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INDIA’S FOREIGN TRADE &

INVESTMENT

MCOM (IGNOU) STUDY GUIDE

(MCOM / MBA / BED)


Describe the legal framework for foreign trade in India.
The foreign trade of a country refers to outward and inward movement of goods and services giving
rise to inflow and outflow of foreign exchange. The foreign trade of India is governed by the Foreign
Trade (Development & Regulation) Act, 1992 and the payments for export and import trade
transactions in terms of foreign exchange are regulated under the Foreign Exchange Management
Act, 1999. The physical movement of the foreign trade transactions are regulated under the
Customs Act, 1962. An overview of the four major acts governing the foreign trade is discussed
below:
1. Foreign Trade (Development and Regulation) Act, 1992
The primary objective of this act is to provide for the development and regulation of foreign
trade by facilitating imports and exports from India. The Export and Import Policy of India
now renamed the Foreign Trade Policy under this act. The permission for export and import
is also given under this act by granting the Importer-Exporter Code Number (IEC). The
maximum punishment for the commitment of any offence and harming country’s trade
relations may lead to cancellation of the Importer-Exporter Code Number. The necessary
provisions relating to appeal and revision are also provided under this act.
2. Foreign Exchange Management Act, 1999
The exchange control in India was introduced in 1939 in the early period of Second World
War stating the defence rules of India. The emergency powers were subsequently replaced
by the Foreign Exchange Regulations Act, 1947 which came into operation in 1947. This act
was again replaced by the Foreign Exchange Regulations Act, 1973 known as FERA.
However, when the New Economic Policy was introduced in India in 1991, this act was again
revised and replaced by Foreign Exchange Management Act (FEMA), 1999. FEMA has been
brought to consolidate and amend the law relating to foreign exchange. The basic objective
of this Act is to facilitate external trade and payments and to promote the orderly
development and maintenance of foreign exchange market in India. This Act deals with
various regulations of foreign exchange like holding and transactions of foreign exchange,
export of goods and services, realisation and payment of foreign exchange, etc. The role of
authorised person, penalties and the procedures of appeal, etc. are regulated through this
act.
The Reserve Bank of India frames rules and regulations as per FEMA provisions, which are
amended periodically which are mentioned below:
a) Foreign Exchange Management (Export of Goods and Services) Regulations, 2000;
b) Foreign Exchange Management (Current Account Transactions) Rules, 2000;
c) Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000.
3. The Customs Act, 1962
The Customs Act, 1962 came into operation on December 13, 1962. replacing the earlier
three acts known as Sea Customs Act, 1878, Land Customs Act, 1924 and the Aircraft Act,
1934, each one of which was related to a particular mode of transportation. This
comprehensive Act provides the legal framework, guidelines and procedures related to all

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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.

FUNCTIONS OF FOREIGN CAPITAL


Foreign capital can perform three gap-filling functions:
1. Savings Gap
2. Technological Gap
3. Gap Management
1) Savings Gap: It is a situation where the existing level of savings is insufficient to achieve an
economic growth. In developed economies, a savings gap refers to the gap between current
savings for retirement and necessary savings to generate a desirable income from
retirement. It is also called a ‘pensions gap’. In less developed economies a savings gap
commonly refers to the deficit between current aggregate savings and the level of savings
required to provide funds for business investment. This type of savings gap is also called a
‘savings-investment’ gap.
2) Technology Gaps: It can arise when there is an imbalance between the current and desired
state of technology in an organization. This can be caused by the fast-paced changes in

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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.

SOURCES OF FOREIGN CAPITAL


1. Foreign Aid: Here a country gets loans from foreign countries in the form of aid. Generally,
developed economies provide financial assistance to developing economies. Countries and
multilateral aid agencies are increasingly looking to channel their funding into projects that
generate more returns. In India, all the foreign aid is negotiated through the Department of
Economic Affairs, which keeps account of foreign exchange implication. Government’s
control of foreign exchange and financial institutions ensures that the aid does not disturb
the structure of national plan expenditure.
2. External Commercial Borrowings (ECBs): India was forced to borrow from private foreign
sources to balance its deficit. Such loans are known as ‘external commercial Borrowings’
(ECBs). ECBs are loans from commercial banks and other financial institutions, suppliers’
credits, bonds, loans from semi- governmental export agencies and Nordic Investment Bank.
The major source of ECB, presently, is ‘Eurodollar’ or ‘Eurocurrency’ market. The bulk of the
(75% to 80%) borrowings have been by public sector units like the ONGC, NTPC, BHEL, MUL,
etc. The maturities have varied from 3 to 10 years generally and interest charges between
12 and 16 per cent.
3. Foreign Investment
a) Equity Capital: It is the value of the MNC’s investment in shares of an enterprise in a
foreign country. An equity capital stake of 10% or more of the ordinary shares or voting
power in an incorporated enterprise, or its equivalent. This category Includes both
mergers and acquisitions and ‘greenfield investments’ (the creation of new facilities).
b) Private Equity: It has emerged as an important source of FDI in more recent years.
c) Reinvested Earnings: These are the MNC’s share of affiliate earnings not distributed as
dividends or remitted to the MNC. Such retained profits by affiliates are assumed to be
reinvested in the affiliate.
d) Other Capital. It refers to short or long-term borrowing and lending of funds between the
MNC and the affiliate.
e) Investment and Collaboration: Although foreign investment and collaboration with
foreign parties are very closely interrelated, they are not one and the same thing. Foreign
investment may take place without foreign collaboration and vice versa. Capital
participation refers to the foreign partner’s stake in the capital while technical
collaboration refers to such facilities provided by the foreign partner as technical services,

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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.

