Pre independence period

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. 

1947 – 1972 (Export Pessimism)

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 expansion of exports in view of the limitations on the size of the foreign markets. It was also believed that 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 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.

1973 - 1991

In 1973, India was confronted with one of the most severe BOP crisis due to 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 imports 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.

• Simplified procedures were also introduced for imports of technology, raw materials and capital goods for exports.
• Export processing zones were established and promotional agencies set up to promote exports.
• Financial incentives for exports were enhanced and the exchange-rate policy used in support of exports.

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 end-Eighties exports were being 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 commensurate increase in tangible production of goods) spilled over in 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 elimination of anti-export in trade policies.

Post liberalisation period (1991 onwards)

The macro economic reform policies were introduced by the Government of India in July 1991 in the industrial, commercial and financial sectors. The trade policy reforms aimed at creating an environment for achieving a quick quantum jump in exports. Major changes were effected in the Exim Policy to serve this purpose. Commodity-specific as well as country-specific liberalization measures were resorted to, to promote further exports. The commerce ministry and the associated organisations were re-oriented to bring about a totally exporter-friendly climate.

• Exchange restrictions on current transactions and various types of quotas for imports of goods, with the exception of most consumer goods, have been abolished and
• the items subject to export restrictions have been drastically reduced.
• The exchange rate, after two substantial devaluations, is by and large determined by the market (although RBI has intervened in the market from time to time).
• Import duties, which were among the highest in the world, have been brought down progressively.
• The average tariff (weighted by volume of imports) has been reduced from 87% to 27%.

FOREIGN TRADE POLICY 2015-20

The new FTP 2015-20 aims at making India a significant partner in global trade. It pitches India as a friendly destination for manufacturing and exporting goods. Some of the key features of the new FTP are-

Merchandize exports from India (MEIS) to promote specific services for specific Markets Foreign Trade Policy

• FTP would reduce export obligations by 25% and give boost to domestic manufacturing
• FTP benefits from both MEIS & SEIS will be extended to units located in SEZs
• FTP 2015-20 introduces two new schemes, namely "Merchandise Exports from India Scheme (MEIS)" and "Services Exports from India Scheme (SEIS)". The 'Services Exports from India Scheme' (SEIS) is for increasing exports of notified services. These schemes (MEIS and SEIS) replace multiple schemes earlier in place, each with different conditions for eligibility and usage. Incentives (MEIS & SEIS) to be available for SEZs also.
• 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. Higher level of support to be provided to processed and packaged agricultural and food items under MEIS.
• Industrial products to be supported in major markets at rates ranging from 2% to 3%.
• Served From India Scheme (SFIS) will be replaced with Service Export from India Scheme (SEIS).
• Branding campaigns planned to promote exports in sectors where India has traditional Strength.
• SEIS shall apply to 'Service Providers located in India' instead of 'Indian Service Providers'.
• Business services, hotel and restaurants to get rewards scrips under SEIS at 3% and other specified services at 5%.
• Duty credit scrips to be freely transferable and usable for payment of customs duty, excise duty and service tax.
• Debits against scrips would be eligible for CENVAT credit or drawback also.
• Nomenclature of Export House, Star Export House, Trading House, Premier Trading House certificate changed to 1,2,3,4,5 Star Export House.
• The criteria for export performance for recognition of status holder have been changed from Rupees to US dollar earnings.
• Manufacturers who are also status holders will be enabled to self-certify their manufactured goods as originating from India.
• Reduced Export Obligation (EO) (75%) for domestic procurement under EPCG scheme.
• Online procedure to upload digitally signed document by Chartered Accountant/Company Secretary/Cost Accountant to be developed.
• Inter-ministerial consultations to be held online for issue of various licences.
• No need to repeatedly submit physical copies of documents available on Exporter Importer Profile.
• Validity period of SCOMET[1] export authorisation extended from present 12 months to 24 months.