As part of the “Make in India” initiative launched in 2014, India has set an ambitious export target of USD 2 trillion by FY 2030. India seeks to garner a larger share of the export market by capitalizing on potential opportunities consequent to the global pandemic and the urgent need for alternative supply chains arising from the global disruption during the pandemic. In addition to achieving the goals in the Make in India initiative, the government is proactively moving forward with other objectives, such as concluding Free Trade Agreements (FTAs), revamping the Special Economic Zone (SEZ) structure to achieve export growth and revamping the general foreign trade policy. All of these activities should help India achieve its target of becoming a USD 5 trillion economy based on its four-pillar “EDGE” strategy (economies of scale, demographic dividends (i.e., growth resulting from the age profile of the population), good governance and encouraging innovation in industry) (see the article in the October 2022 issue of Indirect Tax News).
The government has reset its approach to bilateral and multilateral trade agreements, as is evidenced by its efforts to cement trade relations with various blocs/countries. Over the past two years, progress has been made on discussions for potential FTAs with several countries, which is expected to boost domestic and export-oriented manufacturing. The Minister of Commerce and Industry has asserted that India fully supports free trade within a rule-based multilateral trading environment.
Recent developments in the FTA area include the following:
Until recently, SEZs have been instrumental in helping to increase Indian exports by creating large export-focused zones. SEZs are areas in India that promote and aid both foreign investment and exports, and companies operating in the zones are granted preferential treatment, including exemptions from taxes and tariffs.
In the budget speech for FY 2022-23, the Union Finance Minister announced that the SEZ legislation (which dates from 2005) would be overhauled and replaced by a new law. The government has begun drafting new legislation, the “Development of Enterprise and Service Hubs (DESH) Act,” which would allow:
Imports and exports in India are, inter alia, regulated by the Foreign Trade (Development & Regulation) Act, 1992, in addition to the Union government’s foreign trade policy, which provides fiscal incentives to eligible exporters and is revised every five years. The current policy, which was due for renewal in April 2020, has been extended multiple times and will apply through 31 March 2023, at which time it is expected to be replaced with a new policy starting from 1 April.
The pandemic-stricken import and export industry expects significant benefits from the revised foreign trade policy, particularly since certain fiscal incentives have been suspended. Taking into account some adverse observations made by the Dispute Resolution Body of the WTO about export incentives, it seems likely that the revised foreign trade policy would be more inclined to adopt a trade facilitation approach rather than resorting to incentives.
The Finance Minister will present the Union Budget 2023-24 on 1 February 2023 and it is expected that government will offer a roadmap and direction on how it intends to recalibrate the above initiatives.
Dinesh Kumar
dinesh.kumar@bdo.in
Kartik Solanki
kartiksolanki@bdo.in