CU-BBA-SEM-III-Indian Economy-Second draft

its income AM in depression. The country’s export at this point is MMII corresponding to Income at A. Thus, there appears an export surplus in country I’s BOP. During the depression, a country is bound to have an export surplus due to both price effect and income effect. Point B is the point of inflation. At B, country I’s import is NNI and export is NNII. During inflation, a country is bound to have an import surplus due to both price and income effect. Import being a function of national income, when the income increases, the import rises, thus creating the BOP disequilibrium. In this case, the income paths of the two countries are different and the income elasticities of demand for imports are also different. The import of country I is income elastic and the import of country II is stable. If we assume that the income paths of two countries are identical and the income elasticities of imports of two countries are also identical, then there would be no BOP disequilibrium. This is illustrated in figure 2. Exports and imports rise and fall with national income, but by the same amount. Cycles are a necessary condition of pure cyclical disequilibrium, but not a sufficient one. 201 CU IDOL SELF LEARNING MATERIAL (SLM)

The cyclical fluctuations in income may be induced by the exogenous or by endogenous factors. Thus, two types of income variation need to be distinguished: those that occur independently in one or more countries and those that are linked together through the international propagation of business cycle. The International Monetary Fund was created during the war to assist in financing cyclical deficits. Cyclical disequilibrium is caused by short-term cyclical fluctuation in income. The disequilibrium may be caused by countries following different cyclical patterns of income, or the same income pattern with different income elasticities or identical income patterns and income elasticities but different price elasticities. Secular Disequilibrium Secular disequilibrium in the balance of payments is a long-term, phenomenon, caused by persistent, deep-rooted dynamic changes that slowly take place in the economy over a long period of time. It may be caused by changes in several dynamic forces or factors such as capital formation, population growth, technological changes, the growth of markets, changes in resources, etc a newly developing nation, for instance, needs huge Investments which far exceed exports. It’s domestic savings. Its imports also tend to exceed exports. Structural Disequilibrium Structural disequilibrium arises from structural changes occurring in few sectors of the economy at home or abroad which may alter the demand for supply conditions for exports or imports or both.A change in foreign demand for exports can arise from a change in technology, the invention of the cheaper substitute.Similarly, a change in supply can arise from the dislocation of production because of strikes or other political punches or natural calamities. Service income from abroad may also decline because of a change in the economic situation or the economic policy of other Nations.Structural changes are also 202 CU IDOL SELF LEARNING MATERIAL (SLM)

produced by variation in the rate of international capital movement.Structural disequilibrium at the factor level takes place when a country’s factor prices deviate disproportionately the factor endowment.  Temporary Disequilibrium A country’s Balance of payments is of a temporary nature lasting for a short period which may occur once in a while. Any factor which temporarily causes one-sided movement in the items constituting the Balance of payments is sufficient to cause a disequilibrium. This is subject to reversal within a limited period. Fundamental or Long Run Disequilibrium The long-term disequilibrium thus refers to a deep-rooted, persistent deficit or surplus in the Balance of payments of a country. It is a secular disequilibrium emerging on account of the chronologically accumulated short- term disequilibrium deficit or surpluses.It endangers the exchange stability of the country concerned.Especially, a long-Run deficit in the Balance of payments of a country tends to deplete its Foreign Exchange Reserves and the country may also be unable to raise any more loans from foreigners on account of such persistent deficits.The term Fundamental Disequilibrium was used to indicate a chronic or a long-term disequilibrium in the Balance of payments. The underdeveloped nations generally suffer from long-term disequilibrium in the Balance of payments owing to a large number of causes and many Complex factors interacting with one another.The root cause of disequilibrium in the Balance of payments of this Economics is the huge development and investment programs in operation in this economics.They require the Import of Huge quantities of capital goods, technical know-how an essential raw material to carry on the development programs. 10.6 CORRECTION OF DISEQUILIBRIUM: 10.6.1: Automatic Correction Under automatic adjustment, as the name implies, the BOP adjustment comes about automatically, and it is not brought about deliberately by government policy or intervention. The burden of adjustment is on the economy and market forces and not on the government. It is argued that under automatic adjustment if market forces of demand and supply are allowed to have a free play, in course of time, BOP equilibrium will be automatically restored. Assuming fixed or flexible exchange rates, the automatic adjustment in BOP takes place through changes in prices, interest rates, income and capital flows. Thus, under automatic adjustment there is no government intervention. However, it is to be noted that automatic adjustment does not confirm to reality and has unwanted side effects. 203 CU IDOL SELF LEARNING MATERIAL (SLM)

10.6.2: Deliberate Measures Under policy induced adjustment there is government intervention in correcting disequilibrium in BOP. As the name implies, deliberate measures are undertaken by the government to correct disequilibrium in BOP. The government tries to correct disequilibrium through its policy instruments like monetary & fiscal policy, trade policy, devaluation, exchange controls etc. Thus, BOP adjustment becomes a matter of policy. However, the government policies designed to correct disequilibrium in BOP cannot neglect the internal problems related to the economy like unemployment, inflation, economic growth etc. The most important objectives of a nation are: (a) internal balance, (b) external balance (c) a reasonable rate of growth, (d) an equitable distribution of income and (e) adequate protection of the environment, etc. In the present context, internal balance and external balance are the two objectives or targets of government policy. Internal balance refers to the achievement of full employment and price stability. 10.6.3: Trade Policy Measures – Trade policy measures would include measures which would reduce imports and promote exports. The important trade policy measures are (a) Import controls (b) Export promotion (a) Import controls: A country may control its imports by imposing or increasing import duties, restricting imports through import quotas, licensing, prohibiting altogether the import of certain non-essential items, etc. (b) Export promotion: A country would promote exports by reducing or abolishing export duties, providing export subsidies, encouraging production of exportable, provide monetary, fiscal, physical and institutional incentives and facilities to exporters, etc. 10.6.4:Monetary Measures While external balance refers to the achievement of equilibrium in balance of payments. Thus, internal balance is achieved by reducing inflation and unemployment to zero and external balance is achieved by reducing BOP deficits and surpluses to zero. Generally, government places priority on internal over external balance, but they are sometimes forced to switch their priority when faced with large and persistent external imbalances. The government through its various policy instruments tries to achieve internal balance and external balance. To achieve the objectives of internal & external balance the main policy instruments at the disposal of government are as follows: 10.6.5: Monetary& Fiscal Policy (Expenditure – Changing Policies) Monetary and fiscal policy are the two tools through which the twin objectives of internal and external balance are achieved. Monetary policy affects the economy through changes in money supply and interest rates. An expansionary monetary policy will increase the money supply and decrease interest rates. While a contractionary monetary policy will decrease the money supply and increase interest rates. 204 CU IDOL SELF LEARNING MATERIAL (SLM)

An expansionary monetary policy will lead to increase in the level of investment, output, income and imports. On the other hand, a contractionary monetary policy will work in the opposite way. Fiscal policy affects the economy through changes in government expenditure and taxes. An expansionary fiscal policy means an increase in government expenditure and /or decrease in taxes, while a contractionary fiscal policy means a decrease in government expenditure and / or increase in taxes. An expansionary fiscal policy will lead to increase in production, income and imports, while contractionary fiscal policy will do the opposite. It is to be noted that the effects of monetary policy on the BOP situation of a country are highly predictable, whereas the effects of fiscal policy on the BOP are less predictable. These policies seek to achieve internal & external balances by altering the aggregate level of demand for goods and services, both domestic and imported, by increasing or reducing the aggregate expenditure in the economy. Hence, these two policies are also called as ‘expenditure changing policies.’ It is argued that an expansionary monetary & fiscal policy is suitable for solving the problem of unemployment & BOP surplus. While, a contractionary monetary & fiscal policy is suitable for solving the problem of inflation and BOP deficit. So we can conclude that reducing inflation needs a contractionary policy, reducing BOP surplus needs an expansionary policy, reducing unemployment needs an expansionary policy and reducing BOP deficit needs a contractionary policy 10.6.6: Devaluation (Expenditure Switching Policy): Devaluation means reduction in the external value of the country’s currency undertaken by the government officially. It is a deliberate action taken by the government deliberately and legally. Devaluation does not change internal purchasing power of a currency. A country devalues its currency in order to correct its BOP deficit. Devaluation is considered as ‘expenditure switching policy’ because it switches expenditure from imported goods to domestic goods & services. Thus, when a country with BOP deficit devalues its currency, the domestic price of its imports increases (because foreign goods have now become expensive i.e. devaluation of let us say Indian currency would be from1$ = 50 INR to 1$ = 80 INR) and the foreign price of its exports falls (i.e. your domestic goods have become cheaper for foreigners). This makes exports cheaper and imports costlier. Now the foreigners can buy more goods by paying less money than before devaluation. This encourages exports. This causes expenditure to be switched from foreign to domestic goods as the country’s exports increase and the country produces more to meet the domestic and foreign demand for goods. On the other hand, with imports becoming costlier than before, they decline. Thus, with the rise and exports and fall in imports, BOP deficit is corrected. IMF considers devaluation as a means to correct fundamental disequilibrium in a country’s BOP but it is to be used only as a last resort. 205 CU IDOL SELF LEARNING MATERIAL (SLM)

