USTR - 1996 National Trade Esimate-India
Office of the United States Trade Representative


1996 National Trade Esimate-India

In 1995, the United States trade deficit with India was $2.4 billion, a $565 million decrease from that in 1994. U.S. merchandise exports to India were $3.3 billion, up $1 billion or 43.6 percent from 1994. India was the United States' thirtieth largest export market in 1995. U.S. imports from India totaled $5.7 billion in 1995, or about eight percent more than in 1994.

The stock of U.S. foreign direct investment in India was $818 million in 1994, 33.9 percent higher than in 1993. The United States direct investment in India is largely concentrated in banking, manufacturing and wholesaling.


In June 1991, the then newly-elected government recognized that India's budget deficit, balance of payments problems, and structural imbalances would require re-evaluation of past economic policies and structural adjustment assistance from international financial institutions. As part of economic reform, the Indian government has taken steps towards a more open and transparent trade regime, leading to a significant increase in Indo-U.S. trade and investment. With substantial additional liberalization, U.S.–India trade could become quite significant.

Despite recent tariff reductions and liberalization of quantitative restrictions, India's ban on consumer goods imports, other quantitative restrictions under the negative imports list, and high tariffs remain a serious impediment to U.S. trade, especially in agricultural and consumer items, the latter category being very broadly defined by the Indian Government. The United States continues to raise and to discuss India's restrictive trade practices in all trade-related meetings with Indian officials, in the World Trade Organization, and regular bilateral consultations.


The Indian government continues to reduce tariff rates from some as high as 300 percent in 1991 to a ceiling of 50 percent in the 1995/96 budget. India has selectively lowered tariffs on some capital goods and semi-manufactured inputs to help Indian manufacturers. They have steadily reduced the import–weighted tariff from 87 percent to 33 percent at present. In fact, the Government of India has reduced the maximum and import-weighted average tariffs in each of the last four budgets. However, domestic political considerations and an anticipated Parliamentary election some time in mid-year may delay the 1996/97 budget or limit tariff reductions, so it is unclear whether India will achieve its goal of a 25 percent import- weighted average by FY 96–97.

Despite reforms, Indian tariffs are still some of the highest in the world, especially for goods that can be produced domestically. Most agricultural products face trade barriers which severely restrict or, in the case of processed foods, prohibit their import. Consumer goods are similarly restricted.

India maintains a variety of additional duties or its so-called countervailing duties, raising effective tariffrates well above the tariff ceiling for some products. For example, the import duty on soda ash is estimated to be 60 percent, including a basic tariff rate of 40 percent with an additional countervailing duty rate of 20 percent. Some telecommunications projects are granted a special status which allows imports of infrastructure items at a 25 percent duty rate. However, the duties on other telecommunications equipment continues to be high -- 80 percent for built-up units, 62 percent for sub-assemblies, and 50 percent for components. Higher effective rates also affect chocolate and confectionary products (70 percent); appliances (50–90 percent); and toys and sporting goods (50-65 percent). Exorbitant effective rates of 290 percent are assessed on distilled spirits imports, plus an additional duty of 45-50 percent.

Progress made thus far in tariff reduction has helped U.S. producers, but further reductions of basic tariff rates and elimination of additional duties would benefit a wide range of U.S. exports. For example, the tariff on almonds is calculated at 44 rupees per kilogram for shelled almonds. The market potential, were the tariff removed, is estimated between $100–$150 million.

Other industries that might benefit from reduced tariff rates include (actual basic tariff rate in parenthesis) fertilizers (0-50 percent); wood products (0-50 percent); paper and paper board (40 percent); ferrous waste and scrap (10-50 percent); computers, office machinery and spares (5-50 percent); Motorcycles, BU and CKD vehicles and components (50 percent); heavy equipment spares (60-80 percent); medical equipment components (40 percent); copper waste and scrap (40-50 percent); hand tools (60 percent); soft drinks (50 percent); cling peaches (50 percent); vegetable juice (50 percent); and, canned soup (50 percent).

In the Uruguay Round, India undertook a two–tiered offer on industrial products, binding tariffs on items in excess of 40 percent at a rate of 40 percent and binding items with tariffs below 40 percent at 25 percent. Some industrial goods (e.g., automobiles) and all consumer products were excluded from India's offer. As a consequence, India's scope of bindings on industrial goods increased substantially from 12 percent of imports to 68 percent once all reductions are staged–in. The overwhelming majority of these bindings exceed current Indian applied rates of duty.

