India's new Foreign Trade Policy 2023 has done away with its old reward system and moved from a sector-led approach and yearly goals to focus on making trade and logistics easier.
Unveiled on March 31, it demonstrated changes in the government's policy direction from an 'incentive-based' to a 'remission-based' approach. It also traded in five-year targets for a more evolving and dynamic approach.
At first glance, e-commerce exports stand to gain the most. The policy also puts focus on India's current priorities, like streamlining special chemicals, organisms, materials, equipment, and technologies; resolving pending disputes through the Amnesty Scheme 2023; and including rupee trade in the ambit of foreign trade policy.
"Sectorally, the policy is limited, but the focus has been on overall trade facilitation reforms," said Nisha Taneja, a professor and researcher on regional trade in South and East Asia at the Indian Council for Research on International Economic Relations.
"This is much better than financial incentives," she said. "Creating an enabling environment is something that has more long-term benefits and offers equal access to all."
Saon Ray, another professor at the institute, said, "A large focus of this policy is also logistics. There is a recognition of the fact that different policies have to be streamlined and improved. Ease of doing business is also one of the main pillars we see."
"Logistics have been a great barrier to integrating India with value chains in the past," Ray said. "Not only in terms of ease of transport but also at customs houses, where the turn-around times have been long and the right infrastructure was not in place for easy facilitation of export and import."
Big Gainers
One of the big winners of the new policy has to be e-commerce, according to Ray. The policy offers a slew of measures, including:
Doubling the value cap for exports through courier to Rs 10 lakh per consignment.
Special outreach and training for small e-commerce operators.
Designated hubs for warehousing facilities will help e-commerce aggregators with easy stocking, customs clearance, and returns processing.
Dak Ghar Niryat Kendras is another new measure that aims to facilitate cross-border e-commerce and enable artisans, weavers, craftsmen, and MSMEs to gain access to international markets.
The current estimate for the growth potential of the e-commerce sector is pegged at $200–300 billion by 2030, whereas India's exports are expected to touch $1 trillion each in merchandise and services by 2030.
Measures to boost production from Indian manufacturers have largely been in the form of reductions in export obligations and inclusion in existing schemes.
The dairy sector is exempt from maintaining average export obligations.
Battery electric vehicles of all types, vertical farming equipment, wastewater treatment and recycling, rainwater harvesting systems and rainwater filters, and green hydrogen are eligible for a reduction in export obligations.
Defence Exports Show Promise
"Another sector where I see a lot of potential and focus in FTP is defence items. We see a step towards a more enabling environment," Taneja said. "Dual-use items need more clearances, more governmental agencies are involved, and that leads to more compliances."
The FTP allows the export of dual-use items under the SCOMET policy to be consolidated in one place. The idea is to streamline the licencing process for such items and make the exports more globally competitive.
This includes products like high-end goods, technology such as UAVs and drones, cryogenic tanks, certain chemicals, and so forth.
Challenges Ahead
External uncertainties weigh heavily on the growth trajectory of trade. The World Trade Organisation's global trade forecast predicts a 1% slowdown in growth in world trade in 2023, due to global uncertainties.
India's overall exports stood at $670 billion in FY22 and are projected to reach $760 billion in the recently concluded FY23, representing a year-on-year growth of 13.4%.
Pravakar Sahoo, a professor at the Institute of Economic Growth, is optimistic that India will achieve the trade target of $2 trillion by 2030, before the deadline.
"Global economies are checking their dependence on China, and they are looking at India to implement a China + 1 strategy. They are seeking stability in the supply chain, friend-shoring opportunities, and trade. I think we are very much on track," he said.
In the seven years leading up to the 2030 target, the country will see monetary easing, which will revive trade sentiments and boost export demand, according to Sahoo.
"Services will continue to grow faster than merchandise exports, and we would get to $1 trillion before 2030. The merchandise would be slower, but it will revive from the tight monetary position in a few quarters," he said.
Market Access Missing
The policy also outlines a plan to make districts export hubs and create institutional structures at the district level to nurture area-specific products and services.
According to Taneja, while this is a good start, it still lacks market access for exporters and regulatory handholding.
"There is a platform to harness the export potential of every district, but the market access angle is missing. How will we help these exporters access markets and make the product compliant with the requirements of foreign markets?" she said.
According to her, there is a need for a two-way platform "where exporters can be guided with access to markets, standard requirements, and regulatory requirements in different markets, and their concerns can be fed back for more policy-level consideration".
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