foreign trade policy: why extending foreign trade policy could help strengthen cross-border trade

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The current Foreign Trade Policy (FTP), which was due to expire on March 31 this year, has been extended yet again. The policy has been delayed several times since April 1, 2020, largely due to the pandemic. However, this time, various factors came into play, namely the current global supply chain crisis, geopolitical tensions between Russia and Ukraine, and the irregularity of Covid-19 standards around the world.

By contrast, Indian exports have outperformed in recent months and hit their ambitious target of $400 billion. This speaks volumes about Indian MSMEs and their resilience as they contribute around 50% of the country’s exports. As Indian MSMEs are ready to reach their next stage of growth, this extension offers us the opportunity to analyze the current FTP and visualize how it can be improved to enhance the export potential of “Brand India”.

FTP analysis 2015-2020

The FTP 2015-2020 helped facilitate the streamlining of policies and procedures. The formulation of the Service Exports from India Scheme (SEIS) and the former Merchandise Export from India Scheme (MEIS) are examples. SEIS, which replaced the Served from India (SFIS) program, extends benefits to service providers located in India and removes restrictions on the use of certificates. On the other hand, the former MEIS program provided exporters with duty credit certificates to enhance the competitiveness of Indian product portfolio in the global market. However, it failed to meet World Trade Organization (WTO) standards.

To replace the MEIS, the government has launched the Refund of Duties and Taxes on Exported Products (RoDTEP) scheme, which has been in effect since the beginning of this year. The program extends benefits to various sectors, including the automotive, electronics and electrical industry, agriculture, gemstones and jewelry, and leather. It promises to facilitate the digitization of business procedures and the reimbursement system by maintaining an electronic register and issuing electronic certificates. The RoDTEP aims to encourage exporters to be self-sufficient and to gain a competitive advantage for the quality of the product they export instead of simply relying on subsidies to be competitive. Unfortunately, although exporters are still seeking clarification on this relatively new regime.

In addition, the government has expressed its priority to work on the Special Economic Zones (SEZ) policy announced in this budget to bring it into line with the WTO. Creating our future policies and programs in line with WTO rules is a serious task that policy makers must strive to tackle in the meantime. This will ensure that India’s export ambitions are in line with WTO mandates to build stakeholder confidence and avoid disputes on the international front.

The current FTP also allows exporters to claim GST refunds to the IGST account paid for goods/services exported and bonded without the payment of tax. SEZs with zero-rated supplies can also apply for IGST refunds. In addition, the certificates can be used for various duties, including the transitional safeguard duty per product, the basic customs duty and the anti-dumping duty for items covered by the GST regime.

The MSME sector can access duty credit scenarios ranging from 2-7% of the free on board (FOB) value of exports. In addition, export performance of MSMEs is given double weight when considering status certificate parameters. The General Directorate of Foreign Trade (DGFT) is also training 90 clusters of MSMEs by strengthening their knowledge of international trade protocols. In addition, steps are being taken to develop a strong logistics network through technological interventions facilitated by the Ministry of Commerce. These initiatives will take time and it will take time to implement them properly. So, in a way, a delayed FTP would benefit us all.

If such a delay is expected, it could serve to strengthen the existing policy by adding a few key elements:

Promote geographical indication (GI) products

The export product portfolio could be made more diversified and competitive by recognizing products with the GI label. Using the GI label lends authenticity to Indian products, builds buyer confidence and leads to significantly better prices for products. Recently, Trade Minister Piyush Goyal also spoke of capitalizing on the very possibility of getting GI labels for Indian spices to promote the “Indian brand” globally.

Promotion of e-commerce

Progress made on the digitization front could be further extended to recognize the potential of e-commerce in cross-border trade. This could be especially beneficial for small businesses that no longer have to deal with shipping and shipping analytics. Instead, these companies can take advantage of the strong logistics network and personalized analytics that e-commerce offers to reduce the hassle associated with cross-border trade compliance.

Centralization and digitization of trade facilitation processes

According to the Ministry of Trade and Industry, modernizing export processes, including physical and virtual infrastructure, could significantly improve trade reach and save up to $872.99 million per year.

Creation of a trade promotion organization

There is a need to establish a dedicated trade promotion body that includes various stakeholders. Each of these entities can be assigned a sub-goal and a target, which collectively add up to the country’s export production. This will also help to ensure the regular formulation of export strategies for promotion.

Initiative “The district as an export hub”

The “District as a Hub” initiative can help small businesses boost their export potential, open up access to new markets and increase production. As small businesses are not necessarily equipped with the required systems knowledge, the initiative could greatly help them develop a long-term view of business prospects. The Ministry of Trade and Industry has claimed that the Rs 10,000 crore scheme aims to develop some 700 districts in the country as export hubs.

Conclusion

As we await the new FTP, now is the time to thoroughly reassess existing export policies and proactively chart the course for export growth. The exporting community looks to the upcoming FTP to strengthen the provisions of the RoDTEP program, strengthen the research and development ecosystem, broaden the scope of digitization to cover necessary trade procedures, and promote e-commerce facilities, among others. Irrespective of the maintenance of the existing policy for a longer period or the entry into force of the new FTP, there is no doubt that the vision of “Brand India” will transform the export sector into a force with which it will take count.

(The author is CEO/Co-Founder, Drip Capital)

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