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WWW.IGNOUASSIGNMENTS.IN
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 ASSIGNMENT SOLUTIONS GUIDE (2017-2018)
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
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 in given in 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

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

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Answers/Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer and for up-to-date
and exact information, data and solution. Student should must read and refer the official study material provided by the

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university.
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Attempt all the questions.

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Q. 1. Explain the concept of balance of payments. How is it classified? Describe salient features of

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India’s balance of payments.

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Ans. Balance of payment refers to all economic transactions between domestic and foreign residents over a
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stipulated period. The balance of payment of a country provides an overall view of its international economics

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position. It is very much helpful for the policy makers and the business communities. In this chapter, we will learn
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about the concept of balance of payment, the balance of payment accounting procedure. In the next chapter, we will

Concept of Balance of Payment l

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find out about the trends in India’s balance of payment.

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Balance of payment refers to all economic transactions between domestic and foreign residents over a stipulated
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period, which is generally one year. The analysis of balance of payment is immensely useful for the policy-makers

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and business communities. Moreover, it is an important instrument for maintaining external economic stability. A

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close understanding of dependence of international business upon balance of payments is necessary for a successful
strategy in international business. f
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Balance of Payment Accounting
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In balance of payments accounting, the balance of payments should be zero because every transaction is two-
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sided with debits balancing credits. However, in practice, the balance of payments will rarely be equal to zero. This

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is due to, among other things, a country’s central bank (RBI in India’s case) doing transactions that are not part of the
balance of payment, or even lack of statistical data to record all transactions.
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w Balance of payments is classified as:

1. Balance of payment on current account, and
2. Balance of payment on capital account.
1. BOP on Current Account: The balance of payment on current account records the current position of the
country in the transfer of goods, services, and merchandise as well as invisible items, donations, unilateral transfers,
etc. A current account is like an income and expenditure account. Surplus or deficit in current account is transferred
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 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 account transactions are part of the capital account. This helps in finding out the exact foreign exchange

WWW.IGNOUASSIGNMENTS.IN 2
reserve of the country on a given date. The capital account offers relief to deteriorating balance of payment positions.
Its favourable effect is directly related to the availability of net capital transfers, i.e. gross inflow of capital minus
payment by way of amortization. Capital account thus reflects changes in foreign assets and liabilities of a country
and directly shows its creditor/debtor position. Net changes in current account are reflected by a relevant opposite
change in the capital accounts altering the foreign assets and liabilities position of the country. Table 3.1 shows a wide
range of items of balance of payment.

Table 3.1
Main Items in the Balance of Payments
Item Definition
A. Current Account (1+2)

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(a) Merchandise exports
(b) Merchandise imports
1. Trade balance (a – b)
Sales of goods abroad
Purchase of foreign goods
Goods trade balance
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2. Invisibles (a+b+c+d)

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(a) Non-factor Services (i) Sales of services, e.g. insurance, software plus spending of foreign

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visitors (tourists)
(ii) Purchase of foreign services
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(b) Investment Income
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(i) Dividends, interest etc. received from abroad

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(ii) Payment of dividends, interest etc.
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(c)Private transfers Net private payments, e.g., remittance from workers abroad.

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(d) Official Transfers-Grants
B . Capital Account (1+2+3+4) m
Net official payments, e.g., overseas aid.

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1. Foreign Investment
(a)Direct Investment
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Net direct investment in plant and machinery etc.
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(b)Portfolio Investment Net purchases/sales of shares, bonds, etc.

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

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Significant Features of India’s BOP
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The salient features of India’s BOP are:

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1. India has always faced trade deficits except in 1972-73 and 1976-77 when there was a small surplus.

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2. Trade deficit increased from plan to plan with the exception of the fourth plan when the trade deficit declined.
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3. The rate of growth of export varied from plan to plan.

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4. Net invisible receipts have been always positive.
5. The crisis in the balance of payment during 1990-91 and in the first quarter of 1991-92 made it necessary to
mobilise additional external funds to close the gap. The task of the government was difficult because of the sinking
international faith in our economy. In the end, the government succeeded in getting additional finance from the IMF,
the World Bank and some bilateral donors, especially Japan.
6. Fiscal deficit affects not only the growth and stability, but has a crucial bearing on the balance of payment
strategy. Strategy to ensure a viable balance of payments calls for corrections in fiscal imbalance as well.
7. External assistance utilization has been at a low level. A considerable part of authorized loans has always
remained in the pipeline. The main reason for underutilisation of assistance is because of the unnecessary time lag
between commitments and conclusions of any given credit arrangement, time-consuming procedures and also budgetary
constraints in making available counterpart funds.

