SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format

Student Name: A RAJENDER Registration Number: 521111789 Subject Name: FOREIGN TRADE OF INDIA

Course: M.B.A LC Code: 00148 Subject Code: IB0015

Question 1- Discuss in brief the various laws which govern Indias export and import trade? Answer- The following are some of the important laws governing exports from and imports into India: i) Foreign Trade Act: The main objective of this Act, 1992 is to provide for the development and regulations of foreign trade by facilitating imports into, and augmenting exports from India. This Act has replaced the earlier law namely, the Imports and Exports (Control) Act 1947. Ministry of Commerce, Government of India issues foreign trade policy under the provisions of the Foreign Trade Act, 1992. The application of the provisions of the Foreign Trade (Development & Regulation) Act, 1992 has been exempted for certain trade transactions vide Foreign Trade (Exemption from application of Rules in certain cases) Order 1993. ii) Customs Act: This is the Customs Act, 1962 parent statute which details customs and excise duties stated in the Union List and regulates the import/export clearance in India. iii) Central Excise Tariff Act: The Central Excise Tariff Act, 1944 is basically for the goods manufactured locally in India. However, for the purposes of additional customs duty which is equivalent to the central excise duty suffered on similar goods in India, this Act must be a part of the compliance programme. The Custom Tariff Act, 1975 notifies the custom duties, exemption notifications, anti-dumping duties, safeguard and countervailing duties. iv) Foreign Exchange Management Act: The Foreign Exchange Management Act, 1999 is the Exchange control regulations are framed by the Reserve Bank of India under the provisions of Foreign Exchange Management Act, 1999. The Act came into force with effect from 1.6.2000. v) Export Act: Export Act, 1963 Government of India recognized the need for effective preshipment inspection and hence enacted Export i.e. Quality Control and Inspection Act, 1963 to provide for sound development of the export trade through quality control and pre-shipment inspection. These are the various different laws which gover Indias export and import trade. Question 2- Disscuss the salient feature of foreign trade policy 2009-14? AnswerThe Foreign Trade Policy for 2009-14 was announced by the Union Commerce Minister The Objective of policy is to achieve an annual export growth of 15% on August27, 2009. Policy Objectives: with an annual export target of US$ 200 billion by March 2011. The short term objective of policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. 1

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format The long term policy objective for the Government is to double Indias share in global trade by 2020. Import of Capital Goods: The import of capital goods in first of second hand of the foreign trade firms are allowed to import new capital goods without any licence against payment of applicable import duty. The import of second hand capital goods has also been allowed against payment of applicable import duty freely without any restriction as to age of the capital good. Export-Import of Resticted Goods: Any goods, export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with an Authorisation or in terms of a Public Notice issued in this regard. Importer-Exporter Code (IEC) Number: No person shall make any import or export without and IEC number unless specifically exempted under the FTP. IEC number can be obtained from the concerned regional authority of DGFT on filing of the application in the prescribed format and payment of a fee of Rs. 250/-. Export Promotion Capital Goods Scheme: The EPCG scheme provides for import of both the new and second hand capital goods for the purpose of export promotion against payment of Zero custom duty for computer software and concessional custom duty of 3% in certain cases, of the CIF value of import of the capital good. Duty Exemption Scheme: This scheme provides for duty free import of inputs required for the manufacture of export product. Duty Exemption scheme consists of Advance Authorzation scheme Duty free Import Authorization scheme Duty Remission Scheme: This scheme enables post export replenishment scheme / remission of duty on inputs used in the export product. Duty Remission Scheme consists of DEPB (Duty Entitlement Pass Book Scheme) and DBK (Duty Drawback scheme) Import and Export of Trade Samples: No authorisation is required for import of bonafide technical and trade samples of items of restricted items except vegetable seed, bees and new drugs. Service Exports: Services include all the 161 tradable services covered under the General Agreement on Trade in Services where payment for such services is received in free foreign exchange. Focus Product, Focus Market and Special Agriculture and Village Industry Scheme: The twin schemes of Focus Product and Focus Market have been initiated to provide additional stimulus to 1) Promote export of products having large employment potential 2) Penetration of strategic markets by Indian products, especially markets in which Indian exports are comparatively low. 2