Role of Foreign Trade in the economic development of a country


Foreign trade plays a very important role in the economic development of a country. There are no closed
economies in this world. In fact, it’s hard to exist without foreign trade. No country is self-sufficient, it depends
on other countries more or less. Significance of foreign trade can be categorised into importance of imports and
exports which is as follows:
1. Development of infrastructure
2. Employment opportunities
3. To meet the shortage of Essential Consumer Goods
4. To meet the need of Capital Goods
5. To obtain important inputs
6. Export of surplus production
7. To obtain foreign exchange
1) Development of infrastructure: Foreign trade helps to develop infrastructure in an economy like
construction of roads, bridges, power plants, etc. A country earns foreign exchange from foreign trade
which can be utilized for building infrastructure.
2) Employment opportunities: Foreign trade provides jobs to many skilled and unskilled people in
custom, transportation, warehousing, ship, etc. This helps to reduce the problems of unemployment
and poverty in the country and increases the per-capita income of the people.
3) To meet the shortage of Essential Consumer Goods: As we know, no country is self-sufficient. It
has shortage of some essential commodities like wheat, rice, sugar, oil, etc. To meet the demand of
people it has to rely on other countries which have excess production. For example, in 1994 due to
less production of sugarcane in the country, there was shortage of sugar. To meet this shortage of
sugar, it was imported in huge quantity from foreign countries.
4) To meet the need of Capital Goods: A country needs many capital goods like machinery, equipment
etc., for its industrial development. Some capital goods cannot be produced at all in India. In this
way, the need of capital goods like machinery can be met through imports.
5) To obtain important inputs: For industrial and agricultural development of India, many important
inputs like petrol, chemical fertilizers, minerals etc. are needed. These cannot be produced in sufficient
quantity in the country. Thus, their shortage can be met through
imports.
6) Export of surplus production; A country usually likes to export surplus production to foreign countries to
earn foreign exchange. In India the production of some products like tea, jute etc. is more than its domestic

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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.

Problems or issues of Foreign Trade in India


There are a number of problems faced by Indian foreign trade such as:
1) Poor Quality Products
2) High cost
3) Poor Technology
4) Less reliability
5) Lack of infrastructure
6) Supply Problems
a) Poor quality products There is a lack of proper export culture in India. The label of ‘Made in
India’ does not have a good reputation in the international market. Indian exporters suffer from
carelessness, lack of commitment and financial problems. Although, the Government of India has
taken some positive steps to overcome these problems.
b) High cost: The cost of Indian exports is generally high due to high interest rates, bank charges,
port charges, excise duties, sales tax, etc.
c) Technological factors and low productivity also responsible for increased cost. Moreover, the
advantages of the economies of scale and ability of bulk supplies are not available.
d) Less reliable: Indian exporters are not reliable. Besides poor quality, they suffer from other
drawbacks like providing after sales service, not fulfilling the contract, etc. Replacement of
defective goods is a daunting task for the Indian exporters.
e) Lack of infrastructure: India lacks in adequate infrastructure facilities like transportation,
communication, power, warehousing, etc. these facilities need to be modernised to expand exports
in India.
f) Supply problems: India’s export is not export oriented. It means it does not produce for exports
rather whatever is residual after domestic consumption is usually offered for exports. Moreover,
the supply is not adequate.

Major issues in the World Trade


There are seven major challenges to global trade and investment the world is facing now.
1) Economic Warfare
2) Geo-politicization
3) State Capitalism
4) Lack of leadership

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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.

A short note on Trade Policy and Strategy


The term trade policy refers to all the policies that have either direct or indirect effect on the trade
behaviour of a country. Trade policies depend upon the broad trade strategy adopted in the country.
There are two types of trading strategies adopted by a country:
1. Inward-orientation: Under inward strategy, no foreign aid is permissible, no movement of
factors of production to or from outside, no multinational corporations and no freedom in
international communications. Such economies hardly exist today. Outward-orientation is
useful to bring about good educational effects, new ideas and new techniques, growth of new
forms of organisation, etc.
2. Outward-orientation: Here, free movement of capital, labour, goods, multinational enterprises,
open communications are permitted. Inward-looking policies encourage indigenous talent,
learning to do things by oneself, domestic technological development and suitable range of
products, avoiding the ill-effects of demonstration from the outside world.

