Foreign Trade Policy Statement 2017- Mid-Term Review

Government Of India
Ministry Of Commerce And Industry
Department Of Commerce

EXECUTIVE SUMMARY

Vision, Mission and Objectives

1. The Foreign Trade Policy Statement explains the vision, goals and objectives underpinning the Foreign Trade Policy for the period 2015-2020, as updated through the mid-term review completed in December 2017. Keeping in the backdrop the global trade developments, it describes the market and product strategy, and the other measures required for export promotion and enhancement of the entire trade ecosystem.

2. The vision behind the policy continues to be focused on making India a significant participant in world trade and on enabling the country to assume a position of leadership in international trade.

3. The revised FTP focuses on the goal of exploring new markets and new products as well as on increasing India’s share in the traditional markets and products, leveraging benefits of GST by exporters; close monitoring of export performances and taking immediate corrective measures based on state-of-the-art data analysis; increasing ease of trading across borders; increasing the realisations from Indian agriculture based exports and promoting exports from MSMEs and labour intensive sectors to increase employment opportunities for youth.

Strategy

4. Foreign trade today constitutes 45% India’s economy, so much so that foreign trade policy deserves a special focus and dedicated attention as a key constituent of India’s economic policies. Given the diverse elements that contribute towards a conducive foreign trade environment, the foreign trade policy can neither be formulated nor implemented by any one department in isolation. Going forward, a ‘whole-of-government’ approach will continue to be the focus through the various coordinating mechanisms that have been instituted.

5. In recent times, the Department of Commerce has systematically mainstreamed State and Union Territory (UT) Governments and various Departments and Ministries of Government of India in the promotion of India’s trade globally, resulting in significant outcomes. Twenty eight State Governments have nominated Export Commissioners, many States have prepared export strategies focusing on sectors of their strength and adopted suitable policies for promoting exports. A Council for Trade Development and Promotion has been constituted with representation of all States to provide an institutional framework to work with the State Governments for boosting India’s exports. Senior officials have been appointed as designated focal points for exports and imports in several Central Ministries and Departments.

6. The FTP will continue to provide a stable and sustainable policy environment for foreign trade in merchandise and services and to link rules, procedures and incentives for exports and imports with other initiatives such as ‘Make in India’, ‘Digital India’, ‘Skill India’, ‘Startup India’, Smart City’, `Swachh Bharat’ and ‘Goods and Services Tax’ (GST). It will provide diversification of India’s export basket by lending support to new and non-traditional sectors of the Indian economy to gain global competitiveness; create a conducive environment for India’s global trade engagement with a view to integrating with major regions and expanding its markets to new regions, thereby increasing the demand for India’s products and strengthening the ‘Make in India’ initiative; and provide a mechanism for regular appraisal in order to enhance exports, rationalise imports and reduce the trade imbalance.

7. The state of the external environment undoubtedly will be crucial and new features of the global trading landscape such as mega regional agreements and global value chains will profoundly affect India’s trade. The biggest challenge, however, is to address constraints within the country such as infrastructure bottlenecks, high transaction costs, complex procedures, constraints in manufacturing and inadequate diversification in our services exports. These domestic issues are being addressed on priority, notwithstanding some of the volatile external factors that are beyond control. Towards this end, the Department of Commerce has set up a new Division to promote integrated and streamlined logistics development in the country. The roll out of the GST on 1st July 2017 is part of the initiative to streamline the taxation regime and reduce costs for businesses. With the signing of the Trade Facilitation Agreement (TFA) at the WTO, the resulting procedural simplification would also contribute to the lowering of transaction costs.

8. Winners and potential winners have been identified separately from amongst industrial and agricultural products in order to make the export promotion schemes more focused and effective. At the same time, an institutional mechanism for continuous import appraisal has been put in place to ensure coordinated and rational import policies in various sectors.

9. The need to ensure that the FTP is aligned with both India’s interests in the negotiations, as well its obligations and commitments under various WTO Agreements has been an important consideration in framing this Policy.

10. In the ongoing Doha Round of trade negotiations, India will continue to work towards fulfilling its objectives and to work with like-minded members to remove any asymmetries in the multilateral trade rules which place a developing country at a disadvantage.

