The Aakhya Weekly | #42 | A new foreign trade paradigm

Apr 07, 2023

After several delays and much reworking of timelines, the Government of India has finally released its new Foreign Trade Policy (FTP) 2023, effective from 1 April.

The FTP, launched by Commerce and Industry Minister Piyush Goyal, has been unveiled after several rounds of consultations with stakeholders as a “dynamic and open-ended” policy to accommodate emerging needs, according to a PIB press release. With India reportedly having achieved a record US$760 billion in exports in FY 2022-23, this FTP plans to scale up even further to US$2 trillion by 2030 – a tall order, but one that the Government is confident can be overcome. It is centred around the premise that India’s exporters should get more deeply involved in global supply chains, to meet the needs arising out of today’s geopolitical realities. Unlike previous policies, the new FTP does not have a term limit, thereby providing the Government with adequate flexibility to adapt to changing circumstances.

Broadly, the FTP rests on four pillars: (1) Incentive to Remission; (2) Export Promotion through Collaboration; (3) Ease of Doing Business (EoDB); and (4) Emerging Areas. The policy seeks to boost e-commerce exports through a separate policy framework and focuses on internationalisation of the rupee for trade settlement – a policy that is being similarly explored by economies around the world following the debilitating effects on global currencies pegged to the US dollar in the past year. The FTP provides for merchanting trade and intends to provide export incentives for settlement of trade in rupees. Further, the policy also encourages participation at the State and District level, through the promotion of district export hubs and the One-District-One-Product Scheme. This scheme has the potential to bring a positive impact to the remote districts of the country and create a pathway towards economic prosperity; however, it also falls to the Government to put adequate infrastructure in place to facilitate its proper execution.

The FTP is significantly oriented towards support for export competitiveness of Indian-made products. It provides exemptions on export obligations for the dairy sector - where India dominates as the world’s largest milk producer - in a bid to enhance exports. The policy also reduces export obligations for battery EVs, rainwater harvesting, wastewater treatment, vertical farming and other green equipment - a further indication of India’s commitment to sustainability in the face of climate change. Import-export license applications are being moved to a completely digitised and paperless framework.

Keeping in mind that India is in the process of negotiating multiple free trade agreements with markets like the EU and the UK, the dynamic policy framework would be well-suited to help India’s exporters to maximise the benefits of access to these large markets. India has already concluded FTAs with Australia, with former Prime Minister Tony Abbott anticipating that exports from India to Australia would likely be tariff and quote-free within six years’ time. It might be worthwhile to further note that India continues to be hesitant on being part of the “trade” pillar of the US-led Indo Pacific Economic Framework (IPEF), choosing instead to be an observer. India has shown some reluctance to multilateral trade partnerships. However, it continues to negotiate FTAs bilaterally with other countries and has concluded deals with Australia and the UAE. Proactive engagement on the FTA front and implementation of export promotion schemes domestically will play a big role in realising the central objective of the FTP - to deepen India’s integration into the global supply chain.

Top Stories of the Week

Antitrust Amendments incoming!

After the Lok Sabha ushered the Competition (Amendment) Bill, 2022 through last week, the Rajya Sabha has now given its assent to the Bill. The Bill will soon become law, once it receives Presidential assent.

Some of the key features of the Bill are below:

Previously, the CCI would only examine mergers for their effects on competition if they clear thresholds of asset sizes or turnover. In order to capture high value transactions involving tech start-ups that might not have significant assets or turnover, however, the Bill now introduces a deal value-based threshold for mergers as well.
The Bill eases several merger control related procedures. For instance, it reduces the time period within which an application must be dealt with, and introduces a ‘green channel’ under which combinations need not be scrutinised upfront.
The Bill introduces settlement and commitment mechanisms, which permit enterprises to close antitrust proceedings upon the payment of a monetary amount, or by undertaking behavioural or structural changes.

Indian antitrust laws were originally drafted in 2001, for an economy that bore little resemblance to that of today. The current spate of reforms began their journey in 2018, when the Ministry of Corporate Affairs appointed the Competition Law Review Committee, in order to plug gaps that had been exposed over the experiences of the CCI. The Committee released its report in 2019, suggesting several amendments to the Competition Act, 2002. These amendments have now found their way into the Competition (Amendment) Bill, 2022. It is after five long years that this journey is now on the brink of completion.

