RECENT TRENDS IN INDIAS FOREIGN TRADE INTRODUCTION TO FOREIGN TRADE:Trade or exchange of goods or services between two or more countries is called international or foreign Trade.Foreign Trade takes place on account of many reasons such as: Human wants and countries resources may not totally coincide. Factor endowments in different countries differ. Technological advancements of different countries differ. Labour and entrepreneurial skills differ in different countries. Factors of production are highly immobile between countries.

HISTORY OF INDIAN FOREIGN TRADE:Around 100BC Export: Cotton, ivory, mallow cloth, muslin, precious and semi-precious gems (diamond, pearls), silk, spices, and curatives like black pepper, nard, long pepper Import: Wines from Italy, copper, tin, lead, coral, topaz, sweet clover, flint, glass, antimony, GOLD and silver coins, and performers for kings

Around 1500AD In 1498 Portuguese explorer Vasco da Gama landed in Calicut (Kozhikode, Kerala) as the first European to ever sail to India. The tremendous profit made during this trip made the Portuguese eager for more Trade with India and attracted other European navigators and tradesmen. While returning to Portugal in 1501 with pepper, ginger, cinnamon, cardamom, nutmeg, mace, and cloves. The profits made from this trip were huge. Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries.All countries need goods and services to satisfy wants of their people. Production of goods and services requires resources. Every country has only limited resources. No country can produce all the goods and services that it requires. It has to buy from other countries what it cannot produce or can produce less than its requirements. Similarly, it sells to other countries the goods which it has in surplus quantities. India too, buys from and sells to other countries various types of goods and services.Generally no country is self-sufficient. It has to depend upon other countries for importing the goods which are either non-available with it or are available in insufficient quantities. Similarly, it can export goods, which are in excess quantity with it and are in high demand outside.International Trade means Trade between the two or more countries. International Trade involves different Currencies of different countries and is regulated by laws, rules and regulations of the concerned countries. Thus, International Trade is more complex.

MEANING OF FOREIGN TRADE: According to Wasserman and Haltman, International trade consists of transaction between residents of different countries. According to Anatol Marad, International trade is a trade between nations. According to Eugeworth, International trade means trade between nations.Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade.The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. International Trade consists of export Trade and import Trade. Export involves sale of goods and services to other countries. Import consists of purchases from other countries.International or Foreign Trade is recognized as the most significant determinants of economic development of a country, all over the world. The foreign trade of a country consists of inward (import) and outward (export) movement of goods and services, which results into. Outflow and inflow of foreign exchange. Thus it is also called EXIM Trade.For providing, regulating and creating necessary environment for its orderly growth, several Acts have been put in place. The foreign trade of India is governed by the Foreign Trade (Development & Regulation) Act, 1992 and the rules and orders issued there under. Payments for import and export transactions are governed by Foreign Exchange Management Act, 1999. Customs Act, 1962 governs the physical movement of goods and services through various modes of transportation.To make India a quality producer and exporter of goods and services, apart from projecting such image, an important Act Exports (Quality control & inspection) Act, 1963 has been in vogue. Developmental pace of foreign trade is dependent on the Export-Import Policy adopted by the country too. Even the EXIM Policy 2002-2007 lays its stress to simplify procedures, sharply, to further reduce transaction costs.

FEATURES OF FOREIGN TRADE: Involvement of different monetary units Imposition of restrictions in import and export by various countries. Imposition of restrictions on release of foreign currencies. Existence of multiple regulations, legal practices and rules in different countries.If the seller is abroad and the buyer is in the home country, exchange of goods between them is called Import.If the seller is in home country and the purchaser is a broad, the Trade between them is called Export. A foreign trade can be further classified in to two according to visibility.a) Visible b) Invisible. A trade which can see i.e. exchange of goods, merchandise is a visible trade. Whereas, exchange of services between the purchaser and seller is invisible trade i.e. technical know-how, insurance etc.DUMPINGWhen goods are sold in foreign market without contract of sale it is known as dumping. The dumping has following types.1. Sporadic 2. Predatory 3. Persistent 4. Reverse dumping. When manufacturer wants to dispose of goods in foreign market at low price, without harming its normal market, the dumping is sporadic. To gain access in foreign market by selling goods at loss and to drive out the competitors refers to predatory dumping. When a producer consistently sells at a lower price in one market than in another, it is called persistent dumping. When manufacturer sells goods abroad at a higher price than at home, the practice followed is called reverse dumping.BALANCE OF TRADEBalance of trade refers to as the difference between a countrys import of merchandise and its exports thereof. This is also called the net difference between the value of commodities imported and exported. Balance of trade may be positive, surplus or negative deficit depending on situation of net position. The positive, surplus position occurs when export exceeds import and when import exceeds export the balance of trade is said to be deficit or negative. Causes of Reduction/Enhancement in Balance of Trade There are two main factors for variation in balance of trade position. a) External Factors. b) Internal FactorsExternal Factors: The sudden rise in price of essential commodities like edible oil, drugs, and medical equipments. Etc. Position of world Wide inflation or recession. Trade restrictions imposed by the developed countriesInternal Factors: Domestic shortage of industrial and agricultural products. Absence of high technology. Inadequate knowledge of export market. Neglect of export profitability.

