On India’s New Foreign Trade Policy 2015- 2020 : Is it old wine in a new bottle?
Opinion: Our World Our Times
Though, observed by some trade analysts as an ‘old wine in a new bottle’ and even as ‘less wine in the new bottle’ the market reacted favorably to a brand new Foreign Trade Policy 2015 to 2020 where an ambitious export target of 900 billion dollars highlights a visible ‘Make in India‘ push after almost a year’s delay in bringing out the Export Policy.
The vision of Prime Minister Narendra Modi does find a place as the stress on improved and better quality exports push through systemic and systematic reforms so as to be globally competitive, sustainable and environment friendly processes, promoting of defence exports, delisting and delicensing of many items, joint venture approach to many of the products can be seen as a boost to manufacturers whence new production lines, expanded negative list, inclusion of a a whole lot of service exports such as hospitality, medical tourism, wellness and related domains may broaden our approach from the traditional IT and Software related exports.
It is also worth a mention that it is merchandise exports that account for about one fifth of our 2 trillion dollar economy as of now and the Merchandise Export from India Scheme (MEIS) incentives for export to specific goods for specific markets may appear to be a more focused attempt at gaining the global export market share. Similarly the Services Export from India Scheme (SEIS) to replace the erstwhile Serve from India Scheme attempts a push at sectors such as medical tourism, accountancy and architecture.
The incentives under MEIS and SEIS will be in the form of fully transferable duty credit scrips and the Exporters will be able to use these scrips to offset service tax, excise duty or customs duty as was the case in the past.
Incidentally India’s service sector had voiced its demand for parity with the merchandise sector as many sectors do not import and were not able to use the incentives. The e-commerce-enabled exports of handloom products, books, leather footwear, toys and fashion garments through couriers or foreign post offices will also get the benefit of MEIS. Though the Policy makes a spirited effort to revive the special economic zones and the government’s extended export incentive schemes for both goods and services to units in SEZs, it may well be left to posterity for any productive results as all measures in the past have been inconsequential.
The export-obligation period for items related to defence, military stores, aerospace and nuclear energy will be 24 months instead of 18 and the reduced export obligation for those procuring capital goods domestically to 4.5 times imports as against six times under the export promotion of capital goods scheme (EPCG), may well encourage the ailing domestic capital goods industry. It is hoped that the Policy will help exporters develop productive capacities for both local and global consumption and concerning the rules of origin it is a hallmark decision to allow manufacturers who are also status holders to self-certify their manufactured goods as originating from India.
One may mention that a broad outlook on the policy front may turn into a great foresight for reforms that may result in transformational bonanza for the country. While working for the Ministry of Finance in North Block one was asked by the then Finance Minister in 2003 for a transformational idea just a couple of days before the Budget Day and as a brainwave at the spur of the moment a quick cabinet note was prduced on exemption to the laptops that bought a mere 90 crore worth of revenue through their baggage by any number of Indians travelling abroad in larger interest of facilitating our software exports. Yes that idea was an instant hit with a far-sighted Minister and we had a policy that was emulated by many countries in the days to come and the result was there before us in the form of billions of dollars generated by our software exports a decade thereafter. As a passing I may mention that all the noise we have on the Land Bill that ushers in the much touted land reforms are not a new invention of a new government but has been in vogue in many of the States already, as they have plenty of waste land identified by the respective infrastructural corporations and being allocated to the investing industries by the various Industry Centres and clusters where the only issue of caution for the concerned States is that these allocations should neither be at the cost of fertile agricultural land nor the ecology or the degraded forests awaiting afforestation.
It is pertinent to briefly mention here that though we promote in our country labour intensive manufacturing policies, we should not undermine new automation for improved quality products, simplifying of transactions and ease of doing business should not be in lieu of better compliance, more time to exporters though welcome should not be underplaying export deadlines, though multiplicity of schemes are being done away with we should not be sacrificing special treatment for the promotion of certain indigenous industries, the inclusion of interest subvention for 2015-16 already on board should not be at the cost of bad debts liability on the nation, new products and lines introduced based on research and data should be only on merits and not dubious considerations to serve vested interests as is the case more often than not.
India’s export of services to the world stands at US $ 145 billion, compared to the merchandise exports of over US$ 300 billion and the Policy claims to increase the share from a mere 2% to 3.5% by 2020, a significant move to be a global player. New FTP has a clause for its review in two-and-half years, then perhaps the doubling of overseas sales through exports may be reviewed. It may be seen that the simplified policy collapses five earlier schemes for promotion of merchandise goods in one single program. It also revamps promotion of services through reduced transaction costs for exports. The incentives to special economic zones as also e commerce do get a boost but it is to been as to how much really translates into actual output in real rupee terms for our exports. The Commerce and Industry Minister Nirmala Sitharaman may have done well when it comes to ensuring ease of doing business but the real measure of success will only be judged through a boost in exports and the creation of new jobs as claimed by her. Though hailed as pathbreaking and visionary in a globally competitive world it is to be seen as to how the promotion of country’s value added products and services would really translate into actionable reforms in the backdrop of a further contraction of almost 15% in our exports in the last few months. Nirmala Sitharaman unfortunately has no control on the macroeconomic factors such as global slowdown and appreciation of the rupee against a basket of currencies that ironically would make a real impact on the “Make in India” story rather than just a well intended Export Policy document brought out by her as we have seen in the past with many such Export Policies.