Foreign Trade Policies

Foreign Trade Policies

India’s Foreign Trade Policy (FTP) has, conventionally, been formulated for five years at a time and reviewed annually. The focus of the FTP has been to provide a framework of rules and procedures for exports and imports and a set of incentives for promoting exports. Fifteen years ago India occupied a very small space on the global trade canvas. As various sectors of the Indian economy became more competitive globally, exports began to grow remarkably. India’s merchandise exports recorded a Compound Annual Growth Rate (CAGR) of 15.9 percent over the period 2004-05 to 2013-14. Similarly, as the economic growth rate of the country picked up, so did imports, which grew at a CAGR of 16.8 percent over the same period.

Today, foreign trade has begun to play a significant part in the Indian economy reflecting its increasing globalisation. At the same time, the growing merchandise trade deficit, resulting in a persistently high current account deficit, has set alarm bells ringing. This policy, therefore, aims at promoting exports along with making imports more focussed and rational. The trade performance of a country is so closely and inextricably linked with its overall economic performance that trade policy cannot be treated as a simple matter of manoeuvring the export or import of a product. Foreign trade policy has a direct connect with domestic economic policies. Exports constitute the last segment of long sectoral value chains. A foreign trade policy that addresses only the front-end of exports without recognising the characteristics of the back end is incomplete and, likely to be unworkable. At the same time, the development of an appropriate ecosystem for the front-end can create a pull effect for the sector in question. In each case, action lies in several departments and stakeholder institutions. The biggest challenge, therefore, is to properly anchor the elements of the foreign trade policy in the overall economic policy and to ensure that the framework of rules, procedures and incentives for trade is contextualised within a composite approach to economic development.

India's Trade Performance

According to the WTO, in merchandise trade, India was the 19th largest exporter in the world with a share of 1.7 percent and the 12th largest importer with a share of 3.5 percent in 2018. In commercial services, India was the 6th largest exporter in the world with a share of 3.2 percent and the 9th largest importer with a share of 2.8 percent.

Both external and domestic factors have posed a challenge to export growth such as the global trade slowdown from 2008-09 onwards, exchange rate fluctuations and non-tariff barriers imposed by India’s trading partners and loss of competitiveness in many product areas. The inherent limitations of manufacturing in India, the lack of diversity and focused efforts on services exports, the under achievement of the potential of SEZs, high transaction costs, high cost of trade finance and infrastructural bottlenecks are the domestic challenges to be overcome. The heavy dependence on imports of essential commodities including crude oil, gas, coal, pulses, edible oils, fertilizers, and electronics has kept India’s trade deficit at a high level. While there has been a gradual shift in India’s exports away from the advanced economies of the European Union and North America, the United States of America continues to be the topmost destination for India’s exports with a share of 12.4 percent in 2013-14 followed by the United Arab Emirates (9.7 percent) and China (4.7 percent) in 2013-14. The IMF WEO update presents a mixed picture for these key markets for India’s exports.

Union Ministry of Commerce and Industry is formulating India''s new Foreign Trade Policy 2021-2026, which will come into effect from September 1, 2021, for five years and will strive to make the country a leader in international trade.

Goal/Mission of New Foreign Trade Policy

A key driver for India to achieve the USD 5 trillion mark in an expedited time frame would be boosting exports, both merchandise and services. This has to be done through systematically addressing domestic and overseas constraints related to the FTP, regulatory and operational framework for lowering transaction costs and enhancing the ease of doing business, and creating a low-cost operating environment through efficient logistical and utility infrastructure. Improvements in the operations of the domestic manufacturing and services sectors in combination with efficient infrastructure support by the government would result in correcting the imbalances within India and feed into the trade policy. 

Objectives

New FTP 2021-26 aims to:

• Accelerate economic activity and make the most of global market opportunities
• Encourage sustained economic growth by providing access to raw materials, components, intermediates (goods used as inputs for the production of other goods), consumables and capital goods required for production
• Strengthen Indian agriculture, industry and services 
• Generate employment
• Encourage stakeholders to strive for international standards of quality
• Provide quality consumer products at reasonable prices