Navigating The Maze: India’s Fragmented Export Controls And Strategic Trade Compliance Challenge

Consider China’s Oct. 9, 2025, rare earth export restrictions imposed during delicate trade negotiations with the United States. This move illustrates how strategic trade controls can wreak havoc on global supply chains. What makes export controls particularly attractive to states like China and India? Unlike traditional economic sanctions that target specific entities through multilateral frameworks, export controls focus on particular goods and serve broader economic policy objectives. Both China and India have embraced this approach. They criticise unilateral sanctions while simultaneously maintaining robust export control regimes.

This article examines India’s fragmented export controls architecture and the compliance headaches it creates for businesses. Why deliberately fragmented? Unlike unified sanctions regimes that offer clarity through centralisation, India employs overlapping statutory frameworks. The result? Significant navigational challenges that would test even experienced exporters. This fragmentation isn’t accidental; it reflects India’s calculated strategic preference for targeted trade controls over comprehensive sanctions. Yet this approach comes at a cost: practical compliance burdens that Indian businesses must shoulder while operating in an increasingly interconnected global economy.

India’s export controls operate through what can only be described as deliberately fragmented architecture. Regulatory authority is distributed (some might say scattered) across three primary instruments: the Customs Act 1962 (“Customs Act”), the Foreign Trade (Development and Regulation) Act, 1992 (“FTA”), and the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (“WMDA”).

Section 11 of the Customs Act empowers the Central Government to impose absolute prohibitions or conditional restrictions on the export of any goods through Official Gazette notifications on diverse grounds, including national security, public order, prevention of smuggling, industrial development, protection of intellectual property rights, and fulfilment of obligations under the United Nations and “any other purpose conducive to the interests of the general public.”

The FTA establishes a more specialised regulatory framework for trade governance. Section 3 empowers the Central Government to prohibit, restrict, or regulate the export of goods, services, or technology. Under Section 3(3), all goods subject to orders made under this provision are deemed to be goods whose export has been prohibited under Section 11 of the Customs Act, thereby ensuring unified enforcement. The Central Government formulates the Foreign Trade Policy (“FTP”), under Section 5 of the FTA, while Section 6 establishes the Director General of Foreign Trade (“DGFT”), who advises on FTP formulation and bears implementation responsibility.

The courts show substantial deference on export control matters. In Ashok Kumar Sharma v. Union of India, 2024 SCC OnLine SC 2455, the Supreme Court declined to direct cessation of military equipment exports to Israel on the ground that the Central Government possessed exclusive prerogative under both the Customs Act and FTA. This decision illustrates the judiciary’s reluctance to second-guess executive decisions on matters touching foreign policy, a pattern that grants considerable operational latitude to trade authorities.

The WMDA establishes comprehensive controls over the export of biological, chemical, and nuclear dual-use goods and technologies, designated as Special Chemicals, Organisms, Materials, Equipment, and Technologies (“SCOMET”) controls. Section 11 prohibits exports intended for weapons of mass destruction, while Section 5 empowers the Central Government to identify and regulate the export of any related items.

The FTP mandates prior authorisation for all SCOMET items across nine distinct categories – toxic chemicals, aerospace technology, material processing equipment, telecommunications equipment, and sensors among them. Each category has its own licensing authority, adding layers of bureaucratic complexity. But here’s the catch: items not explicitly listed in the SCOMET schedule may still fall within catch-all regulations governing other dual-use applications. Exporters must maintain comprehensive knowledge of DGFT notifications and regulatory practice, with the FTP encouraging voluntary disclosure of potential violations.

Sectoral legislation imposes subject-specific export control requirements. For instance, Section 7 of the Foreign Exchange Management Act, 1999, mandates that exporters furnish particulars of the complete export value of goods to the Reserve Bank of India. Such provisions across various statutory regimes create a decentralised regulatory architecture, as distinguished from a unified sanctions mechanism.

Penalties under the Customs Act

The Customs Act establishes India’s most comprehensive penalty framework for export control violations through criminal and civil enforcement mechanisms, serving as the primary enforcement instrument for export control violations. Section 135 prescribes imprisonment up to seven years with a mandatory minimum imprisonment of one year for serious offences involving prohibited goods. Section 135A criminalises mere preparation for prohibited exports with imprisonment up to three years. Civil enforcement operates through confiscation and monetary penalties. Section 113 renders goods liable to confiscation for attempted improper export, while Section 112 imposes penalties for improper export of prohibited goods. Section 117 establishes a general penalty provision for contraventions not expressly covered elsewhere, ensuring comprehensive regulatory coverage.

Penalties under the FTA and WMDA

Under the FTA, penalties range from INR 10,000 to five times the value of goods, services, or technology for contraventions (Section 11(2)), with similar penalties for using forged documentation (Section 11(3)). Non-payment may result in suspension of the exporter’s Importer-Exporter Code Number (Section 11(7)). Goods contravening the FTA are liable to confiscation by the Adjudicating Authority and may be released upon payment of redemption charges. Section 12 provides that FTA penalties do not preclude additional punishments under other applicable laws.

The WMDA prescribes penalties of INR 3,00,000/- to INR 20,00,000/- for unauthorised exports, with repeat offences resulting in imprisonment from six months to five years. Section 20 establishes corporate liability, rendering all persons responsible for a company’s conduct individually liable for offences committed by the company. SCOMET regulations possess extensive territorial scope under Section 3 of the WMDA, applying to foreign nationals while in India; any person within India’s Exclusive Economic Zone; Indian citizens outside India; and companies registered in India or having associates, branches, or subsidiaries abroad.

India’s deliberate preference for strategic trade controls over comprehensive sanctions (while serving clear geopolitical objectives) has created compliance challenges for Indian manufacturers and service providers. The fragmented architecture presents exporters with an uncomfortable reality: success requires mastering the intricate interplay between statutory provisions. This proves particularly challenging given the sophisticated SCOMET regime’s broad territorial scope and catch-all provisions. In our experience, the administrative discretion exercised by trade authorities in granting authorisations often proves as crucial as the black-letter law itself. As India’s export controls continue evolving in response to shifting geopolitical dynamics, exporters would be well-advised to invest in robust compliance mechanisms rather than reactive approaches to this increasingly complex legal landscape.