WHAT IS TRADE?

No nation is self-sufficient and has all the goods needed. Reason Climatic variation and unequal distribution of natural resources Import-Export means trade across the political boundaries of different nations Government has come out from time to time with various policies on foreign trade to promote export, to increase foreign exchange reserve, called Exim policies

DGFT
-Agency with the ministry of industry and commerce of Govt. of India responsible for formulation and implementation of Foreign Trade Policy (Exim Policy) of India -- Before 1991, DGFT was known as the Chief Controller of Imports & Exports (CCI&E) -- Plays pivotal role in the development of trading relations with other nations and thus affecting foreign trade Functions of DGFT - Formulating and implementing Foreign Trade Policy of India - To promote trade with neighboring countries - Licensing authority for exporters, importers, and export and import business - Can prohibit, restrict and regulate exports and imports - Also deals with quality complaints of the foreign buyers - It also keeps track of illegal activities like smuggling etc

HISTORY
1950 Indias share of total world trade = 1.78% Until 1990s, Indias trade policies were heavily governed by Swadeshi and Licence Raj policies Decentralization of some licensing functions took place for the first time in Indian History in 1978-79 Export processing zones (Now SEZ) were set up to push exports Export oriented units (EOU) were set up in 1981

The export and import bank of India was set up in 1982 to handle the finance wing of IDBI
Abid Hussain committee 1984 Growth led exports rather than export led growth Harmonize foreign trade policy with other domestic policies

Year

Import (Cr.)

Export (Cr.) 647

Trade balance (Cr.) -3

Comments Excess import due to: Shortage of food and raw material owing to partition Hydro-electric and other projects Trade deficit mainly due to industrialisation Excess of imports due to: Defence needs (China & Pak) Failure of crops in 1965-66 Devaluation of Rupee effects: To reduce imports To boost exports

1948-1951 650

1951-1956 730 1961-1966 1224

622 747

-108 -477

1966-1969 5775

3708

-2067

Import (Cr.) 1980-1985 14986 1985-1990 28874

Year

Export (Cr.) 9051 18033

Trade balance (Cr.) -5935 -10841

Comments

Huge trade-deficits forced gov. to: Approach WB/IMF for loans Apply brakes to licensing policy of imports Slowdown in exports due to: Saturation in developed countries for electronic goods Increasing competition from China & Taiwan Under-estimation of the impact of South-East Asian crisis Depressed nature of world market

1992-2001 140740

118252

-22488

PRE-LIBERALISATION
Percentage share in import
Food and allied products 4%

Percentage share in export

Crude and petroleum 2% Unclassified items 0%

Unclassified 16%

Fuel 23%
Fertilizers 5% Paper 1%
Gems and Jewellery Cotton yarn, fabrics Readymade garments Handicrafts

Others 23%
Chemicals Iron and Steel Pearls and precious stones 9.9 3.7

Agricultural goods 19%

Capital goods 28%

Ores and minerals 4%

5.7

16.6 8.1 11.6 3.5

Manufacture d goods 75%

COUNTRY-WISE EXPORT-IMPORT
UK Japan Other LDC's Germany Russia Others Other EU Other East Europe USA OPEC
25.9

20.99 18.32 17.34

12.9

13.3

13.89

10.53
8.63 6.63 5.29 3.3 2.35 1.06 0.56 6.31 6.23 6.96

9.64

9.87

Import share

Export share

INDIA'S SHARE OF WORLD TRADE

1.85

Export
1.78
1.71 1.69

Import

Trade

1.36

1.03

0.72 0.64 0.65 0.65 0.57 0.52

0.66 0.59

0.6 0.63 0.61

0.42

1950

1960

1970

1980

1990

1994

PROTECTIONISM
To protect a domestically-produced commodity or product from competitive imports Instruments Tariff Quota Export taxes Export subsidies Voluntary export restraints Pre-liberalization India had water in the tariff

TARIFFS IN PRE-LIBERALIZATION

Ad Valorem

Special

Variable

Price

Supply
Consumer Surplus
Producer Surplus

Tax Revenue

c
d

PFT (1+t) PFT Demand

QS0

QS1

QD1
imports

QD0

Quantity

SUBSIDY ON CONSUMERS

SUBSIDY ON SELLERS

P
Gain to Buyers Gain to Sellers

Additional Trades Made

P
Gain to Buyers Gain to Sellers

Additional Trades Made

CHANGES IN FOREIGN TRADE POST LIBERALIZATION

Major measures initiated were as follows: Devaluation

Disinvestment
Dismantling of the industrial licensing regime Allowing foreign direct investment

Privatization
Abolition of the MRTP Act Removal of import restrictions Reduction of the peak customs tariff New financial sector reforms

CHANGES IN FOREIGN TRADE POST LIBERALIZATION

Value of India's international trade increased sharply - contribution of total trade to the GDP rising from 16% in 199091 to 43% in 200506 India's major trading partners - European Union, China, US & UAE Major exports now include manufacturing, petroleum goods over 80 percent of our export basket Abolished most export subsidies Strengthened Indias balance of payments and foreign exchange reserve positions Transformed itself from a predominantly primary goods exporting country into a non-primary goods exporting country

MEASURES TAKEN FOR EXPORT PROMOTION

Rupee has been made convertible on the current account

Exporters & units in Export Processing Zones, Software Technology Parks, are now allowed to retain a higher percentage of their forex earnings
National Centre for Trade Information has been launched to facilitate greater access to trade information The World Trade Organization (WTO) agreement has been signed Pass Book Scheme has been introduced for all Export Houses/Trading Houses/Star Trading Houses/Super Star Trading Houses A harmonized system of commodity classification known as Indian Trade Classification has been introduced

FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1992

It is the main legislation concerning foreign trade The Act provides for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto

Freedom to export & import except to the extent of provisions in the Foreign Trade Policy or any other law in force
Every exporter/importer must comply with the provisions of the Foreign Trade (Development & Regulation) Act 1992 No agency shall withhold consignments allowed for exports, Free movement of export goods is allowed, Authority can take undertaking from exporter in case of any doubt

TRENDS IN EXPORTS/IMPORTS
Imports (2007-08) Imports (1991-92) Exports (1991-92) Exports (2007-08)

Petroleum, crude, products (33.23%)

Petroleum, crude, products (27.43%) Consumption goods

Primary (23.12) Manufactured (73.59%) Petroleum (2.32%) Other (0.95%) Manufactured (63.58%) Primary (17.02%)

Consumption Goods (0.19%) Export related items (8.6%) Capital Goods (24.36%)

(1.4%) Export related items (18.4%) Capital Goods (21.8%)

Petroleum (15.64%) Others (3.75%)

The Effect of Devaluation on Imports and Exports

Exchange rate fixed at $/ Equilibrium shown as point F Devalue; rises to $/ Economy moves from F to G AA curve shifts up to AA At G the economy is not at a superequilibrium Raises aggregate demand; exchange rate line crosses the DD curve at H Aggregate demand exceeds supply As GNP rises toward Y2 at point H, the AA curve will shift right .The final superequilibrium occurs at point H where excess aggregate demand is finally satisfied

WORLD TRADE ORGANIZATION

General Agreement on Tariffs and Trade (GATT) 1947 and its successor, the World Trade Organization (WTO), which came into effect on 1.1.95 after the conclusion of the Uruguay Round (UR) of Multilateral Trade Negotiations Global international organization dealing with the rules of trade between nations It helps to contribute towards international peace, by helping the trade to flow smoothly and dealing with disputes over trade issues The system exists as a forum to handle crisis It gives consumers more choice and a broader range of qualities to choose from

INDIA AND WTO

Ensure more stability and predictability, which ultimately would lead to more trade and prosperity India is expected to snatch most of the business deals that are presently catering the developed nations Avails of MFN and national treatment for its exports to all WTO members

The increase in availability and reduction in tariffs has prompted many developed nations to go for business with India especially in IT and ITeS industry

INDIAS TRADE RELATION WITH ITS NEIGHBOURS

PAKISTAN India had given Pakistan MFN status in 1996 October 2011- Expanded economic opportunity and stability for the people of both countries - Pakistan granted MFN status to India - Reduction of non-tariff barriers by India Bilateral trade between India and Pakistan was USD 1.85 billion in 2009-10 The two countries' commerce ministries say trade could easily triple in three years CHINA Bilateral trade in 2010 reached $61.7 billion, with Chinese exports to India touching $40.8 billion India's primary export to China is iron ore, while India is fully import dependent In 2003, Bangkok Agreement- China and India offered some trade preferences The growing demand for Chinese telecom and power equipment is still a concern for the Indian policy makers Demanded to open up the Chinese markets to India in the fourth BRICS summit

TRADE POLICY 2009-2014

Objectives
To arrest and reverse the declining trend of exports
To double Indias exports of goods and services by 2014 The long term policy objective is to double Indias share in global trade by 2020 India share in global merchandise exports was 1.45% in 2008 To set in motion the strategies and policy measures which catalyse the growth of exports To encourage exports through a mix of measures and efforts to enhance market access

EXPORT-IMPORT TRENDS, 2011

Value of exports grew 52.08% and the imports grew 32.41% in Dollar terms over last year Exports of all major commodity groups registered a robust growth with engineering goods, petroleum products and gems and jewellery recording sharp growth rates of 79.7%, 48.7%, and 40.7% UAE, US, China, Hong Kong, Singapore together accounted for around 40% of Indias total export Three factors that explain the recent spurt in exports. 1. 2. 3. Diversification of exports in terms of products and destinations The incentives extended to the export sector by the Government and Base effect

INDIAS PRINCIPAL EXPORT ITEMS

COMMODITY/GROUP APRIL-MARCH

2010-11 35,358.7
24,696.1 10,662.6 168,098.1 68,784.1 23,312.2 40,790.7 233.1 41,918.0

PERCENTAG E VARIATION

I. Primary Products
A. Agricultural & Allied Products B. Ores & Minerals II. Manufactured Goods C. Engineering Goods D. Textiles & Textile Products E. Gems & Jewellery F. Handicrafts III. Petroleum Products

34.0
39.3 23.1 45.9 79.7 17.4 40.7 3.7 48.7

IV. Others
Total Exports

9,027.3
254,402.1

0.5
42.3

CURRENT SCENARIO OF INDIAN TRADE

Average elasticity between India's exports and advanced nations GDP is 0.18 In 2010-11, India's exports to the European region and USA moderated but the exports to the Asian and the African region grew The software services and other export oriented sectors would benefit from the rupee depreciation India's exports growth is likely to be hit as the fall in exports in higher than the growth in exports Turbulence in the country's biggest export markets the US and Europe prompted many industry leaders and government officials to predict an export slowdown and a worsening trade deficit in the second half of the fiscal year ending March 2012

BIBLIOGRAPHY
http://aygrt.net/oct/2011/Economic_DIRECTION_AND_COMPOSITION_OF _INDIA http://www.ers.usda.gov/briefing/india/trade http://www.columbia.edu/~ap2231/Policy%20Papers/TPR1-we.pdf http://en.wikipedia.org/wiki/Economy_of_India#Postliberalisation_period_.28since_1991 http://business.mapsofindia.com/india-policy/foreign-trade-policy.html http://dgft.gov.in