CORRECTIVE MEASURES To come out of unfavorable TRADE position, following corrective measures are required; Export Promotion: By keeping quality & price competitive Import Restriction: By imposing heavy tax & duty in import Finance: By borrowings overseas. Monitory Measures: By putting restriction on banks credit. Fiscal Measures: By curtailing public expenditure Devaluation: By devaluating countrys official rate of exchange

BALANCE OF PAYMENT Meaning, Accounting The balance of payment of a country refers to, a systematic record of all trade transactions, visible and invisible imports and exports during a given period. The balance of payment is a difference between international transfer of FUNDS for a countrys imports and exports of goods and services for certain period. The accounting of balance of payment has two types viz. current account and capital account. According to sec. 2(J) FEMA Act, 1999 Current Account includes private and government merchandise, invisible items like, foreign trade, Services, Short term banking, etc. While the capital account transactions includes private long and short-term assets, banking transactions and official loans, amortization, IMF and reserves and monetary gold contingent liabilities [sec. 2(e)] The study of balance of payment can be summarized as below:Definition: The balance of payment of a country is a systematic record of all transactions between residents of that country and the residents of foreign countries during given period of time. Contents: It includes Merchandise, visible and invisible trade, Errors and Omission to strike a balance between two sides of accounts. Use: The most important use is, it is guide for Government in framing its monetary, fiscal, exchange and other policies. Broad Division: It is broadly divided into: Balance of payments on current account and Balance of payments on capital account Balances within the total: For the purpose of analysis the items are divided into five;a) Trade Balance b) Current Account Balancec) Basic Balance d) Net Liquidity Balancee) Official transaction Balance. Foreign Trade Trade Finance Chapter 01

DISEQUILIBRIUMIn balance of payments, debit and credit items seldom balance. As a result, the balance of payment is either in surplus or in deficit. When a country happens to have a surplus balance in balance of payment over the years, inflows of foreign capital take place, for that the rates of interest are high and also there is confidence in the countrys currency the confidence in countrys currency refers to no devaluation of that countrys currency is apprehended. When, on the other hand, country has a deficit or unfavorable balance of payment its foreign exchange resources get depleted.

CORRECTING THE DEFICIT As said earlier, if country has an president deficit, following corrective measures are to be taken by its Government Import Curtail: When imports are restricted, the position improves. But it has to be used wisely. Export Promotion: By way of packing credit facility, export bill purchase, insurance cover etc. Monetary Measures: By raising the (SLR) Statutory Liquidity Ratio / or by open market operations by the Central Foreign trade Bank. Fiscal Measures: These relate to a governments revenue and expenditure and include budgeting for a surplus. Devaluation: This refers to a reduction by the government in the countrys official rate of exchange between its own currency and other currencies.

FOREIGN CONTRACTSGoods are traded between two countries under contracts of sale / purchase which contains price, mode of delivery etc. The foreign contracts can be studied by following points: Mode of Delivery: The delivery may be actual or constructive. As the name suggest, actual delivery mean physical delivery of goods to buyer. In constructive type not the physical but the documents are handed over to the buyer. In foreign trade the delivery is always constructive. Mode of Payment: Following are different types of payments :a) OD / DP: Payment on Demand/Payment against Documents.b) DA: Documents delivered after Acceptance through bill of exchange.c) VP / COD: Value Payable/ Cash on Delivery both these terms related to post parcel deliveryFreight and Insurance: In foreign trade in case of freight and insurance certain abbreviations are used as: 1. c.i.f.: Refers to the amount of insurance, freight are included in invoice or contract of sale / purchase. 2. c. & f.: Stands for cost and freight, mean that when goods shipped under c.i.f. contract, freight should be prepaid. 3. f.o.b.: this letter stands for free on board. In this buyer names the vessel and specifies the date of delivery. 4. f.a.s.: This means free alongside ship and imply that seller is responsible for the delivery of goods within specific time.