11. The current WTO rules as well as those under negotiation envisage the eventual phasing out of export subsidies. This is a pointer to the direction that export promotion efforts will have to take in future, i.e. towards more fundamental systemic measures rather than incentives and subsidies alone.

12. India’s newer bilateral/regional trade engagements will be with regions and countries that are not only promising markets but also major suppliers of critical inputs and have complementarities with the Indian economy. The focus of India’s future trade relationship with its traditional markets in the developed world would be on exporting products with a higher value addition, supplying high quality inputs for the manufacturing sector in these markets and continued optimization of applied customs duties on inputs for India’s manufacturing sector.

13. The US is one of India’s top trading partners. With US economic growth on the path to recovery, future bilateral trade prospects are bright. Employment-generating sectors such as textiles, pharmaceuticals, agriculture, leather and gems & jewellery will continue to receive major attention for promoting exports to the US market. Important aspects of the India-US economic relationship include access for India’s high skilled Services Sector in US markets and increased investment. Regular dialogue with the US to share India’s perspective on issues such as intellectual property rights, policies of the US Government related to temporary movement of professionals, labour and skill related policies of the US Government, will also be a key part of the India-US economic relationship and dialogue. Canada and Mexico are other important trading partners in North America with which institutionalised high level dialogues have been established and strengthened.

14. In the European Union, which is a highly discerning market, our exporters face several challenges in the form of stringent sanitary and phytosanitary standards, a complex system of quotas and tariffs and trade remedial actions against Indian products. The EU is a significant market for India’s information technology services but remains underutilised because of the data security related constraints posed by EU regulations. Increasingly, we will focus our trade promotion activities on new products with higher value addition particularly in the categories of medical equipment, chemicals, processed foods, as also services. The EU has introduced a self certification mechanism for exports under the Generalized System of Preferences (GSP), which India has accepted and implemented from 1st January 2017 onwards. This is expected to significantly lower transaction costs for Indian exporters under the GSP.

15. India’s trade relations with its immediate neighbours in South Asia are a special focus area for the government, with a larger goal of building a regional economic zone including value chains in different sectors such as textiles, engineering goods, chemicals, pharmaceuticals, auto components, plastic and leather products. In this context, physical and digital connectivity is a key objective. A better connected south Asia can seamlessly link to onward routes to South East Asia and Central Asia.

16. Another focus area is South-East Asia. Trade integration with the CLMV (Cambodia, Lao PDR, Myanmar and Vietnam) countries is an important part of India’s regional trade strategy and a Project Development Fund has been launched to encourage the Indian private sector to set up manufacturing hubs in this region. An added advantage of such integration will be the expansion of economic opportunity in North East India through regional trade with its consequent development outcomes.

17. Traditionally, India’s trade with South-East Asia has been robust and strengthened through several trade agreements in the ASEAN region. Since 2012 India has been negotiating the ambitious Regional Comprehensive Economic Partnership with ASEAN and its FTA partners – China, Japan, Korea, Australia and New Zealand. This regional agreement which encompasses 40% of the world’s trade and 38% of its GDP aims to promote balanced trade in services and goods among its member countries.

18. India’s most important trading partner amongst the countries of North East Asia is China. Engagement with China requires a comprehensive approach on trade, investment and economic cooperation issues. India will, inter alia, continue to pursue market access issues and removal of Non-tariff Barriers on India’s exports of pharmaceuticals and agro commodities, Indian IT Services and other service sectors such as tourism, films and entertainment. India will also encourage Chinese investment in boosting India’s manufacturing capacities while remaining vigilant against any unfair trade practices. Efforts to intensify trade and investment links with Japan and Korea under the existing bilateral trade arrangements will continue to be a focus for India’s engagement with North-East Asia.

19. There is enormous untapped potential for enhancing India’s economic relations with the fast growing African continent, encompassing not just trade and investment but also capacity building, technical assistance and provision of services such as healthcare and education. Agro-processing, manufacturing, mining, textiles, pharmaceutical, engineering, infrastructure development and construction are highly promising areas for India. India is therefore engaging actively with countries and regional groupings in Africa for trade agreements, project exports and capacity building initiatives.

