1
Foreign Trade Policy & Major Problems of Indian Export Sector
INTRODUCTION
• Foreign trade refers to the exchange of goods and services between two or more
countries. It includes exports (selling goods abroad) and imports (buying goods from
abroad). For a developing economy like India, foreign trade plays a critical role in
economic growth, employment generation, and earning foreign exchange.
• Foreign Trade Policy (FTP) is the set of guidelines, rules, and regulations framed by
the Government of India to regulate and promote international trade. It is
announced by the Ministry of Commerce and Industry and is typically valid for a
period of 5 years.
• India's trade policy has evolved significantly — from a highly protectionist, import-
substitution model before 1991 to a liberalised, export-promotion model after the
New Economic Policy of 1991.
PART I: FOREIGN TRADE POLICY IN INDIA
Objectives of Foreign Trade Policy in India
INTRODUCTION
• The Foreign Trade Policy (FTP) is formulated by the Ministry of Commerce and
Industry, Government of India. It lays down the framework for regulating, facilitating,
and promoting India's international trade. The FTP is guided by a set of clear
objectives that reflect India's economic priorities, development goals, and position in
the global trading system.
• The objectives of India's Foreign Trade Policy can be understood under the following
heads:
1. Promotion of Exports
• The primary objective of FTP is to increase India's exports of both goods and services.
• The policy aims to make Indian products competitive in international markets by
reducing production costs and providing incentives to exporters.
• It targets doubling India's share in global merchandise trade and global services trade
within a defined timeframe.
• Special schemes like EPCG, Advance Authorisation, and Status Holder recognition are
designed specifically to boost export volumes.
2. Earning Foreign Exchange
• Exports are the main source of foreign exchange earnings for India.
• A strong foreign exchange reserve helps India:
1. Finance its imports (especially oil, defence equipment, and technology).
, 2
2. Maintain exchange rate stability.
3. Service its external debt obligations.
4. Build confidence among foreign investors.
• FTP therefore focuses on promoting high-value exports that generate maximum
foreign exchange.
3. Reducing Trade Deficit
• India consistently imports more than it exports, resulting in a trade deficit.
• One of the key objectives of FTP is to narrow this trade gap by:
1. Aggressively promoting exports.
2. Reducing dependence on imported goods through domestic production.
3. Encouraging import substitution in key sectors like electronics, defence, and energy.
4. A lower trade deficit reduces pressure on the current account and strengthens the
economy.
4. Employment Generation
• Export-oriented industries are major sources of employment, especially in sectors
like:
1. Textiles and garments.
2. Handicrafts and leather goods.
3. Agricultural processing.
4. IT and software services.
• FTP aims to create a trade environment that generates large-scale employment,
particularly for unskilled and semi-skilled workers in rural and semi-urban areas.
• By promoting labour-intensive export industries, the policy contributes to poverty
reduction and inclusive growth.
5. Economic Growth and Development
• Foreign trade acts as an engine of economic growth by:
1. Expanding the market for domestic producers beyond national boundaries.
2. Encouraging large-scale production which leads to economies of scale.
3. Attracting foreign investment into export-oriented sectors.
4. Stimulating industrial and agricultural activity linked to export demand.
• FTP is therefore seen as an instrument of overall national economic development,
not merely a trade regulation tool.
6. Diversification of Export Products
• One of the structural weaknesses of Indian exports is their concentration in a few
commodities.
• FTP aims to broaden the export basket by:
1. Encouraging exports of high-value manufactured goods.
, 3
2. Promoting technology-intensive and knowledge-based exports.
3. Supporting new sectors like defence exports, pharmaceuticals, and renewable energy
equipment.
4. Reducing over-dependence on traditional items like gems, jewellery, textiles, and
petroleum products.
5. A diversified export base makes India's trade earnings more stable and resilient.
7. Diversification of Export Markets
• India's exports are heavily concentrated in the USA, EU, and UAE.
• FTP seeks to explore and penetrate new markets such as:
1. Africa — a large, growing, and relatively untapped market.
2. Latin America — especially Brazil, Mexico, and Argentina.
3. Southeast Asia and ASEAN countries.
4. Central Asia and the CIS (Commonwealth of Independent States) region.
• Market diversification reduces vulnerability to economic downturns in any single
country or region.
8. Technological Upgradation of Export Industries
• To remain competitive globally, Indian exporters must produce high-quality goods
using modern technology.
• FTP supports technological upgradation by:
1. Allowing duty-free import of capital goods under the EPCG Scheme.
2. Encouraging investment in Export Oriented Units (EOUs) and Special Economic Zones
(SEZs).
