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 INDIA’S FOREIGN TRADE
Question Bank – (Previous Year Solved Question Papers)
Question Paper—June, 2019 ( Solved ) 1-5
Question Paper—December, 2018 ( Solved ) 1
Question Paper—June, 2018 ( Solved ) 1-2
Question Paper—December, 2017 ( Solved ) 1-3
Question Paper—June, 2017 ( Solved ) 1-2
Question Paper—December, 2016 ( Solved ) 1-2
Question Paper—June, 2016 ( Solved ) 1-2
Question Paper—December, 2015 ( Solved ) 1-4
Question Paper—June, 2015 ( Solved ) 1
Question Paper—December, 2014 ( Solved ) 1-3
Question Paper—June, 2014 ( Solved ) 1
Question Paper—December, 2013 ( Solved ) 1-2
Question Paper—June, 2013 ( Solved ) 1-2
Question Paper—December, 2012 ( Solved ) 1-2
Question Paper—June, 2012 ( Solved ) 1
Question Paper—June, 2011 ( Solved ) 1
Question Paper—June, 2010 ( Solved ) 1-2

S.No. Chapterwise Reference Book Page

1. India and World Trade 1

2. Direction and Problems of India’s Exports 5

3. Concept of Balance of Payment 15

4. India’s Balance of Payment 19

5. Issues and Trends in World Trade

 S.No. Chapter Page

6. India and World Trade 32

7. Export Promotion in India 39

8. Effective Export Promotion Strategies 43

9. Export Policy 52

10. Import Policy and Tariff Policy 57

11. Industrial and Investment Policy–I 63

12. Industrial and Investment Policy–II 68

13. Export Processing Zones (EPZs) and Export-Oriented Units (EOUs) 77

14. Special Economic Zones and Export Houses 82

15. Agricultural Products 86

16. WTO and Agricultural Exports 93

17. Indian Textiles Sector 98

18. Trends in Textiles and Garments Export 105

19. Gems, Jewellery and Handicrafts 114

20. Export Prospects: Gems, Jewellery and Handicrafts 121

21. Export of Leather Products 127

22. World Leather Trade: India’s Prospects 131

23. Electronic Goods Exports 137

24. Boosting Electronics Exports 143

 S.No. Chapter Page

25. Engineering Goods 152

26. Engineering Goods: Strategies to Boost Exports 158

27. Chemical Goods 164

28. Chemical Goods: Export Prospects 171

29. Services Sector 177

30. Services Sector: Export Opportunities 181

31. United States of America 189

32. European Union and CIS Countries 197

33. Japan-India Trade 208

34. India, ASEAN and SAARC 217

35. India and West Asia 229

 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Outline the changing pattern of India’s
foreign trade with reference to its composition and
direction.
Ans. Ref.: See Chapter-2, Page No. 5,
‘Composition of Foreign Trade’, Page No. 10,
‘Direction of Foreign Trade’.
Q. 2. Explain the major provisions of India’s
import policy and Duty Exemption/Remission Scheme.
Ans. In the last chapter, we have seen how
protectionism ruled over Indian trade for almost four
decades till the end of 1980s. The nineties brought
about a complete change in country’s trade policy
towards both exports and imports.
Actual User Condition: Capital goods, raw
materials, intermediates, components, consumables,
spare, parts, accessories, instruments and other
goods, which are importable without any restriction,
may be imported by any person. However, if any such
imports require a licence, only the Actual User can
import them unless exempted.
Second-hand Goods: All second-hand goods are
restricted for imports. These may be imported only in
accordance with the provisions of the EXIM Policy.
Import of Gifts: Import of gifts is allowed if such
goods are otherwise freely importable under the im-
port policy.
Import on Export Basis: New or second-hand
jigs, fixtures, dies, moulds, patterns, press tools and
lasts, construction machinery, containers/packages
meant for packing of goods for export and other
equipments, may be imported for export without a
licence subject to execution of a legal undertaking/
bank guarantee with the custom authority.
Re-import of Goods Sent Abroad: Capital goods,
aircraft including their components, spare parts and
[ Maximum Marks: 100
accessories whether imported or indigenous may be
sent abroad for repairs, testing quality improvement
or upgradation of technology and re-imported with-
out a licence.
Import of Machinery and Equipment used in Projects
Abroad
After completion of projects abroad, project
contractors may import used construction equipment,
machinery, and their spares up to 20 per cent of the
CIF value of such machinery, tools and accessories
without a licence.
Purchases on High Seas: Purchase of goods
on high seas for import into India may be made sub-
ject to this import policy or any other law in force at
the time of such purchase.
Import under Lease financing: No permission
of licensing authority is needed for importing new
capital goods under lease financing.
Export Promotion Capital Goods (EPCG) Scheme
New capital goods including computer software
systems may be imported under the Export Promotion
Capital Goods (EPCG) Scheme. Capital goods
including jigs, fixtures, dies, moulds and spares up to
20 per cent of the CIF value of the capital goods may
be imported at 5 per cent customs duty. The import is
subject to an export obligation equal to five times CIF
value of capital goods on FOB basis or four times the
CIF value of capital goods on NFE basis. The
obligation is to be fulfilled over a period of 8 years,
reckoned from the date of issue of licence. Import of
capital goods shall remain subject to Actual User
condition till the export obligation is fully met.
Duty Exemption/Remission Scheme: Under the
duty exemption scheme one can import all inputs
required for export production. The duty remission
 2 / NEERAJ : INDIA’S FOREIGN TRADE (JUNE-2019)
scheme allows post-export replenishment/remission
of duty on the inputs used in export product. The
details of both schemes are as follows:
1. Duty Exemption Scheme: Under this scheme,
an advance licence is issued for import of inputs, which
are physically part of the export product. The licence
allows duty-free import of inputs as defined in the
policy subject to actual user condition. The importer
does not have to pay basic customs duty, surcharge,
additional customs duty, anti-dumping duty and
safeguard duty, if any. Advance licence can be given
for:
(i) Physical exports
(ii) Intermediate supplies and
(iii) Deemed exports.
Advance licence may be issued for intermedi-
ate supply to a manufacturer-exporter. It permits im-
port of inputs needed in the production of goods to
be supplied to the ultimate exporter/deemed exporter
holding another advance licence.
In case of deemed export, advance licence can
be issued to the main contractor. It is meant for import
of inputs required in the making of goods to be
supplied to the categories mentioned in the policy.
2. Duty Remission Scheme: This scheme
consists of duty-free replenishment certificate and
duty entitlement passbook scheme.
(a) Duty Free Replenishment Certificate
(DFRC): Duty-free replenishment certificate is issued
to a merchant exporter or manufacturer exporter for
import of inputs used in the manufacture of goods.
Such importer need not make any payment of basic
custom duty, surcharge and special additional duty.
However, these inputs are subject to payment
of additional customs duty equal to the excise duty at
the time of import.
Q. 3. (a) What are the eligibility criteria for
various categories of export houses? Clarify.
Ans. Ref.: See Chapter-14, Page No. 83, ‘Eligibility
Criteria for Export Houses’.
(b) The new agreement on textile and clothing is
considered beneficial to Indian exporters. Discuss.
Ans. See Chapter-18, Page No. 110, ‘Agreement
on Textiles and Trading’ and Page No. 111, ‘Strategic
Steps India Must Undertake’ .
Q. 4. Analyse the export trend and market
potential of any two major services in each of the
conventional and non-conventioanl services sectors.
Ans. Ref.: See Chapter-30, Page No. 183, ‘Export
of Labour for India’ and Page No. 185, ‘Printing
Services’.
Q. 5. (a) Describe the trade prospects between
India and West Asia.
Ans. Ref.: See Chapter-35, Page No. 235, ‘Trade
India and West Asia’.
(b) Explain India’s competitive advantages and
weaknesses of chemical exports sector.
Ans. Ref.: See Chapter-28, Page No.173, ‘India
Competitive and Disadvantages’.
Q. 6. (a) Outline the recent policy measures
adopted for improving balance of payments situation
in India.
Ans. Around the 90s, there was a great inflow
into the invisibles account led by escalating private
transfer, partly reflecting the conversion of Indian
Development Bonds (IDBs), and a noteworthy
improvement in software and other technology related
exports. It caused quite a surplus and even the gross
invisible receipts did more than offset the increase in
net investment income payments. Behind the growing
surplus under the net invisible was the relative stable
growth in outflows as well as profits and dividends.
It was, in fact, quite contrary to expectations in the
aftermath of current account convertibility.
Crucial Policy Measures
The package of reforms initiated many policy
measures. Two such policy measures brought
significant changes in the balance of payment
situation in India. These policy measures are
discussed in what follows.
Foreign Exchange Policy
Since early seventies India had adopted flexible
exchange rates system. The guiding principle for
monetary authorities was to allow the exchange rate
to move in alignment with macro economic
fundamentals. However, in general, countries prefer
to limit exchange rate movement within the ceiling of
movements that affect the fundamentals.
