In India’s foreign trade circles, a big news that has been doing the rounds in recent weeks is that the Ministry of Commerce is planning to restructure the Directorate General of Foreign Trade (DGFT) to make the body more relevant to the new world order in foreign trade. The Dollar Business analyses the backdrop and the possible ramifications of this exercise.

By TDB Intelligence Unit | April Issue 2017 | The Dollar Business

The Directorate General of Foreign Trade (DGFT) replaced the erstwhile Chief Controller of Imports & Exports (CCI&E) some 25 years ago when P. V. Narasimha Rao government liberalised India’s economy in 1991. The objective was to administer laws regarding foreign trade and foreign investment in India apart from promoting India's exports.

A lot of water has flown under the bridge since then. India’s exports have grown from an average of about $1.5 billion per month in 1991 to $22 billion per month in 2016, having touched a high of $30.54 billion in the month of March 2013. A rather splendid performance. To further fuel export growth, on April 1, 2015, the new BJP-led government unveiled the Foreign Trade Policy 2015-2020, setting an ambitious overall export target of $900 billion by FY2020. So far so good. What though has been a cause for concern is that over the last two years India’s exports performance has been rather lackluster. And the unfortunate truth is that the goal of $900 billion already seems far too ambitious.

In FY2016, India’s total export value was $262.92 billion (as per MoC data), which is 15.27% lower than the previous year's number.

The Backdrop

The reasons are many. Global economy has been dull, commodity crisis has played havoc in emerging economies, and protectionism has been on the rise in developed economies. And it is not that the government is unaware of these issues. It has offered special packages to promote exports from traditional sectors like textiles and leather. It is also undertaking a mid-term review of the FTP. More importantly, in March 2016, the government had invited bids from global consulting firms for a white paper – to study the best practices in foreign trade promotion and review & recommend changes to the functioning of the DGFT and make it more relevant to the realities of the global economy.

“One of the ways of looking and facilitating trade is to have a look at the role of DGFT in the new globalised world. It is therefore proposed that Ministry of Commerce undertake a review of the functioning of DGFT, for which a study is proposed to be conducted through one of the reputed consultants who have global presence to give us a deeper insight into how the other major trading countries conduct their foreign trade, and draw suitable lessons for the way forward in India,” a request for proposals document posted on Commerce Ministry website said. That reputed consultant - as we came to know - is Frost & Sullivan, US-based global consulting firm.

Frost & Sullivan won the bid to frame the white paper for the restructuring exercise. A Commerce Ministry official, speaking on condition of anonymity, says the idea is to review the performance of the DGFT at a time when the government is moving towards electronic enablement and ease of doing business. “Reorganising the human resources of the Commerce Ministry is also part of the review. We are also reviewing the role of our plantation and procurement wings,” the official adds.

The study by Frost & Sullivan also looked into the adequacy of FTP 2015-2020, shepherded by DGFT, in its current form in meeting the policy and regulatory objectives of increasing exports of goods and services from India and explore alternative mechanisms of transferring incentives directly through a Direct Transfer Scheme. “We have conducted an in-depth analysis of the scope and nature of the functions and operational tasks undertaken by DGFT,” explains Mani James Nayagam, Vice President – Public Sector & Government Practice, Frost & Sullivan while adding that “in light of the key underlying policy objectives and regulatory concerns, we also had to ascertain the relevance of these activities in terms of their content and execution modalities.”

According to Frost & Sullivan, India certainly needs a vibrant organisation to promote the country's trade interests and the way forward is a mix of restructuring and reform guided by taking cues from the best global practices.

Existential Crisis?

The Commerce Ministry also wanted the consultant to study whether an organisation like DGFT, which facilitates formulation of FTP, is also the right authority to implement the export promotion schemes of FTP. The study (as yet not published) is expected to suggest ways to reform these arrangements and prepare a road map for transition. The terms of reference for the consultant includes “the issue of whether an organisation like DGFT is required by India in view of the above analysis to fulfil the optimal prudent policy and regulatory goals and objectives related to trade facilitation.”

