Mid-term review of foreign trade policy: An update

The Indian Government announced the mid-term review of Foreign Trade Policy 2015-20 on December 5, 2017. Overall, the policy is expected to make Indian exports more competitive and thus give them a boost. By diversifying the export basket, it will try and explore new markets and products, besides increasing India's share in its existing traditional domains. Further, the export of agricultural products will also be encouraged for increasing farmers’ incomes.

The mid-term review of FTP is aimed at mid-course correction. It was to be announced on July 1, together with the implementation of the GST regime. But the announcement was postponed to take into account feedback from the export sector regarding GST-related issues.

Importance of foreign trade to Indian economy can be gauged from the fact that it constitutes 45 percent Indian economy, thereby deserving a special focus. The foreign trade policy will continue to provide a stable and sustainable policy environment for foreign trade in merchandise and services and to link rules, procedures and incentives for exports and imports with other initiatives such as ‘Make in India’, ‘Digital India’, ‘Skill India’, ‘Startup India’, Smart City’, `Swachh Bharat’ and ‘Goods and Services Tax’ (GST).

The five-year FTP, which was announced on April 1, 2015, has set a target of India’s goods and services exports touching $900 billion by 2020. It also aims at increasing the country's share of world exports to 3.5 per cent from 2 per cent.

The review was released by Indian Minister of Commerce and Industry, Mr. Suresh Prabhu in the presence of the Minister of State for Commerce and Industry, Mr. C R Chaudhary, Finance Secretary, Mr. Hasmukh Adhia, Commerce Secretary, Ms. Rita Teaotia, Secretary Department of Industrial Policy & Promotion, Mr. Ramesh Abhishek and the Director General of Foreign Trade, Mr. Alok Chaturvedi.

Proactively taking a 360 degree view on the exports front, the Finance Secretary Hasmukh Adhia said, “in view of the GST implementation, the government is working on accelerating the processing of refunds for exporters. Later, the process will be made completely automated, thereby lowering the processing and time required for the refund”.

Ms. Teotia stated that the foreign trade policy will continue with ‘Whole of Government’ approach involving all Ministries and State Governments. The reason for this is that given the diverse elements which contribute towards a conducive foreign trade environment, the foreign trade policy can neither be formulated nor implemented by any one department in isolation.

