<<–2/”>a >a href=”https://exam.pscnotes.com/foreign-trade-policy/”>Foreign Trade Policy of India has always focused on substantially increasing the country’s share of global merchandise trade. Accordingly the Government of India has been taking various steps towards boosting its trade with the rest of the world by adopting policies and procedures which would help to increase and facilitate both exports and imports with the other countries of the world.
Various Objectives of Trade Policy are :-
- To facilitate sustained Growth in exports from India and import in India.
- To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and Capital Goods scheme required for augmenting production and providing Services.
- To enhance the technological strength and efficiency of Industry agriculture industry and services, thereby improving their competitive strength while generating new EMPLOYMENT opportunities, and to encourage the attainment of internationally accepted standards of quality.
- To provide clients with high-quality goods and services at globally competitive rates. Canalization is an important feature of Exim Policy under which certain goods can be imported only by designated agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI and some Foreign Banks or designated agencies.
Foreign Trade is the important factor in Economic Development in any nation. Foreign trade in India comprises of all imports and exports to and from India. The Ministry of Commerce and Industry at the level of Central Government has responsibility to manage such operations. The domestic production reveals on exports and imports of the country. The production consecutively depends on endowment of factor availability. This leads to relative advantage of the financial system. Currently, International trade is a crucial part of development strategy and it can be an effective mechanism of financial growth, job opportunities and POVERTY reduction in an economy. According to Traditional Pattern of development, Resources are transferred from the agricultural to the manufacturing sector and then into services.
Historical review: Foreign trade in India began in the period of the latter half of the 19th century. The period 1900-1914 saw development in India’s foreign trade. The augment in the production of crops as oilseeds, Cotton, jute and tea was mainly due to a thriving export trade. In the First World War, India’s foreign trade decelerated. After post-war period, India’s exports increased because demand for raw materials was increased in all over world and there were elimination of war time restrictions. The imports also increased to satisfy the restricted demand. Records indicated that India’s foreign trade was rigorously affected by the Great Depression of 1930s because of decrement in commodity prices, decline in consumer’s purchasing power and unfair trade policies adopted by the colonial government. During the Second World War, India accomplished huge export surplus and accumulated substantial amount of real balances. There was a huge pressure of restricted demand in India during the Second World War. The import requirements were outsized and export surpluses were lesser at the end of the war. Before independence, India’s foreign trade was associated with a colonial and agricultural economy. Exports consisted primarily of raw materials and Plantation Crops, while imports composed of Light consumer merchandise and other manufactures. The structure of India’s foreign trade reflected the organized utilization of the country by the foreign leaders. The raw materials were exported from India and finished products imported from the U.K. The production of final products was discouraged. For instance, cotton textiles, which were India’s exports, accounted for the largest share of its imports during the British period. This resulted in the decline of Indian industries. Since last six decades, India’s foreign trade has changed in terms of composition of commodities. The exports included array of conventional and non-traditional products while imports mostly consist of capital goods, petroleum products, raw materials, intermediates and chemicals to meet the ever increasing industrial demands. The export trade during 1950-1960 was noticeable by two main trends. First, among commodities which were directly based on agricultural production such as tea, cotton textiles, jute manufactures, hides and skins, spices and tobacco exports did not increase on the whole, and secondly, there was a significant boost in the exports of raw manufactures such as iron Ore. In the period of 1950 to 1951, main products dominated the Indian export sector. These included cashew kernels, black pepper, tea, coal, mica, manganese ore, raw and tanned hides and skins, vegetable oils, raw cotton, and raw wool. These products comprised of 34 per cent of the total exports. In the period of 1950s there were Balance of Payments crunch. The export proceeds were not enough to fulfil the emerging import demand. The turn down in agriculture production and growing pace of development activity added pressure. The external factors such as the closure of Suez Canal created tension on the domestic financial system. The critical problem at that moment was that of Foreign Exchange scarcity. The Second Five Year Plan with its emphasis on the development of industry, mining and transport had a large foreign exchange factor. This tension on the balance of payments required the stiffening of import strategy at a later stage.
