Introduction

Monetary Policy is essentially a programme of action undertaken by the Monetary Authorities, generally the Central Bank, to control and regulate the supply of money with the public and the flow of credit with a view to achieving Pre-determined macroeconomic goals. At the time of inflation monetary policy seeks to contract aggregate spending by tightening the money supply or raising the rate of return Historically, the Monetary Policy is announced twice a year April-September and (October-March).The Monetary Policy has become dynamic in nature as RBI reserves its right to alter it from time to time, depending on the state of the economy. The Monetary policy determines the supply of money in the economy and the rate of interest charged by banks. The policy also contains an economic overview and provides future forecasts. The Reserve Bank of India is responsible for formulating and implementing Monetary Policy.

Objectives
To ensure the economic stability at full employment or potential level of output. To promote and encourage economic growth in the economy. To achieve price stability by controlling inflation and deflation. Quantum channel: money supply and credit (affects real output and price level through changes in reserves money, money supply and credit aggregates). Interest rate channel. Exchange rate channel (linked to the currency). Asset price.

Role of RBI in the Monetary Policy

One of the functions of RBI is monetary policy structuring and implementation. The core focus of monetary policy is to increase or reduce the money supply in the market. The only way to do it is to increase or reduce the repo and reverse repo rate. Repo rate is the rate at which banks borrow money from RBI and reverse repo is the rate at which RBI borrows money from the bank. Now what does RBI intend to achieve by changing these rates. Lets look at how increasing and reducing the repo and reverse repo rates affect the market. If the policy rates are higher, the cost of money for banks is high. This means that the banks will charge higher interest rate for loans. The banks will also provide high rates to depositors. If the depositors get good rates, this will encourage people to deposit money in banks. People will prefer saving because of the good returns that banks promise. This will reduce money in the market thus impacting consumption.

SCOPE OF MONETARY POLICY

The scope of monetary policy depends on two factors 1. Level of Monetization of the Economy -In this all economic transactions are carried out with money as a medium of exchange. This is done by changing the supply of and demand for money and the general price level. It is capable of affecting all economics activities such as Production, Consumption, Savings, Investment etc,

2. Level of Development of the Capital Market Some instrument of Monetary Policy are work through capital market such as Cash Reserve Ratio (CRR) etc. When capital market is fairly developed then the Monetary Policy affects Capital Market

(A) Quantitative Instruments or General Tools

1. Bank Rate Policy (BRP)

The bank rate refers to rate at which the central bank (i.e. RBI) rediscounts bills and prepares of commercial banks or provides advance to commercial banks against approved securities. It is "the standard rate at which the bank is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under the RBI Act".

2. Open Market Operation (OMO)

The open market operation refers to the purchase and/or sale of short term and long term securities by the RBI in the open market. This is very effective and popular instrument of the monetary policy.

(B) Qualitative Instruments or Selective Tools

1. Fixing Margin Requirements
The margin refers to the "proportion of the loan amount which is not financed by the bank". Or in other words, it is that part of a loan which a borrower has to raise in order to get finance for his purpose. A change in a margin implies a change in the loan size. This method is used to encourage credit supply for the needy sector and discourage it for other non-necessary sectors Example: If the RBI feels that more credit supply should be allocated to agriculture sector, then it will reduce the margin and even 85-90 percent loan can be given.

2. Consumer Credit Regulation

Under this method, consumer credit supply is regulated through hire-purchase and installment sale of consumer goods. Under this method the down payment, installment amount, loan duration, etc is fixed in advance. This can help in checking the credit use and then inflation in a country.

3. Credit Rationing
Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. This method controls even bill rediscounting. For certain purpose, upper limit of credit can be fixed and banks are told to

stick to this limit. This can help in lowering banks credit expoursure to unwanted sectors.

4. Moral Suasion
It implies to pressure exerted by the RBI on the Indian banking system without any strict action for compliance of the rules. It is a suggestion to banks. It helps in restraining credit during inflationary periods. Commercial banks are informed about the expectations of the central bank through a monetary policy. Under moral suasion central banks can issue directives, guidelines and suggestions for commercial banks regarding reducing credit supply for speculative purposes.

5. Statutory Liquidity Ratio

Banks in India are required to maintain 25 per cent of their demand and time liabilities in government securities and certain approved securities.

