CHAPTER - 1. QUOTA 1.

1 INTRODUCTION:
A quota direct restriction on the total quantity of a good or service that may be imported during a specified period. is a direct restriction on the total quantity of a good or service that may be imported during a specified period. Quotas restrict total supply and therefore increase the domestic price of the good or service on which they are imposed. Quotas generally specify that an exporting countrys share of a domestic market may not exceed a certain limit. In some cases, quotas are set to raise the domestic price to a particular level. Congress requires the Department of Agriculture, for example, to impose quotas on imported sugar to keep the wholesale price in the United States above 22 cents per pound. The world price is typically less than 10 cents per pound. A quota restricting the quantity of a particular good imported into an economy shifts the supply curve to the left, as in Figure 17.10, The Impact of Protectionist Policies. It raises price and reduces quantity. An important distinction between quotas and tariffs is that quotas do not increase costs to foreign producers; tariffs do. In the short run, a tariff will reduce the profits of foreign exporters of a good or service. A quota, however, raises price but not costs of production and thus may increase profits. Because the quota imposes a limit on quantity, any profits it creates in other countries will not induce the entry of new firms that ordinarily eliminates profits in perfect competition. By definition, entry of new foreign firms to earn the profits available in the United States is blocked by the quota.

1.2 DEFINITION :
A government-imposed trade restriction that limits the number, or in certain cases the value, of goods and services that can be imported or exported during a particular time period. Quotas are used in international trade to help regulate the volume of trade between countries. They are sometimes imposed on specific goods and services to reduce imports, thereby increasing domestic production. In theory, this helps protect domestic production by restricting foreign competition. Quotas are different than tariffs (or customs), which places a tax on imports or exports in and out of a country. Both quotas and tariffs are protective measures imposed by governments to try to control trade between countries. The U.S. Customs and Border Protection Agency, a federal law enforcement agency of the U.S. Department of Homeland Security, is in charge of regulating international trade, collecting customs and enforcing U.S. trade regulations. Smuggling - the illegal transfer of goods into a country is a negative side effect of quotas and tariffs. 1.3 TYPES OF QUOTAS

a) Absolute Quotas
Absolute quotas limit the quantity of certain goods that may enter the commerce of the United States in a specific period, usually a year. When an absolute quota is filled, further entries are prohibited during the remainder of the quota period. Some quotas are worldwide while others are allocated to specific foreign countries. Certain absolute quotas are invariably filled at or shortly after the opening of the quota period. For this reason, an absolute quota is officially opened at a specified time on the first workday of the quota period so that all importers may have an equal opportunity for the simultaneous presentation of entries. If the quantity of quota merchandise covered by entries presented at the opening of the quota period exceeds the quota, the commodity is released on a pro rata basis (i.e., the ratio between the quota quantity and the total quantity offered for entry).

If not filled at the official opening of the quota period, the quota is thereafter administered on a "first-come, first-served" basis, that is, in the order that each entry/entry summary is presented. Imports in excess of a specified quota may be held for the opening of the next quota period by placing it in a foreign trade zone or by entering it into a bonded warehouse, or it may be exported or destroyed under Customs supervision. No importer may offer for entry a quantity in excess of the quota. b) Tariff-Rate Quotas Tariff-rate quotas permit a specified quantity of imported merchandise to be entered at a reduced rate of Customs duty during the quota period. There is no limitation on the amount of the quota product that may be imported into the United States at any time, but quantities entered during the quota period in excess of the quota quantity for that period are charged a higher duty rate. Most of the tariff-rate quotas were proclaimed by the President under agreements negotiated under the Trade Agreements Act. Duties at the reduced rates provided for in the President's proclamation and the HTSUS are assessed on shipments entered under the quota. When the Commissioner of Customs determines that a quota is almost filled, Customs may require the deposit of estimated duties at the over-quota duty rates as of a specified date and to report the time of official acceptance of each entry/entry summary. When an official determination is made of the date and time the quota is filled, Customs field officers are authorized to make the required adjustments in the duty rates on that portion of the merchandise entitled to quota preference. 1.4 Tariff and Quota: Protection to domestic import-competing industries is made either through a tariff or a quota. A tariff has an immediate advantage for governments in that it will automatically generate tariff revenue (assuming the tariff is not prohibitive). Quotas may or may not generate revenue depending on how the quota is administered. If a quota is administered by selling quota tickets (i.e., import rights) then a quota will generate government

revenue, however, if the quota is administered on a first-come, first served basis, or if quota tickets are given away, then no revenue is collected. Tariff collection involves product identification, collection and processing of fees. Quota administration will also involve product identification and some method of keeping track, or counting, the product as it enters the country in multiple ports of entry. Tariffs types include ad valorem, specific, compound and alternative tariffs. The most important distinction between the two policies, however, is the protective effect the policy has on the import competing industries. In one sense, quotas are more protective of the domestic industry because they limit the extent of import competition to a fixed maximum quantity. The quota provides an upper bound to the foreign competition the domestic industries will face. In contrast, tariffs simply raise the price, but do not limit the degree of competition or trade volume to any particular level. In the original GATT, a preference for the application of tariffs rather than quotas was introduced as a guiding principle. Tariffs allowed for more market flexibility and were less protective over time. With a quota in place, it is very difficult to discern the degree to which a market is protected since it can be difficult to measure how far the quota is below the free trade import level. In situations where market changes cause a decrease in imports, a tariff is more protective than a quota. This occurs if domestic demand falls, domestic supply rises, the world price rises, or some combination of these changes occurs. A tariff rate quota (TRQ) combines two policy instruments that nations historically have used to restrict such imports: quotas and tariffs.

CHAPTER 2. IMPORT QUOTA

2.1 INTRODUCTION:
Import quotas are a form of protectionism. An import quota fixes the quantity of a particular good that foreign producers may bring into a country over a specific period, usually a year. The U.S. government imposes quotas to protect domestic industries from foreign competition. Import quotas are usually justified as a means of protecting workers who otherwise might be laid off. They also can raise prices for the consumer by reducing the amount of cheaper, foreign-made goods imported and thus reducing competition for domestic industries of the same goods. The General Agreement on Tariffs and Trade (GATT) (61 Stat. A3, T.I.A.S. No. 1700, 55 U.N.T.S. 187), which was opened for signatures on October 30, 1947, is the principal international multilateral agreement regulating world trade. GATT members were required to sign the Protocol of Provisions Application of the General Agreement on Tariffs and Trades (61 Stat. A2051, T.I.A.S. No. 1700, 55 U.N.T.S. 308). The Protocol of Provisions set forth the rules governing GATT and it also governs import quotas. This agreement became effective January 1, 1948, and the United States is still bound by it. GATT has been renegotiated seven times since its inception; the most recent version became effective July 1, 1995, with 123 signatories. Import quotas once played a much greater role in global trade, but the 1995 renegotiation of GATT has made it increasingly difficult for a country to introduce them. Nations can no longer impose temporary quotas to offset surges in imports from foreign markets. Furthermore, an import quota that is introduced to protect a domestic industry from foreign imports is limited to at least the average import of the same goods over the last three years. In addition, the 1995 GATT agreement identifies the country of an import's origin in order to prevent countries from exporting goods to another nation through a third nation that does not have the same import quotas. GATT also requires that all

