Trade Policy of India - Export-Import Policy, Foreign Trade Policy Framework, WTO and India, Trade Agreements, Trade Deficit, and Recent Developments

Trade Policy of India – Export-Import Policy, Foreign Trade Policy Framework, WTO and India, Trade Agreements, Trade Deficit, and Recent Developments

Trade policy is a core pillar of India's economic strategy. It determines how the country engages with the global economy through exports and imports, how domestic industries are protected or promoted, and how India positions itself in multilateral institutions such as the World Trade Organization (WTO). For the UPSC Civil Services Examination, India's trade policy is a high-yield topic that connects economy, international relations, and governance. Questions are asked both in Prelims (concepts, institutions, schemes) and Mains (analysis of policy outcomes, challenges, and reforms).

This article provides a comprehensive, exam-oriented explanation of India's trade policy. It covers the evolution of India's export-import policy, the Foreign Trade Policy (FTP) framework with special focus on FTP 2023, export promotion schemes, Special Economic Zones (SEZs), India's engagement with the WTO, trade agreements including FTAs and India's withdrawal from RCEP, analysis of India's trade deficit, recent developments, challenges, and a way forward. The article concludes with Previous Year Questions (PYQs) and practice MCQs with detailed explanations.

Meaning and Scope of Trade Policy

Trade policy refers to the set of laws, regulations, and international agreements through which a country regulates its external trade. It includes policies related to exports, imports, tariffs, non-tariff barriers, trade agreements, and trade facilitation measures.

In India, trade policy aims to achieve multiple objectives simultaneously:

• Promoting exports to earn foreign exchange
• Ensuring availability of essential imports at reasonable cost
• Protecting sensitive domestic sectors when required
• Integrating India with global value chains
• Using trade as an instrument of economic growth and employment generation

India's trade policy operates within a broader macroeconomic framework that includes industrial policy, foreign investment policy, and exchange rate management.

Evolution of India's Trade Policy

Pre-1991: Inward-Looking and Protectionist Phase

Before 1991, India followed a highly restrictive trade regime. The policy framework was guided by import substitution industrialization (ISI). Imports were tightly controlled through licenses, quotas, and high tariffs.

• Exports were not a policy priority; focus was on self-reliance
• Average tariff rates were extremely high
• Foreign exchange shortages were common
• Trade deficits were persistent and unsustainable

This approach resulted in limited integration with global markets, low export competitiveness, and inefficiencies in domestic industry.

1991 Reforms and Liberalization

The balance of payments crisis of 1991 triggered a paradigm shift in India's trade policy. As part of the New Economic Policy, India initiated trade liberalization measures:

• Removal of import licensing for most goods
• Reduction in customs duties
• Market-determined exchange rate
• Export promotion through incentives and facilitation

Trade policy became outward-oriented, focusing on export competitiveness and integration with the global economy.

Post-2000 Phase: Global Integration

After 2000, India's trade policy increasingly aligned with global norms:

• Commitments under the WTO were implemented
• Sector-specific export promotion measures were introduced
• Negotiation of bilateral and regional trade agreements expanded

However, India also adopted a calibrated approach, balancing openness with protection of vulnerable sectors such as agriculture and small industries.

Export-Import (EXIM) Policy and Foreign Trade Policy Framework

India's Export-Import Policy is formally articulated through the Foreign Trade Policy, which is notified by the Ministry of Commerce and Industry under the Foreign Trade (Development and Regulation) Act, 1992.

The FTP typically lays down:

• Export promotion strategies
• Import regulations and restrictions
• Incentive schemes for exporters
• Trade facilitation measures
• Institutional and procedural framework

Foreign Trade Policy 2023: Key Features

The Foreign Trade Policy 2023 marks a shift in approach from fixed-period policies to a more flexible and dynamic framework.

Key Objectives

• Achieve USD 2 trillion in exports by 2030 (goods and services combined)
• Move from incentives-based regime to facilitation-based regime
• Enhance ease of doing business for exporters
• Promote e-commerce exports and MSME participation

Major Features

• Long-term policy framework: FTP 2023 has no end date and will be updated as required
• Digitalization: Emphasis on paperless trade and online approvals
• Town of Export Excellence: New towns added to promote district-level exports
• Status Holder Incentives: Special benefits for high-performing exporters
• Focus on Services Exports: Services such as IT, tourism, and professional services prioritized

FTP 2023 aligns closely with initiatives such as Make in India, Atmanirbhar Bharat, and the Production Linked Incentive (PLI) scheme.

Export Promotion Schemes

Export promotion schemes are designed to reduce the cost of exports, neutralize taxes, and improve competitiveness of Indian products in global markets.

RoDTEP Scheme

Remission of Duties and Taxes on Exported Products (RoDTEP) is a WTO-compliant scheme introduced to replace earlier incentive schemes.

