One of the most important phenomena in post-war

economic history has been the enormous

expansion of world trade. Indian trade grew poorly
from 1950 to 1980 as compared with the world. In
1993, India ranked 33rd in top exporting countries
and 32nd in top importing countries.

Meaning:
Trade between two or more nations is called
foreign trade or international trade foreign trade is
also known as external trade. Foreign trade
transactions are classified under three categories:
Import Trade Export Trade Net Exports.

Affect of foreign trade policy:

Foreign trade affects the domestic trade and
markets of a country and India. India is a part of
the globalization and any effect, positive or
negative, on the global trade is bound to affect the
Indian markets. It was until 1991 that India
followed a socialist-democratic approach, which
kept it uncommitted to the foreign countries. India,
like other countries participating in globalization,
has been exporting and importing products and
services to and from other countries.

Steps taken with its Objective:

The Indian Foreign Trade Policy of 2009-2014 has
added 26 new markets to its aim of achieving the
export target of US$ 200 billion and export growth
target of 15 percent for the first two years. Other
aims of the policy are to double Indias export of
goods and services by 2014 and to double Indias
share in global merchandise trade by 2020.
The 15 destination markets in the matrix are
United States, Japan, Germany, U.K.,Hong Kong,

U.A.E., Belgium, Italy, Russia, Singapore,

Bangladesh. Netherlands, France, South Africa and
Thailand. The 15 products are jems and
jewellery;cotton and accessories; cotton yarn,
fabric etc.

BOP Problem Of India

Large trade deficit
Fall in the invisible surplus, caused by:
a. a) Sharp increase in the invisibles payments
due to the increase in the debt service.
b. Setback to the invisible receipts, mainly the
emigrant remittances and travel income.

Present scenario
India has a chronic deficit on current accounts.
What bridges the gap between payments and
receipts is mainly external aid (especially no
project assistance), tourism earnings, and
remittances from Indians working abroad. Heavy
imports of food grains and armament purchases
caused a decline in India's foreign exchange
reserves in the mid-1960s. An economic recovery
from 196869, however, eased the problem, and
by September 1970, foreign exchange reserves
amounted to $616 million, as compared with $383
million by December 1965. Reserves declined to
$566 million by the end of 1972 but increased to
$841 million as of December 1975, despite
massive deficits on current accounts, attributable
to the quadrupling of oil import prices during 1973
74. Foreign exchange reserves declined from
$6,739 million at the end of 1979 to $3,476 million

as of November 1982 but subsequently rose to

$5,924 million by March 1987. The Gulf War crisis
worsened the ratio of current account deficit to
GDP. Foreign exchange reserves plummeted
because of export losses in Kuwait, Iraq, and other
nations. Remittances from Indian workers fell, and
sudden price increases for oil imports caused an
estimated loss to India of over $2.8 billion in
earnings. By November 1993, however, India's
foreign exchange reserves had risen to $8.1 billion,
the highest level since 1951. A substantial
reduction in the trade deficit, increased inflows
from foreign institutional investors, a stable
exchange rate, and improved remittances all
contributed in the recovery of reserves. Although
export growth remained strong, the current
account deficit tripled from 199394 to 199596.
The increase was attributed to a continuing surge
in imports and higher debt service requirements.
However, between 1995 and 1998 the current
account deficit shrank to about 1% of GDP due to
increased textile exports and a liberalizing trade
regime. India's total external debt in 2001 was
estimated at $100.6 billion. In 2000, the external
debt-GDP ratio stood at around 20.7%, down from
41% in 1991/92. In the early 2000s, India's exports
to East and Southeast Asia increased, including to
Japan and South Korea. High growth rates were
registered for textiles, chemicals and related
products, engineering goods, and leather and
manufactures. Major Imports Petroleum oil
lubricants now account for considerable part of
Indias import bill. Pearls and precious stones
account for large share of the import bill. These
imports are mostly for export processing. Other
important import items, in terms of value, are
edible oils, fertilizers and fertilizer materials;

chemicals, iron and steel, cereals and pulses and

nonferrous metals.

