Trade Policy in India

India’s trade policy framework has undergone a structural shift from a highly restrictive, inward-looking regime to a deregulated, outward-oriented model deeply integrated with global supply chains.

Pre-1991 Era: Import Substitution and Inward-Looking Economy

Prior to the 1991 economic crisis, India’s trade architecture was governed by the structural philosophy of import substitution and the strict regulations of the Industries (Development and Regulation) Act, 1951.

• The Regulatory Framework: Trade was tightly regulated via the Import and Export Control Act of 1947. Quantitative Restrictions (QRs), high tariff walls, complex licensing, and the “License-Permit Raj” intentionally discouraged imports to promote domestic self-reliance.
• Economic Impact: High levels of protectionism insulated domestic industries from global competition, which led to capital inefficiencies, technological stagnation, low export competitiveness, and chronic balance of payments vulnerability.

Post-1991 Era: Liberalization, Globalization, and Export Promotion

The balance of payments crisis of 1991 prompted a comprehensive overhaul of the trade policy as a core component of the Structural Adjustment Programme (SAP).

• The Policy Shifts: The Export-Import (EXIM) Policy of 1992 initiated the systematic dismantling of Quantitative Restrictions, significantly compressed customs tariff structures, and established a market-determined exchange rate system system through the Liberalized Exchange Rate Management System (LERMS).
• Institutional Shift: The regulatory paradigm transitioned from controlling imports to actively facilitating exports. This phase prioritized structural integration with the global economy, the attraction of Foreign Direct Investment (FDI), and the modernization of trade logistics.

Foreign Trade Policy (FTP) 2023: Architectural Shift

Launched by the Ministry of Commerce and Industry, the Foreign Trade Policy 2023 represents a fundamental break from traditional, time-bound policy frameworks.

Shift to an Open-Ended Policy Dynamic

Unlike previous policies that operated within strict five-year lifecycles, FTP 2023 is open-ended with no fixed end date. It is updated dynamically based on real-time feedback, global macroeconomic shocks, and evolving domestic capabilities.

The Four Structural Pillars of FTP 2023

• Incentive to Remission: Moving completely away from direct financial subsidies to WTO-compliant duty remission and tax neutrality mechanisms.
• Export Promotion through Collaboration: Enhancing institutional partnerships between exporters, state governments, district administrations, and Indian foreign missions.
• Ease of Doing Business: Lowering transaction costs for MSMEs through complete automation, digitized process re-engineering, and paperless algorithmic trade approvals.
• Emerging Areas: Formulating dedicated regulatory architectures for e-commerce exports, peripheral tech trade, and the internationalization of the Indian Rupee (INR).

Macro-Economic Targets and Vision 2030

• The Target: Achieve a combined value of US2 trillion in total exports (comprising US 1 trillion in merchandise and US1 trillion in services) by the year 2030. </li> <li> <b>Strategic Baseline:</b> This represents a massive scaling up from the baseline performance achieved in FY 2024-25, where India reached a historic high of US 825.25 billion in total exports (comprising US437.71 billion in merchandise and US 387.54 billion in services).

Key Operational Initiatives under FTP 2023

Districts as Export Hubs (DEH)

This initiative decentralizes trade governance by identifying export-worthy products and services at the grassroots level across India’s districts.

• Institutional Framework: Establishes dedicated State Export Promotion Committees (SEPC) and District Export Promotion Committees (DEPC).
• Operational Mandate: Every district is required to draft a specific District Export Action Plan to address local infrastructure bottlenecks, simplify logistics, and integrate traditional crafts, agricultural clusters, and small-scale manufacturing directly into global value chains.

Towns of Export Excellence (TEE)

Industrial clusters producing goods above a specific financial threshold are designated as TEEs to receive specialized central infrastructure funding.

