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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) OVERVIEW  
1. India has a parliamentary system of Governme nt with a bicameral Parliament and three 
independent branches:  the Executive, the Legislature,  and the Judiciary.  India has a federal structure 
with elected governments in the states.  The divi sion of legislative powers between Parliament and 
state legislatures are distributed as per the Constitutio n (Seventh Schedule).  Parliament has exclusive 
power to legislate on issues related to internationa l trade and agreements, and on some taxes.  Each 
law may contain clauses authorizing the Central G overnment to implement individual articles at 
different times.  This process can take several year s and may leave gaps in the legal system regarding 
implementation. 
2. Trade policy is formulated and implemented mainly by the Ministry of Commerce and 
Industry, along with other concerned ministries and agencies including the Ministry of Finance, the Ministry of Agriculture, and the Reserve Bank of Indi a.  India considers trade policy as an instrument 
to attain its overall economic policy objectives of  growth, industrialization, development, and 
self-sufficiency.  However, India also uses trade polic y to attain short-term goals such as containing 
inflation.  The use of trade policy to attain short-term, non-trade-rela ted objectives may end up 
detracting from the stability sought, as constant fine -tuning of policies is required to attain these 
short-term goals. 
3. India is an original Member of the WTO and provides at least MFN treatment to all Members 
and other trading partners.  India is a strong ad vocate of the multilateral trading system and has 
historically been party to few regional agreements.  However, despite its reservations, regionalism has 
increasingly become an element of India's overall trade policy objective of enhanced market access 
for Indian exports.  Evidence of this are the seven preferential agreements signed by India during the 
period under review, as well as the launching of  negotiations towards other agreements. 
4. India has continued to gradually open its economy to foreign direct investment (FDI).  Most 
sectors are currently at least partially open to FDI,  subject to a cap and specific conditions.  However, 
FDI is prohibited in a number of sectors/activities, su ch as retail trading, some real estate activities, 
manufacture of tobacco and tobacco substitute, some  agriculture activities, and activities reserved for 
the public sector (i.e. atomic energy and railways).  Since 1 April 2010, foreign direct investment 
(FDI) has been regulated by the "Consolidated FDI Policy" issued by the Department of Industrial 
Policy and Promotion (DIPP).  This consolidation is expected to clarify India's FDI policy and 
provide for a better understanding a nd predictability of the foreign investment rules among foreign 
investors and sectoral regulators.   
(2) T
RADE POLICY FORMULATION AND IMPLEMENTATION  
(i) Institutional and legal framework 
5. The Constitution of India, which entered in to force on 26 January 1950 provides for a 
parliamentary system of Government with a bica meral Parliament and an independent Executive, 
Legislature, and Judiciary.  India has a federal stru cture with elected governments in the states.  The 
constitutional head of the Union is the President.1  The Parliament consists of the President, the 
Council of States (Rajya Sabha or the Upper House) , and the House of the People (Lok Sabha or the 
Lower House). 
                                                      
1 India is a union of 28 states and 7 union territori es.  The union territories are centrally administered. India WT/TPR/S/249 
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6. The President is elected for five years by the members of an electoral college comprising 
members of both houses of Parliament and of the st ate legislative assemblies.  The President appoints 
the Prime Minister;  the other Ministers are appointed by the President with the advice of the Prime Minister.  Article 74 of the Constitution provides fo r a Council of Ministers, headed by the Prime 
Minister, to aid and advise the President.  The Presi dent exercises his/her functions in accordance with 
the advice of the Council of Ministers.  Thus, executive power is, in practice, vested in the Council of Ministers.  The Council of Ministers is responsible to the House of the People. 
7. Every State has a legislative assembly.  The G overnor of each State is appointed by the 
President.  The Governor is the head of the State and the executive power of the State is vested in 
him.  The division of legislative powers between Pa rliament and state legislatures are distributed as 
per the Constitution (Seventh Schedule).  Parliament has exclusive power to legislate on issues related 
to international trade and agreements, and on some taxes.
2  The states are responsible for other taxes 
(e.g. agricultural income tax)3, while Parliament and the states have concurrent powers over economic 
and social planning;  commercial and industrial m onopolies, combines, and trusts;  electricity;  and 
price controls  (Table AII.1).4 
8. Bills, with the exception of money bills, may origin ate in either house of Parliament, but must 
be passed by both houses with a simple majority.  Once a bill is passed by one house it is transmitted 
to the other for assent.  If rejected, and if agr eement cannot be reached within six months, the 
President may summon both houses to meet to deliberate and vote on the bill.  At the joint sitting, if passed by the majority of members of both houses pr esent and voting, the bill is deemed to be passed.  
A money bill must be introduced and passed by the House of the People to be transmitted to the 
Council of States for recommendations.
5  The Council of States has 14 days to return the bill to the 
House of the People with its recommendations;  if th is delay is not respected, the bill is deemed to 
have been passed by both houses.  The House of th e People may accept or reject all or some of the 
recommendations of the Council of States.  If any of the recommendations are accepted, the money 
bill is deemed to have been passed by both houses;  however, if they are not the bill is passed in its 
original form (i.e. without the recommendations). 
9. A bill must be signed by the President to beco me law.  Once a bill has been passed by both 
houses, it is presented to the President for assent.  The President may amend the bill and return it to 
either house (except for money bills) for their considera tion.  However, if the bill is again approved by 
both houses, with or without the suggested amendm ents, and resent to the President, the President 
cannot withhold assent.  Once an Act is assented by the President, it is published in the Gazette of 
India  for general information.  An Act that does not e xplicitly stipulate a particular date of entry into 
force, enters into force on the da y it receives the assent of the Preside nt.  Where a provision states that 
an Act should enter into force on the date stipulated  by the Central Government (i.e. the Executive), it 
will enter into force only when the Central G overnment indicates it by notification in the Gazette of 
India .  Some Acts provide that different sections of the Act should enter into effect at different times.6  
In this case, the Central Government (i.e. the Minist ry administratively in charge of the Act) would 
                                                      