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 8. The collapse of USSR and emergence of a number of independent states out of it badly hit country’s exports.
India’s balance of payments thus continued to be under stress.
The underlying weaknesses of the balance of payments stayed. The declining support from net invisible
receipts due to interest payments, feeble industrial and export performance and high rate of inflation became
constant hurdles in the way of securing a sustainable balance of payments. Table 4.1 shows the gloomy picture of
India’s balance of payments.
Table 4.1: India’s Balance of Payments
(US $ million)
1995-96 1996-97 1997-98 1998-99
USA 32311 34133 35680 34298
Imports 43670 48948 51187 47544

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of which : POL 7526 10036 8164 6433

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Trade balance – 11359 – 14815 – 15507 – 13246
Invisibles (net) 5449 10196 10007 9208
Non-factor services – 197 726 1319

c 2165

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Investment income – 3205 – 3307

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– 3521

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– 3544

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Private Transfers 8506 12367 11830 10280
Official Grants 345 410 379
g 307
Current Account Balance
External assistance (net)
Commercial borrowings (net) @
– 5910
883
1275
– 4619
1109
2848
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– 5500
i
907
d
3999
– 4038
820
4362

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IMF (net) – 1715 – 975 – 618 – 393
Non-resident deposits (net) 1103

m 3350
e1125 1742
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Rupee debt service – 952 – 727
R– 767 – 802
Foreign investment (net) 4615
y e 5963 5353 2312
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of which:
(i) FDI (net)
lin ks
1954 2651 3525 2380
(ii) FIIS
(iii) Euro equities and others

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1926
1386
979
849
– 338
270
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Other flows (net)+

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– 2235 – 1131 – 606 – 174
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Capital account total (net)

Reserve use (–increase)
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2974
2936
10437
– 5818
9393
– 3893
7867
– 3829

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Q. 2. Discuss briefly various initiatives outlined in the Annual supplement 2005 to the Foreign Trade
Policy, 2004-09
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Ans. The objectives of Exim policy 2004-09 are:

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(i) To double our percentage share of global merchandise trade within the next five years; and
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(ii) To act as an effective instrument of economic growth by giving a thrust to employment generation.

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These objectives are proposed to be achieved by adopting, among others, the following strategies:
(i) Unshackling of controls and creating an atmosphere of trust and transparency to unleash the innate
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entrepreneurship of our businessmen, industrialists and traders.
(ii) Simplifying procedures and bringing down transaction costs.
(iii) Neutralizing incidence of all levies and duties on inputs used in export products, based on the fundamental
principle that duties and levies should not be exported.
(iv) Facilitating development of India as a global hub for manufacturing, trading and services.
(v) Identifying and nurturing special focus areas which would generate additional employment opportunities,
particularly in semi-urban and rural areas, and developing a series of ‘Initiatives’ for each of these.
(vi) Facilitating technological and infrastructural upgradation of all the sectors of the Indian economy, especially
through import of capital goods and equipment, thereby increasing value addition and productivity, while attaining
internationally accepted standards of quality.

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 (vii) Avoiding inverted duty structures and ensuring that our domestic sectors are not disadvantaged in the Free
Trade Agreements/Regional Trade Agreements/Preferential Trade Agreements that we enter into in order to enhance
our exports.
(viii) Upgrading our infrastructural network, both physical and virtual, related to the entire Foreign Trade Chain,
to international standards.
Q. 3. “Garments have emerged as the star-performer in the Indian textile export scenario”. Justify
the statement by giving data of te last 10 years. Also discuss various factors responsible for the export
growth in this sector.
Ans. India's garment sector is one of the oldest industries in Indian economy dating back several centuries. Even
today, textiles sector is one of the largest contributors to India's exports with approximately 13 per cent of total
exports. The textiles industry is also labour intensive and is one of the largest employers. The textile industry has two

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broad segments. First, the unorganised sector consists of handloom, handicrafts and sericulture, which are operated
on a small scale and through traditional tools and methods. The second is the organised sector consisting of spinning,
apparel and garments segment which apply modern machinery and techniques such as economies of scale.

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The textile industry employs about 45 million people directly and 20 million people indirectly. India's overall textile
exports during FY 2015-16 stood at US$ 40 billion.