The major changes in the Indian Monetary policy during the decade of 1990
1. Reduced Reserve Requirements: During 1990s both the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) were reduced to considerable extent. The CRR was at its highest 15% plus and additional CRR of 10% was

levied, however it is now reduced by 4%. The SLR is reduced from 38.5% to a minimum of 25%. 2. Increased Micro Finance: In order to strengthen the rural finance the RBI has focused more on the Self Help Group (SHG). It comprises small and marginal farmers, agriculture and non-agriculture labour, artisans and rural sections of the society. However still only 30% of the target population has been benefited. 3. Fiscal Monetary Separation: In 1994, the Government and the RBI signed an agreement through which the RBI has stopped financing the deficit in the government budget. Thus it has separated the monetary policy from the fiscal policy. 4. Changed Interest Rate Structure: During the 1990s, the interest rate structure was changed from its earlier administrated rates to the market oriented or liberal rate of interest. Interest rate slabs are now reduced up to 2 and minimum lending rates are abolished. Similarly, lending rates above Rs. Two lakh are freed. 5. Changes in Accordance to the External Reforms: During the 1990, the external sector has undergone major changes. It comprises lifting various controls on imports, reduced tariffs, etc. The Monetary policy has shown the impact of liberal inflow of the foreign capital and its implication on domestic money supply. 6. Higher Market Orientation for Banking: The banking sector got more autonomy and operational flexibility. More freedom to banks for methods of assessing working funds and other functioning has empowered and assured market orientation.

Evaluation of the Monetary Policy in India

During the reforms though the monetary policy has achieved higher success in the monetary policy, it is not free from limitation or demerits. It needs to be evaluated on a proper scale. 1. Failed in Tackling Budgetary Deficit: The higher level of the budget deficit has made the monetary policy

ineffective. The automatic monetization of the deficit has led to high monetary expansion. 2. Limited Coverage: The Monetary policy covers only commercial banking system leaving other non-bank institutions untouched. It limits the effectiveness of the monitor policy in India. 3. Unorganized Money Market: In our country there is a huge size of the unorganized money market. It does not come under the control of the RBI. Thus any tool of the monetary policy does not affect the unorganized money market making monetary policy less affective. 4. Predominance of Cash Transaction: In India still there is huge dominance of the cash in total money supply. It is one of the main obstacles in the effective implementation of the monetary policy. Because monetary policy operates on the bank credit rather on cash. 5. Increase Volatility: As the Monetary policy has adopted changes in accordance to the changes in the external sector in India, it could lead to a high amount of the volatility.

Recent Developments
The average growth rate of the Indian economy over a period of 25 years since 1991 has been impressive at about 6.0 per cent, Increase the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning April 24, 2010. Increase the reverse repo rate under the LAF by 25 basis points from 3.5 per cent to 3.75 per cent with immediate effect. The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted.

Conclusion
Reserve Bank is strongly of the view that controlling inflation is imperative both for sustaining growth over the medium-term and for increasing the potential growth rate. This is a critical attribute of a favorable investment climate, on which the economy's potential growth depends. Fiscal consolidation can contribute to a sustainable growth path by rebalancing demand away from government consumption and towards investment. The Reserve Banks efforts of achieving low and stable inflation could also be supported by concerted policy actions and resource allocations to address domestic supply bottlenecks, particularly in respect of food and infrastructure.

References
1. http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=24786 2. http://www.slideshare.net/jain_jithu/rbi-its-monetary-policy 3. http://www.google.co.in/url?sa=t&source=web&cd=4&ved=0CFIQFjAD&url=http%3A%2 F%2Frbidocs.rbi.org.in%2Frdocs%2FSpeeches%2FPDFs%2F15945.pdf&ei=jxtnTvG0DYnw rQeW_8zpCg&usg=AFQjCNHM8hgnShchy0Y6PieVmGLCS-RiTA