20. West Asia & North Africa Region are a dynamically growing region with concomitantly high absorptive capacity for our exports. India is negotiating FTAs in the region with Israel and with six countries comprising the Gulf Cooperation Council. The region is rich in hydrocarbons and holds significance for India’s energy security.

21. The plan for greater engagement with Latin America and Caribbean region encompasses expansion and deepening of the existing trading arrangements as well as developing new ties. Efforts are being made to diversify India’s exports to the region and to encourage project exports through easy access to credit facilities. Expansion of the agreement with MERCOSUR, strengthening the partnership with Chile, Peru and other major economies will continue to focus. Special sectors of focus for the region are vehicles, chemicals and engineering goods.

22. The traditional and historical relations between India and Russia need to be transformed to the modern and contemporary level through enhanced private sector engagement on either side. CIS (Commonwealth of Independent States) region is rich in minerals and hydrocarbons which are crucial for India’s growing industry. India’s engagement with CIS will be deepened through an India-EAEU FTA; operationalising the International North South Transport Corridor; and building value chains in key areas of interest. The Indian diamond industry stands to benefit from the Special Notified Zone set up for import and export of rough diamonds at Mumbai.

23. The focus will be on promoting exports of high value added products with a strong domestic manufacturing base, including engineering goods, electronics, drugs and pharmaceuticals, textiles and agriculture. The challenges posed to the pharmaceuticals sector by NTBs and regulatory hurdles in several geographies have to be addressed. Composite programmes for promotion of healthcare products including AYUSH and services will continue to be conducted in various regions to showcase and market India’s unique strengths.

24. About 70% of India’s exports are of products whose share (exports of these products from all countries) in the total world trade is only 30%. This implies that India must focus on increasing the exports of products, which have become important in the world trade, while ensuring continued focus on sectors where India already has strengths. Some of the promising product groups are — Defense equipment, Medical devices, Agro processing, Technical Textiles, Chemicals. Promoting the growth of exports from high value creating and employment generating sectors with a strong domestic manufacturing base, would be the lynchpin of India’s overall export growth strategy.

25. The process for obtaining duty free inputs under the advance authorization scheme for the export of new products was lengthy. In the Mid Term review, the Government has notified a scheme for issuance of the Advance Authorisations on self-declaration basis for the products where Standard Input-Output Norms (SION) have not been notified by the DGFT. The scheme will support the export of new products and save time taken in the fixation of ad hoc product norms by the norms committees of the DGFT. The scheme would initially be available to the Authorised Economic Operators.

26. Increasing the export of Agricultural and Allied Products (Including Plantation and Marine products) is an important part of the government’s strategy to double farmers’ income in the next 5 years. While such exports have more than doubled over a period of 5 years, there is considerable scope for further increase. The salient features of Government’s plan to promote exports of agricultural products are (i) maintaining a long term, stable, and by-default `open’ export policy (ii) effective handling of sanitary and phytosanitary standards (SPS) and technical barriers to trade (TBT) issues in domestic and destination markets (iii) Creating cold chain and transport logistics facilities from the farm to the ports and airports (iv) promoting Organic exports through appropriate policy interventions and (v) setting up credible and up-to-date organic export certification and accreditation programmes.

27. Products manufactured in the Global Value Chains account for two-thirds of world trade in manufactured Goods. The GVC model breaks the product life-cycle into many tasks. Participating countries complete each task sequentially under ‘Just in Time’ conditions. To participate in GVCs, India needs to invest in the GVC ready trade infrastructure. This will require automating port and customs operations, allowing green channel clearances and bench marking the turnaround time of ships with the best countries. India’s focus would be to increase participation in the high value segments of Global Value Chains.

28. Government is committed to transforming India into a manufacturing and exporting hub. This will require focus on improving product quality. Many Indian products fail quality tests due to traces of pesticides, pathogens, illegal dyes, etc. An endeavour would be made to upgrade quality and infrastructure to help firms to move to higher quality standards and also protect Indian consumers from substandard imports. Setting up more globally accredited testing laboratories, enhancing the capacity of Indian testing laboratories and Mutual Recognition Agreements (MRA) with partner countries would be areas of focus.