import quota trade barriers be converted into tariff equivalents. Therefore, although a nation cannot seek to deter trade by imposing arbitrary import quotas, it may increase the tariffs associated with a particular import. In the United States, the decade from the mid-1980s to the mid-1990s saw import quotas placed on textiles, agricultural products, automobiles, sugar, beef, bananas, and even under-wearamong other things. In a single session of Congress in 1985, more than three hundred protectionist bills were introduced as U.S. industries began voicing concern over foreign competition. Many U.S. companies headquartered in the United States rely on manufacturing facilities outside of the country to produce their goods. Because of import quotas, some of these companies cannot get their own products back into the United States. While such companies lobby Congress to change what they consider to be an unfair practice, their opposition argues that this is the price to be paid for giving away U.S. jobs to foreign countries. Nearly every country restricts imports of foreign goods. For example, in 1996even after the new version of GATT went into effectVietnam restricted the amount of cement, fertilizer, and fuel and the number of automobiles and motorcycles it would import. The import quotas of foreign countries can adversely affect U.S. industries that try to sell their goods abroad. The U.S. economy has suffered because of foreign import quotas on canned fruit, cigarettes, leather, insurance, and computers. In a market that has become overcrowded with U.S. entertainment, the European Communities have chosen to enforce import quotas on U.S.-made films and television in an effort to encourage Europe's own industries to become more competitive.

Import quotas are foreign trade policies undertaken by domestic governments that are intended to "protect" domestic production by restricting foreign competition. In general, a quota is simply a quantity restriction placed on a good, service, or activity. For example, employers often face hiring quotas for different demographic groups and sales representatives often have quotas for sales activities. Import quotas are then merely legal restrictions on the quantities of imports from the foreign sector that are imposed by the domestic government.

The goal of import quotas is to increase the limit the availability of imports in the domestic economy and thus encourage domestic consumers to purchase domestic production. 2.2 MEANING: An import quota is a limit on the quantity of a good that can be produced abroad and sold domestically. It is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. If a quota is put on a good, less of it is imported. Quotas, like other trade restrictions, are used to benefit the producers of a good in a domestic economy at the expense of all consumers of the good in that economy. 2.3 Policy of Import Quotas The impositions of import quotas on foreign imports, as well as other foreign trade policies, are commonly justified for at least five of reasons.

Domestic Employment: Because foreign imports are produced in other countries by foreign workers, decreasing imports and increasing domestic production also increases domestic employment.

Low Foreign Wages: Restricting imports produced by foreign workers who receive lower wages "levels the competitive playing field" compared to domestic goods produced by higher paid domestic workers.

Infant Industry: If foreign imports compete with a relatively young domestic industry that is not mature enough nor large enough to benefit from economies of scale, then import quotas protect the "infant industry" while it matures and develops.

Unfair Trade: The foreign imports might be sold at lower prices in the domestic economy because foreign producers engage in unfair trade practices, such as

"dumping" imports at prices below production cost. Import quotas seek to prevent foreign producers such activity.

National Security: Import quotas can also discourage imports and encourage domestic production of goods that are deemed critical to the security of the national economy.

While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy they tend to be most beneficial, and thus most commonly promoted by, domestic firms facing competition from foreign imports. Domestic firms benefit with higher sales, greater profits, and more income to resource owners. However, by increasing domestic prices and restricting accessing to imports, foreign trade policies also tend to be harmful to domestic consumers. 2.4 TYPES OF IMPORT QUOTA There are five important types of import quotas, including import licensing. a) TARIFF QUOTA: A Tariff quota combines the features of tariff as well as of quota. Under a tariff quota, imports of a commodity up to specified volume are allowed duty free or at a special low rate, but any imports in excess of this limit are subject to duly/ a higher rate of duly. b) UNILATERAL QUOTA: In the case of unilateral quota, a country unilaterally fixes a ceiling on the quantity of import of the commodity concern. c) BILATERAL QUOTA: A bilateral quota results from negotiation between the

importing country and a particular supplier country, or between the importing country and export groups within the supplier country. d) MIXING QUOTA : Under the mixing quota, producers are obliged to utilized an domestic raw material up to a certain proportion in the production of finished products.

e) IMPORT LICENSING : Quota regulation are generally administrated by means of import licensing. Under the import licensing system, prospective importers are obliged to obtain an import license which is necessary to obtain the Foreign exchange to pay for the imports. In a large number of countries, import licensing has become a very powerful device for controlling the quantity of import commodities of aggregate import.

2.5 Goals
The primary goal of import quotas is to reduce imports and increase domestic production of a good, service, or activity, thus "protect" domestic production by restricting foreign competition. As the quantity of importing the good is restricted, the price of the imported good increases thus encourages consumers to purchase more domestic products. In general, a quota is simply a legal quantity restriction placed on a good imported that is imposed by the domestic government.

2.6 Effects
Because the import quota prevents domestic consumers from buying a imported good, the supply of the good is no longer perfectly elastic at the world price. Instead, as long as the price of the good is above the world price, the license holders import as much as they are permitted, and the total supply of the good equals the domestic supply plus the quota amount. The price of the good adjusts to balance supply (domestic plus imported) and demand. The quota causes the price of the good to rise above the world price. The imported quantity demanded falls and the domestic quantity supplied rises. Thus, the import quota reduces the imports. Because the quota raises the domestic price above the world price, domestic sellers are better off, and domestic buyers are worse off. In addition, the license holders are better off because they make a profit from buying at the world price and selling at the higher domestic price. Thus, import quotas decrease consumer surplus while increasing producer surplus and license-holder surplus. While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy they tend to be most beneficial, and thus most commonly promoted 9

by, domestic firms facing competition from foreign imports. Domestic firms benefit with higher sales, greater profits, and more income to resource owners. However, by increasing domestic prices and restricting accessing to imports, foreign trade policies also tend to be harmful to domestic consumers.

