About India’s Foreign Trade Policy

So Friends, as you know that India is a very large country and any government which comes to rule this large, very big country, they have a very big challenge to meet the expectations of ordinary Indians in terms of the economy, in terms of employment, in terms of the growth of the GDP and very importantly, competing with the big neighbors like China. So at present, India is passing through a very difficult phase when it has to become strong both in terms of the economy, as well as in terms of a very strong power so that it can defend itself from the threats posed by many, many different quarters.

Friends, India is looking at a target of becoming a five trillion dollar economy by 2025 and in order to become a five trillion dollar economy by 2025. Therefore, it is also looking for one trillion dollar exports share in this total target. Without exports, it looks very, very difficult to achieve this target. And in any case, in order to earn money from outside India, export is the only answer. And this is the only way that India can actually become a strong member of this global village. So in order to do that, the Indian government is struggling to formulate a foreign trade policy, which includes the policies which are able to meet this target of 1 trillion dollar exports.

But it has been proved to be a very challenging task. The reasons of these challenges, which come in the formulation of the FT policy are in terms of the difficulties posed by mainly the requirements of the World Trade Organization, which does not allow all out incentives to be given to the exporters because that is akin to subsidizing the exports, which some of our neighboring countries had done in the past. The world order, world trade order requires that there are no subsidies. But the logical methods of the government intervention to improve the the export competitiveness of the goods in terms of the more efficient logistics, more efficient handling of the goods at the port, the very efficient manufacturing infrastructure, highly modern seaports, airports, seaports which allow very large ships to birth. So that the transportation costs can be reduced, ocean Freight cost can be reduced drastically through things like mother ship. Therefore in these different directions, the foreign trade policy has to take recourse, in order to ensure that the provisions of the incentives and support which is given to the exporting community is in consonance with the requirement of the World Trade Organization.

And at the same time, it should meet the expectations of the exporting community of India and the expectations of the ordinary citizen of the country. This challenging task requires government of India to think in terms of providing the cash incentives support which cannot be given in the form of subsidy. But it can be given as the reimbursement for any cost enhancing taxes or the duties, import duties which the exporters might have given directly or indirectly to the government of India. Those can be reimbursed in a very, very logical method of reimbursement of such costs, which enhances the price of goods of exports from India. At the same time, the government of India provides the infrastructure, the supply side infrastructure in the foreign trade policy so that the export goods become competitive in the international market.

The demand side support is also provided so that the cost of distribution, the cost of penetrating the international markets, the marketing of the goods on the international platform become competitive, cheaper and smooth for the Indian exporters. So these supply side initiatives and demand side initiatives of government of India, are provided in the foreign trade policies. And it is expected that these become effective and they help in boosting the export of the country.

But in the past, many of these measures have not really given the expected results. So the result of that is that the current foreign trade policy, which came into effect in 2015 and it was a five year policy has still not been renewed, which was to be renewed in the year 2020. Now it is expected to be renewed in 2022, effective from 1st April. This policy, the new policy, is taking time because of these kind of challenges. Therefore Government of India, in compliance with the WTO requirements, the World Trade Organisation, which monitors the tariff and non tariff barriers across the world to make the international trade free and fair, is looking at providing all the provisions of the foreign trade policy. These the Indian government has to formulate in the new policy, have to be directed towards the compliance with WTO, as well as the provisions which makes the export goods of India internationally competitive. The right environment is provided to the manufacturing units and the facilities. The logistics, the transportation infrastructure is such that the cost of moving goods within the country and outside the country, either through by sea or by air, are competitive in line with the international costs of the most efficient supply chain. So these are the things which are covered in the formulation of these foreign trade policies.

In the past, the government has provided many such provisions, but many of these provisions have been flagged by World Trade Organization and constantly the government of India is bringing innovative ways of making the Indian goods competitive in the international market. In the recent year, through the infrastructure initiatives like BharatMala or SagarMala and the large logistics parks, the government of India has spent already more than 80,000 crores and is on the way of investing more than 2.5 lakh crore in building the dedicated logistics infrastructure in the country to make the goods internationally competitive. And the results will be coming very, very soon.

So in this light, many schemes are already, in effect, and in this course, we will be discussing all these schemes.

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