Context

• Union Minister of Commerce and Industry Shri Piyush Goyal recently launched the Foreign Trade Policy 2023. The policy had been under discussion for a long time and has been formulated after multiple stakeholder consultations.
• In this context, this edition of the Burning Issue will elaborate on this new policy. The topic is relevant for the upcoming Prelims examination (export-import related data, facts and schemes) as well as for the Mains examination 2023 under GS-3 topic.

About Indian exports

• India’s overall exports, including services and merchandise exports, have already crossed US$ 750 Billion and are expected to cross US$ 760 Billion this year.
• Also, the value of India’s exports in the financial year 2021-22 hit 400 billion dollars which translated into a growth of about 41% from the pandemic-hit year of 2020-21.

Background of the policy

• Foreign Trade Policy (2023) is a policy document that is based on the continuity of time-tested schemes facilitating exports as well as a document that is nimble and responsive to the requirements of the trade.
• It is based on principles of ‘trust’ and ‘partnership’ with exporters. In the FTP 2015-20, changes were done after the initial release even without the announcement of a new FTP responding dynamically to emerging situations.
• Hereafter, the revisions of the FTP shall be done as and when required. Incorporating feedback from Trade and Industry would also be continuous to streamline processes and update FTP, from time to time and also make export scheme WTO rules compliant.

Aims and objectives of the new policy

• The FTP 2023 AIMS AT process re-engineering and automation to facilitate ease of doing business for exporters. It also focuses on emerging areas like dual-use high-end technology items under SCOMET, facilitating e-commerce export, and collaborating with States and Districts for export promotion.
• To increase exports and GET MORE DEEPLY INVOLVED IN THE GLOBAL VALUE CHAIN. Given the size of the Indian economy and manufacturing & service sector base, the potential for the country to grow is manifold.
• The Key Approach to the policy is based on these 4 PILLARS:
  • Incentive to Remission, 
  • Export promotion through collaboration – Exporters, States, Districts, Indian Missions,
  • Ease of doing business, reduction in transaction cost and e-initiatives and
• Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy.

Key highlights of the policy

• Process Re-Engineering and Automation: Greater faith is being reposed on exporters through automated IT systems with risk management systems for various approvals in the new FTP. The policy emphasizes export promotion and development, moving away from an incentive regime to a regime which is facilitating, based on technology interface and principles of collaboration.
• Towns of Export Excellence: Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns. The TEEs will have priority access to export promotion funds under the MAI scheme and will be able to avail Common Service Provider (CSP) benefits for export fulfillment under the EPCG Scheme.
• Recognition of Exporters: Exporter firms recognized with ‘status’ based on export performance will now be partners in capacity-building initiatives on a best-endeavor basis. Similar to the ‘each one teaches one’ initiative, 2-star and above status holders would be encouraged to provide trade-related training based on a model curriculum to interested individuals.
• Promoting export from the districts: The FTP aims at building partnerships with State governments and taking forward the Districts as Export Hubs (DEH) initiative to promote exports at the district level and accelerate the development of a grassroots trade ecosystem. Efforts to identify export-worthy products & services and resolve concerns at the district level will be made through an institutional mechanism – State Export Promotion Committee and District Export Promotion Committee at the State and District level, respectively.
• Streamlining SCOMET Policy: India is placing more emphasis on the “export control” regime as its integration with export control regime countries strengthens. There is a wider outreach and understanding of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) among stakeholders, and the policy regime is being made more robust to implement international treaties and agreements entered into by India.
• Facilitating E-Commerce Exports: FTP 2023 outlines the intent and roadmap for establishing e-commerce hubs and related elements such as payment reconciliation, bookkeeping, returns policy, and export entitlements. As a starting point, the consignment-wise cap on E-Commerce exports through courier has been raised from ₹5Lakh to ₹10 Lakh in the FTP 2023.
• Merchanting trade: To develop India into a merchanting trade hub, the FTP 2023 has introduced provisions for merchanting trade. Merchanting trade of restricted and prohibited items under the export policy would now be possible. Merchanting trade involves the shipment of goods from one foreign country to another foreign country without touching Indian ports, involving an Indian intermediary. This will be subject to compliance with RBI guidelines, and won’t be applicable for goods/items classified in the CITES and SCOMET list.
• Amnesty Scheme: Finally, the government is strongly committed to reducing litigation and fostering trust-based relationships to help alleviate the issues faced by exporters. In line with “Vivaad se Vishwaas” initiative, which sought to settle tax disputes amicably, the government is introducing a special one-time Amnesty Scheme under the FTP 2023 to address default on Export Obligations. This scheme is intended to provide relief to exporters

