Foreign Trade Policy of India – UPSC

• The Foreign Trade Policy (FTP) sets out the government’s strategies and steps to promote domestic production and exports and so drive economic growth. It is, in essence, the basic framework of guidelines for the import and export of goods and services.
• It is reviewed from time to time to adapt to a changing domestic and international scene.
• The policy in force is FTP 2023, effective from 1 April 2023, with a target of US$ 2 trillion of exports by 2030. In 2025-26, India’s exports of goods and services stood at about US$ 860 billion, and its balance of trade stayed in deficit.

The Policy and Its Framework

Who Makes It

• The Foreign Trade (Development and Regulation) Act, 1992 empowers the Central Government to formulate and announce the policy by notification in the Official Gazette.
• The Directorate General of Foreign Trade (DGFT) is the governing body for promotion and facilitation of exports and imports under the Ministry of Commerce and Industry.
  • It advises on the policy, issues authorisations and the Importer Exporter Code, and monitors compliance.
• The Department of Commerce has the mandate to make India a major player in global trade, with a role in international trade organisations that matches its growing importance.
  • In the medium term, it devises commodity-specific and country-specific strategy. In the long run, it frames the strategic plan or vision and the FTP.
  • It also handles multilateral and bilateral commercial relations, special economic zones (SEZs), state trading, export promotion and trade facilitation, and the development and regulation of certain export-oriented industries and commodities.

Aims

• The government follows a twin strategy: promoting traditional sectors and sunrise sectors of exports, including services, while simplifying the process of doing business.
• The policy covers both imports and exports. Its primary objective is to facilitate trade, by reducing transaction cost and time, so that Indian exports become more competitive globally.
• The policy aims to:
  • Accelerate economic activity and make the most of global market opportunities.
  • Encourage sustained growth by giving access to raw materials, components, intermediates (goods used as inputs for the production of other goods), consumables and capital goods needed for production.
  • Strengthen Indian agriculture, industry and services.
  • Generate employment.
  • Encourage stakeholders to strive for international standards of quality.
  • Provide quality consumer products at reasonable prices.

Duration

• Earlier practice: the policy was notified for five years, and it was updated every year on 31 March, with changes taking effect from 1 April.
• Since 2023: FTP 2023 has no end date. It stays open-ended and is amended as needed.

Wider Direction and Constraints

• The policy also looks to help exporters leverage the benefits of GST, monitor export performance closely, and improve ease of trading across borders.
  • It seeks higher earnings from agriculture-based exports and promotes exports from MSMEs and labour-intensive sectors.
• The Department of Commerce has sought to make States active partners, and State governments now develop export strategies based on the strengths of their own sectors.
• The external environment matters greatly, but constraints within India must also be addressed:
  • Infrastructure bottlenecks
  • High transaction costs
  • Complex procedures
  • Constraints in manufacturing
  • Inadequate diversification in services exports
• Export basket: around 70% of India’s exports were in products with just a 30% share of global trade.
  • The government is therefore looking at more promising groups such as defence equipment, medical devices, agro-processing, technical textiles and chemicals.

World Trade Rules

• India is a signatory to the Trade Facilitation Agreement (TFA) of the World Trade Organization, which simplifies procedures and lowers transaction costs.
  • India ratified it on 22 April 2016, the agreement came into force on 22 February 2017, and a National Committee on Trade Facilitation was set up in August 2016.
• WTO rules, current and under negotiation, push India to phase out subsidies and move towards more basic systemic measures.
  • Annex VII: under the Agreement on Subsidies, India moved out of the Annex VII group in 2015, after breaching the US$ 1,000 per capita income benchmark for three consecutive years.
  • The 2019 ruling: on 31 October 2019, a WTO panel held that MEIS, EPCG, the SEZ scheme, the export-oriented unit schemes and the duty-free imports scheme gave prohibited export subsidies. India appealed.
  • RoDTEP and similar remission schemes followed from this pressure, as they refund embedded taxes rather than reward export performance.

Major Initiatives under the Policy

Mentoring and Procedures

• Niryat Bandhu Scheme: the DGFT’s scheme for mentoring budding exporters on the intricacies of foreign trade through counselling, training and outreach.
  • With small and medium enterprises rising and employing many people, MSME clusters have been identified for focused intervention.
  • Outreach runs in a structured way with Export Promotion Councils and willing knowledge partners in academia and research.
  • For best use of resources, it tries to involve all stakeholders, including Customs, the Export Credit Guarantee Corporation (ECGC), banks and the concerned ministries.
• Importer Exporter Code (IEC): a ten-digit code that is mandatory for exporting or importing.
  • The DGFT has moved applications online, and the code now comes in electronic form (e-IEC).
• Electronic Bank Realisation Certificate (e-BRC): lets the DGFT capture details of export proceeds directly from banks through a secure electronic mode.
  • This allows export promotion schemes to run without physical interface with stakeholders.
• Exporter Importer Profile: a place to upload documents, cutting transaction cost and time.
  • Once uploaded, documents need not be submitted again to the Regional Authority with each application.
• Online filing of applications:
  • The DGFT has a web interface for applying for the IEC and for various authorisations and scrips.
  • Fees can be paid online through banking facilities.
  • Applications are digitally signed and sent electronically to the Regional Authority, which processes them and issues the authorisation or scrip.

