UNIT 18 BALANCE OF PAYMENTS AND

EXIM POLICY
Structure

Objectives
Introduction
Trends in India's Foreign Trade
18.2.1 Commodity Composition of Exports
18.2.2 Commodity Composition of Imports
18.2.3 Direction of Exports
18.2.4 Direction of Imports
Export Promotion Measures
Regulation of Foreign Trade in India
Trends in India's Balance of Payments
18.5.1 Balance of Payments Accounts '
18.5.2 Measures Adopted to improve India's Balance of Payments
Export Import Policy
18.6.1 General Provisions
18.6.2 Imports
18.6.3 Exports
Role of Export- Import Bank of India
Foreign Exchange Management Act, 1999
Let us Sum Up
Key Words
Answers to Check Your Progress
Terminal Questions

18.0 OBJECTIVES
After studying this Unit, you should be able to:
analyse the trends in India's foreign trade;
b
analyse the commodity composition and markets for India's exports;
discuss the commodity composition and direction of India's imports;
explain the export promotion measures initiated by Government of India;
discuss the regulatory mechanisms of foreign trade;
examine the trends in India's balance of payments;
prepare the balance of payments account;
discuss the measures for improving India's balance of payments;
explain the E X M policy of Government of India; and
discuss the role of EXIM Bank of India.
describ? thp provisions of FEMA, 1999.

18.1 INTRODUCTION
Foreign trade has been considered as an important vehicle for accelerating the
economic growth of the country. Several South East Asian countries have adopted
International and Technical
Eovlrooncnt
export led growth strategy and witnessed faster and higher economic growth.
Government of India also initiated economic reforms in July 1991 and introduced
several measures for promoting exports, facilitating imports and improving the balance
of payments of the country. In this unit, you will learn the trends in India's foreigh
trade and export promotion measures. You will be further acquainted' with the
regulation of foreign trade, trends in India's balance of payments and EXIM policy.
You will be also exposed to the Role of EXIM bank of India and the provisions of
Foreign Exchange Management Act 1999.

18.2 TRENDS IN INDIA'S FOREIGN TRADE

'

Foreign trade has been considered as an important element of economic growth of the
country. It helps in the flow of technology, capital and management, stimulating the
saving rate of the country, creating the additional employment, attaining the economies
of scale, and enhancing overall competitiveness of the firm. The domestic firms are
forced to enhance the quality and productivity to meet the competition of the foreign
firms. Several studies have shown that the export led growth strategy has accelerated
the economic growth of the country. This is reflected in case of East Asian Countries,
which have followed the export led strategy and grew faster than the protected
economy. Look at Table 18.1 which shows share in world exports of selected countries.
The share in world exports of China was 5.9%, Hong Kong 3.0%, Korea 2.6%,
Singapore 1.9%, Malaysia 1.3%, Thailand 1.I%, Indonesia 0.8% and India 0.8% in the
year 2003. The share of developing countries to the world export was 38.7% in the
year 2003. In the year 2003, India's export was US $57.1 billion, whereas china's
export was US $437.9 billion, HongKong US $224.0 billion, Korea US $ 193.8
billion, Singapore US $ 144.2 billion, Indonesia US $99.4 billion, Thailand US $ 80.5
billion, Indonesia US $61.1 billion. These figures suggest that India must focus on the
acceleration of the export growth to increase her share in the global trade and fasten the
pace of economic growth.

Table 18.1 : Share in world exports of selected countries

(US$ billion)
Country Share in World Exports Exports value US
200 1 2002 2003 $billion

China 4.3 ( 5.1 ( 5.9 1 437.9

I 1 I I

Hong Kong 3.1 3.1 3.0 224.0

Korea 2.5 2.5 2.6 193.8
Singapore 2.0 1.9 1.9 144.2
Malaysia 1.4 1.5 1.3 99.4
I Thailand 1.1 1 1.1 I 1.1 I 80.5 1
Indonesia 0.9 0.9 0.8 61.1
India 0.7 0.8 0.8 57.1
Developing 36.8 37.9 38.7 2878.1
Countries
( World 100.0 ( 100.0 ( 100.0 ( 7439.1 (
Source: Economic Survey, GOI, 2004-05.
 Balance of Payments and
Table: 18.2 : India's exports, imports and trade balances EXlM Policy
(US$ million)
Year Exports Imports Trade Balance
1951-52 1540 1981 -44 1
1961-62 1389
1971-72 2144
1981-82 8702 15171

2003-04 640 12 78356 -14345

2004-05 79409 107285 -27876
Source: CMIE, July 2003

After witnessing India's position vis a vis selected East Asian countries let us analyse
the trends, of India's foreign trade. Look at Table 18.2, which shows this trend. It
clearly indicates that India's exports was merely US $ 1540 million in the year 1951-52
which went up to US $52856 million in the year 2002-03and US $79409 in the year
2004-05. Similarly the import has also increased from US $ 1981 million in 1951-52
to US $61572 million in 2002-03. It has further increased to US $107285 in 2004-05.
It is clear that both exports and imports have been increasing over the period but the
imports have increased at a faster rate than the exports. As a result the negative trade
balance has been also increasing. The trade balance was US$ -441 million in the year
1951-52 which has gone up to US $ -8715 million in the year 2002-03. It has further
increased to US $ -27876 in the year 2004-05.

As you must be aware that the trade deficits can be reduced either by decreasing the
imports or increasing the exports. If you analyse the composition of India's imports,
you will find that most of the import commodities are inelastic. For example petroleum
products and capital goods account for 28% and 12% of India's total imports for the
year 2004-05.\The curtailment of these imports may adversely affect the developmental
work of the country. Therefore, it is advisable to increase the exports while managing
the imports.