Dr. Biswajit Dhar, Faculty at School of Social Sciences, Jawaharlal Nehru University and Non-official Member of Board of Trade (BoT), Ministry of Commerce, GoI, says that such reviews should be done on a regular basis, while insisting that it should have been conducted through inter-ministerial consultation rather than hiring an external agency. “DGFT still does substantial work on trade policy front. I hope that they do not throw out the baby with the bath water,” Dhar adds.

Prof. Dhar says a model that the Commerce Ministry could look at is the one followed by the US government, where the US Trade Representative negotiates bilateral and multilateral trade deals while the US International Trade Commission examines the impact of imports on US industries and directs actions against unfair trade practices.

Ujwal R. Lahoti, Chairman, The Cotton Textiles Export Promotion Council of India (TEXPROCIL), holds a similar view. "The DGFT is quite helpful and we work closely with each other. But on a second thought, DGFT can have two different wings – one concerning exports and the other taking care of imports. This way, the department can focus more on both. As far as we are concerned, cotton textile exports won't see a noticeable growth in FY2017, but it will not be negative. We have already submitted our suggestions to DGFT. But I must tell you that our suggestions are concerning infrastructure and some areas which are not looked after, such as interest equalisation scheme for yarns for merchant exporters (earlier called Interest Subvention Scheme), and not for restructuring."

Satish W. Wagh, Chairman of Basic Chemicals, Cosmetics & Dyes Export Promotion Council popularly known as CHEMEXCIL, though is not entirely enamoured with the performance of the foreign trade regulator. “DGFT has been quiet for the last few months and I think I know the reason. There are lots of products for which Standard Input Output Norms (SION) fixation is yet to be done to our satisfaction. Unfortunately, despite the guideline given in the manual, this is taking a lot of time because the office does not have the manpower. This is frustrating the exporters,” says Wagh. He even goes on to mention that, “Today we are in e-business, which means everything has to be done on priority without any restrictions. But there is no sense of e-governance in any of these offices. DGFT has been paralysed for the last one year. Perhaps the senior management is prompt, but the concerned officers have to act too.”

Best of Breed

So, what are these best practices that can change the way the DGFT functions, and where do we find them? The countries that come to mind for their exemplary trade promotion are as varied as Japan, Chile, China and Brazil.

Japan External Trade Organisation or JETRO, as it is better known, has been a trailblazer when it comes to promoting trade and investments. JETRO is an independent body organised and managed by the Ministry of Economy, Trade and Industry (METI), a wing of the Japanese Government that focuses on economic and industrial development through innovation, technology and foreign investments. While JETRO’s initial focus was to promote exports from Japan (as Japanese companies built global brands and created a niche for themselves in international marketplace), its focus shifted towards drawing investments into Japan in the 21st century. As of April 2016, JETRO had 74 offices in 55 countries to promote foreign trade. And since imports and investments are equally important to Japan as is exports (besides promoting 'Brand Japan' through exhibitions and networking events abroad), JETRO offers foreign companies services like business partner matching and rent-free work spaces to start their businesses in Japan.
The case is similar with China, the other great foreign trade success story from Asia. Since its inception, China Council for Promotion of International Trade (CCPIT) has established business relations with chambers of commerce and industry, trade promotion organisations, foreign trade associations and companies in more than 180 countries. Today, it has more than a dozen industrial sub-councils, several hundred branches throughout the country, and overseas representative offices all over the world. Through this nationwide and worldwide network, and with the help of technology, communication, exhibitions, publicity, consulting and legal services, CCPIT promotes trade from and to China. Well, the difference between India and China is that our Chinese counterparts do not just frame policies to incentivise foreign trade, they also help, rather handhold companies, regardless of their sizes to get a foothold across foreign markets.

On the other side of the world, ProChile, the foreign trade promotion arm of the Chile’s Ministry of Foreign Affairs, has also shown some wonderful results. In addition to a website targeting international audience, ProChile has an internal website for homegrown exporters. This site provides an integrated interface for services to exporters, along with a calendar of events, news, and a variety of studies and reports that help exporters market their products better. ProChile also operates a service that provides information on exported products and services and their destinations over the phone. Successful trade promotion efforts are recognised by posting success stories on the internal website, and by placing stories in magazines published by industry associations to inspire fledgling exporters. ProChile even helps exporters with skills development, a programme that goes far beyond the Niryat Bandhu scheme run by the DGFT. The programme has two components – Interpac and Interpyme.

