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SME Worldwide

Foreign Trade Policy 2009-14 and Impact on SME's

Bhavesh Kothari
Sep 2009

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On account of global economic slow down, the Commerce Ministry has given a new direction to the Foreign Trade Policy 2009-14 to sustain our global trade and development. SMEs need to understand the features of the Foreign Trade Policy to take advantages of new export related benefits under the current Foreign Trade Policy. Two facts in the blueprint of the 2009-14 Foreign Trade Policy that came as good news was the realistic target of $ 200 billion in the next two years and a sharper focus on development of exports to 26 new markets. The short term objective of the policy is to avoid the declining trend of exports and to provide additional support to sectors which are hit badly by global recession. The long term objective of the policy is to double India's share in global trade by 2010.

The new trade policy has aimed at continuity and stability, technology upgradation, reduction in transaction costs, diversification and market expansion. It also focuses on giving a boost to the labour-intensive export-oriented sectors. The slew of measures and incentives announced in the FTP are expected to benefit exporters who have been hit due to the slowdown in the country's traditional export markets. The FTP provides an extended tax holiday, duty refund for exporters and allows duty free import of capital goods.

Increased Incentives

Employment-oriented sectors, especially textiles, leather and handicrafts will get a major thrust from the increased incentives available under the Focus Markets Scheme to promote exports in new markets in the Latin American and Asia-Oceaniaic region. The scheme as of now covers 83 countries in Africa, Central America, CIS and Eastern Europe. The hike in allocation for existing schemes under the Markets Development Assistance and Market Access Initiative will also benefit exporters who can now seek financial assistance under these schemes to hold trade fairs, buyer-seller meets and brand promotion to develop new markets.

The FTP seeks to rationalize and simplify procedures and duties across the board by implementing e-governance in trade for the benefit of exporters. The Minister however has indicated that the process will currently start with nine products and services with five states and by 2015 all states will be covered by this initiative. What would be interesting to see is how the states ruled political parties other than those in the United Progressive Alliance react and act to these initiatives.

The increase in the Duty credit entitlement rate from 2.5% to 3% under the Focus Market Scheme will certainly encourage the exporters to venture into the Latin American, CIS and the African markets especially taking into account the depressed market condition in the US and the European markets. The extension of the DEPB scheme up to 31.12.2010 will provide the necessary stability for the exporters enabling them to take a long term perspective while negotiating export business. Introduction of the zero duty EPCG schemes, duty credit scrips for the status holders, increased funds allocation under the MDA and the MAI Schemes are also encouraging measures.

The Foreign Trade Policy encourages exports of Synthetic textiles fabrics to certain specified countries, such as Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand. Technical textiles have also been included under the market-linked Focus Product Scheme (MLFPS). Both these measures will provide the necessary encouragement to the exporters of synthetic & technical textiles.

Key Policy Amendments Highlights:

Focus Market Scheme / Product Scheme

• Increase in the incentive provided under Focus Product Scheme from 1.25% to 2%.

• Product diversification by adding 26 new markets under the Focus Market Scheme (FMS) which includes 16 new markets in Latin America and 10 in Asia-Oceania enabling higher support for market.

• Increase in the number of products from various sectors are included for benefits under Focus Product Scheme (FPS) and also benefits under Market Linked Focus Product Scheme (MLFPS) extended to additional new markets.

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