Module: Foreign Trade Of India
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In this lesson you will:
 Analyse India’s foreign
trade since independence
 Know the procedures
followed for smooth
functioning of
import/export activities
 Understand the exchange
control’s relating to
exports
 Understand the exchange
control’s relating to
imports
 Brief India’s trade policy
for the period 1985-86 to
1996-97
 Understand India’s
Foreign Trade Act, 1992
 Brief India’s export
import policy for the
period 1997-2002 and
2002-07
 Know the export
promotion measures
undertaken by the
government
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Events of Significance:
1948-49 to 1950-51: On the
eve of planning, the foreign
trade of India showed an
excess of imports over
exports. The rise in imports
was largely due to
a. pent-up demand of
the war and the postwar period as a
consequence of
various controls and
restrictions,
b. the shortage of food
and basic raw
materials like jute and
cotton as a result of
partition,
c. the rise in the imports
of machinery and
equipment or capital
goods to meet the
growing demand for
hydroelectric and
other projects started
during the period
Devaluation of Rupee and
Annual Plans: Persistent
adverse balance of trade
since 1951 and consequent
adverse balance payments
acute shortage of foreign
exchange, extensive
borrowing by India from
foreign countries and foreign
institutions like IMF to
overcome balance of
payments problems- all
these factors induced India
to devalue the rupee by 36.5
per cent in June, 1966.
Analysis of Foreign Trade Since Independence- I
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Module: Foreign Trade Of India
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Devaluation was resorted to
essentially:
a. to reduce the volume
of imports
b. to boost exports
c. create a favourable
balance of trade and
balance of payments
Devaluation was announced
during the drought and the
following year happened to
be a bad weather year as
was also the year when the
government announced its
policy of liberalising imports
in case of 59 industries. The
immediate effect of
devaluation was the further
aggravation of the trade
deficit.
To study the trends of India’s
foreign trade during postindependence period, click
each of the periods below:
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The First Plan Period
The First Plan Period
1951-52 to 1955-56: Trade deficit during this period
was largely due to programmes of industrialisation,
which gathered momentum, and pushed up the imports
of capital goods. There were no improvements in
exports in this period.
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The Second Plan Period
The Second Plan Period
1956-57 to 1960-61: During the Second Plan, massive
Module: Foreign Trade Of India
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programmes of industrialisation were initiated. This
included the setting up of the steel plants heavy
expansion and renovation of railways and modernisation
of many industries and as a result, the quantum of
imports reached a very high level. Besides this,
maintenance imports required for a developing economy
further increased our imports. Food grain imports had to
be resorted to overcome internal shortage and rising
prices.
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The Third Plan Period
The Third Plan Period
1961-62 to 1965-66: The increase in the volume of
imports during the Third Plan was due to three factors.
Firstly, rapid industrialisation necessitated larger
imports of machinery, equipment, industrial raw
material and technical know-how. Secondly, the defence
needs had increased following aggression by China and
Pakistan. Finally, large quantity of food grains was
imported, partly because it was easily because of the
extensive failure of crops in 1965-66.
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The Fourth Plan Period
The Fourth Plan Period
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The Fifth Plan Period
The Fifth Plan Period
1974-79: The hike in oil prices which started in October
1973 seriously affected the pattern of the throughout the
world India was no exception. The value of imports
Module: Foreign Trade Of India
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during the Fifth Plan period reached very high levelslargely the result of a sharp increase in the cost of
India’s major imports viz, petroleum, fertilizers and
food grains. Simultaneously, there was a significant
improvement in India’s exports as they successively
rose every year during the fifth plan period. Balance of
trade surplus emerged for the second time since 1951.
Exports of fish and fish preparations, coffee, tea,
groundnuts, cottons fabrics and readymade garments
and handicrafts recorded substantial increase in this
period.
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The Sixth Plan Period
The Sixth Plan Period
1979-80 and 1980-81 to 1984-85: With the last year of
the Fifth Plan (1978-79), trade deficit started widening.
On account of a further increase in the prices of
petroleum products by OPEC the import bill shot up
from Rs. 6814 crores to over 8908 crores in 1979-80
and further to Rs. 12524 crores in 1980-81 and Rs.
13608 crores in 1981-82. Though exports too continued
to rise, the value of exports fell much short of imports.
