Trade Policy in India
Import substitution is a strategy under trade policy that abolishes the import of foreign
products and encourages production in the domestic market. The purpose of this policy is to
change the economic structure of the country by replacing foreign goods with domestic
goods.
Post-independence India adopted the policy of import substitution by imposing heavy tariffs
on import duty. The industrial policy that the country endorsed was linked to the trade policy.
In the first seven Five-Year plans, trade in India was distinguished by the inward-looking
trade strategy. This strategy is known as import substitution, which aims to boost domestic
production and shield domestic products from international competition.
Trade policy can be defined as goals, rules, standards, and regulations that are involved in the
trade between countries. These policies are particular to a specific country and are formed by
its public officials. A country’s trade policy covers taxes imposed on inspection regulations,
import and export, and tariffs and quotas.
Under this policy, the government protects domestic manufacturers from foreign competition.
The protection from import is done in the following two forms:
Quota: It specifies the number of goods that can be imported.
Tariff: It is a tax that is imposed on imported products. This tax makes imported products
more costly and discourages their use.
The purpose of quotas and tariffs is to restrict imports and therefore, protect domestic
industries from foreign competition.
The Department of Commerce is charged with making India a prominent player in global
commerce. In the medium term, the Department develops commodity and country-specific
strategies, and in the long run, it creates a strategic plan/vision and India's Foreign Trade
Policy.
The Foreign Trade Policy of India establishes the policy and strategic framework for
encouraging exports and trade. It is updated regularly to keep up with domestic and
international environmental changes.
Multilateral and bilateral commercial contacts, special economic zones, state trading, export
promotion and trade facilitation, and the development and regulation of specific export-
oriented businesses and commodities are all responsibilities of the Department.
What is SEZ?
In India, special economic zones provide incentives to local enterprises. SEZs often provide
competitive infrastructure, duty-free exports, tax breaks, and other incentives to simplify
doing business. As a result, many multinationals, particularly exporters, are flocking to India
to invest in SEZs.
Impact of Import Substitution Strategy
Here are some of the most profound impacts of an inward-looking trade strategy concerning
the domestic industry.
1. The industrial sector contributed significantly to the economy’s GDP. For instance,
between 1990 and 1991, it contributed 24.6% to the economy, which was noted as a
drastic improvement from the previous contribution of 11.8% made towards the GDP
between 1950 and 1951.
2. India’s industrial sector expanded beyond jute and cotton textile. There was
significant diversification of the industrial sector, and there was a noticeable growth
in small-scale industries.
3. The protected market pushed the demand for domestically produced goods and also
helped to lower foreign exchange.
4. Indigenous sectors like automobile industries, electronics, etc. also flourished during
this time.
5. Significant growth was noticed in the public sector. Industries like defense, railway,
telecom, and airway came into prominence and established dominance in the country.
Besides benefiting the public sector in general, there were other notable advantages of import
substitution. However, economists argue that the import substitution industrialization was
flawed and did not benefit the Indian economy as hoped.
Export Promotion Policy in India
The government of India has liberalized the schemes for the export oriented units and export
processing zones, agriculture, horticulture, poultry, fisheries and dairying have been included
in the export oriented units.
Export promotion capital goods schemes (EPCGS) has been started to permit the exporters to
import capital goods on concessional import duties. Establishment of the EXIM bank and
SEZs promoted the export from country.
Government is committed for promoting Indian exports in international markets and suitable
interventions are done from time to time. The key schemes/interventions taken are:
1. The Foreign Trade Policy has been extended upto 30.09.2021 to provide a stable
regime during the Covid-19 pandemic.
2. Schemes such as the Advance Authorization Scheme and the Export Promotion
Capital Goods (EPCG) Scheme are being implemented to enable duty free import of
raw materials and capital goods for export production.
3. The Interest Equalization Scheme, which provides pre and post shipment Rupee
export credit has been extended upto 30.09.2021.
4. Remission of Duties and Taxes on Exported Products (RoDTEP) scheme has been
operationalized for exports with effect from 01.01.2021.
5. It has been decided to extend the Rebate of State and Central Levies and Taxes
(RoSCTL) Scheme for apparel and made-up exports till March 2024.
6. Transport and Marketing Assistance (TMA) scheme for specified agriculture
products provides assistance for the international component of freight and marketing
of agricultural produce and to promote brand recognition for Indian agricultural
products in the specified overseas markets.
7. A common digital platform for Certificate of Origin (CoO) has been launched to
increase Free Trade Agreement (FTA) utilization by exporters.
8. In order to leverage the full export potential of our vast country, Districts are being
promoted as Exports Hubs by identifying products and services with export potential
in each district, addressing bottlenecks for exporting these products/services and
supporting such local exporters/manufactures through institutional and strategic
interventions. District specific export action plans for 478 districts have been
prepared.
9. Exports of services is being supported through negotiating meaningful market access
through multilateral, regional and bilateral trade agreements, through participation in
and organization of international fairs/exhibitions like the Global Exhibition on
Services. An ‘Action Plan for Champion Sectors in Services’ is being developed to
give focused attention to identified Champion Services Sectors through identified
nodal Ministries/Departments
10. Assistance is being extended to exporters under the Market Access Initiative (MAI)
scheme for various activities such as export market research & product development,
product registration, organizing / participating in fairs, exhibitions and Buyer Seller
Meets (BSMs) abroad, Reverse Buyer Seller Meets etc.
11. In order to have a coordinated and focused attention on development of export
infrastructure, a working group on infrastructure up-gradation has been constituted
under National Committee on Trade Facilitation (NCTF) and a National Trade
Facilitation Action Plan (NTFAP) has been formulated. This includes measures for
improving road and rail connectivity to ports and smart gates at sea ports.
