Ib 15 Guide Long Questions

IB 15 GUIDE LONG QUESTIONS
Answer –
David Ricardo’s path-breaking work, Principles of Political Economy and Taxation, was
published in 1817. In this book, he explained the law of comparative advantage. This law was found to
be so accurate and useful that it still applied in its original form to actual scenarios, unlike most other
economy-related laws that are either modified or discarded over time. The principle of comparative
advantage states that a nation, like a person, gains from trade by exporting the goods or services in
which it has its greatest comparative advantage in productivity, and importing those in which it has the
least comparative advantage.
The key term here is comparative, which means relative and not necessarily absolute. Even if
one nation is considered to be the most productive at producing everything and another is the least,
they both can gain by trading with each other and with third countries as long as they have (dis)
advantages in making different goods Ricardo explained this point with simple numerical example that
gains from trading is good between two countries. Here is a similar illustration, using wheat and cloth in
the United States and the rest of the world:
Numerical example –
Even if one country is not good at producing everything, we still can have a case of comparative
advantage:
Here, as in Ricardo’s original illustration, a nation has inferior productivity in both goods: the
United States requires more labour hours to produce either corn or silk. The United States, in other
words, has no absolute advantage. What goods will the United States trade, and how do we know that
trade will bring net national gains to both sides? As in the absolute-advantage case, we can begin by
imagining the two economies separately with no trade between them. Ricardo, like Smith, felt that
labour costs dictated market value and prices, as long as there was no international trade. In the United
States, people would buy or make each metre of cloth, worth four hours of labour, by giving up two
boxes of corn, which would also take four hours to make. For the rest of the world, exchanging equal
labour values would mean giving up a metre of silk for each 2/3 box (=1/1.5) of corn. Thus, within the
two isolated economies, national prices would follow the relative labour costs of corn and silk.
Comparisons -
Adam Smith promoted free trade by comparing nations to households. Since every
household finds it worthwhile to produce only some of its needs and to buy others he explained the
same to be applicable to nations. According to Adam Smith, trade between two nations is based on
absolute advantage. When one country is more efficient or has an absolute advantage over the
production of one commodity, however, it is less efficient than the other nation in producing a second
commodity. Then both the nations can gain by each specializing in the production of commodities, of its
absolute advantage and exchange those commodities accordingly.
Answer - Imports have been classified into bulk imports and non-bulk imports. Bulk imports are further
sub-divided into three components:
(i) Petroleum, crude and products

(ii) Cereals and pulses, edible oils and sugar
(iii) Some other bulk items are fertilizers, non-ferrous metals, paper and paper boards,
rubber, pulp and waste paper, metallic ores, iron and steel
Non-bulk imports are also further classified into three components –
(i) Capital goods which include metals, machine tools, electrical and nonelectrical machinery,
transport equipment and project goods
(ii) Mainly export related items, which include pearls, precious and semiprecious stones,
organic and inorganic chemicals, textile, yarn and fabrics, cashew nuts
(iii) Others include artificial resins and plastic materials, professional and scientific instruments
coal and coke, chemicals—medicinal and pharmaceutical products and non-metallic mineral
manufactures among others
A close look at import data reveals that there has been a persistently rising trend of imports which is the
result of both internal and external factors. In the decade starting from the 1970s, value of POL imports
went up considerably because of significant increase in the oil prices by OPEC (between 1973,1974, 1979
and 1980). Then, 1980s also experienced the same impact. There was also an onslaught of drought in
1979-80.
During the 1980s, a number of factors pushed up imports. Notable among them were:
(a) Higher outflow of foreign exchange consequent upon the hike in POL prices as a part of the legacy of
the preceding decade,
(b) Acute shortage due to unexpected and unseen drought condition experienced in 1987.
(c) There was considerable increase in the demand and boost given to the growth of the economy
resulting in further liberalization undertaken by the Government of India.
All these factors set in motion a process which led to relatively larger dependence of the economy on
imports. Imports which aggregated to `1634 crores in 1970-71 rose sharply to `12549 crores in 1980-81.
The annual growth rate was as high as 19.2 per cent during the decade.
During the eighties and more especially after 1984-85 when Prime Minister Rajiv Gandhi opted for a
policy of liberalization, imports jumped to `43193 crores in 1990-91. During the eighties, per annum rate
of growth of imports was as high as 13.1 per cent. During 1990-91 and 2000-01, imports increased at the
rate of 18.2 per cent per annum. Import growth rate during 2000-01 and 2010-11 rose higher to 21.4
per cent.
Among the non-POL bulk items, rate of growth in terms of consumer items went up at the rate of 10.7
percent annually to 20.5 per cent from 1980-81 and 1990-91 to 2001-02. This was because of huge jump
in imports of edible oils. These imports increased sharply to `29442 crores in 2011-12 from `326 crores
in 1990-92. However, the imports of iron and steel went up at much increased growth rate of 14.4 per
cent per annum in between 1985-86 to 1990-91, but declined thereafter to 5.3 per cent between 1990-
91 and 2000-01. But it again jumped up by 29.4 per cent annually during 2000-01 and 2010-11.
Answer – The Government of India, announced the Foreign Trade Policy which is integrated at an
interval of five years. The other name of this policy is EXIM Policy. Foreign trade policy announced on 28
August 2009 is an integrated policy covering the period of 2009-14. The policy has the following
objectives:
 To stop and make sure that the decreasing performance on export front is stopped.
 To increase the exports of Goods and Services to double digit by 2014.
 To establish a long-term objective of reaching an important place in Global Merchandise Trade
by 2020 by making efforts to double the share. This share was very small as it stood at 1.45 per
cent in 2008.
 To simplify the application procedure for taking advantage of various incentives.
 To implement strategies and policy incentives which can act as the engine of growth for exports.
 Initiate instruments on fiscal institutional procedural simplification and market access front over
the globe and diversity the market for exports.
Aims in General - he policy thus tries to explore and develop export potential, improve the performance
on the export front, give an upward push to the foreign trade sector and to add to valuable foreign
exchange. This policy was extremely important against the background of global recession. Recently
India experienced the closure of various small and medium scale EOUs giving rise to large scale
unemployment.
Targets
1. Export target: US$ 200 Billion for 2010-11 2. Export growth target: 15 per cent for next two year and
25 per cent thereafter.
EPCG Schemes
1. Relaxation of obligations under the EPCG schemes.

2. Introduction of EPCG zero duty schemes for helping the upgradation of technology on the
export front.
3. 3. Introduction of reduction of export obligations on the imports of spare, moulds, etc.
Various Announcements
Announcement for FPS, MLFPS and FMS:
1. New markets have been added in this scheme.

