Economy
External Sector and International Economic Bodies
Foreign Trade Policy and Trade Agreements
India's Foreign Trade Policy 2023 for CGPSC: DGFT, RoDTEP, EPCG, SEZs, Export Promotion Mission, FTAs from SAFTA to India-UK CETA, and trade trends.
Prerequisites
- Balance of Payments, Forex Reserves and Exchange Rate — the goods deficit that trade policy tries to narrow.
- Industrial Policy and MSMEs — most exporters are manufacturers and MSMEs; the 1991 reforms opened trade and industry together.
The Hook: Rice from the “Rice Bowl” on a Ship to Africa
Connect
Chhattisgarh is called the “rice bowl” (धान का कटोरा) of India. Non-basmati rice milled in Dhamtari or Raipur travels by rail to an eastern port and on to buyers in Africa and Asia. Steel from Bhilai and Raigarh and aluminium from Korba follow similar routes.
Who decides whether that rice may be exported at all, whether the exporter gets back the taxes paid on diesel and electricity, and whether a buyer in the UAE or the UK pays customs duty on it? The answer lies in India’s Foreign Trade Policy (विदेश व्यापार नीति) and its web of trade agreements.
Why it matters: Prelims asks about the FTP 2023 features, scheme names (RoDTEP, EPCG, Advance Authorisation) and which agreement is with whom. Mains GS-III asks how to raise exports and whether FTAs have helped India; GS-V touches trade in the context of international economic relations.
Legal and Institutional Framework
| Item | Fact |
|---|---|
| Law | Foreign Trade (Development and Regulation) Act, 1992 — the Central Government frames and announces the FTP under it |
| Ministry | Ministry of Commerce and Industry (Department of Commerce) |
| Implementing agency | Directorate General of Foreign Trade (DGFT, विदेश व्यापार महानिदेशालय), headed by the Director General of Foreign Trade |
| Trade remedies | Directorate General of Trade Remedies (DGTR): anti-dumping, countervailing (anti-subsidy) and safeguard investigations |
| Export credit | Export–Import Bank of India (EXIM Bank, 1982) for export finance; ECGC Ltd for export credit insurance |
| Commodity bodies | APEDA (agricultural and processed food exports, including rice), MPEDA (marine products), Export Promotion Councils (for example EEPC for engineering goods) |
Foreign Trade Policy 2023
FTP 2023 at a glance
- Announced 31 March 2023, effective 1 April 2023.
- No end date: unlike earlier five-year policies (for example FTP 2015–20), it is open-ended and updated as needed.
- Stated ambition at launch: India’s total exports (goods + services) to reach $2 trillion by 2030.
- Shift from incentives to remission of taxes and to facilitation.
The four pillars
graph LR
FTP["FTP 2023"] --> P1["1. Incentive to remission
refund embedded taxes,
not cash rewards"]
FTP --> P2["2. Export promotion through
collaboration: exporters,
States, districts, missions"]
FTP --> P3["3. Ease of doing business
paperless, automated
approvals"]
FTP --> P4["4. Emerging areas
e-commerce, export hubs,
SCOMET, dual-use items"]Key features
- Districts as Export Hubs: each district identifies export products and prepares a District Export Action Plan through a District Export Promotion Committee. This links to “One District One Product”.
- Towns of Export Excellence (TEE): FTP 2023 added Faridabad, Mirzapur, Moradabad and Varanasi.
- E-commerce exports: the value limit for exports through courier was raised from ₹5 lakh to ₹10 lakh per consignment.
- Rupee trade: the FTP enables international trade settlement in Indian rupees, building on the RBI’s July 2022 framework of Special Rupee Vostro Accounts.
- Amnesty scheme: a one-time settlement for exporters who had defaulted on export obligations under Advance Authorisation and EPCG.
- Status holders: exporters are recognised as One-Star to Five-Star Export Houses by export performance.