Realising the above facts and the growing importance of exports in the economic
development of the economy, the Government of India took major i,nitiativein July
1991 by introducing economic reforms in industrial, trade and fiscal policy. Liberalised
trade regime focussed on creating favourable environment for foreign trade. Various
export promotion measures were adopted to increase exports from the country. These
initiatives helped in increasing the exports and the contribution of exports as a
percentage of GDP went up from 5.8% in the year 1990-91 to 9.4%(in the year 2001-
02. It has further increased to 10.8% of GDP in the year 2003-04.
 \
International and Technical
Environment
18.2.1 Commodity Composition of Exports

During 50's India's major export products were tea, cotton, textiles, jute, spices,
tobacco etc. These commodities were basically agricultural based commodities. Over
the period the focus was shifted to export the manufactured products. The share of
manufactured goods in India's total export was 76.1% in the year 2001-02 which was
slightly decreased from 78.0% in the year 2000-01. This share was 76.6% in the year
2002-03.
Table: 18.3 : Commodity composition of India's exports

Commodities 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Agricultural & 6868.5 6634.2 6033.1 56 14.8 5982.9 592 1.3 6727.4 7553.1 8020.4
allied products
Ores &minerals 1173.4 1062.3 893.2 917.2 1154.9 1266.7 2001.2 2375.0 4202.0
Leather & 1607.2 1658.7 1660.3 1592.2 1947.6 1916.6 1853.1 2168.8 2293.9
leather
manu factllres
Chemicals & 2841.9 3335.5 3057.2 3571.7 4260.1 4319.4 5294.7 6487.3 7552.8
related products
Engineering 4895.6 5282.9 4378.1 51 12.6 6761.2 6960.1 9014.5 12361.5 16425.1
goods
Textiles (excl 4886.7 5180.5 4500.4 5063.1 5725.4 5217.5 5942.5 6577.4 6601.1
RMG)
Readymade 3756.5 3880.9 4364.0 4770.9 5538.0 5023.7 5704.7 6248.0 6038.7
garments
(RMG)
Gems & 4756.7 5352.0 5928.0 7511.4 739k11 7331.2 9053.4 10601.4 13733.4
Jewellery
Other 1889.7 1888.2 1897.7 2128.7 2722.9 2714.9 3486.1 4176.4 5641.8
manufactured
goods
Petroleum and 482.2 353.2 89.4 30.0 1895.5 2126.4 2583.2 3577.9 6806.0
crude products
Other 339.8 420.3 409.5 446.8 722.9 1178.3 1195.4 1885.3 2093.6
commodities
Total 33498.0 35048.7 33211.0 36760.0 44147.4 43976.0 52856.3 64012.0 79408.8
Source: CMIE, July, 2005

Look at Table 18.3 which shows commodity composition of India's exports. It

indicates that manufactured and value added products have emerged as the most
vibrant commodities of India's export.

The major export commodities for the year 2004-05 were engineering goods, gems and
Jewellery, agricultural and allied products, chemicals and related products, petroleum
and crude products, readymade garments, textiles, ores and mineral and leather and
leather manufactures. The exports of engineering goods have witnessed increasing
trends and increased from US $4895.6 million in the year 1996-97 to US $ 16425.1
million in the year 2004-05. The contribution of engineering goods to India's total
export was 21% in the year 2004-05. The exports of engineering goods grew due to
rising demand in East Asia and China. The second leading item was gems and
Jewellery. The export of gems and Jewellery increased from US $4756.7 million in
the year 1996-97 to US $ 13733.4 million in the year 2004-05. The contribution of
gems and jewellery export to India's export was 17% in the year 2004-05. This sector
being highly labour intensive and India's advantageous position in the sophisticated
artisan work and craftsmanship provide immense export opportunity. The third leading
export item is agricultural and allied pro&*ts. The export of agricultural and allied
products increased from US $6868.5 million in the year 1996-97 to US $8020.4
million in the year 2004-05. The share of agricultural and allied products to Icdia's
total export was 10% in the year 2004-05.. In agriculture, the exports of traditional
items such as marine products, cashew nuts, spices and cereals like rice declined and
 Balance o f Payments and
those of non traditional items like wheat, fruits and vegetables, meat and meat EXIM Policy
preparations continued to rise in 2003-04. The fourth leading export item was
chemicals and related products. The export increased from US $284 1.9 million in the
year 1996-97 to US $7552.8 million in the year 2004.05. The contribution of
chemicals and related products to India's total export was about 10% in the year 2004-
05. The fifth leading export item was other manufactured goods which consist 6f
computer software, footwear of rubber / canvas etc., glass, handicrafts, plastic rubber,
etc. The exports increased from US $ 1889.7 million in the year 1996-97 to US $
5641.8 million in the year 2004-05. The share of other manufactured goods to India's
total export was 7% in the year 2004-05. The sixth leading export item was readymade
garments. The export increased from US $3756.5 million in 1996-97 to US $ 6038.7
million in 2004-05. The share of readymade garments to India's export was 8% in the
year 2004-05. The seventh leading export item was textiles. The export increased
from US $4886.7 million in 1996-97 to US $6601.1 million in the year 2004-05. The
contribution of textiles to India's total export was 8% in the year 2004-05. The eighth
leading export item was ores & minerals. The export increased from US $ 1173.4 in
1996-97 to US $4202.0 million in 2004-05. The contribution of ores and minerals to
India's total export was 5% in the year 2004-05. The ninth leading export item was
leather and leather manufactures. The export increased from US $ 1607.2 million in
1996-97 to US $2293.9 million in 2004-05. The contribution of leather and leather
manufactures to India's total export was 3% in the year 2004-05.
a

18.2.2 Commodity Composition of Imports

As far as imports are concerned, petroleum products are the leading item and account
for 29% of total India's imports for the year 2002-03 and 28% in 2004-05. The share of
import has increased from 26% in the year 1996-97. The second leading import item is
capital goods, which accounts for 13% of total import of the country for the year 2002-
03 and 12% in 2004-05. The share bas gone down from 22% in the year 1996-97. The
other items are chemicals and related products 8%, food items 4%, textiles & made ups
2% and other commodities 43% for the year 2002-03. In the year 2004-05, the share
of chemicals and related products was 8%' food items 3%' textiles and made up 1%
and other commodities 48%. Look at Table 18.4 which shows commodity composition
of India's imports.
Table: 18.4 : Commodity compositions of India's imports
(US$ million)
Commodities 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Petroleum 10044.8 8173.8 6397.1 12626.8 15675.6 14047.9 17685.3 20624.1 29905.0
products
Food & 1371.7 1677.9 2756.8 2655.0 1686.9 2331.3 2699.6 3412.8 3418.4
related items
Textiles & 358.8 409.1 456.7 539.1 597.7 750.0 972.9 1261.1 1502.5
made up
Chemicals& 4111.9 4707.8 4492.1 4943.9 3861.6 4469.5 4816.6 6264.3 8236.1
related
products
Capitalgoods 8657.2 7968.3 8117.1 6419.2 5744.5 6539.9 8070.8 10959.1 12804.6
Other 14621.2 18597.6 20159.4 22614.7 22489.9 23449.8 27326.3 35835.1 51418.0
commodities 1
Total 39165.5 41534.6 42379.2 49798.6 50056.3 51588.4 61571.6 78356.5 107284.6
Source: CMIE, July, 2005

