india's trade policy

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Various aspects of India's Trade Policy


  • 1. INDIAS TRADE POLICYInderpreet 1

2. 2 3. Balance of Trade refers to difference in the export and import of goods.Balance of Payment refers to systematic record of all economictransactions between the residents of a country and rest of the world in ayearS. No. Balance of Trade Balance of Payment1 It records transactionsrelating to trade of goodsonlyIt records transactions relating toboth goods and services.2 BOT account does not recordtransactions of capital natureBOP account records transactionsof capital nature also.3 It is a part of current accountof the balance of payments.It is more comprehensive and hastwo accounts of which BOT is apart.3 4. 4 5. Merchandise:(a) Also known as VisibleTrade.(b) Includes export andimport of goods only.(c) Exports are valued atf.o.b prices i.e free on board.(d)Imports are valued at c.i.f.prices i.e cost, insurance andfreight prices.Invisibles:(a) Services: Travel,Insurance, Miscellaneousservices( construction,financial, communication,etc)(b)Income(c) Transfers : Grants, gifts.MerchandiseInvisibles5 6. 1) Foreign InvestmentForeign Direct InvestmentPortfolio Investment2) LoansExternal AssistanceExternal Commercial Borrowings3) Banking CapitalNon Resident Indian Deposits inIndian Banks.6 7. Year Exports Imports TradeBalance1950-51 606 608 -21960-61 642 1122 -4801970-71 1535 1634 -991980-81 6711 12549 -58381990-91 32553 43198 -106452000-01 203571 230873 -273022006-07 571779 840506 -2687272008-09 840755 1374436 -5336812009-10 845543 1363736 -5182022010-11 1142649 1683467 -5408182011-12 1024707 1651240 -6265337 8. 8 9. RisingImportsLarge increaseinDevelopmentalImportsLarge size inimports ofpetroleumModestgrowth ofExportsLow worldDemandCost andQualityHigh costGrowingCompetition9 10. Tariff Restrictions ImportSubstitutionand Restriction Setting up Export processing Zones Income tax concessions to exporters Setting up EXIM BankExportPromotion10 11. Source : Economic Survey 2013-1411 12. S.NoCommodityGroupYear2012-131 Food and alliedproducts2.92 Fuel 31.33 Fertilisers 1.94 Paper Board,manufactureand newsprint0.65 Capital Goods 13.16 Others 47.7Total 100.03%32%2%1%13%49%Composition of ImportsFood and alliedproductsFuelFertilisersPaper BoardCapital GoodsOthers12 13. 13 14. Stage V: 2002-03till dateStage IV: 1990-91 to 2001-02Stage III: 1980-81 to 1989-90Stage II:1976-77 to1979-80Stage I :1951-52 to1975-7614 15. First Plan:Huge deficitbecause ofpoorgovernanceandbackwardnessSecond Plan:Heavy importsof machines,raw materials,foodgrains etcThird Plan:Large importsof militaryequipment onaccount of IndoChina andIndo-Pak war.Fourth Plan:(a) Rise inexports and fallin imports.(b) Considerablerise in receiptsfrom invisiblesitems.This period covers the first four five year plans.1. First Plan : Deficit in BoP on Current Account of Rs. 42 Cr.2. Second Plan: Deficit in BoP rose to Rs. 1725 Cr.3. Third Plan: Deficit in BoP increased Rs. 1951 Cr.4. Three Annual plans wherein deficit rose to Rs. 2015 Cr.5. Fourth Plan: BoP favourable to the extent of Rs. 100 Cr.15 16. Golden periodfor Indiasforeign tradewith currentaccountsurplus of 0.6% of GDP.Gain onbalanceofpaymentrose to3082crores.It was because of :(a) Green revolution(b) High remittances from Indiansworking in Gulf countries.(c) Tourists Attraction(d) Rise in Domestic production ofoil, electric motors, machine toolsetc.It reduced:(a) Oil Imports(b) Restricted GoldSmuggling(c) ensured continuousand smooth flow offoreign aidStage II : 1976-1977 to 1979-80 (A decade of comfort)16 17. Indias BoP was indisequilibrium and Indianeconomy was in a state ofcrisis.Current Account Deficitbecame 1.3 % of GDP inthe sixth plan.Current Account Deficitbecame 2.4 % of GDP inseventh plan.India became the thirdlargest indebted country inthe world after Mexico andBrazil.This is was on account of :(a) Oil shock of 1979-80 that the price ofoil increased drastically.(b) Remittances declined.(c) Inflation grew.(d) Fiscal Deficit grew.(e) Political instability increased.(f) Foreign aid reduced17 18. 