The current Foreign Trade Policy (FTP), which was set to lapse on March 31 this year, has yet again been extended. The policy has been delayed multiple times since April 1, 2020, largely due to the pandemic. However, this time there are various factors that have come into play– namely the ongoing global supply chain crisis, the geopolitical tensions between Russia and Ukraine, and the irregularity in the covid-19 norms worldwide.
On the other hand, Indian exports have outperformed in recent months and have achieved its ambitious target of $400Bn. This speaks volumes about Indian MSMEs and their resilience as they contribute around 50% to the country’s exports. With Indian MSMEs set to achieve their next leg of growth, this extension presents us with an opportunity to analyze the current FTP and visualize how it can be improved to enhance the export potential of ‘Brand India.’
Analysis of FTP 2015-2020
The FTP 2015-2020 has helped facilitate both policy and procedural streamlining. The formulation of the Service Exports from India Scheme (SEIS) and the erstwhile Merchandise Export from India Scheme (MEIS) are examples of the same. SEIS, which replaced the Served from India Scheme (SFIS), extends benefits to service providers located in India and removes restrictions pertaining to scrips use. On the other hand, the former MEIS scheme provided exporters duty credit scrips to enhance the competitiveness of the Indian product portfolio in the global market. However, it failed to comply with the World Trade Organization (WTO) norms.
To replace MEIS, the government launched the Refund of Duties and Taxes on Exported Products (RoDTEP) scheme, which has been effective since early this year. The scheme extends benefits to various sectors, including automobiles, electronics and the electrical industry, agriculture, gems and jewelry, and leather. It promises to facilitate the digitization of trade procedures and the rebate system by maintaining an electronic ledger and issuing e-scrips. RoDTEP intends to encourage exporters to be self-sufficient and gain a competitive advantage for the quality of the product they export instead of merely relying on subsidies to be competitive. Unfortunately though exporters are still seeking clarity on this relatively new scheme.
Moreover, the government has expressed its priority to work on the Special Economic Zones (SEZ) policy announced in this budget to make it WTO compliant. Creating our future policies and schemes that adhere to the WTO regulations is a serious task that policymakers have to work toward addressing in the interim. This will ensure India’s export ambitions comply with the WTO mandates to bolster stakeholder confidence and avoid disputes on the international front.
The current FTP also allows the exporters to claim GST refunds on account of IGST paid for goods/services exported and under a bond without the tax payment. SEZs with zero-rated supplies can also claim IGST refunds. Furthermore, scrips can be utilized for various duties, including transitional product-specific safeguard duty, basic customs duty, and antidumping duty for articles covered under the GST scheme.
The MSME sector can gain access to duty credit scripts ranging from 2-7% of the Free on Board (FOB) value of exports. Additionally, the export performance of MSMEs is given double the weightage while examining the parameters for the Status Certificate. The Directorate General of Foreign Trade (DGFT) is also training 90 MSME clusters by strengthening their knowledge of international trade protocols. Also, measures are being taken to develop a robust logistics network through technological interventions facilitated by the ministry of commerce. These initiatives will take a while, and time would be required to implement the same properly. So, in a way, a delayed FTP would benefit us all.
If we are expecting such a delay, it could allow for the strengthening of the existing policy through the addition of a few essential components:-
Promoting Geographical Indication (GI) products
The export product portfolio could be made more diverse and competitive by recognizing products with the GI tag. The use of the GI tag lends authenticity to Indian products, reinforces buyer confidence, and fetches significantly better pricing for the products. Recently, commerce minister Piyush Goyal also spoke about capitalizing on the very possibility of attaining GI tags for Indian spices to promote ‘Brand India’ on a global scale.
The progress made on the digitization front could further be expanded to recognize the potential of e-commerce in cross-border trade. This could be especially beneficial to small companies which no longer have to deal with shipment and shipment analytics. Instead, such businesses can leverage the strong logistics network and customized analytics that e-commerce offers to reduce the hassles associated with cross-border trade compliance.
Centralization and digitization of trade facilitation processes
As per the commerce and industry ministry, the modernization of export processes, including physical and virtual infrastructure, could radically enhance the scope of trade and save up to US$ 872.99 million annually.
Setting up a trade promotion body
There is a need to establish a dedicated trade promotion body that includes various stakeholders. Each of these entities can be given a sub-goal and target, which collectively adds to the country’s export output. This will also help ensure the regular formulation of export strategies for promotion.
‘District as exports hub’ initiative
The ‘District as a Hub’ initiative can aid small businesses in enhancing their export potential, opening access to newer markets, and scaling up production. As small businesses aren’t necessarily equipped with the requisite systems knowledge, the initiative could go a long way in helping them develop a long-term vision for the business’s prospects. The commerce and industry ministry claimed the Rs 10,000 crore scheme aims to develop 700-odd districts of the country as export hubs.
As we await the new FTP, the time is ripe for a detailed re-evaluation of existing export policies and the proactive charting of the course of export growth. The exporter community looks towards the upcoming FTP to strengthen the provisions of the RoDTEP scheme, bolster the research and development ecosystem, expand the ambit of digitization to cover necessary trade procedures and promote e-commerce facilities, among others. Irrespective of whether the existing policy is retained for a more extended period or the new FTP is brought into effect, there is no doubt that the vision of ‘Brand India’ will transform the export sector into a force to be reckoned with.
The article was first published on economictimes.indiatimes.com