2 Seventh Schedule of the Constitution, List I. 
3 Seventh Schedule of the Constitution, List II. 
4 Seventh Schedule of the Constitution, List III. 
5 Money bills deal with, inter alia , the imposition, abolition, remission, alteration or regulation of any 
tax;  the regulation of credit or the provision credit guarantee by the Government of India;  the custody of the 
Consolidated Fund or the Contingency Fund of India, the payment of funds into or the withdrawal from any such Funds;  the appropria tion of funds out of the Cons olidated Fund of India;  and the receipt of funds on 
account of the Consolidat ed Fund of India or the pub lic account of India or the cust ody or issue of such money 
or the audit of the accounts of the Union or of a State (the Constitution). 
6 For more information, see PR S Legislative Research (2010). WT/TPR/S/249 Trade Policy Review 
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notify these provisions on different dates.7  The "notification" of an Act by sections seems to render 
the legal system complex, as parts of an Act are enfo rced while others are not.  It is often not clear 
which parts of an Act have been notified and which ha ve not.  In addition, even though there appear to 
be specific time frames to notify an Act and its rules8, the process of "notifying" could take several 
years, which means there may be gaps in the a pplication of the law, rendering the system opaque 
(Table II.1). 
Table II.1 
Enforcement of legislation:  the case of the Competition Act 2002 
Step Date Gazette of India  No. 
Competition Act 2002 is published for general information 14 January 2003 12  
Sections 3, 4, 10, 13, 15, 16, 18, 19, 20, 21, 25, 26, 27, 28, 31, 32, 33, 34, 35, 36, 38, 
39, 41, 42, 43, 45, 46, 47, 48, 54, 55,  and 56 (53B, 53N, 53O, 53P, 53Q, 53R, 53T, 
and 53U) enter into force 15 May 2009 771 and 772 
Sections 5, 6, 20, 29, 30, and 31 will enter into force on 1 June 2011 4 March 2011 479 
Sections 43A and 44 are under proc ess for notification n.a. n.a. 
n.a. Not applicable. 
Source:  WTO Secretariat;  and information provided by the Indian authorities. 
10. The President has the power to promulgate ordinances when both houses of Parliament are 
not in session, and the President deems that it is necessary to take immediate action.9  Ordinances 
have the same force and effect as Acts of Parliame nt.  However, ordinances must be put before both 
houses of Parliament for approval once they resume work.  If they are not approved, they cease to 
operate within six weeks of the reassembly of Par liament, or before if both houses disapprove it.  The 
President may withdraw an ordinance at any time.  In addition to ordinances, India has other legal and 
regulatory instruments that have a bearing on the trade and investment environment (Table II.2). 
Table II.2 
Hierarchy of legal and regulatory instruments, 2011 
 Passed/issued by 
Constitution of India Supreme law 
Acts of Parliament Parliament 
Ordinances and regulations under Article 240 of the Constitution Promulgated by the President 
Statutory rules, orders, and notifications Concerned ministries/departments of the Central Government 
Statutory regulations Statutory authorities 
Bye-laws Local bodies 
Circulars Concerned ministries/departments of the Central Government 
Note: The same hierarchy is applicable to State laws. 
Source:  WTO Secretariat;  and information provided by the Indian authorities. 
11. India's legal system is based on the common law system.  The Supreme Court is India's 
highest judicial body, comprising a Chief Justice and 30 other judges, all appointed by the President.  
The Supreme Court is primarily the last resort a nd highest appellate court, taking up appeals against 
judgments of the High Courts of the states and Uni on Territories.  At the state level, the judicial 
administration is headed by a High Court.  Each State is divided into judicial districts presided over by a district and sessions judge, who is the highest judicial authority in a district.  Below this judge, there are subordinate courts of civil and criminal jurisdiction. 
                                                      
