IB02

Indian Foreign Trade

Assignment No.I

Assignment Code: 2011IB02A1 Last Date of Submission: 31st March 2011

Maximum Marks:100

Attempt all the questions. All the questions are compulsory and carry equal marks.

Section-A
Ques.1 What are the important Institutions engaged in Export promotion? Describe their role in
promoting the exports of India.
Ques.2 Analyse the trends in Indo US trade during the 90s. Also comment upon the sectoral
break up of India's exports to and imports from the US.
Ques.3 Describe in brief, the steps taken by the government to encourage exports.
Ques.4 Describe the major trends in composition and direction of India's exports since the
launch of economic reforms in 1991.

Section-B
Case Study:

Although antidumping duties are intended to protect domestic producers from unfairly priced imports, they can be
an inconclusive weapon. Consider the case of John Smith, Inc., which won several antidumping cases from the
1970s to the 1990s but had little to show for it.

Trouble erupted for John Smith in the 1970s when it encountered ferocious competition from Brother Industries
Ltd. of Japan, which flooded the Indian market with its portable typewriters. Responding to John Smith’s dumping
complaint, in 1980 the Indian Government imposed antidumping duties of 49 percent on Brother portables. John
Smith antidumping victory proved to be hollow, however, because Brother realized that the anti dumping ruling
applied only to typewriters without a memory or calculating function. Through the tactic of product evolution,
Brother evaded the duties by upgrading its typewriter to include a tiny computer memory. It took until 1990 John
Smith to get this loophole plugged. By that time, Brother had found a more permanent method of circumventing
antidumping duties: it began assembling portable typewriters in India from components manufactured in Malaysia
and Japan. These typewriters were no longer “imported,” and thus the 1980s duties did not apply.

Then competition shifted to another product, the personal word processor. By 1990, John Smith complained that
Brother and other Japanese manufacturers were dumping word processors in India. This led to Indian
government to impose import duties almost 60 percent on Japanese word processors in 1991. But that victory
was also hollow, because it applied only to word processors in 1991. But that victory was also hollow, because it
applied only to word processors manufactured in Japan; the Japanese firms assembled their word processors in
India.

Undeterred, John Smith filed another complaint, invoking a provision in Indian trade law that was designed to
deter foreign firms from evading antidumping duties by importing components and assembling them in India. But
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the provision assumed that imported components would come from domestic (Japanese) factories, so it did not
cover components produced in third countries. Recognizing this loophole, Brother demonstrated that its imported
components cane from third countries, and therefore its word processors were not subject to antidumping duties.
All in all, obtaining relief from foreign dumped goods was a difficult process for John Smith.

Questions:
1. What do you mean by dumping of goods? What protective measures are taken by government to
protect the country from foreign dumped goods?
2. Why was the process of obtaining relief from foreign dumped goods difficult for John Smith?

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 IB02
Indian Foreign Trade
Assignment No.II

Assignment Code: 2011IB02A2 Last Date of Submission: 15th May 2011

Maximum Marks:100

Attempt all the questions. All the questions are compulsory and carry equal marks.

Section-A
Ques.1 Outline the contribution of the computer software and IT related services to India's
export performance.
Ques.2 Write a comprehensive note on India's trade with ASEAN
Ques.3 Gems and Jewellery sector has emerged as a major force in India's foreign trade.
Analyse the reasons for our success in this sector.
Ques.4 There was considerable focus on international trade in agricultural commoditites at
the Hong Kong ministerial conference of the WTO held in December 2005. Outline the
issues involved and explain how, if at all, India can benefit from greater liberalisation of
international trade in agriculture

Section-B

Case Study

The rise of the Indian software Industry

As a relatively poor country, India is not normally thought off as a nation capable of building a major
presence in a high-technology industry, such as computer software. In a little over a decade, however, the Indian
software industry has astounded its skeptics and emerged from obscurity to become an important force in the
global software industry. Between 1991-92 and 2001-02, sales of Indian software companies grew at a
compound rate in excess of 50 percent annually. In 1991-92, the industry had sales totaling $388 million. By
2002 they were around $8 billion. By the early 2000s, more than 900 software companies in India employed
200,000 software engineers, the third largest concentration of such talent in the world. India’s total production of
electronics and Computer Software/Services estimated to be US$42.34 Billion accounts for a share of 2.08
percent in the world production.

