RECENT TRENDS IN INDIAS FOREIGN TRADE

INTRODUCTION TO FOREIGN TRADE:

Trade or exchange of goods or services between two or more countries is called
international or foreign Trade.
Foreign Trade takes place on account of many reasons such as:

Human wants and countries resources may not totally coincide.

Factor endowments in different countries differ.
Technological advancements of different countries differ.
Labour and entrepreneurial skills differ in different countries.
Factors of production are highly immobile between countries.

HISTORY OF INDIAN FOREIGN TRADE:

Around 100BC

Export: Cotton, ivory, mallow cloth, muslin, precious and semi-precious gems (diamond,

pearls), silk, spices, and curatives like black pepper, nard, long pepper
Import: Wines from Italy, copper, tin, lead, coral, topaz, sweet clover, flint, glass, antimony,
GOLD and silver coins, and performers for kings

Around 1500AD
In 1498 Portuguese explorer Vasco da Gama landed in Calicut (Kozhikode, Kerala) as the

first European to ever sail to India.

The tremendous profit made during this trip made the Portuguese eager for more Trade with

India and attracted other European navigators and tradesmen.

While returning to Portugal in 1501 with pepper, ginger, cinnamon, cardamom, nutmeg,
mace, and cloves. The profits made from this trip were huge.
Foreign trade is exchange of capital, goods, and services across international borders or

territories. In most countries, it represents a significant share of gross domestic product (GDP).
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While international trade has been present throughout much of history, its economic, social, and
political importance has been on the rise in recent centuries.
All countries need goods and services to satisfy wants of their people. Production of
goods and services requires resources. Every country has only limited resources. No country can
produce all the goods and services that it requires. It has to buy from other countries what it
cannot produce or can produce less than its requirements. Similarly, it sells to other countries the
goods which it has in surplus quantities. India too, buys from and sells to other countries various
types of goods and services.
Generally no country is self-sufficient. It has to depend upon other countries for
importing the goods which are either non-available with it or are available in insufficient
quantities. Similarly, it can export goods, which are in excess quantity with it and are in high
demand outside.
International Trade means Trade between the two or more countries. International Trade
involves different Currencies of different countries and is regulated by laws, rules and
regulations of the concerned countries. Thus, International Trade is more complex.

MEANING OF FOREIGN TRADE:

According to Wasserman and Haltman, International trade consists of transaction between
residents of different countries.
According to Anatol Marad, International trade is a trade between nations.
According to Eugeworth, International trade means trade between nations.
Industrialization, advanced transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the international trade system. Increasing
international trade is crucial to the continuance of globalization. Without international trade,
nations would be limited to the goods and services produced within their own borders.
International trade is in principle not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether trade

is across a border or not. The main difference is that international trade is typically more costly
than domestic trade.
The reason is that a border typically imposes additional costs such as tariffs, time costs due to
border delays and costs associated with country differences such as language, the legal system or
culture. International Trade consists of export Trade and import Trade. Export involves sale of
goods and services to other countries. Import consists of purchases from other countries.
International or Foreign Trade is recognized as the most significant determinants of economic
development of a country, all over the world. The foreign trade of a country consists of inward
(import) and outward (export) movement of goods and services, which results into. Outflow and
inflow of foreign exchange. Thus it is also called EXIM Trade.
For providing, regulating and creating necessary environment for its orderly growth, several
Acts have been put in place. The foreign trade of India is governed by the Foreign Trade
(Development & Regulation) Act, 1992 and the rules and orders issued there under. Payments for
import and export transactions are governed by Foreign Exchange Management Act, 1999.
Customs Act, 1962 governs the physical movement of goods and services through various modes
of transportation.
To make India a quality producer and exporter of goods and services, apart from projecting
such image, an important Act Exports (Quality control & inspection) Act, 1963 has been in
vogue. Developmental pace of foreign trade is dependent on the Export-Import Policy adopted
by the country too. Even the EXIM Policy 2002-2007 lays its stress to simplify procedures,
sharply, to further reduce transaction costs.