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The Indian garment industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end

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of the spectrum, while the capital intensive sophisticated mills sector at the other end of the spectrum. The decentralised
power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of the
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textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country

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in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries. The
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Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments,
both within India and across the world.
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The Indian textiles industry, currently estimated at around US$ 120 billion, is expected to reach US$ 230 billion by
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2020. The Indian Textile Industry contributes approximately 2 per cent to India's Gross Domestic Product (GDP),

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10 per cent of manufacturing production and 14 per cent to overall Index of Industrial Production (IIP).
Indian khadi products sales increased by 33 per cent year-on-year to Rs 2,005 crore (US$ 311.31 million) in 2016-
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17 and is expected to exceed Rs 5,000 crore (US$ 776.33 million) sales target for 2018-19, as per the Khadi and
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Village Industries Commission (KVIC).

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The total area under cultivation of cotton in India is expected to increase by 7 per cent to 11.3 million hectares in
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2017-18, on account of expectations of better returns from rising prices and improved crop yields during the year
2016-17.
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Indian exports of locally made retail and lifestyle products grew at a compound annual growth rate (CAGR) of 10
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per cent from 2013 to 2016, mainly led by bedding bath and home decor products and textiles#. The Government of
India targets textile and garment sector exports at US$ 45 billion for 2017-18.
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The textiles sector has witnessed a spurt in investment during the last five years. The industry (including dyed and

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printed) attracted Foreign Direct Investment (FDI) worth US$ 2.55 billion during April 2000 to June 2017.
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Some of the major investments in the Indian textiles industry are as follows:

w ●

●
Future Group is planning to open 80 new stores under its affordable fashion format, Fashion at Big Bazaar
(FBB), and is targeting sales of 230 million units of garments by March 2018, which is expected to grow to
800 million units by 2021.
Raymond has partnered with Khadi and Village Industries Commission (KVIC) to sell Khadi-marked
readymade garments and fabric in KVIC and Raymond outlets across India.
● Max Fashion, a part of Dubai based Landmark Group, plans to expand its sales network to 400 stores in 120
cities by investing Rs 400 crore (US$ 60 million) in the next 4 years.

WWW.IGNOUASSIGNMENTS.IN 5
 Q. 4. Describe various sectors of chemical industry. What are India’s competitive advantages &
disadvantags in the export of chemical goods.
Ans. Major Sectors Of Chemical Industry: Major sectors of the Indian chemical industry are:
(a) Organic Chemical Industry: As a whole, the Indian organic chemical industry (petrochemicals, bulk
organic chemicals and speciality chemicals) faces the problems of uneconomical capacities, scattered production
bases and poor marketing. However, it can be observed in terms of industry players with distinct characteristics.
First, there are large petrochemical cracker operating companies such as Reliance and ICPL. These produce all
important commodity plastics and a few of other bulk chemicals.
Then, there are the single polymer manufacturing companies like Finolex Industries, Chemplast Sanmar and
Supreme Petrochem who buy the basic chemicals or the intermediates to make the polymers.
In bulk organic chemicals, there are many players ranging from the benzene-based producers like Hindustan

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Organic Chemicals and Herdillia Chemicals to the fertilizer companies, which have diversified into products like

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caprolactum and methanol. A separate group of companies produces molasses (industrial alcohol) based chemicals.

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Some of these even compete with the petro-based products such as MFG, acetic acid and VAM. Finally, there are the
specialty chemicals that is even today is a preserve of the multinational companies such as Ciba Specialties.

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(b) Petrochemicals: The petrochemical market in India is basically supply driven. For last few years, the

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growth rates for various polymers and polyesters are in double digits. Indian companies therefore operate at high

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rates even in case of a reduction in price. Reliance has demonstrated that Indian companies can put together extra

the customers.

