Unit V: Foreign Trade: Concept, Type, Composition and Direction, EXIM Bank, Function of

EXIM Bank, EXIM Policy of India.

Foreign trade, otherwise known as international trade, encompasses the exchange of
goods, services, and capital across international borders. It plays a significant role, actually
central, in the global economy, for the simple reason that it can offer countries resources
and products they cannot efficiently produce otherwise. Besides, it promotes economic
growth and development by making more products available in a country, raising
competition, and creating economies of scale. These are what, to a great degree, determine
how and to what extent countries conduct foreign trade, and thus affect everything from
the local economies to international relations.
Foreign trade if of three types:
Import trade: Import refers to the purchase of goods and services by one country from
another country. It is the inflow of goods and services to the home country from a foreign
country. For example, India is importing petroleum from Iraq, Kuwait, Saudi Arabia, etc.
Export trade: Export trade refers to the sale of goods and services by one country to
another or it is the outflow of goods and services from home country to a foreign country.
For example, India exports tea, rice, jute to China, Hong Kong, Singapore, etc.
Entrepot trade: Entrepot trade refers to the purchase of goods and services from one
country for reselling to another country after some processing. For example, Japan imports
required raw materials to make electronic goods from England, Germany, etc. and then sells
them to various countries after processing.
Composition and direction of foreign trade:
Composition of foreign trade means goods that are exported and imported. Therefore,
composition of trade consists of composition of exports and imports.
Composition of imports with reference to India: Since independence being an agrarian
economy, Indian imports mainly focussed on the following items:
Food and allied products: Cereals, pulses, cashew nuts, edible oil, etc. comprised of 3.6% of
the total Indian imports.
Fuel: To drive the growth of Indian economy, fuel is an important component that supplies
energy. Initially one-fifth of Indian imports consisted of fuel which later on reduced to 23%.
Fertilizers: To promote the productivity of agricultural products, imports of fertilizers
consisted of 4.6% of Indian imports.
Paper board manufacturers and newsprints: This section consists of 1.3% of Indian imports.
Capital goods: Machinery, transport equipment, electronic goods, etc. consists of 27.8% of
Indian imports.
Other bulk items: Chemicals, pearls and precious stones, iron and steel, non-ferrous alloys
consist 23.5% of Indian imports.
Unclassified items: Items apart from above mentioned categories consist of 16.2% of
imports.
Composition of exports with reference to Indian exports:
Agricultural and allied products: It consists of 19% of Indian exports.
Ores and minerals: This commodity group consists of 3.7%.
Manufactured goods: Leather products, gems and jewellery, machinery and transport
equipments, electronic goods, drugs, etc. consist of 75.4% of total exports.
Petroleum products: This section accounts for 1.4% of exports.
Unclassified items: Apart from the above categories, this segment accounts for merely 0.3%
of total exports.
Direction of trade with reference to India:
It means the countries to which India exports its goods and services and the countries from
which India imports its goods and services.
Direction of Indian imports: After independence, Indian imports expands its trade
operations beyond United Kingdom to USA, European countries, south American countries,
African countries, to Australian and New Zealand, etc. As a single country USA holds 12.5%
of Indian exports followed by Germany, U.K. and other European countries, Japan, Russia,
OPEG countries, Less Developed countries, etc. On the other hand, Indian exports changed
its direction from UK to USA, and as a single window USA holds 17.4% of Indian exports
followed by other European countries, Germany, Japan, UK, Russia, PEG countries. Less
Developed countries around the globe account for 26% of Indian exports.

EXIM Bank: (Functions and Policies in India)

Export-Import Bank of India (Exim Bank) was set up by an Act of the Parliament “The Export-
Import Bank of India Act, 1981” for providing financial assistance to exporters and
importers, and for functioning as the principal financial institution for co-ordinating the
working of institutions engaged in financing export and import of goods and services with a
view to promoting the country’s international trade and for matters connected with it.
The role of EXIM Bank are as follows:

 To ensure the export or import projections

 To encourage and facilitate the export of international, technical and merchant banking
services as well as their joint ventures
 To lengthen the Line Of Controls (LOCs) and credit of buyers
 To make competition for exporters on the financial terms
 To provide timely and relevant information to exporters of India about their
opportunities in various export fields and areas
 To provide advice on currency related issues so that producers or manufacturers or India
may perform the cost effective exports and imports
 To look into Indian finance problems and give resolution policies for it
 To enhance and promote the trade of foreigners in our country India

The functions of EXIM Bank are as follows:

 It helps in financing the export as well as import of machines.

