India’s Foreign Trade

Recent Developments

India Opposes EU’s proposed Lowering of Pesticide Limits

• India and Colombia on November 8, 2018 have raised concerns at the World Trade Organization (WTO) over the projected lowering of permissible limits on certain pesticides by the European Union and have argued that the measure could significantly impact trade as these substances are commonly used on a variety of crops, including soyabean and citrus fruits. Issue of new EU regulation does not establish a transitional period for producers to adapt to the new Maximum Residue Limits (MRLs) was also raised.
• The measures could hurt exports of third countries as these are commonly used on a variety of crops, including but not limited to grains and fruits e.g. India’s basmati exports to the EU has already taken a hit due to the lowering of the MRL on tricyclazole, a fungicide used by Indian farmers.

U.S. Challenges India’s Export Subsidies at WTO

• The USA has challenged India’s export subsidy programmes at the World Trade Organisation (WTO). The move comes close on the heels of a string of statements accusing India of “unfair” trade practices, by President Donald Trump.
• The U.S. has requested dispute settlement consultations with the Government of India at WTO on the issue. Unlike the many trade disputes between India and America that are sector specific or product specific, the new move is broad and sweeping in targeting the whole range of Indian export subsidy programmes. US has accused that these export subsidy programmes harm American workers by creating an uneven playing field on which they must compete.
• The USTR has listed the Merchandise Exports from India Scheme; Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme; Special Economic Zones; Export Promotion Capital Goods Scheme, and a duty free imports for exporters programme as distorting trade in a way that allows Indian exporters “to sell their goods more cheaply to the detriment of American workers and manufacturers.”

Indo-China Agreement on Hydrological Information and Rice Exports

• The MoU was inked between China’s Ministry of Water Resources and India’s Ministry of Water Resources, River Development and Ganga Rejuvenation upon provision of hydrological information of the Brahmaputra River in flood season.
• The agreement enables China to provide hydrological data in flood season from May 15 to October 15 every year. It also enables the Chinese side to provide hydrological data if water level exceeds the mutually agreed level during non-flood season.
• Other MoU was signed between China’s General Administration of Customs and India’s Department of Agriculture, Cooperation and Farmers Welfare on Phytosanitary requirements for exporting rice from India to China, one of the world’s biggest rice markets.
• The 2006 Protocol on Phytosanitary Requirements for Exporting Rice from India to China has been amended to include the export of non-Basmati varieties of rice from India. At present, India can only export Basmati rice to China.

Present Status of India’s Foreign Trade

India’s Trade with Neighbours

• From 2.86 percent in 2013-14, India’s combined trade with the seven SAARC nations and Myanmar moved up to 3.56 percent of total trade. The share of the neighbourhood in total exports increased from 5.72 percent in FY14 to 7.75 percent in FY18, with Bangladesh and Nepal pulling up the averages.
• The best part of the story is regardless of size, most regional partners contributed to trade growth. India-Maldives trade, for example doubled, from $110 million to $222 million over the last four years.
• Despite problems of accessibility, India-Afghanistan trade increased by 67 percent to $1.14 billion. India-Bhutan trade was up 82 percent to $0.91 billion.

India-Pakistan and India-Myanmar Trade Cripples

• While Pakistan is an unwilling trade partner, maintaining bilateral trade at around $2 billion for years; Indo-Myanmar trade, which has also been stagnant at around $2 billion for some time, was affected by India’s restrictions on pulses imports last year.
• Myanmar is a new destination for India. While formal trade is yet to gain momentum, the huge movement of goods through the land border remains unaccounted.

India - Nepal Trade

• The growth engines of regional trade are Bangladesh and Nepal, together accounting for nearly 58 percent of India’s $27-billion trade with eight nations and 63 percent of exports.
• India-Nepal trade is a perfect example of business taking precedence over politics.
• While the political relations between the two countries have been rocky, both nations worked at improving trade relations over the last four years.
• India contributed generously to Nepal’s post-earthquake reconstruction ($750 million aid).
• India also made progress in improving trade logistics, invested heavily in cross-country electricity infrastructure that helped mitigate the power shortage in Nepal, lined up investments in oil pipeline, and rail connectivity.
• The strategy paid off, as bilateral trade increased by 70 percent, from $4.1 to $7 billion between FY14 and FY18; riding on 85 percent growth in India’s exports from $3.5 billion to $6 billion.
• Exports grew by 20 percent in FY18 (when pro-China KP Oli government assumed power in Kathmandu) with demand for petroleum ($1.5 billion), iron and steel ($880 million) and machinery ($618 million) reporting 40 percent growth.

