India’s latest Foreign Trade Policy (FTP) document, like its earlier avatars, is essentially granular in scope, with quite a few takeaways for various sectors and stakeholders. It basically focuses on tweaking specific processes and procedures to boost exports, reducing transaction costs. But unlike, say, the NITI Aayog’s Export Preparedness Index brought out a year ago, the FTP does not look at the larger macro-economic picture and attempt a SWOT analysis.
The stated shift from ‘incentives’ to ‘remissions’ in the FTP was only to be expected after the WTO dispute settlement panel last March struck down India’s export subsidy schemes — those linked to electronics hardware parks, biotech parks and more generally on capital goods concessions (Export Promotion Capital Goods scheme) and other benefits (Merchandise Export Incentive Scheme) that are arguably linked to the value of exports. Special Economic Zones and EoUs are under the scanner. Incentives that are pegged to level of exports are not allowed by the WTO, but the reimbursement of duties and taxes on exports is. The flagship export support scheme in operation is RoDTEP (Remission of Duties or Taxes on Export Products), which is regarded as WTO-compliant and extends to over 10,000 tariff lines. The FTP has reiterated the primacy of RoDTEP, but curiously has extended EPCG to mega textile parks, battery operated vehicles, dairy sector and wastewater recycling. Under EPCG, capital goods imports for select sectors are zero-rated. With localisation and protectionism becoming the norm globally, and the WTO’s appellate body being short-staffed since the Donald Trump years, India has perhaps chosen to ride its luck. However, the days of industry-specific subsidies are over, and just as well. Export promotion schemes are of doubtful efficacy and should be replaced by a universal focus on infrastructure for manufacturing and services. The FTP suggests a move away from export schemes to trade facilitation processes, and rightly so.
Another major feature of the FTP is to raise the consignment cap on e-commerce exports. While this is in tune with the times, some questions remain unanswered, such as the tariff treatment of such exports globally and the principles of data sharing that underlie it. The reduction in transaction fees for MSMEs is to be welcomed, and the creation of towns of excellence should help their cause. Seen along with the principle of ‘one district, one product’, it points to a decentralised approach to boosting manufacturing and agriculture (with exports as a spin-off) and a subtle shift away from export enclaves.
However, the FTP seems to have been written up without taking into account the structural changes, post-Covid, in the global export order. It is intriguing that an FTP should overlook the structure of imports altogether; this holds true for earlier FTPs as well. The role of FTAs has not been talked about. Services exports could have been delved into. A candid appraisal would have made it a rounded policy document.