Foreign Trade PolicyAnalysis of the Foreign Trade Policy 2021-26

INTRODUCTION

Making India a Global Player in terms of Trade and Commerce and according the Country, the role of leader has been the major agenda of the Department of Commerce (‘the Department’) under the Ministry of Commerce and Industry (‘the Ministry’) since years. In furtherance of the said objective, the Department formulates periodic strategy, keeping in mind the need and growth of the Country and roll out this Strategy called India’s Foreign Trade Policy for long runs of every 5 years.

The Foreign Trade Policy of India (‘FTP’) formulates the plan of action and strategy for catalysing the Indian Exports in global scenario. It is amended and revised every 5 years in order to include the changing socio-economic effects and formulate new goals.

The Ministry while formulating the FTP, also focuses on the areas like bilateral and multilateral commercial relations, special economic zones (‘SEZ’), promotion of exports, facilitation of trade, regulation and development of commodities oriented in exports.

The FTP of 2015-2020 focused largely on the enhancement of the Indian Market Share and addition of new inclusive products in the Indian Market. It also focused on aiding export related benefits and refunds of duties and Goods and Services Tax (‘GST’) thereby helping in increasing the rank of India with respect to Ease of Doing Business (‘EoDB’) across the Borders and the promotion of Micro Small and Medium Enterprises (‘MSMEs’).

The Ministry had also invited active participation from the States in being the Export Partners to the Country. Due to this, the States and the respective Governments are actively participating in providing inputs towards preparation of Developmental Strategies for Exports taking in consideration, the strengths and weaknesses of their respective States.

Despite several constraints like infrastructure, cost of transactions, procedural complexities, manufacturing constraints, and inadequate diversification of exports, coupled with the external factors; India has signed the Trade Facilitation Agreement (‘TFA’) at the World Trade Organization (‘WTO’).

SIGNIFICANCE OF FOREIGN TRADE POLICIES IN INDIA

In compliance with the current and proposed Rules of the WTO, “India needs to eventually phase out subsidies and move towards fundamental systemic measures in the future.” If one looks at the Subsidies Agreement, India has crossed the benchmark of the US$ 1,000 per capita income for 3 consecutive years since 2015.

Minister of Commerce & Industry, Mr. Piyush Goyal has also remarked that there is a need for India to shift from subsidies dependence with the aid of FTPs. He remarked “I do not think that any programme or ambitious scheme can run only on subsidies and government help. We have to move out of this continuous effort and demand and make our industry truly competitive and self-reliant.”

Owing to the aforementioned, the focus of the Government has been on the promotion of Indian Manufactured Value Added Products, wherein India shall have the advantage of being a strong manufacturing base. Such products include but are not limited to Textiles, Engineering Goods, Agriculture, Pharmaceuticals and Drugs apart from the continuous support to the Service Sector and AYUSH.

It should be noted that as many as 70% of the India’s Exports Products merely have 30% Share in the Global Market. Therefore, the Government finds it the need to look for more promising goods like equipment for defence, agro-processing, medical devices, textiles, technical and chemicals.

Back in 2018, the then Minister of Commerce and Industry, Mr. Suresh Prabhu devised a plan aiming to double India’s Exports by 2025 under the FTP. “The approach included devising a commodity-specific strategy for key sectors like gems and jewelry, leather, textile & apparel, engineering sector, electronics, chemicals and petrochemicals, pharma, agri and allied products and marine products.”

The focus of the Territory Specific Strategies was on North American Free Trade Agreement (‘NAFTA’), Europe, Association of Southeast Asian Nations(‘ASEAN’), North- East Asia, Latin America, South Asia, Commonwealth for Independent States (‘CIS’), Australia, West Asia and North Africa (‘WANA’) and New Zealand.

The key focus of any FTP is the growth of the Indian Export Products, enhancement of country’s Value Addition, Generation of Employment and enhancement of Service and Manufacturing Sectors. Other important aspects and significance of FTP are as follows:

• Focus on the Primary Aim
• Durability and Duration
• Aiming towards Ease of Doing Business
• Taking major initiatives like
• Niryat Bandhu Scheme
• Electronic IEC
• Electronic Bank Certificates
• Exporter Importer Profile
• Online Filing of Applications
• Online Inter- Ministerial Consultation
• Facility of CA/CS
• Electronic Data Interchange
• Export Consignment
• Withdrawal of Seizure of Export Related Stocks
• Round the clock clearance of customs
• Single Window Interface
• Authorized Economic Operator Programme (‘AEO’)
• Facility of Filing Shipping Bills
• Facilitating Export of Perishable Export Products
• Time Release Study
• Towns of Export Excellence
• National Committee on Trade Facilitation (‘NCTF’)
• E-Mail Notification Service
• Facility of Deferred Payment

THE HIGHS AND LOWS OF FOREIGN TRADE POLICY 2015- 2020

The greatest achievement of the FTP 2015-2020 was the Introduction of the Merchandise Export from India Scheme (‘MEIS’), which merged together the existing individual schemes for foreign trade and export.