2.7 Import quotas vs tariffs :

Both tariffs and import quotas reduce quantity of imports, raise domestic price of good, decrease welfare of domestic consumers, increase welfare of domestic producers, and cause deadweight loss. However, a quota can potentially cause an even larger deadweight loss, depending on the mechanism used to allocate the import licenses. The difference between these tariff and import quota is that tariff raises revenue for the government, whereas import quota generates surplus for firms that get the license to import. For a firm that gets a license to import, profit per unit equals domestic price (at which imported good is sold) minus world price (at which good is bought) (minus any other costs). Total profit equals profit per unit times quantity sold. Government may charge fees for import license. If the government sets the import license fee equal to difference between domestic price and world price, the import quota works exactly like a tariff. The entire profit of the firm with an import license is paid to the government. Thus government revenue is the same under such an import quota and a tariff. Also, consumer surplus and producer surplus are the same under such an import quota and a tariff. So why do countries use import quotas instead of always using a tariff? When an import quota is used, it allows a country to be sure of the amount of the good imported from the foreign country. When there is a tariff, if the supply curve of the foreign country is unknown, the quantity of the good imported may not be predictable. If world supply in the home country is upward-sloping and less elastic than domestic demand (as may be the case when the home country is the United States) then the incidence of the tariff may fall on producers, and the price paid domestically may not rise by much. Then if the tariff is supposed to make price of the good rise to allow domestic producers to sell at a higher price, the tariff may not have much of the desired effect. A

10

quota may do more to raise price. However in competitive markets there is always some tariff that raises the price as high as the quota does.

11

CHAPTER 3. IMPORT QUOTA OF UREA IN INDIA

3.1 UREA IMPORT RULES : The government last week allowed private companies to import urea for preparation of complex fertilizers Used in agriculture. Till now, such companies could only import urea for industrial use, in preparation of chemicals. For agricultural purposes, private companies used to source urea from imports made by government canalising agents, such as Indian Potash Ltd and state trading houses MMTC and STC. Two Indian companies, Coromondal International and Zara Industries, are allowed to import urea for agricultural purposes. Now, these companies can directly import without involving canalizing agents, official sources said. However, the permission is given with a rider that the urea cannot be sold directly in the market. The imported urea is to be used only to make the NPK complex fertilizer, which these companies can then sell. Further, say the rules, strict monitoring will be done for usage of imported urea in manufacturing of the fertilizer. A company does not get a subsidy if its uses indigenously manufactured urea in preparation of complex fertilizers. India produces about 22 million tons (mt) of urea in a year and consumes a little more than 30 mt. In 2010, the government had increased the retail price of urea by 10 per cent to Rs 5,310 per tonne. This is still the current price. Meanwhile, the ministry of chemicals and fertilizers has sought to exempt urea from the proposed Goods and Services Tax (GST), and to remove customs duty on import of plant and machinery for fertilizer projects. A ministry report on the duty structure on fertilizer and its inputs says the government distributes urea much below the cost of import or production. Taxes and duties are levied on the maximum retail price fixed by the government, which covers only 25-40 per cent of the cost. The inputs for urea production are, however, taxed at full cost, 12

resulting in tax incidence on the inputs far in excess of that on the finished fertilizer. Thus, under the proposed GST, the input tax credit will far exceed the tax payable on fertilizer, meaning the input credits will be far more than what could ever be availed on the outputs. This would block large amounts of input tax credit of fertilizer companies with the government on a recurring basis, even if there was provision of periodic cash refund. Currently, there are no provisions for refund of unadjusted credits in GST, except for refunds on exports. Hence, goes the argument, the sector (meaning, urea) should be exempt from GST. Also, it notes, a number of crucial inputs for urea manufacturing like natural gas, electricity generation and petroleum products are out of the GST ambit. Besides, the GST model seeks to exempt the food, health and educational sectors 3.2 PROCEDURE FOR IMPORT OF UREA IN INDIA Presently, urea is the only fertilizer under the statutory price and movement control of the Government of India. Urea is being imported to bridge the gap between its demand and indigenous availability in the country. The procedure for import of urea by the Department has three components: a) Assessment of import requirement: The requirement of urea imports is assessed by GOI in relation to the estimated demand, indigenous production, availability of stocks and pipeline requirement. b) Contracting of Imports Based on the estimates of imports, designated canalising agents are authorised by the Department of Fertilizers (DOF) to arrange for the imports.

13

Procurement of Urea - Canalising agencies At present, there are three agencies, which are designated by GOI to canalize the import on its behalf.

The agencies are: MMTC Ltd. Indian Potash Limited (IPL) State Trading Corporation (STC)

Based on GOIs estimates of the urea import requirement, DOF authorises the canalizing agencies to contract and deliver specified quantities of urea in different months/quarters of the year; these authorizations are issued sufficiently in advance of the requirement. c) Tendering: The canalizing agencies may suitably combine open global tenders with limited tendering looking to the exigency of requirement. In limited tendering, preference will be in favour of producers and accredited suppliers only. Long term contracting with producers is permitted with a view to ensure security of supplies at the internationally competitive prices most advantageous to the country. Imports are made only with the approval of the Board of Directors or the SalePurchase Committee (SPC) constituted by the Board. No single individual is permitted to take decisions relating to purchases, payments etc. As per the Govt. policy guidelines on Ocean Transportation, imports are to be contracted only on FOB basis. In cases wherein contracting on C&F basis is being cheaper, waiver from Transchart in accordance with the Government policy on Ocean Transportation is a pre-condition.

14

I) Payment by canalizing agencies: All payments are to be made against Letter of Credit (L/C), which shall normally not be transferable, divisible or assignable. However, transferable L/Cs can also be opened in special circumstances with the express approval of the Board or Sales Purchase Committee. L/C shall be opened after receipt of the Performance Guarantee and a copy of the signed contract. The Performance Guarantee will NOT be released till all claims have been settled by suppliers. Those suppliers who have not settled claims for the last one year, shall render themselves to be placed on holiday till such time as the outstanding disputes are resolved. a) Choice of Suppliers: In procurement of urea, the reputed international producers and accredited suppliers of urea enjoy preference in respect of bid bond and performance bond conditions vis--vis new suppliers. These are laid down as under : Category of Suppliers Category I Producers as per IFA publication 'Survey of urea capacities,1995' or Any updated edition of the same Category II Accredited suppliers (who have successfully supplied to India for atleast two years in the last 5 years) Performance Bid Bond Bond (As % Credit Rating (In $ Of Contract Required PMT) Value) Bank Reference Required

Nil

1%

No

No

US $3

3%

No

No

15

Category III All others not falling under Categories I & II US $10 10%

1.Standard &Poor 2. Moody's or 3. Dun & Bradstreet

Yes

Release of payments to the canalising agencies: The cost of the cargo against the specified contract is released to the canalising agencies in two stages: a) First stage: Advance payment of 98% of the cost of cargo within10 working days after the receipt of the bill from the canalising agency. b) Second stage: Balance 2% payment along with the bank/ service charges, load port inspection charges etc. are released on the basis of the expenditure sanction issued by the Department. The supporting documents required for processing 98% advance and balance 2% payment are detailed at Part I of Annexure A. Payment of ocean freight including dispatch / demurrage with vessel owner and settlement with handling agencies: The ocean freight is payable in two stages: a) First stage: Advance 90% of the ocean freight is paid within 7 working days of the sailing of the vessel if it is less than 15 years of age. In case the vessel is over 15 years of age, it is made after safe arrival at the discharge port. b) Second stage: Balance 10% freight with demurrage (if any), or less dispatch (if any), is payable to charterers within 120 days of completion of discharge. The documents required for processing the Ocean freight payment are detailed at Part II, of Annexure A.

