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INVESTMENT
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situations emerging from the export and import trade transactions. The primary objectives
of this Act are:
i) To regulate the genuine export and import trade transactions in keeping with the
national economic policies and objectives,
ii) To check smuggling,
iii) To collect revenue,
iv) To undertake functions on behalf of other agencies, and
v) To gather trade statistics. Details about the rate and nature of customs duty leviable on
any item, as decided by the Central government.
4. Export (Quality Control and Inspection) Act, 1963
The Export (Quality Control and Inspection) Act was enacted in the year 1963 to strengthen
the export trade through quality control and reshipment inspection. The act prohibits the
export of sub-standard goods as well as the goods which do not fulfil the requirements as
laid down under the Act. However, the following categories of export are exempted:
i) Star Export Houses, Export Oriented Units (EOUs) and units set up in FTZs, etc.;
ii) Exports made against a letter from the foreign buyer stating that he does not require pre-
shipment inspection from any official inspection agency.
iii) Products bearing ISI Mark/AGMARK.
iv) The Government of India established the Export Inspection Council (EIC) and the Export
Inspection Agencies (EIAs). While the EIC acts as an advisory body to the Government on
matters related to quality control and inspection, the EIAs are the actual agencies which
inspect the goods and issue the export-worthiness certificates.
v) All imported goods are also subject to domestic laws, rules, orders, regulations, technical
specification, environmental and safety norms as applicable to domestic goods.
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technology trends and customer expectations, legacy systems that are outdated,
incompatible, or hard to maintain, or limited resources, skills, or capabilities to adopt or
implement new technologies.
3) Gap Management: It refers to managing assets and liabilities to balance out any increase in
interest rates on loans. If interest rates on loans go up, and the company owes money, its
repayment instalments will be higher. Gap management means ensuring that income from
investments makes up for the ‘gap’ that higher interest rates on loans created.
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licensing, franchise, trademarks and patents (against which he gets lump sum fee or
royalty payments for a specified Period). FDI can be Horizontal or Vertical.
Horizontal FDI constitutes a situation in which multi-plant firms duplicate roughly the
same activities in multiple countries.
Vertical FDI constitutes a situation in which firms locate different stages of production in
different countries.
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needs. The large-scale production of these products is possible due to the exports of these to the foreign
countries.
7) To obtain foreign exchange: A country can only develop when it has sufficient reserves of foreign
exchange. To correct balance of payments, to build infrastructure, industries, etc. a country needs foreign
exchange. India requires foreign exchange for its imports. This foreign exchange can be obtained by
exporting its products.
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5) Power Distribution
6) Weaker Underdogs
7) Price Fluctuations of Natural Resources
i) Economic Warfare: The world is experiencing increased conflicts, major economic powers are
seizing influence, financial sanctions are being used as a weapon, and the Internet is breaking into
pieces. Therefore, the international flow of money, information, products and services may slow
down.
ii) Geo-politicization: Globalization is a kind of Americanization. The United States is still a
dominating economy and the hallmark of the international financial system. The developments of
developing countries are making them more or less like America.
iii) State Capitalism: The United States was a strong nation in the last quarter of the century. But now,
state capitalism in a modern form is gripping many nations. This is creating new segments in the
markets and destroying the uniformity expected from globalization.
iv) Lack of Leadership: Globalization will continue rapidly, but the U.S led world order is getting
diminished. An inconsistent, war-ridden United States lacks the will and ability to provide global
leadership. Moreover, no other country is interested in taking its place.
v) Power Distribution: China, Russia, Turkey, India, and some other emerging nations are getting
powerful enough to dismantle the US led theory of globalization. But they lack synchronization and
influence. Their values and interests are not compatible. So, a regionalized world is emerging.
vi) Weaker Underdogs: The regional economic powerhouses are getting more room to operate in
today’s world. Russia is intruding in its backyard, Germany is experiencing firm control over Euro
zone, and China is rapidly rising in the Asia-Pacific. These major countries are trying to consolidate
power without caring for the smaller countries near them.
vii) Price Fluctuations of Natural Resources: The oil monopoly is deteriorating and many clashes and
terrorist incidents are tearing the world apart. In such turmoil, the very essence of globalization is
somehow getting blurred.
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RECENT TRENDS OF INDIA’S FOREIGN TRADE
The exports have shown an increasing trend. The exports have increased significantly from the year
1991-92 onwards and reached to 422004.4 million US dollar during the year 2021-22. Similarly,
imports have also shown increasing trend. The imports have increased significantly from the year
1994-95 onwards and reached to 613052.1 million US dollar during the year 2021-22.
The imports have been increasing at a faster rate than the exports. As a result, the trade balance has
been increasing.
1. Exports: Exports of top 10 Commodities such as: Engineering goods (26.29%) were at the
top position followed by Gems and Jewellery (8.92%), Petroleum products (8.84%), Drugs
and pharmaceuticals (8.38%), Organic and inorganic chemicals (7.57%), RMG of all textiles
(4.21%), Electronic goods (3.80%), Cotton yarn/fabs. /Made-ups Handloom products etc.
(3.37%), Rice (3.03%), and Plastic and linoleum (2.56%). The top four products like,
Engineering goods, Gems and Jewellery, Petroleum products and drugs and pharmaceuticals
account for more than 50 percent of India’ exports. Therefore, sincere efforts should be made
to diversify the export basket of the country.
