scale business entrepreneurs. A number of Export Promotion Councils have been set up to render advice on various aspects of export promotion such as price, quality, packaging, marketing, transport, etc. It provides the following types of assistance :

(i) Conducting market surveys.

(ii) Help ingin establishing trade contacts.

(iii) Settlement of trade disputes

(iv) Arranging trade fairs and exhibitions in foreign countries

(v) Publication of information, reports and directory Of exporters.

(vi) Administration of special export promotion schemes.

(4) Establishment of National Small Industries Corporation Ltd. (NSIC) : National Small Industries Corporation Ltd. (NSIC) has been established as an Export House: It has adopted a ‘single window’ service approach. NSIC renders the following services to the entrepreneurs : 

(5) (i) Assisting in obtaining enquiries, specifications and samples.

(ii) Assisting in development of product samples and sending them for approval of the importers abroad.

(iii) Negotiating with foreign buyers. Handling documentation work. Rendering financial assistance.

(iv) Arranging import of goods where ever necessary.

(v) Advance payment up to 90% of export incentives allowance.
(vi) Monitoring production and quality control. Arranging export.

(vii) Arranging deferred payment facility from EXIM Bank.

(5) Training Programmes : The govt. has also been supporting and providing assistance to exporters for exhibiting their products in various international exhibitions. It has also organised many training programmes on latest packaging standards, techniques etc. Not only this, govt. providbs technical and managerial consultancy services to the entrepreneurs through its institutions like NSIC, SIDO, TCOs, DICs etc. Besides, govt. .has  also given preference to SSIS in allocation of credit •through inclusion in priority sector for lending purposes, provision of raw-materials, marketing support, facilities for technology upgradation etc. 

(6) Help to small scale sectors in exporting : Following  schemes have been formulated to help SSI in exporting their products :

(i) Products of SSI exporters are displayed in international exhibitions and the expenditure incurred is met by the Government. The trade enquiries generated are widely circulated; 

(ii) In order to promote exports from the small-scale sector, manufacturer, exporters are given triple weightage for the purpose of recognition as Export House Trading House/ Star ‘Trading House/ Super Star Trading House;

(iii) In order to enable SSI units to avail benefits of Export Promotion Capital Goods, imports of jigs, fixtures, dies, moulds to be allowed för the full ie value of the licence instead of restricting it to 20 percent; 

(iv) To acquaint SSI exporters with latest packaging standards, techniques, etc., training programmes on packaging for exports are organised in various parts of the country, in association with the Indian Institute of Packaging;

(v) Reimbursement of expenses incurred on adopting bar coding by EAN India up to Rs. 20,000.


International trade plays a vital role in the economic development of a country. The policy which is framed to regulate, control and given right direction to foreign trade is known as ‘Export-Import Policy’. This policy is also known as commercial policy of the country. According to Prof. Haberler, “Trade policy or commercial policy refers all those measures which regulate external economic relations of a country. These measures are used by such  Regional or Provincial Government which has power to either obstruct or assist the export and import of goods and services. ” Generally, trade policy and commercial policy are used as synonymous, but in real sense both differ from each other. Commercial policy study the matters related to export and import only, whereas trade policy in addition to this includes all other problems related to international trade. Most of the developing countries have facing •the problem Of deficit in their balance of trade, therefore they have to make efforts to reduce their imports and promote exports. An appropriate and suitable trade policy can help the country to reduce imports, increase exports, encourage import of foreign capital, encourage import substitution, help domestic industry to compete better and protect it against dumping, and administer foreign exchange properly.Thus, commercial policy is a reflector of developmental plans and affects the ovarall economic development  of a  country.



Commercial policy may be of following two types : 

(1) Free Trade Policy : When no restrictions are imposed on imports and exports of goods and services, it is known as free trade policy. In simple words, it is a situation where nations do not impose custom duties or other taxes on the imports of goods from other countries. In such a case, if country impose some taxes on imports,then it aims to increase its revenue and not to restrict the imports. 

(2) Protectionist Trade Policy : This policy refers to that situation in which government impose restrictions on imports and exports of goods and services. According to H. L. Hanson, the theory of protection refers to imposition of duties on imports in order to protect home producers of these commodities by making foreign produced goods dearer. This policy helps the developing countries in  increasing investment and capital formation and reducing the deficit of balance of payment. 


With the aims to increase India’s share in world trade to one percent from 0.6 percent, the new Export-Import Policy (2002-07) was declared to 31st March, 2002. The policy is all about exports, Imports have already been freed of quota and licensing restrictions. The new policy now free, easy and possibly rewarding. Salient features of the New EXIM policy are : 

(1) Encouragement to Agricultural Exports : To promote agricultural exports, following efforts have been made by the government :

(i) All quantitative restrictions on exports except a few sensitive item, have been removed

(ii) Transport subsidy for all processed fruits and vegetable, poultry and dairy products, wheat and rice etc.

