India will aim to more than double its annual exports of goods and services to more than $ 1 trillion by FY26 under the new foreign trade policy (FTP), as it seeks to adjust its policies appropriately to take advantage of an expected rebound in global economic growth, sources told FE.
This will ensure a substantial and sustained increase in exports – at a compound annual growth rate of 15% through FY26, up from around 5% in the five years up to FY20 (before the pandemic).
The country had targeted annual exports (goods and services) of $ 900 billion under the existing CTF, but managed to achieve a maximum of $ 538 billion (in FY19), as shipments of goods have for the most part faltered.
However, government officials believe that given the potential recovery in external demand, high international commodity prices, and the acceleration of domestic manufacturing due to production-related incentive programs, the ambitious target of export could be achieved this time.
Nonetheless, for this to happen, the government will need to address the usual structural issues including high logistics costs, reimburse taxes on inputs consumed in exports on time, and quickly conclude free trade agreements with key markets, believe. exporters.
The next FTP, usually valid for five years, will come into effect on October 1.
Since the FTP is designed in the aftermath of the Covid-19 outbreak, it would aim to ensure greater integration of India into the global supply chain and reduce its high logistics costs. In addition, the Atmanirbhar Bharat initiative will find appropriate expression in politics, one of the sources said.
However, given the re-prioritization of spending, made necessary by the pandemic, the availability of budgetary resources to boost exports may remain insufficient, which could be a major obstacle to impressive trade growth, sources said. To partially offset this, the government could remove a plethora of redundant paperwork and formalities and ease the compliance burden on exporters.
To boost service exports under the new FTP, the government could revamp the Service Export from India (SEIS) program to cover more companies, especially MSMEs, or roll out a new program, have indicated sources. Under the current SEIS, the government offers exporters rights credit certificates for 5-7% of net foreign exchange earned.
The proposed Export Duty and Tax Remission (RoDTEP) scheme for merchandise exporters, whose reimbursement rates have not yet been announced, will also be part of the CTF.
Sources previously told FE that the government may also keep some key export programs, such as those relating to special economic zones and export-oriented units, in the new FTP, although these have been challenged. at the World Trade Organization (WTO). . However, any new scheme within the FTP will be designed in accordance with WTO stipulations.
The government could also strengthen its support for exporting MSMEs to market their products, one of the sources said. It could continue to offer assistance under the Trade Infrastructure for Export (TIES) program, which was to run until 2020 but is still operational. However, aid under the TIES, intended to improve the competitiveness of exports by building trade infrastructure, could be reduced from the initial allocation of Rs 200 crore per year.
Key elements of a national logistics policy, which has been in preparation for months, will likely be included in the CTF. This policy will aim to reduce logistics costs from 13% of GDP to 8% over five years.
Commenting on the export outlook, Ajay Sahai, managing director and chief executive officer of the exporting body FIEO, said order books for supplies through October remain impressive and the trend is likely to continue. However, the offer remains a challenge. Shipping costs have skyrocketed around the world and exporters are facing a severe shortage of containers. Nonetheless, with the support of the government, the export target of $ 400 billion for FY22 can be achieved.
Last week, the International Monetary Fund revised upward its earlier forecast for growth in world trade volume from 130 basis points for 2021 to 9.7% and from 50 basis points for 2022 to 7%. India is expected to benefit from improving global trade prospects once its supply gains traction.