Understanding India’s Foreign Trade Policy (2015-2020): Legal Framework, Key Schemes and WTO Implications

Introduction

India’s Foreign Trade Policy represents a critical pillar in the nation’s economic architecture, serving as the regulatory framework that governs the movement of goods, services and technology across international borders. On April 1, 2015, Minister of Commerce and Industry Nirmala Sitharaman unveiled the Foreign Trade Policy for 2015-2020, marking a significant shift in India’s approach to international trade [1]. This five-year policy framework emerged at a pivotal moment in India’s economic trajectory, aligning closely with the government’s flagship initiatives including Make in India, Digital India and Skills India. The policy sought to address the twin challenges of enhancing India’s export competitiveness while simplifying the bureaucratic maze that had historically characterized India’s trade regime.

The timing of this policy was particularly significant. India stood at a crossroads where global trade dynamics were rapidly evolving, with mega-regional trade agreements reshaping international commerce and global value chains redefining manufacturing processes. The Foreign Trade Policy 2015-2020 aimed to position India not merely as a participant but as a significant player in these transformations. The government set an ambitious target to increase exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20, while simultaneously raising India’s share in world exports from 2 percent to 3.5 percent [1]. These objectives reflected not just economic ambitions but a broader vision of integrating India more deeply into global trade networks while maintaining policy space for developmental priorities.

Legal Framework and Statutory Foundation

The legal foundation of India’s foreign trade Policy regime rests upon the Foreign Trade (Development and Regulation) Act, 1992, which replaced the colonial-era Imports and Exports (Control) Act of 1947. This Act represents a watershed moment in India’s economic liberalization, providing the Central Government with enabling powers to regulate foreign trade while facilitating the transition from a controlled economy to a more market-oriented system. Section 5 of the Act specifically empowers the Central Government to formulate and announce foreign trade policy through official gazette notifications [2]. The provision states that “The Central Government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy.” This statutory framework grants flexibility to the government to respond to evolving trade dynamics without requiring legislative amendments for policy changes.

The Act also contains an important proviso under Section 5 that mandates special treatment for Special Economic Zones. It directs that “in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptations, as may be specified by it by notification in the Official Gazette” [2]. This provision acknowledges the unique nature of SEZs as enclaves of liberal trade policy within India’s broader regulatory framework. The Foreign Trade (Development and Regulation) Act, 1992 also establishes the institutional architecture for trade administration, including the appointment of the Director General of Foreign Trade under Section 6, who serves as the principal administrative authority responsible for implementing foreign trade policy. The Director General advises the Central Government on policy formulation and bears responsibility for executing the policy through a network of regional offices across India.

The 2015-2020 India’s Foreign Trade Policy operated within this statutory framework, with the Directorate General of Foreign Trade serving as the nodal agency for policy implementation. The policy emphasized good governance through digitization of processes, establishment of help desks and creation of online grievance redressal mechanisms. Trade facilitation measures included the Export Data Processing and Monitoring System introduced by the Reserve Bank of India to track export transactions and ensure compliance [3]. The policy also introduced the concept of Towns of Export Excellence, recognizing urban clusters with annual exports exceeding Rs. 750 crore and providing them with focused support for infrastructure development and export promotion.

The Merchandise Exports from India Scheme

The Merchandise Exports from India Scheme emerged as the centerpiece of the 2015-2020 Foreign Trade Policy, consolidating five previous reward schemes into a single, streamlined mechanism. Prior to MEIS, exporters navigated a complex landscape of schemes including the Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri-Infrastructure Incentive Scrip and Vishesh Krishi and Gram Udyog Yojana, each with different types of duty scripts and varying conditions attached to their use. This fragmentation created administrative burdens and reduced the effectiveness of export incentives. MEIS rationalized this structure by providing a unified framework where rewards ranged from 2 to 5 percent of the realized FOB value of exports, depending on the product and destination market [4].

The scheme divided destination markets into three groups, with differentiated reward rates reflecting India’s trade strategy and market priorities. Countries were classified based on factors including trade potential, existing market share, competitive landscape and strategic importance. MEIS specifically targeted goods with high export intensity, significant employment generation potential and products where India possessed competitive advantages but faced infrastructural bottlenecks. The rewards under MEIS were provided as duty credit scrips, which were freely transferable and could be used for payment of customs duties, excise duties and service tax. Importantly, MEIS eliminated the sector-specific and end-use restrictions that had characterized earlier schemes, providing exporters with greater flexibility in utilizing their benefits.