2. Imports: Imports of top 10 Commodities like Petroleum, crude and products (20.96%) were
at the top position followed by electronic goods (13.76%), Gold (8.77%), Machinery,
electrical and non-electrical (7.63%), Organic and Inorganic chemicals (5.03%), Pearls,
precious and semi-precious stones (4.79%), Transport equipment (4.73%), Coal, coke and
briquettes, etc. (4.13%), Artificial resins, plastic materials, etc. (3.43%), and Iron and steel
(3.05%). India should manage the imports in such a way that export earnings should be
sufficient to make payment for the imports. For this purpose, exports should be promoted.
3. Export Destinations: India’s top 10 export destinations were USA (17.69%) followed by
China (7.26%), UAE (5.72%), Hong Kong (3.48%), Bangladesh (3.32%), Singapore (2.97%),
UK (2.81%), Germany (2.78%), Nepal (2.34%), and Netherland (2.22%). More than one third
of our export destination has been concentrated in four countries. Therefore, the exports
should be diversified in several countries.
4. Import Destinations: India’s imports from top 10 import destinations were China (16.53%)
followed by USA (7.32%), UAE (6.75%), Switzerland (4.62%), Saudi Arab (4.1%), Hong Kong
(3.85%), Iraq (3.62%), Germany (3.46%), Singapore (3.37%), and Korea Rp (3.24%).
Vision
The vision of the foreign trade policy is as follow:
a. To make India a significant participant in world trade by the year 2020.
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b. To enable the country to assume a position of leadership in the international trade.
c. The policy aimed to raise India’s share in world exports from 2 percent to 3.5 percent.
Objectives
The objectives of Foreign Trade Policy 2015-20 are as follow:
➢ To provide a stable and sustainable policy for foreign trade in goods and services.
➢ To frame rules, procedures and incentives for exports and imports.
➢ To promote India’s initiatives such as “Make in India”, “Digital India‟ and “Skills India‟ to
create an “Export Promotion Mission” for India.
➢ To promote the diversification of India’s export basket by helping various sectors of the
Indian economy to gain global competitiveness with a view to promoting exports.
➢ To expand its markets by integrating with major regions.
➢ To increase the demand for India’s products.
➢ To provide a mechanism to reduce the trade imbalance.
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6. Market Strategy: India’s future bilateral/regional trade engagements will be with countries
which are promising markets. They should be the major suppliers of critical inputs as well.
The focus of India’s future trade relationship with its traditional markets in the developed
world would be on exporting products. These products should have a higher value addition.
India should supply high quality inputs for the manufacturing sector in these markets. The
customs duties on inputs for India’s manufacturing sector should also be optimized.
7. Product Strategy: The focus will be on promoting exports of high value products with a
strong domestic manufacturing base, including engineering goods, electronics, drugs and
pharmaceuticals. Other sectors which require special attention, in light of India’s strengths
and their contribution to employment generation are: leather, textiles, gems and jewellery.
8. The Services Sector: The Services sector is an area of great potential. Efforts will be made
to gain effective market access abroad through comprehensive economic partnership
agreements with important markets. Government is committed to transforming India into a
manufacturing and exporting hub. This is possible only if India’s products are of world class
standard
9. Building the India Brand: A long term branding strategy has been conceptualised to enable
India to hold its own in a highly competitive global environment. The strategy aims at
ensuring “Brand India‟ becomes synonymous with high quality.
10. Infrastructure: The Department of Commerce has, till now, worked with States to fill
infrastructure gaps through the ASIDE (Assistance to States for Developing Export
Infrastructure and Allied Activities) Scheme. Special Economic Zones need to be
strengthened. restoring tax benefits is of critical importance. The Department of Commerce
will take action to make SEZs more competitive and better placed for manufacturing and
services exports. The FTP includes specific measures to revitalise SEZs.
What is Balance of Payments? State the main components of BOP. How to correct the
disequilibrium of Balance of Payments.
Balance of Payment is a statement of a country’s receipts and payments in foreign exchange. In other
words, it is the difference between a country’s exports and imports. If exports are more than imports, there
is a favourable balance of payment and vice-versa. And if total of exports is equal to total of imports, it is
called equilibrium balance of payment.
Components of Balance of Payments
i) The Current Account
ii) The Capital Account
iii) The Reserve Account
I. Current Account of BOP: It is a statement of actual receipts and payments in the short period. It
includes imports and exports of both goods and services. It includes items like:
1) All material goods exported and imported.
2) Travelling expenses to foreign countries and by foreign tourists.
3) Services of experts.
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4) Investment income.
5) Donation and gifts.
6) Government transaction.
II. Capital Account of BOP: It is a statement of receipts and payments of capital items both in short
run and long run. It has no direct effect on income, output and employment of the country. The
items included in capital account are:
1) Buying and selling of gold.
2) Movement of banking capital.
3) Private foreign loan flow.
4) Loans from foreign banks and its repayments.
III. The Reserve Account: These are composed of assets which the Central Bank or RBI uses to settle
the deficits. In this category only reserved assts are included.
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3. Devaluation: The term Devaluation means a reduction in the official rate at which one currency
is exchanged for another. Devaluation is undertaken when the currency is found to be unduly
overvalued. Devaluation makes the goods cheaper for foreigners. Exports will rise and imports
decline.
4. Exchange Control: Restriction on the use of foreign exchange by the central banks is
called Exchange Control. When exchange control is adopted, all the exporters have to surrender
their foreign exchange earnings to the Central Bank. Under exchange control, the central bank
releases foreign exchanges only for essential imports and conserves the rest of the balance. This is
a direct method of reducing imports.
5. Fiscal Policy- Import Duties: Under this policy, import tariff duties are imposed so as to make
the import costlier with an overall aim of checking imports. Imports get reduced and balance of
payments becomes favourable.