Stand-up India Scheme Celebrates 7 Years

Launched on 5th April 2016, the Stand-up India scheme sought to leverage the institutional credit structure to enable the participation of aspiring SC, ST and women entrepreneurs in the country’s economic growth. It was designed to address the challenges faced by the target group in setting up a greenfield enterprise in manufacturing, services or the trading sector and activities allied to agriculture. Apart from linking eligible beneficiaries to banks for loans, the scheme also provides guidance, training, and directs them to relevant government agencies for advanced assistance.

This year marks its seventh anniversary. Since its inception, the scheme has benefitted more than 1.8 lakh women and SC/ST entrepreneurs through loans amounting to Rs. 40,600 crore. According to the Union Minister of State for Finance, Dr Bhagwat Kisanrao Karad, the scheme is based on the “third pillar of National Mission for Financial Inclusion namely ‘funding the unfunded’” and has ensured the availability of seamless credit flow from branches of Scheduled Commercial Banks to concerned entrepreneurs. Till now, the scheme has proven to be instrumental in improving the standards of living for entrepreneurs, their employees and families. Owing to its immense success so far, the scheme has now been extended till the year 2025.

This Week in Policy

Economy and Taxation

The World Bank has revised its estimates for India’s growth in the current Fiscal downwards to 6.3%, from its prediction of 7% in its October forecast. It cited high borrowing costs, slow income growth and a tightening of Government expenditure as concerns for the economy.
India’s manufacturing PMI hit 56.4 in the month of March, up from 55.3 in February. With this, the country’s manufacturing sector has shown growth for 21 consecutive months.
India’s current account deficit has narrowed to 2.2% for the quarter ending on December 2022, down from 4.4% in the preceding quarter.

Sustainability and Energy

To boost the share of non-fossil capacity to 50% by 2030, the government plans to issue tenders for 50 GW renewable capacity every year till 2028, amounting to 250 GW of new renewable generation.
The government will give incentives worth at least ₹30 per kilogram (kg) for production of green hydrogen fuel under the recently approved National Hydrogen Mission. Current costs of production are estimated at ₹300 per kg.

Emerging Technology and Media

MeitY has notified new rules for online gaming companies under the IT Rules, 2021. The new rules provide for creation of multiple self-regulatory bodies and seek to regulate real-money games that involve wagering.
MeitY Minister Ashwini Vaishnaw has informed Parliament that the government is “not considering bringing a law or regulating the growth of artificial intelligence” in India.
TRAI has recommended that the I&B Ministry design a suitable production-linked incentive (PLI) scheme for manufacturing of set-top boxes.

International Trade and Foreign Affairs

India-Russia trade reached an all-time high of US$39.8 billion in FY2022-23, according to Alexey Valkov, director at the St. Petersburg International Economic Forum (SPIEF).
PM Modi holds bilateral meeting with the King of Bhutan at New Delhi, assures support to extend additional standby credit facility for Bhutan’s upcoming 13th five-year plan.

Healthcare

Amidst a clear uptick in COVID-19 cases, India registered 5,335 new cases on Wednesday - its highest count in six and a half months. The COVID-19 positivity rate in Delhi spiked to 26.54%, the highest in almost 15 months.
The Government will soon release an ‘integrative health’ policy, that shall insert traditional forms of medicine into its existing healthcare infrastructure. The policy is expected to push for the co-location of Ayush centres at district hospitals, introduce initiatives for the popularisation of such healthcare and bolster Ayush-related research.

Banking, Finance and Insurance

RBI’s Monetary Policy Committee keeps the repo rate unchanged at 6.50% - the pause coming after six successive rate hikes in a row.
SEBI issues advertisement code for investment advisers and research analysts. The code bans advertisers from using superlative terms and technical jargon in their advertising, as well as prohibiting promises of assured returns and superlative terms such as "best, No. 1, top adviser/research analyst, leading" etc.

Retail, E-commerce and FMCG

Delhi Lieutenant Governor approves the operation of 55 more e-commerce and retail outlets round-the-clock in the national capital, months after he gave a nod to over 300 establishments to operate 24×7.
The Reserve Bank projects marginal easing in retail inflation to 5.2 per cent in the current fiscal, but cautions that the fight against inflation is far from over.