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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%).

FOREIGN TRADE POLICY (2015-20)


The Foreign Trade Policy Statement explains the vision, goals and objectives of the Foreign Trade
Policy 2015-2020. It describes the market, product strategy and the measures required for export
promotion. It focuses on the enhancement of the entire trade ecosystem.

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.

Major highlights of the Foreign Trade Policy


1. Whole-of-Government‟ Approach: Foreign trade plays a significant part in India’s
economy. The formation of policy requires a “whole-of-government‟ approach. The Central
government, State government, Union Territory and other government departments are
required to be involved in a well-coordinated manner.
2. Domestic Challenges: The biggest challenge has been to address the constraints within the
country. These constraints are: infrastructure bottlenecks, high transaction costs, complex
procedures, constraints in manufacturing and inadequate diversification in our services
exports, etc. These issues are to be resolved on the priority basis for the growth of foreign
trade.
3. Making export promotion schemes more focused while rationalizing imports: Winners
and potential winners have been identified separately. They are identified from amongst
industrial and agricultural products in order to make the export promotion schemes more
focused and effective. At the same time, an institutional mechanism for continuous import
appraisal has been put in place. Such mechanism ensures coordinated and rational import
policies in various sectors.
4. The Multilateral Trading System and India: The policy has ensured that the FTP is aligned
with India’s interests in the negotiations along with the obligations and commitments under
various WTO Agreements. The export promotion should focus on the more fundamental
systemic measures rather than incentives and subsidies alone.
5. The Mega Agreements: Three mega agreements that are currently being negotiated are:
a) The Trans Pacific Partnership
b) Trans-Atlantic Trade and Investment Partnership,
c) The Regional Comprehensive Economic Partnership (RCEP).

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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.

Factors affecting Balance of Payments


1) Inflation
2) National Income
3) Government Restrictions
4) Exchange Rates
a) Inflation: The rise in the price level is known as inflation. If the goods and services are costlier in
the domestic country, people would buy more of foreign goods. This will increase imports and
exports will decline. This makes the BOP unfavourable.
b) National Income: If the national and per-capita income of a country rises, people will have more
purchasing power and will demand more of foreign goods. This will increase imports and makes
the BOP unfavourable for the country.
c) Government Restrictions: If the government put more taxes on imported goods, it will make the
product costly and people will buy more of domestic goods. So, the imports will decrease and
makes the BOP favourable.
d) Exchange Rates: The rate at which currency of a country is exchanged with currency of other
countries. Actually, the exchange rates are determined by the forces of demand and supply of
currency. It happens automatically. So, if the value of domestic currency decreases, it will make
imports costlier and results in unfavourable BOP.

Methods of correcting disequilibrium in Balance of Payments


1. Monetary Policy (Deflection): Under deflation, prices fall which makes exports attractive and
imports relatively costlier. This eventually leads to a rise in exports and a fall in imports.
2. Exchange Depreciation: Exchange depreciation means the decline in the rate of exchange of one
country in terms of another. For example, assume that the Indian rupee exchanges for 65 Roubles
of the Russian currency. If India experiences an adverse Balance of payments with regard to
Russia, the Indian demand for Rouble will rise.

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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.

Distinguish between BOT & BOP


Balance of Trade Balance of Payment
It consists of imports and exports of all visible It consists of all imports and exports of visible
items. and non-visible items.
It records only current account items. It records both current and capital account items.
It is not a true indicator of economic growth of It indicates the economic growth of a country.
a country.
It may be of two types such as favourable or Balance of payment is always balanced that
unfavourable balance of trade. means total receipts is equal to total payments.
Balance of trade is a narrow concept. Balance of payment is a wide concept.

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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.

What is role of International Organizations in World Trade


There are many international organizations which are established to promote international trade such as:
WTO, IMF, ASEAN, World Bank, UN, etc. Among them the role of WTO is the most important as it
frames international rules and regulations for foreign trade.
Functions of WTO
Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The main
function is to achieve globalization and liberalization.
a) To administer trade agreements.
b) To act as a forum for trade negotiations
c) To settle trade disputes among member nations.
d) To reviewing national trade policies
e) To build the trade capacity of developing economies

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f) To cooperate with other international organizations

WTO & India


India has been a member of the WTO since January 1995 and also had been a member of the WTO’s
forerunner General Agreement on Tariffs and Trade (GATT) since July 1948. As a developing country,
India has played a significant role in the proceedings of the WTO. There are 4 important recent
developments related to India and the World Trade Organisation (WTO). These are listed below:
1. Ban of Chinese Mobile Apps
2. Issues related to the Peace Clause
3. Information and Communication Technology (ICT)
4. Fisheries Subsidies

Write a short note on GATTS.


The creation of the GATTS was one of the landmark achievements of the Uruguay Round Conference,
whose results entered into force in January 1995. The GATTS was inspired by essentially the same
objectives as the General Agreement on Tariffs and Trade (GATT).
All WTO members are at the same time members of the GATTS.