7 It is a characteristic of India's legal system that, in  some Acts, section 1(3) indicates if the Act is to 
enter into force as a whole, at one time, or  if it could enter into force by sections. 
8 Ministry of Parliamentary Affairs (2004). 
9 Article 123 of the Constitution. India WT/TPR/S/249 
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(ii) Trade policy formulation, implementation, and objectives 
12. Trade policy is formulated and implemented mainly by the Ministry of Commerce and 
Industry, along with other ministries and agencies including the Ministry of Finance, the Ministry of Agriculture, and the Reserve Bank of India (Table II.3). 
Table II.3 
Main institutions involved in trade po licy formulation and implementation, 2011 
Institutions Trade-related functions 
Ministry of Commerce and Industry  
Department of Commerce Regulates, develops, and promotes India's in ternational trade and commerce;  
responsible for multilateral and bilateral commercial relations and negotiations 
Department of Industrial Policy and Promotion Formulates indus trial policy, and monitors industrial production and growth;  
issues industrial licences;  in charge of trade remedy actions (anti-dumping and 
countervailing);  foreign dir ect investment (FDI) polic y and promotion, and FDI 
approval and facilitation;  formulates po licies related to intellectual property 
rights (IPRs) in the fields of patents, trade marks, industrial designs, and 
geographical indications;  and promotes IPRs protection 
Directorate General of Foreign Trade  A dvises the Government in formulating a nd issuing the Foreign Trade Policy, the 
Handbook of Procedures, and their amen dments;  issues import and export 
licences 
Tariff Commission Makes recommendations on tariff-re lated issues taking into account the interests 
of manufacturers, traders, consumers, and India's international commitments 
Ministry of Finance  
Department of Economic Affairs Prepares and presen ts the Central Budget and the budgets for the state 
governments to the Parliament 
Foreign Investment Promotion Boar d Approves FDI investment proposals  
Department of Expenditure Oversees public financial management system in th e Central Government and 
matters connected with state finances 
Department of Revenue In charge of matters relating to the levy and coll ection of direct and indirect taxes 
and levies;  enforces the Foreign Exch ange Management Act, Customs Act 1962, 
and related matters, and the Customs Tariff Act 1975;  levies taxes on sales in the 
course of inter-state trade or commerce 
Central Board of Excise and Customs Formulates policy c oncerning the levy and collection of customs duty, central 
excise duty, and service tax;  th e prevention of smuggling;  and the 
administration of matters relating to customs, central excise, service tax, and 
narcotics 
Reserve Bank of India Supervises the financial system;  issues  currency;  manages foreign exchange 
reserves  
Ministry of Consumer Affairs, Food, and Public 
Distribution  
Department of Consumer Affairs Monitors prices, availa bility of essential commodities, and consumer movement 
in India;  controls some statutory bodies  (e.g. Bureau of Indian Standards, and 
Weights and Measures Unit) 
Bureau of Indian Standards Develops  and formulates Indian standards and provides certification of products, 
processes, and management system 
Department of Food and Public Distri bution Formulates and implements nati onal policies on procurement, movement, 
storage, and distribution of food grains;  formulates policies concerning the sugar 
subsector, and imports and exports of rice, wheat, and edible oil  
Ministry of Chemicals and Fertilizers  
Department of Fertilizers Plans and monitors the pr oduction, imports, and distri bution of fertilizers;  
manages the financial assistance for i ndigenous and import ed fertilizers for 
agricultural use  
Department of Pharmaceuticals Fixes/ revises prices of scheduled drugs;  monitors the price of drugs and 
pharmaceuticals as per the Drug Price Control Order 1995 
Ministry of Steel Formulates policies regarding the producti on, pricing, distribution, import, and 
export of iron and steel, ferro  alloys, and refractories 
Ministry of Textiles Develops export promotion stra tegies and trade regulation 
Table II.3 (cont'd)WT/TPR/S/249 Trade Policy Review 
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Institutions Trade-related functions 
Ministry of Agriculture  
Department of Agriculture and Cooperation  
Trade Division Coordinates export and import of agricultural commodities 
Plant Protection Division Plant protection and quaran tine, and pest management  
Department of Animal Husbandry, Dairying, and 
Fisheries Develops sanitary requirements for im ports of animals and animal products, 
including dairy, poultry, meat, and fishery products;  protects livestock health  
Ministry of Petroleum and Natural Gas Responsible for the exploration, production,  refining, distribution and marketing, 
import, and export of oil and natural gas 
Source:  Government of India Web Directory online information.  Viewed at:  http://goidirectory.nic.in/index.php;  and 
 information provided by the Indian authorities. 
13. The mandate of the Department of Commerce at the Ministry of Commerce and Industry is to 
formulate India's international trade and commercia l policy and implement it.  The Director General 
of Foreign Trade advises the Government in the fo rmulation of India's Foreign Trade Policy (FTP) 
after consulting with various trade bodies, such as the Federation of Indian Export Organisations, the 
Federation of Indian Chambers of Commerce and I ndustry, the Confederation of Indian Industries, 
and various export promotion councils.  The FTP is is sued every five years but reviewed periodically 
to take into account domestic and international events.  The FTP is updated through the issue of 
notifications by the Director General of Foreign Trade, an office attached  to the Ministry of 
Commerce and Industry, which is in charge of im plementing it.  The Tariff Commission, also within 
the Ministry, issues recommendations on the appropriate tariff levels.10  However, the tariff and other 
duties are under the purview of the Central Board of Excise and Customs (CBEC) at the Ministry of 
Finance. 
14. India considers trade policy as an instrument to attain its overall ec onomic policy objectives 
of growth, industrialization, development, and sel f-sufficiency.  In its 2004-09 Foreign Trade Policy 
(FTP), India highlighted the need to expand trade, setting two objectives:  (i) to double India's share of global merchandise trade within five years;  and (i i) to use trade expansion as a policy to promote 
economic growth and em ployment generation.
11  In the context and aftermath of the global economic 
and financial crisis, India has sought to arrest a nd reverse the declining trend of exports, and to 
provide additional support especially to sectors hit badly by the global recession, as asserted in the 2009-14 FTP.  India's short-term objective, in accord ance with the latest FTP, is to achieve annual 
export growth of 15%;  the long-term objective is to accelerate the export growth rate to 25% per 
annum and double India's share in global trade by 2020.  In order to meet these objectives, India 
implements a mix of policies including tax incen tives, export promotion (Chapter III(3)(vii), (viii), 
and (ix)), and credit facilitation (Chapter IV(3)(ii)).   The Government is attempting to improve the 
infrastructure to enhance exports, bringing down tr ansaction costs, and providing full refunds of all 
indirect taxes and levies.  In the latest Budget,  the authorities have further expressed the need for 
supporting wider export market and product diversification.
12 
15. Although India aims to provide a stable trade po licy environment to reach its long-term goals, 
it also uses trade policy to attain short-term goals  such as containing inflation.  This use of trade 
policy for short-term non-trade-related objectives ma y detract from the stability sought, as it requires 
constant fine-tuning of policies to attain these short-te rm goals (Table II.4).  Trade policy is also used 
as an element of industrial policy, for example to protect the local industry through its applied tariff 
and the use of contingency measures (Chapter III(2)(iv)  and (viii)).  Trade policy seems to be lacking 
                                                      
