2018 (May)
COMMERCE (General)
Course: 602 (International Business)
Time: 3 hours
The figures in the margin indicate full marks for the questions
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
1. Answer the following as directed: 1x8=8
a) The country to which India exports the largest is
1) America.
2) England.
3) Germany.
4) Japan. (Choose the correct answer)
b) Mention one function of EXIM Bank. To provide fund to EOU to EPZ
c) Write one objective of export processing zone. To provide an internationally competitive duty free environment for export production at low cost.
d) Write the full form of FEMA. Foreign Exchange Management Act
e) The apex ministry at the central level to formulate and execute India’s foreign trade policy is the Ministry of Commerce. (Fill in the blank)
f) Write the full form of SAARC. South Asian Association for Regional Co-operation.
g) What does protect an exporter of products and services against the risk of non-payment by foreign buyer? Letter of Credit
h) Write the full form of ECGC. Export Credit Guarantee Corporation of India Limited
2. Write short notes on: 4x4=16
a) Export-oriented units: The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity. The EOU scheme is, at present, governed by the provisions of Export and Import (EXIM) Policy, 1997-2002. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. The EOUs can export all products except prohibited items of exports in ITC (HS).
Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.
Benefits under EOU Scheme
Ø Units are exempted from payment of Income Tax
Ø All the imports to units are customs duty free.
Ø Exemption from Central Excise Duty for the procurement of Capital Goods and Raw Materials from domestic market.
Ø Units are entitled to sell the product in local market upto 50% of the products exported in value terms.
b) Significance of export credit insurance: Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services, and also offers guarantees to banks and financial institutions to enable exporters obtain better facilities from them. Exporters have a lot to benefit from ECGC as it provides:
a) insurance protection to exporters against payment risks
b) provides information on credit-worthiness of overseas buyers
c) provides information on about 180 countries with its own credit ratings
d) guidance in export related activities
e) makes it easy to obtain export finance from banks/financial institutions
f) assists exporters in recovering bad debts
c) Commodity composition of Indian export: Commodity-wise exports data available upto March 2012, shows that the share of manufacturing sector in total merchandise exports declined marginally from 62.9% in 2010-11 to 61.3% in 2011-12. However, the respective share of petroleum products and primary products increased during the period (Table 2). Within exports of manufacturing sector, the share of engineering goods and textile & textile products declined while that of chemical and related products improved marginally.
Among the major sectors, growth in exports of manufacturing sector seems to have been affected significantly during 2011-12. Within manufacturing sector, growth in exports of engineering goods and textile products was lower as demand conditions in key markets like the US and Europe were sluggish. These two markets account for nearly 60% and 50% of total exports from engineering and textile sector. Within engineering sector, growth in exports of transport equipment, iron & steel, electronic goods and manufactures of metals was significantly hit while that of machinery and instruments moderated marginally. However, growth in exports of leather & manufactures and chemicals & related products witnessed higher growth during 2001-12 as compared with 2010-11.
| Table 3: India’s Exports of Principal Commodities (Percentage Share) | ||
| Commodity Group | 2010-11 | 2011-12 |
| April – March | ||
| 1 | 2 | |
| I. Primary Products Agriculture and Allied Products. Ores and Minerals II. Manufactured Goods Leather and Manufactures Chemicals and Related Products Engineering Goods Textiles and Textile Products Gems and Jewellery III. Petroleum Products IV. Others Total Exports | 13.1 9.6 3.4 62.9 1.6 11.5 23.1 9.6 16.1 16.5 7.5 100 | 15.0 12.3 2.7 61.3 1.6 12.2 22.0 9.2 15.4 18.3 5.4 100 |
d) Objectives of exchange control: Objectives/Importance of Exchange Control are outlined below:
1) To Conserve Foreign Exchange: The main objective of foreign exchange regulation in India, as laid dawn in the Foreign Exchange Regulation Act (FERA), 1973, is the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interest of the national development. This is one of the important objectives .of foreign exchange regulation of many other countries too.
2) To Check Capital Flight: Exchange control may be employed to prevent flight of capital from the country and to regulate the normal day-to-day capital movements. If adequately implemented and enforced, exchange control tends to be highly effective in curbing erratic outflows of capital.
3) To Improve Balance of Payments: Exchange control is one of the measures available to improve the balance of payments position. This can be achieved by restricting imparts by means of exchange control.
4) To make Possible Essential Imports: Due to the non-availability of or scarcity within the country, the developing countries generally have to import capital goods, know how and certain essential inputs and consumer goods. By giving priority to such imports in the allocation of foreign exchange, exchange control may ensure availability of foreign exchange for these imports.
5) To Protect Domestic Industries: Exchange control may also be employed as a measure to protect domestic industries from foreign competition.