(iii) Special preference to agricultural exports by removing exports restrictions on designated items.

(iv) To promote export of agro-based products in the floriculture and horticulture sector have been sustained with the notification of Agriexport rt zones across the country.

(2) Various concessions to Special Economic Zones (SEZS) : Various concessions and facilities provided in the special economic zones are as follows : 

(3) These zones are exempted from the central sales tax. Permission for setting up the offshore banking units which will provide financial facilities at international rates. To ease the power situation in and around the SEZs, units for generation and distribution of power have been  permitted to be set up in these zones. The units established in these regions will be exempted from income tax alongwith the exemption of excise duty. Banks established in SEZs also enjoy the liberty in cash-reserve ratio and statutory liquidity ratio. Small Scale and Cottage Industries :  The new import-export policy gives emphasis to improve the productivity and export competitiveness of small scale, cottage and handicraft sector. For achieving the Export House status, the limit is reduced from Rs.  15 crore to Rs. 5 crore. 

(4) Software and Hardware Sector : To promote hardware sector in the international market, a special package has been announced for this sector. Electronic Hardware Technology Park scheme has been modified to enable hardware sector to face the zero duty regime and other export obligation for units in Electronic Hardware Technology Parks. To increase exports of gems and jewelry, license regime has been abolished.

(5) Export Promotion Schemes : To promote exports, more attractive and- flexible schemes have been launched.  Simple procedure has been introduced which include abolition of DEEC Book and withdrawal ofAnnual Advance License, dispensation with technical characteristics for audit purpose and 12 years export obligation period for export promotion capital goods licenses of Rs. 100 crore or more. 

(6) Emphasis on Market Access : The new EXIM Policy 2002-07 give emphasis to the widening of the scope of the market access. It includes activities considered necessary for a focused market promotion of exports, setting up of “Business Centre” in India for ensuring a facilitatory environment for exporters transport subsidy for exports to units located in specific areas and introduction offocus Africa to diversify markets.

(7) Other Improvements  To reduce transaction, customs and banks costs, procedural simplifications have been made in the new policy. 

8 digits commodity classification system has been adopted for imports to eliminate the classification disputes. This policy operationalise the procedure for duty free import of fuel under the Advance Licensing Scheme, provided the license holder has a captive power plant. Thus, it becomes clear that this policy is very liberal and export oriented, but its success depends on the development of competitive power of the domestic industries, labour productivity, quality and the minimum interferance of bureaucrates. The free and liberal environment exert competitive pressure on domestic producers and to that, extent, should help in keeping domestic prices under check and encourage efficiency in the economy. 

Q.  What do you mean by import substitution Now-a-days what are the problems of import substitution in India ? Suggest measures to overcome them.

Ans. Import Substitution : Import substitution means production of those goods which are imported from foreign countries. Import substitution is essential for achieving self sufficiency. Import substitution (i) reduces imports, (ii) increases self sufficiency, (iii) source of earning valuable foreign currency like dollar, (iv) reduces imbalance in foreign trade, (v) encourages industrial development, (vi) creates new sources of employment, (vii) reduces foreign debts, (viii) save local currency, (ix) reduces dependence on foreign countries, and (x) overall  assistance in increasing exports and rapid economic development of the country.

Entrepreneurs can play a vital role in the field of import substitution by establishing, developing and expanding industries which can take up of production of such goods which can be easily  used as import substitution. Government is also providing every Possible help both financial and non-financial to. entrepreneurs who are taking interest in the production of those goods which can be used as import substitution.


Following are the main problems of import substitution in India :

(1) High Production Cost at Initial Stage: Besides the raw material, certain other cost like interest rates, higher price of importable and non traded inputs, technological factors and low product,civil,y contribute to the high cost, of production in India Therefore, commodities produced in the country have high prices in comparison to the imported goods and consumers show, no interest in buying the goods produced for the intention of import-substitution.

(2) Poor Quality of Production : Poor quality and inadequacy of inputs, technology and facilities affect the product quality. Policy of import substitution proves unsuccessful due to poor quality products.

(3) Ignorance of Consumers : Generally, people believe that imported goods are better than the home products. This view attract them towards the imported goods and they do not take interest in buying goods produced in the country. Policy of

(4) Lack of Essential Resources import-substitution becomes impractical due to lack of resources essential for production. Inadequacy of capital and raw material, backwardness of technology create hinderane in the way of import substitution.