The main export schemes
| Scheme | What it does |
|---|---|
| Advance Authorisation (अग्रिम प्राधिकार) | Duty-free import of inputs that are physically used in making export products |
| EPCG (Export Promotion Capital Goods) | Import of capital goods at zero customs duty, with an export obligation of six times the duty saved, to be met within six years |
| RoDTEP (Remission of Duties and Taxes on Exported Products) | From 1 January 2021. Refunds embedded central, state and local taxes that are not refunded elsewhere (for example duty on fuel used in transport, electricity duty, mandi tax). Extended several times; DGFT notifications extended it to 30 September 2026 — check its status after that date |
| RoSCTL | Similar rebate for apparel and made-ups (Ministry of Textiles) |
| Export Promotion Mission (EPM) | Announced in the Union Budget 2025-26; approved by the Union Cabinet in November 2025 with an outlay of ₹25,060 crore for 2025-26 to 2030-31. Two sub-schemes: Niryat Protsahan (affordable trade finance for MSMEs) and Niryat Disha (non-financial support: quality, branding, trade fairs, logistics) |
Why MEIS was replaced by RoDTEP
FTP 2015–20 gave exporters cash-like rewards under the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS). The United States challenged MEIS at the WTO, and a panel ruled in 2019 that it was a prohibited export subsidy. India replaced it with RoDTEP, which only refunds taxes already paid, the WTO-compatible logic of “exports, not taxes”. See WTO.
Zones for exporters
| Zone | Fact |
|---|---|
| Kandla EPZ (1965) | Asia’s first Export Processing Zone, in Gujarat |
| Export Oriented Units (EOU) | Scheme from 1981; units anywhere that export their output |
| SEZ Policy | April 2000 |
| SEZ Act, 2005 | Came into force with the SEZ Rules in February 2006. SEZs are treated as foreign territory for trade operations and duties |
India’s Trade Agreements
Types, from shallow to deep: Preferential Trade Agreement (PTA: lower duties on some goods) → Free Trade Agreement (FTA: duties removed on most goods) → Comprehensive Economic Partnership/Cooperation Agreement (CEPA/CECA: goods + services + investment + more) → customs union → common market → economic union.
| Agreement | Key dates and points |
|---|---|
| SAFTA (South Asian Free Trade Area) | In force 2006, among SAARC members |
| India–ASEAN Trade in Goods Agreement | Signed 2009, in force from 2010. Under review because of India’s rising deficit with ASEAN |
| India–South Korea CEPA / India–Japan CEPA | 2010 / 2011 |
| RCEP | India withdrew in November 2019 over fears of a flood of Chinese imports and weak safeguards |
| India–UAE CEPA | Signed February 2022, in force 1 May 2022 |
| India–Australia ECTA | Signed April 2022, in force 29 December 2022 |
| India–EFTA TEPA | Signed March 2024, in force 1 October 2025. EFTA = Switzerland, Norway, Iceland, Liechtenstein. Includes an EFTA aim of $100 billion of investment in India over 15 years |
| India–UK CETA (Comprehensive Economic and Trade Agreement) | Signed 24 July 2025, in force 15 July 2026, together with a Double Contribution Convention on social security |
| India–EU FTA | Negotiations concluded in January 2026; signing was targeted for the end of 2026 (as of October 2026) |
| India–US | A framework for an interim agreement was announced on 6 February 2026. Talks on the first tranche of a Bilateral Trade Agreement were reported to be near completion in September 2026. Check the latest status |
Current affairs: date everything
Trade agreements, tariff rates and scheme deadlines change quickly. US tariffs on many Indian goods reached 50% in August 2025 (a 25% “reciprocal” tariff plus a 25% penalty linked to purchases of Russian oil). Under the February 2026 framework the penalty was removed and an 18% reciprocal rate announced, and in 2026 the US Supreme Court struck down the tariffs imposed under US emergency-powers law. Write “as of 2026” in any answer that uses such figures.
