RECENT TRENDS IN INDIAS FOREIGN TRADE INTRODUCTION TO FOREIGN
TRADE:Trade or exchange of goods or services between two or more
countries is called international or foreign Trade.Foreign Trade
takes place on account of many reasons such as: Human wants and
countries resources may not totally coincide. Factor endowments in
different countries differ. Technological advancements of different
countries differ. Labour and entrepreneurial skills differ in
different countries. Factors of production are highly immobile
between countries.
HISTORY OF INDIAN FOREIGN TRADE:Around 100BC Export: Cotton,
ivory, mallow cloth, muslin, precious and semi-precious gems
(diamond, pearls), silk, spices, and curatives like black pepper,
nard, long pepper Import: Wines from Italy, copper, tin, lead,
coral, topaz, sweet clover, flint, glass, antimony, GOLD and silver
coins, and performers for kings
Around 1500AD In 1498 Portuguese explorer Vasco da Gama landed
in Calicut (Kozhikode, Kerala) as the first European to ever sail
to India. The tremendous profit made during this trip made the
Portuguese eager for more Trade with India and attracted other
European navigators and tradesmen. While returning to Portugal in
1501 with pepper, ginger, cinnamon, cardamom, nutmeg, mace, and
cloves. The profits made from this trip were huge. Foreign trade is
exchange of capital, goods, and services across international
borders or territories. In most countries, it represents a
significant share of gross domestic product (GDP). While
international trade has been present throughout much of history,
its economic, social, and political importance has been on the rise
in recent centuries.All countries need goods and services to
satisfy wants of their people. Production of goods and services
requires resources. Every country has only limited resources. No
country can produce all the goods and services that it requires. It
has to buy from other countries what it cannot produce or can
produce less than its requirements. Similarly, it sells to other
countries the goods which it has in surplus quantities. India too,
buys from and sells to other countries various types of goods and
services.Generally no country is self-sufficient. It has to depend
upon other countries for importing the goods which are either
non-available with it or are available in insufficient quantities.
Similarly, it can export goods, which are in excess quantity with
it and are in high demand outside.International Trade means Trade
between the two or more countries. International Trade involves
different Currencies of different countries and is regulated by
laws, rules and regulations of the concerned countries. Thus,
International Trade is more complex.
MEANING OF FOREIGN TRADE: According to Wasserman and Haltman,
International trade consists of transaction between residents of
different countries. According to Anatol Marad, International trade
is a trade between nations. According to Eugeworth, International
trade means trade between nations.Industrialization, advanced
transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the international
trade system. Increasing international trade is crucial to the
continuance of globalization. Without international trade, nations
would be limited to the goods and services produced within their
own borders.International trade is in principle not different from
domestic trade as the motivation and the behavior of parties
involved in a trade do not change fundamentally regardless of
whether trade is across a border or not. The main difference is
that international trade is typically more costly than domestic
trade.The reason is that a border typically imposes additional
costs such as tariffs, time costs due to border delays and costs
associated with country differences such as language, the legal
system or culture. International Trade consists of export Trade and
import Trade. Export involves sale of goods and services to other
countries. Import consists of purchases from other
countries.International or Foreign Trade is recognized as the most
significant determinants of economic development of a country, all
over the world. The foreign trade of a country consists of inward
(import) and outward (export) movement of goods and services, which
results into. Outflow and inflow of foreign exchange. Thus it is
also called EXIM Trade.For providing, regulating and creating
necessary environment for its orderly growth, several Acts have
been put in place. The foreign trade of India is governed by the
Foreign Trade (Development & Regulation) Act, 1992 and the
rules and orders issued there under. Payments for import and export
transactions are governed by Foreign Exchange Management Act, 1999.
Customs Act, 1962 governs the physical movement of goods and
services through various modes of transportation.To make India a
quality producer and exporter of goods and services, apart from
projecting such image, an important Act Exports (Quality control
& inspection) Act, 1963 has been in vogue. Developmental pace
of foreign trade is dependent on the Export-Import Policy adopted
by the country too. Even the EXIM Policy 2002-2007 lays its stress
to simplify procedures, sharply, to further reduce transaction
costs.
