Foreign Trade Policy: A future-ready initiative

Union Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution, and Textiles, Mr. Piyush Goyal unveiled the much-awaited Foreign Trade Policy (FTP) on March 31, 2023, claiming that it is flexible and open-ended to meet the current state of affairs. According to him, India's total exports, including services and merchandise, have already surpassed US$ 750 billion and are anticipated to exceed US$ 760 billion this fiscal year (2022-23).

Foreign Trade Policy
Foreign Trade Policy (2023) is a policy document based on the continuity of time-tested schemes facilitating exports, as well as a document that is flexible and sensitive to trade requirements. Its foundation is built on the ideas of "trust" and "partnership" with exporters. Changes to the FTP 2015-20 were made after the first release, even without the introduction of a new FTP to respond dynamically to changing situations. The FTP 2023 intends to improve the ease of doing business for exporters through process re-engineering and automation. In addition, it emphasises developing areas like SCOMET's dual-use high-end technology products, simplifying e-commerce export, and working with States and Districts to promote exports. The new FTP includes a one-time Amnesty Scheme enabling exporters to close old pending authorizations and start over. The FTP 2023 fosters the accreditation of new towns through the "Towns of Export Excellence Scheme" and exporters through the “Status Holder Scheme”. The FTP 2023 facilitates exports by streamlining the popular Advance Authorization and EPCG programmes, as well as enabling merchanting trade from India.

Key Initiatives

• Incentive to Remission
• Export promotion through collaboration (Exporters, States, Districts, Indian Missions)
• Ease of doing business
• Emerging Areas (E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy.)

Targets

• The government intends to grow India's total exports to US$ 2 trillion by 2030, with equal contributions from the product and services sectors.

Source: Economic Times

• The government also plans to promote the use of the Indian rupee in cross-border trade, which would be assisted by the RBI's new payment settlement system, which will be implemented in July 2022.
• This could be especially favourable in the case of countries with which India has a trade surplus.

Salient Features

• The new policy has no expiration date and when necessary, subsequent revisions must be made.
• The emphasis has changed from incentives to tax remissions.
• The new policy plans to make the rupee a global currency and India a global trade hub.
• Over 50% reduction in the threshold for recognition of star trade houses.
• Restructuring of the Department of Commerce.
• Digitisation and faster processing of applications.
• Amnesty scheme for the shortfall in export obligations
• Process Re-Engineering and Automation

Greater trust is being placed in exporters through automated IT systems with risk management systems for multiple clearances in the new FTP. The emphasis of the policy is on export development and promotion, shifting from an incentive system to one that is facilitative and built on concepts of cooperation and technological interaction. Given the efficacy of various currently running programmes like Advance Authorization, EPCG, etc. under FTP 2015–20, they will be continued together with significant process re-engineering and technological enablement for the benefit of exporters. FTP 2023 codifies implementation techniques in a paperless, online environment, building on previous 'ease of doing business' initiatives. MSMEs and others will find it simpler to receive export benefits due to reduced cost structures and IT-based programmes.

Regional Offices will now conduct duty exemption programmes for export production in a rule-based IT system environment, eliminating the requirement for the manual interface. During FY24, all processes under the Advance and EPCG Schemes, including issue, re-validation, and EO extension, will be covered in phases. Cases identified under the risk management framework will be reviewed manually, while the bulk of applicants is likely to be covered by the 'automatic' approach initially.

• Towns of Export Excellence

In addition to the existing 39 towns, four new towns have been declared as Towns of Export Excellence (TEE): Faridabad, Mirzapur, Moradabad, and Varanasi. Under the MAI scheme, the TEEs will have priority access to funding for export promotion, and under the EPCG plan, they will be eligible for Common Service Provider (CSP) incentives for export fulfilment. The new approach is expected to increase exports of handlooms, handicrafts, and carpets.

• Recognition of Exporters

Exporter enterprises with 'status' based on export performance will now be partners in capacity-building programmes on a best-effort basis. Like the 'each one teach one' project, 2-star and above status holders would be encouraged to impart trade-related training to interested individuals based on a model curriculum. By doing this, India will be able to develop a skilled labour force that can support a US$ 5 trillion economy by 2030. Status recognition requirements have been re-calibrated to allow more exporting enterprises to attain 4 and 5-star ratings, resulting in improved branding potential in export markets.

• Promoting export from the districts

The FTP intends to foster collaborations with state governments and advance the Districts as Export Hubs (DEH) programme to encourage exports at the district level and expedite the development of the grassroots trade ecosystem. Efforts to identify export worthy products and services and resolve concerns at the district level would be made through an institutional structure - State Export Promotion Committee and District Export Promotion Committee at the State and District levels, respectively. District-specific export action plans will be developed for each district, defining the district-specific strategy for promoting the export of designated products and services.

