Page 375 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Unit 31 : India’s Trade Policy : Recent Developments

Since the FTP intends to treble service exports, a number of welcome initiatives have been proposed. Notes
To build a brand equity “Served from India” is a unique step to push forward India’s image in
foreign markets. Secondly, the setting up of Services Export Promotion Council to deal with the
problems of services in developing market access as also brand building can go a long way, if pushed
forward with zeal and vigour.
The ‘Target Plus Scheme’ provides incentives on the basis of the performance of the exporter. The
simple principle followed is : Higher the performance, higher is the duty-free credit entitlement.
Such incentivization does bring about a competitive spirit to improve performance in the export
sector by Indian players.
Another vital initiative was to exempt all goods and services exported from service tax. This is in line
with the fundamental principle that duties and levies should not be exported. In other words, it
improves the competitive strength of the Indian exporter in the international market.
Another initiative taken was to establish Free Trade and Warehousing Zone (FTWZ) to improve
infrastructure in the foreign trade sector. The policy permited 100% FDI (Foreign Direct Investment)
in the development and establishment of zones and their infrastructural facilities. Some critics have
argued that in China, FDI accounts for nearly 50 per cent of China’s manufacturing export, whereas
in India, it is only 8 per cent. It may be pointed out that FDI can help us to develop world class
infrastructure, but if adequate FDI flows are not forthcoming, India should undertake investment in
infrastructure on its own strength. Once India is able to prove its credentials in foreign trade, more
FDI inflows will start.
Another issue which needed to be paid attention was to reduce the transaction cost, more so when
the aim is to enthuse SMEs whose margins are not very high. The exemption from furnishing bank
guarantee by exporters with minimum turnover of ` 5 crores, raising the validity of all licences and
entitlements to a uniform 24 months and removal of service tax on all goods and services exports are
all intended to reduce transaction cost.
Last, but not the least, it may be said that while the policy initiatives are designed with good intentions
and are steps in the right direction, the pace of success of FTP will depend on the quality of
implementation. Bureaucracy is known for putting spokes in the wheel of implementation the major
task of the government is to facilitate the SMEs and other major exporters to achieve the challenging
goal set by the new FTP to achieve merchandise export target of $ 195 billion and together with
service sector, to earn $ 300 billion in terms of foreign exchange by 2009. It really very courageous of
the Commerce and Industry Minister to fix such a high target which requires more than 25 per cent
annual average growth rate in exports. Since export growth is also conditioned by exogenous factors
operating in the world trade, the achievement of the target may be made more difficult despite our
best intentions. But all honour to those who try.
During 2007-08, out exports reached a level of US $ 155 billion which is a creditable achievement.
However, correspondingly our imports reached a level of $ 236 billion, widening the trade deficit to
an improcedented high level of $ 81 billion which cannot be wiped out by surplus on the invisibles.
Consequently, current account balance will become negative with a larger magnitude. Obviously,
our foreign trade policy is one-legged since it emphasizes expansion of exports only, but remains
oblivious of the tend of imports. Ultimately, India must, reach the stage of positive trade balance,
rather than develop an economy with burgeoning trade deficit.
Self-Assessment:
1. Choose the correct options:
(i) The Indian Government has set up a committee to recommend the framule for cloud
computing services. Who will chair the committee?
(a) Azim Premji (b) Kris Gopalakrishnan
(c) Vineet Nayar (d) NR Naryaytana Murthy

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