India’s external trade has evolved and witnessed many a changes in its pace, nature and form ever since the country’s Independence in 1947. In this evolutionary process, the Department of Commerce has played a key role in shaping the country’s external trade policy in keeping with the ever-changing needs of the economy.

Soon after Independence, the Government followed a policy of “progressive liberalisation” by relaxing import controls through expansion of the list of commodities under the Open General Licenses (OGL).  However, foreign exchange crisis in 1956-57 put a quick end to this phase of liberalization. Comprehensive import controls were restored and maintained until 1966.  Following devaluation of the Indian rupee in 1966, almost all liberalisation initiatives were reversed and import controls tightened.  This regime was consolidated and strengthened in the subsequent years and remained more or less intact until the late 1970s and the early 1980’s to fulfil the perceived need to protect domestic industry and promote self-sufficiency in the economy.

The import substitution policy followed during the restrictive phase gave way to a new phase of trade reforms after mid 1980s aimed at easing trade restrictions to promote economic growth and competitiveness.  First, the OGL list was steadily expanded to include capital goods and intermediate inputs.  Secondly, the share of canalised imports was consciously reduced, extending the room for import of machinery and raw materials by  private entrepreneurs.  Thirdly, several export incentives were introduced including the Replenishment (REP) licenses, which could be freely traded on the market helping to relax constraints on imports and foreign exchange.

The pace of change in India’s external trade policy and practices gathered real momentum in the 1990’s. A slew of reforms were launched which included drastic reduction of items on the OGL list. In July 1991 import licensing was done away on virtually all intermediate inputs and capital goods. A decade later on 1^st April 2001, licenses / quantitative restrictions of remaining items were removed. Today, except for a handful of goods disallowed on environmental, health and safety grounds and a few others that are canalised such as fertiliser, cereals, edible oils and petroleum products, all goods can be imported without a license or other restrictions. Tariff reforms have also been addressed in a more systematic manner with across the board reduction in peak rates rather than selective exemptions. The peak rate of customs duty has been consistently brought down with the aim of converging it with the ASEAN levels.

One of the instruments of shaping the country’s trade dynamics is the Foreign Trade Policy that is framed by the Department. The bold Foreign Trade Policy (FTP) of 2004-09 recognised that trade is not an end in itself but its primary purpose is to stimulate greater economic activity and employment generation. It was envisaged that India’s share of the world merchandise trade should be double by 2008-09. 

The FTP has identified certain thrust sectors having prospects for export expansion and potential for employment generation. These include: (i) Agriculture; (ii) Handlooms & Handicrafts; (iii) Gems & Jewellery; and (iv) Leather & Footwear. Accordingly, specific policy initiatives for these sectors have been announced in the various “Annual Supplements” to the FTP every year.

The Annual Supplement announced in April, 2005 incorporated additional policy initiatives and further simplified the procedures. It provided for an active involvement of the State Governments in creating an enabling environment for boosting international trade, by setting up Inter-State Trade Council. Also, different categories of advance licences were merged into a single category for procedural facilitation and easy monitoring. The supplement provided renewed thrust to agricultural exports by extension of ‘Vishesh Krishi Upaj Yojana’ to poultry and dairy products.

The Annual Supplement put forward in April 2006, announced the twin schemes of ‘Focus Product’ and ‘Focus Market’. To further meet the objective of employment generation in rural and semi urban areas, export of village and cottage industry products were included in the ‘Vishesh Krishi Upaj Yojana’, which was renamed as “Vishesh Krishi and Gram Udyog Yojana”. Also, a number of measures were introduced in order to achieve the objective of making India a gems and jewellery hub of the world.

Likewise, the third Annual Supplement (April 2007) to the Foreign Trade Policy introduced important initiatives for exemption from service tax on services (related to exports) rendered abroad; exemption / remittance of service tax on services rendered in India and utilized by exporters and expansion of ceiling, scope and coverage under the ‘Focus Market Scheme (FMS)’ and ‘Focus Product Scheme (FPS)’.

The growth performance of trade is a reflection of the trade policies of the Government. Initially, with restrictive trade policies India’s share in world export declined continuously from 2.2% in 1948 to  0.42% in 1980. After implementation of a series of trade reform measures India’s share in exports rose to 0.6 per cent in 1993 and 0.8 per cent in 2003.