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cost advantage by world-class delivery systems to a scattered market, thereby ensuring low working capital costs for
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With their integrated large petrochemical complexes, IPCL and Reliance, are not much affected by the changing

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price cycle of petrochemical prices worldwide and continue to invest further to sustain market leadership. Single

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polymer companies, obviously, do not have the pricing flexibility of a cracker complex. However, some of these like
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Finolex Industries do have world-class capacities and abilities. Most of these companies will continue as marginal
players only.
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(c) Bulk Organics: The Bulk Organics segment of the Indian chemical industry is in the process of consolidating

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itself. Most companies even with fairly large capacities like the Hindustan Organic Chemicals Limited are finding the
things a bit tough. While there is no dearth of investors in petrochemicals, investments in the bulk organics are, at best,
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tardy. Despite the fact that some companies have succeeded in reducing conversion costs, real competitive advantage
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would be possible only through world-class capacities and integration. Most of the companies are today hampered by

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lack of resources to invest. There is stagnancy all over the industry. Even multi-business companies in fertilizers and

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chemicals show interest only in somehow maintaining the status quo.
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(d) Alcohol-based Chemicals: The prices of molasses were decontrolled in 1993. Since then the alcohol-

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based chemical industry has been subjected to the vagaries of molasses prices. Raw material supply and price, which

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are crucial to this industry, are today inextricably linked to the sugar economy and state level policies. Large sugar
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producers now prefer to operate an integrated complex manufacturing not only sugar, but also paper and organic
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chemicals. The alcohol-based chemical industry can be safely said to stay the way it is, marginal without attracting
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any large investments.

(e) Specialty Chemicals: The specialty chemical industry is a high margin segment and continues to be dominated
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w
by the technologically strong multinational companies. Indian companies do have a reasonable presence in this sector
and are likely to increase it with improved R&D in many companies. However, the margins heavily depend upon the
performance of end- user industries and therefore, necessarily, on country’s economic revival.
(f) Pharmaceuticals: In last five decades, the Indian pharmaceutical industry has gone through several phases,
mostly in keeping with government policy. Starting merely as a repacking business and later engaging in preparation
of formulations from imported bulk drugs, the Indian industry has traversed a long path to become a net foreign
exchange earner, with capability to produce almost any drug in the world.
So far, the Indian pharmaceutical industry has been regulated through the Indian Patents Act, 1970 (IPA), the
FERA for foreign equity holding, and the Drug Price Control Order (DPCO). The IPA recognizes process patents as
against product ones that are in use in the developed world. This has helped Indian manufacturers to produce

WWW.IGNOUASSIGNMENTS.IN 6
internationally patented drugs within the country by finding an alternate process for the drug with help of a large pool
of qualified Indian pharmacists and scientists. The IPA has been, in a way, instrumental for the spectacular rise in the
number of pharmaceutical units throughout the country. However, this has also made the sector highly scattered.
In 1994, India signed the GATT (now WTO) agreement. It meant India had to improve legislative protection to
Trade Related Intellectual Property Rights (TRIPs). Intellectual Property Rights (IPR) are the rights of the originator
of an innovation or a product to hold sole international commercial rights for a certain time. For the pharmaceutical
industry most fatal is the introduction of product patents in the country. It is bound to lead to a complete upheaval of
the industry. A 10-year transition period has been granted to enable the Indian companies to strengthen their R&D
facilities and get ready to meet the challenge thrown up by the product patent regime. India is now poised to become
a manufacturing base for the MNCs due to relatively less cost of production. Moreover, with its huge domestic
market India is certainly a good choice as base of production for these MNCs.
(g) Oil and Gas: At present India is the fourth big oil consumer in the Asia-Pacific region after Japan, China

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and South Korea. Likely to increase at the rate of 7 per cent a year, the demand for petroleum products is certain to
almost double from the present 80 million tonnes to 155 million tonnes per annum by 2006-07.

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Only few years back, India’s oil industry was its one of the most regulated segments. The strictness of the

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regulations precluded any competition among companies. The industry was also nearly insulated from international

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shifts in oil prices. Now, many of the regulations have been removed. Prices of industrial fuels have been taken off the

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APM and put on with comparable international fuels. In few years, India’s oil industry will be completely regulation

entry of many private players.

India’s Competitive Advantages and Disadvantages
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free and change over to be a competitive one because of reduced tariffs, freedom from government intervention and

ing
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India’s competitive advantages and disadvantages in chemical sector can be worked out using the SWOT
(Strength, Weakness, Opportunity and Threat).
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a
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ANALYSIS: The findings of the analysis are as follows
Strengths
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1. There is easy availability of highly skilled technical and scientific manpower. This gives India a technological
edge and helps in adding value right from the basic stage to finished product stage.

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2. Industry is six decades old with well-diversified sectoral composition.
3. The industry is well connected with other sectors of economy and provides vital inputs to them.
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4. Easy availability of raw materials/feed stocks, such as naphtha, gas, ethyl alcohol etc.
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5. Presence of MNCs in the industry is an added advantage.