16

The total brokerage commission due to Indian broker under the Charter Party Agreement is deducted from the first stage payment and is paid to the broker direct in Indian rupees converted at the exchange rate prevailing at that time. However, brokerage commission on demurrage, if any, is deducted from the second stage payment to the vessel owner and is paid to the broker at the time of release of balance freight.

The Settlement of dispatch / demurrage with ship owner is done by DOF on the basis of the lay time calculations given the Transchart at the time of settlement of 10% balance freight.

The Settlement of dispatch/ demurrage with the Handling agency is made on the advice of shipping cell in DOF and after seeking necessary approval.

The demurrage on vessels on account of pre-berthing detention and detention before commencement of the discharge at the ports is borne by the DOF.

3.3 Fertilizer Policy For sustained agricultural growth and to promote balanced nutrient application, it is imperative that fertilizers are made available to farmers at affordable prices. With this objective, urea being the only controlled fertilizer, is sold at statutory notified uniform sale price, and decontrolled Phosphate and Potassic fertilizes are sold at indicative maximum retail prices (MRPs). The problems faced by the manufactures in earning a reasonable return on their investment with reference to controlled prices, are mitigated by providing support under the New Pricing Scheme for Urea units and the concession Scheme for decontrolled Phosphate and Potassic fertilizers. The statutorily notified sale price and indicative MRP is generally less than the cost of production of the irrespective manufacturing unit. The difference between the cost of production and the selling price/MRP is paid as subsidy/concession to manufacturers. As the consumer prices of both indigenous and imported fertilizers are fixed uniformly, financial support is also given on imported urea and decontrolled Phosphatic and Potassic fertilizers.

17

Urea Pricing Policy: Until 31.3.2003, the subsidy to urea manufacturers was being regulated in terms of the provisions of the erstwhile Retention Price Scheme (RPS). Under RPS, the difference between retention price (cost of production as assessed by the Government plus 12% post tax return on net worth) and the statutorily notified sale price was paid as subsidy to each urea unit. The expenditure Reforms Commission (ERC), headed by Shri K.P. Geethakrishnan, had also examined the issue of renationalizing fertilizer subsidies. In its report submitted on 20th September, 2000, the ERC recommended, inter-alia, dismantling of existing RPS and in its place the introduction of a Concession Scheme for urea units based on feedstock used and the vintage of plants. New Pricing Scheme (NPS) for urea was introduced w.e.f. 1st April, 2003. The Stage- I of NPS was of one year duration from 1 April, 2003 to 31st March, 2004 and Stage-II was of two year duration from 1st April to 31st March, 2006. With the Stage-III of NPS being implemented w.e.f. 1st October, 2006, the Stage-II of NPS stands extended upto 31st September,2006. Amendments to New Pricing Scheme Stage - III for Urea Units.

Following amendments in NPS III have been made It has been decided that the reduction in the fixed cost of each Urea units strictly due to Group Averaging principle under the New Pricing Scheme III will be restricted to 10% of the Normated Fixed Cost computed under the base concession rates. The limitation on reduction of fixed cost will be applicable w.e.f 1st April, 2009. Capacity utilization of Post 1992 Naphtha based Group Average will be considered as 95% instead of 98% for calculating the base concession rates of urea units provided no cost towards conversion is recognized under NPS III. The approved amendments will help the indigenous urea units reduce their losses due to the group averaging under New Pricing Scheme Stage - III and help them to generate resources for reinvestment in their plants towards modernization and increased efficiency. To maintain stocks of urea in case there is either a shortfall in production due to disruption in supplies of feed-stocks or delay/ disruption in imports and to tide over the sudden spurt in demand/shortages, a buffer stocking scheme for urea is under

18

implementation in major States. The companies are reimbursed buffer stocking expenses on following parameters. The company operating the buffer stock will be entitled to Inventory Carrying Cost (ICC) at a rate 1 percentage point less than the PLR of SBI as notified from time to time. This rate would be applicable at4650 per MT (MRP less than the dealers margin i.e.4830-180) for the quantity and the duration for which the stock is carried as buffer. In case of cooperatives, it will be at4630 per MT as dealers margin in this case is200 per MT.

The company will be paid warehousing and insurance charges at the rate of23 per tonne per month on the quantity carried as buffer. Since the material will be moved in two stages i.e. from the plant to the buffer stocking point and then on to consumption points, additional handling charges at the rate of30 per MT will be paid to the Fertilizer Company on the quantity sold from the buffer stock. In addition, freight from the buffer stocking warehouse to the block in case of movement outside the district in which buffer stocking go-down is located, will also be paid to the company, in accordance with the provisions under the Uniform policy for freight subsidy announced by the Government with effect from 1st April, 2008.

Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme

A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri, Member, Planning Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable recommendations. Concession scheme/nutrient based subsidy policy for decontrolled phosphatic & potassic fertilizers Government of India decontrolled Phosphatic and Potassic (P&K) fertilizers with effect from 25th August 1992 on the recommendations of Joint Parliamentary Committee. Consequent upon the decontrol, the prices of the Phosphatic & Potassic fertilizers registered a sharp increase in the market, which exercised an adverse impact on the demand and consumption of the same. It led to an imbalance in the usage of the nutrients

19

of N, P & K (Nitrogen, Phosphate and Potash) and the productivity of the soil. Keeping in view the adverse impact of the decontrol of the P&K fertilizers, Department of Agriculture & Cooperation introduced Concession Scheme for decontrolled Phosphatic & Potassic (P&K) fertilizers on ad-hoc basis w.e.f. 1.10.1992, which has been allowed to continue by the Government of India upto 31.3.2010 with changed parameters from time to time. Then the Government introduced Nutrient Based Subsidy Policy w.e.f. 1.4.2010 (w.e.f. 1.5.2010 for SSP) in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers. The basic purpose of the Concession Scheme and Nutrient Based Subsidy Policy has been to provide fertilizers to the farmers at the subsidized prices. Initially, the ad-hoc Concession Scheme was introduced for subsidy on DAP, MOP, NPK Complex fertilizers. This scheme was also extended to SSP from 1993-94. Concession was disbursed to the manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on the grants provided by Department of Agriculture & Cooperation. Subsequently, DAC started releasing payment of concession to the fertilizer companies based on the certificate of sales issued by the State Governments on 100% basis. The Government introduced the system of releasing 80% 'On Account' payment of concession in 1997-98 to the fertilizer companies month-wise, which was finally settled based on the certificate of sales issued by the State Government. During 1997-98, Department of Agriculture & Cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP. The responsibility of indicating MRP in respect of SSP rested with the State Governments. The Special Freight Subsidy Reimbursement Scheme was also introduced in 1997 for supply of fertilizers in the difficult areas of J&K and North-eastern States, which continued upto 31.3.2008. Based on the cost price study of DAP and MOP conducted by Bureau of Industrial Costs & Prices (BICP - now called Tariff Commission), Department of Agriculture & Cooperation started announcing rates of concession based on the cost plus approach on quarterly basis w.e.f. 1.4.1999. The total delivered cost of fertilizers being invariably higher than the MRP indicated by the Government, the difference in the delivered price of fertilizers at the farm gate and the MRP was compensated by the Government as subsidy to the manufacturers/importers for

