Foreign Trade Policy – What

Foreign Trade Policy in India is formulated by the Government of India, Minister of Commerce and Industry, Department of Commerce. Foreign Trade Policy or the FTP is the set of guidelines or the policies which is proposed by the government to be incorporated in the economy and to be followed so as to attain maximum amount of Foreign Trade. The main objective of the policy is to underline the principles which need to be implemented while engaging into foreign trade.

Foreign Trade Policy – Why

Foreign Trade Policy helps in increasing the revenue of a nation by improving on the exports, which in turn help in improving the Balance of Payment. The policy lays the guidelines to help the trader’s trade efficiently and make the maximum. The policy laid down by the government is in the interest of the stakeholders with the sole motive to provide them with an ideal platform for trade.

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Foreign Trade Policy 2009-14

Before looking into the foreign trade policy for the year 2009-2014, let us first look at the working of the foreign policy for the year 2004-2009. The foreign trade policy announced by the UPA Government in 2004 had set two objectives:

1. To double the percentage share of global merchandize trade within 5 years and
2. Use trade expansion as an effective instrument of economic growth and employment generation.

The Year 2009

Looking back, we can say with satisfaction that the UPA Government has delivered on its promise. Following are the major happening and growth seen in the period ending 2009.

1. Agriculture and industry has shown remarkable resilience and dynamism in contributing to a healthy growth in exports.  In the last five years our exports witnessed robust growth to reach a level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04.
2. Our share of global merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates.
3. Our share of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008.
4. India’s total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008.
5. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.

The year 2009 needs no introduction of its own as we know that the world was going through the period of global recession due to the sub-prime crisis and the back to back downgrading of the US credit rating by the largest credit rating firm S&P. In such a challenging situation the UPA Government, in its second innings assumed office. Countries across the world had been affected in varying degrees and all major economic indicators of industrial production – trade, capital flows, unemployment, per capita investment and consumption have taken a hit.

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The WTO estimated the global trade to decline by 9% in volume terms and the IMF estimated a decline of over 11%. It was also estimated by world bank that 53 million more people would fall into the poverty net that year and over a billion people would go chronically hungry. India  was not affected to the same extent as compared to the other economies of the world, yet the exports suffered a decline, due to a contraction in demand in the traditional markets of India’s exports. In the grim economic climate it was indeed a daunting task to formulate the foreign trade policy due to declining demand in the developed world.

In order to maintain fruitful trade practices in the coming five years it is needed that motion strategies and policy measures are set in such a manner that it will catalyze the growth of exports.

Objectives of Foreign Trade Policy 2009-14

• Achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011.
• The country should be able to come back on the high export growth path of around 25% per annum by 2014.
• Double India’s exports of goods and services by 2014

In order to meet these objectives, the Government would follow a mix of policy measures including:

• Fiscal incentives
• Institutional changes
• Procedural rationalization
• Enhanced market access across the world
• Diversification of export markets.

Following are the three pillars which will support in achieving this target

• Improvement in infrastructure related to exports
• bringing down transaction costs
• providing full refund of all indirect taxes and levies.