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ASSIGNMENT SOLUTIONS GUIDE (2014-2015)

I.B.O-3
Indias Foreign Trade
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Auhtors for the help and Guidance
of the student to get an idea of how he/she can answer the Questions of the Assignments. We do not claim 100% Accuracy
of these sample Answers as these are based on the knowledge and cabability of Private Teacher/Tutor. Sample answers
may be seen as the Guide/Help Book for the reference to prepare the answers of the Question given in the assignment. As
these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be denied.
Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/
Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer & for up-to-date and exact
information, data and solution. Student should must read and refer the official study material provided by the university.
Q. 1. What is meant by Balance of Payments? Discuss the features of India s Balance of Payment. What
measures would you suggest for improving the Indias Balance of Payment?
Ans. Concept of Balance of Payment: Balance of payment refers to all economic transactions between domestic
and foreign residents over a stipulated period, which is generally one year. The analysis of balance of payment is immensely useful for the policy-makers and business communities. Moreover, it is an important instrument for maintaining
external economic stability. A close understanding of dependence of international business upon balance of payments is
necessary for a successful strategy in international business.
Significant Features of Indias BOP
The salient features of Indias BOP are:
1. India has always faced trade deficits except in 1972-73 and 1976-77 when there was a small surplus.
2. Trade deficit increased from plan to plan with the exception of the fourth plan when the trade deficit declined.
3. The rate of growth of export varied from plan to plan.
4. Net invisible receipts have been always positive.
5. The crisis in the balance of payment during 1990-91 and in the first quarter of 1991-92 made it necessary to
mobilise additional external funds to close the gap. The task of the government was difficult because of the sinking
international faith in our economy. In the end, the government succeeded in getting additional finance from the IMF, the
World Bank and some bilateral donors, especially Japan.
6. Fiscal deficit affects not only the growth and stability, but has a crucial bearing on the balance of payment strategy.
Strategy to ensure a viable balance of payments calls for corrections in fiscal imbalance as well.
7. External assistance utilization has been at a low level. A considerable part of authorized loans has always remained
in the pipeline. The main reason for undertilisation of assistance is because of the unnecessary time lag between commitments and conclusions of any given credit arrangement, time-consuming procedures and also budgetary constraints in
making available counterpart funds.
8. The collapse of USSR and emergence of a number of independent states out of it badly hit countrys exports.
Indias balance of payments thus continued to be under stress.
The underlying weaknesses of the balance of payments stayed. The declining support from net invisible receipts due
to interest payments, feeble industrial and export performance and high rate of inflation became constant hurdles in the
way of securing a sustainable balance of payments. Table 4.1 shows the gloomy picture of Indias balance of payments.

USA
Imports
of which : POL

(US $ million)

1995-96

1996-97

1997-98

1998-99

32311
43670
7526

34133
48948
10036

35680
51187
8164

34298
47544
6433

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Trade balance
Invisibles (net)
Non-factor services
Investment income
Private Transfers
Official Grants
Current Account Balance
External assistance (net)
Commercial borrowings (net) @
IMF (net)
Non-resident deposits (net)
Rupee debt service
Foreign investment (net)
of which:
(i) FDI (net)
(ii) FIIS
(iii) Euro equities and others
Other flows (net)+
Capital account total (net)
Reserve use (increase)

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11359
5449
197
3205
8506
345
5910

