Everything You Need to Know About Foreign Trade Policy

The set of guidelines that aims to create a balance of payments by regulating imports and enhancing exports is a Foreign Trade Policy (FTP). The purpose of the policy is to promote exports, support economic growth, integrate India into global markets, and make it a reliable trade partner. It is formulated by the Director General of Foreign Trade (DGFT), which is under the Ministry of Commerce and Industry.

The foreign trade policy is implemented by several measures such as duty incentives, export credit, and preferential trade agreements. This piece of content will provide a detailed guide on foreign trade policy.

Foreign Trade Policy Highlights

The following details include the highlights of Foreign Trade Policy:

• Ease of Doing Business

The documentation and paperwork process is simplified by the foreign trade policy, making the export easy and cost-effective for businesses.

• Export Promotion Through Collaboration

It identifies the challenges and the strategies to increase exports. The policy also encourages collaboration among the districts, exporters, states, and Indian missions.

• Emerging Areas

The purpose of foreign trade policy is to establish India as the leading pharmaceutical, manufacturing, and e-commerce player.

• Incentive Remission

The incentive or benefits such as export growth capital equipment plan, duty refunds, pre-clearance scheme, and free trade agreements.

The Objectives of Foreign Trade Policy

Let us go through the objectives of FTP:

• Global Integration of India

Combining India with the global markets smoothly is the main goal of the foreign trade policy and seeks to present India as a reliable trading partner worldwide.

• Preparing for the Future

It focuses on making India able to face challenges in the future, making it one of the leading exporting countries, particularly during the most predicted ‘Amrit Kaal’ period.

• Creating a Supportive Ecosystem

Foreign trade policy aims to create a business-friendly environment, moving away from incentives and in line with “Atma Nirbhar Bharat” and “Local Goes Global” principles.

• Tripling India’s Goods and Services Exports

By 2030, the policy aims to increase India’s exports from the present sum of $760 billion to $2 trillion, which is a significant jump.

• Collaborating with State Governments

It encourages partnerships with state governments by recognizing the importance of local efforts and promotes exports at the grassroots level.

Key Features of Foreign Trade Policy

The key features of foreign trade policy are mentioned below:

Recognition of Exporters

The Exporter firms that are recognized for their performance will engage in capacity-building schemes or initiatives. The exporters that have 2 stars and above status will convey trade-oriented training and contribute to India’s skilled workforce for economic growth.

Promoting Export From the Districts

The policy’s goal is to promote district-level exports through the districts as export hub initiatives, by collaborating with state governments. It involves resolving concerns and identifying export opportunities through the State and District Export Promotion Committees.

Towns of Export Excellence

The Towns of Export Excellence include Moradabad, Faridabad, Varanasi, and Mirzapur alongside the existing ones that aim to boost exports in handicrafts, handlooms, and carpets. These receive benefits and priority access to export promotion funds from the Common Service Provider (CSP) support under the EPCG structure.

Streamlining SCOMET Policy

The policy strengthens compliance with international treaties with an enhanced understanding of SCOMET regulations. It facilitates controlled exports under the SCOMET from India and ensures access to advanced goods and technologies for Indian exporters.

Amnesty Scheme

It is a one-time settlement scheme for exporters who were unable to meet their export obligations. It is done to motivate the Indian exporters and improve the country’s foreign trade business.

Initiatives on Export Promotions

The following details include the initiatives on export promotions:

• Reform of Merchanting Trade: To expand the merchanting operations from India. As long as the RBI regulations are being followed, merchanting trade that involves shipping goods from one foreign country to another without contacting Indian ports is allowed, excluding items on the CITES and SCOMET lists.
• Under FTP Schemes, Rupee Payments are to be Accepted: An effective step toward the internationalization of the rupee. On July 11, 2002, an RBI circular stated that special Vostro accounts must be created to receive FTP benefits for the rupee realization.
• Rationalized Status Holder Export Thresholds: the export performance requirement for exporters to be recognized as status holders has been rationalized, increasing the status of more exporters and reducing the cost of the export transactions.