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.

Export Promotion Measures in India


Export plays a major role in the economic development of any country. A developed economy is the one,
which exports more than it imports. Higher exports draw more foreign remittances, create more jobs and

SANTOSH KR SHARMA 13
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.

SANTOSH KR SHARMA 14
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.

SANTOSH KR SHARMA 15
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

Export House Status Eligibility Criteria


Based on the export performance of an exporter, the status category is provided as follows:
a. One Star Export House: USD3 – USD25 Million Export Performance
b. Two Star Export House: USD25 – USD100 Million Export Performance
c. Three Star Export House: USD100 – USD500 Million Export Performance
d. Four Star Export House: USD500 – USD2000 Million Export Performance
e. Five Star Export House: USD2000 Million and above Export Performance

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.

SANTOSH KR SHARMA 16
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.

What is the role of Export Promotion Councils to promote exports in India.


Export promotion councils are organisations set up by the government to promote and enable the export
firms to enhance their overseas trade and presence in the global market. Federation of Indian Export
Organisations is the apex body of all the Export Promotion Councils (EPC), Tea Board, etc.

SANTOSH KR SHARMA 17
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.

Advantages of the Export Councils


a) The councils help the exporters to access the international markets through the buyer-seller
interactions.
b) The members of the EPC’s take advantage from the various incentive schemes offered by the
government.
c) The councils also collect export and import data of its members, acts as a storehouse of information
for the perusal of the government and the exports.
d) The councils organise foreign tours to enable exporters to interact with the buyers and expand their
businesses.
e) These councils also help to settle disputes between importers & exporters.
f) It gives data about the credit worthiness of the parties engaged in international trade.

State the important provisions of India’s EXIM policy.


• Making Indian products more competitive in the international market.
• Encouraging producers to use the latest technology of production.
• The producers to Improve quality of the goods and services according to the international
standards.

SANTOSH KR SHARMA 18
• 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.

Provisions of India’s Trade Policy


• To reduce import tariffs so that Indian manufacturers can produce goods at lower cost.
• To provide duty drawback to exporters who import capital goods to produce goods for export.
• To reduce multiplicity of duty rates.
• Custom duties are reduced from 45% to 40%.
• To rationalise import duty structure.

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,

SANTOSH KR SHARMA 19
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.

Impact of government policy changes on the economy


1) It increases competition as foreign companies entered in India.
2) It results in buyer’s market due to increased competition.
3) The companies now started to use latest technology to produce better quality of goods & services.
4) It results in development of human resources because new market requires people with greater
commitment & hard working.
5) More employment opportunities were created.
6) Foreign investment increased in India.

Features of Foreign Investment Policy


The new economic policy of 1991 was a major step taken by the Government of India to reform the
economy of India. The main focus of this policy was on industrial licensing, foreign investment, foreign
technology, public sector, small industries and trade policy reforms. The important regulatory changes
are:
1. Industrial licensing was abolished except certain industries related to security and strategic
concerns.
2. Direct foreign investment was permitted up to 51% equity in high priority industries.

SANTOSH KR SHARMA 20
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.

Importance of Foreign Investment for India.


Foreign direct investment is very important for any country to achieve economic growth and development.
As far as India is concerned, foreign capital plays a very important role for its economic development.
1. Employment opportunities.

SANTOSH KR SHARMA 21
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.

What are the important documents required in international trade?


The following is a list of necessary documents in international trade and some of the most important ones
explained briefly.
1. Air Waybill
2. Certificate of Origin
3. Bill of Lading
4. Combined Transport Document

SANTOSH KR SHARMA 22
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.

What measures are taken by the government to promote agricultural exports?


1. Technological measures: These measures include providing irrigation facilities, HYV seeds,
machineries, tools and implements to farmers through easy loan facilities.
2. Land reforms: It includes abolition of intermediaries, middlemen, regulations of rents paid,
security of tenants, abolition of zamindari system, etc.
3. Institutional measures: It includes providing financial facilities to the farmers on easy terms at
reasonable rate of interest through various specialized banks like NABARD, rural banks, etc.
4. Support Prices: The government provides support prices for agricultural products. It saves
farmers from selling their products at lower prices. The government fixes the lower limit and upper
limit prices of the agricultural products. This is known as price ceiling.
5. Subsidies: The government also provides subsidies to farmers at regular interval of time to protect
the interest of the farmers. Subsidies are provided while buying seeds, tools and implements,
machinery's, etc.

SANTOSH KR SHARMA 23
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.

Strategies to boost Agricultural Export


• Physical barriers on quantity should be removed.
• Agricultural trade policies should be liberal and more transparent.
• Both private and public investment to build infrastructure for agriculture should be done.
• All export controls and restrictions on agricultural products should be removed.
• Income from agriculture should be tax free.
• FDI and latest technology should be encouraged more.
• Productivity from the lands should be increased.
• Irrigation, HYV seeds, fertilizers, etc. should be provided to farmers to increase production.
• Consolidation of land holdings should be properly implemented.