3. Promoting innovation and quality improvement in export industries.
• This objective also aims to shift India's exports from low-value, primary goods to
high-value, processed and manufactured goods.
9. Simplification of Trade Procedures
• Complicated export procedures increase transaction costs and discourage small
exporters.
• FTP aims to simplify and streamline export-import procedures by:
1. Reducing documentation requirements.
2. Promoting online filing and digital customs clearance.
3. Introducing single-window clearance systems.
4. Making compliance easier especially for MSMEs (Micro, Small and Medium
Enterprises).
• The goal is to improve India's ranking in Ease of Doing Business and make trade more
accessible.
10. Integration with the Global Economy
, 4
• After joining the WTO in 1995, India committed to progressively opening its
economy.
• FTP aims to integrate India into the global trading system by:
1. Aligning Indian trade laws and standards with international norms.
2. Participating actively in multilateral trade negotiations.
3. Negotiating bilateral and regional Free Trade Agreements (FTAs) to gain better
market access.
4. Encouraging Indian businesses to become part of Global Value Chains (GVCs).
• This objective reflects India's ambition to be a major player in international trade, not
just a passive participant.
11. Support to MSMEs and Small Exporters
• A large number of Indian exporters are small and medium enterprises who face
specific challenges.
• FTP specifically aims to:
1. Provide easier access to export credit and finance.
2. Offer simplified compliance norms for small exporters.
3. Give them access to common infrastructure like testing labs, packaging centres, and
trade fairs.
4. Help MSMEs meet international quality and safety standards.
• Supporting MSMEs is crucial because they contribute significantly to both exports
and employment.
12. Promotion of Trade in Services
India is a global leader in services exports, particularly in:
• Information Technology (IT) and software.
• Business Process Outsourcing (BPO).
• Healthcare and medical tourism.
• Education, consulting, and financial services.
FTP recognises services as a key pillar of India's export strategy and aims to:
• Expand India's services export base.
• Improve ease of doing business for service exporters.
• Strengthen India's presence in global services markets.
Evolution of Foreign Trade Policy in India
INTRODUCTION
• The evolution of India's Foreign Trade Policy is a story of transition — from a closed,
controlled, and protectionist economy at the time of Independence to a liberalised,
globalised, and export-oriented economy in the post-1991 era. India's trade policy
Foreign Trade Policy & Major Problems of Indian Export Sector
INTRODUCTION
• Foreign trade refers to the exchange of goods and services between two or more
countries. It includes exports (selling goods abroad) and imports (buying goods from
abroad). For a developing economy like India, foreign trade plays a critical role in
economic growth, employment generation, and earning foreign exchange.
• Foreign Trade Policy (FTP) is the set of guidelines, rules, and regulations framed by
the Government of India to regulate and promote international trade. It is
announced by the Ministry of Commerce and Industry and is typically valid for a
period of 5 years.
• India's trade policy has evolved significantly — from a highly protectionist, import-
substitution model before 1991 to a liberalised, export-promotion model after the
New Economic Policy of 1991.
PART I: FOREIGN TRADE POLICY IN INDIA
Objectives of Foreign Trade Policy in India
INTRODUCTION
• The Foreign Trade Policy (FTP) is formulated by the Ministry of Commerce and
Industry, Government of India. It lays down the framework for regulating, facilitating,
and promoting India's international trade. The FTP is guided by a set of clear
objectives that reflect India's economic priorities, development goals, and position in
the global trading system.
• The objectives of India's Foreign Trade Policy can be understood under the following
heads:
1. Promotion of Exports
• The primary objective of FTP is to increase India's exports of both goods and services.
• The policy aims to make Indian products competitive in international markets by
reducing production costs and providing incentives to exporters.
• It targets doubling India's share in global merchandise trade and global services trade
within a defined timeframe.
• Special schemes like EPCG, Advance Authorisation, and Status Holder recognition are
designed specifically to boost export volumes.
2. Earning Foreign Exchange
• Exports are the main source of foreign exchange earnings for India.
• A strong foreign exchange reserve helps India:
1. Finance its imports (especially oil, defence equipment, and technology).
, 2
2. Maintain exchange rate stability.
3. Service its external debt obligations.
4. Build confidence among foreign investors.
• FTP therefore focuses on promoting high-value exports that generate maximum
foreign exchange.
3. Reducing Trade Deficit
• India consistently imports more than it exports, resulting in a trade deficit.
• One of the key objectives of FTP is to narrow this trade gap by:
1. Aggressively promoting exports.
2. Reducing dependence on imported goods through domestic production.
3. Encouraging import substitution in key sectors like electronics, defence, and energy.
4. A lower trade deficit reduces pressure on the current account and strengthens the
economy.