FEATURES OF FOREIGN TRADE:

Involvement of different monetary units

Imposition of restrictions in import and export by various countries.
Imposition of restrictions on release of foreign currencies.
Existence of multiple regulations, legal practices and rules in different countries.

If the seller is abroad and the buyer is in the home country, exchange of goods between them
is called Import.
If the seller is in home country and the purchaser is a broad, the Trade between them is called
Export. A foreign trade can be further classified in to two according to visibility.
a) Visible b) Invisible.
A trade which can see i.e. exchange of goods, merchandise is a visible trade. Whereas, exchange
of services between the purchaser and seller is invisible trade i.e. technical know-how, insurance
etc.

DUMPING
When goods are sold in foreign market without contract of sale it is known as dumping.
The dumping has following types.
1. Sporadic
2. Predatory
3. Persistent
4. Reverse dumping.
When manufacturer wants to dispose of goods in foreign market at low price, without
harming its normal market, the dumping is sporadic. To gain access in foreign market by selling
goods at loss and to drive out the competitors refers to predatory dumping. When a producer
consistently sells at a lower price in one market than in another, it is called persistent dumping.
When manufacturer sells goods abroad at a higher price than at home, the practice followed is
called reverse dumping.
BALANCE OF TRADE

Balance of trade refers to as the difference between a countrys import of merchandise

and its exports thereof. This is also called the net difference between the value of commodities
imported and exported. Balance of trade may be positive, surplus or negative deficit depending
on situation of net position.
The positive, surplus position occurs when export exceeds import and when import
exceeds export the balance of trade is said to be deficit or negative.

Causes of Reduction/Enhancement in Balance of Trade

There are two main factors for variation in balance of trade position.
a) External Factors. b) Internal Factors
External Factors:
The sudden rise in price of essential commodities like edible oil, drugs, and medical
equipments. Etc.
Position of world
Wide inflation or recession.
Trade restrictions imposed by the developed countries
Internal Factors:

Domestic shortage of industrial and agricultural products.

Absence of high technology.
Inadequate knowledge of export market.
Neglect of export profitability.

CORRECTIVE MEASURES

To come out of unfavorable TRADE position, following corrective measures are

required;

Export Promotion: By keeping quality & price competitive

Import Restriction: By imposing heavy tax & duty in import
Finance: By borrowings overseas.
Monitory Measures: By putting restriction on banks credit.
Fiscal Measures: By curtailing public expenditure
Devaluation: By devaluating countrys official rate of exchange

BALANCE OF PAYMENT
Meaning, Accounting
The balance of payment of a country refers to, a systematic record of all trade
transactions, visible and invisible imports and exports during a given period. The balance of
payment is a difference between international transfer of FUNDS for a countrys imports and
exports of goods and services for certain period. The accounting of balance of payment has two
types viz. current account and capital account.
According to sec. 2(J) FEMA Act, 1999 Current Account includes private and
government merchandise, invisible items like, foreign trade, Services, Short term banking, etc.
While the capital account transactions includes private long and short-term assets,
banking transactions and official loans, amortization, IMF and reserves and monetary gold
contingent liabilities [sec. 2(e)]
The study of balance of payment can be summarized as below:
Definition: The balance of payment of a country is a systematic record of all transactions
between residents of that country and the residents of foreign countries during given period of
time.
Contents: It includes Merchandise, visible and invisible trade, Errors and Omission to strike a
balance between two sides of accounts.
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Use: The most important use is, it is guide for Government in framing its monetary, fiscal,
exchange and other policies.
Broad Division: It is broadly divided into:

Balance of payments on current account and

Balance of payments on capital account

Balances within the total: For the purpose of analysis the items are divided into five;
a) Trade Balance
b) Current Account Balance
c) Basic Balance
d) Net Liquidity Balance
e) Official transaction Balance. Foreign Trade Trade Finance Chapter 01

DISEQUILIBRIUM
In balance of payments, debit and credit items seldom balance. As a result, the balance of
payment is either in surplus or in deficit. When a country happens to have a surplus balance in
balance of payment over the years, inflows of foreign capital take place, for that the rates of
interest are high and also there is confidence in the countrys currency the confidence in
countrys currency refers to no devaluation of that countrys currency is apprehended. When, on
the other hand, country has a deficit or unfavorable balance of payment its foreign exchange
resources get depleted.

