send mail to support@abhimanu.com mentioning your email id and mobileno registered with us! if details not recieved
Resend Opt after 60 Sec.
By Loging in you agree to Terms of Services and Privacy Policy
Claim your free MCQ
Please specify
Sorry for the inconvenience but we’re performing some maintenance at the moment. Website can be slow during this phase..
Please verify your mobile number
Login not allowed, Please logout from existing browser
Please update your name
Subscribe to Notifications
Stay updated with the latest Current affairs and other important updates regarding video Lectures, Test Schedules, live sessions etc..
Your Free user account at abhipedia has been created.
Remember, success is a journey, not a destination. Stay motivated and keep moving forward!
Refer & Earn
Enquire Now
My Abhipedia Earning
Kindly Login to view your earning
Support
During British rule, trade was indeed an instrument of economic exploitation and there was a substantial drain of resources from India to Britain. ‘Free trade’ was used as a mechanism to transfer raw materials cheaply to Britain, which in turn processed them into final goods for export back to the colonies.
After independence, India was highly suspicious of trade as a positive instrument of development policy.
The early phase, which lasted up to about 1972-73, was one of extreme export pessimism. Planners felt that there was very little scope for the expansion of exports in view of the limitations on the size of the foreign markets. It was also believed that the terms of trade of developing countries were destined to deteriorate over time regardless of the policies of developing countries.
This was a crucial assumption as it firmly established a case for the discouragement of exports and for policies, which encouraged production for the domestic market. As it happened, however, the ‘export-pessimism’ thesis was not borne out by post-war developments in international trade. Trade in the 1950s and 1960s grew faster than world income and several developing countries showed sharp increases in their share of world trade. Exports of manufacturers from developing countries grew twice as fast as the industrial countries’ income in the 1960s and four times as rapidly in the 1970s.
By the late sixties, the domestic consequences of India’s trade isolation and loss of competitiveness were also becoming apparent. Domestic industrial production was stagnating, costs were rising, employment growth was slow, and industrial sickness was spreading. Unfortunately, an overhaul of trade policy was not possible as India, by then, was trapped in a low-level equilibrium, characterized by low growth, periodic external and domestic shocks (e.g. droughts and wars), and persistent balance of payments problems with little room for maneuver. By then a powerful domestic lobby had also emerged.
Among domestic industrial interests, which were opposed, to trade liberalization, there were thousands of small-scale units in all parts of the country, which provided substantial employment, and enjoyed total protection from competition from large domestic units or imports. Thus both practical considerations (e.g. shortage of foreign exchange) and political economy compulsions (e.g. labour and industrial interests) committed India to the continued pursuit of inward-looking and anti-trade policies.
In 1973, India was confronted with one of the most severe BOP crises due to a sharp rise in international oil prices. In addition to imports of oil, India had also become dependent on large imports of fertilizers, steel, non-ferrous metals, and capital goods. While import requirements were increasing faster than visualized, exports were stagnating. A re-examination of India’s export strategy could no longer be avoided. International assistance also becomes increasingly conditional on improvement in export performance. In the mid-seventies, a number of changes were made in the industrial and trade policies, which provided special treatment to exports. Thus, for example, it was provided that industrial capacity used for exports was not to be counted as part of licensed capacity.
For a while, these policies seemed to work, and export growth was quite robust in the second half of the Seventies, but then the trend did not last long. In this middle phase, which lasted until the end of the Eighties, exports were still regarded as something ‘exceptional’, and not as an integral part of domestic industrial policy. The basic framework of industrial and trade policies remained virtually unchanged.
In the end-Eighties exports were seen as an integral part of industrial and development policy. The policy then emphasized technological upgradation, increase in the size of the plants, freer imports, and domestic and international competition for the entire industrial sector as being essential for export promotion. With freer imports, the budget deficits brought about by expensive fiscal expenditure on the revenue account side (without a commensurate increase in tangible production of goods) spilled over into the BOP accounts and exacerbated the situation. A fundamental transformation of the trade regime was no longer sustainable. Most other countries and regions, including Latin America and China, which had followed similar trade policies as India in the fifties and sixties, had already liberalized trade and were benefiting from it. The Soviet Union had disintegrated, and India’s substantial barter trade with Eastern Europe was under threat. India’s fiscal situation had deteriorated and there was no scope for providing further direct or indirect budgetary subsidies for exports. Under these circumstances, sustained growth in exports over the long run was not feasible without a change in the incentive framework and the elimination of anti-export in trade policies.