FEATURES OF FOREIGN TRADE: Involvement of different monetary
units Imposition of restrictions in import and export by various
countries. Imposition of restrictions on release of foreign
currencies. Existence of multiple regulations, legal practices and
rules in different countries.If the seller is abroad and the buyer
is in the home country, exchange of goods between them is called
Import.If the seller is in home country and the purchaser is a
broad, the Trade between them is called Export. A foreign trade can
be further classified in to two according to visibility.a) Visible
b) Invisible. A trade which can see i.e. exchange of goods,
merchandise is a visible trade. Whereas, exchange of services
between the purchaser and seller is invisible trade i.e. technical
know-how, insurance etc.DUMPINGWhen goods are sold in foreign
market without contract of sale it is known as dumping. The dumping
has following types.1. Sporadic 2. Predatory 3. Persistent 4.
Reverse dumping. When manufacturer wants to dispose of goods in
foreign market at low price, without harming its normal market, the
dumping is sporadic. To gain access in foreign market by selling
goods at loss and to drive out the competitors refers to predatory
dumping. When a producer consistently sells at a lower price in one
market than in another, it is called persistent dumping. When
manufacturer sells goods abroad at a higher price than at home, the
practice followed is called reverse dumping.BALANCE OF TRADEBalance
of trade refers to as the difference between a countrys import of
merchandise and its exports thereof. This is also called the net
difference between the value of commodities imported and exported.
Balance of trade may be positive, surplus or negative deficit
depending on situation of net position. The positive, surplus
position occurs when export exceeds import and when import exceeds
export the balance of trade is said to be deficit or negative.
Causes of Reduction/Enhancement in Balance of Trade There are two
main factors for variation in balance of trade position. a)
External Factors. b) Internal FactorsExternal Factors: The sudden
rise in price of essential commodities like edible oil, drugs, and
medical equipments. Etc. Position of world Wide inflation or
recession. Trade restrictions imposed by the developed
countriesInternal Factors: Domestic shortage of industrial and
agricultural products. Absence of high technology. Inadequate
knowledge of export market. Neglect of export profitability.
CORRECTIVE MEASURES To come out of unfavorable TRADE position,
following corrective measures are required; Export Promotion: By
keeping quality & price competitive Import Restriction: By
imposing heavy tax & duty in import Finance: By borrowings
overseas. Monitory Measures: By putting restriction on banks
credit. Fiscal Measures: By curtailing public expenditure
Devaluation: By devaluating countrys official rate of exchange
BALANCE OF PAYMENT Meaning, Accounting The balance of payment of
a country refers to, a systematic record of all trade transactions,
visible and invisible imports and exports during a given period.
The balance of payment is a difference between international
transfer of FUNDS for a countrys imports and exports of goods and
services for certain period. The accounting of balance of payment
has two types viz. current account and capital account. According
to sec. 2(J) FEMA Act, 1999 Current Account includes private and
government merchandise, invisible items like, foreign trade,
Services, Short term banking, etc. While the capital account
transactions includes private long and short-term assets, banking
transactions and official loans, amortization, IMF and reserves and
monetary gold contingent liabilities [sec. 2(e)] The study of
balance of payment can be summarized as below:Definition: The
balance of payment of a country is a systematic record of all
transactions between residents of that country and the residents of
foreign countries during given period of time. Contents: It
includes Merchandise, visible and invisible trade, Errors and
Omission to strike a balance between two sides of accounts. Use:
The most important use is, it is guide for Government in framing
its monetary, fiscal, exchange and other policies. Broad Division:
It is broadly divided into: Balance of payments on current account
and Balance of payments on capital account Balances within the
total: For the purpose of analysis the items are divided into
five;a) Trade Balance b) Current Account Balancec) Basic Balance d)
Net Liquidity Balancee) Official transaction Balance. Foreign Trade
Trade Finance Chapter 01
DISEQUILIBRIUMIn balance of payments, debit and credit items
seldom balance. As a result, the balance of payment is either in
surplus or in deficit. When a country happens to have a surplus
balance in balance of payment over the years, inflows of foreign
capital take place, for that the rates of interest are high and
also there is confidence in the countrys currency the confidence in
countrys currency refers to no devaluation of that countrys
currency is apprehended. When, on the other hand, country has a
deficit or unfavorable balance of payment its foreign exchange
resources get depleted.
