FTP 2015-20: Pushing exports and imports in sync

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Published: April 7, 2015 12:48:39 AM

There are indications that world trade will pick up in the next two years. Against this backdrop, the target set for doubling exports seems achievable

Make in India, make in India policy, Indian economy, export, India exportA growing economy should have a strong international trade segment consisting of imports and exports.

The much-awaited Foreign Trade Policy 2015-20 has been announced. It has targeted to double exports to $900 billion by 2019-20. The achievement of this target underscores the need to encourage both merchandise and services exports, as enshrined in the policy document.
Many would have termed the target as ambitious if the green shoots of global economic recovery were not in evidence. The US economy is growing, riding on the back of an impressive manufacturing growth, which is getting translated into more jobs. Europe, though still not out of the woods, is showing signs of recovery. Japan and China are coming out of slowdown blues, though the pace is sluggish. There are indications to believe that world trade will pick up in the next two years or so. Against this backdrop, the target set for doubling exports seems to be in sync with reality.

There are various policy changes that have been incorporated in the FTP document, such as simplification and amalgamation of incentives schemes, revamping of incentives schemes for services exports, focus on reduction of transaction cost, incentives to SEZs, eliminating bottlenecks for doing business, etc. Yet we should not lose sight of the challenges. Exports have contracted over the last three months. In February, contraction was a high 15%, mainly on account of persistent slowdown in some markets and volatility of the rupee against a basket of currencies. For a pragmatic FTP, it is important to have a stable exchange rate, which will insulate the trade from avoidable risks.

In order to give a boost to exports from SEZs, the government has extended benefits of both the reward schemes—Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS)—to units located in SEZs. Trade facilitation and enhancing the ease of doing business are the other major focus areas in this new FTP. Besides, a move towards paperless working 24×7 is an encouraging development.

Another feature of this policy is the importance it has assigned to services sector exports. Services have become an important component of our export basket—at $145 billion, they are half the merchandise exports of $300 billion. There are some distinguishing features of service exports. One, high retention of foreign exchange since the outgo in terms of import content is either insignificant or nil. Two, exports from this sector benefit more people and that way they have an expanding stakeholder profile. Three, they promote skills which are tradable both in India and abroad, providing gainful employment to many.

Importantly, CII in partnership with the ministry of commerce and industry has pioneered a platform for promotion of services exports from the country. On April 23-25, CII along with the commerce ministry will organise the Global Exhibition on Services (GES) in Delhi, wherein representatives from 40 countries will participate. This business-to-business (B2B) event will showcase India’s services capabilities to foreign buyers and will provide a rewarding platform for forging partnerships and businesses to Indian partners. To be inaugurated by the PM, this meet will be attended by a large number of delegates from the US, the UK, Singapore, Spain, Australia, the UAE, and SAARC countries. The focus sectors at the GES are IT & telecom, tourism, healthcare, R&D, media & entertainment, education and logistics.

The FTP policy has also laid focus on tapping huge potential for exports in emerging sectors such as e-commerce, export of defence and pharmaceutical goods, etc, and extended incentives for export-oriented units (EOUs), electronic hardware technology parks (EHTPs) and software technology parks (STPs). A case in point is the huge electronics imports into the country. It is estimated that, by 2020, India will need for domestic use electronic goods worth $400 billion. Domestic production around that time, at the current rate, will be worth $100 billion, necessitating an import of $300 billion, which will be higher than India’s oil imports. To ward off such a situation, it is important to give a boost to electronics production in the country. State-of-the-art EHTP units should come up in various parts of the country, which should be functional and capable of meeting the domestic demand. India should also fast-track its capacity for chip manufacturing, the costly part that goes into most of the electronic goods which are largely imported from China, Taiwan, Korea, etc.

A growing economy should have a strong international trade segment consisting of imports and exports. At the same time, there should be a harmony between imports and exports. A nation that focuses only on exports holds the risk of getting its currency overvalued, thereby creating distortions in its economic structure. Conversely, excessive imports unmatched by export realisations will create current account deficit and instability. Both situations should be avoided. The commerce minister seems to have treaded a cautious line in creating a sync between the two.

The author is director general of the Confederation of Indian Industry

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