4. RBI Annual Report 1999-2000

INTRODUCTION
The Reserve Bank of India (RBI), is the central banking institution of India and controls the monetary policy of the rupee as well as other foreign currencies of currency reserves. The institution was established on 1 April 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 and plays an important part in the development strategy of the government. It is a member bank of the Asian Clearing Union. Monetary Policy is essentially a programme of action undertaken by the Monetary Authorities, generally the Central Bank, to control and regulate the supply of money with the public and the flow of credit with a view to achieving Pre-determined macroeconomic goals. At the time of inflation monetary policy seeks to contract aggregate spending by tightening the money supply or raising the rate of return Historically, the Monetary Policy is announced twice a year April-September and (October-March).The Monetary Policy has become dynamic in nature as RBI reserves its right to alter it from time to time, depending on the state of the economy. The Monetary policy determines the supply of money in the economy and the rate of interest charged

by banks. The policy also contains an economic overview and provides future forecasts. The Reserve Bank of India is responsible for formulating and implementing Monetary Policy. The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors. Objectives are maintaining price stability and ensuring adequate flow of credit to productive sectors. The national economy depends on the public sector and the central bank promotes an expansive monetary policy to push the private sector since the financial market reforms of the 1990s. The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the Gross Domestic Product (GDP) and has to decide the design of the rupee banknotes as well as coins. In India, the transition of economic policies in general, and financial sector policies in particular, from a control oriented regime to a liberalised but regulated regime has been reflected in changes in the nature of monetary management . While the basic objectives of monetary policy, namely price stability and ensuring credit flow to support growth, have remained unchanged, the underlying operating environment for monetary policy has undergone a significant transformation. An increasing concern is the maintenance of financial stability. The basic emphasis of monetary policy since the initiation of reforms has been to reduce segmentation through better linkages between various segments of the financial markets including money, Government securities and forex markets. The key development that has enabled a more independent monetary policy environment was the discontinuation of automatic monetization. Governments fiscal deficit through an agreement between the Government and the Reserve Bank in 1997. The enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 has strengthened this further. Development of the monetary policy framework has also involved a great deal of institutional initiatives to enable efficient functioning of the money market: development of appropriate trading, payments and settlement systems along with technological infrastructure. Against this brief overview, this section focuses on the key changes in the monetary policy framework that became necessary in the liberalised economic regime. The

discussion is classified under three broad heads namely- objectives, intermediate targets and operating procedure

OBJECTIVES
To ensure the economic stability at full employment or potential level of output. To promote and encourage economic growth in the economy. To achieve price stability by controlling inflation and deflation. Quantum channel: money supply and credit (affects real output and price level through changes in reserves money, money supply and credit aggregates). Interest rate channel. Exchange rate channel (linked to the currency). Asset price.

The case for price stability as the dominant -if not sole - objective of monetary policy gathered momentum in the early years of financial liberalization. Although it had to stabilize the economy in the face of the balance of payments crisis of 1991, the Reserve Bank emphasized that its ultimate mission was to steer monetary policy with its sights set firmly on inflation control (RBI, 1992). Price stability was seen to be critical to sustain the process of reforms (RBI, 1993). This acquired a new urgency as strong capital flows, after the liberalization of the external sector, began to push inflation into the double digits. The very fact that inflation could be reined in during the second half of the 1990s by tightening monetary conditions -in turn, enabled by improved monetary-fiscal interface, as discussed later - appeared to demonstrate the potency of monetary policy in ensuring price stability . In the latter half of the 1990s, as the economy slowed down, monetary policy pursued an accommodative stance with an explicit policy preference for a softer interest rate regime while continuing a constant vigil on the inflation front. The macroeconomic scenario began to change by the first half of 2004-05. In the face of sharp increases in international commodity prices and the persistence of a large liquidity overhang, the Reserve Bank reaffirmed that maintaining confidence in price stability was a continuing policy objective. The inflation situation would be watched closely in order to respond in a timely and measured manner. Policies recommended that the Reserve Bank should be mandated a sole price stability objective. There are, however, several constraints in pursuing a sole price stability objective. The recurrence of supply shocks limits the role of monetary policy in the inflation outcome. Structural factors and supply shocks from within and abroad make inflation in India depend on monetary as well as non-monetary factors.

The persistence of fiscal dominance implies that the debt management function gets inextricably linked with the monetary management function while steering liquidity conditions. The absence of fully integrated financial markets suggests that the interest rate transmission channel of policy is rather weak and yet to evolve fully. In particular, the lags in the pass-through from the policy rate to bank lending rates constrain the adoption of inflation targeting.