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format Free Trade and Warehousing Zone (FTWZ): With a view to make India a global trading hub, the Foreign Trade Policy has proposed the establishment of Free Trade and Warehousing Zone. Electronic Data Interchange (EDI): In order to simplify, standardize and harmonize trade documents based on international best practices EDI system has been introduced which enables electronic filing of applications with DGFT. The Licensing Authority: The license authority to implement the Foreign Trade Policy is the office of the Director General of Foreign Trade, DGFT. Export of Imported Goods : Goods imported, in accordance with Foreign Trade Policy, may be exported in same or substantially in the same form without an Authorization provided that item to be imported or exported is not restricted for import or export in ITC(HS). Denomination of Export Contracts : All export contracts and invoices are to be denominated either in freely convertible currency or Indian Rupees but export proceeds are to be realized in freely convertible currency. Trade with Neighbouring Countries : The South Asian Association for Regional Cooperation (SAARC) comprises of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. India follows bilateral trade policy with these neighbouring countries. Question 3- Describe the role of Export Credit Guarantee Corporation(ECGC) with its benefits for exporters. Answer- Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. The primary goal of ECGC is to support and strengthen the export promotion drive in India: (a) providing a range of credit risks insurance covers to exporters against loss in export of goods and services. (b) offering guarantees to banks and financial institutions to enable exporters obtain better facilities from them. Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. The commercial risks of the foreign buyer going bankrupt or losing his capacity to pay are heightened due to the political and economic uncertainties. Export Credit Risk insurance is designed to protect exporters from the consequences of the payment risks

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format both political and commercial and to enable them to expand their operations or overseas business without fear of loss. ECGC provides export credit risk insurance to Indian exporters. Policies offered by ECGC: The policies issued by the ECGC can be divided broadly into four groups: i) Standard Policies issued to exporters to protect them against payment risks involved in exports on short-term credit. ii) Specific Policies designed to protect the firms against payment risks involved in (a) exports on deferred terms of payment. (b) services rendered to foreign parties. (c) construction works and turnkey projects undertaken abroad. iii) Financial guarantees issued to bank in India to protect them from risks of loss involved in their extending financial support to exporters at the pre-shipment as well as post-shipment stages.

iv) Special schemes, viz Transfer Guarantees meant to protect banks, which add confirmation to Letters of Credit opened by foreign banks. Insurance cover for Buyers Credit, Overseas Investment Insurance and Exchange Fluctuation Risk Insurance. ECGC help exporters: Offers Insurance protection to exporters against payment risks. Provides guidance in export-related activities. Makes available information on different countries with its own credit ratings. Makes it easy to obtain export finance from banks/financial institutions. Assists exporters in recovering bad debts. Provides information on credit-worthiness of overseas buyers.

Need for export credit insurance: Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss. Question 4- Write a note on thrust export products from India? Answer-The exports from India are broadly classified into the following categories namely: 4

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format 1. Agriculture and Allied Products 2. Ores and Minerals 3. Manufactured goods 4. Crude & Petroleum Products 5. Others & Unclassified Items The contribution of each of the above five categories to the total exports of India for the years 2004-2005, 2005-2006 and 2006-2007 is given Product Group 2004-05 2005-06 1. Agriculture & Allied Products 10.5 11.3 2. Ores & Minerals 6.3 7.2 3. Manufactured Goods 7.37 67.3 4. Crude Oil & Petroleum Products 8.4 11.2 5. Misc. Goods 1.1 3.2 Fig: Percentage share of Major Export Product Groups the years 2004-2005 and 2005-2006 are given in Table. A study of the contribution of various products and their rates of growth suggests that the following are the main products of exports from India. 1. GEM & JEWELLERY 2. READY-MADE GARMENTS 3. LEATHER PRODUCTS 4. ENGINEERING GOODS 5. CHEMICALS AND ALLIED PRODUCTS 6. HANDICRAFTS 7. TEXTILES AND HOME-FURNISHINGS 8. MARINE PRODUCTS 9. SPICES 10. TEA AND COFFEE 11. RICE (BASMATI AND NON-BASMATI) 12. TOBACCO UN-MANUFACTURED 13. FEEDING STUFF FOR ANIMALS 14. PROCESSED FOOD PRODUCTS Question 5- Explain how Indian government supports the various status holders? Answer- The Government recognized Status Holders contribute approximately 60% of Indias goods exports. To incentivize and encourage the status holders, as well as to encourage 5 2006-07 9.9 4.00 69.00 16.3 0.7

The break-up of the major export product groups and their contribution to total exports during

