New Foreign Trade Policy (FTP) | India

In this article we will discuss about New Foreign Trade Policy (FTP):- 1. Introduction to New Foreign Trade Policy (FTP) 2. Policy Objective of New Foreign Trade Policy (FTP) 3. Policy Thrust: The Important Goals 4. Measures Announced in the Policy.  

Introduction to New Foreign Trade Policy (FTP):

The congress-led United Progressive Alliance (UPA) Government announced its new five year Foreign Trade Policy (FTP) for the period 2009-14 on 27th August, 2009, replacing the earlier policy (2004-09).

The main plank of the policy constitutes a vigorous export-led growth strategy and to adopt a special rescue package for facing the slump in the demand for exports in the context of global recession and financial crisis and also to insulate Indian exporters from protectionism induced by recessions abroad.

The policy has identified certain measures for diversifying Indian export market into new areas so as to double India’s share in global trade by 2020. Which unveiling the five year policy the Union Commerce Minister Mr. Anand Sharma stressed on specific measures to help the export sector in general and the employment-intensive sectors affected by the world recession in particular.

Policy Objective of New Foreign Trade Policy (FTP):

The long term policy objective of this new policy will be to double India’s share in global trade by 2020. Indian’s share in global merchandise trade went up from 0.83 per cent in 2003 to 1.45 per cent in 2008. The policy, accordingly, set a target of $ 200 billion worth of exports for next fiscal (2010- 11), a feat that India failed to achieve in 2008-09 due to slump in global demand in the face of financial crisis.

In this connection, Union Commerce Minister Observed “Announcing the FIT in this economic climate is indeed a daunting task. We cannot remain oblivious to declining demand in the developed world and we need to set in motion strategies and policy measures which catalyse the growth of exports.”

“Accordingly, the Government would encourage exports through a mix of measures including fiscal incentives, institutional changes, procedural rationalization and efforts for enhance market access across the world.” Thus the main aim of the policy would be to arrest and reverse declining trend of exports.

Policy Thrust: The Important Goals:

The following are some of the important policy thrust or objectives of FTP, 2009-14:

1. The important short-term objective is to arrest and reverse the falling trend of exports and also to provide active additional support to those sectors which are badly affected by recession in the developed countries.

2. The policy set its aim to achieve an annual growth of exports to the extent of 15 per cent for two years, i.e. 2009-11 and also with an annual export target of $ 200 by March 2011.

3. The Ministry of Commerce expected that for the remaining three year period of the FTP, the country would be able to reach to a high export growth path of around 25 per cent per annum so that the country could double its exports of goods and services by March 2014.

4. Finally, the long term policy objective for the government is to just double India’s share of global trade by 2020 (i.e. from 1.64 per cent in 2008 to 3.28 per cent in 2020).

Measures Announced in the Policy:

In order to bring back India’s exports to growth path, the new policy (FTP) announced measures which include tax sops, interest subvention and dollar credit to exporters.

Extension of income tax holiday for export units for one more year, continuance of duty refund scheme till December 2010 and enhanced assistance for the scheme for development of markets are among the measures which will add to the vigour of export policy.

This mix of measures including fiscal incentives cheaper bank credit, institutional changes, procedural rationalisation and efforts to enlarge export destinations have made the new trade policy attractive to the industry leaders.

The incentive available under the Focus Market Scheme (FMS) has been raised from 2.5 per cent to 3 per cent. The new trade policy under its Focus Market Scheme has decided to identify 26 new markets comprising 16 in Latin America and 10 in Africa and CIS countries.

In a bid to extend the area of operation, 26 new markets have been identified which include countries like Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New-Zealand.

Again under the Focus Product Scheme (FPS), the incentives have been raised from 1.25 per cent to per cent of the value of exports. Moreover the validity periods of these incentives have also been extended. Besides, a number of engineering goods and certain electronic items have been included in the Focus Product Scheme.

Thus, the Government through its new policy (FTP) announced various measures like tax holidays, cheaper bank credit, duty incentives, creation of new markets, strategies to increase demand for Indian goods and services in the foreign markets, reducing regulatory and compliance cost for exporters etc. to attain its long term objective to double India’s share of global trade by 2020.

Moreover, the Government’s proposal to implement Goods and Services Tax (GST) will also help the exporters through the benefit of 5 per cent of Freight On board (FOB) on local levies. With the introduction of all these measures, the Government expects to achieve the annual export growth rate of 15 per cent in 2010 and 2011 as compared to that only 3.4 per cent recorded in 2008.

In volume terms it will be raised from $ 168.7 billion in 2008-09 to $ 200 billion by March 2011.

Federation of India’s Chamber of Commerce and Industry (FICCI) has termed the policy as a good blue print for arresting decline in exports and raising the same to $ 200 billion in the next two years. The enhanced benefits for market development and promotional schemes would enable the exporting community to explore new export destinations.

In order to beat the demand recession in developed markets like the United States of America and West European Countries, the new policy rightly encouraged the exporters to look beyond these traditional markets and to explore new markets for its diversification.

The apex body of exporters FIEO has also appreciated the new policy for giving impetus to labour intensive sectors like textiles, handicrafts, gems and jewellery etc. But the Federation of Indian Micro and Small and Medium Enterprises (FISME) has expressed disappointment over the policy for not offering any contra-cyclical steps for reversing the current trend in declining exports.

Moreover, the policy has not made any mention of farm sector including plantation products like tea.

As India is basically an agricultural country and the exports from farm sector including plantation products like tea presently contributes less than 15 per cent of our total exports thus this sector should attract attention of government to achieve a sizable export surplus.