• Streamlining SCOMET Policy

India is emphasising the "export control" system more as its integration with other countries that adhere to the regime grows. Stakeholders now have a more comprehensive grasp of SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies), and the policy framework is being strengthened to better implement the international treaties and accords that India has signed. A strong export control mechanism in India will allow Indian exporters to access dual-use high-end goods and technology while also facilitating exports of controlled items/technologies under SCOMET from India.

• Facilitating E-Commerce Exports

E-commerce exports are a potential market that necessitates regulatory interventions that differ from traditional offline trade. Various estimates place the potential value of e-commerce exports between US$ 200 billion and US$ 300 billion by 2030. FTP 2023 describes the aim and plan for developing e-commerce centres, as well as related features such as payment reconciliation, bookkeeping, returns policy, and export rights. As a starting point, the consignment-wise cap on E-Commerce exports by courier has been raised from US$ 6,091.47 (Rs. 5 lakh) to US$ 12,182.94 (Rs. 10 lakh) in the FTP 2023. This cap will either be further changed or eventually eliminated depending on exporters' feedback. The integration of Courier and Postal exports with ICEGATE will allow exporters to obtain FTP benefits. The comprehensive e-commerce policy covering the export/import ecosystem would be developed soon, based on the suggestions of the working committee on e-commerce exports and inter-ministerial deliberations. Extensive outreach and training initiatives will be undertaken to enhance the ability of craftsmen, weavers, garment manufacturers, gems and jewellery designers in order to onboard them on E-Commerce platforms and facilitate increased exports.

The EPCG Scheme, which permits capital goods import at zero Customs charge for export production, is being further rationalised. Some significant additions include:

• Facilitation under the Export Promotion of Capital Goods (EPCG) Scheme
  • The Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been included as an additional scheme eligible for benefits under the CSP (Common Service Provider) Scheme of the Export Promotion Capital Goods Scheme (EPCG).
  • To assist the dairy industry in modernising its technology, the dairy sector will be excluded from maintaining the average export obligation.
  • Battery Electric Vehicles (BEVs) of all types, Vertical Farming Equipment, Wastewater Treatment and Recycling, Rainwater Harvesting Systems and Rainwater Filters, and Green Hydrogen have been added to the list of Green Technology items that are now eligible for reduced export obligations under the EPCG Scheme.

The Advance authorisation scheme accessed by DTA units enables duty-free import of raw materials for manufacturing export items and is comparable to the EOU and SEZ schemes. However, the DTA unit is flexible enough to work for both local and export production. Based on discussions with business and Export Promotion Councils, the current FTP now includes provisions for facilitation like

• Facilitation under the Advance Authorisation Scheme
  • Special Advance Authorisation Scheme extended to the export of Apparel and Clothing industry under para 4.07 of HBP on the self-declaration basis to promote rapid execution of export orders - Norms would be defined within a fixed timeframe.
  • The benefits of the Self-Ratification Scheme for the establishment of Input-Output Norms are extended to 2-star and above status holders as well as Authorised Economic Operators.

• Merchanting trade

The FTP 2023 has included measures for merchanting commerce in order to transform India into a merchanting trade powerhouse. Merchanting trade of restricted and prohibited commodities under export policy would now be possible. Merchanting trade entails the shipment of products from one foreign country to another foreign country without passing through Indian ports and using an Indian intermediary. This is subject to following RBI regulations and won't apply to products or items that are on the CITES or SCOMET list. This will eventually enable Indian entrepreneurs to transform locations like GIFT City, etc., into important commercial hubs like those in Dubai, Singapore, and Hong Kong.

• Amnesty Scheme

Finally, the government is highly dedicated to reducing litigation and developing trust-based relationships to help exporters overcome challenges. In accordance with the "Vivaad se Vishwaas" programme, which aimed to resolve tax disputes amicably, the government is proposing a unique one-time Amnesty Scheme under the FTP 2023 to address default on Export Obligations. This scheme is intended to provide relief to exporters who have been unable to meet their responsibilities under EPCG and Advance Authorizations, and who are burdened by excessive duty and interest charges associated with outstanding cases. All outstanding cases of default to meet the Export Obligation (EO) of the authorizations can be resolved by paying all customs duties that were waived in proportion to the unfulfilled Export Obligation. Under this arrangement, the maximum amount of interest that can be paid is 100% of the exempted duties. However, no interest is payable on the amount of Additional Customs Duty and Special Additional Customs Duty, which is likely to bring relief to exporters as the interest burden is reduced significantly. It is envisaged that the amnesty will provide these exporters with a fresh start and an opportunity to comply.

Road Ahead
The FTP 2023 is a dynamic policy that aspires to significantly increase India's exports and growth in the upcoming years. With an emphasis on ease of doing business, technological interface, and collaboration, the policy is designed to assist the expansion of the export industry while also establishing a favourable climate for MSMEs and other firms to gain export benefits. The FTP 2023 is a road map for India's exports to attain new heights and emerge as a global leader in the export business.