Trade Trends and Policies of India

The Foreign Trade Policy (FTP) of India serves as a strategic roadmap, guiding the government's efforts to promote domestic production and boost exports to drive economic growth. Administered by the Directorate General of Foreign Trade (DGFT), under the Ministry of Commerce and Industry, the policy is periodically reviewed to align with the evolving domestic and international landscape.

Key Components and Objectives:

• Guidelines for Import and Export:
  • The FTP provides a comprehensive set of guidelines for the import and export of goods and services. The DGFT is responsible for its formulation and implementation.
• Responsibility of the Department of Commerce:
  • The Department of Commerce, entrusted with making India a major player in global trade, develops commodity and country-specific strategies. It aims to position India as a leader in international trade organizations.
• Twin Strategy for Export Promotion:
  • The government adopts a twin strategy, focusing on both traditional and sunrise sectors of exports, including services. This approach aims to diversify and strengthen the export base.
• Simplification of Business Processes:
  • A key focus is on simplifying business processes to reduce transaction costs and time, enhancing the global competitiveness of Indian exports.
• Primary Objectives:
  • The overarching goals include accelerating economic activity, accessing global market opportunities, promoting sustained economic growth, strengthening agriculture, industry, and services, generating employment, and encouraging adherence to international quality standards.
• Duration of the Policy:
  • The FTP is typically notified for a five-year duration. It undergoes annual updates on March 31, with changes taking effect from April 1.

Strategic Focus Areas:

• GST Integration:
  • The policy emphasises helping exporters leverage benefits of the Goods and Services Tax (GST) regime to streamline taxation processes.
• Export Performance Monitoring:
  • There is a focus on closely monitoring export performances, identifying areas for improvement, and addressing challenges hindering export growth.
• Ease of Trading Across Borders:
  • Efforts are made to improve ease of trading across borders, addressing logistical and regulatory challenges that hinder seamless export-import transactions.
• Promoting Exports from Specific Sectors:
  • Emphasis is laid on promoting exports from Micro, Small, and Medium Enterprises (MSMEs) and labor-intensive sectors, aligning with the government's inclusive growth agenda.
• State Partnership in Exports:
  • States are actively involved in export promotion, developing strategies based on their unique strengths to contribute to national export goals.
  • Challenges and Future Directions:
• Addressing Internal Constraints:
  • Despite external challenges, internal constraints such as infrastructure bottlenecks, high transaction costs, complex procedures, manufacturing limitations, and limited diversification in services exports are recognized and need attention.
• Trade Facilitation Agreement (TFA):
  • India's commitment to the Trade Facilitation Agreement at the World Trade Organization (WTO) is acknowledged, aiming to simplify and reduce transaction costs in international trade.
• Subsidy Phasing Out:
  • India recognizes the need to eventually phase out subsidies, aligning with WTO rules. It acknowledges the importance of moving towards fundamental systemic measures for sustained trade practices.
• Promising Product Groups:
  • The government is exploring promising product groups such as defense equipment, medical devices, agro-processing, technical textiles, and chemicals to diversify India's export portfolio.

In conclusion, India's Foreign Trade Policy serves as a dynamic framework, evolving to meet the challenges and opportunities of the global trade landscape. Its multifaceted approach aims to foster economic growth, enhance global competitiveness, and create a conducive environment for diverse sectors to thrive in the international market.

Major Initiatives Under the Foreign Trade Policy of India

• Niryat Bandhu Scheme:
  • Objective: Mentoring budding exporters through counseling, training, and outreach programs.
  • Implementation: DGFT organizes structured outreach activities with the assistance of Export Promotion Councils, knowledge partners, Customs, ECGC, Banks, and concerned Ministries.
• Duty-Free Import Authorisation (DFIA):
  • Purpose: Allows duty-free import of inputs required for the production of export goods.
  • Obligations: Importers must meet export obligations with a minimum value addition of 20%.
• Export Promotion Capital Goods (EPCG):
  • Objective: Facilitates the import of capital goods to enhance India's competitiveness.
  • Benefits: Allows duty-free import of capital goods for pre-production, production, and post-production.
• Electronic Import Exporter Code (IEC):
  • Requirement: Mandatory export permit for carrying out exports and imports.
  • Facilitation: DGFT enables online filing of IEC applications for seamless processing.
• Electronic Bank Certificate (e-BRC):
  • Purpose: Captures export proceeds details directly from banks through a secure electronic mode.
  • Advantages: Facilitates implementation of export promotion schemes without physical interfaces.
• Exporter Importer Profile:
  • Functionality: Uploads various documents, reducing transaction costs and time.
  • Advantages: Eliminates the need to repeatedly submit documents to Regional Authority, streamlining processes.
• Online Filing of Applications:
  • Facilitation: DGFT enables online filing of applications for IEC and various authorizations/scrips.
  • Process: Applications are digitally signed, submitted electronically, and processed by Regional Authority.
• Withdrawal of Seizure of Export Related Stock:
  • Guidelines: Agencies are advised against unnecessary seizures that hinder manufacturing activity.
  • Conditions: Seizures should be withdrawn within seven days unless serious irregularities are substantiated.
• Round-the-Clock Customs Clearance:
  • Availability: 24*7 customs clearance at 19 seaports and 17 air cargo complexes.
  • Benefit: Merchant Overtime Charges (MOT) exempted for services provided by Customs officers at 24*7 Customs Ports and Airports.
• Single Window Interface (SWIFT):
  • Launch: Facilitates electronic lodging of Integrated Declarations at a single point with Customs.
  • Advantages: Enables obtaining necessary permissions from regulatory agencies electronically.
• Facilitating Export of Perishable Products:
  • System: Introduces a single-window system for the export of perishable agricultural produce.
  • Accreditation: Multi-functional nodal agencies accredited by APEDA to reduce transportation and handling costs.
• Time Release Study:
  • Tool: Implements the World Customs Organization's time-release study to evaluate Customs performance.
  • Purpose: Identifies bottlenecks in the international supply chain and constraints affecting Customs release.
• Towns of Export Excellence (TEE):
  • Criteria: Specified towns with a goods turnover of Rs 750 Crore or more may be notified as TEE.
  • Benefits: Recognized associations receive financial assistance, and common service providers become eligible for Authorization under the EPCG scheme.