The result was unprecedented trade deficits from nearly
Rs. 2450 crores in 1970-80 to Rs. 5813 crores in 198081. It was this yawning deficit, which forced the
Government to approach the IMF in November 1981 for
a huge loan.
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The Seventh Plan Period
The Seventh Plan Period
1985-86 to 1989-90: Data about the Seventh Plan
Period (1985-86 to 1989-90) reveal that on account of
the policies of indiscriminate liberation being followed
by the Congress (I) government and later endorsed by
the Janata Dal Government, the average annual imports
shot up to Rs. 28874 crores, but exports averaged Rs.
Module: Foreign Trade Of India
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18033 crores. Thus an unprecedented annual average
trade deficit of the order of Rs. 10841 crores emerged.
The huge trade deficit compelled the Government to
approach the World Bank/IMF for an unprecedented
loan of over $ 6.7 billions. The government was also
forced to apply brakes on the licensing policy of import
licenses.
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2000-01 to 2004-05
2000-01 to 2004-05
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2005-06 onwards
2005-06 onwards
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Click each plan to know the
import/export figures for that
particular period.
Analysis of Foreign Trade Since Independence- II
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The First Plan Period
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1951-52 to 1955-56 – The First Plan Period
Exports: Highest absolute growth of Rs 83 crores and
highest percentage of growth was 12.83% during 195152.
Imports: Highest absolute growth of Rs 313 crores and
highest percentage of growth was 48.15% during 195152.
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The average absolute growth of export during this
period was Rs. -1 crore and growth rate was -0.49%.
The average absolute growth of imports during this
period was Rs. 21 crore and growth rate was 6%.
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The Second Plan Period
1956-57 to 1960-61 – The Second Plan Period
Exports: Highest absolute growth of Rs 51 crores and
Module: Foreign Trade Of India
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highest percentage of growth was 8.85% during 195960.
Imports: Highest absolute growth of Rs 329 crores and
highest percentage of growth was 42.56% during 195657.
The average absolute growth of export during this
period was Rs. -2 crores and growth rate was -0.19%.
The average absolute growth of imports during this
period was Rs. 67 crore and growth rate was 9.43%.
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The Third Plan Period
1961-62 to 1965-66 – The Third Plan Period
Exports: Highest absolute growth of Rs 121 crores and
highest percentage of growth was 17.77% during 196364.
Imports: Highest absolute growth of Rs 176 crores and
highest percentage of growth was 14.14% during 196465.
The average absolute growth of export during this
period was Rs. 30 crores and growth rate was 4.64%.
The average absolute growth of imports during this
period was Rs. 49 crore and growth rate was 4.53%.
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The Fourth Plan Period
1969-70 to 1973-74 – The Fourth Plan Period
Exports: Highest absolute growth of Rs 552 crores and
highest percentage of growth was 28.01% during 197374.
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Imports: Highest absolute growth of Rs 1088 crores and
highest percentage of growth was 58.28% during 197374.
Module: Foreign Trade Of India
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The average absolute growth of export during this
period was Rs. 231 crores and growth rate was 13.74%.
The average absolute growth of imports during this
period was Rs. 243 crore and growth rate was 13.67%.
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The Fifth Plan Period
1974-75 to 1978-79 – The Fifth Plan Period
Exports: Highest absolute growth of Rs 1103 crores and
highest percentage of growth was 27.28% during 197677.
Imports: Highest absolute growth of Rs 1564 crores and
highest percentage of growth was 52.93% during 197475.
The average absolute growth of export during this
period was Rs. 641 crores and growth rate was 18.33%.
The average absolute growth of imports during this
period was Rs. 772 crore and growth rate was 19.53%.
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The Sixth Plan Period
1979-80 to 1984-85 – The Sixth Plan Period
Exports: Highest absolute growth of Rs 2087 crores and
highest percentage of growth was 21.14% during 198485.
Imports: Highest absolute growth of Rs 3616 crores and
highest percentage of growth was 40.59% during 198081.
The average absolute growth of export during this
period was Rs. 1247 crores and growth rate was
15.82%.
The average absolute growth of imports during this
period was Rs. 2373 crore and growth rate was 22.76%.