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.

Weakness of Indian Textiles and Garments


i) Indian textile industries are highly decentralised. In some places, these are concentrated more than
other places.
ii) Indian textile industries use traditional technology.
iii) Shortage of trained manpower.
iv) Indian fabric is of low quality which are not of international standards.

Strategies to promote Indian textile and readymade exports.


1) To provide infrastructure for increasing production capacities of textile and Readymade
garments.
2) To regulate the import and exports of cotton and cotton yarn.
3) To set up state apparel parks.
4) More investments for developing textile centre infrastructure.

SANTOSH KR SHARMA 24
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.

Problems of handicraft, gem and jewellery industries


• Dependence on imports for raw-materials.
• Cut-throat competition from China.
• Imbalance growth. Some states have good infrastructure but others are deficient.
• Traditional Technology, tools, implements & machinery.
• Lack of training facilities.
• financial Problems
• Low quality & productivity
• Poor working conditions & wages.
• Terrorism.

Future prospects and strategies


• Raw materials should be imported of good quality at reasonable prices.
• Product should be manufactured according to the change in fashion and style.
• Latest technology should be used.
• Stress should be given to expand the portfolio like on synthetic stones, fashion jewelleries,
coloured gemstones, etc.
• Government should set up more designing institutes in cities.
• Provision for trade fairs and exhibitions.
• Financial facilities should be provided to the manufacturers.

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

SANTOSH KR SHARMA 25
7. Transmission Line Towers

Problems of Engineering goods export


1) Indian machineries are old model and out-dated.
2) Tough competition from Taiwan, Korea, etc.
3) There are a number of non-tariff barriers which restrict exports.
4) The recent Gulf problems have a bad impact on exports.
5) Most of the African countries have reduced imports from India due to foreign exchange crises.
6) Inadequate infrastructure facilities
7) High cost of production
8) Small-size manufacturing units.
9) Lack of finance
10) Lack of export culture.

Strategies to promote exports of Engineering goods


1. There is a need of integrated strategy to promote exports of engineering goods.
2. We have to adopt a selective approach that means selecting some specific goods and increasing
the production of them only.
3. Technology upgradation is required.
4. Marketing facilities should be provided by the government.
5. More warehouses should be constructed.
6. Joint venture should be done to acquire raw-materials or for production.
7. Foreign investment should be encouraged.
8. Team work needs attention so that all the small units can be combined into single unit.
9. Financial facilities should be provided by the government.

What are the prospects of Chemical Industries in India?


• India is the sixth largest chemical producing countries in the world and third largest producer in
Asia. It is also among the top 3 basic chemical producing countries globally.
• The industry employs around 2 million people in India.
• The country ranks 14th in the global exports of chemicals (excluding pharmaceutical products)
with 2.5% contribution to global chemical sales.
• Chemical manufacturing in India is mainly concentrated in Maharashtra and Gujarat. The other
major producing states are West Bengal and Tamil Nadu.
• Chemicals industry in India is highly diversified, covering over 80,000 commercial products. It is
broadly classified into bulk chemicals, agrochemicals, specialty chemicals, polymers,
petrochemicals and fertilizers.
• India exports chemicals and chemical products to more than 175 countries with key export
destinations like China, USA, Brazil, Netherlands, Saudi Arabia, Indonesia, UAE, Japan,
Germany, etc.

SANTOSH KR SHARMA 26
• The industry also started exporting to markets like Turkey, Russia and Northeast Asian countries
namely Hong Kong, Japan, Korea RP, Taiwan, Macao, Mongolia.

India’s competitive advantages in Chemical goods


1. Availability of highly skilled and technical manpower.
2. Easy availability of raw-materials.
3. Presence of MNCs in the industry is an additional advantage.
4. This industry is six decades old.
5. India is strategically located in Asia.

Opportunities for Chemical Industries in India


1) Petrochemical is a fast-growing sector in Asia-Pacific region.
2) There is a rising demand of plastics and textiles.
3) The radical changes in construction and automobile sectors set to increase the demand for
chemicals.

What are the issues in International Trade in Services?


The following are the different problems of marketing services:
1. Services are inseparable
2. Services may be heterogeneous
3. Services are intangible in nature
4. No ownership
5. Services are perishable
6. Problems in measuring a service
1) Services are inseparable: There must be a physical contact between the service provider and a
customer. A customer needs to be physically present to get the service from the provider because
services are inseparable from the service provider.
2) Services may be heterogeneous: A service provider may not render the same quality of service
again and again. It may depend on the mood and situation of the service provider. Thus, services
are heterogeneous but products are homogeneous.
3) Services are intangible in nature: Services cannot be seen, standardised, patented or stored. This
creates uncertainty in the minds of consumers. This is one of the biggest problems in marketing of
services. Generally, consumers like to examine the product before buying.
4) No ownership: The ownership of services always lies with its owner. It cannot be transferred from
one person to the other. As in the case of a product, the ownership is transferred to the buyer but
this is not possible in case of services. Moreover, both the parties must be physically present to
avail the service.
5) Services are perishable: We cannot use a service again and again. Once used, it perishes. It
creates a challenge of balancing demand and supply. For example, when we buy the services of a
doctor, we can use it once only as long as we are present.