6. Import Policy (Import Quotes): Under this mechanism, the government fixes a maximum
quantity or value of a commodity to be imported. This in turn reduces imports and the deficit is
reduced and thereby the balance of payments is improved.
7. Stimulating/Improving Export: To correct disequilibrium in the Balance of payments, it is
necessary that exports should be increased, the government may adopt export programs for this
purpose. Export promotion programs include subsidies, tax concession to exporters, marketing
facilities, incentives for exporters, reducing export duties, etc.
8. Foreign Loans: The government can also secure loans from foreign banks or foreign governments
to reduce the deficit in the balance of payments. Since the repayment of these loans is spread over
a long period, this helps the government to remove the deficit in the Balance of payments.
9. Encouragement to Foreign Investment: The government induces the foreigners to make an
investment in the country offering them all sorts of investor’s incentives and concessions. This
provides the government with extra foreign exchanges which are utilized to reduce the deficit in
the Balance of payments.
10. Incentives to Foreign Tourist: The government may also encourage foreign tourists to visit the
country. It can provide more infrastructure in tourist places which attract foreign tourists.
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Issues and Trend in World Trade
a. Regionalism vs. Multilateralism
b. Liberalization vs. Globalization
c. Electronic Commerce vs. Electronic Data Interchange
d. Environmental Challenges
a) Regionalism vs. Multilateralism: There are growing Regional Economic Groupings (REG) in
the world. For example, European Union (EU), ASEAN, etc. These groups are an association of
countries located in a particular region. These groups follow policy of discrimination against non-
member countries. This restricts world trade to few regions only. These groups have less trade
restrictions for group members like custom duties, taxes and other charges. So, regionalism is
against multilateralism whereby all nations are supposed to integrate and promote international
trade.
b) Liberalization vs. Globalization: Liberalization refers to removing all trade barriers to promote
international trade whereas, globalization is the integration of all the nations to promote
international trade. Globalization is the main object of World Trade Organization. Globalization
is not possible without liberalization. A country has to remove or reduce tariffs to encourage
foreign trade. Globalization aims at free flow of goods and services, capital, technology and people
among all nations.
c) Electronic Commerce vs. Electronic Data Interchange: E-commerce and EDI are both
interrelated. E-commerce refers to buying and selling of goods and services through internet,
computers and mobile phones. This is not possible without an efficient network of EDI. EDI refers
to transfer of data and information from one computer to another. It provides a system of
transferring information quickly.
d) Environmental Challenges: As the foreign trade is increasing day by day, it has resulted in rise
of environmental issues like pollution. Most of the developing countries are affected by it because
MNCs shift their polluted industries here. Excessive exploitation of resources is another result of
foreign trade.
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f) To cooperate with other international organizations
Objectives of GATTS
• Creating a reliable system of international trade rules.
• Ensuring fair and equitable treatment of all participants (principle of non-discrimination).
• Promoting trade and development through progressive liberalization.
Principles of GATTS
• Most-favoured-nation treatment (MFN) ensures that each member country treats services and
service suppliers of any member country indiscriminately.
• Two countries cannot make preferential arrangements that are discriminatory to others.
• The National treatment principle states that each member country treats services of another
member country no less favourably than its own national products.
• Governments have to publish all relevant laws and regulations in a transparent and easily
accessible way.
• Rules must be administered in a reasonable, objective and impartial manner.
• To eliminate business practices that may reduce competition.
• Countries might join agreements on the recognition of professional qualifications.
• Free flow of capital and money without any restrictions among member nations.
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lower the current account deficit. Hence, improve the overall economic growth of the country. India is
still a developing country and ranked 18th on the list of the top exporting countries worldwide in 2019.
The following measures are taken by the government of India to promote exports:
1. Export Processing Zones (EPZ)
2. Export Oriented Units (EOU)
3. Export Promotion Industrial Parks Scheme (EPIP)
4. Special Economic Zones (SEZ)
5. Export Houses
6. Export of Services
7. Export Promotion Capital Goods Scheme (EPCG)
8. Duty exemption
9. Export finance
10. Duty Drawback
11. Tax Relief
12. Market Development Assistance
13. Electronic Data Interchange (EDI)
14. States Cell
1) Export Processing Zones (EPZ): India’s first EPZ was setup at Kandla seaport in Gujarat in
1965. These are industrial enclaves set up near a seaport or airport. The entire production from
such zones is intended for exports. These zones are provided with good infrastructure facilities
like electricity, water, transport, restaurant, easy and simple procedures for documentation,
exemption of duties on all imports for project development, exemption from paying income tax,
speedy clearance of custom formalities, domestic and international air terminals for transit, private
and public banks to provide loans, well-connected network of public transport, pollution free
environment, abundant supply of skilled manpower and semi-skilled manpower. These industrial
estates are provided at concessional rates. Import and export of goods and services are duty free.
Some manufacturing units are given tax holidays for a limited period of time.
Objects of EPZ
a) To attract foreign direct investment.
b) To promote exports.
c) To promote employment opportunities.
d) To promote use of latest technology.
e) To create skilled manpower.
f) To increase the economic growth and development of a country.
2) 100% Export Oriented Units (EOU): These units are exempted from import licensing
formalities. They are allowed to import capital goods, raw materials, components, consumables
and spares under the Open General License on the condition that their entire production should be
exported. A 100% export-oriented unit can be set up in Free Trade Zones (FTZs), Economic
Processing Zone (EPZ), Economic Oriented Units (EOU), Special Economic Zones (SEZ), etc.