India had large capital inflows soon after the
adoption of the market based exchange rate system
in 1993. The inflows surpassed the current account
deficits and excess supply conditions prevailed in
the foreign exchange market. This posed a new
challenge for the government in devising monetary
and exchange rate policies.
 SOLVED QUESTION PAPER (JUNE-2019) / 3
In such a state of affairs, a flexible exchange rate
regime (i.e. allowing the nominal rate appreciate with
large capital inflows) has the merits of insulating
domestic economy from the inflows and containing
inflation on account of an advantageous switchover
from exchange rate to domestic prices. However, these
gains have to be evaluated against the cost of
weakening of external competitiveness. It certainly
amounts to sacrifice of the external balance objective.
Instead, if the aim is to prevent real appreciation of
exchange rate and protect external competitiveness,
there are four options or a mixture thereof available.
They are:
1. The central bank (RBI in case of India)
intervenes in the foreign exchange market and then
sterilizes the incremental liquidity generated. It thus
keeps the monetary spreading out under check. This
process has, however, quasi-fiscal costs associated
with it and it also has the problem of inflating real
interest rates which may tempt further capital inflows.
2. Trade restrictions are relaxed to permit capital
flows supplement domestic saving. This has the
potential of promoting economic growth. However,
utmost care must be taken to ensure that it is the
investment that increases and not the consumption.
Otherwise, the debt servicing may go out of hand and
become unsustainable.
The authorities can relax restrictions on capital
outflows. The advantage will be of better portfolio
diversification for domestic residents as well as
increased efficiency of the overall financial system.
Often it develops further confidence thereby leading
to bigger inflows.
3. The authorities can also reintroduce
restrictions to control the swiftness of inflows. The
restrictions could be in the form of increasing reserve
requirements on non-resident deposits, tightening of
norms for entities accessing global markets for private
capital, higher withholding taxes on interest payments
overseas, tapering prudential standards on external
loans, and insisting on end-use clauses.
Clearly, an open capital account not only limits
the independence of authorities in the conduct of
exchange rate policy but also exposes the economy to
international fluctuations and shocks. Any plan of
aiming at an exchange rate or the money stock may be
counterbalanced by unexpected inflows, which affect
the nominal exchange rate as well. The free floating
exchange rate is certain to increase volatility and cause
constant misalignments which could knock off balance
the financial system, thereby eroding the reducibility
of an independent monetary policy. Obviously, there
has to be consistency with the economic
fundamentals, and therefore it may become necessary
to allow short-term nominal appreciation when there
is excess supply, but the authorities must be geared
up for aggressive interference, backed by likewise
aggressive sterilization to shield the money objective.
Long-term measures to preserve external
competitiveness may include increasing fiscal
concessions, softer export credit etc. These have to
be constantly weighed against the possible losses
due to higher debt servicing burden in the event of
depreciation. This way, the exchange rate regime has
to play an active role in the conduct of exchange rate
policy.
Convertibility
In August 1994, India opted for current account
convertibility (CAC). CAC is also applicable to foreign
investors (both direct and portfolio), non-resident
depositors and resident corporate contraction of
External Commercial Borrowings (ECB). Controls,
however, exist on resident individuals and corporate
bodies to send capital abroad as also on inflows and
outflows of capital associated with banks and non-
bank financial entities. International experience with
CAC has shown that, more often, liberalization of the
capital account attracts large capital inflows. Such
inflows can lead to real appreciation in the exchange
rate and erode the effectiveness of domestic monetary
policy. In addition, open capital account inflicts
monstrous pressure on the financial system and
brings out its weaknesses into sharper focus. Any
move to Capital Account Convertibility asks for a
very strong discipline from the financial system and
warrants early removal of infirmities in the system.
As defined by the Committee on Capital
Account, Capital Account Convertibility (CAC) refers
to the freedom to convert local financial assets into
foreign financial assets and vice versa at market
determined rates of exchange.
(b) What are the major constrainst Indo-
Japanese trade and how can they be overcome?
Ans. Unlike the Western investors, the Japanese
investors are cautious in their response to the new
open door policy of India. They have adopted a ‘wait
 4 / NEERAJ : INDIA’S FOREIGN TRADE (JUNE-2019)
and watch’ approach. Moreover, the Japanese
investment is confined mainly to the automotive and
electronic sectors. The absence of an exit policy,
infrastructure constraints and red tape are reportedly
the major factors preventing sizeable Japanese
investment in India. The World Bank, however, asserts
out that there are promising opportunities in
manufacturing, financial services and infrastructure
sectors. India’s exports constitute only 10 per cent of
GDP, and substantial part of foreign investment in
India should go to export-oriented industries.
For India, Japan is still one of the major trade
partners accounting for a fairly large share in the
former’s exports and imports over the years. On
the other hand, India is only a marginal partner in
Japan’s trade. Improved of bilateral economic
cooperation would require special efforts on both sides
in the spirit of true, mutually beneficial partnership.
These are needed at both governmental and industry
levels.
The slow growth of India’s exports to Japan
and Japan’s exports to India can be attributed largely
to the past “over-protective” trade policies practiced
in India. Since the initiation of the present reform
process in India, there have been significant policy
changes. India’s liberalized trade policies have been
quite successful and the Japanese market response
to these changes has been quite positive.
Most of India’s exports to and imports from
Japan are seen to be either inelastic or non-significantly
responsive to any kind of changes. In bilateral trade
this is not very surprising, but it points out at need for
export promotion efforts.
The slow growth of India’s exports to Japan
and Japan’s exports to India can be attributed largely
to the past “over-protective” trade policies practiced
in India. Since the initiation of the present reform
process in India, there have been significant policy
changes. India’s liberalized trade policies have been
quite successful and the Japanese market response
to these changes has been quite positive.
Most of India’s exports to and imports from
Japan are seen to be either inelastic or non-significantly
responsive to any kind of changes. In bilateral trade
this is not very surprising, but it points out at need for
export promotion efforts. Quality control and
incentives to producers of select commodities for
export and diversification to add new products,
particularly value added products like cashew-nuts,
fish products and other processed food will improve
the scope for expansion of Indo-Japanese trade. To
increase India’s exports to Japan specific attention is
to be paid on the following lines:
1. All the agricultural export commodity groups
should be brought under rigorous quality control.
The new entrants to the export list should satisfy the
fashion-conscious Japanese.
2. Further improve the quality of iron-ore and
concentrates, raw cotton, oil cakes, fish and fish
preparations, chrome ore, tobacco and cashew kernels
exported to Japan.
3. Encourage the domestic production of rose
wood, tea and coffee. It must be ensured that the
efforts to augment export surplus of these commodity
groups are effectively coordinated and that their
prices are kept remunerative.
4. Increasing the quantity of iron-ore and
concentrates exported to Japan could be made
possible by intensifying the mechanizing of the mining
operations, ensuring speedier and adequate transport
facilities for movement of ores and enlarging the
berths.
5. Training has to be provided to all artisans to
promote exports of cut diamonds, garments and
musical instruments.
6. Since India’s imports from Japan contained
largely the finished products, chemicals and industrial
raw materials of proven superiority, efforts must be
made to increase their production in the home
industries, with possible technical collaborations with
Japan. India may initiate and intensify proper
negotiations for a reduction in unit value of
machineries, iron and steel, organic compounds and
synthetic rubber. Stability achieved in value of
imported from Japan must be maintained,
progressively adopting measures to seek gains for
India in its trade with Japan.
There is a large potential for expanding the Indo-
Japanese trade relations. To realize this potential,
government-to-government dialogue as well as
growing relationships between Indian and Japanese
business are essential.