TRADE POLICY-INTRODUCTION Shortcomings of Foreign Trade - Export & Import Trade Deficit Current Account Deficit Survival of Domestic companies Dependency for goods & services Dumping Solution: Rules and regulations that are intended to change international trade flows, particularly to restrict imports. Every nation has some form of trade policy in place, with public officials formulating the policy which they think would be most appropriate for their country. Their aim is to boost the nations international trade. Trade Policy 6 28 February 2014

WHY TRADE POLICY? National Defense theory No nation would afford to be dependent on other exporter nation at the time of conflicts Infant industry theory New domestic industries should be protected from foreign competition for so long so that they will have a chance to develop Antidumping theory Dumping is allowed, foreign producers will temporarily cut prices and drive domestic firms out of the market. Then they will use their monopoly to exploit consumers.

TRADE POLICY ELEMENTS

TRADE RESTRICTIONS

ORGANIZATIONS

OBJECTIVES OF TRADE POLICY Appreciate TRADE with other nations. Protect domestic MARKET prevailing in the country. Increase the export of particular product which will help in expanding domestic. Encourage the imports of capital goods for speeding up the economic development of the country. Prevent the imports of particular goods for giving protection to infant industries. Restrict the imports of goods which create unfavorable balance of payments. Control the export or import of goods and services for achieving the desired rate of exchange. Enter into TRADE agreements with foreign nations for stabilizing the foreign trade.FOREIGN TRADE POLICYINTRODUCTION:Introduction Before independence, India did not have a clear Trade policy; it was after the independence, that a trade policy, as a part of general economic policy of development was formulated.

Union Commerce Ministry, GOI announces integrated FTP every five year also called EXIM policy. Policy updated every year with some modifications & new schemes. FTP which was announced on August 28, 2009 is an integrated policy for the period 2009-14. These are difficult times and we have set an ambitious goal for ourselves. I am sure that the industry and the Government, working in tandem, will be able to ensure that the Indian exports become globally competitive and that we are able to achieve the target, which we have set for ourselves.The Foreign trade Policy, announced on August 28, 2009 is an integrated policy for the period 2009-14

MEANING:Foreign trade policy is the combination of words first is foreign trade and second is policy Foreign trade: It is the exchange of goods and services between nations. Goods can be defined as finished products, as intermediate goods used in producing other goods, or as agricultural products and foodstuffs. Policy: policy is the set of rules and procedure.

OBJECTIVES: The Foreign Trade Policy of India is based on some major objectives, they are To double the percentage share of global merchandise trade within the next five years. To act as an effective instrument of economic growth by giving a thrust to employment generation To arrest and reverse declining trend of exports To achieve an annual growth of 15% for the first 2 years till March 2011 with an annual export target of us $ 200 Billion To achieve an annual growth of 25% during the remaining period of the policy 3 years. By 2014 to double India's export of goods and services from the present level of 1.64% of the global export market.

FOREIGN TRADE POLICY (2009-2014)Short Term Objectives: Arrest and reverse the declining trend of exports. Provide support to those sectors which have been hit badly by recession.Medium term Policy Objectives: Achieve an Annual Export growth of 15% by March 2013 Achieve Annual Export growth of around 25% by 2014. Long Term Objective: Doubling Indias share in Global Trade by 2020TARGETS Export Target : $ 350 Billion for 2012-13 Export Growth Target: 15 % for next two year and 25 % thereafter.FOREIGN TRADE POLICY- SCHEMES SCHEMES: Export promotion on capital Goods (EPCG) Allows import of capital goods for pre & post production Facilitate up gradation of plant &machinery, inputs of spares up to 100% of value of exports Promote high value in exports, export obligation of 50% is removed

Focus Product scheme (FPS) Provides license for export product which have high employment potential in rural & urban areas with a view of infrastructural facility (Agriculture, handicraft export)

