India Govt. unveils new foreign trade policy to boost exports, greeted with mixed response

While India's exports grew only 3.4 percent in 2008-09 to $168.7 billion, exports have been falling in annual terms since October as the recession in developed nations has sapped demand. They were down 31.3 percent in the quarter ended June 30 from a year earlier, a sharp contrast from the annual growth of more than 20 percent between 2004-05 and 2007-08. Government data released earlier Tuesday showed that India's exports fell for the 10th straight month in July. According to the data, India's exports fell an annual 28.4 percent in July 2009 over July 2008 to $13.62 billion.

To reverse the trend, the government unveiled a new foreign trade policy which focuses on expanding exports markets to the emerging economies in regions such as Africa, Latin America, Caribbean, East Asia, Oceania and the Pacific, which are less impacted by the financial turmoil.

As a long-term measure to push exports, the policy has also increased incentives on exports to 'focus markets' - whose number has been increased by 26 - from 2.5 percent to 3 percent. Similarly, export incentives to 'focus products' is up from 1.25 percent to 2 percent of the value of exports. These are expected to help diversify the markets for Indian exports, trade analysts said, though the measures will take time to yield results.

While the policy has extended a number of existing schemes, including the popular import duty reimbursement scheme or Duty Entitlement Pass Book Scheme (DEPB) and enhanced Export Credit Guarantee Cover (ECGC) till the end of the fiscal year and beyond, it also introduced new measures like the zero-duty Export Promotion Capital Goods Scheme (EPCG) that will enable exporters to upgrade technology through cheaper imports of capital goods.

Other relief measures include interest rate subvention of 2 percent on export credit and providing dollar credit to exporters that will be overseen by a committee consisting of the finance secretary, commerce secretary and the chairman of Indian Banks Association. To protect small and medium exporters, who are unable to seek expensive legal help for foreign markets, a Directorate of Trade Remedy Measures will be set up.

"My immediate priority is to arrest and reverse the declining trend in exports. We have tried to boost exports through all possible measures. The focus is on labor-intensive sectors. The safeguards were necessary in the hard hit domestic industry," said Commerce Minister Anand Sharma, adding that labor-intensive sectors such as handloom and handicrafts, leather, gem and jewellery sectors will be the beneficiaries of the new foreign trade policy.

"Considering the fact that there is a contraction worldwide, demand has fallen especially in the traditional markets of Indian exports like Europe and America. That's why we have announced a very ambitious expansion and diversification by including 39 new markets. We hope that these 39 markets will offer the potential and our exporters now will have new motivation to reach out," Sharma said. The US and Europe account for a large part of India's goods exports, worth $169 billion in 2008-09. As per April-December 2008 data, the US had a 12.8 percent share in India's exports while the 27-member EU countries had 22 percent. Exports to both the markets have declined substantially after the financial crisis broke out in October 2008.

Sharma also said that the government is determined to reduce transaction costs for Indian exporters. "The current policy has already reduced the application fees for exporters and the government will work to simplify export policies and procedures. Electronic trade is important and will be looked at in a time bound manner," the minister added.

In the long-term, Sharma said the government aims to instil confidence in the exporters by assuring them of government support, incentives and policy initiatives. These steps will be "conducive in boosting the confidence and to make Indian exports globally competitive," the minister said.

"We would like to achieve annual export growth of 15 percent over 2010-11 with an annual export target of $200 billion by March 2011," Sharma said. "In the remaining three years of this foreign trade policy up to 2014, the country should be able to come back on the high export growth path of around 25 percent per annum."

According to the minister, the government has set a target of doubling export in terms of volume and value by 2014. "By 2014, we expect to double India's exports of goods and services. We hope to double by 2014. 2020 is to double India's share in percentage terms. It's a modest target. We did not want to make tall claims in the policy and not deliver. We decided to be conservative with the policy because of the global slowdown," Sharma said. India had a 1.64 percent share in global trade in 2008.

Concessions announced in the new policy will cost the exchequer an additional Rs.2200 crore in the current fiscal year, a government official said.

The policy has, however, met with mixed response from India's industry captains.

According to Harshpati Singhania, president of Federation of Indian Chambers of Commerce and Industry (FICCI), "...(the FTP) will help our exporters retain market share, and will hopefully reverse the declining trend in our exports."

The enhanced benefits for market development and promotion schemes would enable the exporting community to explore new export destinations, he added.

The Confederation of Indian Industry (CII) Director General Chandrajit Banerjee said the focus in the FTP on 26 new markets will greatly benefit the exporters who have been hit due to demand slowdown in the country's traditional markets.

"It is a very realistic trade policy. I think new products (and) new countries have been best thought out...In a very innovative Foreign Trade Policy," Banerjee said, adding that though the FTP may not have specifically mentioned the small and medium enterprises sector but it talks about the labour intensive sector which largely consists of SMEs.

Terming the policy as "user friendly," the Associated Chambers of Commerce and Industry of India (Assocham) said, " (FTP) rightly focuses on creation of demand for Indian products in new markets to help exporters distribute and diversify their risks."

"The gems and jewellery account for nearly 13 percent of India's total exports. The policy will further increase the exports," said Vasant Mehta, chairman of the Gem & Jewellery Export Promotion Council (GJEPC).

"Our exports in the traditional sectors have been impacted due to demand contraction in the US and Europe. New measures would allow exporters to provide exposure to Indian goods in these markets," said Ajay Sahai, director general of Federation of Indian Export Organisations (FIEO).

Agrees A. Sakthivel, president of FIEO. "The new policy rightly puts emphasis on market diversification as our traditional exports have been hit badly due to concentration in the US and EU regions. The introduction of zero-duty capital goods scheme will add to expansion and modernization of the production base," Sakthivel said.

Free dollar credit, extension of the interest subvention scheme and enhancement of the focus product and focus market scheme will help exporters, he said.

However, "We have asked for some mechanism to refund state levies and taxes as GST is still not implemented in many states. We have also asked for fuel prices be brought down to international prices. Both the issues have not been addressed," he added.

"Given the limited incentives provided in the package, it will be very difficult to meet the existing export target of $168 billion. The government should have given more support," said Rakesh Shah, former chairman of the Engineering Export Promotion Council (EEPC).

According to Delhi Exporters Association President S.P. Agarwal, the policy does not live up to exporters' expectations and will not contribute to stemming the fall in exports. "We have been told time and again that exporters will not have to export taxes. However, nothing was announced in this policy to address issues such as reimbursement of input taxes charged by states and also refund of VAT," Agarwal said.

The Federation of Indian Micro and Small and Medium Enterprises (FISME) has also joined the chorus of discontent saying it does not offer any contra cyclical steps for reversing the current trend in declining exports.

"Overall the FTP proposed today is characterised by incremental improvements here and there, but completely misses addressing the issue of falling trade and offering vision for India's trade post global financial crisis," FISME said in a statement.