India – Bangladesh Trade

• India-Bangladesh relations are witnessing a steady improvement since 2010. The momentum gained strength over the last 4-5 years, with India stepping up its financial assistance programme from $1 billion to nearly $8 billion. Between FY14 and FY18, bilateral trade increased by nearly 38 percent from $6.6 billion to $9.1 billion. A substantial part of the growth came in 2017.
• Petroleum is a new entrant in the list with India becoming a major supplier to Bangladesh. Cereal (rice) export was triggered by crop loss in Bangladesh in 2017, which is unlikely to be repeated. But the export figures are likely to surge in FY19 riding on expanding electricity trade and project implementation under the second line of credit ($2 billion).
• India and China supply nine out of Bangladesh’s top 12 import items. But excepting vehicles — where India controlled 48 percent share (mostly commercial) in 2017 — China is way ahead in the rest, which includes cotton, machinery, fuel and iron and steel.

India–Australia Trade

• The India Economic Strategy report acknowledges that though India is already in the first tier of Australia's diplomatic relations, its economic relationship is stuck in the second tier.
• It notes that bilateral merchandise trade was only USD 19 billion in 2015–16 (compared with USD 150 billion for China), making India Australia's 10th largest trading partner. Many Australian resource companies, keen to invest in India, have found themselves locked out of the market.
• Merchandise trade has declined by 50% in value since 2010. Australia is ranked 33rd in countries to whom India exports, and India is no longer in Australia’s top - ten two–way trade partners. Investment is thin and largely one–way, i.e. from India to Australia. Their biggest concerns are corruption, red tape, enforcement of contracts, and cost of doing business.

Foreign Trade Policy (2015-2020)

• All export and import-related activities are governed by the Foreign Trade Policy (FTP), which is aimed at enhancing the country’s exports and use trade expansion as an effective instrument of economic growth and employment generation.
• In the Mid-Term Review of the Foreign Trade Policy (FTP) 2015-20 the Ministry of Commerce and Industry has enhanced the scope of Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS), increased MEIS incentive raised for ready-made garments and made- ups by 2 percent, raised SEIS incentive by 2 percent and increased the validity of Duty Credit Scrips from 18 months to 24 months.
• The Central Board of Excise and Customs (CBEC) has developed an ‘integrated declaration’ process leading to the creation of a single window which will provide the importers and exporters a single point interface for customs clearance of import and export goods.
• As part of the FTP strategy of market expansion, India has signed a Comprehensive Economic Partnership Agreement with South Korea which will provide enhanced market access to Indian exports. These trade agreements are in line with India’s Look East Policy. To upgrade export sector infrastructure, ‘Towns of Export Excellence’ and units located therein will be granted additional focused support and incentives.
• RBI has simplified the rules for credit to exporters, through which they can now get long-term advance from banks for up to 10 years to service their contracts. This measure will help exporters get into long-term contracts while aiding the overall export performance.

In 1950 India‘s share in the total world trade was 1.78% which reduced to 0.6% in 1995. In 1993, India ranked 33rd in top exporting countries and 32nd in top importing countries. Natural resources of the country were not evenly divided amongst public and private sector business enterprises.

The PC Alexander Committee (1978) was the first committee to review and recommend on import - export policies and procedures. This committee recommended the simplification of the import licensing procedure and provided a framework involving a shift in the emphasis from - control to development.

In the export import policy of 1978-79, for the first time in India‘s history decentralization of some licensing functions took place and the powers of regional licensing authorities was enhanced. In 1980, Tandon Committee gave recommendations on export strategies. Export oriented units were set up under the EOU scheme introduced in early 1981.

The Export and Import Bank of India was set up in 1982 to take over the operations of International finance wing of the IDBI. Other major objectives were to provide financial assistance to exporters and importers.

Trade Policy of 1985-88, based upon the recommendation of Abid Husain committee 1984, envisaged - growth led exports, rather than export led growth. Committee stressed upon the need for harmonizing the foreign trade policies with other domestic policies. This committee recommended foreign trade policies for longer terms.

In 1985, government developed 3 year Exim Policy. Tax reform committee under Raja J Chelliah suggested minimizing the role of quantitative restrictions and reducing the tariff rates substantially. Export Processing Zones were set up to push up export and the government for the first time introduced the Indian Exim policy on April, 1992.

Successive governments took various trade reforms, which includes reduction in the peak rate of customs duty; significant reduction in duty rates for critical inputs for IT sector; grant of concessions for building infrastructure of SEZs; facilities and tax benefits to exporters of goods and merchandise; encourage the development of world class infrastructure facilities, etc.

A number of tax benefits have also been announced for the three integral parts of the ‘Convergence Revolution’ the information technology sector, the telecommunication sector, and the entertainment industry.

In order to bring stability and continuity, the Export-Import Policy was made for the duration of 5 years. However, the central government reserves the right in public interest to make any amendments to the trade policy in exercise of the powers conferred by the Act. Prior to 2004, the Foreign Trade Policy was called Exim Policy.

The Foreign Trade Policy, 2015-2020 was finally announced by the Hon‘ble Minister of Commerce and Industry on April 1, 2015. The FTP has been announced in the backdrop of several measures initiated by the government of India such as Make in India, Digital India and Skills India among others.