The government will soon unveil its annual Foreign Trade Policy (FTP). This comes after the passage of the Union Budget. It typically contains measures to boost exports and reduce transaction costs. It cannot explicitly overturn import or export duties passed in the Budget, but it may include incentive schemes which have an impact on the exchequer.
In the last two years, the growth in global trade has been muted, and India itself has underachieved its export targets. So, there is much interest in the content of the FTP.
Two recent pronouncements from the government are relevant pointers to the upcoming FTP. The first was by the Prime Minister, while laying the foundation stone for a port-based Special Economic Zone (SEZ). The PM said that we must join manufacturers to export promotion, thereby indicating that exports can become a major driver. He is determined to remove all obstacles to SEZ development. The original idea of SEZ was essentially to create jobs in export-oriented manufacturing. But the SEZs have not delivered fully on their promise, and subsequent tax changes have clouded their prospects. Prime Minister Narendra Modi, in his Independence Day speech, called for a “make in India” movement, inviting investors to use India as a global manufacturing hub. Nothing protectionist about this, since he said the manufacturing should be of global quality, with “zero defects”.
The second recent pronouncement relevant to our trade policy came from the commerce minister, who said that we need to comprehensively review all our free trade agreements (FTA). Just like the SEZs, we need to review whether the FTAs, including agreements with regional blocs, have delivered on their promise. India currently has 14 agreements in force, including an FTA with the ASEAN bloc of 10 countries. It is in the middle of negotiating dozens of new FTAs or regional trade agreements. The new approach, starting with Singapore, is to sign a comprehensive agreement which encompasses trade and investment, both in goods and services. Later this month, there will be a ministerial round of meetings as part of the Regional Comprehensive Economic Partnership discussions. RCEP is called ASEAN + 6, and is essentially a vastly upgraded free trade arrangement that includes Korea, Japan, Australia, New Zealand, China and India. All of these six already have a functioning FTA with the ASEAN bloc.
As we review our FTAs and prepare a negotiating stance for RCEP, it is useful to keep in mind