CORRECTING THE DEFICIT As said earlier, if country has an
president deficit, following corrective measures are to be taken by
its Government Import Curtail: When imports are restricted, the
position improves. But it has to be used wisely. Export Promotion:
By way of packing credit facility, export bill purchase, insurance
cover etc. Monetary Measures: By raising the (SLR) Statutory
Liquidity Ratio / or by open market operations by the Central
Foreign trade Bank. Fiscal Measures: These relate to a governments
revenue and expenditure and include budgeting for a surplus.
Devaluation: This refers to a reduction by the government in the
countrys official rate of exchange between its own currency and
other currencies.
FOREIGN CONTRACTSGoods are traded between two countries under
contracts of sale / purchase which contains price, mode of delivery
etc. The foreign contracts can be studied by following points: Mode
of Delivery: The delivery may be actual or constructive. As the
name suggest, actual delivery mean physical delivery of goods to
buyer. In constructive type not the physical but the documents are
handed over to the buyer. In foreign trade the delivery is always
constructive. Mode of Payment: Following are different types of
payments :a) OD / DP: Payment on Demand/Payment against
Documents.b) DA: Documents delivered after Acceptance through bill
of exchange.c) VP / COD: Value Payable/ Cash on Delivery both these
terms related to post parcel deliveryFreight and Insurance: In
foreign trade in case of freight and insurance certain
abbreviations are used as: 1. c.i.f.: Refers to the amount of
insurance, freight are included in invoice or contract of sale /
purchase. 2. c. & f.: Stands for cost and freight, mean that
when goods shipped under c.i.f. contract, freight should be
prepaid. 3. f.o.b.: this letter stands for free on board. In this
buyer names the vessel and specifies the date of delivery. 4.
f.a.s.: This means free alongside ship and imply that seller is
responsible for the delivery of goods within specific time.
TRADE POLICY-INTRODUCTION Shortcomings of Foreign Trade - Export
& Import Trade Deficit Current Account Deficit Survival of
Domestic companies Dependency for goods & services Dumping
Solution: Rules and regulations that are intended to change
international trade flows, particularly to restrict imports. Every
nation has some form of trade policy in place, with public
officials formulating the policy which they think would be most
appropriate for their country. Their aim is to boost the nations
international trade. Trade Policy 6 28 February 2014
WHY TRADE POLICY? National Defense theory No nation would afford
to be dependent on other exporter nation at the time of conflicts
Infant industry theory New domestic industries should be protected
from foreign competition for so long so that they will have a
chance to develop Antidumping theory Dumping is allowed, foreign
producers will temporarily cut prices and drive domestic firms out
of the market. Then they will use their monopoly to exploit
consumers.
TRADE POLICY ELEMENTS
TRADE RESTRICTIONS
ORGANIZATIONS
OBJECTIVES OF TRADE POLICY Appreciate TRADE with other nations.
Protect domestic MARKET prevailing in the country. Increase the
export of particular product which will help in expanding domestic.
Encourage the imports of capital goods for speeding up the economic
development of the country. Prevent the imports of particular goods
for giving protection to infant industries. Restrict the imports of
goods which create unfavorable balance of payments. Control the
export or import of goods and services for achieving the desired
rate of exchange. Enter into TRADE agreements with foreign nations
for stabilizing the foreign trade.FOREIGN TRADE
POLICYINTRODUCTION:Introduction Before independence, India did not
have a clear Trade policy; it was after the independence, that a
trade policy, as a part of general economic policy of development
was formulated.
