Foreign Trade Policies And Impact On Trade | Free Udemy Course

This agenda is very, very important. And we are talking of the foreign policy of India. So everything we do in export as well as imports and the reasons of exports and the transactions, the smoothness, even the cost of our exports is very much dependent on different initiatives by government of India, especially in terms of the policy foreign trade policy, which is formulated by the Ministry of Commerce.

A particular wing is there in Ministry of Commerce. That is the Department of Commerce. In short, it is called DOC. So in this agenda we will be talking about all the different aspects of the different foreign trade policies of India in the past, as well as the current policy and a little analysis of the forthcoming foreign trade policy, that is foreign trade policy 2021-26, which is on the anvil, so very soon it is going to be ratified, it will be available in public domain and we will have little look at the expectations which the exporters, which the EPCs- export promotion councils or the agencies which are involved in foreign trade in India.

They are having such expectations. So we will look at those expectations that what are those expectations from foreign policy 2021-26. So those things will be involved in this. So Friends, the foreign trade policy entails some organisations for formulation, some organisations for the implementation and some organisations to govern the policy because it is a very serious policy, it has a lot of bearing on the. Economic growth of the country. Lot of bearing on the employment in the country. It has lot of bearing on the overall ecosystem of trade in the country. And it is very, very important to be able to make the country able to import things, because without the foreign exchange earning, which is the main objective of any foreign trade policy, the other objective is import development.

So if you talk of the foreign policy of India in the period which was before liberalization, that is 1991, you will see that the policy was the part of the so-called Export Import Control Act. So basically the idea was regulation. The idea was control. The idea was the strict attitude of the government towards the activities which are involved, maybe mainly in imports but also in export. So it was a period of the country which actually went not as was visioned by the founders of our country after the independence. So what had happened was that till 1991, the FT policies which were made and which were part of the Export Import Control Act, they did not deliver what was expected out of these policies and what was expected by the exporters as well as the importers at large. So the attitude changed. After 1991 we adopted LPG, that is the liberation, privatisation and globalization.

The approach changed in the sense that instead of the Export Import Control Act now we were talking of the Foreign Trade Development Act. So when we say foreign trade development act which includes both exports as well as imports, it was acknowledged that the approach is not to control. The approach is towards the optimized development of both export as well as imports.

So without import, export cannot take place. If we talk of the world global value chains and we look at the initiatives of the OECD, where this organisation, which has documented the data of different countries, what they export, what they import, it is very, very clear that the more you import, the possibility of export is higher. So any country without imports cannot really export. To give you an example, if you talk of China, for example, the electronics sector, the value addition percent, aggregate value addition in electronic sector, which includes your mobile phones or laptops or what not.

The value addition is just 15%, which means China is world's largest exporter of electronic goods, but it is only adding 15% to the value, rest of the value is coming from imports into China from different countries. So this kind of global value chain which exists and it clearly indicates that the co- growth of both exports and imports is very, very important. And the present foreign trade policy of any country, including India, acknowledges that fact. And it is Trying to promote exports as well as develop imports.

So without this approach, the overall result isn't possible. So this is all done by the different types of import trade governing bodies, which I'll be talking about. And the regime of the so-called import licenses wherever required. Or the OGL list. The open general list is there or also classifying the product categories of the goods, which is very, very important in order to make it possible to do a smooth border control

Management and to run those programs, border management programs, and also to have the export as well as the import incentives. So by mistake, I have written here the import incentives basically I'm talking of both import as well as the export incentives. So the focus of any foreign trade policy besides the main objectives is to see that these governing bodies are able to function smoothly.

And there is the classification and licensing which is required, which is necessary, and the promotion of exports and the development of import is taken care of. So that is the main objective of any foreign trade policy of any country, actually. So, you know, this kind of concerns will remain for any foreign trade policy. In recent past, the current policy and the future policies. So this was my idea of this slide. So what we are trying to do, the policies are looking at the guidelines and the rules and every country has these guidelines and rules framed for the following.

For example, for product categories and commodities, for example, their classifications which are normally for the border control purpose, is based on the international trade classification. Harmonized system, ITC HS code. And categorizing the different types of exporters and importers. In importers to decide that what kind of importers are there and what kind of tariffs can be there for different categories of importers like actual users or merchant importers. Similarly, in the categories of exporters, the different types of incentives and facilities can be given to these exporters by identifying their nature of business and what is their status. So these guidelines and rules look into these considerations.

These guidelines and rules are typically given by following types of local publications in any country, which is also true for India. So as I had just mentioned, the main policy document, which is called the Foreign Trade Policy Document, for example, Foreign Policy of India, which is formulated by the Ministry of Commerce under DOC. i.e. Department of Commerce.

Or it can be, for example, the US trade policy, the provisions of which are very easily available online. And you can check the comparison between our policy and U.S. trade policy. So many similarities you would find and the Handbook of Procedures in India or Foreign Trade Regulation documents of U.S. So there are a lot of similarities out there in this. And very importantly, the standard input output norms which are there in India.

These standard input output norms really help very much, especially for exporters to, for example, find out that what inputs have been used for the exports and to establish, for example, duty drawback rates or to frame the duty exemption and remission schemes, different import refund schemes which without these standard input output norms is very, very difficult. So a lot of countries also have similar standards and the norms. Now the classification which I just mentioned to you normally, which is used in India as well as in many of the countries for the border control purposes. Is ITC HS code, which have been in use for many, many years. I just want to tell you that this can be done in many other ways and some of the organizations are doing in their own way.

For example, if you remember in one of the earlier sessions I talked about the ASIN number, which is used by Amazon, which actually is much more exhaustive than even ITC HS code. But since the border control officials, that is, the customs officials all over the world are using ITC HS Code and it serves good purpose for them. So they do not use the more exhaustive classification which is used by Amazon, for example, or there are many others. So that is the case for other countries.

So basically, if we talk about the foreign trade policy, it is very, very important to understand first that what are the basic concepts and the roles of these different foreign policies which are actually framed by our country, that is India, but many other countries. So every country has their foreign trade policy and they have roles, as I had just already mentioned, in the economic development and the generation of employment and many things. So main role, if we talk about, starts with the fact that these foreign trade policies promote trade and commerce. Definitely. And that is the core objective of any FT policy, including that of India.