The basic objective underlying MEIS was to offset infrastructural inefficiencies and associated costs involved in exporting goods produced or manufactured in India. India’s export competitiveness has historically been constrained by infrastructure deficits including inadequate port facilities, inefficient logistics networks, power shortages and complex regulatory procedures. MEIS sought to partially compensate exporters for these disadvantages by providing financial incentives that would help level the playing field with competitors from countries with superior infrastructure. The scheme also aimed to promote diversification of India’s export basket, encouraging exports of value-added products and products from labor-intensive sectors that could generate significant employment.

Services Exports from India Scheme

Recognizing that services had emerged as a major engine of India’s export growth, the Foreign Trade Policy 2015-2020 introduced the Services Exports from India Scheme, replacing the earlier Served from India Scheme. SEIS represented a significant policy evolution, expanding coverage to 77 services including airport operations and ground handling services. The scheme applied to service providers located in India rather than restricting benefits to Indian service providers, thereby broadening its scope to include foreign service providers operating from Indian territory [4]. This inclusive approach aligned with India’s commitments under the General Agreement on Trade in Services and reflected the reality of India’s services sector, where foreign investment and collaboration played important roles.

Under SEIS, eligible services were rewarded at the rate of 3 percent based on net foreign exchange earned. The scheme covered diverse service sectors including business services, communication services, construction services, distribution services, educational services, environmental services, financial services, health related services, tourism services and transport services among others. The reward was calculated on the net foreign exchange earnings after deducting payments made in foreign exchange for rendering the service. Like MEIS, the rewards under SEIS were provided as duty credit scrips that were freely transferable and could be used for payment of customs duties on imports of inputs and capital goods, payment of excise duties and service tax on procurement of services and goods.

The debits under duty credit scrips issued under SEIS were eligible for CENVAT credit or drawback, ensuring that exporters could maximize the benefits of the scheme. This feature was particularly important for service exporters who typically had limited requirement for importing goods but needed to procure domestic inputs and services. By allowing the scrips to be used for payment of service tax and excise duties, SEIS provided meaningful benefits to the services sector. The scheme aimed to maintain India’s competitive edge in services exports, particularly in information technology, business process outsourcing, engineering services, healthcare services and tourism services where India had established strong global positions.

The WTO Challenge and Panel Ruling

The Foreign Trade Policy 2015-2020 faced its most significant challenge when the United States initiated dispute settlement proceedings at the World Trade Organization in March 2018. The United States challenged five sets of export subsidy measures under India’s trade regime: the Export Oriented Units, Electronics Hardware Technology Park and Bio-Technology Park Schemes; the Export Promotion Capital Goods Scheme; the Special Economic Zones Scheme; the Duty-Free Imports for Exporters Scheme; and the Merchandise Exports from India Scheme [5]. The United States argued that these programs provided prohibited export subsidies worth over USD 7 billion annually to Indian exporters across sectors including steel, pharmaceuticals, chemicals, information technology products and textiles.

The dispute centered on Articles 3.1(a) and 3.2 of the WTO Agreement on Subsidies and Countervailing Measures, which prohibit subsidies contingent upon export performance. The SCM Agreement distinguishes between prohibited subsidies, which include export subsidies and import substitution subsidies, and actionable subsidies, which are not prohibited but can be challenged if they cause adverse effects to other members. However, the SCM Agreement provided special and differential treatment for developing countries under Article 27 and Annex VII, exempting certain developing countries from the export subsidy prohibition. India had enjoyed this exemption based on its per capita GNP remaining below USD 1,000 per annum in constant 1990 dollars for three consecutive years.

The critical issue in the dispute was India’s graduation from the Annex VII(b) developing country category. It was undisputed that India had crossed the USD 1,000 threshold in 2016, graduating from the developing country exemption from 2017 onwards [6]. India argued before the WTO Panel that it was entitled to an eight-year transition period from the date of its graduation to phase out prohibited export subsidies. However, the Panel interpreted Article 27.2(b) of the SCM Agreement to mean that the eight-year transition period applied from the date of entry into force of the WTO Agreement in 1995, not from the date of individual country graduation. This interpretation meant that the transition period had expired on January 1, 2003, and India could no longer maintain export subsidies regardless of when it graduated from Annex VII(b) status.