10.6.7: Exchange Rate Control: Exchange control also forms a part of expenditure – switching policy because they took aim at switching of expenditure from imported goods and services to domestic goods and services. Exchange control serves the dual purpose of restricting imports and regulating foreign exchange. Under the exchange control, the whole foreign exchange resources of the nation, including those currently occurring to it, are usually brought directly under the control of the exchange control authority. The exchange control authority is usually the government or central bank of the country. Dealings and transactions are regulated by the exchange control authority. The recipients of foreign exchange like exporters are required to surrender foreign exchange to the exchange control authority in exchange for domestic currency. The exchange control authority allocates the foreign exchange on the basis of national priorities. Exchange control methods could be direct and indirect. Direct methods would include – intervention and regulation in matters concerning exchange rates, foreign exchange restrictions, multiple exchange rate policies, exchange clearing agreements, etc. Indirect methods would include – import tariffs & quotas, export subsidies, etc. 10.7. MISCELLANEOUS MEASURES *Foreign loans: deficit bop can be corrected by government borrowing from foreign banks etc. since repayment of these loans is spread over a long period, this helps the government to remove the deficit in the balance of payments by utilizing the time gap. *Foreign investments: by attracting foreigners in the country by offering them various incentives and concessions so that there is more capital inflow in the economy that helps government reduce deficit in bop account. *Tourism development: increasing tourist by offering them various facilities like good hotels, transportation facility, concessional travel etc. this would increase the foreign exchange earnings of the country. *Foreign remittances: government gives incentives to people working abroad. this helps in inflow of foreign exchange. *Import substitution: producing substitutes of imported goods by providing various incentives and concessions to the domestic industries. this replaces foreign exchange outflow. 10.7.1: Balance of Trade: The balance of trade or BoT is the distinction between the value of a nation’s imports and exports for a given time frame. The BoT is the largest constituent of a nation’s balance of payments. Economists utilise the BoT to compute the associative potency of a nation’s economy. The BoT is also known as the trade balance or the international trade balance. Difference between BOT and BOP 206 CU IDOL SELF LEARNING MATERIAL (SLM)

Balance of Trade Balance of Payments                                                                 Definition Balance of Trade or BoT is a financial Balance of Payment or BoP is a financial statement that captures the nation’s statement that keeps track of all the economic import and export of commodities with transactions by the nation with the rest of the the rest of the world world                                                             What does it deal with? It deals with the net profit or net loss that It deals with the proper accounting of the a country incurs from the import and transactions conducted by the nation export of goods                                                         Fundamental difference Balance of Trade (BoT) is the difference Balance of Payments (BoP) is the difference that is obtained from the export and between inflow and outflow of foreign exchange  import of goods                                                           Type of transactions included Transactions related to import and export Transactions related to transfers, goods and  of goods are included in BoT services are included in BoP                                                           Are capital transfers included? No Yes What is its Net Effect? Net effect from BoT can be either Net effect of BoP is always zero positive, negative or zero 207 CU IDOL SELF LEARNING MATERIAL (SLM)

10.8 DEVALUATION Devaluation is a downward adjustment to a country’s value of money relative to a foreign currency or standard. Many countries that operate using a fixed exchange rate tend to use devaluation as a monetary policy tool to control supply and demand. Devaluation happens due to the following reasons: 1. To boost exports 2. To shrink trade deficits 3. To lower the cost of a country’s debt  The main reason why countries devalue their currency is due to trade imbalances. Using devaluation, they can reduce the cost of a country’s exports, which ultimately makes them more competitive on a global scale. Also, imports increase in cost, causing domestic consumers to be less willing to purchase higher-priced goods from foreign businesses and instead purchase goods domestically at a lower price. The increase in domestic spending would then stimulate money circulation within one’s own economy. As exports begin to increase due to cheaper prices and imports decrease due to perceived higher prices from domestic consumers, it ultimately decreases trade deficits. Therefore, the devaluation of domestic currency can reduce deficits through strong demand for less costly exports and more costly imports. Also, governments may encourage devaluation if they have a large sum of government- issued sovereign debt, which is hampering the economy. By reducing the value of the currency, it will make debt payments cheaper over time. For example, if the government needs to pay $2 million every month in interest on its current debt, if it devalues its currency, the nominal interest payments are lowered. For example, if the currency is devalued by half, their interest payment in real dollars is only $1 million. Such a tactic would not work with bonds issued in a different currency, as a devaluation on domestic currency would ultimately increase the cost of paying off foreign debt.   Demerits of Devaluation Devaluation can result in an increase in the prices of products and services over time. The increase in the price of imports causes consumers to purchase their goods from domestic industries. The amount of the price increases, however, is dependent on the competition of supply and aggregate demand. Higher exports due to the devaluation in the currency will increase aggregate demand, which raises the gross domestic product (GDP) and inflation. Inflation is factored in because 208 CU IDOL SELF LEARNING MATERIAL (SLM)

suppliers are faced with higher import prices, which causes manufacturers to increase cost price and, respectively, market price as well. Furthermore, devaluation can also increase uncertainty within the market. The market uncertainty can negatively affect supply and demand due to a lack of consumer confidence, causing a potential recession over time. Moreover, devaluation may also spark trade wars.  Examples of Devaluation: In the past, China’s been cited for practicing devaluation to increase its GDP and become a dominating force within the global trading scene. In 2016, they were said to be devaluing their currency to revalue it after the 2016 U.S. presidential election. However, President Donald Trump imposed tariffs on Chinese goods in response to their plan to increase the value of their currency relative to the value of U.S. currency. The Brazilian real was steeply devalued in the past, plunging in value since 2011. As a result, it encountered many other problems, such as declining crude oil and commodity prices, as well as corruption. Another example would be in March 2016, when Egypt’s central bank reduced the Egyptian pound’s value by 14% relative to the U.S. dollar to decrease any sort of potential black- market activity. However, the black market in Egypt responded by depreciating the exchange rate conversion between the U.S. dollar and the Egyptian pound. To Sum up:  Currency devaluation refers to the downward adjustment to a country’s value of money relative to a foreign currency or standard.  Countries use devaluation to boost exports due to the lowered value in currency perceived by countries that import the goods, reduce trade deficits, and lower the cost of interest payments on government debt.  The negative implications of devaluation include fostering uncertainty within the global markets and creating tension between other competing countries. 10.9 SUMMARY  BOP refers to Balance of Payments. It is a systematic record of all economic, monetary transactions between the ‘residents’ of a country and the rest of the world in a given period.  According to RBI, “BOP presents a classified record of all receipts on account of goods exported, services rendered and capital received by ‘residents’ and payments made by them on account of goods imported and services received from the capital transferred to ‘non-residents’ or ‘foreigners’  BOP is a statement that reflects the funds going in and Out of a country and it includes values of both Visible and Invisible items of Imports and exports.  BOP relates to a period of time, generally a year. 209 CU IDOL SELF LEARNING MATERIAL (SLM)

 The BOP of a country may be expressed through the following relation. BOP=R-P (R=Total receipts and P=Total payments.)  Balance of payments may be classified into two-BOP on Current account and BOP on Capital account.  A deficit and a surplus in the BOP are considered as Disequilibrium and it is considered a problem.  There are generally 5 types of equilibrium-short term temporary, cyclical, secular, structural, fundamental.  During disequilibrium, Government takes various measures to correct it or to make the BOP favourable. 10.10 KEYWORDS  BOP : Balance of Payments  FDI: Foreign Direct Investment.  FII :Foreign Institutional Investors  NRI:Non-Resident Indian.  RBI : Reserve Bank of India 10.11 LEARNING ACTIVITY 1. Prepare a study note on Trade Policy measure to balance the gap between Imports& Exports activities in India. ________________________________________________________________________________________________________________________________ _______________ 10.12UNIT END QUESTIONS 210 A. Descriptive Questions Short Questions) 1. Explain what is meant by BOP & describe its significance. 2. What are the essential features of BOP and write a note on the various types. 3. What is meant by disequilibrium and how is it corrected? 4. Make a brief note on Trade policy measure. 5. Prepare a note on Monitory & Fiscal policy Long Questions CU IDOL SELF LEARNING MATERIAL (SLM)

