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 ASSIGNMENT SOLUTIONS GUIDE (2018-2019)
I.B.O.-3
India’s Foreign Trade
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the

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Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Authors for the help and guidance
of the student to get an idea of how he/she can answer the Questions given the Assignments. We do not claim 100%

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accuracy of these sample answers as these are based on the knowledge and capability of Private Teacher/Tutor. Sample
answers may be seen as the Guide/Help for the reference to prepare the answers of the Questions given in the assignment.

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As these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be

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denied. Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/

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Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer and for up-to-date and exact

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information, data and solution. Student should must read and refer the official study material provided by the university.

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Attempt all the questions:
Q. 1. Discuss important issues in world trade. Describe briefly the strategy adopted by India to integrate
with world trade.

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Ans. Issues in World Trade: The most significant issues in world trade are:
(a) Regionalism versus multilateralism;

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(b) Liberalization and globalisation in foreign trade;

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(c) Electronic commerce and electronic data interchange;

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(d) Environmental challenges, etc.

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We now discuss these issues in detail.

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(a) Regionalism verses. Multilateralism: In last few decades, there is a growing tendency towards having
Regional Trading Arrangements (RTAs). Such regional commitments have, however, caused concerns that they may

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weaken the global trading system by discriminating against imports and investments from non-members. Critics of

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regional arrangements have asserted that this practice goes against a core principle of the World Trade Organization;

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that all imports from member states should face the same barriers to trade. Moreover, removing tariffs on imported

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goods from some countries but not others is certainly counte-productive. If imports from high-cost producers inside

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the agreements replace goods from low-cost producers outside the agreements, the importing country will obviously
lose tariff revenue as well as have imports that cost dearly for its economy.
Diehard supporters of the RTAs, however, affirm that these agreements have make it possible for the countries

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to liberalize trade and investment barriers much more than multilateral trade negotiations permit. These proponents
also claim that regional agreements go beyond mere trade liberalization, by harmonizing regulations, adopting

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minimum standards for regulations, and recognizing other countries’ standards and practices–factors that go a long
way in achieving market success. Empirical evidences support each of the views to some extent. Regional arrangements
appear to have generated welfare gains for participants, with small negative spill over onto the rest of the world.
If it becomes evident in future that the RTAs do have adverse effects on the world trading system, they will
have to follow the non-discrimination principle of the global trading system. The response of the world should be to
pursue even more multilateral trade liberalization to edge out the smallest margin of preference for regional agreements.
Countries who believe that they are being badly affected because of the existence of RTAs elsewhere will thus have
one more reason to go for multilateral trade liberalization.
Another response would be to modify the WTO agreements on regional trading blocks asking the members to
phase out any preferential market access within a given period. Such a provision will ensure that preferential market
access becomes only a passing feature of any regional initiative. To make this approach more tempting to the
members of a regional group, they could be provided with credit for the reduction in trade barriers, which could be
then used in future in multilateral trade negotiations.

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 The third response means to have a model accession clause for the RTAs. Such a clause would set out conditions,
which a non-member must satisfy to join the WTO as its member. When the conditions are satisfied it will automatically
activate a negotiation for accession to the regional agreement. In this way, the non-members will not confront any
trade barriers when an RTA is floated or when any new members are admitted to the WTO.
(b) Globalization and Liberalization: Globalization and liberalization in a broader sense mean integration of
different countries with the world. Policy makers in the 21st century now find themselves chasing development
goals in a world that is literally transformed economically, politically and socially into a global village. Two main
forces of globalization and liberalization are today shaping the development policy in the world.
At the end of last century, it had become evident that any economic decision made anywhere in the world at any
time, must take into consideration global factors. The movement of goods, services, ideas and capital across national
borders is not something new. However, its growth in recent times is certainly something new and does mark a

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qualitative break with the past. The world is no more just a collection of separate nations only dimly connected by
trade. The global economic order is evolving into a highly integrated and electronically networked world system.

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The success of the Uruguay Round of multilateral trade negotiations and the emergence of RTAs have led to
extensive momentum to integration of countries further into a global trading system. Policy makers in both developing

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and industrial countries now have to keep up this forward motion. The efforts of trade are in much focus in recent

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years, including qualms over inequality, poverty, environment, and the financing of social safety nets. Even though

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there is almost no empirical evidence to corroborate these concerns, policy-makers have become more and more

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sensitive to them.
In the past 15 years, mostly due to the environment created by the GATT and WTO, many developing countries

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have on their own adopted structural changes and economic reforms that include reducing trade barriers. The trend

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towards these outward-oriented trade policies is not restricted to any one continent or region, and remarkably it even
predates the Uruguay Round decisions.

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(c) Electronic Commerce: Electronic commerce is creating an entirely new scenario for world’s economy in

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this era of liberalization and globalization. Information-based industries have completely transformed the ways
competitive marketing. For the open global economy electronic commerce has come as a boon. The most significant

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and important characteristics inherent to electronic commerce is its ability to respond to markets without any

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botheration about national boundaries or time through a medium that is ever-present and instantaneous. However, an

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enormous investment is needed in electronic commerce technology and the speed with which electronic commerce

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will benefit a country certainly depends on how fast that country liberalises its market and adopts a predictable trade

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regime–these two being the necessary and essential conditions for staring e-commerce.

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Electronic Data Interchange (EDI) normally means paperless commutation. Most industrial countries now

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insist that all necessary documents for international trade must be sent to them through EDI. In some extreme cases,

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they have even specifically declared that No EDI No Trade. Many less developed and also some developing countries
find it still difficult to put into practice electronic data interchange simply because they do not have the necessary

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infrastructure in information technology to make it possible for them to deal electronically with their clients from
developed nations.
In 1998, WTO members earnestly started delving into the problem of how the World Trade Organization

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should deal with the use of electronic commerce. E-commerce is definitely of a unique nature in entering into
contracts of delivering products (goods and services) across the world. This very uniqueness has raised many issues,

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which still remain unresolved.
In e-commerce, products are bought and paid for over the Internet. However, they are delivered physically
across the world. Such transactions are subject to existing WTO rules on trade in goods. The situation becomes more
convoluted for products that are delivered as digitalised information over the Internet. This is just one example.
Many such issues are bound to arise as e-commerce becomes widespread.
The supply of Internet access services and delivery of many products over the Internet come within the scope
of the General Agreement on Trade in Services (GATS). However, there is clearly a need to know the extent to which
particular activities come under market-access commitments of the WTO members.
In view of the undefined nature of electronic commerce and its capability to affect most aspects of trade, it was
agreed by WTO members to carry out Work Programme on Electronic Commerce in a parallel mode, among the
various WTO bodies with different competencies. Different WTO bodies are still engaged in examining trade-
related aspects of electronic commerce within the framework of Work Programme on Electronic Commerce.

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 (d) Environment: The issue of trade and environment was not part of negotiations at the Uruguay Round, but
many environmental issues were addressed in the outcome of the negotiations. The Preamble to the WTO Agreement
makes direct references to the objective of sustainable development and to the need of protecting and preserving the
environment. Agreements on Technical Barriers to Trade and on Sanitary and Phytosanitary Measures explicitly
spell out use of measures to protect human, animal and plant life and health and the environment by the governments.
The Agreement on Agriculture exempts direct payments under environmental programmes. It seeks from WTO
members a commitment to reduce domestic support for agricultural production, subject to specific conditions. The
Agreement on Subsidies and Countervailing Measures treats as a non-actionable subsidy any government assistance
to industry up to 20 per cent of the cost of adapting existing facilities to new environmental legalisation. Both the
TRIPs and the Services Agreements contain provisions about protecting the environment.