And second very important part is to target the achievement of some of the required objectives based on the different types of areas of concern for a particular country. For example, if we talk about the Indian context, the concern of generating employment, for example, this is one of the concern which is I wouldn't say that other countries do not have these concerns, but India being a very large country, very populous country, employment generation remains very, very important socially as well as politically, these kind of concerns. Every country have their are different types of concerns and those concerns have to be targeted. So, for example, I'll give you another example. Right now, as you can see there, that Sri Lanka is passing through very difficult times and one of the reason for Sri Lanka to face the type of situation which it is facing right now is also because being a smaller country, they had been dependent on many essential items from overseas, for example, basic medicines in Sri Lanka. They are dependent on other countries.

Now. If they are dependent on other countries for these kind of essential items, they need foreign exchange. At the moment, the BoP position is not good and they were sitting on this time bombe. And what we are seeing today is that the problem is there. So probably their foreign trade policy had not targeted this very real concern that the dependency of the country on small, small, essential things like pharmaceutical or the medical equipment. on foreign countries. So probably they were busy with many other areas and they never thought of the fact that the BoP Position can go haywire, which actually has happened. So similar situation can happen to those countries which are failing to target their areas of concern in these kind of FT policies. So the fact remains that these foreign trade policies are formulated not in a same way like I wouldn't say that the US FT policy is very similar to India, no. Their concern areas are different. Their structure may be similar, but the focus will be different. So it is in line with the changing socio economic environment of any country. So if we talk of India, we are talking of the foreign trade policy in tune with the current as well as the changing socio economic environment. And for this reason, to be able to do that. It is revised every five years. So this overview I wanted to share with you.

My aim was simply to drive upon to you the really things, which goes in the mind of the people who frame these policies, whether it's the Department of Commerce or the people who give feedback to Department of Commerce, the agencies like EPCs, Export Promotion Councils or traders, or even the political people like MPs and the States. The States are the major partner of the FT policy of the central government. So they have their own concerns, actually. Their local concerns. So those has to be part of the FT policy. So it's a very complicated thing. It's not very easy to frame the foreign policy of any country. Including that of India. And probably that is the reason it is taking time for the Government of India to come out with the new policy which was stated to be there in 2020 itself. But it has still not been ratified for these kind of reasons. Now the FT policies in the past. If we talk about, these were based on these concerns only in their own way of that time, what the socioeconomic environment was there at the time and what changes were taking place. For example, after 1991, after the adoption of LPG liberation, privatization and globalization. And how country changed with the time year by year or the policy by policy. So going forward FT policy of 2015-20, which was the baby of the new government. So under the fact that this new government had very different approach. To the economic development of the country from the past governments, Definitely.

That difference was reflected in this FT policy 2015-20, which specifically focused on increasing the market share of India in the global trade. So. I just wanted to share with you that the share of India's export efforts in the global market is approximately 2%, which actually is not a very good figure. If we talk of India, as a very large country and India aspiring to become a global player in the foreign trade, this figure of 2% is not really very commendable. So probably this was the reason that a major focus of this foreign trade policy was how to increase the market share of the India's foreign trade in the overall global business, and also to include new products in the export basket by incentivising exports and having some focus areas in the overall basket so that the items which are exported traditionally, they do not take the burden of the goals which the country have. It's not possible because 70% of the India's export items, they only account for the 30% requirement of the world. So this is not a very good figure. So what the meaning of this that the majority of the products which India exports, they do not really fulfill the overall requirement of the world. So as I told you it serves only 30%. So there is a scope of adding new products. Probably they are manufactured in India, probably they are imported.

Probably India doesn't have the technology to make that. Probably the traders in India, they do not have the money to invest in those kind of production of those items. So, for example, many of the items we had been totally dependent on the international market. Even till very recently. Talk about the mobile phones, talk about the laptops and many items which we were happy with imports and had probably not thought of any major investment by the government or the private sector. So probably that was the reason that the product basket of our exports was not able to really feed the world trade. to the requirements. What is required in the market? So why we have not been manufacturing those goods, so that was stressed in the foreign trade policy of 2015-20. But what happened with this approach? It was done in very good intention of the government to really benefit the country. And in this what has happened that government has incentivised with very bold steps like providing the duty free scrip in the form of so-called MEIS scheme or the SEIS scheme which I will just talk about. But what has happened that the World Trade Organisation ruling against the incentive schemes like MEIS and SEIS, which was based on the complaint by U.S. about the schemes of this policy, that is the foreign trade policy 2015-20 and especially the MEIS scheme, derailed the objectives. So these objectives could not be fulfilled because of this major setback which the foreign trade policy and the country faced because World Trade Organization ruled that India is subsidizing the exports and India is not eligible for subsidy. So I'll just talk about it.

Why WTO thought that India is not eligible to subsidize its exports? So, you know, this is just the, again, overview of the foreign trade policy 2015-20 which is still in effect and it has been extended for almost two years for certain reasons, which I'll just discuss that. what are the reasons why it has been extended and new policy is still to come. So this is just I wanted to talk about the little overview of the foreign trade policy 2015-20. And as we know, the new policy, which is foreign trade policy of 2021-26 is on the anvil and it is expected to be more inclusive. So the question here comes that how do we know that the 2021-26 will be of this type? So let me tell you, the FT policies are not like any budget. Declaration or the passing of the budget, which normally is kept secret. That is not the case. So foreign policy, of 2021-26. is not a secret. It is circulating already among the political people, among the different agencies like EPCs, Commodity Boards chambers of commerce, industry bodies, exporters and all the stakeholders. This policy is already circulating, and their feedback and their concerns on the policy document have been invited. They have been already logged in. So this policy is already there in the market. We already know the main proposals which are proposed in this policy. So it is likely to be more inclusive and it is likely to address the very important things which were ignored in the foreign trade policy.