1. What does the BOP on current account indicates? 2. How is BOP useful to the government? 3. What is Devaluation? 4. What is meant by cyclical disequilibrium? 5. What are the three steps taken by the government to correct deficit BOP? B. Multiple Choice Questions 1. ____ is a systematic record of all the economic transaction between one country and restof the would: a. Balance of Trade b. Balance of Transaction c. Budget d. Balance of payments 2. The current account of Balance of Payment includes trade balance and _______. a. Settlement account b. Capital account c. Invisibles d. Errors and omissions. 3. Balance of payment deficit can be removed through: a. Devaluation of currency b. Vigorous export promotion c. Import substitution d. All of these 4. The balance of payments measures 211 a. the value of a country's transactions with the rest of the world b. The difference between government revenue and spending c. The total debt of a country CU IDOL SELF LEARNING MATERIAL (SLM)

d. None of these 5. There are ---- types disequilibrium relating to deficit BOP. a. Three b. Five c. six d. Eight Answer: 1- d; 2- b ;3 – d; 4 –a; 5 -b 10.13 REFERENCES References Book  Mishra, S.K. & V.K. Puri; Problems of Indian Economy, Himalaya Publishing House.  Dhingra, I.C.; Indian Economy, Sultan Chand, 2003  Aggarwal, A.N., Indian Economy, VishwaPrakashan, 2003.  Datt, Ruddar; Sundhram, Indian Economy, Sultan Chand, 2003Textbook  Indian Economy- Datt & Sundaram’s  Indian Economy- I.C Dhingra Website  *https://www.economicsdiscussion.net/economics-2/studying-the-structure-changes- in-indian-economy/2153 212 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 11: INDIA’S FOREIGN TRADE POLICY Structure 11.0 Learning Objectives 11.1 Introduction 11.2Features of India’s Foreign Trade policy 11.3Basic Features of FTP (2015-2020) 11.4The New FTP-April 2021 11.5 Foreign Exchange Reserves 11.5.1 India’s FOREX reserves 11.5.2 Why FOREX reserves are important 11.6 Summary 11.7 Keywords 11.8 Learning Activity 11.9Unit End Questions 11.10 References 11.0 LEARNING OBJECTIVES After studying this unit you will be able to  Describe the features of Indian Foreign Trade Policy.  Summarize the features of FTP(2015-2020)  Explain the significance of FOREX to a country. 11.1 INTRODUCTION The Department of Commerce has the mandate to make India a major player in global trade and assume a role of leadership in international trade organizations commensurate with India’s growing importance. The Department devises commodity and country-specific strategy in the medium term and strategic plan/vision and India’s Foreign Trade Policy in the long run. India’s Foreign Trade Policy (FTP) provides the basic framework of policy and strategy for promoting exports and trade. It is periodically reviewed to adapt to the changing domestic and international scenario. 213 CU IDOL SELF LEARNING MATERIAL (SLM)

The Department is also responsible for multilateral and bilateral commercial relations, special economic zones (SEZs), state trading, export promotion and trade facilitation, and development and regulation of certain export oriented industries and commodities. 11.2 INDIA’S FOREIGN TRADE POLICY:FEATURES The foreign trade of India is guided by the Export-import (EXIM) policy of the government of India and is regulated by the foreign trade (development and regulation act),1992. Foreign trade policy contains various decisions taken by the government with respect to foreign trade i.e., with respect to imports and exports of the country and especially export promotion measures, policies and procedures. It is the set of policies and guidelines issued by DGFT (Directorate General of Foreign Trade) FTP is the new name for earlier EXIM policy. The union commerce ministry announces the integrated foreign trade policy once in 5 years. The policy is updated every year on 31st march with some modifications and new schemes. The new scheme then comes into effect from April 1. The Foreign Trade policy which was announced on 1st april,2015 is an integrated policy for the period 2015-2020. With an aim to make India a significant partner in global trade by 2020, the government unveiled a new Foreign Trade Policy (FTP). Talking about the new policy, which aims at boosting India's exports, Commerce Minister Nirmala Sitharaman said that PM Narendra Modi's pet projects, 'Make in India' and 'Digital India' will be integrated with the new Foreign Trade Policy. The government is pitching India as a friendly destination for manufacturing and exporting goods, and the new policy is being seen as an important step towards realising that goal. 11.3 BASIC FEATURES OF FTP(2015-2020) India to be made a significant participant in world trade by 2020  Merchandize exports from India (MEIS) to promote specific services for specific Markets Foreign Trade Policy  FTP would reduce export obligations by 25% and give boost to domestic manufacturing  FTP benefits from both MEIS & SEIS will be extended to units located in SEZs 214 CU IDOL SELF LEARNING MATERIAL (SLM)

 FTP 2015-20 introduces two new schemes, namely \"Merchandise Exports from India Scheme (MEIS)\" and \"Services Exports from India Scheme (SEIS)\". The 'Services Exports from India Scheme' (SEIS) is for increasing exports of notified services. These schemes (MEIS and SEIS) replace multiple schemes earlier in place, each with different conditions for eligibility and usage. Incentives (MEIS & SEIS) to be available for SEZs also. e-Commerce of handicrafts, handlooms, books etc., eligible for benefits of MEIS.  Agricultural and village industry products to be supported across the globe at rates of 3% and 5% under MEIS. Higher level of support to be provided to processed and packaged agricultural and food items under MEIS.  Industrial products to be supported in major markets at rates ranging from 2% to 3%.  Served from India Scheme (SFIS) will be replaced with Service Export from India Scheme (SEIS).  Branding campaigns planned to promote exports in sectors where India has traditional Strength.  SEIS shall apply to 'Service Providers located in India' instead of 'Indian Service Providers'.  Business services, hotel and restaurants to get rewards scrips under SEIS at 3% and other specified services at 5%.  Duty credit scrips to be freely transferable and usable for payment of customs duty, excise duty and service tax.  Debits against scrips would be eligible for CENVAT credit or drawback also. Nomenclature of Export House, Star Export House, Trading House, Premier Trading House certificate changed to 1,2,3,4,5 Star Export House.  The criteria for export performance for recognition of status holder have been changed from Rupees to US dollar earnings.  Manufacturers who are also status holders will be enabled to self-certify their manufactured goods as originating from India. Reduced Export Obligation (EO) (75%) for domestic procurement under EPCG scheme.  Online procedure to upload digitally signed document by Chartered Accountant/Company Secretary/Cost Accountant to be developed.  Inter-ministerial consultations to be held online for issue of various licences.  No need to repeatedly submit physical copies of documents available on Exporter Importer Profile. 215 CU IDOL SELF LEARNING MATERIAL (SLM)

 Validity period of SCOMET export authorisation extended from present 12 months to 24 months.  Export obligation period for export items related to defence, military store, aerospace and nuclear energy to be 24 months instead of 18 months  Calicut Airport, Kerala and Arakonam ICDS, Tamil Nadu notified as registered ports for import and export.  Vishakhapatnam and Bhimavaram added as Towns of Export Excellence.  Certificate from independent chartered engineer for redemption of EPCG authorisation no longer required. 11.4 THE NEW FTP-APRIL 2021 The Union Ministry of Commerce and Industry announced on January 12, 2021, that the New Foreign Trade Policy 2021-2026 of India which is under formulation will come into effect on April 1, 2021. The policy will be implemented for five years and will strive to make India a leader in international trade. As per the statement by the Commerce Ministry, the Parliamentary Consultative Committee of the Commerce and Industry ministry held a meeting on the subject ‘New Foreign Trade Policy 2021-2026’. The meeting was chaired by Hardeep Singh Puri, Minister of State for Commerce and Industry, and was attended by the senior officers and MPs of the ministry. The new policy which will come into effect from April 1 for five years will aim at channelizing the synergies gained through merchandise and services exports for employment and growth with a goal of making India a USD 5 Trillion economy. Districts Exports Hubs initiative: As per the Commerce Ministry, the District Export Hubs Initiative will be forming a significant component of the new Foreign Trade Policy. The Commerce department through the Regional Authorities of Directorate General of Foreign Trade- DGFT had engaged with the governments of State and UTs for taking forward this initiative in the districts. The implementation of the initiative will be in a phased manner, with an objective of mobilizing the potential of each district of India for achieving its potential as an export hub. Key Highlights: 216 CU IDOL SELF LEARNING MATERIAL (SLM)

• Improvements in the operations of the domestic services and manufacturing sectors along with infrastructure support by the government will result in correcting the imbalances within India and will feed into the trade policy. • For the formulation of the policy, meetings have been held with the stakeholders. A Board of Trade meeting also took place in December 2020 where the state governments and other stakeholders provided their inputs. • Further meetings were also held with the Industry Associations, Chambers of Commerce, and Export Promotion Councils for their inputs. • For inviting suggestions from various stakeholders, a Trade notice was issued and more than 2000 suggestions were received. All the suggestions were also examined while formulating the new policy. How new FTP plans on making India a USD 5 Trillion economy? A key component for attaining the mark of USD 5 trillion in an expedited time frame will be boosting exports, which will include both services and merchandise. This will be done by systematically addressing the overseas and domestic constraints that are related to the regulatory, policy, and operational framework to lower the transaction costs and enhancing the ease of doing business. It will also create a low-cost operating environment with the help of efficient utility and logistical infrastructure. 11.5 FOREIGN EXCHANGE RESERVES  Foreign exchange reserves are assets denominated in a foreign currency that are held by a central bank of a country.  These may include foreign currencies, bonds, treasury bills, and other government securities.  Most foreign exchange reserves are held in U.S. dollars, with China being the largest foreign currency reserve holder in the world.  Economists suggest that it’s best to hold foreign exchange reserves in a currency that is not directly connected to the country’s own currency.  Foreign exchange reserves take the form of banknotes, deposits, bonds, treasury bills, and other government securities.  Foreign exchange reserves are a nation’s backup funds in case of an emergency, such as a rapid devaluation of its currency.  Countries use foreign currency reserves to keep a fixed rate value, maintain competitively priced exports, remain liquid in case of crisis, and provide confidence for investors. They also need reserves to pay external debts, afford capital to fund sectors of the economy, and profit from diversified portfolios.   217 CU IDOL SELF LEARNING MATERIAL (SLM)