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The WTO Committee on Trade and Environment was responsible for bringing the environmental and sustainable
development issues into the forefront of WTO work. Its first Report asserted that the WTO primarily seeks to build

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a constructive relationship between trade and environmental concerns. Trade and environment are both crucial areas
of policy-making and they have to be mutually supportive to ensure a sustainable development, the Report said.

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Strategy for Integrating India with World Trade

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India adopted an all-inclusive programme of macro-economic stabilization and structural adjustment in June,

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1991.The objective was to remove controls on industry, external trade and foreign investments and allow a free

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atmosphere for growth of trade. However, due to various problems and opposition faced within the country, these

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reforms could not be immediately implemented to their logical end in different spheres of economic activity. At best

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it is still a half-hearted effort. The result is India is not yet able to reach desired goals in its external trade and foreign
direct investment.

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A sustained rapid growth in exports is the most critical need if the country wants to ensure lasting external
viability. Vigorous efforts are, therefore, necessary to achieve a hasty expansion of exports, especially when one or

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other difficult international trading environment is brought about by succeeding economic and financial crisis like

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those in East Asia or in post-Iraq war Middle East. There is also the apprehension that East Asian countries may

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reorient their economic activities away from capital-intensive industries and move towards labour-intensive ones.

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Such a move is bound to intensify competition in markets that are crucial for Indian exports.

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It is, therefore, imperative that as early as possible various transaction costs incurred by our exporters are cut to

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a minimum. Transaction costs originating from enforcement of various rules and regulations for obtaining licenses,

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customs clearances, refund of duties, infrastructure constraints, etc. are some such unnecessary costs. These affect

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export performance adversely. Although export transactions are being simplified and rule and regulations are being

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cut down, the pace is very slow. The changes ought to be made quickly without losing any further time.

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Petroleum and allied products have a comparatively large share of India’s total import bill. Global prices of
these goods keep on fluctuating, reflecting general world reversionary conditions. There is much uncertainty about

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the future movements of international prices of petroleum. Under such uncertain trends, there are always significant
downside risks to country’s balance of payments. Therefore, efficient use of these products is to be encouraged on

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war-footing while removing all distorting policies in remaining energy sectors.
Tourism was a major source of buoyant invisible earnings in the past. However, in last few years, growth of
tourist arrivals and earnings has not been satisfactory. This is in spite intense efforts by the Centre and State governments

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to accelerate expansion of tourism in India. Priority needs to be given to banishing irritants like delayed air and rail
travels, unclean hotels, lack of quick and cheap international communication. The entire tourist industry needs a
complete overhaul if we want to attract foreign tourists and increase our dollar earnings. Airport systems, entry and
exit procedures also need to be greatly improved.
There is certainly great potential for higher direct foreign investment from major companies of the world.
What is needed is our having a studied positive stance towards FDI. For this, government must give the highest
priority to get rid of red tape at every stage of FDI process. The red tape continues to be cited as the main culprit and
deterrent for many potential foreign investors. Also, all policy impediments in the infrastructure sectors, which can
absorb large FDI, need to be put to an end on a priority basis. To succeed in international arena and to become a
foremost market player at global level, India must bring to perfection every type of basis infrastructure to match
them to the world standards.

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 The financial crisis in East Asia and post Iraq-war Middle East has brought into focus the challenges and risks
involved in getting involved into free global capital movements. Such crises clearly show that capital account
liberalization has to be carefully calibrated to minimize the risks of disruption against increased uncertainty.
Q. 2. Explain briefly the constraints hampering export promotion efforts of India. How have various
agencies responded to tackle these issues?
Ans. Constraints in Export Promotion: International trade has today become a highly complex and specialized
operation. Export promotion of any kind therefore requires a high degree of skills and flexibility in approach to meet
emerging situations. There is a general feeling among many Indian industrialists and businessmen that the export
promotion efforts undertaken by the government always remain somewhat fragmented and do not take into account
all ground realities.
Obviously, export promotion can not be merely confined to traditional activities like participation in trade fairs

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and exhibitions, sponsoring trade delegations abroad, holding buyer-seller meets or reproducing popular designs in
fashion in the foreign markets. Such activities are certainly important in any export promotion programme, but they

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are no more entirely effective on their own in present situation. Today technological progress and strategic trade
alliances play a domineering role in securing product entry and increasing market share. It is in these contexts that

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India’s technological competence and marketing clout show downright limitations.

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Major hurdles in the way of India’s export growth are as discussed below:

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(a) The Technology Gap: India’s production capacity continues to be limited in terms of designs, range,

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finish, workmanship, packaging etc. This has stalled quick growth of manufactured exports. For example, automobile

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parts in the engineering sector have substantial potential in markets of Germany, Britain, France and Italy, which are

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large importers of auto parts. However, India’s market share of the product, in all these countries is not even one per

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cent. The reason is that Indian auto parts just do not conform to the stringent product standards imposed by these

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markets. Even in case of products in which we claim to have a comparative advantage i.e. hand tools, gems and
jewellery, readymade garments, etc., India’s share in individual markets has failed to show any noticeable increase

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over the years.
The textile and garments sector, regarded as the showpiece of Indian exports, is still technologically obsolete

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by world standards. This technology gap is the single most important reason for our inability in exporting high

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quality clothing including men’s suiting, winter wear, sports wear, etc. All these items have a sustained and large

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sized demand in the global markets. Capturing orders for them is vital for India to climb up the value chain in

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garment sector.

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(b) Financial Stringency: Market development is a highly specialized operation in these days of ruthless

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global competition. It also calls for large financial outlays. Such finances are often beyond the individual capacity of

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most of the exporters in the small-scale sector. Intensive market promotion requires non-stop monitoring of consumer

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needs, promotional campaigns right from the store level, publicity campaigns through suitable media like newspapers,
television, trade journals and press releases. Sometimes lobbying with opinion-makers in the government and trade

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and industry in countries of export becomes necessary. Markets are also cultivated through cross-border associations,
buy-back deals, franchising arrangements etc. Indian efforts in developing markets through such means are yet

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faltering and ineffective. Financial limitations, absence of a nodal agency to take charge of unceasing market
development and more stress given on short-term gains over long-term interests have proved to be some of the major
reasons preventing India from realizing its export goals.

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(c) Infrastructure Hurdles: Non-availability of proper infrastructure has been a critical factor holding back
Indian industry and trade from realizing its export aspirations. Even a well-designed and aggressive export promotion
campaign will have little impact if it is not backed up by necessary infrastructure facilities in the country. Infrastructure
is a generic term. It covers all basic services required for industrial growth and export expansion. Such basic and
essential services are transport (railway, airport, and airlines, shipping and ports), power, water supply,
telecommunication, sanitation, etc. Poor performance in many of these services, particularly in sectors like power,
railways, roadways and ports, has seriously eroded global competitiveness of a large number of Indian industries.
Recurring power shortages and cuts mean reduced capacity utilization by industries. It also results in unproductive
heavy expenditure such as installing own generators in the manufacturing plants. All these factors impose serious
constraints on growth. It certainly becomes difficult to plan any meaningful export campaign under such unfavourable
conditions.

