Indian foreign trade in figures

India used to be a protectionist state for a long time, but the country has become
progressively more open to international trade. Currently, trade represents 49% of its GDP
(World Bank). The country mainly exports petroleum oils (20.9%), diamonds (5.3%),
medicaments (3.9%), articles of jewellery (2.7%), telephone (2.4%), and rice (2.4%), while it
imports petroleum oils (23.7%), coal and similar solid fuels (6.7%), gold (5%), petroleum gas
and other gaseous hydrocarbons (4.4%), and diamonds (3.7%- data Comtrade 2022).
India’s main export partners are the United States (17.7%), the United Arab Emirates
(6.9%), the Netherlands (4.1%), China (3.3%), and Bangladesh (3.1%), whereas imports
come chiefly from China (14.0%), the United Arab Emirates (7.4%), the United States
(7.1%), Saudi Arabia (6.3%), and Russia (5.5% - data Comtrade 2022). The country has
recently signed free trade agreements with South Korea and ASEAN and has entered into
negotiations with several partners (EU, MERCOSUR, Australia, New Zealand and South
Africa). In 2021, Brazil and India signalled their interest in expanding the FTA that India has
with MERCOSUR, but the expansion is still under negotiation, pending approval from other
members of the South American bloc. India is currently the world’s fastest-growing large
economy, as well as the world's eighteenth-largest exporter and ninth-largest importer of
goods (WTO). However, the trade regime and regulatory environment still remain relatively
restrictive.
The country's trade balance is structurally negative, given that the country imports
nearly 80% of its energy needs. However, as India benefits from the fluctuations in world
hydrocarbon prices for its imports, the trade deficit has been oscillating for the past few
years. In 2022, India exported USD 453.4 billion worth of goods, while imports accounted
for USD 720.4 billion (+14.6% and +25.7% y-o-y, respectively). According to WTO figures,
in the same year, exports of services amounted to USD 309.3 billion (+28.6% y-o-y),
whereas the imports of services stood at USD 249.5 billion (+27.3% y-o-y). The overall trade
deficit for 2022 was estimated at 3.7% of GDP by the World Bank. According to the latest
figures from the Ministry of Commerce and Industry, during April-October 2023, the overall
trade deficit declined by 35.86% dropping from USD 89.86 billion in 2022 to USD 57.64
billion. Additionally, the merchandise trade deficit showed improvement, decreasing from
USD 167.14 billion in April-October 2022 to USD 147.07 billion in April-October 2023.
Foreign Trade Values 2018 2019 2020 2021 2022
Imports of Goods (million USD) 514,464 486,059 373,202 573,092 720,441
Exports of Goods (million USD) 324,778 324,340 276,410 395,426 453,400
Imports of Services (million USD) 176,059 179,430 153,737 195,956 249,522
Exports of Services (million USD) 204,956 214,762 203,145 240,510 309,374
Source: World Trade Organisation (WTO) ; Latest available data
Foreign Trade Indicators 2018 2019 2020 2021 2022
Foreign Trade (in % of GDP) 43.6 39.9 37.8 45.7 49.4
Trade Balance (million USD) -186,692 -157,678 -95,450 -176,721 -267,188
Trade Balance (Including Service) (million
-105,918 -73,452 -8,342 -74,039 -134,661
USD)
Imports of Goods and Services (Annual %
8.8 -0.8 -13.7 21.8 18.8
Change)
Exports of Goods and Services (Annual %
11.9 -3.4 -9.1 29.3 11.5
Change)
Imports of Goods and Services (in % of
23.7 21.2 19.1 24.2 26.9
GDP)
Foreign Trade Indicators 2018 2019 2020 2021 2022
Exports of Goods and Services (in % of
19.9 18.7 18.7 21.5 22.4
GDP)
Source: World Bank ; Latest available data
Foreign Trade Forecasts 2023 2024 (e) 2025 (e) 2026 (e) 2027 (e)
Volume of exports of goods
and services (Annual % -0.9 4.7 4.3 4.4 4.4
change)
Volume of imports of goods
and services (Annual % 2.5 6.0 6.0 6.1 6.7
change)
Source: IMF, World Economic Outlook ; Latest available data Note: (e) Estimated Data
International Economic Cooperation
India is a member of the following international economic organisations: IMF, South
Asian Association for Regional Cooperation (SAARC), Association of Southeast
Asian Nations (ASEAN) (dialogue partner), ICC, Colombo Plan, Commonwealth, G-
15, G-20, G-24, G-77, WTO, among others. For the full list of economic and other
international organisations membership of India is also outlined here.
1. Andean Community (CAN) August 2022 PDF ICON (47 KB)
2. ASEAN Regional Forum May 2016 PDF ICON (92 KB)
3. Asia-Europe Meeting PDF ICON (72 KB)
4. Asia-Europe Meeting (ASEM) March 2017 PDF ICON (98 KB)
5. Capacity building through Indian Technical and Economic Cooperation
(ITEC) January 2020 PDF ICON (160 KB)
6. Caribbean Community and Common Market (CARICOM) August 2022 PDF
ICON (46 KB)
7. Central American Integration System (SICA) August 2022 PDF ICON (68
KB)
8. Common Market for Eastern and Southern Africa (COMESA) April 2013
PDF ICON (226 KB)
9. Community of Latin American and Caribbean States (CELAC) August 2022
PDF ICON (64 KB)
10. Conference on Interaction and Confidence Building Measures in Asia (CICA)
November 2022 PDF ICON (588 KB)
11. East African Community February 2020 PDF ICON (45 KB)
12. G-20 October 2021 PDF ICON (347 KB)
13. Gulf Cooperation Council February 2013 PDF ICON (159 KB)
14. India and the BRICS August 2023 PDF ICON (105 KB)
15. India SAARC June 2020 PDF ICON (28 KB)
16. India’s engagement with United Nations Environment Programme (UNEP)
February 2020 PDF ICON (38 KB)
17. India’s engagement with United Nations Human Settlements Programme (UN
Habitat) February 2020 PDF ICON (23 KB)
18. India-ASEAN Relations November 2022 PDF ICON (381 KB)
19. India-BIMSTEC June 2020 PDF ICON (33 KB)
20. India-Brazil-South Africa (IBSA) Dialogue Forum PDF ICON (414 KB)
21. India-EU Bilateral Brief PDF ICON (109 KB)
22. Indian Ocean Rim Association and India’s Role PDF ICON (405 KB)
23. India-United Nations Relations, June 2020 PDF ICON (75 KB)
 24. Indo-Pacific Division PDF ICON (45 KB)
25. League of Arab States February 2020 PDF ICON (90 KB)
26. Mekong-Ganga Cooperation (MGC) July 2016 PDF ICON (85 KB)
27. Pan African e-Network Project January 2013 PDF ICON (47 KB)
28. Quad PDF ICON (118 KB)
29. Shanghai Cooperation Organization (SCO) September 2022 PDF ICON (204
KB)
30. Southern African Development Community Cooperation April 2012 PDF
ICON (65 KB)
Free Trade Agreements
The complete and up-to-date list of Free Trade Agreements signed by India can be
consulted here.