Logistics and Infrastructure

The International Monetary Fund released a Working Paper titled, “Stacking up the Benefits: Lessons from India’s Digital Journey” focusing on India’s transformative world-class digital public infrastructure.
The Union Ministry for ports, shipping and waterways has proposed giving infrastructure status to coastal shipping. The status entitles a sector to several benefits and concessions, including cheaper bank loans.
Under the government’s ‘Jal Jeevan Mission’, 60% of households in villages across the country now have access to clean tap water.

Labour

India’s unemployment rate grew to 7.8% in the month of March, up from 7.45% in February, as per CMIE data. This was also accompanied by a drop in the overall labour force participation rate from 36.9% in February to 36.7% in March.
The NSDC and the Airports Authority of India have entered into a partnership, aiming to enhance skills in India’s aviation sector.

Tracking the G20

In this week’s notable developments, the 2nd Tourism Working Group meeting took place in Siliguri and Darjeeling in West Bengal. Deliberations revolved around empowering youth with skills for jobs and entrepreneurship in the tourism sector and leveraging tourism led development for achieving sustainable development goals.

Also, on the last day of the 2nd Sherpa Meeting in Kumarkom, some nations pulled up the G7 over the global banking crisis, after the recent failure of Signature Bank and Silicon Valley Bank, and the takeover of Credit Suisse by UBS to prevent the former from going under. This comes in light of the the 2nd Finance Ministers and Central Bank Governors meeting coming up next week.

And, the Culture Working Group (CWG), in association with UNESCO, organised a webinar on ‘Protection and Restitution of Cultural Property’ - the first priority area of the CWG. A consolidated report of G20 members sharing recent examples of processes of restitution of cultural property reflecting progress towards ethical collection management will be put out at the third CWG meeting in Hampi, Karnataka.

Upcoming Events

Brainstorming Workshop on Web 3.0: Prospects and Challenges

April 14 | India Habitat Centre, New Delhi

ICRIER is organising a brainstorming workshop on April 14, 2023 to take stock of the rapid developments in the Web3 realm. The workshop will delve into India’s potential contribution to the development of Web 3 on a global scale and regulatory challenges posed by this new technology. Anna Roy, Senior Adviser, NITI Aayog, and V Raghunandan, Secretary, TRAI will be present at the event. More Information

The Future of Asian Economic Growth

April 10 | CSEP auditorium, Chanakyapuri, New Delhi

The Centre for Social and Economic Progress (CSEP) is hosting a dialogue on “The Future of Asian Economic Growth” on April 10, 2023 to uncover the common reliance on large and powerful business groups in Asian countries to fuel economic growth. Shivshankar Menon, Former National Security Advisor, India and Rakesh Mohan, Member, EAC-PM will be present at the event. More Information | Registration Link

Roundtable discussion on Financing Clean Energy Technologies in SMEs in India

April 13 | Virtual

WRI is organising a roundtable discussion on financing clean energy technologies in MSMEs in India in a virtual format on April 13, 2023. The roundtable is being organized to solicit view, opinion, ideas from multiple stakeholders including banks/ FI, DFI, Nodal agencies for clean energy/ energy efficiency for MSMEs, MSME Cluster Association, MSMEs, Industry association on financing challenges and opportunities for financing clean energy technologies for SMEs, which remains a key challenge in India’s decarbonisation journey. More Information

A Few Good Reads

“A bank, it must be remembered, is a confidence trick.” Former RBI Governor Duvvuri Subbarao looks for lessons that India can take from the SVB bank run.
V. Anantha Nageswaran and K. Balasubramanian argue that the case for growing inequality in India is exaggerated.
Aadil Brar provides context to the Dalai Lama’s anointment of the tenth ‘Khalkha Jetsun Dhampa Rinpoche’, the third highest monk in Buddhist hierarchy.
Veteran diplomat Harsh Vardhan Shringla has released his biography, “Not an Accidental Rise”.

Tweets of the Week

Editor’s Note - Due to technical difficulties, we are unable to embed tweets in this edition.

In a season of political arrests, Amit Schandillia narrates the story of the man who arrested a sitting President:

Brad Setzer on the purported decline in FDI:

The Rashtrapati Nilayam at Hyderabad, one of the three Presidential retreats, is now open to visitors through the year!

Key Notifications and Reports

The National Assisted Reproductive Technology and Surrogacy Board under the Ministry of Health and Family Welfare releases Assisted Reproductive Technology Regulations, 2023, and Surrogacy Regulations, 2023.

The Aakhya Weekly