3. (a) Discuss the growth of India’s foreign trade in the context of global foreign trade. 14
Ans: India’s Foreign trade in global context
Most countries have managed the political process of keeping protectionism at bay despite growing unemployment and shrinkage of employment opportunities. Over the past few years, the number of restriction on international trade has dropped sharply. Member countries of the WTO have resorted to emergency measures to block imports on fewer occasions. Such measures included anti-dumping levies, recourse to special safeguards mechanism, and imposition of countervailing duties. However, cities of the report contend that protectionism exists but in less traditional forms. For instance, the bailout of financial institutions and car companies, and “Buy American” procurement rules in the US are cited as examples of protectionism. The failure to move ahead with the Doha round of trade talks is perhaps the most relevant example of lack of commitment among industrialized countries to free trade.
India and other select countries (2000-09)
| | Value (US$ billion 2008 | Growth rate % | Share in world Exports (%) | Change in Share (%) | ||||||
| CAGR | Annual | |||||||||
| 2000-06 | 2007 | 2008 | 2009 (Jan-Jun) | 2000 | 2007 | 2008 | 2009 (Jan-Jun) | 2008/2000 | ||
| China Hong Kong Malaysia Indonesia Thailand Singapore India Brazil Mexico Russia Korea Emerging & Developing Economies | 1429 363 210 148 173 338 177 198 292 472 422 6218 | 25.4 7.8 8.5 7.9 11.3 12.0 19.1 16.5 7.1 19.3 11.2 17.3 | 25.6 8.7 9.6 14.7 17.0 10.1 21.4 16.6 8.6 16.6 14.1 15.2 | 17.3 5.3 19.1 24.4 12.9 13.0 20.4 23.2 7.3 33.1 13.6 25.7 | -21.7 -16.7 -31.2 -28.3 -23.4 -31.7 -18.4 -22.8 -30.3 -46.8 -22.7 -27.6 | 3.9 3.2 1.5 1.0 1.1 2.2 0.7 0.9 2.6 1.7 2.7 25.9 | 8.8 2.5 1.3 0.9 1.1 2.2 1.1 1.2 2.0 2.6 2.7 35.9 | 8.9 2.3 1.3 0.9 1.1 2.1 1.1 1.2 1.8 2.9 2.6 38.9 | 9.1 2.5 1.2 0.9 1.2 2.1 1.2 1.2 1.8 2.2 2.9 38.4 | 5.0 -0.9 -0.2 -0.1 0.0 -0.1 0.4 0.4 -0.8 1.3 -0.1 12.9 |
| World | 16001 | 11.2 | 14.1 | 16.2 | -29.5 | 100 | 100 | 100 | 100 | - |
Recent Trends and Developments in India’s Foreign Trade
I. Trade in Merchandise
EXPORTS (including re-exports)
In consonance with the revival exhibited by exports in the last four months, during January,2017 exports continue to show a positive growth of 4.32 per cent in dollar terms (valued at US$ 22115.03 million) and 5.61 per cent in Rupee terms (valued at Rs. 150559.98 crore) as compared to US$ 21199.02 million (Rs. 142568.31 crore) during January,2016.
Cumulative value of exports for the period April-January 2016-17 was US$ 220922.78 million (Rs. 1484473.55 crore) as against US$ 218532.64 million (Rs. 1420572.68 crore) registering a positive growth of 1.09 per cent in Dollar terms and positive growth of 4.50 per cent in Rupee terms over the same period last year.
Non-petroleum exports in January 2017 were valued at US$ 19422.86 million against US$ 19111.38 million in January 2016, an increase of 1.6 %. Non-petroleum exports during April - January 2016-17 were valued at US$ 196254.10 million as compared to US$ 192071.50 million for the corresponding period in 2016, an increase of 2.2%.
The growth in exports is positive for USA (2.63%),EU(5.47%) and Japan(13.43%) but China has exhibited negative growth of (-1.51%) for November 2016 over the corresponding period of previous year as per latest WTO statistics.
IMPORTS
Imports during January 2017 were valued at US$ 31955.94 million (Rs. 217557.32 crore) which was 10.70 per cent higher in Dollar terms and 12.07 per cent higher in Rupee terms over the level of imports valued at US$ 28866.53 million (Rs. 194134.02 crore) in January, 2016. Cumulative value of imports for the period April-January 2016-17 was US$ 307311.86 million (Rs. 2065656.42 crore) as against US$ 326277.38 million (Rs. 2120158.57 crore) registering a negative growth of 5.81 per cent in Dollar terms and 2.57 per cent in Rupee terms over the same period last year.
CRUDE OIL AND NON-OIL IMPORTS:
Oil imports during January, 2017 were valued at US$ 8140.83 million which was 61.07 percent higher than oil imports valued at US$ 5054.29 million in January 2016. Oil imports during April-January, 2016-17 were valued at US$ 69062.66 million which was 5.81 per cent lower than the oil imports of US$ 73321.66 million in the corresponding period last year.
Non-oil imports during January, 2017 were estimated at US$ 23815.11 million which was 0.01 per cent higher than non-oil imports of US$ 23812.24 million in January, 2016. Non-oil imports during April-January 2016-17 were valued at US$ 238249.20 million which was 5.81 per cent lower than the level of such imports valued at US$ 252955.72 million in April-January, 2015-16.