SANTOSH KR SHARMA 27
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.

India’s competitive advantages and disadvantages in the export of service


India's Competitive Advantages in services
1. Due to India’s huge population, it has a vast storage skilled, semi-skilled and unskilled labour.
This helps India to take an advantage over its competitors.
2. India is a huge market for a number of services which provides economic strength and learning
capacity to a large number of service sectors.
3. India has a diversified culture and heritage tourist destinations. It has attractive infrastructure
facilities like transport, hotels, communication in tourist spots. So, India always attracts foreign
tourists.
Disadvantages
1. The mobility of labour is restricted because of visa policies.
2. Many service sectors have changed into capital intensive due to development of technology.
3. The service sector in India suffers from lack of finance at lower costs.
4. Competition developing countries like South Korea and Taiwan have improved their competitive
advantage by increasing their capacities about the service sectors.
5. Poor quality Indian service exporters are not of international standards. The quality of services
that India provides is not good.

Suggestions to boost Services exports


i) Aggressive marketing strategies should be adopted.
ii) Export Promotion Councils should be set up.
iii) There is a need for simplifying the export procedures of services.
iv) In the WTO, there should be time-bound commitment for movement of persons.

Write a short note on Indo-ASEAN trade and economic relations.


• The Association of Southeast Asian Nations is a regional organization which was established in
1967 to promote political and social stability.
• The motto of ASEAN is “One Vision, One Identity, One Community”.
• Founding Fathers of ASEAN are: Indonesia, Malaysia, Philippines, Singapore and Thailand.
ASEAN’s Role
• The group acted as a platform for the member nations to resolve disputes on economic, strategic
and security aspects.
• Through multilateral initiatives, ASEAN has maintained stable relations with the great powers in
Asia.
• ASEAN is now important in the region. It has helped shape regional interactions with the great
powers including China, India, Japan and the US.

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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.

Write a short note on South Asian Association of Regional Cooperation (SAARC)


• It was set up in 1985 in Dhaka, Bangladesh with 8 countries such as Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan.
• Its headquarters is in Kathmandu, Nepal.
• The object of SAARC is to promote economic growth, social and cultural development in South
Asian region.
• It emphasizes on self-reliance of each member countries.
• It aims at promoting mutual trust, understanding and cooperation among the member countries.
• It has five main principles such as, sovereignty, equality, territorial integrity, political
independence and non-interference in internal affairs of the member countries.
• SAARC summit is held every year to discuss and promote regional economic cooperation.

Areas of Cooperation among SAARC Nations


a) Agriculture and Rural Development
b) Human Resource Development and Tourism
c) Economic, Trade and Finance
d) Social Affairs
e) Environment, Natural Disasters and Biotechnology
f) Education, Security and Culture and Others
g) Information and Poverty Alleviation

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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.

Importance of SAARC for India


1. SAARC is a game-changer for India’s Act East Policy. It links South Asian economies with
Southeast Asian that will further boost economic integration and prosperity to India mainly in the
Services Sector.
2. Primacy to the country’s immediate neighbours.
3. Nations of SAARC help in the creation of mutual trust and peace within the region thus promoting
stability.
4. SAARC can engage Nepal, Bhutan, the Maldives, and Sri Lanka in economic cooperation and
development process to counter China.
5. SAARC offers a platform to India to showcase its leadership in the region by taking up extra
responsibilities.

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.

Rationale of Technology Transfer


i) Inadequacy of resources at the disposal of innovators and lack of necessary capabilities on their
part often require technology to be transferred to business firms for commercial use.
ii) The scientist or engineer who innovates new technology does not generally have the
entrepreneurial expertise.
iii) Commercial use of technology is both expensive and risky. So, the innovator may not afford to
use the technology he has invented.
iv) Developing countries, which are technologically backward, need to acquire appropriate
technology from developed countries to ensure faster industrial growth and / or improve productive
efficiency.
v) Transfer of technology is also prompted by competitive market condition and the fast pace of
technological change.
vi) Research organisations, universities and other institutes undertake and engage are technological
research projects aiming at transfer of new technology to the highest bidder.

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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.

Problems and Prospects of Technology Transfer


There are several problems associated with transfer of technology which are given below:
1. The cost of foreign technology transfer is a problem for less developed countries. Because it
involves payment of royalties, dividend interest and technical fees.

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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.