2. There is an increase from 2.5 per cent to 3.3 per cent in incentives under FMS.
3. Focus Products Schemes (FPS) now gets added incentives in terms of 2 per cent from 1.25 per
cent.
4. Extra products included in the scope of benefits under FPS.
5. Market Linked Focus Products Scheme (MLFPS): Products including pharmaceutical, textiles,
fabrics, rubber and glass products, auto components, motor cars, bicycles and its parts have
been included in Focus Products Scheme and market link focus product scheme.
6. 6. Green products and some more products from north east are the extended benefits under
Focus Product Scheme.
7. All benefits under FPS, FMS MLFPS and VKUY can now avail of a common simplified application
form for these benefits.
Announcements for MDA & MAI There has been an announcement of additional amount for market
development assistance and market access initiative.
Additionally following cities have been announced as the towns of export excellence:
1. Handicrafts: Jaipur, Srinagar and Anantnag
2. Leather products: Kanpur, Dewas and Ambur
3. Horticultural products: Malihabad
Under the present foreign trade policy, government recognizes exporters based on their export
performance and they are called ‘status holders’. For technological upgradation of the export sector,
these status holders are permitted to import capital goods duty free (through Duty Credit Scrips
equivalent to 1 per cent of their FOB value of exports in the previous year), of specified product groups.
This helped them to upgrade their technology and reduce cost of production. This facility included the
following sectors.
Leather excluding the finished leather, textiles and jute, handicrafts, engineering excluding
iron and steel and non-ferrous metals (in primary and intermediate form), automobiles, nuclear reactors
and parts, ship boats and floating structure, plastics and basic chemicals excluding pharma products.
This facility was available up to 31 March 2011.
Extension of Income Tax Exemption to EOU and STPI
EOUs and STPI units are eligible and the tax exemption has been extended under sections 10 (b) and 10
(a) up to financial year 2010-11 in the budget of 2009-10.
Extension of ECGC
Enhanced ECGC cover at 95 per cent has been provided under the Adjustment Assistance Scheme which
started in December 2008. This had been continued till March 2010 for the affected sectors.
Announcement for Handloom exports
Requirement of the handloom mark which was earlier required for the claims in Focus Mark Scheme
have now been removed.
Scheme for export oriented units
The scheme for selling manufactured products, manufactured items by export oriented units, DTA
(Domestic Tariff Area) has been increased from the existing 75 per cent to 90 per cent. There is no
change of criteria of similar goods within the overall entitlement of 50 per cent for DTA sale. In other
words, these units can now sell up to 90 per cent of their products in the domestic markets instead of 75
per cent.
 EOUs are allowed for consultation alongwith their manufactured goods to obtain finished goods.
 2. Block period has been extended by one year for calculation of net foreign exchange earnings
of EOUs kept under consultation.
 CENVAT credit facility is extended for EOUs.
Answer – India’s gems and jewellery industry is a bright star of the economy, and one of the important
foundations of the country’s export-led growth. The consumption of gold and jewellery products in India
has grown rapidly over the years at the rate of 10-15 per cent per annum and today, the domestic Indian
market is estimated to be over US$ 30 billion. India possesses world’s most competitive gems and
jewellery market due to its low cost of production, highly skilled, low-cost and best artisan force for
designing and crafting jewellery, along with strong government support in the form of incentives and
establishment of Special Economic Zones (SEZs).
This apex body of the gem & jewellery industry has played a significant role in the
evolution of the Indian gem and jewellery industry to its present stature. GJEPC is continuously working
towards creating a pool of artisans and designers trained to international standards so as to consolidate
the Indian jewellery industry and establish it as a prominent global player in the jewellery segment.
In terms of exports (Figure 11.2), In 2000, India’s exports of Gems and jewellery were
worth US$ 7,502.29 million and increased to US$ 15,761.77 million in 2005, US$ 19,691.58 million in
2008, US$ 28,411.38 million in 2009, US$ 29,081.11 million in 2010 & US$ 40,508.72 million in 2011.
Share of Gems & Jewellery was 20.43% in 2000, 16.47% in 2005 and 14.67% in 2012. India’s exports of
Gems and Jewellery are US$ 58,553.84 million and growth rate is 10.81% in 2012. Inspite of decreasing
% share of this sectors Gems & Jewellery is second top commodity in India‘s Total Export. Special efforts
need to be undertaken to revive the export performance of this sectors.
The readymade garments industry is one among the globalised industries of the world.
Readymade garments manufactured in India are well received across the overseas market and India has
emerged as a preferred sourcing destination. India’s environmental conditions have favored the textile
Industry including Readymade garments. The readymade garments industry has played a substantial
role in the Indian economy. Liberalisation and the government’s supportive policies have aided the
growth of the garments industry. The sector is a great contributor towards foreign exchange earnings
and employment generation. During FY12, the readymade garments accounted for the highest share in
total textile exports, with a share of 39.61%.
Apparel Export Promotion Council
AEPC is the official body of apparel exporters in India that provides invaluable assistance to Indian
exporters as well as importers/international buyers who choose India as their preferred sourcing
destination for garments. In terms of exports (Figure 11.4), In 2000, India’s exports of Readymade
garments was worth US $4,765.10 million in 2000, US $ 6,561.37 million in 2005, US $ 9,686.66 million in
2008, US $ 10,930.87 million in 2009, US $ 10,710.30 million in 2010 and US $ 11,614.21 million in 2011.
The exports have decreased to US $ 10,710 million in 2010 from US $ 10,930.87 million in 2009. India’s
exports share of Readymade garment was 12.98% in 2000 and it has come down drastically to 7.85% in
2005 and 4.48% in 2012. India’s exports of readymade garments are US $ 13,711.25 million and growth
rate is 18.06% in 2012.
Answer – Special Economic Zone (SEZ) is a notified duty free enclave, housing units which
predominantly engage in export operations. Some EOUs are known as 100 per cent EOUs, which are
primarily manufacturing units which export nearly their entire production. The SEZ policy was
announced in April 2000. The objective was to make the SEZs an engine of economic growth by
developing quality infrastructure and offer attractive fiscal package at the Central and State level with a
single window clearance. The Indian Parliament in May 2005 obtained the President’s approval on 23
June 2005. The SEZ Act 2005 supported by SEZ rules, became effective on 10 February 2006. It was
anticipated that SEZs will be in a position to attract huge flow of foreign and domestic investment in
infrastructure and production capacity and will lead to the generation of extra economic growth and
creation of employment opportunities. The main objectives of the SEZs are :
• 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
Seven Export Processing Zones set-up by the Central Government at Kandla (Gujarat), Santa Cruz
(Maharashtra), Cochin (Kerala), Noida (U.P.), Chennai (Tamil Nadu), Falta (West Bengal) and
Visakhapatnam (Andhra Pradesh), were converted to SEZs on announcement of the SEZ Policy.
Brief Information for Some SEZs
Brief information of selected SEZs is given below:
(a) Nokia SEZ in Tamil Nadu (Telecom equipments SEZ):
• During five years time of 2006-07 to 2010-11 physical exports worth `44749 crores was affected.
• 15043 persons got direct employment.
• Out of total investment made in this SEZ worth `2718.108 crore `833.51 crores came from FDI.
• Direct employment of 20 thousand persons is projected and investment of `3784.03 has been
projected.
(b) Mahindra City SEZ, Tamil Nadu (Apparels and fashion accessories; IT/ Hardware; auto ancillary):
Cluster of SEZs including apparels and fashion accessories; IT and Hardware; and auto ancillary have
been established. Following are the figures for employment, investment and exports for these three
SEZs:
• During 5 years time physical exports worth `8868.92 crores

• Direct employment provided to 17523 persons.
• Investment worth `1652.70 crores out of which `191.27 crore came from FDI.
• Projected direct employment of 57236 persons.
(c) Apache SEZ Development India Private Ltd, Andhra Pradesh (Footwear SEZ):
• Physical exports of `600.20 crores during 2006-07 to 2010-11.

• Direct employment of 6362 persons (2367 women employees).
• Investment worth `275.88 crores (FDI 130.54).
Answer - Need for Focus Markets Schemes (FMS)
There is a requirement to focus on select international markets where there is a potential to

enhance India’s exports. The objective of Focus Markets Schemes is to offset high freight cost and other
externalities to select international markets with a view to enhance India’s export competitiveness in
these countries. The ultimate objective is to take the export to new heights.
Entitlement
Exporters entitled for all products to the notified countries can now avail Duty Credit Scrip equivalent to
2.5 per cent of FOB value of exports for the licensing years with effect from 1 April 2006. The duty
incentive has been increased to 3 percent in the policy announced in 2009-14.
New additional markets which are included under notification in Appendix 37C of HBP
V1 are entitled for Duty Credit Scrip on exports with effect from 1 April 2007. Exports undertaken by
EOUs/EHTPs/BTPs were not eligible for direct tax benefit they have now become entitled for tax
exemption. With the exception of:
(a) (i) Export of imported goods covered under Para 2.35 of FTP (ii) Exports through trans-
shipment, meaning thereby that exports originating in third country but trans-shipped through India
(b) Export turnover of SEZ units or supplies made to such units or SEZ products exported
through DTA units
c) Deemed exports
(d) Service exports
(e) Diamonds and other precious, semi precious stones
(f) Gold, silver, platinum and other precious metals in any form, including plain and studded
jewellery
(g) Ores and concentrates, of all types and in all forms
(h) All types of cereals
(i) Sugar, of all types and in all forms
(j) Crude / petroleum oil and crude / petroleum based products covered under ITC HS codes
2709 to 2715, of all types and in all forms
(k) Items which belong to the restricted or prohibited category for export under schedule of
export policy in ITC HS
Cement, all types and in all forms
Entitlement exporters of all products through EDI enabled ports to the notified countries (as in
Appendix 37C of HBP v1) shall be entitled for Duty Credit scrip equivalent to 2.5 per cent of FOB value of
exports for each licensing year commencing from 1 April 2006. However, additional markets notified in
Appendix 37C of HBP v1 shall be entitled for Duty Credit scrip on exports with effect from 1 April 2007.
Documents required to be submitted for eligibility under this scheme For specified focus
markets, any one of the following documents would be sufficient as the proof of landing of export
consignment.
 A self attested copy of import bill of entry filed by the importer in a specified market
 Delivery order issued by port authorities
 Arrival notice issued by goods carrier
 Tracking report from the goods carrier duly certified by them, evidencing arrival of export cargo
to destination Focus Market
 Lorry receipts of transportation of goods from port into the Focus Market
 For land locked focus markets, lorry receipts of transportation of goods from port to land locked
focus market
 Any other documents that may satisfactorily prove to RA concerned that goods have landed in /
reached the focus market
7. Give a brief overview of India’s foreign trade since independence. 10
Seven phases
ANSWER - For the study of trends of India’s foreign trade during post-independence period, it is
convenient to divide the entire period into seven phases.
(i) 1948-49 to 1950-51— The Eve of Planning: On the eve of planning, the foreign trade of India showed
an excess of imports over exports . . The rise in imports was largely due to:
 The pent-up demand due to different restrictive measures adopted after the crisis experienced
during war and the post-war period.
 Partition gave rise to deficit of items belonging to the category of eatables and raw materials
required for value addition like jute and cotton.
 The rise in the imports of machinery and equipment, in other words, capital goods to meet the
increasing demand for hydro-electric and other projects initiated in the First Plan.
(ii) 1951-52 to 1955-56 — The First Plan Period: During this period, the annual average value of imports
was of the order of ` 622 crores. In this way, the average annual trade deficit worked out to be `108
crores. The excess of imports over exports was essentially due to initiation of industrialization. This gave
rise to increase in demand for capital goods.
(iii) 1956-57 to 1960-61—The Second Plan Period: During the Second Plan, a massive programme of
industrialization was initiated. Government decided to set up various steel plants. Railways were not
adequate and had become old and outdated. Modernization of the same and few other industries was
undertaken. Rapid industrialization gave rise to the requirements of machinery equipment and raw
industrial items.
(iv) 1961-62 to 1965-66 — The Third Plan Period: Details of exports during the Third Plan reveal that
annual average export earnings turned out to be `747 crores against the annual average imports of
`1,224 crores. The volume of imports went up during the Third Plan due to three factors
 Firstly, rapid industrialization necessitated large imports of machinery, equipment, industrial