Agreements already concluded
1. India-EFTA TEPA
2. calendar 10 03 2024
3. Ind-Aus-ECTA
4. calendar 30 June 2022
Current Engagements of India in RTAs
1. India-UAE CEPA
2. calendar 27 March 2022
3. India-Mauritius CECPA
4. calendar 01 April 2021
5. MoU with Argentina
6. MoU with Colombia
7. calendar 8 February
8. Agreement of Cooperation with Nepal to Control Unauthorised Trade
9. Agreement on Economic Cooperation between India and Finland
10. Agreement on SAARC Preferential Trading Arrangement (SAPTA)
11. Agreement on South Asia Free Trade Area SAFTA
12. Asia Pacific Trade Agreement APTA
13. India Singapore CECA
14. India Malaysia CECA
15. Agreement on implementation of India – Malaysia CECA
16. India ASEAN Agreements
17. India Africa Trade Agreement
18. India Chile PTA
19. Trade Agreement between India and Argentina
20. Expansion India-Chile PTA
21. India Japan CEPA
22. India-Ecuador Joint Economic and Trade Committee (JETCO)
23. India-Ecuador Joint Economic and Trade Committee (JETCO)
24. India Afghanistan PTA
25. India Korea CEPA
26. India MERCOSUR PTA
27. India Nepal Trade Treaty
28. India Sri Lanka FTA
29. SAARC Agreement on Trade in Services SATIS
30. Treaty of Transit between India and Nepal
31. Agreement of Trade, Commerce and Transit between the Government of the
Republic of India and the Royal Government of Bhutan
 32. Agreement on India-Argentina JTC- 1981
33. General Trade Agreement with Peru- 1971
34. Trade Agreement with Chile – 1972
35. Trade Agreement with Colombia- 1970
36. Trade Agreement with Cuba- 1979
37. Trade Agreement with Guatemala- 1981
38. Trade Agreement with Argentina- 1966
39. Trade Agreement with Brazil- 1968
40. Trade Agreement with Chile- 1956
41. Trade Agreement with Chile- 1960
42. calendar 8 February 2020
Main Partner Countries
Main Customers Main Suppliers
2022 2022
(% of Exports) (% of Imports)
United States 17.7% China 14.0%
United Arab United Arab
6.9% 7.4%
Emirates Emirates
Netherlands 4.1% United States 7.1%
China 3.3% Saudi Arabia 6.3%
Bangladesh 3.1% Russia 5.5%
See More See More
64.9% 59.8%
Countries Countries
Main products
452.7 bn USD of products exported in 2022
Petroleum oils and oils obtained from bituminous... 20.9%
Diamonds, whether or not worked, but not mounted... 5.3%
Medicaments consisting of mixed or unmixed... 3.9%
Articles of jewellery and parts thereof, of... 2.7%
Telephone sets, incl. telephones for cellular... 2.4%
See More Products 64.9%

732.6 bn USD of products imported in 2022

Petroleum oils and oils obtained from bituminous... 23.7%
Coal; briquettes, ovoids and similar solid fuels... 6.7%
Gold, incl. gold plated with platinum, unwrought... 5.0%
Petroleum gas and other gaseous hydrocarbons 4.4%
Diamonds, whether or not worked, but not mounted... 3.7%
See More Products 56.5%
Source: Comtrade, Latest Available Data
Main Services
308.4 bn USD of services exported in 2022
Computer and information services + 45.85%
Other business services + 24.65%
Transportation + 12.14%
Travel + 6.93%
 308.4 bn USD of services exported in 2022
Government services 3.29%
Financial services 2.23%
Cultural and recreational services + 1.24%
Communications services + 1.12%
Insurance services + 1.09%
Construction services + 1.08%
Royalties and license fees + 0.38%

171.5 bn USD of services imported in 2022

Other business services + 33.39%
Transportation + 25.02%
Travel + 15.09%
Computer and information services + 9.18%
Royalties and license fees + 6.08%
Cultural and recreational services + 3.08%
Government services 2.53%
Construction services + 1.67%
Financial services 1.41%
Insurance services + 1.35%
Communications services + 1.20%
Source: United Nations Statistics Division, Latest Available Data
Exchange Rate System
Local Currency
Indian Rupee (INR)
Exchange Rate Regime
Managed floating exchange regime with no pre-determined path for the exchange
rate.
Level of Currency Instability
Low. The Indian rupee is one of the most stable among emerging market currencies,
but it is exposed to short-term volatility.
Exchange Rate on March 31, 2024:
1 INR = 0.0120 USD, 1 USD = 83.3466 INR
1 INR = 0.0111 EUR, 1 EUR = 90.0138 INR
Monetary Indicators 2016 2017 2018 2019 2020
Indian Rupee (INR) - Average Annual Exchange Rate For 1
71.48 73.56 80.69 79.66 85.29
EUR
Source: World Bank - Latest available data.
Trade Infrastructure for Export Scheme
The Department of Commerce, Government of India, has implemented the Trade
Infrastructure for Export Scheme (TIES) to facilitate the growth of exports by creating
appropriate infrastructure.
What are the Major Government Initiatives to Promote Export Growth?
TIES Scheme:
The TIES scheme provides grants-in-aid to central/state government-owned agencies or
their joint ventures for infrastructure projects with significant export linkages.
 The infrastructure includes Border Haats, Land customs stations, quality testing and
certification labs, cold chains, trade promotion centres, export warehousing and packaging,
Special Economic Zones, and ports/airports cargo terminuses.
PM Gati Shakti National Master Plan (NMP):
The PM Gati Shakti NMP is a digital platform that integrates geospatial data related to
infrastructure in the country and planning portraits of various ministries/departments of the
government.
This digital system helps in data-based decision-making for the synchronised
implementation of infrastructure projects, aiming to reduce logistics costs and support
economic activity in the country.
Duty Drawback Scheme:
The Duty Drawback Scheme rebates the incidence of customs duties on imported inputs
and central excise duties on domestic inputs used in the manufacture of export goods.
This scheme is operated in terms of provisions of the Customs Act, 1962, read with
the Customs and Central Excise Duties Drawback Rules, 2017.
Recently, the central government has released Rs 206 crore to states for the promotion of
exports under the Trade Infrastructure for Export Scheme (TIES) initiative.
Under the TIES, financial assistance for 27 export infrastructure projects have been
approved during FY 2019-20 to 2022-23.
What is Trade Infrastructure for Export Scheme (TIES)?
About:
Union Ministry of Commerce and Industry launched the Trade Infrastructure for
Export Scheme (TIES) in 2017. After delinking the Assistance to States for Development of
Export Infrastructure and Allied Activities (ASIDE) Scheme in 2015, the State Governments
had been consistently requesting the support of the Centre in creation of export infrastructure.
Objective:
To assist Central and State Government agencies in the creation of appropriate
infrastructure for the growth of exports.
Scope:
The scheme can be availed by States through their implementing agencies, for
infrastructure projects with significant export linkages like Border Haats, Land customs
stations, quality testing and certification labs, cold chains, trade promotion centres, export
warehousing and packaging, SEZs and ports/airports cargo terminuses.
Extent of Financial Assistance:
The Central Government assistance for infrastructure creation will be in the form of
grant-in-aid, normally not more than the equity being put in by the implementing agency or
50% of the total equity in the project. In the case of projects located in North Eastern States,
Himalayan States including UT of J&K, Ladakh this grant can be up to 80% of total equity.
Negative List of Projects that will not be Considered under this Scheme:
Projects which are covered under sector specific schemes like textiles, electronics, IT.
General infrastructure projects like highways, power etc.
Projects where an overwhelming export linkage cannot be established.
 EXPORT PROCESSING ZONE SCHEME
Free Trade Zones (FTZ)/ Export Processing Zones (EPZs) have emerged as an
effective instrument to boost export of manufactured products. The Zones, set up as enclaves
separated from the Domestic Tariff Area (DTA) by physical barriers, are intended to provide
an internationally competitive duty free environment for export production at low costs. The
basic objectives of EPZs are to enhance foreign exchange earnings, develop export-oriented
industries and to generate employment opportunities.