A short note on Export-Import Bank (EXIM) of India


Export-Import Bank of India was set up in 1982 for the purpose of financing, facilitating and promoting
foreign trade in India. It is the principal financial institution in the country for coordinating working of
institutions engaged in financing exports and imports.
Functions of EXIM Bank
1) Finance: Exim bank finances export of Indian machinery, manufactured goods, consultancy and
technology services on deferred payment terms. The finance is also made available at export
production stages. The bank provides a variety of lending and service programmes to Indian entities,
commercial banks and overseas entities. These financing activities facilitate the export-import
business in the country.
2) Services: International risks are the most challenging task before the Indian exporters. The bank
provides information and advisory services to the exporters. These services include country studies,
merchant banking services, advice on international marketing, data relating to projects funded by
Multilateral Institutions etc. These services help the exporters to evaluate the international risks,
export opportunities and competitiveness. The bank has wide network with financial institutions,
trade promotion agencies and information providers across the globe. The bank helps Indian
companies in their global operations through these networks.
3) Research and Analysis: The EXIM Bank conducts various types of researches on goods & services
which have potential market on international level. The bank undertakes research and analysis work
on specific industry. These works are widely distributed amongst exporters, industry, trade
organisations and government so that they can do international business more effectively. Generally,
these researches are expensive and vast which are not possible for traders to conduct.

A short note on FEMA (Foreign Exchange Management Act)


• Foreign Exchange Management Act, 1999 (FEMA) came into force by an act of Parliament.
• This act contains a set of regulations that empowers the Reserve Bank of India to pass regulations
and enables the Government of India to pass rules relating to foreign exchange in tune with the
foreign trade policy of India.
• FEMA was previously known as Foreign Exchange Regulation Act (FERA).
• The main object of this act is to increase the flow of foreign exchange in India without any legal
barrier

SANTOSH KR SHARMA 33
• 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.

A short note on Globalisation


The process of integrating the world economy through international trade is known as globalization. The
main objective is to remove trade restrictions for free flow of goods, services, capital, technology and
people. It is generally supported by the WTO (World Trade Organization). Globalisation has helped
nations integrate their economy with the rest of the world, and it has reduced barriers to trade and increased
economic activity manifold. It has also led to cultural, social and technological exchanges that have helped
governments tackle internal and external challenges with greater efficiency.
Role or advantages of Globalization
1) Free Trade – Globalisation has helped to improve trade volumes between nations with minimal
interference. The Gross Domestic Product (GDP) of countries that have accepted globalisation has
also increased significantly.
2) Liberalization – One of the main characteristics of globalisation is the improvement in the
business climate for corporations. It has helped entrepreneurs to set up businesses and transact
both within and outside the country. The rules and regulations for companies are relaxed
significantly to allow for more trade between nations due to globalisation.
3) Increase in Employment – Every industry is responsible for generating both direct and indirect
jobs. And when production increases, it has a positive effect on employment. Globalisation helps
companies increase their production capacity and set up operations in different parts of the world.
It also helps boost work opportunities in countries where these corporations have set up operations.
4) Increased connectivity between nations – Globalisation has helped countries improve trade
relations with each other. It has increased interaction between people and businesses. Better
connectivity also boosts a country’s economy and enhances the standard of living for its citizens.
5) Interdependence – With the advent of globalisation, countries have become more reliant on each
other. Businesses get the opportunity to import cheaper raw materials to produce their
commodities. They are also being allowed to export to countries that have more demand for their
finished goods. It has helped reduce trading barriers and build overall economic prosperity.
6) Cultural Exchange – Improvement in people-to-people contacts have encouraged the
intermingling of cultural practices and customs. It has allowed people to exchange ideas,

SANTOSH KR SHARMA 34
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.

A short note on TRADE RELATED INVESTMENT MEASURES (TRIMS)


The agreement on Trade-Related Investment Measures or “TRIMs” acknowledges that investment
measures can control and increase trade. TRIMS believe that there is a strong connection between trade
and investment. The goal of trade-related investments measures is to give fair treatment to all investing
members across the world.
Main Features of TRIMS
1. It only applies to investment measures related to goods trade.
2. This doesn’t apply to service trade.
3. It doesn’t regulate the entry of foreign industry or investment.
4. It is about the discriminatory treatment of imported/exported products.
5. TRIMS measures are applicable to both foreign and domestic firms.

A short note on TRADE RELATED INTELLECTUAL PROPERTY RIGHTS (TRIPS)


These are agreements related property rights like new inventions, technology, methods, etc. These are
basically done to protect the rights of inventions. Intellectual Property Right (IPR) is defined as a
composite of ideas, inventions and creative expression to give their owners the exclusive right over it. The
Agreement on TRIPS requires that patents should be granted for any invention relating to products or
processes in all fields of technology provided they are new, involve an inventive set up and are capable of
industrial application.
The specific forms of IPR under the Agreement on TRIPS include patents, copyrights, trademarks,
industrial designs, trade secrets and geographical indications.

SANTOSH KR SHARMA 35
• 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.

