The services sector is helping in improving the overall performance of the country but the new Foreign Trade Policy has little to offer to it
The much-awaited Foreign Trade Policy (FTP) is now out, with thrust on trading activities; the previous one expired on March 31, 2020, with as many as four extensions in the past three years. The thrust is not quite unsurprising, given the glum global trade milieu as the world is battling recession and ravaging inflation in most markets dear to India. So, instead of coming out with a medium-term policy for five years as was the practice for a decade or so, the new one unveiled on March 31, 2023, is open-ended sans a set term, ostensibly to keep the powder dry for any prospective revisions in the volatile global economic scenario. For the ruling dispensation, which will face general elections next summer, this is par for the course as it did not want to take any risks by trapping itself in costly export promotion measures with benefits being largely confined to a few sectors! The government is not yet ready to set an export target for the new fiscal in the wake of worries over world trade growth decelerating to 1% in 2023, compared to 3.5% in 2022 as per the estimates of the World Trade Organisation (WTO).
In this fluid state of affairs both domestically and externally, the latitude for launching large or ambitious schemes on the export front appear intractable to imagine, let alone implement. As the country’s merchandise exports seem to be on the downswing, with global import demand on the wane and unlikely to see any upturn in the foreseeable future, the authorities have to rely on services exports or fish for facilitation measures to ensure trading activities from the country gain some traction to ensure flow of foreign exchange receipts. Therefore, Director General of Foreign Trade Santosh Kumar Sarangi was on record saying that “there is no correlation between providing incentives and higher exports”, making all the past incentive schemes as quite nugatory in contributing to the overall export performance till date! But he hastened to add that “when we stopped subsidy and moved to remission schemes, we saw that exports increased quite a bit”.
Remission is WTO-compatible because of the genuine understanding that taxes should not be exported, and whatever levies are entailed in the process of shipment of exportable goods need to be refunded. An interesting feature of the unsustainable subsidy regime, in the garb of promotion measures, needs to be viewed in the light of the frustration expressed by small and medium enterprises unable to avail themselves of the benefits because of the actions of a few exporters, who are part of various export promotion councils and corner undue advantages by what the complainants derisively refer to as ‘institutional capture’, leaving them to fend for themselves!
The services sector, though acquitting itself impressively in recent times with a higher growth rate of exports compared to merchandise goods, is helping in improving the overall performance of the country but the new FTP has little to offer to it. India’s services exports stood at $254.53 billion in 2021-22 and logged growth of 28% in the first nine months of 2022-23 fiscal as compared to the corresponding quarters of 2021-22 with a target to scale $300 billion in the new fiscal! A report of the House Panel, placed in Parliament in the post-budget session, deplored the lack of replacement schemes for services exporters as a substitute to the discontinued Service Exports from India Scheme (SEIS). It favoured a revamped SEIS but this hope was dashed in the new policy as it has no new scheme for services exports or any policy push to leverage India’s competitive strengths and comparative advantages in frontier areas of services that range from information technology to travel, medical tourism, auditing, and accounting.
The irony is that by putting less money on incentivising exporters of goods and services, the government believes such activities will thrive on their own as demonstrated by the performance of these twin engines of exports in the last three years during the pandemic. Hence, its focus is now on e-commerce, the thriving new business in the digital era with big-pocket foreign players such as Amazon, Alibaba and Flikpart or local leviathans like Tata and Jio of Reliance. For the Bharatiya Janata Party (BJP), the trading community is one of the stoutest pillars in the polls. Naturally, when not even the dust kicked off by the entry of single-brand or multi-brand retail chains had settled down, it found its new and natural ally to help support small traders by enabling them to enlist themselves as aggregators to the big e-commerce platforms! Hence a cornucopia of benefits is being conferred on the new-fangled trade tsars of New India.
Accordingly, the policy goes the whole hog to e-commerce overseas shipments, which it aims to augment to $200 billion-$300 billion annually by 2030 from the $5 billion-$10 billion low base of today. The policy as such focuses on raising the value ceiling for exports through courier services by carrying out the requisite facilitation steps in the next six months. A move is on the anvil to establish e-commerce export hubs with warehousing amenities to help aggregators (small traders supplying to big brand e-platforms) in easy stocking, customs clearance and returns processing. Given the unorganised level at which small traders operate, how far and fast they will band or bind themselves to fit into the new paradigm of purveying goods to the biggest e-platform ones for enabling the latter to offer e-commerce service with ease and convenience to the customers is easy to imagine but quite onerous to implement. But somewhere someone had to begin and the new policy has started in this tack to emancipate a whole lot of small traders to get them used to take part in the global supply chain mechanism by joining the bandwagon of modern day digital trading! But this permits the big players in e-commerce to grow bigger and fatter, unless regulatory vigilance is duly exercised by the authorities in slapping anti-trading and restrictive practices normally associated with the big guys. If today Google and other tech companies invite hefty regulatory penalty in the host country running into billions of dollars, the time is ripe for the authorities to ensure that our own native big e-platform companies, including the foreign ones, do not shortchange the small traders or cheat local customers. The liberty associated with free activity needs to be hedged by responsibility and exemplary and easy service to customers, who remain the king in the marketplace and not the e-platforms lords.
Again, on trading, the new policy has introduced “merchanting trade”( one wonders how this verb was formed when standard lexicons have no allusion to such a word) scheme by which exporters can source goods from another country and send them to a third country without touching Indian shores. Even as this legerdemain has its reservations by the central bank earlier, the scheme facilitates export of restricted goods in such transactions; it allows trading in banned goods subject to trade sanction as long as the earning in foreign exchange is the outcome.
Other than the focus on trading activities in lieu of exporting merchandise goods or services, the new policy offers sops like amnesty scheme for unfulfilled export obligations (EO) of the past with battery, electric vehicles, green hydrogen to be eligible for reduced EO, fillip for international trade settlement in Indian rupee and reduction in user charges for micro, small and medium enterprises (MSMEs) to keep all lobby groups satisfied with a fanciful goal to take overall exports to three trillion dollars by 2030.
(G. Srinivasan is a senior economic journalist based in New Delhi)