FOREIGN TRADE POLICY 2021-2026

The FTP 2015-20 came into effect on the 1st of April 2015 and the same was extended by one year till 31 March 2021, due to the Covid-19 pandemic. 

New Foreign Trade Policy 2021-26″. which have come into effect from 1st April 2021 for a period of five years and will strive to make India a leader in the area of international trade and channelize the synergies gained through merchandise and services exports for growth and employment with a goal to make India a USD 5 Trillion economy.

District Export Hubs Initiative will form an important component of the new Foreign Trade Policy. 

The Department of Commerce through the Regional Authorities of DGFT has engaged with State/UT Governments to take forward this initiative in the districts and enable its implementation in a phased manner, with the objective of mobilizing the potential of each district of the country to achieve its potential as an export hub.

Expectations from FTP 2021-2026: A Road to $5 Trillion Economy

1. WTO-Compliant Tax Incentives:

• Background: With incentives under MEIS and SEIS in doubt, the focus is on WTO-compliant tax benefits.
• Initiative: The introduction of the Remission of Duties or Taxes on Export Products (RoDTEP) scheme from January 1, 2021, replacing MEIS.

2. Easy Credit Access:

• Demand: MSMEs, particularly, seek improved credit access.
• Potential Solution: Proposals to raise borrowing limits at the Export-Import Bank of India to address the reluctance of formal financial institutions.

3. Infrastructure Upgrade:

• Learning from China: Recognizing China's success, calls for upgrading India's infrastructure, including ports, highways, and testing and certification centers.
• Existing Scheme: The Trade Infrastructure for Export Sector, launched in 2017, might be extended to further support infrastructure development.

4. Less Subsidy, More Support:

• Shift in Approach: Move from subsidies to support focused on quality, technology, and scale of production.
• Suggested Focus Areas: Skill development programs, technological upgradation, and incentives for research and development.

5. Tax Breaks:

• Demand: Easier and lower taxes to replace subsidies.
• Corporate Tax Rates: Calls for the reduction of corporate tax rates and simplification of duty structures.
• Import Duty Structure: Simplification based on higher duties on finished goods and lower duties on intermediates and raw materials.

6. Digitization and E-Commerce:

• Post-COVID Adaptation: Acknowledges the disruption caused by COVID-19 and emphasizes modern trade practices.
• Digital Processes: Recommends digitization of common import-export processes.
• E-commerce Support: Suggestions include e-commerce export platforms under Niryat Bandhu, e-commerce export promotion cells, and e-Commerce Export Zones.

7. Export Awareness:

• Gap Addressing: Recognizes that lack of awareness can hinder export opportunities.
• Government Workshops: Proposes provisions for government workshops and awareness programs on international laws, standards, global markets, and intellectual property rights.

8. Import Wishlist:

• Import Community Expectations: Desires self-certification for importing capital goods and approval-based import of prohibited items.
• Ease of Processes: Aims for simplified import processes to encourage smoother transactions.

9. Road to $5 Trillion by 2025:

• Ambitious Target: India aspires to be a $5-trillion economy by 2025.
• Strategic Goals: GDP growth rate of 8% or more, tripling exports to $1 trillion by 2025.
• Challenges: Addressing historical export levels around $300 billion and the impact of the pandemic on exports.

10. High-Level Advisory Group Recommendations:

• Reforms: Urgent labor law reform, easing regulatory controls, lowering the cost of capital, and sector-specific strategies.
• FDI Committee: Formation of a special committee for quick decisions on foreign direct investment.