II. TRADE IN SERVICES (for December, 2016, as per the RBI Press Release dated 15th February 2017)
EXPORTS (Receipts): Exports during December 2016 were valued at US$ 13804 Million (Rs. 93729.71 Crore) registering a positive growth of 3.49 per cent in dollar terms as compared to positive growth of 1.72 per cent during November 2016 (as per RBI’s Press Release for the respective months).
IMPORTS (Payments): Imports during December 2016 were valued at US$ 8294 Million (Rs. 56316.59 Crore) registering a negative growth of 0.35 per cent in dollar terms as compared to positive growth of 8.37 per cent during November 2016 (as per RBI’s Press Release for the respective months).
III.TRADE BALANCE
MERCHANDISE: The trade deficit for April-January, 2016-17 was estimated at US$ 86389.08 million which was 19.82% lower than the deficit of US$ 107744.74 million during April-January, 2015-16.
SERVICES: As per RBI’s Press Release dated 15th February 2017, the trade balance in Services (i.e. net export of Services) for December, 2016 was estimated at US$ 5510 million. The net export of services for April- December, 2016-17 was estimated at US$ 48316 million which is lower than net export of services of US$ 53557 million during April- December, 2015-16. (The data for April-December 2015-16 and 2016-17 has been derived by adding April-December month wise QE data of RBI Press Release).
OVERALL TRADE BALANCE: Overall the trade balance has improved. Taking merchandise and services together, overall trade deficit for April- January 2016-17 is estimated at US$ 38073.08 million which is 29.7 percent lower in Dollar terms than the level of US$ 54187.74 million during April-January 2015-16. (Services data pertains to April-December 2016-17 as December 2016 is the latest data available as per RBI’s Press Release dated 15th February 2017)
Or
(b) Discuss the characteristics of India’s foreign trade in recent years. 14
Ans: International Business: Business transaction taking place within the geographical boundaries of a nation is known as domestic or national business. It is also referred to as internal business or home trade. Manufacturing and trade beyond the boundaries of one’s own country is known as international business.
International or external business can, therefore, be defined as those business activities that take place across the national frontiers. It involves not only the international movements of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights.
In the words of Michael R. Czinkota ,” International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of the individuals, companies and organisations. These transactions take on various forms which are often interrelated.”
In the words of John D. Daniels and Lee H. Radebaugh, “ International business is all business transactions — private and governmental — that involve two or more countries. Private companies undertake such transactions for profits; governments may or may not do the same in their transactions.”
The important features of Indian foreign trade are as follows:
a) Large scale operation: In international business, all the operations are conducted on a very huge scale. Production International Business and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported.
b) Integration of economies: International business integration (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its part in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market.
c) Dominated by developed countries and MNCs: International business is dominated by developed countries and Japan dominated (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market.
d) Benefits to participating countries: International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies.
e) Keen competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNC s are in a favourable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries.
f) Special role of science and technology: International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries.
g) International restrictions: International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade block, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business.
h) Sensitive nature: The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.
4. (a) What is exchange control? Explain the methods of exchange control. 4+10=14
Ans: Meaning of Exchange Control: Exchange control is one of the important means of achieving certain national objectives like an improvement in the balance of payments position, restriction of inessential imports and conspicuous consumption, facilitation of import of priority items, control of outflow of capital and maintenance of the external value of the currency. Under the exchange control, the whole foreign exchange resources of the nation, including those currently occurring to it, are usually brought directly under the control of the exchange control authority (the Central Bank, treasury or a specially constituted agency). Dealings and transactions in foreign exchange are regulated by the exchange control authority.
Definition: Exchange control is a system in which the government of the country intervenes not only to maintain a rate of exchange which is quite different from what would have prevailed without such control and to require the home buyers and sellers of foreign currencies to dispose of their foreign funds in particular ways.
According to Crowther:
“When the Government of a country intervenes directly or indirectly in international payments and undertakes the authority of purchase and sale of foreign currencies it is called Foreign Exchange Control”.
Simply, Exchange Control means the control of the government in the purchase and sale of foreign currencies in order to restore the balance of payments equilibrium and disregard the market forces in the decision of monetary authority.
Methods of Exchange Control: Exchange control is exercised either by regulating international movements of goods through various devices or by the purchase and sale of foreign currency at specified rates in order to maintain a particular range of exchange fluctuations. Exchange control can be exercised by influencing demand for, and supply of, currencies in the exchange market. This can be done indirectly by devices like tariffs, quotas, bounties, changes in interest rates, etc. Imposition of import duties and of import quotas will reduce imports, cut down the demand for foreign currency, lower its value or raise the value of the domestic currency. Export duties, which are not so common, will have the opposite effect. There are various methods of exchange control which may be broadly classified into:
(1) Unilateral Methods: Unilateral measures refer to those methods which may be adopted by a country unilaterally i.e., without any reference to or understanding with other countries. The important unilateral methods are outlined below:
(a) Influencing Exchange Rate: Exchange control is exercised either by regulating international movements of goods through various devices or by the purchase and sale of foreign currency at specified rates in order to maintain a particular range of exchange fluctuations. Exchange control can be exercised by influencing demand for, and supply of, currencies in the exchange market. This can be done indirectly by devices like tariffs, quotas, bounties, changes in interest rates, etc. Imposition of import duties and of import quotas will reduce imports, cut down the demand for foreign currency, lower its value or raise the value of the domestic currency. Export duties, which are not so common, will have the opposite effect.
