Introduction
Cross Border Trade has played a pivotal role in making various countries part of the global village. International trade emerged from the concept of theory of comparative advantage. Theory of comparative advantage essentially means the ability of a country to produce certain goods or services at a lower opportunity cost in comparison to any other economy/country. Therefore, the idea of export and import can be attributed to theory of comparative advantage. While countries look for a positive Balance of payments, there are countries that look to kill the competition by dumping inferior goods or goods at a abysmally low price on other market. While World Trade Organization acts as a watch dog to ensure that cross border international trade happens to nobody disadvantage, India has over a period of time evolved with its own policy prescription by way of the Foreign Trade Policy that gets unveiled once every Five years with an annual supplement to the same to cater to the ever-evolving requirements of the same.
What is Foreign Trade Policy?
A foreign trade policy refers to a plan/program that is introduced by the government to grow the country’s exports thereby increasing the foreign remittance inflow of the country. It encourages exports without inhibiting imports and to ensure that the Balance of payment is healthy with a focus on investment, trade and employment booster.
The objective of the government is trade facilitation by cutting down transaction costs and time, thereby making Indian exports competitive. The government seeks to boost the country’s export by implementing policies that will benefit and motivate the country’s exporters of both goods as well as services. The foreign trade policy in India is introduced for a period of five years. The current foreign trade policy was introduced and implemented from April 1, 2015 and was to conclude by March 31, 2020. However, the same has been extended by a year and is looking at a closure as on March 31, 2021.
During the said term of five years (or otherwise), the country’s exports shall be governed by these policies. The policy aims to enable India to respond to any challenges that is faced by the exporters in international trade. With a view to address the same, the annual supplement to the FTP is also set out.
The Substantive nature of FTP.
As the very name goes, the FTP for the block period of five years is in the nature of a policy or a prescription or a guideline. From an Indirect tax perspective, as regards the benefits are concerned, the same are to be given a substantive nature of the intended benefit under the respective legislative provisions be it the Customs laws or the GST laws. It is only when the legislative provisions under the respective Indirect tax laws are put in place, will the benefit of the FTP prescription trickle down from that perspective.
The critical importance of the 21-26 FTP.
There are a host of reasons as to why especially the 21-26 to be introduced FTP is expected to play a vital role.
The first and the foremost reason is the impact the Covid Pandemic has had on the global economy. It hit India hard too with the economic conditions coming to a practical non-essential activity stand still for more than a quarter. To recover, India has to look beyond its borders to boost the supply of goods and services as part of the measures.
The “Atmanirbhar” and the “make in India” programmes has taken resonance and strong roots. One of the yardsticks of the success of such programmes can only be when there is a strong sense of exports out of India of the same.
During the initial Covid Times, it was also noticed that there was a conscious decoupling of the economies by certain countries like that of Japan and South Korea with that of China. This essentially will have to be made use of by India for the purpose of not only attracting investment per se but also to give a strong sentiment in being a reliable export and import partner.
Yet another important reason for the upcoming FTP policy to be very important is the fact that India has consciously chosen not to sign the Regional Comprehensive Economic Partnership which is likely to recontour the way cross border trade happens in Asia and South Asia in particular. With India not signing, India would be more sensitive about the areas from which it can tap on the increase in exports and imports.
Based on a complaint filed by the US, the World Trade Organization (WTO) panel report ruled that India’s export subsidy schemes flouted its guidelines as the country’s Gross National Income (GNI) had exceeded the per capita USD 1000 annual threshold above which members were banned from subsidizing its exports. The ruling held that India should do away with benefits granted under the contentious schemes such as Merchandise Export from India Scheme (MEIS), Services Exported from India Schemes (SEIS) and so on.
The MEIS and the SEIS scheme benefits as opposed to the other benefits referred supra needs to be seen in the context that the two benefits are offered as an incentive over and above or in fact leveraging the competitiveness of the exporters, be it goods or services. It is also pertinent to note here that the MEIS Scheme is practically obsolete at this point of time. While a narrative on RoDTEP has been introduced and expected to make it formal debut as part of the FTP, it is also hope that adequate benefits would be given to offset the huge loss of MEIS scrip benefits to the exporter of Products and goods.
Again, on the basis of urging from the World Trade organization, a very beneficial scheme such as Special Economic Zone is facing the sunset clause for the corporate tax under Section 10AA of the Income Tax Act, the SEZ Units as well (the Zone’s benefit has already been rescinded from a corporate tax benefits). This proposed Foreign Trade Policy from this perspective becomes very critical in its set of pronouncements to be made.