Mid-term expectations 

Rahul Mazumdar | Updated on: Jul 27, 2022
Betting on foreign trade

Betting on foreign trade | Photo Credit: tcly

The FTP must push export hubs, MSMEs, hi-tech goods

The new Foreign Trade Policy (FTP), due to be released in 2020, was delayed for multiple reasons. The government today is being justly cautious about not having the traditional 5-year Foreign Trade Policy (FTP), given the prevailing global uncertainty, and in the process have a mid-term FTP.

Besides, with the general elections barely two years away, it makes sense to have a mid-term FTP.

If India plans to have a mid-term FTP, it will make sense to have a well-planned and implementable target within the defined time frame. Here are some suggestions for policy makers.

Export hubs

Firstly, there has been a discussion over having District Export Hubs. While this would be a welcome step under the FTP, it will be more appropriate to have this initiative focussed on the ‘Middle-Ten’ exporting States, ranked between 11 and 20. It is important to reduce India’s export concentration of States.

Eighty-five per cent of India’s exports comes from the top 10, and 67 per cent from the top five exporting States. Having an export plan for dedicated States in the ‘Middle-Ten’ exporting States will not only improve their export competitiveness, but also lessen the regional disparities through an export-led growth.

Secondly, in line with the Centre’s efforts towards diversifying exports from traditional products it would be important to look at other items in the value chain.

Almost 52 per cent of India’s exports are resource based. To rectify this anomaly, R&D and technology-oriented companies could be incentivised to increase their exports. The FTP could also look at incentivising R&D based export companies by extending credit over investments made for R&D. It may be noted that many companies post losses in their initial years as they spend a considerable amount on R&D.

E-comm thrust

Thirdly, bringing e-commerce within the ambit of FTP would yield significant dividends. E-comm firms gathered momentum during the pandemic period.

As India reviews its SEZ policy, e-commerce incentives can also be incorporated in the mid-term FTP. In fact, the various chambers of commerce could look at executing schemes for quality control and certification of products for MSMEs so that they can be easily on-boarded on these platforms.

Fourthly, taking a clue from the above, the mid-term FTP can bring about greater awareness about Standards, and Sanitary and Phytosanitary (SPS) issues. With MSMEs contributing more than 45 per cent of India’s exports, focus on these areas would allow MSME exporters to tap opportunities in developed markets.

The FTP’s focus on non-tariff measures (NTM) would help it to achieve Sustainable Development Goals (SDGs) while also promoting trade. This is significant as impact of tariffs has been decreasing over the years, while , NTM protection has been growing.

Global standards

India needs to produce goods which are in sync with global standards to find acceptability abroad. As the Indian middle class gets exposed to such quality products, it would be important for Indian MSMEs to produce goods with globally recognised specification for the domestic market also.

Shifting from an incentive-based FTP, towards balancing it with export capabilities aiming on developing strengths, could be a worthwhile attempt, while devising the short-term FTP.

It is also pertinent to note that India was not successful in meeting its previous target set in 2015, due to various reasons, one of which was the pandemic which hit at the far end of its tenure. Hence, it would be important to not miss the bus this time in the mid-term FTA.

A practical and achievable mid-term FTP would have significant benefits, and increase India’s share in exports, when the global economy recovers.

The writer is an Economist with India Exim Bank. Views expressed are personal

Published on July 27, 2022
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