raw material and technical know-how.
 Secondly, the defence needs increased following the attacks by China and Pakistan.
 Thirdly large quantity of food grains was imported, partly because it was easily available and
partly because of the extensive failure of crops in 1965-66.
(v) Devaluation of 1966 and the period up to 1973-74: Government had to consider adopting the policy
of devaluation essentially to (a) curb imports (b) give a push to exports. This was required to increase
exports over imports so that the position of the balance of payments could improve. The effect of
devaluation was the further aggravation of the trade deficit since it (devaluation) was announced during
a year of drought and the following year also happened to be a bad weather year. It was the same year
when the government announced its policy of liberalizing imports for 59 industries leading to steep rise
in imports.
Although after devaluation of the rupee, exports increased during 1966-67 and
1967-68, because of relative inelasticity of imports, the import bill soared high upto `1992 crores in
1966-67 and to `2043 crores in 1967- 68. As a consequence, the balance of trade situation worsened
during 1966-67 and 1967-68.
(vi) 1974-79–The Fifth Plan Period: The hike in oil prices which started in October, 1973 seriously
affected the pattern of trade throughout the world and India was no exception. The value of imports
during the Fifth Plan period reached very high levels – largely due to sharp increase in the cost. of India’s
major imports namely, petroleum, fertilizers and food grains. Simultaneously, there was a significant
improvement in India’s exports and it successively rose every year during the Fifth Plan period.
(vii) 1980 Onwards–The Sixth and Seventh Plan Period: The further price rise in petroleum products by
OPEC caused the import bill to shoot up from `6811 crores to over `9142 crores in 1979-80 and further
to `12549 crores in 1980-81 and `13608 crores in 1981-82. Even though exports continued to rise the
result was unprecedented trade deficits. India saw a growth in exports at `2450 crores, which was much
less than the growth in imports of about `5838 crores. It was this deep deficit which forced the
government to approach the International Monetary Fund (IMF) in November, 1981 for a huge loan.
The annual average imports during the Sixth Plan (1980-1981 to 1984- 85) were of the
order of `14603 crores as against annual average exports of `8987 crores. Consequently, the Sixth Plan
experienced a huge annual average trade deficit of the order of about `5716 crores.
(viii) India’s Foreign Trade – 1989-90 and subsequently: According to DGCI&S figures during 1990-91
due to the push given to export efforts the exports shot up to `32558 crores indicating an increase of
17.7 per cent. But as a consequence of the Gulf War, the government failed to curb imports and they
reached a record level of `43193 crores indicating an increase of 22.6 per cent. As a result the trade
deficit reached to a high figure of `10635 crores.
(ix) Foreign Trade during the Eighth Plan: An analysis of the period 1992- 93 to 1996-97 reveals that
exports picked up at a fast rate and jumped from US $ 17866 million in 1991-92 to $ 33470 million in
1996-97 signifying an increase of about 87 per cent. But due to policy of liberalization accompanied by
reduction of custom duties there was an increase in imports from $19410 million in 1991-92 to $39132
million in 1996-97 indicating an increase of about 102 per cent. Consequently, the trade deficit which
was of the order of $1545 million in 1991-92 increased to $5662 million in 1996-97 rising by over three
times.
(x) Foreign Trade during the Ninth Plan, the Tenth Plan and after: As a result of the sharp deterioration
in world economic environment in trade, the South-East Asian crisis, continued recession in Japan,
severe economic crisis in Russia in 1998 and fall in world output by 2 per cent in 1997-98 which led to
the decline in world trade, there was a slowdown in India’s foreign trade too.
8. What is the role of services exports in recent years in India’s composition of trade? Discuss.
India and services trade 10
ANSWER - Service sector is the fastest growing sector in India, contributing significantly to GDP, GDP
growth, employment, trade and investment.
Unlike other countries, where economic growth has led to a shift from agriculture to
industries, in India, there has been a shift from agriculture to the services sector. In this respect, some
economists (Ansari 1995) consider India as an outlier among South Asian countries and other emerging
markets.
Technological progress and availability of high skilled manpower has led to growth of
services like information technology (IT) and IT enabled services (ITeS) (Chanda 2002). Developed
countries outsource its services to developing countries like India leading to a rise in demand for
services from the developing market (Bhagwati 1984, Gordan and Gupta 2003 and Hansda 2001). High
government expenditure on certain services like community, social and personal services has also led to
high growth of services (Ansari 1995).
Western developed countries dominated the world’s exports of US$ 3.7 trillion in
terms of commercial services. The exceptions are China, India and Singapore which also got place in the
list of top ten traders of services. Although the growth of services in 2010 was higher as compared to the
previous year yet it was less in comparison with 2000-2005.
World Exports of Commercial Services by Major Category, 2009
India’s Services Trade: Exports
India experienced extremely good performance and growth in three major classes of commercial
services. Growth of exports has been quite significant in the category of ‘other commercial services’ in
all its sub-sectors with the exception of communication services. The personal, cultural and recreational
services sector saw a decline because of lower prices. There is negative growth in construction services
too. The impact of the crises was experienced more by the services sector.
India’s sector-wise rank and share in World Exports/Imports of Services

India experienced growth in total exports for more than ten years mainly because of the good
performance of the services sector. CAGR of 23.4 per cent was experienced during the decade of 2000-
01 to 2010-11. As against this growth, CAGR of merchandise exports was 18.6 per cent in the same
decade.
Contraction of 9.4 per cent in 2009-10 was experienced due to global financial crises. On the other hand,
exports jumped by 38.4 per cent to the tune of US$ 132.9 in the next year.
The growth rate experienced a slowdown in the first half of 2011-12 to 17.1 per cent in comparison to
32.7 per cent which was achieved in the first half of the previous year.
Table India’s Exports of Services
QNO9. Discuss the salient features of Foreign Trade Policy 2009-14.