ROLE OF RBI IN THE MONETARY POLICY

One of the functions of RBI is monetary policy structuring and implementation. The core focus of monetary policy is to increase or reduce the money supply in the market. The only way to do it is to increase or reduce the repo and reverse repo rate. Repo rate is the rate at which banks borrow money from RBI and reverse repo is the rate at which RBI borrows money from the bank. Now what does RBI intend to achieve by changing these rates. Lets look at how increasing and reducing the repo and reverse repo rates affect the market. If the policy rates are higher, the cost of money for banks is high. This means that the banks will charge higher interest rate for loans. The banks will also provide high rates to depositors. If the depositors get good rates, this will encourage people to deposit money in banks. People will prefer saving because of the good returns that banks promise. This will reduce money in the market thus impacting consumption.

SCOPE OF MONETARY POLICY

The scope of monetary policy depends on two factors 2. Level of Monetization of the Economy -In this all economic transactions are carried out with money as a medium of exchange. This is done by changing the supply of and demand for money and the general price level. It is capable of affecting all economics activities such as Production, Consumption, Savings, Investment etc,

3. Level of Development of the Capital Market Some instrument of Monetary Policy are work through capital market such as Cash Reserve Ratio (CRR) etc. When capitalmarket is fairly developed then the Monetary Policy affects Capital Market.

RECENT DEVELOPMENTS
The average growth rate of the Indian economy over a period of 25 years since 1991 has been impressive at about 6.0 per cent, Increase the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning April 24, 2010. Increase the reverse repo rate under the LAF by 25 basis points from 3.5 per cent to 3.75 per cent with immediate effect. The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted.

THE MAJOR CHANGES IN THE INDIAN MONETARY POLICY DURING THE DECADE OF 1990
7. Reduced Reserve Requirements: During 1990s both the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) were reduced to considerable extent. The CRR was at its highest 15% plus and additional CRR of 10% was levied, however it is now reduced by 4%. The SLR is reduced from 38.5% to a minimum of 25%. 8. Increased Micro Finance: In order to strengthen the rural finance the RBI has focused more on the Self Help Group (SHG). It comprises small and marginal farmers, agriculture and non-agriculture labour, artisans and rural sections of the society. However still only 30% of the target population has been benefited. 9. Fiscal Monetary Separation: In 1994, the Government and the RBI signed an agreement through which the RBI has stopped financing the deficit in the government budget. Thus it has separated the monetary policy from the fiscal policy. 10. Changed Interest Rate Structure: During the 1990s, the interest rate structure was changed from its earlier administrated rates to the market oriented or liberal rate of

interest. Interest rate slabs are now reduced up to 2 and minimum lending rates are abolished. Similarly, lending rates above Rs. Two lakh are freed. 11. Changes in Accordance to the External Reforms: During the 1990, the external sector has undergone major changes. It comprises lifting various controls on imports, reduced tariffs, etc. The Monetary policy has shown the impact of liberal inflow of the foreign capital and its implication on domestic money supply. 12. Higher Market Orientation for Banking: The banking sector got more autonomy and operational flexibility. More freedom to banks for methods of assessing working funds and other functioning has empowered and assured market orientation.

RECENT DEVELOPMENT IN RBI POLICY POST 1990

As the recent market behaviour demonstrated, India is not insulated from such developments. It may, however, be noted that in the worst phase of the recent global financial crisis, the economy grew by 6.8 per cent, suggesting high resilience emerging from domestic factors. While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact. However, the policy and regulatory framework must anticipate and be prepared to respond to turbulent financial market conditions arising out of external developments. This will help stabilize the call rate within the LAF corridor, which is currently 7-9 per cent. Perhaps the most defining feature of the global economy over the last three decades has been what has been termed as the Great Moderation the sustained decline in inflation and in inflation volatility. A comparison of the period since the Asian financial crisis i.e., 1998-2007 and the 30 years preceding the crisis shows that in the recent period, inflation (CPI) in advanced economies has averaged 1.9 per cent, down from 5.8 per cent in the