Table: Measures initiated in India to Influence Foreign Trade during 1949-1950 to 1979-1980Source: Inputs from various issues of Economic Survey, Ministry of Finance, Government of India, New Delhi.
In the age of globalisation, India is new entrant to expand international trend. In 1991, the government initiated some changes in its strategy on trade, foreign Investment, Tariffs and Taxes under the name of “New Economic Reforms“. Indian government mainly concentrated on reforms on Liberalization-2/”>Liberalization, openness and export sponsorship activity. It is witnessed that foreign Trade of India has considerably revolutionized export in the Post reforms period. Trade Volume increased and the composition of exports has undergone several noteworthy changes. In Post – reform Period, the major provider to export’s growth has been the manufacturing sector.
Though India has steadily opened up its wealth, its tariffs are high as compared with other countries, and its conjecture norms are still restricted. Foreign trade in India in legal term is the Foreign Trade (Development and Regulation) Act, 1992. The Act provide with the development and regulation of foreign trade by assisting imports into, and supplementing exports from India. To fulfil the requirements of the Act, the government may make necessities for assisting and controlling foreign trade, may forbid, confine and regulate exports and imports, in all or particular cases as well as subject them to exclusion. Government is endorsed to devise and declare an export and import policy and also amend the same from time to time, by notification in the Official Gazette, and is also authoritative to appoint a ‘Director General of Foreign Trade’ for the purpose of the Act, including formulation and accomplishment of the export-import policy.
The 15X15 Matrix Strategies was introduced in 1995 and major aim of this policy was to recognize market diversification and commodity diversification. When reviewed the success of this, it represented that the share of the total top 15 product groups exported to the top 15 market destinations declined from 71% in 1996-97 to 66% in 2000-01 in respect of the total export of these 15 product groups for all destinations taken together. It clearly showed the market diversification for these product groups. The major items of India’s exports controlled in the Matrix continue to remain the same during 2000 – 01 such as Gems and Jewellery, RMG Cotton including accessories and Cotton Yarn, Fabrics and Made Ups. The top three destinations changed from US, UK and Japan to US, Hong Kong and UAE. Another strategy was Focus LAC which was introduced in 1997 in order to enhance exports of chosen products such as Textiles including RMG, Engineering goods and Chemical products to Latin American Region. The highest growth rate of exports to this region was accomplished during period of 2000-01 when the value of exports was high of US$ 982 million. Though the current trade between LAC and India is still low, there is possibility to increase two-way trade between India and the LAC region. It is observed from the export strategies of previous time is that the composition, competitiveness and complexion of world products trade are changing rapidly and there is a need to review the market constantly for any medium term export strategy to achieve a higher share of global exports on a sustainable basis. The main concentration of previous foreign trade strategies was on the existing export products of India.
Nonetheless, presently, the government has made policy on trade and investment policy that has established an obvious change from protecting ‘producers’ to benefiting ‘consumers’. It is reflected in its foreign trade strategy of India for 2004/09 which indicated that “for India to become a major player in world trade we have also to make possible those imports which are required to stimulate our economy”. With numerous economic alterations, globalisation of the Indian economy has been the foremost factor to formulate the trade policies. The announcement of a new Foreign Trade Policy of India for a five year period of 2004-09, substituting until now taxonomy of EXIM Policy by Foreign Trade Policy is major step in the development of foreign trade policy. This policy made the overall development of India’s foreign trade and offers guidelines for the development of this sector. Main purpose of the Exim Policy is to hasten the economy from low level of economic activities to high level of economic activities by making it a globally oriented energetic economy and to derive maximum benefits from expanding global market opportunities, to encourage continued economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production, to boost the techno local strength and efficiency of Indian Agriculture, industry and services, thereby, improving their competitiveness, to generate new employment and opportunities and encourage the attainment of internationally accepted standards of quality. Finally, this policy provides quality consumer products at reasonable prices. A vibrant export-led growth strategy of doubling India’s share in global commodities trade with an attention on the sectors having prospects for export development and potential for employment generation, represent the main factor of the policy. These activities augment India’s international competitiveness and assist in increasing the suitability of Indian exports. The trade policy recognizes major strategies, outlines export incentives, and also focus on issues relating to institutional support including SIMPLIFICATION of procedures relating to export activities. India is now violently pushing for a more moderate global trade management, especially in services. It has understood a Leadership role among developing nations in global trade debates, and played a decisive part in the Doha negotiations. With economic reforms, globalisation of the Indian economy has been the major factor in devising the foreign trade policy of India.
