Essential Provisions of India’s Export and Import Policy

Anyone looking to export from or import into India needs to understand the framework that governs international trade in the country. India’s export and import policy, officially known as the Foreign Trade Policy (FTP), establishes the rules, procedures, and classifications that determine how goods move across Indian borders. The current FTP 2023 operates on a fundamental principle: trade is free unless specifically regulated.

The core principle: freedom with exceptions 🔗

According to Chapter 2 of the FTP 2023, exports and imports are classified as “Free” except when regulated through prohibition, restriction, or exclusive trading through State Trading Enterprises (STEs). This means that the vast majority of goods can be traded without obtaining special permission or licenses. Currently, more than 99% of items are freely importable and exportable.

However, the “free” classification doesn’t mean completely unrestricted. Some items marked as free for import or export remain subject to conditions specified in other legislation currently in force. This could include requirements under food safety laws, environmental regulations, or product quality standards. Domestic laws, rules, and technical specifications applicable to locally produced goods apply equally to imported goods unless specifically exempted.

Three pillars of India’s trade documentation 🔗

India’s foreign trade framework rests on three interconnected documents that traders must understand. Each serves a distinct purpose in regulating and facilitating international commerce.

The Foreign Trade Policy (FTP) 🔗

The FTP is the primary policy document announced by the Ministry of Commerce, Government of India. Unlike previous versions that had fixed five-year terms, the FTP 2023 is designed as an open-ended, dynamic document that can be revised as needed based on feedback from trade and industry sectors. The policy establishes the overarching rules governing exports and imports, outlines export promotion schemes, and sets the framework for trade facilitation.

The FTP 2023 is built on four key pillars: shifting from incentives to remission-based support, promoting exports through collaboration between exporters, states, districts, and Indian missions abroad, enhancing ease of doing business through reduced transaction costs and e-initiatives, and addressing emerging areas like e-commerce exports and dual-use technology items.

The Handbook of Procedures (HBP) 🔗

While the FTP establishes policy, the Handbook of Procedures provides the operational details. This document prescribes the step-by-step procedures to be followed, specifies the forms in which applications must be submitted, and details the documentary requirements for various trade activities. Any amendments to the Handbook are made through Public Notices issued by the Director General of Foreign Trade (DGFT).

The Handbook covers everything from obtaining an Importer Exporter Code to claiming benefits under export promotion schemes. It includes the Appendices and Aayat Niryat Forms required for various applications, making it an essential reference for anyone engaged in foreign trade.

ITC (HS) Classification of export and import items 🔗

The Indian Trade Classification (Harmonised System), commonly known as ITC (HS), is a comprehensive compilation of codes for all merchandise goods involved in export and import. This classification system assigns specific codes to every tradeable product and indicates whether each item is free, restricted, or prohibited for trade.

The ITC (HS) uses an eight-digit coding system. The first six digits align with the international Harmonised System maintained by the World Customs Organization, ensuring global compatibility. India adds two additional digits to meet national trade requirements, providing more detailed classification. This structure is divided into two schedules: Schedule 1 covers import policy while Schedule 2 covers export policy.

Classification of goods: free, restricted, and prohibited 🔗

Understanding how goods are classified is essential for compliance with India’s trade regulations. The ITC (HS) categorizes every product into one of three main categories.

Free goods 🔗

Items classified as “Free” can be imported or exported without obtaining a license from DGFT. However, traders must still comply with conditions laid out against the respective entry in the ITC (HS). Authorized officers can verify fulfillment of these conditions during the import or export process. Free importability also remains subject to provisions of other applicable laws.

Restricted goods 🔗

Goods marked as “Restricted” require an authorization or permission from DGFT before they can be imported or exported. The restriction may be imposed for various reasons including national security, public health, environmental protection, or compliance with international obligations. Traders must apply for and obtain the necessary authorization before proceeding with trade in restricted items.

Prohibited goods 🔗

Prohibited items cannot be imported or exported under normal circumstances. An authorization will not typically be granted for prohibited goods except in specific situations such as scientific and research purposes or government-to-government exchanges.

State Trading Enterprises and canalised items 🔗

Certain goods in India are traded exclusively through State Trading Enterprises (STEs). These are governmental and non-governmental enterprises that have been granted exclusive or special privileges to deal with specific goods for export or import. Items traded through STEs are often of strategic importance or require controlled distribution.

STEs must conduct their purchases and sales in accordance with commercial considerations including price, quality, availability, and marketability. They must operate in a non-discriminatory manner and provide adequate opportunity for enterprises from other countries to participate. DGFT maintains a list of notified STEs in Appendix-2J of the policy documents and may grant authorization to other entities to import or export STE-designated goods in certain cases.

The mandatory Importer Exporter Code 🔗

Before engaging in any export or import activity, businesses must obtain an Importer Exporter Code (IEC). This 10-character alphanumeric number, which matches the entity’s Permanent Account Number (PAN), is mandatory for undertaking any foreign trade activities. No export or import of goods can be made without an IEC unless specifically exempted.

The application process for IEC is entirely online, and the code can be generated by applicants through the DGFT portal. Once obtained, IEC holders must update their details electronically every year during the April-June period. Failure to update can result in de-activation of the IEC, though it can be reactivated upon successful updation.

Principles governing trade restrictions 🔗

The FTP authorizes DGFT to impose prohibitions or restrictions on imports and exports for specific purposes. These include preventing or relieving critical shortages of foodstuffs or essential products, protecting human, animal, or plant life or health, safeguarding the country’s external financial position, securing compliance with laws relating to patents, trademarks, and copyrights, conserving exhaustible natural resources, and protecting national treasures of artistic, historic, or archaeological value.

The policy also contains specific prohibitions on trade with certain countries and entities in compliance with United Nations Security Council resolutions. This includes restrictions on trade with North Korea, controls on trade with Iraq for arms and related materials, and prohibitions on trade with designated terrorist organizations.

Documentation requirements simplified 🔗

The FTP 2023 has reduced mandatory documentation to streamline trade. For exports, only three documents are required: the bill of lading or airway bill, commercial invoice cum packing list, and shipping bill. Similarly, imports require just three mandatory documents: the bill of lading or equivalent, commercial invoice cum packing list, and bill of entry. Additional documents may be required for specific goods subject to restrictions or requiring regulatory compliance.

Role of DGFT in trade administration 🔗

The Directorate General of Foreign Trade serves as the central authority for implementing India’s foreign trade policy. DGFT issues authorizations for import and export, grants IEC numbers, and publishes notifications, public notices, and policy circulars. The organization’s decision is final and binding on all matters relating to policy interpretation, provisions in the Handbook of Procedures, and classification of items for import or export.

DGFT operates through regional offices across India, with headquarters in New Delhi. These regional authorities handle applications for various trade-related authorizations and provide support to the trading community. The organization has embraced digitization, with most processes now available online through the DGFT portal.

What do you think? How might the shift toward a dynamic, open-ended trade policy affect long-term business planning for exporters and importers? Do you believe the simplification of documentation requirements adequately balances trade facilitation with regulatory oversight?

References

1. https://www.dgft.gov.in/CP/?opt=ft-policy
2. https://content.dgft.gov.in/Website/dgftprod/4f665d2f-20cc-4887-ae6a-5ec912bc0d44/FTP2023_Chapter02.pdf
3. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1912572
4. https://www.dgft.gov.in/CP/?opt=ft-procedures
5. https://www.dgft.gov.in/CP/?opt=itchs-import-export
6. https://wise.com/in/import-duty/itchs-code
7. https://www.ibef.org/economy/foreign-trade-policy-2023