flowchart TD A[Incoterms 2020] --> B[Any Mode of Transport] A --> C[Sea & Inland Waterway] B --> B1[EXW Ex Works] B --> B2[FCA Free Carrier] B --> B3[CPT Carriage Paid To] B --> B4[CIP Carriage & Insurance Paid To] B --> B5[DAP Delivered at Place] B --> B6[DPU Delivered at Place Unloaded] B --> B7[DDP Delivered Duty Paid] C --> C1[FAS Free Alongside Ship] C --> C2[FOB Free on Board] C --> C3[CFR Cost & Freight] C --> C4[CIF Cost Insurance & Freight]
83 International Trade Procedures and EXIM Policies
International trade is regulated by a chain of documents, intermediaries, customs procedures, and policy instruments that together convert a domestic transaction into a cross-border one. India’s framework is built on the Foreign Trade (Development and Regulation) Act, 1992, the Customs Act, 1962, the Foreign Exchange Management Act, 1999 (FEMA), and the Foreign Trade Policy (FTP) notified by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry. The current FTP (notified 31 March 2023) is open-ended, replacing the earlier 5-year cycle, and rests on four pillars: incentive to remission, export promotion through collaboration, ease of doing business, and emerging areas (e-commerce exports, districts as export hubs, SCOMET).
TipWorking definitions
| Term | Working definition |
|---|---|
| Export | Sale of goods or services from a domicile country to a foreign country, governed by the FT(D&R) Act, 1992 and FEMA, 1999. |
| Import | Purchase of goods or services from a foreign country into the domicile country, subject to customs duty under the Customs Tariff Act, 1975. |
| EXIM Policy / FTP | A statement issued by the Government of India under Section 5 of the FT(D&R) Act, 1992 specifying the framework for India’s foreign trade for a notified period. |
83.1 Institutional Architecture for India’s Foreign Trade
The Ministry of Commerce and Industry is the apex policymaker. Below it, DGFT allocates the Importer-Exporter Code (IEC), administers FTP schemes, and runs the SCOMET regime for dual-use items. The Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance enforces the Customs Act through Indian Customs EDI System (ICES). The Reserve Bank of India governs the foreign-exchange leg under FEMA via Authorised Dealer (AD) banks. Supporting agencies include Export Inspection Council (EIC) for quality certification, ECGC Ltd. for credit insurance, Export-Import Bank of India for export finance, and Export Promotion Councils (EPCs) like FIEO, EEPC, APEDA, MPEDA, GJEPC for sector-specific facilitation.
TipKey statutes and instruments
| Statute / Instrument | Function | Administering authority |
|---|---|---|
| Foreign Trade (D&R) Act, 1992 | Mother law; empowers Centre to regulate foreign trade | DGFT |
| Customs Act, 1962 | Levy and collection of customs duty; Bills of Entry / Shipping Bill | CBIC |
| FEMA, 1999 | Foreign-exchange regulation of trade flows | RBI / AD banks |
| Customs Tariff Act, 1975 | Schedule of import / export duty rates (HSN) | CBIC |
| GST (IGST) Act, 2017 | Levy of IGST on imports and zero-rating of exports | CBIC / States |
| Foreign Trade Policy 2023 | Operational framework for export-import | DGFT |
83.2 Documents in International Trade
A typical export-import shipment generates three families of documents: commercial (between buyer and seller), regulatory (with the government), and financial (with banks). Mastery of this paperwork is examined frequently because each document anchors a legal duty.
TipKey trade documents
| Document | Issued by | Purpose |
|---|---|---|
| Proforma Invoice | Exporter | Quotation; precedes the firm order |
| Commercial Invoice | Exporter | Bill of sale; basis for customs valuation |
| Packing List | Exporter | Itemwise quantity, weight, dimensions of cartons |
| Certificate of Origin | Chamber / EPC | Establishes country of origin for tariff preference |
| Bill of Lading (B/L) | Shipping line | Receipt + contract of carriage + document of title (sea) |
| Airway Bill (AWB) | Airline | Receipt + contract of carriage (air; non-negotiable) |
| Marine Insurance Policy | Insurer | Cargo cover under ICC clauses A / B / C |
| Shipping Bill | Customs (filed by exporter) | Permission to take goods out of India |
| Bill of Entry | Customs (filed by importer) | Declaration for clearance of imported goods |
| Letter of Credit (LC) | Issuing bank | Conditional payment undertaking under UCP 600 |
| Bill of Exchange (Draft) | Drawer (exporter) | Order to pay; sight or usance |
| GR / EDF Form | RBI (via AD bank) | Repatriation undertaking of export proceeds |
83.3 Incoterms 2020
Incoterms (International Commercial Terms) are the standard ICC rules that allocate cost, risk, and obligations of carriage and customs clearance between seller and buyer. The current edition is Incoterms 2020, with eleven terms in two families.
