Foreign Trade of India

Foreign trade of a country means the total imports and exports done by a country in a given time. Every country does business with other countries which includes imports of the required items and exports of the surplus items. The total imports and exports by any country can be called the foreign trade of that country.

Foreign trade is not new and it prevailed in ancient history too, when port Lothal was used to export and import goods from modern west Asia and central Asia.

In recent years, India exports around 7000 commodities to almost all countries and imports 6000 commodities from 137 countries. These also include services.

When a country’s exports exceed its imports, the net exports figure is positive this indicates that a country has a trade surplus. When exports are less than imports, the net exports figure is negative. This indicates that the nation has a trade deficit. It is also known as the balance of trade.

Balance of Trade (Merchandise) = Export of goods – Import of goods

Balance of Trade (Services) = Export of services – Import of services

India is a net importer in March 2021, with a trade deficit of USD 14.11 billion.

Top Export items from India to other nations are Petroleum products, precious stones, drug formulations & biologicals, gold, and other precious metals. India’s merchandise exports are less than its merchandise imports.

Still, India’s merchandise trade balance has improved from 2009-14 to 2014-19 although most of the improvement in the latter period was on account of more than fifty percent decline in crude prices in 2019-21.

Top Import Items from other nations to India are  Crude petroleum, gold, petroleum products, coal, coke & briquettes constitute top import items. India’s service exports are more than its service imports. This means that India has a net service surplus.

However, India’s net services surplus has been steadily declining in relation to GDP. Now, India’s service surplus finances about 50 percent of the merchandise deficit.

Balance of Payments (BoP) is related to statistics that systematically summarise, for a specific period, the economic transactions of an economy with the rest of the world.

The compilation and dissemination of BoP data is the prime responsibility of RBI.

BoP = net credit in (Current Account + Capital Account and Financial Account).

India’s Balance of Payments (BoP) position witnessed great improvement since liberalisation in 1991 as India’s foreign reserves stood at US$ 643 billion as of Sept 2021

Foreign Exchange (Forex) Reserves include Foreign Currency Assets, Gold, Special Drawing Rights (SDRs), and Reserve Position in the IMF (Gold Tranche or Reserve Tranche).

The Directorate General of Foreign Trade (DGFT) is a government body responsible for implementing the country’s foreign trade policy, which is under the Ministry of commerce and industry.

The DGFT is the chief body that administers laws related to foreign trade and foreign investment in India. It implements the foreign trade policy export-import policy of the government and its mandate is to promote exports from India. It is headed by the Director-General of Foreign Trade. He/she is at the apex position of the Indian Trade Services.

It was formed in 1991 when the LGP (Liberalisation, Globalisation, and Privatisation) policies of the government started. Before 1991, the DGFT was known as the Chief Controller of Imports & Exports. This organization was used to formulate guidelines for Indian exporters and importers. But after the liberalization, the DGFT is no longer the ‘controller’; rather it has become a facilitator in matters of foreign trade which leads to attract investments. There was a policy shift from controlling foreign trade to facilitating foreign trade.

This office works in tandem with other similar organizations such as the Customs Commissionerate and the Enforcement Directorate.

The DGFT is the licensing authority for export/import businesses in India. It offers facilitation to exporters in connection with developments in international trade such as WTO Agreements, Rules of Origin and anti-dumping issues, etc.

It aids them in their export and import decisions in an international dynamic environment. The Directorate is headquartered in New Delhi with 38 regional offices all over the country. It also provides a complete database of all exporters and importers in India.

Granting of the Exporter Importer Code (EIC) Number to exporters and importers in India. which is a ten-digit number that is needed for people to export and/or import.

It has the authority to prohibit, restrict, and regulate importers and exporters.

Regulating and permitting the transit of goods from India to adjacent countries according to the bilateral trade agreements.

Promoting trade between India and her neighbouring countries.

Granting permission of free export wherever necessary.

It plays a vital role in controlling Duty Entitlement Pass Book which is

A Scheme focuses on exports given to exporters. It also

Handling quality complaints of the foreign buyers of Indian export products.

Formulating or adding new codes in the ITC-HS Codes known as Indian Trade Classification based on the Harmonized System of Coding. These are codes given to export/import products.

The government has taken many steps to improve foreign trade recently. The meeting of the committee of the Ministry of Commerce & Industry was held on 12th January 2021 on the subject of ‘New Foreign Trade Policy for the tenure of 2021 – 2026.

The main objective of the new foreign trade policy is to make India a leader in International Trade in the next 5 years from 2021 – 26.

The Foreign trade policy outlines the government strategies to promote the export of goods to increase the economic growth in the country with a targeted approach. The foreign trade policy in India is basically a set of guidelines for the import & export of goods & services.

The new foreign trade policy aims to;

1. Boost the exports of both services & goods.

This aim will be achieved by addressing various constraints related to regulatory, policy & framework that helps in lowering the transaction costs & helps in ease of business doing.