The first Zone was set up at Kandla (Gujarat) in 1965, followed by SEEPZ, Mumbai
in 1972. Thereafter, four more Zones were set up at NOIDA (UP), FALTA (West Bengal),
Cochin (Kerala), Chennai (Tamil Nadu) in 1984 and at Vishakapatnam (Andhra Pradesh) in
1989. In 1997, Surat Export Processing Zone came into existence. With the announcement of
Special Economic Zone Scheme in year 2000, the four Export Processing Zones / FTZ,
namely Kandla, SEEPZ, Cochin and Surat have been converted into Special Economic Zones
with effect from 1-11-2000.
Each Zone provides basic infrastructural facilities, like developed land, standard design
factory buildings, built-up sheds, roads, power supply and drainage, in addition to a whole
range of fiscal incentives by way of Customs, Excise and Income Tax exemptions. Customs
clearance facilities are offered within the Zone at no extra charge, while facilities like
banking, post office and clearing agencies are also available in the service centers attached to
each Zone.
The Export & Import Policy provisions for Export Processing Zones are the same as
applicable to EOUs. Thus, the provisions of EXIM Policy regarding importability of goods,
DTA sale, clearance of samples, sub-contracting, inter-unit transfer, repairs, re-conditioning
and re-engineering, sale of unutilized material, debonding etc. for EOUs are applicable to
EPZ units.
The Development Commissioners appointed by the Ministry of Commerce monitor and
coordinate the functioning of each Zone. The Customs act in close liaison with the
Development Commissioner of the respective Zone in providing bond facilities and for
ensuring that goods imported/indigenously procured duty free are utilised in the production of
goods for export. To enable the EPZs to import/procure locally their requirement of raw
materials, capital goods and office equipment etc. duty free, a number of Customs and
Central Excise notifications have been issued by the Ministry of Finance. These notifications
specify the different categories of items allowed to be imported/procured duty free as well as
the conditions thereof. The permissible item, cover almost all categories of goods required in
connection with the production activity for export & include capital goods, raw materials,
components, packing, consumables, spares etc.
SPECIAL ECONOMIC ZONE OR SEZ
A Special Economic Zone or SEZ is a specially marked territory or enclave within the
national borders of a country that has more liberal economic laws than the rest of the country.
Special Economic Zone – Definition
An SEZ is an enclave within a country that is typically duty-free and has different business
and commercial laws chiefly to encourage investment and create employment.
Apart from generating employment opportunities and promoting investment, SEZs are
created also to better administer these areas, thereby increasing the ease of doing business.
SEZ Background
An SEZ Policy was announced for the very first time in 2000 in order to overcome the
obstacles businesses faced.
There were multiple controls and many clearances to be obtained before starting a venture.
Infrastructure facilities were shoddy and well below world standards in India.
The fiscal regime was unstable as well.
In order to attract huge foreign investments into the country, the government announced
the Policy.
The Parliament passed the Special Economic Zones Act in 2005 after many consultations
and deliberations.
The Act came into force along with the SEZ Rules in 2006.
However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade
Policy).
Note:- A precursor to the SEZs, the Export Processing Zones were set up in India well
before. The first EPZ came up in Kandla in 1965 to promote exports. This was the first EPZ
not only in India but in all of Asia as well.
Special Economic Zones Act, 2005
“It is defined as an Act to provide for the establishment, development and management of the
Special Economic Zones for the promotion of exports and for matters connected therewith or
incidental thereto.”
The chief objectives of the SEZ Act are:
1. To create additional economic activity.
2. To boost the export of goods and services.
3. To generate employment.
4. To boost domestic and foreign investments.
5. To develop infrastructure facilities.
SEZ Rules
The Rules provide for:
 Simplified procedures to develop, operate and maintain SEZs and also to set up units
and conduct businesses in the SEZs.
 Single-window clearance to set up a Special Economic Zone, and also to set up a unit
in an SEZ.
 Single-window clearance for matters connected to the Central and State governments.
 Simplified compliance procedures and documentation with a focus on self-
certification.
  Different minimum land requirements for different classes of Special Economic
Zones.
SEZ Approval Mechanism
The SEZ approval mechanism is a single-window process provided by a 19-member inter-
ministerial SEZ Board of Approval (BoA).
1. The developer has to submit the proposal to the state government.
2. The state government forwards this proposal to the BoA along with its recommendation
within forty-five days.
3. The developer or applicant can also directly submit the proposal to the BoA.
4. The Board, which has been constituted by the Central Government, and is a 19-member
Board takes the decision considering the merits of the proposal. All decisions taken by
the Board are by consensus.
5. The Board is chaired by the Secretary of the Dept. of Commerce, Ministry of Commerce
and Industry.
6. The other members are from various bodies and ministries such as the Central Board of
Excise and Customs (CBEC), the Central Board of Direct Taxes (CBDT), Department of
Economic Affairs, Dept. of Commerce, Ministry of Science and Technology, Ministry of
Home Affairs, Ministry of Law and Justice, Ministry of Urban Development, etc.
7. Once the BoA gives its approval, and the central government notifies the area of the
SEZ, units are allowed to be established inside the SEZ.
SEZs Facilities & Incentives
The government offers many incentives for companies and businesses established in SEZs.
some of the important ones are:
1. Duty-free import or domestic procurement of goods for developing, operating and
maintaining SEZ units.
2. 100% Income tax exemption on export income for SEZ units under the Income Tax
Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back
export profit for next 5 years. (Sunset Clause for Units will become effective from
2020).
3. Units are exempted from Minimum Alternate Tax (MAT).
4. They were exempted from Central Sales Tax, Service Tax and State sales tax. These
have now subsumed into GST and supplies to SEZs are zero-rated under the IGST
Act, 2017.
5. Single window clearance for Central and State level approvals.
6. There is no need for a license for import.
7. In the manufacturing sector, barring a few segments, 100% FDI is allowed.
8. Profits earned are permitted to be repatriated freely with no need for any dividend
balancing.
9. There is no need for separate documentation for customs and export-import policy.
10. Many SEZs offer developed plots and ready-to-use space.
A few important figures related to SEZs in India:
 As of 31st December 2020; 22.84 lakh persons have been employed in the SEZs, the
division of which is given below:
 Number of persons employed in the Central Government SEZs – 186768
 Number of persons employed in the state/private SEZs set up before 2006 – 98309
 Number of persons employed in the SEZs notified under the act – 1999871
 In the financial year 2020-21 (As of 31st December 2020) the exports from SEZs
have decreased by about 7.25% when compared to the previous financial year (2019-
2020).
Examples of SEZs in India:
 1. SEEPZ Special Economic Zone (Mumbai),
2. Kandla SEZ
3. Cochin SEZ
4. Madras SEZ
5. Visakhapatnam SEZ
6. Falta SEZ
Challenges
1. Since SEZs offer a wide range of incentives and tax benefits, it is believed that many
existing domestic firms may just shift base to SEZs.
2. There is a fear that the promotion of SEZs may be at the cost of fertile agricultural
land affecting food security, loss of revenue to the exchequer and cause uneven
growth with adverse effects.
3. Apart from food security, water security is also affected because of the diversion of
water use for SEZs.
4. SEZs also cause pollution, especially with the release of untreated effluents. There has
been a huge destruction of mangroves in Gujarat affecting fisheries and dairy sectors.
5. SEZs have to be promoted but not at the cost of the agricultural sector of the country.
It should also not affect the environment adversely.

Exports and Imports of India through air, Sea and land modes
Mode of Transport for Export Import Business:-
It is very crucial to understand and know what type of transportation will be cost-effective
and efficient. For international trade, mode of transport and distribution are been considered
as the key factors. The choice would actually depend based on –
 Higher customer services
 Timely delivery schedules
 Lower logistics cost
 Proper inventory levels
Import and export can be done through four different ways, namely –
The mode of transport depends on the terms specified in the contract entered between the
exporter and importer. These are the following modes of transport that are normally,
mentioned in the contract.
