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FOREIGN TRADE POLICY OF INDIA

Foreign trade in India is promoted and facilitated by the Directorate General of Foreign Trade (DGFT), under
the Ministry of Commerce and Industry (MoCI). The DGFT issues the authorisation to exporters and monitors
their corresponding obligations through a network of 38 regional offices. The DGFT also implements the Foreign
Trade Policy of India.

WHAT IS INDIA'S FOREIGN TRADE POLICY?

• In line with the 'Make in India,' 'Digital India,' 'Skill India,' 'Startup India,' and 'Ease of Doing Business'
initiatives, the Foreign Trade Policy (2015-20) was launched on April 1, 2015.
• It provides a framework for increasing exports of goods and services, creating jobs, and increasing value
addition in the country.
• The foreign trade policy statement outlines the market and product strategy as well as the
steps needed to promote trade, expand infrastructure, and improve the entire trade ecosystem.
• It aims to help India respond to external problems while staying on top of fast-changing international
trading infrastructure and to make trade a major contributor to the country's economic growth and
development.

MAJOR OBJECTIVES OF INDIA’S FOREIGN TRADE POLICY

Trade enables economic growth and national development. The main aim is not the mere earning of foreign
exchange, but encouraging greater economic activity. The foreign trade policy of India is based on the following
major objectives as follows:

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1. To enable substantial growth in exports from India and import to India to boost the economy.
2. To at least double the percentage share of global merchandise trade conducted within the next five
years.
3. To improve the balance of payment and trade.
4. To act as an effective instrument of economic growth by creating employment opportunities for the
citizens; the larger the expansion of trade activities, the more the workforce required.
5. To provide for sustainable growth by giving access to essential raw materials for production and other
components, consumables, and capital goods required for increasing production and providing efficient
services.
6. To raise the technological capacity for production and cost-effectiveness of industry and services,
thereby improving their competitive strength in comparison to other countries, and to encourage the
accomplishment of internationally accepted standards of quality.
7. To provide buyers or clients with high-quality goods and services at globally competitive rates and
quality. ‘Canalization’- an important feature of Foreign Trade Policy under which specific class of goods
can be imported only by designated agencies.
8. Creation of opportunities by engaging in good and ethical practices.
9. Accelerating the economy from low-level economic activities to high-level economic activities by making
it a globally oriented and vibrant economy
10. To derive maximum benefits from expanding the global market and seizing the best opportunities
available.
11. Making policies that favour ease of doing business and e-governance.
12. To allow for hassle-free transactions for both import and export.
13. Reducing the interference between the exporters and Directorate General of Foreign Trade by reducing
the number of export documents.
14. To allow the import of technology and equipment’s which may help in achieving better international
standards of quality and reduce the cost of production.
15. Establishing the Advance Licensing System for imported goods needed for manufacturing various goods
for export. An Advance License is issued by the Directorate General of Foreign Trade to allow duty-free
import of inputs, which are physically integrated with the export product.
16. To allow the import of certain goods as listed in the Open General License; a kind of export license which
is issued by the Government to domestic suppliers.

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WHAT IS THE SIGNIFICANCE OF A FOREIGN TRADE POLICY?

The Foreign Trade Policy is a legal document, issued by the Government of India, enforceable under the Foreign
Trade Development and Regulation Act 1992. Revisited and notified quinquennially since the 1991 economic
reforms, the FTP has been the guiding beacon for all stakeholders.

The prime objective of a foreign trade policy is to facilitate trade by reducing transaction and transit costs and
time. A FTP sets out the regulations for cross-border trade and reveals the government's position on a host of
concomitant yet crucial policy variables such as technology flow, intangibles, and so on.

WHY IS A NEW FOREIGN TRADE POLICY IMPORTANT?

Clarifying India’s Stand at Global Level:

It is essential to clarify India’s position and alignment with flagship programmes like ‘Local for Global’ and PLI
(Production Linked Incentive) schemes, WTO’s ruling against India’s export incentive schemes, an overdue
review of the Special Economic Zone (SEZ) scheme, changing geographical profiles of India’s export basket, and
implications of the FTAs. In 2019, a dispute resolution panel of WTO had held that the export incentives under
the FTP are violative of India’s WTO Commitment.

Impact on Export-Oriented Businesses:

Another reason for overhauling the FTP is some export-oriented businesses have been adversely impacted by
certain ad hoc, mistimed, and contradictory changes to the 2015 FTP. The 2015 FTP incentivised exports by
issuing duty-credit scrips directly in proportion to exports. However, in 2020 the government limited the
maximum export incentives for goods to Rs. 20 million, and in 2021, limited them to Rs. 20 million for services.
Moreover, the changes for service incentives were retrospectively notified in September 2021 to be applied
from April 2019.

Reduction in Outlays and Incentives:

The annual export incentives — the Merchandise Exports from India Scheme (MEIS) and Services Exports from
India Scheme (SEIS) of Rs. 51,012 crore were replaced with the RoDTEP scheme incentive of Rs.12,454 crore.
The remaining Rs. 38,558 crore has been diverted into PLI to give benefit to a few sectors. Also, earlier there
was a 3% export incentive on agriculture implements like tractors, which has been reduced to 0.7%.

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Infrastructural setbacks:

Due to inadequate upgraded export infrastructure such as ports, warehouses and supply chains, the average
turnaround time for ships in India is about three days while the world average is 24 hours.

Crisis of MSMEs:

With a contribution of about 29% to the GDP and 40% to international trade, MSMEs are the key players in
achieving the ambitious export targets. However, the surge in input and fuel costs are hitting the bottom lines
of MSMEs. The rise in prices of raw materials such as steel, and plastics along with a shortage of shipping
containers and labour are making it difficult for the MSMEs to take full advantage of the global increase in
demand.

NEW FOREIGN TRADE POLICY TO BE IMPLEMENTED

Foreign Trade Policy provides a framework for increasing exports of goods and services as well as generation of
employment and increasing value addition in the country. It focuses to support both the manufacturing and
services sectors, with a special emphasis on improving the ease of doing business.

The Commerce and Industry Ministry is working on implementing the new Foreign Trade Policy (FTP) on April 1,
2023, with officials giving the draft a final go-through, but a decision on its duration is yet to be taken. The new
FTP, which was initially scheduled to be announced in 2020, has been postponed several times for various time
durations, mainly to tide over the uncertainties created by the Covid-19 pandemic. The government had been
extending the previous FTP (2015–20) on a piecemeal basis. The last extension was on October 1, 2022, until
March 31, 2023.

While FTPs are usually for a five-year period, it is not yet certain whether the new policy will be for a full five-
year period or of a different duration given the fact that it could not be executed on schedule in April 2020. The
general elections scheduled in 2024 may also have some bearing on the duration of the new FTP.

India’s goods exports, at the moment, are going through a difficult period due to a slowdown in global demand.
High global inflation, rising interest rates, and key economies moving towards recession have all contributed in
making the future uncertain.

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