Duty Relief

Customs and Clearance

• Withdrawal of seizure of export-related stock:
  • Agencies should avoid seizures, as these disrupt manufacturing and delivery schedules.
  • Certain agencies may still seize on prima facie evidence of serious irregularity, but the seizure should be withdrawn within seven days unless the default is substantiated.
• Round-the-clock customs clearance:
  • Under the 2015-20 policy, 24×7 clearance was made available at 19 seaports and 17 air cargo complexes.
  • Merchant Overtime Charges (MOT) need not be collected for customs services at these 24×7 ports and airports.
• Single Window Interface for Facilitating Trade (SWIFT): makes business easier by letting importers lodge one Integrated Declaration electronically with Customs.
  • Permissions from other regulatory agencies follow without importers approaching them physically.
• Perishable exports: a single-window system reduces transport and handling costs for perishable farm produce.
  • Multi-functional nodal agencies are accredited for this by the Delhi-based Agricultural and Processed Food Products Export Development Authority (APEDA).
• Time Release Study: a tool from the World Customs Organization (WCO) to measure the actual performance of Customs and find bottlenecks in the international supply chain or constraints on customs release.
  • Indian Customs first planned it at major locations on a six-month basis. The Central Board of Indirect Taxes and Customs later released a National Time Release Study, including one in June 2023.

Towns of Export Excellence (TEE)

• Towns producing goods worth ₹750 crore or more may be notified as TEE, based on their export growth potential.
  • The threshold is ₹150 crore for handloom, handicraft, agriculture and fisheries.
• Benefits:
  • Recognised associations of units get priority for financial help under the Market Access Initiative (MAI), for export promotion projects in marketing, capacity building and technological services.
  • Common service providers in these towns can get authorisation under the EPCG scheme.
• FTP 2023 added Faridabad (apparel), Moradabad (handicrafts), Mirzapur (handmade carpet and dari) and Varanasi (handloom and handicraft), taking the list to 43 towns.

From the 2015-20 Policy to FTP 2023

The Policy Planned for 2021–26

• FTP 2015-20 came into effect on 1 April 2015. It was due to end on 31 March 2020, and was extended by a year because of Covid-19.
• A new FTP 2021-26 was then planned from 1 April 2021.
  • It was meant to make India a leader in international trade, and to channel the synergies of merchandise and services exports for growth and jobs towards a US$ 5 trillion economy.
  • That policy was never issued. FTP 2015-20 was extended further, to 30 September 2021, 31 March 2022, 30 September 2022 and 31 March 2023, before FTP 2023 replaced it.
• The District Export Hubs Initiative was to be a key part of it.
  • The Department of Commerce, through DGFT Regional Authorities, worked with States and UTs to take it forward in phases, to help each district realise its potential as an export hub.

What Industry Expected, and What Followed

• Infrastructure:
  • China is a manufacturing and export powerhouse partly because of its network of ports, highways and high-speed trains, among the best in the world.
  • India needs to learn from its neighbour by upgrading its existing ports, warehouses and testing centres, and by building new ones.
  • The Trade Infrastructure for Export Scheme was launched in 2017 for three years, and the industry hoped it would be extended.
• Less subsidy, more support:
  • In 2020, Commerce Minister Piyush Goyal said quality, technology and scale of production, not subsidies, were the answer to India’s global ambitions.
  • Many in industry agreed, asking for skill development and technological upgrading instead.
  • Pharmaceuticals, biotechnology and medical devices were among the sectors seen as needing upskilling.
  • Trade policy could also reward research and development, as the government has said in the past.
  • The Amended Technology Upgradation Fund Scheme, which aids investment, productivity, quality and exports in textiles through technology upgrades, could be copied in other sectors.
• Tax breaks:
  • Without subsidies, exporters still need some state support, and easier, lower taxes can fill the gap.
  • Lower corporate tax and simpler duties were long-standing demands.
  • The Confederation of Indian Industry (CII) asked for a simpler import duty structure, on the principle of higher duties on finished goods and lower or minimal duties on intermediates and raw materials.
  • Industry also wanted changes to existing schemes, such as EPCG and the Duty Drawback Scheme.
• Digitisation and e-commerce:
  • Covid-19 disrupted traditional supply chains, making modern trade practices urgent, starting with paperless import-export processes.
  • The trade body Nasscom proposed an online way for IEC holders to change details such as mobile numbers and e-mail IDs.
  • It also wanted to encourage e-commerce exports by bringing e-commerce export platforms under Niryat Bandhu, creating e-commerce export promotion cells within export promotion councils, and setting up e-Commerce Export Zones for MSMEs.
• Export awareness: exporters sometimes lose not for lack of opportunity but for lack of knowledge of it. Government workshops can teach international laws and standards, global markets, intellectual property rights, patents and geographical indications (GI).
• Import wishlist: importers wanted permission to bring in capital goods on self-certification, and prohibited items with approval of a Central government Board of Approval or Inter-Ministerial Standing Committee.