10 Tariff Commission online information.  Viewed at:  http://tc.nic.in/. 
11 Department of Commerce (2010a). 
12 Ministry of Finance (2010c). India WT/TPR/S/249 
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an overall thrust and is being conducted mostly on  a sector or product basis.  This has resulted 
sometimes in actions with an anti-export bias (such as setting minimum export prices or applying export taxes), in contrast with the asserte d general goal of seeki ng export expansion. 
Table II.4 
Changes in export policy:  the case of cotton and onions, August 2009-March 2011  
Product Export policy Date 
Cotton (not carded or combed), cotton waste 
(including yarn waste and garneted stock), and 
cotton (carded or combed) Free, subject to registration with the Textile Commissioner prior to shipment 
and clearance of consignments by Customs 23.08.2009 
Restricted (export licence) 21.05.2010 
Free, subject to registration with the Textile Commissioner prior to shipment 
and clearance of consignments by Customs 17.08.2010a 
Free, subject to registration with the Directorate General of Foreign Trade 
(DGFT) prior to shipment and clearance of consignments by Customs 16.12.2010 
Cotton yarn Free, subject to registration with the Textile Commissioner prior to shipment 
and clearance of consignments by Customs 09.04.2010 
Restricted (export licence)b 22.12.2010 
Free, subject to registration with the DGFT prior to shipment and clearance of 
consignments by Customs 31.03.2011 
Onions (all varieties), including Bangalore rose 
onions and Krishnapuram onions fresh or chilled, 
frozen, provisionally prepared or dried but 
excluding onions cut, sliced or broken in powder form  State trading, subject to a minimum export price fixed by the National 
Agricultural Cooperative Marketing Federation of India 23.08.2009 
Prohibited 22.12.2010 
Onions (all varieties except Bangalore Rose 
onions and Krishnapuram onions) excluding 
onions cut, sliced or broken in powder form Prohibited 10.02.2011 
State trading, subject to a minimum export price (US$600/tonne) notified by the 
DGFTc 18.02.2011 
State trading, subject to a minimum export price (US$450/tonne) notified by the 
DGFTc 01.03.2011 
State trading, subject to a minimum export price (US$350/tonne) notified by the 
DGFTc 08.03.2011 
State trading, subject to a minimum export price (US$275/tonne) notified by the 
DGFTc 16.03.2011 
State trading, subject to a minimum export price (US$225/tonne) notified by the 
DGFTc 23.03.2011 
State trading, subject to a minimum export price (US$170/tonne) notified by the 
DGFTc 31.03.2011 
Bangalore Rose onions and Krishnapuram onions 
excluding cut, sliced or broken in powder form Restricted (export licence), subject to a minimum export price 
(US$1,400/tonne) notified by the DGFTc 10.02.2011 
State trading, subject to a minimum export price (US$1,400/tonne) notified by 
the DGFTc 18.02.2011 
State trading, subject to a minimum export price (US$600/tonne) notified by the 
DGFTc 23.03.2011 
Onions (all varieties) cut, sliced or broken in 
powder form Free 18.02.2011 
a To enter into force on 1 October 2010. 
b However, exporters who obtained a registration certificate from the Textile  Commissioner up to 1 December 2010 (inclusive), 
are allowed to export cotton yarn  within the quantity limit stipulated in th e certificate and within the certificate validity.  In 
addition, manufacturers who manufacture and export cotton yarn out of the imported raw cotton are exempt from the restriction. 
c On the basis of decisions taken by an inter-ministerial committee of the Department of Commerce.  
Source: Department of Commerce (2010), "S chedule 2:  Export Policy", Foreign Trade Policy 2009-14 , incorporating 
Annual Supplement, 23 August.  Viewed  at:  http://dgft.gov.in;  Directorate General of Foreign Trade online 
information, "Notificat ions".  Viewed at:  http://d gft.gov.in;  and information provi ded by the Indian authorities.  WT/TPR/S/249 Trade Policy Review 
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(3) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) World Trade Organization 
16. India is a founding Member of the WTO and provides MFN treatment to all Members and 
other trading partners.  India accepted the Fourth  and Fifth Protocols and is a Member of the 
Information Technology Agreement.  India became an observer to the WTO Government 
Procurement Agreement on 10 February 2010. 
17. India submitted a large number of notificati ons during the period under review, mainly 
anti-dumping, technical barriers to trade, and SPS me asures, but notifications are lagging behind in 
certain areas, for example, agriculture a nd quantitative restrictions (Table AII.2).13 
18. During January 2007–February 2011, India was involved in five cases under the WTO DSU:  
India was the respondent in three cases and the complain ant in two.  India has been involved as a third 
party in 14 cases brought to the DSB (Table II.5). 
Table II.5  
WTO dispute settlement cases involving India, 2007-11  
Subject Respondent/ 
complainant Status (May 2011) WTO document 
series 
India as respondent    
Measures affecting imports and sale of wines and spirits from the EU India/ 
EU Authority for panel lapsed 17 July 2008 WT/DS352 
Additional and extra-additional duties on 
imports from the United States India/ 
United States Panel and Appellate Body reports adopted 
17 November 2008.  No further action required WT/DS360 
Certain taxes and other measures on 
imported wines and spirits India/ 
EU Consultations 22 September 2008 WT/DS380 
India as complainant    
Expiry reviews of anti-dumping and 
countervailing duties imposed on imports of PET from India EU/ 
India Consultations 4 December 2008 WT/DS385 
Seizure of generic drugs in transit EU (Netherlands)/
India Consultations 11 May 2010 WT/DS408 
 
India as a third party    
Measures affecting the protection and 
enforcement of intellectual property rights China/ 
United States Implementation by respondent notified 
19 March 2010 WT/DS362 
Indicative prices and restrictions on ports 
of entry Colombia/ 
Panama Implementation by respondent notified 
18 February 2010 WT/DS366 
Customs and fiscal measures on cigarettes 
from the Philippines Thailand/ 
Philippines Panel report under appeal 22 February 2011 WT/DS371 
Tariff treatment of certain information 
technology products EU/ 
United States EU/ 
Japan 
EU/ Chinese Taipei Panel report adopted, with recommendation to 
bring measure into conformity 21 September 2010 WT/DS375 
 WT/DS376 
 
WT/DS377 
Definitive anti-dumping and countervailing duties on certain products 
from China United States/ 
China Appellate Body and Panel reports adopted 
25 March 2011 WT/DS379 
Certain country-of-origin labelling 
requirements United States/ 
Canada 
United States/ Mexico Panel composed 10 May 2010 WT/DS384 
 
WT/DS386 
Table II.5 (cont'd)
                                                      
13 WTO Central Registry of Notifications.  Vi ewed at:  http://docson line/GEN_CRNsearch.asp. India WT/TPR/S/249 
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Subject Respondent/ 
complainant Status (May 2011) WTO document 
series 
Measures affecting imports of bovine meat and meat products from Canada Korea/ 
Canada Panel composed 13 November 2009 WT/DS391 
Measures related to exports of various raw 
materials China/ 
United States 
China/ EU Panel composed 29 March 2010 WT/DS394 
 
