Subject-Eb Name-Miral Patel ROLLNO-119060
Subject-Eb Name-Miral Patel ROLLNO-119060
Subject-Eb Name-Miral Patel ROLLNO-119060
NAME-MIRAL PATEL
ROLLNO-119060
1) What are the objective EXIM policy?Discuss India's performance under
EXIM policy?
ANS)1) To provide a stable and sustainable policy environment for foreign trade
in merchandise and services;
ii) To link rules, procedures and incentives for exports and imports with other
initiatives such as "Make in India", Digital India and Skill India to create an
‘Export Promotion Mission’ for India;
iii) To promote the diversification of India’s export by helping various sectors of
the Indian economy to gain global competitiveness with a view to promote
exports;
iv) To create an architecture for India’s global trade engagement with a view to
expanding its markets and better integrating with major regions, thereby
increasing the demand for India’s product and contributing to the
government’s flagship "Make in India" initiative;
v) To provide a mechanism for regular appraisal in order to rationalise imports
and reduce the trade imbalance.
INDIA’S performance
1. Merchandise Exports from India Scheme (MEIS)
2. Service Exports from India Scheme (SEIS)
3. Chapter -3 Incentives (MEIS & SEIS) to be available for SEZs
4. Duty credit scrips to be freely transferable and usable for
payment of custom duty, excise duty and service tax.
5. Boost to "MAKE IN INDIA"
6. Reduced Export Obligation (EO) for domestic procurement under
EPCG scheme
7. Higher level of rewards under MEIS for export items with high
domestic content and value addition.
8. Online filing of documents/ applications and Paperless trade in
24x7 environment:
9. Online inter-ministerial consultations
10. Simplification of procedures/processes, digitisation and e-
governance.
Q-2 What is FEMA? How it is different form FERA? Under which circumstance
FEMA is applied?
ANS) The Foreign Exchange Management Act, 1999 (FEMA) is an Act of
the Parliament of India "to consolidate and amend the law relating to
foreign exchange with the objective of facilitating external trade and
payments and for promoting the orderly development and maintenance
of foreign exchange market in India".[1] It was passed in the winter
session of Parliament in 1999, replacing the Foreign Exchange Regulation
Act (FERA). This act makes offences related to foreign exchange civil
offenses. It extends to the whole of India, replacing FERA, which had
become incompatible with the pro-liberalization policies of
the Government of India. It enabled a new foreign
exchange management regime consistent with the emerging framework
of the World Trade Organization (WTO).
FERA is an act which is enacted to regulate payments and foreign exchange in
India, is FERA. FEMA an act initiated to facilitate external trade and payments
and to promote orderly management of the forex market in the country.
FEMA came out as an extension of the earlier foreign exchange act FERA.
FERA is lengthier than FEMA, regarding sections.
FERA came into force when the foreign exchange reserve position in the
country wasn’t good while at the time of introduction of FEMA, the forex
reserve position was satisfactory.
The approach of FERA, towards forex transaction, is quite conservative and
restrictive, but in the case of FEMA, the approach is flexible.
Violation of FERA is a non-compoundable offence in the eyes of law. In
contrast violation of FEMA is a compoundable offence and the charges can be
removed.
Exchange Regulation Act (FERA) was passed in 1973; the main
purpose of which was to ensure the use of foreign exchange.
The FERA was creating obstacles in the development of the country so
government replaced it by FEMA in 1999. This article is pointing the
differences between the FERA and FEMA.
Q-3)Differeciate between
Bilateral trade: The exchange of goods between two countries. Bilateral trade
agreements give preference to certain countries in commercial relationships,
facilitating trade and investment between the home country and the foreign
country by reducing or eliminating tariffs, import quotas, export restraints and
other trade barriers. Bilateral trade agreements can also help minimize trade
deficits Commodity trade.
Commodities agreement: The market for commodities is particularly
susceptible to sudden changes in the conditions of supply conditions, which
are called supply shocks. Shocks such as bad weather, disease, and natural
disasters are largely unpredictable, and cause commodity markets to become
highly volatile. In comparison, markets for the final products derived from
these commodities are much more stable.
(B) Tariff and Non Tarrif barrier
Tarrif-
With tariffs the Government receives the revenue whereas no revenue is received
by the Government by applying non-tariff measures. However, it is favoured as
an appropriate measure to meet the demand of the country and to protect the
industry.
In tariff customer’s classification and valuation procedures pose a problem before
the customs authorities. Where-as under non-tariff measures no such problem
arises.
Tariffs are simple to operate. Tariff rates once fixed through legislation require
no individual allocation of licensing quotas or exchange.
NON Tarrif
Non-tariff measures protect the procedures and make them feel more secure
than under a tariff. But incentives are not there under tariffs.
Non-tariff barriers to trade induce the domestic producers to form
monopolistic organisations with a view to keeping output low and prices high.
This is not possible under import duty.
In non-tariff the price differences will be greater in two countries because
there is no free flow of imports; but in tariff—price differentiation will be equal
to the cost of tariff and transportation between exporting and importing
countries.
(D) Custom union and free trade area
Customs unions and free trade areas are very similar in terms of the internal
arrangements with which member nations agree to trade among each other.