(b) Regulation of Foreign Trade: The rate of exchange may be controlled by regulating the foreign trade of the country. For example, by encouraging exports and discouraging imports, a country can increase the demand for, in relation to supply, its currency in the foreign exchange market and thus bring about an increase in the rate of exchange of the country’s currency.
(c) Controlling Exchange Rate. There are two methods generally adopted for controlling exchange:
(1) Intervention. In this case, the government enters the exchange market either to purchase or to sell foreign exchange in order to bring the rate up or down to the desired level. This method has been called intervention and leads to exchange pegging.
(2) Restriction. In this case, the government can prevent the existing demand for, or supply of, the country, in which they are interested, from reaching the exchange market. This method has been called restriction. The second method has been more popular because intervention proved a weak weapon and was also expensive.
(d) Exchange Control Proper. Exchange restriction is exchange control proper. For this three things are done: (a) all foreign dealings are centralised, usually in the central bank; (b) the national currency cannot be offered for exchange without previous permission, and (c) it is made a criminal offence to enter into an unauthorised foreign exchange transaction.
(e) Exchange Pegging: This device is usually adopted during war in order to minimize exchange fluctuations. The internal value of a currency may depreciate due to inflation but the government may seek to keep its external value at a higher level than warranted by the purchasing power parity in order to facilitate international transactions.
(f) Exchange Equalisation Account: Exchange funds were the outgrowth of the transformation of the international gold standard convention into an international gold settlement system under which gold came to be used as a balancing item in international trade.
(g) Blocked accounts: When foreign debts paid in domestic currency to the central bank cannot be remitted abroad without the permission of the government, blocked accounts are said to arise. Since idle funds in the country lead to contraction of credit, the foreign creditors are not altogether prevented from using them. But they have to be used in manner prescribed by the government. Usually, they are allowed to be sold in the open market. In most cases, they are sold at a heavy discount.
(2) Bilateral/Multilateral Methods
The important bilateral/multilateral methods are the following:
(a) Private Compensation Agreement: Under this method, which closely resembles barter, a firm in one country is required to equalize its exports to the other country with its imports from that country so that there will be neither a surplus nor a deficit.
(b) Clearing Agreements: Under a clearing agreement between two countries, importers in both countries pay into an account at their respective central banks the purchase price of the goods imported. This money is then used to pay off exporters. The rate between the currencies is usually fixed by the terms of agreement. The object is to regulate imports according to the wishes of the government, to ensure equilibrium in the balance of payments and to prevent uncertainties of fluctuating exchanges. The system tends to encourage bilateral trade at the expense of multilateral trade and thus has a restrictive effect on international trade. On the other hand, it discourages dumping and currency depreciation.
(c) Standstill agreement: A standstill agreement is a device to prevent the movement of capital through a moratorium on outstanding short-term foreign debts of a country and to give her time to put her house in order. Either the short-term debt is converted into long-term debt or provision is made for its gradual repayment.
(d) Payments Agreement: Under the payments agreement, concluded between a debtor country and a creditor country, provision is made for the repayment of the principal and interest by the debtor country to the creditor country. The creditor country refrains from imposing restrictions on the imports from the debtor country in order to enable the debtor to increase its exports to the creditor. On the other hand, the debtor country takes necessary measures to encourage exports to and discourage imports from the creditor country.
(e) Transfer moratoria: It is another device of the same kind. Under this system, importers or others pay their foreign debts in their domestic currency to a specified authority. When the moratorium is concluded these funds are remitted abroad. A foreign creditor is sometimes allowed to use his funds in the country imposing the moratorium in a way specified by the government.
Or
(b) Write an analytical note on export-import policy of India. 14
Ans: Export – Import Policy or Foreign Trade Policy: No country is self-sufficient in the world today. Therefore, every country has to import goods and to pay for imports it has to export goods to other countries. The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage. But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports.
India's Foreign Trade Policy also known as Export Import Policy (EXIM) in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. Foreign Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). Foreign Trade Policy or EXIM Policy is a set of guidelines and instructions established by the DGFT (Directorate General of Foreign Trade) in matters related to the import and export of goods in India.
The foreign trade policy, has offered more incentives to exporters to help them tide over the effects of a likely demand slump in their major markets such as the US and Europe. 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.