Initiative of Districts as Export Hubs

Let us go through the initiative of districts as export hubs:

District-Level Capacity Building: Expanding the capabilities of new exporters and finding new markets. The outreach training and support services are provided by DGFT field offices in partnership with the District Industries Centers. The outreach initiatives aimed at encouraging exports at the district level will focus on the marketing, design, branding, and packaging of certain products and services.

States and Districts as Export Promotion Partners: District as export hubs aim to boot India’s foreign trade by decentralizing export promotion. Goods and services in each district are identified. The District Export Action Plans (DEAPs) outline the marketing and promotion strategy of the selected goods and services. States and districts should be considered active stakeholders and valuable participants.

Intervention in the Development of Infrastructure and Logistics: To get over the logistics and infrastructure barriers that prevent exports. Districts would prioritize developing export connections, testing facilities, and other export-related ecosystems. A mixture of continuing programs to support these initiatives.

Exports of E-Commerce                  

• E-commerce Export Hub: E-commerce aggregators will be notified of the specific hubs with warehousing facilities to help with customs clearance, returns processing, and easy stocking. The following last mile processing operations such as labeling, testing, and repackaging will be allowed.
• E-commerce Export Facilitation: operations that are specially designed to inform and support small e-commerce exporters by forming partnerships with companies and business professionals. To export via courier, the value threshold has been increased to Rs 10,000,000.

Steps to Boost Manufacturing

The EPCG’s common service provider (CSP) initiative now includes the PM MITRA (Prime Minister Mega Integrated Textile and Apparel Parks) scheme as an additional program eligible to receive benefits under the initiative. The list of products that are eligible for a reduction in the export obligation requirement under the EPCG scheme includes all types of battery electric vehicles (BEV), vertical farming, wastewater treatment and recycling systems, rainwater harvesting systems, rainwater filters, and green hydrogen. Under paragraph 4.07 of the HBP, the Special Advance Authorization Scheme was extended to cover exports of the textile and clothing sector on a self-declaration basis to facilitate the prompt execution of export orders.

Special One-Time Amnesty Program for Export Obligation Defaults

The government remains committed to reducing litigation and building trusting partnerships to assist exporters in overcoming their challenges. According to the “Vivaad se Vishwas” policy, which aimed to resolve tax issues, the government is putting a unique one-time amnesty scheme to address noncompliance with export obligations by the advance authorization and EPCG authorization holders. Once all the customs duties are exempted and export obligations are paid, the authorization holder may regulate instances of export obligation, or default for the authorizations. No interest is owed on the percentage of Additional Customs Duty and Special Additional Customs Duty.

Focus on Simplifying the SCOMET Licensing Process

FTP 2023 focuses on Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET). This policy for exporting dual-use goods has been centralized in one location for easier understanding and industry compliance. The SCOMET policy emphasizes India’s export control in compliance with its international commitments under various export control regimes to regulate trade in dual-use and sensitive goods, such as software and technology.

Foreign Trade Policy 2015 – 2020

The goal of the Foreign Trade Policy 2015 – 20 was to establish India as a major player in international trade by 2020. It offers a crucial foundation to boost value, promote the export of goods and services, and generate more job opportunities. The government is focusing on supporting the manufacturing and services industries through the Foreign Trade Policy 2015 -20, enabling the “ease of doing business”.

General Provisions of Imports and Exports

The below-mentioned details include the new provisions regarding the management of the import and export of goods and services:

• Exports and Imports Are Free Unless Regulated: Other than cases where the exports and imports are regulated by the provisions of the policy or other law for the time frame, they shall be free.
• Laws to Comply: The rules and orders created under the Foreign Trade (Development and Regulation) Act 1992, where every exporter or importer shall comply with the mentioned provisions.
• Exemption: Companies can apply for exemptions from certain regulations if they have valid and fair reasons.
• Penalty: Non-compliance with the foreign trade policy provisions can lead to penalties and legal consequences.
• Freedom of Trade: Imports and exports are usually permitted unless they are specifically restricted by the policy or other laws.
• Restricted Goods: Some goods may be prohibited or restricted from import or export due to security reasons.
• DGFT Authority: The DGFT is responsible for the process, license issuance, and enforcing regulations related to imports and exports.