29. A roadmap has been developed on measures required to protect consumers, raise the quality of the merchandise produced and enhance India’s capacity to export to even the most discerning markets. Standards Conclaves are being held annually in New Delhi and various regions to build awareness on the need for producing quality products in the country. A long term branding strategy has been conceptualised and is under implementation to enable India to hold its own in a highly competitive global environment and to ensure that ‘Brand India’ becomes synonymous with high quality. Further, a programme to promote the branding and commercialisation of products registered as Geographical Indications and facilitate their exports has been initiated.

30. The Services sector is an area of great potential for India’s trade and economy. The growing contribution of services sector to the GDP of most countries and increasing servicification of manufacturing makes this sector highly significant to any economy. Department of Commerce has been implementing an ambitious reform agenda in services, which is being pursued through an inter-ministerial mechanism. This agenda includes identification of Champion Services Sectors; review of regulatory frameworks; incentivisation of investment and ensuring quality and transparency. Efforts are being made to gain effective market access abroad through comprehensive economic partnership agreements with important markets. Global Exhibitions on Services are being held annually to showcase India’s strengths in the Services sector. Efforts are also underway to improve the availability of data on services.

31. Several initiatives have been taken or are in the pipeline for simplification of procedures and digitization of various processes involved in trade transactions in consultation with various Ministries and Departments.

32. As part of India’s commitment to implement the WTO’s Trade Facilitation Agreement (TFA), a National Committee on Trade Facilitation has been constituted for domestic coordination and implementation of the TFA. Active implementation of the TFA provisions across the country have earned India a higher ranking of 100 in the ‘Ease of Doing Business’ index in 2017.

33. Improving Ease of trading measures is a high priority area for the government as Indian exporters face high transaction costs. For example, the average logistics costs in India are about 15% while such costs in developed countries are about 8%. The smooth flow of goods and services across borders is one of the most significant elements contributing to a country’s competitiveness at the global level. A National Trade Facilitation Action Plan containing specific activities to further ease out the bottlenecks to trade has been prepared and circulated to all concerned Ministries for compliance. The steps being taken by various Ministries and Departments to implement the Action Plan are being closely monitored by the National Committee on Trade Facilitation.

34. The scheme for trade promotion and facilitation administered by the DoC, namely the Market Access Initiative Scheme (MAI) shall continue till March 2020. The other non-Plan Scheme for export facilitation namely; Market Development Assistance Scheme (MDA) has been discontinued from 1st April 2017 but essential components of the MDA Scheme have been incorporated in the MAI Scheme itself to address the needs of the eligible exporters under the erstwhile scheme.

35. Efforts will be made to support the development of infrastructure for holding conventions in all major tier 1 cities. A major convention-cum-exhibition centre is being developed at Pragati Maidan in Delhi replacing the present infrastructure.

36. Project exports are being encouraged, especially in the emerging markets with high infrastructure needs, through special lines of credit offered by the Ministry of External Affairs and the Buyers’ Credit Scheme of the Department of Commerce through Exim Bank of India and ECGC. This will, inter alia, continue to enable Indian businesses to develop long term business relationships, facilitate easier acceptance of India’s exports and build visibility for Indian products. In addition, EXIM Bank will undertake a study on the concept of ‘revolving credit’ for promoting our exports in new markets, especially in South Asia, Africa, CIS and Latin America. EXIM Bank will also explore developing strong ties with international lending agencies such as African Development Bank, Inter-American Development Bank, Caribbean Bank, etc. ECGC will be supported to enhance insurance cover to exporters particularly MSME’s exploring new or difficult markets.

37. Department of Commerce has launched a new Scheme TIES (Trade Infrastructure for Export Scheme). TIES will seek to bridge the export infrastructure gap by providing assistance for setting up and up-gradation of infrastructure with strong export linkages. The scheme provides support on sharing basis to States PSUs and other autonomous bodies towards creation of export infrastructure. Through focussed attention on export infrastructure, the scheme aims to improve India’s export competitiveness.