 Objectives Aims, 4
 schemes and announcements 6
ANSWER - The Government of India, announced the Foreign Trade Policy which is integrated at an
objectives:
cent in 2008.
unemployment.
Targets
EPCG Schemes

export front.

cent.
following sectors.
Extension of ECGC
per cent.
10. Write short notes on: a.
Export promotion councils b.
India Trade Promotion organization
a. Role of Export promotion councils 5
b. Role of India Trade Promotion organization 5
ANSWER - At present there are 20 EPC’s whose basic objective is to promote and develop the exports of
the country. Each council is responsible for the promotion of a particular group of products, projects and
services. The present setup of EPCs covers the following sectors:
 Engineering
 Overseas construction
 Electronics and computer software
 Plastics and linoleums
 Basic chemicals, pharmaceuticals and cosmetics
 Chemicals and allied products
 Gems and jewellery
 Leather
 Sports goods
 Cashew
 Shellac
 Apparel
 Synthetic and rayon
 Indian silk
 Carpet
 Handicrafts
 Wool and woollens
 Cotton textiles
 Handloom
 Powerloom
Commodity Boards
Commodity Board is a registered agency designated by the Ministry of Commerce, Government of India
for the purpose of export promotion and has offices in India and abroad. There are five statutory
Commodity Boards, which are responsible for the production, development and export of tea, coffee,
rubber, spices and tobacco.
Agricultural and Processed Food Products Export Development Authority, New Delhi
Established as a statutory body under an act of Parliament, the Agriculture and Processed Food Products
Export Development Authority (APEDA) has its headquarters in New Delhi headed by a Chairman
appointed by Central Government. The authority has five regional offices at Guwahati, Hyderabad,
Kolkata, Bangalore and Mumbai and is established for promoting agricultural exports, including the
export of processed foods in value added form.
Role of India Trade Promotion organization
A number of institutions and organizations have been established to meet the requirements of industry
and trade.
(a) The Indian Institute of Foreign Trade (IIFT)
The Institute has emerged as a major centre for international business by aligning its teaching, research
and training capabilities with its core vision over the years. It is constantly striving to create academic
excellence through its five academic divisions, namely, Graduate Studies Division (GSD), Research
Division (RD), Management Development Programmes (MDPs) Division, International Collaboration and
Capacity Development (ICCD) Division and International Project Division (IPD). Each division caters to
competency development in a specific area and contributes to the overall growth of the institute. In
recent years, IIFT has consistently been ranked as one of the top 10 management institutes in the
country. IIFT’s graduate studies division offers the following programmes:
• Two years full time degree programme of Masters of Business Administration (MBA) in
International Business (IB)
• Three years part-time Master of Business Administration (MBA) in International Business (IB)
• Executive Post Graduate Diploma in International Business (EPGDIB)
• Executive Post Graduate Diploma in Industrial Marketing (EPGDIM)
• Executive Post Graduate Diploma in Capital and Financial Markets (EPGDCFM)
• Certificate Programme in Export Management (CPEM)
• Certificate Programme in Global Trade Logistics and Operations (CPGTLO)
• Certificate Programme in Capital and Financial Markets
• Certificate Course in International Business Language (French & Spanish)
(b) Indian Institute of Packaging (IIP)
The Indian Institute of Packaging, an apex body in the field of packaging, was set up in 1966 by the
packaging fraternity in association with Ministry of Commerce and Industry. The primary objective of the
institute is to encourage awareness of good packaging through (a) research and development studies in
packaging and package design for export promotion, (b) organizing interim and long term education and
training programme in packaging and (c) seminars, conferences in collaboration with other ministries,
departments, and industry associations.
(c) National Packaging Exhibition (INDPACK and National Conference)
The Institute organized the 14th national packaging exhibition with the theme ‘Packaging for
Tomorrow’. The exhibition was held at Hyderabad International Convention Centre on 24th-26th
November, 2011. The Institute has also planned to organize 15th National Packaging Exhibition,
INDPACK 2012, to be held in Maniram Dewan Trade Centre, Guwahati on 15-17 March, 2012 in
association with North Eastern Regional Agricultural Marketing Corporation Limited (NERAMAC).
(d) Indian Diamond Institute Surat
Indian Diamond Institute was established in 1978 as a society in Surat. The major objective of this
institute is to improve the quality, design and competitiveness of the jewellery of India.
This institute also offers other certification courses for diamonds, colour stones and
gold jewellery.
(e) Footwear Design & Development Institute (FDDI)
It was established in 1986 as a society under the Societies Registration Act, 1860 to train the
professional manpower for footwear products. This is an ISO 9001 and ISO 14001 certified institute. It is
an internationally accepted premier institute in the area of footwear design, technology and
management.
(f) India Trade Promotion Organization (ITPO)
Established on 1st January, 1992. ITPO is the premier trade promotion agency of India and provides a
broad spectrum of services to trade and industry so as to promote India’s exports.
g) Indian Council of Arbitration, New Delhi
Established as a society under the Societies Registration Act 1960, It promotes and administers the use
of alternative dispute resolution mechanism in commercial disputes, expedites dispute resolution,
encourages the use of arbitration, provides arbitration facilities for assisting the smooth flow of trade in
the area of exports on a sustained and long-term basis.
h) Bureau of Indian Standards (BIS)
The Bureau of Indian Standards (BIS), the national standards body of India, is a statutory body set up
under the Bureau of Indian Standards Act, 1986. BIS is engaged in standard formulation, certification
marking and laboratory testing.
(i) Export Inspection Council, New Delhi
Set up as a statutory body in 1964 under section 3 of the export Quality Control and Inspection Act,
1963 for facilitating exports of India through quality control and inspection and related matters, the
council acts as an advisory body to the central government.
(j) India Brand Equity Foundation (IBEF)
It is an excellent example of coordination between the Ministry of Commerce and CII. This was
established on 3 March 2004. It is performing a very important task by creating positive perception of
India on a global platform, efficiently presenting India’s business perspective and giving a boost to
business partnership in a global village.
Q11. What are Special Economic Zones? Write one sentence each on any 5 SEZs in India.
Meaning and role of SEZ 5
5 SEZ 5
ANSWER – Special Economic Zone (SEZ) is a notified duty free enclave, housing units which
projected.
SEZs:


6 What is the need and role of Focus Market Scheme? Discuss in detail. 10
Focus market scheme
ANSWER - Need for Focus Markets Schemes (FMS)

Entitlement
through DTA units
c) Deemed exports
(d) Service exports
jewellery
consignment.
focus market
QNO12. Write a note on composition of India’s foreign trade? Write a note on composition of India’s
foreign trade. 10
ANSWER –
Table given in below shows the status of important sectors in India’s export performance and Figure
shows the percentage share of select sectors.
Percentage Share of Select Sectors
Gems & Jewellery
India’s gems and jewellery industry is a bright star of the economy, and one of the important
foundations of the country’s export-led growth. The consumption of gold and jewellery products in India
has grown rapidly over the years at the rate of 10-15 per cent per annum and today, the domestic Indian
market is estimated to be over US$ 30 billion.
Gems & Jewellery Export Promotion Council
Set-up in 1966, the GJEPC has over the years effectively moulded the scattered efforts of individual
exporters to make the gem and jewellery sector a powerful engine driving India’s export-led growth.
This apex body of the gem & jewellery industry has played a significant role in the evolution of the
Indian gem and jewellery industry to its present stature. GJEPC is continuously working towards creating
a pool of artisans and designers trained to international standards so as to consolidate the Indian
jewellery industry and establish it as a prominent global player in the jewellery segment.
Handicrafts
India is one of the important suppliers of handicrafts to the world market. The Indian handicrafts
industry is highly labour intensive cottage based industry and decentralized, being spread all over the
country in rural and urban areas. The industry provides employment to over six million artisans
(including those in carpet trade), which include a large number of women and people belonging to the
weaker sections of the society.
Export Promotion Council for Handicrafts (EPCH)
It was established under Companies Act in the year 1986-87 and is a non-profit organisation, with an
object to promote, support, protect, maintain and increase the export of handicrafts. it is an apex body
of handicrafts exporters for promotion of exports of handicrafts from country and projected India’s
image abroad as a reliable supplier of high quality of handicrafts goods and services and ensured various
meausres keeping in view of of observance of international standards and specification.
Readymade Garments
The readymade garments industry is one among the globalised industries of the world. Readymade
garments manufactured in India are well received across the overseas market and India has emerged as
a preferred sourcing destination. India’s environmental conditions have favored the textile Industry
including Readymade garments. The readymade garments industry has played a substantial role in the
Indian economy. Liberalisation and the government’s supportive policies have aided the growth of the
garments industry.
Apparel Export Promotion Council

