New Foreign Trade Policy 2023: Moving in the Right Direction

[By Dr. H A C Prasad, Former Senior Economic Adviser, Ministry of Finance, GOI]

The New FTP has many positives like the shift from incentives to tax remission which is also WTO compatible, focussing on emerging areas like E-Commerce, developing districts as export hubs, etc.

Some of these important positives and issues & suggestions are the following.

· Rationalising the threshold for recognition of exporters as status holders will enable more exporters to achieve higher status and reduce transaction cost for exporters.

· Merchanting trade reforms involving shipment of goods from one foreign country to another without touching Indian ports and involving an Indian intermediary could help in India’s third country exports.

· Accepting Rupee payments under FTP schemes could help in furthering rupee trade, though furthering rupee trade also depends on its greater acceptance by our trading partners. In India’s new FTAs and also the current ones under implementation, India should push for rupee trade to the extent possible.

· While 4 new towns of export excellence have been declared, there is a need to evaluate the performance of the 39 towns of export excellence already existing.

· Promoting districts as export hubs could help in decentralising export promotion. But this calls for greater effort and coordination between central and state governments and local bodies. While the Outreach programs by DGFT offices could help, greater participation by active chambers of commerce at district level is also needed. Estimating district-wise exports is also a challenging task, when a proper mechanism to estimate state-wise exports is yet to be put in place,

· E-commerce exports is a growing opportunity. Measures like extending FTP benefits to e-commerce exports along with increasing value limit for exports through courier to Rs 10 lakhs per consignment are right moves.

· The one-time amnesty scheme for default in export obligations under Advance License and EPCG authorisations is a good step as all pending cases of default can be regularised by payment of all customs duties exempted in proportion to unfulfilled export obligation and maximum interest is capped at 100% of such duties exempted. While payment of customs duties exempted is reasonable, to make the scheme more attractive, the payment of interest could have been waived (or fixed at a very nominal percentage) as a one-time real amnesty offer, on the lines of exempting interest on Additional Customs Duty and Special Additional Customs Duty. Cases of fraud and diversion should be strictly dealt with.

· The FTP also suggests restructuring the Dept. of Commerce to make it future-ready. This is really important and it would be interesting to see how the Dept of Commerce will proceed in this – Will it lead to the formation of a USTR like structure or will it take the form of METI.

Three things which need some explanations are the following.

1) Why has the FTP not included the recent progress being made by India in FTAs like the India-Australia Economic Cooperation and Trade Agreement, the India-UAE Comprehensive Economic Partnership Agreement and the other FTAs in the pipeline. This could have given a more wholistic trade policy.

2) While clubbing Services exports with Merchandise exports gives a wholistic picture of exports, the strategies and policies to enhance services exports are not exactly the same as those for merchandise exports.

3) The open-endedness of the FTP with no end date is something new. While it indicates the flexibility to make changes whenever needed, the advantages of automaticity of triggering any sun-set clauses associated with a fixed end date policy and a zero-budgeting approach may not be there.