The objective of the Foreign Trade Policy is to twofold India Percentage share of global merchandise trade and to act as an effectual instrument of economic growth by giving a thrust to employment generation, especially in semi-urban and rural areas. The growth performance of exports has been a result of watchful effort of the Government to lessen transaction costs and assist trade. The guidelines of the Foreign Trade Policy (2004-09) for a five year period clearly articulate objectives, strategies and policy initiatives that has been involved in putting exports on a higher growth line.
Reviewing data of exports by Principal Commodities for the period April – October 2006-07, the export growth was largely driven by petroleum products, engineering. Export of other products like Agriculture and Allied Products, Ores and Minerals, Leather and Leather Manufactures, Gems and Jewellery, Chemicals and related Products, Engineering Goods and other commodities are shown below:
There are numerous challenges and issues in foreign trade. These include burden of Export Promotion schemes, danger of circular trading, and risk of importing outdated machinery. Sometimes policy fails to take a holistic view of trade issues. Other issue is relative importance of the home market, the nature or the degree of State intervention and recessionary conditions in the global market. India’s exports have suffered due to structural constraints operating both on the demand and supply side. On the demand side exports have continued to undergone the problems of adverse world trading Environment, protectionist sentiments in the developed countries in the guise of technical standards, environmental and social concerns and tariff differentials in imports by the developed countries. At the supply end, the factors that have constrained exports from India include Infrastructure-2/”>INFRASTRUCTURE constraints, high transaction costs, inflexibilities in labour laws, quality problems, constraints in attracting FDI in the export sector, etc
It is summarized that foreign trade has significant function in the fiscal development of any nation. India has made strong foreign trade policies and reformed these from time to time with the process of globalisation and liberalization. Since 1991, India’s foreign trade considerably transformed. India’s major exports include manufacturing and engineering goods. India has good trading relations with all developed countries in the world. More than fifty percent of India’s total export trade is with Asia and ASEAN region and about sixty percent of India’s total imports is with the same countries. India’s wealth previously was agricultural economy. India’s major requirement use to be food grains and other goods in import with fast industrialization, the composition of India’s imports goods changed and needed chemicals, Fertilizers and machinery which were required to meet the developmental requirements of country. In the composition of export; country sells agricultural products such as tea, spices, and other raw materials. However, with the industrialization of the financial system, compositions of exports changed. Currently, India exports products such as machinery chemicals and marine products. This may enhance the fiscal condition of India.
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Trade policy is a government’s plan for how it will interact with other countries in terms of trade. It includes tariffs, quotas, embargoes, sanctions, and trade agreements.
Free trade is the absence of government restrictions on international trade. This means that goods and services can flow freely across borders without any tariffs, quotas, or other barriers.
Protectionism is a government’s policy of protecting its own industries from foreign competition. This can be done through tariffs, quotas, or other means.
Tariffs are taxes that are imposed on imported goods. They are designed to make imported goods more expensive than domestically produced goods.
Quotas are limits on the amount of goods that can be imported. They are designed to restrict the amount of foreign competition that domestic producers face.
Embargoes are bans on trade with certain countries. They are usually imposed for political or economic reasons.
Sanctions are penalties that are imposed on countries that violate international law. They can include tariffs, quotas, embargoes, and other measures.