That is FTP 2015-20, that is addressing the skill development and the technology upgradation issues, without which even the objective of adding new products in the export market is not possible without the availability of the skills, the skilled people and the right technology and the possibility of manufacturing new items more competitively in competition with the best manufacturers in the world. We really cannot achieve those objectives which were talked about in 2015-20 policy. So probably that was a major failure of the. The last policy, which is still currently in use. So this is the reason that these two expectations are very real and my idea is just to give you an overview. to start with about 2021-26 policy. We will have a detailed analysis also in this session, in later slides. So it is just my idea is you know, to share this overview just to make you. Understand the the transition from FTP 2015-20 to FTP 2021-26. So with this overview you'll have a fairly good idea that what we are talking about? where we are moving? what we are facing actually?

The people at large, not many of them do not even know what actually happened at WTO in 2015-20, and probably as a person from international business, I feel it was a major failure of the current government that they face this kind of situation at WTO. It was not not a very good thing and very unprofessional. Actually, I would say that India had to face this kind of situation at WTO and people don't know about it. Many people don't even talk about it. So these few things which are there, and I'm sure the government will not repeat such unprofessional policy making this time. So this is what is happening. And there may be different reasons for the government, new government to think on those lines without even realizing that India was not eligible for those kind of schemes.

Welcome back to the course. So, friends, in this lecture I will discuss about the role of the World Trade Organization in international trade in general, but more specifically, the impact of the World Trade Organization on the foreign trade policies of the countries, and different nations on this planet. World Trade Organization is an apex organization that regulates international trade in this world.

So the member countries that are members of the World Trade Organization, tend to follow the guidelines and rules which have been agreed upon among the countries. So the countries agree on certain rules and guidelines. And the bilateral agreements take place under the world trade organization. And these guidelines and rules are ratified in the form of different agreements like the GATT agreement for trade, GATS for the services, and TRIPS for intellectual property rights. So these major three agreements are related to international trade, which happens in services, also in goods also, and the protection of the companies which are doing international trade in terms of their intellectual property rights.

All these guidelines and rules have to be complied with by all the member states. So they cannot have provisions in the foreign trade policies, individual foreign trade policies which are not compliant with these rules and guidelines of the World Trade Organization. So any member can complain against any other member if any problem is found in the foreign trade policies or the provisions which are introduced in the foreign trade policies by the Member states. So what happens?

The countries do not generally introduce such provisions which may be red-flagged by WTO. So, therefore, World Trade Organization is able to monitor the foreign trade policies of different countries that are members of the World Trade Organization, and they are also able to make sure that the overall international trade is not affected by individual foreign trade policies of different countries. So it becomes very, very important for the individual local governments to frame the foreign trade policy provisions very carefully, very professionally, and in line with the guidelines and rules of WTO. So in this lecture, I wanted to convey to you that World Trade Organization definitely has a major impact on the foreign policies of the countries.

In the next section, when I will take up the case study of the foreign policy discussion of the Indian government, you will understand what is the meaning of the impact of the World Trade Organization on foreign trade policies, how World Trade Organization can red-flag the provisions which are there in the foreign trade policies of the different member states. So this case study in the next section will illustrate many, many points which have been discussed in this section. So keep watching.

So before I talk about the current policy and the forthcoming policy, if we talk of the finer areas, the finer prints of the foreign trade policy in India, that in the past as well as in the current and the future, certain concerns will always remain. Certain focus areas cannot be done away with. So the policy in India, which is formulated, basically serves as a plan of the action and strategy. That is the idea of such kind of policies and the main focus areas in India, like in many other countries. I wouldn't say that other countries may not have those kinds of main focus areas. Like many countries, India has focus areas of this type, which are the different agreements, free trade agreements, which India has with other countries, which may be bilateral agreement, which may be multi lateral agreements under the aegis of e.g, the WTO multilateral agreement. So these agreements and the commercial relations are very, very important while formulating the FT policy As well as the concept of SEZ. Why?, because by experience it has been seen World over, that the special economic zones play a very, very important role in modern times, especially in the process of making the status and the role of the country in the global value chain without this status, without this role in the world global value chain, in today's world, it is very difficult to have very substantive export role, a substantive share in the world market. So you have to be part of this global value chain, very very important.

And SEZs play a very, very important role in that. And definitely promotion of exports. Very, very important for any FT policy. Every country need it. Every country need FX for importing. I gave you the example of Sri Lanka and in this example as I said to you, that for small, small things, countries like Sri Lanka, or even Bangladesh, for example, they depend on foreign countries very well is one thing because it doesn't really make sense to manufacture those things in those countries. Or probably they had not conceptualized the production of many of the essential items which today's situation required these countries to do that. So they need to promote exports and facilitate the foreign trade for their transactions. Foreign exchange management to deal with the foreign currencies. To deal with the border management programs, to spend less on the logistics, as well as the port facilities board handling. So those different costs, which are the so-called eight action costs. So those kind of facilitation of trade is very, very important.

Focus NGO, the India's one policy and the regulation and government of the different categories and commodities of the exportable products. The project company do the products which would surely have demand in the international market. The products we are the country. Our country has some advantageous competitive advantages or maybe absolute guarantees or the availability of the supporting industries, the nature of competition in the country, the local demand and the proper conditions. So those products enjoys the right ecosystem of being nationally and internationally competitive. So how do you regulate and develop those activities? So these are the main focus areas of different activities of India.

And also I hope I have not taken too much of time. And if we can briefly, within a couple of minutes discuss this, you said that the WTO was pressure was instrumental in discontinuing with the schemes like Yeah MEIS. Merchandise exports from India scheme and SEIS Services export from India scheme. But somehow I have a feeling that in a way it is good because you know, giving monetary incentives to export in form of duty credit scrips or to I mean, export of merchandise or export of services might not help the exporters a lot. Rather, the government can invest the money on providing a great infrastructure in terms of, you know, special economic zones, making sure that various parks, technology parks or textile parks have their suppliers nearby. And and then it would sort of be a motivation for MSMEs not to remain MSME. I mean, there are two things. One is the these schemes which provide duty credit scrips. So duty credit scrip I think is basically a note which is given to them where they can utilize that to import something later on without paying import duty. And maybe in some cases it can be used for paying the domestic tariffs also, you know, they seem to be doing away with the taxes, domestic taxes also. So that's in a way a monetary incentive.