In order to remove complexities and cumbersome procedures of India’s trade policy regime followed during the pre-reform period, substantial simplification and liberalization in all those policies were carried out in the reform period. In order to start the process, the tariff-line-wise import policy was announced for the first time on March 31, 1996, and accordingly, 6,161 tariff lines were made free by that time. The process was continued and this total reached 8,066 by March 2000. Thereafter, the Exim Policy 2000- 01 removed quantitative restrictions (QRs) on 714 items and after that, the Exim Policy 2001-02 removed QRs on the remaining 715 items.
Thus, quantitative restrictions on all import lines have been gradually withdrawn as per the commitment made by India to the World Trade Organisation (WTO).
During the pre-reform period, the tariff structure followed by the country was very complex and heavy. In order to rationalize the tariff structure, the Chelliah Committee published its final report in January 1993 and thereby advocated drastic reductions in import duties. The Committee felt that in order to give protection to Indian industries, the rupee depreciated considerably during the 1980s and early 1990s.
Accordingly, on the laws of the recommendations made by the Committee, the Government reduced the maximum rate of duty over the years. The Budget 1993-94 could reduce the rate from 115 percent to 85 percent. The process of reducing the rate was continued in successive budgets. Accordingly, the peak rate of import duty on non-agricultural goods now stands at only 10 percent.
From the very beginning, the extent of canalization of exports and imports was at a high degree as a large number of exports and imports was canalized through some public sector agencies in India. The Exim Policy of 1991 made an attempt at a progressive reduction in the extent of canalization.
Accordingly, 16 export items and 20 import items were decimalized. Later on, Exim Policy, 1992-97 also decentralized a number of imported items including nonferrous metals natural rubber, newsprint inter-mediated, and raw materials for fertilizers.
The Exim Policy of 1991 introduced major changes in the import licensing system through the replacement of administered licensing of imports through import entitlement. The system of supplementary licenses was discontinued and the unlisted OGL category was abolished.
The new policy strengthened the system of the advance license provided to exporters with duty-free access to inputs. The procedure followed for the import of capital goods was simplified. Moreover, the list of restricted items was reviewed, and accordingly, 98 items were shifted initially from the restricted list to the limited permissible list and 37 items were also shifted from the limited permissible list to the OGL list.
Successive trade policies have also continued this simplification strategy in respect of import licensing for the benefit of industrial units and exporters.
Another reform measure introduced in India was the convertibility of the rupee. In 1992-93 Budget rupee was made partially convertible. This was an inevitable move for expeditious integration of the Indian economy with the world economy. This attempt was followed by full convertibility on the trading account in 1993-94, and full convertibility on the current account in August 1994.
Later on, substantial capital account liberalization measures were also announced in recent years.
As per the present system, the exchange rate of the rupee in India is now market-determined (since March 1993). Accordingly, on the basis of demand and supply conditions, the exchange rate of the rupee is largely market-determined.
However, in times of necessity, the RBF intervenes in the market in order to check excess volatility, prevent speculative activities, and also for maintaining adequate foreign exchange reserves. Such a policy of exchange rate is known as managed floating.
The Exim Policy 1991 permitted Export Houses, Trading Houses, and Star Trading Houses to import a wide range of items. Accordingly, the Government is permitted to set up Trading Houses with 51 percent foreign equity for the promotion of exports.
Foreign Trade Policy 1992-97 provided Export Houses and Trading Houses with the benefit of self-certification under the advanced license system, which usually permits duty-free imports for exports. The same facility was followed in the subsequent policies.
Conventionally, India formulated foreign trade policy for five years. But the Foreign Trade Policy of 2015-20 was earlier extended till September 2022 and now, from October 2022, it has been extended further for 6 more months.
The policy provides a framework for increasing exports of goods and services as well as generation of employment and increasing value additions in the country in keeping with the 'Make in India' vision of the country.