• New Designations: FTP 2023 designated four new towns—Faridabad (Apparel), Mirzapur (Handmade Carpets), Moradabad (Handicrafts), and Varanasi (Handloom & Handicrafts)—bringing the total number of operational TEEs in India to 43.
• Policy Benefits: TEEs receive priority financial access under the Market Access Initiative (MAI) scheme and are entitled to avail Common Service Provider (CSP) benefits under the Export Promotion Capital Goods (EPCG) scheme to lower capital upgrading costs.

Institutionalization of E-Commerce Exports

Recognizing the massive potential of cross-border digital retail, the policy outlines a comprehensive roadmap to build specialized e-commerce trade infrastructure.

• Financial Cap Revisions: The individual consignment-wise value limit for e-commerce exports allowed via couriers was doubled from ₹5 lakh to ₹10 lakh.
• E-Commerce Export Hubs (ECEH): Establishes dedicated, centralized geographic hubs with specialized facilities to handle cross-border storage, customs clearance, returns processing, payment reconciliation, and logistical consolidation.

SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies)

India has systematically streamlined its export control licensing framework to align with multilateral export control regimes.

• Strategic Integration: The policy ensures a robust dual-use technology monitoring framework, facilitating the export of controlled high-end items and defense-related components while strictly fulfilling India’s obligations under international non-proliferation treaties.

Key Trade Promotion and Duty Remission Schemes

RoDTEP (Remission of Duties and Taxes on Exported Products)

• Objective: Replaced the WTO-non-compliant Merchandise Exports from India Scheme (MEIS). It ensures that hidden, non-refunded domestic taxes and embedded levies incurred during the manufacturing process are systematically credited back to the exporter.
• Scope: Operates on an entirely digitized ledger mechanism, ensuring that Indian exports are completely tax-neutral in global consumer markets.

RoSCTL (Rebate of State and Central Taxes and Levies)

• Objective: A sector-specific variant of duty remission dedicated exclusively to apparel, garments, and made-ups to maintain international price competitiveness in highly sensitive textile segments.

Advance Authorisation Scheme

• Objective: Allows the duty-free import of raw materials and physical inputs that are directly used in the manufacturing of final export products.
• Operational Mechanism: Monitored strictly through standard input-output norms (SION), eliminating upfront capital blocks for manufacturing exporters.

EPCG (Export Promotion Capital Goods) Scheme

• Objective: Facilitates the import of high-end capital goods and advanced machinery at zero customs duty to encourage technological upgrades in Indian factories.
• Conditionality: Exporters availing this scheme must fulfill a mandatory export obligation equivalent to 6 times the duty saved, to be completed within a strict timeline of 6 years.

Institutional Frameworks for Trade Promotion

• SEZ (Special Economic Zones): Governed by the SEZ Act of 2005, these are designated, duty-free enclaves treated as foreign territories for tariff purposes, designed to attract FDI and boost manufacturing.
• EOUs (Export Oriented Units): Standalone manufacturing units operating under an identical complementary framework to SEZs but enjoying geographic flexibility to locate anywhere in India near specific raw material bases.

India’s Trade Agreements and Economic Integration

Comprehensive Economic and Trade Agreement (CETA) with the UK

• Strategic Core: Signed and operationalized as part of India’s aggressive pursuit of deep bilateral trade pacts. It provides immediate duty-free market access for key Indian labor-intensive sectors such as textiles, footwear, leather, gems, and jewelry.
• Services and Mobility Architecture: Features a specific Double Contribution Convention that prevents double taxation on short-term social security contributions for Indian professionals on assignments in the UK, alongside streamlined entry parameters for skilled workers.

Status of Other Major Free Trade Agreements (FTAs)

• India-UAE CEPA: Comprehensive Economic Partnership Agreement providing deep tariff concessions for electronics, engineering goods, and agricultural products.
• India-Australia ECTA: Economic Cooperation and Trade Agreement cutting duties on over 90% of bilateral tariff lines.
• India-EU FTA: Actively undergoing multiple intensive rounds of formal negotiation to resolve complex disputes surrounding technical barriers to trade, labor standards, and data protection rules.

Key Structural Trade Concepts for UPSC Prelims