Foreign trade policy: Contributing towards national development

The foreign trade policy(FTP) is a set of guidelines governing and regulating the import and export of goods and services.

It is also known as EXIM(export-import) policy. The foreign trade policy is regulated by foreign trade(development and regulation), Act 1992.

As per Section 5 of the act, the central government gets authorised to formulate, introduce, and amend the foreign policy.

The directorate general of foreign trade under the ministry of commerce and industry is the governing body for promoting and facilitating imports and exports.

The central government also gets empowered to make provisions relating to imports and exports as per section 3 of the act.

The meaning of ‘import’ and ‘export’ is given under section 2(e) of the act.

Features of foreign trade

The foreign trade act, 1992 plays a significant role in the national economic development.

In a developing country like India, after 1991, the era of globalization and industrialization brought the need to introduce the new EXIM policies from time to time under this act of 1992.

The new trade policies regulate the import and export and restrict the unregulated economy to protect the interest of consumers in the domestic market and have healthy competition with the international market.

The foreign trade policies are introduced by the central government every five years.

These foreign trade policies have a significant role in regulating the Indian economy in developing globalization or industrialization.

There are some salient features of this foreign trade act which includes:-

  1. This act has empowered the central government to revise to formulate and announce the export and import policy and revising it on a timely basis. The government is also empowered to restrict, regulate and prohibit import and export in cases of foreign trade.
  2. It also empowers the central government to promote imports and exports in all matters relating to foreign trade.
  3. The act also provides the director-general of foreign trade appointment to advise the central government on formulating the FTP.
  4. This act also prescribes that any importer or exporter cannot run an import and export business without holding a valid importer-exporter code number duly granted by the director-general.
  5. The central government also gets empowered to authorise any person to exercise powers under this act, etc., to enforce this act.
  6. The objectives of this act include facilitation of distribution of goods and services to the domestic consumer at good quality with internationally competitive prices, sustainable economic growth, enhancement of efficiency of agricultural and technological industry in India.
  7. The act also mentions that the government is authorized to punish any person. And it is applicable if that person’s acts contravene this act.

Evolution of foreign trade policy till date

Evolution policy is introduced every five years by the appropriate government. Now, we will discuss the history and evolution of these policies in India in various phases.

EXIM Policy 1992-97

The central government introduced this policy on April 1, 1992, to liberalize imports, uplift exports, and stabilise trade. A very significant feature of this policy is liberalization.

The policy substantially liberated the imports and exports of all the goods and services. And that too without any restrictions except the one mentioned in the negative list.

This policy was an initiative towards economic reforms in India. It was valid up to 31st March 1997.

EXIM Policy 1997-2002

It eliminated the feature of licensing of goods, quantitative restrictions, and other controls.

Out of all the items in the restricted list, 150 items got transferred to the special import license list, and the remaining 392 items got transferred to the open general license list.

The duty on capital goods under the Export protection of capital goods(EPCG) scheme got reduced to 10% from the previous 15%. The threshold limit for agricultural and allied sectors got reduced to 5 crores from the previous 20 crores.

This policy introduced the new Duty entitlement passbook scheme(DEPB).

Under the duty entitlement passbook scheme (DEPB), an exporter may get the number of duties he incurred on export returned to him in the form of credit.

EXIM Policy 2002-07

The salient features of this policy were:-

This policy aimed to strengthen SEZ schemes by granting them permission to set up offshore units to procure short-term commercial borrowings and limit commodity price risks.

The offshore banking units got treated as foreign branches of the Indian banks exempted from the cash reserve and statutory liquidity ratios.

The policy removed quantitative export restrictions on agricultural products except for a few products.

The policy provided incentive schemes for cottage industry exemption from maintaining export obligation under the EPCG scheme.

This policy also retained the provision of all duty exemption schemes and did not have any value ceiling.

The Policy also allowed duty-free project imports of equipment and other goods used abroad for more than one year.

Foreign trade policy 2004-09

This policy aimed at removing any particular restrictions on import and export

The policy recommended setting up a board of trade which:-

  • Advises government on policy measures for preparation and implementation of export increasing plans.
  • To examine an existing structural framework for institutional imports and exports.
  • To examine issues related to the promotion of foreign trade.

Foreign trade policy 2009-14

This policy aimed at:-

  • To improving export potential, boosting foreign trade, earning valuable foreign exchange
  • To arrest the declining exports in India.
  • To promote exports by adopting measures like fiscal incentives, institutional changes, procedural rationalization and diversifying export markets
  • Announcement of Focus product schemes (FLP), Market linked focus product scheme (MLFPS), Focus market scheme(FMS).

Foreign trade policy 2015-20

This policy mainly aimed at declining arrest of exports during the previous policy regime

This policy was previously valid until 2020, and further, it got extended by a year due to the covid pandemic.

Features of this act include:-

  • Merchandise exports from India(MEIS) to promote specific services for specific FTP.
  • It introduced a new scheme, “merchandise exports from Indian scheme (MEIS)” and “Services exports from India scheme (SEIS)”.

    The ‘Services Exports from India Scheme’ (SEIS) is for increasing exports of notified services.

    The MEIS scheme provides rewards to exporters to offset infrastructural inefficiencies and associated costs.

  • SEIS scheme replaced SFIS scheme and applies to service providers located in India.
  • Reduced export obligation to 75% under the EPCG scheme
  • Duty credit scrips are freely transferable and usable for payment of customs duty, excise duty and service tax.