(5) Dampens Innovation : Critics observe that such subsidised import substitution generally limits competition, dampens innovation and productivity growth, and keeps the country’s real income low.

(6) Ignores Specialisation : This approach ignores the benefits of specialisation and comparative advantage. The consumers and the entire economy might be better off if the emphasis on import substitution were replaced by an emphasis on outward orientation.

(7) Discriminates Against Agriculture : Import substitution discriminated against agriculture and favoured industry. It led to stagnation and impoverishment in rural This, in turn, led to migration to the cities, necessitating the ‘unproductive’ type of investments.


Import subStitution cannot followed indiscriminately in future plans, Following considerations would have to tv given weight in any effective judicious choice of import substitution :

(1) The guiding principle, which should outweigh all whether import-substituting industries will make a contribution to India’s economic development through effcient utilisation of local resources and also realise foreign exchange for more essential uses. 

(2) Those industries should be included in the programme of import substitution where a clear-cut cost advantage could be established.

(3) Only those industries should be included in the programme of import substitution whose products have adequate domestic or international demand existing or potential. 

(4) Import substitution programme should be chalked out in totality rather than in terms of fragments and the growth of selected industries should be assisted through appropriate investment policy and promotional measures.

(5) Cost and quality control should be the keynote of future policy.

(6) Government and industries should encourage research and development to improve the quality ofgoods,

Question :  What do you understand by import substitution and export promotion ? Which of the two is more appropriate for the development of Indian economy ? 


Import substitution means production of those goods which are imported from foreign countries. Import substitution is essential for achieving self sufficiency. Import substitution (i) reduces imports, (ii) increases self sufficiency, (iii) source of earning valuable foreign currency like dollar, (iv) reduces imbalance in foreign trade, (v) encourages industrial development, (vi) creates new sources of employment, (vii) reduces foreign debts, (viii)  saving local currency, (ix) reduces dependence on foreign countries, and (x) overall assistance in increasing exports  and rapid economic development of the country.


Export promotion comprises all those government and non-government efforts, rules, procedures, courses of action and techniques which are adopted to boost our exports in terms of value as well as in volume. Thus all those measures, schemes, policies, procedures and methods which are adopted for increasing export are known as export promotion measures. In order to attain the objective of self-reliance every country is keenly interested to expand its exports. 


The goal of self-reliance in vital sectors has been a long term objective of India since the beginning of the planning. The goal can be attained through foreign trade policy in two ways as given under :

1. Import substitution policy, 2. Export promotion policy. 

The two broad objectives of the programme of import substitution in India were : (a) to Save scarce foreign exchange for the import of more important goods, and (b) to achieve self-reliance in the production of as many goods as possible. The policy in India has gone through various phases. Broadly speaking, we can discern three distinct phases

(i) in the earlier phase, import substitution mostly took the form of domestic production of Consumer goods;

(ii) in the second phase, emphasis shifted to the replacement of the import of capital goods and

(iii) in the third phase emphasis was on reducing the dependence on imported technology by developing and encouraging the use of indigenous techniques. As a result of the policy of import substitution, the structure of imports has undergone significant changes. Many items which were previously imported are now being produced in the country itself. As a result of this policy, the country has been able to increase the production of many industrial products like iron and steel, automobiles, railway wagons, machine tools, diesel engines, power transformers, etc. and in the case of many other products has achieved a stage of self-sufficiency.  As stated earlier, import substitution enabled the country to achieve diversification and depth so necessary for further growth• However, many economists have argued that the indiscriminate extension of import substitution to a wide range of sectors in India without regard to costs, was not the ‘best’, or the ‘most efficient’ policy. In this context Jaleel Ahmed states, “Valuable resources could have been saved if the process of import substitution had been more selective with a limited number of strategically chosen sectors and industries, where a concentration of effort and resources could have maximised the gains in efficiency. In the heavy industry sector, in particular, simultaneous development of a plethora of manufacturing activities may have deprived the economy of the advantages of large-scale production and of meeting the minimum critical thresholds. In short, the policy of import substitution was followed during sixties and up to early seventies whereas the export promotion policy was followed since early seventies. In order to succeed government of India has changed her EXIM policy from time to time to attain export promotion policy. In the year 1973, OPEC countries raised the prices of crude oil about four times. India has shifted her policy from import substitution to export promotion so that she could meet the challenge of sharp hike in oil •prices by the OPEC. Export promotion and import substitution are the two important measures for narrowing down and ultimately wiping out the balance of payments deficit. Infact, Import-substitution and Export Promotion are the two aspects of the coin.” 



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