Union Commerce Ministry, GOI announces integrated FTP every five
year also called EXIM policy. Policy updated every year with some
modifications & new schemes. FTP which was announced on August
28, 2009 is an integrated policy for the period 2009-14. These are
difficult times and we have set an ambitious goal for ourselves. I
am sure that the industry and the Government, working in tandem,
will be able to ensure that the Indian exports become globally
competitive and that we are able to achieve the target, which we
have set for ourselves.The Foreign trade Policy, announced on
August 28, 2009 is an integrated policy for the period 2009-14
MEANING:Foreign trade policy is the combination of words first
is foreign trade and second is policy Foreign trade: It is the
exchange of goods and services between nations. Goods can be
defined as finished products, as intermediate goods used in
producing other goods, or as agricultural products and foodstuffs.
Policy: policy is the set of rules and procedure.
OBJECTIVES: The Foreign Trade Policy of India is based on some
major objectives, they are To double the percentage share of global
merchandise trade within the next five years. To act as an
effective instrument of economic growth by giving a thrust to
employment generation To arrest and reverse declining trend of
exports To achieve an annual growth of 15% for the first 2 years
till March 2011 with an annual export target of us $ 200 Billion To
achieve an annual growth of 25% during the remaining period of the
policy 3 years. By 2014 to double India's export of goods and
services from the present level of 1.64% of the global export
market.
FOREIGN TRADE POLICY (2009-2014)Short Term Objectives: Arrest
and reverse the declining trend of exports. Provide support to
those sectors which have been hit badly by recession.Medium term
Policy Objectives: Achieve an Annual Export growth of 15% by March
2013 Achieve Annual Export growth of around 25% by 2014. Long Term
Objective: Doubling Indias share in Global Trade by 2020TARGETS
Export Target : $ 350 Billion for 2012-13 Export Growth Target: 15
% for next two year and 25 % thereafter.FOREIGN TRADE POLICY-
SCHEMES SCHEMES: Export promotion on capital Goods (EPCG) Allows
import of capital goods for pre & post production Facilitate up
gradation of plant &machinery, inputs of spares up to 100% of
value of exports Promote high value in exports, export obligation
of 50% is removed
Focus Product scheme (FPS) Provides license for export product
which have high employment potential in rural & urban areas
with a view of infrastructural facility (Agriculture, handicraft
export)
Focus Market Scheme (FMS): Offsetting high freight cost &
distribution faced in assessing foreign markets
Market Linked Focus Product Scheme (MLFPS): Expanding products
in identified markets (Mango export to US) Vishesh Krishi &
Gram Udyog Yojna (VKGUY): To boost Agriculture & rural exports
re-credit is given at 2% special additional duty
ANNOUNCEMENTS FOR FPS, FMS, MLFPS 26 new markets added in this
scheme. Incentives under FMS raised from 2.5 % to 3 % Incentive
available under FPS raised from 1.25% to 2%. Products included in
the scope of benefits under FPS FPS benefit extended for export of
green products 'and some products from the North East MLFPS
expanded by inclusion of products like pharmaceuticals, textile
fabrics, rubber products, glass products, auto components, motor
cars, bicycle A common simplified application form has been
introduced to apply for the benefits under FPS, FMS, MLFPS and
VKGUY Financial Assistance provided for a range of export
promotional activities implemented by EPC, & Trade Promotion
organization
Market study & survey Setting up showcases Participation in
trade fairs Displays in international Dept. Stores Publicity &
Campaigns, Brand Promotion
SPECIAL ECONOMIC ZONESpecial economic zone is a particular area
inside a state which acts as foreign territory for tariff and TRADE