18.2.3 Direction of Exports

Look at Table 18.5, which shows the majordestination of India's exports. It indicates
that USA is the major market for India's export and accounts for about 17% of In$'s
 L
.
lnternatior~aland Technical exports. The share of USA was 23% in the year 1999-00 which came down to 17% in
Environment
2004-05. The second leading market is UAE which accounts for 9% of India's exports
in 2D04-05. China has emerged as third leading market contributing to 6% of India's
exports in 2004-05. The other leading markets are Singapore(S%), HongKong (5%)'
UK (4%)' Germany (3%)' Belgium (3%)' Italy (3%)' Japan (3%)' France (2%) and
Bangladesh.
Table 18.5 : Major destination of India's exports

Source: CMIE, July, 2005

18.2.4 Direction of Imports

As far as imports are concerned, China has emerged as the major source of India's
imports contributing to slightly more than 6% of India's total imports in 2004-05. USA
is the second leading source of import contributing to about 6% of India's total imports
in 2004-05. The third leading source of import is Switzerland which accounts for 5%
of India's. total imports in 2004-05. The other leading sources of imports are Belgium
(4%)' UAE (4%)' Germany (4%)' Australia (3%)' UK (3%)' Korea republic (3%)'
Japan (3%)' Singapore (2%) and Indonesia (2%) in 2004-05.
>
Table 18.6 :Major Sources of India's imports

Source: CMIE, July, 2003

 Balancc of Paym~ntsand
Check Your Progress A EXIM Policy

1 Why should India focus on foreign trade?

............................................................................................................

............................................................................................................
2 Identify 5 leading products of India's export and import.
............................................................................................................

, 3 Enumerate 5 leading markets for India's export.

............................................................................................................

4 Enumerate 5 leading sources of India's import.

I 18.3 EXPORT PROMOTION MEASURES

Government of India has initiated several export promotion measures for creation of
production base, development of marketing capabilities and enhancement of overall
export capability of the exporters. The major export promotion measures are as
follows;

Special Economic Zones and 100% Export Oriented Units :These Zones are
specifically delineated duty free enclaves. They are deemed to be foreign territory for
the purposes of trade operations, duties and tariffs. SEZ units may be set up for
manufacture of goods and rendering of services. The goods and services going into the
SEZ area from the domestic area are treated as exports and goods & services coming
from the SEZ area to the domestic area are treated as imports. In order to promote
agricultural export Agri Export Zones (AEZ) have been permitted to set up for end to
end development for export of specific products from a geographically contiguous area.
The SEZ units are entitled to avail all assistance and facilities provided in the policy for
this purpose. Units are established for exporting entire production except permissible
sales in the domestic tariff area under 100% EOU scheme in any part of the country.
Electronics Hardware Technology Parks (EHTPs) and Software Technology Parks
(STPs) are also created for exporting their entire production except permissible sales in
. the domestic tariff area. These units also get the facilities and assistance provided under
the EXIM Policy.

Service Exports :Services include all the 161 tradable service covered under GATS
where payment of such services is received in free foreign exchange. The service
providers are entitled for the facilities and assistance provided in the policy.
international and Technical Export Houses 1Trading Houses and Star Trading Houses : Merchant and
Environment
manufacturer expdrters, service providers, Export Oriented Units, Units located in
Special Economic Zonesl Agri Export Zone1 Electronic Hardware Technology Parks1
Software Technology Parks are eligible for the status certificate for Export Housesl
Trading Housesl Star Trading Houses. These certificates are granted on the basis of the
export performance of these units. These houses are eligible for facilities provided
under the policy.

Market Access Initiative : Financial assistance is provided to the Export Promotion

Councils, industry and trade associations and other eligible entities for the specified
'purposes. These may be the marketing studies, setting up of common showrooms and
4
warehousing facility, promotion campaign, participation in trade fairs, brand promotion
etc.

Brand Promotion and Quality : The manufacturers and exporters are encouraged to
attain internationally accepted standards of quality for their products. The Central
Government extends support and assistance to trade and industry to launch a nation
wide programme on quality awareness and to promote the concept of total quality
management.
\

Electronic Data Interchange : The use of Electronic Data Interchange has been
encouraged to speed up the transactions, reduce physical interface and to bring about
transparency in various activities related to exports.

Central Assistance to States : State Governments are encouraged to fully participate

in encouraging exports from their respective states. Funds are provided to the State
Governments for developing complementary and critical infrastructure like roads
connecting to production centres with the ports, setting up Inland Container Deports
and Container Freight stations, creation of Export Promotion Zonesl Parks, etc. and any
other export related activities as per policy.

Towns of Export Excellence :Selected towns Producing goods of Rs. 1000 crore or
more will be notified as towns of export excellence on the basis of potential for growth
in, exports. Proposal for strengthening infrastructure, logistic support, R& D Packaging
etc. will be considered under the scheme.

' Special focus on Cottage and Handicraft Sector : In order to recognize the export
performance of Cottage and Handicraft sector various facilities and assistance are
provided to increase their export competitiveness.

Thrust Sector : In an attempt to achieve the share of 1% of global trade and

accelerated growth in exports the thrust sectors have been identified. They include:
electronic hardware, textiles including garments, auto components1 ancillary, gems and
jewellery, agriculture and service sector. Department of Commerce is supposed to take
concerted efforts to promote exports of these sectors by specific sectoral strategy.

Export Promotion Capital Goods Scheme: This scheme allows import of capital
goods for pre production, production and post production at 5% customs duty subject
to an export obligation equivalent to 8 times of duty saved on imported capital goods.
7';le export obligation should be fulfilled over a period of 8 years from the date of
issuance of licence.
 Balance of Payments and
Duty Exemption / Remission Scheme : The duty exemption scheme enables duty free EXlM Policy
import of inputs required for export production. An advance licence is issued for
physical export, intermediate supplies and deemed exports under this scheme.
The duty remission scheme enables post export replenishment/ remission of duty on
inputs used in the export product. There are two schemes under this category. One is
Duty Free Replenishment Certificate that is issued for the import of inputs used in the
manufacture of goods without payment of basic customs duty and special additional
duty. Second the Duty Entitlement Passbook Scheme under which the incidence of
customs duty is neutralized by providing credit against the export product. In this
process, a specified percentage of FOB value of exports is credited to the exporter.

Scheme for Gems and Jewellery : Exporters of gems and jewellery are eligible to
import their inputs by obtaining Replenishment (REP) licences from the licensing
authorities as per provision of the policy.

Duty Drawback : Under this scheme, central excise and customs duties paid on raw
materials, components and spare parts including packaging material, imported or
indigenous used in export products are exempted 1 refunded to the exporters.