In this policy, two new schemes MEIS and SEIS have been introduced.
Merchandise Export from India Scheme (MEIS) has been formed by merging the five previously existing schemes, namely
The above five schemes (which have now been merged into the MEIS) were there for rewarding merchandise exports with different kinds of duty scrips with varying conditions attached to their use. Under MEIS now there is no conditionality attached to the scrips issues.
E-Commerce of handicrafts, handlooms, books, etc., eligible for benefits of MEIS. Agricultural and village industry products to be supported across the globe at rates of 3% and 5% under MEIS. A higher level of support is to be provided to processed and packaged agricultural and food items under MEIS. Industrial products are to be supported in major markets at rates ranging from 2% to 3%;
Service Exports from India scheme (SEIS) has been introduced to replace Served From India Scheme (SFIS). SEIS applies to all service providers located in India instead of Indian Service Providers, as was the case earlier. So, the SEIS provides rewards to all service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider. The rate of reward under SEIS is based on net foreign exchange earned.
Another important feature of the current Foreign Trade Policy 2015-20 is that it has allowed the free transfer and use of duty credit scrips for payment of customs duty, excise duty, and service tax.
During the first part of reforms i.e., during the 1990s, Export Processing Zones (EPZs) were given the necessary support by providing concessions for raising their volume of exports. Moreover, the Export-Oriented Units (EOUs) scheme which was introduced in early 1981, was also granted several concessions in maintaining their locations, infrastructure, and volume of business.
EPZs, in India, are specified areas where quotas and tariffs are eliminated in the hope of attracting foreign investments and new business. EPZs can also be defined as manufacturing centres that are labour intensive where goods are imported, and from where finished products are exported. The main objective behind the setting up of EPZs in India is to encourage export and foreign exchange earnings. The setting up of EPZs in India has been encouraged since the 1960s.
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone model in promoting exports, with Asia's first EPZ set up in Kandla in 1965.
In order to overcome the shortcomings of EPZs, and to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000 which was again proposed by the Export and Import Policy of 2000. This policy was intended to make SEZs an engine for economic growth, supported by quality infrastructure, and an attractive fiscal package both at the central and state level with a single-window clearance and with minimum possible regulations.
In order to instill confidence in investors and signal the government’s commitment to a stable SEZ policy regime and also to generate greater economic activity and employment, the Special Economic Zones Act, 2005 was passed in Parliament in May 2005.
The SEZ Act, 2005, supported by SEZ Rules, came into effect on February 10, 2006. The main objectives of the SEZ Act are the generation of additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities, and development of infrastructure facilities.
An SEZ is a specially delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. So, SEZs are geographical regions that have economic laws different from a country's typical economic laws.
The Union Cabinet in 2016 had approved the setting up of 14 mega CEZs under the National Perspective Plan of Sagarmala Programme. Its aim was to promote the development of industrial clusters around ports, encourage port-led development, reduce logistics cost and time for movement of cargo, enhance the global competitiveness of the country’s manufacturing sector and create hubs of job creation.
CEZs are spatial economic regions comprising groups of coastal districts or districts with strong linkage to ports in the region to tap into synergies with planned industrial corridor projects. These zones are expected to provide a business-friendly ecosystem including ease of doing business, ease of exporting and importing, swift decisions on applications for environmental clearances, and speedy water and electricity connections.
CEZ will be developed as part of the plan for developing 14 such industrial clusters to spur manufacturing and generate jobs. The plan envisages a total investment of Rs 15,000 crore in the first phase and the creation of more than 1.5 lakh jobs.
The idea is to attract large firms interested in serving export markets as they will bring with them capital, technology, good management practices, and links to world markets. This in turn will help create an ecosystem around them in which productive small and medium firms will emerge and flourish. The first CEZ has been established at JNPT Mumbai.
The concept of Agriculture Export Zones (AEZs) was introduced by the Exim Policy, 2001 in order to give primacy to the promotion of agricultural exports and also adopt a reorganization of our export efforts on the basis of specific products and that too of specific geographical areas. This policy adopted an end-to-end approach of integrating the entire process starting from the stage of production to marketing.