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 (i) Rail Transport: In cargo transportation, railways are certainly the most energy efficient and least polluting
transport mode. Therefore, many export committees have recommended its use for maximum passenger as well as
freight traffic in the country. However, surprisingly share of railways has actually decreased over the years. Such
less use of railways is a major cause affecting competitiveness of Indian industries, because freight transport by rail
is much cheaper than road. There are some reasons for this trend such as shortage of wagons on trunk routes, lack of
adequate resources for capacity augmentation and superiority of road transport due to flexibility and convenience of
door-to-door delivery.
(ii) Road Transport: But even for the road transport things are not exactly satisfactory. The road network of
India is already highly saturated and with bottlenecks impeding further growth there is a visible adverse impact on
industrial growth and expansion. Lack of resources is often cited as the major hurdle in the progress of roadways in

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the country. It is a fact that there has not been matching investment in roads to satisfy the growing demand. Inadequate
road network means higher transportation cost. Added to this are the woes of improper maintenance of roads

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contributing to economic losses. Finally it all leads to reducing competitiveness of Indian industries.
(iii) Ports: In recent times, specially, after liberalization of polices, there has been a great increase in the port

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traffic. However, no corresponding increase in the port capacities has taken place in any of the major ports of India.

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This state of affairs of limited capacity and high demand has resulted in acute congestion in almost all ports. The

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average turnaround time for ships in India has gone up. Average output per ship, per day has become awfully poor by

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world standards. Use of outdated equipment, insufficient container handling facilities, use of labour-intensive methods,

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to handle bulk sensitive cargo like thermal coal, no proper coordination in the logistic chain have reduced productivity

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of Indian ports to appallingly low level. Poor productivity coupled with high freight transportation costs further
reduces the competitiveness of Indian exporters. It tends to nullify gains from all export promotional programmes

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and activities of the country.
For all these reasons cited above, strengthening of infrastructure in all sectors must be an integral factor of any

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export promotion policy formulated by the government.

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Effective Export Growth Strategies

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Any export promotion strategy has to take into account existing shortcomings at the micro as well as macro

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level, if it is to be effective and result-oriented. Experts have provided following guidelines for implementing a

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realistic export promotion programme by Indian government and exporters:

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1. Product/Market Development: If the country is to achieve its goal of maximising foreign trade, the first

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obvious step is to carry out a detailed survey and analysis major export markets. The survey and the analysis should

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be in the context of our own inherent strengths and weaknesses in respect of our key export products. It should also

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reveal marketing approach that must be adopted to reach and conquer major export markets. The sad fact is that

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India’s share in most of its major export products is not more than 2 to 3 per cent of the total import by any of the
importing countries. It is imperative that we know reasons for such dismal share year after year. A proper investigation

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is therefore called for to probe the reasons.
Some reasons for the poor export performance are obvious. These are as listed below:

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(i) Our exporters severely lack in technology requirements and competence.
(ii) Product finish and styling are not good enough to satisfy discerning foreign customers.
(iii) Packaging is far below accepted standards.

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(iv) Products fail to meet environment standards and concerns, particularly in the western countries.
Even in case of readymade garments, which are supposed to be our star performer in merchandise exports,
India’s share has remained below an insignificant 3 per cent of world trade. On the other hand, China’s share of the
world garment trade has increased from 4 per cent to a significant 15 per cent, in the last decade. India’s low share is
attributed to country’s inability to supply polyester cotton blended clothing and some high-value items which have
a continued demand abroad.
2. Introducing Remedial Measures: After the weaknesses are correctly diagnosed for each of the major
export products, remedial measures must be introduced with no delay and without any unnecessary and complicated
procedure. This means products up gradation should become the most crucial element of our export promotion
policy.
In the same way, market development programmes should be well articulated keeping in pace with new world
environment. There has to be an urgent shift from too much reliance on short-term conventional strategies like

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participation in trade fairs and exhibitions, visits of sales delegations, buyer-seller meets etc. to longer-term strategies
like entering into strategic production and market alliances, brand publicity campaigns and greater than ever direct
presence in the markets abroad through setting up of warehouses, overseas branch offices of government agencies,
private industry houses and Indian banks. Another excellent thrust area increased direct Indian industry presence
through company acquisitions abroad. The fact is each of the major markets warrants its own special market entry
plan to ensure optimum results.
3. Revamping Trade Information System: Trade information network in India at present is made up of a
number of Export Promotion Councils (EPCs), Federation of India Export Organisations (FIEO), chambers of
commerce and industry in various states, etc. They are somehow unable to meet information needs of Indian exporters
in today’s fast changing global trade scenario. Many of these organizations, particularly the EPC’s cite budgetary
limitations as the main cause for their failure in imparting trade information and development in time to the exporters.

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Most of these organizations had been till recently paying more attention to solving specific grievances of
individual exporters and overcoming procedural bottlenecks under the protected trade regime. Export promotion

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and activities like product and market development therefore received very little attention. The new liberalized
environment has now freed these organizations to devote more attention to trade promotion and development. However,

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their scarcity of funds and other resources and dearth of professionalism hamper their effectiveness.

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If these organizations really wish to establish themselves as effective instruments of export promotion and

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development a major revamping of services currently rendered by them is absolutely necessary. Only then they

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would gain recognition from the trade and industry people.

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Clearly, these organisations must drastically improve their commercial intelligence network in the foreign

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markets. They also need to polish their consultancy skills and upgrade their specialization in various aspects of

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export promotion. Some such areas of specialisation are:

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• Procurement counselling,
• Product adaptation and modification policies,

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• Branding and media advertising policies,
• Formulating export-marketing plans etc. to improve client servicing.

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Such improved consultancy services can be offered at suitable fees, which would also improve the financial

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position of many of these export promotion agencies. To cultivate professionalism in their services these agencies

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should bring in professional personnel and make provision for continuous training of their staff.

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4. Human Resource Development in Exports: The most neglected aspect of our export promotion and

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development efforts is the need for qualified and competent personnel in such areas.

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In India, the demand for qualified export personnel is much more than their availability. Delhi based Indian

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Institute of Foreign Trade (IIFT) is the premium institute in the country, preparing professionals to work in the

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foreign trade sector. It ought to set up its own regional chapters in various cities of India to satisfy the growing need
of persons in the foreign trade. One more way is, the leading industry houses should take initiative and establish

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world class training institutes to provide required personnel for the export sector.
Some Indian universities have recognized the need and started courses in International Trade Management in

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their curriculum. Such institutions should constantly update their course contents to reflect changes in the global
commercial environment. In addition, they must also act as change agents to impart attitudinal change among their
trainees who could be nascent exporters or officials from different export promotion organizations.

