External Trade & Investment: Foreign Trade Policy in India

• Sunday, November 29th, 2009

Through its Foreign Trade Policy (FTP), India has attempted to adopt a middle approach between total conservatism and completely free economy. The prime focus has been to support domestic trade, integration with the global economy, adapt with the changing scenarios, and provide growth impetus to the Indian economy as a whole.

The process of liberalisation began in the 1990s, which relieved the economy of many of its woes, like prevalent tariffs that exceeded 200%, trade restrictions, rigid licensing policies, and import restrictions, to mention some. Currently, India has various bilateral and preferential trade agreements, some of which are operational, while the others are in the different stages of finalisation. These agreements are spread across Southeast Asian nations, Afghanistan, Chile, Brazil, Argentina, and so on.

India’s continuing FTP provides various duty (e.g. import duty on key inputs) exemptions to the export oriented units (EOUs), pre-shipping credits, tax holidays for EOUs, etc. On August 27, 2009, India announced its Foreign Trade Policy 2009-14. Agriculture, handicraft, gems & jewellery, handlooms, and leather sectors will receive special incentives as focus areas to help India double its percentage in global trade in the next five years. It will also aid in creating more employment opportunities. Export target for 2010-11 is slated at USD 200 billion. The new FTP also includes 26 new regions under the Focus Market Scheme. However, experts argue that the FTP should become more FDI-savvy (Foreign Direct Investments) as an effective measure to boost Indian export capabilities. The country should learn from China, where FDI led units have been its major exports drivers.

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