Description
The objective is to list the changes in foreign trade post liberalization.
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 – India?s share of total world trade = 1.78% • Until 1990s, India?s 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
b
a
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
Q
Q
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 1990–91 to 43% in 2005–06 • 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 India?s 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 ?$/£ •Equilibrium shown as point F •Devalue; rises to Ê$/£ •Economy moves from F to G •AA curve shifts up to A?A? •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
INDIA’S 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 India?s exports of goods and services by 2014 • The long term policy objective is to double India?s 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 India?s 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
INDIA’S 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
doc_690250605.pptx
The objective is to list the changes in foreign trade post liberalization.
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 – India?s share of total world trade = 1.78% • Until 1990s, India?s 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
b
a
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
Q
Q
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 1990–91 to 43% in 2005–06 • 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 India?s 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 Ê$/£ •Economy moves from F to G •AA curve shifts up to A?A? •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
INDIA’S 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 India?s exports of goods and services by 2014 • The long term policy objective is to double India?s 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 India?s 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
INDIA’S 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
doc_690250605.pptx