India’s trade pattern (2025-26)
| Item | Fact |
|---|---|
| Total exports | Record $863.1 billion (goods $441.8 billion, services $421.3 billion) |
| Merchandise imports | About $775 billion, so a goods trade deficit of roughly $330 billion |
| Largest trading partner | China (about $151 billion of trade), overtaking the US, which had been the largest for four years until 2024-25 |
| Largest deficit | With China (about $112.6 billion) |
| Largest export market | United States (about $87.3 billion of exports) |
Analysis for Mains
Why India’s exports underperform
- Logistics costs are high relative to competitors; the PM Gati Shakti plan and the National Logistics Policy (2022) aim to cut them.
- Inverted duty structure in some sectors (inputs taxed more than finished goods).
- Small firm size: most exporters are MSMEs without access to cheap credit or global brands.
- Concentration of exports in a few products and markets.
- Protectionism abroad: tariffs, carbon border taxes (EU CBAM on steel and aluminium) and non-tariff barriers.
Are FTAs good for India?
| For | Against |
|---|---|
| Market access for labour-intensive goods (textiles, leather, gems) | India’s deficit widened after FTAs with ASEAN, Korea and Japan |
| Attract investment and integrate India into global value chains | Low utilisation of FTA preferences by Indian exporters |
| Services and mobility gains in newer deals (UAE, Australia, UK) | Risk of goods being routed through partners (rules-of-origin abuse) |
| Signal of reform and policy stability | Pressure on farmers and dairy, which India keeps out of most deals |
The newer generation of agreements (UAE, Australia, EFTA, UK, EU) is with complementary economies rather than competitors, and protects sensitive farm and dairy sectors.
Chhattisgarh angle
- Landlocked state: exports move by rail to ports on the east coast, so freight cost and rake availability matter. See Industries and Transport.
- Main export items: non-basmati rice, iron and steel, aluminium, and other mineral-based products. See Minerals, Energy and Industries of Chhattisgarh.
- Rice export policy hits farmers directly: India restricted exports of non-basmati white rice in July 2023 and lifted the ban in late September 2024. Such decisions affect the millers and the paddy economy described in Agriculture and Irrigation in Chhattisgarh.
- EU CBAM (carbon border tax) is a long-term risk for coal-based steel and aluminium plants in the state.
- Districts as Export Hubs gives each district (for example, forest-produce or handicraft districts in Bastar) an export action plan.
Memory Tricks
FTP 2023: '31-1, no end, 2 by 30'
Announced 31 March, effective 1 April 2023, no end date, target $2 trillion by 2030.
EPCG = '6 and 6'
Zero-duty capital goods; export obligation six times the duty saved within six years.
New-age FTAs in order: 'U-A-E-U-E'
UAE CEPA (2022) → Australia ECTA (2022) → EFTA TEPA (signed 2024, in force 2025) → UK CETA (signed 2025, in force 2026) → EU FTA (concluded 2026).
Don’t Confuse
| This | vs | That |
|---|---|---|
| Advance Authorisation: duty-free inputs | vs | EPCG: zero-duty capital goods |
| RoDTEP: refund of embedded taxes (WTO-compatible) | vs | MEIS: reward scheme ruled a prohibited subsidy (2019) |
| DGFT: frames and implements FTP | vs | DGTR: anti-dumping and safeguard investigations |
| India–EFTA TEPA: Switzerland, Norway, Iceland, Liechtenstein | vs | India–EU FTA: the 27-member European Union |
| ECTA (Australia, 2022) | vs | CETA (UK, 2025-26) and CEPA (UAE, 2022) |
| Kandla: Asia’s first EPZ (1965) | vs | SEZ Act: 2005 (in force 2006) |
Common Mistakes
MCQ traps
- “FTP 2023 is valid until 2028.” Wrong. It has no end date.