For the first time in the Foreign Trade Policy (2004-09) doubling India’s share in global trade was set as a concrete goal to be achieved within five years. As a result India’s share in merchandise trade increased from 0.9% in 2004 to 1.2% in 2006, thereby crossing one per cent share of world trade.    At the same time, India’s services trade has recorded an even higher growth performance resulting in an increase in the share in world services trade from 2% in 2004 to 2.7% in 2006.  India’s share in total world trade  has gone up from 1.1% in 2004 — i.e., the initial year of the Foreign Trade Policy (2004-09) – to 1.5% in 2006. 

In value terms India’s merchandise exports nearly trebled from US $ 45 billion in 2000-01 to US $ 125 billion in 2006-07. According to the World Trade Statistics of the WTO, India’s total merchandise trade (export + import) was valued at US $ 294 billion in 2006 and India’s services trade inclusive of export and import was US $ 143 billion.   Thus, India’s global economic engagement in 2006 covering both merchandise and services trade was of the order of US $ 437 billion, up by a record 72% from a level of US $ 253 billion in 2004.

In addition, diversification of exports to high growth locations in Asia, CIS countries, Africa and Latin America through special trading arrangements has given an added fillip to export growth.

            Trade policy apart, another initiative of the Department is to give a fillip to exports has been the introduction of Special Economic Zones (SEZs) The SEZs Act, 2005 was passed by the Parliament in May 2005 and received Presidential assent in June 2005.  Supported by the SEZ Rules 2006, the SEZ Act, 2005 came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to Central as well as State Governments.  

            The SEZ Act was intended to instil confidence in investors and signal the Government’s commitment to a stable SEZ policy regime. The main objectives of the SEZ Act are: (a) generation of additional economic activity (b) promotion of exports of goods and services; (c) promotion of investment from domestic and foreign sources; (d) creation of employment opportunities; (e) development of infrastructure facilities:  

The SEZ scheme has generated an overwhelming response amongst investors, both in India and abroad.  Under this Act, formal approval has been granted so far for setting up 362 SEZs of which 133 SEZs have been notified so far.

Regional Trade Arrangements and Trade

India views Regional Trading Arrangements  (RTAs) as ‘building blocks’ of trade liberalisation and as complementary to the multilateral trading system.  About 50% of world trade is now conducted on a preferential basis within FTAs.  Recognising the importance of RTAs, India has engaged with its trading partners/blocks to begin concluding, in-principle agreements to move towards Comprehensive Economic Cooperation Agreements (CECA) which cover FTA in goods, services, investment and identified areas of economic cooperation. 

The India-Sri Lanka FTA, Agreement on SAFTA, India-Singapore CECA, India-Thailand Framework Agreement with its Early Harvest Programme, India-Afghanistan PTA are currently in operation.   The India-Mercosur PTA and India-Chile PTA is to be implemented shortly.  India-ASEAN Framework Agreement, BIMSTEC, India-Thailand FTA, India-Mauritius CECA, India-EU Trade and Investment Agreement, India-South Korea FTA, India-Japan FTA are under various stages of negotiation.  Joint Study Groups have been set up for India-China, India-Brazil-South Africa (IBSA), India-Russia, India-Malaysia for possible areas of cooperation. 

India and the WTO

India believes that in an unequal world, the only means for bringing about equity and fairness is a rule based multilateral trading system and that the WTO can ensure open, equitable, predictable, non-discriminatory international trade.  That is why WTO negotiations are so crucial in our commercial diplomacy.  ‘Development’ is the core agenda of the current Doha Round and ‘special and differential treatment’ for developing centres in all elements of negotiations are imperative so that ‘imbalances’ created in the Uruguay Round gets corrected.  On agriculture issues, India and its coalition partners, G-20 and G-33, have taken the lead in negotiating for complete elimination of export subsidies and substantial reduction in trade distorting domestic support by the developed countries; flexibility for developing countries to ensure food and livelihood security and rural development through Special Products (SPs) and Special Safeguard Mechanism (SSM) to protect against import surges.  Equally important are issues in Non Agricultural market Access (NAMA) where India and its coalitions partners, NAMA 11, have been demanding larger tariff reduction commitments from developed countries, a principle known as Less Than Full Reciprocity  in reduction commitments.  In services, India has been seeking higher ambitions in Mode 1 (Cross Border Supply) and Mode 4 (Movement of Natural Persons) by the developed countries.  India has been in the forefront of the G-4 (Brazil, the EC, India and the US) with a view to ensure real ‘development content’ to the outcome of the current Round.

The Government is fully conscious of the immense potential of international trade to enhance the quality of life of the common man both by providing quality goods and services at internationally competitive prices as well as by opening up new avenues of employment through export growth. On the occasion of India’s Sixtieth Year of Independence, the Department of Commerce re-dedicates itself to the service of the nation and its people.

*Commerce Secretary