The mid-term review of Foreign Trade Policy (FTP) was a highly anticipated policy development amidst an ebbing export climate, slowdown in developed economies, Brexit, volatility in commodity prices and general uncertainty in the business environment across the globe. Substantial measures were needed to boost India’s share in global exports and reassure the government’s strong resolve to transform India into a manufacturing and export hub. The mid-year review was deliberately deferred from July 1, 2017, so that crucial policy changes address the impact of the goods and services tax (GST) on exporters and consider feedback from various stakeholders including exporters, industry associations, commodity boards, foreign missions, state governments and ministries. Interestingly, India has also signed the Trade Facilitation Agreement under the World Trade Organisation and the mid-term review draws up an action plan for its implementation.
While incentivising critical sectors for export, the review was expected to address hardships faced by exporters on GST refunds including the liquidity concerns and align FTP provisions with the recently introduced GST legislations. Various matters had gone to the courts in the form of writ petitions due to working capital blockage and the government has been trying to work for the benefit of exporters for the last couple of months. The government also hinted that they are interested in looking at incentivising new products and exploring new markets for targeted incentives such as Africa, Latin America and Caribbean regions.
While continuing with the broad contours and principles of the 2015-2020 policy, the focus of the revised FTP will be on ease of trading and extending incentives worth Rs 8,450 crore along with the promise of rolling out e-wallet facility for refunds giving the much needed respite to exporters from working capital blockage. Further, while incentivising the micro, small and medium enterprises (MSME) and labour-intensive sector, the government did not ignore agriculture and defence sectors and a large proportion of incentive has been allocated to promote exports in these sectors as well. Besides, leather and footwear manufacturers, manufacturers of handmade carpets, telecom and electronic, medical or surgical equipment and ready-made garments will receive significant incentives in the coming days.
Key highlights include simplification and merger of reward schemes, procedures to support and handhold new exporters, introduction of schemes for promotion of merchandise and service exports under a self-declaration, self-ratification route, e-commerce exports and procurement of capital goods from indigenous manufactures through the Export Promotion Capital Goods scheme. MEIS rates have been further enhanced for ready-made garments, agro products and select labour-intensive MSME products to ensure steady employment generation around these sectors. Going forward, the Export Promotion Mission and a state-of-the-art trade analytics division is going to play a critical role in providing institutional framework in close collaboration with the states.
These changes will have far-reaching impact on our exports as well as the “Make in India” campaign. This will also promote and facilitate India’s participation of traditional markets and products in the global and regional value chains. The government is optimistic that lowering of duty on most items and reduction of the cascading effect of various duties would lower costs and in turn make exports more competitive. Necessary adjustments have also been carried out under the GST framework to facilitate refund of erstwhile VAT paid by exporters across states. Overall, the changes will impact exporters in a big way and alleviate most of their concerns which have been plaguing growth of late. This has been another feather to the cap of the Indian government in what has been a dynamic year experiencing the biggest tax reform in Indian history. It is indeed reassuring to see the industry and the government working together to ensure a smooth transition, thereby ensuring the competitiveness of Indian exports. It is hoped that the aggregate effect improves the rating for ease of doing business in India.