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promoted by Government with infrastructure facilities. 100% Export oriented units have been
given special status. Under Income Tax Act, there is complete tax holiday for 5 years for these
units. The Central government levies direct taxes, whereas indirect taxes are levied by the State
government. State government provides benefits in sales tax, water tax, octroi duty and electricity
tariff, etc. EOU are mainly concentrated in textile, chemicals, plastics, and minerals. All the
production are for exports and not for domestic use. These are setup in those area where there is
availability of raw-materials, technology and skilled manpower. These areas are near seaports or
airports for easy transportation. These units don’t require any import licence to import capital
goods. All the imports of capital goods and raw-materials are exempted from custom duties, excise
duties, etc.
3) Export Promotion Industrial Parks Scheme (EPIP): In this scheme, the government wants the
state government to provide infrastructure for the development of industrial parks to promote
exports.
4) Special Economic Zones (SEZ): Special economic zone is an area in which the business and trade
laws are different from the rest of the country. All the production units located in the area are
primarily export oriented. It means, whatever they produce is meant for exports. The government
provides many facilities to exporters such as easy finance, exempted taxes and custom duty, power
supply, raw-materials, water supply, etc. These economic zones are set up to promote exports in
India. It is open for all types of companies like manufacturing, trading and services. There are 171
special economic zones in India. The state governments are also now taking keen interest in setting
up special economic zones in their territories as the central government is giving a lot of incentives.
These are duty free zones.
Objectives of SEZ
a. To generate additional economic activity to promote exports.
b. To promote investment from domestic and foreign sources.
c. To create more and more employment opportunities.
d. To develop infrastructure facilities.
Features of SEZ
i) SEZ are set up by the central and state governments to attract foreign investments.
ii) SEZ provides world class facilities including electricity, roads, transport, warehouses,
recreational and educational facilities.
iii) Production units are exempted from taxes and duties for a period of 5 years.
iv) Labour laws are more flexible.
v) Duty free import of domestic and capital goods.
vi) No license required to import capital goods.
vii) Performance of the units is monitored by a committee headed by development
commissioner.
viii) Foreign direct investment is encouraged.
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ix) No separate documents are required for customs formalities.
x) To provide employment opportunities.
5) Export Houses: The exporters who are already engaged in export activities for quite a number of
years are granted the status of export houses. These trading houses are given special privileges to
promote exports. They are granted many facilities like advance licenses for exports, automatic
license, etc. Export finance and credit facilities are available to exporters through EXIM banks.
No duties are charged on imports of capital goods intended to produce goods for exports. These
units are exempted from excise duty and custom duties. Profits from exports are not taxed. Market
development assistance is also provided to the export houses. Obtain the status of star export house
and exporter must have achieved the minimum number of exports in 2 to 3 years. The central
government provides assistance to state government to promote infrastructure for export
development in these zones. For granting export house status, export performance is necessary for
at least two out of three years. The following facilities are provided to export houses:
a) Duty entitlement Pass Book Scheme (Duty free imports of goods)
b) Advance license for exports
c) Automatic license
d) Legal undertaking
6) Export of Services: The government provides a lot of incentives to service exporters through
export houses. They are eligible to benefits which an export house enjoys.
7) Export Promotion Capital Goods Scheme (EPCG): This scheme permits the import of capital
goods at a concessional rate of customs duty, subject to export obligation to be fulfilled over a
period of time. The scheme is applicable to service sector also. The importer has to obtain the
EPCG licence. The capital goods cannot be sold for 5 years. Small industries can import capital
goods through National Small Industries Corporation of India Ltd (NSIC) and State Small
Industries Corporation (SSIC).
8) Duty exemption: Duty exemption scheme allows the duty-free import of certain components, raw
materials, consumables and spares for export production. It covers categories of advance license;
blanket advance license and advance customs clearance permits.
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9) Export finance: Credits and loans are given to exporters on easy terms at reasonable rate of
interest. It is provided as pre-shipment and post-shipment finance. Pre-shipment finance is
provided to purchase, process and manufacture goods. Post-shipment finance is available to
exporters when goods are sold on credit. Finance is given from the date of export to the date of
realisation of export proceeds. EXIM bank is the pioneer bank that provides export finance to
importers and exporters of India.
10) Duty Drawback: In this scheme, custom and excise duties paid by traders on importing raw-
materials meant for producing goods for exports are refunded. The only condition is that the
imported machinery must be used to produce goods to be exported.
11) Tax Relief: Export sales are subject to many tax reliefs. There are no sales tax, excise duty and
income tax to be paid by the exporters. If paid, these are refunded. In some cases, the government
charges very less tax rates to encourage traders to do more and more of exports.
12) Market Development Assistance: In order to promote exports, the government provides
marketing facilities to the exporters. Basically, the following marketing functions are performed
by the government:
a) Survey and market research of international market
b) Quality and product development
c) Export publicity
d) Organising Trade fairs and exhibition
e) Establishing offices and branches abroad
f) Transportation and warehousing facilities
13) Electronic Data Interchange (EDI): It is a process of transferring data and information from one
computer to another. EDI aims at achieving uniform system in electronic exchange of information
all over the world. It helps to promote international trade as the traders have uniform systems of
communication.
14) States Cell: These are established by the government as nodal agency for interacting with states
and union territories on matters concerning exports from their regions. These agencies are
regulated by the Ministry of Commerce. Most of the states have these cells under the supervision
of the Chief Minister to facilitate exports in the country.