14815
10196
726
3307
12367
410
4619

15507
10007
1319
3521
11830
379
5500

13246
9208
2165
3544
10280
307
4038

883
1275
1715
1103
952
4615

1109
2848
975
3350
727
5963

907
3999
618
1125
767
5353

820
4362
393
1742
802
2312

1954
2009
652
2235
2974
2936

2651
1926
1386
1131
10437
5818

3525
979
849
606
9393
3893

2380
338
270
174
7867
3829

Crucial Policy Measures :The package of reforms initiated many policy measures. Two such policy measures brought
significant changes in the balance of payment situation in India.
Q. 2. What are the objectives of new industrial policy? Do you think that the new industrial policy has a
favourable impact on the economy? Explan.
Ans. Industrial Policy of 1991: Although, by 1990, India had achieved self-sufficiency in a wide range of consumer
goods, the industrial growth was not fast enough to generate sufficient employment. Regional disparities also continued
and the alleviation of poverty was still a distant dream.
Governments earlier protective industrial policies had resulted in:
1. Lack of adequate competition in the industry.
2. In the absence of foreign competition, manufacturers did not bother about reduction of costs, upgradation of
technology or improvement of quality standards.
3. Indian goods generally failed to match international quality standards and therefore growth of exports was very
sluggish.
It was with this background that government decided to reorient and accelerate industrial development and announced the industrial policy 1991. The avowed aim of the policy was to prepare Indian industry for international competitiveness while allowing a new liberal atmosphere to prevail in the country completely free of earlier permit and
licence raj.
Aims of the 1991 Industrial Policy: The Industrial Policy of 1991 reiterated government emphasis on removal of
poverty, realizing social and economic justice for all sections of the society, the need to integrate domestic economy with
world economy and building a prosperous India. It aimed at self-reliance but emphasized more on the ability to pay for
balance of trade. The policy clearly recognized the need for development of indigenous technology and manufacturing
capabilities to global standards. It also laid much emphasis on development and growth of small-scale industries through
technology up gradation and efficient operations.
Objectives of the 1991 Industrial Policy
Industrial Policy 1991 had the following objectives:
To continue to build on the gains already made.
To maintain a sustained growth in productivity and employment
To remove distortions or weaknesses that have crept in, and
To reach international competitiveness.
The policy de-regulated industries to a great extent.
Major Features of Industrial Policy, 1991
The main features of the policy were as follows:

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1. Domestic Regulatory Reforms: It reduced the number of reserved industries. Industries that continued to be
reserved for the public sector were mostly in the areas where security and strategic concerns predominated.
2. Abolition of Industrial Licensing: The policy put an end to all industrial licensing, regardless of the level of
investment. The only exceptions were certain industries related to security and strategic concerns, social concerns, safety,
dominant environmental issues, and manufacture of products of hazardous nature.
3 Removal of Mandatory Convertibility Clause: A significant portion of industrial investment in India is made up
of loans from banks and financial institutions. These institutions followed a mandatory practice of including a convertibility clause in their lending operation for new projects. Industrial Policy, 1991 directed the financial institutions not to
impose the mandatory convertibility clause.
4. Removal of Investment Controls on Large Business House: The Monopolies and Restrictive Trade Practices
(MRTP) Act of 1969 had classified all firms having assets above a certain limit as MRTP firms. The limit was calculated
on the basis of sum of assets of all firms interconnected through equity shares under same management control. The
MRTP firms could enter selected industries only and that too on a case-by-case approval basis. In the new policy this
clause was removed.
5. Foreign Investment: Like the domestic industrial investment, foreign investment was also traditionally regulated
tightly in India. Now the scenario changed completely. In case of foreign investment, automatic permission was made
available for foreign equity up to 51 per cent in high priority industries. Till 1991, foreign investment policy also mostly
discouraged foreign equity holding in service areas except for hotels. Under the fresh guidelines, government decided to
allow foreign equity holding up to 51 per cent by international trading companies also. Apart from hotels, now 51 per cent
equity was also permitted in entire tourism sector.
Evaluation of Industrial Policy of 1991: The Industrial Policy, (1991) opened doors of Indian economy widely to
Indian and foreign investors. Its major impact can be evaluated as follows:
1. The policy brought about a complete change in the industrial scenario of India. In the extent and scope, the policy
was certainly a turning point. It was significant for economic development of the country in many ways. The
policy defined working of the industrial enterprises, their efficiency and productivity, and marketing skills as the
most important factors for industrial progress.
2. Delicensing of a number of industries and doing away with all registration schemes made decision-making by
entrepreneurs quicker as they wanted to grab more quickly new business opportunities.
3. Foreign participation in industry and export trade became instrumental in the economic growth of country. Ease
of access to foreign technologies and facilitation of agreements and other related measures started having a
favourable impact on the industry. However, since China and other competing economies are also vying for flow
of foreign capital in their countries, we still require doing much more for attracting foreign investment in India.
4. The policy also evaluated role of the public sector in the economy. In the past the public sector had entered even
in those areas in which no commercial purpose was served and there was also no real welfare mechanism created. Therefore, for the government it now made sense to disinvest state holdings in these industries. The public
sector was thus brought into a competing commercial environment and the policy-makers hoped that commercial
logic would dictate their functioning in future instead of relying on government funds and subsidies.
5. The policy on phased manufacturing programme was scrapped and case-by-case approval was no more needed.
Suitable financial incentives for indigenisation were built into the external value of rupee and the trade policy.
6. The 1991 policy was thus a definite step towards globalization. The government hoped that removal of restrictions and creation of competitive environment would go a long way in improving productivity of the industry.
Q. 3. Testile and colthing sector occupies a pivotal role in the economy of the developing countries. Elucidate the statement with reference to Indian economy.
Ans. As stated in the Introduction, the Indian textiles industry represents a very complex and diverse structure. On
one hand, there is the organised and sophisticated mill sector, producing mostly cotton and man-made fibres; at the other
extreme there exists a widely scattered and largely cottage-scale handloom sector working on a far wider range of fibres
and yarns including natural silk. In between these two lies the highly decentralised powerloom sector. This three-tier
structure of the Indian textile industry is unique in many ways. Such a pattern does not exist anywhere else in the world.
Interestingly, over the last several decades, it is the decentralized weaving sector, outstandingly the powerlooms segment,
that is dominating the scenario making about 80 per cent of Indias production of fabrics. Even in exports, its contribution
is sizeable. The handloom sector makes a substantial contribution to Indias clothing needs and export effort, notwithstanding the growing competition from the powerloom sector. It is the handloom sector that has kept alive many of

