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How good is India's new Foreign Trade Policy for exports?

The turmoil in Middle East is going to impact Indian exports as European Union, Japan, Russia and Middle East combined account for 20% of Indian exports.

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Minister of State for Commerce & Industry (Independent Charge), releasing the “Foreign Trade Policy 2015-2020” in New Delhi on Wednesday.
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India, on Wednesday, unveiled its much delayed Foreign Trade Policy that aims to nearly double exports by 2020 to $900 billion. 

The country exported goods worth $312 billion in 2013-14 and exports for the year ended March 31, 2015 are expected to be in the same range. 

This is basically due to the global economic conditions especially India's largest trade partners, the US and Europe. While US is in a better position, economic recovery in Europe is still lagging. The two markets make up 30% of India's exports. 

The turmoil in Middle East is going to impact Indian exports as European Union, Japan, Russia and Middle East combined account for 20% of Indian exports. 

The economic news from China, with its growth slowing down to a 25-year low, doesn't  bode well for India's over 4% exports that reach Chinese shores. 

The impact is clearly visible from the fact that since 2011, India's exports have hovered between $300 billion to $312 billion in 2013-14 as against a target of $325 billion. 

Export body Federation of Indian Exports Organisations (FIEO) in December 2014 said that the body doesn't expect any 'drastic' increase in exports next year (2015-16) as the situation is getting worse in Europe, Japan and Russia. 

$900 billion by 2019-20 is an ambitious over 23% compounded annual growth rate (CAGR) but the geopolitical turmoil needs a realistic assessment. 

Just to put this in perspective, India's exports grew by a CAGR of 21.6% from 2001 to 2010. 

Although inclusion of services exports prop up the number to $466 billion of exports and CAGR dramatically falls to 11.5%. 

Surely, 11.5% of CAGR growth in exports looks like a realistic target that understand the global realities? 

HSBC, in a report published in September last year said that it expects India to be world's 5th largest exporter by 2030 as against its 14th rank in 2014. 

It pegged India's export growth at 15% a year till 2030.

The Foreign Trade Policy (2015-20) is supposed to focus on tasks that will make it easier to do business in India and reduce bottlenecks. Has it delivered on these expectations? 

The new policy does talk about focusing on sectors like defence, pharmaceuticals, hi-tech products, green goods, e-commerce and project exports. 

But the turmoil in the Indian pharma sector is well known and a complete overhaul is needed. 

For manufacturers, a couple of initiatives which revolve around simplification of existing business processes. FIEO said, "Extending the export benefits to units in SEZ/EOUs would boost manufacturing too." 

The Policy encourages procurement of capital goods under EPCG scheme and export obligation has been reduced to 75% as against 90% earlier. 

Although SEZs haven't worked in India for the purposes they were intended for. Mostly, the IT sector is seen using tax-breaks of SEZs and setting up their offices to cater to foreign markets. 

It is clear that SEZs in India haven't been able to become what they were intended for and needs a rethink. Simply trying to boost exports from SEZs by extending benefits under Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) isn't going to work wonders. 

FIEO is hopeful and said, "The new Foreign Trade Policy has paid special emphasis on the export of quality products which will further enhance the credibility of India in the global market and help the country to integrate into Global Value Chain." 

Although, the organisation was quick to point out that the Interest Subvention Scheme for the export sector should be announced immediately so that a stable framework both of the Foreign Trade Policy and credit support is available to the exporters to do their costing for fetching new orders.

The Policy, though, seems to focus a lot on easing the processses but still exerts its clout on manufacturing in India. The MEIS, for example, is a new scheme that is aimed and boosting exports but of specified goods to specified markets and SEIS is for increasing services exports of notified services. 

The markets are yet not free and the government's new Policy is still trying to keep itself entrentched as a conduit between Indian exporters and their markets. 

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