In agriculture, Uruguay Round tariff bindings are higher than actual rates in important sectors, ranging from 100 to 200 percent.

As a result of Uruguay Round commitments under the Multifiber Agreement, India and the United States concluded successful bilateral textile negotiations giving the United States rapid and significant reductions on all categories of textile products. The agreement is pivotal because it calls for India to lower its tariffs largely over a 5–year period with some of these reductions being reached within 4 years. By 1998 Indian tariffs will be reduced to levels no higher than 25 percent for yarns and fibers; 35 percent for industrial fabrics; and 35 percent for most home furnishings, apparel, and apparel fabrics.

Import Licensing

In addition to high tariff rates, U.S. industries must deal with India's import licensing regime. The regime has been liberalized but still limits market access for U.S. goods which would be competitive in a more open trading environment (See section below on Quantitative Restrictions). Importation of "consumer goods" is virtually banned except for some imports under India's special import licenses (SIL), an import permit traded in the market for a 6 percent premium, that involves performance requirements. Consumer goods are definedvery broadly as goods which can directly satisfy human needs without further processing. As a result, products of agricultural or animal origin must be licensed and are therefore, with few exceptions, effectively banned.

Importers of theatrical films must obtain a certificate from the Central Board of Film Certification, stating that the film is suitable for import according to guidelines laid down by the government. U.S. industry maintains that this constitutes a pre-censorship "quality check" obstacle. A special import license is required for vehicle CKD (knock-down kits) imports after a manufacturer signs a MOU with the Director General of Foreign Trade, covering plans on investment, capacity, local content, value of CKD imports and export earnings. Some commodity imports must be channeled ("canalized") through public sector companies although many "canalized" items have been decontrolled recently. Currently, the main canalized items are petroleum products, bulk agricultural products such as grains and vegetable oils, and some pharmaceutical products.

In March 1993, India abolished the two-tiered exchange rate regime, moving to a single market-determined exchange rate for trade transactions and inward remittances. The rupee is convertible on current account transactions, with limits remaining on foreign exchange for travel and tourism. Capital account transactions for foreign investors, both portfolio and direct, are fully convertible. However, Indian firms and individuals remain subject to capital account restrictions.

Quantitative Restrictions (QRs)

India's import policy is administered via a negative list. The negative list is divided into three categories: (1) banned or prohibited items (tallow, fat & oils of animal origin); (2) restricted items, requiring an import license, including all consumer goods (as defined in "tariff section above), such as instant print film; distilled spirits, canned soup, vegetable juice, seeds, plants, animals, insecticides, pesticides, electronic items and components, chemicals and pharmaceuticals, and a wide variety of other items; and (3) "canalized" items importable only by government trading monopolies (bulk agricultural commodities) and subject to Cabinet approval regarding timing and quantity. (For further explanation see the section above.)

In October of 1995 the Indian Government published for the first time a correlation between its negative list of import restrictions and India's Harmonized Tariff Schedule (HTS) import classification scheme. This document, entitled "Export and Import Policy Aligned on an ITC (HS) Classification should help to instill a degree of transparency, consistency and clarity to the importation of goods into India.

India has liberalized many restrictions on the importation of capital goods. The importation of all second hand capital goods by actual users is permitted, without license, provided the goods have a residual life of five years.

Nearly all apparel, fabrics, and many types of yarn imports into India were banned until the implementation of the United States–India Textile Agreement on January 1, 1995. Under this agreement all exports of U.S. textile and apparel products will be "eligible" for entry into India. Immediate "unrestricted" access will be provided to several key U.S. products –– including fibers, yarns, and industrial fabrics. Similar "unrestricted" access for apparel fabrics, home furnishings and clothing will be provided as soon as India lifts its Balance

of Payments exemption or in no more than three years for home furnishings and apparel fabrics, five years for most apparel and seven years for other items, whichever is sooner. All products covered by the United States–India Textile Agreement are also eligible for importation as of February 15, 1995 under India's Special Import License (SIL) Program.