1. Sea Transport :-
There is a popular phrase – Old is Gold. Sea transport is the oldest mode of transportation
used in transporting goods. It is categorised by low cost and high capacity. It is suitable for
the shipments of large volume of objects transported for long distances when the delivery
time is not important. International transportation could be delayed due to slow speed,
environmental aspects, inflexible routes & schedules.
However, the sea transport includes the limited network of routes and costs higher for
loading, unloading and trans-shipment of commodities. To reach the final destination from
sea ports further transportation is also needed and there may be additional costs for land
transportation.
2. Air Transport :-
Air transport is the least utilized mode of transport in international trade and the newest
among all modes of transport. It is the best way for quick delivery and distribution of goods.
It is the safest methods of transport and variety of goods can be imported or exported through
this mode.
Air transport involves higher costs than modes and not suitable for all items and also need to
pay taxes at each airport. It is highly expensive but still used by traders on a large scale. The
other transportation is needed to reach the goods from the airport to its destination.
3. Rail Transport :-
Rail transport is a cost effective and efficient way to move the goods. It plays a major role in
the regional trade of the country and commerce activities. It can carry relatively large
quantities of goods from medium to long distances and other advantages include low
transport costs, environmental friendly and higher reliability than road transport. Most of the
cargo’s transported by railways comprises bulk items such as coal, iron ore, cement,
fertilizers, raw material for steel plants, finished steel products and petroleum. In remote
regions, routes and timings are inflexible. There are some regions all over the globe have a
proper rail system which is a huge setback for remote regions.
4. Road Transport :-
Road transport is more flexible than any other mode of transport. It is easy to track
shipments, the consignments can be secure and private, schedule transport and pay the
relevant fees. It includes the ability to deliver cargo from door to door with high flexibility
and without need for further trans-shipment. The way of motor vehicles network and crossing
national borders is quick and efficient.
There are also so many risks for road transport such as long distances cargo delivery takes
more time due to traffic delays and breakdowns. There is the risk of goods beings damaged
and toll charges are high in some countries.
Factors affecting selection of the mode of transport
Security –
It is very important to protect the goods from partial and full damage. In terms of safety of
products, transportation through sea is riskier as compared to other modes of transport. To
protect the goods in transit, some specific types of packaging are been advised.
Transportation Cost –
When choosing how to best transport products for exportation, your budget should be the
most important factor when making decisions. Cost of transport will influence the cost of
goods. Water and rail transport is suitable for bulky and heavy goods, while land transport is
best for small goods. Air transport is suitable for expensive and perishable goods.
Availability –
In terms of door-to-door transport, availability should be considered.
Reliability and service regularity –
Transport modes differ in regularity and reliability. Decision on mode of transport would be
influenced by the speed and urgency of the product. Land, air and ocean transport are usually
been affected by that of the bad weather such as snow, heavy rains, storms and fog, which
may cause delays.
Small Scale Industry (SSI)
In Small Scale Industry (SSI) is recognized as an export unit when over 50% of its production
is directed towards exports. Apart from these major types of industries, other small scale
industries examples include village industries, cottage units, export units, mining or quarries,
etc. The States of Punjab, Tamil Nadu, Uttar Pradesh, Haryana, Maharashtra and Delhi
together accounted for about 74 % of the total exports in the SSI sector. Details are given in
the following table.
DISTRIBUTION OF VALUE OF EXPORTS IN THE SSI SECTOR, STATE-WISE
Percentage
S.
Name of State Value of Exports (in Rs.) to
No.
Total
 Regd. SSI Unregd. SSI
Total
sector sector
JAMMU &
1. 11606571 8435059 20041630 0.01
KASHMIR
HIMACHAL
2. 134526415 3807921 138334336 0.10
PRADESH
3. PUNJAB 10985479152 16962274936 27947754088 19.68
4. CHANDIGARH 145822866 741 145823607 0.10
5. UTTARANCHAL 154059488 29447984 183507472 0.13
6. HARYANA 14273833050 13219592 14287052642 10.06
7. DELHI 12496320520 430909290 12927229810 9.10
8. RAJASTHAN 5738756796 163914777 5902671573 4.16
9. UTTAR PRADESH 14201280757 219136157 14420416914 10.16
10. BIHAR 20187705 32829536 53017241 0.04
11. SIKKIM 2655657 0 2655657 0.00
12. NAGALAND 11120000 67630532 78750532 0.06
13. MANIPUR 1258409 940000 2198409 0.00
14. MIZORAM 365315 3179264 3544579 0.00
15. TRIPURA 581000 103274288 103855288 0.07
16. ASSAM 51325230 92715545 144040775 0.10
17. WEST BENGAL 5633834885 43319309 5677154194 4.00
18. JHARKHAND 219863378 50757457 270620835 0.19
19. ORISSA 2869129515 7785587 2876915102 2.03
20. CHHATTISGARH 13172301 77650832 90823133 0.06
MADHYA
21. 1935818356 3229498 1939047854 1.37
PRADESH
22. GUJARAT 195581922 195581922 0.14
23. DAMAN & DIU 935189853 935189853 0.66
DADRA & NAGAR
24. 322063659 322063659 0.23
HAVELI
25. MAHARASHTRA 12935164735 115584008 13050748743 9.19
ANDHRA
26. 4630708976 54157925 4684866901 3.30
PRADESH
27. KARNATAKA 5118606261 90574586 5209180847 3.67
28. GOA 161834315 161834315 0.11
29. KERALA 7357053531 44351643 7401405174 5.21
30. TAMIL NADU 21939828133 293154776 22232982909 15.66
31. PONDICHERRY 585529703 7896 585537599 0.41
32. LAKSHADWEEP 0 742500 742500 0.00
All India 123082558454 18913031639 141995590093 100.00
EXPORT CREDIT GUARANTEE CORPORATION- ECGC
ECGC, which is known as an export credit guarantee corporation, is a government-owned
company of export credit providers. It is owned by the ministry of industry and commerce.
Provides credit risk covers to Exporters against non payment risks of the overseas buyers /
buyer's country in respect of the exports made. Provides credit Insurance covers to banks
against lending risks of exporters. Assessment of buyers for the purpose of underwriting.
ECGC meaning is a government-owned company that provides credit risk services to support
the exporters working in India. The export credit guarantee corporation of India Limited is a
corporation that has introduced various sort of insurance of export credit schemes which
helps the requirements of every commercial bank which extend the export credit. The
company is a union government company wholly owned by the government of India.
Objectives of ECGC
One of the primary objectives of the ECGC is to encourage and facilitate Indian trade in a
global market. This will allow the Indian exporters to have a great significance on the
international market, and trading will be very effective in the country. Following that, another
primary objective of the export credit guarantee corporation of India Limited is to assist the
various Indian exporters that will help them manage the risks of credit by providing
information on time to worthy buyers, countries, and banks. The next objective of the ECGC
is to protect the Indian exporters against any losses which they are to face that may also lead
to the failure of the buyer on the bank, and problems will be met by the country regarding
cost-effective credit insurance. They also facilitate the availability of various finances in a
bank to any Indian an exporter that provides good export credit insurance at a competitive
rate. They also have an objective to achieve performance at a significantly improved quality
with operational efficiency being worked upon on the return on investment. They want to
educate their customers properly at an effective marketing and publicity skill set. And finally,
one of the primary objectives is to develop a global expertise insurance credit amongst every
exporter and also ensure your regular innovation for the satisfying of the quality of service of
development.