Trade agreements are agreements between two or more countries that reduce or eliminate tariffs and other barriers to trade. They are designed to promote trade and economic growth.
The World Trade Organization (WTO) is an international organization that oversees the rules of international trade. It was founded in 1995 and has 164 member countries.
The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Canada, and Mexico. It was signed in 1994 and went into effect in 1995.
The European Union (EU) is a political and Economic Union of 27 member states that are located primarily in Europe. It was founded in 1957 and has a single market that allows for the free movement of goods, services, capital, and people.
The Trans-Pacific PARTNERSHIP (TPP) is a trade agreement between 12 countries that are located in the Pacific Rim. It was signed in 2016 but has not yet been ratified by all of the member countries.
The Regional Comprehensive Economic Partnership (RCEP) is a trade agreement between 15 countries that are located in the Asia-Pacific region. It was signed in 2020 and is the world’s largest free trade agreement.
The General Agreement on Tariffs and Trade (GATT) was an international agreement that was signed in 1947. It was replaced by the WTO in 1995.
The General Agreement on Trade in Services (GATS) is an agreement that was signed in 1994. It is part of the WTO and covers trade in services.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an agreement that was signed in 1994. It is part of the WTO and protects intellectual property rights, such as patents, copyrights, and trademarks.
The Agreement on Technical Barriers to Trade (TBT) is an agreement that was signed in 1994. It is part of the WTO and aims to reduce technical barriers to trade, such as product standards and regulations.
The Agreement on Sanitary and Phytosanitary Measures (SPS) is an agreement that was signed in 1994. It is part of the WTO and aims to reduce sanitary and phytosanitary barriers to trade, such as food safety and animal Health regulations.
The Agreement on Rules of Origin (ROO) is an agreement that was signed in 1994. It is part of the WTO and defines the rules of origin for goods that are traded under a free trade agreement.
The Agreement on Import Licensing Procedures (ILP) is an agreement that was signed in 1994. It is part of the WTO and regulates import licensing procedures.
The Agreement on Anti-Dumping Measures (AD) is an agreement that was signed in 1994. It is part of the WTO and allows countries to impose anti-dumping duties on goods that are being dumped in their markets.
The Agreement on Countervailing Measures (CVD) is an agreement that was signed in 1994. It is part of the WTO and allows countries to impose countervailing duties on goods that are being subsidized by foreign governments.
The Agreement on Safeguards is an agreement that was signed in 1994. It is part of the WTO and allows countries to take temporary measures to protect their domestic industries from sudden surges in imports.
Trade policy is a complex and ever-changing field. It is important to stay up-to-date on the latest developments in trade policy in order to make informed decisions about your business.
Here are some frequently asked questions and short answers about trade policy:
- What is trade policy?
Trade policy is a set of government regulations that govern the import and export of goods and services.
- What are the goals of trade policy?
The goals of trade policy can vary depending on the country, but some common goals include:
- To increase economic growth
- To protect domestic industries
- To promote fair trade
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To ensure national security
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What are the different types of trade policy?
There are many different types of trade policy, but some common types include:
- Tariffs: Taxes on imported goods
- Quotas: Limits on the quantity of imported goods
- Subsidies: Payments to domestic producers to help them compete with foreign producers
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Non-tariff barriers: Regulations that make it difficult or expensive to import goods
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How does trade policy affect businesses?
Trade policy can have a significant impact on businesses, both domestically and internationally. Tariffs, quotas, and subsidies can make it more or less expensive for businesses to import or export goods. Non-tariff barriers can also make it difficult or expensive for businesses to do business in other countries.
- What are the benefits of trade policy?
There are many potential benefits of trade policy, including:
- Increased economic growth: Trade can lead to increased economic growth by allowing countries to specialize in the production of goods and services in which they have a comparative advantage.
- Increased efficiency: Trade can lead to increased efficiency by allowing businesses to take advantage of economies of scale.