• Refunds embedded taxes and duties not refunded elsewhere
• Applies to a wide range of export products
• Refunds provided through transferable duty credit scrips

MEIS (Merchandise Exports from India Scheme)

MEIS was introduced under an earlier FTP to incentivize merchandise exports. However, it was challenged at the WTO and subsequently discontinued.

• Provided duty credit scrips as export incentives
• Found to be inconsistent with WTO rules on export subsidies
• Replaced by RoDTEP

SEIS (Service Exports from India Scheme)

SEIS aimed to promote service exports by providing incentives to service providers. Like MEIS, it has been phased out due to WTO compliance issues.

In the current framework, services exports are supported through facilitation, market access, and ease of doing business measures rather than direct subsidies.

Special Economic Zones (SEZs)

Special Economic Zones are designated areas with special economic regulations aimed at promoting exports, investment, and employment.

• SEZs offer tax incentives and simplified procedures
• They function as enclaves deemed to be outside the customs territory
• Major sectors include IT, pharmaceuticals, engineering goods, and textiles

SEZs have contributed significantly to India's exports, but concerns remain regarding land use, employment quality, and WTO compatibility of incentives.

India and the World Trade Organization (WTO)

India has been a founding member of the WTO and plays an active role in shaping its agenda.

India's Key Positions in WTO

• Protection of food security and public stockholding
• Special and Differential Treatment (SDT) for developing countries
• Opposition to premature liberalization in agriculture
• Concerns over dispute settlement paralysis

India has also been involved in several trade disputes, both as a complainant and a respondent, reflecting its growing role in global trade.

Trade Agreements: FTAs, RTAs, and RCEP

Trade agreements are an important component of India's trade policy, aimed at improving market access and strengthening strategic partnerships.

Free Trade Agreements (FTAs)

FTAs involve reduction or elimination of tariffs between partner countries.

• India has FTAs with ASEAN, Japan, South Korea, and others
• Recent FTAs emphasize services, investment, and digital trade

Regional Trade Agreements (RTAs)

RTAs cover trade among multiple countries in a region. They often involve deeper integration than bilateral FTAs.

India's Withdrawal from RCEP

India withdrew from the Regional Comprehensive Economic Partnership (RCEP) negotiations due to concerns over:

• Surge in imports, especially from China
• Adverse impact on farmers and MSMEs
• Inadequate safeguards

The decision reflects India's cautious and interest-based approach to trade liberalization.

Trade Deficit and Trade Surplus

India has historically run a trade deficit, driven by high imports of crude oil, gold, and capital goods.

Trends in India's Trade Deficit

• Deficit widens during periods of high global commodity prices
• Services exports partially offset merchandise trade deficit
• Policy focus on reducing non-essential imports

While a trade deficit is not inherently negative, persistent and large deficits can put pressure on foreign exchange reserves and macroeconomic stability.

Challenges in India's Trade Policy

• Low export diversification
• Infrastructure and logistics bottlenecks
• Compliance with evolving global trade rules
• Balancing protectionism with competitiveness

Way Forward

India's trade policy must evolve to address both domestic and global challenges.

• Focus on value-added exports
• Deepen integration with global value chains
• Strengthen trade facilitation and logistics
• Adopt a strategic and selective approach to trade agreements

UPSC Previous Year Questions (PYQs)

Practice MCQs

1. Which of the following best describes RoDTEP scheme?

   Answer: Refund of embedded taxes and duties on exports.

   Explanation: RoDTEP refunds embedded taxes and duties not refunded elsewhere and is WTO-compliant.

2. India withdrew from RCEP mainly due to concerns related to:

   Answer: Import surge and lack of safeguards.

   Explanation: India feared adverse impact on domestic sectors due to import surge, especially from China.

3. Which principle of WTO ensures non-discrimination in trade?

   Answer: Most Favoured Nation (MFN).

   Explanation: MFN requires equal trade treatment to all WTO members.

4. A trade surplus occurs when:

   Answer: Exports exceed imports.

   Explanation: Trade surplus means a country exports more than it imports.

5. Foreign Trade Policy is notified under which Act?

   Answer: Foreign Trade (Development and Regulation) Act, 1992.

   Explanation: FTP is issued by Ministry of Commerce under this Act.

6. Which scheme replaced MEIS?

   Answer: RoDTEP.

   Explanation: MEIS was discontinued after WTO challenge and replaced by RoDTEP.

7. SEZs are deemed to be:

   Answer: Outside the customs territory of India.

   Explanation: SEZs function as enclaves outside customs territory for export promotion.

8. India's target for exports by 2030 under FTP 2023 is:

   Answer: USD 2 trillion.

   Explanation: FTP 2023 aims to achieve USD 2 trillion in goods and services exports by 2030.