Adding to the confusion are changes in the new foreign trade policy

- Foreign trade policy should be such that it not only takes into account the realities but also provides stability and continuity

That the Union Ministry of Industry and Commerce has released a new foreign trade policy. The previous foreign trade policy was released in 2015 and was supposed to be useful till 2020. After that, no policy was issued citing the fact that global trade was severely affected due to the pandemic and this delayed the formulation and release of the policy for the next five years. Now recently a new foreign trade policy was announced.

This policy shows no understanding of the changes that the pandemic and various other factors have wrought in the global trading system. These include trade tensions between the US and China, the rebalancing of many supply chains outside of China, the use of economic sanctions, the use of industrial policy and non-tariff barriers in developed countries, increased subsidies and many other changes.

No final date has been announced for the new foreign trade policy but it has been announced that changes will be made when the time comes. This seems sensible as the global situation was making it difficult to react in time. However, there are some aspects of the new foreign trade policy that can help Indian exporters deal better with the upcoming situation.

Digitization and normalization of processes figure prominently in this policy and this is obviously good news. Micro, small and medium enterprises and enterprises located far from the major export centers of the global economy should be prioritized in all foreign trade policies. The same has been done in this policy.

It is more encouraging to note that the government will now remove subsidies to exporters. This is likely being done in part because measures taken in some sectors in the recent past have violated WTO rules and should not be repeated. Some norms have been relaxed. For example, the amount given to the exporter through the courier system has been increased from Rs.5 lakh to Rs.10 lakh. As such, it is still unnecessary to set limits for high fashion or premium jewelry manufacturers. It will be necessary for the government to take necessary steps to make India a member of the global value chain. India has not fared very well in this regard and its performance has been under pressure in recent years. This is partly because tariffs and other types of restrictions have increased.

The basic idea that India should completely stop imports and promote exports is wrong. The current supply chain structure is spread across multiple countries and each country adds value to it. Foreign trade policy should be such that it not only takes into account these realities but also provides a kind of stability and continuity that can accommodate procedural changes in the future. Judging by these parameters, the new foreign trade policy has a long way to go. The good thing is that this policy has managed to present itself as the work of making this policy is still going on.