The FTP 2015-2020 gave the additional benefit of percentage calculation depending upon the Free on Board (‘FoB’) Value of the product. The FTP 2015-2020 further substituted the Service Export from India Scheme (‘SEIS’) for providing ubiquitous rewards to the exporters irrespective of the services they provided.

The FTP 2015-2020 also enabled the manufacturers to self- certify their Indian Manufactured Goods and become eligible for the Preferential Treatment under different schemes as a part of the policy. The FTP further reduced Export Obligation for procurement of domestic products under Export Promotion Capital Goods (‘EPCG’) scheme to 75% from 90% in order to enhance the domestic manufacturing industry.

“The policy acknowledged 108 Micro Small and Medium Enterprises as a robust approach for export promotion; further, it also promoted the filing of various DGFT licenses and applications in a paperless manner.”

However, it must be noted that the FTP 2015-2020 came with its share of criticisms as well. The FTP failed to address multi-dimensional issues in terms of insecurity amongst the exporters, dropping of global demand, protectionist measures, removal of export schemes and other crucial internal concerns.

This was catalysed by the USA’s filing of a complaint at the WTO against the Indian MEIS and SEIS introduced under the FTP 2015-2020. The alleged complain stated that the incentives given to the Indian Exporters under the Scheme amounts to illegal export subsidies.

WTO also supported the claim that India is no longer a part of developing countries, crossing the GNP value of $1000 per annum and hence cannot enact such schemes or allow such incentives.

Under the existing complex systems of India’s Customs and Tariffs, India was not ready for a rather more complex system as introduced by the FTP 2015-2020, making the local producers more vulnerable as against the Free Trade Agreements (‘FTAs’), rise in imports and creating trade deficits leading to inflation.

The FTP 2015-2020 has further pointed out towards the inefficiency of the existing FTAs of India as a reason of her withdrawing from the Regional Comprehensive Economic Partnership (‘RCEP’), world’s largest FTA. This has costed deep non conceptualization of Indian FTAs inhibiting India from being a global player in Trade.

The FTP 2015-2020 is largely driven by subsidies, therefore, it does not focus much on skill development and upgradation of technology. Additionally, these subsidies too are available only for specific sectors under MSME exports, and has conveniently overlooked other areas which have potential to create employment and export revenue.

FOREIGN TRADE POLICY 2021-2026: AN ANALYSIS

Extension of FTP 2015-2020 for 6 months (Impact of COVID- 19)

The FTP 2015-2020, which was scheduled to be replaced by the FTP 2021-2026on 31.03.2021, was extended for 6 months, i.e. till 30.09.2021 which was further extended till 31.03.2022 vide Notification No. 33/2015-2020-DGFT dated 28.9.2021.

The Government extended FTP 2015-2020 due to spread of COVID- 19 Pandemic, with a view to provide an aid to the Indian Exporters tackle the adversities of the Pandemic and retarding the loss caused due to the same.

“The existing FTP 2015-20, which was valid up to March 31, 2021 was further extended up to March 31, 2022,” the Directorate General of Foreign Trade (‘DGFT’) mentioned in the Notification. The benefits that have been extended till 31.03.2022 include incentives or offers under import- linked schemes, Duty Free Import Authorization (‘DFIA’) and EPCG.

Under the EPCG Scheme, exporters are eligible to import substantial amounts of duty free capital goods for technology upgradation in respect of exports whereas the DFIA permits the import of certain goods like sugar, duty free.

Some exorbitant pitfalls that lead to the extension of the current FTP were the 12.23% drop of Fiscal to USD 256 billions, the decline of imports by 23.11%to USD 340.8 billions, a trade deficit of 84.62 billions.

Significant Changes proposed by the FTP 2021-2026

The falling of the Indian exports by 60% and imports by 59% due to impact of COVID- 19, a comprehensive policy taking into consideration such contingencies has been formulated and is being continuously amended by the Government.

