Foreign trade is one of the many pillars of economic growth and development. In addition to generating revenue, foreign trade generates employment and strengthens economic ties with other countries.
India is currently one of the many major trade players in the world. We regularly import and export a plethora of products from and to other countries. To facilitate, encourage and improve imports and exports, the Foreign Trade Development and Regulation Act was passed in 1992.
The establishment of the Foreign Trade Development and Regulation Act led to the eventual formulation of foreign trade policy in India. In this article, we’re going to be looking at what foreign trade policy is, what its objectives are and how the policy has progressed through the years.
What is the Foreign Trade Policy?
The foreign trade policy or FTP is a set of rules, regulations and procedures that aim to create a favourable balance of payments situation by regulating imports and enhancing exports. The policy is formulated by the Directorate General of Foreign Trade (DGFT), an agency under the Ministry of Commerce and Industry.
Objectives of the Foreign Trade Policy of India
Although multiple FTPs have been enacted through the years, the objectives are largely the same. Here’s a quick overview of some of the key objectives of foreign trade policies.
- Boost exports of goods and services to other countries.
- Increase jobs and other economic chances by improving exports.
- Enhance industrial growth by providing incentives to exporters.
- Diversify the range of goods and services being exported to reduce dependence on just a few sectors.
- Make exporters more competitive in the global market by reducing their costs and helping improve their efficiency.
- Increase foreign exchange reserves and improve the country’s balance of trade and balance of payments situation.
- Encourage the adoption of new and cutting-edge technologies and innovations.
Understanding the Progress of India’s Foreign Trade Policy
The foreign trade policy first came into effect on April 01, 1992. It was referred to as the Export-Import (EXIM) policy back then. Designed to be a five-year plan from 1992 to 1997, the first EXIM policy was primarily focused on three things – liberalisation, privatisation and globalisation.
The second five-year EXIM policy was introduced on April 01, 1997, and was in effect till the year 2002. The primary aim of the second policy was to attain an export target of $90 to 100 billion by the end of the year 2000.
The third five-year policy was for the period starting from 2004 to 2009. This was when the government of India renamed the EXIM policy with foreign trade policy (FTP). The main objective was to double the share of India’s trade with the world by the end of the five-year policy period.
The fourth FTP policy lasted from 2009 to 2014, closely following the global financial crisis of 2008. Spurred by India’s resilience during the crisis, the five-year policy contained measures to provide support to sectors that were affected by the global recession and to attain an average annual export growth rate of 25% over the policy period.
The fifth foreign trade policy was enacted in 2015 and was in effect till 2020. The policy contained a plethora of new initiatives aimed at providing support to both the service and manufacturing sectors, with a special focus on enhancing the ease of doing business in India. One of the objectives was to increase the country’s exports to $900 billion by the year 2019 – 2020.
Highlights and Objectives of the Foreign Trade Policy 2023
The onset of the COVID-19 pandemic sent ripples through the world, threatening to upend the economic progress of India and various other countries. However, India proved its resilience once again by bouncing back from new lows faster than most developing and developed nations.
To ensure that the stellar economic progress continued, the sixth foreign trade policy was unveiled by the Ministry of Commerce and Industry. The policy came into effect on April 01, 2023. However, unlike the previous FTP policies, the Foreign Trade Policy 2023 is not a five-year plan but rather an open-ended policy with mechanisms to adjust and adapt to challenges that emerge.
The Foreign Trade Policy 2023 has been designed around four pillars –
- Incentive to remission
- Export promotion through collaboration – exporters, states, districts and Indian missions
- Ease of doing business, reduction in transaction cost and e-initiatives
- Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy
One of the primary objectives of the 2023 policy is to enhance India’s exports to $2 trillion by 2030. Some of the key highlights of the new foreign trade policy of India have been listed below.
- Improve exporters’ competitiveness by reducing their costs through a wide range of incentives like duty drawbacks, advance authorisation schemes, export promotion capital goods (EPCG) schemes and free-trade agreements (FTAs).
- Encourage collaboration between exporters, states, districts and Indian missions in foreign countries to identify the various challenges and formulate unique strategies to overcome them.
- Increase the ease of doing business factor by reducing paperwork and documentation for export processes.
- Focus on emerging export areas with good growth potential, like pharmaceuticals, e-commerce and high-tech manufacturing.
- Categorise four new small towns – Mirzapur, Faridabad, Varanasi and Moradabad as Towns of Export Excellence (TEE) and provide them with multi-faceted assistance to boost exports.
Conclusion
India owes its growth as a major trade player in the world to all of the foreign trade policies enacted over the years. Considering the ever-evolving nature of challenges, the introduction of the dynamic and open-ended Foreign Trade Policy 2023 is a welcome step that can help the country quickly adapt and power through the world trade landscape. If implemented right, the ambitious plan could propel India to the top in just a few years.
FAQs
What is the validity of India’s foreign trade policy?
India’s foreign trade policies are generally formulated for a period of 5 years. However, the latest Foreign Trade Policy 2023 has no end date. It is a dynamic and open-ended policy with no end date.
What are some measures that the foreign trade policies of India implement to boost exports?
India’s foreign trade policies use a mix of different measures and initiatives to boost exports. This includes duty incentives, preferential trade agreements with other countries, financial support through export credit and establishment of Special Economic Zones (SEZs) and Export Oriented Units (EOUs), among others.
Which authority is behind the formulation of India’s foreign trade policy (FTP)?
The Directorate General of Foreign Trade (DGFT) is the authority that formulates India’s FTP policy. The authority comes under the Ministry of Commerce and Industry of the government of India.
What are the four pillars on which the Foreign Trade Policy 2023 has been formulated?
The four pillars of India’s Foreign Trade Policy 2023 are – incentive to remission, export promotion through collaboration – exporters, states, districts and Indian missions, ease of doing business, reduction in transaction cost and e-initiatives and emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy.
What is the export target of the Foreign Trade Policy 2023?
The Foreign Trade Policy 2023 has set an ambitious export target of $2 trillion by the year 2023.