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Global Connections Playbook : Decoding The Foreign Trade Policy Of India

foreign trade policy of India

From Local Roots to Global Routes

Posted
Dec 23, 2024
Category
Economy

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.

 

foreign trade policy of India

 

Key Strategic Elements

Export Promotion

India's export strategy rests on several pillars:

  • The Production Linked Incentive (PLI) scheme : It has emerged as a game-changer, offering incentives to manufacturers who increase production in specific sectors like electronics, pharmaceuticals, and automotive components. This initiative aims to boost manufacturing capabilities and export competitiveness.

 

  • Special Economic Zones (SEZs) : They continue to play a crucial role in promoting exports. These designated areas offer tax benefits, simplified customs procedures, and world-class infrastructure to export-oriented businesses. Cities like Kandla, NOIDA, and Chennai host successful SEZs that contribute significantly to India's export growth.

 

  • Digital Trade Initiatives  : India has embraced digital transformation in trade processes. The Digital India initiative has streamlined customs procedures through electronic documentation and online payment systems. This digital push has reduced lengthy paperwork, cut processing times, and improved transparency in international trade transactions, thus supporting foreign trade in India.

 

foreign trade policy of India

 

  • Regional Trade Agreements : India's trade strategy includes careful negotiation of bilateral and regional trade agreements. Some notable examples include:

 

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.

 

  • Focus on Key Sectors: India has identified specific sectors with high export potential, such as pharmaceuticals, information technology (IT), textiles, and automobiles. These sectors receive targeted support and incentives to enhance their competitiveness in international markets.

 

  • Market Diversification: The country is actively seeking to diversify its export destinations beyond traditional markets like the United States and Europe. This involves exploring new markets in Asia, Africa, and Latin America.

 

foreign trade policy of India

 

Import Trade Policies

  • Rationalization of Import Duties: India has gradually lowered import duties on many products, making them more affordable for domestic consumers and industries.
  • Focus on Technology Upgradation: Imports of capital goods and technology are encouraged to enhance the competitiveness of domestic industries.
  • Protection of Domestic Industries: While promoting imports, the government also takes measures to protect sensitive domestic industries from unfair competition.

 

Foreign Direct Investment (FDI)

  • Liberalization of FDI Regime: India has significantly liberalized its FDI regime in recent years, making it easier for foreign companies to invest in the country.
  • Focus on Strategic Sectors: FDI is encouraged in sectors such as infrastructure, manufacturing, and technology, which are crucial for economic growth.
  • Government Initiatives: The government has launched several initiatives to attract FDI, such as the "Make in India" campaign and the establishment of special economic zones (SEZs).

 

foreign trade policy of India

 

India's Foreign Trade Policy 2023

These four pillars form the basis of the key approach for India's Foreign Trade Policy 2023:

  1. incentives for remission;
  2. export promotion through cooperation among exporters, states, districts, and Indian missions
  3. ease of doing business, including e-initiatives and transaction cost reductions;
  4. emerging areas, such as e-commerce. SCOMET policy simplification and the development of districts as export hubs.

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.

 

foreign trade policy of 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.

 

Foreign trade policy of India

 

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):

  1. United States: $128.55 billion
  2. China: $114.26 billion
  3. UAE: $84.97 billion
  4. Saudi Arabia: $52.75 billion
  5. Singapore: $35.34 billion

 

Export Of Services

India's services exports have shown remarkable growth, reaching $322.72 billion in FY 2022-23. Key components include:

  • IT Services: $178 billion
  • Business Services: $45.74 billion
  • Travel: $22.91 billion
  • Transportation: $40.91 billion

 

Foreign trade policy of India

 

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.

 

Foreign trade policy of India

 

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.

 

 

 

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