EPCG Scheme Relaxations

To increase the life of existing plant and
machinery, export obligation on import of
spares, moulds etc. under EPCG Scheme has
been reduced to 50% of the normal specific
export obligation.
Taking into account the decline in exports, the
facility of Re-fixation of Annual Average Export
Obligation for a particular financial year in
which there is decline in exports from the
country, has been extended for the 5 year
Policy period 2009-14.
Support for Green products and products
from North East
Focus Product Scheme benefit extended for
export of green products and for exports of
some products originating from the North East.

Status Holders
To accelerate exports and encourage
technological upgradation, additional Duty
Credit Scrips shall be given to Status Holders
@ 1% of the FOB value of past exports. The
duty credit scrips can be used for procurement
of capital goods with Actual User condition.
This facility shall be available for sectors of
leather (excluding finished leather), textiles
and jute, handicrafts, engineering (excluding
Iron & steel & non-ferrous metals in primary

and intermediate form, automobiles & two

wheelers, nuclear reactors & parts, and ships,
boats and floating structures), plastics and
basic chemicals (excluding pharma products)
[subject to exclusions of current beneficiaries
under Technological Upgradation Fund
Schemes (TUFS)]. This facility shall be
available upto 31.3.2011.
Transferability for the Duty Credit scrips being
issued to Status Holders under paragraph
3.8.6 of FTP under VKGUY Scheme has been
permitted. This is subject to the condition that
transfer would be only to Status Holders and
Scrips would be utilized for the procurement of
Cold Chain equipment(s) only.

Stability/ continuity of the Foreign

Trade Policy
To impart stability to the Policy regime, Duty
Entitlement Passbook (DEPB) Scheme is
extended beyond 31-12-2009 till 31.12.2010.
Interest subvention of 2% for pre-shipment
credit for 7 specified sectors has been
extended till 31.3.2010 in the Budget 2009-10.
Income Tax exemption to 100% EOUs and to
STPI units under Section 10B and 10A of
Income Tax Act, has been extended for the
financial year 2010-11 in the Budget 2009-10.
The adjustment assistance scheme initiated in
December, 2008 to provide enhanced ECGC
cover at 95%, to the adversely affected

sectors, is continued till March, 2010.

Marine sector
Fisheries have been included in the sectors
which are exempted from maintenance of
average EO under EPCG Scheme, subject to
the condition that Fishing Trawlers, boats,
ships and other similar items shall not be
allowed to be imported under this provision.
This would provide a fillip to the marine sector
which has been affected by the present
downturn in exports.
Additional flexibility under Target Plus Scheme
(TPS) /Duty Free Certificate of Entitlement
(DFCE) Scheme for Status Holders has been
given to Marine sector.

Gems & Jewellery Sector

To neutralize duty incidence on gold Jewellery
exports, it has now been decided to allow
Duty Drawback on such exports.
In an endeavour to make India a diamond
international trading hub, it is planned to
establish "Diamond Bourse (s)".
A new facility to allow import on consignment
basis of cut & polished diamonds for the
purpose of grading/certification purposes has
been introduced.
To promote export of Gems & Jewellery

products, the value limits of personal carriage

have been increased from US$ 2 million to
US$ 5 million in case of participation in
overseas exhibitions. The limit in case of
personal carriage, as samples, for export
promotion tours, has also been increased from
US$ 0.1 million to US$ 1 million.

Agriculture Sector
To reduce transaction and handling costs, a
single window system to facilitate export of
perishable agricultural produce has been
introduced. The system will involve creation of
multi-functional nodal agencies to be
accredited by APEDA.

Leather Sector
Leather sector shall be allowed re-export of
unsold imported raw hides and skins and semi
finished leather from public bonded ware
houses, subject to payment of 50% of the
applicable export duty.
Enhancement of FPS rate to 2%, would also
significantly benefit the leather sector.

Tea
Minimum value addition under advance
authorisation scheme for export of tea has
been reduced from the existing 100% to 50%.
DTA sale limit of instant tea by EOU units has
been increased from the existing 30% to 50%.

 Export of tea has been covered under VKGUY

Scheme benefits.

Pharmaceutical Sector
Export Obligation Period for advance
authorizations issued with 6-APA as input has
been increased from the existing 6 months to
36 months, as is available for other products.
Pharma sector extensively covered under
MLFPS for countries in Africa and Latin
America; some countries in Oceania and Far
East.

Handloom Sector
To simplify claims under FPS, requirement of
Handloom Mark for availing benefits under FPS
has been removed.