Within both the free trade area and customs union, there is an agreement to
lower or eliminate obstacles to trade such as tariffs, essentially, taxes imposed
on imported goods that arbitrarily raises the cost of those goods to the
consumer, thereby making those goods less competitive with domestic
sources, import quotas and other protectionist tools used to protect domestic
industries from foreign competition. The key distinction between customs
unions and free trade areas, however, involves their approach to non-treaty
nations. While a customs union, by definition, requires all parties to the
agreement to establish identical external tariffs with regard to trade with non-
treaty nations (those nations that are not signatories to the agreement),
members of a free trade area are free to establish whatever tariff rates with
respect to foreign imports from non-signatory nations that they deem
necessary or desirable. That creates an uneven playing field with respect to
foreign nation/non-signatory countries' ability to circumvent individual country
tariffs by focusing on exporting to those nations with the lowest external
tariffs.
(Q-4) What is SEZ? How it works? Discuss advantage and limitation?
Ans) The Special Economic Zone (SEZ) policy in India first came into inception on
April 1, 2000. The prime objective was to enhance foreign investment and provide an
internationally competitive and hassle free environment for exports. The idea was to
promote exports from the country and realising the need that level playing field must
be made available to the domestic enterprises and manufacturers to be competitive
globally
.A legislation has been passed permitting SEZs to offer tax breaks to foreign
investors. Over half a decade has passed since its inception, but the SEZ Bill has
certain drawbacks due to the omission of key provisions that would have relaxed
rigid labour rules. This has lessened India's chance of emulating the success of the
Chinese SEZ model, through foreign direct investment (FDI) in export-oriented
manufacturing.
The policy relating to SEZs, so far contained in the foreign trade policy, was
originally implemented through piecemeal and ad hoc amendments to different laws,
besides executive orders. In order to avoid these pitfalls and to give a long-term and
stable policy framework with minimum regulation, the SEZ Act, '05, was enacted.
The Act provides the umbrella legal framework, covering all important legal and
regulatory aspects
LIMITATIONS
These measures have helped India to increase its market access for its
textile and clothing products. With effect from January 1, 2005, the
entire textiles and clothing trade would get integrated into the
multilateral trade framework of WTO.
According to recent report (Feb. 2004), after China, India is largest gainer
from the end of quotas and the consequent free trade in textiles and
clothing. It is estimated that export market of $500 billion in garments
alone with employment potential of 30 million jobs will be up for grabs
from which India can get a good share
A have perfectly elastic supply curve means that any decrease in the product
price would immediately cause the supply to shift to zero so that A will not
import from country B because that cost are higher than country A and country
B have lower cost compare to A so country A has perfectly elastic supply curve
that main reason they don’t import to fulfill its excess demand.
Consumption effect
In above figure demand and supply are measured along the horizontal scale
and price along the vertical scale. D and S are the domestic demand and supply
curves of the given commodity respectively. Originally PW is the world supply
curve of the commodity and the pre-tariff price is OP. At the price OP, the
domestic supply is OQ and demand is OQ1.
Production effect
The imposition of tariff may be intended to protect the home industry from the
foreign competition. As tariffs restrict the flow of foreign products, the home
producers find an opportunity to increase the domestic production of import
substitutes.
In above figure, the gap QQ1 between demand and supply is met through
import of the commodity from abroad. If PP1 per unit tariff is imposed on
import, the price rises to OP1 and world supply curve shifts to P1W1. At this
higher price, the demand is reduced from OQ1 to OQ2 whereas the domestic
supply expands from OQ to OQ3.
In case the per unit tariff were PP2 causing the price to rise to OP2, the
domestic production would have expanded large enough to meet fully the
domestic demand. In such a situation, imports would have been reduced to
zero.
Revenue effect
Trade effect
If the foreign supply of a good is perfectly elastic or if the foreign suppliers are
ready to supply the product at a constant price, the imposition of tariff is not
likely to improve the terms of trade for the tariff-imposing country. In case the
foreign supply of a good is not perfectly elastic, the imposition of tariff can
have varying effects upon the terms of trade of the tariff-imposing country
depending upon the elasticities of demand and supply in the two trading
countries
In above figure country A is an importing and country B is an exporting
country. The domestic demand and supply curves of the exporting country B
are less elastic. Country B imposes per unit tariff of P0P2 amount for reducing
import of the commodity. Since the domestic demand is inelastic, the surplus
product of country B can be disposed of in the other country A. Therefore, the
exporters lower the price of the commodity by P1P0. So P0P1 part of tariff is
borne by exporters and P1P2 part of it by the importers.
If the tariff burden borne by importers in country A is less than the burden
borne by the exporters i.e., P1P2 < P1P0, the rise in price of the commodity in
country A is less than the fall in the export price of the commodity in country
B. In such a situation, the terms of trade become favorable to the tariff-
imposing country A.
In case, P1P2 is more than P1P0, the rise in price of the commodity in country
A being larger than the fall in export price of the commodity in country B, the
terms of trade get worsened for country A. It can happen when the elasticities
of demand and supply for the commodity in country B are relatively more than
in country A.
Deadweight loss
That A and B forms a customs union. Will there be trade creation or trade
diversion effect?