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Functions of the Councils
The major functions of the Export Promotion Councils are stated below:
i) Promoting exports: Promotional activities like organising international trade fairs, buyer-seller
meets help in putting light on the new exporters.
ii) Assistance in incentive schemes: The councils support the exporters in reaping benefits from the
incentive schemes announced in Foreign Trade Policy. Further, they issue Registration-cum-
Membership Certificate (RCMC) certificates for the exporters.
iii) Expanding market: They assist the exporters to consolidate their products and expand their
market through the EPC’s branches and offices opened in foreign countries.
iv) Strengthen relations: They send delegations to important countries to strengthen their relations
and expand export business.
v) Timely information: They update the exporters regularly about the latest trends, export
opportunities in international markets.
vi) Liasoning: The council’s liaison with the trade communities to identify their issues and needs and
collaborate to represent their issue to the government.
vii) Assist in policy making: The councils further collect data through surveys on exports regarding
their specific product categories and provide the data to the government to enhance the framework
of trade policies.
viii) Assist exporters: The councils support and aid the exporters in up gradation of
technology, improvement of product/service quality, design improvement, innovation, etc.
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• Providing market support such as market research, survey, test and preference of the consumers,
advertising, etc.
• Providing easy financial facilities, you producers at low rate of interest and less documentation.
• Providing adequate shipping facilities and related transport add warehousing facilities too
exporters and importers.
• Reducing tariffs and duties.
• Reducing restrictions on imports and exports of goods and services.
• Establishing free export zones (FEZ), special export zones (SEZ) and other industrial parks to
promote exports.
• Providing subsidies from time to time whenever required.
• Liberalization of exchange rate for easy conversion of foreign currency.
What measures can be adopted by India to integrate their trade with the World Trade?
1. India introduced New Economic Reforms in 1991 and opened doors for Liberalization,
Privatization & Globalization. The object was to remove all trade restrictions and encourage
FDI.
2. Export transactions were simplified. Communication system needs was improved.
3. More domestic & FDI are encouraged.
4. SEZ and other such parks are created to promote exports.
5. Various types of duties and taxes are reduced.
6. Innovation in new technology has been given importance.
7. Subsidies and other such benefits are given to encourage foreign trade.
What are the salient features of the New Economic Policy of 1991
i) Abolition of industrial licensing.
ii) Disinvestment
iii) Free entry to foreign investment and technology.
iv) Liberalization
v) Globalization
1) Abolition of industrial licensing: The new industrial policy abolished industrial licensing except for
certain industries related to security and strategic concerns, social reasons and products of hazardous
nature. Compulsory licensing was limited to only 6 industries such as:
i) Alcohol,
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ii) Cigarettes,
iii) Hazardous chemicals,
iv) Electronics
v) Aerospace and defence equipment,
vi) Drugs and pharmaceuticals.
2) Disinvestment: It refers to converting the public companies into private companies. The 1991
industrial policy reduced reserved industries from 17 to 8. As of now only 3 industries are reserved
for public sector such as atomic Energy, minerals and rail transport. Other industries are opened for
disinvestment.
3) Free entry to foreign investment and technology: One of the major objectives of the new industrial
policy 1991 is to encourage foreign investment and foreign technology. For this many custom
formalities and duties were removed. Foreign investment helps to grow infrastructure and creates
employment opportunities.
4) Liberalization: It is a process of removing all trade barriers to promote international trade. In other
words, giving more freedom to traders, industrialists and exporters and importers to do business.
Restrictions on imports and exports were reduced. Trade restrictions and taxes were reduced so that
more and more industries can be set up by private individuals. Foreign trade and exports were
encouraged.
5) Globalization: It refers to removing the trade restrictions so as to increase the international trade all
over the world. New industrial policy also introduced many types of changes in custom formalities.
These changes were to encourage the Indian exporters and importers to carry out international trade
with the rest of the countries.
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3. Foreign technology agreements were permitted. It was announced that Indian companies would
be free to negotiate the terms of technology transfer with their foreign counterparts without seeking
any permission.
4. Disinvestment: Many public sector enterprises were given to private companies. Some of the
important industries were power sector, telecom sector, etc. were opened to private sector
investment.
5. Devaluation of the rupee: This was the major step in the process of trade policy reforms.
Devaluation of the rupee was done about 18% against the basket of major currencies. Rupee was
made fully convertible at the market rate on current account.
6. Open general license: The new policy announced imports policy for a list of items under open
general license. It contains a list of items that can be imported without an import license.
7. Liberalization: Most of the companies were liberalised. That means more freedom was given to
the companies. Taxes and custom duties were reduced.
8. Globalization Indian companies were allowed access to foreign markets. Unnecessary trade
restrictions were removed so that free trade can be carried out. Steps were taken to encourage
exports. The number of custom duties and custom regulations we are completely abolished to
promote international trade. Foreign companies were allowed to do business and investment in
India.
9. Privatisation: It refers to converting the public enterprises into private enterprises. It is done
through disinvestment. The number of public companies which were running in losses were given
to private companies for better management add development. The main object goes to increase
the efficiency of these companies.
10. Promotion of small-scale industries according to the reformist policy, the number of measures
has been taken to promote small scale industries in India by providing financial assistance,
marketing assistance, training, etc. A number of products are reserved for only small-scale
industries, like leather, plastic, perfume, garments, etc.
11. Reforms in banking sectors: The number of reforms were introduced for healthy growth and
development of banking system in India. New guidelines were issued by the Reserve Bank of India
regarding income, assets, bank rates, interest rates, etc. Private banking system was recognised and
foreign banks were allowed to set up in India.
12. Reforms in insurance sectors: In the economic policy, it was decided to open up insurance sector
to the private sector participation. The main objective was to make available long-term funds for
infrastructures, innovative products and improving the quality of customer service. Insurance
regulatory and development authority (IRDA) was constituted to approve licenses to new insurance
companies. Foreign insurance companies were also allowed to operate in India.
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2. Economic growth and development.