In addition to the above measures, exporters are also provided export finance at
confessional rate, tax benifits, etc, for the promotion of export from the country.

18.4 RE.GULATIONOF FOREIGN TRADE IN INDIA

You have been acquainted with the importance of foreign trade in the economic
development of a country. In order to facilitate foreign trade and genuine transactions
of goods, services and payment procedures, Government regulates them through
various acts. The major acts are discussed below:

Foreign Trade (Development and Regulation) Act, 1992: The basic objective of this
act is to provide for the development and regulation of foreign trade by facilitating
imports into, and augmenting exports from India and for matters connected there with
or incidental there to. Central Government has been empowered to make orders and
announce the Export Import policy. The procedure of issuing the Importer- Exporter
Code Number and Licence has been laid down. The methods of search, seizure, penalty
and confiscation have been spelt out. Finally the procedure for appeal and revision has
been provided alongwith the miscellaneous aspects.

The Customs ACT, 1962 : This Act provides the legal framework, guidelines and
procedures related to export and import transactions. The major objectives of this act
are: regulating the genuine export and import transactions, checking smuggling,
collecting revenue, gathering trade statistics and undertaking functions on behalf of
other agencies.

Export (Quality Control and Inspection) Act, 1963 :The basic objective of this Act
is to ensure quality products to the buyers and specify the procedures for this purpose.
The Act empowers the Government to notify commodl,ies for compulsory quality
control and specify the types of quality control and inspection. Efforts are made to
encourage trade and industry for upgrading the quality of export products and
enhancing the image of the country.

Foreign Exchange Management Act, 1999 : The basic objective of this act has been
regulation of foreign exchange with the objective of facilitating external trade and
International and Terhnical payments, and promoting the orderly development and maintenance of foreign
Environment
exchange market in India. This Act advocates regulation of foreign exchange like
holding and transactions of foreign exchange, and repatriation of foreign exchange.
The role of authorized person, the provisions of contravention and penalties and the
procedures for adjudication and appeal have been dealt with. The power of directorate
of enforcement and other miscellaneous provisions are discussed in the act. You will
learn in detail about FEMA in Section 18.8.

Check Your Progress B

I What do you mean by special economic zones?

............................................................................................................

2 Distinguish between duty exemption scheme and duty remission scheme.

............................................................................................................

3 Why does Government regulate foreign trade?

............................................................................................................

4 Why is quality control imposed on exportable goods?

............................................................................................................

5 What are the principle objectives of Foreign Exchange Act of 1999.?

18.5 TRENDS IN INDIA'S BALANCE OF PAYMENTS

You must have come across the statement that India's Balance of Payments has been
unfavourable. What does it mean? Let uk first learn the meaning of balance of
payments.

Balance of payments is a statement, which reflects the economic transactions between

a country vis a vis rest of the world. The country depends on the world market for
buying or selling of goods and services. At the same time, the country may also nuke
or receive the capital investment from different parts of the world. These transactions
are recorded in the statement of the balance of payments. Therefore, Balance of
 Balance of Payments and
Payments refer to an accounting record of all transactions between the residents EXlM Policy
of one country and the residents of the rest of the world over a given period of
time. The study of balance of payment is very important for policy makers and
business communities. Moreover, it also reflects the competitive strengths and
weaknesses of a country in the global markets.

18.5.1 Balance of Payments Accounts

The balance of payments is divided into three types of accounts. These are as follows:
i) The current account: The current account records the transactions relating to the
exports and imports of goods and services and unilateral transfers like government
and private gifts and grants.
ii) The capital account: The capital account records the transactions, which leads to
changes in foreign financial assets and liability of the country.
iii) The reserve account: The reserve account records the reserve assets. These
reserve assets are the holdings of the foreign currency, special drawing rights and
gold by central bank of a country. They are used to settle the deficits and surpluses
Table 18.7 : Balance of Payments

Source : Economic Survey, GO1,2004-05 ,

f 15
International and Technical
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In order to learn the over all picture of balance of payments look at Table 7 which
shows the summary of lndia's balance of payments. In this Table you find the
following balances:
1 Trade Balance : This indicates the balance of merchandise exports and imports.
The trade balance has increased from US$ -9438 million in the year 1990-91 to
US$ -17841 million in the year 1999-00. It has fbrther decreased to US $ -15454
in the year 2003-04.
2 Current Account Balance : This indicates the balance of merchandise exports and
imports and the balance of invisible including transfers. The current account
balance has been decreased from US $ - 9680 million in the year 1990-91 to
US$ - 2666 million in the year 2000-01. It has fbrther increased to US$ 10561
million in the year 2003-04.
3 Balance on Current Account and Long Term Capital : This indicates the
balance of curtent account and the long-term capital flows.

The balance of payments is in equilibrium position when the country is neither drawing
it's international reserves to make excess payments nor accumulating international
reserves. When the country keeps on importing goods and services to meet it's
developmental requirements and export earnings are not suff~cientto meet these
growing demands of imports, the reserve is drawn to make this deficits. The continuous
deficits result is the disequilibrium of the balance of payments. The main causes of the
disequilibrum include (a) continuous deficits on current account balance, (b) declining
surpluses on account of invisibles, (c) burden of external servicing, and (d) dwindling
prospects of concessional aid, etc. Stringent economic policies are required to manage
the disequilibrium in BOP.

18.5.2 Measures Adopted to Improve India's Balance of Payments

Government of India faced severe balance of payments problem in the year 1990-91 as
a result of continuous current account deficit and large foreign exchange reserve
drown. The Government introduced several measures to improve the balance of
payments of the country. These measures are:

1 Exchange rate adjustment: A downward adjustment in the external value of

Indian currency was made. The downward adjustment in the exchange rate made
the Indian export cheaper for foreign buyers. At the same time imports became
dearer for Indian buyers. Thus exports are encouraged and imports are discouraged
to improve the balance of payments.
2 Fiscal and monetary measures: Strict fiscal and monetary measures are adopted
to reduce the aggregate demand of the country. Government aimed at reducing the
fiscal deficit of the country. Monetary policy also aimed at slowing down of money
supply. The reduction in money supply helps in bringing down the demand of
imported goods and services.
3 Structural reforms: Structural reforms were initiated in the area of industry and
trade policy. There has been substantial deregulation of trade and industry. Export
promotion measures were adopted and foreign investment policies were liberalised.
The focus of structural reforms was enhancement of the competitiveness of Indian
industry. These measures helped in accelerating the production and trade activities
in the country and finally improved the BOP.
4 Mobilization of finance from multilateral agency: The countries suffering with
the problem of disequilibrium in balance of payments may mobilize finance from
multilateral agency like IMF, Asian Development Bank etc.
 These measures initiated by the Government helped in improving India's balance of Balance of Payments and
E X l M Policy
payment.