WT/DS395 
Taxes on distilled spirits Philippines/ 
EU Philippines/ 
United States Panel composed 5 July 2010 WT/DS396 
 WT/DS403  
Definitive anti-dumping measures on 
certain iron or steel fasteners from China EU/ 
China Panel report under appeal 25 March 2011 WT/DS397 
Measures related to the exportation of 
various raw materials China/ 
Mexico Panel composed 29 March 2010 WT/DS398 
Anti-dumping measures on certain shrimp 
from Viet Nam United States/ 
Viet Nam Panel composed 26 July 2010 WT/DS404 
Countervailing and anti-dumping duties 
on grain oriented flat-rolled electrical steel 
from the United States China/ 
United States Panel composed 13 May 2011 WT/DS414 
Source:    WTO Secretariat. 
19. India has participated actively in the Doha Development Agenda (DDA) negotiations.  India 
considers that the purpose of these negotiations is to  come to a balanced outcome in line with the 
development mandate and that th e development dimension should be the defining feature of all 
outcomes in the Round.  India has submitted pr oposals individually and with other developing 
countries regarding,  inter alia , agriculture, non-agriculture ma rket access (NAMA), services, trade 
facilitation, and IPRs.14 
(ii) Regional trade agreements 
20. During the period under review, India signed seven preferential agreements and started 
negotiations with the EU (28 June 2007), SA CU (5 October 2007), EFTA (6 October 2008)15, the 
Gulf Cooperation Council (GCC) (under ne gotiation since 2006), and New Zealand.16  Signing 
regional trade agreements is an element of India' s overall trade policy objective of enhanced market 
access for Indian exports.  However, despite this ge nerally positive view of regional agreements, India 
has some reservations regarding regionalism becau se of its complexity and possible trade diversion.17  
21. India is a signatory to the Asia Pacific Trade Agreement (APTA) and the South Asian 
Free-Trade Agreement (SAFTA).  Since its last Revi ew, in 2007, India has signed an agreement with 
the Association of Southeast Asian Nations (ASE AN), which entered into force in 2010, and an 
agreement with MERCOSUR, which was signed in  2004 but entered into force in June 2009 
(Table AII.3).  Prior to signing an agreement w ith ASEAN, India had bilateral agreements with 
Thailand and Singapore, both of which are members of ASEAN.  The bilateral agreements signed 
since 2007 have also been with countries belonging to  a regional agreement to which India is a party.  
For instance, India renewed a bilateral agreement with Nepal, a member of SAFTA (which entered 
                                                      
14 Ministry of Finance (2011a);  and WTO documents TN/C/M/30, 7 May 2010, and 
TN/MA/S/21/Rev.5, 26 November 2010. 
15 Early Announcements of Negotiations. 
16 For a full list of other agreements under negotiations, see Department of Commerce online 
information, "Trade:  International Trade:  Other Agreements/Negotiations".  Viewed at:  
http://commerce.nic.in/trad e/international_ta.asp. 
17 Ministry of Finance (2011a). WT/TPR/S/249 Trade Policy Review 
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into force in 2009), and signed new agreements wi th the Republic of Korea, a member of APTA 
(which entered into force on 1 January 2010), and with  Malaysia (to enter into force by 1 July 2011), 
a member of ASEAN (Table AII.3).  The author ities noted that tariff concessions under bilateral 
agreements with countries that also belong to re gional agreements to which India is a party, are 
generally wider and deeper than those under the re gional agreements and that the trader can choose 
which preference to use.  In regards to rules of origin, the authorities mentioned that product specific 
rules of origin are not necessarily the same in the b ilateral and regional agreements but that the origin 
criterion for products not covered by specific rules ha ve, by and large, been harmonized.  India signed 
an agreement with Japan in February in 2011. 
22. In 2004, the members of the Bay of Benga l Initiative on Multi-Sectoral Technical and 
Economic Cooperation (BIMSTEC) signed a Framewor k Agreement to form a free-trade area by 
2012.18  The agreement provided for the negotiations to be concluded by e nd 2005 for goods and by 
end 2007 for services and investment;  however, th ese deadlines have not been met and negotiations 
are still under way.  Negotiations on trade in goods are to be finalized by 2011, the timeline for 
concluding the negotiations on services and investme nt has been extended and no deadlines have been 
defined.19 
(4) INVESTMENT REGIME  
(i) Business environment 
(a) Regulatory framework 
23. The Companies Act 1956 regulates the incorporation and the functioning of domestic and 
foreign companies.  Other laws that have a b earing on the business environment are:  the Indian 
Partnership Act 1932;  the Arbitration and Reconc iliation Act 1996;  the Competition Act 2002;  the 
Foreign Exchange Management Act 1999;  and va rious tax and intellectual property laws and 
regulations (Chapter III). 
24. A foreign company may operate in India eith er as an Indian company or as a foreign 
company.  However, incorporation facilitates a comp any's access to credit and to the Indian financial 
market, as well as entering into contracts in its own name, and acquiring and disposing of immovable 
property.  Foreign companies may set up opera tions through any of the forms of business 
establishment used in India20, subject to the approval of the Reserve Bank of India and other 
dispositions of the Consolidated FDI Policy (section (ii) below).  Wholly owned subsidiaries may be 
set up in sectors where 100% FDI is permitted under th e Consolidated FDI Policy.  Foreign investors 
may form joint ventures to invest in sectors where 100% FDI is not permitted. 
25. A foreign branch office represents the parent  company in India;  it may export/import, 
coordinate with local buyers and sellers, provide technical support for products sold in India, develop 
software and engage in the airline/shipping busin ess.  A branch office is not allowed to manufacture 
in India but it may subcontract with an Indian manuf acturer.  The role of a liaison office is to collect 
market information, and provide information a bout the company and its products to prospective 
Indian customers.  A project office may be set up by foreign companies planning to execute specific 
projects in India. 
                                                      