AEPC is the official body of apparel exporters in India that provides invaluable assistance to Indian
exporters as well as importers/international buyers who choose India as their preferred sourcing
destination for garments.
Performance of Readymade Garment sector in Exports
Engineering Goods
Engineering is the largest among industrial sectors in India. It is diverse with a number of segments and
can be broadly categorised into two segments: heavy engineering and light engineering. Engineering is
relatively less fragmented at the top and more fragmented at the lower end in terms of technology and
capital investment and is dominated by smaller players.
Engineering Export Promotion Council (EEPC)
In 1955-56, the nascent Indian engineering sector was in the process of diversifying and restructuring
the narrow export base of the industry and it needed a strong push - the EEPC INDIA (Formerly
Engineering Export Promotion Council) was set up in 1955 under the sponsorship of Ministry of
Commerce & Industry, Govt. of India, for export promotion of engineering goods, projects and services
from India. Initially started with a few hundreds of engineering units as a small outfit, with a passage of
time it has grown to be the largest Export Promotion Council having membership of nearly 12,000 from
amongst large Corporate Houses, Star Trading Houses, Small & Medium Scale Units (SME), Trading
Houses, etc. Out of the total membership of the Council, 60% constitutes the SMEs.
Performance of Engineering Goods sector in Exports
Computer Software Computer
Software Sector of India The Indian software industry has been a remarkable success story. It has grown
more than 30 percent annually for 20 years, with 2008 exports projected at close to $60 billion. India
exports software services to more than 60 countries, with two-thirds to the United States, including half
of all Fortune 500.
Electronics & Software Export Promotion Council
Electronics and Computer Software Export Promotion Council (ESC), sponsored by the Government of
India is India’s largest Electronics and IT trade facilitation organization. Starting in 1989, with an export
performance of US$ 200 million,
Performance of Computer Software in Physical Form sector in Exports
In terms of export (Figure 11.6), in 2000, India export of computer software in physical form
was US $45.71 million, US $58.51 million in 2005, US $148.01 million in 2008, US $341.36 million in
2009, US $179.14 million in 2010, US $70.84 million in 2011. The export has decreased to US $179.14
million in 2010 from US $341.36 million in 2009.The slowdown in this sector accounted in the year of
2011 were worth US $70.84 million. India’s exports share of this sector is fluctuating, e.g. 0.12% in 2000,
0.07% in 2005 and 0.17 in 2012. India’s export of computer software in physical form exhibit highest
export performance worth US $ 517.09 million with the impressive growth rate is 629.94% in 2012.
QNO14. Explain the composition of India’s import in detail? Explain the composition of India’s import
in detail. 10
Answer -
We can classify imports into bulk imports and non-bulk imports.Bulk imports are further sub-divided
into three components:
(i) Petroleum, crude and products
(ii) Cereals and pulses, edible oils and sugar
(iii) Some other bulk items are fertilizers, non-ferrous metals, paper and paper boards, rubber, pulp and
waste paper, metallic ores, iron and steel
Non-bulk imports are also further classified into three components –
(i) Capital goods which include metals, machine tools, electrical and nonelectrical machinery, transport
equipment and project goods
(ii) Mainly export related items, which include pearls, precious and semiprecious stones, organic and
inorganic chemicals, textile, yarn and fabrics, cashew nuts
(iii) Others include artificial resins and plastic materials, professional and scientific instruments coal and
coke, chemicals—medicinal and pharmaceutical products and non-metallic mineral manufactures
among others
A close look at import data reveals that there has been a persistently rising trend of imports
which is the result of both internal and external factors. In the decade starting from the 1970s, value of
POL imports went up considerably because of significant increase in the oil prices by OPEC (between
1973,1974, 1979 and 1980). Then, 1980s also experienced the same impact. There was also an
onslaught of drought in 1979-80.
During the 1980s, a number of factors pushed up imports. Notable among them were:
(a) Higher outflow of foreign exchange consequent upon the hike in POL prices as a part of the legacy of
the preceding decade,
(b) Acute shortage due to unexpected and unseen drought condition experienced in 1987.
(c) There was considerable increase in the demand and boost given to the growth of the economy
resulting in further liberalization undertaken by the Government of India.
All these factors set in motion a process which led to relatively larger dependence of the
economy on imports. Imports which aggregated to `1634 crores in 1970-71 rose sharply to `12549 crores
in 1980-81. The annual growth rate was as high as 19.2 per cent during the decade.
During the eighties and more especially after 1984-85 when Prime Minister Rajiv Gandhi
opted for a policy of liberalization, imports jumped to `43193 crores in 1990-91. During the eighties, per
annum rate of growth of imports was as high as 13.1 per cent. During 1990-91 and 2000-01, imports
increased at the rate of 18.2 per cent per annum. Import growth rate during 2000-01 and 2010-11 rose
higher to 21.4 per cent.
Among the non-POL bulk items, rate of growth in terms of consumer items went up at the
rate of 10.7 percent annually to 20.5 per cent from 1980-81 and 1990-91 to 2001-02. This was because
of huge jump in imports of edible oils. These imports increased sharply to `29442 crores in 2011-12 from
`326 crores in 1990-92. However, the imports of iron and steel went up at much increased growth rate
of 14.4 per cent per annum in between 1985-86 to 1990-91, but declined thereafter to 5.3 per cent
between 1990-91 and 2000-01. But it again jumped up by 29.4 per cent annually during 2000-01 and
2010-11.
Structure of Indian imports for two select years 2000-01 and 2010-11 is given in Table
Structure of Indian Imports

QNO15. What are the main features of India’s foreign trade policy and what are the various EPCG
schemes?
 What are the main features of India’s foreign trade policy and 7
 What are the various EPCG schemes 3
Answer - Trade encourages the foreign earnings as well as stimulates greater economic activities. The
main objectives of Import-export policy of the Indian Government have been to:
(i) Provide further impetus to exports;
(ii) Provide support to the growth of indigenous industry;
(iii) Provide for optimum utilization of the country’s resource endowments, especially in manpower and
agriculture;
(iv) Facilitate technology upgradation with special emphasis on export promotion and energy
conservation;
(v) Provide a stimulus to those engaged in exports and in particular, to manufacturing units contributing
substantially to the export efforts, and
(vi) Effect all possible savings in imports. Thus, it is clear that the purpose of trade policy has been to
stimulate economic growth and export promotion by the use of import liberalization.
India has been in a disadvantageous position in comparison with the advanced countries
which are capable of producing and selling almost every commodity at low prices. This meant that India
could not develop any industry without protecting it from foreign competition. Import restriction—
commonly known as protection—was thus essential to protect domestic industries and to promote
industrial development. e.g. The Second Plan called for
(a) banning or keeping the imports to the minimum of non-essential consumer goods,
(b) comprehensive control of various items of imports,
(c) liberal import of machinery, equipment and other developmental goods to support heavy-industry
based economic growth, and
(d) favourable climate for the policy of import substitution.
To pay for imports which are essential and to fully exploit the benefits of foreign trade
expansion of exports is essential. For example, the market for variety of items within India was not able
to absorb complete domestic production and that made the quest for global market a vital necessity.
The Indian Government had to play an important role to promote exports by setting up trading
institutions and through fiscal and other incentives. Vigorous promotion of exports was emphasized
after the Second Plan to earn foreign exchange in order to overcome the acute foreign exchange crisis.
QNO16. Write short notes on:
a. Advisory Bodies 5
b. Commodity boards 5
Answer -
Board of Trade: This board of trade was set up on 5 May 1989 with the purpose of providing an effective
mechanism to maintain continuous dialogue with trade and industry in the context of major
developments in the area of international trade. This board is headed by the Commerce and Industry
Minister who is the chairman of this Board. The official members include Secretaries of Commerce and
Industry, Finance (Revenue), External Affairs (ER), Textile, Chairman of ITPO, Chairman/MD of ECGC, MD,
Exim Bank and Deputy Governor of Reserve Bank of India.
The other members include representatives from FICCI, CII, FIEO and media and
renowned personalities in the field of import and export trade.
(a) Confederation of Indian Industry (CII)
The key objective of CII is to assist the members to improve productivity and efficiency for global
markets and becoming globally competitive. It provides many services to its members which are geared
towards boosting the competitiveness of the Indian industry.
(b) Federation of Indian Export Organizations (FIEO)
It is an apex body registered under Societies Registration Act 11 of 18(16) comprising export promotion
organizations and institutions with major regional offices at Delhi, Mumbai, Kolkata and China.
The major objective of FEIO is rendering an integrated package of services to various