• The graphic lists what the planned policy was expected to deliver, and the same goals carried over into later policy.

Road to US$ 5 Trillion

• India aspired to be a US$ 5 trillion economy by 2025. This needed:
  • GDP growth of 8% or more for several years.
  • Exports tripled to US$ 1 trillion by 2025.
• The task was hard, because exports had hovered around the US$ 300 billion mark since 2011-12.
  • Exports were US$ 304.25 billion for April–November 2020, in a pandemic year, and GDP reached US$ 2.88 trillion in 2019-20.
• Position since:
  • Total exports reached about US$ 860 billion in 2025-26, and US$ 476.20 billion in April–September 2026.
  • GDP reached about ₹346.36 lakh crore in 2025-26, still short of US$ 5 trillion.
• A high-level advisory group reported in 2019 on what India must do for exports to reach US$ 1 trillion by 2025. It suggested:
  • Urgent reform of labour laws
  • Easing of regulatory controls
  • Lower cost of capital
  • Selecting the right trading partners, given India’s unhappy experience with free trade agreements (FTAs)
  • Sector-specific strategies, especially in pharma, biotechnology, textiles and electronics
  • A special committee for quick decisions on foreign direct investment (FDI), including identifying and attracting potential investors
• On 12 January 2021, the Ministry of Commerce briefed MPs on plans for the new policy:
  • District Export Hubs: identify potential products and services in each district, identify agricultural and toy clusters, map GI products, and set up district export promotion panels and district export action plans, aimed at small businesses and farmers.
  • Correcting imbalances: reduce domestic and overseas constraints in policy, regulation and operations, so as to lower transaction costs and ease business, and build efficient, cost-effective and adequate logistics and utility infrastructure.
• Exports have grown strongly since, though the US$ 5 trillion goal remains ahead.

Foreign Trade Policy 2023

• Shift in approach: from incentives to remission and entitlement, with collaboration among exporters, States, districts and Indian missions abroad.

• Districts as export hubs: districts prepare District Export Action Plans, with capacity building on branding, packaging and design, and work on logistics.
• Status holders: the export thresholds were cut so that more firms qualify.

• E-commerce: the value limit for exports by courier rose from ₹5 lakh to ₹10 lakh a consignment.
• SCOMET: dual-use items, meaning special chemicals, organisms, materials, equipment and technologies with possible weapons use, come under tighter export controls to meet treaty obligations.
  • Merchanting trade, where an Indian intermediary arranges shipment between two foreign countries, is allowed but excludes SCOMET and CITES goods.
• Rupee trade: policy benefits extend to rupee earnings through special Vostro accounts, as a step in internationalising the rupee.
• EPCG changes:
  • Battery electric vehicles, vertical farming equipment, wastewater treatment and recycling, rainwater harvesting and green hydrogen qualify as green technology, with a reduced export obligation.
  • PM MITRA textile parks joined the common service provider scheme, and the dairy sector was exempted from the average export obligation.
• Amnesty: a one-time settlement of export obligation defaults on Advance and EPCG authorisations ran until 30 September 2023. It capped interest at 100% of the duty and excluded fraud cases.

Export Promotion and Trade Agreements

Export Promotion Today

• Export Promotion Mission (EPM): approved on 12 November 2025, with an outlay of ₹25,060 crore for 2025-26 to 2030-31, and the DGFT as implementing agency.
  • Niryat Protsahan covers affordable trade finance for MSMEs: interest subvention, export factoring, collateral guarantees and credit cards for e-commerce exporters.
  • Niryat Disha covers non-financial support: quality and compliance, branding, trade fairs, warehousing, inland transport and trade intelligence.
  • It folds in older supports such as the Interest Equalisation Scheme and the Market Access Initiative.
  • Priority goes to sectors hit by the 2025 tariff escalation: textiles, leather, gems and jewellery, engineering goods and marine products.
• Export Processing Zones (EPZs) and SEZs: India’s EPZ at Kandla (1965) was the first in Asia.
  • EPZs were limited by multiple controls and weak infrastructure, so the SEZ route followed under the policy of 2000 and the SEZ Act of 2005.
  • SEZ exports reached US$ 185.28 billion in 2025-26, about a fifth of total exports.
• Sector bodies: Export Promotion Councils, commodity boards, APEDA, and credit support from ECGC and the Export-Import Bank of India.
• Sectors with a regional base: the policy touches regional economies through cottage industry clusters, TEE towns and district hubs such as carpets at Mirzapur and handicrafts at Moradabad.

Trade Agreements

• India’s agreements have widened quickly since 2021. Parliamentary answers in 2026 counted 16 FTAs.

• Concern over earlier pacts: studies found that agreements with ASEAN, Japan and Korea widened India’s deficit, and reviews of the ASEAN and Korea pacts are under way.
• Geographic reach: the new pacts favour rich-country markets for labour-intensive goods, as with zero duty on all Indian exports to New Zealand.
• Link with trade balance: new pacts have not closed the gap. India’s balance of trade showed a goods deficit of about US$ 333.2 billion in 2025-26, and the gap with China kept widening.