The following improvements are witnessed in the structure of India's balance of

payments.

(a) A current account surplus for the third successive year since 2001-02, coupled with
expanding capital account have strengthened India's balance of payments in the
year 2003-04.
(b) Rising surpluses in the current account have been one of the distinguishing features
of India's balance of payments in the current decade.
(c) India's external sector performed very well and export as a percentage of GDP was
5.8% in the year 1990-91 and has gone up to 9.4% of GDP in the year 2001 -02. It
t has further increased to 10.8% in the year 2003-04.
(d) Similarly the import as a percentage of GDP has also gone up from 8.8% of GDP
in the year 1990-91 to 12.0% of GDP in the year 2001-02. It has further increased
to 13.3% in the year 2003-04.
(e) The current account deficit as a percentage of GDP was -3.1% in the year 1990-91
and has improved to (-0.5%) of GDP in the year 2001 -02. It has further increased
to 1.8% of GDP in the year 2003-04.
(f) The external debt as a percentage of GDP was 28.7% in the year 1990-91 and has
come down to 2 1.2% in the year 2001 -02. It has further decreased to 17.8% of
GDP in the year 2003-04.
(g) The debt service ratio was 35.3% in the year 1991 which came down to 10.4% in
the year 2004.
(h) Foreign exchange reserve was drawn down of US$ 1278 in the year 1990-91. It has
led to build up US $ 11757 million in the year 2001-02. It has further increased to
1 US $36.9 billion in the year 2003-04.

These developments have led to comfortable balance of payments of India in the year
( 2003-04.

1 18.6 EXPORT IMPORT POLICY

As you must be aware that the economic reforms were introduced in July, 199 1 in
India. As a result the external sector was significantly liberalised. The EXlM policy
focuses 011 facilitation and promotion of exports and liberalisation of imports. Let us
learn recent EXlM Policy of Government of India.

( The principal objectives of the Exim policy 2002-07 are:

To facilitate sustained growth in exports to attain a share of at least 1% of global

merchandise trade.
To stimulate sustained economic growth by providing access to essential raw
materials, intermediates, components, consurnables and capital goods required for
augmenting production and providing services.
To enhance the technological strength and efficiency of Indian agriculture, industry
and services. This improves their competitive strength and generates new
e~nploymentopportunities. The attainment of internationally accepted standards of
quality is encouraged.
International and Tcrha;cai
Environment
6 To provide consumers with good quality goods and services at internationally
prices while at the same time creating a level playing field for the domestic
producers.

The objectives will be met through the coordinated efforts of the State Governments
and all the departments of the Government of India in general and the ~ i n i s t of
r~
Commerce and Industry and the Director General of foreign trade and its- network of
Regional offices in particular. This will be achieved with their shared vision and
commitment and in the best spirit of facilitation, in the interest of promotion of trade in
goods and services.

18.6.1 General Provisions

Exports and imports free unless regulated : Exports and imports shall be free, except
in cases where they are regulated by the provisions of this policy of any other law for
the time being in force.

Compliance with laws : Every exporter or importer shall comply with the provisions
of the Foreign Trade (Development and Regulation) Act, 1992, the rules and orders
made thereunder, the provisions of this policy and the terms and conditions of any
licence1 certificate1 permission granted to him. The provisions of any other law for the
time being in force will also be applicable.

Interpretation of policy : If any question or doubt arises in respect of the

interpretation of any provision of the policy, the decision of Director General of
Foreign Trade shall be final and binding.

Procedure : The Director General of Foreign Trade may specify the procedure to be
/'
foll6wed by exporter or importer or by any licensing or any other competent authority
for the purpose of implementing the provisions of the act, rules or orders.

Exemption from policy/ procedure : If the exporter or importer finds genuine

hardship regarding the provisions of the policy or if the procedure is likely to have an
adverse impact on trade, the request for relaxation may be made to the Director General
of Foreign Trade.

Principles of restriction : Director General of Foreign Trade may adopt and enforce
any measure necessary for protection, prevention and conservation of trade of
identified commodities through a notification.

Restricted goods : The goods for which export or import are restricted shall be
exported or imported only in accordance with a licence/ certificate/ permission or
public notice issued in this behalf. The validity period and conditions specified in the
licence/ certificate1 permission or public notice shall be applicable.

State trading : Any goods, the export or import of which is governed through
exclusive or special privileges granted to State Trading Enterprises may be exported or
imported by the State Trading Enterprises. \

Importer- Exporter Code Number :No exports or import shall be made by any
person without an Importer - Exporter Code Number unless specifically exempted.
 Balance of Payments and
Trade with neighbouring countries : The Director General of Foreign Trade may EXlhl Policy
issue instructions to promote trade and strengthen economic relations with
neighbouring countries.

Transit facility :Transit of goods through India from or to countries adjacent to India
shall be regulated in accordance with the bilateral treaties.

18.6.2 Imports

Actual user condition :Capital goods, raw materials, intermediates, components,

consumables, spares, parts, accessories, instruments and other goods, which are
importable without any restriction, may be imported by any person. If such imports
require a licencel certificatel permission, the actual user alone may import such goods
F unless exempted.

Second hand goods: All second hand goods shall be restricted for imports and may be
imported only in accordance with the provisions of the policy.

Import of samples: Import of samples shall be governed by the provisions of the

pol icy.

Import of gifts: Import of gifts shall be permitted where such goods are otherwise
freely importable under the policy.

Passenger baggage: Bonafide household goods and personal effects may be imported
as part of passenger baggage.

Import on export basis: New or second hand capital goods, equipments, components,
parts and accessories, containers meant for packing of goods for exports, jigs, fixtures,
dies and moulds may be imported for export. They can be imported without a licencel
certificatel permission on execution of legal undertaking1 bank guarantee with the
Customs Authority. The items should be freely exportable without any conditionality.

Re- import of goods repaired abroad: Capital goods, equipment's, components, parts
and accessories, whether imported or indigenous may be sent abroad for repairs, testing
and quality improvement. They can be re- imported without a licence1 certificatel
permission.

Import of goods used in projects abroad: Used goods including capital goods may be
imported by the project contractors after completion of the projects. The goods may be
imported without a licencel certificatel permission provided they have been used for at
least one year.

