Home / Economy / Why the wait for new trade policy just got longer

The Union government has extended the tenure of the Foreign Trade Policy (FTP) 2015-20 by another six months till March 2023. The move came as a surprise to exporters bracing for a recession in Europe and the US. Mint explains the background and logic of the decision.

Why do we need a foreign trade policy?

Amid declining exports and slowing global growth, the new FTP was aimed at making Indian exports more globally competitive by reducing transaction costs and time. It was expected to lay down simple and transparent procedures which would have been easy to comply with, boosting efficiency in the management of foreign trade in India. The policy was all the more crucial following the Russia-Ukraine war and covid-19, which bruised supply chains and slowed global trade growth. Exporters were expecting more support from the government and a new chapter related to e-commerce trade.

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What exactly were exporters expecting?

The industry was expecting support in the form of several fiscal and non-fiscal incentives to boost exports, especially in the services sector. They were hoping that the government will reform the discontinued Service Export Incentive Scheme (SEIS) to aid specific sectors such as travel and tourism and health. The SEIS scheme rewarded service exporters at 5% or 6% of the net foreign exchange earned. The industry was also expecting a focused policy for e-commerce shipments, a broader duty remission scheme for exporters, and a scheme to develop districts as export hubs.

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Hard times 

Why was an intervention required right now?

India’s merchandise exports grew at the slowest pace in 18 months in August at 1.62%. Several sectors, including jewellery, engineering exports and ready-made garments contracted, underlining the need for government intervention. Ngozi Okonjo-Iweala, WTO director general, has said that she expects global trade forecasts to be cut from the current 3% for 2022.

Why was the policy deferred yet again?

The FTP was initially scheduled for 1 April 2020, but was deferred multiple times owing to the covid-19 pandemic. This time, the gove-rnment has attributed it to global uncertainty and currency volatility. A top commerce department official said the requests for extending the policy had come from the export promotion councils which stated that the timing of releasing a new policy would not be right under geopolitical tensions. Officials also said exporters sought more consultations before a new FTP.

How did currency volatility cause delay?

Exporters said that solutions to a number of challenges emerging from the geo-political tensions were not included in the new FTP. Tea and apparel exporters said that the weakness of the euro is a new problem—the continent is a large market for them. The sterling dropped to historic lows at $1.03 after the UK announced fresh tax cuts. Moreover, a number of countries are also pushing for payment in local currency and hence, the new trade strategy would need to be reworked to address the current concerns.

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ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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