Trade Facilitation Measures Within India’s Regulatory and Financial Framework

Introduction

Trade facilitation in Indian legal framework has increasingly been operationalised through fiscal policy, infrastructure financing, customs rationalisation, MSME credit mechanisms, and digital procurement reforms administered through statutory institutions. Recent economic measures directed at manufacturing ecosystems, logistics corridors, municipal finance, securitisation of receivables, and customs exemptions must be understood in light of existing legislative instruments such as the Customs Act, 1962, the Foreign Exchange Management Act, 1999, the MSMED Act, 2006, and delegated regulatory frameworks issued by sectoral authorities.

Customs Rationalisation

The legal basis for duty exemptions under trade facilitation measures related to lithium-ion cells/sources for solar energy/critical minerals supply chains is found in section 25 of the 1962 Customs Act, which gives the government the authority to proclaim by means of a public notice the exemption of goods from customs duty in the public’s interest. The objective of such a customs exemption is to provide support through tariff engineering for the establishment of upstream manufacturing capacity to create domestic value chains.

Further, exemptions for equipment and material inputs for semiconductor manufacturing and renewable energy infrastructure fall within the same delegated legislative power. These measures enable:

• Reduction of landed input costs;
• Promotion of domestic manufacturing clusters;
• Stabilisation of supply chains for critical technologies.

In legal terms, exemption notifications operate as conditional statutory instruments subject to judicial scrutiny under Article 14 where classification or differential treatment of imports is challenged. Courts have consistently held that fiscal exemptions remain matters of policy unless arbitrary or discriminatory in operation.

MSME Liquidity Framework

Statutory protections for all SMEs, as laid out in Section 4 of the Micro, Small and Medium Enterprises Development Act, 2006, have been established through the creation of various types of financing tools such as company-specific growth funds for SMEs, invoice discounting mechanisms, credit guarantee structures, and receivable securitisation. Chapter V of the MSME Development Act provides statutory interest obligations on delayed payments due to MSME servicing suppliers (including many fast-track products) that may be enforced through the adjudication process set forth under this chapter and only through MSME Facilitation Councils.2

Also, the integration of Trade Receivables Discounting System (TReDS) with procurement information from the Government e-Marketplace creates a legally recognised electronic trade record system that may be used for factoring transactions subject to the Factoring Regulation Act, 2011. RBI-recognised TReDS platforms allow:

• Assignment of receivables as financial assets;
• Use of invoice-backed securities for working capital;
• Reduction of counterparty risk for MSMEs supplying to CPSEs.

The securitisation of such receivables as asset-backed instruments engages the provisions of the SARFAESI Act, 2002, particularly in relation to security interest enforcement where default arises from discounted obligations.

Infrastructure Financing Through Corporate and Municipal Instruments

The use of Real Estate Investment Trusts (REITs) for CPSE asset monetisation is regulated under the SEBI (Real Estate Investment Trusts) Regulations, 2014 issued by the Securities and Exchange Board of India under Sections 11 and 30 of the SEBI Act, 1992.

Similarly, municipal bond financing for urban infrastructure operates within the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015. These regulations impose:

• Mandatory disclosure standards;
• Credit rating obligations;
• Utilisation reporting requirements;
• Listing compliance norms.

Such instruments enable statutory local bodies to access debt markets without recourse to direct budgetary allocation. In constitutional terms, municipal borrowing authority derives legitimacy from Part IX-A of the Constitution read with State Municipal Acts governing fiscal decentralisation.

Foreign Investment

Review of foreign investment rules concerning non-debt instruments falls within the framework of the Foreign Exchange Management Act, 1999, administered by the Reserve Bank of India in consultation with the Ministry of Finance.

Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 regulate inbound investment into sectors including:

• Electronics manufacturing;
• Biopharmaceutical production;
• Capital goods infrastructure;
• Logistics and warehousing.

Any relaxation in sectoral caps or pricing guidelines must comply with Rule 21 concerning downstream investment and Rule 23 governing reporting requirements through the Single Master Form. FEMA jurisprudence has consistently emphasised that foreign investment approvals remain administrative determinations unless procedural violations implicate principles of natural justice.

Logistics Corridors and Waterway Development

Development of dedicated freight corridors and expansion of inland waterways engages statutory provisions under the Railways Act, 1989 and the National Waterways Act, 2016, wherein waterway classification under Schedule I of the 2016 Act enables the Union Government to declare shipping routes as national waterways, thereby triggering regulatory jurisdiction for navigation, dredging, and cargo handling infrastructure, while promotion of coastal cargo transport under multimodal logistics schemes further engages the Merchant Shipping Act, 1958 and Port Trust regulatory statutes, and in legal effect, such modal shift incentives reduce reliance on road transport and facilitate compliance with environmental obligations under the Environment (Protection) Act, 1986 in infrastructure-led trade logistics.

Credit Guarantees and Risk Mitigation in Infrastructure Lending

The establishment of risk guarantee funds for construction-phase lending corresponds with statutory financial assistance schemes administered through SIDBI under the SIDBI Act, 1989 and credit guarantee frameworks such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Guarantee-backed lending enables financial institutions to:

• Extend credit to infrastructure SPVs;
• Mitigate exposure to project execution risk;
• Enforce recovery through contractual indemnity clauses.

Such guarantees are legally structured through tripartite agreements enforceable under the Indian Contract Act, 1872, with recourse mechanisms for lenders where guaranteed obligations are invoked.

Securitisation of Trade Receivables

Permitting TReDS receivables to be converted into asset-backed securities implicates the regulatory framework under the SARFAESI Act, 2002, the RBI’s Securitisation of Standard Assets Directions, and the Companies Act, 2013 provisions governing debenture issuance, wherein receivable securitisation allows pooling of trade debt into structured financial instruments tradable in secondary markets subject to disclosure norms under SEBI’s listing regulations, and judicial precedent has recognised securitised debt instruments as actionable claims assignable under Section 130 of the Transfer of Property Act, 1882, thereby permitting their enforcement independent of the original supply contract.

Industrial Clusters and Manufacturing Ecosystems

Chemical Parks and Rare Earth Corridor developments can be undertaken by the various methods of land acquisition within the states and industrial zoning under state law using the process established under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and applicable statutes enacted by the respective State Industrial Development Corporation Acts while all Industrial Clusters shall be subject to receive an Environment Clearance Certificate prior to but are first approved by the respective State authorities, whom shall ascertain compliance with the Environment Impact Assessment Notification, 2006 as provided for in the Environment Protection Act, 1986 and satisfy the following compliance obligations prior to the granting of any project approval including the holding of Public Hearing procedures and preparation of an Environment Management Plan for each proposed project.

Data Integration

Integration of procurement data from public platforms into financing ecosystems introduces legally admissible electronic records under the Information Technology Act, 2000, and Section 4 of the Act accords legal recognition to electronic documents, thereby enabling digital assignment of receivables, electronic invoicing, and automated compliance monitoring, which ensures the enforceability of digital supply chain transactions within trade financing arrangements linked to MSME participation in public procurement markets.

Conclusion

Trade facilitation measures directed at manufacturing, logistics, MSME financing, customs rationalisation, and infrastructure monetisation derive enforceability from existing statutory frameworks including the Customs Act, FEMA, MSMED Act, SARFAESI Act, and SEBI regulations, thereby converting fiscal policy into legally structured mechanisms governing investment, procurement, receivable financing, and multimodal transport within India’s trade architecture.