20

selling the fertilizers at the MRP indicated by the Government. The administration of the scheme was transferred from Department of Agriculture & Cooperation to Department of Fertilizers w.e.f. 1.10.2000. The Government introduced a new methodology for working out subsidy to complex fertilizers w.e.f. 1.4.2002 based on the recommendations of the Tariff Commission. The complex manufacturers were divided into groups based on feedstock for sourcing Nitrogen, such as gas, naphtha, imported ammonia. With the passage of time, the structure of DAP industry also changed as some of the new DAP manufacturing plants were established using the Rock Phosphate for manufacturing indigenous Phosphoric acid/DAP. Accordingly, the Tariff Commission made a fresh Cost Price Study and submitted its report in February 2003. Payment of concession to the DAP manufacturing units from 2003-04 to 2007-08 was made as per two groups depending upon the source of the raw materials (Rock Phosphate/ Phosphoric acid). Based on the decisions of the Government in 2004-05, Department of Fertilizers framed a proposal suggesting methodology to link phosphoric acid price with international DAP price. Subsequently, the matter was referred to the Expert Group. The Expert Group under Prof. Abhijit Sen, submitted its report in October 2005. The recommendations of the Expert Group were considered by an Inter-Ministerial Group (IMG). Tariff Commission conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. Based on the examination of the Tariff Commission Report and the longterm approach suggested by the Expert Group under the Chairmanship of Prof. Abhijit Sen, the Government approved the Concession Scheme with effect from 1.4.2008 for DAP/MOP/NPK Complexes/ MAP, which continued upto 31.3.2010 with certain modifications. The final rates of concession were worked out on monthly basis. Concession for indigenous DAP was the same as that of imported DAP (on the basis of import parity price). Concession on complex fertilizers was based on the methodology recommended by Tariff Commission with certain modifications. The NPK complex industry was divided into 4 groups, depending upon the source of Nitrogen, vis--vis, gas, naphtha, imported Urea-ammonia mixture and imported Ammonia. A separate cost of 'S' for Sulphur containing complex fertilizers was recognized w.e.f. 1.4.2008. The

21

input/fertilizer prices for Concession Scheme was derived on the basis of an outlier methodology. The Buffer Stocking Scheme was allowed to continue with 3.5 Lakh MTs for DAP and 1 Lakh MTs for MOP as buffer. Modifications in certain elements of the Concession Scheme were also carried out with effect from 1.4.2009 to adjust parameters of concession scheme to International pricing dynamics and rationalize 'N' pricing groupwise as well as payment system. Certain changes were effected in the existing policy for P &K Fertilizers. Accordingly, w.e.f. 1.4.2009 final rates of concession were worked out on monthly basis, taking into account the average international price of the month preceding the last month or the actual weighted average C&F landed price at the Indian ports for the current month, whichever lower with respect to DAP and MOP. In case of raw materials/ inputs for complex fertilizers, there was a lag of one month. From 1.12.2008, payment of concession has been made to the manufacturers/importers of the Decontrolled fertilizers (except SSP) on the basis of arrival/ receipt of fertilizers and certificate of receipt by the State Government/statutory auditor of the company subject to final settlement on the basis of sale of the quantity. The MRPs of the P&K fertilizers, which has been indicated by the Government/State Government, has been constant since 2002 till 31.3.2010. The MRPs of the NPK complexes were reduced w.e.f. 18.6.2008. In order to enhance the basket of fertilizers in the Concession Scheme, Mono- Ammonium Phosphate (MAP) was included into the Concession Scheme w.e.f. 1.4.2007, Triple Super Phosphate (TSP) was inducted into the Concession Scheme w.e.f. 1.4.2008 and Ammonium Sulphate (AS) manufactured by M/s FACT and M/s GSFC was inducted w.e.f. 1.7.2008. The rates of concession during 200910 under the Concession Scheme for decontrolled P & K fertilizers (except SSP) were as per Annexure-X. (A) Nutrient Based Subsidy Policy for decontrolled Phosphatic & Potassic fertilizers In the implementation of Concession Scheme, it has been experienced that no investment has taken place in last decade. The subsidy outgo increased exponentially by 530% during 2004 to 2009 with about 90% of the increase due to rise in the international prices of fertilizers and inputs. Agricultural productivity did not register increase in commensurate with the increase in the subsidy bill. The MRP of the fertilizers remained

22

constant from 2002 onwards. A Group of Ministers (GoM) constituted to look into all aspects of the fertilizer regime, recommended that Nutrient Based Subsidy (NBS) may be introduced based on the contents of the nutrients in the subsidized fertilizers. The Hon'ble Finance Minister in its Budget Speech 2009 announced for introduction of Nutrient Based Subsidy Policy for Phosphatic & Potassic fertilizers with the objective of ensuring Nation's food security, improving agricultural productivity and ensuring the balanced application of fertilizers. The Government introduced the Nutrient Based Subsidy (NBS) Policy w.e.f. 1.4.2010 in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers (w.e.f. 1.5.2010 for SSP). The details of Nutrient Based Subsidy Policy are as under:

NBS is applicable for Di Ammonium Phosphate (DAP, 18-46-0), Muriate of Potash (MOP), Mono Ammonium Phosphate (MAP, 11-52-0), Triple Super Phosphate (TSP, 0-46-0), 12 grades of complex fertilizers and Ammonium Sulphate (AS - (Caprolactum grade by GSFC and FACT), which were covered under the earlier Concession Scheme for Phosphatic and Potassic (P&K) fertilizers up to 31st March 2010 and Single Super Phosphate (SSP). Primary nutrients, namely Nitrogen 'N', Phosphate 'P' and Potash 'K' and nutrient Sulphur 'S' contained in the fertilizers mentioned above are eligible for NBS. Any variant of the fertilizers mentioned above with secondary and micro-nutrients (except Sulphur 'S'), as provided for under FCO, is also eligible for subsidy. The secondary and micro-nutrients (except 'S') in such fertilizers attracts a separate per tonne subsidy to encourage their application along with primary nutrients. An Inter-Ministerial Committee (IMC) has been constituted with Secretary (Fertilizers) as Chairperson and Joint Secretary level representatives of Department of Agriculture & Cooperation (DAC), Department of Expenditure (DOE), Planning Commission and Department of Agricultural Research and Education (DARE). This Committee recommends per nutrient subsidy for 'N', 'P', 'K' and 'S' before the start of the financial year for decision by the Government (Department of Fertilizers). The IMC also recommends a per tonne additional subsidy on fortified subsidized fertilizers carrying secondary (other than 'S') and micro-nutrients. The Committee considers and recommends inclusion of new

23

fertilizers under the subsidy regime based on application of manufacturers/ importers and its need appraisal by the Indian Council for Agricultural Research (ICAR), for decision by the Government.

