Foreign trade plays a pivotal role in the economic development of any nation. It optimizes the use of natural resources, allows countries to export surplus production, and facilitates the import of essential technology and raw materials. By regulating foreign trade, a nation can positively impact employment, output, industrial growth, and overall economic advancement.
Learning Outcomes:
- Understand India’s foreign trade composition and major trade partners.
- Explore the key features of India’s Foreign Trade Policy 2015-20.
- Grasp the concept and importance of the Merchandise and Services Exports Schemes (MEIS and SEIS).
- Examine India’s import and export structures, trends, and their economic implications.
The Foreign Trade Policy 2015-20 provides a comprehensive framework aimed at boosting exports, generating employment, and increasing value addition, aligning with the ‘Make in India’ vision. It emphasizes both manufacturing and service sectors, aiming to enhance business ease and positioning India as a globally competitive manufacturing hub.
Key Features:
FTP 2015-20 introduced two primary schemes to consolidate earlier policies and streamline benefits.
Five earlier schemes, including the Focus Product Scheme and Agri Infrastructure Incentive Scheme, have been unified into MEIS. This scheme provides incentives on exporting notified goods to specific markets. Exporters must declare their intent to claim rewards under MEIS on all shipping bills from June 1, 2015.
SEIS replaced the Served from India Scheme (SFIS), offering benefits to all service providers in India exporting notified services. Benefits range from 3% to 5% of net foreign exchange earnings. The rewards, issued as Duty Credit Scrips, can be used for paying various duties and taxes and are freely transferable.
Important Note: MEIS and SEIS benefits extend to units located in Special Economic Zones (SEZs).
India’s global trade involvement witnessed a decline until 1980, showing a consistent upturn post-2001. Currently, India ranks as the 17th largest exporter and 11th largest importer.
Trade Balance (2017-18):
Exports represent goods or services provided by domestic producers to foreign consumers. India is a significant player in the refined petroleum market, contributing around 18% of its total exports.
Top Export Destinations (2018-19):
Imports involve bringing goods or services into a country for use in trade. In India, major imports include petroleum, gold, pearls, coal, and telecom instruments.
Top Import Sources (2018-19):
Important Note: Import controls apply to about 5% of tariff lines, while 11,600 tariff lines are free for import, reducing quantitative restrictions progressively.
India’s export composition underwent noticeable changes between 2000-01 and 2013-14, marked by a fivefold increase in the share of petroleum products. Top exports include pearls, minerals, vehicles, nuclear reactors, and chemicals.
In 2018-19, India’s import structure primarily comprised crude oil, capital goods, gold, machinery, iron, and steel.
Comparison Table: Export and Import Products (2018-19)
| Export Products | Import Products |
|---|---|
| Natural or cultured pearls | Pulses |
| Mineral fuels | Fertilizers |
| Vehicles | Gold |
| Pharmaceutical products | Iron and steel |
| Apparel and clothing accessories | Medical and pharmaceutical |
2017-18: The overall trade deficit (merchandise + services) was estimated at USD 87.17 billion.
2018-19: The deficit increased to an estimated USD 95.85 billion.
Concept: Import Cover is a vital indicator of currency stability, representing the number of months a country’s foreign exchange reserves can cover the cost of imports. Ideally, 8 to 10 months of import cover ensures currency stability.
Export promotion remains a core thrust of India’s trade policy, aimed at boosting forex reserves and correcting the Balance of Payments (BoP) deficit.
Policy Measures:
Established in 2001, AEZs aim to boost agricultural exports. Spanning 20 states, 60 AEZs cater to around 40 agricultural commodities, unifying efforts by central and state departments to promote agri-exports.
The GATT (1947) was a multilateral agreement aimed at reducing tariffs and trade barriers. It laid the groundwork for the creation of the World Trade Organization (WTO) in 1995, expanding global trade regulations. The WTO now comprises 164 member countries.
Black money refers to unreported and untaxed cash generated from the underground economy. It circulates outside formal channels, evading taxation, and often involves money laundering activities.
Important Note: Black money hampers the economy by reducing taxable income and increasing the shadow economy, which can destabilize legitimate trade and economic growth.
Which of the following is a key feature of India’s Foreign Trade Policy 2015-20?
- Import subsidies for essential goods.
- Reduction of export obligations by 25%.
- Complete abolition of all tariffs.
- Export restrictions on all agricultural goods.
Correct Answer: 2. Reduction of export obligations by 25%.