India’s Foreign Trade Policy is a set of guidelines for goods and services imported and exported. These are developed by the Directorate General of Foreign Trade (DGFT), the Ministry of Commerce and Industry's regulating body for the promotion and facilitation of exports and imports. It is a crucial topic in the Economy syllabus for the UPSC Examination. The article below briefs India's Foreign Trade Policy followed by detailed explanations.

What is India's Foreign Trade Policy?

• In line with the 'Make in India,' 'Digital India,' 'Skill India,' 'Startup India,' and 'Ease of Doing Business' initiatives, the Foreign Trade Policy (2015-20) was launched on April 1, 2015.
• It provides a framework for increasing exports of goods and services, creating jobs, and increasing value addition in the country.
• The foreign trade policy statement outlines the market and product strategy as well as the steps needed to promote trade, expand infrastructure, and improve the entire trade ecosystem.
• It aims to help India respond to external problems while staying on top of fast-changing international trading infrastructure and to make trade a major contributor to the country's economic growth and development.

Objectives of India's Foreign Trade Policy

• India's Foreign Trade Policy boosts a country's revenue by promoting exports, which in turn aids in improving the country's balance of payments.
• It promotes national development and economic growth.
• Make the most of global market prospects by accelerating economic activity.
• Provide access to raw materials, components, intermediates (goods used as inputs for the creation of other goods), consumables, and capital goods to support long-term economic growth.
• India's agriculture, industry, and services should be strengthened.
• Encourage stakeholders to aim for worldwide quality standards in order to create jobs.
• Provide high-quality consumer goods at a fair price.

Latest Update on Foreign Trade Policy

• In view of the Covid-19 situation, the government had already extended the Foreign Trade Policy (FTP) 2015-20 through Mar 31, 2022.
• In 2022, India will implement its foreign trade policy. For the next five years, the policy will be the guiding philosophy for foreign trade.
• The work of formulating policy will be significantly more difficult in the face of global pressure, Covid-19, and the aim of a self-sufficient India.

Features of foreign trade policy 2015-2020 :

• MEIS (Merchandise Export from India Scheme) and SEIS (Service Exports from India Scheme) have been launched.
• Goods: Previously, there were five separate schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, and VKGUY) for rewarding goods exports with various types of duty scrips, each with its own set of requirements.
• Duty free scrips: These are paper authorizations that allow the holder to import inputs that are used to manufacture items that are exported, or to manufacture machinery that is used to produce such goods, without having to pay duty equal to the scrip's printed value.
• All of these programmes have been consolidated into a single plan, the Merchandise Export from India Scheme ("MEIS"), under the Foreign Trade Policy, and there are no conditions attached to scrips issued under the MEIS.
• Services: The Service Exports from India Scheme ("SEIS") has taken the place of the Served From India Scheme. SEIS compensates all service providers of notified services who deliver services from India, independent of the service provider's composition or profile.
• Special Economic Zones (SEZs): India's strategy provides expanded incentives for SEZs under MEIS and SEIS.
• Export Houses: The terms "Export House," "Star Export House," "Trading House," "Star Trading House," and "Premier Trading House" have been condensed to "1, 2, 3, 4, and 5 Star Export House certificates."
• Status Holders: It is proposed that business leaders who excel in international commerce and have successfully contributed to India's foreign trade be recognised as Status Holders and granted unique privileges to facilitate their trade transactions, reducing transaction costs and time.
• Resolving Complaints: A new chapter on Quality Complaints and Trade Disputes was added to the Foreign Trade Policy to help settle quality complaints and trade disputes between exporters and importers.
• No conditionality for scrips: There are no conditions on any of the scrips issued under these programmes.
• The countries have been divided into three groups for the purpose of awarding incentives under MEIS, with reward rates ranging from 2% to 5%.
• The selected Services would be awarded at a rate of 3% and 5% under SEIS.
• 'Make in India,' 'Digital India,' and 'Skills India' objectives will be connected with FTP.
• State governments will be included in an export promotion mission.
• Agriculture and village industry products will be supported at rates of 3% and 5% globally under the MEIS.
• The board of trade and the council for trade development (CTD) and promotion are two institutional mechanisms being put in place for regular communication with stakeholders.
• While the board of trade will serve as an advisory body, the CTD will include state and local government representatives.
• The Centre for Research in International Trade is being developed not just to boost India's research skills in the domain of international trade, but also to assist developing countries to voice their opinions and concerns from a strong position of knowledge.
• The Ministry of Commerce and Industry expanded the scope of MEIS and SEIS in the mid-term review of FTP 2015–20, increased the MEIS incentive for ready-made garments and made-ups by 2%, increased the SEIS incentive by 2%, and extended the validity of Duty Credit Scrips from 18 to 24 months. The FTP 2015-20 has been extended until March 31, 2022.

Who regulates Foreign Trade Policy in India?

