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A Retrospective Look at India’s Foreign Trade Policy Implications for the Way Forward. Siddhartha Mitra Director (Research). Outline. Indian Civil Society and Foreign Trade Policy (FTP) Rationale, Long term and Short Term Objectives FTP 2004-09: Major Schemes and Provisions

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a retrospective look at india s foreign trade policy implications for the way forward

A Retrospective Look at India’s Foreign Trade Policy Implications for the Way Forward

Siddhartha Mitra

Director (Research)

  • Indian Civil Society and Foreign Trade Policy (FTP)
  • Rationale, Long term and Short Term Objectives
  • FTP 2004-09: Major Schemes and Provisions
  • FTP 2004-09: Critique
  • FTP 2009-14: A Review of Major Changes
  • Has FTP 2009-14 Improved Upon FTP 2004-09?
  • In Conclusion: A Road Map for future FTPs
indian civil society and ftp
Indian Civil Society and FTP
  • Rationale for civil society to play a role in formulation and implementation of FTP
        • International policy regimes such as the WTO and trading agreements impact Indian stakeholders significantly
        • Indian foreign trade policy helps these stakeholders benefit from the above regimes/agreements
        • However, centralised policy formulation is a roadblock to leveraging of benefits
        • Indian civil society has to play the role of linking the grassroots to the policy makers
  • Role of civil society (agenda of Granite II):
        • Demystifying the trade policy
        • Taking feedback from those affected
        • Communicating this feedback to policy makers and advocating for policy changes that meet implied needs
rationale long term and short term objectives
Rationale, Long Term and Short Term Objectives
  • Rationale: Policies needed to facilitate rapid and sustained inclusive economic growth by incentivising and enabling positive stakeholder (producers, exporters and associated labour) responses to international trade regimes and trade agreements
  • Long term objectives of FTP
        • Promotion of exports through an increase in competitiveness of Indian products to positively impact, among others, employment generation and therefore poverty alleviation
  • Short term objectives
        • FTP 2004-09
          • Increase India’s share in global trade from 0.8 to 1.5 percent (1.45 percent achieved in 2008)
        • FTP 2009-14
          • Stop and reverse the declining trend in exports brought about by the global recession
          • Double India’s percentage share in global trade within five years through an annual growth of 15 percent in exports
  • FTP Channels
        • Infrastructure improvements, reduction in transaction costs, refund of levies
schemes under ftp 2004 09
Schemes under FTP 2004-09
  • Assistance to States for Infrastructure Development of Exports (ASIDE)
          • Development of roads connecting production centres with ports
          • Development of minor ports and jetties
          • Setting up of inland container depots and container freight stations
  • Market Access Initiative (MAI) and Market Development Assistance
          • Finance for promotion of medium scale exports (export promotion councils and industry and trade associations)
  • Towns exporting agricultural/non-agricultural produce in excess of Rs. 250/1000 crores classified as Towns of Export Excellence (TEE)
          • Priority for assistance under ASIDE
          • Assistance under MAI for providing focused technological services
  • Export Promotion Capital Goods (EPCG) Scheme: Facilitates import of capital goods at reduced duty for select sectors
schemes under ftp 2004 09 2
Schemes under FTP 2004-09 (2)
  • Provision of export house status to exporting entities based on recent performance
        • Customs clearances on self declaration basis
        • Exemptions from furnishing of bank guarantees
  • Vishesh Krishi and Gramudyog Yojana
        • Reduction in duty payments for import of agricultural inputs by
          • 7.5 percent of value of exports of flowers, fruits and vegetables
          • 5 percent of value of other agricultural exports
  • Focus Market Schemes (FMS)
        • Reimbursement of duty payments of up to 2.5 percent of export value so as to compensate for high freight transport costs to select international markets
  • Focus Product Scheme (FPS)
        • Same incentive as FMS but for products with high employment intensity produced in rural and semi-urban areas
ftp 2004 09 critique
FTP 2004-09: Critique
  • Centralised formulation and implementation
        • A participatory exercise involving grassroots level stakeholders is needed
  • Special programmes for small producers/exporters needed -- benefits perceived as accruing to large producers/ exporters
        • only such stakeholders were cognisant of various FTP associated schemes:
          • only these had enough human physical /capital to take advantage of training and incentives
          • low level of literacy among others
          • lack of systematic dissemination of information by the government
  • ASIDE has not functioned effectively in upgrading infrastructure: exporting boosting effect of other schemes has been blunted
  • Lack of coordination among various levels of the government: well formulated schemes did not yield anticipated benefits
ftp 2004 09 critique1
FTP 2004-09: Critique
  • Schemes are biased towards welfare enhancement of exporters without adequate attention to those producing exportables
  • Should provide a mechanism to achieve better coordination among various stakeholders in the supply chain
        • E.g. Facilitate the formulation and implementation of formal contractual arrangements between exporters and farmers
  • Incentives should be suitably modified in sectors such as fisheries where there might be a tradeoff between sustainability and volume of exports
ftp 2009 14 a review of major changes
FTP 2009-14: A Review of Major Changes
  • Market and product diversification
      • FMS scheme
        • Extended to 26 countries
        • Reimbursable portion in tariff payments increased from 2.5-3 percent of exports
      • FPS scheme
        • Duty credit increased from 1.25-2 percent of the value of exports
        • Automobiles and engineering products included under FPS
  • Boost to technological upgradation
      • EPCG schemes
        • Duty free import facility offered in regard to certain engineering and electronic products, chemicals and pharmaceuticals, apparels and textiles, plastics, handicrafts etc
        • Existing three percent scheme simplified to promote usage
      • Additional duty credit of one percent of the value of past exports to sectors dealing with leather products, engineering goods, handicrafts etc for import of capital goods
  • Intention declared to promote exports of green products
ftp 2009 14 a review of major changes1
FTP 2009-14: A Review of Major Changes
  • Simplification of procedures
      • Number of samples eligible for import by exporters have been increased from 15 to 50
      • Shipping bills applicable for one Export Promotion Scheme can be converted for use in another within ‘three’ months of issue, instead of the earlier ‘one’
      • Procedure for duty free sale of goods has been simplified and the validity of the required certificate has been increased from one to two years
      • Free import of reference fuels of upto 5000 litres per annum allowed for automobile firms with their own R&D establishments
      • Simplification of application and redemption forms under EPCG
  • Reduction of transaction costs
      • Across the board reduction of application fees
      • Export Promotion Councils advised to issue membership certificates online
      • Verification of credit scrips by customs would be done through electronic message exchange between customs and DGFT
      • Formation of inter-ministerial taskforce to redress problems of exporters
      • Inter-state Trade Council being set up to allow for closer interaction between centre and states
has ftp 2009 14 improved upon ftp 2004 09
Has FTP 2009-14 Improved Upon FTP 2004-09?
  • Positives: Important steps taken to reduce transaction costs, simplify procedures and incentivise exports in recessionary conditions
  • Areas where desired interventions have not been forthcoming
      • Not much done to promote labour intensive exports – inconsistency with stated long term objective
      • Markets covered by the FPS are at odds with the products covered
      • Not enough attention has been paid to alleviation of infrastructure deficiencies
      • Mechanisms for directly involving the grassroots in trade policy formulation are still absent
      • Schemes still cater mainly to exporters and not to producers of exportables
in conclusion a road map for future ftps
In Conclusion: A Road Map for future FTPs
  • ASIDE scheme needs a major revamp
          • Higher allocations
          • More accountability in regard to effectiveness of spending
          • Should be also used to create infrastructure such as power, interior roads etc that makes production for export more efficient
  • Institutionalisation of a process for trade policy formulation that is transparent and builds on a structure of consultations extending right from the grassroots to the central government
  • Targeted schemes needed for producers of exportables
          • Government help needed to facilitate their entry into formal enforceable contracts with exporters
          • Training programmes which help them meet the product and process standards imposed by developed countries
thank you

Thank You

Siddhartha Mitra

Director (Research), CUTS