Balance of Payments Justification for QRs

India has claimed that virtually all its quantitative restrictions are justified on balance of payments (BOP) grounds under GATT 1994 Article XVIII:B. India has invoked this justifications for over thirty years. These restrictions represent significant barriers to doing business in India and their removal would represent a significant opening of the Indian economy, affecting a wide range of U.S. industries. In early December 1995, The WTO Committee on Balance of Payments reviewed inconclusively the conditions affecting India's external accounts and India's justification for its QRs. Another round of consultations in the WTO BOP Committee is scheduled for October 1996. India strongly disputes assertions by a number of BOP Committee members that India's BOP restrictions are no longer justifiable.

Customs Procedures

The opening of India's trade regime has reduced tariff levels but it has not eased some of the worst aspects of Indian customs procedures. Documentation requirements, including ex-factory bills of sale, are extensive and delays frequent. There have also been private sector reports of misclassification and incorrect valuation of goods for the purposes of duty assessment, in addition to corruption. The Indian Customs Service would also benefit from a significant streamlining of its procedures for moving products from the border into the stream of domestic commerce.


Indian standards generally follow international norms and do not constitute a significant barrier to trade. Requirements established under India's food safety law are often outdated or more stringent than international norms, but enforcement has been weak. Opponents of foreign investment have tried to apply these laws selectively to U.S. firms (e.g., Pepsi/KFC). However, these attempts have not withstood judicial scrutiny. Where differences exist, India is seeking to harmonize national standards with international norms. No distinctions are made between imported and domestically-produced goods, except in the case of some bulk grains.


Indian government procurement practices and procedures are not transparent or standardized, and discriminate against foreign suppliers. Specific price and quality preferences for local suppliers were largely abolished in June 1992, and recipients of preferential treatment are now supposedly limited to the small-scale industrial and handicrafts sectors, which represent a very small share of total government procurement. However, the discrimination is still common despite the easing of policy requirements to discriminate and local suppliers are favored in most contracts where their prices and quality are acceptable, even if not economical. Reports still persist that Government-owned companies cash performance bonds of foreign companies even when there has been no dispute over performance.

A second area of discrimination affecting U.S. suppliers is the prohibition of defense procurement through agents. Most U.S. firms do not have enough business in India to justify the high cost of resident representation.

Some major government entities routinely use foreign bids to pressure domestic producers to lower their prices, permitting the local bidder to resubmit tenders when a foreign contractor has underbid them. For just one large project (e.g., power projects), this could cost U.S. contractors hundreds of millions of dollars in lost opportunities.

When foreign financing is involved, principal government procurement agencies tend to follow multilateral development bank requirements for international tenders. However, in other purchases, current procurement practices usually result in discrimination against foreign suppliers when goods or services of comparable quality and price are available locally.


Export earnings are exempt from income and trade taxes, and exporters may enjoy a variety of tariff incentives and promotional import licensing schemes, some of which carry export quotas. Export promotion measures include duty exemptions or concessional tariffs on raw material and capital inputs, and access to special import licenses for restricted inputs. Commercial banks also provide export financing on concessional items.


Based on past practices, India was identified in April 1991 as a "priority foreign country" under the "special 301" provision of the 1988 Trade Act, and a section 301 investigation was initiated on May 26, 1991. In February 1992, following a nine-month investigation under "special 301", the USTR determined that India's denial of adequate and effective intellectual property protection was unreasonable and burdens or restricts U.S. commerce, especially in the area of patent protection. India is not a member of the Paris Convention, nor does it have a bilateral patent agreement with the United States.

In April 1992, the President suspended duty-free privileges under the Generalized System of Preferences (GSP) for $60 million in trade from India. This suspension applied principally to pharmaceuticals, chemicals, and related products. Benefits on certain chemicals added to GSP in June 1992 were withheld from India, increasing the trade for which GSP is suspended to approximately $80 million. Significant revisions to India's copyright law in May 1994 led to the downgrading of India as "priority foreign country" to the "priority watch list."


India's patent protection is weak and has especially adverse effects on U.S. pharmaceutical and chemical firms. Estimated annual losses to the pharmaceutical industry due to piracy are $450 million. India's Patent Act prohibits patents for any invention intended for use or capable of being used as a food, medicine, or drug or relating to substances prepared or produced by chemical processes. Many U.S.-invented drugs are widely reproduced since product patent protection is not available.