Focus Market Scheme (FMS): Offsetting high freight cost & distribution faced in assessing foreign markets

Market Linked Focus Product Scheme (MLFPS): Expanding products in identified markets (Mango export to US) Vishesh Krishi & Gram Udyog Yojna (VKGUY): To boost Agriculture & rural exports re-credit is given at 2% special additional duty

ANNOUNCEMENTS FOR FPS, FMS, MLFPS 26 new markets added in this scheme. Incentives under FMS raised from 2.5 % to 3 % Incentive available under FPS raised from 1.25% to 2%. Products included in the scope of benefits under FPS FPS benefit extended for export of green products 'and some products from the North East MLFPS expanded by inclusion of products like pharmaceuticals, textile fabrics, rubber products, glass products, auto components, motor cars, bicycle A common simplified application form has been introduced to apply for the benefits under FPS, FMS, MLFPS and VKGUY Financial Assistance provided for a range of export promotional activities implemented by EPC, & Trade Promotion organization

Market study & survey Setting up showcases Participation in trade fairs Displays in international Dept. Stores Publicity & Campaigns, Brand Promotion

SPECIAL ECONOMIC ZONESpecial economic zone is a particular area inside a state which acts as foreign territory for tariff and TRADE operations. Govt. provides tax exemption (IT, Excise, customs, sales etc.), subsidized water and electricity etc. SEZ can be sector specific or multi product SEZ. It helps in the development of infrastructure of the area around the SEZ, provides employment to people, and makes the exports more viable. All this will help the countries products to become more competitive via providing all round development of region. It should be noted that if 100 acres are allotted for SEZ, then only 30-35% of area is used for setting up plants, rest of the area is used to provide housing facilities, malls, multiplexes etc. Also Tax exemption is for specific period say for 10 yrs or so. India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asias first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.Export Oriented Unit (EOU)/Special Economic Zone (SEZ) India was one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports Asia's first EPZ was set up in Kandla, Gujarat in 1965 With a view to attract larger foreign Investment in India, the Special Economic Zones (SEZs) Policy was announced in April 2000 Income Tax exemption to 100% EOUs and to STPI (software Technology park unit) under Section 10B and 10A Income Tax Act has been already extended for the financial year 2010-11 in the Budget 2009-10. OBJECTIVES OF SEZ Generation of additional economic activity Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment opportunities Development of infrastructure facilities

IMPORT/EXPORT CONTROLIMPORTS: Around 5% Tariff Lines are under Import Controls. 11600 Tariff Lines are free for import. Restrictions removed over the next 10 years, removing almost all the Quantitative Restrictions. Presently: Prohibited items - 53 Lines Restricted items - 485 Lines State Trading Items - 33 Lines.EXPORTS: Controls primarily on account of security, public health, morals, exhaustible resources and environment grounds. Prohibited items - 59 Restricted items 155 State Trading Items 12 Restrictions fall under two Categories:- Special provision for these items under Weapons of Mass Destruction Act, 2005. Export Facilitation Committee looks into applications for license for these items. {Special chemical, organisms, materials, equip. & tech.}HIGLIGHTS Q1 of 2012-13, exports stood at US$ 75.2 and showed a decline of 1.7 per cent as against an increase of 36.4 per cent during Q1 of 2011-12. Q1 of 2012-13, imports declined by 6.1 percent over the corresponding quarter of 2011-12 and stood at US$ 115.3 billion. Lower growth in POL imports at 5.5 percent during Q1 of 2012-13 as compared with 52.5 percent during Q1 of 2011-12. Imports of gold and silver, US$ 9.4 bn during Q1 of 2012-13 were 48.4 per cent lower than that in Q1 of 2011-12. Non-oil non-gold imports during Q1 of 2012-13 at US$ 65.3 bn recorded a decline of 2.9 per cent as compared to an increase of 18.9 per cent in Q1 of preceding year. Trade deficit during Q1 of 2012-13 stood lower at US$ 40.1 bn as compared with US$ 46.2 bn during Q1 of 2011-12.

INDIANS FOREIGN TRADE Growth is uncertain in coming months, given the worsening global macroeconomic outlook and high interest rate in the domestic market. During April-Sept 2011, Indias imports expanded by 32.4% to $ 233.5billion. The trade deficit during the April-Sept 2011 period stood at $ 73.5billion. Increasing trade Deficit further depreciates Rupee. Depreciation of rupee will also push up cost of imports leading to wider trade deficit in coming times.