Export- Import (EXIM) Policy 2002-07
In order to maintain the balance of payments and to avoid trade deficit the government of India has announced a trade policy for imports and exports. After every five years the government of India reviews the import and export policy in view of the changing international economic situation. The policy relates to promotion of exports and regulation of imports so as to promote economic growth and overcome trade deficit. Accordingly, the export-and import policies (EXIM Policy) were announced by the government first in 1985 and then in 1988 which was again revised in 1990. All these policies made necessary provision for extension of import liberalisation measures. All these policies made necessary provision for import of capital goods and raw materials for industrialization, utilisation and liberalisation of REP (Registered Exporters Policy) licenses, liberal import of technology and policy for export and trading houses. The government announced its new EXIM policy for 2002-2007 which is mainly a continuation of the EXIM policy of 1997-2002. The new export-import policy for 2002-2007 aims at pushing up growth of exports to 12 per cent a year as compared to about 1.56 per cent achieved during the financial year 2001-2002.
The main features of this export- import policy are given below:
a) Concessions to exporters: To enable Indian companies to compete effectively in the competitive international markets and to give a boost to sagging exports various concessions had been given to the exporters in this new EXIM policy 2002-2007. These concessions are:
i) Exporters will now have 360 days to bring in their foreign exchange remittances as compared to the earlier limit of 180 days.
ii) Exporters will be allowed to retain the entire amount held in their exchange earner foreign currency (EEFC) accounts.
iii) Exporters will now get long-term loans at the prime lending rate for that tenure.
b) Duty Entitlement Pass Book (DEPB) and Export Promotion Capital Goods (EPCG) Schemes: DEPB and EPCG are important tools of promoting exports. These schemes have been made more flexible. In the DEPB and EPCG schemes new initiatives have been granted to the cottage industries, handicrafts, chemicals and pharmaceuticals, textile and leather products.
c) Strengthening Special Export Zones (SEZ): The new long-term EXIM policy has sought to enable Indian SEZs to be at par with its international rivals. The EXIM policy has given a boost to the banking sector reforms by permitting Indian banks to set up overseas banking units in SEZs.
d) Soft options for computer hardware industry: The export import (EXIM) policy has put the Indian computer manufacturers at par with manufacturers in other parts of the world. Companies manufacturing or assembling computers in the country will be able to import both capital and raw materials at lower duty rates to sell in the domestic market.
As per the information technology agreement which is part of the world trade organisation zero duty the agreement on I. T. sector, 217 I. T. components would attract a zero duty by 2005. Therefore, foreign companies can import these products into the country while Indian manufacturers who did the same had to meet export obligations on their imports. Now, the new EXIM policy states that domestic sales will be considered as a fulfillment of the export obligation, thereby freeing the domestic manufacturers from exports completely.
Salient Features of Foreign Trade Policy 2009-14
1. $ 200 billion or Rs 98,000 crore is the export target for 2010-11.
2. 100% growth of India’s export of goods and services by 2014.
3. 15% growth target for next two years; 25% thereafter.
4. 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%.
5. Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence.
6. 26 new markets added to focus market scheme.
7. Provision for state-run banks to provide dollar credits.
8. Duty entitlement passbook scheme extended till Dec. 2010.
9. Tax sops for export-oriented and software export units extended till March 2011.
10. New directorate of trade remedy measures to be set up.
11. Plan for diamond bourses.
12. New facility to allow import of cut and polished diamonds for grading and certification.
13. Export units allowed to sell 90% of goods in domestic market.
14. Export oriented instant tea companies can sell up to 50% produce in domestic market.
15. Single-window scheme for farm exports.
16. Number of duty-free samples for exporters raised to 50 pieces.
17. Value limits of personal carriage increased to $5 million (Rs 24.5 core) for participation in overseas exhibitions.
Salient Features of the present Foreign Trade Policy 2015-2020
1. Increase exports to $900 billion by 2019-20, from $466 billion in 2013-14
2. Raise India's share in world exports from 2% to 3.5%.
3. Merchandise Export from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) launched.
4. Higher level of rewards under MEIS for export items with High domestic content and value addition.
5. Chapter-3 incentives extended to units located in SEZs.
6. Export obligation under EPCG scheme reduced to 75% to Promote domestic capital goods manufacturing.
7. FTP to be aligned to Make in India, Digital India and Skills India initiatives.
8. Duty credit scrips made freely transferable and usable For payment of custom duty, excise duty and service tax.
9. Export promotion mission to take on board state Governments
10. Unlike annual reviews, FTP will be reviewed after two-and-Half years.
11. Higher level of support for export of defence, farm Produce and eco-friendly products.
5. (a) Discuss the role of commercial banks in Indian foreign trade. 14
Ans: Role of Banks in Foreign Trade
Banking section plays important role in international business. Today almost all major banks have offices in major cities around the world. Many banks have formed collaboration with banks in other countries to better serve their international business community. Banks form a bond of trust between buying and selling transactions in international market. For individual banks offer services like foreign exchange, traveler’s check, electronics transfer. For businesses bank plays a role of trusty agent by offering services like ‘Documentary Collection’ and ‘Letter of Credit’. Significance of commercial banks in international trade are outlined below:
(a) Creating trust between international buyers and sellers by issuing letter of credit: One of the problems of international business houses doing business internationally is lack of trust. With the help financial devices commercial banks are able for a bond of trust between international buyers and sellers. In commercial methods like ‘Commercial Collection’ and ‘Letter of Credit’ banks act as agents to handle payments as well as relevant documents. Letter of Credit is most wide acceptable and used method of doing international transactions. Some banks and government agencies offer export credit insurance to businesses. In some cases, exporter has to forgo a letter of credit, in such cases banks offer export credit insurance.
