Foreign trade: Going beyond a phrase

Source: The post is based on the article “Foreign trade: Going beyond a phrase” published in the Business Standard on 29^th September 2022.

Syllabus: GS 3 – Changes in industrial policy and their effects on industrial growth.

Relevance: About India’s foreign trade policy.

News: Recently, India’s foreign trade policy, 2015 was extended by six months at a time since 2020.

What are the reasons behind extending the foreign trade policy?

What is the need for a new Foreign Trade Policy?

What is the evolution of trade in India since FTP 2015-2030?

In 2015, the government was doubtful about the benefits of freer trade. So, new agreements were put on hold, older agreements were scrutinised, and bilateral investment treaties were scrapped.

After the Covid-19 pandemic hit India, the prime minister introduced the concept of aatmanirbharta, or self-reliance. It is not clear what self-reliance specifically means in the context of foreign trade policy. It is assumed that increasing the capacity and competitiveness of domestic industry.

Meanwhile, the government has also acted on multiple new free trade agreements,. For instance, a) Signing a comprehensive partnership with the United Arab Emirates, b) A more limited agreement with Australia, and c) Moving discussions forward with the United Kingdom and the European Union among others.

What clarifications are required in a new foreign trade policy?

The new foreign trade policy should ideally fill a) “Self-reliance” is one short phrase and does not constitute a policy statement on its own, b) Clarify whether Production-linked incentive (PLI) schemes are a temporary bridging mechanism or an export promotion system or an investment promotion scheme or a geo-strategic play to reduce dependence on China. This can be done by clearly defining aim and purpose of the scheme, c) There has to be clear proof of how temporary subsidies lead to a permanent increase in competitiveness.

In the absence of this understanding, the errors of the past will be repeated. These issues need to be clearly examined and understood before releasing a new policy.