In a departure from the past, the upcoming foreign trade policy (FTP) will refrain from rolling out schemes involving massive incentives to spur exports. Instead, it will focus on a “whole-of-government approach” under which officials of various wings, especially overseas missions and commerce and customs departments, will work in unison to realise an annual export target of $2 trillion (both goods and services) by 2030, sources close to the development told FE.
The new policy could feature several facilitation programmes to make it easier for companies to export, they said. These would include relaxation of procedures and paperwork–especially in seeking permits and licence renewals–, removal of human interface and bolstering of automation on various aspects of trade.
“Exporters will continue get tax remission and whatever support is required in terms of facilitation. Handing out subsidies is not going to be the goal of the new FTP,” said one of the sources.
The new policy, which will come against the backdrop of faltering merchandise exports due to mounting external headwinds, is expected to be rolled out before March 31 when the validity of the current one expires, unless the government decides to extend it again.
The commerce ministry, sources said, is also weighing the merits of a proposal to reduce the validity of the next FTP from the usual five years to better capture complex and fast churnings in global trade and respond to them swiftly, at a time when external headwinds are only mounting, said the sources. A final decision on this will be made soon. Of course, the validity of the current FTP, initially designed to cover the period between 2015 and 2020, has been extended up to March 2023 in the wake of the outbreak of the pandemic.
The likely absence of substantial subsidies in the new FTP is in sync with commerce and industry minister Piyush Goyal’s call to exporters to shun “the crutches of subsidies” and improve competitiveness, one of the sources said. Earlier, FTPs used to pledge more fiscal support to exporters.
For instance, the government had announced the Merchandise Export from India Scheme (MEIS) in 2015, when the current FTP was rolled out, by merging five different schemes and sharply raising budgetary allocation for it. It had allocated as much as Rs 39,097 crore for exporters under the MEIS for the pre-pandemic year (FY20). This scheme was replaced with the Remission of Duties and Taxes on Exported Products (RoDTEP) programme from January 2021.
The recent directive to offer a conditional one-time relief to traders from hotel, healthcare and education sectors from maintaining average export obligation under a scheme for capital goods without any fee was part of this broader initiative to ensure greater facilitation.
Since the FTP is being designed in the aftermath of the Covid-19 outbreak, it would lay stress on ensuring India’s greater integration with the global supply chain and reducing its elevated logistics costs. Moreover, the Atmanirbhar Bharat initiative will find a befitting expression in the policy, sources had earlier told FE. Already, the commerce ministry has set a target to bring down India’s elevated logistics costs–long blamed for eroding the competitiveness of exporters—to 8% in five years from the current 13-14% of gross domestic product (GDP).
The new FTP will come at a time when goods exporters are grappling with a slowdown in demand from key markets, such as the US, the EU and China. While services exports continue to perform well and are expected to beat the record $300-billion target for FY23, merchandise exports, of late, have started faltering. Having witnessed robust growth earlier this fiscal, goods exports contracted in two of the past three months, dragging down growth until December this fiscal to 9% and hit $333 billion. The World Trade Organization has trimmed its trade volume growth outlook for 2023 to just 1%, against 3.5% for 2022. It will weigh on Indian export prospects as well.