India’s journey towards becoming a global economic powerhouse has taken a significant leap with the announcement of the Foreign Trade Policy (the Policy) 2023 on March 31, 2023. The policy was launched with an aim to provide a dynamic and open-ended approach to accommodate the emerging needs of the time. In line with the Indian Government’s vision to increase exports manifold, the Policy sets ambitious goals to take India’s exports to two trillion dollars by 2030.
The Foreign Trade Policy 2015-20 was initially set to conclude on 31st March 2020, witnessed an extension due to the far-reaching impacts of the COVID-19 pandemic and a volatile geopolitical landscape. Remarkably, during this extended period, India achieved high Merchandise and Services Exports, showing an impressive export performance. It is projected that India’s combined Merchandise and Services exports will exceed USD 760 Billion in the financial year 2022-23. The policy’s extension will enable businesses to navigate through challenging times and capitalize on emerging opportunities, driving India’s export growth to new heights.
Under the new Policy, subsequent revisions will be conducted as and when required, allowing for adaptability to changing economic and trade conditions and ensuring that the policy remains effective and relevant over time.
The new approach is the shift from traditional incentives to tax remission. This means that instead of relying solely on financial incentives, the policy will focus on reducing tax burdens on exporters to encourage and support international trade activities. By doing so, the government aims to foster a more competitive and attractive environment for businesses engaged in foreign trade.
In line with the global trend of digital transformation, the Foreign Trade Policy 2023 emphasizes greater trade facilitation using technology, automation, and continuous process re-engineering. By embracing these advancements, trade processes can become more efficient, transparent, and cost-effective, leading to improved overall trade performance.
Furthermore, the policy seeks to promote exports through collaboration between exporters, states, and districts. This collaborative approach aims to leverage the strengths and resources of various stakeholders to boost exports and enhance the competitiveness of Indian goods and services in international markets.
The Foreign Trade Policy 2023 also identifies specific focus areas for export promotion. These include E-commerce exports, recognizing the growing importance of digital commerce in global trade, as well as developing districts as export hubs. By empowering certain regions to become specialized export centres, the government aims to balance regional development and increase export potential.
Another important aspect of the policy is streamlining the SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) policy and other relevant regulations. Ensuring that export controls are well-defined and efficient is essential for compliance with international trade norms and regulations while also promoting legitimate trade.
Pillars of Foreign Trade Policy, 2023
The FTP 2023 rests on four crucial pillars, each playing a vital role in promoting India’s exports and fostering a conducive environment for businesses:
- Ease of Doing Business, Reduction in Transaction Cost, and e-Initiatives
The implementation of online approvals without physical interface marks a significant advancement in the Foreign Trade Policy. Through the incorporation of streamlined processes and innovative technology, various permissions under the policy are now automatically approved. This notable development has led to a drastic reduction in processing time, enabling exporters to receive immediate approval for their applications under the automatic route. This not only facilitates faster and more efficient trade operations but also promotes ease of doing business for exporters.
The decision to reduce user charges for Micro, Small, and Medium Enterprises (MSMEs) under the Advance Authorization (AA) and Export Promotion Capital Goods (EPCG) Schemes is a welcome move. The application fees for these schemes have been lowered, significantly benefiting a substantial portion of exporters, estimated to be around 55-60% who fall under the category of MSMEs. This reduction in financial burden eases the cost of compliance for smaller exporters and encourages greater participation in the foreign trade market.
A notable development in the foreign trade sector is the revamping of the e-Certificate of Origin (CoO) platform. This modernization is aimed at enabling exporters to self-certify their CoOs, as well as facilitating automatic approval of CoOs wherever feasible. The envisioned electronic exchange of CoO data with partner countries represents a significant step towards promoting seamless cross-border trade. This initiative will enhance transparency, reduce the risk of fraud, and contribute to smoother trade relations between countries.
Another remarkable step towards a more streamlined and efficient foreign trade system is the implementation of paperless filing for Export Obligation Discharge Applications. With this move, all authorization redemption applications will be conducted through digital means, complementing the existing paperless application process for issuance. Exporters can now easily submit their discharge applications online, leading to faster processing and quicker resolution of their obligations.