11.5.1 India’s FOREX reserves.  As of 26th April 2019, India has USD 418.515 billion forex reserves. India ranks eighth in the world in forex reserves. At rank 1 is China followed by Japan and Switzerland.  In 2020, India’s forex reserves recently crossed the $500-billion mark for the first time in history due to higher foreign direct investment, foreign institutional investment.   Our forex reserves include dollars, gold, and the International Monetary Fund’s quota for Special Drawing Rights. Most of the reserves are usually held in US dollars given the currency’s importance in the international trading and financial system.  11.5.2 Why FOREX reserves are important:  It can secure the position of Home Currency It safeguards the home currency against devaluation. It also promotes sales. For example, China pegs the value of the yuan against USD. By stockpiling USD, it raises the dollar’s value compared to the yuan, increasing their sales as Chinese exports become cheaper than American-made goods.  It helps to maintain liquidity during crisis During exigencies like natural calamities like famine, floods, a country may need to import more goods from other countries. The reserves can be liquidated to fund for the imports.  It can boost economic growth. Some countries with a floating exchange rate system use foreign exchange reserves to keep their currency lower than USD. For example, Japan, with its floating currency, the yen, buys U.S. treasuries to keep the yen’s value lowers than USD. This encourages exports that leads to economic growth.  It helps to meet External Obligations Countries require foreign currency to settle international payments, including sovereign and commercial debts. Developing countries depend on financing and loans from international monetary authorities. If these countries don’t have enough foreign balance, it can reduce their borrowing powers.  It helps to fund for infrastructural development The importance of foreign reserves is not limited to financial interaction with foreign countries. Various countries use their reserves to fund their infrastructure sector as well. For example, China recapitalized some of its state-owned banks using its reserves. 218 CU IDOL SELF LEARNING MATERIAL (SLM)

11.6 SUMMARY  The foreign trade of India is guided by the Export-import (EXIM) policy of the government of India and is regulated by the foreign trade (development and regulation act),1992.  FTP is the new name for earlier EXIM policy.  The union commerce ministry announces the integrated foreign trade policy once in 5 years. The policy is updated every year on 31st march with some modifications and new schemes.  ‘Make in India’ and ‘Digital India’ will be the part of new FTP which will come into effect from April 1,2021.  The new FTPwhich will come into effect from April 1 for five years will aim at channelizing the synergies gained through merchandise and services exports for employment and growth with a goal of making India a USD 5 Trillion economy.  FOREX reserves can be stocked in the form of banknotes, treasury bills, bonds, deposits, and other government securities.  FOREX reserves work as emergency funds for a country in uncertainties like floods, volcanic eruptions, wars, etc.  USD, the global currency, is the most preferred currency of foreign exchange reserves. China is the leader in holding the highest foreign reserves in USD. 11.7 KEYWORDS  FOREX- Foreign Exchange  CENVAT- Central Value Added Tax  SCOMET-Special Chemicals, Organisms, Materials, Equipment and Technologies.  EXIM -Export Import Policy  FTP -Foreign Trade Policy 11.8 LEARNING ACTIVITY 1.Try to find Output and make a list of consumer durable items or products which is fully ‘Made in India’. All its raw materials must be from India. ________________________________________________________________________________________________________________________________ _______________ 219 CU IDOL SELF LEARNING MATERIAL (SLM)

11.9UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Discuss the reasons for introducing Foreign Trade Policy in India. 2. Explain the features of FTP (2015-2020). 3. What are the highlights of New FTP 2021. 4. Describe in detail the importance of Forex. 5. Who is responsible for formulating policies with respect to Foreign Trade. Explain in detail. Long Questions 1. What is meant by Foreign trade policy? 2. What is meant by EXIM policy? 3. Why was the EXIM policy discontinued? B.Multiple Choice Questions 1. _______ is the new name of EXIM policy. a. Foreign Trade Policy b. TRIPS c. World Trade Policy d. Trade policy 2. FTP is announced once in _____ years. a. 10 years b. 5 years c. 3 years. d. 4 years 3. Who announces the FTP? 220 a. Ministry of Commerce and Industry b. Ministry of External Affairs CU IDOL SELF LEARNING MATERIAL (SLM)

c. Ministry of Agriculture and Farmers Welfare. d. Ministry of Finance. 4. FOREX refers to______. a. assets denominated in a foreign currency that are held by a central bank of a country. b. assets held in a foreign country. c. Foreign currency exchange rate. d. None of these 5. Which of the following is the main objective of export promotion capital goods scheme? a. Promote import of capital goods to enhance export b. Promote exports from India c. Reduce the customs duty collection from manufacturers d. Infuse high technology capital equipment in the manufacturing sector Answers: 1 -a; 2 - b; 3- a; 4 - c; 5- c 11.10REFERENCES References Book  Mishra, S.K. & V.K. Puri; Problems of Indian Economy, Himalaya Publishing House.  Dhingra, I.C.; Indian Economy, Sultan Chand, 2003  Aggarwal, A.N., Indian Economy, VishwaPrakashan, 2003.  Datt, Ruddar; Sundhram, Indian Economy, Sultan Chand, 2003Textbook  Indian Economy- Datt & Sundaram’s  Indian Economy- I.C Dhingra Website  *https://www.economicsdiscussion.net/economics-2/studying-the-structure-changes- in-indian-economy/2153 221 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 12: MULTI-NATIONAL COMPANIES Structure 12.0 Learning Objectives 12.1 Introduction 12.2 Examples of MNC 12.3 Characteristics of Multi-National Companies 12.4 Advantages and Limitations of MNC 12.4.1 Advantages of MNCs from the view point of host country 12.4.2 Limitations of MNC from the view point of host country 12.4.3 Advantages from the view point of home country 12.4.5 Limitations from the view point of home country. 12.5 Summary 12.6 Keywords 12.7 Learning Activity 12.8Unit End Questions 12.9 References 12.0 LEARNING OBJECTIVES After studying this unit you will be able to:  Recognize the Multi-National Companies present in your cities based on its nature.  Explain the functionality of MNCs.  Identify the role of MNCs in an economy. 12.1 INTRODUCTION A multinational company is one which is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country. It must be emphasized that the headquarters of a multinational company are located in the home country. 222 CU IDOL SELF LEARNING MATERIAL (SLM)

Neil H. Jacoby defines a multinational company as follows: “A multinational corporation owns and manages business in two or more countries.” 12.2 EXAMPLES OF MNC IN INDIA Foreign Multi national Indian affiliate/subsidiary Coca cola corporation Coca cola India Unilever Hindustan unilever Bata corporation Bata India Pepsi corporation Pepsi India Sony corporation Sony India ABB ABB India Cadbury Cadbury India 1. TATA Group of companies 223 2. Hero Motocorp 3. Aditya Birla Group of companies 4. Karbonn Mobiles and Technologies 5. Parle Agro Private Limited 6. HCL Computers & Technologies 7. Dabur 8. Dr.Reddy's Laboratories & Researches 9. Bharti Airtel & Communication 10. BAJAJ 11. Mahindra Group of companies 12. Hindustan Motors 13. Maruti Suzuki 14. Emami 15. Bharti Enterprises 16. Wipro 17. Ranbaxy Laboratories Limited 18. TVS 19. Sundaram fasteners 20. Asian paints CU IDOL SELF LEARNING MATERIAL (SLM)

21. Arvind mills 12.3 CHARACTERISTICS OF A MULTINATIONAL CORPORATION Following are the common characteristics of Multinational Corporations: Very High Assets and Turnover To become a multinational corporation, the business must be large and must own a huge amount of assets, both physical and financial. The company’s targets are high, and they are able to generate substantial profits. Network of branches Multinational companies maintain production and marketing operations in different countries. In each country, the business may oversee multiple offices that function through several branches and subsidiaries. Control In relation to the previous point, the management of offices in other countries is controlled by one head office located in the home country. Therefore, the source of command is found in the home country. Continued growth Multinational corporations keep growing. Even as they operate in other countries, they strive to grow their economic size by constantly upgrading and by conducting mergers and acquisitions. Sophisticated Technology When a company goes global, they need to make sure that their investment will grow substantially. In order to achieve substantial growth, they need to make use of capital- intensive technology, especially in their production and marketing activities. Right skills Multinational companies aim to employ only the best managers, those who are capable of handling large amounts of funds, using advanced technology, managing workers, and running a huge business entity. Forceful marketing and advertising 224 CU IDOL SELF LEARNING MATERIAL (SLM)