- “RoDTEP is an export subsidy like MEIS.” RoDTEP only refunds taxes already embedded, which is why it replaced MEIS.
- “India is a member of RCEP.” India withdrew in 2019.
- “EFTA is part of the European Union.” It is a separate four-nation bloc. Switzerland and Norway are not EU members.
- “The US was India’s largest trading partner in 2025-26.” China overtook it in 2025-26, though the US remained the largest export market.
- “The India–EU FTA is in force.” As of October 2026 talks had concluded but the agreement had not been signed.
Practice
All questions below are original practice questions written in CGPSC style. They are not previous-year questions.
Level 1: Foundation
- India’s Foreign Trade Policy is framed under the Foreign Trade (Development and Regulation) Act of ______.
- The scheme that replaced MEIS from 1 January 2021 is ______.
- Asia’s first Export Processing Zone was set up at ______ in 1965.
Answers
- 1992.
- RoDTEP (Remission of Duties and Taxes on Exported Products).
- Kandla (Gujarat).
Level 2: Prelims MCQs
Q1. Consider the following statements about India’s Foreign Trade Policy 2023:
- It came into effect on 1 April 2023.
- It is a five-year policy ending on 31 March 2028.
- It permits settlement of international trade in Indian rupees.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 1 and 3 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer and explanation
(b) 1 and 3 only. FTP 2023 was announced on 31 March 2023 and took effect on 1 April 2023. Statement 2 is the trap: the policy has no end date and is updated as required. It enables rupee settlement of trade, building on the RBI’s 2022 framework.
Q2. Match List I (Agreement) with List II (Partner):
| List I | List II |
|---|---|
| A. CETA | 1. Australia |
| B. ECTA | 2. United Kingdom |
| C. TEPA | 3. United Arab Emirates |
| D. CEPA (2022) | 4. Switzerland, Norway, Iceland and Liechtenstein |
- (a) A-2, B-1, C-4, D-3
- (b) A-1, B-2, C-4, D-3
- (c) A-2, B-1, C-3, D-4
- (d) A-4, B-1, C-2, D-3
Answer and explanation
(a) A-2, B-1, C-4, D-3. CETA is with the UK (signed 2025, in force 15 July 2026). ECTA is with Australia (in force December 2022). TEPA is with the four EFTA states (in force October 2025). The 2022 CEPA is with the UAE (in force May 2022).
Q3. Under the Export Promotion Capital Goods (EPCG) scheme, an exporter:
- (a) imports raw materials duty-free for use in export production
- (b) imports capital goods at zero customs duty against an export obligation
- (c) receives a cash reward as a percentage of export value
- (d) gets income-tax exemption on export profits
Answer and explanation
(b). EPCG allows zero-duty import of capital goods with an export obligation of six times the duty saved within six years. Option (a) describes Advance Authorisation, and option (c) describes the old MEIS.
Q4. The Export Promotion Mission approved by the Union Cabinet in November 2025 has which two sub-schemes?
- (a) Niryat Bandhu and Niryat Mitra
- (b) Niryat Protsahan and Niryat Disha
- (c) Niryat Shakti and Niryat Setu
- (d) Niryat Vikas and Niryat Suvidha
Answer and explanation
(b) Niryat Protsahan and Niryat Disha. Niryat Protsahan covers trade finance for MSMEs (interest subvention, factoring, guarantees), and Niryat Disha covers non-financial support such as quality compliance, branding, trade fairs and logistics. The mission’s outlay is ₹25,060 crore for 2025-26 to 2030-31.
Q5. Which one of the following bodies conducts anti-dumping investigations in India?
- (a) Directorate General of Foreign Trade
- (b) Directorate General of Trade Remedies
- (c) Export Credit Guarantee Corporation
- (d) Central Board of Indirect Taxes and Customs
Answer and explanation
(b) DGTR. It investigates dumping, subsidies and import surges and recommends duties. The Finance Ministry then imposes them, and customs (CBIC) collects them. DGFT frames and implements the Foreign Trade Policy.