- Export Promotion Initiatives
A new step to rationalize the export performance thresholds for recognition of exporters as status holders. This aims to enable more exporters to achieve higher status, while also reducing transaction costs associated with exports.
To boost merchanting activities from India, the government has implemented a reform allowing merchanting trade of shipment of goods from one foreign country to another. This reform includes the involvement of an Indian intermediary, subject to compliance with guidelines set by the Reserve Bank of India (RBI). However, goods/items listed under CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) and SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) are exempted from this provision.
A new step towards the internationalization of the Indian rupee by accepting rupee payments under Foreign Trade Policy (FTP) schemes. This move will allow extension of FTP benefits for rupee realizations through special Vostro accounts, as per the circular issued by the RBI dated 11 July 2022.
Policy introduced four new towns as Towns of Export Excellence (TEE). These towns include Faridabad for apparel, Moradabad for handicrafts, Mirzapur for Handmade Carpets and Dari, and Varanasi for handlooms and handicrafts. The addition of these four towns supplements the existing thirty-nine towns of export excellence. The TEE scheme focuses on promoting cluster-based economic development by recognising industrial clusters based on their export performance. This recognition aims to maximize the potential of these clusters, allowing them to move up the value chain and tap into new markets.
Under the TEE scheme, there are several benefits provided to the recognized industrial units in these towns:
- Recognition: The scheme offers recognition and credibility to industrial units in the region/town, enhancing their reputation while exploring and expanding into newer markets.
- MAI Scheme: Recognized associations of units are eligible for financial assistance under the Market Access Initiative (MAI) Scheme. This assistance prioritizes export promotion projects for marketing, capacity building, and technological services. Through this scheme, industrial units can receive financial support to participate in trade exhibitions and fairs, allowing them to explore additional marketing avenues.
- Common Service Provider Facility: The TEE scheme includes provisions for common service providers, who are entitled to authorisation under the Export Promotion Capital Goods (EPCG) Scheme. This authorisation helps increase the competitiveness of the cluster by providing a supportive and enabling environment.
- Districts as Export Hubs Initiative
States and Districts as Partners in Export Promotion aim to decentralize export promotion in India, with the goal of boosting foreign trade. This approach seeks to bring about a higher level of awareness and commitment to exports at the district level through identification of specific products and services in all the districts that have export potential.
To facilitate effective export promotion, institutional mechanisms are established at both the State and District levels. These mechanisms include the formation of State Export Promotion Committees and District Export Promotion Committees. Through these committees, strategies can be devised to promote exports effectively and efficiently.
An important part of this initiative is the preparation of District Export Action Plans (DEAPs) that blueprints the requisite plan for the promotion of identified products and services in each district. The objective is to increase participation and stake of States and Districts in the export promotion process.
Capacity Building through increased capacity of potential exporters and identifying new markets for their products and services is another vital aspect. To achieve this, DGFT (Directorate General of Foreign Trade) field offices would work in collaboration with District Industries Centres to provide training, handholding, and outreach programs.
In addition to capacity building, District-specific Export Plans would be prepared by Regional Authorities of DGFT that work closely with States and Union Territories. Furthermore, export promotion outreach programs would be conducted in the districts, focusing on aspects such as branding, packaging, design, and marketing of the identified products and services.
Further, Infrastructure and Logistics Development Intervention would be done to address existing constriction in infrastructure and coordination that hinder the smooth flow of exports. Districts would be encouraged to prioritise the development of essential infrastructure, testing facilities, and connectivity to support and facilitate export activities. To ensure effective implementation, ongoing schemes would be merged with the new schemes to support these infrastructure and coordination development initiatives.
- E-Commerce Exports
- E-Commerce Exports
The Policy introduces significant measures to promote and support e-Commerce exports by extending all FTP benefits to this sector. As part of the initiative, the Department of Commerce, Post, and Central Board of Indirect Taxes and Customs (CBIC) would enable relevant IT systems within the next six months. These systems will play a crucial role in expediting export processes and ensuring smooth transactions. To further streamline and facilitate e-Commerce exports, the government will formulate comprehensive guidelines in consultation with various ministries.
To acknowledge the significance of small e-Commerce exporters in the market, the government would conduct special outreach and training activities to provide them with essential support. Through industry and knowledge partners, these exporters will receive handholding assistance, empowering them to navigate the complexities of international trade successfully.