NBS to be paid annually on each nutrient namely, 'N', 'P', 'K' and 'S' has been decided by the Government for 2010-11 on recommendation of IMC. For 201011, per kg NBS and per tonne NBS for each subsidized fertilizer w.e.f 1st April 2010 has been announced. Distribution and movement of fertilizers along with import of finished fertilizers, fertilizer inputs and production by indigenous units continues to be monitored through the online web based "Fertilizer Monitoring System (FMS)" as being done under the outgoing Concession Scheme for P&K fertilizers. 20% of the price decontrolled fertilizers produced/imported in India is now in the movement control under the Essential Commodities Act 1955 (ECA). Department of Fertilizers will regulate the movement of these fertilizers to bridge the supplies in under-served areas. In addition to NBS, freight for the movement and distribution of the decontrolled fertilizers by rail and road is being provided to enable wider availability of fertilizers in the country. Import of all the subsidized P&K fertilizers, including 13 grades of complex fertilizers has been placed under Open General License (OGL). Earlier, no concession was available for imported complex fertilizers. Now, NBS is available for imported complex fertilizers also. However, subsidy will not be applicable on imported Ammonium Sulphate (AS), as NBS is applicable only to Ammonium Sulphate produced by FACT and GSFC, both Public Sector entities. Import of Urea is canalized during the first phase of NBS Policy and Urea continues under Government control. MRP of Urea has been increased by 10% w.e.f. 1.4.2010 and is ' 5310 PMT. Though the market price of subsidized fertilizers, except Urea is determined based on demand-supply balance, the fertilizer companies are required to print Maximum Retail Price (MRP) along with applicable subsidy on the fertilizer bags clearly. Any sale above the printed net MRP is punishable under the EC Act.

24

Manufacturers of customized fertilizers and mixture fertilizers are eligible to source subsidized fertilizers from the manufacturers/ importers after their receipt in the districts as inputs for manufacturing customized fertilizers and mixture fertilizers for agricultural purpose. There is no separate subsidy on sale of customized fertilizers and mixture fertilizers. A separate additional subsidy is provided to the indigenous manufacturers producing complex fertilizers using Naphtha based captive Ammonia to compensate for the higher cost of production of 'N'. However, this will be for a maximum period of two years during which the units will have to convert to gas or use imported Ammonia. The quantum of additional subsidy will be finalized by Department of Fertilizers in consultation with DOE, based on study and recommendations by the Tariff Commission. The NBS is being released through the industry during the first phase. The payment of NBS to the manufacturers/ importers of DAP/MOP/Complex Fertilizers/ MAP/TSP, SSP and AS is released as per the procedure notified by the Department

3.4 Handling of Imported Urea by Handling Agencies at Indian Ports a) Handling of Imports: On arrival of vessels at the nominated Indian ports, urea imports are handled by agencies appointed by GOI every year on contract. The handling agencies are also responsible for undertaking the distribution in accordance with the allocations made for each crop season under the Essential Commodities Act (ECA), 1955 by the Department of Agriculture and Cooperation (DAC) and the movement orders issued individually in the case of each shipment by DOF. Prequalification of the handling agencies is made by the DOF as per the procedure outlined at Part I, of Annexure B. The prequalification is for a period of three years.

25

Currently, there are 22 pre-qualified agencies whose details are at Part II, in Annexure B. The DOF invites tenders from pre-qualified handling agents for the handling of urea vessels at the ports, bagging, standardisation, transportation, distribution and marketing of imported urea in the various States/UTs within the country on an annual basis. b) Inland Transportation & Delivery of Imported Urea This is payable in two stages: 75% inland freight is adjusted by the handling agency at the time of establishment of the irrevocable LC. (The detailed procedure for establishment of Letter of Credit towards the cost of Cargo is at Annexure C. The balance 25% of the inland freight is reimbursed on submission of Debit Note by handling agents after completing the actual movement of the cargo. Miscellaneous expenses reimbursable to the handling agencies The expenses reimbursed on actuals by the DOF to the handling agencies as per the Handling & Distribution Contract are : (I) Cargo related berth hire charges, priority ousting priority berthing charges, as payable by the charterers/consignees on their agents. (ii) Turnover tax. (iii) Additional ICC on stock-flow basis for the quantities handled during the financial year but which were not covered by the ECA allocation or remained unsold. 26

o Annexure A Part I I. The supporting documents required for processing of payment to canalizing agencie 98% advance payment: a) Copy of contract b) A certificate from the bank in support of the opening of the Letter of Credit by the canalising agency in favour of the foreign supplier; c) Certificate from banker that no credit facility has been availed against the L/C; d) Confirmation of the fixture of the vessel, quantity loaded and lay days of the vessel at the load port. Balance 2% payment: a) Bank advice for full payment to foreign supplier in US$ with relevant exchange rate b) Copy of B/L invoice c) Suppliers invoice d) Certificate of origin and e) Pre-shipment inspection report f) Storage plan

27

It is mandatory for the canalising agency to submit the balance 2% bill within 30 days from the date of drawls of 98% advance payment failing which canalising agency is liable to pay interest at the commercial rate of interest from the 31st day till the date of submission of the certificates. Part II II. The documents required for ocean freight payment Advance 90% freight payment: a) Transchart Authorisation confirming date and time of arrival of vessel. b) Copy of bill of lading c) Copy of Debit Note d) Copy of important provision of C/P Agreement e) Sailing advice f) Copy of purchase contract. Balance 10% freight: I) Transchart authorization ii) Copy of debit note iii) Copy of bill of lading

28

iv) Charter party agreement v) Statement of facts at load port vi) Notice of readiness vii) Port trust authorization certificate viii) Exchange control copy of bill of entry ix) Time sheets. The owners are to confirm the receipt of funds within 10 days from the remittance of initial and final payments. o Annexure B Procedure for Prequalification of Handling Agencies Part I Agencies are pre-qualified by the DOF on the basis of response to national advertisement for a period of 3 years. The criteria for pre-qualification as it is in force currently are : i) The bidder should have experience of handling 1 lakh MTs of imported bulk urea in any of the Indian ports during any of the preceding five calendar years. ii) It should have experience of transporting and marketing mass consumption articles of the value of at leat Rs. 50 crores in a year. iii) It should have a sound financial background and should be able to organise credit facilities of at least Rs.25 crores with any of the scheduled Indian banks. It would be an

