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Foreign Trade Policy of India

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Foreign Trade Policy of India

April, 2016


The integration of the domestic economy through the twin channels of trade and capital flows has accelerated in the past two decades which in turn led to the Indian economy growing from Rs 32 trillion (US$ 474.37 billion) in 2004 to about Rs 129.57 trillion (US$ 1.92 trillion) by 2015. Simultaneously, the per capita income also nearly trebled during these 11 years. India’s trade and external sector had a significant impact on the GDP growth as well as expansion in per capita income.

Recently, India overtook Italy, Germany and Bangladesh to emerge as the world's second largest textile exporter, as per the data released by Apparel Export Promotion Council (AEPC). According to The Cotton Textiles Export Promotion Council (Texprocil), India’s textile and clothing exports stood at US$ 41.4 billion in 2015 as compared to US$ 39.3 billion in 2014, growing by 5.34 per cent over the previous year.

According to data from the Ministry of Commerce and Industry, India has maintained its lead over China in pharmaceutical exports with a year-on-year growth of 7.55 per cent to US$ 12.54 billion in 2015.

According to Ms Nirmala Sitharaman, Minister of State (Independent Charge) for Commerce and Industry, the Government of India is keen to grow exports and provide more jobs for the young, talented, well-educated and even semi-skilled and unskilled workforce of India.

Capital Inflows

According to data released by the Reserve Bank of India (RBI), India's foreign exchange reserves were US$ 365.82 billion in the week up to August 12, 2016.

Foreign Direct Investments (FDI)

During April 2000–March 2016, India received total foreign investment (including equity inflows, re-invested earnings and other capital) worth US$ 424.167 billion. The country was one of the top destinations for FDI inflows from Asian countries, with Mauritius contributing 33.24 per cent, Singapore 15.9 per cent and the UK contributing 8.01 per cent of the total foreign inflows.

Foreign Institutional Investors (FIIs)

FIIs net investments in Indian equities and debt stood at US$ 4.8 billion in January-July 2016. FIIs invested net US$ 43.5 billion in FY 2014-15 which was their highest investment in any fiscal year so far. Of the total investment, US$ 26.3 billion was invested in debt while the rest US$ 17.2 billion was invested in equities.

External Sector

India and Kenya have signed seven agreements, such as in the fields of double taxation avoidance and defence cooperation, to strengthen the bilateral relations, which will also be boosted by the Indian government extending the concession line of credit of US$ 44.95 million to Small and Medium Enterprises (SMEs) and textile industry of Kenya.

The Jawaharlal Nehru Port (JNPT) has become the first port in the country to implement logistics data tagging of containers, which will help importers and exporters track their goods in transit through logistics data bank service.

The Government of India has successfully completed the double taxation avoidance agreement (DTAA) negotiations with the Government of Cyprus, which is expected to further develop the trade and economic links between the two countries.

The Reserve Bank of India (RBI) has allowed start-ups, with a subsidiary abroad, to open foreign currency accounts with a bank outside India for crediting foreign exchange earnings from exports and sales made by them.

India's current account deficit (CAD) narrowed to a seven year low of US$ 300 million during January-March 2016, as against US$ 700 million during the same period last year, according to data from the Reserve Bank of India (RBI).

The Ministry of Finance is planning to ease the process for importers by uniting and expanding the scope of the Accredited Clients Programme (ACP) and the Authorised Economic Operator (AEO) scheme, which will extend direct port transfers, thereby allowing members to move their cargo as it arrives at a land or sea port to a warehouse without checks.

The Government of India has increased the validity of free sale certificates, which are required by domestic medical device manufacturers for selling their products abroad, to two years, thereby encouraging exports of medical devices from India.

India has expressed interest in signing a preferential trade agreement with Iran once international sanctions on the Persian Gulf nation are lifted which would make it India's first trade agreement with a country in West Asia.

The Government of India plans to build five new railway links with Nepal, which will boost India's economic links with its neighbouring country and promote growth, employment and prosperity in the region.

The Union Cabinet has approved a proposal to provide US$ 150 million credit from Export Import Bank of India (EXIM Bank) for the development of Chabahar Port in Iran.

India and China plan to undertake a joint study on the impact of regional trade agreements, to be conducted by India’s NITI Aayog and China's Development Research Centre (DRC).

India and South Africa are considering prospect of setting up a joint venture (JV) for mining and owning coal blocks in South Africa. India and the United Arab Emirates (UAE) will set up a joint working group to forge stronger linkages in the hydrocarbon, chemicals and fertiliser sectors. India is looking to develop the Chabahar port project in Iran by signing an international transit corridor agreement with Iran and Afghanistan.

India and Belarus set a trade target of US$ 1 billion by 2018 during the Seventh Session of the India-Belarus Intergovernmental Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation.

The US has restored its program for concessional duty treatment to Indian products, called ‘Generalised System of Preferences’, till 2017.

India and Japan are expected to sign a pact of cooperation in the field of intellectual property. The pact will aim to enhance efforts to support innovation in both the countries and will be renewed automatically every four years. India and Poland have set an ambitious target to increase bilateral trade from US$ 2.3 billion in 2014 to US$ 5 billion by 2018 at the fourth session of the bilateral joint commission on economic cooperation held in Warsaw. India was praised by several members of the World Trade Organisation (WTO) for following liberal and open macroeconomic policies while increasing its global presence at the same time.

During the visit of Mr Vladimir Putin, President of Russia, to India, the two countries signed several agreements, in areas spanning civil nuclear cooperation, defense and energy.

Foreign Trade Policy

All export and import-related activities are governed by the Foreign Trade Policy (FTP), which is aimed at enhancing the country's exports and use trade expansion as an effective instrument of economic growth and employment generation.

The Department of Commerce has announced increased support for export of various products and included some additional items under the Merchandise Exports from India Scheme (MEIS) in order to help exporters to overcome the challenges faced by them.

The Central Board of Excise and Customs (CBEC) has developed an 'integrated declaration' process leading to the creation of a single window which will provide the importers and exporters a single point interface for customs clearance of import and export goods.

As part of the FTP strategy of market expansion, India has signed a Comprehensive Economic Partnership Agreement with South Korea which will provide enhanced market access to Indian exports. These trade agreements are in line with India’s Look East Policy. To upgrade export sector infrastructure, ‘Towns of Export Excellence’ and units located therein will be granted additional focused support and incentives.

The Reserve Bank of India (RBI) has simplified the rules for credit to exporters, through which they can now get long-term advance from banks for up to 10 years to service their contracts. This measure will help exporters get into long-term contracts while aiding the overall export performance.

The Government of India is expected to announce an interest subsidy scheme for exporters in order to boost exports and explore new markets.

Road Ahead

India is presently known as one of the most important players in the global economic landscape. Its trade policies, government reforms and inherent economic strengths have attributed to its standing as one of the most sought after destinations for foreign investments in the world. Also, technological and infrastructural developments being carried out throughout the country augur well for the trade and economic sector in the years to come.

Boosted by the forthcoming FTP, India's exports are expected reach US$ 750 billion by 2018-2019 according to Federation of India Export Organisation (FIEO). Also, with the Government of India striking important deals with the governments of Japan, Australia and China, the external sector is increasing its contribution to the economic development of the country and growth in the global markets. Moreover, by implementing the FTP 2014-19, by 2020, India's share in world trade is expected to double from the present level of three per cent.

Exchange Rate Used: INR 1 = US$ 0.0149 as on September 02, 2016