Under existing law, processes for making such substances are patentable, but the patent term for these processes is limited to the shorter of five years from patent grant or seven years from patent application filing. This is usually less than the time needed to obtain regulatory approval to market the product.

Where available, product patents expire 14 years from the date of patent filing. Stringent compulsory licensing provisions have the potential to render patent protection virtually meaningless. There are broad "licenses of right" that automatically apply to patents for food and drugs. India also fails to protect biotechnological inventions, methods of agriculture and horticulture, and processes for treatment of humans, animals, or plants.

Indian policy guidelines normally limit recurring royalty payments, including patent licensing payments, to 8 percent of the selling price (net of certain taxes and purchases). Royalties and lump sum payments are taxed at a 30 percent rate.

Many of these barriers must be removed as India undertakes its Uruguay Round Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) obligations. The Indian Government has announced its intention to fully conform to the IPR–related requirements of the Uruguay Round as a first step. The Rao Government promulgated in late 1994 a temporary ordinance and introduced in early 1995 patent legislation consistent with India's TRIPs obligations relating to the "mail box" provisions. The patents bill failed to make passage in the upper house of Parliament in 1995, leaving India in violation of this TRIPs provision since mid-1995 when the patent ordinance expired.

Aside from its immediate obligations, the Indian Government has announced its intention to take full advantage of the transition period permitted developing countries under TRIPs before implementing full patent protection. The United States continues to press for passage of the "mail box"-related legislation and to urge more accelerated implementation of the TRIPs patent provisions. A small domestic constituency, made up of some Indian pharmaceutical companies, technology firms and educational/research institutions, favors an improved patent regime, including full product patent protection.


Under pressure from its own domestic industry, India implemented a strengthened copyright law in May 1995, placing it on par with international standards for copyright protection. However, piracy of copyrighted materials (particularly popular fiction works and certain textbooks) remains a problem for U.S. and Indian producers. Video, record, tape, and software piracy are also widespread, but improvements have been made. Indian copyright law has undergone a series of changes over the last ten years to provide stronger remedies against piracy and to protect computer software. In 1994, Parliament passed a comprehensive amendment to the 1957 copyright act. India's law now provides: rental rights for video cassettes; protection for works transmitted by satellite, cable, or another means of simultaneous communications; collective administration of rights; and limiting judicial discretion with respect to the level of penalties imposed on copyright pirates. However, there is no statutory presumption of copyright ownership and the defendant's "actual knowledge" of infringement must be proven.

Indian copyright law offers strong protection, but the Indian Constitution gives enforcement responsibility to the state governments. Classification of copyright and trademark infringements as "cognizable offenses" has expanded police search and seizures authority, while the formation of appellate boards has speeded prosecution. The new law also provides for new minimum criminal penalties, including a mandatory minimum jail term, that U.S. industry believes will go far in controlling piracy, if implemented. Other steps to improve copyright enforcement, include: the establishment of a Copyright Enforcement Advisory Council, including a judiciary commissioner, with responsibility for policy development and coordination; the initiation of a program for training police officers and prosecutors concerned with enforcement of copyright laws; and the compilation of data on copyright offenses on a nation-wide basis to assist in enforcement and application of penalties. However, because of backlogs in the court system, documentary and other procedural requirements, few if any cases have been prosecuted recently. While a significant number of police raids have been executed as well as planned, the law requires that in order to seize allegedly infringing equipment, the police must witness its use in an infringing act.

Cable piracy continues to be a significant problem, with estimates of tens of thousands of illegal systems in operation in India at this time. Copyrighted U.S. product is transmitted over this medium without authorization, often using pirated video cassettes as source materials. This widespread copyright infringement has a significant detrimental effect on all motion picture market segments - theatrical, home video and television - in India. A cable bill to regulate the industry was submitted to Parliament in 1993 but has been sent back to the Ministry of Information for revision with no further progress in this area since that time.


The Government of India has committed to upgrading its trademark regime, including according national treatment for the use of trademarks owned by foreign proprietors, providing statutory protection of service marks, and clarifying the conditions under which the cancellation of a mark due to non-use is justified. The Government of India introduced in Parliament a Trademark Bill in May 1995, that passed the lower house. However, opposition in the upper house of Parliament stalled discussion of the legislation, which is still pending.