Q. 7. What are the export prospects of
handicrafts and gems and jewellery? Explain the
measures for development of exports thereof.
Ans. Broadly speaking, handicrafts include gems
and jewellery and other handicrafts as follows:
 SOLVED QUESTION PAPER (JUNE-2019) / 5
Gems and Jewellery
1. Precious, semi-precious and synthetic
stones including cut and polished diamonds,
colourful gem stones, pearls, and synthetic
stones.
2. Precious metal and other jewellery including
gold, non-gold (silver, platinum and
palladium) and imitation/artificial jewellery.
Other Handicrafts
1. Hand knotted woollen carpets (including silk
and synthetic carpets druggets and
namdahs).
2. Art metal-wares (Brass, Bronze, etc).
3. Hand printed textiles and scarves.
4. Embroidered and crocheted goods.
5. Wood wares.
6. Imitation jewellery.
7. Zari and zari goods.
8. Shawls as art ware.
9. Assorted handicrafts (some 30 different
items).
Handicrafts in general and gems and jewellery in
particular are the major emerging areas of export
business. This industry is labour-intensive. That is to
India’s advantage. Moreover, skills of Indian artisans
are known all over the world since ancient times. To
exploit full potential of export opportunities in this
sector aggressive export promotion strategies are
needed.
Also, Ref:. See Chapter-19, Page No. 122, ‘Import
Prospects For Handicraft’ and Page No. 123,
‘Measures for Export Development’.
Q. 8. Write explanation notes on the following:
(a) New Industrial Policy.
Ans. Ref.: See Chapter-11, Page No. 65,
‘Evaluation of Industiral Policy of 1981’.
(b) Causes of adverse Balance of Payments
Ans. During a given period of time exports and
imports may be exactly equal, in which case, the
balance of trade is said to be balanced. If the value of
exports to country exceeds the value of imports, the
country is said to have an export surplus or a favourable
balance of trade. When the value of imports coming to
a country is greater than the value of exports, the
balance of trade is said to be unfavourable.
Global trade, however, includes not only import
and export of goods but also services such as air and
ocean shipping, financial and other services like
banking, insurance, trade, investment income, etc.
Export and import of goods are visible trades as
they are physically recorded at the customs barriers
of the country. Receipts and payments for services
rendered are matters of invisible trade.
Comparison Between BOT and BOP
The balance of payment is broader than the
balance of trade for it includes not only visible items
but also invisible items. Hence, the balance of
payments presents a better picture of a country’s
economic and financial transactions with the rest of
world than the balance of trade. Balance of payment
is a comprehensive and systematic record of all
economic transactions between the residents of a
country and the rest of the world. It presents an
account of all receipts and payments on account of
goods exported, services rendered and capital
received by residents/government of a country
(inflows from abroad) and goods imported, services
received and capital transferred by the residents/
government of a country (outflows abroad).
For India, mostly the main cause of deficits in
balance of payment has been excess of imports over
exports in merchandise. Sometimes, but to a very
small extent, the deficits have come from invisible
trade also. The major source of deficits is generally
the increasing obligation to satisfy the amortization
payments. This involves big chunk of money for
overdue instalments of loans and even larger interest
payments thereon. Large withdrawals from non-
resident accounts have also be a factor to deficits.
(c) South Asian Association of Regional Co-
operation (SAARC)
Ans. Ref.: See Chapter-34, Page No. 223,
‘Objectives of SAARC’.
(d) Government’s measures to enhance
agricultural exports
Ans. Exports of agricultural products from India
consist of a large number of items. Most of these
are food items, either for human consumption or for
animal consumption. Some of the raw materials like
jute, wool, silk; cotton, etc. also come under
agricultural products.
The most noteworthy feature of Indian
agriculture is its diversified nature. This is due to
the varied climatic and soil conditions and plentiful
of sunshine. Very few countries in the world are
blessed with such diversity.
Also Ref.: See Chapter-16, Page No. 94,
‘Measures to Import Agricultural Exports’.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Explain the export promotion measures
initiated by the Government of India. Indicate the
constraints hampering such efforts.
Ans. Ref.: See Chapter-8, Page No. 43, ‘Export
Promotion Measures in India’ and Page No 46,
‘Constraints in Export Promotion’.
Q. 2. State the major aspects of foreign
investment policy in India. Analyse the inflow of
FDI with reference to countries and industries.
Ans. Ref.: See Chapter-12, Page No. 71, ‘Foreign
Investment Policy’ and ‘FDI Inflow in India’.
Q. 3. (a) State the factors responsible for export
growth of readymade garments.
Ans. Ref.: See Chapter-18, Page No. 106,
‘Reason for Excellent Growth’.
(b) Describe the measures adopted by the
Government of India to enhance agricultural
exports from India.
Ans. Ref.: See Chapter-16, Page No. 95,
‘Strategies to Boost Agriculture.
Q. 4. (a) Describe the avenues and prospects
of India’s exports of chemicals.
Ans. Ref.: See Chapter-28, Page No. 171, ‘Main
Sectors of Chemical Industry’ and Page No. 172,
‘Prospects for Developing Nations’ .
(b) State the difficulties faced in international
trade in services.
Ans. Ref.: See Chapter-29, Page No. 178, ‘Issues
in International Trade in Services’ .
Q. 5. Discuss the major trends in Indo-
European Union Trade in recent years. State the
prospects for Indo-Japanese trade.
[ Maximum Marks: 100
Weightage: 70%
Ans. Ref.: See Chapter-32, Page No. 199, ‘EU
and India’ and Chapter-33, Page No. 214, ‘Future
Prospects’.
Q. 6. Explain the Indo-ASEAN trade and
economic relations, and assess the trade prospects
between India and ASEAN countries.
Ans. Ref.: See Chapter-34, Page No. 221, ‘Indo-
ASEAN Trade and Economic Relations’ and
Page No. 222, ‘Indo-ASEAN Trade Prospects’.
Q. 7. Describe the export scenario of India’s
electronic items, and suggest suitable strategies to
enhance their exports.
Ans. Ref.: See Chapter-24, Page No. 146,
‘Problems Faced by Electronics Industry’ and
Page No. 150, ‘Suggestions for Export Strategies’.
Q. 8. Write notes on the following:
(a) Salient features of India’s Balance of
payments
Ans. Ref.: See Chapter-4, Page No. 19,
‘Significane Features of India’s BOP’.
(b) Policies and strategies to boost leather
exports.
Ans. Ref.: See Chapter-22, Page No. 134,
‘Strategies to Boost Exports’.
(c) Benefits and facilities provided to EPZs
and EOUs
Ans. Ref.: See Chapter-13, Page No. 79,
‘Incentives, Benefits and Facilities’.
(d) Indo-US Trade Prospects
Ans. Ref.: See Chapter-31, Page No. 194,
‘Future of Indo-USA Trade’.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Describe the current world trade scenario.
Discuss the strategy for integrating India’s trade
with the world trade.
Ans. See Chapter-5, Page No. 25, ‘Introduction’,
‘Issues in World Trade’, Page No. 28 ‘ Trends in World
Trade’ and Chapter-6, Page No. 37, ‘ Strategy for
Integrating India With World Trade’.
Q. 2. Explain the rationale behind export
promotion in India. Describe the guidelines drawn
up for a more realistic export promotion programme.
Ans. See Chapter-7, Page No. 39, ‘Rationale
Behind Export Promotion’ and Chapter-8,
Page No. 48, ‘Effective Export Growth Strategies’.
Q. 3. Describe the export prospects for Indian
handicrafts and gems and jewellery? State the various
measures adopted for the purpose.
Ans. See Chapter-20, Page No. 122-123, ‘ Export
Prospects for Handicrafts’ and ‘Measures for Export
Development’.
Q. 4. Describe the various products and markets
for India’s engineering goods exports. State the major
problems faced in their exports.
Ans. See Chapter-25, Page No. 154-155,
‘Sectorwise Exports and ‘Worldwide Export Market’,
Page No. 156, Q. No. 4 and Chapter-26,
Page No. 158, ‘Problems of Engineering Exports’.
Q. 5. Describe the trends and composition of
India’s exports and imports with the USA. State the
major constraints in expansion of the Indo-US trade.
Ans. See Chapter-31, Page No. 192, ‘ Indo-Use
Trade’, Page No. 193,‘ Composition’ and Page No.
196, Q. No. 8.
[ Maximum Marks: 100
Weightage: 70%
Q. 6. Explain the major provisions of India’s
export-import policy.
Ans. See Chapter-9, Page No. 53, ‘ Exim Policy
(1997-2002) AIMS’, Page No. ‘54, ‘Objectives of Exim
Policy (1997-2002) and Chapter-8, Page No. 50,
Q. No. 7.
Q. 7. (a) Describe the recent policy measures
adopted for improving the balance of payments
situation in India.
Ans. See Chapter-4, Page No. 22, ‘Crucial Policy
Measures’.
(b) State the strategic responses that Indian
exporters of textile and clothing would consider in
the context of emerging competition.
Ans. See Chapter-18, Page No. 111, ‘Strategic
Steps India Must Undertake’.
Q. 8. Write explanation notes on the following:
(a) Major problems in India’s Exports
Ans. See Chapter-2, Page No. 12, ‘Major Problems
for India’s Export Sector’.
(b) Benefits and facilities provided to Export
Houses
Ans. See Chapter-8, Page No. 43, ‘Export
Promotion Measures in India’.
(c) Major Constraints in Indo-Japanese Trade
Ans. Unlike the Western investors, the Japanese
