Thumbs down for subsidies

Foreign trade policy addresses many concerns of exporters

The much-awaited mid-term review of the government’s Foreign Trade Policy (2015-20), released on Tuesday, has pressed almost all the right buttons in order to shore up India’s anaemic export growth. By focusing on the problems exporters have been facing on account of the roll-out of the goods and services tax, the review has recognised the urgent need to reduce the procedural burden of the new indirect taxes regime on exports. In an attempt to address concerns over both jobs and exports, the modified policy has raised incentives for a host of exporters. The enhanced incentives will be available only till June 30, 2018, and this seems to suggest that the government believes that the problems afflicting exporters of labour-intensive products are temporary and will be resolved after six months — an assessment that might need further review. Similarly, increasing realisation from exports of agricultural produce has received as much attention as has the need to closely monitor export performances for taking immediate corrective measures based on state-of-the-art data analysis. This is a new thrust area and a more effective use of technology to identify and remove weaknesses for achieving higher exports is welcome.

It is also reassuring that the amended policy identifies markets in Africa and Latin America to be its new focus areas as part of the government’s goal of exploring new markets and new products. Not shying away from the need to engage with China, the amended policy has shown pragmatism by underlining the need for a comprehensive approach on trade, investment and economic co-operation with India’s northern neighbour. Pursuing market access issues with a view to removing non-tariff barriers imposed by China on India’s exports of pharmaceuticals and agricultural commodities will receive as much importance as the need to encourage Chinese investments in improving India’s manufacturing capacities while remaining vigilant about any unfair trade practices. The amended policy makes a tacit admission of the need for pursuing bilateral and regional trading arrangements, indicating that India will remain open to such partnerships even as it renews its efforts to pursue the goals of a more fair and equitable multilateral trading regime under the World Trade Organization. The regions and countries that will be considered for such trading arrangements will have to satisfy the conditions of their being both promising markets for Indian goods and a source of critical inputs to meet India’s needs.

Two other significant issues have been covered by the amended trade policy. It recognises that high logistics costs, estimated at about 15 per cent, are a barrier to improving the ease of trading and doing business in India. The idea of a national trade facilitation action plan is, therefore, welcome. More importantly, the amended policy has underlined the need for charting a new export strategy that is less dependent on subsidies. Recognising that export subsidies will increasingly become unsustainable in global trade, the revised policy has suggested that export promotion efforts should be directed more towards fundamental and systemic measures instead of just incentives and subsidies. This is a major directional shift in India’s export promotion effort that needs to be pursued with as much vigour as the need to avoid maintaining an exchange rate policy that over-values the rupee against the dollar.