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Editorial Articles


Issue no 04, 22-28 April 2023

New Foreign Trade Policy Shifting Gears to Leverage Economic Capabilities

 

Sujeet Yadav

 In the year 2022, the term "crisis" dominated the global discourse as the world continued to reel from shocks in geopolitics, energy and economics. Even the most advanced economies struggled to make a complete revival from the COVID-19 induced slowdown. Moreover, polarization over the Russia - Ukraine conflict and the deepening discord between China and the US, shrunk the space for the developing world to pursue their developmental agenda. It was at this backdrop that the Indian economy continued to maintain an upward growth trajectory, contributing a staggering 15% of global growth, prompting the International Monetary Fund (IMF) to dub India as a relative "bright spot" in the world economy. This resilience can be attributed to effective digitisation, prudent fiscal policy, and significant financing for capital investments. These factors have not only enabled the Indian economy to recover but also sustain its growth momentum. In order to carve out a distinctive place for India in the world's political and economic landscape, policy makers are striving with a keen sense of purpose to consolidate the domestic foundations that are the key to India's growth momentum. Hence, India's new Foreign Trade Policy (FTP), that came into effect from 1st April 2023, is laser-focused on fostering greater efficiency in export procedures, promoting ecommerce exports, providing adequate support for micro, small, and medium-sized enterprises, and bolstering India's capacity to engage in Rupee-based trade with other nations. These initiatives embody India's resolute determination to assert its influence on the world stage and to position itself as a dynamic and forward-looking global power.

Key Highlights of India's new FTP

·         The new Foreign Trade Policy has the bold aim to increase the country's exports to US $2 trillion by 2030. The policy proposes to shift from an incentives-based regime to a remission and entitlementbased one to achieve this goal.

·         Unlike previous policies, the new FTP has no specific end date, with the flexibility to revise it as needed.

·         The policy places a premium on improving the 'ease-ofdoing-business', while also targeting emerging sectors like e-commerce and export hubs. By prioritising such areas, the policy seeks to stimulate growth, foster innovation, and provide an environment conducive for businesses to flourish.

·         A consultative mechanism has been introduced to effectively address traderelated concerns and provide timely feedback. In the event of certain sectors feeling marginalised by the new policy, they would have a reliable recourse to seek redressal

·         FTP-2023 aims to enhance export promotion through the facilitation of strategic partnerships between exporters, states, districts, and Indian Missions abroad.

·         The towns of Faridabad, Moradabad, Mirzapur, and Varanasi have been declared as "Towns of Export Excellence" (TEE) for apparel, handicrafts, handmade carpets and dari, and handloom and handicraft products, respectively. With these latest additions, the list of TEEs has now been extended to encompass a total of 43 towns, signifying the government's commitment to promoting and developing India's exports in diverse sectors

·         Special Advance Authorisation Scheme has been extended to the apparel and clothing sector. The scheme allows for the duty-free import of inputs necessary for manufacturing export products. The quantity of inputs permitted for a given product is determined by specific norms defined by the DGFT (Directorate General of Foreign Trade), which takes into account the wastage generated in the manufacturing process. This scheme is open to manufacturer exporters or merchant exporters with ties to supporting manufacturer(s), who are eligible to avail of the benefits under the Advance Authorisation Scheme.

·         The dairy sector has been exempted from the requirement to fulfill average export obligations. This move is aimed at providing relief to the dairy industry and enabling it to focus on expanding production capacities and enhancing domestic operations, without the added burden of meeting export targets.

·         The FTP aims to propel the growth of e-commerce exports to a substantial US$200-300 billion by 2030. As part of this measure, the value limit for exports via courier service has been raised from Rs 500,000 (equivalent to US$6,081.65) to Rs 1 million (equivalent to US$12,163.30) per consignment, thereby providing a greater impetus to ecommerce exports

·         The policy also envisages the creation of specialised zones with cutting-edge warehousing facilities for ecommerce aggregators. These are as will be thoughtfully crafted to cater to the specific needs of e-commerce, providing a hassle-free inventory management, customs clearance, and returns processing. Moreover, designated processing facilities will also be authorised to carry out last-mile activities like labelling, testing, and repackaging, further elevating the efficiency and convenience for e-commerce aggregators. This transformative shift is expected to bring a new dawn of excellence in e-commerce.