investors are cautious in their response to the new
open door policy of India. They have adopted a ‘wait
and watch’ approach. Moreover, the Japanese
investment is confined mainly to the automotive and
electronic sectors. The absence of an exit policy,
infrastructure constraints and red tape are reportedly
the major factors preventing sizeable Japanese
 2 / NEERAJ : INDIA’S FOREIGN TRADE (JUNE-2018)
investment in India. The World Bank, however, asserts
out that there are promising opportunities in
manufacturing, financial services and infrastructure
sectors. India’s exports constitute only 10 per cent of
GDP, and substantial part of foreign investment in
India should go to export-oriented industries.
For India, Japan is still one of the major trade
partners accounting for a fairly large share in the
former’s exports and imports over the years. On
the other hand, India is only a marginal partner in
Japan’s trade. Improved of bilateral economic
cooperation would require special efforts on both
sides in the spirit of true, mutually beneficial
partnership. These are needed at both governmental
and industry levels.
The slow growth of India’s exports to Japan
and Japan’s exports to India can be attributed largely
to the past “over-protective” trade policies practiced
in India. Since the initiation of the present reform
process in India, there have been significant policy
changes. India’s liberalized trade policies have been
quite successful and the Japanese market response
to these changes has been quite positive.
Most of India’s exports to and imports from
Japan are seen to be either inelastic or non-
significantly responsive to any kind of changes. In
bilateral trade this is not very surprising, but it points
out at need for export promotion efforts.
(d) Trade Prospects between India and West Asia.
Ans. See Chapter-35, Page No. 233, ‘India’s Trade
with West Asian Countries’.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Compare India’s Foreign Trade with
World Trade in terms of volume and direction of
trade. What steps can be taken by India to improve
its position in World Trade?
Ans. Ref.: See Chapter-6, Page No. 36, ‘India
and the World Trade’ and Page No. 37, ‘Strategy for
Integrating India With the World Trade’.
Q. 2. Explain regulatory mechanism
established by India to regulate India’s Foreign
Trade. What are major organisations involved in
the process? Explain briefly.
Ans. Ref.: See Chapter-7, Page No. 41,
‘Regulator or Mechanism in Export’, Page No. 40,
‘Export Promotion Organisation’.
Q. 3. Discuss major features of India’s Balance
of Payments. Explain the role of devaluation of
currency to balance BOP account of our country.
Ans. Ref.: See Chapter-3, Page No. 16, ‘Balance
of Payment Deficits’.
Q. 4. Compare and contrast the features of
New Industrial Policy with the previous Industrial
Policy of 1956. What are the major changes made
as a part of New Industrial Policy? Discuss.
Ans. Ref.: See Chapter-11, Page No. 63,
‘Industrial Policy Resolution, 1956’, Page 64,
‘Industrial Policy of 1991’ and Page No. 65,
‘Evaluation of Industrial Policy of 1991’ .
Q. 5. Write notes on:
(a) Duty Drawback Scheme for Exporters
Ans. The Duty Drawback Scheme allows
exporters to get a refund on customs duty paid on
imported goods, where those goods are:
To be treated, processed, or incorporated in
other goods for export, or
Are exported unused since importation.
[ Maximum Marks: 100
The term drawback is applied to a certain
amount of duties of Customs and Central Excise,
sometimes the whole, sometimes only a part remitted
or paid by Government on the exportation of the
commodities on which they were levied. To entitle
goods to drawback, they must be exported to a
foreign port, the object of the relief afforded by the
drawback being to enable the goods to be disposed
of in the foreign market as if they had never been
taxed at all. For Customs purpose drawback means
the refund of duty of customs and duty of central
excise that are chargeable on imported and
indigenous materials used in the manufacture of
exported goods. Goods eligible for drawback applies
to:
(a) Export goods imported into India as such;
(b) Export goods imported into India after
having been taken for use;
(c) Export goods manufactured/produced out
of imported material;
(d) Export goods manufactured/produced out
of indigenous material;
(e) Export goods manufactured/produced out
of imported or and indigenous materials.
The Duty Drawback facility on export of duty
paid imported goods is available in terms of Sec. 74
of the Customs Act, 1962. Under this scheme part of
the Customs duty paid at the time of import is
remitted on export of the imported goods, subject to
their identification and adherence to the prescribed
procedure.
(b) Role of SEZ
Ans. The term Special Economy Zones (SEZ)
covers a broad range of zones, such as free trade
zones, export-processing zones, industrial parks,
 2 / NEERAJ : INDIA’S FOREIGN TRADE (DECEMBER-2017)
economic and technology development zones, high-
tech zones, science and innovation parks, free ports,
enterprise zones, and others. Special Economic Zone
(SEZ) is a special geographical region which has
different laws when compared to other regions. SEZs
are projected as duty free area for the purpose of
trade, operations, duty and tariffs. SEZ units are self-
contained and integrated having their own
infrastructure and support services. The main
advantages of SEZ Units in India can be summarized
as promotion of industrialization and economic
growth through sustainable development.
Role of Special Economic Zones in India
includes:
Generation of additional economic activity
Promotion of exports of goods and services
Promotion of investment from domestic and
foreign sources
Creation of employment
Development of infrastructure facilities
Simplified procedures for development,
operation, and maintenance of the Special
Economic Zones and for setting up units and
conducting business
Single window clearance for setting up of a
SEZ and an unit in SEZ
Single window clearance on matters relating
to Central as well as State Governments
Easy and simplified compliance procedures
and documentations with stress on self
certification
SEZ do attract the firms in sectors whose basis
of competition is highly dependent on the available
supply of low-wage, flexible, and unskilled or
semiskilled workers, a set of requirements. Special
Economic Zones create the following advantages
such as:
(1) Minimize costs (through fiscal incentives
and administrative efficiencies);
(2) Provide access to serviced land and more
reliable infrastructure; and
(3) Reduce the investment requirement,
lowering risk and providing operational and
strategic flexibility.
Q. 6. Trace the development of India’s textile
sector after phase out of MFA (Multifiber
Agreement). How exports of textile items can be
increased from India? What are the issues and
unique challenges involved after MFA period?
Give examples.
Ans. Ref.: See Chapter-18, Page No. 110,
‘Agreement on Textiles and Clothing Prospects in
Near Future’ and Page No. 109, ‘Adverse Impact of
MFA on India’ .
Q. 7. Discuss the role of ITPO (India Trade
Promoters Organisation) and EPC (Export
Promotion Councils) in promoting India’s Foreign
Trade. What are the unique functions of each of
these organisations as mandated by GOI?
Ans. India Trade Promotion Organisation):
India Trade Promotion Organisation (ITPO) is a
nodal trade promotion agency of the Government
of India (GOI). It has been charting a multi-
dimensional course for itself in conformity with its
mandated role. Since its inception in 1992 and prior
to that in its earlier incarnations of Trade Fair
Authority of India (TFAI) and Trade Development
Authority (TDA), ITPO has for well over three
decades, played a multi-faceted role in bringing out
the strengths of the Indian economy and giving a
thrust to the country’s exports as a premier export
promotion organization. ITPO provides a wide
spectrum of services to trade and industry and acts
as a catalyst for growth of India’s trade. ITPO
approves holding of international trade fairs in India
and regulates holding of various expositions in India
primarily to avoid any duplication of efforts while
ensuring proper timing. It manages India’s world
class exhibition complex which is constantly
upgraded to keep it in a high standard of readiness.
ITPO has an extensive infrastructure as well as
marketing and information facilities that are availed
by both exporters and importers. ITPO’s regional
offices at Bangalore, Chennai, Kolkata and Mumbai,
through their respective profile of activities, ensure
a concerted and well coordinated trade promotion
drive throughout the country.
Functions and Activities of ITPO
Organising of fairs and exhibitions in India.
Participation in select overseas fairs and
organizing of exclusive Indian trade shows
in select locations abroad.
Promotion through department stores,
contact and product promotion programmes,
and market surveys.
 SOLVED QUESTION PAPER (DECEMBER-2017) / 3
Information dissemination on products and
markets among trade and industry in India
and abroad.
Organising seminars, conferences and
workshops on trade-related issues.
Upgradation of the facilities of Pragati
Maidan to exacting international standards.
EPC (Export promotional Councils): Export
promotional Councils (EPC) are authorities which
are basically promoting, supporting and assisting