One of the most effective survival strategies of multinational corporations is spending a great deal of money on marketing and advertising. This is how they are able to sell every product or brand they make. Good quality products Because they use capital-intensive technology, they are able to produce top-of-the-line products. 12.4 ADVANTAGES AND LIMITATIONS OF MNC 12.4.1 Advantages of MNCs from the Viewpoint of Host Country: We propose to examine the advantages and limitations of MNCs from the viewpoint of the host country. In fact, advantages of MNCs make for the case in favour of MNCs; while limitations of MNCs become the case against MNCs. (i) Employment Generation: MNCs create large scale employment opportunities in host countries. This is a big advantage of MNCs for countries; where there is a lot of unemployment. (ii) Automatic Inflow of Foreign Capital: MNCs bring in much needed capital for the rapid development of developing countries. In fact, with the entry of MNCs, inflow of foreign capital is automatic. As a result of the entry of MNCs, India e.g. has attracted foreign investment with several million dollars. (iii) Proper Use of Idle Resources: Because of their advanced technical knowledge, MNCs are in a position to properly utilise idle physical and human resources of the host country. This results in an increase in the National Income of the host country. (iv) Improvement in Balance of Payment Position: MNCs help the host countries to increase their exports. As such, they help the host country to improve upon its Balance of Payment position. (vi) Technical Development: MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a vehicle for transference of technical development from one country to another. Because of MNCs poor host countries also begin to develop technically. (vii) Managerial Development: 225 CU IDOL SELF LEARNING MATERIAL (SLM)

MNCs employ latest management techniques. People employed by MNCs do a lot of research in management. In a way, they help to professionalize management along latest lines of management theory and practice. This leads to managerial development in host countries. (viii) End of Local Monopolies: The entry of MNCs leads to competition in the host countries. Local monopolies of host countries either start improving their products or reduce their prices. Thus MNCs put an end to exploitative practices of local monopolists. As a matter of fact, MNCs compel domestic companies to improve their efficiency and quality. In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of competition posed by MNCs. (ix) Improvement in Standard of Living: By providing super quality products and services, MNCs help to improve the standard of living of people of host countries. (x) Promotion of international brotherhood and culture: MNCs integrate economies of various nations with the world economy. Through their international dealings, MNCs promote international brotherhood and culture; and pave way for world peace and prosperity. 12.4.2 Limitations of MNC’s from the viewpoint of host country: (i) Danger for Domestic Industries: MNCs, because of their vast economic power, pose a danger to domestic industries; which are still in the process of development. Domestic industries cannot face challenges posed by MNCs. Many domestic industries have to wind up, as a result of threat from MNCs. Thus MNCs give a setback to the economic growth of host countries. (ii) Repatriation of Profits: (Repatriation of profits means sending profits to their country). MNCs earn huge profits. Repatriation of profits by MNCs adversely affects the foreign exchange reserves of the host country; which means that a large amount of foreign exchange goes out of the host country. (iii) No Benefit to Poor People: MNCs produce only those things, which are used by the rich. Therefore, poor people of host countries do not get, generally, any benefit, out of MNCs. (iv) Danger to Independence: 226 CU IDOL SELF LEARNING MATERIAL (SLM)

Initially MNCs help the Government of the host country, in a number of ways; and then gradually start interfering in the political affairs of the host country. There is, then, an implicit danger to the independence of the host country, in the long-run. (v) Disregard of the National Interests of the Host Country: MNCs invest in most profitable sectors; and disregard the national goals and priorities of the host country. They do not care for the development of backward regions; and never care to solve chronic problems of the host country like unemployment and poverty. (vi) Misuse of Mighty Status: MNCs are powerful economic entities. They can afford to bear losses for a long while, in the hope of earning huge profits-once they have ended local competition and achieved monopoly. This may be the dirties strategy of MNCs to wipe off local competitors from the host country. (vii) Careless Exploitation of Natural Resources: MNCs tend to use the natural resources of the host country carelessly. They cause rapid depletion of some of the non-renewable natural resources of the host country. In this way, MNCs cause a permanent damage to the economic development of the host country. (viii) Selfish Promotion of Alien Culture: MNCs tend to promote alien culture in host country to sell their products. They make people forget about their own cultural heritage. In India, e.g. MNCs have created a taste for synthetic food, soft drinks etc. This promotion of foreign culture by MNCs is injurious to the health of people also. (ix) Exploitation of People, in a Systematic Manner: MNCs join hands with big business houses of host country and emerge as powerful monopolies. This leads to concentration of economic power only in a few hands. Gradually these monopolies make it their birth right to exploit poor people and enrich themselves at the cost of the poor working class. 227 CU IDOL SELF LEARNING MATERIAL (SLM)

   12.4.3 Advantages from the viewpoint of the home country: Some of the advantages of the MNCs from the viewpoint of the home country are: (i) MNCs usually get raw-materials and labour supplies from host countries at lower prices; specially when host countries are backward or developing economies. (ii) MNCs can widen their market for goods by selling in host countries; and increase their profits. They usually have good earnings by way of dividends earned from operations in host countries. (iii) Through operating in many countries and providing quality services, MNCs add to their international goodwill on which they can capitalize, in the long-run. 12.4.4 Limitations from the viewpoint of the home country: Some of the limitations of MNCs from the viewpoint of home country may be: (i) There may be loss of employment in the home country, due to spreading manufacturing and marketing operations in other countries. (ii) MNCs face severe problems of managing cultural diversity. This might distract managements’ attention from main business issues, causing loss to the home country. 228 CU IDOL SELF LEARNING MATERIAL (SLM)

(iii) MNCs may face severe competition from bigger MNCs in international markets. Their attention and finances might be more devoted to wasteful counter and competitive advertising; resulting in higher marketing costs and lesser profits for the home country. 12.5 SUMMARY  A multinational company is one which is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country.  Neil H. Jacoby defines a multinational company as follows: “A multinational corporation owns and manages business in two or more countries.”  MNCs help governments in this case and bring a lot of foreign investment which paves the way for economic development of the country.   MNCs provide employment opportunities   Government will also get revenue in the form of taxes that MNCs pay.  MNCs have better access to foreign markets. Some MNCs in India are tapping export markets and are helpful in improving the overall exports of India and thereby reducing trade deficits. 12.6KEYWORDS  MNC-Multi National Company  Balance of Payments: Balancing import bill of a country with that of Export value.  Local Monopolies; Markets of a certain product segment occupied by a single local company product without any competition.  Host Country: A country which has allowed a foreign country to carry out a business.  Repatriation: Diverting profits of a foreign investor from a host country to their home country. 12.7 LEARNING ACTIVITY 1. Make a list of Multi-national companies in your city. _________________________________________________________________________ _________________________________________________________________________ 229 CU IDOL SELF LEARNING MATERIAL (SLM)

12.8UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Name few MNCs in India and explain the importance of MNC in an economy. 2. Discuss in detail the advantages of MNC with respect to host country. 3. Discuss in detail the advantages of MNC with respect to home country. 4. Discuss in detail the disadvantages of MNC with respect to host country. 5. Discuss in detail the disadvantages of MNC with respect to home country. Long Questions 1. What is the difference between Multi National Company and a foreign company? 2. Name few Multi-National companies in tertiary sector. 3. Why does a country need MNC? 4. What will be the effects of too many MNC in a country? 5. How the MNCs have helped our country in economic growth/development? B. Multiple Choice Questions 1. Multi-National Companies refers to ___________ a. incorporated in one country and functioning in many countries b. incorporated in many countries and functioning in many countries. c. buys and sells shares of foreign companies. d. Present in all countries 2. ___________is an MNC company. a. FORD b. PEPSI c. Hyundai d. All of these 230 CU IDOL SELF LEARNING MATERIAL (SLM)

3. ________ are the advantages of MNC with respect to HOST country. a. Employment generation b. Economic growth and development c. Increase in number of indigenous companies. d. All of these 4. Companies in industrialized nations had the economic power to invest directly in poorer countries. What made this easier? a. Free trade b. Embargoes and tariffs c. Japan d. International trade agreements and open markets 5. Which one of these companies is NOT a multinational corporation? a. CVS b. Burger King c. Walmart d. Toyota Answer 1- a ;2- d; 3- d; 4- d; 5-a. 12.9REFERENCES References Book  Mishra, S.K. & V.K. Puri; Problems of Indian Economy, Himalaya Publishing House.  Dhingra, I.C.; Indian Economy, Sultan Chand, 2003  Aggarwal, A.N., Indian Economy, VishwaPrakashan, 2003.  Datt, Ruddar; Sundhram, Indian Economy, Sultan Chand, 2003Textbook  Indian Economy- Datt & Sundaram’s  Indian Economy- I.C Dhingra Website 231 CU IDOL SELF LEARNING MATERIAL (SLM)