CORRECTING THE DEFICIT

As said earlier, if country has an president deficit, following corrective measures are to be
taken by its Government

Import Curtail: When imports are restricted, the position improves. But it has to be used

wisely.
Export Promotion: By way of packing credit facility, export bill purchase, insurance cover

etc.
Monetary Measures: By raising the (SLR) Statutory Liquidity Ratio / or by open market

operations by the Central Foreign trade Bank.

Fiscal Measures: These relate to a governments revenue and expenditure and include

budgeting for a surplus.

Devaluation: This refers to a reduction by the government in the countrys official rate of
exchange between its own currency and other currencies.

FOREIGN CONTRACTS

Goods are traded between two countries under contracts of sale / purchase which contains
price, mode of delivery etc. The foreign contracts can be studied by following points:
Mode of Delivery: The delivery may be actual or constructive. As the name suggest, actual
delivery mean physical delivery of goods to buyer. In constructive type not the physical but
the documents are handed over to the buyer. In foreign trade the delivery is always
constructive.
Mode of Payment: Following are different types of payments :
a) OD / DP: Payment on Demand/Payment against Documents.
b) DA: Documents delivered after Acceptance through bill of exchange.
c) VP / COD: Value Payable/ Cash on Delivery both these terms related to post parcel
delivery
Freight and Insurance: In foreign trade in case of freight and insurance certain abbreviations
are used as:
1. c.i.f.: Refers to the amount of insurance, freight are included in invoice or contract of sale /
purchase.
2. c. & f.: Stands for cost and freight, mean that when goods shipped under c.i.f. contract,
freight should be prepaid.
3. f.o.b.: this letter stands for free on board. In this buyer names the vessel and specifies the date
of delivery.
4. f.a.s.: This means free alongside ship and imply that seller is responsible for the delivery of
goods within specific time.

TRADE POLICY-INTRODUCTION
Shortcomings of Foreign Trade - Export & Import
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Trade Deficit
Current Account Deficit
Survival of Domestic companies
Dependency for goods & services
Dumping

Solution:

Rules and regulations that are intended to change international trade flows, particularly to

restrict imports.
Every nation has some form of trade policy in place, with public officials formulating the

policy which they think would be most appropriate for their country.
Their aim is to boost the nations international trade. Trade Policy 6 28 February 2014

WHY TRADE POLICY?

National Defense theory

No nation would afford to be dependent on other exporter nation at the time of conflicts

Infant industry theory

New domestic industries should be protected from foreign competition for so long so that they
will have a chance to develop

Antidumping theory Dumping is allowed, foreign producers will temporarily cut prices and
drive domestic firms out of the market. Then they will use their monopoly to exploit
consumers.

TRADE POLICY ELEMENTS

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TRADE RESTRICTIONS

ORGANIZATIONS

OBJECTIVES OF TRADE POLICY

Appreciate TRADE with other nations.
Protect domestic MARKET prevailing in the country.
Increase the export of particular product which will help in expanding domestic.
Encourage the imports of capital goods for speeding up the economic development of the

country.
Prevent the imports of particular goods for giving protection to infant industries.
Restrict the imports of goods which create unfavorable balance of payments.
Control the export or import of goods and services for achieving the desired rate of exchange.
Enter into TRADE agreements with foreign nations for stabilizing the foreign trade.

