FTP push for Brand India

There is no substitute to export-led growth. It is a welcome relief that economic reforms on the trade front are back on track

The government announced the much awaited new foreign trade policy 2015-20 after a long delay. The thrust of the new FTP is on export promotion, reducing trade transaction costs, e-commerce, services exports and the ease of doing business. It is in sync with the government’s key initiative Make-in-India and other big ideas such as Digital India and Skilling India. But the real test would be to see if there will be any changes on the ground in terms of quick and seamless implementation of the policy.

The FTP is undoubtedly a novel attempt to boost India’s external sector and increase its share in world exports to 3.5% by 2020 from 2% in 2013-14. It aims to increase India’s exports to $900 billion by 2020 from the current $312.6 billion. Another key feature of the FTP is that it will not be revisited annually but will be reviewed only after two-and-a-half years to provide a stable policy framework for exporters. Thus, the new FTP not only provides the much-needed boost to Indian exporters but also reaffirms the fact that trade policy reforms constitute the core of the country’s economic reforms.

Economic policy in India is increasingly driven by trade policy reforms which, over the last decade, have provided an export-friendly environment with simplified procedures conducive to enhancing export performance. The focus of these reforms has been on liberalisation, transparency and globalisation. Taking this further, over the years, every successive government has made efforts to strengthen the export production base, remove procedural irritants and facilitate input availability.

In the FTP 2015-20, the government has done away with the plethora of schemes that existed for export promotion and has announced a simplified policy. It collapses five earlier schemes for good exports into a single scheme and there is one programme for promotion of services exports. The scheme for merchandise goods exports has been named the Merchandise Exports from India Scheme (MEIS) and for services it is called the Services Exports from India Scheme (SEIS). It is expected that exporters will gain a lot from these two schemes which are different from the export promotion sops that existed earlier.

With the objective of giving a serious push to the Make-in-India initiative, the government has provided higher level of rewards under MEIS export with high domestic content and value addition. The government has also reduced the export obligation for capital goods purchased from Indian suppliers under the Export Promotion Capital Goods scheme which will give a boost to the domestic capital goods industry. This initiative will help exporters develop their productive capacities for both domestic and international consumption.

Another element of India’s foreign trade are the special economic zones (SEZ) which were announced with a lot of fanfare in April 2000 to overcome the shortcomings experienced on account of the multiplicity of controls and clearances, absence of world-class infrastructure and an unstable fiscal regime, and with a view to attract larger foreign investments in India. However, the recently released report of the CAG has critiqued the SEZs, saying that they have failed to perform their stated purpose of job creation, land utilisation and export obligation. However, SEZs remain a powerful instrument for the promotion of foreign trade in the country. Thus, in an effort to revive the floundering SEZs, the government has extended the incentive schemes for both goods and services (MEIS and SEIS) to units in SEZs as well.

The new FTP, apart from focusing on rationalising tariff structures to enable India to be a part of mega-regionals such as the Trans-Pacific Partnership (TPP), has also emphasised on reviving the multilateral system led by the WTO. The commerce minister said that the WTO rules envisage the eventual phasing out of export subsidies; therefore, reducing the number of export promotion schemes and thereby subsidies would help India in eventually phasing out export subsidies totally. This is considered to be essential to make Indian exports and services internationally competitive. Another focus area is the quality of products we export. Brand India is not well established abroad. The new FTP has talked of a focus on quality and standards and production of zero-defect products to ensure that Brand India is synonymous with reliability and quality. But what specific measures the FTP would take to ensure and enhance quality have not been spelt out clearly.

A few other positive features include an attempt to achieve greater policy coherence and mainstreaming of all export incentive schemes by the Department of Commerce which will now urge state governments to prepare their own export strategies based on the FTP to boost exports from states. Trade facilitation and the ease of doing business by way of online filing of documents and emphasis on paperless trade is another good feature of the FTP.

Undoubtedly, the FTP has made an earnest effort to boost India’s external sector. In a developing country like ours, services constitute one of the fastest growing sectors, contributing nearly 60% to GDP. Therefore, giving a boost to this sector is commendable.

We hope the FTP 2015-20 is implemented quickly and efficiently, as it is time India starts to make a mark on world markets. In the era of globalisation and marketisation, there is no substitute to export-led growth. It is a welcome relief that economic reforms on the trade front are back on track.

The author is senior fellow, Observer Research Foundation, and policy lead, KPP, DFID-IPE Global

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