And again, this is what the WTO also has. I mean, the WTO has this logic that instead of paying monetary incentives, create situations for the small companies to be able to grow big. Because unless and until the MSMEs grow to big in size. They might not be able to compete with the likes of SEZs that we find in China or for that matter, other fast growing nations around. So that's one part of it. The other part is MSMEs in any case, get incentives and subsidies. You know, if I'm right, they they get some benefits, monetary benefits and some kind of subsidies by the government and which might motivate them not to grow beyond a particular size because they are in some incentivize to remain small incentive Or split into few companies. And so there are two parts to it, I feel that one is that they're incentivized to remain small, and the other is they do not have infrastructure facilities or they do not have their suppliers nearby.

For example, I was reading an article about the home décor company which makes cushions and it is based in Noida- cushions and pillows. A lot of raw material comes from Chennai They add value and when it is exported, it is exported via Nahva Sheva port, which is in Bombay. So it is so much of, you know, travelling and the expenses for transportation, it adds on to their cost. So if the government, rather than focusing on giving monetary incentives to MSMEs, if it focuses on giving them needed infrastructure in which we would see for sure in coming future, this government is going to do in terms of various parks and SEZs and and it needs to be expedited. I just want you to say a few clarifications on this if you want to say something on this. Thank you, sir. Thank you. You are absolutely right. Actually, the country is actually now not eligible in WTO to give any subsidy because India has already crossed the dollar 1000 threshold of the GNP, which is a subsidy agreement. It is called subsidy agreement. All the countries are signatory to that agreement at WTO and India is also signatory. So knowing very well that we are not eligible to give any subsidy, this scheme should not have been launched actually on the very first place. MEIS and SEIS So the government, the best the government would have done was to continue the old schemes which are already there which were accepted by the world, which were also accepted by the WTO with some tweaking.

That was the best approach. I don't know what happened, but somehow government did not realize that or government thought that we will not be able to cross $1000, which we were not actually. We were on the verge of crossing 1000 Dollar threshold. And as for the agreement, we actually cannot have those kind of schemes now. So in. future also, you will not see such schemes going through the scripts. And you're absolutely right. India is spending 14% of the GDP on the logistics cost, which is way above the world average, which is 8% for other countries. And some other countries spent just 5 or 6% of their GDP on logistics. So spending 14% means you are already adding to cost the raw material coming from Chennai to Delhi and then processed in Delhi and then re-export to Nahva sheva. So with the fact that you are spending 14% of the GDP on logistics, so obviously the price will go up. So the product will not be competitive unless it has got some differentiating features. Because in India, what is happening is that most of the exports are not really based on the efficiencies or the low cost of transportation or the right methods, external methods.

The most of the export which are happening from India is based on the achievement of the people who are exporting. The people, they want to export. That's why it is being exported. They have some innovative mind. They have created some differentiation in the products. Somehow they are able to sell. But it's a very difficult task for the exporters, and if they are doing it, they are doing a wonderful job in the given situation. If we compare our prices with many other countries, if you talk about China, China spends only 6% of the GDP on logistics and we are spending for 14. So you got to understand that by default we are not competitive. So you are absolutely right that instead of giving these subsidies, government should focus and government is actually focusing. Yes, like in form of the the dedicated freight corridors, which would pretty soon be operational between Dadri and Nahva Sheva Port, is going to reduce the time by seven times instead of taking five days to seven days to reach there, because these goods train always moving second priority to the passenger trains that would reduce the time to just one day less than that. And new dry ports, new dry ports are being established along the Dedicated freight corridors.

These dry ports reduce the cost and the containerization, even for the domestic travel our percentage is 50% where the world average is above 80%. So even for domestic movement, we have to move to containerization to reduce the cost. So, you know, these are the areas actually which are important. And we are expecting that the focus of the new foreign trade policy will be on those concerns. So I'm very sure that MSMEs will benefit from these changes and the goal to bring down the logistics cost to 9% of the GDP is there by 2025, it will be achieved and as you rightly said, that the MSMEs can have one window system. MSMEs can have the easy availability of the raw material. Easy availability of the credit lines. Micro finance. So those things I think will be taken care of. Now. I'm very sure of that. So this is you know, I wanted to say about.

And I think if we talk of the other areas of focus and the achievements of FT policy 2015-20 as I just mentioned to you that despite the constraints like the poor infrastructure, road infrastructure and the logistics infrastructure and the availability of the electricity, for example, or the availability of the water or the raw materials, the cost of transactions which are high, the overall cost of the transactions, including the cost of transportation and warehousing, and the procedural complexities, the local regulations, state regulations, state laws, and the constraints which are inherent in the manufacturing units.

Many, many constraints which are there. Many inexplicable. constraints are there and including the availability of the skilled people in the manufacturing sector, lack of training of the skilled people, semi-skilled people, and the inadequate diversification of the export in the sense that new products not being able to be identified for the export basket in spite of these constraints and coupled with the many external factors, most recent being the COVID and now Ukraine war. Such external factors, India still was able to sign the Trade Facilitation Agreement at WTO, which is a good achievement of this policy and this Trade Facilitation agreement at WTO, which is very, very important in order to help the developing and least developed countries to reduce cost of trade transaction. So it is not just about the cost of logistics, which is very high.

For example, in the case of our country, India, 14%, approximately of the GDP, but other transaction costs, which include the customs charges or the procedural delays, dummerages which come in picture and the movement, release and clearance of the goods and the complexities of the border management programs and high import tariffs, which the raw material which is used for exports. Many of the raw material has to be purchased locally, which have been there in the DTA -domestic tariff area, after paying the high tariff rates. So the Trade Facilitation Agreement aims at expediting the trade procedures, expediting the movement, release and clearance of the goods, simplification of the border management programmes and bring down the trade barriers. So this agreement has been signed by India. So the calculations and the research papers submitted at WTO by the expert committees, very clearly indicate that the potential of this TFA- Trade Facilitation Agreement is to reduce the total trade transaction costs by minimum 14% for countries like India or many countries in Africa and most of the other developing countries or middle income countries. So the TFA is very important and India signed this agreement. India is signatory to this agreement.