earlier period. Over the same period, inflation in developing economies declined from 31.0 per cent to 7.0 per cent. Over the same time span, inflation volatility measured in terms of coefficient of variation has fallen from 0.55 to 0.20 in advanced economies and from 0.54 to 0.32 in developing economies. Consequently, average nominal interest rates have also moderated from 8.3 per cent in the previous period to 3.8 per cent in the recent period. This feature has also been reflected in some decline in real interest rates as well, from 2.5 per cent to 1.9 per cent. The secular lowering of nominal and real interest rates across the world has enhanced the appetite for risk even as pricing of risk has become increasingly difficult. The combination of sustained low inflation accompanied by accommodative monetary policy worldwide could have generated excessive confidence in the ability of central banks and monetary policy to keep inflation rates and interest rates low indefinitely, leading to under pricing of risk and hence excessive risk taking. This result is analogous to the excessive foreign borrowing undertaken by private sector borrowers and banks in East Asian countries when exchange rates were seen as relatively fixed, and hence their risk perceptions were low. It may be ironic that the perceived success of central banks and increased credibility of monetary policy, giving rise to enhanced expectations with regard to stability in both inflation and interest rates, could have led to the mispricing of risk and hence enhanced risk taking. Yet another view is that more than success or failure of central banks, the repeated assurances of stability and guidance to markets about the future path of interest rates, coupled with the availability of ample liquidity was an invitation to markets to underprice risks Whereas this view has been put forward by many commentators and analysts, there is also a persuasive opposite view, as best articulated by Alan Greenspan in a recent interview on the occasion of the release of his book (Financial Times, September 17, 2007). As evidence, he points to the absence of any effect on long term interest rates when short term policy interest rates were indeed raised. So the jury is out on the extent of monetary policy effects on extended long term interest rates and hence elevated housing prices. As an aside, it will be interesting to explore as to whether the low interest rate regime was fully justified. Critics argue that the Fed should have tried harder, raising rates sooner and faster. In his response, is quoted in the Financial Times as saying that such a policy response would not have been acceptable the low rate of inflation and the presumption that we were fully independent and have full discretion was false. These considerations lead to the third set of issues that relate to the role of effective financial regulation and supervision. Has the recent crisis underscored the need for strengthening of oversight of advanced financial markets? Traditionally, financial surveillance has placed relatively more emphasis on banking regulation. Banks are highly leveraged financial entities who are also effective trustees of public money by

virtue of holding deposits. Hence, they have to be effectively regulated and supervised in order to maintain public confidence in the banking system and depositors have to be protected from excessive risk-taking by banks. On the other hand, investors in hedge funds are high net worth individuals who do not need such protection. They are informed investors who are able to exploit the information efficiency of markets and, therefore, should be able to understand the risks implied by information asymmetry. The current crisis was, however, triggered by the difficulties encountered by these investors who had taken large exposures to sub-prime related investments without having accounted for the potential risks embedded in these instruments. There have been a host of ills underlying these transactions, which are now coming to light. We need, however, to abstract from the details of all the malpractices that have led to the current situation and reflect on the incentive structure that led to these malpractices. In the event, even bank depositors have got exposed and as soon as information asymmetries became evident and credit ratings came to be regarded as inadequate, markets got frozen resulting in illiquidity for banks and erosion in depositor confidence with its consequential impact on financial markets, and monetary policy. Changes in housing prices are dependent on a whole vector of factors, ranging from changes in local zoning and land laws, demand and supply balances in local areas, to changes in monetary policy. It is difficult to devise land price or housing price systems that are high frequency enough to transmit quickly through credit ratings and the like. However, improvements could be envisaged in terms of reforms in the land pricing systems, improvements in the functioning of laws and procedures for foreclosure, bankruptcy and rehabilitation. The lesson of the current financial market crisis goes both ways. On the other hand, the difficulties encountered draw attention to the kind of issues that can arise when the speed of innovation and incentive structures are flawed such that malpractices occur, and intrinsic difficulties arise in capturing and commoditizing information that is perhaps not yet susceptible to such commoditization

EVALUATION OF THE MONETARY POLICY IN INDIA

During the reforms though the monetary policy has achieved higher success in the monetary policy, it is not free from limitation or demerits. It needs to be evaluated on a proper scale. 6. Failed in Tackling Budgetary Deficit: The higher level of the budget deficit has made the monetary policy ineffective. The automatic monetization of the deficit has led to high monetary expansion.

