While international imports and exports are steadily increasing in India, there are still several barriers limiting further growth. Five primary challenges for cross border trade in India are discussed in this post.
Every country in the world relies on several other countries to meet its commodity requirements. India, as a developing country, also relies abundantly on international imports and is also a prominent exporter for several commodities.
While foreign trade has significantly contributed in rising the GDP of the country, there are still many trade barriers, not just for international imports but also for Indian companies involved in international exports. Five of the biggest challenges for cross border trade in India are as follows-
- Licensing of imports
While India has removed licensing requirements on imports for most of the consumer goods, there are still many different types of products that continue to face trade barriers related to import licensing. For instance, the government in India requires a highly restrictive import license to import vehicles and motorcycles.
While some of the domestic importers do not need this license for importing vehicles, they do so by counterbalancing the import with the exports.
- Identification of export benefits
Export of goods is incentivised under the current Foreign Trade Policy. There are several components of the policy, such as MEIS (Merchandise Export from India Scheme) and EPCG (Export Promotion Capital Goods) under which international exporters can gain a host of benefits.
However, the requirements of these schemes are so complex that most exporters are unable to take maximum advantage of these policies.
- Classification of customs
The custom laws in India are stringent and wrong classification of any import or export goods can have serious financial and legal consequences. Most businesses struggle when it comes to classifying their products as per the Harmonized System (HS).
Moreover, a large number of products are of the nature that businesses are required to meet the customs officials beforehand for clarifying their HS classification and other aspects related to their exports or imports.
- Meeting SEZ requirements
Special Economic Zones (SEZ) boost manufacturing and help in increasing exports. However, SEZ goods are closely monitored to make sure that they do not enter the domestic markets. For an exporter, SEZ registration and compliance can be very challenging.
If SEZ Authority finds any kind of lapse in compliance, a business might be required to pay penalties and can also lose its ability to use SEZ facility.
- Taking advantage of free trade agreement
India has a number of trade agreements with countries such as Korea, Sri Lanka, Singapore, Malaysia, Japan and Africa. With the help of these agreements, companies from these countries get unrestricted access to the Indian markets. This also opens up several avenues for the Indian companies for marketing their goods in foreign countries.
Proper understanding of the trade agreements is a must if an Indian business is looking to benefit from these agreements.
Customs and International Trade Advisory
While the Indian government has made several changes to its foreign trade policies in the past few years, to make things transparent and more beneficial, most businesses continue to struggle with import/export risk and high cross border trade costs.
As a result, a large number of domestic as well as international businesses now rely on professional customs and international trade advisory services. These services are known to help businesses unleash their business potential, comply with trade policies, and experience maximum benefits from the existing trade policies.