Export-Import Policy and Foreign Trade Policy of India for RBI Grade B ESI

Last updated: 2026-11-11 · MockMentor

"Balance of Payments, Export-Import Policy" is part of the Globalization unit of the RBI Grade B Phase 2 Economic and Social Issues (ESI) syllabus. Trade policy decides how India earns foreign exchange, how its industries compete and how it responds to a world of rising tariffs. This chapter covers the shift from import substitution to export promotion, India's trade policies since 1991, the Foreign Trade Policy 2023, the main export schemes and institutions, India's trade agreements and the challenges ahead.

In one line: India moved from protecting industry behind high tariffs to promoting exports and trade agreements, and its Foreign Trade Policy 2023 aims for US$2 trillion of exports of goods and services by 2030.

Basic concepts

• Export-Import (EXIM) policy: the government's rules and incentives governing what may be exported and imported, on what terms, and how exports are promoted. Since 2004 it has been called the Foreign Trade Policy (FTP).
• Import substitution: producing at home goods that were earlier imported, protected by tariffs and quotas.
• Export promotion: policies that encourage firms to sell abroad, through incentives, a competitive exchange rate and lower costs.
• Tariff: a tax on imports. Non-tariff barriers include quotas, licences, standards and procedures that restrict trade.
• Free Trade Agreement (FTA): an agreement between countries to remove or reduce tariffs and other barriers on most trade between them.
• Rules of origin: criteria that decide whether a product counts as made in a partner country and so qualifies for lower FTA tariffs.
• Duty drawback: refund of customs and other duties paid on inputs used to make exported goods.

Why in News?

1. India's total exports of goods and services reached a record of about US$860 billion in 2025-26. Merchandise exports were about US$442 billion and services exports about US$418 billion, according to the Commerce Ministry's estimates.
2. The India-UK CETA came into force on 15 July 2026, the India-Oman CEPA on 1 June 2026 and the India-New Zealand FTA on 20 October 2026. The India-EU FTA was concluded on 27 January 2026.
3. In February 2026, the US Supreme Court struck down the reciprocal tariffs imposed in 2025, under which Indian goods had faced duties of up to 50%. A temporary global duty of 10% followed, and India-US trade talks continued.

Import substitution and export promotion

Before 1991, India's trade policy aimed at saving foreign exchange. Imports were tightly controlled through licences and very high tariffs, and exports were seen mainly as a way to pay for essential imports. Export promotion efforts did exist, such as Export Processing Zones (the first at Kandla in 1965), cash compensatory support and import replenishment licences, but an overvalued rupee and high input costs made Indian goods uncompetitive.

Trade policy after 1991

Foreign Trade Policy 2015-20

Its main features were two reward schemes: the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS), which gave duty credit scrips as a percentage of export value. A WTO panel ruled in 2019 that MEIS and some other schemes were prohibited export subsidies, since India had crossed the per capita income threshold up to which developing countries may give such subsidies. India replaced MEIS with the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme in 2021, which refunds embedded taxes rather than giving a subsidy.

Foreign Trade Policy 2023

The FTP 2023, in force from 1 April 2023, has no fixed end date. It will be updated as needed instead of being replaced every five years.

Main features

1. Target: exports of goods and services of US$2 trillion by 2030.
2. From incentives to remission: a shift from subsidies to the remission of duties and taxes (RoDTEP and the Rebate of State and Central Taxes and Levies (RoSCTL) for apparel and made-ups), consistent with WTO rules.
3. Ease of doing business: automatic, paperless and faster approvals, and lower fees for small exporters.
4. Districts as export hubs: export plans and committees in every district, building on the One District One Product (ODOP) initiative.
5. Towns of Export Excellence: more towns recognised, such as Faridabad, Moradabad, Mirzapur and Varanasi, giving them priority access to schemes.
6. E-commerce exports: a value cap on courier exports raised from ₹5 lakh to ₹10 lakh per consignment, and e-commerce export hubs.
7. Export Promotion Capital Goods (EPCG) scheme: duty-free import of capital goods for exports, with an export obligation of six times the duty saved.
8. Advance Authorisation: duty-free import of inputs used in export production.
9. Rupee trade: international trade settlement in rupees permitted, to cut currency risk and support the rupee's international use.
10. SCOMET: a clearer policy for the export of Special Chemicals, Organisms, Materials, Equipment and Technologies (dual-use items), in line with India's commitments under export control regimes.
11. Amnesty scheme: a one-time settlement for exporters who had not met their export obligations under the EPCG and Advance Authorisation schemes.
12. Merchanting trade: allowed for restricted items, so Indian traders can buy from one country and sell to another without the goods entering India.