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contribution to total exports.
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6. From a position of net importer few year back, the industry has grown into a major exporter with 14 per cent
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7. Excellence in R&D, at national and private sector institutions, provides a competitive edge.
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8. Low cost of technical manpower also gives a competitive edge.

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9. Indian Patent Act is being amended to be in tune with GATT regulations.

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10. Central Government has declared petrochemicals as a “Thrust Area” for prioritised development.

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11. India, over the years, has developed expertise and strong bade in sectors like dyestuffs, pesticides, organic
N

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and inorganic chemicals, drugs and pharmaceuticals, plastics, rubber processing, synthetic fibres etc.
(12) India is strategically located in Asia with excellent shipping facilities for despatch of bulk chemicals
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by sea routes.

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Weaknesses
1. Contract manufacturing in India is not yet much developed.
2. The chemical industry worldwide spends a high proportion of its production costs on the R&D, whereas in
India the R&D expenses are not significant as part of production costs.
Opportunities
1. Petrochemicals are a fast growing area in Asia-Pacific region. Most countries in the region are interested in
increasing their domestic petrochemical capabilities through foreign investment.
2. In East Asia, plastics and textiles expansions will generate large demand for additives and dyestuff chemicals
in which India has a strong base.

WWW.IGNOUASSIGNMENTS.IN 7
 3. Due to the high cost of labour, the many countries are trying to relocate their manufacturing and sourcing
bases. India must not miss these emerging opportunities.
4. Future sustained growth in the chemical industry is slated to be outside the developed nations. Likely areas
of growth are Eastern Europe, the Pacific Rim, India and China etc.
5. Construction and automobiles are two biggest customers of the chemical industry. Both are in the process of
effecting radical changes opting for wider use of new innovative materials such as optic fibres, super polymers,
composites, fine ceramics, fibre-reinforced plastics etc. India, with its technical expertise, can take a lead in
producing these materials.
Threats
1. The chemical industry has become increasingly conscious of environmental concerns. In particular, all EU
countries have enforced stringent environmental laws, especially for chemicals, because of their risk-prone
characteristics.

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2. Rapid technological obsolescence is a prominent feature of the chemical industry. Therefore, every care

obsolete too soon.

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must be taken before making investment in a new project to make sure that its products do not become

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.
Q. 5. Write short notes on the following:
(a) Issues in world Trade.

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Issues in World Trade
The most significant issues in world trade are:
in
(a)Regionalism versas 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
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regional trading arrangements (RTAs). Such regional commitments have, however, caused concerns that they may
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

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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

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also claim that regional agreements go beyond mere trade liberalization, by harmonizing regulations, adopting minimum
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standards for regulations, and recognizing other countries’ standards and practices–factors that go a long way in

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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.
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w 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.

WWW.IGNOUASSIGNMENTS.IN 8
 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
qualitative break with the past. The world is no more just a collection of separate nations only dimly connected by

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trade. The global economic order is evolving into a highly integrated and electronically networked world system.

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

U
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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

sensitive to them.

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

ing
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

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

d
marketing. For the open global economy electronic commerce has come as a boon. The most significant and important

in ks
characteristics inherent to electronic commerce is its ability to respond to markets without any botheration about

l
u
98 L

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

n oo
t
is needed in electronic commerce technology and the speed with which electronic commerce will benefit a country
SO

O b
certainly depends on how fast that country liberalises its market and adopts a predictable trade regime–these two

s r
being the necessary and essential conditions for staring e-commerce.
-
.e o
Electronic data interchange (EDI) normally means paperless commutation. Most industrial countries now insist

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

d
have even specifically declared that No EDI No Trade. Many less developed and also some developing countries find
b
we u an
O

it still difficult to put into practice electronic data interchange simply because they do not have the necessary infrastructure
in information technology to make it possible for them to deal electronically with their clients from developed nations.
H
N

In 1998, WTO members earnestly started delving into the problem of how the World Trade Organization should

w Th
deal with the use of electronic commerce. E-commerce is definitely of a unique nature in entering into contracts of
IG

delivering products (goods and services) across the world. This very uniqueness has raised many issues, which still

w
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.

