Sep 4, 2014

The quixotic quinquennial Foreign Trade Policy making

The new Foreign Trade Policy (FTP) of India will be released anytime soon. India's FTP is quinquennial in nature. It undergoes major revision every fifth year. The last one was the FTP 2009-14. The new one will be for the period 2014-19. Every year, a small supplement to the FTP is released after the union budget, by the commerce ministry, in order to accommodate incremental need for adjustments. 

I hear that this time the FTP will contain two parts. The first part will contain more of a policy intent and direction and would detail India's approach towards various international trade related issues including FTAs, SEZs, service sector, branding and so on. The second part would contain the policy instruments, such as incentive schemes. All these years, the second part alone was called foreign trade policy. There was no first part detailing the direction and approach. That's what I hear. And if so, it's welcome news. 

However, what's also interesting is that there is hardly any news in the mainstream about what's the current status on FTP release. One has been hearing for the last three months that the FTP is in the making and will be released soon. This kind of closed door approach, I thought, belonged to the last century. Especially after the father of five year plans, the planning commission got an unceremonious burial recently. I was wrong. The FTP makers at commerce ministry still vouch for this style. So be it. 

Ideally, the instruments of export promotion and the FTP should be two different entities. FTP need not articulate in detail about what instruments to use for trade/export promotion. The FTP document should be broad based, giving general directions and should be perpetual in nature. Any revision should be based on major directional change in the way the government thinks about international trade. 

Instruments for export promotion are a function of budgetary allocations and taxation structure. Budgetary allocations determine as to how much can be spent on various export promotion schemes and on assistance to states and councils towards increasing export potential. The taxation structure determines the refund and exemption schemes to nullify export of taxes and to ensure level playing field for domestic manufacturers. Such instruments of export promotion can be revised year on year and need not be constant. All these years, we called these instruments as the foreign trade policy, which actually is misleading. I hope this time it is corrected.

There are two more things I hope the FTP finally takes care of. First is 'not' to keep a target of 'x' billion dollars of exports in 'n'th year. Like the last FTP in 2009 had set a target of 500 Billion USD of exports by 2014. This is ludicrous as we finally saw that we reached around 300 Billion USD due to global slowdown. You can have a system of improving export performance, but the actual figure that finally gets exported, is a function of global demand conditions and various other factors. As long as the system is working fine, and helps improve exporting environment, there is no need to worry about the numbers.

Second, there is an urgent need to setup some kind of evaluation mechanism for the instruments we use for export promotion. I hope the FTP creates such evaluation mechanisms which can then be fed back into the policy making. Currently it's an open loop policy making for promotion instruments, with some occasional feedback coming from the so called experience that relies on word of mouth and grey hair. The export promotion councils (around three dozen of them) who should ideally do the feedback and evaluation work, have turned into poor jokes and waste of money. The agency that majorly implements the instruments (DGFT) is understaffed and demotivated to see beyond the files and paperwork. There is no number crunching on the effectiveness of the schemes. It's a challenging task to set up such evaluation systems, but we need to develop in this area if the instruments are to indeed becomes vehicles for export promotion. It's not a matter of choice if we are serious.

Finally, I hear that someone in commerce ministry has come up with a bright idea of launching an 'export import app' for FTP which will help navigate the policy book and also to file applications. Unfortunately, the current system developed by NIC that interfaces the DGFT with the exporting community is found wanting on many counts. The emphasis should be to get the basics right before getting into smartphone apps and such. However, an app makes for a nice PR exercise when the policy is launched. It sounds modern. I hope the noise is accompanied with substance in the new policy. I am positive. Fingers crossed.