The WTO Panel issued its report on October 31, 2019, finding that India had provided prohibited export subsidies inconsistent with the SCM Agreement. The Panel examined each challenged measure in detail. For MEIS, the Panel found that duty credit scrips awarded under the scheme constituted subsidies contingent upon export performance. The Panel determined that the provision of scrips involved a direct transfer of funds conferring a benefit on recipients, and that the scheme’s design, structure and operation made it contingent in law upon export performance [7]. For the Export Oriented Units and related schemes, the Panel found that exemptions from customs duties on imported inputs were export subsidies, though it accepted India’s defense under Footnote 1 of the SCM Agreement for certain duty exemptions on exported products.

The Panel recommendations differentiated timelines for withdrawing various subsidy programs based on the administrative and legal complexity of implementation. It directed India to withdraw the Duty-Free Imports for Exporters Scheme within 90 days from adoption of the report, the Export Oriented Units, Export Promotion Capital Goods Scheme and MEIS within 120 days, and the Special Economic Zones scheme within 180 days [7]. India filed an appeal on November 19, 2019, which prevented the Panel report from being adopted and buying India additional time. However, the appeal faced an unprecedented situation as the WTO Appellate Body became dysfunctional due to the United States blocking appointments of new members, leaving the appeal in limbo.

Implications and Policy Response

The WTO Panel ruling against India’s export subsidy programs had far-reaching implications for India’s trade policy and export sector. The schemes in question had provided critical support to exporters, helping offset India’s infrastructural disadvantages and enabling Indian products to compete in global markets. The sudden withdrawal of these benefits threatened to disrupt export industries, particularly labor-intensive sectors like textiles, leather goods and processed foods that relied on these incentives to maintain competitiveness. Exporters faced the prospect of increased costs that could price them out of international markets or force them to absorb margins that would threaten their viability.

In response to the WTO ruling, the Government of India undertook significant reforms to its export incentive architecture. In January 2021, the government launched the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to replace MEIS. Unlike MEIS, which provided benefits as a percentage of FOB value, RoDTEP is designed to reimburse exporters for embedded central, state and local duties, taxes and levies that are currently not being refunded under any other mechanism [8]. The scheme aims to be WTO-compliant by ensuring that it does not provide subsidies contingent upon export performance but rather neutralizes the disadvantage of non-refunded taxes and duties.

The transition from MEIS to RoDTEP represents a fundamental shift in India’s export promotion philosophy. Rather than providing incentives as a percentage of export value, the new approach focuses on ensuring that exports leave India without carrying the burden of domestic taxes and duties. This distinction is crucial for WTO compliance, as Footnote 1 of the SCM Agreement and Annexes II and III provide that remission or drawback of duties and taxes on exported products does not constitute a prohibited subsidy if it does not exceed the duties and taxes actually levied on the inputs consumed in producing the exported product. RoDTEP’s structure attempts to fit within this exception by limiting refunds to the actual embedded duties and taxes.

The government also introduced sector-specific schemes to support exports while maintaining WTO compliance. These include the Scheme for Remission of Duties and Taxes on Export Products, production-linked incentive schemes for specific sectors and enhanced support for development of export infrastructure. The policy response also involved greater focus on trade facilitation measures including digitization of trade processes, reduction of transaction costs, improvement of logistics infrastructure and negotiation of trade agreements that would provide market access advantages to Indian exporters. The experience highlighted the need for India to develop export competitiveness based on structural improvements in infrastructure, technology and skills rather than relying primarily on fiscal incentives.

Trade Facilitation and Institutional Reforms

Beyond the export incentive schemes, the India’s Foreign Trade Policy 2015-2020 introduced several measures aimed at simplifying procedures and reducing the cost and time for trade transactions. A significant innovation was the establishment of online systems for applications, approvals and monitoring. The policy mandated digitization of all processes under the Directorate General of Foreign Trade, allowing exporters and importers to complete transactions electronically without physical interface with officials. This digital infrastructure included online filing of applications for licenses and certificates, digital issuance of authorizations, electronic monitoring of export obligations and online grievance redressal mechanisms.

