India faces substantial challenges in the area of trade policy—the global economic slowdown, increasing protectionism, the delayed mega-trade deals that could in time be revived, and maybe more importantly, its domestic preoccupations.
Competitions:
The Indian exporters are vying for export orders from the same or similar geographies without looking at prospective importers at other places or buyers. Moreover, exporters from other countries always challenge our exporters with competitive pricing of their products or services better than Indian exporters.
Non-Tariff barriers:
According to an assessment, 80 percent of India’s trade is subject to some or the other non-tariff barrier. Organizations like the World Trade Organization (WTO) play a role in monitoring and addressing non-tariff barriers (NTBs) to promote fair and open trade. Reducing non-tariff barriers can lead to increased trade, economic growth, and improved market access for all trading partners. Trade barriers and tariffs on our exports lead to cash outflow for the buying country. Therefore, many countries try to restrict the cash outflow from their country through the imposition of various regulations and import tariffs. These tariffs increase the cost of the product and subsequently reduce the demand for the product in the foreign country.
Introduction of the Remission of Duties or Taxes on Export Products (RoDTEP) scheme replaced the MEIS in response to the US challenging the Indian export subsidies under the MEIS at the WTO. When the WTO dispute panel ruled against India, RoDTEP was framed to ensure that India remains WTO-compliant, while also supporting low-volume exports of commodities from India. It also proposed an alternative scheme DRESS (Duty Remission on Export of Services Scheme) to boost the shipments to SEIS (services export from India scheme) which provided duty credit scrips to exporters at the rate of 3-5% of the net foreign exchange earned.
The uncertainties about Remission of Duties and Taxes on Export Products (RoDTEP) rates had put the exporters in a peculiar position. Although, RoDTEP covers many more products, various categories of goods that were eligible for MEIS seem to be completely avoided under the RoDTEP such as inorganic chemicals, organic chemicals, medicaments, certain articles of iron and steel, and certain textile products (due to the continuance of a separate scheme called RoSCTL) The RoSCTL Scheme is currently applicable only for exporters of apparel and made-ups where the exporters will be reimbursed the State Taxes and Levies, Central Taxes and Levies in the form of duty credit scrips issued by the DGFT, for all exports made on or after 1st April 2019. Also, the benefit under the RoDTEP scheme is currently not extended to export-oriented units and SEZ units, among others. It must also be borne in mind that the RoDTEP is designed to be a remission mechanism, not an incentive scheme, and so the rates prescribed under the scheme may have a closer-to-reality correlation with the actual incidence of levies embedded in the export product than the MEIS rates. Also, many products have suffered a cut to the extent of 90% of their MEIS rates for instance, where the MEIS rate was 5%, the RoDTEP rate is fixed at 0.5%. However, the Government cannot provide any export incentive scheme rashly without examining the impact it might have in the light of the WTO ruling relating to MEIS, especially when reports have started coming from various corners that RoDTEP may also be challenged in the WTO.
Quality testing:
The majority of Indian exporters struggled with lengthy and complicated licence, approval, and laboratory testing requirements of developed countries. These countries can promptly reject if Indian products’ inferiority is spotted. This is one of the major problems of India’s exporters particularly to Indian pharmaceutical companies.
Digitalising export process:
Traditional exporters are facing stiff challenges from e-commerce platforms and tech-savvy exporters. Digitalising processes, particularly for documentation and invoicing, have been the key enabler in this regard. Therefore, India needs to go for digitalization for faster on-border clearance of goods. India is a signatory of the World Trade Organization’s multilateral Trade Facilitation Agreement. Over the last few years, it has been working on cutting border red tape and associated costs for exporters by focusing on improving customs clearances and logistics efficiency. The FTP aims to take digitalisation further. Granting automatic online approval for various permissions, such as AA and EPCG issuances, revalidating existing authorisations, and extending export obligations within a day, as put down in the FTP, will significantly cut time for obtaining approvals. The lengths of the cuts are from three to seven days, and, in some cases, such as the extension of export obligation, even up to 30 days, underpinning significant efficiency gains. On the other hand, issuing an e-Certificate of Origin (COO) will speed up obtaining preferential tariff treatment by exporters in other countries and would reduce carbon footprints by minimising the use of paper.