Sale on 'high seas: Sale of goods on high seas for import into India may be made as per
pol icy.
\

Import under lease financing: Import of new capital goods under lease financing is
permitted.
Clearance of goods from customs: The goods already imported but not cleared from
Customs may also be cleared against the licencel certificatel permission.
international and Technical Execution of bank guarantee1 legal undertaking: Wherever any duty free import is
Environment
allowed or specifically stated, the importer shall execute a bank guarantee1 legal
undertaking with the customs authority before clearance of goods.

Private / Public Bonded Warehouses for Imports: Private 1 Public bonded

Warehouses may be set up in the Domestic Tariff Area as per the terms and conditions
of notification issued by Department of Revenue.

18.6.3 Exports

Free exports: All goods may be exported without any restriction except to the extent
such exports are regulated be the provisions of the EXIM policy or any other law for
the time being in force.

Export of samples: Export of samples and free of charge goods shall be governed by
the provisions of the policy.

Export of passenger baggage: Bonafide personal baggage may be exported either

along with the passenger or, if unaccompanied, within one year before or after the
passenger's departure from India

Export of gifts: Goods including edible items, of value not exceeding rupees one lakh
in a licensing year, may be exported as a gift.

Export of spares: Warranty spares of plant, equipment or any other goods, whether
indigenous or imported, may be exported alongwith the main equipment. It can be also
exported subsequently within the contracted warranty period subject to approval of
RBI.

Third party exports: Third party exports shall be allowed.

Export of imported goods: Goods imported may be exported in the same or

substantially the same form without a licence1 certificate1 permission. The items should
not be restricted items.

Export of replacement goods: Goods or parts there have on being exported and found
defective or damaged or unfit may be replaced free of charge by the exporter. They
should not be restricted items.

Export of repaired goods: If goods or parts are exported and found defective or
damaged or unfit, may be imported for repair and subsequently re- exported.

Private bonded warehouse: Private Bonded Warehouse exclusively for exports may
be set up in Domestic Tariff Area as per the terms and conditions of the notifications
issued by Department of Revenue.

Denomination of export contracts: All export contracts and invoices shall be

denominated either in freely convertible currency or Indian rupees. The export
proceeds shall be realized in freely convertible currency. If the payments are received
through the Asian Clearing Union, they shall be denominated in ACU dollar.
Realization of export proceeds: If an exporter fails to realize the export proceeds
within the time specified by the RBI, he1 she will be liable to action in accordance with
the provisions of the policylAct.
 Balance of Payments and
Free movement of goods: Goods meant for export shall not be withheld/ delayed for EXIM Policy
any reason by any agency of the Government. In case of doubt undertaking may be
asked from exporter.

No seizure of stock: The stock which disrupt the manufacturing and delivery schedule
of export shall not be seized by any agency. In exception case, it can be seized on the
basis of priina facie evidence. Such seizure shollld be lifted within 7 days.
Export promotion councils: Export Promotion Councils are set up to promote the
exports from the country.

Registration - cum- membership certificate: Any person, applying for a licence/

certificate/ permission to import or export or to get any other benefit or concession
shall be required to furnish Registration - cum- Membership Certificate.

18.7 ROLE OF EXPORT- IMPORT BANK OF INDIA

Export- Import Bank of India was set up in 1982 for the purpose of financing,
facilitating and promoting foreign trade in India. It is the principal financial institution
in the country for coordinating working of institutions engaged in financing exports
and imports.

The major functions of EXIM Bank are.as follows:

Finance : Exim bank finances export of Indian machinery, manufactured goods,

consultancy and technology services on deferred payment terms. The finance is also
made available at export production stages. It undertakes co- financing'activities with
global and regional development agencies and assists Indian exporters in their efforts to
participate in overseas projects. The bank provides a variety of lending and service
programmes to Indian entities, commercial banks and overseas entities. These
financing activities facilitate the export- import business in the country.

Services : International risks are the most challenging task before the Indian exporters.
The bank provides information and advisory services to the exporters. These services
include country studies, merchant banking services, advice on international marketing,
data relating to projects funded by Multilateral Institutions etc. These services help the
exporters to evaluate the international risks, export opportunities and competitiveness.

The bank has wide network with financial institutions, trade promotion agencies and
information providers across the globe. The bank helps Indian companies in their
global operations through these network. The bank assists in the identification of the
technology suppliers and overseas partners and negotiating an alliance and
consummating a joint venture.

Research and Analysis : The bank undertakes research and analysis work on specific
industry sub sectors with export potential and international trade related areas. These
works are widely disseminated amongst exporters, academicians, industry and trade
organisations and Government. The bank is deeply involved in the creation of export
i

capability, which helps in stimulating the economic growth of the country.

International and Technical Check Your Progress C
Environment

1 Why is the study of balance of payments important?

............................................................................................................

............................................................................................................
2 Distinguish between current account and capital account balance of payments.
............................................................................................................

............................................................................................................
3 Suggest 3 methods for improving India's balance of Payments.
............................................................................................................

4 Identify 3 improvements which have been witnessed in the structure of India's

balance of payments.
ji

............................................................................................................
5 What are the basic objectives of India's EXIM policy 2002-07.
............................................................................................................

6 Which of the following statements are True of False.

(i) India's export is more than China for the year 2004-05.
(ii) Agricultural and allied products are India's leading export products
(iii)Export Promotion Capital Goods scheme does not facilitate import of capital
goods in India's.
(iv) Export as a percentage of GDP has increased in the year 2001-02 from the year
1990-91.
(v) Third party exports are allowed in India.

18.8 FOREIGN EXCHANGE MANAGEMENT

ACT. 1999

You have learnt trends in India's foreign trade, export promotion measures, regulation
of foreign trade, trends in India's BOP and EXIM policy. Let us now discuss FEMA,
1999.

The Foreign Exchange Management Act (FEMA) 1999 came with effect from June 1,
2000 and has replaced the Foreign Exchange Regulation Act (FERA), 1973. The
objective of FERA 1973 was to conserve the foreign exchange resources whereas the
 Balance of Payments and
objective of FEMA, 1999 is to facilitate external trade and payments and promote EXIM Policy
orderly development and maintenance of foreign exchange market in India.

Highlights of FEMA Act

1 It is more transparent in its application and has laid down the areas where specific
permission of the Reserve Bank of India/Government of India is required.
, 2 In application the act relates broadly to two types of transactions (i) capital
account transactions, and (ii) current account transactions. The capital account
transactions relate to movement of capital, property, investment, and lending and
I borrowing money and are to be regulated by the Reserve Bank. The transactions
I
which do not fall in capital account category are regarded as current account
i
I
transactions which are permitted freely subject to a few restrictions as follows :

(a) certain current account transactions would require RBI permission if they
1! exceed the prescribed ceilings.
(b) Some current account transactions need permission of the appropriate
1 Government of India authority.
1 (c) Seven types of current account transactions are totally prohibited which
include : transactions relating to lotteries, banned magazines, etc.