Two changes from Incoterms 2010 are routinely tested: DAT was renamed to DPU (Delivered at Place Unloaded), and CIP now requires the higher Institute Cargo Clauses (A) cover, while CIF retains the minimum (C) cover. DDP imposes maximum obligation on seller (delivers duty paid), EXW imposes minimum (buyer takes over at seller’s premises).
83.4 Methods of Payment in International Trade
Risk allocation between exporter and importer is the prism for memorising payment methods. From most secure for the exporter to most secure for the importer:
TipPayment terms ranked by exporter risk
| Method | Mechanism | Exporter risk | Importer risk |
|---|---|---|---|
| Cash in Advance | Importer pays before shipment | Lowest | Highest |
| Letter of Credit (LC) | Bank’s conditional undertaking under UCP 600 | Low | Moderate |
| Documentary Collection (D/P, D/A) | Bank releases shipping docs against payment / acceptance | Moderate | Moderate |
| Open Account | Goods shipped first, paid later (commonly 30–180 days) | High | Lowest |
| Consignment | Payment only on resale by importer | Highest | Lowest |
A confirmed irrevocable LC under UCP 600 of the ICC adds the confirming bank’s undertaking to the issuing bank’s, neutralising country and bank risk. Standby LCs function as performance guarantees and follow ISP98.
83.5 Export Customs Procedure under ICEGATE
The export procedure under the Customs Act, 1962 reads as a sequence: registration, declaration, examination, “let export order”, and bank realisation. Each step is paperless on ICEGATE / ICES.
flowchart LR A[IEC from DGFT] --> B[AD Code registration] B --> C[File Shipping Bill on ICEGATE] C --> D[RMS risk assessment] D --> E[Customs examination if flagged] E --> F[Let Export Order LEO] F --> G[Goods loaded on vessel] G --> H[EGM filed by carrier] H --> I[Bank realises proceeds; eBRC closes loop]
The Risk Management System (RMS) introduced in 2005 substituted random checks with intelligent profiling, so that low-risk consignments are cleared on self-assessment.
83.6 Foreign Trade Policy 2023: Schemes
FTP 2023 prunes incentive-based schemes (in line with the WTO ASCM ruling against MEIS) and shifts to WTO-compatible duty remission.
TipFTP 2023 — schemes and instruments
| Scheme | Purpose |
|---|---|
| Advance Authorisation | Duty-free import of inputs physically incorporated in export product |
| Duty-Free Import Authorisation (DFIA) | Post-export, transferable counterpart of Advance Authorisation |
| EPCG (Export Promotion Capital Goods) | Duty-free import of capital goods against export obligation = 6× duty saved over 6 years |
| RoDTEP | Remission of Duties and Taxes on Exported Products — refund of embedded central, state and local taxes |
| RoSCTL | Rebate of State and Central Taxes and Levies on apparel and made-ups |
| Status Holder Recognition | One- to Five-Star Export Houses based on FOB realisation |
| Towns of Export Excellence | Cluster recognition (Tirupur, Moradabad etc.) |
| Districts as Export Hubs | District-level export action plans under DGFT |
| SCOMET | Licensing of Special Chemicals, Organisms, Materials, Equipment & Technologies (dual-use) |
The FTP also sets up e-Commerce Export Hubs, raises the consignment-wise courier export limit to ₹10 lakh, and rationalises deemed export benefits for supplies to EOUs / SEZs.
83.7 Export-Oriented Zones and Units
India runs four parallel regimes: Special Economic Zones (SEZ Act, 2005) with their own customs frontier, Export Oriented Units (EOUs) governed by FTP Chapter 6, Software Technology Parks of India (STPI) for IT/ITES, and Free Trade and Warehousing Zones (FTWZ) as a SEZ subset for trans-shipment. Tax holidays under Section 10AA of the Income-tax Act sunset for new SEZ units commencing manufacture after 30 June 2020, but customs/GST benefits continue.