Level 3: Mains Answer Writing
Q1. (150–200 words) Examine the key features of India’s Foreign Trade Policy 2023. How can a landlocked state like Chhattisgarh benefit from it?
Model answer outline
- Intro: FTP 2023 (effective 1 April 2023) is an open-ended policy aiming at $2 trillion of exports by 2030.
- Features:
- Shift from incentives to remission (RoDTEP, RoSCTL).
- Collaboration with States and districts: Districts as Export Hubs, District Export Action Plans.
- Ease of doing business: automated, paperless approvals.
- Emerging areas: e-commerce exports (courier limit ₹10 lakh), rupee trade settlement, new Towns of Export Excellence.
- Support schemes: Advance Authorisation, EPCG, and the Export Promotion Mission (2025).
- Chhattisgarh angle: district export plans for rice, steel, aluminium, minor forest produce and handicrafts (Bastar dhokra); better rail-port links; APEDA support for rice; logistics and warehousing under Niryat Disha.
- Challenges: freight costs to ports, CBAM on metals, rice export restrictions in some years.
- Conclusion: FTP 2023 gives the framework; state-level logistics and quality infrastructure decide how much Chhattisgarh gains.
Q2. (60 words) Why did India replace MEIS with RoDTEP?
Model answer outline
- MEIS gave rewards as a share of export value, which a WTO panel ruled (2019) to be a prohibited export subsidy in a dispute raised by the US.
- RoDTEP (from 1 January 2021) only refunds taxes embedded in exports (fuel, electricity, mandi tax), following the principle “export products, not taxes”.
- Conclusion: the change keeps support for exporters while making it WTO-compatible.
Quick Revision Table
| Fact | Detail |
|---|---|
| Law | Foreign Trade (Development and Regulation) Act, 1992 |
| Agency | DGFT, Ministry of Commerce and Industry |
| FTP 2023 | Announced 31 Mar 2023; effective 1 Apr 2023; no end date; $2 trillion exports by 2030 |
| New TEEs (FTP 2023) | Faridabad, Mirzapur, Moradabad, Varanasi |
| RoDTEP | From 1 Jan 2021; replaced MEIS; extended to 30 Sep 2026 |
| EPCG | Zero-duty capital goods; 6× duty saved in 6 years |
| Export Promotion Mission | Cabinet Nov 2025; ₹25,060 crore; Niryat Protsahan + Niryat Disha |
| SEZ Act | 2005, in force Feb 2006; Kandla EPZ 1965 |
| UAE CEPA / Australia ECTA | In force 1 May 2022 / 29 Dec 2022 |
| EFTA TEPA | Signed Mar 2024; in force 1 Oct 2025 |
| UK CETA | Signed 24 Jul 2025; in force 15 Jul 2026 |
| EU FTA | Talks concluded Jan 2026; not yet signed (Oct 2026) |
| RCEP | India withdrew Nov 2019 |
| 2025-26 trade | Exports $863.1 bn; China largest partner; US largest export market |
Key Takeaways
Key Takeaways
- FTP 2023 is open-ended, built on remission, collaboration with States and districts, ease of doing business and emerging areas.
- Support schemes must be WTO-compatible: RoDTEP replaced MEIS after a 2019 WTO ruling.
- India’s newer trade deals (UAE, Australia, EFTA, UK, EU) are with complementary economies and protect farm and dairy sectors.
- In 2025-26 exports hit a record $863 billion, but the goods deficit, especially with China, remains large.
- For Chhattisgarh, logistics to ports, rice export policy and carbon taxes on metals decide the gains from trade.
What’s Next
- WTO: Agreements, Principles and India — the rules that every FTP scheme must obey
- IMF and World Bank
- Agricultural Economy — MSP, procurement and food security behind rice export decisions
- External Sector — Quick Revision
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