The AEZs would maintain state-of-the-art services like pre-post-harvest treatment and operations, plant protection, processing packaging, storage, and also on research and development. Under AEZs, the exporters can avail of different export promotion schemes introduced under Exim Policy and can also get recognition as status holders.
The major components of AEZ concept are:
Benefits of AEZ include
The FTP, 2004-09 incorporated a new scheme for establishing Free Trade and Warehousing; Zones (FTWZs) in order to create trade-related infrastructure for facilitating the import and export of goods and services with transactional freedom. Foreign direct investment of up to 100 percent is permitted in the development and establishment of the Zones and their related infrastructures.
In 2001-02, Market Access Initiative Scheme was launched in order to undertake marketing promotion efforts abroad. The scheme arranges in-depth market studies for select products in some chosen countries in order to generate data for the promotion of exports from India. This scheme also helps in displaying Indian brands or products in the international market.
The scheme shall also assist in upgrading the quality of products as per the requirement of the overseas market and also in making publicity, campaigns etc.
The Foreign Trade Policy, 2004-09 incorporated specific strategies (known as Special Focus Initiatives) for five important sectors: Agriculture, handicrafts, handlooms, gems and jewelry, and the leather and footwear sector. For example, in agriculture, a new scheme, i.e. ViseshKrishiUpajYojonawas introduced to boost exports of fruit, vegetables, flowers, minor forest produce, and their value-added products.
In respect of the handlooms and handicrafts sector, the policy also announced the establishment of a new Handicraft Special Economic Zone.
Served from India brand will be created in order to catapult India as a major global services hub throughout the world;
Creating an exclusive Export Promotion Council for services to tap opportunities in key markets;
Reduction of Transaction Cost and Procedural Simplification.
In order to reduce transactional casts and for attaining procedural simplification, the FTP, 2004-09 announced a number of rationalization measures.
These measures include:
In order to liberalize imports and promote exports, a large number of tax benefits and exemptions have been granted. These include reducing the peak rate of customs duty to 10 percent; duty reduction for the information technology sector; granting concessions or 10- year tax holidays to the developers of SEZs; tax benefits to exporters; reduction in the customs duty on certain specified equipment etc.
The Minerals and Metals Trading Corporation of India Limited (MMTC), established in 1963, occupies a prominent position in India’s foreign trade. Export of iron, manganese and chrome ores, and among finished fertilizers, only import of urea is canalised. It continues to be the largest non-oil importer in the country and has made considerable headway in increasing its imports. It has also emerged as the largest bullion trader in the sub-continent, importing and selling the largest quantity of gold and silver. The Mica Trading Corporation of India Limited (MITCO) was incorporated in 1973 as a wholly owned subsidiary of MMTC to look after the business of mica exclusively. Due to the steady decline in turnover, which had turned negative, BIFR ordered the merger of MITCO with MMTC on 1 April 1995.
State Trading Corporation of India Limited is a premier international trading company owned by the Government of India. Set up in 1956, it undertakes export, import and domestic trade in a number of items in competition with private trade and industry. It also imports many mass consumption items entrusted to it by the Government of India in view of domestic shortages.
Project and Equipment Corporation of India Limited (PEC) is a public sector enterprise under the Ministry of Commerce. From being a canalising agency for the export of Railway Rolling Stock, PEC has established itself as a leading exporter of semi-turnkey projects and engineering equipment. More recently, it has also diversified itself into other trading activities such as third-country trade, commodity exports and imports of raw materials to support the export activities of associate manufacturers.
Export Credit Guarantee Corporation Limited was originally set up as Export Risk Insurance Corporation in July 1957. It was transformed into Export Credit and Guarantee Limited in 1964. In December 1983, it was renamed Export Credit Guarantee Corporation of India Limited. The primary objective of the Corporation is to promote exports from India by providing export credit insurance and guarantee facilities to Indian exporters and commercial banks.
Spices Trading Corporation Limited, formerly known as Cardamom Trading Corporation Limited was incorporated under the Companies Act, of 1956 in October 1982, but the actual trading activities commenced in September 1983. The main objectives of the Corporation are: to carry on domestic and international trade in spices and its products; to process and cure spices and manufacture its products; to support, protect, maintain, increase and promote the production of its products and to promote research and development of spices and its products.
