Foreign Trade Policy 2023

IN NEWS:

• Recently, the Union Minister of Commerce and Industry launched the Foreign Trade Policy 2023.

MORE ON NEWS:

• The Union Minister said that Foreign Trade Policy 2023 is dynamic and has been kept open ended to accommodate the emerging needs of the time.
• The minister also said that India's overall exports, including services and merchandise exports, has already crossed US$ 750 Billion and is expected to cross US$ 760 Billion this year.

FOREIGN TRADE POLICY:

• Foreign Trade Policy is a set of guidelines and instructions established by the Directorate General of Foreign Trade (DGFT) in matters related to the import and export of goods in India.
• The previous foreign trade policy for 2015–2020 had targeted exports of $900 billion by 2020; this target was extended along with the policy for three years, till March 2023.

FOREIGN TRADE POLICY 2023:

• Replacing the extant policy that had been in place since 2015, the Foreign Trade Policy 2023 kicks in from 2023-24 and aims to almost triple India’s goods and services exports to $2 trillion by 2030, from an estimated $760 billion in 2022-23.
• It is based on principles of ‘trust’ and ‘partnership’ with exporters.
• In the Foreign Trade Policy 2015-20, changes were done subsequent to the initial release even without announcement of a new FTP responding dynamically to the emerging situations.
• Hereafter, the revisions of the FTP shall be done as and when required. Incorporating feedback from Trade and Industry would also be continuous to streamline processes and update FTP, from time to time.
• 4 pillars of FTP (Foreign Trade Policy) 2023:
  • Incentive to Remission
  • Export promotion through collaboration - Exporters, States, Districts, Indian Missions
  • Ease of doing business, reduction in transaction cost and e-initiatives
  • Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) policy.

HIGHLIGHTS OF FOREIGN TRADE POLICY 2023:

• Process Re-Engineering and Automation:
  • The policy emphasizes export promotion and development, moving away from an incentive regime to a regime which is facilitating, based on technology interface and principles of collaboration.
  • FTP 2023 codifies implementation mechanisms in a paperless, online environment, building on earlier 'ease of doing business' initiatives.
• Towns of Export Excellence:
  • Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns.
  • The TEEs will have priority access to export promotion funds under the Market Access Initiative (MAI) Scheme and will be able to avail Common Service Provider (CSP) benefits for export fulfillment under the EPCG Scheme. This addition is expected to boost the exports of handlooms, handicrafts, and carpets.
•  Recognition of Exporters:
  • Status recognition norms have been re-calibrated to enable more exporting firms to achieve 4 and 5-star ratings, leading to better branding opportunities in export markets.
• Promoting export from the districts:
  • The FTP aims at building partnerships with State governments and taking forward the Districts as Export Hubs (DEH) initiative to promote exports at the district level and accelerate the development of grassroots trade ecosystem.
  • District specific export action plans to be prepared for each district outlining the district specific strategy to promote export of identified products and services.
• Streamlining SCOMET Policy:
  • There is a wider outreach and understanding of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) among stakeholders, and the policy regime is being made more robust to implement international treaties and agreements entered into by India.
  • A robust export control system in India would provide access of dual-use High end goods and technologies to Indian exporters while facilitating exports of controlled items/technologies under SCOMET from India.
• Facilitating E-Commerce Exports:
  • FTP 2023 outlines the intent and roadmap for establishing e-commerce hubs and related elements such as payment reconciliation, book-keeping, returns policy, and export entitlements.
  • The comprehensive e-commerce policy addressing the export/import ecosystem would be elaborated soon, based on the recommendations of the working committee on e-commerce exports and inter-ministerial deliberations.
  • Extensive outreach and training activities will be taken up to build capacity of artisans, weavers, garment manufacturers, gems and jewellery designers to on board them on E-Commerce platforms and facilitate higher exports.
• Facilitation under Export Promotion of Capital Goods (EPCG) Scheme:
  • The EPCG Scheme, which allows import of capital goods at zero Customs duty for export production, is being further rationalized. Some key changes being added are:
    • Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been added as an additional scheme eligible to claim benefits under CSP(Common Service Provider) Scheme of Export Promotion capital Goods Scheme(EPCG).
    • Dairy sector to be exempted from maintaining Average Export Obligation – to support dairy sector to upgrade the technology.
    • Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling, Rainwater harvesting system and Rainwater Filters, and Green Hydrogen are added to Green Technology products – will now be eligible for reduced Export Obligation requirement under EPCG Scheme
• Merchanting trade:
  • Merchanting trade of restricted and prohibited items under export policy would now be possible.
  • Merchanting trade involves shipment of goods from one foreign country to another foreign country without touching Indian ports, involving an Indian intermediary. This will be subject to compliance with RBI guidelines, and won’t be applicable for goods/items classified in the CITES and SCOMET list.
• Amnesty Scheme
  • In line with "Vivaad se Vishwaas" initiative, which sought to settle tax disputes amicably, the government is introducing a special one-time Amnesty Scheme under the FTP 2023 to address default on Export Obligations.
  • This scheme is intended to provide relief to exporters who have been unable to meet their obligations under EPCG and Advance Authorizations, and who are burdened by high duty and interest costs associated with pending cases.

