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
• 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
2
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
3
for policy changes that meet implied needs
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
4
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
5
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
6
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
7
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
8
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
9
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
10
between centre and states
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
11
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
12
Thank You
Siddhartha Mitra
Director (Research), CUTS
sm2@cuts.org
http://www.cuts-international.org
13