A glimpse at our giant neighbour’s Foreign Trade Policy
The Foreign Trade Policy (FTP) of India is a well-defined document which directs the country’s policy on trade for the period 2015 to 2020. It was published by the Director General of Foreign Trade through a gazette notification.
Its vision is to make India an important contributor to world trade by 2020 and to take the leadership in the international trade arena. The expectation of the government is to raise Indian exports from USD 460 billion to approximately USD 900 billion by 2020.
In today’s context, foreign trade plays a key role in any economy and in an increasingly globalized scenario it is important for India as well. The high current account deficit is pushing India to have policies promoting more exports and be well focused on imports. As a matter of fact, the Policy has a direct connection to domestic economic policies of India.
Foreign Trade Policy is considered to be well merged into overall economic policy of India. The recent strategic measures taken by India to energize the economy, such as ‘Make In India’, ‘Digital India’ and ‘Skills India’ has shown positive results with better export prospects.
Whilst creating a path for export expansion, India is focused on addressing key internal issues such as infrastructure bottlenecks, high transaction costs, complex procedures, constraints in manufacturing and inadequate diversification in services exports.
Product approach
India is always keen in promoting exports through a line of products which creates a sound local manufacturing base and generating employment opportunities in the economy through identified products such as engineering products, electronics, pharmaceuticals, medical devices/eEquipment, light manufacturing sectors: leather products and textiles, gems and jewellery sector, natural resource based products, agricultural products, plantation products, defence products etc.
India is further looking into the services export sector and organic agro products to make it more established. On an overall basis, Indian Trade Policy is more committed to make its products world class and branded, with a serous export promotion strategy.
The Policy clearly states that Indian products are at a disadvantage when participating in global or regional value chains due to infrastructure and administrative issues which should be sorted out earnestly. Whilst developing entrepreneurship and manufacturing capacity locally, India is more concerned about non-tariff measures operating in many countries and addressing them effectively to improve export market opportunities.
Import assessment
As identified in the FTP, India needs to carefully assess the imports of the country to rationalize it and to fit into the domestic economic development strategy. The Department of Commerce has recognized 21 stakeholder government institutions in the country which will probe imports with the aim of producing those goods cost effectively in India.
Impact of trade agreements
The three major trade agreements namely, Trans Pacific Partnership (TPP), Trans Atlantic Trade and Investment Partnership (TTIP) and Regional Comprehensive Economic Partnership (RECP) are making a serous impact on the global economy. The fact that India is not directly involved in TPP and TTIP makes an impact on the Indian economy in the global space. It is noteworthy that there are 398 regional trade agreements in force as of January last year in the world. India has actively engaged in many such trade agreements by ratifying 11 Free Trade Agreements (FTA), five Limited Prudential Trade Agreements and negotiating 17 more FTAs, as indicated in the FTP of India.
Services sector
The services sector contributes approximately 58% of the GDP of India and 28% of the employment and attracts trade and FDIs in great numbers. Likewise, the share of services exports is more than 3.3% of global services exports.
Information Technology and Information Technology Enabled Services (IT and ITES) is the single largest export of services in India, where 80% of the opportunities are from US and 20% from the EU. In the backdrop, it is imperative that India should look at other market destinations and product diversifications. There are limitations in the services market openings in Japan, Korea and China due to language barriers.
Special Economic Zones (SEZ)
As per the FTP of India, SEZ was enacted in 2005 and became operational in 2006 with the following objectives: Promotion of exports of goods and services; Promotion of investment from domestic and foreign sources; Creation of employment opportunities; and Development of infrastructure facilities. The SEZ concept has given positive results to the economy where many subsequent improvements took place around the said operation.
Trade promotion and infrastructure
As identified in FTP, India is working systematically with a vision to reach maximum possible trade promotion by creating world-class products and reaching Brand India aspirations through activities such as, Development of a standard brand kit, Revamping of websites of trade bodies (export promotion councils), Engagement with global media, Re-orienting ‘The India Shows’, having a Brand Manual for exhibitors, encouraging broader sectoral campaigns which are noteworthy.
Institutional Mechanisms to Promote Trade - Market Access Imitative (MAI) and Market Development Assistance (MDA) and many other schemes are available for trade promotions and these efforts take place unceasingly for a longer period offering benefits to respective business sectors.
Organizing exhibitions, buyer seller meets, seminars, conferences and conventions; participation in established exhibitions are generally covered under MAI which is operational from 2003 onwards generating constructive outcomes whilst MDA looks after financial assistance for export promotions.
Focus on South Asia
As per the Foreign Trade Policy statement, India is paying special attention to her immediate neighbours in South Asia to build regional value chains in different sectors such as textiles, engineering goods, chemicals, pharmaceuticals, auto components, plastic and leather products etc.
The expectation is to create integrated trade channel to South East Asia and Central Asia. As a part of the action plan, India is working on trade integration to enable the Indian private sector to set up manufacturing hubs in Cambodia, Laos, Myanmar and Vietnam.
Bangladesh is the largest trading partner of India among SAARC countries followed by Sri Lanka, Nepal and Pakistan. India provides tariff benefits to Least Developed Countries in the SAARC region to develop those economies and minimize trade deficits with India.
The Foreign Trade Policy statement of India says that the bilateral FTA signed with Sri Lanka has opened up significant trade access to Sri Lanka and it is leading to a fair degree of integration of the economies in the region. Subsequently, India and Sri Lanka negotiated the Comprehensive Economic Partnership Agreement (CEPA) which did not materialize. Taking relationships further, the two countries are now negotiating the Economic Technology Cooperation Agreement (ETCA).
United States and EU
The US being a top trading partner of India and the recovery of the US economy has an optimistic impact on the Indian economy. Export sectors such as textile, agriculture, leather and gems and jewellery have begun generating employment opportunities in the local space. India is counting on sending highly-skilled professionals to the US and also promoting itself as a destination for investments.
The EU is also considered to be top trading partner and India is concerned in ironing out sanitary, phytosanitary, quotas and tariff related matters to expand exports to the EU. Information Technology service related opportunities are also much awaited by India but face difficulties with EU regulations on data security aspects.
New market opportunities in the areas of defence equipment, medical equipment, construction material, processed foods, project exports are also being explored by India very positively.
China
With China being a large and strong economy at its door-step, India has a wide-ranging approach towards China which includes trade, investment and economic cooperation aspects. India is working on sorting out market access issues such as Non-Tariff Barriers for Indian products i.e. pharmaceuticals and agro commodities, market access for its IT services, tourism, film and entertainment industries and to boost India’s manufacturing capacities by attracting Chinese investments. At the same time, India is strengthening trade relationship with Japan and Korea as well.
African Continent
In addition to the investment and trade relationships, India is greatly favourable in creating space for Indian companies to play on capacity development, technical assistance, offering healthcare and education services, manufacturing, mining, textiles, FMCG, infrastructure development and construction. India is also positively considering having trade agreements with African regional groupings.
The Indian Foreign Trade Policy Document states that India is working on two more Free Trade Agreements with Israel and the Gulf Cooperation Council comprising six countries.
The FTP is an evolving policy document which will be reviewed and evaluated at regular intervals.
The government of India is responsible for foreign trade policy but much of the activities take place in the States where State governments could play a crucial role in promoting exports and rationalizing imports, and steps have been taken to address such a situation.
Reference: Foreign Trade Policy (FTP) Statement of India 2015-2020.
The writer is the Secretary General/CEO of the National Chamber of Commerce of Sri Lanka.