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The Seventh Plan Period
1985-86 to 1989-90 – The Seventh Plan Period
Exports: Highest absolute growth of Rs 7582 crores and
highest percentage of growth was 36.72% during 198990.
Imports: Highest absolute growth of Rs 8510 crores and
highest percentage of growth was 33.12% during 198889.
The average absolute growth of export during this
period was Rs. 3254 crores and growth rate was
19.52%.
The average absolute growth of imports during this
period was Rs. 4392 crore and growth rate was 17.14%.
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The Eight Plan Period
1990-91 to 1994-95 – The Eight Plan Period
Exports: Highest absolute growth of Rs 16063 crores
and highest percentage of growth was 29.92% during
1993-94.
Imports: Highest absolute growth of Rs 16870 crores
and highest percentage of growth was 23.08% during
1994-95.
The average absolute growth of export during this
period was Rs. 10889 crores and growth rate was
24.19%.
The average absolute growth of imports during this
period was Rs. 9866 crore and growth rate was 17.59%.
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The Ninth Plan Period
1995-96 to 1999-2000 – The Ninth Plan Period
Exports: Highest absolute growth of Rs 23679 crores
and highest percentage of growth was 28.64% during
1995-96.
Imports: Highest absolute growth of Rs 32707 crores
and highest percentage of growth was 36.35% during
1995-96.
The average absolute growth of export during this
period was Rs. 16052 crores and growth rate was
14.77%.
The average absolute growth of imports during this
period was Rs. 22923 crore and growth rate was
18.19%.
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The Tenth Plan Period
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2000-01 to 2004-05 – The Tenth Plan Period
Exports: Highest absolute growth of Rs 81973 crores
and highest percentage of growth was 27.94% during
2004-05.
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Imports: Highest absolute growth of Rs 141957 crores
and highest percentage of growth was 39.53% during
2004-05.
The average absolute growth of export during this
period was Rs. 42483 crores and growth rate was
18.48%.
The average absolute growth of imports during this
period was Rs. 59297 crore and growth rate was
20.11%.
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Procedure of Exports and Imports
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Directorate General of
foreign trade (DGFT) and
its regional offices,
functioning under the
Ministry of Commerce and
Industries, Department of
Commerce, Government of
India, regulates export trade.
DGFT announces policies
and procedures to be
followed for exports from
India. Authorised dealers
have to conduct export
transactions in conformity
with the foreign trade policy
in vogue and the rules framed
by the government of India
Director General of Foreign
Trade is an officer of the
central government. He
issues import export code to
the people engaged in
international trade.
New system of issuance of
importer-exporter code
number. It has been decided
to simplify the application
process for issuance of IEC
number.
The new system relies on a
much simpler form and an
optional online application
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Module: Foreign Trade Of India
model for issuance of IEC
number. The IEC application
form has been notified in
Public Notice 37 dated 27th
July 2006.
An applicant may now
choose one of the two options
for application submission:
 File an online application
and submit a physical
copy of the application by
taking a print out of the
online application
 Submit a physical copy of
application directly at the
regional DGFT office
Process of Online
Application:
Applicants can file an on-line
application at the DGFT website http:dgft.gov.in. On-line
form has been designed to
ensure feeding of all the
required information by
prompting user wherever a
field is left blank. Applicant
has to submit scanned copies
of PAN and bank certificate
along with their application.
There are 2 options for
payment of fee.
a. If fee is paid by
Demand Draft, IEC
will be generated only
after receipt of the
physical copy of the
application.
b. If IEC application fee
is paid through
electronic fund
transfer facility, IEC
number will be
generated by the
licensing office
automatically and the
number can be
Page 22 of 51
Module: Foreign Trade Of India
viewed online by the
applicant
c. On the receipt of
physical copy of the
application, the same
IEC will be printed in
24 hours time and
dispatched to the firm.
Online Submission of
Application:
All applications for advance
license (excluding Para 4.7
and DFRC applications),
advance license for annual
requirement, EPCG license
and DEPB license (for EDI
shipping bills from notified
EDI ports w.e.f. 01.10.2005)
and duty free import
authorisation scheme will
have to be submitted with
digital signature on the
DGFT website dgft.gov.in (as
is being done now) and
payment of license fee will
also have to be made through
the EFT payment gateway of
the DGFT designated banks
on the DGFT website
dgft.gov.in compulsorily from
01 may 2006.