ECGC Guarantee
The ECGC guarantee offers protection against various nonpayment from the exporters or the
importers. Due to the presence of the insurance covered, this sort of financial institution is
very well placed in situations of providing a good amount of credit towards the exporters and
also lending the money. This gradually offers a range of good credit insurance risk covers
from the exporters, which helps the company to gain against the losses faced through the
exporting of the goods and services. In this guarantee, there is also uncovered towards the
financial institution and the banks who are facilitating these exporters to obtain their loan or
credit.
Benefits Export Credit Guarantee Corporation of India Limited
The export credit guarantee corporation of India Limited is a wholly government-owned
company where objective is to promote exports outside the country by providing proper is
credit insurance towards the exporters, who then will have adequate funds to export outside
the country in a global manner. There are various benefits of the export credit guarantee
corporation of India Limited. One of the significant benefits is that India, in a worldwide
sector, will have more knowledge and representation of the country in the trading sector will
also become an essential factor. Following that, they also provided a range of insurance
covers to every Indian exporter who has the potential of exporting a good amount of goods
and services which will benefit the country and commercial issues related to the country will
be reduced.
EXIM BANK
Exim Bank provides term loans to export oriented Indian companies to finance various
capital expenditures including certain soft expenditures in order to improve their export
capability and to enhance their international competitiveness.
For Indian Exporters For Commercial Banks in India
 Post-shipment Supplier’s Credit  Risk participation in funded /
 Export Project Cash flow Deficit non-funded facilities extended
Financing Program to Indian exporters.
 Pre-shipment Credit in Rupee and Foreign  Refinance of Export Credit
Currency
 Finance for Export of Consultancy and For Overseas Entities
Technology Services
 Finance for Deemed Export contracts
 Capital Equipment Finance  Buyer’s Credit
 Financing Deemed Export contracts  Buyer’s Credit under NEIA
secured via structures including but not
restricted to BOT / BOO / BOOT / BOLT
 Letters of Credit / Guarantees
Pre-shipment credit
Exim Bank's Pre-shipment Credit facility, in Indian Rupees and foreign currency, provides
access to finance at the manufacturing stage - enabling exporters to purchase raw materials
and other inputs. Pre-shipment credits are usually extended by exporters’ commercial banks
for period upto 180 days. Exim Bank extends pre-shipment / post-shipment credit either
directly or in participation with commercial banks. In order to offer one-stop banking
products to export clients, the Bank has also been offering short-term pre / post shipment
credit either directly or through exporter’s bankers. Exim Bank may consider extending pre-
shipment credit and post-shipment credit for periods exceeding 180 days, on case-to-case
basis and subject to the merits of the case.
Supplier's Credit
This facility enables Indian exporters to extend term credit to importers (overseas) of eligible
goods at the post-shipment stage. Post-shipment Supplier’s Credit can be extended to Indian
exporters upto the extent of the deferred credit portion of the export contract, either in Rupees
or in Foreign currency. The period of deferred credit and moratorium will generally depend
on the nature of goods [List A and List B of Memorandum PEM] or nature of projects, as per
guidelines contained in the Memorandum PEM of RBI.
Export Project Cash-Flow Deficit Financing Programme [EPCDF]
Indian project exporters (including those under Deemed Exports category) incur expenditure
in rupee or foreign currency while executing contracts i.e. costs of mobilisation/acquisition of
materials, personnel and equipment etc. Exim Bank's facility helps them meet these expenses
for -
a) Project Export Contracts;
b) contracts in India categorized as Deemed Exports in the Foreign Trade Policy of
India.
Capital Equipment Finance Programme (CEFP)
Capital Equipment Finance Programme [CEFP] has been conceived to cater to capital
expenditure for procurement of capital equipment to be utilized across multiple contracts.
CEFP provides direct access to Exim Bank’s finance for eligible Indian companies for
procurement of indigenous and imported capital equipment for executing overseas projects /
deemed export projects.
Guarantee Facilities
Indian companies can avail of guarantee facilities of different types to furnish requisite
guarantees to facilitate execution of export contracts (including deemed export contracts) and
import transactions.
Advance Payment Guarantee (APG): Issued to project exporters to secure a project
mobilization advance as a percentage (10-20%) of the contract value, which is generally
recovered on a pro-rata basis from the progress payment during project execution.
Performance Guarantee (PG): PG for up to 5-10% of contract value is issued valid until
completion of maintenance period and/or grant of Final Acceptance Certificate (FAC) by the
overseas employer/client.
Retention Money Guarantee (RMG): This enables the exporter to obtain the release of
retained payments from the client prior to issuance of Project Acceptance Certificate (PAC)/
Final Acceptance Certificate (FAC).
Other Guarantees: e.g. in lieu of customs duty or security deposit for expatriate labour,
equipment etc.
Buyer's Credit
Overseas buyers can avail of Buyer's Credit from Exim Bank, for import of eligible goods
from India on deferred payment terms. As per Memorandum PEM guidelines, RBI has
authorised Exim Bank to extend overseas buyer’s credits upto USD 20 mn for project exports
without seeking approval of RBI. The facility enables exporters/contractors to expand abroad
and into non-traditional markets. It also enables exporters/contractors to be competitive when
bidding or negotiating for overseas jobs.Buyer’s Credit – NEIA is a unique financing
mechanism that provides a safe mode of non-recourse financing option to Indian exporters
and serves as an effective market entry tool to traditional as well as new markets in
developing countries, which need deferred credit on medium or long-term basis. Under this
facility, Exim Bank facilitates project exports from India by way of extending credit to
overseas sovereign governments and government owned entities for import of Indian goods
and services from India on deferred credit terms. Exim Bank will obtain credit insurance
cover under NEIA through ECGC. NEIA is a trust set up by the Ministry of Commerce and
administered by Export Credit & Guarantee Corporation of India (ECGC).Facility is
available for project exports requiring medium or long term deferred credit.
COMMODITY BOARDS
These Boards are responsible for production, development and export of tea, coffee, rubber,
spices and tobacco. The Coffee Board is a statutory organisation constituted under Section (4)
of the Coffee Act, 1942 and functions under the administrative control of the Ministry of
Commerce and Industry, Government of India. There are five Commodity Boards viz., Tea
Board, Coffee Board, Rubber Board, Spices Board and Tobacco Board which are statutory
autonomous bodies under the administrative control of Department of Commerce. One of the
key differences between a commodity board and an export promotion council is that a
commodity board is responsible for the promotion of traditional and primary exports, while
an export promotion council is responsible for the promotion of non-traditional items like
jewellery and software. The Government is taking various measures to promote the export of
tea, coffee, rubber, spices and tobacco through its commodity boards which includes
providing financial and technical assistance to the growers and other stake holders for
participation in trade fairs, exhibitions, buyer-sellers meets, brand promotion, public relation
campaign through Plan Schemes, etc.
1. Agricultural and Processed Food Products Export Development Authority
(APEDA)- APEDA is mandated with the responsibility of export promotion and
development of Agricultural and Processed Food Products.
2. Coconut Development Board (CDB) - Coconut Development Board (CDB) is a
statutory body established under the Ministry of Agriculture and Farmers Welfare,
 Government of India for the integrated development of coconut cultivation and
industry in the country with focus on productivity increase and product
diversification.
3. Coir Board - Coir Board is a statutory body established by the Government of India
under a legislation enacted by the Parliament namely Coir Industry Act 1953 (45 of
1953) for the promotion and development of Coir Industry as well as export market of
coir and coir products in India as a whole.
4. Coffee Board - The Coffee Board of India is an organisation managed by the
Ministry of Commerce and Industry of the government of India to promote coffee
production in India.
5. Rubber Board - The Rubber Board is a statutory body constituted by the
Government of India, under the Rubber Act 1947, for the overall development of the
rubber industry in the country.