firms in entering the International markets and
realising their optimum potential from given
resources. They also provide guidance and assistance
to the exporters.
In legal terms, export promotional councils are
non-profit organisation registered as a company or
society. Each Export promotional council is
responsible for his particular group of products.
Export promotional councils provide various benefits
to the registered exporters. And hence plays a
significant role for any exporter in India. The main
role of the EPCs is to project India’s image abroad
as a reliable supplier of high quality goods and
services. In particular, the EPCs shall encourage and
monitor the observance of international standards and
specifications by exporters. The EPCs shall keep
abreast of the trends and opportunities in international
markets for goods and services and assist their
members in taking advantage of such opportunities
in order to expand and diversify exports.
Q. 8. Write notes on :
(a) Bilateral Trade relations between India-
ASEAN
Ans. Ref.: See Chapter-34, Page No. 221, ‘Indo-
Asean Trade and Economic Relations’.
(b) List of Major Documents involved in
Foreign Trade.
Ans. In an international trade transaction, there
is a time lag between the transfer of goods by the
exporter to the importer, and transfer of payment by
the importer to exporter. To protect both parties from
counter-party risk, a number of documents are created
and used. These are listed below:
1. Bill of Exchange: It is an agreement signed
by the buyer of the goods to pay the seller a certain
sum of money on a specified future date. Each
international trade transaction generates its own bill
of exchange.
2. Bill of Lading: Also known as BOL, a Bill of
Lading is evidence of a contract between the carrier
(transporter) and the exporter to deliver the goods to
a designated party (the importer, called the named
consignee) at a specified destination in the importer’s
country.
3. Letter of Credit: A Letter of Credit is an
undertaking given by the importer’s bank (called
issuing bank) acting upon the request of the importer,
that it will make payment to a beneficiary (the
exporter). A Letter of Credit involves a minimum of
four parties – the importer, importer’s bank(issuing
bank), exporter and the exporter’s bank (advising
bank).
4. Certificate of Origin of Goods: The
certificate of origin is an instrument that establishes
the origin of goods imported into a country.
5. Inspection certificate: This is issued by an
independent third party (such as an independent
inspection agency, or the supplier of the goods) stating
that the goods have been inspected and conform to
the quality/specification/other contractual terms.
6. Packing Weight List: When the goods are in
packages, the packing list gives details of the goods
in each package.
7. Consular Invoice: It is an invoice that
describes the goods being transported. The exporter
authenticates the accuracy of the invoice by appearing
before the Importer country’s Consul who is stationed
in the exporter’s country.
8. Insurance Document: To protect goods in
transit from loss or damage from the time they leave
the exporter’s warehouse and until they reach the
importer’s warehouse, the goods are insured by the
importer.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. How India’s Foreign Trade can be said
to be an engine of economic growth? Give the
direction of India’s Foreign Trade and the
commodity composition of the same.
Ans. See Chapter-1, Page No. 2, ‘Trends in
India’s Foreign Trade’ and ‘Chapter-2, Page No. 5,
‘Composition of Foreign Trade’.
Q. 2. Write a detailed note on the Institutional
set up established by Govt. of India to boost India’s
Foreign Trade.
Ans. See Chapter-7, Page No. 39, ‘Rationale
Behind Export Promotion’, Page No. 40, ‘Export
Promotion Organisation’, Page No. 41, Regulatory
Mechanisms in Export’, Chapter-6, Page No. 37,
Strategy for Integrating India with World Trade’.
Q. 3. How Balance of Payments are different
from Balance of Trade? What is current account
deficit? How is it managed in obtaining equilibrium
in Balance of Payments of India? Give examples.
Ans. See Chapter-3, Page No. 15, ‘Concept of
Balance of Payment’, ‘Balance of Trade’, Page No.
16, ‘Comparison Between BOT and BOP, BOP on
Current Account’ and Page No. 17, ‘Balance of
Payment-Deficits’.
Q. 4. Write a detailed note on:
(a) Export Promotion Capital Goods Scheme
(EPCG Scheme)
Ans. See Chapter-10, Page No. 58, ‘Export
Promotion Capital Goods (EPCG) Scheme’.
(b) Duty Exemption and Remission Scheme
(DER Scheme). How to avail these schemes by the
exporters of India?
Ans. See Chapter-10, Page No. 58, ‘Duty
Exemption/Remission Scheme’.
[ Maximum Marks: 100
Weightage: 70%
Q. 5. Write a note on India’s new Industrial
Policy. How the Industrial Policy helps in bringing
out Industrial development of India?
Ans. See Chapter-11, Page No. 66, ‘Present
Industrial Policy’ and Page No. 64, ‘Industrial Policy
of 1991’, Page No. 65, ‘Evaluation of Industrial Policy
of 1991’.
Q. 6. What are the main features of India’s
trade with USA? Whether the trade is increasing
or decreasing after economic crises of 2006? What
steps can be taken to boost Indo-US Trade? Give
examples.
Ans. See Chapter-31, Page No. 192, ‘Indo-USA
Trade’ and Page No. 194, ‘Future of Indo-USA Trade’.
Q. 7. What are TRIPs? How this agreement
helps in trade in Intellectual Property Rights? How
these rights are protected and help in increasing
India’s Foreign Trade? Explain in detail.
Ans. See Chapter-10, Page No. 60, ‘Trade
Related Intellectual Property Rights (TRIPS)’.
Also Add: Intellectual Property Rights (IPRs) at
a multilateral level have their genesis in the Paris
Convention for the Protection of Industrial Property
in 1883 which protected industrial property i.e.,
Patents and trademarks and theBerne Convention for
the Protection of Literary and Artistic Works in 1886
for copyrights and related rights. World Intellectual
Property Organization (WIPO) which began its work
in 1967 taking over from the Bureau for the Protection
of Intellectual Property that had been working since
1893, is the international agency under the United
Nations that administers the work of these
conventions. The WIPO administers many other
international conventions on IPRs also. While the IPR
 2 / NEERAJ : INDIA’S FOREIGN TRADE (JUNE-2017)
Conventions and treaties create the international
standards in protection of IPRs which are to be
followed by the member countries, substantive trade
related disciplines on IPRs under these international
conventions have been adopted by reference into the
WTO through the TRIPS Agreement. This means that
the Agreement provides rules for trade and investment
in ideas and creativity by incorporating standards laid
down in certain exact provisions of the major IPR
conventions. The WTO provides that “intellectual
property” should be protected when trade is involved.
Thus, through the TRIPS, the WTO makes it
mandatory for all its member countries to follow basic
minimum standards of IPR provided for under TRIPS
and bring about a degree of harmonization of domestic
laws in this field.
The obligations under TRIPS apply equally to
all member states, however developing countries were
allowed extra time to implement the applicable
changes to their national laws, in two tiers of transition
according to their level of development. The transition
period for developing countries expired in 2005. The
transition period for least developed countries to
implement TRIPS was extended to 2013, and until 1
January 2016 for pharmaceutical patents, with the
possibility of further extension.
It has therefore been argued that the TRIPS
standard of requiring all countries to create strict
intellectual property systems will be detrimental to
poorer countries’ development. It has been argued that
it is, prima facie, in the strategic interest of most if
not all underdeveloped nations to use the flexibility
available in TRIPS to legislate the weakest IP laws
possible.
Q. 8. Write notes on the following:
(a) Role of bilateral trade relations with
various countries in India’s Foreign Trade
improvement.
Ans. The international economic relations
between two countries depend on a number of factors
like the import export relations, investment between
two countries and the like. Trade is an important factor
in this context. Normally there are two types of trades
- bilateral trade and multilateral trade. Bilateral trade
is the trade between two countries and multilateral
trade is trade between more than two countries. In
the recent times, foreign direct investment relations
between two countries have assumed increased
importance as well.
The inflow of money in a country from another
one goes a long way in determining the relations
between those countries in the international scenario.
In the modern day, economic scenario globalization
has played an important role in determining the
international economic relationship between two or
more countries. Prior to this phenomenon there were
several countries that had erected trade barriers in the
form of oppressive foreign trade legislations and tax
policies that were not exactly in favor of attracting
foreign direct investment from other countries. India
has important and strong economic relations with many
countries in the world. Traditionally India has
maintained trade relations with various countries. After
the economic reforms of the early nineties, the Indian
