By Dr. Badri Narayanan Gopalakrishnan & Devashish Mehta
Introduction:
The new Indian foreign trade policy (FTP), which was first expected on April 1, 2020, has been delayed due to unprecedented times. It was first deferred for one year (April 2020 to March 2021) on March 31, 2020, and then in 2021 for one more year because of the turbulent situation caused by the COVID-19 pandemic. Subsequently, the old policy has been extended every six months due to the fluid global situation. The FTP lays out procedures, policies, and schemes to boost India’s exports, reduce its import dependence, and create jobs. The previous two years have been enormously difficult for the world, especially India. The looming fears of a recession in 2023 make the picture look even more bleak. These disruptions are drastically transforming the global supply chains, which have been disrupted due to the COVID-19 pandemic and the Russia-Ukraine conflict that has also driven up inflation across the world amidst a difficult year for global trade. India needs a strong FTP to improve its trade, fight off disruptors, and take advantage of trade that is taken away from China.
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Highlights of India’s trade policy between 2015-2020
The primary objective of the Indian Foreign Trade Policy 2015-2020 was to make India a significant participant in world trade by promoting exports through initiatives such as “Make in India”, “Digital India” and “Skills India” to create an Export Promotion Mission. While focusing on increasing exports, the central government wanted to make imports more focused and more rational. It introduced two new export incentive schemes: the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS). Efforts were made to sign multiple Free Trade Agreements (FTAs). Exports of defence and hi-tech items were also encouraged through measures such as modifications in the FDI policy; greater clarity as regards to industrial licences for this sector; fast-tracking of applications; listing of munitions; creation of HS codes for items in this sector; and setting up promotional institutions. Programs of interest subvention and other trade support mechanisms from the credit, banking, and insurance sectors were started to help Micro, Small, and Medium Enterprises (MSMEs) and exports. 108 MSME clusters were also identified for targeted export-boosting interventions.
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Expectations of the New Foreign Trade Policy 2022-2027:
The District Export Hubs initiative is expected to be an important component of the new FTP. The objective of this is expected to increase the potential of each district in the country to achieve its potential as an export hub by targeting employment generation, export promotion, and manufacturing. The FTP is also expected to focus on correcting imbalances in trade and reducing the fiscal deficit by increasing exports through the improvement of operations of the domestic manufacturing and services sectors in combination with the development of efficient, cost-effective, and adequate logistical and utility infrastructure. The aim of doubling exports by 2025 is also expected to remain in focus. The new FTP is also expected on digitalisation and e-commerce.
How 2022 has been an important year for Indian Foreign Trade Policy?
The current government has placed a lot of emphasis on FTAs as they not only serve as a bedrock for a deeper geopolitical relationship but also as a trading partnership. As of April 2022, India had signed 13 Free Trade Agreements (FTAs) with its trading partners, including key trade agreements like the India-UAE Comprehensive Partnership Agreement (CEPA) and the India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA).
In April of this year, India and the EU agreed to launch the EU-India Trade and Technology Council. India and the EU plan to sign the FTA by next year. The two sides can closely cooperate on matters concerning trade, climate, clean energy, digital technology, green hydrogen, and people-to-people ties. The EU had demanded that India lower its tariffs on automobiles, wines and spirits, while India also demanded the lowering of tariff barriers. The fear of European imports flooding into India made India apprehensive. India has also demanded to be recognised as a data-secure country. These were some points of contention between the two. An FTA will support EU businesses while also assisting India in the expansion of its industrial capacity and ensuring its greater participation in global supply chains. The FTA with the EU is crucial as it would help India in its plan to develop 100 smart cities in the future.
The India-UK FTA has been in talks for some time now, with negotiations progressing well through a year or more. The unstable political situation in the UK has played a role in delaying the FTA. PM Rishi Sunak has expressed his commitment to a FTA. Important contentious points include immigration, the mobility of professionals in the UK and tough rules on the origin of alcoholic drinks in India. The ‘India (Trade and Investment) All Party Parliamentary Group (APPG)’ has been set up by the UK Parliament to promote trade and investment between India and the UK. The completion of the trade pact could boost trade by £28 billion by 2035 and nationwide wage growth by up to £3 billion. The deal would give a significant boost to bilateral trade.
The India-USA FTA talks have seen little progress in the previous few years. Officials of the Indian commerce department have said that Washington’s inability to prioritise the matter has led to the delay of talks. However, it is expected that talks will progress rapidly in 2023. US demands, such as the procurement of American dairy products and a more liberal data privacy policy, have extended the process. A series of punitive trade measures by the US led to the faltering of FTA talks. The changes to US priorities this year have also led to insignificant results. In January 2022, in an announcement, India agreed to import cherries, alfalfa hay, and pork and pork products from the US. Similarly, it was announced by the US that it had approved the import of mangoes and pomegranates from India. This was a significant development in trade relations.
Global supply chains, non-tariff measures (NTMs), and foreign direct investment (FDI) must be kept in mind while framing FTAs and our new FTP. Data on the utilisation of FTAs must be carefully studied as well, to understand the role of FTAs in trade promotion. Increasing global protectionism has affected the global economy significantly. The use of global practices like benchmarking will also play an important role in improving our FTP. The UK, US and EU have placed emphasis on worker rights, environmental aspects, gender and equity in their trade agreements as well as trade policy stances. While this is a positive step to promote sustainable development, the Indian trade policy needs to address these aspects, while considering that complying with such standards may erode our trade competitiveness in the future.
The author is the former Head of Trade and Commerce at NITI Aayog. Devashish Mehta is an intern at Infinite Sum Modelling.
