The Modi government’s first foreign trade policy (FTP) to be announced on Wednesday will outline a comprehensive five-year (FY16-20) export strategy with incentives for exporters, including interest subventions and catalysts for domestic sourcing in sync with the ‘Make in India’
drive.

The policy comes at a time when export growth contracted 15% in February, reporting a negative growth for the third consecutive month, and the WTO revised the global trade growth for 2015 to 4% from 5.3% earlier.

Of the R5,092 crore Budgeted grants for the commerce ministry for FY16, R4,135 crore is earmarked for “foreign trade and export promotion,” up 8% y-o-y. Of this, sources said, R1,650 crore is meant for interest subvention (of 3%) on export credit for all sectors.

Cost of credit for exporters, at an interest of around 12-15%, is very high compared with around 5% in South East Asia, making it a case for continuation of the interest subsidy scheme. Since the interest subvention scheme had lapsed on March 31, 2014, the expectation is that the interest subsidy will be with effect from April 1, 2014. Many banks have already passed on the interest subsidy amount to exporters expecting RBI will pass on to them the interest subsidy given by the government once it is announced in the FTP.

Total shipment in April-February 2014-15 was $286.58 billion, an increase of a mere 0.88% from $284.07 billion in the same period last fiscal. Though the year-end target is $340 billion, exporters say shipments are likely to reach only around $325 billion.

Due to the worsening global situation, the cycle from procurement of raw material till realisation of payment is increasing from the earlier 3-6 month to 9-12 months resulting in higher costs (including those incurred in the form of interest on export credit) for exporters.

Exports of services, including the IT/ITeS sector, may also get a boost from the FTP to be unveiled by commerce minister Nirmala Sitharaman.

Duty credit scrips in the Served From India Scheme may be made transferable. Under SFIS, service providers are entitled to duty credit scrips at 10% of free foreign exchange earned in a financial year, and the entitlement is calculated on the basis of net free foreign exchange earned.

These scrips can be used to offset the duty on items the exporter imports.

Currently, due to non-transferability of these duty credit scrips, most service exporters are neither able to use them nor able to sell them to any merchandise importer.