Foreign Trade Policy: formula sheet

Key formulas

Source of legal force

FTP 2023 = policy announced by Central Government under the FT(D&R) Act, 1992 (Section 5)

FTP is notified in the Official Gazette and can be amended in the same way.

Power to regulate trade

Section 3: Central Government may facilitate, prohibit, restrict or regulate imports and exports by Order

Covers goods, services and technology. Not an unlimited power over domestic trade.

Customs link

Goods to which an Order under Section 3(2) applies (prohibited, restricted or regulated) = deemed prohibited under Section 11 of the Customs Act, 1962 (Section 3(3), FT(D&R) Act)

This is why Customs can seize and confiscate such goods, including restricted goods imported without the required licence.

Role of DGFT

DGFT (Section 6) = advises on FTP + implements it

Issues IEC, licences and authorisations, and notices that run the policy.

IEC rule

No import or export without IEC from DGFT (Section 7), except exempt cases

Under Section 8(1) and (2), DGFT may suspend or cancel an IEC or licence for contravention of the Act, rules, orders or FTP. Cancellation or suspension, other than interim suspension pending inquiry, requires a reasonable opportunity of being heard. Suspension can be made pending inquiry.

Penalty for contravention

Penalty (Section 11(2)) = not less than ₹10,000 and not more than five times the value of the goods, services or technology involved

Applies to contravention made or attempted. If five times the value is below ₹10,000, the minimum ₹10,000 still applies. Always state the value on which it is computed.

Legal basis

FTP 2023 is issued under the Foreign Trade (Development and Regulation) Act, 1992

The Act empowers the Central Government to formulate and announce the policy. Do not attribute it to the Customs Act.

Effective date and duration

Effective 1 April 2023; open-ended (no fixed end date)

Contrast with FTP 2015-20, which had a fixed period. This is the easiest point to score.

Four pillars

Incentive to Remission | Export Promotion through Collaboration | Ease of Doing Business | Emerging Areas

Memorise in this order. Remission means refund of embedded duties and taxes, not a bonus.

Export aspiration

USD 2 trillion exports (goods and services) by 2030

State it as an aspiration or target, not as a legal obligation.

Key remission schemes

RoDTEP and RoSCTL

These are examples of the remission pillar. Details are in the related scheme topics.

IEC structure

IEC = unique 10-character alphanumeric code, one per PAN

Applied online to DGFT. Linked to the applicant's PAN. Details must be updated as the FTP/Handbook requires.

General rule on IEC

No import or export without IEC, unless exempted

Exemptions are given in the FTP, for example for certain personal-use and government-related trade. Check the exact exemption list in your study material.

Policy categories

Free | Restricted (needs authorisation) | Prohibited (not allowed)

Items not listed as restricted or prohibited are free to trade.

Restricted item rule

Restricted item + valid authorisation = permitted trade

Trade must follow the authorisation's conditions.

Other laws

FTP permission ≠ clearance from other Acts

A free item may still need a licence or compliance under another law.

Duty saved

Duty saved = Customs duty (BCD, and other duties and cesses covered by the exemption) that would have been payable without the EPCG exemption

This is the base for the EO. The duties included are those exempted under the exemption notification, and the IGST treatment is governed by that notification. Use only the figure given in the question.

Export obligation (general rule)

EO = 6 × duty saved on capital goods imported

As per FTP 2023 and the Handbook of Procedures, the EO is six times the duty saved, to be fulfilled within six years from the date of issue of the authorisation. For indigenous procurement, a reduced EO applies as per the Handbook of Procedures. If the question gives a different multiple, apply the question.

Export obligation period

Period = 6 years from the date of issue of the authorisation

Always count from authorisation issue, not from the date of import or installation.

Balance export obligation

Balance EO = Total EO − EO fulfilled

Fulfilment is shown through eligible exports of the goods produced with the capital goods.

Shortfall ratio

Proportionate duty = Duty saved × (Unfulfilled EO ÷ Total EO)

The extent of EO fulfilment decides the default amount. This proportionate duty, with interest, is payable under the authorisation and exemption notification conditions. Use it when the exporter has fulfilled part of the EO.

Core condition

Zero duty import ⇒ undertaking to meet EO ⇒ EODC on fulfilment

If the EO is not met, duty saved (proportionate to the default) is recoverable with interest under the authorisation and notification conditions.

Net Foreign Exchange (NFE)

NFE = Foreign exchange earned (FOB value of exports etc.) − Foreign exchange outgo (CIF value of imports, royalty, remittances etc.)

An EOU/EHTP/STP/BTP unit must have NFE positive, cumulatively over the block period from commencement of production. Always check the exact items counted as earnings and outgo in the question.

EOU core obligation

Export of entire production + positive cumulative NFE over the block period

Domestic (DTA) sale is a limited exception, allowed only as per FTP conditions and usually capped at a share of FOB value of exports. State the cap only if the question or text gives it.

Scheme coverage

EOU = goods/services units; EHTP = electronic hardware; STP = software/IT services; BTP = biotechnology

The four schemes share the same operating framework.

Status holder levels (FTP 2023)

Minimum export performance (US$ million) over the current and previous three years: One Star: 3; Two Star: 25; Three Star: 100; Four Star: 500; Five Star: 2,000

Export performance is counted over the current and previous three years. You get the highest level whose minimum you meet.

