Web Exclusive: A round-up of the Foreign Trade Policy 2009-2014
In the back drop of the significant slump witnessed in Indian exports during the past 10 months, the foreign trade policy for 2009-2014 endeavors to reverse the declining trend in exports in the short run and return on a high growth path in the medium to long period. The policy sets an annual export target of $200 billion, an accomplishment that India failed to achieve in FY09 due to the global economic crisis, to be achieved by March 2011.
The policy objective is to achieve 15% annual growth to reach the target of $200 billion in FY11. This implies that the annual export growth for the current fiscal would be more or less stagnant, with value of export reaching around pervious fiscal’s level of $168 billion.
With the subdued global demand conditions exports are expected to remain muted during most of FY10. Further, expected lower agriculture production given the deficient monsoon and draught like conditions in some Indian states, might put significant downward pressure on agriculture exports during the current fiscal. Nonetheless, as the global economy begins to recover exports demand is likely to see an upturn and hence the export target for FY11 as articulated in the FTP seems to be realistic.
The policy endeavors to achieve an annual growth target of 25 per cent for the next three years till FY14.
On the policy front, the foreign trade policy lacked major big bang announcements. However, it continued with some of the sops announced in the previous fiscal to help the distressed exporters and announced measures aimed at increasing export competitiveness and diversification.
The government decided to continue with the DEPB Scheme upto December 2010 and income tax benefits under Section 10(A) for IT industry and under Section 10(B) for 100% export oriented units for one additional year till March 31, 2011. The adjustment assistance scheme initiated in December-08 to provide enhanced ECGC cover at 95 per cent, to the adversely affected sectors, is also extended till March, 2010.
The extension of various measures announced previously is a welcome move as it will continue to provide some relief to the exporters. Further, allowing duty free imports of capital good to exporters is likely to increase competitiveness by encouraging technological upgradation and leading to cost reduction. In an attempt to explore new markets and diversify India’s export basket, the Foreign Trade Policy has announced enhancement of the Focus Market Scheme and Focus Product Scheme in terms of increased incentives and inclusion new markets and new products.
In view of the declining demand from India’s major trading partners during the current economic downturn, focus on product and market diversification is likely to garner demand for the Indian exports. Further, the additional support and incentives to ‘Towns of Excellence’ along with implementation of e-trade projects in time bond manner are likely to improve trade related infrastructure and bring down cost, thereby improving efficiency and export competitiveness in the long run.
The author is Head-Economic Analysis, Dun & Bradstreet India