organizations connected with export promotion. FIEO news is also being published for bringing
awareness amongst the exporters and importers.
(c) Federation of Indian Chambers of Commerce and Industry (FICCI)
FICCI was established in 1927 and it is one of the largest and oldest apex business organizations in India.
Its name is associated closely with India’s struggle for independence, industrialization and the
emergence of one of the most rapidly growing global economies.
B) Commodity Boards
QNO17.What are the various schemes under India’s foreign trade policy? What are the various
schemes under India’s foreign trade policy 10
ANSWER -
I. Duty Exemption and Remission Schemes
 Advance Licence Scheme to allow duty free import of inputs, which are physically incorporated
in the export product (making normal allowance for wastage) with a specific export obligation in
terms of value and quantity.
 Export Promotion Capital Goods (EPCG) Scheme to allow import of capital goods for pre-
production, production and post-production (including CKD/SKD thereof as well as computer
software systems) at 5% customs duty subject to an export obligation equivalent to 8 times of
duty saved on capital goods imported under the Scheme to be fulfilled over a period 8 years
reckoned from the date of issuance of licence.
 Duty Free Replenishment Certificate (DFRC) is issued for import of inputs used in the
manufacture of goods without payment of basic customs duty after completion of exports.
 Duty Entitlement Passbook (DEPB) Scheme to neutralise the incidence of customs duty on the
import content of the export product and the exporter is entitled for a duty credit as a specified
percentage of FOB value of exports, made in freely convertible currency.
 Schemes related to Gems and Jewellery sector such as replenishment licence, advance licence,
diamond imprest licence etc.
 Deemed Export Duty Drawback and Terminal Excise Duty Refund Scheme for those
transactions in which the goods supplied to specific categories of beneficiary, do not leave the
country and the payment for such supplies is received either in Indian Rupees or in Free Foreign
Exchange.
II. Special Economic Zone is a specifically delinked duty free enclave and are deemed to be foreign
territory for the purposes of Trade Operations and duties and tariffs wherein these units can
import/procure from the DTA all types of goods and services without payment of duty.
III. Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme,
Software Technology Park Scheme or Bio-Technology Park Scheme to operate under duty-free regime
for import/ procurement of all types of goods including capital goods without payment of duty for
manufacture of goods for export.
IV. Free Trade and Warehousing Zone (FTWZ) Scheme to create trade related infrastructure to facilitate
the import and export of goods and services with freedom to carry out trade transaction in free
currency.
V. Served from India Scheme to allow duty free import of capital goods including spares, office
equipment and professional equipment, office furniture and consumables related to the main line of
business against exports of services.
VI. Target Plus Scheme for the status certificate holder to allow duty free credit based on incremental
exports to import any inputs, capital goods including spares, office equipment, professional equipment
and office furniture.
VII. Vishesh Krishi Upaj Yojana Scheme to allow duty free import of inputs or goods including capital
goods (as notified) against export of certain agricultural and their value added products.
VIII. Assistance to States for Infrastructure Development of Exports to encourage the state government
to participate in promoting exports from their respective states for developing infrastructure etc.
IX. Other schemes to promote activities such as brand promotion and quality improvement etc.
QNO18. Write a short note on WTO and dispute settlement? Write a short note on WTO and dispute
settlement 10
Answer - The important function of WTO is the administration of the WTO dispute settlement system.
It helps in settling multilateral trading dispute. A dispute arises when a member country adopts a trade
policy and other fellow members consider it as a violation of WTO agreements. The Dispute Settlement
Body (DSB) is responsible for the settlement of disputes. The dispute settlement system is prohibited
from adding or deleting the rights and obligations provided in the WTO agreements. The WTO dispute
settlement system helps to:
 Preserve the rights and responsibilities of the members.

 Clarify the current provisions of the agreements.
WTO’s dispute settlement procedure is very significant for resolving trade quarrels.
Whenever there is a violation by any government on WTO agreement or a commitment made to WTO—
WTO’s dispute settlement procedure comes to the rescue. In fact, these agreements have been made by
the representatives of governments of various countries. Obviously, these representatives bear the
brunt of settling disputes through the Dispute Settlement Body (DSB).
The Process:
Stages in WTO dispute settlement procedure The dispute settlement system consists of various stages.
Two major ways in which the dispute can be settled after the filing of the complaint are:
(i) the parties find a mutually agreed solution, particularly during the phase of bilateral consultations;
and
(ii) through adjudication

There are three main stages to the WTO dispute settlement process:
(i) consultations between the parties
(ii) adjudication by panels and, if applicable, by the appellate body;
(iii) the implementation of the ruling, which includes the possibility of counter measures in the event of
failure by the losing party to implement the ruling.
Here I am attaching the chart of Dispute settlement

Q19. Analyze the direction of India’s foreign trade since 2001.How has the direction of export and
import affected our foreign trade.
(Overall picture of changes in direction of trade) 10 marks
Answer.
The directional pattern of India’s trade has changed during the last decade. Trade with the top 12
trading partners increased by over 11.2 percentage points since 2001-02 to 53.8 percentage of total in
2006-07. The share of the United States, the largest trading partner, declined by 2.5 percentage points
to 9.8 per cent in 2006-07, while that of the United Kingdom and Belgium declined by 1.9 and 2
percentage points, respectively. China became the second largest partner in 2006-07 with its share
increasing by 5.2 per cent points over the decade. China’s trade share during April-September 2007 is
ahead of the United States (Table 1.7).
Table: India’s Trade with Major Trading Partners
With rising POL prices, and India’s rising exports of refined POL products, the United Arab Emirates
(UAE) and Saudi Arabia have emerged as the third and fourth largest trading partners of India. There is a
perceptible change in the share of India’s trade with Iran and Nigeria (due to rise in import of mineral
fuel and oil, etc.) and Australia (due to rise in import of precious stones, metals, mineral fuel and oil, and
ores), while the share of Singapore after increasing in some years has moderated. Despite India’s large
overall trade deficit, there was a large (but declining) trade surplus with the United States and UAE, and
a small surplus with the United Kingdom and Singapore till 2006-07. The surplus with the first three
countries continued in 2007-08. The largest trade deficits are with Saudi Arabia, China and Switzerland.
The trade deficit with China has increased further in April-September 2007. Exports from India had been
more or less stagnant during 1951-60, averaging a little over Rs. 600 crores per annum. There was
marginal increase in exports towards the end of Third Five Year Plan (1965-66) when the exports
touched the level of Rs. 816 crores, and this level of exports doubled in seven years between 1965-66
and 1972-73. Since 1972-73, the rate of growth in exports had been so fast that in a short span of five
years the level of exports reached a figure of Rs. 5142 crores in 1976-77 exceeding imports by Rs. 68
crores. This figure went up to Rs. 15674 crores in 1987-88 and Rs. 27658 crores in 1989-90. The total
value of exports was Rs. 32553 crores in 1990-91.
Q20. Write short notes on:
a)European Union
b)APEC
(countries and formation of EU-5 marks, countries and formation of APEC-5 marks) 10 marks
A) European Union
The European Union (EU) is a political and economic union of twenty-seven member states, located
primarily in Europe. It was established in 1993, as a result of the signing of the Treaty on European
Union known as the Maastricht Treaty, adding new areas of policy to the existing European Community.
With almost 500 million citizens, the EU combined generates an estimated 30% share of the world's
nominal gross domestic product (US$16.8 trillion in 2007). The EU traces its origin to the European Coal
and Steel Community formed among six countries in 1951 and the Treaty of Rome in 1957. Since then
the EU has grown in size through the accession of new member states and has increased its powers by
the addition of new policy areas to its remit. The Treaty of Lisbon was signed in December 2007 with the
intention to amend the existing treaties to update the political and legal structure of the union. The
ratification process was scheduled to be accomplished by the end of 2008 but the rejection of this treaty
in the Irish referendum of June 2008 has left its future unresolved.
B) Asia-Pacific Economic Cooperation
APEC established in 1989, is the premier forum for facilitating economic growth, cooperation, trade and
investment in the Asia-Pacific region. APEC is the only inter governmental grouping in the world
operating on the basis of non-binding commitments, open dialogue and equal respect for the views of
all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations
required of its participants. Decisions made within APEC are reached by consensus and commitments
are undertaken on a voluntary basis. APEC has 21 members – referred to as "Member Economies" –
which account for approximately 41% of the world's population, approximately 55% of world GDP and
about 49% of world trade. APEC's 21 Member Economies are Australia; Brunei Darussalam; Canada;
Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia;
Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian
Federation; Singapore; Chinese Taipei; Thailand; United States of America; Vietnam. Since its inception,
APEC has worked to reduce tariffs and other trade barriers across the Asia-Pacific region, creating
efficient domestic economies and dramatically increasing exports. Key to achieving APEC's vision are
what are referred to as the 'Bogor Goals' of free and open trade and investment in the Asia-Pacific by
2010 for industrialized economies and 2020 for developing economies. These goals were adopted by
Leaders at their 1994 meeting in Bogor, Indonesia. APEC also works to create an environment for the
safe and efficient movement of goods, services and people across borders in the region through policy
alignment and economic and technical cooperation.
Q21. Discuss the current situation of FDI in India. List the sectors where 100% FDI id permitted.
(FDI in India-7 marks, Sectors permitted-3 marks) 10 marks
FDI Policy of India