Much of this growth was powered by exports. In 1985, Indian Software Exports were worth less than $10 million.
They surged to $1.8 billion in 1997 and hit a record $6.2 billion in 2002, with some two-thirds of those exports
going to the United States. In value terms, exports of electronics and computer software during the year 2005-06

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is estimated to be US & 25.89 billion accounting for about 14% of total exports. The future looks very bright. As a
testament to this growth, many foreign software companies are now investing heavily in Indian software
development operations including Microsoft, IBM. Oracle and Computer Associates, the four largest US based
software houses. Equally significantly, two out of every five global companies now source their software services
from India.

Most of the current growth of the Indian software industry has been based on contract or project-based work for
foreign clients. Many Indian companies, for example, maintain applications for their clients, convert code, or
migrate software from one platform to another. Increasingly, Indian companies are also involved in important
development projects for foreign clients. For example, TCS, India’s largest software company, has an alliance
with Ernst & Young under which TCS will develop and maintain customized software for Ernst & Young’s global
under which TCS will develop and maintain customized software for Ernst & Young’s global clients. TCS also has
a development alliance with Microsoft under which the company developed a paperless national share depository
system for the Indian stock market based on Microsoft’s Windows operating system and SQL Server database
technology. Indian companies are also moving aggressively into e-commerce projects. From almost zero in
1997, e-commerce ore-business now account for about 10% of all software development and service work in India
and are projected to reach 20 percent within two years.

The Indian software industry has emerged despite a poor information technology infrastructure. In 2000, India
had just five personal computers per 1,000 people, compared to 588 per 1,000 in the United States, 32 telephone
lines per 1,000 people compared to 700 per 1,000 in the United States, and Internet users numbered around 5
million, compared to almost 100 million in the United States. But sales of personal computers are starting to take
off, and the rapid growth of mobile telephones in India’s main cities as well as rural areas is to some extent
compensating for the lack of fixed telephone lines.

In explaining the success of their industry, India’s software entrepreneurs point to a number of factors. Although
the general level of education in India is low, India’s important middle class is highly educated and its top
educational institutions are world class. Also, India has always emphasized engineering. Another great plus from
an international perceptive is that English is the working language throughout much of middle-class India – a
remnant from the days of the British raja. Then there is the wage rate. American software engineers are
increasingly scarce, and the basic salary has been driven the country, with programmers earning $ 90,000 per
year. Programmers in India, in contrast earn about $5,800 per year, which is very low by international standards
but high by Indian standards. Salaries for programmers are rising rapidly in India, but so is productivity. In 1992,
productivity was around $21,000 per software engineer. By 2000, the figure had risen to $65,000. As a
consequence of these factors, in 2002 works done in India for US software companies amounted to $25 to $35 an
hour, compared to $75 to $100 per hour for software development done in the United States.

Another factor helping India is that satellite communications have removed distance as an obstacle to doing
business for foreign clients. Because software is nothing more than a steam of zeros and ones, it can be
transported at the speed of light and negligible cost to any point in the world. In a world of instant commutation,
India’s geographical position between Europe and the companies have been able to exploit the rapidly expanding
market for remote maintenance. Indian engineers can fix software bugs, upgrade systems, or process data
overnight while their users in Western companies are asleep.
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To maintain their competitive position, Indian software companies are now investing heavily in training and leading
edge programming skills. They have also been enthusiastic adopters of international quality standards,
particularly ISO 9000 certification. Indian companies are also starting to make forays into the application and
shrink – wrapped software business, primarily with applications aimed at the domestic market. It may only be a
matter of time, however, before India companies start to compete head to head, with companies such as
Microsoft, Oracle, People Soft, and SAP in the applications business.

1. To what extent does the theory of comparative advantage explain the rise of the Indian Software Industry?
2. To what extent does the Hekscher-Ohlim theory explain the rise of the Indian software industry?
3. Use Micheals Porter’s diamond to analyze the rise of the Indian software industry. Does this analysis help
explain the rise of this industry?
4. Which of the above theories – comparative advantage, Hecksher-Ohlin, or Porter’s – gives the best
explanation of the rise of the Indian software industry? Why?

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