The Foreign Trade Policy 2023 (FTP 2023) was finally released more than two years after the earlier policy ran its course. Since it was first unveiled replacing the Exim Policy in 2004, the Foreign Trade Policy used to be a five-year policy for managing India’s trade. FTP 2023 is a departure from this trend; it is not a five-year policy document. Though the government has not clarified, it should be understood that amendments to this policy will be made as and when required.
Given that FTP 2023 lays down the policy for at least the medium term, it would have better served the interests of the country if the policy document was recast to respond to the needs of the 21st century. After all, India’s foreign trade policy is guided by the Foreign Trade (Development and Regulation) Act, 1992, which was adopted when the economic policy reforms were initiated. The trade scenario looked very different then, both from an Indian perspective as well as from the global trading regime. While India had initiated unilateral trade liberalisation, which were hesitant steps to begin with, the global trading regime was being governed by the rules of the General Agreement on Tariffs and Trade as the World Trade Organization (WTO) was still in the womb of the future. Not surprisingly, the Act dictating India’s foreign trade policy had a heavy dose of “regulations” and “restrictions” in keeping with the needs of an economy that was taking the first steps towards global integration.
Falls Short Of The Requirement
So, when India’s foreign trade policy continues to be largely structured on the earlier policy documents, and draws its legal basis from the three-decade-old Foreign Trade (Development and Regulation) Act, its incongruence with the needs of present times is obviously huge. This seems even more so because the Commerce Minister explains in his foreword that the policy “lays down a blueprint to integrate India with the global markets”. However, in most parts, the policy instruments spelt out in FTP 2023 are not those that can prepare India to participate effectively in the global markets even at the present juncture. Making India future ready seems to be some distance away.
While framing FTP 2023, the government should have taken note of the considerable challenges that India’s exporters face at the present juncture. This has been reflected in their inability to use the rules of the multilateral trading system as well as a majority of the 13 free trade agreements (FTA) that India has signed thus far. In most of these agreements, India’s trade deficit has ballooned and this is simply because the exporters have been unable to take advantage of the preferential market access that have been offered by the trade partners. Increasing imports have usually been blamed for this problem, but this phenomenon, too, shows the inability of the domestic industry to compete with imports. Of course, this is not to say that increasing imports from China are not a problem. But even in the case of this problem, it is vitally important to adopt strong trade policy instruments to prevent illegal circumvention of Chinese imports.
Standards Are The New Barriers
Over the past three decades, in particular, traditional forms of market access barriers like tariffs and non-tariff barriers have given way to product/process standards. The steep increase in these standards that are being notified by the members of the WTO is just one of the instances of how important standards have become. In bilateral/plurilateral trade agreements, especially with advanced countries, standards are the most significant aspect. India has been facing this reality in its bilateral trade negotiations with the European Union, and also in the plurilateral Indo-Pacific Economic Framework, in which the three pillars that India is negotiating include regulatory standards. Given the lack of preparedness domestically to meet the challenge posed by the growing expanse of standards, FTP 2023 should have laid out a roadmap in this regard. Strengthening the relevant institutions, both in the public and private sectors is urgently required, as is the need to upgrade technologies down to the production processes. Hopefully, the government would recognise the importance of this issue and would re-work its policy priorities in the near future.
The focus is on developing districts as export hubs, which should be seen as an extension of the one-district one-product scheme. In FTP 2023, the government has spoken about the need to constitute District Export Promotion Committees and State Export Promotion Committees to manage the scheme. This scheme can play a role in spreading the fruits of development to the less developed regions of the country. But, while institutions are important, the government must take cognisance of the fact that unless infrastructure facilities in these regions are strengthened, this scheme is not likely to deliver the intended results.
In 2020, when the production-linked incentive scheme was launched, the government emphasised that the manufacturing units being established would contribute to both exports and jobs. Over the past year, some of these focus sectors have paid rich dividends in terms of exports, for example, the electronics sector. However, labour-intensive sectors like textiles and clothing have lagged behind. It would have been prudent for FTP 2023 to identify the reasons for their underperformance. Measures to improve their performance would pay rich dividends, especially when the labour market continues to remain sluggish.
Biswajit Dhar is former Professor, Jawaharlal Nehru University and Vice President, Council for Social Development, New Delhi. Views are personal, and do not represent the stand of this publication.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