FDI Policy Till 1991
By the beginning of 1980’s, the share of FDI in gross capital formation was the lowest for India among all
developing countries. The restrictive policy towards foreign equity investment in India continued
without any significant change until 1991.
During 1950-1967, FDI in India was welcome on mutually advantageous terms, preferably through
collaboration and majority domestic ownership. Foreign investors were assured of non-discriminatory
treatment on par with domestic enterprises. They were allowed to transfer their profits without any
restriction and assured fair compensation in the event of nationalization. The FDI policy during this
period was cautious but friendly.
FDI POLICY 1968-1980
From 1968, till 1980 the FDI Policy of India was more restrictive which is evident in the form of following
measures:
i) No FDI without transfer of technology
ii) Renewals of foreign collaborations were restricted
iii) Foreign Exchange Regulation Act, 1973 restricted FDI in certain core or high priority industries
iv) Equity participation was restricted to 40%
FDI Policy 1981-1990
This period was period of opening up and gradual liberalization. Industry policy was liberalized and
policies were framed to attract more FDI and foreign collaborations. Rules and procedures regarding
remittance of profits, dividends, royalties were relaxed. A fast channel was set up for expediting
clearances of FDI proposals.
FDI Policy Since 1991
In 1991, India started process of liberalization. One of the measures was that foreign investment and
technology collaboration would be welcome to obtain higher technology, to increase exports and to
expand the production base. Many concessions were announced for foreign equity capital in 1991-92.
The foreign equity capital limit was raised to 51%. FDI was allowed in exploration, production and
refining of oil and marketing of gas. NRIs and Overseas Corporate Bodies were allowed to invest 100%
equity in high priority areas as well as in export houses, hotels and tourism related industries. The most
significant step was replacement of FERA, 1973 with FOREIGN EXCHANGE MANAGEMENT ACT, 1999
(FEMA, 1999). The provision of imprisonment was completely abolished under FEMA. Automatic route
for FDI was permitted. Many new sectors were thrown open for FDI. In 2002, 100% FDI in tea including
plantations was allowed. Major changes were effected during 2004-05 to attract more FDI. In certain
sectors FDI is permitted upto 100%.
Sector Specific Foreign Direct Investment in India

Hotel & Tourism: FDI in Hotel & Tourism Sector in India 100% FDI is permissible in the sector on the
automatic route. The term hotels include restaurants, beach resorts, and other tourist complexes
providing accommodation and/or catering and food facilities to tourists. Tourism related industry
include travel agencies, tour operating agencies and tourist transport operating agencies, units providing
facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport
facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and
Convention/Seminar units and organizations.
Non-Banking Financial Companies (NBFC) 49% FDI is allowed from all sources on the automatic route
subject to guidelines issued from RBI from time to time. a. FDI/NRI/OCB investments allowed in the
following 19 NBFC activities shall be as per levels indicated below:
i) Merchant banking
ii) Underwriting
iii) Portfolio Management Services
iv) Investment Advisory Services
v) Financial Consultancy
vi) Stock Broking
vii) Asset Management
viii) Venture Capital
ix) Custodial Services
x) Factoring
xi) Credit Reference Agencies
Insurance Sector: FDI in Insurance Sector in India FDI up to 26% in the Insurance sector is allowed on
the automatic route subject to obtaining license from Insurance Regulatory & Development Authority
(IRDA)
Telecommunication: FDI in Telecommunication Sector
Value added services and global mobile personal communications by satellite, FDI is limited to 49%
subject to licensing and security requirements and adherence by the companies (who are investing and
the companies in which investment is being made) to the license conditions for foreign equity cap and
lock- in period for transfer and addition of equity and other license provisions.
Trading: FDI in Trading Companies in India
Trading is permitted under automatic route with FDI up to 51% provided it is
primarily export activities, and the undertaking is an export house/trading
house/super trading house/star trading house.
Power: FDI in Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity
generation, transmission and distribution, other than atomic reactor power
plants. There is no limit on the project cost and quantum of foreign direct
investment.
Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and pharmaceutical,
provided the activity does not attract compulsory licensing or involve use of recombinant DNA
technology, and specific cell / tissue targeted formulations.
Roads, Highways, Ports and Harbors
FDI up to 100% under automatic route is permitted in projects for construction and maintenance of
roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.
Pollution Control and Management
FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of
pollution control systems is permitted on the automatic route.
Call Centers in India
FDI up to 100% is allowed subject to certain conditions.
Business Process Outsourcing BPO in India
FDI up to 100% is allowed subject to certain conditions.
Q22. Discuss the salient features of India’s Foreign trade policy 2009-14.
(Foreign trade policy) 10 marks
Answer:
The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India’s
foreign trade and goes beyond the traditional focus on pure exports.
This would be clear from the following statement in the policy document, "Trade is not an end in itself,
but a means to economic growth and rational development. The primary purpose is not the mere earning
of foreign exchange, but the stimulation of greater economic activity."
The government unveiled a mix of procedural measures and fiscal incentives to trade with non- traditional
destinations to bolster export order books drying out in two top regional markets-the US and the
European Union.
New emerging markets have been given a special focus to enable exports to be competitive. Incentive
schemes are being rationalized to identify leading products which would catalyze the next phase of export
growth.
The government plans to introduce a nation-wide uniform GST from next year that would subsume the
complex web of indirect taxes imposed by state governments. The introduction of zero duty capital goods
scheme will add to expansion and modernization of production base at a time when investment is drying
up in export industries.
Other important features of the policy include:
(i) $ 200 billion or Rs 98,000 crore is the export target for 2010-11.
(ii) 100% growth of India’s export of goods and services by 2014.
(iii) 15% growth target for next two years; 25% thereafter.
(iv) 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%.
(v) Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence.
(vi) 26 new markets added to focus market scheme.
(vii) Provision for state-run banks to provide dollar credits.
(viii) Duty entitlement passbook scheme extended till Dec. 2010.
(ix) Tax sops for export-oriented and software export units extended till March 2011.
(x) New directorate of trade remedy measures to be set up.

(xi) Plan for diamond bourses.
(xii) New facility to allow import of cut and polished diamonds for grading and certification.
(xiii) Export units allowed to sell 90% of goods in domestic market.
(xiv) Export oriented instant tea companies can sell up to 50% produce in domestic market.
(xv) Single-window scheme for farm exports.
(xvi) Number of duty-free samples for exporters raised to 50 pieces.
(xvii) Value limits of personal carriage increased to $5 million (Rs 24.5 core) for participation in overseas
exhibitions.
Q23. Explain the meaning and objectives of FEMA. Who is an authorized person according to its rules?
(Meaning-3 marks, Objectives-3 marks, Authorized person- 4 marks) 10 marks
Foreign Exchange Management Act (FEMA)