7. Limited Coverage: The Monetary policy covers only commercial banking system leaving other non-bank institutions untouched. It limits the effectiveness of the monitor policy in India. 8. Unorganized Money Market: In our country there is a huge size of the unorganized money market. It does not come under the control of the RBI. Thus any tool of the monetary policy does not affect the unorganized money market making monetary policy less affective. 9. Predominance of Cash Transaction: In India still there is huge dominance of the cash in total money supply. It is one of the main obstacles in the effective implementation of the monetary policy. Because monetary policy operates on the bank credit rather on cash. 10. Increase Volatility: As the Monetary policy has adopted changes in accordance to the changes in the external sector in India, it could lead to a high amount of the volatility.

CONCLUSION
Reserve Bank is strongly of the view that controlling inflation is imperative both for sustaining growth over the medium-term and for increasing the potential growth rate. This is a critical attribute of a favorable investment climate, on which the economy's potential growth depends. Fiscal consolidation can contribute to a sustainable growth path by rebalancing demand away from government consumption and towards investment. The Reserve Banks efforts of achieving low and stable inflation could also be supported by concerted policy actions and resource allocations to address domestic supply bottlenecks, particularly in respect of food and infrastructure.

REFERENCES
5. http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=24786

6. http://www.slideshare.net/jain_jithu/rbi-its-monetary-policy http://www.google.co.in/url?sa=t&source=web&cd=4&ved=0CFIQFjAD&url=http%3A %2F%2Frbidocs.rbi.org.in%2Frdocs%2FSpeeches%2FPDFs%2F15945.pdf&ei=jxtn TvG0DYnwrQeW_8zpCg&usg=AFQjCNHM8hgnShchy0Y6PieVmGLCS-RiTA

7. 8. 9.
IMPACT OF THE World Trade Organisation ON THE INDIAN ECONOMY INTRODUCTION : The World Trade organization was established to deal with all the major aspects of international trade and it had far reaching effects not only on India's foreign trade but also on its internal economy.

10. The impact of the WTO on the Indian economy can be analysed on the basis and general concepts. 11. IMPACT : 12. The WTO has both favourable and non-favourable impact on the Indian economy. 13. FAVOURABLE IMPACT : 14. 1) Increase in export earnings : 15. Increase in export earnings can be viewed from growth in merchandise exports and growth in service exports : 16. Growth in merchandise exports : 17. The establishment of the WTO has increased the exports of developing countries because of reduction in tariff and non-tariff trade
barriers.

18. India's merchandise exports have increased from 32 billion us $ (1995) to 185 billion u $ (2008-09). 19. Growth in service exports : 20. The WTO introduced the GATS (general Agreement on Trade in Services ) that proved beneficial for countries like India. 21. India's service exports increased from 5 billion us $ (1995) to 102 billion us $ (2008-09) (software services accounted) for 45% of
India's service exports)

22. 2) Agricultural exports : 23. Reduction of trade barriers and domestic subsidies raise the price of agricultural products in international market, 24. India hopes to benefit from this in the form of higher export earnings from agriculture 25. 3) Textiles and Clothing : 26. The phasing out of the MFA will largely benefit the textiles sector. 27. It will help the developing countries like India to increase the export of textiles and clothing. 28. 4) Foreign Direct Investment : 29. As per the TRIMs agreement, restrictions on foreign investment have been withdrawn by the member nations of the WTO. 30. This has benefited developing countries by way of foreign direct investment, euro equities and portfolio investment. 31. 32. In 2008-09, the net foreign direct investment in India was 35 billion us $. 33. 5) Multi-lateral rules and discipline : 34. It is expected that fair trade conditions will be created, due to rules and discipline related to practices like anti-dumping, subsidies
and countervailing measure, safeguards and dispute settlements.

35. Such conditions will benefit India in its attempt to globalise its economy. 36. UNFAVOURABLE IMPACT : 37. 1) TRIPs 38. Protection of intellectual property rights has been one of the major concerns of the WTO. 39. As a member of the WTO, India has to comply with the TRIPs standards. 40. However, the agreement on TRIPs goes against the Indian patent act, 1970, in the following ways: 41. Pharmaceutical sector : 42. Under the Indian Patent act, 1970, only process patents are granted to chemicals, drugs and medicines. Thus, a company can
legally manufacture once it had the product patent.