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traditional cloth patterns of the country. The government is rightly providing continuing protection to this segment as a
matter of conscious policy.
In the national context, textile industry now accounts for over 20 per cent of the industrial production and provides
gainful employment to more than 15 million (one and half crore) people. Significantly, today India has the largest area
under cotton cultivation in the world (the productivity, however, is much lower than the world standards). The area is
likely to grow by 2.4 per cent per annum from the current level of about 7.5 million hectares. Naturally, the main raw
material for the textile industry continues to be cotton either singly or as blended with non-cotton fibres. Other important
raw materials used by the textiles sector are man-made fibres and yarns obtained from petro-chemicals, wool which is
mostly imported and natural silk (both mulberry and tassar) which is produced by silkworms. Since cotton fabrics and
garments form over 80 per cent of Indias textile exports, the import content is very low. That is the sector needs all the
encouragement in the world for its swift growth.
Reasons for Excellent Growth: The Indian garment sector has shown a steady growth over last few decades. Reasons for its swelling exports are as discussed below:
1. Rising Labour Costs in Development Markets: Many of the developed markets have found it tough to continue
their garment manufacturing operations because of growing labour charges. These nations now find it more economical
and cost-effective to buy their requirements from the developing countries with abundance of labour and low wage
structures.
2. Shift to Technology Intensive Industries: During the 1970s many developed countries started more on focussing
the emerging hi-tech industries like computer hardware and software, electronics, ship building etc. Labour-oriented and
pollution-prone industries like textiles, clothing, tanning and finished leather were increasingly de-emphasised. These
industries also did not suit the economic profile of many of the developed Western countries. This provided the opportunity for developing nations like India to step in to fill the void thus formed.
3. Special Fascination of Indian Fabrics: Indian fabrics have always fascinated foreign buyers, particularly the
Western designers. Most appealing have been the rich colours and design variations of these fabrics. In fact, it was the
traditional Indian handloom fabric, which started the garment export boom in early 1970s. Two well-known handloom
fabrics-Madras Checks and Cannanore Crepes caught the eye of Western designers and clothing made out of these items
soon became a rage throughout Europe. The rest, as they say, is history.
4. Move Towards Natural Fibres: People now clearly prefer to use clothes made of natural fibres. There has been
a continuing swing towards natural fibres and their blends in place of synthetics (nylons, etc.). In the beginning, the
immediate reason was the increasing cost of petrochemical based items. Later on the consumers also realised plus factors
like comfort in wearing cotton apparel and health/environmental reasons. India gained in a big way from these changes in
consumer preferences and Indian exporters soon began to exploit the opportunities that now came their way.
5. Ability to Satisfy Even Small Orders: Orders for garments arrive from large importers and departmental stores
abroad as well as from ethnic shops and small boutiques. Though individual orders coming from such sources are small,
as a whole they do form sizeable import orders for clothing. Such small orders ideally suit Indian garment sector. This is
because the garment sector here mostly consists of small units and is highly decentralized. It is thus very flexible and in an
ideal position as compared to its competitors in other countries, to cater to small orders for diverse items. Most of our
competitors have large composite clothing units with assembly line operations. They are thus not in a position to satisfy
such small orders for wide-ranging designs and colour combinations.
6. Better Publicity and Promotional Campaign: After realizing the potential of garment export as foreign exchange earner, the Central Government also stepped in and launched a massive publicity and promotional campaign to
popularise Indian garments among importers and world markets. India now regularly participates in specialized clothing
exhibitions overseas. Apparel Export Promotion Council, set up by the Government, and the Clothing Manufacturers
Association have been holding periodic buyer-seller meets at the important production centres.
7. E-commerce and Other New Facilities: The world has become like a global village. With advance of Internet,
instant e-mails, e-commerce, online money transactions, mobile telephones, and other technologies the international
trade has become fast, swift and more profitable. International travel has become easy and one can go across the globe in
few hours. This has greatly reduced the North-South divide and brought prospective sellers and buyers closer together.
8. Private Contacts and Initiatives: There is now a far greater understanding of Indian capabilities in certain fabric
designs and variety of clothing, especially in the summer wear. The garment export sector, it may be pointed out, came
into prominence primarily because of private initiatives. First there were direct deals between the Indian entrepreneurs
and the overseas importers. Government assistance and incentives was a much later development.