Current Export Schemes And Changes In Them w.r.t  NFT Policy 2023

(A)Facilitation under the Export Promotion of Capital Goods (EPCG) Scheme

• The EPCG Scheme, which allows the import of capital goods at zero Customs duty for export production, is being further rationalized. Some key changes being added are:
  • Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been added as an additional scheme eligible to claim benefits under the CSP(Common Service Provider) Scheme of Export Promotion Capital Goods Scheme(EPCG).
  • Dairy sector to be exempted from maintaining Average Export Obligation – to support the dairy sector to upgrade the technology.
  • Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling, Rainwater harvesting system and Rainwater Filters, and Green Hydrogen are added to Green Technology products – will now be eligible for reduced Export Obligation requirements under EPCG Scheme

(B)Facilitation under the Advance authorization Scheme

• The advance authorization Scheme accessed by DTA units provides duty-free import of raw materials for manufacturing export items and is placed at a similar footing to EOU and SEZ schemes.
• However, the DTA unit has the flexibility to work both for domestic as well as export production. Based on interactions with industry and Export Promotion councils, certain facilitation provisions have been added to the present FTP such as
  • Special Advance Authorisation Scheme extended to export of Apparel and Clothing sector under para 4.07 of HBP on the self-declaration basis to facilitate prompt execution of export orders – Norms would be fixed within a fixed timeframe.
  • Benefits of Self-Ratification Scheme for fixation of Input-Output Norms extended to 2 star and above status holders in addition to Authorised Economic Operators at present.

Possible positive outcomes of the scheme

• Supporting MSME’s to grow: TP 2023 codifies implementation mechanisms in a paperless, online environment, building on earlier ‘ease of doing business’ initiatives. Reduction in fee structures and IT-based schemes will make it easier for MSMEs and others to access export benefits.
• Creating new export centres: Addition of new towns for export excellence is expected to boost the exports of handlooms, handicrafts, and carpets.
• Educating exporters: This will help India build a skilled manpower pool capable of servicing a $5 Trillion economy before 2030. Status recognition norms have been re-calibrated to enable more exporting firms to achieve 4 and 5-star ratings, leading to better branding opportunities in export markets.
• Provide access to dual-use High-end goods and technologies: A robust export control system in India would provide access of dual-use High-end goods and technologies to Indian exporters while facilitating exports of controlled items/technologies under SCOMET from India.
• Growth of GIFT city: In course of time, this will allow Indian entrepreneurs to convert certain places like GIFT city etc. into major merchanting hubs as seen in places like Dubai, Singapore and Hong Kong.
• Reduce litigation burden: The amnesty scheme is likely to provide relief to exporters as the interest burden will come down substantially. It is hoped that this amnesty will give these exporters a fresh start and an opportunity to come into compliance.

Limitation of NFT Policy

• Still, with global trade largely becalmed and the services sector facing headwinds of uncertainty in the key western markets, the FTP falls short in offering more substantive and sectorally targeted measures as well as a well-defined road map to meet the 2030 export target.

Conclusion

• The Foreign Trade Policy 2023 comes at a time of global uncertainty, but with India’s small share in global trade (around 1.8% in merchandise exports and roughly 4% in services), there is significant room for improvement.
• The new policy, along with additional measures, can enhance the country’s trade performance and achieve the ambitious $2 trillion export target by 2030. However, it is crucial to monitor the policy’s implementation and address potential challenges for businesses to fully reap the benefits.