6. Spices Board (SB) - Spices Board (Ministry of Commerce and Industry, Government
of India) is the flagship organization for the development and worldwide promotion of
Indian spices. The Board is an international link between the Indian exporters and the
importers abroad.
7. Tea Board - Tea Board is given the mandate to regulate the tea cultivation and export
of tea and promotion of tea Consumption.
8. Marine Products Export Development Authority (MPEDA) - The Marine
Products Export Development Authority (MPEDA) is given the mandate to promote
the marine products industry with special reference to exports from the country.
9. Tobacco Board - Tobacco Board is committed to accomplish the smooth functioning
of a vibrant farming system, fair and remunerative prices to tobacco growers and
export promotion.
State Trading Corporation (STC)
STC was set up on 18th May 1956 primarily with a view to undertake trade with East
European countries and to supplement the efforts of private trade and industry in developing
exports from the country. STC played an important role in country’s economy. It arranged
imports of essential items of mass consumption (such as wheat, pulses, sugar, edible oils,
etc.) and industrial raw materials into India and also contributed significantly in developing
exports of a large number of items from India.
STC has a paid up equity capital of ₹60 crore. As on 31.03.2022, the share of Govt. of India
in STC’s equity was 90%. The total manpower on the Corporation as on 01.11.2022 was 153.
STC has not been undertaking any business activity at present and is continuing as a non-
operative company.
STCL Ltd., a subsidiary of STC, is in the process of winding up and has stopped all its
business activities since 2014-15 onwards.
It launched a price support campaign to ensure remuneration prices to producers of crops
such as raw jute, shellac, tobacco, rubber and vanilla, and called on the government to do so.
The Corporation canceled the export and import of various commodities ranging from large
quantities of chemicals and medicines to edible oils, cement, sugar, news paper, wheat, urea,
etc., leading to timely availability of goods of mass consumption and equitable distribution.
Vision and Mission
STC has a vision to be a world-class leading organization, continuously diversifying and
delivering excellence in all areas of its operations thereby increasing stakeholder value. It has
a concrete mission to have advantage of upcoming business opportunities and trends with the
Proactive Entrepreneur Spirit, thereby achieving substantial year on year growth and
contributing to India's share in world trade.
Objectives of STC
State Trading Corporations was established to fulfill the following objectives:
1. To initiate a market intervention campaign as advised by the Government of India.
2. Emphasizing the quality of services to customers to develop long-term business
relationships with buyers and suppliers within and outside the country.
3. To make best use of the financial power of the corporation in expanding its business.
4. To Organise and undertake trading activities in socialist countries as well as other countries
in specific goods from time to time by the Government of India, undertaking the purchase,
sale and transport of such commodities in India or elsewhere in the world.
5. To Implement special arrangements for imports, exports, international trade and or
distribution of particular commodities as the Union Government may specify in the
public interest.
6. Checking the declining trend in exports or to boost export by introducing new products in
new markets.
7. To Assist export oriented organisations
8. To develop core competencies in selected areas and exploit market opportunities in these
areas.
9. To act as a facility for small and medium exporters and importers such as ensuring an
efficient and streamlined system of operations with minimal transaction costs.
10. Work on continuous training / re-training of existing manpower and engaging
professionally qualified young talent to create a cadre of highly professional and motivated
managers.
11. To fulfill the social responsibility of the corporation by following ethical business
practices and strengthening commitment to customers, employees, partners and communities.
12. To try to give sufficient returns to the stakeholders.
13. To Create new infrastructure and making maximum use of the infrastructure available
with the corporation.
Main Items of Exports and Imports
Major items of exports of STC include (i)Agriculture products like wheat, rice, cashew,
coffee, tea, sugar, spices, groundnut, etc. (ii)Chemical and pharmaceutical products
(iii)Leather products. (iv) Readymade governments and textiles (v) Engineering products and
consumer durables (vi) Leather products (vii) Meat and fish preparations (viii) Tobacco and
rubber (ix) Jute goods (x) Irons are and steel row materials.
Major items of imports are:
(i)Edible oil (ii)Hydrocarbons (ii)Newsprint (iv)Gold and silver (v)Natural rubber
(vi)Scientific instruments (vii) Chemicals (viii)Safety /security equipments (ix)Sugar
(x)Avionics like helicopter planes and their spares (xi)Fertilizers (xii)I.T goods (xiii)FMCG
(xiv)Pulses (xv)Fatty acids.
Limitations of STC:
In a study conducted by the Indian Institute of Management, Ahmedabad, some of the
inherent
weaknesses of STC are:
1. Although the objectives of STC were quite clear and well defined, it has not yet made any
major entrepreneurial decisions.
2. There seems to be no guidelines for the choice of new products to be exported and new
markets to sell their products.
3. Not much expertise has been developed for locating and developing sources of supply for
exporting products and for procuring imports from sources of supply abroad.
4. Most of the expertise is operating as an agent, not in indents and tenders of processing, and
transportation and distribution of goods, purchasing and marketing.
5. The set back in the export of non-canalized goods can be attributed to the failure of STC to
develop a suitable supply base and to take adequate promotional steps among the importers.
6. Periodic changes in staff of STC seem to have affected the efficiency and continuity of its
functions.
7. Despite technological developments on the part of STC, there are certain technical
problems
involved in foreign trade with its buyers and sellers or producers, not solved by it.
MMTC Ltd. (Metals and Minerals Trading Corporation of India)
MMTC Ltd. is one of the two highest earners of foreign exchange for India and
India's largest public sector trading body. Not only handling the export and import of primary
products such as coal, iron ore, agro and industrial products, MMTC also exports and imports
important commodities such as ferrous and nonferrous metals for industry, and agricultural
fertilizers. MMTC's diverse trade activities cover third country trade, joint ventures and link
deals and all modern forms of international trading. The company has a vast international
trade network, spanning almost in all countries in Asia, Europe, Africa, Oceania, and in the
United States and also includes a wholly owned international subsidiary in Singapore, MTPL.
It is one of the Miniratnas companies.
MMTC is one of the two highest foreign exchange earner for India (after petroleum
refining companies).[2] It is the largest international trading company of India and the first
public sector enterprise to be accorded the status of Five Star Export Houses by Government
of India for long standing contribution to exports. Being the largest player in bullion trade,
including retailing, MMTC's share was 146 tonnes of gold out of the total import of 600
tonnes of the precious metal in 2008–09.
FOREIGN EXCHANGE MARKET
Every country has their respective currencies which they use in their trade and
businesses, but what about in the foreign market? With the lack of versatility of the
currencies, they become a hurdle in world trade. To solve this problem, the Foreign Exchange
Market was introduced. This is a type of marketplace that will fix the exchange rate for the
currencies.
The main functions of the market are to
(1) facilitate currency conversion, and
(2) provide instruments to manage foreign exchange risk (such as forward
exchange),
(3) (3) allow investors to speculate in the market for profit.
Define Foreign Exchange Market
The foreign exchange market is over a counter (OTC) global marketplace that
determines the exchange rate for currencies around the world. This foreign exchange market
is also known as Forex, FX, or even the currency market. The participants engaged in this
market are able to buy, sell, exchange, and speculate on the currencies. These foreign
exchange markets are consisting of banks, forex dealers, commercial companies, central
banks, investment management firms, hedge funds, retail forex dealers, and investors. In our
prevailing section, we will widen our discussion on the ‘Foreign Exchange Market’.
Types of Foreign Exchange Market
The Foreign Exchange Market has its own varieties. We will know about the types of
these markets in the section below:The Major Foreign Exchange Markets −
1. Spot Markets
2. Forward Markets
3. Future Markets
4. Option Markets
5. Swaps Markets
Let us discuss these markets briefly:
 1. Spot Market
In this market, the quickest transaction of currency occurs. This foreign exchange market
provides immediate payment to the buyers and the sellers as per the current exchange rate.