 *https://www.economicsdiscussion.net/economics-2/studying-the-structure-changes- in-indian-economy/2153 232 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 13: EXPORT IMPORT POLICY OF INDIA Structure 13.0 Learning Objectives 13.1Introduction 13.2 Objectives 13.3 FERA 13.4 FERA to FEMA 13.5 Features of FEMA 13.6 Summary 13.7 Keywords 13.8 Learning Activity 13.9Unit End Questions 13.10 References 13.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain EXIM policy & its Objectives.  State about FERA Regulation  Outline FEMA and its features 13.1 INTRODUCTION Export import policy or EXIM policy is a set of guidelines or instructions regarding imports and exports of India. EXIM policy is an integral part of Trade policy. It is regulated and by the Foreign Trade Development and Regulatory Act,1992would reflect the extent of regulations or liberalization of foreign trade and indicate the measures for export promotion. The first EXIM policy was announced on 31.3.1992 and it was for a period of 5 years (1992-1997) EXIM policy is drafted for a period of 5 years and is updated every year on 31st march for modifications, improvements and the new scheme if any, becomes effective on 1st April. 233 CU IDOL SELF LEARNING MATERIAL (SLM)

All types of changes or modifications related to the Exim Policy is normally announced by the Union Minister of Commerce and Industry who coordinates with the Ministry of Finance, the Directorate General of Foreign Trade and its network of regional offices. A very important feature of the EXIM policy since 1992 is freedom. Licensing, quantitative restrictions and other regulatory and discretionary controls have been substantially eliminated. 13.2 OBJECTIVES 1) To facilitate sustained growth in exports to attain a share of at least 1 % of global merchandise trade. 2) To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services. 3) To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality. 4) To provide consumers with good quality goods and services at internationally competitive prices while at the same time creating a level playing field for the domestic produce. 13.3 FERA Foreign Exchange Regulation Act (FERA), 1973 Foreign Exchange Regulation Act (FERA) was promulgated in 1973 and it came into force on January 1, 1974. It imposed strict regulations on certain kinds of payments, the dealings in foreign exchange (forex) and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency. The rule of FERA was that every foreign company has to convert itself into Indian Companies operating in India with at least 60 percent holding of local equity participation. Section 29 of this Act referred directly to the operations of MNCs in India. 234 CU IDOL SELF LEARNING MATERIAL (SLM)

According to the Section, all non-banking foreign branches and subsidiaries with foreign equity exceeding 40 per cent had to obtain permission to establish new undertakings, to purchase shares in existing companies, or to acquire wholly or partly any other company. The purpose of this Act was to increase the economic development of the country when the Forex reserves were lowest. 1. FERA regulates and controls the balance of payments. 2. FERA controls foreign exchange and securities. 3. FERA regularises the transactions directly or indirectly affecting foreign exchange. 13.4 FERA TO FEMA FERA act,1973 had many drawbacks and was eventually replaced by FEMA act in 1999. In 1991, the Government brought the LPG Policy. LPG stands for liberalization, Privatisation, and Globalisation. When foreign exchange flow increased in India, the old Act restricted the flow of foreign exchange and foreign investment because the aim was to regulate the foreign currency but with a lot of restrictions as per the Act.  So, the idea shifted from conservation of foreign exchange to management of foreign exchange.  With the increasing influx of foreign investments comings, the idea shifted to facilitating trade and payments as well as developing foreign exchange markets in India. 13.5 FEATURES OF FEMA 1. Contains provision for current account convertibility and liberalization of capital account transactions 2. It has specified areas where the prior approval for RBI/ Government on acquisition and holding of foreign exchange. 3. Classification of foreign exchange transactions into current and capital transactions 4. FEMA does not apply to Indian Citizens resident outside India. 5. It gives full power to the Resident in India who was Resident outside India to hold/control/ foreign investment and immovable property. 6. It is a civil law, and any contravention with the law allows arrest in exceptional cases. 235 CU IDOL SELF LEARNING MATERIAL (SLM)

Basis for FERA FEMA Comparison Meaning An act promulgated, to regulate FEMA an act initiated to facilitate payments and foreign exchange external trade and payments and to Number of in India, is FERA. promote orderly management of the sections forex market in the country. When was it introduced 81 49 Foreign exchangereserves were Foreign exchange position was low. satisfactory Approach towards Rigid Flexible forex transactions Violation Criminal offense Criminal offense 1. FEMA gives power to the central government for imposing restriction on activities like making payments to a person situated outside of the country or receiving money through them. Apart from this, foreign exchange as well as foreign security deals is also restricted by FEMA. 2. Transactions revolving around foreign security or foreign exchange as well as payments made from any foreign country to India cannot be made without specific or general permission of FEMA. All transactions must be carried out via an individual who has received authorization for the same.  3. The central government can restrict an authorized individual to carry out foreign exchange deals within the current account, on the basis of general interest of the public.  13.6 SUMMARY  EXIM policy (Export & Import policy) which is an integral part of Trade policy provides guidelines to regarding Imports & Exports of India. 236 CU IDOL SELF LEARNING MATERIAL (SLM)

 Foreign Exchange & Regulation Act 1973 (FERA)imposed strict regulations on the dealings in foreign exchange (forex) and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency.  Foreign Exchange & Management Act (FEMA) Contains provision for current account convertibility and liberalization of capital account transactions and any contravention with the law allows arrest in exceptional cases. 13.7KEYWORDS  EXIM – Export import policy 13.8LEARNING ACTIVITY 1. Find Out the relation between foreign trade policy and EXIM policy. ________________________________________________________________________________________________________________________________ _______________ 13.9UNIT END QUESTIONS 237 A. Descriptive Questions Short Questions 1. Write a note on EXIM policy & its objectives. 2. What is FERA Act & what was its role? 3. Why was FERA Act replaced by FEMA act? 4. What is LPG & What was the purpose of its introduction? Long Questions 1. What is EXIM policy? 2. What is FERA? 3. What is FEMA? 4. What is Special Economic Zone (SEZ)? 5. Discuss the recent trends in India’s foreign trade. CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 238 1. The EXIM policy duration was ------- years. a. 2yrs b. 10 years c. 5 years d. 3 years. 2.The FERA Act came in to force in the year ---------- a. 1974 b. 1972 c. 1975 d. 1980. 3 The FEMA Act replaced FERA Act in the year ------- a. 2000 b. 1999 c. 1997 d. 2001. 4.What is the full form of SEZ? a. Special Economic Zone b. Small Economic Zone c. Special Enforcement Zone d. Service and Economic Zone Answer: 1- C; 2- A; 3- B; 4- A ;5- CU IDOL SELF LEARNING MATERIAL (SLM)

13.10 REFERENCES References Book  Mishra, S.K. & V.K. Puri; Problems of Indian Economy, Himalaya Publishing House.  Dhingra, I.C.; Indian Economy, Sultan Chand, 2003  Aggarwal, A.N., Indian Economy, VishwaPrakashan, 2003.  Datt, Ruddar; Sundhram, Indian Economy, Sultan Chand, 2003Textbook  Indian Economy- Datt & Sundaram’s  Indian Economy- I.C Dhingra Website  *https://www.economicsdiscussion.net/economics-2/studying-the-structure-changes- in-indian-economy/2153 239 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 14: INDIAN ECONOMY-EMERGING ISSUES Structure 14.0 Learning Objectives 14.1 Introduction 14.2Overall Indian Economic Scenario 14.3 Recent Developments                                                                                          14.4 Government Initiatives 14.5 Road Ahead 14.6Emerging Trends 14.7 Issues and Challenges 14.7.1: Providing Essential Public Services for the Poor: 14.7.2: Regaining Agricultural Dynamism: 14.7.3: Developing Human Resources: 14.7.4: Protecting the Environment: 14.7.5: Improving Rehabilitation and Resettlement Practices: 14.7.6: Improving Governance: 14.8 Summary 14.9 Keywords 14.10 Learning Activity 14.11Unit End Questions 14.12 References 14.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Characteristics of Indian Economy.  Overall Indian Economic scenario.  Recent Trends in the Economic front.  Various initiatives taken by the Government to improve Economy  Emerging Trends in Indian Economy. 240 CU IDOL SELF LEARNING MATERIAL (SLM)

