Missing the future

Thus, given the challenges that Indian exporters could be up against, it was necessary for FTP 2023 to go beyond its standard format that has remained unchanged since the it was first introduced in 2004. At the outset, every FTP informs us that it is “notified by [the] Central Government, in exercise of powers conferred under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992”. This Act empowered the central government to “make provision for the development and regulation of foreign trade by facilitating imports and increasing exports” and to also “make provision for prohibiting, restricting or otherwise regulating…import or export of goods or services or technology”. In other words, the 1992 Act was set in the 20th century mindset of regulating and restricting trade and had accordingly included trade policy instruments. The framework of trade policy in the 21st century has since moved to development and facilitation of trade, but there is no reflection of this framework in FTP 2023. Instead of recasting this vitally important policy, FTP 2023 is a compilation of “Foreign Trade Procedures” in which the words ‘regulate’, ‘prohibit’, and ‘restrict’ find more mentions than ‘facilitate’. 

Focus on the latter would have given FTP 2023 an entirely new character, one that includes strategies needed to adopt 21st century trade policy instruments. Today, most countries are relying on improvements in product quality and production efficiencies by rapid infusion of technology to expand their presence in the global markets instead of using export incentives. This approach has meant that product and process standards are the new trade policy instruments. This is amply evident from the bilateral/plurilateral trade negotiations that India is currently engaged in. The negotiating draft of the European Union includes a plethora of these regulatory standards. Similarly, the three pillars of the Indo Pacific Economic Framework in which India is participating are all about these standards. Furthermore, these standards are increasingly being used by most member countries of the World Trade Organization (WTO). Thus, the ability of India’s businesses to meet these standards would eventually determine the benefits that they can garner, which includes larger participation in global/regional production networks.

FTP 2023 was an ideal platform for the government to prepare India’s exporters for coping with the challenges in the global market. This would require the directorate general of foreign trade (DGFT) to coordinate with all the standard setting agencies of the government, the export promotion councils, and the relevant institutions in the private sector and to prepare a roadmap for upgrading institutions and production facilities. This means that the DGFT’s primary role would have be that of a facilitator while the regulatory functions should be small but effective. In contrast, FTP 2023 would like the DGFT to continue playing the role of imposing import “prohibitions” or “restrictions”, one example being the list of “Principles of Restrictions” (paragraph 2.07). While it is not clear if the DGFT should be the agency to impose these  import restrictions, the one which is included “to safeguard country’s external financial position” is not even WTO-compatible.

India’s export promotion schemes were rejigged after a WTO dispute settlement panel ruled against India in 2019 following a complaint by the US. The panel’s finding was that the export promotion schemes, especially the Merchandise Exports from India Scheme, provide export subsidies and these are not allowed under WTO rules. A new scheme was launched in 2021 to neutralise the effect of taxes and duties that are included in exported goods, namely, the Remission of Duties or Taxes on Export Products (RoDTEP) Scheme. When it was introduced, the RoDTEP Scheme covered 8555 tariff lines at 8-digits of Indian Trade Classification based on the Harmonised System. In December 2022, the Scheme was extended to cover 10436 tariff lines. 

The Rajya Sabha’s Standing Committee on Commerce examined the Scheme and, in its report, presented in December 2022, the Committee found several weaknesses, especially the fact that rates of remission of duties were lower than desirable. In view of the importance of the Scheme for exporters, FTP 2023 could have responded to the recommendations of the Standing Committee, which it has not. This lacuna remains possibly because the description of RoDTEP Scheme has not been updated from an earlier version of the Foreign Trade Policy: paragraph 4.5(x) of FTP 2023 says that the “Scheme will take effect for exports from 1st January 2021” (emphasis added).

Developing districts as export hubs is a novel idea mooted in FTP 2023. If this idea can be implemented effectively, the objective of balanced regional development that was once an integral part of the country’s development programmes can now be realised. However, FTP 2023 merely speaks of the Export Promotion Committees that are to be set up at the level of the districts and states/UTs. What is missing is a commitment to support the critical component of such a programme, namely, efficient infrastructure that can act as its enabler.

E-commerce, one of the focus areas of FTP 2023, is an area in which India has looked less comfortable in the past for at least two reasons. First, a subset of WTO countries has initiated discussions on e-commerce for extending the rules of the organisation in this area, but India opposes this process. Secondly, advanced countries have been seeking data portability, which India has refused to accept. Does this mention of e-commerce in FTP 2023 imply that India is ready to engage in the WTO?

About the author: Biswajit Dhar – Former professor, Jawaharlal Nehru University, and vice president, Council for Social Development. Views are personal.