Foreign trade plays a pivotal role in shaping a nation’s economy, and for a rapidly growing economy like India, it serves as a vital engine of growth. India's foreign trade policies have evolved significantly over the years since its economic liberalization in 1991. From a largely closed economy, India has emerged as a significant player in global trade, with its strategies evolving to meet the challenges and opportunities of the 21st century. Let's explore how India manages its international trade relationships and what strategies drive its economic growth.
The Foundation of India's Trade Policy
At the heart of it foreign trade strategy lies the Foreign Trade Policy (FTP) of India, which serves as a roadmap for expanding exports while managing imports. The foreign trade policy of India focuses on making India a major player in world trade by boosting exports, ensuring a steady supply of critical raw materials, and maintaining a favorable trade balance.
The government has moved away from complex licensing systems and quota restrictions, adopting a more market-friendly approach to make foreign trade in India easy & hassle-free. This shift has helped Indian businesses compete more effectively in the global marketplace while protecting domestic industries where necessary.
Key Strategic Elements
Export Promotion
India's export strategy rests on several pillars:
The Comprehensive Economic Partnership Agreement (CEPA) with the UAE opens up opportunities in the Middle East market. This agreement is expected to boost bilateral trade to $100 billion over the next five years.
India has strengthened its ties with ASEAN countries through the ASEAN-India Free Trade Agreement, providing access to a market of over 600 million people. The agreement covers trade in goods, services, and investments, helping Indian companies expand their presence in Southeast Asia.
Import Trade Policies
Foreign Direct Investment (FDI)
India's Foreign Trade Policy 2023
These four pillars form the basis of the key approach for India's Foreign Trade Policy 2023:
In addition to being flexible and adaptable to trade demands, the Foreign Trade Policy (2023) is a policy statement that is founded on the continuation of tried-and-true export-facilitating schemes. Its foundations are "trust" and "partnership" with exporters. Even without the declaration of a new FTP, modifications were made to the FTP 2015–20 after it was first released in order to adapt to changing circumstances. From this point forward, the FTP will be revised as needed. It would also be ongoing to include trade and industry comments in order to optimize procedures and periodically update FTP.
The FTP 2023 seeks to automate and re-engineer processes to make it easier for exporters to conduct business. Additionally, it emphasizes new areas such as dual-use high-end technological products under SCOMET, e-commerce export facilitation, and export promotion partnerships with States and Districts.
A one-time amnesty scheme is being introduced by the new FTP to allow exporters to close their previous outstanding authorizations and begin anew.
The FTP 2023 promotes exporters through the "Status Holder Scheme" and new communities through the "Towns of Export Excellence Scheme." The FTP 2023 is facilitating exports by streamlining the popular Advance Authorization and EPCG schemes, and enabling merchanting trade from India.
Import Licensing Requirements In India
Through its foreign trade policy, India has gradually streamlined the importation process during the past decade through . The majority of things are covered by India's Open General License laws. This implies that unless products are restricted by the policy's rules or by existing laws, they are considered to be freely importable without limitations and without a license.
Three categories control the importation of goods not covered by an Open General License: restricted goods that need an import license; banned or prohibited goods; and "canalized" goods that are only available for import by government trade monopolies.
Under the Export Promotion Capital Goods plan, capital goods—aside from those on a negative list—can be imported with an authorization at zero customs duty as long as a time-bound export obligation is fulfilled.
Schemes offering duty exemption or remission are also available, allowing duty-free importation of inputs for export production, including input replenishment.
What is the current landscape of India's merchandise trade?
There is an increase in exports. India's merchandise exports grew at an average annual rate of 5%, from $314 billion in 2013–14 to $451 billion in 2022–23. Petroleum goods, which accounted for more than 21% of export growth in 2022–2023, were supported by high crude oil prices and robust global energy demand (partially due to supply chain interruptions brought on by numerous wars). Over the past ten years, industries including telecom equipment and aluminum goods have also seen significant increases in exports.
The annual growth rate of imports has increased much more. Over the previous ten years, Indian imports increased by 7% yearly, from $450 billion in 2013–14 to $716 billion in 2022–23. As a result, the nation's merchandise trade deficit increased from $136 billion ten years ago to $265 billion in 2022–2023. The deficit is over 2% of GDP in current account terms. In addition to primary and secondary revenue, the current account also covers the trade of goods and services. India has a $143 billion surplus in trade of services and $100 billion in net positive secondary income (Reserve Bank of India, RBI, 2023).
Top Export Products From India (FY 2022-23)
Petroleum Products |
$101.32 billion |
Engineering Goods |
$98.39 billion |
Gems & Jewelry |
$38.11 billion |
Organic & Inorganic Chemicals |
$29.31 billion |
Pharmaceuticals |
$25.39 billion |
Electronic Goods |
$23.57 billion |
Agricultural Products |
$22.58 billion |
Major Import Categories In India (FY 2022-23)
Crude Oil |
$187.46 billion |
Electronic Goods |
$70.39 billion |
Machinery |
$44.35 billion |
Gold & Precious Metals |
$41.27 billion |
Chemicals |
$32.45 billion |
Coal & Coke |
$28.17 billion |
Key Trading Partners
India's top five trading partners by trade volume (FY 2022-23):
Export Of Services
India's services exports have shown remarkable growth, reaching $322.72 billion in FY 2022-23. Key components include:
Addressing Trade Challenges
India faces several challenges in implementing its trade strategies:
The global supply chain disruptions following the COVID-19 pandemic have prompted India to diversify its trading partners and reduce dependence on any single country. This includes developing stronger trade ties with Africa, Latin America, and Central Asia.
High logistics costs remain a concern, affecting export competitiveness. The government's National Logistics Policy aims to reduce logistics costs from 14% to 8% of GDP through infrastructure development and process optimization.
Trade Finance and Support
To support foreign trade in India, both importers and exporters, India has developed robust financial mechanisms:
The Export Credit Guarantee Corporation (ECGC) provides insurance coverage to exporters against payment risks. This support is crucial for small and medium enterprises venturing into international markets.
Banks offer specialized trade finance products, including pre-shipment and post-shipment credit, helping businesses manage working capital needs effectively.
Future Outlook
As the Foreign trade policy of India continues to evolve with changing global dynamics. Several trends are shaping future directions:
Growing emphasis on services exports, particularly in IT, healthcare, and educational services, where India has competitive advantages. The government is negotiating better market access for service providers in key markets.
Increased focus on sustainable trade practices, including promotion of green technologies and environmentally friendly products. This aligns with global sustainability goals while creating new export opportunities.
Conclusion
The Foreign trade policy of India reflects a balanced approach between promoting exports, managing imports, and developing domestic capabilities. The focus on digital transformation, regional partnerships, and self-reliance while maintaining global engagement positions India well for future growth in international trade.
Success in implementing these strategies will depend on continued reforms, infrastructure development, and adaptation to changing global trade patterns. As India moves toward its goal of becoming a $5 trillion economy, its trade strategies will play a crucial role in achieving sustainable economic growth and global competitiveness.
Dec 23, 2024
TUI Staff
Dec 20, 2024
TUI Staff
Stay Tuned with The United Indian!
Our news blog is dedicated to sharing valuable and pertinent content for Indian citizens. Our blog news covering a wide range of categories including technology, environment, government & economy ensures that you stay informed about the topics that matter most. Follow The United Indian to never miss out on the latest trending news in India.
©The United Indian 2024