18 The members are Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand.  
19 Information provided by the authorities. 
20 A company may be incorporated in  India as a private limited compan y, a public limited company, a 
partnership, a joint venture, a sole proprietorship, a trus t, a foreign branch or a limited liability partnership.   India WT/TPR/S/249 
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26. At least 12 procedures are required to set up a business in India (Table II.6).  These apply in 
most of India but may vary due to differences in rules at the state level.  The World Bank estimates that it takes 29 days at a cost of some 56.54% of GNI  per capita to start a business in India.  In 2010, 
India ranked 165 out of 183 economies for ease of starting a business, up from 168 in 2009.
21 
Table II.6 
Setting up a business, 2011 
 Procedure Time to complete (days)a Cost (Rs) 
1. Obtain director identification number (online) 1 100b 
2. Obtain digital signature certificate (online) 3 400-2,650c 
3. Reserve the company name with the Registrar of Companies (online) 1-2 500b 
4. Pay stamp duties (online), file all incorporation forms and 
documents (online), and obtain the certificate of incorporation 1-2 18,789d 
5. Make a seal 1 350 
6. Visit an authorized franchise or agent appointed by the National 
Securities Depositary Services Lt d. or the Unit Trust of India 
Investors Services Ltd., to obtain a permanent account number 7 99 
7. Obtain a tax account number for income taxes deducted at source 
from the Assessing Office in the Mumbai Income Tax Department 7 60 
8. Register with the Office of Inspector under the provisions of the 
Mumbai Shops and Establishment Act 1948 2 8,000 
9. Register for VAT (online) 10 525 
10. Register for profession tax 2 Free 
11. Register with the Employees' Provident Fund Organization 12 Free 
12. Register for medical insurance 9 Free 
a There might be a time overlap. 
b Government fee. 
c Fees vary from one agency to another. d Government fee based on the authorized capital. 
Source:  International Bank for Reconstruction and Development and World Bank (2011), Doing  Business 2011:  India:  
Making a Difference for Entrepreneurs .  Viewed at:  http://www.doi ngbusiness.org/~/media/fpdkm/ 
doing%20business/documents/profiles/country/db11/IND.pdf;  a nd information provided by the Indian authorities. 
(b) Industrial licensing and zoning 
27. Industrial licences are regulated under the Industr ies (Development and Regulation) Act 1951 
and are still required for specific industries.  Prio r to 2008, most domestic or foreign industries 
required an industrial licence to operate in India including those under "locational" restrictions (see 
below).  As of 2008, the scope of industrial licensing was reduced and now industrial licences are 
compulsory for:  (i) five specific industries (Tab le II.7);  (ii) "non-micro and small enterprises 
(MSEs)" manufacturing items  reserved for MSEs (see below);  and (iii) industries manufacturing 
items reserved for the public sector (i.e . railway transport and atomic energy).22 
28. Industrial licences are issued by the Secretariat of Industrial Assistance (SIA) under the 
Department of Industrial Policy and Promotion,  upon recommendation by the Licensing Committee.  
A licence is issued within 4-6 weeks from the da te of application, upon payment of a fee of 
Rs 2,500.23  Fees do not vary according to industry.  Industries, other than micro and small 
enterprises, established in a free-trade z ones are exempt from the licensing obligation.24 
                                                      
21 International Bank for Reconstruction and Development and World Bank (2011). 
22 IBEF (2008), page 6. 
23 IBEF (2008), page 6. 
24 Department of Industrial Policy and Promotion (2010). WT/TPR/S/249 Trade Policy Review 
Page 30 
  
Table II.7 
Industries for which industrial licensing is compulsory, 2011 
Distillation and brewing of alcoholic drinks 
Cigars and cigarettes of tobacco, and manufactured tobacco substitutes 
Electronic aerospace and defence equipment (all types) 
Industrial explosives, including detonating fuses, safe ty fuses, gun powder, nitrocellulose, and matches 
Specified hazardous chemicals (hydrocyanic acid and derivatives;  phosgene and derivativ es;  and isocyanates and diisocyanates of 
hydrocarbon, n.e.s. 
Source:  Department of Industrial Policy and Promotion (2010), Annual Report 2009-10 .  Viewed at:  http://dipp.nic.in/ 
anrepo_e/AnnualReport_Eng_2009-10.pdf. 
29. Industries exempt from industrial licensing must register with SIA and file an industrial 
entrepreneur's memorandum (IEM).  Fees for filing an IEM are Rs 1,000 for up to ten items to be 
manufactured, and Rs 250 for up to ten additional items.  All industries, whether or not licensed, must submit monthly production reports for statistical purposes.
25 
30. Prior to 2008, all industries were subject to an  industrial licence (based on "location") if they 
were established within 25 km of the "standard  urban limits" in 23 cities, with over 1 million 
inhabitants (as per the 1991 census).  Exemptions were  granted if industries were considered to be 
non-polluting or were planning to locate in specifi c areas designated as "industrial areas", prior to 
25 July 1991.  The locational restriction was remo ved in August 2008.  At present, entrepreneurs are 
free to select the location for setting up industries.26  Despite the elimination of the "locational" 
restriction, the establishment of an industry remain s subject to zoning, to land use regulations at the 
state level, and to environmental regulations at the central level.27  Prior environmental clearance is 
required for all domestic or foreign companies planning a project in an area listed in the Schedule to 
the 2006 Environmental Impact Assessment (EIA) Notification.28 
(c) Micro, small, and medium enterprises 
31. The Micro, Small, and Medium Enterprises Deve lopment (MSMED) Act entered into force in 
2006.  Prior to the enactment of this Act there was no definition for medium-sized enterprises, while 
micro and small enterprises (MSEs), which were known as small-scale industries, were defined 
according to the amount invested in fixed assets (including plant and machinery).29  Under the 
MSMED Act 2006, enterprises are classified as micr o, small, and medium enterprises based on the 
amount invested in the plant and machinery (for manufacturing units), and equipment (for service 
providers).30 
32. Registration for micro, small, and medium en terprises (MSMEs) is voluntary;  most MSMEs 
(some 94%) are not registered, and a large number of them operate in the informal sector.31  However, 
                                                      