29

added qualification if the average credit facilities availed of during the last three years is not less than Rs.25 crores. The supporting documents which are required to be furnished alongwith the application for pre-qualification are documentary evidence of the bulk cargo handled during last 5 years, marketing of mass consumption goods, copies of the sales tax assessment orders and audited accounts for the last three years, bank solvency certificate for minimum Rs.25 crores, evidence of cash credit limits extended, income tax assessment orders and list of clients to verify the authenticity. Part II List of pre-qualified handling agencies for 1998-2001: Public Sector 1. Fertilizers & Chemicals Travancore Ltd. 2. Hindustan Fertilizer Corpn. Ltd. 3. Madras Fertilizers Ltd. 4. Rashtriya Chemicals & Fertilizers Ltd. 5. Pyrites, Phosphates & Chemicals Ltd. 6. Paradeep Phosphates Ltd. Cooperative Societies 1. Indian Farmers Fertilizers Cooperative Ltd.

30

State Govt. Company 1. Godavari Fertilizers & Chemicals Ltd. Private Sector 1. M/s Indian Potash Ltd. 2. Indo Gulf Fertilizers & Chemicals Corpn. 3. Chambal Fertilizers & Chemicals Ltd. 4. Mangalore Chemicals & Fertilizers Ltd. 5. Shriram Fertilizers & Chemicals Ltd. 6. Southern Petrochemicals Inds. Corpn. Ltd. 7. Deepak Fertilizer & Petro Chemicals Corpn. Ltd. 8. Zuari Agro Chemicals Ltd. 9. EID Parry (I) Ltd. 10. Coromandal Fertilizers Ltd. 11. Nagarjuna Fertilizers & Chemicals Ltd. 12. Duncan Industries Ltd. 13. Gujrat State Fertilizers & Chemicals Ltd.

31

14. Gujrat Narmada Valley Fertilizers Co. Ltd. o Annexure C Procedure for establishment of Letter of Credit

LC is established by the handling agency after deducting lump sum charges quoted for handling port charges, ICC for 2 months and 75% of the inland freight charges based on movement plan besides port dues from the total amount worked out on the cargo carried by the vessel in accordance with the B/L quantity. This is computed at the pool issue price of urea prevalent on that date. The handling agencies are required to handle imported fertilizers on the basis of ownership of the material. The ownership is transferred to the handling agency while the vessel is on high seas. The handling agent is required to establish an irrevocable Letter of Credit (valid for 3 months) for the B/L quantity through a scheduled bank at New Delhi in favour of the DOF within 3 working days from the date of issue of Movement Order or a maximum of 10 days from the date of issue of nomination cable of the vessel, whichever is earlier. In the event of handling agency fails to comply with it, DOF will levy liquidated damages (LD) @ Rs.25,000/- per day. The delay beyond the commencement of discharge is charged at penal rate of interest. The LC is encased on the 30th day from the date of completion of discharge of the vessel except where the Joint Draught Survey Report indicates a difference of more than +/- 1% over the quantity shown in the Bill of Lading. For the difference exceeding 1% B/L quantity, the handling agencies are required to furnish the equivalent value of quantity received in excess at the pool issue price. The DSR/Port outturn report is required to be submitted invariably to the DOF by the handling agent, along with the Statement of Facts (SOF) and time sheet within 30 days after completion of discharge of the vessel.

32

3.5 What are the Economic Effects of Import Quotas? a) The Price Effect: Import quotas, by limiting physical quantities, tend to raise the prices of commodities to which they apply. While this is generally, true also of a tariff, there is one important difference in the impact of quotas. Mostly, the rise in price caused by a tariff is limited to the amount of the duty imposed, less any decrease in price abroad. Thus, the range of the price change due to tariff can well be circumscribed. In contrast, a quota can raise price to any extent, since it places an absolute limit upon the volume of imports and leaves price determination in the domestic market to the interaction of supply and demand force. The price effect of quotas is, thus, related to: (i) the restrictiveness of the quota, i.e., the degree to which the supply of imported commodity is restricted; (ii) the degree of elatisticity of domestic and foreign supply of the commodity; and (iii) the nature of the demand, i.e., the intensity or elasticity of demand for the commodity in the importing country. Hence, the price change due to quotas is far less predictable. The effect of an import quota upon the price of commodity may be illustrated diagrammatically as in. In, DD is the domestic demand curve. Under free trade, the equilibirum price settles at PM (or OP ), the quantity traded being OM. If the importing country imports a fixed quota to the amount OM1, then the relevant import supply schedule assumes the form IQS1 Thus, the QS1 segment of the import supply curve implies that supply in excess of the quota limit is perfectly inelastic, the new equilibrium price is set at P1M1 (or OP1). Thus, it is obvious that, the extent of the price rise will be different under different conditions of demand and supply.

33

b) The Terms of Trade Effect : As a result of the fixing of import quotas, the terms of trade of a country change. The new terms of trade may be either more or less favourable to the country importing the quota. The terms of trade are generally improved by a quota, to the extent that the foreign offer curve is elastic. If the foreign exporters of the commodity are well-organised and the offer curve is less elastic, the terms of trade may move against the country imposing quota. But, if the foreign offer curve is more elastic, the terms of trade may move favourably to the country imposing the quota. To illustrate the point, we may follow Kindleberger, in drawing. In, OE is the curve of England, exporting cloth. OP is the offer curve of Portugal, exporting wine. Under free trade, OA represents the terms of trade. Now, if we assume that England limits her imports of Portuguese wine to OB, the terms of trade would change. The new terms of trade between English cloth and Portuguese wine may be OA or OA or any price in between, depending upon the degree of elasticity of the offer curve of Portuguese wine. Obviously, OA is favourable to England while OA terms of trade are unfavourable to it. c) The Balance of Payments Effect : It has been argued that import quotas can also serve as a useful means for safeguarding the balance of trade. By restricting imports, quotas seek to eliminate deficit and influence the balance of payments situation favourably. Further, it is usually assumed that administrative reduction of imports, through import quotas, would be a less harmful measure for correcting disequilibrium in the balance of payments than such microeconomic measures like deflation or devaluation. Moreover, there is a greater expansive income effect of quotas, considered important for underdeveloped countries which usually suffer from balance of payment difficulties resulting from domestic inflation. Due to import quotas, the marginal propensity to