So India is committed to bring down the cost at the ports, at the dry ports, at the toll plazas where the movement of the goods happen, either for exports and even for the domestic purpose. So GST probably was part of this only because one tax was required. GST was required actually to achieve this. So this is India is committed now, because it is now signatory. So if India do not achieve it, then the the stock taking will take place about India and its policy. So that's a good achievement for India.

If we talk of the significance of these policies in India in compliance with World Trade Organization, India needs to eventually phase out subsidies. So basically. not eventually. Now India is in a situation, that it has to phase out. There is no Second option India has. So it is not eventually Now. Now it is India need to phase out subsidies and move towards fundamental and systematic measures in the future. Sir, can I just ask one thing in 30 seconds. Sir I've heard and I have this understanding that, you know, when the subsidy is given to the exporters, as you've said, that these are not good. But what all comes into subsidies? Because I was hearing the reason as to why India is not able to compete with the likes of China and maybe some other nations is that we are not able to focus on the value chain and supply chain in the way Chinese have done. And so, for example, it's pretty much a mobile phone is made in India. Almost half of the inputs are imported from outside and it is assembled in India. And one of the reasons is that you do not have a lot of motivation. I mean, why would the businesses want to come into making spare parts for mobile phones?

And for that, the motivation could be the tax holidays, which are given by the government, like five years or ten years of tax holidays to become suppliers, to not depend on outsiders for the imports and make it in India. And it could be done very well. It could be done if there is that kind of motivation that businesses have. Now, my question here is that if the government gives the tax holidays, would that also come under subsidy? There is a complete manual of WTO. It is available online. You can download it and it clearly gives you that what kind of the tax holidays, or the so-called WTO complaint, Tax Relief Report is there and you can have these kind of tax holidays and even..... And that would probably be able to, you know, motivate the businesses to come to a place where they could reduce their transaction costs. Yes, in fact, WTO encourages governments to introduce taxes.

Actually because as part of the TFA, trade facilitation agreement, the WTO encourages governments to consider tax holidays or income tax reliefs even. India still do not have the income tax relief on the major income tax relief for the exporters or the people who are in services exports. It is very much possible and it is WTO compliant actually. Why government is not doing it. I am pretty sure that they would be they would be doing with this. And in terms of the we see recently see a lot of hording of Textile Park, which is coming up in Noida. I think, you know, those ads and hording of textile parks and throughout this expressway from Greater Noida to Agra, both sides, you know that there are those, I think two kilometers on both sides. Now, this entire corridor is earmarked for the future, similar SEZs. I don't know if if I'm. Yeah, which is I think is on Yamuna Expressway. Yeah Yamuna Expressway and so it goes from Greater Noida to Agra. Yeah, that is true.

Which probably would I mean, probably the government has the very same intention of inviting even outsiders in companies within India to establish themselves there and reduce their costs. So that is what is expected out of the foreign trade policy 2021-26 that they should at least look at the taxes, the tax rebates and the refunds and the holidays which are compliant, WTO complaint rather than, you know, giving any populist kind of incentive schemes which actually will be red flagged by WTO. In any case, it is very obvious. I mean. The people who are sitting there at Niti Aayog, like, how can they even propose such kind of incentive schemes, which they know that it will be red flagged? So this is, you know, little not expected out of a professional policy making of the FT policy, which actually happened in the past policy. And it created problems for many exporters. Anyway, so sir you're actually right.

Even after these bottlenecks we have seen that India's exports in the last few months have done very, very exceptionally well and the government would be achieving its, you know, budgeted targets of the exports that it wants to do. And there are various external reasons also for that. And like the conflict in Ukraine and other reasons. Yeah. So yeah, definitely these external factors have really impacted the course of the policy making. Definitely. And it is a good news that India has now crossed the benchmark of USD 1000 per capita income for three consecutive years. So as per the agreement, since 2014, India has crossed this figure. So as per the subsidies agreement, India cannot give any subsidy. If it would have been less. Then India was elligible. When this policy came. India realized that we may not be able to cross this, but actually we crossed. So it's a good news and you're rightly saying that in the recent past.

Very recent past, India really have achieved very good numbers as far as the export is concerned and this is a very good indication for things to come. So the focus of the foreign trade policy, basically, whatever we have just talked about and this is one of the solutions and this is one of the mandatory thing and the necessity to focus on the value added made in India goods, very, very important. So when I say made in India goods I would go further to tell that India has to look at the global value chain and the supply chains. And when I say made in India. I would say even 10% or even 15% value addition should make it Made in India and we should be importing the intermediate goods from other countries. I would rather say that why not developed some African countries? India should develop its own global value chain and help some African countries to supply intermediate goods to India. And India can add value. India should focus on the value addition rather than making the complete product. So that is very, very important. And increasing the export basket, as I have just mentioned to you, that the 70% of the current export basket account for only 30% of the world demand. The items which are required in the world. We are only focusing on 30% of that.

What about the other 70% of the world demand? Why we are not even making it. Leave alone on being competitive. We are not even making those products for the world market. So this is not done this has to be this situation has to change and also to increase the destination basket. So again, we are dependent on may be 15 - 20 countries for the bulk of our exports, which again is a matter of concern. Why we are depending on a very small set of countries for our exports. So these are the some of the areas. So Which means that the key focus area has to be on the growth of the Indian export products. And export products means the current as well as the new ones which has to be included now the need is there to be able to fulfill the major demand of the world market what they want and an enhancement of the country's value addition, which I just mentioned to you, along with the generation of the employment. So this would remain very, very important, political as well as economic, as well as social goal. And enhancing the services and manufacturing sector in a balanced way. So India cannot say that we are doing very well in IT area, so no need of focus on the manufacturing areas. So that is not going to solve the problems.