• The Directorate General of Foreign Commerce (DGFT) and its regional offices, which are part of the Ministry of Commerce and Industry, Department of Commerce, Government of India, control export trade.
• The DGFT announces policies and procedures that must be followed for exports from India on a regular basis.

Benefits of Foreign Trade Policy 2015-2020

• It combined a number of export incentives with various qualifying requirements into two schemes: the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS) (SEIS).
• Under these two schemes, it provided export incentives in the form of duty credit scrips, which exporters could use to pay import duties. The scrips are freely transferable, meaning that if one exporter no longer requires them, they can be passed on to another.
• Under the Export Promotion Capital Goods Scheme (EPCG), it reduced the export obligation for capital goods produced from local producers from 90% to 75%.
• It permitted producers who are "status holders" (entrepreneurs who have helped India become a significant export player as determined by the DGFT) to self-certify their manufactured items as coming from India. This qualifies them for special treatment under a number of bilateral and regional trade agreements.
• It found 108 micro, small, and medium enterprise (MSME) clusters that could benefit from targeted interventions in order to enhance exports.
• It advocated the use of electronic technology to process various DGFT licences and applications.

Limitations of Foreign Trade Policy 2015-2020

• Acting on Washington's protest, a WTO dispute settlement panel ruled in 2019 that India's export subsidy measures are in violation of WTO norms and must be repealed.
• Tax incentives under the popular MEIS and SEIS programmes were among them. The panel found that because India's per capita gross national product exceeds $1,000 per year, it may no longer grant subsidies based on export performance. This debate reaffirms India's growing belief that it needs to move away from subsidies and find new methods to assist its exporters.
• In India, there is a strong view (supported by its trade policy) that free trade agreements (FTAs) have failed to benefit the country.
• One sign of this was India's decision not to join the Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade agreement, in November 2020. Experts and economists say that this has cost India a good opportunity to become a significant exporter.

Expectations from the new Foreign Trade Policy 2022-2027

International trade was severely harmed by Covid-19. In April 2020, India's exports decreased by a record 60%, while imports fell by 59%. Despite the fact that the situation has improved, the path to recovery remains lengthy and difficult. As a result, the new trade policy must deliver on its promises. Some main expectations, based on input from traders, trade associations, members of Parliament, and a government-appointed high-level advisory body, are:

• WTO-compliant tax incentives: With incentives under MEIS and SEIS in the cloud, WTO-compliant tax benefits are a must.
  • The government has announced the RoDTEP (Remission of Duties or Taxes on Export Products) scheme, which will take effect on January 1, 2021.
  • It takes the place of MEIS. The new scheme's rates and terms have yet to be revealed.
• Access to credit: Credit availability has long been a need of exporters, particularly MSMEs.
  • Because MSMEs lack appropriate collateral, formal financial institutions such as banks are hesitant to lend to them.
  • Alternative lending outlets, such as finance technological start-ups, may be made available as a result of the policy.
  • The advisory council recommends increasing the Export-Import Bank of India's borrowing limitations.
• Infrastructure Upgrade: China's network of ports, motorways, and high-speed trains, which are among the greatest in the world, is one of the reasons it is a manufacturing and export powerhouse.
  • By updating existing ports, warehouses, quality testing and certification centres, and developing new ones, India can learn from its neighbour and strengthen its deteriorating infrastructure.
  • The Trade Infrastructure for Export Sector was started in 2017 for a three-year period with the goal of constructing infrastructure to promote exports. Many in the business are hoping for an extension.
• Digitisation and e-commerce: India requires innovative trading procedures as a result of Covid-19 breaking old supply channels.
  • There are two approaches to this: digitization and e-commerce.
  • Making typical import-export processes paperless is a good place to start with digitization.
  • Nasscom, for example, suggests an online system for Importer Exporter Code (IEC) holders to update their information (mobile numbers, e-mail IDs, etc).
  • It also makes a case for promoting e-commerce exports by
    • incorporating e-commerce export platforms into Niryat Bandhu (a scheme for mentoring international trade entrepreneurs),
    • establishing e-commerce export promotion cells within export promotion councils, and
    • establishing e-Commerce Export Zones to promote MSMEs.
• Export Awareness: Indian exporters are sometimes thwarted not by a lack of trade prospects, but by a lack of awareness of those opportunities. Government workshops and awareness programmes can be included in the trade policy to educate and inform traders about international rules and standards, global markets, intellectual property rights, patents, and geographical indications (GI).

Conclusion

Thus the current Foreign Trade Policy aims to increase India's market share in existing markets and products while also pursuing new products and markets. In addition, India's Foreign Trade Policy envisions assisting exporters in maximizing the benefits of GST, closely monitoring export performance, boosting cross-border trading ease, raising revenue from agriculture-based exports, and promoting exports from MSMEs and labour-intensive industries.