Trade Analytics

Foreign Trade Policy of India

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Last updated: Oct, 2019

Introduction

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 India’s GDP reaching Rs 167.73 trillion (US$ 2.30 trillion) in 2017-18*. Simultaneously, the per capita income also nearly trebled during these years. India’s trade and external sector had a significant impact on the GDP growth as well as expansion in per capita income. Provisional estimates of India’s GDP during the 2018-19 stood at Rs 190.10 trillion (US$ 2.72 trillion). As per the estimates of Gross Domestic Product (GDP) for the first quarter (Q1) of 2019-20, the growth of real GDP for Q1 of 2019-20 is estimated at 5 percent.

Total exports from India (Merchandise and Services) registered a growth of 1.93 per cent year-on-year during April-September 2019 to US$ 267.21 billion, while total imports estimated to be US$ 312.16 billion, exhibiting a negative growth of 3.15 per cent according to data from the Ministry of Commerce & Industry.

The merchandise export stood at Rs 11,16,766.77 crore (US$ 159.57billion) during April-September 2019 and imports reaching Rs 17,01,997.27 crore (US$ 243.28 billion) for the same period.

The estimated value of services export for April-August 2019 stood at US$ 89.52 billion and import is US$ 57 billion.

Thus, the overall trade deficit for April-September 2019 is estimated at US$ 44.95 billion.

According to Mr Piyush Goyal, Minister 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

India's foreign exchange reserves were Rs 30,45,895 crore (US$ 428.57 billion) in the week up to September 20, 2019, according to data from the RBI.

External Sector

  • In September 2019, four Memorandum of Understanding (MoUs) were signed between India and Mongolia focusing on cultural exchange protocol, disaster management, space exploration and in field of animal health and dairy.
  • In September 2019, Liquefied Natural Gas (LNG) importer Petronet entered into agreement with US LNG developer Tellurian Inc. and invest US$ 2.5 billion.
  • In August 2019, four Memorandum of Understanding (MoUs) were signed between India and France focusing on skill development and vocational training, renewable energy, IT services and space research.
  • In June 2019, India and Kyrgyzstan signed 15 agreements in main areas, including defence, trade and investment and health.
  • In April 2019, India signed a memorandum of understanding (MoU) with the National Bank for Agriculture and Rural Development Consultancy Service (NABCONS) for establishing the India-Africa Institute of Agriculture and Rural Development (IAIARD) in Malawi, South Africa.
  • In December 2018, India and the UAE signed currency swap agreement to boost trade and investment ties between the two countries.
  • In November 2018, India and Iran had signed a bilateral agreement to settle oil trades in Indian currency through public sector bank United Commercial Bank (UCO) Bank.
  • In June 2018, a Memorandum of Understanding (MoU) was signed between the Governments of India and China to export non-basmati rice to China. As of October 2018, total 24 mills got clearance to export the same.
  • In August 2018, US upgraded India’s status as a trading partner on par with its North Atlantic Treaty Organization (Nato) allies.

Foreign Trade Policy

  • In the Mid-Term Review of the Foreign Trade Policy (FTP) 2015-20 the Ministry of Commerce and Industry has enhanced the scope of Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS), increased MEIS incentive raised for ready-made garments and made- ups by 2 per cent, raised SEIS incentive by 2 per cent and increased the validity of Duty Credit Scrips from 18 months to 24 months.
  • In August 2019, Ministry of Commerce plans to introduce new foreign trade policy aimed at providing incentives and guidelines for increasing export in next five financial years 2020-25.
  • As of December 2018, Government of India is planning to set up trade promotion bodies in 15 countries to boost exports from Small and Medium Enterprises (SME) in India.
  • In September 2018, Government of India increased the duty incentives for 28 milk items under the Merchandise Export from India Scheme (MEIS).
  • 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.
  • 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.

*Provisional estimates at current prices

Note: Conversion rate used as on August 2019, Re 1 = US$ 0.014056