operations. Govt. provides tax exemption (IT, Excise, customs,
sales etc.), subsidized water and electricity etc. SEZ can be
sector specific or multi product SEZ. It helps in the development
of infrastructure of the area around the SEZ, provides employment
to people, and makes the exports more viable. All this will help
the countries products to become more competitive via providing all
round development of region. It should be noted that if 100 acres
are allotted for SEZ, then only 30-35% of area is used for setting
up plants, rest of the area is used to provide housing facilities,
malls, multiplexes etc. Also Tax exemption is for specific period
say for 10 yrs or so. India was one of the first in Asia to
recognize the effectiveness of the Export Processing Zone (EPZ)
model in promoting exports, with Asias first EPZ set up in Kandla
in 1965. With a view to overcome the shortcomings experienced on
account of the multiplicity of controls and clearances; absence of
world-class infrastructure, and an unstable fiscal regime and with
a view to attract larger foreign investments in India, the Special
Economic Zones (SEZs) Policy was announced in April 2000.Export
Oriented Unit (EOU)/Special Economic Zone (SEZ) India was one of
the first countries in Asia to recognize the effectiveness of the
Export Processing Zone (EPZ) model in promoting exports Asia's
first EPZ was set up in Kandla, Gujarat in 1965 With a view to
attract larger foreign Investment in India, the Special Economic
Zones (SEZs) Policy was announced in April 2000 Income Tax
exemption to 100% EOUs and to STPI (software Technology park unit)
under Section 10B and 10A Income Tax Act has been already extended
for the financial year 2010-11 in the Budget 2009-10. OBJECTIVES OF
SEZ Generation of additional economic activity Promotion of exports
of goods and services Promotion of investment from domestic and
foreign sources Creation of employment opportunities Development of
infrastructure facilities
IMPORT/EXPORT CONTROLIMPORTS: Around 5% Tariff Lines are under
Import Controls. 11600 Tariff Lines are free for import.
Restrictions removed over the next 10 years, removing almost all
the Quantitative Restrictions. Presently: Prohibited items - 53
Lines Restricted items - 485 Lines State Trading Items - 33
Lines.EXPORTS: Controls primarily on account of security, public
health, morals, exhaustible resources and environment grounds.
Prohibited items - 59 Restricted items 155 State Trading Items 12
Restrictions fall under two Categories:- Special provision for
these items under Weapons of Mass Destruction Act, 2005. Export
Facilitation Committee looks into applications for license for
these items. {Special chemical, organisms, materials, equip. &
tech.}HIGLIGHTS Q1 of 2012-13, exports stood at US$ 75.2 and showed
a decline of 1.7 per cent as against an increase of 36.4 per cent
during Q1 of 2011-12. Q1 of 2012-13, imports declined by 6.1
percent over the corresponding quarter of 2011-12 and stood at US$
115.3 billion. Lower growth in POL imports at 5.5 percent during Q1
of 2012-13 as compared with 52.5 percent during Q1 of 2011-12.
Imports of gold and silver, US$ 9.4 bn during Q1 of 2012-13 were
48.4 per cent lower than that in Q1 of 2011-12. Non-oil non-gold
imports during Q1 of 2012-13 at US$ 65.3 bn recorded a decline of
2.9 per cent as compared to an increase of 18.9 per cent in Q1 of
preceding year. Trade deficit during Q1 of 2012-13 stood lower at
US$ 40.1 bn as compared with US$ 46.2 bn during Q1 of 2011-12.
INDIANS FOREIGN TRADE Growth is uncertain in coming months,
given the worsening global macroeconomic outlook and high interest
rate in the domestic market. During April-Sept 2011, Indias imports
expanded by 32.4% to $ 233.5billion. The trade deficit during the
April-Sept 2011 period stood at $ 73.5billion. Increasing trade
Deficit further depreciates Rupee. Depreciation of rupee will also
push up cost of imports leading to wider trade deficit in coming
times.
