Long on intent: On India’s Foreign Trade Policy

Source: The post is based on the following articles

“Harmonize trade policy with India’s broad goals” and “Our foreign trade policy bets on e-commerce for an export jump” published in the Livemint on 3rd April 2023.

“Long on intent: On India’s Foreign Trade Policy” published in The Hindu on 3rd April 2023.

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

Relevance: About new Foreign Trade Policy (FTP).

News: Recently, India’s commerce minister unveiled a new Foreign Trade Policy (FTP).

What are the salient features of India’s new Foreign Trade Policy (FTP)?

How this new FTP is different from previous ones?

No expiry date: India’s previous FTP was meant for a five-year span and it has ended in March 2020.  But, the new FTP has no expiry date and is open to change.

No new schemes, except the amnesty scheme: While earlier FTPs launched new schemes and incentives, this FTP is a deviation. This is because a number of India’s export-linked subsidies were challenged by the US as prohibited subsidies under the World Trade Organization’s (WTO) Agreement on Subsidies and Countervailing Measures.

India lost the case at the WTO in 2019 and had to withdraw these subsidies or replace them with WTO-compliant supports like the Remission of Duties and Taxes on Export Products (RoDTEP) Scheme, which replaced the previous Merchandise Exports from India Scheme (MEIS).

Shift in approach: The new FTP tries to move away from an incentive-based regime towards creating an enabling ecosystem for Indian exporters. There has been a focus on the ease of doing business and facilitating the integration of Indian small and medium enterprises (SMEs) with global value chains.

What are the significant advantages of the new FTP?

Renewed push for a competitive edge overseas: The policy aims to align Indian exports with a big global e-commerce opportunity within World Trade Organization (WTO) rules.

Ensured many micro-reforms: This includes online approvals for various schemes, automation of some processes, removal of export obligations for items that go into climate action, etc. Most of these schemes including the RoDTEP , RoSCTL (Rebate on State and Central Taxes and Levies), AA (Advance Authorisation) and EPCG (Export Promotion Capital Goods) have just been tweaked. All this will ease exports and support major sectors like dairy, textiles and apparel, etc.

Export push to the e-commerce sector: This sector received substantial attention in FTP 2023 because of the sector’s potential to help India to attain its export targets of $1 trillion for goods and services by 2030.

What are the challenges India needs to address?

Export promotion does not work well with import restrictions: India’s ‘Make in India’ aims to help local players exploit wider opportunities. In view of protecting the home base from global rivalry India still imposes many import tariffs. But, being pro-trade by trying to push exports and deter imports can pose great challenges as well.

The issue with the non-expiry policy: The non-expiry policy will grant flexibility to the government. But the Centre may term this as ‘policy instability’ in long run due to non-updation, especially to the changing needs of the China-plus value chains strategy.

Issues with E-commerce value limit: The policy proposes to increase the value limit for exports from ₹5 lahks to ₹10 lahks per consignment. This is a deterrent for exporters to use the e-commerce mode for exports of high-value consignments in sectors like gems and jewellery, handicrafts, handmade carpets and electronics.

Fails to provide roadmap: The FTP falls short in offering more substantive and sectorally targeted measures as well as a well-defined roadmap to meet the 2030 export target.

What needs to be done?

Remove value limit for e-commerce: To reach the e-commerce export target of $200-300 billion, there should not be any value limit, as has been the practice in most of India’s competing countries.

Interlink infotech systems across government departments: The new FTP did not specify the need to link the IT system of customs with that of partner government agencies like the Drug Controller General of India or FSSAI for import clearances of express/courier consignments. This is a necessity to a) facilitate the fast-track mobility of consignments, b) create a robust risk management system for end-to-end clearances.

Need data to promote district-level exports: It is important to have data/information on what kinds of goods and services are being produced in the districts and which of these have export potential. Hence, there is a need for an institutional mechanism to collect data to map food and other products from different districts.

India’s isolation from the world economy has long proven a failure. As a major economy, India still punches far below its weight in world trade. Hence, the success of the new FTP is vital to improve India’s stake in the world economy.