34

import becomes zero after the quota limit is reached, which thus, reduces leakages and increase the value of income multipliers in the country. d) Other Miscellaneous Effects : Another important effect of quotas is that they have a protective effect. By limiting imports to a fixed amount, irrespective of supply and demand conditions or prices in the domestic or foreign markets, import quotas may tend to be absolutely protective. They stimulate home production. Further, import quotas raise domestic prices, causing reduction in overall consumption. This is the consumption effect of quotas. They tend to discourage consumption of imported goods as also domestic consumption of goods involving foreign raw materials, since the prices of these goods rise due to the artificial scarcity created by import restriction. Another effect of quota is found to be the redistribution effect. When prices rise, there is redistribution of income from consumers to producers. The domestic producers' receipts increase when prices of goods rise and the consumers' surplus in these goods decreases. Hence, there is a redistribution effect. All these effects, viz., protective, consumption and redistribution effects, can be depicted in a partial equilibrium diagram originated by Kind leberger. In, OP3 is the equilibrium price, equating domestic demand (DD) and is supply (SS) in a closed economy. If, however, the country imports and we assume that OP1 is the price settled, then OM4 demand is satisfied by OM1 domestic supply and M1M4 import of goods. If we assume that the foreign supply of imports is perfectly elastic, and an import quota is fixed upto M2M3 the foreign offer price remains unaffected but the home price of the commodity would rise from OP1 to OP2 assuming it to be equal to a tariff imposition of P1P2.. This rise in price (P1P2) is the price effect of quota (same as tariff)

35

which stimulates domestic production of the commodity to increase from OM1 to OM2. Thus, M1M2 is the protective effect. However, it reduces home consumption from OM4 to OM3 Thus, MM2 reduction is the consumption effect. Further, the domestic producers' receipts increase by the area P1 ea P2 which is derived by subtraction from consumers' surplus. Thus, P1 ea P2 is the redistribution effect. When the domestic demand and supply curves of a commodity are not particularly inelastic, these effects of an import quota are similar to tariff effects. Hence, under such a situation, it makes no difference whether a country imposes a tariff or a quota. Thus., in the above diagram, instead of import quota M2MV if a tariff of P1P2 per unit were imposed on imports, the effects would be the same. There is, however, one significant distinction between a tariff and a quota in regard to revenue effect. To see the revenue effect of tariff we have to multiply the quantity imported by the duty imposed per unit. Thus, in the above diagram, the area abed would be collected as governmental revenue in the importing country (for import duty (PlP2) x import quantity (M2M3) is equal to abed). This is the revenue effect. Now, instead of tariff, if a quota M2M3 is imposed, the prices of imports rise to OP2. Obviously then it is the importer who gets this high domestic price for the commodity and enjoys extra profit; the government does not get any revenue, except what may be received by way of licence fee, for issuing the import licence. However, there is one possbility; the government, by auctioning off import licences, can obtain this extra price and profit as its revenue. In such a case, quota becomes equal to tariff in revenue effect also. But usually auction of import licences is not widely used. Importers, therefore, benefit most under quota system and the government under tariffs.

36

3.6 ) Department of Commerce Import:: Region-wise

Dated: 12/10/2012 Values in Rs. Lacs
S.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Region EU Countries European Free Trade Associatipn (EFTA) Other European Countries Southern African Customs Union (SACU) Other South African Countries West Africa Central Africa East Africa North Africa North America Latin America East Asia (Oceania) ASEAN West Asia- GCC Other West Asia NE Asia South Asia CARs Countries Other CIS Countries Unspecified India's Total Import 2010-2011 %Share 2011-2012 %Share %Growth 38.17 36.04 31.25 44.63 38.58 48.28 18.96 -1.35 33.48 35.74 29.67 44.23 45.57 41.15 60.57 36.35 26.15 37.90 56.95 -72.24 39.32 20,277,858.17 12.0453 11,710,036.77 397,773.53 3,332,619.55 2,393,877.82 5,850,465.63 20,738.87 263,464.81 2,684,391.39 10,587,063.45 5,930,700.37 5,307,109.82 13,943,932.60 6.9559 0.2363 1.9796 1.4220 3.4752 0.0123 0.1565 1.5946 6.2888 3.5229 3.1525 8.2829 28,018,188.98 11.9457 15,930,490.16 522,089.15 4,820,016.08 3,317,538.61 8,675,167.92 24,670.27 259,907.63 3,583,065.11 14,371,341.45 7,690,336.91 7,654,490.62 20,297,531.59 6.7920 0.2226 2.0550 1.4144 3.6987 0.0105 0.1108 1.5277 6.1273 3.2788 3.2635 8.6540

34,109,397.73 20.2614 11,292,108.45 6.7077

48,146,460.19 20.5275 18,131,326.02 7.7304

34,663,157.46 20.5903 988,783.92 87,928.11 2,493,216.50 2,012,070.63 168,346,695.57 0.5873 0.0522 1.4810 1.1952

47,263,385.72 20.1510 1,247,351.38 121,250.29 3,913,101.34 558,615.00 234,546,324.45 0.5318 0.0517 1.6684 0.2382

3.7 Imports of goods and services (% of GDP) in India The Imports of goods and services (% of GDP) in India was last reported at 29.85 in 2011, according to a World Bank report published in 2012. Imports of goods and services represent the value of all goods and other market services received from the rest of the

37

world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments. This page includes a historical data chart, news and forecasts for Imports of goods and services (% of GDP) in India. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points.

38

CHAPTER 4. FINDING & CONCLUSION 4.1 CONCLUSION : A tariff on imports is the most commonly used trade policy tool. In this chapter, we have studied the effect of tariffs on consumers and producers in both Importing and exporting countries. We have looked at several different cases. First, we assumed that the importing country is so small that it does not affect the world price of the imported good. In that case, the price faced by consumers and producers in the importing country will rise by the full amount of the tariff. With a rise in the consumer price, there is a drop in consumer Surplus; and with a rise in the producer price, there is a gain in producer surplus. In addition, the government collects revenue from the tariff. When we add together all these effectsthe drop in consumer surplus, gain in producer surplus, and government revenue collectedwe still get a net loss for the Importing country. We have referred to that loss as the deadweight loss resulting from the tariff. The fact that a small importing country always has a net loss from a tariff explains why most economists oppose the use of tariffs. Still, this result leaves open the question of why tariffs are used. One reason that tariffs are used, despite their deadweight loss, is that they are an easy way for governments to raise revenue, especially in developing countries. A second reason is politics: the government might care more about protecting firms than avoiding losses for consumers. A third reason is that the small-country assumption may not hold in practice: countries may be large enough importers of a product so that a tariff will affect its world price. In this large-country case, the decrease in imports demanded due to the tariff causes foreign exporters to lower their prices. Of course, consumer and producer prices in the importing country still go up, since these prices include the tariff, but they rise by less than the full amount of the tariff. We have shown that if we add up the drop in consumer surplus, gain in producer surplus, and government revenue collected, it is possible for a small tariff to generate welfare gains for the importing country.

39

4.2) BIBLOGRAPHY: Through Books :-

Through Internet:http://en.wikipedia.org/wiki/Quota http://en.wikipedia.org/wiki/Import_quota http://www.fert.gov.in/importexport/procedure_import_urea_india.asp

40