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The transition from India’s highly protected domestic economy to a highly competitive and open world
environment requires a complete change in perception and mental attitudes.
5. Speeding Up Infrastructure Development: No programme of trade development or strategy to promote
exports can succeed, if it is not fully backed by a sound and vibrant infrastructure. Main components of such
infrastructure are–power, transportation, port facilities, communication and so on.
It is in infrastructure that India is lagging much behind. Infrastructure development, in fact, forms the largest
part of its unfinished agenda of reforms. Indian government agencies have failed in bringing about necessary
improvement in basic infrastructure because of their lack of interest and inept attitude of their officials.
As an example, about ten years ago a fast track approach was announced and adopted for many priority projects
in the power sector, but hardly one or two projects have been completed and even these only partially. In the
telecommunication sector, the process of opening up has run into many procedural bottlenecks. For example, while

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in all other countries it is freely allowed, our government is still debating about use of Internet telephony. Port
congestion continues to be as grave a problem as it was a decade back at all major Indian ports. Ships entering
Mumbai or Kolkata ports need at least seven days to turn around as against a mere half a day at most of other
international ports. Although, belatedly the ports sector has been opened up to private operators, here also the
slowness in clearance of formalities by bureaucracy is proving a critical constraint.
Needless to say that in all such situations the attitudinal factor is the key determinant of the success of all
India’s export promotional efforts.
Q. 3. Give an overview of the exports of handicrafts and jewellery from India. What are India’s competitive
advantages and disadvantages in this sector?
Ans. Exports of Handicrafts: The export growth of handicrafts industry was somewhat sluggish in 1950s,

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and 1960s. The turning point came in the early 1970s. In the next three decades the exports grew phenomenally
escalating from a mere Rs. 38 crore in 1970-71 to Rs. 7072 crore in 1998-99. This amazing growth in export was

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mainly due to the market explosion the handicrafts experienced throughout 1970s and especially from the middle
of 1980s in most of the developed countries engulfed in a new culture of cults and oriental tastes.

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Besides the market boom abroad, favourable government policies and incentives introduced during 1970s

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also helped in hastening the growth of handicraft exports. Five groups of handicrafts namely, carpets, art metal

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wares, hand printed textiles, embroidered and crocheted goods and wood wares accounted for over 80 per cent of

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the total handicraft export and proved to be the most dynamic and major growth items for export. The five items

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show varying levels of export growth in the last two decades of the twentieth century. Carpets and art metal wares

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accounted for about 50 per cent of the other handicraft exports in 1998-99. These two have recorded almost 12
times and 18 times increase in their exports respectively during the twenty years from 1980 to 2000. The hand

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printed textiles and wood wares exports also made impressive gains registering nearly 30-fold and 15-fold increase
in exports respectively. But the most astonishing growth was in embroidered and crocheted goods, exports of

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which jumped to nearly 100 times during the same period. These five items continue to do well with a commanding
share of over 80 per cent in the export of other handicrafts from India.

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The performance of the remaining handicraft items in this group of other handicrafts is somewhat lagging

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because of their limited production base. The items are, however, equally important and hold excellent prospects for

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exports. Table 19.1 shows the export performance of the five key handicrafts. It also indicates the overall size and

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trend of handicraft exports from India in last two decades of the 20th century.

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Table: Export of Handicrafts from India

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(Value: Rs. Crore)

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Items 1980-81 1990-91 1996-97 1997-98 1998-99
Total Exports 352 1434 5595 6115 7072

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Woollen Carpets including
Silk and Synthetic Carpets 166 565 1780 1761 2014 A r t

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Metal Wares 72 289 972 1215 1324
Embroidered and Crocheted Goods 09 22 1031 991 1159 Hand

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Printed Textiles and Scarves 34 127 686 838 1304 Wood
wares 18 42 219 222 286
Imitation Jewellery 04 06 49 98 104 Zari
and Zari Goods 03 24 55 70 75
Shawls as Art wares 02 02 18 17 18
Miscellaneous Handicrafts 44 358 787 902

Exports of Gems and Jewellery

The gems and jewellery sector increased its export from a paltry Rs. 42 crore in 1970-71 to a magnificent
Rs. 20530 crore in 1997-98. It has become a continued source of high foreign exchange earnings for the country.
Exports from this sector accounted for 16 per cent of total exports during 1990s compared to a trifling 3 per cent in
1970-71. Cut and polished diamonds is the single largest item of export in this sector followed by gold jewellery.

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Diamonds with an export of Rs 16579 crore shared 81 per cent of the gems and jewellery exports in 1997-98 (the
share was 66 per cent in 1970-71). Gold jewellery with an export of Rs. 3077 crore formed nearly 15 per cent of the
gems and jewellery exports. The two items together accounted for 96 per cent of the gems and jewellery exports in
1997-98 and emerged as the star performers. The figures also show their huge potential for exports.
The exports of other items in terms of value are expectantly small (compared to diamonds and gold jewellery).
But in fact they have jumped from just Rs. 5 crore export in 1970-71 to Rs. 654 crore export in 1997-98. This amounts
to a 130 times increase! Though these items have excellent export prospects, they appear to be loss prospective due to
their overall small production base or limited availability of raw materials or both.
By and large, growth in exports of gems and jewellery can be ascribed to expanding demand abroad. There was
also increased world production and supply of rough stones, which proved a boon to Indian exporters. Coupled with
this was government’s liberal import policy after 1970s.

m
Table below shows the overall size and trend of gems and jewellery exports from India. The figures clearly
reflect upon the swift rise in India’s exports of diamonds and gold jewellery.

o
Table: Gems and Jewellery Exports from India

c
(Value: Rs. crore)

.
Product 1997-71 1980-81 1990-91 1997-98

Cut and Polished Diamonds

(Percentage Share)

r t n g
28
(66)
591
(92)
4739
(88)
16579
(81)

a ea i
Colour Gemstones 09 28 208 490

d
Gold Jewellery 00 15 364 3097

m
(Percentage Share) (-) (2) (7) (15)
Other Precious Metal Jewellery 00 01 15 129

y R
Pearls 01 04 08 15

d e
Synthetic Stones 01 00 00 08
Imitation/Artificial Jewellery 03 02 02 12

n
i ks
u l
Total Exports 42 642 5460 20530

t n o
Colour gemstones include other precious stones and semi-precious stones. Other precious metal jewellery

o
s O
includes silver, platinum and palladium jewellery.

r b
India’s Competitive Advantages

-
e o
We have seen that Indian handicrafts exports exhibited extraordinary growth through the decades of 70’s, 80’s

. ub and
f E
and 90’s. The stunning export performance in the wake of sudden boom in the Western markets was mainly due to
the fact that the Indian handicrafts were genuine, handmade, artistic, traditional and made out of natural raw materials.

w eH
Since then, the Indian handicrafts have continued to enjoy a strong preference in the developed countries and have
not looked back.

w Th
The overseas clients, tired of clone like machine-made and synthetic substitutes, have shown unceasing
fascination for Indian handicrafts. Handicrafts market, after going through the boom of 1970s, revived again from
mid-1980s after a slump (for few items) in the first half of 1980s. As the foreign buyers are now stuck with a decided

w
taste and preference, the Indian handicrafts are expected to have the benefit of a sustained demand in the worldwide
markets particularly in North America and Europe.
Sky is said to be the limit for demand of handicrafts from all over the world. India being a major player, it is
determined hard to retain and further push up its position in the world market. It is already the producer and supplier
of widest possible variety of handicrafts. However, even with certain distinct advantages, India is facing intense
competition in certain crafts on two fronts. On the first front, the threat is from the developed countries specialising
in machine made substitutes for Indian handicrafts. On the front the trade battle is with being fought with the South-
East Asian suppliers of handicrafts who have, mechanised their handicraft production to cope up with the overflowing
export demand. India does have some price advantages due to low labour costs against the South-East Asian suppliers.
However, there are inherent and internal barriers that are preventing India to reach a new spectacular growth in
handicraft exports.