FOREIGN TRADE POLICY

INTRODUCTION:

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Introduction Before independence, India did not have a clear Trade policy; it was after the
independence, that a trade policy, as a part of general economic policy of development was
formulated.

Union Commerce Ministry, GOI announces integrated FTP every five year also called EXIM

policy.
Policy updated every year with some modifications & new schemes.
FTP which was announced on August 28, 2009 is an integrated policy for the period 2009-14.

These are difficult times and we have set an ambitious goal for ourselves. I am sure that the
industry and the Government, working in tandem, will be able to ensure that the Indian exports
become globally competitive and that we are able to achieve the target, which we have set for
ourselves.
The Foreign trade Policy, announced on August 28, 2009 is an integrated policy for the period
2009-14

MEANING:
Foreign trade policy is the combination of words first is foreign trade and second is policy

Foreign trade: It is the exchange of goods and services between nations. Goods can be
defined as finished products, as intermediate goods used in producing other goods, or as

agricultural products and foodstuffs.

Policy: policy is the set of rules and procedure.

OBJECTIVES:
The Foreign Trade Policy of India is based on some major objectives, they are

To double the percentage share of global merchandise trade within the next five years.

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To act as an effective instrument of economic growth by giving a thrust to employment

generation
To arrest and reverse declining trend of exports
To achieve an annual growth of 15% for the first 2 years till March 2011 with an annual

export target of us $ 200 Billion

To achieve an annual growth of 25% during the remaining period of the policy 3 years.
By 2014 to double India's export of goods and services from the present level of 1.64% of the
global export market.

FOREIGN TRADE POLICY (2009-2014)

Short Term Objectives:
Arrest and reverse the declining trend of exports.
Provide support to those sectors which have been hit badly by recession.
Medium term Policy Objectives:
Achieve an Annual Export growth of 15% by March 2013
Achieve Annual Export growth of around 25% by 2014.
Long Term Objective:
Doubling Indias share in Global Trade by 2020
TARGETS

Export Target : $ 350 Billion for 2012-13

Export Growth Target: 15 % for next two year and 25 % thereafter.

FOREIGN TRADE POLICY- SCHEMES

SCHEMES:

Export promotion on capital Goods (EPCG)

Allows import of capital goods for pre & post production

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 Facilitate up gradation of plant &machinery, inputs of spares up to 100% of value of

exports
Promote high value in exports, export obligation of 50% is removed

Focus Product scheme (FPS)

Provides license for export product which have high employment potential in rural &
urban areas with a view of infrastructural facility (Agriculture, handicraft export)

Focus Market Scheme (FMS):

Offsetting high freight cost & distribution faced in assessing foreign markets

Market Linked Focus Product Scheme (MLFPS):

Expanding products in identified markets (Mango export to US)
Vishesh Krishi & Gram Udyog Yojna (VKGUY):
To boost Agriculture & rural exports re-credit is given at 2% special additional duty

ANNOUNCEMENTS FOR FPS, FMS, MLFPS

26 new markets added in this scheme.

Incentives under FMS raised from 2.5 % to 3 %
Incentive available under FPS raised from 1.25% to 2%.
Products included in the scope of benefits under FPS
FPS benefit extended for export of green products 'and some products from the North East
MLFPS expanded by inclusion of products like pharmaceuticals, textile fabrics, rubber

products, glass products, auto components, motor cars, bicycle

A common simplified application form has been introduced to apply for the benefits under
FPS, FMS, MLFPS and VKGUY
Financial Assistance provided for a range of export promotional activities implemented by
EPC, & Trade Promotion organization

Market study & survey

Setting up showcases
Participation in trade fairs
Displays in international Dept. Stores
Publicity & Campaigns, Brand Promotion