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format Technological Upgradation of export production, additional duty credit scrip @ 1% of the FOB of past export shall be granted for specified products groups including leather, specific subsectors in engineering, textiles, plastics, handicrafts and jute. Transfer of export performance from one to another is not permitted. Therefore disclaimer system shall not be allowed for counting of export turnover. Authorization The duty credit scrip can be used for import of capital goods by these status holders. The imported goods shall be subject to actual user condition. The recognized status holders are entitled to certain privileges namely authorizations and clearances on self declaration basis, fixation of SION on priority basis, exemption from submission of Bank guarantee, etc. Some status holders are entitled to obtain Status Holder Incentive Scrip. A Status Holder can eligible for following privileges: i) ii) iii) iv) v) vi) vii) Authorization and Customs Clearances for both imports and exports on selfdeclaration basis. Fixation of Input-Output norms on priority within 60days. 100% retention of foreign exchange in EEFCaccount. Exemption from furnishing of BG in Schemes under FTP For status holders, a decision on conferring of ACP Status shall be communicated by Customs within 3 0days from receipt of application with Customs. Status Holders of specified sectors shall be eligible for Status Holder Incentive Scrip Status Holders of Agri. Sector shall be eligible for Agri. Infrastructure Incentive Scrip under VKGUY. Question 6- Write short notes on: a)WTO b)FEMA AnswerA) WTO: The World Trade Organisation started functioning from 1st January, 1995. It was the result of Uruguay Round negotiations. It is successor to GATT.It has larger membership than GATT. India is one of the founder member of WTO. It is based in Geneva in Switzerland. WTO membership means that the nation automatically receives the Most Favored Over 75% of WTO members are developing countries. WTO membership allows them Nation status. Basically, this means all 149 WTO members must treat each other the same. access to developed markets at the lower tariff rate. Membership allows them time to remove reciprocal tariffs in their own markets. This gives these countries an opportunity to catch up to

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format sophisticated multinational corporations and their mature industries before opening the developing countries' markets to overwhelming competitive pressure. Twenty-eight member countries, however, signed an agreement on Information Technology (IT) for completely scrapping the tariffs on related items, such as, computers, software, semiconductors, photocopiers, capacitors and fibre-optics cables. Critics, however, observed that the negotiations were mostly in favour of the rich and not the poor countries. Domination of the developed countries was clearly revealed in this meeting. A notable feature of the WTO is active functioning of the Dispute Settlement Body with several cases of disputes to be solved in hand. It acted boldly and gave a ruling against a United States gasoline tax and the country had to agree for the suggested legal amendmen. It may also have a greater way for the growth of economic imperialism of a few developed industrialised nations world over. A new economic order which may be envisaged through the operation of the WTO will certainly breed new problems and new issues with more complications and undesirable consequences in the New Century to follow. If it goes beyond limit, globalised market economies may derail with dire consequences at all levels economic, social and political. The WTO needs a rethinking on the issue to build-up a just and 'Robust Global Capitalism' rather than paving the way for 'Rober Capitalism' in the new world economic order. B) FEMA: The foreign trade of a country consists of export and import of goods and services and involves inflow and outflow of foreign exchange. The payments for import and receipts for export trade transactions in terms of foreign exchange, in India, are governed by Foreign Exchange Management Act, 1999 (FEMA). In India, all transactions that include foreign exchange are regulated by the Foreign Exchange Management Act (FEMA), 1999. It repealed the Foreign Exchange Regulations Act (FERA),1973. FEMA has been enacted to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market. It applies to all branches,offices and agencies outside India,owned or controlled by a person resident in India. According to the Act, the term 'foreign exchange' means "foreign currency and includes:(i) (ii) (iii) deposits, credits and balances payable in any foreign currency. drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency. drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency". 7

SIKKIM MANIPAL UNIVERSITY-DE Vernacular Programs Assignment format The main provisions of the Act are:It permits only authorised person to deal in foreign exchange or foreign security. Such an authorised person, under the Act, means authorised dealer, money changer, off-shore banking unit or any other person for the time being authorised by Reserve Bank. The Act thus prohibits any person who Deal in or transfer any foreign exchange or foreign security to any person not being an authorized person; Make any payment to or for the credit of any person resident outside India in any manner; Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner; The Act regulates two types of foreign exchange transactions, namely 'Capital Account Transactions' and 'Current Account Transactions. According to the Act, Capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes the following transactions referred in the Act: Transfer or issue of any foreign security by a person resident in India. Transfer or issue of any security by a person resident outside India. Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India. Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India. Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred(i) (ii) By a person resident in India and owed to a person resident outside India; or By a person resident outside India. It also defines the term 'current account transaction' as a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes: payments due in connection with foreign trade, other current business, services, and payments due as interest on loans and as net income from investments, remittances for living expenses of parents, spouse and children residing abroad. expenses in connection with foreign travel, education and medical care of parents, short-term banking and credit facilities in the ordinary course of business.

spouse and children.