4. Employment Generation
• Export-oriented industries are major sources of employment, especially in sectors
like:
1. Textiles and garments.
2. Handicrafts and leather goods.
3. Agricultural processing.
4. IT and software services.
• FTP aims to create a trade environment that generates large-scale employment,
particularly for unskilled and semi-skilled workers in rural and semi-urban areas.
• By promoting labour-intensive export industries, the policy contributes to poverty
reduction and inclusive growth.
5. Economic Growth and Development
• Foreign trade acts as an engine of economic growth by:
1. Expanding the market for domestic producers beyond national boundaries.
2. Encouraging large-scale production which leads to economies of scale.
3. Attracting foreign investment into export-oriented sectors.
4. Stimulating industrial and agricultural activity linked to export demand.
• FTP is therefore seen as an instrument of overall national economic development,
not merely a trade regulation tool.
6. Diversification of Export Products
• One of the structural weaknesses of Indian exports is their concentration in a few
commodities.
• FTP aims to broaden the export basket by:
1. Encouraging exports of high-value manufactured goods.
, 3
2. Promoting technology-intensive and knowledge-based exports.
3. Supporting new sectors like defence exports, pharmaceuticals, and renewable energy
equipment.
4. Reducing over-dependence on traditional items like gems, jewellery, textiles, and
petroleum products.
5. A diversified export base makes India's trade earnings more stable and resilient.
7. Diversification of Export Markets
• India's exports are heavily concentrated in the USA, EU, and UAE.
• FTP seeks to explore and penetrate new markets such as:
1. Africa — a large, growing, and relatively untapped market.
2. Latin America — especially Brazil, Mexico, and Argentina.
3. Southeast Asia and ASEAN countries.
4. Central Asia and the CIS (Commonwealth of Independent States) region.
• Market diversification reduces vulnerability to economic downturns in any single
country or region.
8. Technological Upgradation of Export Industries
• To remain competitive globally, Indian exporters must produce high-quality goods
using modern technology.
• FTP supports technological upgradation by:
1. Allowing duty-free import of capital goods under the EPCG Scheme.
2. Encouraging investment in Export Oriented Units (EOUs) and Special Economic Zones
(SEZs).
3. Promoting innovation and quality improvement in export industries.
• This objective also aims to shift India's exports from low-value, primary goods to
high-value, processed and manufactured goods.
9. Simplification of Trade Procedures
• Complicated export procedures increase transaction costs and discourage small
exporters.
• FTP aims to simplify and streamline export-import procedures by:
1. Reducing documentation requirements.
2. Promoting online filing and digital customs clearance.
3. Introducing single-window clearance systems.
4. Making compliance easier especially for MSMEs (Micro, Small and Medium
Enterprises).
• The goal is to improve India's ranking in Ease of Doing Business and make trade more
accessible.
10. Integration with the Global Economy
, 4
• After joining the WTO in 1995, India committed to progressively opening its
economy.
• FTP aims to integrate India into the global trading system by:
1. Aligning Indian trade laws and standards with international norms.
2. Participating actively in multilateral trade negotiations.
3. Negotiating bilateral and regional Free Trade Agreements (FTAs) to gain better
market access.
4. Encouraging Indian businesses to become part of Global Value Chains (GVCs).
• This objective reflects India's ambition to be a major player in international trade, not
just a passive participant.
11. Support to MSMEs and Small Exporters
• A large number of Indian exporters are small and medium enterprises who face
specific challenges.
• FTP specifically aims to:
1. Provide easier access to export credit and finance.
2. Offer simplified compliance norms for small exporters.
3. Give them access to common infrastructure like testing labs, packaging centres, and
trade fairs.
4. Help MSMEs meet international quality and safety standards.
• Supporting MSMEs is crucial because they contribute significantly to both exports
and employment.
12. Promotion of Trade in Services
India is a global leader in services exports, particularly in:
• Information Technology (IT) and software.
• Business Process Outsourcing (BPO).
• Healthcare and medical tourism.
• Education, consulting, and financial services.
FTP recognises services as a key pillar of India's export strategy and aims to:
• Expand India's services export base.
• Improve ease of doing business for service exporters.
• Strengthen India's presence in global services markets.
Evolution of Foreign Trade Policy in India
INTRODUCTION
• The evolution of India's Foreign Trade Policy is a story of transition — from a closed,
controlled, and protectionist economy at the time of Independence to a liberalised,
globalised, and export-oriented economy in the post-1991 era. India's trade policy
