The government on Friday unveiled the new foreign trade policy (FTP) 2023, moving away from incentives to a remission- and entitlement-based regime, even as it stuck to the goods and services exports target of $2 trillion for 2030.
The policy included a new one-time amnesty scheme for defaulters in export obligations, and measures to facilitate international trade settlement in rupee even with countries facing currency crisis. E-commerce exports will be given a leg up.
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Facilitation of “merchanting trade” – shipment of goods from one foreign country to another with the aid of Indian intermediary and sans contact with Indian ports — and a step to reduce transaction costs for smaller firms, which have a major share in India’s goods exports, are the other key features of the policy.
The new policy, which replaces the FTP of 2015-20 that was extended up to March 2023 in the wake of the Covid-19 pandemic, refrained from rolling out any new incentive or subsidy schemes for exporters, in recognition of their incompatibility with the multilateral trade rules under the WTO and India’s commitments to the world body. Instead, the policy focussed on tweaking some of the existing schemes.
Ongoing tax neutralisation schemes like Export Promotion Capital Goods Scheme, Advance Authorisation and the Remission of Duties and Taxes on Exported Products (RoDTEP) and remission of state and central taxes and levies will continue some amount of process re-engineering.
Commerce and industry minister Piyush Goyal, said: “We need to work more on goods exports. It should not be the case that services exports are more than $1 trillion by 2030 but goods exports are lagging,” he said, urging both the industry as well as the department to work on this.
He also stressed that exports should be done where there is a competitive advantage and said that subsidies are not the way for success for any industry and instead, it should be done by leveraging strengths and capacity. Noting that exports have already crossed $ 750 billion this fiscal, he said it is expected to cross $ 760 billion or even $ 770 billion this fiscal, against a $670 billion in 2021-22.
Unlike the practice of announcing a five-year FTP, the latest policy has no end date and will be updated as and when needed, said Director-General of Foreign Trade (DGFT) Santosh Sarangi. “Incorporating feedback from trade and industry would also be continuous to streamline processes and update FTP, from time to time,” said an official release.
The new policy which comes into play from Saturday (April 1) has been unveiled at a time when domestic exports have been struggling in the aftermath of the global economic slowdown.
The key approach to the FTP is based on four pillars including moving from incentives to remission, export promotion through collaboration with exporters. States, districts and Indian missions, ease of doing business, reduction in transaction cost and e-initiatives as well as encouraging emerging areas such as e-commerce, developing districts as export hubs and streamlining the SCOMET policy.
Merchanting trade of restricted and prohibited items would now be possible. It is hoped that this will allow Indian entrepreneurs to convert certain places like GIFT city etc. into major merchanting hubs as seen in places like Dubai, Singapore and Hong Kong. However, this will be subject to compliance with RBI guidelines, and will not be applicable for goods and items classified in the CITES and SCOMET list.
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EEPC India chairman Arun Kumar Garodia said: “It is encouraging that the government has accepted our suggestion and provided for merchanting trade in the new trade policy. Now, a person sitting in India can buy in one country and ship to the other country.”
With e-commerce exports having a potential to grow to $200-300 billion by 2030, the FTP has also outlined a roadmap for establishing e-commerce hubs and related elements such as payment reconciliation, book-keeping, returns policy, and export entitlements. The consignment wise cap on e-commerce exports through courier has been raised from Rs 5 lakh to Rs 10 lakh and depending on the feedback of exporters, it would be further revised or eventually removed. A comprehensive e-commerce policy addressing the export and import ecosystem would also be elaborated soon, based on the recommendations of the working committee on e-commerce exports and inter-ministerial deliberations.
The one-time amnesty scheme is expected to provide relief to exporters who have been unable to meet their obligations under EPCG and Advance Authorisations, and who are burdened by high duty and interest costs associated with pending cases. “All pending cases of the default in meeting Export Obligation (EO) of authorisations mentioned can be regularised on payment of all customs duties that were exempted in proportion to unfulfilled EO. The interest payable is capped at 100% of these exempted duties under this scheme,” said an official statement.
Saurabh Agarwal, tax partner, EY, said this would help the industry in mitigating the potential impact of payment of customs duties where benefit was previously availed.
“The new Foreign Trade Policy is designed to facilitate greater trade, boost manufacturing, promote exports, further enable ease of doing business and also work towards making Indian rupee a global currency, adding further impetus to India’s emergence as the global trading hub,” FIEO president A Sakthivel said. He also requested the government that a 3-6 month transition period be provided, whenever a major change is notified in the FTP, so that the existing contract can be executed factoring the prevailing benefits.
In a bid to improve the ease of doing business, the FTP has also envisaged automatic approval of various permissions based on process simplification and technology implementation, which would now be done within one day for issuances of EPCG and Advance Authorisation, revalidation of authorisations and extension of export obligations. There will also be a reduction in user charges for MSMEs under AA and EPCG.
Four new towns, Faridabad, Mirzapur, Moradabad and Varanasi, have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns. It will also partner with states to take forward the districts as export hubs (DEH) initiative to promote exports at the district level.