IMPORTS
EXPORTS
COMPOSITION OF INDIAS FOREIGN TRADE
COMPOSITION OF EXPORTS
1. Agricultural and Allied Products 15% share in exports Top
items of agricultural exports include: - Fish Products Rice Oil
Cakes Fruits and Vegetables
2. Ores and Minerals 12.3% share in exports.
3. Manufactured Goods 61.3% share in exports.- Include:
Engineering Goods Gems and Jewellery Chemical and Allied Products
Readymade Garments
4. Minerals Fuels and Lubricants 18.3% share in exports There
has been improvement in the exports of mineral fuels and lubricant
both in terms of value and in terms of %.
COMPOSITION OF EXPORTS
Petroleum Products - 31.7% share in Imports. Capital Goods -
20.3% share in Imports. Pearls and Precious Stones - 6.2% share in
Imports. Iron and Steel - 2.4% share of Imports. Fertilizers - 2.4%
share of Imports.
Therefore, Composition of Indias Foreign Trade has undergone a
positive change. It is a remarkable achievement that India has
transformed itself from a predominantly primary goods exporting
country into non primary goods exporting country. Under Imports
also Indias dependence on food grains and capital goods has
declined.DEVELOPMENT AND REGULATION ACT OF FOREIGN TRADE POLICY In
1992, the govt. enacted foreign trade (Development &
Regulation) Act to facilitate import and enhancing exports from
India. As per the provisions of the act, the Govt.:- May make
provisions for facilitating and controlling foreign trade; May
prohibit ,restrict and regulate exports & imports ,in all or
specified cases as well as subject them to exemptions; Is
authorized to formulate and announce an export & import policy
and also amend the same from time-to-time, by notification in the
Official Gazette.
CHANGES THAT TOOK PLACE:- With economic reforms, globalization
of the Indian economy has been the guiding factor in formulating
the trade policies. The reform measures introduced in the
subsequent policies have focused on liberalization; openness and
transparency. They have provided an export friendly environment by
simplifying the procedures for trade facilitation.KEY STRATEGIES
FOR ACHIEVING ITS OBJECTIVES:- Simplifying procedures and bringing
down transaction costs; Facilitating development of India as a
global hub for manufacturing, trading and services. Identifying and
nurturing special focus areas to generate additional employment
opportunities, particularly in semi-urban and rural areas.
Facilitating technological and infrastructural up gradation of the
Indian economy, especially through import of capital goods and
equipments. Activating Indian embassies as key players in the
export strategy.STRATEGY OF FOREIGN TRADE POLICY OF INDIA Removing
government controls Facilitating development of India as a global
hub for manufacturing, trading, and services Generating additional
employment opportunities technological and infrastructural up
gradation Simplification of commercial and legal procedures and
bringing down transaction costs. Simplification of levies and
duties on inputs used in export products
FOREIGN TRADE METHODS
Goods may be traded or exchanged between exporter and importer
in any of the three ways:
On Open Account Basis: Where the credit status of importer is
high, the goods are sent direct to him in anticipation of payment
in due course. Export on this basis is not permissible in India.
Under Bill of Exchange: The exporter may draw bills of exchange on
the importer for the value of the exports and collect the bills
through bank. Under Letter of credit: The exporter may agree to
export the goods only against a letter of credit opened in his
favor.
CONCLUSION
Composition of Indias Foreign Trade has undergone a positive
change. It is a remarkable achievement that India has transformed
itself from a predominantly primary goods exporting country into
non primary goods exporting country. Under Imports also Indias
dependence on food grains and capital goods has declined.
This years foreign trade Policy comes at a challenging time as
the entire world is facing an unprecedented economic slowdown.
These are difficult times and we have set an ambitious goal for
ourselves. But if the industry and government work in tandem we
will be able to ensure that the Indian exports become globally
competitive and we are able to achieve a target which we have set
for ourselves.
REFERENCES
WEBSITES:
http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf
http://www.eximpolicy.com/
http://exim.indiamart.com/foreign-trade-policy/ftp-04-05-highlights.html
http://www.infodriveindia.com/Exim/DGFT/Exim-Policy/2009-2014/default.aspx
http://www.wooltexpro.com/docs/Highlights_Foreign_Trade_Policy_2009-2014.pdf
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