The foreign trade of a country consists of export and import of goods and services and involves inflow
and outflow of foreign exchange. The payments for import and receipts for export trade transactions in
terms of foreign exchange, in India, are governed by Foreign Exchange Management Act, 1999 (FEMA).
Earlier to FEMA, India had Foreign Exchange Regulations Act, 1973 (FERA). The process of economic
reforms initiated by Government of India in the year 1991, necessitated the need for extensive
amendments in the
FERA, which were brought about by Foreign Exchange Regulations (Amendment) Act, 1993. In order to
further liberalize the regulated regime, FERA was replaced by FEMA, 1999.
Objective of FEMA
FEMA was brought to consolidate and amend the law relating to foreign exchange. The basic objective
of FEMA is to facilitate external trade and payments and to promote the orderly development and
maintenance of foreign exchange market in India. FEMA contains 49 sections.
Authorised Person
An authorized person means an authorized dealer, money changer, off-shore banking unit or any other
person for the time being who under FEMA is authorized to deal in foreign exchange or foreign
securities.
Q6. What are the major differences between forward and future contracts? What do you mean by
currency option?
(Differences-6 marks, Currency options-4 marks) 10 marks
Forward Contracts
Forward exchange contract is used by exporters and importers to get adequate protection against
exchange risk. In a forward exchange contract a banker and a customer or two banks enter into a
contract to buy or sell a fixed amount of foreign currency on a specified future date at a predetermined
rate of exchange.
Under forward contracts, date of delivery will be as under:
i) For export documents negotiated, purchased or discounted; date of negotiation, purchase or discount.
ii) In case of export documents sent on collection; date of payment of Indian Rupees to the exporter.
iii) In case of retirement/crystallization of import bills; date of retirement or crystallization of the bill
whichever is earlier.
Types of Forward Contracts
Forward contracts can be of two types – (i) Fixed Forward Contract and
(ii) Option Forward Contract.
Currency Futures
A futures contract is a form of forward contract conveying
i) Right to buy or sell
ii) A specified amount of foreign currency
iii) At a fixed exchange rate
iv) On a specified future date
Currency futures are different from the forward contract in following respects:
i) A forward contract can be entered into by a person with any bank whereas futures contract can be
entered into only with financial futures exchanges.
ii) In a forward contract, the amount of foreign currency and the due date are decided by the customer
whereas in a futures contract these are standardized, e.g., JPY 12.5 million; GBP 62,500; S. Fr. 1,25,000.
iii) A forward contract is self-regulating but futures are regulated by concerned futures exchange.
iv) A forward contract can be for any maturity of 3 days and beyond up to 6 months (in India) whereas
futures have due dates on a specified day in specified month in a year.
v) Forward contracts have mutually agreed price for the contract, whereas in case of futures the
exchange may fix minimum price movement for the contract.
vi) A forward contract is between counter parties, i.e., bank and the customer, futures are through the
members of the exchanges.
Currency Options
A currency option gives to the buyer an option to buy or sell a sum of foreign currency at a
predetermined rate on a future date without creating a liability on him to do so. The buyer has the
option to use it or otherwise. Currency options can be call option or put option. A call option gives the
option buyer the right to buy the specified currency and a put option entitles the option buyer to sell the
specified currency. The price at which it is
agreed to buy or sell the specified foreign currency is called the strike price. The fee payable by the
buyer of the option to the option seller (writer of the option) at the time of entering into contract is
called premium, which is not refundable.
In an ‘American option’, the option can be exercised on any day on or before the maturity date. On the
other hand in case of a European option, the option buyer can exercise his option only on the date of
maturity. Under the option contract, the customer can make a reassessment on the due date and seek
either execution of the contract or its non-execution. Option contract is useful especially for covering
exchange risk under contingent situations.
QNO1. Give a brief overview of India’s foreign trade since independence. 10
Seven phases
(i) 1948-49 to 1950-51— The Eve of Planning: On the eve of planning, the foreign trade of India showed
an excess of imports over exports . . The rise in imports was largely due to:
(ii) 1951-52 to 1955-56 — The First Plan Period: During this period, the annual average value of imports
(iii) 1956-57 to 1960-61—The Second Plan Period: During the Second Plan, a massive programme of
industrial items.

in imports.
1967-68, because of relative inelasticity of imports, the import bill soared high upto `1992 crores in
during 1966-67 and 1967-68.
times.
QNO24 .What is the role of services exports in recent years in India’s composition of trade? Discuss.
markets.

decade.
Objectives Aims, 4
schemes and announcements 6

objectives:
cent in 2008.
unemployment.
Targets
EPCG Schemes

export front.

cent.
following sectors.
Extension of ECGC
per cent.
QNO26. Write short notes on: a.
Export promotion councils b.
 Engineering
 Leather
 Sports goods
 Cashew
 Shellac
 Apparel
 Indian silk
 Carpet
 Handicrafts
 Cotton textiles
 Handloom
 Powerloom
Commodity Boards
and trade.
gold jewellery.
management.

Q27.What are Special Economic Zones? Write one sentence each on any 5 SEZs in India.
 Meaning and role of SEZ 5

 5 SEZ 5
projected.
SEZs:


QNO28. What is the need and role of Focus Market Scheme? Discuss in detail. 10
Focus market scheme

Entitlement
through DTA units
c) Deemed exports
(d) Service exports

jewellery
consignment.
focus market
QNO29. Give a brief overview of India’s foreign trade since independence. 10

Seven phases
(I) 1948-49 to 1950-51— The Eve of Planning: On the eve of planning, the foreign trade of India showed
an excess of imports over exports. . The rise in imports was largely due to:
(Ii) 1951-52 to 1955-56 — The First Plan Period: During this period, the annual average value of imports
(Iii) 1956-57 to 1960-61—The Second Plan Period: During the Second Plan, a massive programmer of
industrial items.

in imports.
1967-68, because of relative inelasticity of imports, the import bill soared high up to `1992 crores in
during 1966-67 and 1967-68.
times.
QNO30 .What is the role of services exports in recent years in India’s composition of trade? Discuss.
markets.

decade.
Objectives Aims, 4
schemes and announcements 6

objectives:
cent in 2008.
unemployment.
Targets
EPCG Schemes

export front.

cent.
following sectors.
Extension of ECGC
per cent.
QNO32. Write short notes on: a.
Export promotion councils
 Engineering
 Leather
 Sports goods
 Cashew
 Shellac
 Apparel
 Indian silk
 Carpet
 Handicrafts
 Cotton textiles
 Handloom
 Powerloom
Commodity Boards
and trade.
gold jewellery.
management.

Q33.What are Special Economic Zones? Write one sentence each on any 5 SEZs in India.
 Meaning and role of SEZ 5

 5 SEZ 5
projected.
SEZs:


QNO36.What is the need and role of Focus Market Scheme? Discuss in detail. 10
Focus market scheme

Entitlement
through DTA units
c) Deemed exports
(d) Service exports

jewellery
consignment.
focus market

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IB 15 GUIDE LONG QUESTIONS

(i) Petroleum, crude and products

Non-bulk imports are also further classified into three components –

1. Relaxation of obligations under the EPCG schemes.

Announcement for FPS, MLFPS and FMS:

1. New markets have been added in this scheme.

1. Handicrafts: Jaipur, Srinagar and Anantnag

2. Leather products: Kanpur, Dewas and Ambur

3. Horticultural products: Malihabad

Extension of Income Tax Exemption to EOU and STPI

Announcement for Handloom exports

Scheme for export oriented units

Apparel Export Promotion Council

• 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

Brief Information for Some SEZs

Brief information of selected SEZs is given below:

(a) Nokia SEZ in Tamil Nadu (Telecom equipments SEZ):

• 15043 persons got direct employment.

• During 5 years time physical exports worth `8868.92 crores

• Physical exports of `600.20 crores during 2006-07 to 2010-11.

Answer - Need for Focus Markets Schemes (FMS)

There is a requirement to focus on select international markets where there is a potential to

(d) Service exports

(e) Diamonds and other precious, semi precious stones

(g) Ores and concentrates, of all types and in all forms

(h) All types of cereals

(i) Sugar, of all types and in all forms

Cement, all types and in all forms

 Firstly, rapid industrialization necessitated large imports of machinery, equipment, industrial

India and services trade 10

World Exports of Commercial Services by Major Category, 2009

India’s Services Trade: Exports

India’s sector-wise rank and share in World Exports/Imports of Services

Table India’s Exports of Services

QNO9. Discuss the salient features of Foreign Trade Policy 2009-14.

4. Relaxation of obligations under the EPCG schemes.

Announcement for FPS, MLFPS and FMS:

8. New markets have been added in this scheme.

1. Handicrafts: Jaipur, Srinagar and Anantnag

2. Leather products: Kanpur, Dewas and Ambur

3. Horticultural products: Malihabad

Extension of Income Tax Exemption to EOU and STPI

Announcement for Handloom exports

Scheme for export oriented units

10. Write short notes on: a.

Export promotion councils b.

India Trade Promotion organization

a. Role of Export promotion councils 5

b. Role of India Trade Promotion organization 5

Role of India Trade Promotion organization

(a) The Indian Institute of Foreign Trade (IIFT)

(b) Indian Institute of Packaging (IIP)

(c) National Packaging Exhibition (INDPACK and National Conference)

(d) Indian Diamond Institute Surat

(e) Footwear Design & Development Institute (FDDI)

(f) India Trade Promotion Organization (ITPO)

g) Indian Council of Arbitration, New Delhi

h) Bureau of Indian Standards (BIS)

(i) Export Inspection Council, New Delhi