Otherwise India will not be in the global value chain. India, will be losing many opportunities and very importantly, India will not be able to generate the employment, especially for the semi skilled and unskilled people of the country. So manufacturing sector is very, very important from that, and the other focus areas of these policies will always remain, first on the primary aim, which I just mentioned to you. Durability and duration five year policies are there? Durability is there. Has to be there. Continuity has to be there. So the 2015-20 FT policy was not a very good continuation of the old policies, probably this is the reason it failed miserably. So aiming towards the ease of doing business, that is a trade facilitation, we are already signatory to trade facilitation agreement of WTO and taking major initiatives like the Niryat Bandhu scheme or electronic importer exporter code or electronics bank certificates like eBRC and the exporter importer profile which is available. This database. Online filing of applications, different types of applications. For Import License for example, online inter-ministerial consultations which up till now has been happening because of the COVID and likely to be continued. This these facilities are still available.

Facilities of the CA/CS which are you know the in this facility government provide the panel of CAs and CSs, at the government approved CA charges, consultation charges. So this facility is available. Electronic data interface or interchange, which is serving the local regulatory authorities like Customs and the RBI, Reserve Bank of India and the incentives providing authorities which are part of the EDI database, EDI linkage and the export consignment scheme which is under the the MDA scheme wherein the. Associations and the EPCs for exporters. They provide the customs bonded warehouse in major markets for facilitating the export consignments. there to enable the members sell their goods on stock and sell mode. So these kind of schemes. Withdrawal of seizure of the export related stocks and round the clock clearance of the customs. single window interface. Authorized Economic Operator Program. Facility of filing shipping bills online. Which is already there in EDI. Facilitating the exports of perishable export products and reefers in refrigerated containers. So providing these containers at the reasonable prices. Time release study, very importantly the Towns of Export Excellence Scheme.

Many towns, smaller towns have been identified as the biggest exporter. So these schemes were never questioned by WTO and the National Committee on Trade Facilitation, which has now become very, very important after India has become the signatory of TFA at WTO that email notification services and facilities available to the exporters of deferred payment, including that for the import inputs for the exports. So these Schemes which have been tried in India, which are major initiatives by government of India and which were part of the earlier and the current policies FT policies. So. The tweaking is required, intervention is required for these focus areas in these policies.

So talking about the, uh, the highs of the foreign policy 2015-20, MEIS was a good idea, but it was not feasible. We were not definitely not eligible because we knew that we are , we are moving towards, we knew we already signed subsidy agreement. So it was not a scheme to be introduced and as expected it was red flagged by WTO and the complainant was U.S.. In this case, if it would not have been USA, it would have been some other country. But it had to happen. SEIS also had some positive impact. But again, same problem, it is a controversial, although government has not yet scrapped it.

Yes, it is still there. But MEIS has already been replaced by RoDTEP scheme, which I'll just talk about after the break. I'll talk about the new scheme, which is there, which replaces MEIS and enabled the manufacturers in this policy to self-certify their manufactured products for example Indian manufactured goods that they are made in India. So these kind of. relaxations were there and The facilitation was there, which is very much WTO complaint and the reduced EPCG obligations to 75% from 90%. So these are some of the good ideas. Great ideas. But many were not feasible ideas.

Many were not to be included actually, like MEIS or SEIS. They were better to be The old Wine in new bottle kind of thing should have been there instead of having the the old bottle with new wine. That wasn't a good idea. So this is what actually was the highs in the sense that the ideas were good, but those were the lows also. And the other thing, very important thing, the focus of the MSMEs and the recognition of the definition of micro enterprises, small and medium enterprises. So 108 different sectors were included in MSMEs. So that was a high part of the policy. Promoting the filing of the various different papers, the licenses and applications in the paper less form. So these were some of the good things of the policies, or if not good things, the good ideas.

Lows of the policy were that it failed to address the multi-dimensional issues in terms of insecurity among the exporters, what kind of insecurity among the exporters, that insecurity of the investment they make investment in certain products, whether they will be able to export in the given scenario, whether what they manufacture will they be competitive internationally because of the high cost of logistics, high cost of the infrastructure and many constraints which I have already discussed. So those multi-dimensional issues were not really addressed in the policy. So very myopic view was there. Certain few focus areas were there and many of the other things were overlooked conveniently. So that was the low. So dropping of the, for example, global demand, which was not the result of any government policy. The global demand dropped because of the unprecedented world situation like COVID or recently the war, which is going on. Very unexpected war, which is going on and lot of uncertainty was there many commodities have been affected.

Prices are going up, of different items in the world. So dropping of the global demand was another area of the lows of different policy and many protectionist measures by countries because of COVID, because of many reasons, which again was not the result of any foreign trade policy initiatives of GOI, but it is just the external factors like protectionist measures announced by many countries and the removal of the old schemes of the earlier policies, which the exporters were very comfortable with. They knew how to deal with the government, how to get those incentives or the being be part of those schemes. So the years of learning of the exporters was becoming irrelevant, immediately became irrelevant in the policy because the removal of many of the export schemes which are there and for which there was no WTO Red flag. So what are these schemes that got removed. I will show you in later slides and show you the evolution of different schemes in India in the next session. So I will tell you from the very, you know, like the decade old schemes, what schemes were there, export schemes were there. I will tell you graphically, I will show.

But in the present foreign trade policy, which is the new one, I think this is only the MEIS - Merchandise export from India scheme has been discontinued. Right? Like EPZ or the duty drawback or the duty free import authorization, advance authorization. They have they have remained right? But I will show you that I'll show you graphically the latest schemes, what they are. They were removed. And in fact. When the MEIS and SEIS schemes were announced, many of these schemes got merged. Like focus schemes, you know, market focus or product focus schemes. Many schemes were there. Many schemes were there for gems and jewelry sector, many schemes were there for textile sector. I somehow I somehow feel that these schemes, which were there about ten years back and if they are even if they are not here, we can just skip those because quite frankly, that would not be of much use to us. And this is what I feel. No, you know, you may be right. Look at the ground level, the people who are actually, you know, for example, just one example I'm giving you somebody is exporting small diamonds from Surat cutting and polishing. So he is working.

