India’s economic progress has been heavily reliant on the strength of its manufacturing and export-driven industries. However, certain sectors that have immense potential—such as footwear, leather, toys, and food processing—have historically faced challenges that limited their global competitiveness. Recognizing this, the Government of India introduced the Focus Product Scheme (FPS) under the Foreign Trade Policy (FTP) 2006-07, with an aim to boost the export of products that were deemed to have a higher employment generation potential.
This article delves into the problem that led to the creation of the Focus Product Scheme, explains how it works for key industries, and highlights the states that benefit the most from it while analyzing its impact on job creation and export growth.
The Problem That Led to the Creation of the Focus Product Scheme
Before the introduction of the Focus Product Scheme , several labor-intensive industries struggled due to:
- High Cost of Production: Many Indian industries faced higher production costs compared to global competitors due to outdated technology, lack of economies of scale, and inefficient supply chains.
- Inadequate Incentives: Despite their employment potential, many sectors did not receive adequate government support in terms of financial incentives, infrastructure development, and market access.
- Global Competition: Countries like China, Vietnam, and Bangladesh gained a competitive edge due to their aggressive export promotion policies and subsidies.
- Underdeveloped Infrastructure: Poor logistics, lack of cold storage facilities (for food processing), and supply chain inefficiencies made it difficult for Indian products to reach international markets on time and in good condition.
- Limited Access to Credit: Small and medium enterprises (SMEs), which form a significant portion of these industries, often struggled with access to affordable credit to modernize their production processes.
Understanding the Focus Product Scheme
The Focus Product Scheme (FPS) was designed to promote the export of select products by offering financial incentives. Under this scheme:
- Exporters of notified products were granted a duty credit of 2-5% on the Free On Board (FOB) value of their exports.
- This duty credit could be used for paying import duties on raw materials and capital goods, making production more cost-effective.
- The scheme aimed to reduce the cost disadvantage faced by Indian exporters and enhance their competitiveness in the global market.
Industries Benefiting from the Focus Product Scheme
1. Footwear Industry
The Indian footwear industry is one of the largest employment-generating sectors, especially for semi-skilled and unskilled workers. However, challenges like high input costs and competition from China had limited its growth. With FPS incentives, Indian footwear exporters could reduce costs and expand their global footprint.
Example:
- Bata India and Relaxo benefited from improved cost structures, leading to increased exports to Europe and the Middle East.
- The scheme encouraged investment in footwear clusters in Agra, Kanpur, and Chennai.
2. Leather Industry
India is a major exporter of leather and leather products, yet it faced competition from Vietnam and China. The FPS helped boost the industry by lowering manufacturing costs and enhancing global competitiveness.
Example:
- Tamil Nadu, West Bengal, and Uttar Pradesh, known for their leather clusters, saw a surge in exports.
- Companies like Mirza International and Farida Group expanded their export markets.
3. Toys Industry
The Indian toy industry has historically been dominated by cheap imports from China and Taiwan. The FPS provided a much-needed boost by encouraging domestic toy manufacturers to improve quality and expand exports.
Example:
- Delhi, Maharashtra, and Karnataka saw the growth of toy manufacturing clusters.
- Brands like Funskool and PlayGro leveraged FPS benefits to enter new international markets.
4. Food Processing Industry
India’s agriculture and food processing sector holds immense export potential but was hindered by supply chain bottlenecks and lack of infrastructure. The FPS encouraged investment in cold storage, packaging, and processing units.
Example:
- Punjab, Maharashtra, and Andhra Pradesh, known for their agro-processing industries, saw increased exports of processed food products.
- Companies like Amul and ITC benefited from incentives to export dairy and packaged food items.
States That Benefited the Most from FPS
1. Uttar Pradesh
- Why? Strong presence in footwear, leather, and handicrafts.
- Impact: Increased exports and employment in Kanpur and Agra’s leather industry.
2. Tamil Nadu
- Why? Hub for footwear, leather, and textile exports.
- Impact: Growth in Chennai and Ambur’s leather clusters, enhancing India’s presence in global markets.
3. Punjab
- Why? Strong base for food processing and agricultural exports.
- Impact: Boosted international sales of processed dairy products and ready-to-eat meals.
4. Maharashtra
- Why? A leader in processed food, toys, and footwear.
- Impact: Helped local manufacturers compete globally by improving production efficiency.
5. West Bengal
- Why? Key exporter of leather and processed food products.
- Impact: Strengthened Kolkata’s leather industry and improved access to international markets.
How the Focus Product Scheme Boosts Job Creation and Exports
- Employment Generation: The scheme directly contributed to millions of jobs in labor-intensive industries, especially for rural and semi-urban workers.
- Export Growth: By lowering production costs and making Indian products globally competitive, the FPS played a critical role in increasing exports from targeted sectors.
- Regional Economic Development: States with traditional manufacturing hubs saw higher investment and industrial growth.
- Encouraging MSMEs: The scheme helped small and medium enterprises (SMEs) access global markets with better cost advantages.
The Focus Product Scheme played a vital role in enhancing the global competitiveness of India’s labor-intensive industries. By providing financial incentives and lowering trade barriers, it helped increase exports, generate employment, and support regional economic growth. While the scheme has been replaced by newer export promotion initiatives like the Remission of Duties and Taxes on Export Products (RoDTEP), its impact continues to be felt in industries like footwear, leather, toys, and food processing.
Moving forward, sustained government support, infrastructure investment, and policy improvements will be crucial in maintaining India’s export momentum and ensuring long-term benefits for these critical industries.
As labor-intensive industries benefit from the Focus Product Scheme, financial technology platforms like BharatNXT play a crucial role in empowering SMEs. BharatNXT provides seamless digital payment solutions, enabling small exporters and manufacturers to access working capital, streamline B2B transactions, and enhance operational efficiency. This financial support helps businesses scale faster, invest in modern equipment, and compete effectively in global markets. By bridging the financial gap, BharatNXT contributes to the growth of India’s key export-driven industries.