Foreign Trade Policy 2023 is a step in the right direction

Launching the much-awaited Foreign Trade Policy 2023 on March 31, Union Minister of Commerce and Industry, Piyush Goyal declared that “FTP is dynamic and has been kept open ended to accommodate the emerging needs of the time.”

This marks a new beginning as the revised policy has been announced a three-year (the previous was for 2015-2020) because of Covid-19 impact, global slowdown, Russia-Ukraine war and the resultant sanctions and the prevailing geo-political situation.

Goyal was confidence personified when he asserted that India’s overall exports, including services and merchandise exports, which is at $750 billion will shoot up to $ 760 billion this year.

Apparently, the performance has to be examined in the backdrop of economic slowdown.

In FY 23, goods exports rose a modest 6.03% to $ 447.46 billion from $ 422 billion in FY 2022. Imports in FY 2023 increased 16.51% to $ 714.24 billion as against $ 613.05 billion in the previous fiscal. In FY 23, the combined export of goods and services increased 13.84% y-0-y to an estimated $ 770.18 billion, as export of services grew 26.79 per cent to an estimated $ 322.72 billion. The major exports were petroleum products at 40.1%, electronics 50.52% and rice 15.52%. The most imported were petroleum at 28.9%, coal, coke, briquettes 56.8% and electronics 4,87%.The overall trade deficit was $ 122 billion in 2022-23 as against US$ 83.53 billion in the previous year. India has embarked on a mission to become a $ five trillion economy by 2026-27.

Towards this, it is important there has to be a major push for domestic economy and enhancing its competitiveness.

The exports of goods and services (% of GDP) stood at 21.4% in 2021-22 from 18.7% in 2020-21. Similarly the overall share of goods exports in GDP increased to 13.3% in 2021-22 from 10.9% in 2020-21.

According to the newly announced policy, the approach depends on four fundaments 4 pillars. (1) Incentive to remission; 2) Export promotion through collaboration- exporters, States, districts and Indian Missions; (3) Ease of doing business, reduction in transaction cost and e-initiatives and (4) Emerging areas like E-commerce, developing districts as export hubs and streamlining SCOMET policy.

Incorporating feedback from trade and industry in order to streamline processes and keep updating it.

Process re-engineering and automation: There is an overwhelming emphasis on use of automated IT systems with risk management systems for various approvals and codifies implementation mechanisms in a paperless, online environment. This will be step towards ease of doing business whereby exporters will get speedy clearances.

Towns of export excellence: Four new towns- Faridabad, Mirzapur, Moradabad and Varanasi- have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns. Common service providers in TEEs are entitled for authorisation under the Export Promotion Capital Goods (EPCG) scheme. The threshold limit is Rs 150 crore in the case of handloom, handicraft, agriculture and fisheries sectors. This will spur substantial growth and enhanced exports and marketing strategies. Promoting export from the districts: The FTP aims to promote exports from identified districts by collaborating with the state government and taking forward the Districts as Export Hubs (DEH) to boost exports. Incidentally, the One District One Product (ODOP) initiative is aimed at fostering balanced regional development across all districts in the country.

Facilitating e-commerce exports: FTP 2023 classifies E- commerce exports in the promising category. Various estimates suggest their export potential in the range of $ 200 billion to $ 300 billion by 2030. The policy outlines the intent and roadmap for establishing e- commerce hubs and related elements such as payment reconciliation, book- keeping and the returns policy besides export entitlements. To begin with, the consignment-wise cap on e-Commerce exports through courier has been doubled to Rs 10 lakh. There is also the one-time amnesty scheme for exporters to close pending authorisations and start fresh.

The Union Government has taken various measures to support exports. During Covid- 19, the Centre introduced Production Linked Incentive Scheme (PLI) for 14 sectors with an assistance of more than Rs two lakh crore as a part of Atmanirbhar Bharath. This will help in not only reducing dependence on certain imports which could be avoided and also make India an international manufacturing hub for exports. India has signed 13 Regional Trade Agreements (RTAs) and Free Trade Agreements (FTAs) with various countries and regions, including from ASEAN and SAARC. India’s merchandise exports to them have registered a growth in the last 10 years. The country is also actively engaged in FTA negotiations with some of its trading partners, including the UK, European Union and Canada. A shot in the arm will be the proposed trade promotion body in order to achieve exports of $2 trillion by 2030.

The focus of public and private sector on enhancing physical Infrastructure like roads, ports, railways and civil aviation should help in faster movement of cargo towards exports. The National Logistics Policy 2022 with a focus on digital transportation will be in line with global standards. The new policy has four features: Integration-of Digital system (IDS), United Logistics Interface Platform (ULIP), Ease-of Logistics (ELIG) and System Improvement Group (SIG). There is a compelling need to focus on greater integration of the supply chains with the Global Value Chains (GVCs)

MSMEs are major contributors to our economy at over 30% to the GDP and 50% to exports. The government plans to increase MSMEs output and export contributions from 50% to 75% respectively. This is in line with achieving the target of $one trillion worth of MSMEs exports by 2047. The launch of E- Commerce portal, Marketing Assistance Scheme, especially towards MSMEs, cluster development schemes, district-level export hubs, promoting export items at the grass-root level and rural artisans and rural handicrafts steer towards meeting the vision. There must be coordinated efforts by the Centre, States, financial institutions and MSME export promotion councils to take the products of MSMEs to the global market and scale new heights in exports.

Environment, Social and Governance (ESG) and sustainability and climate change are getting focus at all levels and all export manufacturers and service providers will initiate action in this regard. This will be guiding factor in international trade and there be may be resistance and unwillingness to order products if our companies are not in compliance with ESG norms. While big corporates are financially capable to invest and take mitigating efforts towards emission control and sustainability, there must be specific help from the government and corporates to help MSMEs to initiate steps in this direction as supply chain has to be ESG compliant. Equity support and long-term debt in lieu of equity can be tapped to increase the financial strength of MSMEs.

The FTP 2023 is a right step and facilitates Indian exports.

I hope and trust that Indian exporters, who are contributing substantially to our foreign exchange reserves, will continue to excel in the days to come and all stakeholders will work in a unified way to achieve $ one trillion exports by 2030.

(The author is former Chairman & Managing Director of Indian Overseas Bank)