9
 Worldwide markets for gems and jewellery on the whole and those of cut and polished diamonds and gold
jewellery in particular are amply large and continue to grow. To satisfy this increasing demand India even started
importing more quantity of rough diamonds and expanded its production base. Indian diamond industry developed
necessary skills in cutting, polishing and export of small (and tiny) size diamonds. These are immensely in demand
as raw materials by the diamond-studded-jewellery industry chiefly in the developed countries.
Indian gold jewellery industry too had a vast production base and large number of skilled and semi-skilled
artisans. Soon after The Indian Gold Control Rules and Regulations were relaxed, it started exploring overseas
markets for Indian type gold jewellery. In its search, it literally struck gold with massive orders from USA, Middle
East and UK from 1990 onwards.
India’s Competitive Disadvantages

m
The dismal exports performance of Indian diamonds till 1980 and that of gold jewellery till 1990 was not
exactly because of lack of export orders. It was due to certain external and mostly internal factors and barriers. The

o
disadvantages from which the industry suffered and still suffers are as follows:
1. Indian diamond industry is capable of satisfying global demand of large and medium size diamonds. However,

c
it has been unable to do so as it has no required access to large and medium size rough diamonds.

.
2. Indian diamond industry faces fierce challenge for small size low value (Indian type) diamonds from some

t
East Asian countries like China and Thailand. These countries have built up a highly modernised diamond

r g
industry using latest technology to win over overseas markets with fast deliveries at cheaper rates.

n
3. Indian diamond and gold jewellery segments are even now much behind their competitors in terms of use of

a ead i
sophisticated tools, techniques and latest technology. They need urgent modernisation.
4. India’s pace in the global race of product and market diversification for the vast demand in world markets is

m
awfully slow.
5. There is complete lack of design developments and infrastructure facilities for the artisans like the Hall

y R
marking and Assaying.

d
All these major disadvantages are proving detrimental to India’s aspirations to rise to new heights in satisfying

e
demand for the gold jewellery in the overseas markets.

n
i ks
u l
Q. 4. Define services. Discuss India’s export and avenues of services.

t n o
Ans. What is Meant by Services?

o
s O
In commerce, we often come across terms such as services and invisibles. The term invisible is used mostly

r b
related to the balance of payments situation. All the major heads of Current Account barring merchandise are treated

-
e o
as ‘invisible’. This is because for a layman, merchandise is tangible. One can touch it physically. Services, on the

. ub and
f E
other hand, are intangible. One cannot touch them or see them physically.
The term ‘services’ is used in the context of a general nature. ‘Services’ are defined just by contrasting them

w eH
with merchandise such as immateriality, non-storability and simultaneous production and consumption. However,
due to technological advances some of these features of services have changed. For example, remote delivery of

w Th
services is now possible by latest means of communication, computerized storage of data-flows, etc.
The modern definition of services, therefore, reads as follows:
A service can be defined as an act which is the result of productive activity and whose effect is to change the

w
status or position of a beneficiary.
The service output is not discernible from its production process and the result or effect of the service is
inseparable from its beneficiary and cannot form the subject of a new transaction. In view of this, services are
classified as activities and not as products. Kotler and Bloom define services as any activity or benefit that that one
party can offer to another that is essentially intangible and does not result in ownership of anything. Its production
may or may not be tied to a physical product. However, services can be owned using various legal means.
Services generally cover activities of construction, transport and communication, wholesale and retail trade,
financial services, and domestic services. Government itself offers a number of services. These include public
administration, education, health, defence, social services, medical, legal services, tourism, etc.
Importance of Services Sector for India
At present the services sector is of considerable importance to the Indian economy. It accounts for as much as
41 per cent of country’s GPD. The sector is expected to reach 50 per cent share in GDP soon. Also, services exports

10
are likely to be one-third of the merchandise exports. India’s exports of services were $9.3 billion, while its merchandise
exports were $32.2 billion in 1997. However, Indian share in the world services markets is only 0.5 per cent. So far,
it was expanding by 16 per cent every year. Now, it is estimated to grow at the rate of 26 per cent.
The services sector is certainly growing at a faster rate compared to other sectors. Table 30.1 shows growing
export of services from India. It can be seen that it has increased from 3719 million dollar in the year 1988 to 11067
million dollar in the year 1998.
Table : India’s Exports of Commercial Services
0 0, 0000 (Million dollars)
Year Value
1988 3719

m
1989 4092

o
1990 4609
1991 4905

.c
1992 4893

t
1993 5034

r g
1994 6031

n
1995 6763

a ea d i 1996 7179
1997 8926

m
1998 11067

y R
Conventional Services

d e
The services sector in India has a large number of components. Major sectors of conventional services of

n
i ks
these are as described below:

u l
1. Tourism and Travels: Tourism and travel have a great future for high growth in the country. India is likely

t n o
to achieve yearly growth of over 12 per cent in foreign tourist arrivals in coming years. International trade in tourism

o
s
means individuals residing in one country travel to other countries to spend on tourism services. India is already a

O b
major tourist attraction because of its cultural and physical resources, strategic location and the availability of low

r -
e
cost labour. However, the tourism industry is highly capital-intensive in some segments. That is why, industrialized

o
. ub and
f E
countries still account for over 80 per cent of tourist arrivals and international receipts.
2. Construction and Engineering Services: India certainly enjoys a comparative advantage in this growing

w eH
sector. The advantage consists of the availability of low cost skilled and semi-skilled labour, mastery of appropriate
technologies to suit to conditions often found in other developing countries.
However, there are also some serious difficulties. Most countries do not encourage migrant construction labour

w Th
to work. This means Indian government has to intervene and hold negotiations with other countries to pave the way
for export of these services by removing all legal barriers.

w
3. Financial Services: The GATS defines financial services as: A financial service is any service of a financial
nature offered by a financial service supplier of a member government. These services include all banking and other
financial services excluding insurance.
Banking activities abroad for Indian banks are costly and also much competitive. The overseas branches of
Indian banks with their modest resources are mostly not in a position to carry any local business. This is because the
cost of raising funds abroad is prohibitive in spite of improved credit rating of India. They generally focus on India
related business like funding of letters of credit and remittances. Indian banks show a somewhat better performance
in developing countries. Their performance in leading world financial centres like London and New York is very
poor as they are unable to compete with big banks. India has, therefore, to pay more attention to banking in the
developing countries. The State Bank of India has largest presence outside India among the Indian banks. It is now
also establishing branches in Commonwealth of Independent State (CIS) countries in Central Asia and Eastern
Europe.