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Q. 4. Analyse the competitive scenario of Indian electronics goods in the international market. Suggest suitable policies and strategies to boost export of electronics goods from India.
Ans. Indias Competitive Edge and Lacunas
As in the case of other export segments India definitely offers certain advantages and suffers from certain disadvantages in export of its electronic goods.
1. Low Labour Costs: In todays era of WTO and TRIPP international markets have become fierce and price sensitive. To enter, survive and win markets abroad, any industry have to be highly competitive in both price and quality-wise.
India has certain advantages that make its electronic products price-competitive. A deciding factor is the low labour cost
compared to international standards. This naturally reduces costs at every stage of production and the final assembly cost,
and the selling price.
2. Need for Large-scale Production: However, India has not been able to derive full gains from the low labour
costs. This is because till now the domestic market has been small and has resulted in low scale production. This has come
in the way of India enjoying the economies of large-scale production.
3. High Tax Structure: This coupled with the high taxes imposed by the government has made prices unattractive.
The fact is that potential of Indias domestic market is itself very high and its rapid growth may boost large-scale production in near future and thereby the per unit cost of production may go down. The foreign direct investment (FDI) in
electronics sector will provide the much sought after resources for expansion and large-scale operation. In addition, the
days of harsh tax regime are almost over and taxes are being rationalized to match exact needs of any particular industry.
4. Poor Quality: Indian electronic products have suffered largely due to their poor quality. Our product designing
capabilities, R&D and technology development have been not up to the mark. However, with the domestic consumers
becoming more and more quality conscious quality has improved over last few years to a great extent.
5. Need to go for Hi-tech Products: Indian electronics industry is today quite established in case of traditional TV
and audio products. Large exportable surplus is being produced mainly in the B/W segment and India is poised to become
a leading international player. Production is also boosted up in CTVs with hopes riding high about the exports to developing countries. Such efforts are also seen in other segments of consumer electronics like audio/video cassettes, audio
systems and electronics watches. Colour TV picture tube units are currently under expansion and quality up gradations to
meet the demands from domestic CTV companies. New technologies and products are being actively promoted in the
industry. However, the most promising of all of them, the laser technology based products are still at an up-and-coming
stage.
6. Making Brand India Popular: The most stumbling factor in the way of Indian products becoming popular
abroad is that the Brand India for consumer electronics is still unknown in the international markets, and price competition is ruthless in the unbranded world consumer electronics market.
7. Preparing for the Emerging Technologies: In the field of advanced technology products, like large screen high
definition CTV, VCP/VCR, DVD players and recorders, compact-disk and hi-fi systems, India still does not have much of
a production base and expertise in these technologies to become competitive in the world market.
Also, an important point to bear in mind is the fast changing consumer tastes and preferences of electronic items.
Demand for the advanced technology products are rising fast. Indian manufacturers will have to keep in pace with the
rapid changes taking place to survive in the market. India will have to develop more than bare infrastructure and expertise
to improve its production base for hi-tech products to continue serving the growing world markets. Government and
industry will have to chalk out a proper policy and aggressive strategy framework after scrutinizing all these factors.
Policies and Strategies to Boost Exports
India is doing wonderfully in exporting computer software products and services. However, the country has failed in
making any headway in exporting computer hardware or consumer electronics products. It is not that India lacks in
necessary expertise or potential for creating suitable environment for manufacturing electronic commodities. The truth is
the consumer electronic industry is still very much disorganised. Neither the industry nor the government are acting in a
coordinated way to put the electronics goods manufacturing on firm footing.
If the industry is to dominate the domestic market and penetrate the international market successfully in stiff competition with the MNCs and ANCs, there is urgent need to adopt encouraging policies and shrewd strategies. What shape
such policies and strategies should take is discussed in following sections.
Although Indian electronic goods are being exported to advanced countries like USA, Britain, France, Germany, Holland, Japan, etc. India has still to go a long way to assert itself strongly in international markets. Brand India is yet unknown
and Indian items are largely bundled with non-branded products in markets abroad. There is a cut-throat competition against
the already strong and established competitors from developed as well as new industrialised countries (NICs).

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Indias main competitors are, in fact, the Asian NICs. They are not only giving a run for money to Indian goods in the
global markets, but are also attracting large scale MNC investment in consumer electronics. Excepting China, which till
now relied mostly on its huge domestic market, the other NICs (South Korea, Taiwan, Singapore, Malaysia and Thailand)
heavily rely on massive exports to sustain their consumer electronics industry and economic growth of the nation. Since
1980s exports has become the mainstay of their economy. So much so that the economic experts are calling these countries as Asian Economic Tigers.
There economic prosperity even forced China to do some rethinking about its policies. As a result even China shifted
its focus on the export market in late 1990s and started encouraging joint ventures with multinational companies to
increase its export operations.
Several factors are responsible for the dramatic breakthrough the NICs have achieved in the international electronics
market. The first and foremost factor is development of a strong component base providing cheap yet high quality inputs.
The second factor is heavy Foreign Direct Investment (FDI) by MNCs due to attractive and liberal economic policies. The
third factor is the free use of reputed foreign brands. This critical decision has helped these nations to expand their global
market share and increase export revenues in the highly priced branded segments worldwide.
As opposed to the Asian Tigers, the entire Indian consumer electronics industry displays very little enthusiasm for
exports. All these years, exports have not been a major concern for Indian companies. Sometimes, some hectic activity
had been seen but that too only for short-term profitability considerations. Mainly, this has been for getting benefits from
the export incentives declared by the government from time to time.
What is urgently required is a proactive government policy on consumer electronics as adopted by the Asian NICs.
Within the framework of such policy, a proper strategy can then be formulated to boost the exports. Also, we must keep
track of present and future competitors and do away with our deficiencies to improve the industry working.
The Table clearly reveals that India is far behind the Asian NICs in competing on the global scale.

