Recently the Ministry of Commerce and Industry launched India’s Foreign Trade Policy applicable with effect from April 1, 2023 without having a sun-set clause. The previous Foreign Trade Policy was declared in the year 2015 with a fixed tenure. Therefore, the policy changes were being undertaken largely through notifications without announcement of a new FTP which could have perhaps responded more dynamically to the emerging situations. The new policy does not have an expiry date and thus takes a more dynamic and responsive approach as the constituents of the policy are likely to adapt to the changing requirements of the foreign trade as and when required.
The new FTP policy aims to increase the volume of India’s export of goods and services to $2 trillion by the year 2030, encourage trade settlements in rupee and adopt measures to adhere to the globally acknowledged principle that duties are not exported. All these goals are mutually supporting the objective of growth in foreign trade and are well aligned with overall development strategy of the Indian economy.
India’s total exports, including services and merchandise exports, are projected to cross US$ 760 billion in the financial year 2022-23 as against $676 billion in the previous year 2021-22. In the recent years not only the export basket has been diversified but also, the Indian exporters were able to penetrate through newer markets and get more deeply involved in the global value chain.
The FTP, 2023 adopts a multipronged approach
The new foreign trade policy is reported to be based on principles of ‘trust’ and ‘partnership’ with exporters. The Key Approach to the policy is based on these 4 pillars:
Note: 4 Pillars of India’s Foreign Trade Policy.
In a nutshell, the FTP is going to take a collaborative approach with the exporters at the micro and macro levels and is likely to facilitate ease of doing business for exporters through focus on process re-engineering and automation, encouraging emerging areas like dual use high end technology items consisting of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) items, facilitating e-commerce export and collaborating with States and Districts for export promotion.
FTP adopts a futuristic Approach
The new FTP is introducing a one-time Amnesty Scheme for exporters to close the old pending authorizations and so it gives them an opportunity to start afresh. While it encourages recognition of new towns through “Towns of Export Excellence Scheme”, it also recognizes exporters through “Status Holder Scheme”. The FTP 2023 is facilitating exports by streamlining the popular Advance Authorization and the Export Promotion Capital Goods (EPCG) schemes, and enabling merchanting trade from India. Under Merchanting Trade, the import part and the export part of the transaction are completed without the goods actually entering the borders of India.
Role of Technology and Innovation
Greater faith is being reposed on exporters through automated IT systems with risk management system for various approvals in the new FTP. The policy emphasizes export promotion and development by moving away from an incentive based regime to a regime which is based on technology interface and principles of collaboration through substantial process re-engineering and technology enablement for facilitating exports.
FTP 2023 builds on the ongoing ‘ease of doing business’ initiatives and codifies implementation mechanisms in a paperless, online environment. For instance, Duty exemption schemes for export production will now be implemented through Regional Offices in a rule-based IT system environment, which will eliminate the need for manual interface. The exporters, especially in the MSME sector, are likely to benefit from the reduction in fee structures and introduction of IT-based schemes to access export benefits.
Increase in the number of Designated Towns of Export Excellence
There are 39 towns which have already been designated as Towns of Export Excellence (TEE) under the erstwhile FTP. Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been added to this list. This addition is expected to boost the exports of handlooms, handicrafts, and carpets. The TEEs will have priority access to export promotion funds under the Market Access Initiative (MAI) Scheme and will be able to avail Common Service Provider (CSP) benefits for export fulfillment under the EPCG Scheme.
Building a skilled manpower pool for servicing a $5 Trillion economy before 2030
Under the New FTP, the Exporter firms which are recognized with ‘status’ based on their respective export performance, will now be partners in capacity-building initiatives on a best-endeavor basis. Export firms holding a 2-star and above status would be encouraged to provide trade-related training based on a model curriculum to interested individuals. This is expected to help India build a skilled manpower pool capable of servicing a $5 Trillion economy before 2030. Status recognition norms have been re-calibrated to enable more exporting firms to achieve 4 and 5-star ratings, leading to better branding opportunities in export markets.
Improving grassroots trade ecosystem
The FTP aims at building partnerships with State governments to promote Districts as Export Hubs (DEH) and thus strengthening grassroots trade ecosystem. The following initiatives are being taken in this area:
- identify export worthy products & services and resolve concerns through an institutional mechanism comprising of State Export Promotion Committee and District Export Promotion Committee at the State and District level, respectively.
- prepare export action plans for outlining district specific strategy to promote export of identified products and services.
Streamlining SCOMET Policy
The FTP aims at strengthening “export control” regime particularly in the case of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) through robust implementation of international treaties and agreements entered into by India. It would provide access of dual-use High end goods and technologies to Indian exporters while facilitating exports of controlled items/technologies under SCOMET from India.
Facilitating E-Commerce Exports
The e-commerce export potential has been projected to be in the range of $200 to $300 billion by 2030. The FTP provides for the promotion of the E-commerce exports which require policy interventions that are distinct from traditional offline trade. The FTP provides for :
- establishing e-commerce hubs and related elements such as payment reconciliation, book-keeping, returns policy, and export entitlements.
- increasing the consignment wise cap on E-Commerce exports through courier from ₹5Lakh to ₹10 Lakh which may be further increased/even removed.
- integration of the Courier and Postal exports with ICEGATE in order to enable exporters to claim benefits under FTP.
- charting out a comprehensive e-commerce policy to strengthen the export/import ecosystem for their growth
- providing extensive training to artisans, weavers, garment manufacturers, gems and jewellery designers for exports through E-Commerce platforms.
Strengthening EPCG
FTP, 2023 has taken additional initiatives under Export Promotion Capital Goods Scheme (EPCG) as under:
- Dairy sector will be exempted from maintaining Average Export Obligation.
- Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling, Rainwater harvesting system and Rainwater Filters, and Green Hydrogen have been added to Green Technology products and so now they will become eligible for reduced Export Obligation requirement under EPCG Scheme.
Facilitation under Advance authorization Scheme
Domestic Tariff Area (DTA) units can access Advance Authorization Scheme which provides for duty-free import of raw materials for manufacturing export items similar to Export Oriented Units (EOU) and Special Economic Zone (SEZ) Scheme. However, the DTA unit has the flexibility to work both for domestic as well as export production and so certain facilitation provisions have been added in the present FTP such as:
- including export of Apparel and Clothing under Special Advance Authorization Scheme on self-declaration basis to facilitate prompt execution of export orders subject to applicable norms.
- extending the Benefits of Self-Ratification Scheme available to Authorized Economic Operators for fixation of Input-Output Norms to all exporters having 2 star and above status.
Hence the new FTP policy is moving away from incentives to a remission and entitlement-based regime. The policy is being considered as dynamic and has no end date such that it will keep changing or updating based on feedback received from the stakeholders.
Reference: This article is published by the Author in the Newsletter “KnowFunda Digest” (11th Edition) on LinkedIn on April 1, 2023