Highlights

• The policy has restored the benefits under the export promotion schemes of duty free imports under Advanced Authorization, Export Promotion Capital Goods and 100 percent Export Oriented Units. This will be resolving the problem of blocked working capital for exporters following the roll out of GST.
• Merchandise Exports from India Scheme (MEIS) incentive rate will be raised by 2 percent worth INR 80 Billion across the board for labour intensive/MSME sectors. The Indian industry body FICCI welcomes the move. “It was a much-needed step", says FICCI Secretary General Dr. Sanjaya Baru. Some of the major sectors benefited are these:
  • INR 27 Billion for Ready-made Garments and Made Ups in Textiles Sector
  • INR 8 Billion for Leather and Footwear Articles
  • INR 9 Billion for handmade carpets of silk, handloom and coir and Jute products
  • INR 14 Billion for Agriculture and related products
  • INR 11 Billion for Services including Hotel & Restaurant, Hospital, Educational services etc.
  • INR 8 Billion for Marine products
  • INR 4 Billion for Telecom and Electronics Components
  • INR 2 Billion for Medical and Surgical Equipment
• The validity period of Duty Credit Scrips has been raised from 18 to 24 months and GST rates on transfer/sale of scrips has been reduced to zero. Issue of Gold availability for exporters has been resolved by allowing Specified Nominated Agencies to import Gold without payment of IGST. Support to Export Credit Guarantee Corporation is also being enhanced to increase insurance cover to exporters particularly MSME’s exploring new or difficult markets.
• Ease of doing business is being facilitated for exporters by introduction of a new scheme. It allows for self-assessment based duty free procurement of inputs required for exports. There will be no need of Standard Input Output Norms in such cases and this will eliminate delays. It is based on trust. Exporters will self-certify the requirement of duty free raw materials/ inputs. The scheme would initially be available to the Authorized Economic Operators (AEOs) and will get expanded as more exporters join the AEO program. "We welcome the trust-based approach as reflected in the new self-ratification scheme for duty-free import of raw materials. It will greatly help in expediting export of a number of important products such as engineering, pharmaceuticals, chemicals, textiles and high-tech products" observes Dr. Baru of FICCI.
• A new service named Contact@DGFT has been launched on the Directorate General of Foreign Trade (DGFT) website i.e. www.dgft.gov.in. It will be a single window contact point for exporters and importers to resolve all foreign trade related issues. Exporters/Importers can also track status of their queries through the assigned reference number. Feedback mechanism has also been provided.
• A State-of-the-Art Trade Analytics division has been set up in DGFT for data based policy actions. The initiative envisages processing trade information from DGCIS and other national and international databases related to India’s key export markets and identify specific policy interventions.
• Gold availability process has been expedited for exporters by allowing Specified Nominated Agency to import gold without payment of IGST.
• PAN card will now be used as IEC (Import Export Code) to simplify procedures and processes.
• Indian Government will set up a National Trade Facilitation Committee to facilitate ease of trade across borders. It shall cover provisions related to transparency, technology, simplification of procedures, risk based assessment and infrastructure augmentation.
• A new Logistics Division has been created in the Department of Commerce to develop and co- ordinate integrated development of the logistics sector, by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps, and introduction of technology based interventions in this sector. These steps will improve India’s ranking in the Logistics Performance Index (LPI) apart from promoting exports.
• Focus will be given to Ease of Trading across borders. A professional team to handhold, assist and support exporters in their export related problems, accessing export market and meeting regulatory requirements. The team will also examine the procedures and processes in clearances related to trading across borders for their simplification and rationalization and track progress. Dwell time at ICDs, ports and airports is being closely monitored in coordination with Customs, and infrastructure Ministries.
• India’s newer bilateral/regional trade engagements will be with regions and countries that are not only promising markets but also major suppliers of critical inputs and have complementarities with the Indian economy. The focus of India’s future trade relationship with its traditional markets in the developed world would be on exporting products with a higher value addition, supplying high quality inputs for the manufacturing sector in these markets and continued optimization of applied customs duties on inputs for India’s manufacturing sector. In particular, the policy promises to promote India’s trade with specific partner regions in the following ways:
• US - being one of India’s top trading partner and with the US economy on recovery mode, the future bilateral trade prospects are promising. Government plans to focus on strengthening exports to US from employment-generating sectors like textiles, pharmaceuticals, agriculture, leather and gems & jewellery. Indo-US economic relationship gets further strengthened with the access of India’s high skilled Services Sector and increased investment to the US market. Canada and Mexico are other important trading partners in North America with which institutionalized high level dialogues have been established and strengthened.
• EU - it remains a significant market for India’s Information Technology (IT) services. Through the revised foreign trade policy, India is now targeting its trade promotion activities on new products with higher value addition mainly in the product baskets of medical equipment, chemicals, processed foods, as well as services. The EU has introduced a self certification mechanism for exports under the Generalized System of Preferences (GSP), which India has accepted and implemented from 1st January 2017 onwards. This is likely to sufficiently lower transaction costs for Indian exporters under the GSP.
• South Asia - India’s foreign trade relations with its close proximates in South Asia is a notable center of attention for the Indian government. It now aims of building a regional economic zone including value chains in different sectors namely the textiles, engineering goods, chemicals, pharmaceuticals, auto components, plastic and leather products. Here, the improvement in physical and digital connectivity is the main goal of the government. Further, a superiorly connected south Asia will smoothly link to onward routes to South East Asia as well as Central Asia.
• South-East Asia - One of the top priorities of the policy in this region is India’s trade integration with the CLMV (Cambodia, Lao PDR, Myanmar and Vietnam) countries. A Project Development Fund has also been launched to encourage the Indian private sector to set up manufacturing hubs in this region.
• China – it remains India’s most important trading partner in the North East Asia region. One of the agendas of the revised foreign trade policy of India is to continue to pursue market access issues and removal of Non-tariff Barriers on India’s exports of pharmaceuticals and agro commodities, IT services and other service sectors such as tourism, films and entertainment. India also plan to encourage Chinese investment in boosting India’s manufacturing capacities while remaining vigilant against any unfair trade practices.
• Africa - there is tremendous untapped potential for enhancing India’s economic relations with this fast growing region. Agro-processing, manufacturing, mining, textiles, pharmaceutical, engineering, infrastructure development and construction are highly promising areas where Indian foreign trade policy will be focusing. India is also engaging actively with countries and regional groupings in Africa for trade agreements, project exports and capacity building initiatives.

Planned roadmap for increasing India’s trade

A crucial contemplation in shaping the foreign trade policy has been the need to ensure its alignment with India’s interests in trade negotiations, as well as its obligations and commitments under different WTO agreements. Government has ably addressed constraints including infrastructure bottlenecks, high transaction costs, complex procedures, manufacturing issues and inadequate diversification in services. For instance, the Department of Commerce has set up a new Division to promote integrated and streamlined logistics development in the country. Similarly, for addressing gap in infrastructure sector, the Trade Infrastructure for Exports Scheme has been launched. With the signing of the Trade Facilitation Agreement (TFA) at the WTO, the resulting procedural simplification would also contribute to the lowering of transaction costs.

Now one can clearly see that the Government is doing end to end planning for systematically taking the country’s foreign trade to the next level by properly identifying and addressing each bottleneck. The policy aims at a close monitoring of export performances and will enable taking immediate corrective measures based on state-of-the-art data analysis. It will also increase ease of trading across borders. By promoting exports from labour intensive sectors, it will increase employment opportunities for the youth.

Indian vision is far-fetched and its planning to promote foreign trade is on a solid footing. Recently, the Department of Commerce has step by step mainstreamed State and Union Territory (UT) Governments and various Departments and Ministries of Government of India in the promotion of India’s trade globally, resulting in significant outcomes. Twenty eight State Governments have nominated Export Commissioners. They have also prepared their export strategies focusing on sectors of their strength and adopted suitable policies for promoting exports. A Council for Trade Development and Promotion has been constituted with representation of all States to provide an institutional framework to work with the State Governments for boosting India’s exports. Senior officials have been appointed as designated focal points for exports and imports in several Central Ministries and Departments.

At the same time, an institutional mechanism for continuous import appraisal has been put in place to ensure coordinated and rational import policies in various sectors.