This is the major reason that the new FTP 2021-2026 should be inclusive of delivering of goods. The FTP 2021-2026 at its formulation stage has received inputs from Members of Parliament, Officials, Traders, Exporters, etc. and is even continuing to receive the same. Some major expectations from the FTP 2021-2026 that continues to be the need of the hour are:

• Tax Incentives compliant with WTO: The announcement of the Remission of Duties or Taxes on Export Products (‘RoDTEP’) Scheme has been launched by the DGFT in that regard, to replace the MEIS and the same has come into effect from 01.01.2021.
• Easy access to Credits: Formal Institutions are not inclined to grant loans to MSMEs, and hence the FTP 2021-2026 shall help in opening of Alternate Credit Avenues for MSMEs.
• Upgradation of Infrastructure: India by virtue of the new FTP shall adopt measures akin to China for the growth and development of infrastructure flagging her exports and manufacturing. It is proposed that the Trade Infrastructure for the Export scheme, enacted in 2017 shall be extended further under this FTP.
• Focus on More Exports and Less Subsidies: Supporting Skill Development Programmes, Upgradation of Technology, etc. shall be the focus of the FTP 2021-2026.
• Tax Breaks: The FTP 2021-2026 is expected to provide some relief in terms of rates of tax to the exporters in order to boost up India’s position as a global market. “The reduction of corporate tax rates and simplification of duty structures are long-standing demands.”

Focus is also on simplification of Import Duty by following “the general principle of higher duties on finished goods and lower/minimal duties on intermediates and raw material”. 

• Digitisation and e-commerce: The promotion of e-commerce platforms and digitalization of the portals shall continue to be the key goal of the FTP 2021-2026.
• Export awareness: The FTP 2021-2026 is expected to make arrangements for programmes and workshops to educate traders about Intellectual Property Rights (‘IPR’), Global Trade, Laws, etc.
• Import Wishlist: Focus shall be shifted towards reducing India’s dependence on Imports and promotion of Make in India.

Expectations from the FTP 2021-2026

United Nations Conference on Trade and Development (‘UNCTAD’) predicts that India shall witness a stronger recovery in 2021. It is therefore expected that the FTP 2021-2026 shall take into consideration, all the aforementioned deficits and proposed methods to resolve the same.

INVOLVEMENT OF STAKEHOLDERS

The DGFT and the Ministry have taken the much required step of involving all the stakeholders and consumers to be a part of the decision making process in terms of the formulation and implementation of the FTP 2021-2026. This was achieved in two phase process of inviting the Suggestions first from all stakeholders followed by suggestions  from the industries.

The Ministry sought suggestions from all the stakeholders including the importers and consumers for the formulation of the FTP 2021-2026.

The Suggestions were majorly sought for the enhancement of exports, creation of jobs and increasing economic growth, and the stakeholders had to send their suggestions via the form by 27.11.2020.

Following the inputs from stakeholder in November 2020, the DGFT again via notice dated 18.07.2021, invited suggestions from the industries to deliberate upon the formulation and implementation of the FTP 2021- 2026.

The DGFT has asked for the suggestions in the following aspects:

1. Developing export capability;
2. Ensuring balance of payments stability; and
3. Enhancing export performance and encouraging foreign trade;

This time the Suggestions were to be uploaded on a link provided in the notice at the website of DGFT and the same had to be done before 31.07.2021.

This was perceived to be a great opportunity by the export promotion council and other trade bodies who in turn put in their best ideas and frameworks for the solidification of a comprehensive FTP.

AMLEGALS REMARKS

The FTPs play a very significant role in promotion of Trade and Commerce of the Country at a global level by targeting the most required areas and are revised in every five years to formulate new goals and include socio economic changes that can be included in the Policy for betterment of the Country. The FTP of 2015-2020 focused largely on the enhancement of the Indian Market Share and addition of new inclusive products in the Indian Market by aiding export related benefits and refunds of duties and GST.

But the ruling of WTO against the Indian MEIS Scheme was the major setback for the FTP 2015-2020 which consequently resulted in framing of RoDTEP Scheme under the FTP of 2021-2026.

There are many expectations from the FTP 2021-2016 which was postponed due to COVID 19 pandemic. However, it seems that the Government has taken a very inclusive approach and has involved every stakeholder in the decision making process. It can be said that the FTP 2021-2026 which came into force with effect from 01.01.2021 seems to show promising growth and results especially in the backdrop of recovery post COVID- 19 pandemic.

– TEAM AMLEGALS, assisted by Ms. Rhishika Srivastava and Ms. Vaaridhi Jain (Interns)