New Foreign Trade Policy for a New India

The original version of the article was published on 11th April 2023 in “The Daily Guardian.

On 31st March, the Indian government unveiled its New Foreign Trade Policy (NFTP) with the key goal of increasing the country's exports to $2 trillion by 2030. The NFTP, which will replace India's last FTP (2015-20) is the first policy without an end date or period to enable the government to modify or update it according to changing global economic conditions and / or domestic priorities. India's trade market has been growing steadily over the years, with merchandise exports reaching $313.36 billion in 2019-20, and services exports reaching $213.2 billion during the same period. However, the country still faces several challenges in its trade relations, including a significant trade deficit with some countries and the need to improve logistics and infrastructure to enhance the competitiveness of Indian exports. The NFTP aims to address these challenges and provide a roadmap for India's trade and export policies in the coming years. Other goals of the NFTP include boosting India's exports, while reducing the reliance on imports, attracting foreign investment, and promoting domestic manufacturing.

End of Five-year Foreign Trade Policy (2015-2020)

In 2015, the Government of India (GoI) published a five-year Foreign Trade Policy (2015-2020), which focused on increasing exports and promoting the “Make in India” initiative. The policy aimed at increasing the country's share of world exports to 3.5 percent from 2 per cent.

The policy included measures to achieve these targets, including simplifying procedures for import and export, reducing the cost of doing business, and promoting export-oriented industries. Some of the key schemes introduced included the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS) to provide financial incentives to exporters.

In addition to these measures, the government also focused on improving infrastructure and logistics to reduce transaction costs and enhance the competitiveness of Indian exports. The government launched the Sagarmala project to improve port infrastructure and the Bharatmala project to improve road connectivity across the country. Although the previous term of the five-year policy had ended in March 2020, this was extended repeatedly due to the COVID-19 pandemic and the subsequent lockdowns. The policy was last extended in September 2022 until 31st March, 2023, after which the new FTP was announced and came into effect.

The FTP 2015-20 contributed significantly to the growth of India's export in merchandise and services, which increased from $435 billion in the 2016 financial year to $676 billion in the 2022 financial year and is expected to increase to $760 billion in 2022-23 financial year. Schemes introduced in the FTP 2015-20, such as the SEIS, played a critical role in incentivising service exports and promoting India as a global services hub.

The Indian government also engaged in negotiations for the Regional Comprehensive Economic Partnership (RCEP), which would have been the world's largest free trade agreement. However, in 2019, the government of India withdrew from the RCEP negotiations as they said they were concerned about the impact this would have on domestic industries. The move was criticised by several economic experts, who believed the RCEP would have helped India integrate with global value chains and gain increased access to global markets. Despite the extension of the FTP's term from 2020 to 2023, the government was short of fulfilling its target of increasing merchandise exports to $800 billion.

Understanding the NFTP 2023

The GoI officially launched the NFTP on 31st March, 2023 and the policy comes at a critical time, especially as the global economy is facing a slowdown and India's exports have been struggling. It aims to not only alleviate the problems faced by exporters but also create a roadmap for the sustainable growth of India's foreign trade. The policy will aim to increase the country's exports to $2 trillion by 2030 and shift the trade economy from an incentive-based system to an “enabling ecosystem”.

One of the most important features of the NFTP is the focus on technology and innovation. The policy recognises the role that emerging technologies such as artificial intelligence (AI), blockchain technology, and the internet of things plays in improving industries, especially in the trade market. The government plans to invest in research and development to promote innovation in exports, while also creating a technology-enabled ecosystem for conducting business. This goes hand-in-hand with the measures being introduced to promote ease of doing business. The government plans to streamline customs procedures, reduce transaction costs, and improve logistical infrastructure to make it easier for businesses to operate in the country. This includes the creation of a trade portal, which will provide information on trade policies and procedures, while also facilitating online transactions.

Another important aspect of the NFTP is the emphasis on diversifying exports. The policy aims to reduce dependence on traditional markets and products and explore new opportunities in emerging sectors such as e-commerce, renewable energy, and digital services. Another key feature of the NFTP 2023 is the extension of its benefits to e-commerce exports, which are predicted to reach $200-300 billion by 2030. In contrast, the old policy had a narrower focus on promoting exports in specific sectors such as textiles, leather, and gems and jewellery.

The NFTP also acknowledges the importance of services in India's export basket. It proposes measures to promote exports of services such as IT, tourism, healthcare, and education. The government plans to create a favourable regulatory environment for export of services, provide incentives for service providers, and improve the quality of services to attract foreign buyers.

The recently launched policy also identified four new Towns of Export Excellence (TEE) — Faridabad, Moradabad, Mirzapur, and Varanasi — in addition to the existing 39 TEEs. It also proposes the creation of export promotion councils for each sector to provide a platform for businesses to interact with the government and other stakeholders. The councils will help identify issues faced by exporters, suggest policy measures, and promote exports.

Understanding the Challenges faced by India's Trade Sector

India currently has a significant trade deficit with a few countries, including China. While the NFTP aims to address these trade imbalances by increasing India's exports (by promoting value-added exports and diversifying the Indian export basket), achieving these goals is likely to be a tough challenge for the Indian government. Undoubtedly, the steps highlighted under the NFTP are a positive step towards creating a conducive environment for exports in the country. The policy will play a role in not only increasing the competitiveness of Indian exports but also creating new opportunities for domestic manufacturers.

The global economic landscape is highly uncertain at the moment due to factors such as the aftermath of the COVID-19 pandemic, trade protectionism in various countries as well as geopolitical tensions such as the ongoing Russia-Ukraine conflict. The NFTP will have to be modified to adapt to these uncertainties to ensure that India's trade policy is in tune with global economic conditions. Another major challenge will be improving the country's logistics and infrastructure. The government will need to continue its efforts to improve infrastructure such as ports, roads, and railways to reduce transaction costs and enhance the competitiveness of Indian exports.

Shreya Maskara/New Delhi
Contributing reports by Yuvraaj Singh, Anurag Dubey and Swati Sinha, Researchers at Polstrat
From Polstrat, a non-partisan political consultancy which aims to shift the narrative of political discourse in the country from a problem-centric to a solutions-oriented approach.