He's investing based on certain schemes. Right? You know that these schemes are very robust schemes. Government will not do away with these schemes, but government also, you know, did not do it in any bad-intention basically what they did. They were trying to simplify it. So what they did many of these product specific and the area specific schemes, They merged into MEIS thinking that in any case people are getting MEIS and SEIS it will take care of their requirement. But suddenly these MEIS and SEIS schemes is so visible to the world, it is so subsidy looking kind of thing, you know. So suddenly there is a backlash world over. Otherwise backlash would not have been there, let me tell you if these schemes would have been kept in the earlier names, at least this policy 2015-20 policy, no question would have been asked. Only now when the new policy is coming. The world would have said that now India is as per subsidy agreement India has to re look into those policies. This question would have come. That's So what has happened now?

All these schemes were merged into single scheme, simplified scheme. And those schemes were red flagged. So everything gone. So this is not good. You know, like this is this is not good for the country and especially the grass root people. Including even handicraft exporters, including the hand loom exporters or even the jewellery manufacturers. The studded jewellery, for example, so there were special schemes which are suited to certain sectors which are doing good job. And it became redundant that there were no such schemes now. And what schemes were introduced? It became, you know, the talk of the world. So personally, I feel it is very unprofessional. Probably the people who are at the helm, they do not understand the world. You know, the World Trade Organization or the world scenario. So this is my feeling, what I've read from many articles which I read. Those people just try to look different. You know.

That we are now different. We have different policies. But they did not realize that you are showing to the Indian people that you are different, but you're showing to the world also that you're doing things differently, which is not liked by the other countries, your competitors. So it is playing the game In a wrong way, you know, with bad strategy. So that is what happened. And the result is. Result had been bad also. By the way, if you don't talk about the COVID only, even before COVID, Our exports were going down and many problems were being faced, even before. So this these are some lows of the foreign trade policy and the other crucial internal concerns like the pending payments to the exporters or even GST like new. Again see exporters are affected by new schemes. So you have GST, you have pending ITC. So how do you like if you don't get it on time? So you can't you can't do that. Suppose you have a GST, GST regime. You have to have the priorities. You cannot you cannot keep the exporters guessing when the payment would be made. You can't have pending duty drawback or pending duty scrips, for example, even in MEIS schemes.

If we talk about the there are a lot of pending payments. So these are some internal concerns which were new actually. I won't say that they were not there, in the earlier policies. They were there. But those were streamlined already. But they reemerged. Those problems reemerged because of the changes which would have been done for the benefit with the good intention. But it came out with the wrong strategy. And strategy is very important because ultimately the DOC, MOC role is to strategize properly. And, you know, plan of action plan of action has to be strategic in nature. So plan of action is right. But if the strategy is not right, then what do you say. This is what has happened. So failed to address the issues and I already mentioned about it. USA filed the complaint at WTO. Immediately after the policy. So it is not that later on they filed, but they immediately filed. India was not ready. Also, when I say India, India means the people, the exporters were not ready for a rather more complex system as introduced by the FTP. New system, new look but more complex. Difficult to understand. So this complex system, again, is a failure of the plan of action of the Ministery of Commerce, Department of Commerce. When they formulate policies. So complex system. Adverse impact of the free trade areas.

They were done. Whether when they were agreed upon, whatever the FTAs were there, it makes the goods, you know, importable free of cost or free of duties. So. What the results were expected. result were not in line with that exporters did not benefit from such FTAs and even the small small things like certificates of origins for those countries with whom country has FTA. There were issues. Internal concerns were there and the rise of imports made sure, that the exporters were not able to sell their goods in the domestic market also. So the economies of scale which are required, so when importation is very heavy for the goods. So there was an adverse impact. So I won't say the import should not be promoted. Import has to be promoted, but it has to be well managed. So what about that management and trade deficit which resulted into inflation. We have seen this inflation continuously increasing inflation which have made our products uncompetitive in the international market. So these are some of the things which are the lows of this policy.

And finally, the refusal of India to join RCEP. So RCEP is world's biggest free trade agreement, which comprise of all ASEAN countries, China, South Korea, Japan and Australia. Almost half the population of the world. Is included in RCEP. And India has been consistently working with the RCEP. Just at the end November If I remember correctly, it was November 2021 Or maybe 2020. India refused to sign the RCEP. And to the surprise of the world. Now The reason of refusal of RCEP being not part of RCEP by India was that India was not happy with the earlier FTAs for whatever reasons. Nobody even thought that what what went wrong with those FTAs But they were not good. So India very conveniently refused to join RCEP. But so it appears to me the main reason for Indian government not accepting RCEP in its present form was the adverse impact it would have had on Indian farmers, Indian agriculture and especially the dairy. We probably might have, you know, come from Australia and New Zealand and also the concerns that we you had devolved upon in today's today's session in the sense that Indian MSMEs I mean, there are cost factors. As you said, the logistics is a major cost factor for Indian MSMEs. Roughly, if I'm right along, 80% of India's exports still comes from MSMEs.

And so the fact that in the absence of good infrastructure, in absence of better supply chain and value chain networks, the MSMEs is MSME is fighting. And also the fact that if the MSMEs are subsidized or given monetary incentives, I mean, subsidized loans are okay. But then again, you talk about other subsidies which may motivated MSMEs to remain small and not grow beyond their size. And it's not that they don't want to do it. And MSMEs have all the intentions of becoming big and getting big orders from abroad, is just that in absence of sufficient infrastructure, which is external to their businesses, and in absence of or with these incentives or monetary subsidies given by the government to them, they find it very challenging to compete. And also the fact that the government should focus on giving the tax holidays to businesses who become suppliers, to the manufacturers, and rather than depending on imports, if they could manufacture it in India and become suppliers to bigger manufacturers, it would be good for the trade or the trade balance of the nation. So these are various factors which probably the government and their policymakers might have thought of, of not joining RCEP. But yes, you are right, as I mean, the more we delay in joining RCEP in future, more we are at loss because we don't have access to those market markets and we get alienated from the very big, you know, grouping of the world which are very, very happy.

