International business

Role of foreign trade in the economic development of India.

Government of India accepts the key role of Foreign Direct Investment (FDI) in economic development
not only as an addition to domestic capital but also as an important source of technology and global best
practices. The Government of India has put in place a liberal and Transparent FDI policy.

FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is
reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from
foreign/NRI investor without prior approval in most of the sectors including the services sector under
automatic route. FDI in sectors/activities under automatic route does not require any prior approval
either by the Government or the RBI.

Trade balance

The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the
monetary value of exports and imports of output in an economy over a certain period. It is the
relationship between a nation's imports and exports.[1] A positive balance is known as a trade surplus if
it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or,
informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance.

Balance of payments
Balance of payments may be used as an indicator of economic and political stability. For example, if a
country has a consistently positive BOP, this could mean that there is significant foreign investment
within that country. It may also mean that the country does not export much of its currency.

This is just another economic indicator of a country's relative value and, along with all other indicators,
should be used with caution. The BOP includes the trade balance, foreign investments and investments
by foreigners.
Balance of payments components

Balance of payments is divided into a number of components; some are considered short term, and they
are grouped together under the current account; others are long term, and they are grouped under the
capital account, a third component is grouped under reserve; this is where official agencies of a
government buy or sell financial instruments such as .S treasury notes and similar documents.

Current accounts
The most importand outcome of balance of payments is a clear picture of a country’s imports and
exports and the balance therein. The quotation at the beginning of the chapter is poignant in the sense
that a country’s balance of payments should indeed “balance” . in accounting terms, for every debit
there is a corresponding credit. All the items of imports that added to more than $567 billion in 1987
had to be paid for in some way by somebody. Some were paid for by the funds received for exports of
goods and srvices, which amounted to more than $420 billion, the total amount of inflow of foreign
capital;the statistical discrepancy, which amounted to $21,892.

Balance of payments entries

Capital account position

Convertibility of capital for non-residents has been a basic tenet of India’s foreign investment policy all
along, subject of course to fairly cumbersome administrative procedures. It is only residents — both
individuals as well as corporates — who continue to be subject to capital controls. However, as part of
the liberalization process the government has over the years been relaxing these controls. Thus, a few
years ago, residents were allowed to invest through the mutual fund route and corporates to invest in
companies abroad but within fairly conservative limits.

Buoyed by the very comfortable build-up of forex reserves, the strong GDP growth figures for the last
two quarters and the fact that progressive relaxations on current account transactions have not lead to
any flight of capital, on Friday the government announced further relaxations on the kind and quantum
of investments that can be made by residents abroad. These relaxations are to be reviewed after six
months and if the experience is not adverse, we may see further liberalization and in the not-too-distant
future full CAC.