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FTP may boost trade, manufacturing if consumer is protected

By Shivaji Sarkar

It is not mere coincidence. Two major events happened together. India’s shining landmark Rourkela steel plant’s capacity doubling inauguration by prime minister Narendra Modi and unveiling of the new foreign trade policy (FTP) 2015-20 by minister of state for commerce Nirmala Sitharaman. They are separate events but look for the same goal – taking the country to new heights, ushering in better economic health and well-being of the citizens.

Indeed the two major events are supplementary to each other. The steel plant signifies India’s resolve for being a global manufacturing leader and the foreign trade policy having a larger chunk of the global trade. Steel was the foundation in 1950s and still remains that.

The FTP creates the facilitation process for the ease of business. It provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition. The focus is to support both the manufacturing and services.

The crucial high is commoditization of yoga as a service export to fulfil the dream of Modi. Yes, now yoga that has earning the country fame would also be a part of a trade policy for earning dollars. It also makes it eligible for tax relief and liable for paying taxes.

The FTP aims at doubling exports to $ 900 billion from $ 466 billion in 2013-14. In the 2014-15, it moderated to $ 265 billion. The aim is for an annual 3.5 per cent of the global trade. At present it is around 2 per cent. Sitharaman says she would focus on addressing constraints within the country, including weak infrastructure and bureaucratic hurdles and turn India into a major player in the global trade sweepstakes.

The country hopes the next four years of Modi government would ensure removal of  the major hurdles like ambiguous tax and toll laws, complex rules, land problems, energy shortages, better dialogue between the states and the centre that have kept away large-scale private investments.

The FTP introduces two new schemes “Merchandise Exports from India Scheme (MEIS)” for export of specified goods to specified markets and “Services Exports from India Scheme (SEIS)” for increasing exports of notified services, in place of a plethora of schemes earlier, with different conditions for eligibility and usage.  There would be no conditionality attached to any scrip issued under these schemes.  Duty credit scrip issued under MEIS and SEIS and the goods imported against these fully transferable scrip.

It is good that the policy now instead of being reviewed annually would be reviewed every 30 months to provide continuity in rules and policy.

“While we earn through exports, we
can only feed some 5,000 people but that does not secure India’s future.
However, if we can process our mineral resources through value addition and sell
it abroad we can increase our financial resources. The country’s youth should
get an opportunity to work in manufacturing and banks should facilitate funding”, Modi said at Rourkela steel plant.

That is the crux. Now international agencies like the UN and ESCAP say export-dependent economies have limitation in growth. So while exports should be allowed to grow, it may not be prudent to orient the entire development and growth to be hinged to exports. Exports as in the past could not be part of a larger strategy particularly as the western markets are crumbling and other markets have stiff competition. If exports can be actually doubled in five years it should be considered a gain.

Exports cannot form a very large part of the economy unless India manufactures hi-tech exotic quality goods. The “make in India” with large defence and similar other manufacturing aims for it. It is not likely to happen in the next five years. At best there could be a small beginning.

Over two decades of policy vacuum, lack of vision and import centric growth has caused many problems. The market itself has convoluted. The country’s international image has taken a hit. It is neither a manufacturer’s nor an investor’s dream destination. Changing the perception is the greatest problem of the Modi government. The 2014-15 Economic Survey is eloquent about it. It notes that the external sector has turned moderate, imports fell and domestic activity remained weak.

The new FTP has announced measures to nudge procurement of capital goods from indigenous manufacturers under the EPCG scheme by reducing specific export obligation to 75 per cent of the normal export obligation. This will promote the domestic capital goods manufacturing industry.  Such flexibilities will help exporters to develop their productive capacities for both local and global consumption.

At the same time e-commerce exports of handloom products, books/periodicals, leather footwear, toys and customized fashion garments through courier or foreign post office would also be able to get benefit of MEIS (for values upto Rs 25,000).  These measures would not only capitalize on India’s strength in these areas and increase exports but also provide employment. It is a step towards tailoring exports to indigenous manufacturing efforts.

In a way this takes care of prime minister’s Rourkela mission that increases steel production capacity – an essential for the proposed “make in India”.

The government has to be careful. It is not a bed or roses for it. Its officials and unethical business are the biggest problems. Gradually it has to change the policy from export-orientation to a domestically consumption-oriented industry. It requires many innovations.

As a first inviting foreign manufacturers to set up their shops may be fine. In the long run that is not the solution. Many of the production houses like Samsung, LG, IFB and even Videocon have anti-consumer policies. This is turning a large chunk of Indian consumers against these immoral companies. For a small spare part worth Rs 50, they charge beyond Rs 1000, because they force the consumers to get it fixed by their own men – a forced service. For each such extortion moving to consumer court is an uphill task.

The manufacturing can grow but there has to be standardization and easy availability of spares to the poor Indian consumers. That has to be part of the manufacturing policy.

It is now 11 months of this government. It has to come out of quandary. The manufacturing would grow on two counts. The people have to have employment and purchasing power. They also need a business that would not fleece them.

If the government can ensure the twin objectives, the country can take a leap forward. Allowing manufacturing ignoring the needs of the consumers is not a solution be it domestic or foreign.

 

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