In case of third party in case
of DEPB claims based on
EDI DEPB shipping bills the
applications will also need to
be filed through the ECOM
made only on the DGFT
website and no manual DEPB
applications will be allowed.
Regional licensing authority
will however need to check
on the admissibility of the
third party claims from the
document submitted by the
third party claimants in this
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Module: Foreign Trade Of India
Page 24 of 51
behalf before passing such
claims.
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Under the FEMA regulations,
exchange can be obtained
from Authorized Persons for
any current account
transactions. FEMA also
authorises the central
government to formulate tools
and regulations for drawal of
exchange for imports.
Exchange control – Imports
X
Y
The guidelines and directives
issued by the RBI are
mandatory in nature and take
the form of regulations
applicable to all banks and
persons having transactions in
foreign exchange. These
circulars are usually referred
to APDIR circulars.
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Recently, RBI has issued a
master circular listing out the
exchange control provisions
applicable to imports into
India. The main provisions are
as given below.
Click on each of these to know
more about them.
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Module: Foreign Trade Of India
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Imports from Nepal and Bhutan
Imports from Nepal and Bhutan
 Rupee accounts of Bhutanese and Nepalese
nationals and firms, maintained with any Indian
Banks are treated as resident accounts
 Any trade settlements can be freely made through
these accounts
 These settlements cannot be made out of foreign
exchange remittances
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Import licenses
Import licenses
 Import of any item is subjected to an import license
 Banks should not open any letter of credit or effect
any remittance unless the original exchange control
copy of the license is submitted and is endorsed
 Import licenses are for the CIF value and cannot be
utilised to the full amount to cover the FOB value of
import
Special conditions if any stated in the license are also to
be strictly adhered to.
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Obligations of the purchaser of exchange
Obligations of the purchaser of exchange
The purchaser of the exchange has to ensure that the
exchange is utilised for the purpose for which it was
purchased from the AD. Where the exchange is
purchased for payment of import, the evidence of
import in the form of Bill of entry is required to be
submitted to the Authorised Dealer through whom
exchange is purchased.
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Module: Foreign Trade Of India
Page 27 of 51
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Manner of rupee payment
Manner of rupee payment
Payment for import bills whether under letters of credit
or on collection basis must be made by debt to the
account of the importer or by crossed cheque drawn by
importer on his banker. Under no circumstances
payment in cash can be accepted by the A.D.
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Letter of authority
Letter of authority
Letters of credits can be opened and/or remittances can
be affected by a person other than the importer himself,
on the strength of letter of authority issued by the
importer in the name of such person. The obligations of
submission of evidence of imports shall rest on such LA
holder.
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Advance remittance
Advance remittance
Advance Remittance is subject to the following
conditions:
a. EC Copy of a valid import license, if the item of
import is subject to import license
b. Beneficiary of remittance is the supplier
c. Where the amount remitted is over USD 25000
or its equivalent, a guarantee from a bank of
international repute should be obtained. Such
guarantee/stand by letter of credit should have
adequate validity to cover for the purpose of
enforcing payment.
d. Physical import must be made within a period of
3 months from the date of remittance. Importer
should undertake to submit such evidence at the
time of remittance.
Module: Foreign Trade Of India
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e.
In the event of non event, the remitting bank to
ensure that the advance remittance is repatriated.
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Time limit of settlement of import bill
Time limit of settlement of import bill
Remittance against imports should be completed within
6 months from the date of import. Payment terms
involving settlements beyond 6 months from import
date are treated as External Commercial Borrowings
and require prior approval of RBI/GOVT. However
payment up to 15% can be withheld guarantee of
performance of goods imported. No interest is payable
on such amount.
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Interest on import
Interest on import
Interest for usuance as well as overdue interest, not
exceeding six months from the date of shipment can be
remitted provided the rate is not more than the prime
rate (or LIBOR).
Where an import bill is retired before due date, interest
at the contracted rate for the unexpired usance will have
to be deducted. Where no separate interest is claimed,
interest at prime rate will be deducted for the unexpired
usance.
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FEMA
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The
Parliament
has
enacted the
Foreign
Exchange
Manageme
nt Act,
1999 to
replace the
Foreign
Exchange
Regulation
57
Act, 1973.
