Concept Page
Foreign Trade Policy
The Foreign Trade Policy (FTP) is a set of guidelines issued by a country's government to regulate and promote its international trade activities. It outlines rules and regulations for imports and exports, including tariffs, taxes, and other trade barriers. For instance, India's FTP has been instrumental in increasing its exports, with the country's exports growing from $71 billion in 2001 to over $520 billion in 2020.
Foreign Trade Policy (FTP) is the sovereign framework through which a government directs, regulates, and incentivises the movement of goods and services across its borders. It codifies tariff structures, licensing requirements, export‑promotion schemes and anti‑dumping measures, thereby shaping a nation’s external economic posture. By translating macro‑economic goals into actionable trade rules, the FTP becomes a pivotal lever for export growth, import substitution and integration into global value chains.
Historical Background
The first comprehensive FTP in India was issued in 1991, immediately after the 1991 balance‑of‑payments crisis that prompted the liberalisation agenda. Enacted under the Foreign Trade (Development and Regulation) Act, 1992, the policy replaced the earlier import‑licence regime with a more market‑oriented approach, reducing the average most‑favoured‑nation (MFN) tariff from 13.5 % in 1991 to 7.5 % by 2020. Subsequent revisions—1994, 1997, 2000, 2002, 2004, 2006, 2009, 2015‑16 and 2020‑25—have each introduced new incentive schemes, sector‑specific liberalisations and compliance mechanisms, reflecting evolving global trade dynamics and domestic industrial priorities.
Mechanism and Institutional Framework
The Directorate General of Foreign Trade (DGFT), a wing of the Ministry of Commerce and Industry, operationalises the FTP through notifications, licences and electronic portals such as the Automated Export System (AES). Under Section 3 of the 1992 Act, the DGFT issues Export Promotion Capital Goods (EPCG) authorisations, duty‑drawback certificates and RoDT (Remission of Duties and Taxes) scrips, while also maintaining the Restricted List of items that require import licences. Parallel bodies—the Office of the Additional Chief Secretary (Trade) and the Customs, Excise and Service Tax (CEST) department—coordinate customs valuation, anti‑dumping duties and compliance audits, ensuring that policy intent translates into on‑the‑ground trade flows.
Key Provisions
The FTP 2015‑16 introduced the RoDT scheme, replacing the earlier Merchandise Exports from India Scheme (MEIS) with a credit‑based system that refunds customs duties on inputs used for exported goods. The 2020‑25 policy expanded this to include service‑related inputs, allowing exporters of software, engineering and tourism services to claim duty remission on capital equipment. Import‑related provisions retain a dual‑track system: a liberalised “open general” list covering 85 % of import value, and a “restricted” list where licences are issued on a case‑by‑case basis, often accompanied by anti‑dumping duties calibrated to World Trade Organization (WTO) rulings. Export incentives also feature interest subvention of up to 2 % per annum on pre‑shipment credit, and a “Market Access Initiative” that funds participation in overseas trade fairs.
India’s Journey under the FTP
From $71 billion in merchandise exports in FY 2001‑02, India’s export basket swelled to $520 billion in FY 2020‑21, a seven‑fold increase driven largely by pharmaceuticals, engineering goods and services. The share of services in total exports rose from 30 % in 2005 to over 45 % in 2022, reflecting the FTP’s emphasis on knowledge‑intensive sectors. Bilateral milestones—such as the 2023 Preferential Trade Agreement with Ecuador and the 2022 Comprehensive Economic Partnership with the United Arab Emirates—were negotiated under the FTP’s strategic‑sector clause, which earmarks 15 % of export incentives for “strategic” products like defence equipment and renewable‑energy components. The policy’s “Make in India” thrust, codified in the 2020‑25 edition, set a target of $1 trillion in combined merchandise and services exports by FY 2030, with quarterly monitoring reports published on the DGFT website.
International Comparison and Significance
While the United States relies on the Export Administration Regulations (EAR) and the European Union operates under the Common Commercial Policy, India’s FTP is distinctive for its explicit credit‑based duty remission and its integration of services incentives within a single legislative instrument. WTO data shows that India’s average applied tariff of 7.5 % in 2020 ranks below the global average of 9.5 %, underscoring the policy’s liberalisation impact. By lowering trade barriers and offering targeted subsidies, the FTP has contributed to exports accounting for roughly 10 % of India’s GDP in 2022, a proportion comparable to the United Kingdom’s 10.5 % share. The policy’s ability to steer capital flows, diversify export destinations and nurture nascent industries makes it a cornerstone of the country’s economic strategy and a model for emerging economies seeking to balance openness with strategic protection.