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Foreign Trade Policy should live up to exporters' expectation
Nov 11, 2014

The new Foreign Trade Policy (FTP) for 2014-2019 was expected sometime towards end of October 2014. Typically, the FTP is announced in the months of July-August after five years of its duration (with annual revisions in April).

The delay in announcing the policy this year has made the exporters/ importers and industries anxious with respect to planning their long-term business decisions and it also seems to be hampering shipments.

FTP, I am sure would keep 'Make in India' - a new national campaign designed to transform India into a global manufacturing hub - in the backdrop and aim at enhancing the country's exports. Most sectors are wishing for simplification of lengthy procedures, seamless regulatory assessments amongst various ministries, easing credit eligibility criteria so as to promote India as an investor-friendly nation. It is likely that we may see an impetus around the following aspects:

Current beneficial schemes should continue -

As part of capacity building and rationalisation measures, a long term stable policy for growth and development of trade is always favourable and hence, all export promotion schemes in the current FTP should continue for another five years. Higher incentives should be granted for export of manufactured goods (with value addition being done in India) and project exports. FTP should extend export interest subvention for working capital to various products. To be globally competitive, it is important that high transaction costs and turnaround time for Indian exports are addressed.

As far as Advance Authorisation scheme is concerned, continuance of said scheme would be critical to encourage 'Make in India' initiative. Currently, importers / exporters face lot of challenges at the time of redemption of Advance Authorisation. Hence, simpler compliance requirements coupled with detailed guidelines in this regard would help in creating trade friendly environment.

Boost to Service exports -

Apart from manufacturing, FTP should also focus on Service exports. Services have outpaced merchandise export performances globally. India being an inherent service excellence centre should stand to gain with sharper focus in FTP.

'Focused' coverage of FPS and FMS schemes -

Considering the revenue implication, while the Ministry seems to be looking at alternatives of incentivising exports through non-tariff measures instead of enhancing the list of products under the Focus Products Scheme or Markets under Focus Markets Scheme, it should not prune such reward schemes which are the most direct and efficient tools to incentivise exports.

Efficient IT framework -

Being in sync with the government's drive to harness technology and increased reliance on Information Technology (IT) policy upgradation, the FTP should endeavour to build an IT framework that reduces transaction costs through procedural simplification and reduction of human interface.

News reports suggest that the commerce ministry is planning to come up with mobile applications for exporters and importers which would be developed by private players. The "FTP App" was announced so as to avoid traders from going through the voluminous book on India's FTP and instead access it on their smartphones or tablets. Further, it was announced that the "EXIM (export-import) App" would help them in filling different documents such as shipping bills and other paperwork.

Efforts should be made to also digitize the delivery mechanism. At present, the authorizations and approvals are being issued in physical form (thereby increasing the cost and timelines) and their issuance in electronic forms could eliminate voluminous paper work, etc.

Fillip to SEZs / EOUs-

While the SEZ policy has been separately legislated, being a part of the Foreign Trade initiative, the same should be suitably addressed. SEZs have been currently facing a lot of issues in as far as various incentives are concerned. It has been seen that discussions are being undertaken between the finance and commerce ministries regarding the tax concessions that are required for giving a fillip to SEZ exports.

Encouraging SEZs as an investment platform is very crucial for the future landscape of SEZs. Currently, SEZs contribute to about 25 percent of the country's total exports. However, SEZ projects are being surrendered as imposition of taxes has eliminated the incentives. Easing procedural compliance and facilitating non-core uses of SEZs could be a welcome step in this regard.

Unlike SEZs, services to EOUs do not enjoy exemption in the absence of any exemption notification under Service tax. This is despite granting the said benefit in terms of FTP. Under the new Government, both - Commerce and Finance Ministry can set an example of a collaborative approach for extending the intended benefit to such services through an appropriate amendment / Notification.

Wider coverage of SFIS scheme -

More liberal benefits under the SFIS are the need of the hour and have been requested by various sectors / industries.

The commerce ministry is expected to expand the scope of the SFIS in the new FTP by making duty credit scrips tradable. SFIS scrips should also be made creditable against output liability on account of Service tax. Exporters should be given credits for exports that can be used for payment of duties / taxes on inputs used in imports, as otherwise these credits become useless if an exporter does not use imported inputs.

However, if the credits are made tradable, the exporter can monetise these incentives by selling them in the open market. It is likely that making it tradable will help exporters from other sectors which do not have much import.

The benefit of SFIS has been denied by the DGFT on the ground that the same should be available only to those who create a powerful and unique "Served from India Brand". The narrow interpretation of "Brand India" is based on the objective as set out in the Policy which is resulting in undue litigation. The new FTP should address this concern by being more liberal on this count and should not limit the scope of SFIS scheme.

To conclude...

The new FTP should have a strong and positive impact on India's trade performance. While there has been a significant growth in exports, the trade deficit has been marginally higher. FTP should also promote exports of specific products and services in specific geographies so as to lay greater thrust on engaging with the rest of the world and in order to increase the Indian share in the global trade.

 If formulated appropriately and well received by the industry, the Centre should be able to provide the impetus to exports by repackaging the FTP that has a strong thrust in manufacturing, aligning itself with the Prime Minister Narendra Modi's 'Make in India' campaign. From administration perspective, the overall scheme should be lucid and not promote ambiguity to the chagrin of taxpayers and revenue authority.


 

    

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