83.8 Export Finance and Credit Insurance
Export finance is split into pre-shipment and post-shipment. Pre-shipment includes Packing Credit — rupee or foreign-currency working capital sanctioned at concessional rates against confirmed orders / LCs; the RBI Interest Equalisation Scheme subsidises packing credit by 2–3 per cent for MSME and identified products. Post-shipment finance includes Negotiation of Documents under LC, Bills Discounting / Purchase, and Export Factoring. ECGC Ltd. sells Standard Policies to exporters and Export Credit Insurance for Banks (ECIB) to lenders.
83.9 Practice Questions
Q 01 FTP 2023 Easy
Which of the following statements about India’s Foreign Trade Policy 2023 is correct?
View solution
Correct Option: B
FTP 2023 was notified on 31 March 2023 as an open-ended policy, breaking from the earlier 5-year cycle. It is a sub-ordinate legislation under the FT(D&R) Act and is administered by DGFT under the Ministry of Commerce.
Q 02 Incoterms 2020 Medium
Under Incoterms 2020, the new term DPU replaces which earlier 2010 term?
View solution
Correct Option: B
Incoterms 2020 renamed Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU) to broaden the scope beyond terminals to any unloaded place.
Q 03 Letters of credit Medium
Letters of credit in international trade are governed primarily by which set of ICC rules?
View solution
Correct Option: B
Correct Option: B
Documentary credits are governed by UCP 600 (Uniform Customs and Practice for Documentary Credits) issued by the ICC and adopted in 2007. URC 522 governs documentary collections, ISP98 standby LCs, and URDG 758 demand guarantees.
Q 04 Customs procedure Easy
The document used by an exporter to obtain customs clearance for goods leaving India is the:
View solution
Correct Option: B
The Shipping Bill is filed under Section 50 of the Customs Act, 1962 to seek a Let Export Order from customs. The Bill of Entry is its import counterpart under Section 46.
Q 05 EPCG scheme Medium
Under the EPCG scheme of FTP 2023, the export obligation is fixed at:
View solution
Correct Option: B
The EPCG scheme allows duty-free import of capital goods subject to fulfilment of Export Obligation = 6 times the duty saved within 6 years from authorisation issue date.
Q 06 Statutes Easy
Foreign exchange aspects of India’s external trade are regulated under:
View solution
Correct Option: B
FEMA, 1999 replaced FERA, 1973 with effect from 1 June 2000. RBI administers FEMA through Authorised Dealer (Category-I) banks.
Q 07 RoDTEP Medium
The RoDTEP scheme launched in 2021 was introduced primarily to replace which earlier scheme found inconsistent with WTO rules?
View solution
Correct Option: B
The Merchandise Exports from India Scheme (MEIS) was held to be a prohibited export subsidy by a WTO panel in 2019. It was replaced from January 2021 by the WTO-compatible RoDTEP which only refunds unrebated embedded taxes.
Q 08 Match the following Hard
Match the institution with its function:
| (P) DGFT | (1) Export credit insurance |
| (Q) ECGC | (2) Issue of IEC and FTP schemes |
| (R) EXIM Bank | (3) Quality certification of exports |
| (S) EIC | (4) Project & buyer’s credit finance |
View solution
Correct Option: A
DGFT issues IEC and runs FTP schemes; ECGC underwrites export credit risk; EXIM Bank provides project / buyer’s credit finance; EIC issues quality certificates under the Export (Quality Control & Inspection) Act, 1963.
ImportantQuick recall
- FTP 2023 — open-ended; pillars: incentive→remission, collaboration, ease of doing business, emerging areas.
- Incoterms 2020 has 11 terms; DPU replaces DAT; CIP needs ICC (A) cover, CIF retains (C).
- LCs follow UCP 600; Standbys ISP98; Collections URC 522; Demand guarantees URDG 758.
- Shipping Bill (export) and Bill of Entry (import) are filed under the Customs Act, 1962.
- EPCG: EO = 6 × duty saved in 6 years; RoDTEP replaced WTO-illegal MEIS in 2021.