3. Human resource development.
4. Latest technology.
5. Export growth.
6. Competitive market.
7. Growth of domestic industries.
1) Employment opportunities: Foreign capital helps to establish more and more industries in an
economy. This leads to creation of more job opportunities for the domestic people. A lot of people
are employed in MNCs (Multi-national Corporations). Thus, FDI solves the problem of
unemployment to a large extent and helps in economic development.
2) Economic growth and development: It are measured in terms of GDP and per-capita income of
the people living in a country. Foreign capital can be utilised for developmental purpose and
establishment of new industries. It leads to creation of better infrastructure in the country and as a
result more growth and development can be achieved.
3) Human resource development: It refers to the quality of manpower available in a country.
Foreign capital helps to enhance the skill and talent of the people. More training institutes can be
established to provide training to people. In this way, the quality and productivity of the human
resource will be improved.
4) Latest technology: Foreign capital helps to introduce new technology in a country. Latest
technology can be imported from other countries which can be effectively used by the business
firms.
5) Growth in exports: With the help of foreign capital more and more goods and services can be
produced. This helps to increase the exports and earn foreign exchange which helps to correct
balance the payment of a country.
6) Competitive market: With the rise of more and more industries in a country, more competitive
market can be developed. As a result, better quality of goods and services at reasonable prices are
available in a country. All these would enhance the standard of living of the people. They can get
international products and services in their home country.
7) Growth of domestic industries: Foreign capital helps to grow and develop domestic industries.
MNCs usually buy raw-materials from local companies which increases the production and profits.
These industries would use latest technology to stand in the international market. More skilful
workers will be employed to increase production add quality of goods and services.
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5. Draft (or Bill of Exchange)
6. Insurance Policy (or Certificate)
7. Packing List/Specification
8. Inspection Certificate
1) Air Waybill: An Air Waybill is typically a document in international trade that proves the goods
have arrived and are ready to be shipped by air. There are 3 originals and 9 copies of the document
which are signed by export agents and the air carrier. It is considered as a receipt for the goods
being transported.
2) Certificate of Origin: A certificate of origin is required by the customs department of the country
importing the goods to decide upon import duty. This document is issued by the Chamber of
Commerce of the origin country and primarily consists of the name and address of the exporter,
number and description of the goods, seal of the chamber etc.
3) Bill of Lading: As mentioned in the example earlier, the Bill of Lading is proof that the
consignment has been shipped from one destination to another. It is a document used in import
and export business, where the shipping company gives the document and is signed by the carrier
of the vessel. The Bill of Lading is handled very carefully and ensured it does not fall in the hands
of any unauthorised persons.
4) Combined Transport document: Combined Transport document or Multimodal Transport
document is issued when the goods need to be shipped through multiple modes of transportation.
The contract of the combined transport operator for the consignment begins from the place of
departure till the place of delivery. The combined transport document needs to clearly mention if
the freight charges have been paid fully already or will be paid on delivery at destination port.
5) Bill of Exchange: A bill of exchange is a unique handwritten document raised by the exporter to
the importer asking for a certain amount of money to be paid in the future and the importer also
agrees. This kind of document is generally used in wholesale trading where a huge amount of
money is involved.
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6. Rural employment programs: The government provides employment opportunities to jobless
farmers. It provides training for vocational skill development in various fields like embroidery,
weaving, tailoring, mechanics, electricians, etc. to farmers.
7. Exemption of duties: The farmers need not pay custom duties and other taxes on exporting their
products. Similarly, no duties are charged while importing machineries and tools to increase the
productivity.
Write the comparative advantages of Indian Textiles & Garments. Also write the weaknesses and
strategies of garment trade.
i) India has the largest areas under cotton cultivation.
ii) India has the most skilled and unskilled labour for cotton, textile and garments.
iii) India is the only nation having all the three textile sectors like handloom, power loom and mills.
iv) Indian craftsmen are very skilled and creative.
v) India has the ability to fulfil small export orders.
vi) Liberalised policies of the government of India.
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5) To establish production centres for sewing machines.
6) To establish more designing studios.
7) To provide training and skill development of workers through specialised institutes.
What are the export prospects for handicrafts, gems and jewellery industries. Also enumerate the
problems attached with this industry.
• Indian handicrafts, gems & jewellery industries are the largest in the world.
• India has the largest number of artisans.
• It is the major item of export in India.
What are the prospects, problems and strategies of Engineering goods in India?
Major segments of Engineering Industries
1. Automobile Industries
2. Auto Components
3. Agricultural Machinery
4. Earth Moving and Construction Machinery
5. Diesel Industry
6. Electrical Industry
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7. Transmission Line Towers
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• The industry also started exporting to markets like Turkey, Russia and Northeast Asian countries
namely Hong Kong, Japan, Korea RP, Taiwan, Macao, Mongolia.
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6) Problems in measuring a service: Services are qualitative in nature. We cannot measure the
services in units like kilogram, meter, litre, etc. We cannot measure the quantity and quality of a
service provider. So, it is quite difficult to calculate the exchange value of services.
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• ASEAN has declared itself as a nuclear weapon free zone.
• India and Southeast Asia share a long cultural history, which over the years has helped shape
economic and commercial relations between them.
• India and the member nations of the Association of Southeast Asian Nations (ASEAN) colonial
and cultural linkages that have evolved since their independence.
• The launch of India’s ‘Look East Policy’ in 1992, which was later rechristened the ‘Act East
Policy’, was a watershed event; it ushered in an era of reinvigorated partnership between India and
Southeast Asia.
• Indian policymakers had long ago realised the strategic importance of the ASEAN region.