(b) Advising Bank: After the bank of the buyer approves the issuance of the letter of credit, the issued letter of credit is sent to the advising bank who establishes the authenticity of the instrument and informs the beneficiary of receipt.
(c) Final Payment: After all of the terms and conditions for shipment and quality standards have been checked via the presentation of proper documentation, the issuing bank pays the seller for the goods.
(d) Foreign exchange services: Foreign exchange market is another area where international commercial banks play vital role. Foreign exchange market serves two main functions, convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk. Multinational corporations constantly need various currencies for their operations and to hedge against foreign exchange risk. International banks provide foreign exchange services to their commercial business clients to complete their business transactions. These banks act as a broker between commercial customer and foreign exchanges around the world. International businesses receive payments in foreign currencies for their export, the income it receives from foreign investments and income received from licensing agreements with foreign firms. International business use foreign exchange market to pay foreign firms for its products and services and when it makes direct investment in foreign country. International banks play major roles in these transactions.
(e) Short term and long term finance to the international trader: Many commercial banks offers short as well as long term loan financing to international businesses. Many countries have form banks backed by government funding to provide funds for exporters and importers. In India, Export-Import bank, an independent agency of the Indian government, provides financial aid to facilitate export and import of goods.
(f) Catalysts in international trade: Banking sector plays vital role of catalysts in international market. Due to technology advances in banking sector, communication gap and delays in international business have really narrow down a lot.
Or
(b) Describe the objectives and functions of Export-Import Bank of India. 14
Ans: The Export-Import (EXIM) Bank of India is the principal financial institution in India for coordinating the working of institutions engaged in financing export and import trade. It is a statutory corporation wholly owned by the Government of India. It was established on January 1, 1982 for the purpose of financing, facilitating and promoting foreign trade of India. Export-Import Bank of India (Exim Bank) was set up by an Act of the Parliament “THE EXPORT-IMPORT BANK OF INDIA ACT, 1981” for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for co-ordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade and for matters connected therewith or incidental thereto.
FUNCTIONS OF EXIM BANK:
1. Lending Programme to Indian Exporters:
Ø Supplier’s credit: This enables the exporters to extend credit to overseas importers of eligible Indian goods.
Ø Finance for consultancy and technology services: This enables Indian exporters of consultancy and technology services to extend term credit to overseas importers.
Ø Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months.
2. Finance for deemed exports:
Ø Finance for EOU and EPZ Units.
Ø Software Training Institutes.
Ø Export marketing finance.
Ø Export-Product Development Finance: these Indian firms to undertake product development, R & D for exports.
3. Services Offered to Indian Exporters:
Ø Underwriting: This enables the Indian exporters to raise finance from capital markets with the backing of EXIM Bank’s underwriting commitment.
Ø Forfeiting: This Indian exporters to convert sale to cash on without recourse basis.
Ø Guarantee Facility: To execute export contracts and imports transactions.
Ø Business Advisory and Technical assistance.
Ø Cooperation arrangement with African Management Services.
4. For Commercial Banks:
Ø Refinance of Export Credit.
Ø Bulk import finance.
Ø Guarantee cum Refinance supplier’s credit.
5. Other activities:
Ø The bank helps Indian companies go global by setting up subsidiaries and joint ventures abroad.
Ø It provides information to potential exporters about projects abroad specially about multilaterally agencies.
Ø It also helps companies in preparing bids according to strict condition prescribed by the multilateral agencies.
Ø It also entertains proposals for various facilities under he European Community Investment Partners like feasibility studies for setting up export units.
The bank introduced the “cluster of Excellence” programme for up gradation of quality standards and obtaining ISO certification.
Exim Bank has two main objectives:
i) The traditional export finance typical of export credit agencies around the world
ii) Financing of export oriented units (export capability creation), which are non-traditional for export credit agencies.
Since inception, Exim Bank has been the principal financial institution in the country for financing project exports and exports on deferred credit terms. As per Memorandum of PEM (MEMORANDUM OF INSTRUCTIONS ON PROJECT EXPORTS AND SERVICE EXPORTS) of Reserve Bank of India, the following constitute project exports:
a) Supply of goods / equipment on deferred payment terms
b) Civil construction contracts
c) Industrial turnkey projects
d) Consultancy / services contracts
Exim Bank extends funded and non-funded facilities for overseas turnkey projects, civil construction contracts, technical and consultancy service contracts as well as supplies. Turnkey Projects are those which involve supply of equipment along with related services, like design, detailed engineering, civil construction, erection and commissioning of plants and power transmission & distribution
Construction Projects involve civil works, steel structural works, as well as associated supply of construction material and equipment for various infrastructure projects.
