Foreign trade policy refers to the economic policy that governs an economy’s export-import activity. Before 1991, India’s economy was protected by high tariffs, taxes and significant quantitative restrictions — foreign investment was largely prohibited. Following 1991, India implemented a liberalised international trade strategy. The FTP 2015-20 was launched on April 1, 2015 in line with Make in India. It aimed to increase merchandise and services exports from $465 billion in 2013-14 to $900 billion by 2019-20 and increase India’s share of global exports from 2% to 3.5%. It was extended for the third time till March 2022 due to the pandemic.

FTP 2015-20 introduced two new schemes: MEIS — Merchandise Exports from India Scheme (for exporting defined/specified products to designated/specified markets) and SEIS — Services Exports from India Scheme (for increasing exports of notified services). Previously five different merchandise export schemes were merged into MEIS. SEIS replaced the earlier Served From India Scheme (SFIS) and was applied to “Service Providers located in India” (not just “Indian Service Providers”). All scrips issued under both schemes were fully transferable. The EPCG scheme reduced the specific export obligation to 75% of the normal obligation if capital goods were purchased from domestic manufacturers.

Greenfield FDI is a sort of investment in which a parent corporation establishes a subsidiary in the destination country and builds operations from scratch. It creates completely new facilities, jobs and production capacity in the host country. Examples: McDonald’s India, Hyundai India, Pepsi India. This is the most beneficial form of FDI for the host country as it adds net new capacity to the economy rather than just changing ownership of existing assets.

Brownfield FDI is an investment in which a multinational corporation buys stock in an established firm in the host country. Example: Daiichi Sankyo of Japan acquired Ranbaxy India. The third type is Joint Venture — where a foreign and local company join up based on an agreement to share investment, technology and profits. Example: Hero Honda. FDI is a key engine of economic growth, assisting in maintaining high growth rates, enhancing productivity and generating employment. Net FDI in India rose from $3.7 billion (2004-05) to $36.6 billion (2021-22).

FII (Foreign Institutional Investment) refers to short-term capital invested in stocks or hedge funds. It is generally volatile, and the possibility of capital flight is always there in the case of an economic slump, political turmoil or herd behaviour of short-term capital outflow. FII is also called “Hot Money” because it can move rapidly in and out of markets. Foreign institutional investors are companies based outside India that invest in India’s primary and secondary capital markets through Indian stock exchanges. They are registered as FIIs with SEBI. Key difference from FDI: FII does NOT go into production activities — it goes into short-term equities and can be recalled at any time.