25 IBEF (2008). 
26 Government of Gujarat's Industries Commissionerate, "Industrial Licensing Policy".  Viewed at:  
http://www.ic.gujarat.gov.in/Ind_guj/industrial_licensing_policy.html;  and Department of Industrial Policy and 
Promotion (2010). 
27 Department of Industrial Policy and Promotion (2010). 
28 The environmental impact assessment of developm ental projects is undertaken according to the 
provisions of the Environmental Impact Assessment (EIA) Notification 2006 (Ministry of Environment and 
Forests online information, "Rules and Regulations:  Environment Protection:  Environmental Clearance".  
Viewed at:  http://www.moef.nic.in/legis/env_clr.htm). 
29 For details, see Development Commissioner (2009). 
30 For details, see Micro, Small, and Medium Enterprises Development Act 2006, Chapter III.  Viewed 
at:  http://msme.gov.in/msme_actsrules.htm. 
31 Government of India (2010). India WT/TPR/S/249 
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a registration certificate is seen as a proof of th e company being a small-scale unit and enables 
registered MSMEs to benefit from central a nd state incentives and facilities and government 
procurement preferences (Chapter III).  The regist ration certificate is granted on a permanent basis, 
even if an MSMEs is already in operation;  registration is product- and location-specific.  A 
provisional registration certificate may be given to  MSMEs to be established, to facilitate access to 
credit, and approval and clearance procedures (e.g . land approval and environmental clearance).  
MSMEs may be deregistered if they:  exceed the le vels of investment stipulated in the MSMED Act 
2006;  manufacture items that require an industrial licence;  or do not satisfy the condition of being 
owned, controlled or being a subsidiary  of any other industrial undertaking.32 
33. Small enterprises as defined under the MSMED Act 2006, require a carry-on-business (COB) 
licence if they exceed the prescribed limit of invest ment in plant and machinery and continue to 
manufacture reserved items.  If the production capacity  for which the COB licen ce has been granted is 
exceeded, small enterprises must obtain an indus trial licence and they lose their small-scale  status.33  
Reserved products may also be manufactured by non-M SEs subject to an industrial licence and to an 
export obligation of at least 50% of their annual production within three years.34  Industries 
manufacturing items reserved for micro and small enterprises when established in a free-trade zone, 
are exempt from the licensing obligation.35 
34. Prior to the enactment of the MSMED Act in 2006, the amount of domestic and foreign 
equity participation in MSEs was capped at 24%.36  The foreign equity ceiling  was removed in 
February 2009.37  However, prior approval from the Fore ign Investment Promotion Board is still 
required if foreign equity in these i ndustries exceeds 24% (Table AII.4). 
(ii) Foreign investment regime 
35. Since 1 April 2010, foreign direct investment (FDI) has been regulated by the Consolidated 
FDI Policy issued by the Department of  Industrial Policy and Promotion (DIPP).38  The first 
Consolidated FDI Policy was issued in 1 April 2010  to reflect the current regulatory framework by 
consolidating all prior regulati ons on FDI contained in the Fo reign Exchange Management Act 
(FEMA) 1999, the Foreign Exchange Management (Transfer or Issue of Security by a Person 
Resident Outside India) Regulations 2000, and the Reserve Bank of India circulars and press notes.  This consolidation is expected to clarify India' s FDI policy and provide for a better understanding and 
predictability of the foreign investment rules among foreign investors and sectoral regulators.  Changes to the FDI policy are proposed by any mi nistry, discussed in inter-ministerial meetings, 
approved by Cabinet, and released through press notes by the DIPP.
39  These changes are reflected in 
                                                      
32 Development Commissioner online information, "SSI Registration".  Viewed at:  
http://www.dcmsme.gov.in/howtosetup/grgxx01x.htm;  and Business Portal of India online information, "Micro, Small, and Medium Enterprises:  Registration of Small-Scale Industries".  Viewed at:  http://business.gov.in/ 
Industry_services/regs_ssi.php. 
33 IBEF (2008);  and UHY (2008). 
34 COB licences, as opposed to the licences granted to large enterprises undertaking activities reserved 
for the MSM enterprises, are not subject to an export obligation. 
35 Department of Industrial Policy and Promotion, Press Note No. 6, 4 September 2009;  and 
Department of Industrial Policy and Promotion (2010). 
36 Department of Industrial Policy and Promotion, Press Note No. 6, 4 September 2009. 
37 Department of Industrial Policy and Promotion, Press Note No. 6, 4 September 2009. 
38 Department of Industrial Policy and Promotion, Circular No. 1 of 2011 (Consolidated FDI Policy 
(effective from 1 April 2011)), 31 March 2011.   
39 OECD (2009b). WT/TPR/S/249 Trade Policy Review 
Page 32 
  
the Consolidated FDI Policy issued every six months.40  Sectors not listed in the Policy are 100% 
open to FDI under the automatic route subject to applicable laws, rules, and security conditions.41 
36. The three main institutions that handle FDI-relate d issues in India are the Foreign Investment 
Promotion Board (FIPB), the Foreign Investme nt Implementation Authority (FIIA), and the 
Secretariat for Industrial Assistance (SIA).  The FI PB, under the Ministry of Finance, chaired by the 
Secretary of Economic Affairs and consisting of senior secretaries42, is in charge of examining and 
approving foreign investment proposals in sector s were investment is not allowed through the 
automatic route.  Investment above a specific th reshold requires additional approval from the Cabinet 
Committee on Economic Affairs (see below).43 
37. The SIA, under the DIPP, acts as the Secretariat of the FIIA.44  The Secretariat is the single 
window for investors.  It processes all applicati ons that require Government approval, assists 
entrepreneurs and investors in setting up projects (i ncluding liaison with othe r organizations and the 
state level), and monitors their implementation.45 
38. FDI is allowed in Indian companies (includi ng micro and small enterprises), partnership 
firms, venture capital funds, and in lim ited liability partnerships (LLPs) firms.46  FDI in LLPs has 
been allowed since May 2011, with FIPB approval,  in sectors where 100% FDI is allowed through the 
automatic route and where FDI is not  linked to any performance conditions.47  FDI may be freely 
repatriated.48 
39. Most sectors are at least partially open to FDI, subject to a cap and specific conditions 
(Table AII.4).  However, the number of sectors/ac tivities in which FDI is prohibited increased during 
the review period (Table II.8).49  There are two entry routes for FDI in India.  In sectors where FDI is 
allowed up to 100%, FDI enters under the automatic r oute, subject to sectoral regulations and other 
conditions (Table AII.4).  In this instance, no approval is required from the Reserve Bank of India 
(RBI) or the Government;  however, the investment  must be notified to the RBI's regional office 
                                                      