This Act
came into
force on
the 1st day
of June,
2000.
(Reference
:
http://finmi
n.nic.in/the
_ministry/
dept_reven
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ue/fema_di
rectorate/i
ndex.html)
Import is
considered
a Current
149
Account
Transactio
n.
current account
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Exchange control – Exports
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Even though the exports from
the current account
transactions and the
remittances can be brought in
India without any restrictions,
section 7 of the Foreign
Exchange Management Act
authorises the Reserve Bank
to make such regulations as it
may think for to monitor the
exports from India.
Reserve Bank of India in turn
has issued Export
Regulations and has issued
the same by way of
notification dated 3rd May,
2000. These regulations are
effective from 1st June, 2000.
Main features of these
regulations are as under:
 Declaration of exports
 Format of Declarations
 Disposal of GR,PP,SDF,
and SOFTEX forms
 Manner of payment of
export bills
 Time limit for realisation
 Reduction in Invoice
Value on account of
prepayment
 Reduction in value: Other
cases
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Module: Foreign Trade Of India
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Change of
buyer/consignee
Write off an unrealised
export bill
Consigned Export
Advance Payment against
exports
Remittances connected
with exports
Objectives of exchange
control in India
Decentralisation and
liberalisation of exchange
control administration in
India
Exchange market
development
Authorised dealer’s
obligation
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Trade Policy
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For many years after India’s
independence, our trade
policy was based on the
assumption that it was not
feasible for us to achieve a
very high rate of growth in
exports. The main emphasis
in the initial years of
planning was on “export
promotion and import
substitution”.
The focus of the reforms for
the last decade has been on
liberalisation. Openness,
transparency and
globalisation with a basic
thrust on outward restrictions
and improving
competitiveness of Indian
industry to meet the global
market requirement.
During the first three five
year plans, our narrow
industrial base with a predominance of exports of low
value traditional items stood
in the way of augmenting
exports. In the third plan, the
government introduced
measures like cash
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Module: Foreign Trade Of India
Page 38 of 51
compensatory support,
import replenishment, duty
drawback, supply of key
inputs at international prices,
availability of pre-shipment
and post-shipment finance at
a confessional rate of interest
and freight subsidies to
promote exports. During the
fourth plan exports were
accorded a priority next only
to food and defence. The
policy framework was given
a definite shape in the form
of an export policy resolution
in 1970.
By the end of the fourth five
year plan, it had become
increasingly clear to the
government that it would
have to increase its foreign
exchange earnings to finance
the development of the
country. But it was in the
seventh plan that the
government introduced a new
feature that would grant
stability to our foreign trade.
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Foreign Trade Act
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The Foreign Trade Act
replaced the Imports and
Exports (Control) Act, 1974,
came into force on June 19,
1992.
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Objective: the objective of
the Act is to provide for the
development and regulation
of foreign trade by
facilitating imports into, and
augmenting exports from
India and for matters
connected therewith or
incidental thereto.
Main Provisions:
 Make provisions for the
Development and
Regulation of foreign
trade
 Provision of Prohibition
and Restriction on
imports and exports
 Exim Policy
 Appointment of a
Director General of
Foreign Trade
 Importer-Exporter Code
Number
 Issue and
Suspension/Cancellation
385
Module: Foreign Trade Of India


Page 41 of 51
of License
Search, Inspection and
Seizure
Penalty for Contravention
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EXIM Policy
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The principle objective of the
Exim Policy 1997-2002 are
as follows:
1. To accelerate the
country’s transition to
an internationally
oriented vibrant
economy with a view
to derive the
maximum benefit
from the expanding
global market
opportunities.
2. To stimulate the
sustained economic
growth by providing
access to essential
raw materials,
intermediates,
components,
consumables and
capital goods required
for augmenting
procedures.
3. To enhance the
technological strength
and efficiency of
Indian agriculture,
industry and services,
thereby improving
their competitive
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Module: Foreign Trade Of India
Page 43 of 51
strength while
generating new
employment
opportunity, and
encourage the
attainment of
internationally
accepted standards of
quality.
Salient features:
Liberalisation: A very
important feature of the Exim
policy since 1992 is freedom.
