The evolution of humankind has been a much-layered process which took a lot
of time and effort, in one of the evolutionary phases, human decided to stay in
groups and civilizations begun to formulate. The civilizations lead to various
discoveries and practices which have turned out to be revolutionary. One such
practice which can be traced back is the trading of one essential to other,
which is called a barter system.
From the time of evolution till the very recent COVID-19 pandemic, trade has
evolved and changed the meaning of various things in the world. From monopoly to
perfect competition, from local trading to world trading and back to local
trading (due to COVID-19 situations), the trade has changed from its very first
method, from the barter system to money trading system, the trade has brought
change and revolution in the world with the manner of trading.
The significance of trade can be understood with some historical events such as,
British trading companies who went to various parts of the world and ended up
ruling on most of it. We can also refer to Columbus and the discovery of the
American region as well, Columbus, who was a merchant, trying to reach India
through the sea, found a whole new continent that was not known to the world.
Apart from the geographical and political benefits, various monetary, social,
and cultural developments have been resulted due to trade and the current
scenario of the world is such that if the international trade is stopped then
the nations will suffer to maintain the economic growth and the smooth relations
as fear of COVID has resulted in some drastic steps by the countries including
refraining import from various countries having higher cases of COVID-19.
Recently, India introduced its new foreign trade policy for 2021-2026 intending
to become an economy of USD 5 Trillion along with making India a leader in the
area of international trade.
India's economic growth continued to be strong for most of the period of
2015-2020, averaging 7.4% until 2018/19. Several reforms were implemented,
including the introduction of the Goods and Services Tax (GST) to harmonize the
indirect tax system; the Insolvency and Bankruptcy Code to address the problem
of debt in the corporate sector; banking reforms to improve supervision of banks
and non-banking financial companies; and, most recently, legislation to improve
marketing and reduce regulation of agricultural products. Trade policy remained
broadly unchanged as it was under the time frame of the previous trade policy.
Since the first half of 2019, growth has been weaker, mainly due to lower
consumption and investment, particularly private investment, with gross fixed
capital formation growing by only 1% in the fiscal year 2019/20. Recent cuts in
the base corporate rate of tax, from 36% to 22%, and in personal income tax,
were announced to boost investment and consumer spending. The authorities
estimated that real GDP grew at around 5.1% during April-December 2019 but more
recent estimates point to lower growth.
The Government responded to the COVID-19 pandemic by announcing several short
and longer-term measures targeting certain sectors of the economy, as well as
the rural and urban poor. With lower inflationary pressure due to lower
international commodity prices and the impact of the pandemic, monetary policy
was also accommodative during the period.
In India, the regulation of foreign trade is done by the Directorate General of
Foreign Trade. DGFT is an attached office of the Ministry of Commerce and
Industry and is headed by the Director-General of Foreign Trade. Right from its
inception till 1991, when liberalization in the economic policies of the
Government took place, this organization has been essentially involved in the
regulation and promotion of foreign trade through regulation.
Keeping in line with liberalization and globalization and the overall objective
of increasing exports, DGFT has since been assigned the role of "facilitator".
The shift was from prohibition and control of imports/exports to promotion and
facilitation of exports/imports, keeping in view the interests of the country. DGFT is the main governing body in matters related to Exim Policy.
Foreign trade is also regulated by the Foreign Trade (Development and
Regulation) Act 1992. The main objective of the Foreign Trade (Development and
Regulation) Act is to provide the development and regulation of foreign trade by
facilitating imports into and augmenting exports from India. The act has
replaced the earlier law known as the Imports and Exports (Control) Act 1947.
What Is Trade Policy?
Trade policy encompasses all instruments that governments may use to promote or
restrict exports and imports. Trade policy also includes the approach taken by
countries in trade negotiations. While participating in the multilateral trading
system and while negotiating bilateral trade agreements, countries assume
obligations that shape their national trade policies. The instruments of trade
policy that countries typically use to restrict imports and encourage exports
can be broadly classified into Price related measures such as tariffs and
non-price measures or non-tariff measures.
Trade policies determine the size of markets for the output of firms and hence
strongly influence both foreign and domestic investment. Over time, the
influence of trade policies on the investment climate is growing. Changes in
technology, liberalization of host country policies towards trade and
investment, and the growing organization of global production chains within
multinational enterprises (MNEs) have all served to make trade policies in home
and host countries alike a crucial ingredient in encouraging both foreign and
domestic investment and in maximizing the contribution of that investment to
Types Of Trade Policy
Trade policies can assume varying dimensions and scope depending on the number
of parties involved in the policy.
Consider the following types of trade policies:
National trade policy:
Every country formulates this policy to safeguard the best interest of its trade
and citizens. This policy is always in consonance with the national foreign
Bilateral trade policy:
This policy is formed between two nations to regulate trade and business
relations with each other. The national trade policies of both the nations and
their negotiations under the trade agreement are considered while formulating
bilateral trade policy.
International trade policy:
International economic organizations, such as Organization for Economic
Co-operation and Development (OECD), World Trade Organization (WTO), and
International Monetary Fund (IMF), define the international trade policy under
their charter. The policies uphold the best interests of both developed and
developing nations. The best example is the Doha Development Agenda which was
formulated by the WTO.