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SPECIAL ECONOMIC ZONE

Special economic zone is a particular area inside a state which acts as foreign territory for
tariff and TRADE operations. Govt. provides tax exemption (IT, Excise, customs, sales etc.),
subsidized water and electricity etc.
SEZ can be sector specific or multi product SEZ. It helps in the development of
infrastructure of the area around the SEZ, provides employment to people, and makes the exports
more viable. All this will help the countries products to become more competitive via providing
all round development of region.
It should be noted that if 100 acres are allotted for SEZ, then only 30-35% of area is used
for setting up plants, rest of the area is used to provide housing facilities, malls, multiplexes etc.
Also Tax exemption is for specific period say for 10 yrs or so.
India was one of the first in Asia to recognize the effectiveness of the Export Processing
Zone (EPZ) model in promoting exports, with Asias first EPZ set up in Kandla in 1965. With a
view to overcome the shortcomings experienced on account of the multiplicity of controls and
clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view
to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was
announced in April 2000.
Export Oriented Unit (EOU)/Special Economic Zone (SEZ)

India was one of the first countries in Asia to recognize the effectiveness of the Export

Processing Zone (EPZ) model in promoting exports

Asia's first EPZ was set up in Kandla, Gujarat in 1965
With a view to attract larger foreign Investment in India, the Special Economic Zones (SEZs)

Policy was announced in April 2000

Income Tax exemption to 100% EOUs and to STPI (software Technology park unit) under

Section 10B and 10A

Income Tax Act has been already extended for the financial year 2010-11 in the Budget 200910.

OBJECTIVES OF SEZ
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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

IMPORT/EXPORT CONTROL
IMPORTS:
Around 5% Tariff Lines are under Import Controls.
11600 Tariff Lines are free for import.
Restrictions removed over the next 10 years, removing almost all the Quantitative
Restrictions.
Presently:
Prohibited items - 53 Lines
Restricted items - 485 Lines
State Trading Items - 33 Lines.
EXPORTS:
Controls primarily on account of security, public health, morals, exhaustible resources and
environment grounds.
Prohibited items - 59
Restricted items 155
State Trading Items 12
Restrictions fall under two Categories:16

Special provision for these items under Weapons of Mass Destruction Act, 2005.
Export Facilitation Committee looks into applications for license for these items.
{Special chemical, organisms, materials, equip. & tech.}

HIGLIGHTS
Q1 of 2012-13, exports stood at US$ 75.2 and showed a decline of 1.7 per cent as against an

increase of 36.4 per cent during Q1 of 2011-12.

Q1 of 2012-13, imports declined by 6.1 percent over the corresponding quarter of 2011-12

and stood at US$ 115.3 billion.

Lower growth in POL imports at 5.5 percent during Q1 of 2012-13 as compared with 52.5
percent during Q1 of 2011-12.
Imports of gold and silver, US$ 9.4 bn during Q1 of 2012-13 were 48.4 per cent lower than
that in Q1 of 2011-12.
Non-oil non-gold imports during Q1 of 2012-13 at US$ 65.3 bn recorded a decline of 2.9 per
cent as compared to an increase of 18.9 per cent in Q1 of preceding year.
Trade deficit during Q1 of 2012-13 stood lower at US$ 40.1 bn as compared with US$ 46.2
bn during Q1 of 2011-12.

INDIANS FOREIGN TRADE

Growth is uncertain in coming months, given the worsening global macroeconomic outlook
and high interest rate in the domestic market.
During April-Sept 2011, Indias imports expanded by 32.4% to $ 233.5billion. The trade
deficit during the April-Sept 2011 period stood at $ 73.5billion. Increasing trade Deficit
further depreciates Rupee.
Depreciation of rupee will also push up cost of imports leading to wider trade deficit in
coming times.

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IMPORTS

EXPORTS

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COMPOSITION OF INDIAS FOREIGN TRADE

COMPOSITION OF EXPORTS

1. Agricultural and Allied Products

15% share in exports
Top items of agricultural exports include: 20

Fish Products
Rice
Oil Cakes
Fruits and Vegetables

2. Ores and Minerals

12.3% share in exports.
3. Manufactured Goods
61.3% share in exports.- Include: Engineering Goods
Gems and Jewellery
Chemical and Allied Products
Readymade Garments
4. Minerals Fuels and Lubricants
18.3% share in exports
There has been improvement in the exports of mineral fuels and lubricant both in terms of
value and in terms of %.