economy was opened up to further bilateral trade
relations with various countries and to Foreign Direct
Investment (FDI). Import restrictions on many items
were lifted which led to expansion of India’s economic
relations with other nations.
(b) Features of FEMA (Foreign Exchange
Management Act).
Ans. The following are some of the important
features of Foreign Exchange Management Act:
(i) It is consistent with full current account
convertibility and contains provisions for progressive
liberalisation of capital account transactions.
(ii) It is more transparent in its application as it
lays down the areas requiring specific permissions of
the Reserve Bank/Government of India on acquisition/
holding of foreign exchange.
(iii) It classified the foreign exchange transactions
in two categories, viz., capital account and current
account transactions.
(iv) It provides power to the Reserve Bank for
specifying, in, consultation with the central
government, the classes of capital account transactions
and limits to which exchange is admissible for such
transactions.
(v) It gives full freedom to a person resident in
India, who was earlier resident outside India, to hold/
own/transfer any foreign security/immovable property
situated outside India and acquired when s/he was
resident.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Describe the most significant issues
involved in world trade and state as to how does
the World Trade Organisation (WTO) ensure that
trade flows smoothly and fairly.
Ans. The most significant issues in world trade
are:
(a) Regionalism versus multilateralism;
(b) Liberalization and globalisation in foreign
trade;
(c) Electronic commerce and electronic data
interchange;
(d) Environmental challenges, etc.
Among all these organisations, World Trade
Organization is the only international organization
dealing with the rules and regulations of trade between
nations. It came into existence in 1995. One of the
youngest of the international organizations, the WTO
is the successor to the General Agreement on Tariffs
and Trade (GATT) set up after the Second World-War.
GATT and the WTO have helped to create strong and
prosperous trading systems contributing to
extraordinary growth in world trade. WTO’s main
function is to ensure that trade flows smoothly, freely,
fairly and predictably. This is achieved by:
(i) Administering trade agreements
(ii) Acting as a forum for trade negotiations
(iii) Setting trade disputes among nations
(iv) Reviewing national trade policies
(v) Assisting developing countries in trade
policy issues, through technical assistance
and training programmes
(vi) Cooperating with other international
organizations.
Today, WTO has more than 140 members,
accounting for over 90 per cent of the world trade.
[ Maximum Marks: 100
Many other nations are negotiating for its
membership.
Q. 2. (a) Explain the major provisions of
India’s recent exports policy.
Ans. Ref.: See Chapter-9, Page No. 54, ‘Export
Policy’.
(b) State the benefits and facilities provided
to units located in Export Promotion Zone (EPZ).
Ans. Ref.: See Chapter-13, Page No. 79,
‘Incentives, Benefits and Facilities’.
Q. 3. Identify the problems of Indian
electronics industry, and suggest suitable
strategies for their removal.
Ans. Ref.: See Chapter-24, Page No. 146,
‘Problems Faced by Electronics Industry’ and
Page No. 150, ‘Suggestions for Export Strategies’.
Q. 4. Describe the composition and direction
of USA’s trade with the world, and state the major
constraints in Indo-US trade.
Ans. Ref.: See Chapter-31, Page No. 191,
‘Foreign Trade of USA’.
Also Add: As things are turning out, main hurdles
as identified by Indian exporters to the US are the
non-tariff barriers like health and federal regulations
in the US. These are of non-price nature. Identified
bottlenecks that inhibit exports from India to the US
are inadequacy of export finance and transport and
banking facilities, insurance costs, bureaucratic
delays, reservations for small-scale industry,
inefficient quality control mechanisms, high import
tariffs on raw materials and strict foreign travel rules.
Most of these supply constraints have been now
removed by India’s reform policies. For US exports
to India, the main constraints are high tariffs and non-
tariff barriers, burdensome procedures, non-
 2 / NEERAJ : INDIA’S FOREIGN TRADE (DECEMBER-2016)
transparent government procurement policies, lack of
effective intellectual property right protection, absence
of exit policy for industries, uncertainties of socio-
political stability and exchange rate risk. Most of these
issues have been tackled by the ongoing Indian
economic reforms.
There is indeed a huge potential for expanding
Indo-US trade relations. To realize it, not only
government-to-government dialogue, but also
growing contacts and business relationships between
Indian and US business houses is essential.
Q. 5. Explain the various export promotion
measures initiated by government of India, and
identify the constraints still hampering export
promotional efforts.
Ans. Ref.: See Chapter-8, Page No. 43, ‘Export
Promotion Measures in India’ and Page No. 46,
‘Constraints in Export Promotion’.
Q. 6. Give an overview of Indian textile
industry and its export prospects.
Ans. Ref.: See Chapter-17, Page No. 99, ‘Close
Look at Indian Textile Sector’ and Page No. 103,
‘Indian Textiles Exports’.
Q. 7. (a) Explain briefly the West-Asia’s
composition and direction of trade.
Ans. Ref.: See Chapter-35, Page No. 231,
‘Foreign Trade of Select Countries of West-Asia’.
(b) State India’s competitive advantages of
chemical exports.
Ans. Ref.: See Chapter-28, Page No. 173,
‘India’s Competitive Advantages and Dis-
advantages’.
Q. 8. Write explanatory notes on the
following:
(a) Special Economic Zones (SEZ).
Ans. Ref.: See Chapter-14, Page No. 82,
‘Special Economic Zones (SEZs)’, ‘Approvals and
Criteria for SEZs’.
(b) Non-border aspects affecting inter-
national trade in services.
Ans. Ref.: See Chapter-29, Page No. 179, ‘Non-
Border Aspects of Global Service Trade’.
(c) India’s exports of agricultural products.
Ans. Ref.: See Chapter-15, Page No. 86, ‘India’s
Export of Agricultural Products’.
(d) Balance of Payment Accounting.
Ans. Ref.: See Chapter-3, Page No. 16, ‘Balance
of Payment Accounting’.
 ( Solved )
Time: 3 hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Describe the changing pattern of India’s
foreign trade with reference to composition of exports
and imports.
Ans. Ref.: See Chapter-1, Page No. 2,
‘1.4 Trends in India’s Foreign Trade’.
Q. 2. (a) Explain the major provisions of India’s
recent import policy.
Ans. See Chapter-10, Page No. 57,
‘Import Policy’.
(b) State the nature and importance of foreign
investment in India.
Ans. See Chapter-12, Page No. 69,
‘12.3 Nature of Foreign Investment’ and ‘12.3.2
Advantages of Foreign Investment’.
Q. 3. State the competitive advantages and
disadvantages that services’ exports from India
confront, and make necessary suggestions to boost
services exports.
Ans. Ref.: See Chapter-30, Page No. 185, ‘30.6
India’s Competitive Advantages and Disadvantages’
and Page No. 186, ‘Suggestions to Boost Export of
Services’.
Q. 4. (a) “India is not a significant trade partner
of the European Union”. Discuss.
Ans. Ref.: See Chapter-32, Page No. 199,
‘32.5.1 EU-India Trade Limits’.
(b) What are the major constraints in Indo-
Japanese trade relations and how can they be
overcome?
Ans. Ref.: See Chapter-33, Page No. 214,
‘Future Prospects’.
[ Maximum Marks: 100
Weightage: 70%
Q. 5. Give an overview of handicrafts industry in
India, and state the measures to be adopted for
development of their exports.
Ans. Ref.: See Chapter-19, Page No. 115,
‘19.4 Overview of Handicrafts Industry’.
Q. 6. What are the eligibility criteria for
recognition of various categories of Export Houses?
Describe the benefits and facilities provided to them
under the Exim Policy.
Ans. Ref.: See Chapter-14, Page No.83,
‘14.7 Eligibility Criteria for Export Houses’, Page No.
84, ‘Benefits and Facilities for Export Houses’.
Q. 7. (a) Describe India-West Asia trade
prospects.
Ans. See Chapter-35, Page No. 235,
‘Trade Prospects: India and West Asia’.
(b) Enumerate the various products and markets
for export of engineering goods from India.
Ans. See Chapter-25, Page No. 156,
‘Product and Markets’.
Q. 8. Write explanatory notes on the following:
(a) Major Problems of India’s Exports
Ans. Ref.: See Chapter-2, Page No. 12,
‘Major Problems for India’s Export Sector’.
(b) Avenues and Prospects for India’s Chemicals
Exports.
Ans. The Indian chemical industry is among the
established traditional sectors of the country, playing
an integral role in the country’s economic
development. This integral role in the country’s
economic development. This sector, forming part of
the basic goods industry, is a critical input for
industrial and agricultural development. The industry
has a weight of 14% in the index of industrial
production (Base year 1993-94 = 100), giving an
indication of the importance chemical industry is a
 2 / NEERAJ : INDIA’S FOREIGN TRADE (JUNE-2016)
harbinger of significant economic and strategic
benefits to the nation.
The chemical industry is among the most
diversified industrial sectors, including basic chemical
and its products, petrochemicals, fertilisers, paints,
gases, pharmaceuticals, dyes etc. The sector covers
over 70,000 commercials products and provides the
building block for many downstream industries, such
as finished drugs, dyestuffs, paper, synthetic rubber,