The approaches of countries can be divided into two types: Liberalization (free
trade policy) and protectionism.
Under the liberalization is understood the minimum of state interference in
foreign trade, which developed based on free-market forces of supply and demand,
and under the protectionism - the state policy, which protects the domestic
market from foreign competition through the use of tariff and non-tariff trade
These two types of trade policy characterize the measure of state intervention
into international trade.
If under the conditions of liberalization policy, a basic regulator of foreign
trade is a market, then protectionism practically excludes the operation of
free-market forces. It is assumed that economic potential and competitiveness at
the world market of separate countries are different. Therefore a free action of
market forces can be unprofitable for the less developed countries. Unlimited
competition from more powerful states can result in economic stagnation and the
formation of inefficient economic structure in less-developed countries
The protectionism policy contributes to the development of certain industries in
the country and often is a necessary condition for the industrialization of
agrarian countries and unemployment reduction. However, the removal of foreign
competition reduces the interest of domestic producers in the implementation of
scientific and technological progress, improving the efficiency of production.
Trade Policy 2015-2020: Key Aspects
It aims at doubling the overseas sales to $900 billion by 2019-20.
It provides a framework for increasing exports of goods and services as well as
generation of employment and increasing value addition in the country, in line
with the 'Make in India' program.
Integrating foreign trade with the "Make in India" and "Digital India" Programme.
2015 policy, which focused on improving India's performance in existing
markets/products and exploring new markets/products - has been praised as "progressive" for the following reasons:
- MEIS scheme: A single Merchandise Exports from India Scheme (MEIS) has
been formulated by merging five existing schemes to promote merchandise
- The incentives are to be provided in the form of duty scrips as % of FOB
(free on board) value of exports.
- SEIS scheme: The Services from India Scheme (SFIS) has been replaced by
Service Exports from India Scheme (SEIS). SEIS will be only for India-based
service providers and will be based on net foreign exchange earned.
- Both the SEIS and MEIS schemes apply to SEZ units.
- To ensure trade facilitation and ease of doing business, Paperless Trade
and Online filling of forms have been provided.
- E-commerce export applies to items worth up to Rs 25,000 per
- Provision for Export oriented units (EOUs), Export hardware technology
park, and software technology park.
- The Duty-free scrips (a form of credits) are provided to the exporters
under various export promotion schemes of the government. The scripts may be
transferable or nontransferable.
- It consolidated a range of export incentives with different eligibility
criteria into two schemes � the Merchandise Exports from India Scheme (MEIS)
and Services Exports from India Scheme (SEIS).
- It offered export incentives under these two schemes in the form of duty
credit scrips, which can be used by exporters to pay import duties. The
scrips are fully transferable, which means that if an exporter does not need
them, they can pass them on to another.
- It reduced export obligation from 90% to 75% for capital goods sourced
from local manufacturers under the Export Promotion Capital Goods Scheme (EPCG).
- It allowed manufacturers who are "status holders" (entrepreneurs
certified by the DGFT as having helped India become a major export player)
to self-certify their manufactured goods as originating from India. This
helps them qualify for preferential treatment under various bilateral and
regional trade agreements.
- It identified 108 micro, small and medium enterprise (MSME) clusters for
focused interventions to boost exports.
- It promoted the paperless processing of various DGFT licenses and
The policy has also had its fair share of criticism. Some of its provisions have
been challenged at the World Trade Organization (WTO) by the United States. Some
In 2019, a WTO dispute settlement panel, acting on Washington's complaint, said
India's export subsidy provisions violate WTO rules and must be withdrawn. These
include tax incentives under the popular MEIS and SEIS. As India's per capita
gross national product is over $1,000 per annum, it can no longer offer
subsidies based on export performance, the panel ruled. This controversy
reinforces the growing view in India that the country needs to move away from
subsidies and think of other ways to help its exporters.
There is a strong belief in India (bolstered by its trade policy) that free
trade agreements (FTAs) haven't worked for it. One indication of this came in
November 2020 when India decided to not be a part of the Regional Comprehensive
Economic Partnership (RCEP), the world's largest FTA. Experts and economists
believe this cost India a golden chance to be a major player in exports.
Foreign Trade Policy, 2021-2026
It will come into effect from 1st April 2021 for five years. It will strive to
make India a leader in the area of international trade to make India a USD 5
- By boosting exports: both merchandise and services, through
Systematically addressing domestic and overseas constraints related to the
- Regulatory and operational framework for lowering transactions costs and
enhancing the ease of doing business,
- Creating a low-cost operating environment through efficient,
cost-effective, and adequate logistical and utility infrastructure.
- Correcting the imbalances within India: By improving operations of the
domestic manufacturing and services sector in combination with efficient
- Growth and employment: By channelizing the synergies gained through
merchandise and services exports.
Over the past few decades, significant transformations are happening in terms of
growth as well as trends of flows and patterns of global trade. The increasing
importance of developing countries has been a salient feature of the shifting
global trade patterns. Fundamental changes are taking place in the way countries
associate themselves with international trade and investments.
Trading through regional arrangements which foster closer trade and economic
relations is shaping the global trade landscape in an unprecedented way.
Alongside, the trading countries also have devised ingenious policies aimed at
protecting their economic interests.