India

1. Low production volumes. Fragmented capacities

(mostly uneconomic) with many units selling in the
domestic market, which was protected in the past.
2. Production factories are scattered and are often far
away from components suppliers.
3. Diffusion of latest products and technology has been
sluggish in the past.
4. Backward integration by companies has been
lethargic
5. Weak relationships with components suppliers.
6. Technology imports in bits and pieces, which led to
assembly-oriented units and killed innovation.
7. Low labour cost is still the main advantage. It is,
however outweighed by many other factors including
production scale, finance cost and infrastructure.
8. High selling prices due to low volume of production,
high infrastructure expenses and finance cost.

NICs

1. Large volumes of production. Average operational volume of

companies is nearly 2.5 times of the Indian companies.
2. Manufacturing capacities are well consolidated. Large units
have capacities of international standards.
3. Production often integrated with component manufacturing
facilities. Locations are well planned. Special export zones/
parks offer improved location advantages.
4. Conscious efforts to diffuse latest products and technology.
5. All leading export companies have opted for backward
integration. They, thus, have better control over operations while
ensuring good quality and low costs.
6. Presence of domestic component suppliers is a major factor
for success in exports markets and attracting MNCs.
7. Low labour cost was a major advantage in the early years of
developing the industry.
8. Competitive prices, mainly because of high volume production.

Q. 5. Keeping in view, Indias trade relations with SAARC, do you think it is an important econoimic grouping
for India? Justify your opinion.
Ans. India-SAARC Trade: Indias exports to SAARC are on rise. In the year 1993-94 the export was 897.25$
million and reached to 1722.68$ million in 1995-96. It marginally reduced in the year 1996-97 and again decreased in
1997-98. It slightly increased in 1998-99. But, it was down to 1414.28$ million in the year 1998-2000. The imports have
also seen the same pattern. The value of import was 113.57$ million in 1993-94 and went up to 256.80$ million in 199596. It marginally reduced in 1996-97 and 1997-98 and increased to $465.45 million in 1998-99 to again reduce to $325.60
million in 1999-2000. Indias trade balance with SAARC has been positive. The trade balance was 783.68$ million in
1993-94 and went up to 1465.88$ million in 1995-96. The trade balance reduced to 1088.68$ million in the year 19992000. Table 34.2. shows Indias trade with SAARC.
Indias major items of exports of SAARC include: cotton yarn fabric made ups, transport equipment, non-basmati

