India puts off new foreign trade policy by 6 months due to global upheaval

NEW DELHI: The government on Monday deferred the launch the new Foreign Trade Policy (FTP) due to current global economic upheavals and decided to extend the existing FTP 2015-20 for another six months after receiving feedback against unveiling any long-term strategy amid volatile geopolitical situation, supply chain disruptions, currency depreciation and dwindling export orders, people aware of the development said.

“In recent days, exporters and industry bodies have strongly urged the government that in view of the prevailing, volatile global economic and geo-political situation, it would be advisable to extend the current policy for some time, and undertake more consultations before coming out with the new policy,” the ministry of commerce and industry said in a statement.

A new foreign trade policy was scheduled to come into effect from April 1, 2020 but its launch was put off due to the global situation. The existing FTP was initially extended for one year because of the “unprecedented” situation due to Covid-19 pandemic; it was subsequently extended every six months. FTP lays policy, objective and strategies to enhance India’s exports, reduce dependence on imports , and to create jobs.

At a press conference on September 3, the department of commerce said the new trade policy was ready to be unveiled by the end of this month. At least three people — a government official and two experts, who requested anonymity — said the growth in Indian exports declined significantly in two months because of global upheavals and economic uncertainties, which would require the government to revisit the draft of the new FTP.

“Many countries have restricted imports of luxury goods and non-essential items, many of them are insisting on paying in local currency, which is risky because depreciation of these currencies against the US dollar. Hence, the trade strategy needed to be reworked to reflect the current global reality,” one of them working in an apex trade body said.

The commerce ministry statement said the decision to continue with the current Foreign Trade Policy (2015-20) was taken following requests from export promotion councils and leading exporters.

The government has always involved all stakeholders in formulating policy, it said. “In view of this, it has been decided to extend the Foreign Trade Policy 2015-20, valid till Sept 30, 2022 for a further period of six months, w.e.f. October 1st, 2022,” it added.

According to the latest provisional data released by the commerce ministry on September 14, India’s merchandise exports in August saw less than 2% year-on-year growth at $33.92 billion while imports surged 37.28%. During this period, India’s exports to China fell by over 35% to $6.8 billion in April-August 2022 compared to $10.5 billion in the same period previous year.

“Although crude oil prices have eased to a great extent, the depreciation of rupee against dollar is one of the reasons for surging imports,” a second person, a trader, mentioned above, said. India is the third largest consumer of the fossil fuel in the world after the US and China. It imports 85% crude it processes and pays in dollars.

Benchmark Brent crude that fell nine-month low to $84.51 a barrel on the Monday session over strong dollar and recessionary concerns, later recovered to $87.65 a barrel, and was trading at $86.85 with 0.81% gain. The rupee, however, plunged an all-time low at 81.67 against the US dollar on Monday.

Ajay Sahai, director general and chief executive of the Federation of Indian Export Organisations (FIEO) called it an “extremely prudent” decision. “The global situation is very-very fluid with countries facing rising inflation and uncertainty due to geo political development. Recession is settling in many economies and currency war is going on. This is not a good time for announcing a long-term Foreign Trade policy.”

“It is better to bring the policy when situation stabilises in six months so that we assess it and accordingly draw our strategy to face the new dynamics of global trade,” he said. Some experts, however, said the deferment would adversely impact many upcoming sectors.

Abhishek Jain, partner-indirect tax at KPMG in India said the new FTP, which was expected to be announced on September 29, has been deferred as the validity of the current FTP stands extended to March 31, 2023. “For the service industry which was anticipating some benefits in lieu of the SEIS [Service Exports from India Scheme] in the new FTP, the wait seems to continue,” he said.