2 OCBs have been derecognized as an eligible class of investors under various

schemes available under FEMA regulations.

1 3 Some of the other highlights of FEMA are :

(a) The Foreign Exchange Management Act and Rules, give full freedom to a
person resident in India who was earlier resident outside India to hold or
transfer any foreign security or immovable properly situated outside India and
acquired when helshe was resident there;
(b) Similar freedom is also given to resident who inherits such security or
immovable property from a person resident outside India;
(c) A person resident outside India is permitted to hold or have securities and
properties acquired by him while helshe was resident in India;
' (d) A person resident in India is also permitted to hold such properties inherited
, from a person resident in India;

II (e) The exchange drawn can also be used for purposes other than for which it is
drawn provided drawal of exchange is otherwise permitted for such purpose;
(0 The Exchange Earners' Foreign Currency (EEFC) account holders and
I Residents Foreign Currency (RFC) account holders are permitted to freely use
the funds held in EEFCIRFC accounts for payment in all permissible current
Ii account transactions; and
(g) The rules for foreign investment in India and Indian investment abroad are also
I comprehensive, transparent and permit Indian companies engaged in certain
specified sectors to acquire shares of foreign companies engaged in similar
I activities by share scrap or exchange through issue of ADRsIGDRs upto
I
' ,'
certain specified limits
FEMA is a civil law unlike FERA. Contravention under FEMA will be dealt with
through civil procedures. Unlike FERA, the burden of proof under FEMA will be
I
on the enforcement agency and not on the implicated. FEMA prescribes elaborate
redressal machinery for the justice and fairness to the implicated while deciding on
the question of contravention. Moreover, offecces under FEMA are compoundable
i by paying penalty.
t
International and Technical Regulqtion of Foreign Exchange
Environment

The second chapter of the Act deals will various provisions relating to regulation and
management of foreign exchange. These provisions are summarized as under.

Dealings in foreign Exchange: Section 3 of the Act provides that no person (except
where otherwise provided in the Act, rules or regulations made thereunder or with the
general or special permission the RBI) shall
(a) deal in, or transfer, any foreign exchange or foreign security to any person not
being an authorized person;
(b) make any payment to, or-for the credit of any person resident outside India in any
manner;
(c) receive otherwise than through an authorized person, any payment by order or on
behalf of any person resident outside India in any manner; and
(d) enter into any financial transaction in India as consideration for, or in association
with, acquisition or creation or transfer of a right to acquire any asset outside India
by any person.

The effect of the above restrictions is that no person can deal in foreign exchange
unless he is an authorized person; and no payment for import of any goods can be made
unless the same is in accordance with the general or special permission of the Reserve
Bank of India.

Holding of foreign exchange, foreign and immovable property, etc. : Section 4 of

the Act provides that, except or otherwise provided in the Act, no person resident in
India shall acquire, hold, own, possess or transfer any foreign exchange, foreign
security or any foreign property situated outside India. However, the Government
through various notifications and foreign exchange regulations from time to time
liberalise the rules in respect of a number of situation such as acquisition or transfer of
immovable property outside India; possession of foreign currency or coins; receipt
from, and payment, to a person resident outside India; purchase or transfer of foreign
security; direct investment in joint ventures, and so on.

Current Account Transactions : As stated earlier, current account transactions refer

,"
to transactions other than capital account transactions. These include (i) payments due
in connection with foreign trade, other current business services and short term banking
and credit facilities in the ordinary course of business; (ii) payment due as interest on
loans and on net income from investments; (iii) remittances for living expenses of
parent, spouse and children residing abroad; and (iv) expenses in connection with
foreign travel, education and medical care of parents, spouse and children.

Section 5 provides that any person may sell or draw foreign exchange to or from an
authorised person if such sale or drawal is a current account transaction, provided that
the Central Government may, in public interest and in consultation with the Reserve
Bank, impose reasonable restrictions on current account transactions by making
appropriate rules.

Capital Account Transactions : Capital account transactions refer to transactions

which alter the assets and liabilities outside India of persons resident in India or assets
and liabilities in India of persons resident outside India.

Section 6 provides that the Reserve Bank may, in consultation with the Central
Government, specify (1) the permissible capital account transaction, and (2) the limits
upto which foreign exchange will be allowed for such transaction. Schedules I and I1
of the Foreign Exchange Managc~nent(Permissible Capital Account Transactions)
Regulations, 2000 duly prescr~bethe lists of permissible capital account transactions by
persons resident in India and those resident outside India respectively and the limits
thereof; therefor; and also lists the capital account transactions prohibited under these
 ~ a h n c of
e Payments and
regulations. However, through various notifications and regulations from time to time EXlM Policy
the Reserve Bank liberalizes the rules in respect of the following :

1 Acquisition and transfer of immovable property in India;

2 Investment in firm or proprietary concerns in India
3 Establishment of branch offices in India;
4 Remittances of assets outside India;
5 Loans from NRI relatives; and
6 Loans to employee outside India.
8

Export of Goods and Services : Section 7 provides that every exporter of goods shall
furnish to the Reserve Bank, or to such other authority, a declaration in such form and
in such manner as may be specified, containing true and correct material particulars
including the amount representing the full export value of goods. If the full value of the
goods is not ascertainable at the time of export, the value which the exporter, having
regard to the prevailing market conditions, expects to receive on the sale of goods in
overseas market. The declaration should affirm that the full value of export of goods
has been or will be within the specified period, be paid in the specified manner.
Similarly, every exporter of service shall furnish a declaration to the Reserve Bank or
to such other authorities in such form and in such manner as may be specified,
containing the true and correct material particulars in relation to payment of such
services. This provision has been made for the purpose of ensuring that the export
value of goods and services are received without any delay.

Realisation and Repatriation of Foreign Exchange : Section 8 provides that, save

as otherwise provided in this Act, where any amount of foreign exchange is due or has
accrued to any person resident in India, such person shall take all reasonable steps to
realise and repatriate to India such foreign exchange within such period and in such
manner as may be specified by he Reserve Bank.

Section 9 provides certain exemptions in respect of holding and repatriation of foreign

exchange with regard to a number of situations and upto such limits as the Reserve
Bank may specify.