plastics, polyester, paints, pesticides fertilisers and
detergents.
The chemical industry forms the backbone of
the Indian manufacturing base. Some key strengths
of the sector that can drive growth for the industry
include low cost manpower, large domestic market,
starting forward and backward linkages and
conducive policy environnment.
Considering the vastness of this sector, some of
the common growth drivers that could be identified
for the sector include:
The Indian chemical industry, which showed
high growth after the process of liberalization was
started, became sluggish in 1996-97. The growth rate
was even lower than that for the manufacturing sector
as a whole. However, it was a passing phase and
things did improve in later years.
The industry is now certain to continue as a net
exporter. In fact, the trade balance would be much
higher in coming years because of large production
capacities being added. The competitiveness of the
industry is already being tested severely as protective
import duties on finished products are reduced and
foreign majors try to make inroads into the industry.
FDI inflows into the industry are already a significant
portion of the total inflows, but are still low compared
to those in other developing countries.
(c) Implications of the Agreement on Textiles
and Clothing from India.
Ans. Ref.: See Chapter-18, Page No. 110,
‘Agreement on Textile and Clothing’.
(d) South Asian Association of Regional
Cooperation (SAARC)
Ans. Ref.: See Chapter-34, Page No. 223,
‘Objectives of SAARC’.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. Describe the major problems faced by
Indian exporters? Suggest measures to overcome
these effectively.
Ans. Ref.: See Chapter-2, Page No. 12, ‘Major
Problems for India’s Export Sector’.
Also Add: Some measures to overcome above
problems: Suitable measures must be taken to link
up the export effort with domestic production. It
involves necessary modifications in the programmes
for import of industrial raw materials to ensure the
supply of raw materials to units running below the
production capacity due to shortage of raw materials.
This can be achieved by way of granting actual users
licenses on a need basis, preferred supply of raw
materials to export oriented industries, initial licences
for import of raw materials, parts and components to
merchandising exports houses, creation of industrial
raw material centre for off the self delivery of
imported raw material to manufacturer. It is necessary
to identify industrial sectors producing for
international market. This aspect has been recognised
by the export policy resolution of 1972 as export
policy cannot be diverted from production policy.
There is also need for a definite policy designed to
support technological progress for which necessary
Investment in research and development is vital.
Improvement in technology is bound to result in the
higher quality of our export goods and lower
production costs too. Improving the transportation
system, including the expansion and modernisation
of the port facilities, rationalisation of the charges,
improving the procedural system, etc. are very much
essential for the development of the export sector.
To reduce transaction time and cost simultaneously
increasing competitiveness, there is a need to provide
[ Maximum Marks: 100
more facility to the MSME exporters in the
forthcoming foreign trade policy particularly of non-
fiscal nature.
Q. 2. Explain the eligibility criteria for
recognition of export houses. What are the special
benefits and facilities available to them?
Ans. Ref.: See Chapter-14, Page No. 83,
‘Eligibility Criteria For Export House’ and
Page No. 84, ‘Benefits and Facilities for Export
Houses’.
Q. 3. Analyze the strengths and weakness of
India’s garment sector. What has been the impact
on garment exports from India after abolition of
MFA? Discuss with examples.
Ans. See Chapter-18, Page No. 107, ‘Strengths
and Weaknesses of the Industry’, Page No. 109, ‘The
MFA Agreement (1974)’ and Page No. 110,
‘Agreement on Textiles and Clothing’.
Q. 4. (a) Outline the measures that can be
adopted for enhancing the export of gem and
jewellery from India.
Ans. See Chapter-20, Page No. 124, ‘Measures
for Boosting Gems and Jewellery Export’.
(b) Comment on the concept of “Deemed
Exports.”
Ans. Ref.: See Chapter-9, Page No. 55, ‘Deemed
Exports’.
Q. 5. (a) Explain briefly the major constraints
in Indo-Japanese Trade relations.
Ans. The growth of Indo-Japanese trade since
the two centuries set up diplomatic relations 50 years
ago has been steady. It has not seen the kind of
dramatic leaps, which the economics of China, Hong
Kong, the Republic of Korea, Taiwan and the
Association of South-east Asian Nations have
 2 / NEERAJ : INDIA’S FOREIGN TRADE (DECEMBER-2015)
experienced in their trade with Japan. In fact, in
comparative terms, the level of Indo-Japanese trade
remains rather low and does not reflect adequately
the growing versatility of the Indian economy. What
is even more striking is that it is still confirmed largely
to a low-value added, narrow Indian export base; the
shift towards manufactured goods is very slow and
almost invisible.
One of the reasons why trade with Japan has
not moved faster is that India’s development strategy
did not until recently give a central place to foreign
trade as a means of external resources. The relatively
better and easy access it had to foreign aid, both
bilateral and multilateral did not generate sufficient
pressure under which a vigorous trade policy
formulation was possible. The Export Policy
Resolution of 1970 tried to provide a corrective
measures to this by emphasizing the importance of
diversification and expansion of exports in order to
reduce dependence on external assistance and achieve
national self-reliance. Instead of evolving into a long-
term trade strategy covering a whole gamut of
products, that policy got diluted into a justification to
provide artificial support to a limited number of
products e.g. subsidy to exporters of engineering
goods, and easy licencing (what was termed as import
replenishment licencing) for enterprises doing
business in gems and jewellery.
Unlike the Western investors, the Japanese
investors are cautious in their response to the new
open door policy of India. They have adopted a ‘Wait
and Watch’ approach. Moreover, the Japanese
investment is confined mainly to the automotive and
electronic sectors. The absence of an exit policy,
infrastructure constraints and red tape are reportedly
the major factors preventing sizeable Japanese
investment in India. The World Bank, however, asserts
out that there are promising opportunities in
manufacturing, financial services and infrastructure
sectors. India’s exports constitute only 10 per cent of
GDP, and substantial part of foreign investment in
India should go to export-oriented industries.
For India, Japan is still one of the major trade
partners accounting for a fairly large share in the
former’s exports and imports over the years. On the
other hand, India is only a marginal partner in Japan’s
trade. Improved of bilateral economic cooperation
would require special efforts on both sides in the spirit
of true, mutually beneficial partnership. These are
needed at both governmental and industry levels.
The slow growth of India’s exports to Japan
and Japan’s exports to India can be attributed largely
to the past “over-protective” trade policies practiced
in India. Since the initiation of the present reform
process in India, there have been significant policy
changes. India’s liberalized trade policies have been
quite successful and the Japanese market response
to these changes has been quite positive.
(b) “In India’s Capital Account there has
been a significant shift from debt flows to non-
debt flows.” Explain factors leading to this shift.
Ans. In the capital account, there was a worth
mentioning compositional shift away from debt
inflows to nondebt inflows. The compositional
change also reflected the effect of conscious policy
initiatives spread over trade, exchange rate, foreign
investment and industrial policy. There was a
renewed endorsement of international confidence in
the Indian economy. The economic reforms created
a vigorous and conducive environment for inflow
of foreign investment both direct (FDI) and portfolio
(FPI). These were almost non existent earlier. The
basic benefit of foreign investment is in its risk
sharing characteristics, which are superior to that of
debt. Unlike debt, these inflows have to be serviced
only to the extent that yields positive returns. The
only form of external investment, which does not
have this characteristic, is external portfolio
investment in domestic debt. These instruments are
not much different from external debts. Their two-
fold advantage is that they command the domestic
rate of interest as against the international interest
and the exchange rate risk is borne by foreign
investor and not the domestic borrower. Caution,
however, has to be observed in dealing with this form
of foreign investment.
A greater inflow of foreign investment
particularly the FDI means a higher level of
sustainable CAD. The Foreign Direct Investment as
percentage of net capital is on the rise for last one
and half decades. Along with, the Foreign Portfolio
Investment has also gone up. An important aspect
of these inflows is the issuance of Global Depository
Receipts (GDRs) by Indian companies.