Protection of foreign marks in India is still difficult, although enforcement is improving. Guidelines for foreign joint ventures have prohibited the use of "foreign" trademarks on goods produced for the domestic market (although several well-known U.S. firms were authorized in October 1991 to use their own brand names). The required registration of a trademark license (that is described by U.S. industry as highly bureaucratic and time-consuming) has routinely been refused on such grounds as "not in the public interest," "will not promote domestic industry," or for "balance of payments" reasons. The Foreign Exchange Regulation Act (FERA) restricts the use of trademarks by foreign firms unless they invest in India or supply technology.

In an infringement suit, trademark owners must prove they have used their mark to avoid a counterclaim for registration cancellation due to nonuse. Such proof can be difficult given India's policy of discouraging foreign trademark use. Companies denied the right to import and sell product in India are often unable to demonstrate use of registered trademarks through local sale. Consequently, trademarks on restricted foreign goods are exposed to the risk of cancellation for non-use reasons.

No protection is available for service marks. Trademarks for several single ingredient drugs cannot be registered. There have been several cases where unauthorized Indian firms have used U.S. trademarks for marketing Indian goods. However, the Indian courts have recently upheld trademark owner rights in infringement cases.


The Indian Government runs many major service industries either partially or entirely. However, both foreign and domestic private firms play a large role in advertising, accounting, car rental, and a wide range of consulting services. There is growing awareness of India's potential as a major services exporter and increasing demand for a more open services market.


All insurance companies are government-owned, except for a number of private sector firms which provide re–insurance brokerage services. Foreign insurance companies have no direct access to the domestic insurance market except for surplus lines, some reinsurance, and some marine cargo insurance. A government appointed committee recommended in 1994 that the insurance sector be opened up to private sector competition, both domestic and foreign.

Following investigations initiated in 1989 under the "super 301" provision of the 1988 Trade Act, the USTR determined in June 1990 that India's insurance practices were unreasonable and burden or restrict U.S. commerce, but that retaliation was inappropriate at that time given the ongoing negotiations on services and investment in the Uruguay Round. India had offered in the Uruguay Round services negotiations to bind the limited range of insurance lines currently open to foreign participation but was unable to make a substantive offer during the 1995 Uruguay Round financial services negotiations.


Most Indian banks are government-owned and entry of foreign banks remains highly regulated. The Reserve Bank of India (RBI) issued in January 1993 guidelines under which new private sector banks may be established. Approval has been granted for operation of 17 new foreign banks or bank branches since June 1993.

Foreign bank branches and representative offices are permitted based upon reciprocity and India's estimated or perceived need for financial services. As a result, access for foreign banks has traditionally been quite limited. Four U.S. banks now have a total of 15 branches in India. They operate under restrictive conditions including tight limitations on their ability to add sub-branches. Operating ratios are determined based on foreign branches local capital, rather than global capital of the parent institution.


Foreign securities firms have established majority-owned joint ventures. Through registered brokers, foreign institutional investors (FII), such as foreign pension funds, mutual funds, and investment trusts, are permitted to invest in Indian primary and secondary markets. However, limits of FII holdings of issued capital in individual firms apply: total aggregate holdings of FII's cannot exceed 24 percent of issued capital, and holdings by a single FII are limited to five percent of issued capital. Foreign securities firms may now purchase seats on the major Indian Stock Exchange, subject to the approval of a regulatory authority.

Motion Pictures

In the past, restrictions imposed on the motion picture industry were quite burdensome, costing an estimated $80-300 million according to industry estimates. The United States pressed for removal of these restrictions, and received commitments from the Government of India (GOI) in February 1992 that addressed most industry concerns. Beginning in August 1992, the Indian Government began implementation of its commitments, introducing a number of significant changes in film import policy. The GOI has carried out its commitments in good faith.

A few minor issues of concern remain. For example, the pre-censorship "quality check" procedures also entail fees, and some Indian states apply high entertainment taxes, amounting to 100 percent of the price of admittance in certain cases.

More significant, however, are concerns regarding the six-million dollar annual ceiling applied to remittances by all foreign film producers for balance-of-payments reasons. In addition, India has continued to use a 1956 Cabinet resolution to bar foreign ownership of the media, preventing the approval even of joint ventures.


