Date: 19/10/2022

Relevance: GS- 2: Bilateral Agreements involving India and/or affecting India’s interests.

Key Phrases: Commerce Ministry, Foreign Trade Policy, DGFT, Cross-border trade, Production linked incentive, WTO’s, Export incentive schemes, Export basket, RoDTEP scheme, Advance Authorization scheme, Manufacture and Other Operations in Customs Warehouse, EXIM.

Why in News?

• The proposed foreign trade policy must clear the clutter in laws and regulations for the export community’s benefit.

Context:

• The Commerce Ministry has once again deferred the launch of its new foreign trade policy (FTP) as it felt the need to have wider consultation with industry.
• With the global economic downturn and the surmounting uncertainties about the future, the FTP has to be re-engineered to capture the new normal. Perhaps the further delay in announcing the FTP would give the policy tank more time to research and launch new schemes for the trading community.

What is Foreign Trade Policy?

• It is a set of guidelines and instructions established by the DGFT in matters related to the import and export of goods in India. The Government of India, Ministry of Commerce and Industry announces Export-Import Policy every five years.
• DGFT is the Directorate General of Foreign Trade, which is an attached body to the Ministry of Commerce and Industry.
• The current FTP (from 2015-20 but extended thereafter till March 2023, due to the COVID pandemic, the new policy release got delayed.) is a policy document that spells out the objectives and strategies to boost exports.

Importance of FTP

• It sets out the regulations for cross-border trade.
• It also clears the government's position on various variables such as technology flow, intangibles, etc.
• This is essential to reveal the country’s position and alignment with flagship programmes like
  • Local for Global and PLI (Production linked incentive) schemes,
  • WTO’s ruling against India’s export incentive schemes(EIS),
  • An overdue review of the SEZ scheme,
  • Changing geographical profiles of India’s export basket.
• Hence, it is essential to bring out the policy which ensures the interest of all the domestic stakeholders and irons out policy uncertainties.

Challenges related to Trade Policy:

• Often broader trade policy challenges get more attention than operational challenges faced by the trade community. The government also feels that operational issues are recurring in nature and can be handled throughout the year. There are four major operational challenges that deserve utmost attention.
  • Issues with Remission of Duties and Taxes on Export Products (RoDTEP) scheme:
    • The scheme aims at neutralising the taxes at the State and local levels not otherwise refunded under any other mechanism. But this does not include “cess and levies,” which have emerged as a potent instrument in recent years, to collect funds for designated purposes.
    • Not only this, the RoDTEP benefits are confined to limited sectors and a number of important sectors such as pharmaceuticals, chemicals and steel are out of its purview.
    • It is important to understand that the RoDTEP is a refund of duties and taxes (electricity duties, petroleum taxes, stamp duty etc.) which are embedded in manufactured products for exports. These taxes and duties are also applicable to excluded sectors and therefore need to be refunded to all sectors.
  • Pending cases of redemption
    • There is long list of pending cases of redemption with respect to Advance Authorization scheme due to pre-import conditions. This needs to be sorted out immediately by withdrawing the pre-import condition retrospectively.
  • Dual monitoring:
    • The government had introduced Manufacture and Other Operations in Customs Warehouse (MOOWR) in 2019 to facilitate duty free imports for exports under the Customs bonded warehouse. This scheme is akin to Export Oriented Units (EOU) of the FTP.
    • Since, the EOU scheme has dual monitoring, one by Development Commissioner and another by customs, it is better to bring about a simple methodology for conversion of existing units under EOU scheme into MOOWR scheme.
    • Further, there are significant ambiguities on the scope of operations, depreciation provisions relating to capital goods etc., which need to be addressed for greater transparency.
  • Multiple regulations:
    • Imports are subject to compliance with domestic laws as outlined in the FTP. It provides a generic guideline and actual regulations are multiple and not available at a single point.
    • There is need to provide greater clarity and explanation of laws, rules, orders, regulations and technical specifications stipulated in the existing FTP. Also a separate appendix in the Handbook of Procedures covering all compliances under various domestic laws is required.

Measures that the government should adopt in new FTP:

• The FTP should focus on the following elements:
  • Shipping Industry
    • India’s shipping industry needs to be seriously revamped considering the ongoing crisis that the sector is facing.
    • The government must take advantage of the container shortage situation by setting up manufacturing facilities for container production and educating the interested players.
    • To secure lower logistics costs and boost its ranking, India needs to put in more effort to improve the overall shipment processing lead times at custom clearance houses as well as further develop the entire national transport system. The plan to introduce ‘freight smart cities’ to enhance urban freight efficiency is a move in the right direction.
  • Financing
    • With traditional lending institutions like banks becoming more risk-averse in the wake of the pandemic, the new FTP should involve provisions to promote the upcoming non-traditional sources of funding/lending for the MSME sector.
  • Service Exports
    • To achieve the ambitious target of $700 billion service exports by 2028, India needs to be much more integrated with the global economy and accelerate its digital transformation to become a vital player.
    • MSMEs in the service sector usually lack the means to adequate funding. Thus, policies under the new FTP should definitely focus on developing mechanisms that help financiers better analyse the health of service firms and disseminate more funds to them.
  • Competing with China
    • Going into the post-pandemic world, it is time that the policymakers realize the need to diversify manufacturing and supply facilities to various locations outside China.
    • India needs to position itself as a manufacturing hub by setting up schemes and proposals to lure foreign companies to develop production units in the country, with many nations now looking for alternative geographies to China.
  • Free Trade Agreements
    • FTP should also focus on building strategic relationships with diverse nations so our exporters can benefit from the concessional tariffs in major markets.
    • Since more countries are now looking to adopt the ‘China-plus-one’ strategy, India needs to quickly strengthen its relations.
  • A shift in Export Basket
    • For India to reach its ambitious target of $1 trillion exports by 2026 and to march on the path to sustainable recovery after the pandemic, India needs to re-examine the components of its export basket.
    • The new FTP should encourage manufacturing and export of value-added final goods or even intermediate goods with strong global demand.
    • India needs to diversify towards manufacturing more complex products that require the integration of advanced technology.
  • Digitization & E-commerce Exports
    • The importance of e-commerce and digitization cannot be ignored, advancing in the post-pandemic world. Efforts should be made to reduce unnecessary bureaucracy by moving towards paperless and digital mechanisms.

Way Forward:

• With the FTP being extended yet again, schemes like RoDTEP need to be fine-tuned as exporters will heavily rely on it for the next six months until the government launches novel schemes under the new FTP. So, the time has come to maximize this scheme to garner the best results. Only when India can address at least some of these significant concerns can it truly achieve its export objectives.

Source: The Hindu BL

Mains Question:

Q. What are the key areas of concern with the current Foreign Trade Policy? Suggest measures to boost exports from India.