Foreign trade policy 2021-26

  • This new policy aims to facilitate both the import and exports market, unlike the previous FTP.
  • It aims to provide digitalisation of the whole EXIM process.
  • This policy lays the importance of easy access to credits to MSME’s which lack collateral.
  • Focus on lower import duty and tax rates on goods imported in India or on raw materials.
  • The government has introduced the Remission of Duties or Taxes on Export Products (RoDETP) to meet WTO compliant tax benefits. The RoDTEP replaced the Merchandise exports from India (MEIS) scheme.
  • Improvise the infrastructure of domestic services and small sectors and regulate the trade imbalance in India.

Objectives of foreign trade policies in India

The objectives of EXIM policy in India are to achieve a more significant objective. These policies are introduced to enhance foreign exchange and achieve the economic development of the country.

These objectives include:-

  • To boost the economy and grow the EXIM process in India.
  • To improve the balance of payment and trade.
  • To enhance the trading activities and generate a workforce environment.
  • To provide consumers with goods and services of utmost quality and with effective cost.
  • To raise the infrastructure of small scale industries to keep a check on trade imbalance in the country.
  • To establish the advance licensing system issued by DGFT to allow duty-free imports.
  • To remove the restrictions on goods and services, allowed to be freely imported, mentioned under the open general license list should be removed.
  • Digitalization of all the documents to reduce conflict between exporters and DGFT
  • Ease of access to credits by the startups and increasing limits.
  • Canalization of import goods to diversifying market opportunities

Types of International trade

International trade is also known as foreign trade. This foreign trade is the exchange of capital goods and services across international borders. There are three types of foreign trade:-

  1. Import:-

    It is the process of trade in which goods and services get purchased from other countries.

    E.g.:- A company in India purchases steel from Australia by importing it to India.

  2. Export:-

    It is the process in which domestic manufactured goods get sold in other countries.

    E.g.:- A company in India selling jute to Germany by exporting it

  3. Entrepot trade:-

    This process is also known as re-export trade. In this, goods are exported from a foreign country and re-exported to buyers in any other foreign country.

    E.g.:- A company in India importing wheat from Sweden and then exporting it to London

Foreign trade (regulations) rules, 1993

By the powers conferred under section 19 of the foreign trade act,1992, the Central government established The foreign trade (regulation) rule, 1993.

These rules get formulated for the effective implementation of the foreign trade act, 1992 and the trade policies introduced by the government from time to time.

Any person can apply for a license under rule 4 by satisfying the conditions laid under rule 6 to run a business for importing and exporting goods under the policy’s provisions or any order passed by the government under section 3 of the act.

This license is subject to cancellation as per the condition of the ten foreign trade rules, 1993.

Any person authorized by the central government under section 10 of the foreign trade act to perform his duties, he should conduct his duties as per the conditions laid under rule 15 of 1993 rules.

Rule 17 also laid the conditions for confiscation or redemption of imported goods or materials.

This rule got amended in the year 2015, which brought minor amendments in the 1993 rules.

EXIM Policy

EXIM Policy is also known as an export-import policy or foreign trade policy. It is a set of guidelines related to the import and export of goods and services.

The EXIM policy constantly gets introduced for five years to govern a country’s international trade process.

The government of India notifies the Exim policy under section 5 of the foreign trade (development and regulation) act, 1992.

Importance of EXIM Policy

The foreign trade policy of India has a significant role in accelerating the economic flow from trade activities in our country by making India a globally oriented economy.

It also plays a crucial role in expanding global market opportunities.

This trade policy also gets used in increasing the gross domestic product of a country.

It facilitates the flow of the economy in a country and increases foreign exchange in a country.

It aids in facilitating free trade and liberalization and improving the overall market for domestic consumers of a country.

It also plays a role in providing quality goods to domestic consumers at cost-effective prices and diversifying the market.

EPCG Scheme

EPCG scheme, also known as Export protection of capital goods scheme, is used to enhance easy import of capital goods and increase manufacturing competitiveness.

EPCG scheme allows imports of capital goods for pre-production, production and post-production without paying customs duty.

Second-hand capital goods are also eligible to be imported under this scheme without any restriction on age.

These export protection capital goods are goods used to produce those goods exported to other countries.

The importation of capital goods under this scheme is subject to an export obligation equal to six-time of duty saved on the importation of such goods within six years from the date of issuance of the authorization.


The implementation of EXIM policy or foreign trade policy in India resulted in the country’s economic development.

This policy played a crucial role in enforcing the policy of liberalization. Setting up SEZ and EPZ in our country increased the value of a foreign investment in our country in the past few years.

The foreign trade (development and regulation) act, 1992 facilitated the implementation of liberalization and industrialization.

The foreign trade policy also increased healthy competition between domestic traders and the international market, which led to diversified market development for Indian consumers and manufacturers in India. Thus, this competition led to the availability of commodities at a lower cost.

Therefore, India’s foreign trade policy will be a medium to enhance the performance of the Indian manufacturing industry, and the trading system to compete in the international market will lead to an increase in foreign exchange and flow of capital in our country through foreign direct investment.


Which rule of foreign trade (regulations) rules, 1993, enshrines the conditions for getting a license?

Rule 7 of foreign trade(regulations) rules, 1993.

Which section of the foreign trade act, 1992 mentions the central government’s power to impose quantitative import restrictions?

Section 9A of foreign trade(development and regulation) act, 1992.

Which act will apply to the control on the export of specified goods, services and technology used in making chemical, biological or nuclear weapons or explosives or such devices, etc.?

The weapons of mass destruction and their delivery systems (prohibition of unlawful activities) act, 2005 as per chapter IVA of foreign trade act, 1992

Which acts and ordinances were repealed after the coming in force of foreign trade (regulations and development) act, 1992?

The imports and exports (control) act, 1947 and foreign trade (development and regulation) ordinance 1992 got repealed after the foreign trade (development and regulation) act, 1992 came into force.

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