 Issues & Challenges on the Indian Economic front. 14.1 INTRODUCTION The Economy of India is characterized as a middle income developing market economy.  It is the world's fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). According to the International Monetary Fund (IMF), on a per capita income basis, India ranked 142nd by GDP (nominal) and 124th by GDP (PPP) in 2020. From independence in 1947 until 1991, successive governments promoted protectionist economic policies with extensive state intervention and economic regulation, which is characterized by License Raj regime. The end of the Cold War and an acute balance of payments crisis in 1991 led to the adoption of a broad economic liberalization in India. 14.2 OVERALL INDIAN ECONOMIC SCENARIO  Since the start of the 21st century, annual average GDP growth has been 6% to 7%, and from 2014 to 2018, India was the world's fastest growing major economy, surpassing China. Historically, India was the largest economy in the world for most of the two millennia from the 1st until 19th century.  India is the world’s largest manufacturer of generic drugs, and its pharmaceutical sector fulfils over 50% of the global demand for vaccines.  The Indian IT industry is a major exporter of IT services with $191 billion in revenue and employs over four million people.  India’s chemical industry is extremely diversified and estimated at $178 billion.  The tourism industry contributes about 9.2% of India's GDP and employs over 42 million.  India ranks second globally in food and agricultural production, while agricultural exports were $35.09 billion.  The construction and real estate sector ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.  The Indian textiles industry is estimated at $100 billion and contributes 13% of industrial output and 2.3% of India's GDP while employs over 45 million people directly.  India's telecommunication industry is the world's second largest by number of mobile phone, smartphone, and internet users.  It is the world's 25th-largest oil producer and the third-largest oil consumer.[88] The Indian automobile industry is the world's fifth-largest by production.  It has $1.1 trillion worth of retail market which contributes over 10% of India's GDP and has one of world's fastest growing e-commerce markets.[91] India has the world's fourth- 241 CU IDOL SELF LEARNING MATERIAL (SLM)

largest natural resources, with mining sector contributes 11% of the country's industrial GDP and 2.5% of total GDP.[92] It is also the world's second-largest coal producer, the second-largest cement producer, the second-largest steel producer, and the third- largest electricity producer. Increasing Manufacturing Competitiveness: The manufacturing sector has also not grown as rapidly as might have been expected. The average growth rate of this sector has accelerated compared to the Ninth Plan but is unlikely to exceed 8 per cent in the Tenth Plan. It should be targeted to grow around 12 per cent or so if we want to achieve a GDP growth rate of 9 per cent. India’s performance in IT enabled services and other high end services is clearly a source of strength that we must build upon. However, India cannot afford to neglect manufacturing activities. We have a dynamic entrepreneurial class that has gained confidence in its ability to compete. We have skilled labour and excellent management capability. However, there are other constraints that limit our competitiveness, especially in labour intensive manufacturing. The most important constraint in achieving a faster growth of manufacturing is the fact that infrastructure, consisting of roads, railways, ports, airports, communication and electric power, is not up to the standards prevalent in our competitor countries This must be substantially rectified with the next 5 to 10 years if our enterprises are to compete effectively. Indian industry expects a level playing field in terms of quality of infrastructure. This should have high priority in the Eleventh Plan. Shortage of electric power and the unreliability of power supply are universally recognized as a drag on the pace of India’s development. Our competitors benefit from round the clock supply of power at stable voltage and frequency, but this remains elusive in most parts of India. The management of power systems, especially distribution’s the responsibility of state governments and a decisive improvement in this area is a critical challenge. 14.3 RECENT DEVELOPMENTS With an improvement in the economic scenario, there have been investments across various sectors of the economy. In 2020, the total deal value in India stood at ~US$ 80 billion across 1,268 transactions. Of this, M&A activity contributed ~50% to the total transaction value. Private Equity–Venture Capital (PE-VC) companies expanded from US$ 36.3 billion (1,012 deals) in 2019 to US$ 39.2 billion (across 814 deals) in 2020. Some of the important recent developments in Indian economy are as follows: 242 CU IDOL SELF LEARNING MATERIAL (SLM)

 India’s overall exports from April 2020 to November 2020 were estimated at US$ 304.25 billion, (a 14.03% decrease over the same period last year). Overall imports from April 2020 to November 2020 were estimated at US$ 290.66 billion, (a 29.96% decrease over the same period last year).  According to IHS Markit, Purchasing Managers' Index (PMI) for manufacturing stood at 56.4 in December 2020, against 56.3 in November 2020, indicating a higher growth for manufacturers speeding up production and boosting efforts to rebuild their inventories.  Gross tax revenue stood at Rs. 7.21 trillion (US$ 98.50 billion) in the first six months of FY21.  FDI inflows in India stood at US$ 39.93 billion between April 2020 and September 2020, 10% higher than the first six months of 2019-20 (US$ 36.05 billion).  India’s Index of Industrial Production (IIP) for October 2020 stood at 128.5, against 123.2 for September 2020.  Consumer Food Price Index (CFPI) – combined inflation was 9.43% in November 2020, against 11.07% in October 2020.  Consumer Price Index (CPI) – combined inflation was 6.93% in November 2020, against 7.61% in October 2020. 14.4 GOVERNMENT INITIATIVES  The two Union Budget’s which were presented by Minister for Finance & Corporate Affairs, Ms Nirmala Sitharaman in the Parliament in 2020 & in 2021  aimed at energising the Indian economy through a combination of short-term, medium-term, and long-term measures.  In November 2020, the Government of India announced Rs. 2.65 lakh crore (US$ 36 billion) stimulus package to generate job opportunities and provide liquidity support to various sectors such as tourism, aviation, construction and housing.  Also, India's cabinet approved the production-linked incentives (PLI) scheme to provide ~Rs. 2 trillion (US$ 27 billion) over five years to create jobs and boost production in the country.  Numerous foreign companies are setting up their facilities in India on account of various Government initiatives like Make in India and Digital India.  Mr Narendra Modi, Prime Minister of India, launched Make in India initiative with an aim to boost country’s manufacturing sector and increase purchasing power of an average Indian consumer, which would further drive demand and spur development, thus benefiting investors.  The Government of India, under its Make in India initiative, is trying to boost the contribution made by the manufacturing sector with an aim to take it to 25% of the GDP from the current 17%. Besides, the Government has also come up with Digital 243 CU IDOL SELF LEARNING MATERIAL (SLM)

India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy. Some of the recent initiatives and developments undertaken by the Government are listed below:  On January 6, 2021, the Government of India and New Development Bank (NDB) signed two loan agreements for US$ 646 million to upgrade the State Highway network and district road network in Andhra Pradesh.  On January 5, 2021, the Citizen Assistance and Relief in Emergency Situations (PM CARES) Fund Trust of the Prime Minister allocated Rs. 201.58 crore (US$ 27.56 million) to establish 162 additional dedicated pressure swing adsorption (PSA) medical oxygen generation plants within the country's public health facilities.  On January 5, 2021, a US$ 105 million project to develop the inland water transport system in Kolkata, West Bengal, was signed by the Government of India, Government of West Bengal and the World Bank.  In December 2020, the Government of India and Asian Development Bank (ADB) signed a US$ 231 million loan to boost electricity generation capacity in Assam through the establishment of a hydroelectric power plant of 120 megawatts (MW) that will strengthen household electricity availability.  In December 2020, the Government of India and Asian Development Bank (ADB) signed a US$ 100 million loan to modernise and upgrade the power distribution system to boost the quality and efficiency of electricity supply in Bengaluru, Karnataka.  In December 2020, the Indian cabinet approved assistance of ~Rs. 3,500 crore (US$ 478.60 million) for sugarcane farmers (Ganna Kisan).  The Prime Minister of India, Shri. Narendra Modi announced various economic packages worth ~Rs. 30 trillion (US$ 410 billion), which was ~15% of India's GDP.  In December 2020, the Government of India and New Development Bank (NDB) signed a loan agreement to lend US$ 1 billion via the Mahatma Gandhi National Rural Employment Guarantee Scheme to support the ‘Aatmanirbhar Bharat’ initiative.  India is expected to attract investment of around US$ 100 billion in developing the oil and gas infrastructure during 2019-23.  The Government of India is going to increase public health spending to 2.5% of the GDP by 2025.  For implementation of Agriculture Export Policy, Government approved an outlay Rs. 2.068 billion (US$ 29.59 million) for 2019, aimed at doubling farmers income by 2022. 244 CU IDOL SELF LEARNING MATERIAL (SLM)

14.5 ROAD AHEAD  India's GDP is expected to reach US$ 5 trillion by FY25 and achieve upper-middle income status on the back of digitization, globalization, favourable demographics, and reforms.  India is also focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30%, and have plans to increase its renewable energy capacity from to 175 gigawatts (GW) by 2022.  India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by 2040 as per a report by PricewaterhouseCoopers. 14.6 EMERGING TRENDS India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships. Market size  India’s GDP (at constant 2011-12 prices) was estimated at Rs. 33.14 trillion (US$ 452.74 billion) for the second quarter of FY2020-21, against Rs. 35.84 trillion (US$ 489.62 billion) in the second quarter of FY2019-20.  India is the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List. By 2025, India is expected to have ~100 unicorns by 2025 and will create ~1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.  India needs to increase its rate of employment growth and create 90 million non- farm jobs between 2023 and 2030's, for productivity and economic growth according to McKinsey Global Institute. Net employment rate needs to grow by 1.5% per year from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030.  India's foreign exchange reserves stood at US$ 581.131 billion in the week up to December 18, 2020 according to data from RBI.  In 2020, India's ten largest trading partners were USA, China, UAE, Saudi Arabia, Switzerland, Germany, Hong Kong, Indonesia, South Korea and Malaysia.  In 2019–20, the foreign direct investment (FDI) in India was $74.4 billion with service sector, computer, and telecom industry remains leading sectors for FDI inflows. 245 CU IDOL SELF LEARNING MATERIAL (SLM)