• The Act East Policy was a push in the right direction, focused on strengthening relations through
greater economic and cultural exchanges.
• The main export items to Singapore include mineral fuels, oils and bituminous substances,
ships, boats and floating structures.
• Indian imports from Singapore include organic chemicals, nuclear reactors, boilers, machinery
and mechanical appliances, electrical machinery and equipment and parts, among others.
India also imports agricultural products from Malaysia.
• The free trade in goods agreement signed between India and ASEAN in 2009 has also facilitated
the development of trade in many products such as electronics and automobiles, including vehicle
and component manufacturing.
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h) Energy, Transport, Science and Technology
Objectives of SAARC
• Promote the welfare of the peoples of South Asia and improve their quality of life
• Accelerate economic growth, social progress, and cultural development in the region by providing
all individuals the opportunity to live in dignity and realize their full potential
• Promote and strengthen collective self-reliance among the countries of South Asia
• Contribute to mutual trust, understanding and appreciation of one another’s problems
• Promote active collaboration and mutual assistance in the economic, social, cultural, technical, and
scientific fields
• Strengthen co-operation with other developing countries
• Strengthen co-operation among themselves in international forums on matters of common interest;
and
• Cooperate with international and regional organizations with similar aims and purposes.
Significance of SAARC
1. SAARC is the world’s most densely populated region and one of the most fertile areas.
2. SAARC countries synergize their actions as they have the common tradition, dress, food and
culture, and political aspects.
3. The SAARC nations have problems in common such as poverty, illiteracy, malnutrition, natural
disasters, internal conflicts, industrial and technological backwardness, low GDP, and poor socio-
economic condition.
4. These nations uplift their living standards by creating common areas of development.
Achievements of SAARC
1. A Free Trade Area is established by the member countries to increase their internal trade and
lessen the trade gap of some states considerably. SAARC is comparatively a new organization in
the global arena.
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2. SAARC Free Trade Agreement – SAFTA was signed to reduce customs duties of all traded
goods to zero by the year 2016. The agreement was confined to goods, but excluding all services
like information technology.
3. South Asia Preferential Trading Agreement – SAPTA for promoting trade amongst the
member countries came into effect in 1995.
4. SAARC Agreement on Trade in Services – SATIS is following the GATS-plus ‘positive list’
approach for trade in services liberalization.
5. SAARC University – Establish a SAARC university in India, a food bank, and also an energy
reserve in Pakistan.
What is rationale behind Transfer of Technology? Describe the methods through which Technology
Transfer takes place in TNCs.
Technology means a way of producing goods or rendering services. Transfer of technology implies
transfer of technical knowledge from one agency to the other to produce a given goods or service. In
simple words, transfer of the knowledge of production of a product is called transfer of technology. It is
usually done by TNC (Trans-National Corporation). The technology is owned by a firm with necessary
property rights.
Generally, a previous generation of technology is sold because new technology replaces the old ones.
Moreover, a firm has property rights over a technology over a few years. So, they generally sell them to
developing countries to earn money. Buyers of technology have three main reasons for purchasing such
technology:
• Innovating a new technology is always costlier than buying a technology from the market.
• Since successful technology has already proved its utility, the buyer finds it’s very attractive.
• A firm which has no intention to become a market leader finds it easy to buy the most modern
technology.
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Forms or Types of Technology Transfer by TNC
There are many forms of non-equity transfer of technology such as:
1) Outright sale of technology
2) Sub-contracting
3) Management contracts
4) Franchises
5) Export
6) Strategic alliances
1. Outright sale or purchase of technology: Firms at times preferred to sell their technologies. The
advantage of this transfer is that the buying firm gets technology at one go and has freedom to use
the technology without the interference of the seller. But it has few drawbacks. The buyer may not
operate technology without seller’s support or may not have well developed R & D to handle the
technology.
2. Sub-contracting: Under this arrangement, the owner of the technology sub-contracts with the host
countries firm. Here the TNC not only assists the local firm technically but also provides information
to enhance the production. Technology passes to subcontractors in the form of technical help, material
handling, general information regarding production, etc. It is more popular in automobile, radio and
TV industries.
3. Management contracts: Under these contracts, a foreign enterprise advises the host company about
various management practices which are in use in the parent company. Often the entire management
is handled by the foreign company in return the host company pays management fees either as a lump
sum or in instalments.
4. Franchises: Under this arrangement, the owner of a technology allows a host company to use its
specific knowledge for a franchise fee. This practice is very popular in food industry, hotels, etc. For
example, Dominos, KFC, OYO, etc.
5. Exports: Domestic firms may acquire technology through exports. For example, the success of
garments exports of Bangladesh shows the positive impact of learning through trade in association
with TNC. Levi’s produces its products in Bangladesh. Now the local firms learnt about the quality
and fitting of the garments and started manufacturing with their own brand name.
6. Strategic alliances: High risks and rising resource and development costs have forced many TNCs
to form technology strategic alliances to share development costs for better use of scarce resources.
For example, the Lotus corporation provides the application software and Microsoft wrote the
operating system for a microprocessor that was produced by Intel. Similarly, IBM has created more
than 40 partners around the world.
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2. Transfer of foreign technology has been irrelevant and inappropriate to the recipient country’s
socio-economic priorities and in conflict with the national ethos.
3. The role of MNCs introducing new products and processes in host countries are known to have a
ill effect on the promotion of indigenous technological capabilities.
4. Foreign enterprises with superior technological advantage and competitive strength in many cases
have subdued local entrepreneurship while small and medium scale units suffered the most.
5. There has been a tendency of some foreign corporates to transfer outdated technology to the less
developed countries.
