Bagging export orders isn’t easy in the rough and tumble of international trade with undervaluation of currency as allegedly mastered by China and dumping distorting the picture.
Policymakers encouraged by the Rupee-Rouble trade with Russia for oil have made rupee trade the centrepiece of the Foreign Trade Policy 2023 (FTP). There is no reason why its success cannot be replicated across sectors and countries. This hawkishness would enable nations to break free of dollar hegemony on the trade front. Rupee trade with Iran when it was in the US doghouse served the two nations well.
Like necessity being the proverbial mother of invention, a crisis too can play a catalytic role in ending dithering and full-scale adoption of a system---Rupee-Rouble trade--- hitherto embraced half-heartedly and sporadically. FTP pulls no punches in announcing not only to Russia but to the entire world that it is open to the making rupee trade agreement with Russia the template for the entire world, especially with countries either finding it difficult to muster sufficient greenbacks to bankroll their exports or simply resenting the undeserved dollar hegemony.
Russia played ball with India readily when it was put into the doghouse by the US when hostilities broke out between and Ukraine. It was ousted from the SWIFT international payment settlement mechanism, and it happily accepted the Indian offer for rupee trade. Rupee-Rouble trade, as the name suggests, is a settlement arrangement where a Russian bank keeps enough INR deposits to pay off the Indian exporters to Russia in INR.
Correspondingly on the flip side, an Indian bank keeps enough Rouble deposits in Russia to pay for Indian imports. That makes dependence on the US dollar unnecessary. This template is worthy of Universalisation though it won’t be easy given the US dollar’s entrenched position in the world trade’s consciousness.
The Rupee-Rouble exchange is not new. In 1953 Indo-Soviet trade agreement contemplated all payments in settlement of imports and exports between the two nations being made in INR. But this arrangement was dropped in 2005 when it resulted in Russia being saddled with enormous quantity of INR what with India being the net importer. However, the two nations once again embraced rupee payment for Russian export of S-400 Triumf air defence system in 2019 with the deal being for US 5.2 to 5,6 billion to escape sanctions by the US under its Countering America’s Adversaries Through Sanctions Act (CAATSA). INR- Rial agreement with Iran similarly was to escape the American ire but had to be abandoned when the Trump administration extended the bar on its currency being used to a complete bar on import of oil itself from the Gulf nation.
FTP also makes another seminal and paradigm change. It foreswears incentives and instead plumps for remission of taxes and duties on exports on the rational ground that such taxes and duties should not be exported. Bagging export orders isn’t easy in the rough and tumble of international trade with undervaluation of currency as allegedly mastered by China and dumping distorting the picture. FTP has done well to make life easier for the Indian exporters by sparing them of tax burden on the goods exported so that their quotations are competitive. Post exports reimbursements and incentives obviously did not serve to make Indian exports competitive.
For the first time, FTP would have no end date like FTP 2015-20 and its predecessors in keeping with the policymaker’s newfound fondness for clean-sheet approach so that policies are not cast in stone for a given length of time but attuned to the rapidly changing geo-political events impinging on international trade. In that respect the paradigm change may be likened to zero- based budgeting which takes a fresh relook into all the factors that go into budget making. Covid 2019 and Russia-Ukraine war made the Commerce Ministry continue with FTP 2015-20 for two more years and beyond.
Chastened, the Ministry doesn’t want FTP to be close-ended but open-ended so that the government can tweak the policy to meet new and sudden exigencies.
Unveiling the FTP, Commerce Minister Piyush Goyal while waxing eloquence over achieving the US$ 2 trillion export target by 2030 said goods exporters must work harder in a direct reference service-led export hitherto. iPhone exports from India have been on the increase thanks to production-linked incentive scheme but one is not sure if the same template would be followed by Harley Davidson, the motor cycle major. Tesla has showed disinclination to set shop in India. Most of the popular brands prefer to export to India and other nations rather than set shop in India and elsewhere. China has been fortunate to buck the trend. This of course could be the subject of another article as FDI is altogether a different ballgame.
— The author, S Murlidharan, is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
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