Licensing quantitative
restrictions and other
regulatory and discretionary
controls have been
substantially eliminated. All
goods, except those coming
under the negative list, may
be freely imported and
exported.
The Negative List: The
negative list consists of goods
the import or export of which
is: (
)
a. Prohibited
b. Restricted through
licensing or otherwise
c. Canalised
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Unit 6,
page 154,
Part I/Part
II/Part III
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374
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Export Promotion
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Government actively
promotes exports due to the
following reasons:
1. Foreign market
provides opportunities
to achieve economies
of scale and growth
2. Supply of many
commodities is more
than the domestic
demand
3. Foreign market
enables an economy
to achieve export-led
growth
4. Foreign market helps
mitigate the effects of
domestic recession
5. Exports help earn
foreign exchange to
finance its imports
and service its foreign
debt
6. Exports are important
to maintain position
against the
international
competition and the
level of domestic
activity
7. Higher exports
facilitate larger
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Module: Foreign Trade Of India
Page 46 of 51
imports and help
increase consumption
levels and economic
welfare
Examples:
The Kandla Free Trade Zone
set up in 1965 with the triple
objective of earnings of
foreign exchange, generation
of more employment in the
backward areas of Kutch and
fuller utilization of the
facilitites provided by the
major port of Kandla, is
India's first export processing
zone. The second one is the
Santa Cruz Electronics
exports Processing Zone set
up in 1974 under the Ministry
of Commerce, Government
of India.
The areas where Government
of India has paid special
attention for the promotion of
exports are given below:
a. Organisational Set-up
b. Incentives
c. Duty
Exemption/Drawback
d. Subsidies
e. Income Tax
Concession
f. IPRS
g. Awards
h. Production
Assistance/Facilities
i. Marketing Assistance
j. EPZs and EOUs
k. Export Houses and
Trading Houses
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MCQ
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Knowledge Check – 1
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Select the option that you think is correct and click Submit.
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[?]
Question [?]
Who regulates the foreign trade?
Option Text [?]
Option
1
2
3
4
Text
Foreign Minister
Director of Foreign Trade
Director General of India
Director General of Foreign Trade
5
Option 1
Option 2
Correct Answer [?]
Option 3
Option 4
Option 5
Feedback Text [?]
First Incorrect Feedback
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Correct Feedback
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correct option.
Directorate General of foreign trade (DGFT) and its
regional offices, functioning under the Ministry of
Commerce and Industries, Department of Commerce,
Government of India, regulates foreign trade.
Great! Directorate General of foreign trade (DGFT) and
its regional offices, functioning under the Ministry of
Commerce and Industries, Department of Commerce,
Government of India, regulates foreign trade.
Module: Foreign Trade Of India
Page 49 of 51
MRQ
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Knowledge Check – 2
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[?]
Question [?]
Which of the following are true with regards to
FEMA?
Option Text [?]
Option
1
2
3
4
Text
FEMA permits exchange from authorized persons for any
regular account transaction
FEMA permits exchange from authorized persons for any
current account transaction
FEMA authorises the central government to formulate
tools and regulations for drawal of exchange for imports
FEMA authorises the RBI to formulate tools and
regulations for drawal of exchange for imports
5
Option 1
Option 2
Correct Answer [?]
Option 3
Option 4
Option 5
Feedback Text [?]
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correct options.
Under FEMA regulations exchange can be obtained from
authorized persons for any current account transaction as
also the central government can formulate tools and
regulations for drawal of exchange for imports.
Great! Under FEMA regulations exchange can be
obtained from authorized persons for any current account
transaction as also the central government can formulate
Module: Foreign Trade Of India
Page 50 of 51
tools and regulations for drawal of exchange for imports.
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Summary
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Let’s summarize what we
have learnt in this lesson.
 We began with studying
the trend of India’s
foreign trade during postindependence period.
 We learnt the procedure
of carrying out exports
and imports.
 We underwent some
guidelines for
import/export exchange
controls.
 We took an overview of
India’s trade policy.
 We studied the foreign
trade act, its objectives
and provisions.
 We studied the EXIM
policy and its salient
features.
 We learnt the measures
taken by the government
for export promotion.
You have come to the end of
this topic. Please use the Exit
button to quit the program or
use the Menu button to
access the course menu.
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