WWW.IGNOUASSIGNMENTS.IN 9
 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.
(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

m
up to 20 per cent of the cost of adapting existing facilities to new environmental legalisation. Both the TRIPs and the

SE
Services Agreements contain provisions about protecting the environment.

o
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

c
a constructive relationship between trade and environmental concerns. Trade and environment are both crucial areas

U
.
of policy-making and they have to be mutually supportive to ensure a sustainable development, the Report said.

t
(b) Inflow of FDI in India

50 HO
Ans. FDI Inflow in India: Flow of Foreign Direct Investment in India till the end of the 80's was insignificant.
g
r
Only after announcement of a new economic policy and move towards globalisation in 1991 that FDI started coming

in
in. Table 12.1 shows progress in foreign investment flow in India. The foreign investment increased from 133 million

a d
dollars in 1991-92 to 6133 million dollar in the year 1996-97. It, however, decelerated in next two years and was

80 N
merely 2401 million dollars in 1998-99.
(c) India’s export of services a
m e
26 IO
Ans. Importance of Services Sector for India: At present the services sector is of considerable importance
R
y e
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 are likely to be one-third of the merchandise exports. India’s
91 UT

d
exports of services were $9.3 billion, while its merchandise exports were $32.2 billion in 1997. However, Indian share

in ks
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
l
estimated to grow at the rate of 26 per cent.

t u
n oo
98 L

The services sector is certainly growing at a faster rate compared to other sectors. Table shows growing export

O b
of services from India. It can be seen that it has increased from 3719 million dollar in the year 1988 to 11067 million
SO

dollar in the year 1998.

s r -
.e
India’s Exports of Commercial Services

fo E 0 0, 0000 (Million dollars)

b d Year Value
U

we n 1988 3719
u a
O

1989 4092
H 1990 4609

w Th 1991 4905
N

1992 4893
IG

w
1993 5034
1994 6031
1995 6763
1996 7179
1997 8926
1998 11067
(d) India’s CIS trade relations.
Ans. India CIS Commercial Relations: India had enjoyed, since the first half of the 1950s, excellent economic
and trade relations with the former USSR, till beginning of the 1990s. Trade between the two countries was conducted
under trade and payment agreements concluded from time to time. The agreements provided for balanced trade and
bilateral clearing arrangements and the accounts were maintained in non-convertible Indian rupees. Under such an

WWW.IGNOUASSIGNMENTS.IN 10
arrangement not only did India-USSR trade grow substantially, but also precious foreign exchange was conserved on
both sides and each country was able to find market difficult to sell items in the other country. The disintegration of the
Soviet Union means tend to the system of managed trade and exposure to competitive environment. After reaching a
peak during 1990, India-USSR trade dropped dramatically in the next year.
After the collapse of the Soviet Union and the emergence of the CIS countries, trade relations between India
and the countries were reworked. Agreements/ Protocols on trade and economic cooperating have been signed
between India and most of the CIS countries. These agreements provide for trade in freely convertible currency,
counter trade, barter trade or any other internationally recognized form of business cooperation and the prescribed
clearing mechanism provided for the same.
India-CIS Trade

SE
m
India-CIS trade, which was of the order of Rs. 13500 crores per year during 1996-97 and 1997-98 declined
sharply by more than half during 1998-99 mainly due to steep fall in India’s import from the region. As a result, India,

o
which was running a huge trade deficit during the first two years, registered as surplus during 1998-99, as, will be seen

U
c
from Table.

.
50 HO
Table: EU (15)’s Trade with India
Imports
Year Total Extra From ACP From From
rIndia’s
int
g (Value: ECU Billion)
India’s share
%
From
EU

80 N
26 IO Countries Countries
Other than
India
aShare (%)
in Extra
ad in EU imports from
countries other than

m
y e
ACP EU imports

Re ACP
91 UT

1993 1237.9 470.2 15.6 454.6 6.2 1.32 1.36

d
1996 1604.5 581.5 22.2 559.3 8.6 1.48 1.54
1998 1885.1 709.3 21.3
lin ks
688.0 9.8 1.38 1.42

u
98 L

n oo
Table : EU (15)’s Trade with India

t
SO

Imports (Value: ECU Billion)

O b
Year
(%)
Total Extra
EU
s
From ACP
r
Countries
-
From
Countries
From
India
India’s
Share (%)
India’s share
in EU imports