India has taken partial steps towards introducing private investment and competition in the supply of basic telecommunications services. However, licensing delays, caps on the number of licenses per bidder, alleged irregularities, and new restrictions on investors in basic telecommunications services have limited the value of the liberalizing steps taken so far.

The National Telecommunications Policy announced in 1994 allows private participation in the provision of cellular as well as basic and value-added telephone services. Foreign equity is limited to 49 percent. Private operators will provide services within regional "circles" that correspond roughly to India's states. Private operators will not be permitted to operate long–distance networks. The Policy limits changes in partners for existing joint ventures, reducing the value of existing foreign investment. Delays in implementing licensing for both cellular and basic service as well as the imposition of new rules, limits and restrictions, particularly for basic services, have slowed progress and created an environment that is likely to inhibit rapid growth in India's telecommunications infrastructure. Local production requirements remain an important factor in negotiations to establish service operations. The Govenrment has still been unable to establish an independent regulatory authority to oversee the implementaion of the new policy. An early January Cabinet ordinance provided legal sanction, but no action was taken and the authority lapsed with the termination of the March Parliament session. The Government has indicated its intention to re-issue the ordinance in the near future.

India is perhaps the most important participant in the WTO telecom services negotiations not yet to have made an offer as of mid-March 1996.


The new industrial policy announced in July 1991 marked a major shift, relaxing or eliminating many restrictions on investment and simplifying the investment approval process. However, many of these changes were instituted by executive orders and have not yet received legislative sanction through Parliament. The United States and India still have not negotiated a Bilateral Investment Treaty, although an agreement covering operations of the Overseas Private Investment Corporation (OPIC) remains in force.

Equity Restrictions

The complicated and burdensome Foreign Exchange Regulation Act (FERA) has been amended to increase access for foreign investment in India. Automatic approval is granted by the Reserve Bank of India for equity investments of up to 51 percent in 35 industries. The government has also authorized existing foreign companies to increase equity holdings to 51 percent. All sectors of the Indian economy are now open to foreign investment, except those with security concerns, such as defense, railways and atomic energy. Government approval is still necessary for majority foreign participation in the passenger car sector. Proposals for foreign equity participation exceeding 51 percent and projects considered to be "politically sensitive" are considered by the Foreign Investment Promotion Board (FIPB). Through 1994, the FIPB had approved almost all the requests made for higher foreign ownership and for other "exceptional" cases, but still reserved the right to deny requests for increased equity stakes. However, foreign firms report that increases in foreign equity, especially to 100 percent foreign ownership, have been more difficult to obtain in 1995, as opposition to reform became more vocal in the pre-election season. Although local content laws have been abolished, foreign equity must cover the foreign exchange requirement for imported capital equipment. Exports are further encouraged by basing dividend and profit repatriation on export earnings for the first seven years of production for passenger cars.

Trade Restrictions

Though not an investment barrier per se, India's import restrictions and high tariffs have constrained investors from importing competitive inputs.


As in any country, private and public firms will engage in a variety of anti-competitive practices to the extent they perceive it in their interest and to the extent they can get away with it. One can find examples of both state-owned and private Indian firms engaging in most types of anti-competitive practices with little or no fear of reaction from government overseers or action from a clogged court system.

However, these practices are not viewed as major hindrances to the sale of U.S. products and services at this time. U.S. firms are still concerned with addressing the much more basic issues of market access, corruption, arbitrary or capricious behavior on the part of their partners of government agencies, and procurement discrimination from both public and private institutions.

It can be anticipated that other types of anti-competitive behavior and lack of government reaction to it would be perceived as more problematic in the future. India suffers from a slow bureaucracy, severely backlogged court system, and regulatory bodies that reportedly apply monopoly and fair trade regulations selectively.


Counter Trade

India has an unpublished policy that encourages counter trade. Global tenders usually include a clause stating that, all other factors being equal, preference will be given to companies willing to agree to counter trade. The exact nature of offsetting exports is unspecified as is the export destination. However, the Indian government does try to eliminate the use of re-exports in counter trade.

The Indian Minerals and Metals Trading Corporation (MMTC) is the major counter trade body. The State Trading Corporation handles a minimal amount. Private companies are encouraged to use counter trade.

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