Model Answer
0 min readIntroduction
India’s Foreign Trade Policy (FTP) serves as a roadmap for boosting the country’s exports and trade. The FTP 2015-20, announced by the Ministry of Commerce and Industry, aimed to enhance India’s competitiveness in the global market and promote export-led growth. It built upon the previous FTPs, incorporating new schemes and initiatives to address emerging challenges and opportunities. The policy was particularly focused on promoting value addition, diversifying export markets, and facilitating trade. Understanding its features and assessing its effectiveness in improving the current account balance is vital for evaluating India’s economic performance.
Salient Features of New Foreign Trade Policy (2015-20)
The FTP 2015-20 introduced several key features designed to stimulate India’s international trade. These can be broadly categorized as follows:
1. Two-Line Formula & Export Incentives
The policy continued with the two-line export promotion formula, providing incentives to exporting communities. Key schemes included:
- Merchandise Exports from India Scheme (MEIS): Replaced the earlier incentive schemes, providing duty credit scrips based on export performance. These scrips could be used to pay duties on imports.
- Service Exports from India Scheme (SEIS): Similar to MEIS, but for service exports.
- Export Infrastructure Incentive Scheme (EIIS): Provided incentives for creating export infrastructure.
2. Focus on Ease of Doing Business
The FTP emphasized simplifying procedures and reducing transaction costs for exporters and importers. This included:
- Online Procedures: Increased digitization of trade processes through platforms like ICEGATE.
- Validity of Licenses: Extended the validity of export licenses.
- Self-Declaration Scheme: Allowed exporters to self-declare compliance with certain regulations.
3. Promoting Special Focus Areas
The policy identified specific sectors for focused promotion, including:
- Agriculture & Allied Sectors: Incentives for export of processed agricultural products.
- Engineering Goods: Support for enhancing the competitiveness of engineering exports.
- Pharmaceuticals: Promotion of pharmaceutical exports, particularly to regulated markets.
- Textiles: Initiatives to boost textile exports, including duty-free access to certain markets.
4. Trade Facilitation Measures
The FTP included measures to facilitate trade, such as:
- Simplification of Documentation: Reducing the number of documents required for export and import.
- Fast-Track Clearance: Expedited clearance of goods at ports and airports.
- Negotiation of Free Trade Agreements (FTAs): Actively pursuing FTAs with key trading partners.
Role in Improving the Current Account Balance
The FTP 2015-20 aimed to improve India’s current account balance through several channels:
1. Export Promotion & Increased Export Earnings
By providing incentives like MEIS and SEIS, the FTP encouraged exporters to increase their shipments. Increased export earnings directly contribute to a positive current account balance. According to data from the Department of Commerce, exports grew by approximately 15% in FY16 following the implementation of the FTP.
2. Import Substitution & Reduced Import Dependence
The policy promoted domestic manufacturing and value addition, aiming to reduce reliance on imports. Schemes like EIIS supported the development of export infrastructure, which indirectly contributed to import substitution. The ‘Make in India’ initiative, launched alongside the FTP, further reinforced this objective.
3. Diversification of Export Markets
The FTP encouraged exporters to explore new markets beyond traditional destinations. This diversification reduced India’s vulnerability to economic slowdowns in specific regions and broadened the base for export earnings. Focus was given to markets in Africa, Latin America, and Southeast Asia.
4. Impact on Trade Deficit
While the FTP did contribute to export growth, the impact on the current account balance was limited by several factors. India’s oil import bill remained a significant drag on the current account. Furthermore, global economic conditions and fluctuations in commodity prices also played a crucial role. The trade deficit remained substantial throughout the FTP period, although the rate of increase was moderated.
| Year | Exports (USD Billion) | Imports (USD Billion) | Trade Deficit (USD Billion) |
|---|---|---|---|
| 2014-15 | 313.2 | 447.5 | 134.3 |
| 2015-16 | 326.4 | 446.1 | 119.7 |
| 2016-17 | 303.4 | 462.3 | 158.9 |
Conclusion
The New Foreign Trade Policy (2015-20) represented a significant effort to boost India’s international trade and improve its current account balance. While the policy successfully promoted export growth and facilitated trade, its impact was constrained by external factors like global economic conditions and the country’s dependence on oil imports. The focus on ease of doing business and incentivizing specific sectors proved beneficial, but a more comprehensive approach addressing structural issues and diversifying the export basket is needed for sustained improvement in the current account. The subsequent FTPs have built upon these foundations, aiming for greater integration with global value chains and promoting export competitiveness.
Answer Length
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