- Increased competition: Trade can lead to increased competition, which can lower prices and improve quality for consumers.
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Increased innovation: Trade can lead to increased innovation by exposing businesses to new ideas and technologies.
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What are the costs of trade policy?
There are also some potential costs of trade policy, including:
- Job losses: Trade can lead to job losses in some industries, as businesses may choose to import goods from other countries instead of producing them domestically.
- Environmental damage: Trade can lead to environmental damage, as businesses may choose to produce goods in countries with lower environmental standards.
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Social unrest: Trade can lead to social unrest, as workers in industries that are negatively affected by trade may lose their jobs and be unable to find new ones.
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What are the arguments for and against trade policy?
There are strong arguments both for and against trade policy. Those who support trade policy argue that it can lead to increased economic growth, efficiency, competition, innovation, and consumer welfare. Those who oppose trade policy argue that it can lead to job losses, environmental damage, social unrest, and other negative consequences.
- What is the future of trade policy?
The future of trade policy is uncertain. The rise of protectionism in recent years has led to some concerns that trade policy may become more restrictive in the future. However, there are also some signs that countries are moving towards more open trade policies. It is too early to say what the future of trade policy will hold.
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Which of the following is not a type of trade policy?
(A) Tariff
(B) Quota
(C) Embargo
(D) Subsidy -
A tariff is a tax on imported goods.
(A) True
(B) False -
A quota is a limit on the quantity of goods that can be imported.
(A) True
(B) False -
An embargo is a complete ban on trade with a particular country.
(A) True
(B) False -
A subsidy is a government payment to domestic producers to make their goods more competitive in the international market.
(A) True
(B) False -
Which of the following is a benefit of free trade?
(A) Consumers have access to a wider variety of goods at lower prices.
(B) Producers are able to specialize in the production of goods in which they have a comparative advantage.
(C) Countries are able to increase their economic output.
(D) All of the above. -
Which of the following is a cost of free trade?
(A) Some domestic producers may be forced to shut down due to competition from foreign producers.
(B) Some workers may lose their jobs due to competition from foreign workers.
(C) Some industries may decline in importance.
(D) All of the above. -
Which of the following is a type of Regional Trade Agreement?
(A) Free trade agreement
(B) Customs Union
(C) Common Market
(D) Economic union -
A free trade agreement is an agreement between two or more countries to eliminate tariffs and other trade barriers on goods and services traded between them.
(A) True
(B) False -
A customs union is a free trade agreement that also includes a common external tariff.
(A) True
(B) False -
A common market is a customs union that also includes the free movement of labor and capital.
(A) True
(B) False -
An economic union is a common market that also has a common currency.
(A) True
(B) False -
Which of the following is a benefit of regional trade agreements?
(A) They can increase trade between member countries.
(B) They can help to reduce costs for businesses.
(C) They can help to promote economic growth.
(D) All of the above. -
Which of the following is a cost of regional trade agreements?
(A) They can lead to job losses in some sectors.
(B) They can lead to a loss of Sovereignty for member countries.
(C) They can lead to trade diversion.
(D) All of the above. -
Which of the following is a type of non-tariff barrier?
(A) Import quota
(B) Export quota
(C) Technical barrier to trade
(D) All of the above. -
An import quota is a limit on the quantity of goods that can be imported.
(A) True
(B) False -
An export quota is a limit on the quantity of goods that can be exported.
(A) True
(B) False -
A technical barrier to trade is a regulation or standard that is applied to imported goods that is not applied to domestically produced goods.
(A) True
(B) False -
Which of the following is a benefit of non-tariff barriers?
(A) They can protect domestic industries from foreign competition.
(B) They can help to ensure the safety and quality of imported goods.
(C) They can help to protect the environment.
(D) All of the above. -
Which of the following is a cost of non-tariff barriers?
(A) They can increase the cost of imported goods.
(B) They can reduce the variety of goods available to consumers.
(C) They can lead to trade diversion.
(D) All of the above.