New five year integrated foreign trade policy unveiled today

Modi Govternment’s Maiden Foreign Trade Policy 2015-20 has been announced today after a delay of 1 year. The new foreign trade policy for exporters and SEZs provides new focus to services exports making it a par with merchandise exports. Multiple schemes as provisioned in the past foreign trade policies have been squeezed into a single scheme for merchandise exports, namely merchandise exports from India Scheme (MEIS) and another under services exports, namely Services Exports from India Scheme (SEIS). Apart from making it simple to understand these 2 prime schemes for exports brings same status for merchandise exports as well as services exports.  More importantly the new foreign trade policy provisions will be reviewed at an interval of two and half years instead of on yearly basis. This approach can go a long way in simplifying an understanding of the provisions of the new foreign trade policy.

New policy aims to double the overall exports to 900 Billion USD from the current approximately 450 Billion USD. Apart from increased focus on specified areas of services exports, policy aims at structural, systematic and systemic reforms to make India’s exports more competitive, having world class quality and dealing with environmentally sustainable products to make them more acceptable in the international market in medium to long term. Therefore policy focuses on labor intensive, high value adding, agriculture related and naturally competitive merchandise exports sectors.

In services sectors too focus is on sectors like tourism, hospitality, medical tourism, R&D and others. In a significant move it is proposed to make SEZ schemes more attractive by extending benefits of MEIS and SEIS to SEZs. SEZ schemes lost its sheen in 2012 after imposition of Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) for these zones.

Duty Credit Scrips have been made fully and freely transferable and usable to pay customs duty, excise duty and service tax. Specified services exports will get these scripts as incentives at the rates ranging from 3 to 5% who can wither use them or sell these in the market. In another significant change, SEIS will be applied to ‘services exporters located in India’ rather than Indian Services Exporters’. It will encourage ‘Make in India’ or ‘Served from India’ mission more attractive to global corporations.

New FTP is proposing to establish an Export Promotion Mission (EPM) a bridge between central government and state government to work together to promote state-wise export clusters. A significant initiative has been proposed to implement the FTP in more effective manner by appointing senior officials in each central department with roles as focal points for exports and imports.

While the new foreign trade policy has many old provisions in newer formats, still the new policy may potentially bring lot of enthusiasm among merchandise and services exporters. More importantly policy aims at simplifying the procedures and to bring systematic reforms in line with “Ease of Doing Business’ mission. However objective to double India’s exports and make India’s share in world trade to 3.5% from current 2% seems to be very conservative, especially in the wake of increased focus on services exports. A change of nomenclature of ‘export houses’ to 1,2,3,4 and 5 Star Export Houses will mean nothing unless new better schemes are announced for status holders. A new focus on agriculture exports is welcome, however it has to be seen if we can benefit from such focus given the rampant tariff and non tariff barriers in importing countries for agricultural products.

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