Promotional Schemes

Foreign Trade Policy has two schemes under the Export from India Schemes and they are as follows:

1. Merchandise Exports from India Scheme (MEIS)
2. Service Exports from India Scheme (SEIS)

Status Holder

The head of a business is eligible to be a status holder, who has made a lot of contributions to foreign trade of a country through great performance in global trade. A candidate must achieve the following export performance during the current financial year and the previous three financial years to be categorized as a status holder.

Privileges of Status Holders

A status holder should be eligible for the below-mentioned privileges:

• Provision for Self-Declaration: Customs clearance for imports and exports can be granted authorization, by a status holder on a self-declaration basis.
• Provisions Related to Banking: status holders are exempted from furnishing the bank guarantee for schemes under FTP unless it is specified otherwise in the FTP or Handbook of Procedures (HBP).
• Input-Output Norms: The input-output norms can be fixed on priority within 60 days, by the Norms Committee.
• Preferential Treatment in Handling Consignments: For handling the consignments of a status holder, preferential treatment and priority will be given by the concerned agencies.
• 2 stars and Above: Export houses having 2 stars or more will be permitted to establish export warehouses, as per the guidelines of the Department of Revenue.
• 3 stars and Above: Export houses having 3 stars or more will be eligible to avail the advantages of the Accredited Client’s Program (ACP).
• Freely Exportable Items: Status holders will be permitted to export items freely on a free-of-cost basis up to Rs 2 crore or 2% of average annual export realization in the previous 3 licensing years. This does not apply to jewelry, gems, precious metals, or anything made of gold.
• Export of Pharma Products: The pharmaceutical companies will have a 2% yearly limit for the export of pharmaceutical products, and the average of that sum in yearly export realization during the previous 3 licensing years.

Duty Exemption or Remission Scheme

The duty exemption scheme allows the duty-free import of inputs required for the production of exports launched by the Ministry of Commerce and Industry. Under this scheme, the post-export mixture of duty is given on inputs that are used in the export products. The most common initiative under this category is the Advance Authorization which permits duty-free import of inputs directly incorporated into the export products.

The following details are included under this scheme:

• Duty-Free Import Authorization (DFIA): It is a document that permits duty-free imports of inputs used to make export products. It was introduced in the year 2006 to replace the Duty-Free Replenishment Scheme (DFRC).
• Advance Authorization (AA): It is a scheme that permits exporters to import raw materials and inputs that are needed for manufacturing export products duty-free. It is a mechanism to facilitate export competitiveness by decreasing the cost of production inputs for the exporters.

EPCG Scheme

The import of capital goods at zero customs duty to produce goods for export, and must fulfill a specific export obligation within a timeframe is the EPCG (Export Promotion Capital Goods) scheme. It covers capital goods for pre-production, production, and post-production.

Its main purpose is to boost India’s export competitiveness by facilitating the import of advanced capital goods needed for production at zero customs duty. This scheme exempts capital goods from the Integrated Goods and Services Tax (IGST) and Compensation Cess.

Deemed Exports

Transactions where goods that are manufactured in India are supplied within the country itself but treated as exports to claim benefits such as duty drawback even though the goods do not leave India. These supplies are considered equal to the exports due to their intended use in export-related projects or activities and payment received in convertible foreign exchange or Indian rupee. Suppliers of the deemed exports are eligible for a refund of taxes paid on the supplied goods.

Quality Complaints and Trade Disputes

The issues that arise when there is disagreement between the exporter and importer regarding the quality of the goods shipped, lead to potential disputes and complaints that can be filed with a relevant authority. To deal with such complaints or disputes, and resolve them at a faster rate, a Committee on Quality Complaints and Trade Disputes (CQCTD) has been built with 22 offices having members from the Export Promotion Council. It covers complaints related to poor-quality goods, incorrect quantity, non-compliance with specifications, delayed deliveries, no payment, and other unethical commercial dealings.

The foreign trade policy aims to promote a nation’s exports and international trade by implementing strategies and incentives to boost export growth, generate jobs, and encourage industry development. It is a welcome step that helps a country to adapt quickly and power through the global trade landscape.

A well-designed foreign trade policy can stimulate economic growth by attracting foreign investments, diversifying the economy, and creating jobs. This article provided a detailed explanation of FTP. Visit our website Online Legal India to get assistance in the Importer Exporter Code registration process to run your foreign trade seamlessly.