43. So Indian pharmaceutical companies could sell good quality products (medicines) at low prices. 44. However under TRIPs agreement, product patents will also be granted that will raise the prices of medicines, thus keeping them
out of reach of the poor people, fortunately, most of drugs manufactured in India are off patents and so will be less affected.

45. Agriculture 46. Since the agreement on TRIPs extends to agriculture as well, it will have considerable implication's on Indian agriculture. 47. The MNG, with their huge financial resources, may also take over seed production and will eventually control food production. 48. Since a large majority of Indian population depends on agriculture for their divelihood, these developments will have serious
consequences.

49. Micro-organisms : 50. Under TRIPs Agreement, patenting has been extended to micro-organisms as well. 51. This mill largely benefit MNCs and not developing countries like India.

52. 2) TRIMS : 53. The Agreement on TRIMs also favours developed nations as there are no rules in the agreement to formulate international rules
for controlling business practices of foreign investors.

54. Also, complying with the TRIMs agreement will contradict our objective of self reliant growth based on locally available
technology and resources.

55. 3) GATS: 56. The Agreement on GATS will also favour the developed nations more. 57. Thus, the rapidly growing service sector in India will now have to compete with giant foreign firms. 58. Moreover, since foreign firms are allowed to remit their profits, dividends and royalties to their parent company, it will cause
foreign exchange burden for India.

59. 4) TRADE AND NON TARIFF Barriers : 60. Reduction of trade and non-tariff barriers has adversely affected the exports of various developing nations. 61. Various Indian products have been hit by. Non- tariff barriers. These include textiles, marine products, floriculture,
pharmaceuticals, basmati rice, carpets, leather goods etc.

62. 5) LDC exports : 63. Many member nations have agreed to provide duty frce and quota frce market access to all products originating from least
developed countries.

64. India will have to now bear the adverse effect of competing with cheap LDC exports internationally. Moreover, LDC exports will
also come to the Indian market and thus compete with domestically produced goods.

65. CONCLUSION : 66. Thus the WTO is a powerful body that will enact international laws on various matters . 67. It will also globalise many countries and help them to develop their competitive advantages and seek benefits from advanced
technology of other nations.

68. Though countries like India will face serious problems by complying to the WTO agreements, it can also benefit from it by taking
advantage of the changing international environment.

69. CONCLUSION : 70. Thus, WTO emerged at the initiative of advanced countries with a hidden agenda of serving their interests by increasing the scope
for investment and market.

71. Developing countries had no option other than going along with the WTO, finding measures to derive maximum possible
advantages and improve their economics both in quantity and quality.

72. 73. 74. World Trade Organisation AGREEMENTS: 75. INTRODUCTION : 76. The world Trade organization was established on 1st January, 1995 as a permanent body to deal with all the major aspects of
international trade.

77. In fact, it is defined as the legal and institutional foundation of the multi lateral trading system. 78. WTO AGREEMENTS : 79. The WTO agreements are the result of the important issues discussed and negotiated by the members in the Uruguay round . 80. These agreements are the commitments made by the member nations to lower their tariffs and other trade barriers. The
important WTO agreements are :

81. AGREEMENT ON TRADE RELATED INTELLECTUAL PROPERTY RIGHTS (TRIPS) : 82. Intellectual Property Rights seek to protect the interest of investors and developers of products and processes so as they are not
copied by others.

83. The main features of the TRIPs agreement are : 84. 1) Minimum standard of protection to be provided by each member. 85. 2) Domestic procedures must be require enforcement of intellectual property rights by each member. 86. 3) Domestic settlement between WTO members. 87. The following are as are covered by TRIPs Agreement : 88. Copy right and related rights, trademarks (including service marks , geographical indications, industrial designs, layout designs,
protection of undisclosed information and trade secrets.

89. All developing nations are given a tramition period of five years to implement the provisions of the TRIPs agreement. 90. The TRIPs agreement attempts to narrow down the gaps and bring all the IPRs (intellectual property rights) under common
international rules so as to give minimum levels of protection to member nations.