11
 As a start, Indian banks should set up branches in those countries with which India can have long-term trade
relations. Only after having a firm presence in many developing countries, Indian banks can think of establishing
branches or subsidiaries in developed countries.
4. Insurance: Insurance is structurally one of the most complex industries in the world economy. It is also the
most regulated sector because of the susceptibility to chronic crises. Asia has a big share of world insurance at 25-30
per cent. The General Insurance Corporation (GIC), India and its four subsidiaries satisfy six to seven out of eight
international norms. Indian insurance industry is in a position to lead insurance business among developing countries
due to its financial strength, lower costs, skilled manpower and lack of reinsures for low volume of business in such
countries.
Life Insurance Corporation of India has already set up its offices in Britain, Mauritius and Fiji. In 1992, LIC

m
started selling unit-linked products in the UK, in collaboration with a leading British life insurance company-Sun
Life. LIC has also a subsidiary in Bahrain called LI International EC. In Kenya (East Africa), which has large

o
population of people of Indian origin, it has set up a joint venture.
The General Insurance Corporation and its subsidiaries have a direct presence in 18 countries. It is also

c
functioning through associates/locally incorporated subsidiaries in some other countries. The insurance companies

.
of India can do excellent business by becoming sub-contractors for many TNCs who do insurance business in

t
specialized areas

r g
5. Indian Shipping Services: Shipping services from India were almost insignificant at the time of Independence.

n
However, since then there has been an enormous expansion of this sector. In 1998 India was 17th among the world’s

a ead i
maritime nations in terms of tonnage (gross tons) by flag of registration. It had a fleet strength of 425 vessels of 6.41
million qrt with an average age of 15 years. In terms of dwt India’s ranking among world’s maritime nations was

m
even better. India was 15th with a fleet strength of 10.68 million dwt.
Shipping services provided by a country in its global trade form a very important source of foreign exchange

y R
earnings as well as savings.

d
The World Trade Organization (WTO) is now conducting negotiations in maritime services. There are serious

e
differences between the developed and developing countries on the Maritime Services Accord. One does not know

n
i ks
u
when the final agreement will be reached.

l
t
Shipping industries is now recognized as a service export industry because of its importance as a foreign

n o
exchange earner and saver. It is expected to increase its share of world shipping from 0.5 per cent to 1 per cent. A

o
s O
basic hurdle in growth of Indian shipping industry is by and large the badly maintained Indian ports. If the condition

r - b
of Indian ports is improved and they are totally modernized, Indian shipping will grow at a much faster pace.

e o
. ub and
6. Air Transportation: In last two decades, there has been an astonishing increase in the volume of air traffic

f E
in both domestic and international circuits. Over this period, the domestic air traffic has shown an average yearly
growth of 10 per cent. The Air India traffic registered an average growth of 12 per cent. Government has now

w eH
speeded up the development of civil aviation in India. There have been several policy decisions to encourage growth
in air travel. For example, the transit charter policy is now liberalized to help foreign tourists visiting the country.

w Th
The new open sky policy for cargo has proved to be a boon for quick movement of export cargo. The monopoly of
Indian Airlines has come to an end. The domestic air routes are now open to private operators. Government is also
completely restructuring Air India and Indian Airlines.

w
Air India has been a well-known carrier worldwide with its charming Maharaja symbol and also profitable. It
is a successful international airliner. The ethnic base of millions of people and an excellent past are its favourable
factors. However, it is still a relatively small carrier flying only 2 million passengers every year compared to 24
millions of the British Airways. It must augment its fleet and market its services aggressively to compete effectively
in the global air market.
7. Export of Labour from India: India is a capital starved country and certainly not in a position to export any
capital. In technology too, India does not have any advanced technology of its own to export. India can, however,
export intermediate technology required in some developing countries. But these countries generally prefer to import
advanced technology regardless of the fact of its immediate use or applicability. Moreover, the financial assistance
received by these countries is often tied to buying goods and services from the donor countries. Foreign Direct
Investment (FDI), most of which comes from the developed countries also strengthens the tendency to ask for
advanced technology.

12
 The most important service that can be exported from India is labour. Migration of Indian labour is not a new
phenomenon. Even in the 19th century labour from India was sent abroad to countries like West Indies, South Africa,
Fiji, Mauritius, etc.
According to an estimate more than one million Indians have migrated from India in the recent times.
Most of these emigrants have gone to oil exporting countries in the Gulf area. Highly qualified specialists go to
advanced countries like USA, Canada, Australia, and the European nations. This labour force abroad also remits
substantial funds to India.
The markets for construction workers in the turnkey projects are mostly available in the African and Middle
East countries. India often gets sub-contracts for labour components on these construction works. However, the
demand in the Middle East and other labour employing countries has progressively shifted towards skilled and
highly skilled manpower with their own industrial advancement and use of high-level technology. India has to train

m
and develop skilled manpower to satisfy these emerging requirements.
8. Software: Computer software is one of the most thriving services in which India has a clear edge over many

o
other countries. India’s software exports have grown significantly in the last decade. The growth rate per year is a
fantastic 40-50-percentage. Exports constitute as much as 50 to 60 per cent of the total software production.

c
The software trade can be broadly divided into two parts: (1) provider of services going to the place of use, and

.
(2) distance between provider of services and the consumer. Service in category (1) is known as body shopping. It is

t
bound by immigration restrictions. India supplies a large number of computer personnel all over the world. However,

r
the growth in this is not much due to immigration restrictions in the US and other developed countries. Because of

g
this distant services have assumed more importance. The satellite links and the Internet have made distance services

n
a ea i
very easy to implement along with online financial transactions. There is a $300 billion software market in the

d
world. India can definitely cut and have a large slice of this market.
Data entry is another type of computer service India is offering aggressively. This service requires contact and

m
trust. Although India has an edge in the price, it is not the only factor that matters to get the contracts.

y
India suffers from two disadvantages: (1) limited satellite links, and (2) trustworthiness. There is a feeling that

R
India may abuse her intellectual property rights. If India can convince trans-national companies about her professional

d e
trustworthiness, the market to export software will explode in no time.

n
i ks
India has many comparative advantages in software exports. First, India is splendidly gifted with human capital.

u l
Second, the contribution of its expatriates has been considerable. Third, according to many software specialists,

t n o
Indians have an innate mathematical ability, which gives the country a definite comparative advantage in development
of software. Fourth, the Government of India is actively supporting the software sector.

o
s O
Non-conventional Services

r - b
e
Till now, we have studied the conventional services offered by India and their export potential. There are also

o
. ub and E
a good number of non-conventional services in which India enjoys certain advantages to grow as an important

f
exporter. Most of these services are technology based.
Six such services are surveyed here in brief. They are:

w eH
1. Super speciality hospitals and related services
2. Satellite mapping

w Th
3. Standardization and quality assurance services
4. Printing services

w
5. Maintenance services
6. Technology-intensive educational services.
1. Super Speciality Hospitals and Related Services: India has now a chain super speciality hospitals and
ultra-modern diagnostic centres with state of the art facilities. These are capable of providing world-class health care
services at only about one-tenth cost of comparable services in developed nations. The weakness of this sector is it
is yet to do its proper sales promotion and marketing.
2. Satellite Mapping Services: The Indian space programme had a modest start in the sixties. It mainly aims
at development and application of space technology and space sciences for socio-economic benefits. In the last four
decades, India has gained much expertise in the field. The programme has proved its potential in addressing many
national needs. Today it is in so advanced stage that it not only meets country’s needs, but also is ready to export this
service.