 India has free trade agreements with several nations, including ASEAN, SAFTA, Mercosur, South Korea, Japan and few others which are in effect or under negotiating stage.  The service sector makes up 50% of GDP and remains the fastest growing sector, while the industrial sector and the agricultural sector employs a majority of the labour force.   The Bombay Stock Exchange and National Stock Exchange are one of the world's largest stock exchanges by market capitalization.   India is the world's sixth-largest manufacturer, representing 3% of global manufacturing output and employs over 57 million people.   Nearly 66% of India's population is rural, and contributes about 50% of India's GDP. It has the world's fifth-largest foreign-exchange reserves worth $585 billion.  India has a high public debt with 89% of GDP, while its fiscal deficit stood at 9.5% of GDP. India's government-owned banks faced mounting bad debt, resulting in low credit growth, simultaneously the NBFC sector has been engulfed in a liquidity crisis.   India faces moderate unemployment, rising income inequality, and drop in aggregate demand.   In recent years, independent economists and financial institutions have accused the government of fudging various economic data, especially GDP growth.  The long-term growth perspective of the Indian economy remains positive due to its young population and corresponding low dependency ratio, healthy savings and investment rates, and is increasing globalisation in India and integration into the global economy.   The economy slowed in 2017, due to shocks of \"demonetisation\" in 2016 and introduction of Goods and Services Tax in 2017.   Nearly 60% of India's GDP is driven by domestic private consumptionand continues to remain the world's sixth-largest consumer market. Apart from private consumption, India's GDP is also fuelled by government spending, investment, and exports.   In 2019, India was the world's ninth-largest importer and the twelfth-largest exporter.   India has been a member of World Trade Organization since 1 January 1995.   It ranks 63rd on Ease of doing business index and 68th on Global Competitiveness Report.  With 500 million workers, the Indian labour force is the world's second-largest as of 2019. India has one of the world's highest number of billionaires and extreme income inequality.  Since India has a vast informal economy, barely 2% of Indians pay income taxes. 246 CU IDOL SELF LEARNING MATERIAL (SLM)

 During the 2008 global financial crisis the economy faced mild slowdown, India undertook stimulus measures (both fiscal and monetary) to boost growth and generate demand; in subsequent years economic growth revived.   According to 2017 PricewaterhouseCoopers (PwC) report, India's GDP at purchasing power parity could overtake that of the United States by 2050.   According to World Bank, to achieve sustainable economic development India must focus on public sector reform, infrastructure, agricultural and rural development, removal of land and labour regulations, financial inclusion, spur private investment and exports, education and public health. 14.7 ISSUES AND CHALLENGES Given below seven major challenges faced by the Economy in India. 14.7.1: Providing Essential Public Services for the Poor: The most important challenge is in providing essential public services such as education, health to large parts of our population who are denied these services at present. The performance of education and health sector is disappointing. There are large gaps in respect of educational facilities, health care and in related services such as maternal and child care, clean drinking water and access to basic sanitation facilities for the mass of our population especially the poor who do not have even minimum access. 14.7.2: Regaining Agricultural Dynamism: One of the major challenges of the Eleventh Plan must be to reverse the deceleration in agricultural growth from 3.2 per cent observed between 1980 and 1996-97 to a trend average of only 1.5 per cent subsequently. This deceleration is undoubtedly at the root of the problem of rural distress that has surfaced in many parts of the country. This deceleration is affecting all farm size classes. A second green revolution is urgently needed to raise the growth rate of agricultural GDP to around 4 per cent. The challenge posed is to at least double the rate of agricultural growth. This calls for action on both the demand side and supply side. 14.7.3: Developing Human Resources: Development of human resources is very much crucial for attaining economic development which poses as an important challenge before the Eleventh Plan. In order to ensure a continuous and growing supply of quality of manpower we need large investments in public sector institutions of higher learning, combined with fundamental reforms of the curriculum and also service conditions to attract high quality faculty. The scope for expanding capacity through private sector initiatives in higher learning must also be fully exploited, while also ensuring that quality standards are not diluted. Unless this 247 CU IDOL SELF LEARNING MATERIAL (SLM)

is done on an urgent basis, we will fail to attain global standards. India has historically lagged behind in the area of technical/vocational training and even today enrolment rates in ITIs and others Vocational institutes, including nursing and computer training schools, is only about a third of that in higher education. This is quite the opposite of other Asian Countries which have outperformed use in labour intensive manufactures. Our ITIs will have to be substantially expanded not only in terms of the persons they train but also in the number of different skills and trades they teach. The quality and range of their training should keep pace with the changing needs of the economy. 14.7.4: Protecting the Environment: Environmental concerns are growing globally as well as within the country. While there may appear to be a trade-off between environmental sustainability and economic growth in the short run, it has to be recognized, that in the longer run environmental sustainability and human well-being are not necessarily in conflict. Neglect of environmental considerations, as for example in profligate use of water or deforestation can lead to adverse effects very quickly. The threat of climate change also poses real challenge to the wellbeing of future generations which we can ill afford to ignore. Our developmental strategy has to be sensitive to these growing concerns and should ensure that these threats and trade-offs are appropriately evaluated. 14.7.5: Improving Rehabilitation and Resettlement Practices: Another important challenges before the Government is to improve the rehabilitation and resettlement practices. Our practices regarding rehabilitation of those displaced from their land because of development projects are seriously deficient and are responsible for a grow The costs of displacement born by our tribal population have been unduly high and compensation has been tardy and inadequate, leading to serious unrest in many tribal regions and also in some other regions. Such unrest is also visible in respect of land acquisitions related to Special Economic Zones (SEZs). This discontent is likely to grow exponentially if the benefits from enforced land acquisition are seen accruing to private interests, or even to the state, at the cost of those displaced. In order to prevent even greater conflict and threat to peace and development, it is necessary to frame a transparent set of policy rules that address compensation and make the affected persons beneficiaries of the projects and to give these rules a legal format in terms of the rights of the displaced. In addition to those displaced by development projects, those displaced by social upheavals should also be properly resettled. 248 CU IDOL SELF LEARNING MATERIAL (SLM)

14.7.6: Improving Governance: Improving the governance is another serious challenge faced by the country at this moment. All our efforts to achieve rapid and inclusive development will come to naught if we cannot ensure good governance both in the manner public programmes are implemented and, equally important, in the way the government interests with the ordinary citizen. Corruption is now seen to be endemic in all spheres and this problem needs to be addressed urgently. Better design of projects and implementation mechanisms and procedures can reduce the scope of corruption. Much more needs to be done by both the Centre and States to reduce the discretionary power of the government, ensure greater transparency and accountability and create awareness among citizens. The right to Information Act empowers the people to demand improved governance and we must be ready to respond. Quick and inexpensive dispensation of justice is an aspect of good governance which is of fundamental importance in a successful civil society. The legal system in India is respected for its independence and fairness but it suffers from notorious delays in dispensing justice. Delays result in denial of justice. Delays cost money and therefore it is difficult for the poor in India to afford justice. Fundamental reforms are needed to give justice two attributes: speed and affordability. Thus, the Approach Paper has rightly stated that “The economy has much important strength that are reflected in the acceleration of growth witnessed in the past few years. But our growth has not been sufficiently inclusive and failures in this area are significant.” 14.8 SUMMARY  Economy of India is a fast developing one moving out gradually from an Agriculture based Economy to that of highly industrialised one making sizable progress on all industrial sectors.  India is a world leader in Pharma sector and has made rapid progress in IT, space research, Chemical industries, mining etc.  By its consistent efforts in improving basic infrastructure facilities like National high ways,Telecommunication, health care & quality education, it is attracting foreign investments in a big way year after year.  Indian Government has also taken lot of initiatives towards Economic Growth by way of rapid industrialization by restructuring tax & import duties and also providing attractive incentives to industrial Entrepreneurs. 249 CU IDOL SELF LEARNING MATERIAL (SLM)

 India has a vast market potential that attracts foreign investors who have additional incentive like cheap labour with high levels of skill to carry out any industrial activity.  By 2025 India is expected to become third biggest Economy next to US and china by its exponential Economic Growth. 14.9 KEYWORDS  IMF : Indian Monitory Fund  GDP : Gross Domestic Product  PE-VC :Private Equity–Venture Capital  SEZ : Special Economic Zones  ITI : Industrial Training Institute 14.10 LEARNING ACTIVITY 1. Prepare a comprehensive note on Indian Economy covering various issues and Challenges faced,initiatives taken by Government starting from independence time till date ________________________________________________________________________________________________________________________________ _______________ 14.11UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Describe the Economic progress made after independence in India. 2. What are the areas in which India has made rapid progress and has become one of theleading world leaders? 3. Highlight various Government initiatives towards Economic improvements? 4. Make a brief note on various foreign investments in the recent times. 5. What are the prevailing challenges to Indian Economic growth in the present competitiveatmosphere. Long Questions 1.What is GDP? 250 CU IDOL SELF LEARNING MATERIAL (SLM)