Supply chain disruption:
Supply chain disruption impact on business. When companies can’t deliver products, they lose revenue and their customers’ trust. It may also lead to increased costs and decreased customer satisfaction. The impact of global supply chain disruptions on imports and exports is big during peak shipping seasons. An unanticipated event, such as port closures, labour strikes, delays in unloading cargo, or natural disasters, may disrupt one region’s operations that lead to backlogs, affecting trucking and distribution networks. Normally, an exporter has very little control over the logistics part of the export trade. As a result, exporters may struggle to meet production schedules, causing shortages and impacting exports. Strengthening risk management strategies and monitoring allows businesses to identify and address potential vulnerabilities proactively. Similarly, importers may also face shipment delays, affecting their ability to meet customer demand.
Currency fluctuation
Currency fluctuation is another major problem in foreign trade. Changes in exchange rates directly affect the competitiveness of exports and imports. A stronger currency can make products more expensive for foreign buyers, affecting exports, while a weaker currency can boost exports. The sudden fluctuations in the foreign currency can affect the profitability of an export trade. Companies mitigate the risks of currency fluctuation by employing strategies such as currency hedging to mitigate risks and maintain stability in global trade transactions. Encouraging “Invoicing, payment, and settlement of exports and imports” in INR has been a notable aspect of the FTP. Such transactions will be through Special Rupee Vostro Accounts (SRVA), maintained by exporters and importers in authorised Indian banks and their corresponding banks in partner countries.
The Foreign Trade Policy (2023) is a policy document that is based on the continuity of time-tested schemes facilitating exports as well as a document that is nimble and responsive to the requirements of the trade. It was announced by Mr. Piyush Goyal, Union Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, on March 31, 2023, and came into effect from April 1, 2023, onwards.
India’s latest Foreign Trade Policy 2023 -28 (FTP) has several new aspects. This policy is meant to resolve issues and bring transformation to India’s foreign trade. The Key Approach to the policy is based on these 4 pillars viz.
1. Shift from Incentive to Remission
2. Export promotion through collaboration – Exporters, States, Districts, and Indian Missions
3. Ease of doing business, reduction in transaction cost, and e-initiatives
4. Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy
Some specific benefits that exporters can expect from the Foreign Trade Policy 2023:
The new FTP is introducing a one-time Amnesty Scheme for exporters to close the old pending authorizations and start afresh.
The FTP 2023 encourages the central trade and export regulating agency – the Directorate General of Foreign Trade (DGFT) – to work with states and districts to achieve this objective. It also focuses on emerging areas like dual-use high-end technology items under SCOMET, facilitating e-commerce export, and collaborating with States and Districts for export promotion. Recognition of new towns through the “Towns of Export Excellence Scheme” and exporters through the “Status Holder Scheme”, facilitating exports by streamlining the popular Advance Authorization and EPCG schemes, and enabling merchant trade from India are some of the key initiatives underlined in the FTP-2023. These include trade facilitation to cut down the cost and time to obtain export permissions; reducing application fees for medium, small, and micro-enterprise (MSME) exporters for the advance authorisation (AA) and export promotion of capital goods (EPCG) schemes; revamping e-Certificate of Origin (COO); and paperless filing of export obligation discharge applications.
The FTP 2023 is a dynamic policy document. It will facilitate to boost of India’s exports and promote its growth in the upcoming years. The FTP 2023 is a roadmap for India’s exports to reach new heights and emerge as a global leader in the export industry.
These include trade facilitation to cut down the cost and time to obtain export permissions; a grassroots focus on enhancing exports from various districts; emphasising cross-border e-commerce exports; promoting merchanting and encouraging greater settlement of trade in the Indian Rupee (INR). The ostensible goal of the FTP is to encourage India’s goods and services exports to grow at a faster pace to achieve a combined export target of US$2 trillion (S$2.6 trillion) by 2030. Coming against the backdrop of recent good performance by exports, the FTP aims to maintain and accelerate the momentum in the years to come. While the objectives of the FTP are laudable, realising these will require obtaining greater efficiency in internal processes, higher administrative coordination between central and state departments, establishing strong merchanting infrastructure, and ensuring greater ease of using INR in India’s trade with its partners.
Key highlights of FTC 2023:
- Ease of Doing Business, Reduction in Transaction Cost, and e-initiatives
- Online Approvals without Physical Interface
- Director General of Foreign Trade (DGFT) has implemented rule-based automatic approval systems using business analytics tools for FTP applications. It has been introduced on a pilot basis for Advance Authorization (AA) Extension/Revalidation Applications.
- Reduction in processing time and immediate approval of applications under automatic route for exporters
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