13
 As things stand, the service is not part of exportable services. But India is certainly internationalising its space
services. The ever-increasing capabilities of Indian satellites have made possible many new space services in the
country. Thanks to them, India is now in a position to compete in providing space services to outside world too.
A major use of satellites is for detailed mapping of areas, information about crops degraded lands, forest
covers, land use and land cover, agricultural drought, oceanic surveys, etc. India is very competitive in offering
these, as its price of services is very moderate.
3. Standardisation and Quality Assurance Services: Quality is a prerequisite to building competitiveness in
today’s world trade. The worldwide movement for quality management system at the enterprise level began in
1979s. It is now bearing fruits, as there is a mounting demand by manufacturing and services companies for quality
system certificates confirming to ISO standards. Such certification gives a competitive edge to companies, in domestic

m
and also in the global markets. It trims down costs, ensures consistent quality and creates confidence in the mind of
the consumer.

o
Although presently there is no worthwhile export of this service, India is in a position to do so because it has a
good supply base and it can enter into necessary international contracts through MOUs. India is, however, engaged

c
in training of people from foreign countries, especially from SAARC countries. It is also providing consultancy in

.
quality improvements programmes to many developing nations.

t
4. Printing Services: Printing industry has a remarkable history of last 500 years. Possibly no other industry

r g
has witnessed so much upheaval in technology and uses in so many ways. Today, the digital technology has totally

n
transformed the printing industry in almost all its aspects.

a ead i
In India, printing activity is mostly confined to the small-scale sector. There are about 160,000 printers in India.
Many of them are well modernized to meet the needs of colour off set revolution.

m
India’s export of books has also gone up in last few years. An important aspect of this is job printing for
overseas publishers. This has suddenly emerged as a big business and export earner. Printing in India is inexpensive.

y R
The depreciation of rupee has made it even cheaper for publishers abroad. Secondly, labour is required to work

d
overtime in this line and it is cheaply available in India. In job printing, the manuscript of a book is sent by the

e
publisher abroad to the Indian printer. The book is then printed in India and sent to the original publisher. The cost is

n
i ks
u
as less as one-tenth of the books printed in developed nations. However, Singapore and Hong Kong have already

l
t
taken a lead as competitors over India.

n o
This sector was under negotiation in GATS of the WTO. Many countries have agreed to open up their markets.

o
s O
There is, however, lack of knowledge among the printers about exports. Foreign markets are large mainly for short-

r - b
term jobs and therefore orders are nominally for one time printing. Rate should be quoted accordingly. Most of

e o
. ub and
Indian presses offering exporting services cover all-inclusive range of printing needs. In this line, typesetting is also

f E
a money-spinning operation especially for developing countries.
5. Maintenance Services: Maintenance and repairs normally mean the activities that keep fixed assets in

w eH
efficient operating condition. Maintenance is of great importance in the proper running of any industry in manufacturing
or service sector. Aircraft maintenance, ship repairs, road transports, all these sectors have turned into big money

w Th
earners maintenance services in India.
A vast number of opportunities exist for the maintenance services of any kind. An important segment is the
construction and maintenance including preventive maintenance in countries like Middle East, SAARC countries,

w
Malaysia, Zambia, Vietnam etc. Services offered are maintenance management, consultancy for electrification and
maintenance of already electrified systems, technical audit of operations, consultancy services for operation of
detailed projects and construction management, highway design, consultancy for privatization of state-owned roads,
etc.
Indian companies have carried out maintenance assignments in Mexico, Portugal, Iran, Iraq, Tanzania, Zaire,
and Sudan, etc. Maintenance services are a part of the GATS in the W.T.O.
6. Technology-intensive Educational Services: Education is a much sought after service today in almost
every developing country. Globalization of Higher Education has become a popular slogan everywhere. Because it
is the only means of reducing the gap between the capabilities of developed and developing countries. India has
much to offer in imparting education with its vast network of educational institutions.
The Indian academic community consists of 213 universities, over 8000 colleges, 2,500 research institutions,
310 medical colleges, about 400 technical institutions and a large number of R&D centres. There are also the

14
premier Indian Institutes of Technology at Mumbai, Delhi, Chennai, Kanpur, Guwahati, Roorkee and Kharagpur.
Many of the technology-intensive universities also offer a range of special training programmes. The main competitors
for India in this sector are USA, UK and Australia. However, education in India is much cheaper for the developing
countries and the neighbouring countries than in the West.
Q. 5. Write short notes on the following:
(a) Balance of Payments
Ans. Concept of Balance of Payment: Balance of payment refers to all economic transactions between domestic
and foreign residents over a stipulated period, which is generally one year. The analysis of balance of payment is
immensely useful for the policy-makers and business communities. Moreover, it is an important instrument for
maintaining external economic stability. A close understanding of dependence of international business upon balance
of payments is necessary for a successful strategy in international business.

m
Balance of Payment Accounting
In balance of payments accounting, the balance of payments should be zero because every transaction is two-

o
sided with debits balancing credits. However, in practice, the balance of payments will rarely be equal to zero. This
is due to, among other things, a country’s central bank (RBI in India’s case) doing transactions that are not part of the

c
balance of payment, or even lack of statistical data to record all transactions.

.
Balance of payments is classified as:

t
1. Balance of payment on current account, and

r g
2. Balance of payment on capital account.

n
1. BOP on Current Account: The balance of payment on current account records the current position of the

a ea i
country in the transfer of goods, services, and merchandise as well as invisible items, donations, unilateral transfers,

d
etc. A current account is like an income and expenditure account. Surplus or deficit in current account is transferred

m
to the capital account, which is like a balance sheet and thus balances itself in the overall picture.
2. BOP on Capital Account: Balance of payments on capital account shows the country’s financial position in

y R
the global context. It covers accumulated foreign exchange reserves, foreign assets and liabilities and the bearing of
current transactions on international financial positions. The changes in foreign exchange reserves effected by current

d e
account transactions are part of the capital account. This helps in finding out the exact foreign exchange reserve of

n
i ks
u
the country on a given date. The capital account offers relief to deteriorating balance of payment positions. Its

l
t
favourable effect is directly related to the availability of net capital transfers, i.e. gross inflow of capital minus

n o
payment by way of amortization. Capital account thus reflects changes in foreign assets and liabilities of a country

o
s O
and directly shows its creditor/debtor position. Net changes in current account are reflected by a relevant opposite

r - b
change in the capital accounts altering the foreign assets and liabilities position of the country. Table 3.1 shows a

e o
. ub and
wide range of items of balance of payment.

f E Table: Main Items in the Balance of Payments

w eH
Item Definition

w Th
A. Current Account (1+2)
(a)Merchandise exports Sales of goods abroad
(b) Merchandise imports Purchase of foreign goods

w
1. Trade balance (a – b) Goods trade balance
2. Invisibles (a+b+c+d)
(a)Non-factor Services (i) Sales of services, e.g. insurance, software plus spending of foreign
visitors (tourists)
(ii) Purchase of foreign services
(b)Investment Income (i) Dividends, interest etc. received from abroad
(ii) Payment of dividends, interest etc.
(c)Private transfers Net private payments, e.g., remittance from workers abroad.