38. A combination of strategy including the use of Smart Data Analytics, feedback from the exporters, international buyers and the Indian missions abroad will help in devising effective new product-markets strategy for realising India’s export vision. To this end a data analytics Division has been created at the DGFT. The division will employ sophisticated data tools to identify the product and market related opportunities for Indian exporters. It will also identify the difficulties faced by India’s products in the destination markets. In addition, few web based Trade Analytics tool are available at the Department of Commerce website (http://commerce.gov.in/analytics/). Many firms get their first insights into India’s export products and markets from such tools. Firms also use Indian Trade Portal (http://www.indiantradeportal.in/) sponsored by the Department of Commerce to access Trade inquiries uploaded by Indian trade missions as well as details of major market destination’s product where SPS/TBT measures in force.

39. Capacity development efforts will continue to focus on EPCs and commercial missions. A new institution, namely, the Centre for Research on International Trade with three distinct centres for WTO Studies, Regional Trade and Trade Investment Law has been established for strengthening India’s research capabilities in the area of international trade and enabling better articulation of India’s views and concerns from a well-informed position of strength.

40. Many countries have relied on dedicated and specialized agencies to undertake trade and investment facilitation. These include JETRO (Min. of Economy, Trade & Industry), KOTRA (Min. of Trade & Energy, Korea ), MATRADE (Min. of International Trade & Industry, Malaysia), Austrade (Dept. of Foreign Affairs & Trade), Apex Brazil (Min. of Industry, Foreign Trade & Services), ITA (US-Dept. of Commerce). It is proposed to set up a similar agency to support India’s exports and investments. The specific approach for such agency in India would include;

• Promoting platforms for Indian traders/exporters to connect to international demand, and helping international buyers identify suitable local suppliers,

• Providing sector-specific, function specific and region-specific guidance to exporters through teams of domain and functional experts, and

• Providing facilitation for country specific regulations and market access.

41. MEIS is a key export promotion scheme which seeks to promote export of notified goods manufactured / produced in India. MEIS incentives are available at 2, 3, 4 and 5% of the FOB value of exports. At the time of introduction on April 1, 2015, MEIS covered 4914 tariff lines at 8 digits. Keeping in mind the global economic downturn and the adverse environment faced by exporters, it was expanded to include additional lines, and currently it covers 7914 lines, all with global coverage. The last expansion of the scheme took place on Nov. 24, 2017 when MEIS rates of Readymade Garments and Made Ups were enhanced from the existing 2% to 4% for the exports taking place between Nov. 1, 2017 and June 30, 2018. It is now proposed to enhance MEIS benefits by an additional 2% for all labour intensive and MSME sector products for the period Nov. 1, 2017 to June 30, 2018.

42. SEIS, an incentive scheme for eligible service exports, was introduced in the Foreign Trade Policy (2015-20) replacing the Served from India Scheme (SFIS). SEIS offers reward @ 3 or 5% of net foreign exchange earned. Only Mode 1 and Mode 2 services are eligible. Covers ‘Service Providers located in India’ instead of ‘Indian Service Providers’, which was the case in the earlier policy. Under the new scheme, the incentive scrips issued are transferable. Major service covered include Legal, Accounting, Architectural, Engineering, Educational, Hospital services, Hotels and restaurants and other business services. It is proposed to enhance SEIS benefits by an additional 2% for the period 1st November 2017 to 30th June 2018.

43. The Interest Equalisation Scheme was approved on 18.11.2015 for 5 years w.e.f. 01.04.2015. Operational guidelines for the scheme were issued by RBI on 04.12.2015. The scheme provides for interest equalisation @ 3% per annum on Pre Shipment Rupee Export Credit and Post Shipment Rupee Export Credit. The scheme is available to all exports under 416 specified tariff lines [at ITC (HS) code of 4 digit] and to all exports made by Micro, Small & Medium Enterprises (MSMEs) across all ITC (HS) codes.

44. Two institutional mechanisms have been put in place for regular communication with stakeholders, namely, a Board of Trade which has an advisory role and a Council for Trade Development and Promotion with representation from State and UT Governments. As has been done now in December 2017, the FTP will continue to be reviewed and evaluated regularly.

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