Kudos Modi govt for a game-changer foreign trade policy but mind execution troubles ahead

So, was a one year delay in the foreign trade policy worth it? On the face of it, yes.

It is not just about the target to double India’s exports in goods and services over the next five years (from $465 billion to $900 billion) and upping the Indian share of the world exports pie from the current 2 percent to 3.5 percent over the same period.

All governments set numerical targets and the fact that these targets are for a five-year term only shows that the National Democratic Alliance government has a long-term vision in this matter. What is equally, if not more, important is that the Foreign Trade Policy 2015-20 signals a shift in the approach the government will take to make this possible.

A big step is cleaning up the plethora of export promotion schemes and clubbing them under two schemes, one for goods (Merchandise Exports from India Scheme) and one for services (Services Exports from India Scheme).

The duty scrips under these schemes come without conditions and can be freely transferred. This makes the nine-odd months' delay in the foreign trade policy excusable. It would not have been easy to wade through the existing schemes and understand the implications of rationalising them, which could involve excluding some sectors from their purview.

One significant announcement in the policy is that it will move away from relying largely on subsidies and sops. Sure, this is prompted by World Trade Organisation (WTO) requirements that export promotion subsidies should be phased out, but there are ways of getting around it – other countries are doing it all the time.

The government needs to be complimented for deciding that this is the direction its export promotion efforts will now take – fundamental, systemic measures to improve the competitiveness of Indian exports by other, sustainable means.

 Kudos Modi govt for a game-changer foreign trade policy but mind execution troubles ahead

Union Minister Nirmala Sitharaman. AFP

What’s heartening, in this context, is the frank acknowledgement that addressing domestic challenges – infrastructure, transaction costs, procedural hurdles – is equally, if not more, important than tackling external ones. As the trade policy document points out, the latter are largely imponderables outside any country’s control.

The document talks about a 'whole-of-government' approach to foreign trade policy, but this should not be limited to state governments and other central ministries playing a role in export promotion.

It should also be about the relevant ministries, departments, state and local governments helping address the infrastructure deficit challenge. The earlier Foreign Trade Policy 2009-14 unveiled by the second United Progressive Alliance government also spoke about addressing the infrastructure deficit as one of the three pillars of the trade policy, but precious little happened on the ground. This government needs to ensure that there is no repeat of this.

Equally promising is aligning the policy with some of the government’s other programmes like Make in India, Digital India and Skills India, though how it plans to do this is not very clear. For far too long has trade policy functioned in a vacuum. Can India really push exports in labour-intensive sectors when these sectors lack the necessary human resource?

There has been talk of boosting services exports for quite a few years now, but information technology and information technology-enabled services (IT/ITES) dominated the basket. The share of this segment in the overall export basket is 50 percent and 90 percent in the services export basket.

More importantly, this sector was overly dependent on western markets and, consequently, extremely vulnerable to even the smallest of developments there. The policy, fortunately, turns its attention to other sectors where India has inherent advantages – healthcare, education, R&D, logistics, professional services, entertainment, as well as services incidental to manufacturing.

That’s good, but getting access to other country markets in these areas will depend on India opening up sectors in which other countries will be interested. But our steadfast opposition to opening up several sectors – legal services comes to mind readily - could queer the pitch. This is an issue which needs to be confronted.

Indeed, like all great-sounding policies, this forward looking Foreign Trade Policy could also trip up on the implementation front. The very first challenge would be living up to the promise of providing a stable policy regime.

Commerce minister Nirmala Sitharaman assured that the policy would be closely monitored but would be subject to a review only after two-and-a-half years, barring, of course, any exigency that may arise due to global factors.

The foreign trade policy – then known as an ExIm Policy – was once an annual affair until 2005 when the first UPA government started this practice of a five-year policy, precisely with the idea of ensuring stability.

But then it was subjected to an annual review and each year would see notifications bringing in amendments or modifications to the five-year policy. This continued in UPA-2 as well.

The new policy unveiled yesterday will take away concessions from quite a few sectors. These sectors will not take it quietly and will start lobbying against this. Will the government be able to resist the pressure? That will be its real test and how it passes it will be known next year.

Updated Date: Apr 02, 2015 15:27:13 IST