The policy also led to the creation of the National Committee for Trade Facilitation, established to implement India’s commitments under the WTO Trade Facilitation Agreement. This Committee brought together representatives from various government agencies involved in trade regulation including customs, port authorities, standards bodies and regulatory agencies. The Committee’s mandate included coordinating trade facilitation efforts across government, identifying bottlenecks in trade processes, implementing best practices and monitoring progress on trade facilitation measures [9]. This inter-agency coordination mechanism aimed to break down silos that had historically complicated trade procedures.

Trade facilitation under the policy extended to simplification of documentation requirements, reduction of the number of mandatory documents for export and import, acceptance of electronic documents and introduction of risk-based inspection procedures. The policy also promoted the concept of Authorized Economic Operators, providing trusted traders with expedited clearance procedures and reduced compliance burdens. These measures collectively aimed to improve India’s ranking on ease of doing business indicators and reduce the transaction costs that had historically made Indian exports less competitive. The focus on trade facilitation reflected an understanding that regulatory efficiency could be as important as fiscal incentives in promoting exports.

Conclusion

India’s Foreign Trade Policy 2015-2020 represented an ambitious attempt to transform the country’s export landscape through a combination of fiscal incentives, procedural simplification and institutional reforms. The policy’s alignment with national initiatives like Make in India demonstrated an integrated approach to economic development where trade policy supported broader manufacturing and services growth objectives. The introduction of MEIS and SEIS consolidated fragmented incentive schemes, providing exporters with simpler and more transparent mechanisms to access government support. These schemes contributed to growth in India’s exports during the policy period, though the full achievement of the USD 900 billion target remained elusive.

The WTO challenge and subsequent ruling against India’s export subsidy programs marked a significant setback, forcing a fundamental recalibration of India’s export promotion strategy. The dispute highlighted the tensions between developing countries’ desire to use policy tools for industrial development and the rules-based international trade system that restricts certain forms of government intervention. India’s experience demonstrates the shrinking policy space available to developing countries as they graduate to higher income levels, even while they continue to face developmental challenges and infrastructure deficits that justify targeted support for export sectors.

Looking forward, the lessons from the 2015-2020 India’s Foreign Trade Policy period suggest that sustainable export competitiveness must be built on structural foundations rather than fiscal incentives alone. This includes investments in trade infrastructure, logistics efficiency, technology adoption, skill development and quality standards. It also requires active pursuit of preferential market access through trade agreements while ensuring that domestic policy measures remain compliant with international obligations. The policy period demonstrated both the potential and limitations of government-led export promotion in an increasingly complex global trading environment where competitiveness depends on multiple factors beyond traditional incentives.

References

[1] Press Information Bureau, Government of India. (2015). Foreign Trade Policy 2015-20 Unveiled. https://www.pib.gov.in/newsite/printrelease.aspx?relid=117917

[2] Government of India. (1992). The Foreign Trade (Development and Regulation) Act, 1992. India Code. https://www.indiacode.nic.in/handle/123456789/1947

[3] Electronics and Computer Software Export Promotion Council. (2015). Foreign Trade Policy 2015-20: Key Highlights. https://www.escindia.in/policy-info/foreign-trade-policy-2015-20-key-highlights/

[4] IIFL Capital. (2015). India’s Foreign Trade Policy (FTP) Explained Simply. https://www.indiainfoline.com/knowledge-center/tax-saving-tax-planning/economics-for-everyone-indias-foreign-trade-policy-ftp-exim

[5] World Trade Organization. (2018). Dispute Settlement: DS541 – India – Export Related Measures. https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds541_e.htm

[6] Cambridge International Law Journal. (2020). WTO Report on India-USA Export Subsidies Related Dispute: What Lies Ahead? https://cilj.co.uk/2020/05/29/wto-report-on-india-usa-export-subsidies-related-dispute-what-lies-ahead/

[7] Business Standard. (2019). WTO Panel Upholds US Case, Rules India’s Export Subsidies Illegal. https://www.business-standard.com/article/economy-policy/wto-panel-upholds-us-case-rules-india-s-export-subsidies-illegal-119103101565_1.html

[8] Ministry of Commerce and Industry. (2021). Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme. Government of India. https://commerce.gov.in

[9] Observer Research Foundation. (2019). WTO Ruling on Indian Export Subsidies: Tackling Contradictions of the Agreement on Subsidies and Countervailing Measures. https://www.orfonline.org/expert-speak/wto-ruling-on-indian-export-subsidies-tackling-contradictions-of-the-agreement-on-subsidies-and-countervailing-measures-58266