IMPORTS

EXPORTS

COMPOSITION OF INDIAS FOREIGN TRADE

COMPOSITION OF EXPORTS

1. Agricultural and Allied Products 15% share in exports Top items of agricultural exports include: - Fish Products Rice Oil Cakes Fruits and Vegetables

2. Ores and Minerals 12.3% share in exports.

3. Manufactured Goods 61.3% share in exports.- Include: Engineering Goods Gems and Jewellery Chemical and Allied Products Readymade Garments

4. Minerals Fuels and Lubricants 18.3% share in exports There has been improvement in the exports of mineral fuels and lubricant both in terms of value and in terms of %.

COMPOSITION OF EXPORTS

Petroleum Products - 31.7% share in Imports. Capital Goods - 20.3% share in Imports. Pearls and Precious Stones - 6.2% share in Imports. Iron and Steel - 2.4% share of Imports. Fertilizers - 2.4% share of Imports.

Therefore, Composition of Indias Foreign Trade has undergone a positive change. It is a remarkable achievement that India has transformed itself from a predominantly primary goods exporting country into non primary goods exporting country. Under Imports also Indias dependence on food grains and capital goods has declined.DEVELOPMENT AND REGULATION ACT OF FOREIGN TRADE POLICY In 1992, the govt. enacted foreign trade (Development & Regulation) Act to facilitate import and enhancing exports from India. As per the provisions of the act, the Govt.:- May make provisions for facilitating and controlling foreign trade; May prohibit ,restrict and regulate exports & imports ,in all or specified cases as well as subject them to exemptions; Is authorized to formulate and announce an export & import policy and also amend the same from time-to-time, by notification in the Official Gazette.

CHANGES THAT TOOK PLACE:- With economic reforms, globalization of the Indian economy has been the guiding factor in formulating the trade policies. The reform measures introduced in the subsequent policies have focused on liberalization; openness and transparency. They have provided an export friendly environment by simplifying the procedures for trade facilitation.KEY STRATEGIES FOR ACHIEVING ITS OBJECTIVES:- Simplifying procedures and bringing down transaction costs; Facilitating development of India as a global hub for manufacturing, trading and services. Identifying and nurturing special focus areas to generate additional employment opportunities, particularly in semi-urban and rural areas. Facilitating technological and infrastructural up gradation of the Indian economy, especially through import of capital goods and equipments. Activating Indian embassies as key players in the export strategy.STRATEGY OF FOREIGN TRADE POLICY OF INDIA Removing government controls Facilitating development of India as a global hub for manufacturing, trading, and services Generating additional employment opportunities technological and infrastructural up gradation Simplification of commercial and legal procedures and bringing down transaction costs. Simplification of levies and duties on inputs used in export products

FOREIGN TRADE METHODS

Goods may be traded or exchanged between exporter and importer in any of the three ways:

On Open Account Basis: Where the credit status of importer is high, the goods are sent direct to him in anticipation of payment in due course. Export on this basis is not permissible in India. Under Bill of Exchange: The exporter may draw bills of exchange on the importer for the value of the exports and collect the bills through bank. Under Letter of credit: The exporter may agree to export the goods only against a letter of credit opened in his favor.

CONCLUSION

Composition of Indias Foreign Trade has undergone a positive change. It is a remarkable achievement that India has transformed itself from a predominantly primary goods exporting country into non primary goods exporting country. Under Imports also Indias dependence on food grains and capital goods has declined.

This years foreign trade Policy comes at a challenging time as the entire world is facing an unprecedented economic slowdown. These are difficult times and we have set an ambitious goal for ourselves. But if the industry and government work in tandem we will be able to ensure that the Indian exports become globally competitive and we are able to achieve a target which we have set for ourselves.

REFERENCES

WEBSITES:

http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf http://www.eximpolicy.com/ http://exim.indiamart.com/foreign-trade-policy/ftp-04-05-highlights.html http://www.infodriveindia.com/Exim/DGFT/Exim-Policy/2009-2014/default.aspx http://www.wooltexpro.com/docs/Highlights_Foreign_Trade_Policy_2009-2014.pdf 25