Institutions for export promotion

Other support

• Interest Equalisation Scheme on pre- and post-shipment credit for small exporters (until its expiry), and the Export Promotion Mission announced in the Budget 2025-26 to support small exporters with credit, market access and branding.
• Market Access Initiative for trade fairs, buyer-seller meetings and market studies.
• Trade Infrastructure for Export Scheme.
• Districts as Export Hubs and the One District One Product scheme.
• Logistics: the National Logistics Policy (2022), PM Gati Shakti and dedicated freight corridors, to cut logistics costs.

India's trade agreements

India withdrew from the Regional Comprehensive Economic Partnership (RCEP) negotiations in November 2019, over concerns that cheap imports, especially from China, would hurt Indian farmers and manufacturers.

Lessons from India's FTAs

Studies, including NITI Aayog's, found that India's older FTAs with ASEAN, Korea and Japan increased imports faster than exports, partly because Indian exporters made little use of the tariff preferences, and partly because of rules of origin that allowed third-country goods to come through partners. The newer agreements cover services, investment, government procurement and labour mobility, and have stronger safeguards and rules of origin.

The changing world trade environment

• US tariffs: in 2025, the United States imposed "reciprocal" tariffs on most trading partners, and on India a total of up to 50% after an additional penalty linked to its oil imports from Russia. In February 2026, the US Supreme Court struck down the reciprocal tariffs, and a temporary 10% global duty followed. The episode showed the risk of depending heavily on one market.
• Carbon border taxes: the European Union's Carbon Border Adjustment Mechanism (CBAM) applies a charge on the carbon content of imports such as steel, aluminium and cement, with the definitive phase from January 2026.
• "China plus one": companies spreading production beyond China create openings in electronics, textiles and toys.
• WTO weakness: the WTO's Appellate Body has not functioned since December 2019, weakening the enforcement of trade rules.

Challenges

• A large and growing deficit in goods trade, especially with China.
• Low share in world merchandise exports (under 2%).
• High logistics costs, slow port clearance and costly inputs because of tariffs on intermediate goods.
• Concentration of exports in a few products and markets.
• Weak presence in global value chains outside electronics and pharmaceuticals.
• Non-tariff barriers in rich countries: standards, carbon rules and sanitary measures.

Way forward

• Cut tariffs on inputs and capital goods to make Indian manufacturing competitive, as the Economic Survey 2025-26 recommended.
• Use the new FTAs actively, with help for small exporters to meet rules of origin and standards.
• Diversify exports by product and market, including Africa, Latin America and the Gulf.
• Lower logistics costs through infrastructure and digital customs.
• Prepare exporters for carbon rules through cleaner production and carbon accounting.
• Support services exports through mutual recognition of qualifications and easier movement of professionals.

Possible exam and interview questions

1. Compare import substitution and export promotion as strategies of development, with reference to India's experience. (420 words)
2. Critically evaluate the Foreign Trade Policy 2023. Can India reach US$2 trillion of exports by 2030? (620 words)
3. Why have India's earlier free trade agreements not boosted exports as expected? How are the new agreements different?
4. What is the Carbon Border Adjustment Mechanism, and how will it affect Indian exports?
5. Interview: Was India right to stay out of RCEP?

Related reading: opening up and the balance of payments, regional economic cooperation, and international economic institutions.

More in ESI

• National Income
• Human Development
• Poverty
• Employment
• Sustainable Development

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