Foreign Trade

Foreign Trade

Foreign trade is an important aspect for every country to exchange goods with other countries. It helps a country to grow economically.

Foreign Trade Policy

Foreign trade policy is mainly a set of rules that govern the exchange of products and services. These are formed by the Directorate General of Foreign Trade, the Ministry of Commerce and Industry’s ruling body for the advancement and facilitation of exports and imports. This policy remains in focus for a five-year period that is on March 31 of every year, it is updated, and the changes take effect on April 1.

While the foreign trade policy looks after both imports and exports, its main objective is to foster trade by lowering transaction costs and time, trying to make Indian exports more competitive globally. Its goals are as follows:

  • Increase economic activity and take advantage of global market opportunities.
  • Encourage long-term economic growth by making available raw resources, materials, intermediates, consumables, and capital goods.
  • Improve Indian agriculture, industry, and services.
  • Create jobs by encouraging stakeholders aspiring for international quality standards.
  • Offer high-quality consumer goods at reasonable prices.

The Success of Foreign Trade 

The current trade policy, which is centered on improving India’s achievement in existing markets/products while also exploring new markets/products, has been lauded as “progressive” for the following reasons:

It merged a number of export incentives with varying eligibility criteria into two schemes: the Merchandise Exports from India Scheme and the Services Exports from India Scheme. Under these two schemes provided export incentives of duty scripts, which exporters could use to pay import duties. The scripts are transferable, which indicates that if one exporter no longer requires them, they can be transferred to another.

It reduced the export obligation for capital goods sourced from domestic manufacturers from 90% to 75% under the Export Promotion Capital Goods Scheme.

It enabled manufacturers who are “status holders” to self-analyse their industrial products from India. This enables them to meet the criteria for special privileges under a variety of bilateral or regional trade treaties.

It recognised 108 micro, small, and medium-sized enterprise clusters for targeted interventions to increase exports.

It encouraged the use of paperless processing for numerous DGFT licensing requirements and applications.

Advantages of Foreign Trade

Foreign trade contributes to the global division of labour and specialisation. Some nations have a plethora of natural resources. They must export raw resources and import finished products from advanced skilled labour-producing countries. This benefits all countries, resulting in the division of labour and specialisation.

Because of specialisation, ineffective lines can be removed and resource waste avoided. In other words, funds are channelled to produce only the goods that yield the highest returns. As a result of foreign trade, there is rational resource allocation and utilisation at the international level.

Foreign trade can help to keep prices stable. It aids in maintaining a stable demand and supply position, which in turn stabilises prices while accounting for transportation and other marketing costs.

Foreign trade aids in providing consumers with more options. It contributes to the availability of new types to consumers across the globe.

Foreign trade is a highly competitive industry. Exporting countries must maintain and improve product quality to maintain and expand demand for goods. As a result, high-quality, standardised goods are produced.

Imports can help people improve their standard of living. It’s because people will have access to new and improved goods and services. Individuals can improve their standard of living by eating better and fresh varieties of goods.

Foreign trade contributes to job creation by increasing the mobility of labour and resources. It creates direct jobs in the trade sector as well as indirect jobs in all other areas of the economy.


Foreign trade brings nations closer together. It promotes the transfer of technology and other forms of assistance from developed to developing countries. It helps bring different countries closer together because of economic ties formed as a result of trade agreements. Thus, foreign trade fosters a friendly environment conducive to the avoidance of wars and conflicts. It helps promote world peace because such countries attempt to keep friendly relations with one another.