·         The FTP aims to enhance the settlement of international trade transactions in Indian Rupee. This move is aimed at promoting the use of the Indian currency in international trade, which would not only enhance the attractiveness of the Rupee but also reduce transaction costs for traders.

·         To facilitate and expand merchan activities, India has decided to permit merchanting trade which involves the shipment of goods from one foreign country to another foreign country via an Indian intermediary, without the need to transit through Indian ports. However, this trade will be subject to compliance with guidelines set forth by the Reserve Bank of India. It is important to note that this permission will not apply to goods and items that are listed under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and Special Chemicals, Organisms, Materials, Equipment, and Technologies categories (SCOMET). The SCOMET category includes dual-use items that have the potential to be used for both civilian purposes and as weapons of mass destruction.

From Incentives to Remission: Remission refers to the process of refunding or exempting taxes or duties on goods that are exported from a country. One of the primary benefits of remission is that it helps reduce the cost of production for exporters. When exporting goods, exporters are often required to pay taxes and duties on the products they export. These taxes and duties can significantly increase the cost of production, making the products less competitive in the global market. By providing remission, governments can reduce the cost of production for exporters, making their products more competitive and increasing their chances of being exported. Another significant benefit of remission is that it helps promote trade between countries. When goods are exported, they are subject to various taxes and duties, which can be different in different countries. By providing remission, countries can help remove these barriers to trade, making it easier for businesses to export goods and promote trade between countries. Remission also helps promote economic growth and development. By reducing the cost of production and promoting trade between countries, remission can help businesses grow and expand, creating jobs and generating income. This, in turn, can help stimulate economic growth and development, which is essential for countries looking to improve their economic situation. Moreover, the concept of remission helps attract foreign investment. When businesses see that a country is providing remission for exports, they are more likely to invest in that country. This is because they know that they will be able to export their goods at a lower cost, making their business more competitive in the global market.

Decentralising Export Promotion: Empowering Districts & Towns: The new Foreign Trade Policy aims to enhance the country's export competitiveness and promote economic growth by engaging more closely with states and districts, and by decentralising export promotion. To achieve this, institutional mechanisms will be established to identify district-level products and services, and capacity building efforts will be undertaken to support the development of District Export Action Plans (DEAPs) to promote exports. The Director General of Foreign Trade (DGFT) field offices will work in collaboration with District Industries Centers to deliver training, handholding, and outreach programs to support the implementation of these plans. Export promotion efforts will focus on branding, packaging, design, and marketing of the identified product and service items to enhance their competitiveness in the global market. By empowering districts to take a more active role in driving India's export growth, the new foreign trade policy aims to create greater economic prosperity and social development across the country. India has a long and illustrious history of trade, and its towns have played a significant role in the country's economic development. With the government's focus on boosting exports, there is a renewed interest in the potential of Indian towns as hubs for export excellence. Indian towns have all the ingredients necessary to become hubs for export excellence. Thus, with the right interventions, the new Foreign Trade Policy aims to transform the towns into vibrant centres of economic activity, creating jobs and driving India's export growth.

Skilled workforce: Indian towns have a large pool of skilled and semi-skilled workers who are available at a lower cost than their counterparts in larger cities. This makes them an attractive destination for businesses looking to keep their labour costs in check while maintaining quality standards.

Infrastructure: Indian towns have seen a significant improvement in infrastructure in recent years, with better roads, airports, and ports. This has made it easier for businesses to transport their goods from the town to the rest of the country or the world.

Access to raw materials: Many Indian towns are located near areas where raw materials are abundant. This provides businesses with easy access to the materials they need to manufacture their products.

Government support: The Indian Government has launched several initiatives to promote exports, and many of these are targeted at small and medium-sized businesses. These initiatives include schemes for financial assistance, subsidies, and tax breaks. The government has also set up Export Promotion Councils (EPCs) in various towns to provide guidance and support to businesses looking to export their products.

Competitive advantage: Indian towns have a unique advantage over their counterparts in other countries. India has a rich cultural heritage, and many of the products manufactured in Indian towns are handmade or crafted using traditional techniques. This gives them a competitive edge over products manufactured using machines in other countries.

Diversification: Indian towns are not limited to any specific industry. They have a diverse range of industries, including textiles, handicrafts, jewellery, leather goods, and food processing. This diversification makes them less vulnerable to economic downturns in any one industry.