2. Help the districts to reach their potential as an Export Hub

The commerce department through DGFT engages with the State Governments & the Union Territories for the implementation of the various initiatives.

3. Improvise the infrastructure for the operations of domestic services & manufacturing sectors to correct the trade imbalance in India.

4. Regular meetings will be held with the chambers of commerce, industry associations, and export promotion councils to take their inputs.

5. Enables economic growth and national development not the mere earning of foreign exchange, but encouraging greater economic activity with substantial growth in exports from India and import to India to boost the economy.

6. Focus to double the percentage share of global merchandise trade conducted within the next five years to improve the balance of payment and trade. Also, act as an effective instrument of economic growth by creating employment opportunities for the citizens through the expansion of trade activities

7. To provide for sustainable growth by giving access to essential raw materials for production and other components, consumables, and capital goods required for increasing production and providing efficient services with technological intervention and improving capacity for production and cost-effectiveness of industry and services.

8. Improving their competitive strength in comparison to other countries, and encouraging the accomplishment of internationally accepted standards of quality.

9. To provide buyers or clients with high-quality goods and services at globally competitive rates and quality. Creation of opportunities by engaging in good and ethical practices.

10 Accelerating the economy from low-level economic activities to high-level economic activities by making it a globally oriented and vibrant economy to derive maximum benefits from expanding the global market and seizing the best opportunities available.

11. Making policies that favor ease of doing business and e-governance with ease allow for hassle-free transactions for both import and export. Reducing the interference between the exporters and Directorate General of Foreign Trade by reducing the number of export documents.

12. To allow the import of technology and equipment which may help in achieving better international standards of quality and reduce the cost of production. Also, focus on Establishing the Advance Licensing System for imported goods needed for manufacturing various goods for export.

13. An Advance License is issued by the Directorate General of Foreign Trade to allow duty-free import of inputs, which are physically integrated with the export product and making normal allowance for wastage to allow the import of certain goods as listed in the Open General License which is a kind of export license which is issued by the Government to domestic suppliers.

Some more things are expected from the recent foreign trade policy are:

WTO-compliant tax incentives in which incentives under MEIS and SEIS under a cloud, the need of the hour is WTO-compliant tax benefits. To this end, the government has announced the Remission of Duties or Taxes on Export Products (RoDTEP) scheme which will replace MEIS.

Easy credit access is a long-standing demand of exporters, especially MSMEs, as Formal financial institutions such as banks are reluctant to lend to MSMEs due to their lack of adequate collateral. This policy can help open up alternate credit avenues, such as financial technology start-ups. The advisory group suggests raising borrowing limits at the Export-Import Bank of India.

Infrastructure upgrade is needed as it is. One reason why China is a manufacturing and export powerhouse is its network of ports, highways, and high-speed trains, which are among the best in the world. India needs to learn from its neighbour and improve its flagging infrastructure by upgrading existing ports, warehouses, quality testing, and certification centres, and building new ones.

Less subsidy, more support should aim for quality, technology, and scale of production were the answers to India’s global ambitions, not subsidies. Many in the industry agree, saying government support in the form of skill development programmes and technological upgradation rather than subsidies would help them become more competitive. Pharmaceuticals, biotechnology, and medical devices are some sectors that could do with upskilling. Similarly, the trade policy could include incentives with a focus on research and development, something the government has spoken of in the past. On the technology, which facilitates improvements in investment, productivity, quality and exports in the textile industry through technology upgrades.

Tax breaks If India were to do away with subsidies, exporters would still need some form of government support. Easier and lower taxes are a way of filling this gap. The reduction of corporate tax rates and simplification of duty structures are long-standing demands. The Confederation of Indian Industry suggests simplifying the import duty structure by following “the general principle of higher duties on finished goods and lower duties on intermediates and raw material”. There are also demands for an overhaul/improvement of existing schemes.

Digitisation and e-commerce: As With Covid-19 disrupting traditional supply chains, India needs modern trade practices. Digitisation can start with making common import-export processes paperless. Trade body Nasscom, for example, recommends an online mechanism for Importer Exporter Code holders to change their particular mobile numbers, e-mail IDs, etc. It also makes a case for encouraging e-commerce exports by

a) Including e-commerce export platforms under Niryat Bandhu

b) Establishing e-commerce export promotion cells within export promotion councils

c) Establishing e-Commerce Export Zones to promote MSME

Export awareness: As the Indian exporters are defeated not by a lack of trade opportunities but by a lack of awareness of the same. The trade policy can make a provision for government workshops and awareness programmes that educate and inform traders about international laws and standards, global markets, intellectual property rights, patents, and geographical indication.

Foreign trade provides an opportunity to improve the economic condition of the country as well as attract the investment which provides various benefits directly or indirectly to the country it paves the way to improve the quality as well technology integration from another country also it gives a way to improve bilateral relations with other countries. It is said that if economic ties are strong, political ties improve automatically.


This article is written by;

Mr. Pankaj Kumar Gupta

(Email ID: [email protected])