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India's economy: New foreign trade policy raises hopes

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  7 April 2015 12:00 AM GMT

Dr B K Mukhopadhyay

How an economy performs overseas is always a point to see – it is interesting and at the same time important. It is interesting because over time India’s economy has been able to expand the range [exports items]. It is important because the overseas markets are intensely competitive so far as the number of products and services which India exports is concerned and how the same is countered.

The much-delayed and the new Foreign Trade Policy [FTP] 2015-20, unveiled on April 1, 2015, have a number of positive points that could help bolster the economy’s exterl sector. As expected the FTP has been aligned with Make in India, Digital India, ease of doing business and India’s free trade pacts with its partner countries.

The foreign trade policy, which is usually announced in April, provides guidelines for enhancing exports with the overall objective of pushing economic growth and generating employment. Under the policy, the government gives fiscal incentives to exporters under different promotion schemes [such as Market Access Initiative, Marketing Development Assistance, Vishesh Krishi and Gram Udyog Yoja, Focus Market Scheme, Focus Product Scheme and Market Linked Focus Products Scrip].

The new FTP, keeping in view the average performance in the recent past [falling for the straight third month, India’s exports declined steeply by over 15 per cent to USD 21. 54 billion in February, 2015, even as trade deficit rrowed to USD 6.85 billion] ,reflects the reality.

Steps Smarter?

It is well known a formula today that any plan should be a SMART one [Specific, Measurable, Achievable, Realistic, Time bound] so that subsequently the SMARTER aspects [latter added by Evaluation and Review] could come into play.

As the new policy has come at a time when India’s merchandise exports continue to log a decent growth, having expanded by just 0.88 percent in the first 11 months of the current fiscal, there is an urgent requirement change the stalemate. The question that arises at this juncture is: by implementing the new policy, can India’s share in world trade be doubled [from the present level of three percent] by 2020?

The FTP, no doubt, targets that reasobly. As part of this initiative, the import duty exemption scripts valued at 10 percent of the foreign exchange earned [as given to service exporters as an incentive] have now been made “trade able” and can be used for service tax, customs and excise duty payments. There is no conditiolity in any of the scripts issued under these two schemes. As a measure to boost special economic zones, units within them will also now be able to avail the benefit of the two merged schemes.

What is more: the country’s Foreign Trade Policy for five years will be subject to review annually. No doubt: though the previous policy was for 2009-2014, yet neither was a new policy announced in 2014, nor a review conducted. A good going indeed!

Rightly, incentive, in the form of freely transferable duty scripts that can be used by exporters to pay indirect taxes and duties, will be available to SEZs too. Export obligation under the Export Promotion Capital Goods Scheme has also been reduced, which is a practical step indeed.

Then, it has rightly enumerated the ways to enhance the country’s services exports and includes steps for labour incentive sectors like leather and handicraft.

Difficult but Not Impossible

So, the target of India’s exports to nearly double to $900 billion by 2020, is in a word not a choice but a compulsion. To reach the target all of the sectors have to move north. In the past years, however, the targets remained in paper only.

India should embrace a path towards modern economy to reverse the just experienced slow growth. The US based information technology and innovation foundation (ITIF) said that India should aim to spur across-the-board productivity growth in all sectors based on competitive markets, liberalized trade and robust innovation policies to reverse its slow growth, spur global competitiveness, and restore the Indian economic miracle.

Hopefully, with global growth expected to improve and the expansion in global output likely to be led by developed economies, particularly the USA, India can reasobly hope that growth in export will pick up this year on the back of such recovery.

Locating the non-traditiol markets and non-traditiol products and services is a must; there is no question of losing the gains already bagged so far as traditiol markets, products and services are concerned. Black tea, for example, has a lot of potential for export to Chi. Agricultural products can play better roles. Even we can learn from Bangladesh so far as RMG [ready made garments] sector is concerned.

The new policy would, hopefully, support both the manufacturing and services sectors, with a special emphasis on improving the ease of doing business. Especially, merging all of the exterl commerce programmes into two schemes - the Merchandise Exports from India Scheme (MEIS) and the Served from India scheme (SFIS) for services exporters, in turn, would remove the confusions that normally prevailed.

What about Talk of the Town?

Indian industry welcomed the new policy in which trade facilitation and enhancing the ease of doing business are the other major focus areas. CII director general is not wrong in saying that ‘Indian industry is thrilled with announcements pertaining to simplification in procedures. Overall, the focus of the new policy is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’. FICCI, also rightly observed: “concerted and partnership-based efforts of government and business would certainly be able to raise India’s share in world exports from the present level of 2 percent to 3.5 percent by 2019-20’. FIEO observations on this score is also something to note: ‘the new Foreign Trade Policy has put the focus on states as all factors of production are within the ambit of states…..developing an export strategy, setting up of institutiol support of Export Commissioners and formation of the Council for Trade Promotion and Development would involve states in export promotion which was seriously lacking…. the new policy recognizes the global challenges faced by the export sector and also identifies the sectors which could emerge as winners in five years’.

Assessing the Competitive Strength

When exports move north steadily, definitely a god performance is registered – rise in intertiol competitive strength gets established.

In such an assessment vital indicators that are normally used include: the quality of six different components including efficiency of the clearance process, quality of trade and transport related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments and timeliness of delivery.

So, ultimately the performance of our blue-chip companies would be watched in as much as to what extent they could explore the salient features of the policy announced. On this score the benefits of following an appropriate strategy should not be lost sight of - increased market size; greater returns on major capital investments or new products or processes; greater economies of scale, scope or learning and a competitive advantage through location.

Mention on this score may be made of three strategies - multi-domestic strategy [when strategic and operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market]; global strategy [that assumes more standardization of products across country markets] and transtiol strategy [that seeks to achieve both global efficiency and local responsiveness].

Salient Features of

Foreign Trade Policy 2015-20

* Exports to touch $900 billion by 2019-20 [up from $466 billion in 2013-14]

* Old promotion schemes subsumed under two schemes - “Merchandise Exports from India Scheme (MEIS) and “Services Exports from India Scheme (SEIS).

* Higher level of rewards under MEIS for export items with high domestic content and value addition.

* Incentives extended to units located in special economic zones (SEZs).

* Exports obligation reduced to 75 percent to promote domestic capital goods manufacturing.

* Duty credit scripts made freely transferable and usable for payment of custom duty, excise duty and service tax.

* Mainstreaming of state governments and various ministries in formulating FTP.

* Agricultural and village industry products would be supported across the globe at the rates of 3 percent and 5 percent.

* Focus on defence, pharma, environment-friendly products and value-added exports.

* FTP will be reviewed after two-and-a-half years.

Whether the FTP is realistic in constructing a framework for increasing exports of goods and services, as well as generation of employment and increasing value addition in the country –is a move in the right direction or a myopic one - the future can only prove.

Let us keep our fingers crossed!

(The Writer, a noted Magement Economist and an Intertiol Commentator on contemporary business and economic affairs, attached to The West Bengal State University, can be reached at [email protected])

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