SEZ versus EOU

SEZ = demarcated area deemed to be foreign territory (SEZ Act, 2005); EOU = individual unit approved by the Development Commissioner, located outside a notified zone, under FTP

Use this as the first line of any 'difference between' answer.

Status Holder recognition

Star category = f(export earnings in US$ over the period set in FTP 2023)

Five categories: One Star to Five Star. Higher star means higher export performance. Learn the exact thresholds from the policy text; do not guess them in the exam.

Amnesty payment (unfulfilled export obligation)

Amount payable = Duty foregone on the unfulfilled portion of EO + interest, with interest capped at 100% of that duty. No interest on additional customs duty or special additional duty.

Applies to Advance Authorisation and EPCG defaults. The cap on interest is the key benefit. Interest was not charged on the additional customs duty or special additional duty. The window for applications was limited and has ended.

Principle of natural justice in adjudication

Show cause notice → reasonable opportunity of hearing → reasoned order

No order of penalty, confiscation, or suspension/cancellation of IEC without this.

Appeal and revision

Section 15: appeal to the appellate authority directed under that section, within 45 days of the order. Section 16: Central Government may revise an order from which no appeal has been preferred, or an order passed on appeal, within 3 months.

Revision is not a freely parallel alternative to appeal. It applies only to orders of the kind section 16 covers: orders not appealed against, or orders passed on appeal.

Quick revision

• FTP is framed under the FT(D&R) Act, 1992 and covers promotion of exports and regulation of imports.
• FTP 2023 is a policy for the Central Government's trade approach; check the study material for its period and structure.
• The Importer Exporter Code is needed for most import and export activity; check exceptions in the study material.
• RoDTEP refunds embedded central, state and local duties, taxes and levies on exported products that are not rebated through any other mechanism. It does not refund GST, which is already zero-rated.
• RoSCTL gives a rebate on embedded state and central taxes on exported apparel and made-ups. Its rates are notified by the Ministry of Textiles. RoDTEP and RoSCTL cannot both be claimed on the same exported product, and apparel and made-ups covered by RoSCTL are not eligible for RoDTEP.
• Advance Authorisation allows duty-free import of inputs that are physically incorporated in export products, against an export obligation.
• EPCG allows import of capital goods at zero customs duty against an export obligation.
• Both Advance Authorisation and EPCG carry obligations; breach leads to payment of duty and interest.
• EOUs and SEZ units operate under special regimes alongside FTP, with duty and tax benefits for export-focused activity. SEZs are governed by the SEZ Act, 2005.
• Status holders get facilitation benefits based on export performance.
• For every scheme, always state eligibility, benefit, obligation and consequence of default.
• Read GST export rules alongside FTP, since many cases involve both.

Common mistakes

• Treating the FTP as an Act of Parliament. Fix: Write that the FTP is announced by the Central Government under Section 5 of the FT(D&R) Act. The Act is the law; the FTP is the policy under it.
• Saying the DGFT makes the policy on his own. Fix: The Central Government formulates and announces the FTP. DGFT advises on it and carries it out.
• Saying FTP 2023 is a five-year policy like FTP 2015-20. Fix: Write that FTP 2023 is open-ended with no end date and can be updated whenever needed.
• Treating 'incentive to remission' as giving cash incentives to exporters. Fix: Explain that the emphasis shifts towards remission, meaning refund of duties and taxes embedded in exports, as in RoDTEP and RoSCTL. Do not say incentives were abolished.
• Saying an IEC is needed for every import or export without exception. Fix: Always state the rule, then test for an exemption before concluding.
• Treating restricted items as prohibited. Fix: Restricted items can be traded with an authorisation. Prohibited items cannot be traded at all, subject to policy exceptions.
• Taking EO as a multiple of the value of the capital goods instead of the duty saved. Fix: Always compute duty saved first. EO is based on duty saved, not on the CIF value of the goods.
• Counting the six years from the date of import of the machinery. Fix: Count from the date of issue of the EPCG authorisation.
• Treating an EOU and an SEZ as the same thing. Fix: Remember that an SEZ is an area under the SEZ Act, 2005, while an EOU is an individual unit under FTP, approved by the Development Commissioner and located outside a notified zone.
• Saying an EOU cannot sell at all in India. Fix: Write that the unit must export, but limited DTA sale is allowed subject to FTP conditions.

Exam tips

• Open every theory answer with the source: FTP 2023 is announced under the FT(D&R) Act, 1992. It earns the first mark easily.
• Separate the Central Government (orders, policy, Section 3 and 5) from DGFT (IEC, licences, implementation, Section 6) in every answer.
• In case MCQs, check whether the person already holds an IEC or a licence. Having one does not cover the other.
• Add the Section 3(3) Customs deeming link when goods are covered by an Order under Section 3(2). It applies to prohibited, restricted and regulated goods.
• Write the penalty as a range under Section 11(2) and show the five-times computation if a value is given. The minimum is ₹10,000 and the maximum is five times the value.
• Always open the answer with: FT(D&R) Act, 1992, effective 1 April 2023, open-ended. These are easy marks.
• Write the four pillars in bold or as bullets so the examiner sees them at once.
• In case-scenario MCQs, pick out the keyword in the facts and map it to a pillar. There is no negative marking, so always attempt.