SIGNIFICANCE OF FOREIGN TRADE POLICY 2023:

• Focuses on democratising India’s export:
  • The FTP 2023 focuses on democratising India’s export sector by making the process simpler and launching schemes that aim at the bottom of the pyramid of India’s socio-economic ladder.
  • For instance, ‘District as Export Hub’ in the policy, along with an enhanced focus on e-commerce exports, are aimed at taking the policies to the grassroots level, thus strengthening governance architecture to fulfil the dream of even the remotest and smallest of business firms.
    • Under the FTP 2023, extensive outreach and training activities will be taken up to build capacity of artisans, weavers, garment manufacturers, gems and jewellery designers to on board them on E-Commerce platforms and facilitate higher exports.
  • Also, reduction in fee structures and IT-based schemes will make it easier for MSMEs and others to access export benefits.
• Focus on e-governance:
  • The policy clearly envisages promoting digital trade, whether for promoting exports of goods and services or even the conduct of business, for instance, online clearances, approvals, payments, and refunds, thereby promoting an e-governance.
  • For instance, the issuance of Export Obligation Discharge Certificate (EODC) will now be fully automated between Directorate General of Foreign Trade (DGFT) and Indian Customs.
• An FTP with 'long-term' focus:
  • The FTP has no end date is a significant departure from earlier policies that tended to have a duration of 3 to 5 years, but required so many amendments from time to time that the essence of the initial document got altered. So the FTP 2023 will adopt a 'long-term' focus.
  • An FTP with no end date addresses the needs of international trade dynamics, providing enormous flexibility for policy measures as and when required.
  • Also, the FTP 2023 is a unified document, delineating with impressive precision the vision of the government, unlike earlier policies that had multiple parts, detailing incentive schemes and rebates, procedural modalities and even input-output norms. 
• From incentive regime to remission-based regime:
  • Moving away from incentive regime to remission-based regime is one of the major pillars of the FTP 2023.
  • Remission regime is based on the entitlement of exporters where taxes and duties paid in the process of exports are not to be exported. They are to be refunded.
  • Remission-based regime will be fully compatible with WTO provisions.
  • Incentive-based schemes have been going on for a long time. However, exports did not increase beyond a particular band when those schemes were being implemented.
• Aims to develop India into a merchanting trade hub:
  • To develop India into a merchanting trade hub, the FTP 2023 has introduced provisions for merchanting trade.
  • In course of time, this will allow Indian entrepreneurs to convert certain places like GIFT city etc. into major merchanting hubs as seen in places like Dubai, Singapore and Hong Kong.
• Interventions to boost exports of manufactured goods:
  • To boost exports of manufactured goods, a host of targeted interventions have been introduced in the policy, such as the inclusion of the PM Mitra scheme for benefits under the Common Service Provider (CSP) label as part of the EPCH scheme.
  • Extension of the special advance authorization scheme to the apparel and clothing sector would also facilitate speedy exports.
• Promotes sustainability:
  • To promote sustainability and combat climate change, the latest FTP provides for reduced export obligations for battery electric vehicles, vertical farming equipment, wastewater treatment and recycling, rainwater harvesting systems, and green-technology products.

CRITICISMS AND CONCERNS ASSOCIATED WITH FTP 2023:

• DGFT’s role:
  • The Directorate General of Foreign Trade's (DGFT) primary role would have to be that of a facilitator, while the regulatory functions should be small but effective.
  • In contrast, FTP 2023 would like the DGFT to continue playing the role of imposing import "prohibitions" or "restrictions".
• Focuses more on regulating and restricting trade:
  • The framework of trade policy in the 21st century—the development and facilitation of trade—has moved away from the 20th-century mind set of regulating and restricting trade. But there is no reflection of this in FTP 2023.
  • FTP 2023 is a compilation of "Foreign Trade Procedures" in which the words regulate, prohibit, and restrict find more mentions than "facilitate".
• Lack of commitment to address the core issues:
  • FTP 2023 merely speaks of export promotion committees that are to be set up at the level of the districts and states/UTs.
  • But the policy lacks a commitment to support the critical component of such a programme, namely, efficient infrastructure.
• Remission of Duties or Taxes on Export Products (RoDTEP) Scheme:
  • The Rajya Sabha’s Standing Committee on Commerce examined the RoDTEP scheme and, in its report, found several weaknesses, especially the fact that rates of remission of duties were lower than desirable.
  • But the FTP 2023 does not respond to this issue, and the description of the RoDTEP Scheme has not been updated from an earlier version of the Foreign Trade Policy.

WAY FORWARD:

• Identify the right product segments:
  • For India to achieve the ambitious 2 trillion USD export target by 2030, there is a need to identify the right product segments where such business opportunities exist.
  • These include electronics, electricals, automobiles, machinery and appliances, textiles, pharma, and defence products etc.
  • Also, production capacity and capabilities in these key areas must be scaled up, by continuously monitoring external developments and aligning our internal policy responses to them.
• Free Trade Agreements (FTA):
  • The FTP needs to be supplemented by new FTAs with the potential markets.
  • Also, there’s the need to overcome the dichotomy in the policy actions, for instance, signing FTAs and simultaneously increasing import duties or anchoring export restrictions.

PRACTICE QUESTION:

Q. “Foreign Trade Policy 2023 will give exports a leg up”. Discuss.