The spot market accounts for almost one-third of all the currency exchange, and trades which
usually take one or two days to settle the transactions.
2. Forward Market
In the forward market, there are two parties which can be either two companies, two
individuals, or government nodal agencies. In this type of market, there is an agreement to do
a trade at some future date, at a defined price and quantity.
3. Future Markets
The future markets come with solutions to a number of problems that are being encountered
in the forward markets. Future markets work on similar lines and basic philosophy as the
forward markets.
4. Option Market
An option is a contract that allows (but is not as such required) an investor to buy or sell an
instrument that is underlying like a security, ETF, or even index at a determined price over a
definite period of time. Buying and selling ‘options’ are done in this type of market.
5. Swap Market
A swap is a type of derivative contract through which two parties exchange the cash flows or
the liabilities from two different financial instruments. Most swaps involve these cash flows
based on a principal amount.
Functions of Foreign Exchange Market
The various functions of the Foreign Exchange Market are as follows:
1. Transfer Function: The basic and the most obvious function of the foreign exchange
market is to transfer the funds or the foreign currencies from one country to another for
settling their payments. The market basically converts one’s currency to another.
2. Credit Function: The FOREX provides short-term credit to the importers in order to
facilitate the smooth flow of goods and services from various countries. The importer can
use his own credit to finance foreign purchases.
3. Hedging Function: The third function of a foreign exchange market is to hedge the
foreign exchange risks. The parties in the foreign exchange are often afraid of the
fluctuations in the exchange rates, which means the price of one currency in terms of
another currency. This might result in a gain or loss to the party concerned.
Features of Foreign Exchange Market
This kind of exchange market does have characteristics of its own, which are required
to be identified. The features of the Foreign Exchange Market are as follows:
1. High Liquidity
The foreign exchange market is the most easily liquefiable financial market in the whole
world. This involves the trading of various currencies worldwide. The traders in this market
are free to buy or sell the currencies anytime as per their own choice.
2. Market Transparency
There is much clarity in this market. The traders in the foreign exchange market have full
access to all market data and information. This will help to monitor different countries’
currency price fluctuations through the real-time portfolio.
3. Dynamic Market
The foreign exchange market is a dynamic market structure. In these markets, the currency
values change every second and hour.
4. Operates 24 Hours
The Foreign exchange markets function 24 hours a day. This provides the traders the
possibility to trade at any time.
Who are the Participants in a Foreign Exchange Market?
The participants in a foreign exchange market are as follows:
1. Central Bank: The central bank takes care of the exchange rate of the currency of their
respective country to ensure that the fluctuations happen within the desired limit and this
participant keeps control over the money supply in the market.
2. Commercial Banks: Commercial banks are the channel of forex transactions, which
facilitates international trade and exchange to its customers. Commercial banks also
provide foreign investments.
3. Traditional Users: The traditional users consist of foreign tourists, the companies who
carry out business operations across the globe.
4. Traders and Speculators: The traders and the speculators are the opportunity seekers
who look forward to making a profit through trading on short-term market trends.
5. Brokers: Brokers are considered to be the financial experts who act as a sure
intermediary between the dealers and the investors by providing the best quotations.
Advantages of Foreign Exchange Market
The whole world economy is relying upon this foreign exchange market for obvious
advantageous reasons. Let us check what are the advantages gained in the foreign exchange
market-

 There are very few restrictive rules, this allows the investors to invest in this market
freely.
 There are no central bodies or clearinghouses that head the Foreign Exchange Market.
Hence, the intervention of the third party is less.
 Many investors are not required to pay any commissions while entering the Foreign
Exchange Market.
 As the market is open 24 hours, the investors can trade here without any time-bound.
 The market allows easy entry and exit to the investors if they feel unstable.
Foreign Direct Investment (FDI)
Foreign direct investments are commonly categorized as horizontal, vertical, or
conglomerate. With a horizontal FDI, a company establishes the same type of business
operation in a foreign country as it operates in its home country. Foreign direct investment
(FDI) is an investment made by a company or an individual in one country into business
interests located in another country. FDI is an important driver of economic growth. Any
investment from an individual or firm that is located in a foreign country into a country is
called Foreign Direct Investment.
1. Generally, FDI is when a foreign entity acquires ownership or controlling stake in the
shares of a company in one country, or establishes businesses there.
2. It is different from foreign portfolio investment where the foreign entity merely buys
equity shares of a company.
3. In FDI, the foreign entity has a say in the day-to-day operations of the company.
4. FDI is not just the inflow of money, but also the inflow of technology, knowledge,
skills and expertise/know-how.
5. It is a major source of non-debt financial resources for the economic development of a
country.
6. FDI generally takes place in an economy which has the prospect of growth and also a
skilled workforce.
7. FDI has developed radically as a major form of international capital transfer since the
last many years.
8. The advantages of FDI are not evenly distributed. It depends on the host country’s
systems and infrastructure.
 The determinants of FDI in host countries are:
1. Policy framework
2. Rules with respect to entry and operations/functioning (mergers/acquisitions and
competition)
3. Political, economic and social stability
4. Treatment standards of foreign affiliates
5. International agreements
6. Trade policy (tariff and non-tariff barriers)
7. Privatisation policy
Foreign Direct Investment (FDI) in India – Latest update
From April to August 2020, total Foreign Direct Investment inflow of USD 35.73 billion
was received. It is the highest ever for the first 5 months of a financial year. FDI inflow has
increased despite Gross Domestic Product (GDP) growth contracted 23.9% in the first quarter
(April-June 2020). FDI received in the first 5 months of 2020-21 (USD 35.73 billion) is
13% higher as compared to the first five months of 2019-20 (USD 31.60 billion).
FDI in India
The investment climate in India has improved tremendously since 1991 when the government
opened up the economy and initiated the LPG strategies.
1. The improvement in this regard is commonly attributed to the easing of FDI norms.
2. Many sectors have opened up for foreign investment partially or wholly since the
economic liberalization of the country.
3. Currently, India ranks in the list of the top 100 countries in ease of doing business.
4. In 2019, India was among the top ten receivers of FDI, totalling $49 billion inflows, as
per a UN report. This is a 16% increase from 2018.
5. In February 2020, the DPIIT notifies policy to allow 100% FDI in insurance
intermediaries.
6. In April 2020, the DPIIT came out with a new rule, which stated that the entity of nay
company that shares a land border with India or where the beneficial owner of
investment into India is situated in or is a citizen of such a country can invest only under
the Government route. In other words, such entities can only invest following the
approval of the Government of India
7. In early 2020, the government decided to sell a 100% stake in the national airline’s Air
India. Find more about this in the video below:
FDI Routes in India
There are three routes through which FDI flows into India. They are described in the
following table:
Category 1 Category 2 Category 3
100% FDI permitted
Up to 100% FDI permitted Up to 100% FDI permitted through
through Automatic
through Government Route Automatic + Government Route
Route
Automatic Route FDI
In the automatic route, the foreign entity does not require the prior approval of the
government or the RBI. Examples:
Medical devices: up to 100%
Thermal power: up to 100%
Services under Civil Aviation Services such as Maintenance & Repair Organizations
Insurance: up to 49%
Infrastructure company in the securities market: up to 49%
Ports and shipping
Railway infrastructure
 Pension: up to 49%
Power exchanges: up to 49%
Petroleum Refining (By PSUs): up to 49%
Government Route FDI
Under the government route, the foreign entity should compulsorily take the approval of the
government. It should file an application through the Foreign Investment Facilitation Portal,
which facilitates single-window clearance. This application is then forwarded to the
respective ministry or department, which then approves or rejects the application after
consultation with the DPIIT. Examples:
Broadcasting Content Services: 49%
Banking & Public sector: 20%
Food Products Retail Trading: 100%
Core Investment Company: 100%
Multi-Brand Retail Trading: 51%
Mining & Minerals separations of titanium bearing minerals and ores: 100%
Print Media (publications/printing of scientific and technical magazines/speciality
journals/periodicals and a facsimile edition of foreign newspapers): 100%
Satellite (Establishment and operations): 100%
Print Media (publishing of newspaper, periodicals and Indian editions of foreign
magazines dealing with news & current affairs): 26%
Sectors where FDI is prohibited
There are some sectors where any FDI is completely prohibited. They are:
1. Agricultural or Plantation Activities (although there are many exceptions like
horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
2. Atomic Energy Generation
3. Nidhi Company
4. Lotteries (online, private, government, etc.)
5. Investment in Chit Funds
6. Trading in TDR’s
7. Any Gambling or Betting businesses
8. Cigars, Cigarettes, or any related tobacco industry
9. Housing and Real Estate (except townships, commercial projects, etc.)
New FDI Policy
According to the new FDI policy, an entity of a country, which shares a land border with
India or where the beneficial owner of investment into India is situated in or is a citizen of
any such country, can invest only under the Government route.
A transfer of ownership in an FDI deal that benefits any country that shares a border with
India will also need government approval.
Investors from countries not covered by the new policy only have to inform the RBI after a
transaction rather than asking for prior permission from the relevant government department.
The earlier FDI policy was limited to allowing only Bangladesh and Pakistan via the
government route in all sectors. The revised rule has now brought companies from China
under the government route filter.
Benefits of FDI
FDI brings in many advantages to the country. Some of them are discussed below.
1. Brings in financial resources for economic development.
2. Brings in new technologies, skills, knowledge, etc.
3. Generates more employment opportunities for the people.
4. Brings in a more competitive business environment in the country.
5. Improves the quality of products and services in sectors.
Disadvantages of FDI
However, there are also some disadvantages associated with foreign direct investment. Some
of them are:
1. It can affect domestic investment, and domestic companies adversely.
2. Small companies in a country may not be able to withstand the onslaught of MNCs in
their sector. There is the risk of many domestic firms shutting shop as a result of
increased FDI.
3. FDI may also adversely affect the exchange rates of a country.
Types of Foreign Direct Investment
Foreign direct investments are commonly categorized as horizontal, vertical, conglomerate
or platform.
Horizontal
The first type is observed whenever a business expands and enters a foreign country via the
FDI route without changing its core activities. An example would be McDonald's investing in
an Asian country to increase the number of stores in the region.
Vertical
Here, a business enters a foreign economy to strengthen a part of its supply chain without
changing its business in any way.
If McDonald's bought a large-scale meat processing plant in Canada or in a European country
to bolster its meat supply chain in the target nation, it would amount to vertical FDI.
Conglomerate
This 3rd type is noticed whenever a business invests in a foreign country and buys an entity
which manufactures totally different products. The idea is to add more business niches and
start new journeys in other countries. In the late 1980s, Sir Richard Branson's Virgin Group
launched clothing stores in France, called 'Virgin Clothing'. The venture, however, failed
miserably and very few outlets remain, mostly in the Middle-East.
Platform
The last type refers to the expansion of a business to a foreign country, but everything
manufactured there is exported to a third country. Platform FDI is seen in free-trade zones of
FDI-hungry countries. Almost all luxury items marketed by famous fashion brands are
manufactured in countries like Bangladesh, Vietnam and Thailand. They are then sold in
other countries, a clear case of platform FDI at work.
Recent foreign investments in India
Here are some notable examples of recent foreign investments in India -
 Byju's, an online Ed-Tech firm, raised USD 500 million in a Silver Lake-led funding
round in September 2020. Silver Lake is a noted US equity and VC firm.
 Also, in September 2020, Unacademy- a competitor of Byju's in the same niche -
raised a total of USD 150 million. Japan's SoftBank Group led the round.
 Google picked up 7.73% of Reliance's 'Jio Platforms' for USD 4.5 billion, making it
one of the biggest deals in recent Indian corporate fundraising sessions.
 General Atlantic, one of New York's most respected equity firms, invested more than
USD 900 million for a stake in Reliance's 'Jio Platforms' in June 2020.
Data show that the majority of Foreign Direct Investment in India came from 5 countries-
Singapore, the USA, Japan, the Netherlands, and Mauritius.
Costs and Benefits of FDI to Home and Host Countries
Foreign direct investment (FDI) can bring important benefits to both host countries that
receive the investments as well as home countries where the investing companies are based.
However, there are also costs and risks associated with FDI for all parties involved. Here are
the major costs and benefits of FDI for host and home countries.
For Host Countries
Benefits of FDI for host countries have been stated below.
1. FDI can create jobs and drive economic growth through the capital invested, jobs
generated and technology transferred. However, foreign firms can crowd out small
local businesses and create dependence on foreign technology.
2. FDI contributes to infrastructure development through investments in transport,
electricity, telecommunications etc. However, some projects may cause environmental
issues.
3. FDI gives access to international markets and supply chains which helps local firms
but exposes them to global competition.
4. Host countries lose some policy autonomy and control as they have to conform to
demands of foreign investors. However, FDI can introduce best practices in corporate
governance and management.
5. FDI brings new capital that can be invested in productive assets and infrastructure.
This expands the productive capacity of the economy and supports growth.
6. Foreign companies bring advanced technologies, managerial skills and business
practices that improve the productivity and competitiveness of local firms through
spillover effects.
7. FDI creates more jobs directly through the operations of foreign affiliates and
indirectly through higher demand for goods and services from local suppliers. This
reduces unemployment.
8. FDI gives access to foreign markets for local companies that become part of global
supply chains. This helps expand their customer base and sales.
9. Technology transfer requirements and performance benchmarks can be imposed on
foreign investors to maximize technology spillovers and beneficial impacts.
Disadvantages of FDI to host countries.
1. Lead to unfair competition for small local firms that cannot compete with large
foreign multinationals.
2. Increase income inequality if foreign firms mainly employ skilled labor.
3. Cause environmental degradation if regulations are lax.
4. Expose the economy to external shocks and volatility due to global business cycles.
5. Limit policy autonomy since governments cater to demands of foreign investors.
For Home Countries
benefits of FDI for host countries have been stated below.
1. Companies gain higher profits and returns from their FDI projects. But profits
repatriated back home escape host country taxes, resulting in loss of potential tax
revenue.
2. FDI provides access to cheaper resources, lower cost production locations and new
markets for growth. But it also exposes firms to risks in foreign markets.
3. FDI enables international expansion and upgrading of skills/technology. However, it
can also result in job losses at home in labor intensive sectors.
4. There is a risk of strategic technology and intellectual property outflows to host
countries through FDI.
5. Multinational companies gain higher profits from utilizing advantages like intellectual
property and brand recognition in foreign markets.
6. FDI allows firms to expand production and sales to a larger global customer base,
achieving economies of scale.
7. Access to natural resources and lower cost locations enhance competitiveness of
home country companies.
8. FDI forces domestic firms to improve efficiency through competitive pressure.
Disadvantages of FDI to home countries.
1. Lead to job losses at home in labor intensive industries that shift production abroad.
2. Result in technology and intellectual property outflows that benefit competitors in
host countries.
3. Expose firms to political and operational risks in foreign markets.
4. Reduce tax revenues for home country governments if profits are not repatriated.
5. Cause exchange rate appreciation that hurts export competitiveness.