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Foreign Trade Policy: Why Expanding Foreign Trade Policy Could Help Strengthen Cross-Border Trade

The current foreign trade policy (FTP), which was due to expire on March 31 of this year, has been extended again. The policy has been postponed multiple times since April 1, 2020, mostly due to the pandemic. This time, however, various factors have come into play – namely the ongoing global supply chain crisis, geopolitical tensions between Russia and Ukraine and the irregularity of Covid-19 norms worldwide.

On the other hand, Indian exports have outperformed in recent months, reaching their ambitious target of $400 billion. That speaks volumes about Indians MSME and their resilience as they contribute around 50% of the country’s exports. As Indian MSMEs face their next growth phase, this extension gives us the opportunity to analyze the current FTP and visualize how it can be improved to increase the export potential of “Brand India”.

Analysis of FTP 2015-2020

The 2015-2020 FTP has helped facilitate both policy and process streamlining. The formulation of the Service Exports from India Scheme (SEIS) and the former Merchandise Export from India Scheme (MEIS) are examples of this. SEIS, which replaced the Served from India Scheme (SFIS), extends benefits to India-based service providers and removes restrictions on the use of scrips. On the other hand, the previous MEIS program provided exporters with customs credit vouchers to improve the competitiveness of Indian product portfolio in the world market. However, it failed to meet the requirements of the World Trade Organization (WTO) norms.

To replace MEIS, the government introduced the Refund of Duties and Taxes on Exported Products (RoDTEP) system, which has been in effect since the beginning of this year. The program covers various sectors, including automotive, electronics and electronics, agriculture, gems and jewelry, and leather. It promises to facilitate the digitization of trading procedures and the rebate system by keeping an electronic ledger and issuing e-scripts. RoDTEP intends to encourage exporters to be self-sufficient and gain a competitive advantage for the quality of the product they export rather than relying solely on subsidies to be competitive. Unfortunately, exporters are still looking for clarity on this relatively new system.

In addition, the government has expressed its priority to work on the Special Economic Zones (SEZ) policy announced in this budget to make it WTO compliant. Making our future policies and systems compliant with WTO rules is a serious task that policymakers must work towards in the meantime. This will ensure that India’s export ambitions are in line with WTO mandates to boost stakeholder confidence and avoid disputes at the international level.

The current FTP also allows exporters to claim GST refunds IGST paid for exported goods/services and under a bond without the tax payment. SWZs with tax-free supplies can also apply for IGST refunds. In addition, scrips can be used for various duties, including product-specific protective duties, basic duties, and anti-dumping duties for items that fall under the GST regime.

The MSME sector can access duty credits ranging from 2-7% of the Free On Board (FOB) value of exports. In addition, the export performance of MSMEs is double-weighted when examining the parameters for the status certificate. The General Directorate for Foreign Trade (DGFT) also trains 90 MSME clusters by strengthening their knowledge of international trade protocols. Measures are also taken to build a robust logistics network through technological interventions facilitated by the Department of Commerce. These initiatives will take time and would require time to properly implement. So in a way, delayed FTP would benefit us all.

If we anticipate such a delay, it could allow for the strengthening of the existing policy by adding some essential components:

Promotion of Geographical Indication (GI) products.

Labeling products with the GI tag could make the export product portfolio more diverse and competitive. Using the GI tag brings authenticity to Indian products, increases buyers’ trust and achieves significantly better prices for the products. Recently, Trade Minister Piyush Goyal also spoke about using the opportunity to get GI labels for Indian spices to promote “Brand India” on a global scale.

Promote eCommerce

Advances on the digitization front could be further expanded to realize the potential of e-commerce in cross-border trade. This could be particularly beneficial for small businesses that no longer need to deal with shipments and shipment analysis. Instead, such companies can leverage the strong logistics network and tailored analytics that e-commerce offers to reduce the hassles associated with cross-border trade compliance.

Centralization and digitization of trade facilitation processes

Modernizing export processes, including physical and virtual infrastructure, could radically expand the scope of trade and save up to $872.99 million annually, according to the Department of Trade and Industry.

Establishment of a trade promotion office

There is a need to set up a dedicated trade facilitation body that includes various stakeholders. Each of these units can be assigned a sub-goal and a target, which together contribute to the country’s export performance. This will also help ensure the regular formulation of export promotion strategies.

“District as an export hub” initiative.

The District as a Hub initiative can help small businesses increase their export potential, open access to newer markets and increase production. As small businesses may not be equipped with the necessary systems skills, the initiative could go a long way in helping them develop a long-term vision for business prospects. The Trade and Industry Ministry claimed the Rs.10,000 program aims to develop about 700 districts in the country as export hubs.

Conclusion

While we await the new FTP, the time has come for a detailed reassessment of existing export policies and proactive charting of export growth trajectories. The exporter community looks to the upcoming FTP to strengthen the provisions of the RoDTEP program, strengthen the research and development ecosystem, expand the scope of digitization to cover the necessary trade procedures, and boost e-commerce establishments, among other things . Whether the existing policy is extended or the new FTP is enacted, there is no doubt that the Brand India vision will transform the export industry into a force to be reckoned with.

(The author is CEO/Co-Founder, capital drip)

(The one stop destination for MSME, ET RISE provides news, views and analysis all around VATexports, finance, politics and management of small businesses.)

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Dais Johnston

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