COMPOSITION OF EXPORTS

Petroleum Products - 31.7% share in Imports.

Capital Goods - 20.3% share in Imports.
Pearls and Precious Stones - 6.2% share in Imports.
Iron and Steel - 2.4% share of Imports.
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Fertilizers - 2.4% share of Imports.

Therefore, Composition of Indias Foreign Trade has undergone a positive change. It is a

remarkable achievement that India has transformed itself from a predominantly primary goods
exporting country into non primary goods exporting country. Under Imports also Indias
dependence on food grains and capital goods has declined.

DEVELOPMENT AND REGULATION ACT OF FOREIGN TRADE

POLICY
In 1992, the govt. enacted foreign trade (Development & Regulation) Act to facilitate import and
enhancing exports from India.
As per the provisions of the act, the Govt.:

May make provisions for facilitating and controlling foreign trade;

May prohibit ,restrict and regulate exports & imports ,in all or specified cases as well as

subject them to exemptions;

Is authorized to formulate and announce an export & import policy and also amend the
same from time-to-time, by notification in the Official Gazette.

CHANGES THAT TOOK PLACE:

With economic reforms, globalization of the Indian economy has been the guiding factor in

formulating the trade policies.

The reform measures introduced in the subsequent policies have focused on liberalization;

openness and transparency.

They have provided an export friendly environment by simplifying the procedures for trade
facilitation.

KEY STRATEGIES FOR ACHIEVING ITS OBJECTIVES:

Simplifying procedures and bringing down transaction costs;

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Facilitating development of India as a global hub for manufacturing, trading and services.
Identifying and nurturing special focus areas to generate additional employment

opportunities, particularly in semi-urban and rural areas.

Facilitating technological and infrastructural up gradation of the Indian economy, especially

through import of capital goods and equipments.

Activating Indian embassies as key players in the export strategy.

STRATEGY OF FOREIGN TRADE POLICY OF INDIA

Removing government controls

Facilitating development of India as a global hub for manufacturing, trading, and services
Generating additional employment opportunities
technological and infrastructural up gradation
Simplification of commercial and legal procedures and bringing down transaction costs.
Simplification of levies and duties on inputs used in export products

FOREIGN TRADE METHODS

Goods may be traded or exchanged between exporter and importer in any of the three
ways:

On Open Account Basis: Where the credit status of importer is high, the goods are sent
direct to him in anticipation of payment in due course. Export on this basis is not permissible

in India.
Under Bill of Exchange: The exporter may draw bills of exchange on the importer for the

value of the exports and collect the bills through bank.

Under Letter of credit: The exporter may agree to export the goods only against a letter of
credit opened in his favor.

CONCLUSION
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Composition of Indias Foreign Trade has undergone a positive change. It is a remarkable

achievement that India has transformed itself from a predominantly primary goods exporting
country into non primary goods exporting country. Under Imports also Indias dependence on
food grains and capital goods has declined.
This years foreign trade Policy comes at a challenging time as the entire world is facing an
unprecedented economic slowdown. These are difficult times and we have set an ambitious goal
for ourselves. But if the industry and government work in tandem we will be able to ensure that
the Indian exports become globally competitive and we are able to achieve a target which we
have set for ourselves.

REFERENCES

WEBSITES:

http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf
http://www.eximpolicy.com/
http://exim.indiamart.com/foreign-trade-policy/ftp-04-05-highlights.html
http://www.infodriveindia.com/Exim/DGFT/Exim-Policy/2009-2014/default.aspx
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 http://www.wooltexpro.com/docs/Highlights_Foreign_Trade_Policy_2009-2014.pdf

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