Technical and Consultancy Service contracts, involving provision of know-how, skills, personnel and training are categorized as consultancy projects. Typical examples of services contracts are: project implementation services, management contracts, supervision of erection of plants, CAD/ CAM solutions in software exports, finance and accounting systems.
Supplies: Supply contracts involve primarily export of capital goods and industrial manufactures. Typical examples of supply contracts are: supply of stainless steel slabs and ferro-chrome manufacturing equipments, diesel generators, pumps and compressors.
Exim Bank, under powers delegated vide the PEM, provides post-award clearance for project export contracts valued upto USD 100 million. Project export contracts valued above USD 100 million need to be provided post-award clearance by the inter-institutional Working Group.
In the case of very large value projects, officials of Ministry of Finance, Ministry of Commerce and Industry and Ministry of External Affairs, Government of India, are invited to participate in the Working Group Meetings. In order to obtain immediate clarifications for speedy clearance of proposals by the Working Group, the exporters concerned and their bankers are also associated with the meetings.
With the same objective, participation of the main sub-suppliers, sub-contractors or other associates and their bankers in such meetings is also encouraged, particularly in respect of proposals for high value contracts. Exim Bank also plays the role of a financier and provides funded and non-funded support for project export contracts of Indian Entities.
In addition to project exports, Exim Bank also extends fund-based and non-fund-based facilities to deemed export contracts as defined in Foreign Trade Policy of GOI, e.g., secured under funding from Multilateral Funding Agencies like the World Bank, Asian Development Bank, etc.; Contracts secured under International Competitive Bidding; Contracts under which payments are received in foreign currency. Contracts in India categorized as Deemed Exports in the Foreign Trade Policy of India.
From the above discussion we can say that, the main role of Exim bank in foreign trade is to give credit facilities. Exim Bank extends Lines of Credit (LOC) to overseas financial institutions, regional development banks, sovereign governments and other entities overseas, to enable buyers in those countries, to import goods and services from India on deferred credit terms. The Indian exporters can obtain payment of eligible value from Exim Bank, without recourse to them, against negotiation of shipping documents. LOC is a financing mechanism that provides a safe mode of non-recourse financing option to Indian exporters, especially to SMEs, and serves as an effective market entry tool. Exim Bank extends LOC, on its own, as well as, at the behest of Government of India.
6. (a) Explain briefly the different organizations involved in export promotion in India. 14
Ans: Institutional Support for Export Promotion: Government of India has also set up from time-to-time various institutions in order to facilitate the process of foreign trade in our country. Some of the important institutions are as follows:
1. Department of Commerce: Department of Commerce in the Ministry of Commerce, Government of India is the apex body responsible for the country’s external trade and all matters connected with it. This may be in the form of increasing commercial relations with other countries, state trading, export promotional measures and the development, and regulation of certain export oriented industries and commodities. The Department of Commerce formulates policies in the sphere of foreign trade. It also frames the import and export policy of the country in general.
2. Export Promotion Councils (EPCs): Export Promotion Councils are non profit organisations registered under the Companies Act or the Societies Registration Act, as the case may be. The basic objective of the export promotion councils is to promote and develop the country’s exports of particular products falling under their jurisdiction. At present there are 21 EPC’s dealing with different commodities.
3. Commodity Boards: Commodity Boards are the boards which have been specially established by the Government of India for the development of production of traditional commodities an their exports. These boards are supplementary to the EPCs. The functions of commodity boards are similar to those of EPCs. At present there are seven commodity boards in India: Coffee Board, Rubber Board, Tobacco Board, Spice Board, Central Silk Board, Tea Board, and Coir Board.
4. Export Inspection Council (EIC): Export Inspection Council of India was setup by the Government of India under Section 3 of the Export Quality Control and Inspection Act 1963. The council aims at sound development of export trade through quality control and pre-shipment inspection. The council is an apex body for controlling the activities related to quality control and pre-shipment inspection of commodities meant for export. Barring a few exceptions, all the commodities destined for exports must be passed by EIC.
5. Indian Trade Promotion Organisation (ITPO): Indian Trade Promotion Organisation was setup on 1st January 1992 under the Companies Act 1956 by the Ministry of Commerce, Government of India. Its headquarter is at New Delhi. ITPO was formed by merging the two erstwhile agencies viz., Trade Development Authority and Trade Fair Authority of India. ITPO is a service organisation and maintains regular and close interaction with trade, industry and Government. It serves the industry by organising trade fairs and exhibitions— both within the country and outside, It helps export firms participate in international trade fairs and exhibitions, developing exports of new items, providing support and updated commercial business information. ITPO has five regional offices at Mumbai, Bangalore, Kolkata, Kanpur and Chennai and four international offices at Germany, Japan, UAE and USA.
6. Indian Institute of Foreign Trade (IIFT): Indian Institute of Foreign Trade is an institution that was setup in 1963 by the Government of India as an autonomous body registered under the Societies Registration Act with the prime objective of professionalising the country’s foreign trade management. It has recently been recognised as Deemed University. It provides training in international trade, conduct researches in areas of international business, and analysing and disseminating data relating to international trade and investments.