While Interpac is designed for SMEs in agricultural sector, Interpyme caters to SMEs in industrial sectors. Both programmes include training modules on production capabilities, market research, logistics, marketing plans, banking, international law, searching for partners, and the entire export process. Participants complete one module at a time, and when they have completed the full programme they become eligible for ProChile co-financing programmes. What's more? ProChile also covers up to 90% of the cost of training, provided that participants have an exportable product for which there is international demand.

These are just a few examples. In fact, many countries are currently re-thinking their trade promotion strategies, including Germany, Brazil and UK. And it is not to say that our DGFT has not been coming up with policies and processes to help our exporters. Latest data indicates that India’s exports is finally recovering. February 2017 was the sixth consecutive month when India's merchandise exports registered a positive growth. Despite weak global demand, India’s overall trade figures also look good. And these numbers are supported by strong net foreign exchange earnings by IT-led services export sector. During this period, the government kept a watch and intervened frequently to improve export performance through initiatives targeted at improving export competitiveness: both short and long term. However, evidently, all this is not enough to reach the ambitious target of $900 billion set by FTP 2015-2020, or even the revised target of $750 billion, by FY2020.

Focus on Growth

So, how can DGFT help our exporters more efficiently? Obviously there are many measures that can be taken, but we sure cannot expect the DGFT alone to boost exports and foreign trade. There is a need to take a broad contextual view of the situation. Many countries across the globe have recently turned protectionists, introducing measures to discourage imports from other countries. Since the economic crisis of 2008, G20 countries, the doyens of free markets, have imposed many tariff and non-tariff barriers to safeguard domestic producers. To safeguard India’s interests, the government has to actively engage, through its many arms, with many countries and institutions to ensure best possible market access for Indian products.

Indian Trade Missions abroad too need to engage more actively with Indian exporters, foreign buyers and investors in coordination with the DGFT. While there have been efforts to promote India as a brand, that effort has been more successful in promoting India’s culture rather than its business. And while the two are not entirely unrelated, it requires a greater and sustained effort to promote business. Though the Council for Trade Development and Promotion has been created for making states active partners in boosting India’s exports, there is still a lack of coherence and enthusiasm in terms of policies when it comes to states. The Regional Authorities of the DGFT we understand have been working with the states, but there remains much more to be done. While Board of Trade (BoT) is mandated to engage with leaders of industry on a regular basis to promote India’s trade interests, the fact of the matter is that BoT itself meets rarely.

And then there is the matter of a multitude of agencies involved in trade promotion. The various boards and export promotion councils (EPCs), which comes under the purview of DGFT, promote their sectoral products through exhibitions and trade fairs, and so do bodies like CII, FICCI and ASSOCHAM. This is all good, but what is lacking is coherence and size. And size does matter when it comes to promotions. When promoting business in a country, big bang events are as important as are smaller outreach programmes. And this is where trade promotion bodies like JETRO and CCPIT have had an edge over DGFT.

If a restructured DGFT concentrates more on promotion and lets automation and technology take care of most of the regulatory issues, the country will have an organisation that can match a JETRO or Department of International Trade of UK. And revamping a body like DGFT is not without precedent. UK has just restructured its trade body to align it with the realities of Brexit. JETRO's mandate and priorities have undergone multiple changes over the years as have CCPIT's. Fact is, that in a world that is changing fast, it is important for regulatory bodies to reinvent themselves. So, what should the restructured DGFT focus on? While policies and incentives are important for boosting exports, DGFT needs to transform itself from being a formulator and regulator of foreign trade policies to a mentor and facilitator for exporters. Indian exporters crave for warmth. Especially from within India's governmental walls. It needs to automate regulatory duties and make all processes transparent.

Once that is achieved the important tasks for DGFT would be to educate exporters, be a match-maker between buyers and sellers, and to promote not only 'Incredible India' and 'Make in India' but also products and services that the country has to offer.