(d)Official Transfers-Grants Net official payments, e.g., overseas aid.

15
 Item Definition
B. Capital Account (1+2+3+4)
1. Foreign Investment
(a) Direct Investment Net direct investment in plant and machinery etc.
(b) Portfolio Investment Net purchases/sales of shares, bonds, etc.

2. Other flows Sum of other items, including delayed export receipts and E&O.
3. Commission. and other borrowings Official borrowing and lending.
4. Non-resident deposits (net)

m
C. Reserves and monetary gold

o
(b) Role of international organizations in world trade.

c
Ans. Role of Global organizations in World Trade: There are many international organizations like World

.
Trade Organization (WTO), International Monetary Fund (IMF), World Bank, United Nations Conference on Trade

t
and Development (UNCTAD), Asian Development Bank (ADB), Economic and Social Commission for Asia and
the Pacific (ESCAP), United Nations Industrial Development Organization (UNIDO), Food and Agriculture

r g
Organization (FAO), Organization of the Petroleum Exporting Countries (OPEC), Organization for Economic

n
a ead i
Cooperation and Development (OECD), International Chamber of Commerce (ICC), etc. which are directly or
indirectly involved in the promotion of world trade. Besides these international organizations, there are also a large
number of regional economic groups, which are part of efforts for the advancement of world trade. Important ones

m
among these are European Union (EU), North America Free Trade Area (NAFTA), Association of South-East Asian

y
Nations (ASEAN), South Asian Association of Regional Cooperation (SAARC), etc.

R
Among all these organisations, World Trade Organization is the only international organization dealing with

d e
the rules and regulations of trade between nations. It came into existence in 1995. One of the youngest of the

n
i ks
international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) set up

u l
after the Second World-War. GATT and the WTO have helped to create strong and prosperous trading systems

t n o
contributing to extraordinary growth in world trade. WTO’s main function is to ensure that trade flows smoothly,
freely, fairly and predictably. This is achieved by:

o
s O
(i) Administering trade agreements

r - b
e
(ii) Acting as a forum for trade negotiations

o
. ub and
f E
(iii) Setting trade disputes among nations
(iv) Reviewing national trade policies

w eH
(v) Assisting developing countries in trade policy issues, through technical assistance and training programmes
(vi) Cooperating with other international organizations.
Today, WTO has more than 140 members, accounting for over 90 per cent of the world trade. Many other

w Th
nations are negotiating for its membership.
(c) Indo-US trade prospects

w
Ans. While the United States is world’s leading exporter and importer, India is an awfully insignificant trade
player in the global market accounting for a mere 0.7 per cent of world exports and imports. However, for India USA
is its largest trading partner. Table 31.5 shows India’s exports with USA.
India’s exports to USA have gone up continuously for last several years. The exports rose from $ 3994.87
million in 1993-94 to $ 8544.28 million in 1999-2000. Similarly, the imports increased from $2738.81 million in
1993-94 to $ 3633.95 million in 1999-2000. The growth in exports is clearly faster than the growth in imports.
India’s trade balances with USA have always been positive. This favourable trade balance was up from $ 1256.06
million in 1993-94 to $4910.33 million in 1999-2000.
For United States foreign trade India is a very trivial trade partner as India’s share in United States trade has
been very insignificant. However, from India’s point of view the United States is the most important trading partner
for her in the world. In the year 1998-99, USA accounted for 21.8 per cent of India’s total exports and 8.7 per cent
of India’s total imports. Therefore, USA is a very valuable market for India.

16
 The Indo-US trade and economic cooperation has received substantial boost in recent years. A number of
factors are responsible for this trend. The economic liberalization measures implemented by the Government of
India since June, 1991 coupled with high-level talks between the two governments have paved way for a wide range
of openings for US companies in the large and growing market of India. Equally India now has better chances of
boosting its exports substantially to the US by employing viable export strategies.
In the wake of economic reforms, India has eased import controls on many hi-tech items, capital goods and
intermediate inputs. There are now lowered tax rates and regulations governing productions have been rationalized
to facilitate entry of foreign companies. These policies have helped bearing frit by ensuring continued growth.
As pointed out earlier, United States has always been a major trade partner for India having largest share in its
exports and imports over all these years. The US has also been the most important investor in India and also the
major source of this country’s technology imports. In spite of this surprisingly the level of trade and investment has

m
remained modest all these years.
One reason for this must be that India has after all only a trivial part in the US trade. Strengthening of bilateral

o
economic cooperation between the two countries would need distinctive efforts on both sides in the spirit of true,
mutually advantageous collaboration. Such efforts are called for at both governmental and industry levels. Both

c
USA and India are large democracies where the media and various lobbies play active roles. More often than not,

.
such domestic lobbies are inclined to be protectionist and try to influence media and politicians. Bilateral interaction

t
should therefore also take care of media and the political class.

r g
The sluggish growth of India’s exports to the US markets and US exports to India can be ascribed mainly to the

n
earlier over-protective trade policies of Nehru era in India. However, to some extent, existence of different forms of

a ea i
explicit and implicit trade restrictions in selected areas in the US has also been responsible for it. Things are certainly

d
brightening up now, after the initiation of reform process in India.

m
(d) India-SAARC trade
Ans. India-SAARC Trade: India’s exports to SAARC are on rise. In the year 1993-94 the export was 897.25$

y R
million and reached to 1722.68$ million in 1995-96. It marginally reduced in the year 1996-97 and again decreased
in 1997-98. It slightly increased in 1998-99. But, it was down to 1414.28$ million in the year 1998-2000. The

d e
imports have also seen the same pattern. The value of import was 113.57$ million in 1993-94 and went up to 256.80$

n
i ks
u
million in 1995-96. It marginally reduced in 1996-97 and 1997-98 and increased to $465.45 million in 1998-99 to

l
t
again reduce to $325.60 million in 1999-2000. India’s trade balance with SAARC has been positive. The trade

n o
balance was 783.68$ million in 1993-94 and went up to 1465.88$ million in 1995-96. The trade balance reduced to

o
s O
1088.68$ million in the year 1999-2000. Table 34.2. shows India’s trade with SAARC.

r - b
India’s major items of exports of SAARC include: cotton yarn fabric made ups, transport equipment, non-

e o
. ub and
basmati rice, drugs, pharmaceuticals and fine chemicals, machinery and instruments, primary and semi-finished iron

f E
and steel, pulses, manufactures of metals, glass, etc, paper/wood products, spices, etc. India’s major items of imports
are jute raw, textiles yarn fabric made ups, inorganic chemicals, fruits and nuts, essential oil and cosmetic preparations,

w eH
sugar, petroleum crude and products, metal ferrous ores and metal scrap, iron and steel, spices, etc.
Table : India’s Trade with SAARC

w Th
Years Export Import Trade Balance

w
1993-94 897.25 113.57 783.68
1994-95 1215.37 176-80 1038.57
1995-96 1722.68 256.80 1465.88
1996-97 1703.08 241.78 1461.30
1997-98 1612.91 234.58 1378.33
1998-99 1678.79 465.45 1213.34
1999-2000 1414.28 325.60 1088.68

n n

17