The people who are there, they're happily doing business with each other. But then you are not part of it. In spite of the fact that geographically you are located in that area. Geographically you are closer. So you can make shipments, you can supply goods in spite of all the problems. So question is that you have to work on your internal problems. Right? But it does not mean that you don't get into the market. So, for example, I'll give you one example. If somebody investing in automotive company. And for example, I would say, you know, TATAs or any big shots, when they invest in countries. Because there are problems, they will not say that they will not be in the market. For example, when Tata introduced this Tata NANO, Tatas knew that there are problems and even when Nano was in the market, it was not doing well. But that did not stop TATAs to stop the manufacturing of NANO, because otherwise what would have happened?

Today. Tata motor is in the market. Today. If TATAs had stopped the passenger car division because of the failure of the Nano, TATA would not have been the major player. If India says that we would not joins RCEP. In other words, you are getting out of the market. You are out of the business. Right? It is just like saying that. Since we can't we can't sort out our problems, so we will not do the business. Something like that. Just imagine. And also that what you're seeing is one part of it. The other part is also like I read a news article a few months back, I think about four or five months back when in China, after joining RCEP, Australia also joined. It was trying to use its muscle power and political might to get inroads into the Australian market and trying to kind of exploit great natural resources that Australia has to offer. And which is why there was, it was a matter of contention between the two governments. So again, joining RCEP would definitely give a lot of short term advantage to the countries who are more efficient. And probably that's the reason and majorly is is it the farmers, the dairy farmers I mean, millions of people are dependent on dairy business in India. So you need to learn to swim if you are afraid of, you know, swimming because you can't say that you will not get into water. So you have to jump in, in spite of all the difficulties. Unless you jump, how will you learn? Unless you are not in market, how will you make your industry efficient? So these are not the solutions, by closing the eyes that there are difficulties, so we will close the eyes this is not how the business works.

Politics may work that way, like We can have the political stand. But business does not work like this. You have to be in the market. If it is there, it has to be there. So why you say that Because China is there we will not be there that but it is not just China. There many other countries. you can say because China is there. So we will have difficulties in business one has to eventually get into it. No, I mean more. We delay, more we are at loss by not having access to those markets If you become part of RCEP, eventually, acceptability of the country will be low. You know, it takes time. So because when a new market is opened How do you get the first mover advantage? By being there first and seeing the growth how the market is growing? So this new RCEP regime, eventually when India goes, India will be a totally novice and it will not know the history or the experience. So the issues are there. So this is this is one of the lows of the foreign trade policy. Largely driven by subsidies MSMEs which we were talking about because MSME was one of the major player but not available. Those subsidies were not available to many of the other crucial sectors. So when you focus on some sectors, you cannot put a blind eye to the many other sectors which you are already getting some kind of subsidy in some of the names. So whatever the name was there, but many crucial sectors were getting the support of the government right? earlier. So all those have been now mobilized to make one pillar strong because of the limited resources.

So what do you do that even that does not work? Because as I said to you that they do not have the credit to benefit from that. It just comes to my mind sir that maybe you just it's a random thought that comes to my mind that, you know, there can be some kind of a scheme which the government might, you know, come out with promoting the mergers of various MSMEs. I mean, like those who are in the business of corrugated boxes, there are 5 - 6 MSMEs in different cities. The government can propose them some kind of a model, and some incentives are going to give this to marketing agency, some marketing agency whereby there can be a merger of these businesses and they would not remaining MSMEs, but they would have economies of scale. They would be able to reduce their costs significantly, and they would also be able to not only export but cater to different markets within India. So, it is a random thought that comes to my mind because. Actually, you know, what is happening is that let me tell you. That India need some very passionate people.

Who know. Who Who are result oriented. like. Like the company CEOs. The company CEOs are there, you know, like they are hired because of the passion, because they can deliver. You will need leadership skills to deliver. So for every policy matters, Every business matters, And especially for foreign trade, you need meritocrats, the people who has the proven track record, people who can deliver like what happened in IT sector. In IT sector, it was driven by meritocrats and the policies were framed for them. So that's why India became so good in IT sector. So the same approach, which is well tried already, the government could have taken that approach to do that. So that is required now. No it is required. It is high time now. So It did not actually focus on, or it does not, the policy is still there, on very crucial sectors like skill development and up gradation of technology. Because without up gradation of technology, how will you increase your export basket? Without having the right technology, how will you make your products competitive, you are making syringes, you are making vaccines, you are making many things. Biotech products.

You are manufacturing automotive batteries and tyres. There have to be the latest technology to be used. So rather than giving incentives to import goods at zero duty, it should rather be focusing on making it in India itself. And which is why those schemes were envisaged like make in India, stand up India and all those things. Make in India is fine. But make in India, make in India is not just make in India make in India value added products, make in India high tech products. Make in India R&D. Where is R&D? Where is the provision for research and development? Without R&D, How will you upgrade your technology? You can not buy technology all the time. Countries are now a days not giving the technology. So you have to create your technology. So I mean, again, that again, one thought comes to my mind that rather than focusing on giving them this EPCG scheme- export promotion capital goods scheme, wherein they are allowed to import with six years and six times the value addition, I mean six times the value of the duty saved that much of export needs to be done. But then it actually promotes people to easily get the machinery from outside. As you rightly said, the focus should have should be in asking the businesses to manufacture those machines in India and maybe give five years or ten year of tax holidays wherein that.

And as you said, tax holidays at WTO do not come under the subsidies. Right? So this complete whole list is there in the WTO document. And you you need the skilled people who understand WTO. There is a paucity of the people who understand WTO in this country. They can't even fight their case. When USA filed the case, India had to find somebody with difficulty, who can reply to that. You know, the the communication with WTO. So there is a paucity of such people also. So skill development, skill development is very, very important. R&D is very important. The the new patents have to come, you know, among people and there should be incentives for that. So China did actually. China spent a lot of money on R&D. Tsinghua University is among the top universities in the world and they have some of the top research minds. The output of research is fantastic, of Tsinghua University in China.