3 reasons why FTP review was awaited

The mid-term review of the Foreign Trade Policy (FTP), 2015-2020, was a much anticipated document for at least three reasons. At the very top were the expectations of the exporters that the government would finally deliver a permanent solution to the myriad of problems that they have been facing to get their goods and services tax (GST) refunds. Equally significant was the government’s response to the emerging reality of the WTO rules, which would make India ineligible to use export subsidies. This would put at risk the core of India’s FTP, namely, export incentives. The third was government’s thinking on the future of its engagements with its partners in different forums, multilateral, regional and bilateral.
 
Export figures for October 2017 had suggested that the GST imbroglio was finally affecting the performance of several sectors, including engineering, automobiles, and most importantly, a large number of labour intensive sectors. The bad news for Indian exporters is that the adverse impact on account of GST could affect them in the medium term as well. After years of indifferent performance, global trade is finally rebounding: WTO estimates show that growth in world merchandise trade volume in 2017 could now increase by as much as 3.6 per cent against 2.4 per cent as predicted earlier. This means that if the GST Council is unable to expeditiously sort out the problems being faced by exporters, India’s exports could take a serious hit in the months ahead.
 

Biswajit Dhar

Very soon, export incentives could be passé for India. The WTO rules allow the members of the organisation to use subsidies as long as their gross national product (GNP) per capita is below $1,000 for three consecutive years (this rule does not apply to the agricultural sector). In July 2017, the WTO Secretariat had said India’s GNP had crossed $1,000 consecutively for 2013-15, implying that the bells are tolling for export subsidies. Besides this issue of WTO-consistency, it is by now a well-documented fact that export subsidies are not the best way of incentivising exports. There is clearly a case to think beyond export incentives and to introduce a more efficient system that can help in promoting India’s exports; this government can take this important step that the previous governments have been avoiding.
 
The mid-term review gives some indications of how India’s export strategy is being shaped up. The first point of this strategy speaks of continued support for multilateral rules-based system, while the second speaks of the continued efforts to integrate with major regions and expand markets in new regions. In both these dimensions, India’s actions over the past months have raised more questions than answers. At the multilateral level, India has almost taken a back seat, gauging from its engagements in the run-up to the 11th Ministerial Conference, which Commerce Minister Suresh Prabhu will attend next week. In its regional engagements, too, India has often been found to be lacking in its preparedness to face the challenges of negotiating with countries that are among the most pro-active in pushing the trade liberalisation agenda. As of now, the real interest is whether the minister would provide at least some answers when he goes beyond the “highlights” of his policy framework.

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The writer is professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University