These developments have come as a blessing
for the balance of payments with a clear
 SOLVED QUESTION PAPER (DECEMBER-2015) / 3
sustainability as shown by decline in the debt service
ratio from 35.3 per cent in 1990-91 to 21.2 per cent
in 1996-97 and 18 per cent in 1998-99. Moreover,
the debt-GDP ratio has also gone down from 30.4
per cent in 1990-91 to 24.7 per cent in 1996-97 and
23.5 per cent in the year 1998-99. The improved
balance of payment position since 1991-92 has led
to a healthy build-up of foreign exchange reserves.
The level of foreign exchange reserves had reached
to 31 US dollar billion by end of the year 1999.
Q. 6. (a) Analyse the export development
effort of APEDA.
Ans. Ref.: See Chapter-16, Page No. 94,
‘Development Efforts of APEDA’.
(b) Distinguish between Balance of Trade and
Balance of Payment.
Ans. Ref.: See Chapter-3, Page No. 15,
‘Balance of Trade’, ‘Concept of Balance of
Payment’, Page No. 16, ‘Comparison Between BOT
and BOP’.
Q. 7. “The world trade scenario has
undergone rapid changes during the last one
decade.” Elaborate on this statement and discuss
the emerging issues affecting the world trade and
its growth.
Ans. Ref.: See Chapter-5, Page No. 25, ‘Intro-
duction’, ‘Issues in the World Trade’ and Page No.
28, ‘Trends in World Trade’.
Q. 8. Write notes on the following:
(a) Non-Tariff Barriers to Foreign Trade.
Ans. Using trade barriers in a form other than
a tariff. Non-tariff barriers include quotas,
embargoes, sanctions, and levies. As part of their
political or economic strategy, large developed
countries frequently use nontariff barriers to control
the amount of trade they conduct with other
countries. Countries commonly use nontariff
barriers in international trade, and they typically
base these barriers on the availability of goods and
services and political alliances with trading
countries.
Countries can set various types of alternative
barriers in place of standard tariffs. Such barriers
often release countries from paying added tax on
imported goods and create other barriers that have
a meaningful yet different monetary impact.
Countries may use licenses to limit imported goods
to specific businesses. If a business is granted a trade
license, it is permitted to import goods that would
otherwise be restricted for trade in the country.
Countries often issue quotas for importing and
exporting goods and services. With quotas, countries
agree on specified limits for products and services
allowed for importation to a country. In most cases,
there are no restrictions on importing these goods
and services until a country reaches its quota, which
it can set for a specific time frame. Additionally,
quotas are often used in international trade
licensing agreements. Embargoes are when a country
or several countries officially ban the trade of
specified goods and services with another country.
Governments may take this measure to support their
specific political or economic goals. Countries
impose sanctions on other countries to limit their
trade activity. Sanctions can include increased
administrative actions or additional customs and
trade procedures that slow or limit a country’s ability
to trade.
(b) Role of International Finance Corpor-
ations.
Ans. The International Finance Corporation
(IFC) is the largest global development institu-
tion focused exclusively on the private sector. The
IFC was established in 1956 as a sector of the World
Bank Group, focused on alleviating poverty and
creating jobs through the development of private
enterprise. IFC helps developing countries achieve
sustainable growth by financing investment,
mobilizing capital in international financial markets,
and providing advisory services to businesses and
governments. IFC is dedicated to helping the private
sector within developing countries. It provides
investment and asset management services to
encourage the development of private enterprise in
nations that might be lacking the the necessary
infrastructure or liquidity for businesses to secure
financing. IFC also ensures that private enterprises
in developing nations have access to markets and
financing. Its most recent goals include the
development of sustainable agriculture, expanding
small businesses’ access to microfinance,
infrastructure improvements, as well as climate,
health, and education policies. The IFC views itself
as a partner to its clients, delivering not only support
with financing but also technical expertise, global
experience, and innovative thinking to help
 4 / NEERAJ : INDIA’S FOREIGN TRADE (DECEMBER-2015)
developing nations overcome a range of problems,
including financial, operational, and even at times
political. The IFC also aims to mobilize third-party
resources for its projects, often engaging in difficult
environments and leading crowding-in private
finance, with the notion of extending its impact
beyond its direct resources.
(c) Trading Services difficulties.
Ans. As has been seen, the services sector has
been a highly regulated one. There has been a serious
attempt to liberalise international trade in services.
Unlike merchandise trade where border measures like
tariffs and qualitative restrictions become important,
international trade in services gets affected by some
specific non-border aspects. First, services trade is
subject to fiduciary regulations in importing countries
and many other sellers are required to possess
appropriate licences and/or qualifications. These are
operated within the national boundaries, Second, in
the case of some services foreign markets are mostly
efficiently serviced by a permanent presence in the
market–by the establishment of a local branch or
subsidiary. It has been found in a number of cases
that investment is the dominant mode for
international transaction. They have been identified
as banking, accounting, advertising, automobile and
truck leasing, employment agencies, equipment
leasing, hotels and motels and legal services. There
are certain services in which both trade and
investment flows are important (communication,
computer services, construction and engineering,
educational services, franchising, health services,
insurance and pictures), Trade in these services,
therefore, raises the issue of right of establishment
in an importing country. It very often conflicts with
the national laws. In fact, these laws become
important barriers to trade as well. This also raises
a number of questions regarding sovereignty of a
nation. Third, in area of the services sector, as has
been noted, state has regulated/promoted a large
number of components. It is also the owner of a
number of these services. This obviously brings up
a large number of issues such as level playing field,
etc.
(d) SAARC Preferential Trading Arra-
ngement.
Ans. Ref.: See Chapter-34, Page No. 226,
‘SAARC Preferential Trade Arrangement’.
 ( Solved )
Time: 3 Hours ]
Note: Answer any five questions. All questions carry equal marks.
Q. 1. What factors have contributed to the spurt
in India’s Exports? Discuss the government Exim
Policy Measures which have helped in growth of
India’s Exports.
Ans. Ref.: See Chapter-8, Page No. 48, ‘Effective
Export Growth Strategies’ and Page No. 43, ‘Export
Promotion Measures in India’.
Q. 2. What are the measures taken by the
Government of India to promote agricultural exports?
What strategies would you suggest to realize full
export potential of the Agricultural Sector?
Ans. Ref.: See Chapter-16, Page No. 94, ‘Measures
to Improve Agricultural Export’, Page No. 95,
‘Strategies to Boost Agricultural Exports’.
Q. 3. What are the propects of Indian electronic
gods in the world market? Evaluate India’s competitive
advantages in export of electronic goods.
Ans. Ref.: See Chapter-23, Page No. 137,
‘Electronics Exports Propects’ and Page No. 140,
‘India’s Competitive Edge and Lacunas’.
Q. 4. What are teh objectives of the SAARC and
SAFTA? Examine India-SAARC trade prospects.
Ans. Ref.: See Chapter-34, Page No. 223,
‘Objectives of SAARC’, Page No. 226, ‘SAPTA and
Journey towards SAFTA’ and Page No. 225, ‘India-
SAARC, Trade Prospects’.
Q. 5. What is the rationale behind the
liberalization of Foreign Direct Investment Policy in
India? What is the likely impact of this policy on the
Indian economy? Discuss with examples.
[ Maximum Marks: 100
Weightage: 70%
Ans. Ref.: See Chapter-12, Page No. 76, ‘Foreign
Investment Policy in India’ and Page No. 71, ‘FDI
Inflow in India’.
Q. 6. Discuss the significance of European Union
as a market for India’s exports. What measures would
you suggest for India’s exports. What measures
would you suggest at the corporate and government
levels to promote exports to this market?
Ans. Ref.: See Chapter-32, Page No. 199, ‘EU and
India’ and ‘What Growing Trade with EU means?’.
Q. 7. Outline the trends in leather exports from
India. Dicuss the policies and strategies adopted to
boost leather exports from India.
Ans. Ref.: See Chapter-21, Page No. 127, ‘Trends
in Leather Exports from India’ and Chapter-22, Page
No. 134, ‘Strategies to Boost Exports’.
Q. 8. Write notes on the following:
(a) Flexible Exchange Rates.
Ans. Ref.: See Chapter-4, Page No. 23, Q. No. 3.
(b) Regulatory Framework for Exports.
Ans. Ref.: See Chapter-7, Page No. 41, ‘Regulatory
Mechanisms in Export’.
(c) India-CIS Trade Relations.
Ans. Ref.: See Chapter-32, Page No. 204, ‘India-
CIS Trade’.
(d) India’s Competitive Advantage in export of
services.
Ans. Ref.:See Chapter-30, Page No. 185,
‘Competitive Advantages’.