In a significant move to boost e-Commerce exports, the value limit for exports through courier has been raised to INR 10,00,000 per consignment, to encourage more businesses to utilize courier services for their export activities.
- Dak Niryat Facilitation:
To enhance cross-border e-Commerce and extend opportunities to artisans, weavers, craftsmen, MSMEs in hinterland and land-locked regions, Dak Ghar Niryat Kendras will be introduced nationwide. These Kendras will operate on a hub-and-spoke model, collaborating with Foreign Post Offices (FPOs) to facilitate efficient export processes. By establishing a network of such Dak Ghar Niryat Kendras, the government aims to provide a seamless pathway for local producers and entrepreneurs to access international markets.
- E-Commerce Export Hubs:
The government has recognised the importance of designated hubs to bolster e-Commerce exports that will be equipped with warehousing facilities. These hubs will provide a convenient platform for e-Commerce aggregators to stock their products, carry out customs clearance, and manage returns processing efficiently. Moreover, processing facilities will be allowed within these hubs for labelling, testing, and repackaging of products.
- Boost to the Manufacturing Sector
The Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been added to allow benefit claims under the CSP (Common Service Provider) Scheme of the Export Promotion Capital Goods Scheme (EPCG). This move aims to strengthen the textile and apparel industries by providing them with more opportunities to leverage the benefits of the EPCG Scheme. To support the dairy sector in upgrading its technology and promoting growth, the Average Export Obligation requirement will be exempted.
To promote environment friendly technologies and sustainable practices, several new products have been added to the list of Green Technology products eligible for reduced Export Obligation requirements under the EPCG Scheme. These newly included products include Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling systems, Rainwater harvesting systems, Rainwater Filters, and Green Hydrogen technologies.
The Special Advance Authorisation Scheme has been extended to apparel and clothing exports sector under the Handbook of Procedures on a self-declaration basis. This extension is aimed at facilitating prompt execution of export orders within a fixed period, thereby streamlining export operations for the apparel industry.
To further enhance the efficiency and convenience of trade operations, the Self-Ratification Scheme for fixation of Input-Output Norms have been extended to 2-star and above status holders, in addition to the existing coverage for Authorised Economic Operators.
Further, the Fruits and Vegetables export sector are included for double weightage while counting export performance under the eligibility criteria for Status House certification. This addition complements the existing practice of granting double weightage to the Micro, Small, and Medium Enterprises (MSME) sector.
- Special One-time Amnesty Scheme for Default in Export Obligations
As part of the “Vivaad se Vishwaas” initiative for amicable settlement of tax disputes, a special one-time Amnesty Scheme is introduced to handle non-compliance cases in Export Obligations by Advance Authorization and EPCG authorization holders. This scheme shall be available for a limited period, up to September 30, 2023.
Under this scheme, an authorization holder can regularise all pending cases of default in Export Obligation (EO) of authorizations upon payment of all customs duties exempted equal to the unfulfilled Export Obligation. The maximum interest that can be charged is capped at 100% of such duties exempted. However, no interest is payable on the portion of Additional Customs Duty and Special Additional Customs Duty. However, cases under investigation for fraud and diversion are not covered under the scheme.
- SCOMET Licensing Procedure
The focus of the Policy is centred around Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET). The policy aims to consolidate the regulations for the export of dual-use items under SCOMET for easier implementation and compliance.
Furthermore, the Policy seeks to enable the smooth export of high-end goods and technology with dual-use capabilities. This includes items like UAV/Drones, Cryogenic Tanks, Certain chemicals, and other sophisticated technologies. By simplifying policies surrounding these items, the Policy aims to encourage their exportation while ensuring necessary controls are in place to prevent misuse.
The Foreign Trade Policy 2023 represents an initiative-taking and forward-looking approach to foreign trade, marking a significant step in India’s journey towards becoming a global economic force. By embracing technological advancements, fostering collaboration, and identifying emerging areas of export potential, the policy aims to position India as a competitive player in the global trade arena. Continuous feedback from trade and industry stakeholders will be instrumental in refining processes and procedures to achieve the policy’s objectives effectively.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.