Potential for growth: Indian towns have a lot of room for growth, as many of them are still untapped markets. With the right support and infrastructure, they can become major players in the export market.

One Time Amnesty for Settlement of Defaults: In order to facilitate a one-time settlement of defaults in Exports Obligations (EO), an amnesty scheme has been introduced. The amnesty scheme extends the opportunity for holders of Advance Authorisation and Export Promotion of Capital Goods (EPCG) Authorisation to rectify all pending cases of default in EO by remitting all customs duties that were originally exempted, proportional to the unfulfilled EO. In order to ensure a fair settlement, the maximum interest rate levied will be restricted to 100 percent of such duties exempted, while no interest will be charged on the component of Additional Customs Duty and Special Additional Customs Duty. It is important to note that the amnesty scheme is subject to a limited window of availability, concluding on September 30, 2023. It is worth mentioning that cases currently under investigation for fraud or diversion will not be eligible for this scheme.

Internationalisation of Indian Rupee: To understand India's efforts towards internationalising trade in Rupee, we must first understand the concept of trade currency. Trade currency refers to the currency that is used in international trade transactions. Traditionally, the US dollar has been the dominant currency used in international trade due to its stability, liquidity, and the global influence of the United States. However, the use of the US dollar in international trade has been a source of concern for many countries, including India. India has been a vocal advocate of reducing the world's reliance on the US dollar as the dominant trade currency. The internationalisation of trade in Rupee would mean that the Rupee could be used as a currency for international trade transactions, reducing the dependence on the US dollar. India has taken several steps towards internationalising trade in Rupee. In 2013, India and Iran agreed to conduct their trade in Rupee, as the US-led sanctions on Iran made it difficult for India to use the US dollar for trade with Iran. This move was a significant step towards the internationalisation of trade in Rupee. Since then, India has signed similar agreements with several other countries, including the UAE, Russia, and Japan. Another significant step towards the internationalisation of trade in Rupee is the establishment of the Rupee trade settlement mechanism which the new Foreign Trade Policy seeks to bolster. Under this mechanism, India allows exporters and importers to settle their trade transactions in Rupee instead of the US dollar. This mechanism has been a gamechanger for Small and MediumSized Enterprises (SMEs) that face difficulties in accessing the US dollar. The Rupee trade settlement mechanism has also helped India in reducing its current account deficit by reducing its dependence on the US dollar. India's efforts towards internationalising trade in Rupee have several other benefits. It helps in reducing transaction costs for Indian businesses, especially SMEs. It also helps in reducing the current account deficit by reducing the need for foreign exchange reserves. It could potentially increase the demand for Rupee in the global market, leading to its appreciation. India's effort towards internationalising trade in Rupee is a step in the right direction towards creating a more balanced and sustainable global economic system.

Conclusion: Domestically, the implementation of the new Foreign Trade Policy is poised to bring about significant advantages to several sectors of the economy. The new FTP provides opportunities for textile businesses to claim additional benefits provided under the recently introduced PM Mega Integrated Textile Region and Apparel Parks. This could help drive growth and investment in the sector. The dairy sector is set to benefit from exemptions under the FTP, which will enable them to maintain their competitiveness in domestic markets without being burdened with the obligation to maintain an average level of exports. In terms of green technology, the FTP aims to support the adoption of sustainable practices by incentivising the use of environmentally-friendly products. Battery electric vehicles and vertical farming equipment are two examples of new products that have been added to the green technology category. Additionally, waste water treatment and recycling, rainwater harvesting systems, rainwater filters, and green hydrogen have also been included in the list of green technology products. Under the Export Promotion Capital Goods (EPCG) scheme, green technology products are now eligible for a reduced export obligation requirement. This policy change is intended to encourage the production and export of green technology products, which could help boost economic growth while simultaneously promoting sustainable practices. On the global front, India's aspiration to influence the global balance of power rests on its capacity to establish itself as an indispensable player in the world's economic landscape. Such economic strength provides the nation with the means to assume an active and constructive role in global affairs, thereby enabling India to become a valuable contributor towards addressing key global challenges. This requires India to actively leverage its economic capabilities to achieve strategic objectives. The new Foreign Trade Policy aims to do exactly that.

(The author is a Correspondent in a leading international news platform. He can be reached at sujeetkjourno@gmail.com)

Views expressed are personal.