.e fo E
From Other than in Extra countries other than
U

ACP EU imports ACP

b d
we u an
O

1993 1269.2 471.4 17.3 454.1 6.5 1.38 1.43

1996 1675.1 625.1 18.6 606.5 9.9 1.58 1.63
H
N

1998 1966.7 729.6 22.5 707.1 9.5 1.30 1.34

w Th
IG

Table : India’s Trade with EU (15)

w Year Total
share
Extra Eu’s share (%) Total
(Value: ECU Billion)
Imports EU’s
(%)
1990-91 324965 93590 28.8 430968 133600 31.0
1994-95 823380 229124 27.8 887052 223382 26.3
1998-99 1416035 381137 26.9 1760986 435035 24

WWW.IGNOUASSIGNMENTS.IN 11
 Table: Major Imports of the European Union (15) from India
(Value: million ECU)
HS Extra-EU Imports India’s share (%) Extra-EU Imports from India’s share
Code Imports from in Extra-EU Imports India EU
(%) in Extra India Imports
62 19053.9 1028.0 5.4 22689.8 945.7 4.2
71 21619.2 852.6 3.9 26980.3 1133.8 4.2
52 4070.2 408.3 10.0 4418.0 390.3 8.8
41 2907.9 176.9 6.1 2877.3 166.1 5.8
57 1377.2 312.6 22.7 1358.2 328.9 24.2
09 4604.6 251.0 5.5 6502.5 345.6 5.3
42 4214.5 591.8 14.0 4817.1 600.9 12.5
64 5918.0 345.7 5.8 6995.4 376.6
m 5.4

SE
60+61 12189.1 545.9 4.5 16101.4 670.6 4.2
03
84
6253.2
79294.6
167.0
406.7
2.7
0.5
8347.3
110987.1
110.0
360.2

c o 1.3
0.3

U
.
08 7486.4 151.5 2.0 7349.2 154.8 2.1
29 14437.2 354.7 2.5 18586.2 455.2 2.4

t
50 HO
55 2001.6 195.5 9.8 2244.7 206.7 9.2
g
63 2544.7 322.4 12.7
Table
3274.4

a r 431.7

din
13.2

80 N a
Year Exports from India Imports into India Trade Balance

m e
1996-97 3200 10328 – 7128
26 IO
1997-98 3671 10143 – 6472
R
1998-99 3479

y e 2829 + 645
91 UT

d
The Russian Federation, among the CIS countries is the single largest trading partner of India. Russia accounts

in ks
for nine-tenths of India’s exports to and imports from CIS countries. Apart from Russia, Kazakhstan, Ukraine and
l
t u
Uzbekistan are the only three other significant markets for India while Russia, Ukraine and Kazakhstan are the three
n oo
98 L

major sources of supply. Tables 32.5 and 32.6, show major country-wise data on India’s exports to and imports from

O b
SO

the CIS countries. No steady trend is noticeable in India’s trade-either in exports or imports with the CIS countries

s r -
barring exports to Kazakhstan, which are on inse. Also the sharp import decline during 1998-99 is accounted for,

.e o E
almost solely, by Russia.
f
Table: India’s Exports to CIS Countries
b d
U

we n
Country 1996-97 1997-98 1998-99
u a
O

Russia 2880 3306 3038

H
w Th
Ukraine 160 218 145
N

Uzbekistan 29 65 53
IG

Kazakhstan 16 32 162

w Total (including others)

Country
3220 3671
Table : India’s Imports from CIS Countries
1996-97 1997-98
3474

1998-99
Russia 9832 9396 2221
Ukraine 433 578 530
Kazakhstan 45 157 40
Total (including others) 10328 10143 2829

WWW.IGNOUASSIGNMENTS.IN 12
 Major items of export from India comprise readymade garments, tea, coffee, rice, drugs and pharmaceuticals,
plastic and linoleum products, textiles, leather goods, spices and cosmetics, while the main items of import are non
ferrous metals, iron and steel, newsprint, fertilizers, machinery, chemicals, raw silk, raw wool and gold and silver.
There is high level of intra-trade among the CIS countries, being, Russia the main trading partner in case of to
both imports and exports. Russia apart, the EU countries, Turkey, China, USA, Japan, East European countries and
Iran are the other trading partners of the CIS.
■■

SE
o m

U
. c

50 HO
r t ing
80 N
26 IO
a ad
m
y e Re
91 UT

uld
in ks
98 L

n oo
t
SO

O b
s r -
.e fo E
U

b d
we u an
O

H
N

w Th
IG

WWW.IGNOUASSIGNMENTS.IN 13