7. Indian Institute of Packaging (IIP): The Indian Institute of Packaging was set up as a national institute jointly by the Ministry of Commerce, Government of India, and the Indian Packaging industry and allied interests in 1966. Its headquarters and principal laboratory is situated at Mumbai and three regional laboratories are located at Kolkata, Delhi and Chennai. It is a training-cum-research institute pertaining to packaging and testing. It has excellent infrastructural facilities that cater to the various needs of the package manufacturing and package user industries. It caters to the packaging needs with regard to both the domestic and export markets. It also undertakes technical consultancy, testing services on packaging developments, training and educational programmes, promotional award contests, information services and other allied activities.
8. State Trading Organisations: A large number of domestic firms in India found it very difficult to compete in the world market. At the same time, the existing trade channels were unsuitable for promotion of exports and bringing about diversification of trade with countries other than European countries. It was under these circumstances that the State Trading Organisation (STC) was setup in May 1956. The main objective of the STC is to stimulate trade, primarily export trade among different trading partners of the world. Later the government set up many more organisations such as Metals and Minerals Trading Corporation (MMTC), Handloom and Handicrafts Export Corporation (HHEC).
Or
(b) What is special economic zone? Highlight the objectives of the SEZ Act of India. Discuss the advantages of SEZ. 3+3+8=14
Ans: Special Economic Zone- Introduction
Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
SEZ AT INDIA
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's 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.
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005.
The main objectives of the SEZ Act are:
(a) Generation of additional economic activity
(b) Promotion of exports of goods and services;
(c) Promotion of investment from domestic and foreign sources;
(d) Creation of employment opportunities;
(e) Development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
OBJECTIVES OF SEZ AT INDIA
a) Generation of additional economic activity across all the states
b) Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities
c) Promotion of investment from domestic and foreign sources
d) Creation of employment opportunities across India
e) Development of world class infrastructural facilities in these units
f) Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities
g) Single window clearance cell for the establishment of Special Economic Zone
h) Single window clearance cell within each and every Special Economic Zones
i) Single window clearance cell relating to formal requirements of Central as well as all State Governments.
j) Easy and simplified compliance procedures and documentations with stress on self certification.
Key Advantages of SEZ Units in India
Ø 10-year tax holiday in a block of the first 20 years
Ø Exemption from duties on all imports for project development
Ø Exemption from excise / VAT on domestic sourcing of capital goods for project development
Ø No foreign ownership restrictions in developing zone infrastructure and no restrictions on repatriation
Ø Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership
Ø Income tax holidays on business income
Ø Exemption from import duty, VAT and other Taxes
Ø 10% FDI allowed through the automatic route for all manufacturing activities
Ø Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution
Ø Simplification of procedures and self-certification in the labor acts
Ø Artificial harbor and handling bulk containers made operational through out the year
Ø Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations
Ø Has host of Public and Private Bank chains to offer financial assistance for business houses
Ø A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise
Ø Well connected with network of public transport, local railways and cabs
Ø Pollution free environment with proper drainage and sewage system
Ø In-house Customs clearance facilities
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
1. Answer the following as directed: 1x8=8
a) The major trade partner of India is
1) Canada.
2) China.
3) Great Britain.
4) Mexico. (Choose the correct answer)
b) “A foreign trade zone (FTZ) is a free trade agreement among several nations.” (Write True or False)
c) The institutional framework developed in 1947 to promote trade liberalization is known as
1) GATT.
2) WTO.
3) IMF.
4) IBRD. (Choose the correct answer)
d) The policy for developing and protecting domestic industries is said as _____ trade policy. (Fill in the blank)
e) The operations of the EXIM Bank of India commenced from the year _____. (Fill in the blank)
f) Write the full form of FDI. Foreign Direct Investment
g) Write the full form of EPCs. Export Promotion Councils
h) Write the full form of ECGC. Export Credit Guarantee Corporation of India Limited
2. Write short notes on any four of the following: 4x4=16
a) Export Processing Zone.
b) Bilateral Agreement.
c) Deferred Payment System.
d) Export-Import Bank.
e) Control of Foreign Trade in India.
3. (a) Discuss the growth of India’s foreign trade after liberalization. 12
Or
(b) Write a note on the commodity composition and direction of India’s foreign trade. 12
4. (a) Explain the objectives and methods of foreign exchange control in India. 11
Or
(b) Analyze the India’s foreign trade policies during last ten years. 11
5. (a) Discuss the role of commercial banks in Indian foreign trade. 11
Or
(b) Discuss the various export incentives offered by the Indian Government for promotion of export. 11
6. (a) Discuss the role of the Export Promotion council in promoting exports in India. 11
Or
(b) What is special economic zone (SEZ)? Discuss the advantages of SEZ. 3+8=11
7. (a) Discuss the importance of multilateral agreement in promoting foreign trade. 11
Or
(b) Discuss the main characteristics of the current foreign investment policy of India. 11
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