There are a number of autonomous bodies under the Ministry of Commerce connected with the development of exports and export promotion activities. There are five statutory commodity boards responsible for the production, development and export of tea, coffee, rubber, spices and tobacco.
Export Inspection Council, Delhi a statutory body is responsible for the enforcement of quality control and compulsory pre-shipment inspection of various exportable commodities.
Indian Institute of Foreign Trade, New Delhi, a registered body, is Commerce engaged in training of personnel in modern techniques of international trade; organisation of research in problems of foreign trade; organisation of marketing research, area surveys, commodity surveys, and dissemination of information arising from its activities relating to research and market studies.
Indian Institute of Packaging, Mumbai, a registered body set up on 14 May 1966, undertakes research on raw materials for packaging industries, organises training programmes on packaging technologies and stimulates consciousness on the need for good packing, etc.
There are at present 20 export promotion councils, out of which 11 are under the Ministry of Commerce. They are non-profit organisations registered under the Companies Act/Society Registration Act. They promote and develop the exports of the country. Each council is responsible for the promotion of a particular group of products, projects and services. Agricultural and Processed Food Products Export Development Authority (APEDA), which came into existence in 1986, acts as a focal point for agricultural exports and concentrates on the marketing of processed foods in value-added form. It also introduces effective quality-control measures. Marine Product Export Development Authority, Cochin, a statutory body set up in August 1972, is responsible for the development of the marine products industry with special reference to exports.
The Federation of India Export Organisation, New Delhi is an apex body of various export promotion organisations and institutions. It functions as a primary servicing agency to provide integrated assistance to the Government recognised export houses and as a central coordinating agency in respect of export promotional efforts in the field of consultancy services in the country.
Indian Council of Arbitration, New Delhi set up under the Societies Registration Act, promotes arbitration as a means of settling commercial disputes and popularising arbitration among traders, particularly those engaged in international trade.
Trade Development Authority (TDA) has been merged with the Trade Fair Authority of India (TFAI) to form a new organisation under the name of the India Trade Promotion Organisation (ITPO) in January 1992. The main objectives of the Organisation are to develop and promote exports, imports and upgradation of technology through the medium of fairs to be held in India and abroad, to undertake publicity through the print and electronic media, to assist Indian companies in meets, contact promotion programmes and integrated marketing programmes for specific products in specific markets.
Indian trade portal (www.indiantradeportal.in) was launched on 8 December 2014. This portal provides vital information to the Indian industry on forty-two export markets and also a mechanism to take advantage of the increased market access provided through various regional and bilateral free trade agreements (FTA) and comprehensive economic cooperation/partnership agreements (CECA/CEPA). The information is provided in a user-friendly manner in four easy steps for exporters and importers to access the portal, which will contribute to the ease of doing business for trade and industry. This portal makes available important data like (i) most favoured nation (MFN) tariff, (ii) preferential tariff, (iii) Rules of Origin (RoO), and (iv) non-tariff measures (SPS/TBT) for use of exporters and importers at one place, in respect of countries with which we have FTAs. Consequently, it facilitates India's exports and will also help exporters to utilize the FTAs and access the preferential tariffs available to them in various countries to capture export opportunities.
For the purpose of promotion of India's foreign trade, India has entered into FRAs and PTAs with a number of countries as given hereunder:
For more trade agreements, India is in negotiation with Canada, the UK, the EU, and the Gulf Cooperation Council.
India's overall exports in 2020-21 were near $500 billion as against $526.55 billion in 2019-20 registering negative growth. For the period April-December 2021 exports were estimated at $479.07 billion as against $351.47 billion during April-December 2020, registering a positive growth of 36.31 percent.
Overall (merchandise and services combined) exports to GDP ratio showed a declining trend over the last few years. In 2020-21, the ratio stood at 18.7%. Overall imports in 2020-21 were projected at $511.96 billion, exhibiting a negative growth of (–) 15.09% over the same period last year. For the period April-December 2021 imports were estimated at $547.12 billion as against $347.76 billion during April-December 2020, registering a positive growth of 57.33% .
Source: Annual Report 2021-22 (Department of Commerce)
By: Abhipedia ProfileResourcesReport error
Access to prime resources
New Courses