Short note on Intellectual Property Rights (IPR)


• These are the rights given to persons over the creation of their minds. It gives exclusive rights to
the creator over the use of his or her creations.
• These rights may be copyrights, patterns, trademarks, trade mark, trade secrets.
• Intellectual property rights are generally done for the following activities
1. Industrial designs
2. Scientific discoveries
3. Literary, artistic and scientific works.
4. Inventions and discoveries in all fields.
5. Commercial names of the companies.
Advantages of IPR
a. Exclusive rights to the creators or inventors.
b. Encourage people to share their creations.
c. Provides legal defense towards innovations.

Write a short note on Indo-US Trade relations


• USA is India’s largest trading partner.
• In fact, India imports more than it exports to US.
• The main items of exports to USA include gems & jewellery, cotton, handicrafts, metals, cashew, iron
& steel, hand-made carpet, marine products, etc.

SANTOSH KR SHARMA 36
• 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.

A short note on EU – India trade relations


• European Union is comprised of countries like Belgium, France, Italy, Netherlands, Germany, UK,
Greece, Portugal, Austria, etc.
• India is not a significant trade partner of the EU and only accounts for less than 1.5% of the trade.
• India trades with countries like UK, Germany, Belgium, Italy and France.
• The main items imported from EU are machinery and its parts, precious stones, iron & steel articles,
scientific instruments, organic chemicals, aircrafts, etc.
• The main items exported are apparel, cotton, cotton yarn, leather, woollen and silk carpets, tea,
coffee, spices, marine products, nuts, etc.
• Different agreements have been signed from time to time.
• A joint commission was set up in 1974 to promote trade relations between EU and India.

A short note on CIS – India trade relations.


• After the breaking down of former USSR, 11 out of 15 countries joined together to form CIS (Common
wealth of Independent States, such as Russia, Ukraine, Uzbekistan, Tajikistan, Georgia, Moldova, etc.
• India has been a strong trading partner of former USSR.
• After the collapse of USSR, India and CIS countries have been reworking on agreements.
• Russia is the largest trading partner of India.
• The major items of exports from India are readymade garments, tea, coffee, rice, drugs &
pharmaceuticals, plastic, leather, spices, cosmetics, etc.
• The major items of imports are iron & steel, fertilizers, machinery, silk, gold, silver, etc.

A short note on India and Japan Trade Relations

SANTOSH KR SHARMA 37
• 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.

India Japan – Major Initiatives


• A Social Security Agreement (SSA) was signed with Japan in Tokyo on 16 November 2012, as
provided for in the bilateral CEPA. On the same day, a Memorandum on Cooperation in the Rare
Earths Industry in India was also signed.
• A bilateral swap agreement between the Reserve Bank of India (RBI) and Bank of Japan (BoJ) was
signed on 4 December 2012 in Mumbai which enhanced the swap amount from US$ 3 billion in the
earlier Agreement of June 2008 to US$ 15 billion.
• The 1st India-Japan bilateral naval exercise took place as scheduled in June 2012 for which a flotilla
of 4 Indian naval ships visited Japan.
• The 2nd Army-to-Army Staff Talks were held in Tokyo in April 2012 and the Navy-to- Navy Staff Talks
in Tokyo in November 2012. Regular cooperation between Coast Guards continued under the
framework of the MoU on bilateral cooperation signed in 2006.
• A new Cyber Security Dialogue was held at Tokyo on 5 November 2012, while a newly established
Maritime Dialogue.
• The 60th Anniversary of establishment of diplomatic relations between India and Japan was
celebrated through various events both in India and Japan.
• Academic seminars and workshops, business summits and visits of business delegations, cultural
performances and art shows, painting and photography exhibitions and joint audio-visual
productions, both at the governmental level and by private institutions have been held to bring the
people of both countries closer.

A short note on National Policy on Electronics 2019


The National Policy on Electronics 2019 provides for the following:
• To create an eco-system for globally competitive for promoting domestic manufacturing and
export in the entire value-chain.
• To provide incentives and support for manufacturing of core electronic components.

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.

A short note on Start Up India


Startup India is a flagship initiative of the Government of India, intended to build a strong eco-
system for nurturing innovation and startups in the country that will drive sustainable economic
growth and generate large scale employment opportunities.
The government through this initiative aims to empower startups to grow through innovation and
design and to consolidate and facilitate the startup ecosystem of the country. Contributing to the
Prime Minister’s vision of an ‘Aatmanirbhar Bharat’.
Startup India has been supporting entrepreneurs and transforming India into a country of job
creators rather than job seekers. The National Startup Day, celebrated on January 16 th every year,
is an ode to commemorate the inception of Startup India and the wave of entrepreneurship in the
nation.
As we progress towards building the ‘New India’, Startup India is determined to take along the
visionary entrepreneurs and budding startups to accelerate India’s growth journey. Fostering a
fruitful culture of innovation in the country is a long and important journey. This initiative will go a
significant way in reiterating Government of India’s commitment to making India the hub of
innovation, design and Startups.

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SANTOSH KR SHARMA 40

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