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• As per this act, Indians residing in India, have the permission to conduct a foreign exchange,
foreign security transactions or the right to hold or own immovable property in a foreign country.
• It empowers to the Central Government to regulate the flow of payments to and from a person
situated outside the country.
• All financial transactions concerning foreign securities or exchange cannot be carried out without
the approval of FEMA.
• All transactions must be carried out through “Authorised Persons.”
• In the general interest of the public, the Government of India can restrict an authorized individual
from carrying out foreign exchange deals within the current account.
• It empowers the RBI to place restrictions on the transactions from capital Account even if it is
carried out via an authorized individual.
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behaviours and values with other countries. Communities are less isolated as a result of
globalisation.
7) Urbanization – One of the consequences of globalisation is the increase in urban centres. When
many foreign and local companies set up businesses in a particular area, it becomes a hotbed of
economic activity. The people who work in those companies need infrastructure near their
workplace in terms of housing, transport, shops and other establishments. Globalisation leads to
the building of urban centres in and around industrial areas.
8) Standard of Living – With increased economic activity and opportunities for employment, people
have more money in their pockets. They also have more options to choose from because of
improved job opportunities. It is one of the main reasons why globalisation allows more and more
people to improve their standard of living.
9) Production Cost – In a globalized world, companies are free to establish their operations in areas
where the cost of production is low. The cheap availability of land, labour and raw materials has
become very important.
10) Outsourcing – One of the characteristics of globalisation is that it allows companies to bring in
third parties from outside the country to manage specific processes. They take this step to reduce
internal costs, improve the quality of services or both. For example, BPOs are all engaged in
providing outsourcing services to various firms.
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• Patent or Patent Rights: It refers to protection granted by a government to an inventor for a fixed
period during which he holds the right to exclude others from exploiting the invention. Patent is
usually done for 10 years. Through a patent, a new product or process may be introduced. Also, it
may trigger innovation by others. This is because the holder of patent right has to disclose details of
the invention to the public. Thus, others have free access to information and inventions.
• Trade Mark: It refers to any name, symbol, word, device, or a combination of these to identify and
distinguish a product from those manufactured or sold by others. The trademark once registered by a
person or organisation confers exclusive right to the person or company concerned. It is done for 7
years which can be renewed indefinitely.
• Copyright: It offers protection to original works of writers/ authors in any tangible medium of
expression. Copyrights is done for 50 years as directed by GATT.
• Industrial designs: These refer to product blueprints and architectural plans. According to TRIPS
agreement, it is done for 10 years.
• Trade secrets: may be any formula, pattern, device, or compilation of information used in a business,
which gives it an opportunity to derive an advantage over competitors.
• Geographical indication (also termed as appellation of origin): It gives the producers only from
those regions the right to name the produce by those names. For example, Champagne refers to a type
of wine produced in the Champagne region of France. Similarly, Scotch Whisky is named after
Scotland.
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• India imports from USA electronic goods, fertilizers, organic chemicals, precious stones, optical
goods, plastic materials, inorganic chemicals, etc.
• Trade and economic partnership between the US and India have been a key component of the
bilateral relationship.
• The India-US Trade Policy Forum (TPF) was established in July 2005 to discuss issues related to
trade.
• As part of the Economic Dialogue, a separate Commercial Dialogue has been set up to cover:
a) Trade Defence Measures
b) Small and Medium Enterprises
c) Capacity building on Intellectual Property Rights (IPRs).
• The main constraints to export to US is non-tariff barrier such as health and federal regulations,
inadequate export finance, transport and banking facilities, insurance costs, etc.
• From US point of view, the main constraints to export to India are high tariff and non-tariff barriers,
government policies, socio-political instability, exchange rate risks, etc.
• There is a huge potential for expanding the Indo-US trade relations.
• There should be proper dialogues between the two governments.
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• Japan and India are partners in peace, with a common interest in and complementary responsibility
for promoting the security, stability and prosperity of Asia as well as in advancing international peace
and equitable development.
• At the beginning of the 21st century, Japan and India resolved to take their bilateral relationship to a
qualitatively new level.
• The foundation for this was laid when Mr. Yoshiro Mori, Prime Minister of Japan and Shri Atal Behari
Vajpayee, Prime Minister of India
• In recent years, the economic relationship between Japan and India has steadily expanded and
deepened.
• The volume of trade between the two countries has increased.
• India was the 18th largest trading partner for Japan, and Japan was the 12th largest trading partner
for India in 2020.
• Also, direct investment from Japan to India has been increased, and Japan was the 4th largest investor
for India in FY2020.
• India and Japan have set an investment target of “five trillion yen” ($42 billion) in the next five years.
SANTOSH KR SHARMA 38
• To provide special incentives for mega projects which are extremely high-tech and entail
huge investments; such as: semiconductor facilities display fabrication, etc.
• To formulate suitable schemes and incentive mechanisms to encourage new units and
expansion of existing units.
• To promote Industry-led R&D (research and development) and innovation in all sub-sectors
of electronics which include Sensors, Artificial Intelligence, Machine Learning, Virtual
Reality, Drones, Robotics, Additive Manufacturing, Photonics, Nano-based devices, etc.
• To provide incentives and support for significantly enhancing the availability of skilled
manpower, including re-skilling.
• To offer special focus on Chip Design Industry, Medical Electronic Devices Industry,
Automotive Electronics Industry and Power Electronics for Mobility and Strategic
Electronics Industry.
• To create Sovereign Patent Fund (SPF) to promote the development and acquisition of IPs
(Intellectual Property) in ESDM sector.
• To promote trusted electronics value chain initiatives to improve national cyber
security profile.
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