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rice, drugs, pharmaceuticals and fine chemicals, machinery and instruments, primary and semi-finished iron and steel,
pulses, manufactures of metals, glass, etc, paper/wood products, spices etc. Indias major items of imports are jute raw,
textiles yarn fabric made ups, inorganic chemicals, fruits and nuts, essential oil and cosmetic preparations, sugar, petroleum crude and products, metal ferrous ores and metal scrap, iron and steel, spices, etc.
Indias Trade with SAARC
Years
Export
Import
Trade Balance
1993-94
897.25
113.57
783.68
1994-95
1215.37
176-80
1038.57
1995-96
1722.68
256.80
1465.88
1996-97
1703.08
241.78
1461.30
1997-98
1612.91
234.58
1378.33
1998-99
1678.79
465.45
1213.34
1999-2000
1414.28
325.60
1088.6834.14
India-SAARC trade prospects
There are a number of industries and areas where substantial scope exists for individual member countries, developing through regional cooperation. This potential has so far remained unexploited due to several factors, among which the
constraints to trade expansion within the region were prominent. A number of studies have pointed to these constraints.
These include.
(a) Restrictive trade policies, including tariff and non-tariff barriers;
(b) Imbalances in trade;
(c) Inadequate transport network;
(d) Inadequate communication and banking facilities;
(e) Resource constraints;
(f) Inadequacy of trade and transit facilities;
(g) Lack of information, business and trade contacts; and
(h) Lack of standardization of trade documentation procedures.
Inadequacy of physical infrastructure such as power supply, telecommunications and transport (roads, railways and
ports) is the major impediment to economic growth in the SAARC region. It would be really very difficult to expand trade
and investment opportunities among the member countries without improving infrastructure facilities. The development
of infrastructure facilities in the member countries could play a very significant role in improving the level of regional
economic cooperation.
Trade relations amongst the SAARC countries are affected largely by high level of tariffs and a variety of non-tariff
barriers including quantitative restrictions and discriminatory practices. One of the main reasons or for low intra-SAARC
trade and the large adverse trade deficit of member countries with India is the existing high levels of tariffs and a variety
of non-tariff barriers, including quantitative restriction and discriminatory practices.
Tariff rates in India, Pakistan and Bangladesh are generally higher as compared to those in Sri Lanka, Nepal, Bhutan
and Maldives. There is some variation across the sectors in terms of average tariff rates, e.g. generally high tariffs on
beverages and tobacco and low tariffs on mineral fuel across all the SAARC countries. Among the widespread non-tariff
barriers in SAARC countries are fiscal taxes, quantitative restrictions, prohibitions and canalisation through State Trading Organizations. Import licencing restrictions are placed on 18 per cent of imports of Bangladesh, India and Sri Lanka
and 40 per cent of imports of Pakistan. While Pakistan and Bangladesh have quota restrictions, India prohibits the import
of some of the products that are of interest to intra-SAARC trade (e.g. consumer goods). Also, in all the four countries,
major bulk imports have been reserved for State Trading Organization. The most important non-tariff barrier to imports in
India has been the system of licencing for the import of goods. This has greatly constrained expansion of trade from the
rest of the world and specifically with member countries of SAARC.
All SAARC countries have now made substantial reduction in tariffs and also modified their tariff structures as part
of the on-going economic policy reforms. These changes were carried out to improve efficiency of domestic industries.
This process in itself would help expansion of intra-regional trade. But the presence of non-tariff barriers in different
forms is still acting as constraint in realizing potential for trade expansion.
Bangladesh has offered 10 per cent tariff preferences in respect of all the products both to non-LDC s and to LDCs.
Bhutan has offered tariff preference ranging from 10-15 per cent. India has offered the highest tariff preference ranging
mostly from 50-100 per cent. Only in case of five products the tariff preference is 10 per cent. In case of Sri Lanka the

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tariff preference ranges from 10-30 per cent. The preferential margin in case of Pakistan varies form 10-15 per cent. The
existing MFN tariff rates in Maldives, Nepal, Sri Lanka and Bangladesh are quite low. Hence a large preferential reduction by India should will bring down the preferential tariff closer to those prevailing in other countries. Pakistan, which
maintains peak tariff rate higher than India, has not offered similar concessions.
The prospects and possibilities of trade expansion at the regional level among SAARC member countries can be
rightly assessed only after analysing the existing structure of trade of the member countries in terms of their commodity
composition. Most of the SAARC countries export similar goods either as primary commodities or in processed form.

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