11. FTP 2021-2026 Commitments:

• District Export Hubs: Identifying products and services, mapping GI products, and setting up promotion panels and action plans at the district level.
• Addressing Imbalances: Commitment to reducing domestic and overseas constraints, enhancing ease of doing business, and creating efficient logistical infrastructure.
• If FTP 2021-2026 aligns with these expectations and government commitments, it can play a pivotal role in steering India towards its ambitious $5-trillion economy goal.

FAQs Regarding Foreign Trade Policy of India: A Comprehensive Overview

1. What is the Foreign Trade Policy (FTP) of India?

The FTP is a strategic roadmap designed by the government to promote domestic production and boost exports, contributing to economic growth.

2. Who administers the FTP, and under which ministry does it operate?

Ans. The Directorate General of Foreign Trade (DGFT) administers the FTP, operating under the Ministry of Commerce and Industry.

3. How often is the FTP reviewed, and why?

Ans. The FTP is periodically reviewed to adapt to the changing domestic and international scenario and align with evolving economic needs.

4. What are the key responsibilities of the Department of Commerce in the context of the FTP?

Ans. The Department of Commerce aims to make India a major player in global trade, developing commodity and country-specific strategies and positioning India as a leader in international trade organizations.

5. What is the primary objective of the FTP in terms of trade facilitation?

Ans. The FTP primarily aims to facilitate trade by reducing transaction costs and time, enhancing the global competitiveness of Indian exports.

6. What are the twin strategies adopted by the government for export promotion?

Ans. The government adopts a twin strategy, focusing on both traditional and sunrise sectors of exports, including services, to diversify and strengthen the export base.

7. How long is the duration of the Foreign Trade Policy, and when does it undergo updates?

Ans. The FTP is typically notified for a five-year duration and undergoes annual updates on March 31, with changes taking effect from April 1.

8. How does the FTP integrate with the Goods and Services Tax (GST)?

The policy emphasizes helping exporters leverage benefits of the GST regime to streamline taxation processes.

9. What are the major objectives of the FTP in terms of export promotion?

Ans. The FTP aims to accelerate economic activity, access global market opportunities, promote sustained economic growth, strengthen various sectors, generate employment, and encourage adherence to international quality standards.

10. What are the expectations from state governments in the context of exports?

Ans. State governments are expected to actively develop export strategies based on the strengths of their respective sectors, becoming active partners in the export promotion.

11. How does the FTP address internal constraints within India that hinder exports?

Ans. The policy recognizes internal constraints such as infrastructure bottlenecks, high transaction costs, complex procedures, and manufacturing limitations, aiming to address them.

12. What is the significance of India's commitment to the Trade Facilitation Agreement (TFA) at the World Trade Organization (WTO)?

Ans. India's commitment to the TFA aims to simplify and reduce transaction costs in international trade, aligning with global trade facilitation measures.

13. How does the FTP aim to diversify India's export portfolio in terms of product groups?

Ans. The government is exploring promising product groups like defense equipment, medical devices, agro-processing, technical textiles, and chemicals to diversify India's export base.

14. What are the major initiatives introduced under the FTP to support exporters?

Ans. Initiatives include the Niryat Bandhu Scheme, Duty-Free Import Authorisation (DFIA), Export Promotion Capital Goods (EPCG), Electronic Import Exporter Code (IEC), Electronic Bank Certificate (e-BRC), and others.

15. What is the purpose of the District Export Hubs Initiative introduced under the new FTP (2021-26)?

Ans. The initiative aims to mobilize the potential of each district in the country, forming export hubs to achieve its potential, thereby contributing to growth and employment.

16. What are the expectations from the FTP (2021-26) in terms of tax incentives and credit access for exporters?

Ans. Expectations include WTO-compliant tax benefits, improved credit access for MSMEs, and infrastructure upgrades, among others.

17. How does the FTP (2021-26) contribute to India's goal of becoming a $5 Trillion economy by 2025?

Ans. The new FTP strives to make India a leader in international trade, channelizing synergies gained through merchandise and services exports, contributing to the goal of a $5 Trillion economy.

18. What are the challenges and suggested solutions outlined in the expectations from the FTP (2021-26)?

Ans. Challenges include addressing historical export levels, digitization, and e-commerce adaptation. Proposed solutions include easier tax structures, digitization, and export awareness programs.

19. How does the FTP aim to correct imbalances in India's international trade processes?

Ans. The FTP (2021-26) commits to reducing domestic and overseas constraints related to policy, regulatory, and operational frameworks to lower transaction costs and enhance ease of doing business.

20. What are the proposed strategies to achieve India's $5 Trillion economy goal outlined in the FTP (2021-26)?

Ans. Proposed strategies include the formation of District Export Hubs, correcting trade imbalances, and creating efficient, cost-effective, and adequate logistical and utility infrastructure.