Authorised Person

An authorised person means an authorised dealer, money changer, off-shore banking

unit or any other person for the time being authorised under sub-section (1) of section
10 to deal in foreign exchange or foreign securities. The Reserve Bank may authorise
any person to be known as authorised person to deal in foreign exchange or in foreign
securities, as an authorised dealer, money changer or off-shore banking unit or in any
manner as it deems fit. The authorisation shall be in writing and shall be subject to the
conditions laid down therein.

The Reserve Bank may, for the purpose of securing compliance with the provisions of
this Act and of any rules, regulations, notifications, or directions made hereunder :
(a) give to the authorised person any direction in regard to making of payment or
doing or desist from doing any act relating to foreign exchange or foreign security;
(b) direct any authorised person to furnish such information, in such manner, as it
deems fit; and
(c) order inspection of the business of the authorised dealer.

Contravention and Penalties

Section 13 provides that if any person contravenes any provision of the FEMA or any
rule regulation, notification, direction or order issued in exercise of powers under this
Act, he shall be liable to penalty upto thrice the sum involved in such c~ntraventio~~
I
International and TecGnicaI
Environment
where such amount is quantifiable or upto to Rs. 2 lakh where the amount is not
quantifiable. In case the contravention is a continuing one, then a further penalty of
upto Rs. 5,000 per day till the contravention continues may be levied. Any
adjudicating authority may, in addition to the penalty, direct that any security,
currency, or any other money or property in respect of which the contravention has
taken place shall be confiscated by the Central Government.
!

In case of a person's failure to pay full amount of penalty within 90 days, he may be
punished with civil imprisonment after giving due opportunity to being heard.
However, all contravention under Section 13 can be compounded with the exceptions
(i) where amount is not quantifiable (ii) appeal has been filed, (ii) contravention is
repeated within 3 years, or (iv) the contravention is by authorised dealer under
Section 1 1.

Check Your Progress D

1 What do you mean by an authorised person.

............................................................................................................
.............................................................................................................
............................................................................................................
............................................................................................................
2 Enumerate the restrictions pertaining to a current account transaction.
............................................................................................................
............................................................................................................
............................................................................................................
............................................................................................................

3 State the obligations of an exporter of goods and services.

............................................................................................................

18.9 LET US SUM UP

Foreign trade facilitates the economic growth of the country. It helps in the flow of
capital and technology and enhancing the competitiveness of the firm. India's exports
and imports have witnessed upward trends but the trade balance has been negative due
to faster growth in imports.

The major export commodities for the year 2004-05 were engineering goods, gems and 1
1
Jewellery, agricultural and allied products, chemicals and related products, petroleum 1
and crude products, readymade garments, textiles, ores and mineral and leather and
leather manufactures. USA ,UAE, China, Singapore, Hong Kong, UK, Germany,
~kl~ium Italy,
, Japan, France, Bangladesh are major markets for India's exports.
I
4

I
As far as import is concerned, the major items include petroleum products, food and
related items, textiles & made up, chemicals & related products and capital goods.
China, USA, Switzerland, Belgium, UAE, Germany, Australia, UK, Korea Republic
1
(South), Japan, Singapore and Indonesia are major sources of India's imports. I
I

Several measures have been initiated by Government of India for the promotion of
export. These measures are aimed at the creation of production base, development of
26
 Balance of Payments and
marketing capabilities and enhancement of overall export capability of the exporters. EXiXi Policy
At the same time, foreign trade is also regulated by the Government of India for
genuine transactions of goods and services, proper payment procedures and facilitating
the economic progress of the country.

The study of balance of payments is very important for policy makers and business
communities for analyzing the financial health of the country. Several measures have
been adopted to improve balance of payments of India. They include: exchange rate
adjustment, fiscal & monetary measures, structural reforms and mobilisation of finance
from multilateral agency . The EXIM policy of Government of India aims at
facilitating the economic growth of the country. Exim bank coordinates working of
institutions engaged in financing exports and imports and helps in extending financial
and other services for promoting foreign trade.

Foreign Exchange Management Act 1973 has been replaced by The Foreign Exchange
Management Act, 1999. The basic objective of FEMA is to facilitate external trade
and payments and promote orderly development and maintenance of foreign exchange
market in India. The major provisions are : Regulation of Foreign Exchange, Role of
authorised person, Contravention and penalties etc.

18.10 KEY WORDS

Actual User : A person who utilises the imported goods for his own use.

Balance of payments : Statement of all economic transactions between a country and

the rest of the world during a given period of time.

Balance of trade: The value of a country's exports less the value of its imports.

Capital goods : Plant, machinery, equipment or accessories required for manufacture

or production, either directly or indirectly, of goods or for rendering services.

Drawback : The rebate of duty chargeable on any imported material or excisable

material used in the manufacture and export of such goods.

Manufacturer Exporter : A person who exports goods manufactured by him or

intends to export such goods.

Merchant Exporter : A person engaged in trading activity and exporting or intending .

to export goods.

Services : All the tradable services covered under GATS and earning free foreign
exchange.
_
Status Holder : An exporter recognised as Export Houses by the Director General of
Foreign Trade.

Third Party Exports : Exports made by an exporter or manufacturer on behalf of

another exporter.

18.11 ANSWERS TO CHECKS YOUR PROGRESS

C 6 i) False ii) False iii) False iv) True y) True
I
International and Technical
Environment 18.12 TERMINAL QUESTIONS
1 Analyse the commodity composition of India's export and enumerate various
markets for the export products.
2 Analyse the commodity composition of India's import and enumerate various
sources for India's import products.
3 Describe various export promotion measures initiated by Government of 1ndia. Do
Your think that they facilitate foreign trade? Discuss.
4 Why government of India regulates foreign trade? Give arguments and discuss
various measures for regulating foreign trade.
5 What is balance of payments? How balance of payments account is prepared.
6 What are the causes of disequilibrium in the balance of payments? Suggest
measures for establishing equilibrium in the balance of payments.
7 "Balance of Payments should always balance". Discuss with suitable examples.
8 What are the objectives of EXIM policy 2002-07. Discuss the provisions relating
to exports.
9 Describe the provision of imports under the EXIM Policy 2002-07. Do you think
that these provisions facilitate imports? Discuss.
10 Distinguish between capital account and current account transactions ? Outline the
provisions of FEMA with respect to regulation of such transactions.
1 1 How is FEMA different from FERA in matter of its main objective. Enumerate the
peculiarities of FEMA.
12 Explain the provision of FEMA with regard to dealings and holding of foreign
exchange or foreign security and immovable property.

Note: These questions will help you to understand the unit better. Try to write
answers for them, but do not submit your answers to the university for
assessment.