1991 : EIGHTH PLAN 2000: NINTH PLAN Foreign ExchangeCrisis Unfavourable BoP Devaluation, decontrol,liberalisation wereintroduced. Main reasons for thedeficit were:(a)Import of Capital Goods(b)Increase in price ofcrude oil First four years of theplan recorded deficit of69,434 crores. Last year recordedsurplus of 6719 crore. Reasons for goodperformance:(a)Dynamic exportperformance(b)Increase in softwareservices(c) Reduced non-oil importdemands18 19. Stage V : 2002-03 till dateYear Balance of Paymentson Current A/CBalance of Paymenton Capital A/CTotal Balance of Payments (Current + Capital A/C)1990-91 -17,366 +12,895 -4,4712000-01 -11,431 +39,093 +27,6622004-05 -12,174 +1,28,081 +1,15,9072005-06 -43,737 +1,09,633 +65,8962006-07 -44,383 +2,08,017 +1,63,6342008-09 -1,27,600 +30,500 -97,1002009-10 -1,79,700 +2,43,900 +64,2002010-11 -2,10,100 +2,69,600 +59,5002011-12 -1,48,600 +1,74,200 +25,60019 20. 1) ImportReduction AndSubstitution2) ExportPromotion3) TappingInvisibles4) IncreasingEfficiency5)Encouragementof TouristTraffic6) BilateralAgreements7) ExchangeInflow ofForeign Capital8) EffectiveImplementation ofFEMA 200020 21. National Incomegrowing at 0.8 %.Inflation reached theheight of 16.8 %.BoP crisis to the extentof 10,000 crores.India was paying30,000 crores interestcharges.Fiscal deficit morethan 7.5 %.Deficit Financing was3 %21 22. Liberalisation of imports and exportsLiberal Exchange Rate ManagementRationalisation of tariff structure.Changes in the system of export incentives.22 23. New duty entitlement passbook scheme was started.Special incentives to software exports were provided.Custom duties were reduced.A number of restricted items were made freely importable.Special incentives to agricultural products were given.Scope of Export Promotion Capital Goods (EPCG) scheme was widened.EOUs were given more incentives.23 24. SpecialEconomicZonesOBUs (Offshorebanking units) tobe set up.OBUs exemptfrom Cash reserverate and StatutoryLiquidity RatioGrowthOrientedStrategic packagefor status holders.Implementing dutynuetralizationinstruments.Nuetralizing HighFuel Cost.Diversification ofmarketsDutyNeutralisationInstrumentsAdvance License:Duty ExemptionEntitlementCertificateabolished.EPCG licenses of100 Cr or more tohave 12 yearexport obligationperiod.24 25. AgricultureRemoval of quantitative restrictions onagricultural products.Transport SubsidyCottage Sector and handicrafts KVIC could take funds under MAI Duty free Import up to 3% on f.o.b prices Export House Status at lower average exportperformanceSmall Scale IndustryEntitlement of Export House status at Rs.5cr.Entitled to EPCG scheme25 26. 26 27. FTP is the newname for the earlierEXIM policy.31st august 2004- To double our %share of globalmerchandise tradewithin the next 5yearsTo act as an effectiveinstrument of economicgrowth by giving a thrustto employment generation.27 28. ACHIEVEMNTS OF THE FTP 2004-09Exports$63billionin 2003-04$168billionin 2008-09Share of Globalmerchandisetrade0.83% in20031.45% in2008Share of globalcommercialservice export1.4% in20032.8% in2008Total share ingoods andservice trade0.92%in 20031.64%in 200828 29. 29 30. 2009 most severe global recessionsWTO estimates project a grim forecast that global trade is likely todecline by 9% in volume terms and IMF estimates project a declineof over 11%.World bank estimate suggests that 53million more people wouldfall into the poverty and over a billion people would go chronicallyhungry.It was difficult to announce a FTP in this economic climate.There was a need to set in motion ,strategies and policy measureswhich would catalyse the growth of exports.30 31. Arrest and reverse the decliningtrend of exportsAdditional support to thosesectors which have been hit badlyby recessionBy 2014, the objective is to doubleIndias exports of goods andservices31 32. To doubleIndiasshare inglobal tradeby 2020.32 33. Fiscal incentives, institutional changes, proceduralrationalization, enhanced market access across theworld and diversification of export markets.Improvement in infrastructure related to exports,bringing down transaction costs33