1. Column: Realising India’s trade potential with FTP

Column: Realising India’s trade potential with FTP

Only an increase in primary economic activity will provide the tailwind for India’s international trade growth story.

By: | Updated: April 4, 2015 12:53 AM

The government announced its first five-year plan for enhancing and accelerating India’s international trade. The new Foreign Trade Policy (FTP) resonates the much-talked about themes of the government—Make in India, Digital India, Skill India and export from India while easing the doing business in the country.

While laying out the details of the instruments to accelerate export of goods and services, the government has laid out the the framework and the logic that will support the objective of doubling the annual export of goods and services—to $900 billion—in next five years. The boldness of the goal is commendable but the means to get to it will be tested over time. The logic of change is lucid but the building blocks and the instruments continue to be embedded in the legacy of the past. The policy is progressive but the framework is not new and the instruments of delivery are a work-in-progress. Institutional mechanism for communication, like a Council for Trade Development and Promotion, is to be set up while digital and online systems for applying for licences will be put in place by December 2015. A Export Promotion Mission will be rolled out too. All of this confirms that the efforts are being mounted in the right direction. But will the whole government, mainstreaming of trade policy and inclusive approach to trade matters be able to deliver the rate of growth envisaged to achieve the $900-billion target? Maybe, the stars will also have to align for India to hit the near-trillion-dollar export target.

The simplification of procedures could add to the joy of doing business, thus igniting the entrepreneurial spirit which can propel the engines of export performance. Rationalised export incentives can add extra cash in the hands of potential export performers—businesses, products or sectors. Quality assurance and branding can sustain a growth momentum, while competiveness can open new markets and opportunities. We will need all engines to fire simultaneously for growth to accelerate and deliver the required run-rate.

The policy will give a definite boost to the existing performers in international trade like the services sector, pharma, agricultural and aquaculture, auto-ancillaries, handicrafts, among others, and would potentially identify and support new-age performers like defence, high-tech, e-commerce and many more. But, the belief that all this in itself would be sufficient to deliver the target will be met with scepticism. Then what is giving confidence to the government to commit to an $900 billion earning from exports by 2020, when exports have been languishing in the $400-450 billion range for the last five years?

Maybe, the government is relying heavily on the animal spirit of entrepreneurship to unleash a growth momentum that also triggers the next wave of reforms, and is more dramatic and path-breaking. It is the increase in primary economic activity that will trigger the forces and tailwind for India’s international trade growth story. Together, increased economic activity, powerful spirit of business activity combined with progressive reforms and new mindset of the leadership could help us reach to that level where all of us believe India should be. We are hopeful and optimistic but cautious on the policy, pace of reforms and their ability to help meet the targets.

The learnings from some of the mature manufacturing jurisdictions will have to be blended well in the Indian context to strengthen the regulatory and tax infrastructure on which Make in India would thrive. In the current framework, duty deferral schemes to support manufacturing in India are neither there nor appear to be in the list of priorities for the government. Such schemes have been tested and tried in various countries like Germany, France, Japan, Korea and Sweden. The policy needs to deliver on duty deferrals for domestic manufacturing which will help bring competiveness in products manufactured in India. Biases and inequality in the current instrumentalities can be addressed by digitisation, online consultation and connectivity but whether that can be achieved in five years is yet to be seen.

Competitive products, branded for quality will only have the potential to conquer the world market and help deliver the goals of the policy but the brand, quality, zero-defect, and reliability also demand shift in culture and values of business in India. Whether such shifts in values can happen in a span of few years, we will have to wait and watch. The policy relies heavily on this cultural shift to deliver the $900 billion targetted and to that extent, it would need the stars to align.

The commerce minister is right in saying that “export promotion” measures have to move towards a more fundamental systemic measure rather than incentivising and depending on subsidies alone. There is, therefore, a need to ensure that our exports and services are internationally competitive. We must focus on quality and standards and produce zero defect products. Brand India must be synonymous with reliability and quality, but the policy continues its reliance on incentives. There is no choice and cultural shift will take time. In the meantime, all of us will have to work towards making it happen.

With inputs from Parag Chavan, associate director (Indirect Tax), BMR & Associates LLP

The author is partner (Indirect Tax), BMR & Associates LLP.

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