40 Department of Industrial Policy and Promotion, Circular No. 1 of 2011 (Consolidated FDI Policy 
(effective from 1 April 2011)), 31 March 2011;  and India Brand Equity Foundation online information, 
"Foreign Direct Investment".  Viewed at:  http://www.ibef.org/artdispview.aspx?in=23&art_id=27538&cat_id= 412&page=2. 
41 Department of Industrial Policy and Promotion, Circular No. 1 of 2011 (Consolidated FDI Policy 
(effective from 1 April 2011)), Paragraph 5.2, 31 March 2011. 
42 The FIPB is chaired by the Secret ary of the Department of Economic Affairs.  It also comprises the 
secretaries of three departments (Industrial Policy and Promotion, Commerce, and Economic Relations) and by 
the Secretary of the Ministry of Overseas Indian Affairs. 
43 The Cabinet Committee on Economic Affairs (CCE A) is headed by the Prime Minister and 
constituted by the Ministers of:  Defence;  Agriculture;  Consumer Affairs, Food, and Public Distribution;  
Railways;  Chemicals and Fertilizers;  Finance;  Ro ad Transport and Highways;  Commerce and Industry;  
Power;  Rural Development;  and Communications and IT;  and the Deputy Chairman of the Planning 
Commission as a special invitee (Andh ra News online information, "Cabinet Committee on Economic Affairs 
constituted".  Viewed at:  http://www.andhran ews.net/india/2004/jun/EconomicAffairs.asp). 
44 National Council of Applied Economic Research (2009). 
45 Department of Industrial Policy and Promotion online information, "What is SIA?" Viewed at:  
http://siadipp.nic.in/sia/default.htm. 
46 Department of Industrial Policy and Promotion, Circular No. 1 of 2011 (Consolidated FDI Policy 
(effective from 1 April 2011)), 31 March 2011. 
47 Information provided by the authorities. 
48 OECD (2009b). 
49 At the time of the last Review of India, investment was prohibited in:  retail trading (except single 
brand product retailing);  atomic energy;  lottery  business;  and gambling and betting (WTO, 2007). India WT/TPR/S/249 
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within 30 days.50  In sectors where FDI is capped, prior a pproval from the FIPB is required.  FIPB 
recommendations must be cleared by the Ministry of Finance for FDI proposals below or equivalent to Rs 12 billion, and by the Cabinet Committ ee of Economic Affairs for FDI proposals of 
Rs 12 billion or more.
51  Over April 2007-December 2009, the FIPB approved 949  FDI proposals with 
total investment of Rs 404 billion.52 
Table II.8 
Sectors where FDI is prohibited, 2011 
Retail trading (except si ngle brand product retailing)a 
Lottery businessa, b 
Gambling and betting activities (e.g. casinos)a, b 
Real estate business (except development of townships, housing, built-up infrastruc ture, and construction- development projects)  or 
construction of farm houses 
Agricultural activities (except fl oriculture, horticulture, developm ent of seeds, animal husbandry, fish farming, aqua culture,  cultivation of 
vegetables and mushrooms under controlled conditions, and services  related to agro and allied);  and plantation activities (exc ept tea 
plantation) 
Business of chit fund 
Nidhi company 
Trading in transferab le development rights 
Manufacture of cigars, cheroots, cigarillos and ci garettes, of tobacco or of tobacco substitute 
Activities reserved for the public  sector, i.e. atomic energya and railways 
a FDI was prohibited in 2007. 
b Foreign technology collaboration (e.g. licensing for franchise, trade mark, brand name, and management contract) is also 
prohibited. 
Source:  Department of Industrial Policy a nd Promotion, Circular No. 1 of 2011 (C onsolidated FDI Policy (effective from 
1 April 2011)), 31 March 2011;  RBI Circular No. 13/2010-11, 1 July 2010;  and WTO (2007), Trade Policy 
Review:  India , Geneva. 
40. The Indian economy seems to be more open to FDI as a result of the recent policy changes.  
However, even where FDI is allowed up to 100% and under the automatic route, specific conditions 
or permits apply, which could in some cases be more  restrictive than an explicit investment cap.  
41. Despite its generally open policy thrust, I ndia restricts investment from companies or 
nationals of certain countri es.  Pakistani citizens or entities incorporated in Pakistan, may not invest in 
India.  In addition, Bangladeshi citizens or entities incorporated in Bangladesh are allowed to invest, 
subject to governmental approval.53  Non-resident Indians living in Nepal and Bhutan, and Nepali and 
Bhutan citizens are allowed to invest on a repatr iation basis, on condition that the investment amount 
is paid by way of inward remittances in free foreign exchange through normal banking channels.54 
                                                      
50 National Council of Applied Economic Research (2009). 
51 Until March 2010, the threshold was Rs 6 billion.   See Department of Industrial Policy and 
Promotion, Press Note No. 1 of 2010, 25 March 2010;  and Department of Industrial Policy and Promotion, 
Circular No. 1 of 2011 (Consolidated FDI Policy (effective from 1 April 2011)), 31 March 2011.  For further details on procedures for investment under automatic or governmental routes, see Reserve Bank of India online 
information, "Foreign Investments in India (Upd ated up to 13 October 2010)".  Viewed at:  
http://www.rbi.org.in/scripts/faqview.aspx?id=26. 
52 Foreign Investment Promotion Board (2010). 
53 Reserve Bank of India, Master Circular No. 13/2010-11, 1 July 2011. 
54 Department of Industrial Policy and Promotion, Circular No. 1 of 2011 (Consolidated FDI Policy 
(effective from 1 April 2011)), 31 March 2011. WT/TPR/S/249 Trade Policy Review 
Page 34 
  
42. India has signed 79 bilateral investment prom otion and protection agreements (BIPA), of 
which 70 have entered into force (31 October 2010).55  It is negotiating 20 bilateral investment 
protection agreements.56 
43. Governments at the central and state level offer a number of incentives to domestic and 
foreign investors, with a view to stimulating grow th and development.  The incentives are in line with 
the Government's broad development plan, and are thus revised regularly to accommodate new areas 
of emphasis (Chapter III(4)(i)).57 
                                                      
55 Since January 2007, BIPAs have been signed with 18 countries, of which 11 have come into force. 
56 OECD (2009b). 
57 OECD (2009b).