91. Disputes over TRIPs agreement are governed by WTO dispute settlement procedures. 92. IMPACT of TRIPs agreement: 93. Positive Impacts : 94. 1) The TRIPs agreement gives protection against patents, copyrights, layout designs, etc. this has given a boost to Research and
Development particularly in the field of pharmaceuticals, engineering, electronics, etc.

95. 2) The TRIPs agreement recognized the need to protect public health and provide medicines for all. It has been agreed that
countries possessing resources and technology to manufacture essential medicines and export these medicines without having to secure compulsory licensing from patent holders.

96. 3) The WTO also provides Geographic Indication Status to certain items that are unique to a particular country. Eg: India has
obtained GIS for Darjeeling Tea which indicates that Darjeeling Tea produced in India is unique.

97. 98. 99. Negative Impacts : 100. 1) The TRIPs agreement favours developed countries as coupared to developing countries. This is because the developed
countries hold large number of patents.

101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142.

2) As the agreement on TRIPS extends to agriculture they have serious implications for developing countries. This transfers 3) The Agreement on TRIPs extend to micro- organisms hence it is closely connected with the development of agriculture,

all the gains in the hands of MNG due to their huge financial resources and expertise. pharmaceuticals and industrial biotechnology. Patenting of micro-organisms benefits large MNG as they already have patents in several areas and they can acquire more patents at a faster rate. AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMs) : Under Trade Related Investment Measures (TRIMs) Agreement, member nations adopt measures to treat foreign investment

on par with domestic investment. These measures also remove quantitative restrictions on imports. To encourage trade related investment, member nations have withdrawn certain investment measures that discriminate against foreign investment. These include : Obligation on foreign investors to use local inputs. Employment of local people. Technology transfer requirement. To produce for exports to obtain imported inputs. Remittance restrictions on profits of foreign firms. To meet export obligation. Local equity requirement. Control on use of imported inputs Use of specific production technology. IMPACT OF TRIMs agreement : Positive impacts : 1) TRIMs agreement will encourage foreign firms to invest on developing countries. This will generate healthy competition 2) The efficiency and performance of domestic firms will improve. 3) Customers will enjoy better services. Negative impacts : 1) The TRIMs agreement favours developed nations. 2) There is no provision made to deal with restrictive business practices of foreign investors. 3) This agreement may lead to foreign exchange drain from developing nations as foreign companies will be free to remit AGREEMENT ON TRADE IN SERVICES (GATS) : The General Agreement on Trade in Services (GATS) is the first multilateral agreement on trade in services. All member nations are bound to open their services sector to domestic, private and foreign competition. Objective of GATS : To create a multilateral framework of principles and rules for trade in services. 2) to expand trade in services by introducing transparency and progressive liberalization. 3) to promote economic growth of all trading partners. 4) no restrictions on international payments and transfers. * the General Agreement on Trade in services incorporates the following elements. 1) Complete coverage of all services. 2) To provide national treatment and market access to all member nations supplying services. 3) Increase participation in world trade in services for developing countries. Impact of GATS Positive Impact : 1) The foreign firms are allowed in a number of service sectors. 2) The foreign firms can enter through joint venture or partnership 3) This helps developing nations to expand and diversity their service activities. Negative Impact : 1) Developing nations have to open up service sectors for foreign companies.

profits, dividends and royalties to the parent company.

143.
skills.

2) The domestic firms may not be able to compete with the giant foreign firms due to lack of resources and professional OTHER AGREEMENTS : Other agreements include : 1) Agreement on manufactured goods (tariffs reduced by 40%) 2) Agreement on Agriculture : ( increase market orientation in agriculture, tariffs reduced by 36% (developed countries) and 3) agreement on textiles and Clothing : ( phasing out of import quotas ) 4) agreement on Subsidies and Countervailing Measures : (prohibition of subsidies having high trade distorting effects, no

144. 145. 146. 147. 148. 149. 150. 151. 152.

24 % (developing countries), reduction in export subsidies, reduction in domestic subsidies)

action against subsidies that are not specific to an enterprise or industry, action taken by trading partners whose interests are adversely affected) CONCLUSION : Thus, WTO emerged at the initiative of advanced countries with a hidden agenda of serving their interests by increasing the

scope for investment and market. Developing countries had no option other than going along with the WTO, finding measures to derive maximum possible advantages and improve their economics both in quantity and quality.