India's Foreign Trade Policy 2023: Complete Guide to Export Import Rules and Schemes

India's Foreign Trade Policy 2023 (FTP 2023) came into effect on April 1, 2023, replacing the previous FTP 2015-20. Unlike its predecessor, the FTP 2023 is not time-bound and will operate on a continuous basis, with amendments made as circumstances require. It is anchored by India's ambition to achieve two trillion US dollars of total exports by 2030. For businesses engaged in cross-border trade, understanding the legal framework, the available schemes, and the compliance obligations under FTP 2023 is essential. This article provides a comprehensive overview.

The Legal Framework

India's foreign trade is primarily governed by the Foreign Trade (Development and Regulation) Act, 1992, which empowers the Central Government to make and amend the Foreign Trade Policy. The Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry administers the FTP. All exports and imports are classified as Free, Restricted, or Prohibited, and each category carries different compliance obligations. Most goods fall in the Free category, meaning they can be imported or exported without specific authorisation. Restricted goods require a licence from the DGFT. An Importer-Exporter Code (IEC) is mandatory for any person or entity engaged in export or import, without exception.

Key Export Promotion Schemes

FTP 2023 retains and refines several important export promotion schemes. The Advance Authorisation Scheme allows duty-free import of inputs required for manufacturing export goods, subject to export obligations. The Duty-Free Import Authorisation (DFIA) Scheme works similarly but allows transferability of the licence after export obligations are fulfilled. The Export Promotion Capital Goods (EPCG) Scheme allows import of capital goods at zero or concessional customs duty, subject to an export obligation. The Star Export House Scheme recognises exporters based on their export performance and gives them certain privileges including priority processing. A special one-time Amnesty Scheme has been introduced to allow holders of advance authorisations and EPCG licences to regularise past defaults in export obligations by paying applicable customs duties with interest capped at 100 percent of the duties.

E-Commerce Exports and Districts as Export Hubs

FTP 2023 places significant emphasis on e-commerce exports, recognising the potential of digital platforms to connect Indian manufacturers and artisans with global consumers. A simplified compliance framework for e-commerce exporters, including provisions for faster customs clearance and easier returns handling, has been introduced. The Districts as Export Hubs initiative aims to identify export-worthy products in every district, create district export action plans, and build local ecosystems that support exporters at the grassroots level. The intention is to geographically diversify India's export base beyond traditional trade hubs concentrated in a handful of cities and states.

Merchanting Trade

One of the novel features of FTP 2023 is the formal recognition and facilitation of Merchanting Trade. In a merchanting trade transaction, an Indian entity purchases goods from one foreign country and sells them to another foreign country without the goods entering India. The FTP 2023 sets out detailed conditions for such transactions, including restrictions on third-country goods involving sanctions or dual-use items, and requires that the Indian entity receives the full sale proceeds in freely convertible currency within nine months. Merchanting trade allows India to position itself as a global trading intermediary, potentially generating significant foreign exchange earnings without requiring domestic manufacturing.

Compliance Obligations for Businesses

Every business engaged in international trade must maintain accurate records of all import and export transactions, apply for and maintain a valid IEC, comply with export obligations under any schemes they avail of, and file requisite returns and documents with the DGFT and customs authorities. Non-compliance with export obligations under the Advance Authorisation or EPCG schemes can lead to recovery of customs duties along with interest and penalties, and cancellation of the relevant authorisation. The DGFT has moved most processes online, and the compliance framework is now largely digital, with applications, amendments, and monitoring all conducted through the DGFT portal.

Practical Takeaways

Businesses should begin by obtaining an IEC if they do not have one, as this is the foundation of all import and export activity. Before availing any scheme under the FTP, businesses should carefully calculate the export obligations and assess their capacity to fulfil them within the permitted period. The Amnesty Scheme is a time-limited opportunity to regularise past defaults, and entities with outstanding export obligation cases should evaluate this option promptly. For e-commerce businesses, the new FTP framework offers simplifications worth exploring for cross-border sales. India's FTP 2023 represents a forward-looking trade policy framework built around the ambition of making India a leading global trading nation, and for businesses of any size engaged in international trade, familiarity with its provisions is not optional but essential.