 It also helps to refinance the bank services as well as other institutions for foreign
financing trade or EXIM trade.
 It helps in financing the export or import of services and goods from other countries
also.
 It also provides financial assets for the business in foreign and also helps the business to
join the joint venture in foreign.
 It also helps in providing the finance for technical assets to exporters and importers.
 It also offers the LOCs and short-term loans to foreign governments and banks
 To provide finance in cooperative banks
 This bank provides the services of business advisory.

EXIM Policy:
1992 -1997:
 In order to liberalize Indian economy, following objectives were set:
 Import of all items including capital goods are freely allowed. The negative list will
contain consumer goods, barring 28 specific items, and 70 other items, whose imports
would be restricted.
 Import of a number of items including newsprint, non-ferrous metals, natural rubber,
intermediates and raw materials for fertilisers were decanalised. Petroleum products,
edible oils, fertilisers and cereals continue to be on the canalised list.
 Exports of all items are free except a negative list.
 The scope of duty exemption scheme has been enlarged by introducing value based
advance licenses besides the quantity based advance licences.
 Export houses, trading and star trading houses to be eligible for self-certification under
the advance license scheme which permits duty free imports for exports.
 The export promotion capital goods (EPCG) scheme liberalised further. Under the
scheme, import of capital goods was permitted at 25 percent import duty subject to
export obligation of three items the C.I.F. value of imports to be achieved over a period
of four years.
 Keeping in view the important role played by the export promotion councils, exporters
will continue to register themselves with these bodies. The registration-cum-
membership certificates (RCMC) will continue to be an essential requirement for any
importer or exporter to avail the benefits or concessions or to apply for any license.
 Under the new policy, certain categories of exports and exporters are eligible to receive
special import licences.
 A significant aspect of the new policy is that amendments will be made once a quarter.
1997-2002:
Some of the major features of the new Exim Policy are:
 The policy shifted 542 items out of the restricted list to the Special Import Licence (SIL)
and OGL lists.
 About 60 items shifted out of SIL to OGL.
 About 150 items can now be imported against SIL.
 The policy has done away with the Value Based Advance Licence Scheme (Vabal) and
passbook scheme and introduced a new duty entitlement Pass Book scheme.
 Under this scheme, the exporters will be issued a Pass Book. If he seeks this on pre-
export basis, he would be given adhoc duty entitlement calculated at 5 percent of
average f.o.b. value of exports in the preceding three years. This entitlement would
enable him to import required inputs duty free.
2002-2007:
The main objectives of the Export Import Policy 2002-2007 are as follows:
1. To encourage economic growth of India by providing supply of essential raw materials,
intermediates, components, consumables and capital goods required for augmenting
production and providing services.
2. To improve the technological strength and efficiency of Indian agriculture, industry
and services, thereby improving their competitive strength while generating new
employment opportunities and encourage the attainment of internationally accepted
standards of quality; and
3. To provide consumers with good quality products and services at internationally
competitive prices while at the same time creating a level playing field for the
domestic producers.
EXIM Policy 0f 2023-2027:
Following are some of the objectives of FTP 2023-27:
Process Re-Engineering and Automation: Greater faith is being reposed on exporters
through automated IT systems with risk management system for various approvals in the
new FTP. The policy emphasizes export promotion and development, moving away from an
incentive regime to a regime which is facilitating, based on technology interface and
principles of collaboration.
Towns of Export Excellence: Four new towns, namely Faridabad, Mirzapur, Moradabad, and
Varanasi, have been designated as Towns of Export Excellence (TEE) in addition to the
existing 39 towns. The TEEs will have priority access to export promotion funds under the
MAI scheme and will be able to avail Common Service Provider (CSP) benefits for export
fulfillment under the EPCG Scheme. This addition is expected to boost the exports of
handlooms, handicrafts, and carpets.
Recognition of Exporters: Exporter firms recognized with 'status' based on export
performance will now be partners in capacity-building initiatives on a best-endeavor basis.
Similar to the 'each one teach one' initiative, 2-star and above status holders would be
encouraged to provide trade-related training based on a model curriculum to interested
individuals. This will help India build a skilled manpower pool capable of servicing a $5
Trillion economy before 2030.
Promoting export from the districts
The FTP aims at building partnerships with State governments and taking forward the
Districts as Export Hubs (DEH) initiative to promote exports at the district level and
accelerate the development of grassroots trade ecosystem.
Facilitating E-Commerce Exports: E-commerce exports are a promising category that
requires distinct policy interventions from traditional offline trade. FTP 2023 outlines the
intent and roadmap for establishing e-commerce hubs and related elements such as
payment reconciliation, book-keeping, returns policy, and export entitlements.
Merchanting trade: To develop India into a merchanting trade hub, the FTP 2023 has
introduced provisions for merchanting trade. Merchanting trade of restricted and prohibited
items under export policy would now be possible. Merchanting trade involves shipment of
goods from one foreign country to another foreign country without touching Indian ports,
involving an Indian intermediary.