IGNOU M.Com IBO-03 Solved Assignment 2012

TUTOR MARKED ASSIGNMENT

Course Code : IBO-03

Course Title : India’s Foreign Trade

Assignment Code : IBO-03/TMA/2011-12

Assignment Coverage : All Blocks

Maximum Marks : 100

Attempt all the questions

1.       Describe the major issues in the world trade highlighting the growing popularity of regional arrangements, globalization, electronic commerce and environment. Also outline briefly the recent trends in world trade. (10, 10)

Solution: Regional arrangements:

The foreign ministers of the seven South Asian countries during the inaugural session signed two conventions.  One on preventing and combating trafficking in women and children for prostitution and the other on regional arrangements for the promotion of child welfare in South Asia. Trafficking of women and children, and child welfare, have remained a common problem to the South Asian region, home to one-fifth of the world population. Expressing hope that the signing of the conventions would contribute in welfare of women and children, Prime Minister Sher Bahadur Deuba laid foremost priorityon poverty reduction in the region where more than half a billion people earn less than $1 a day. “We must expand production and markets, increase trade, raise incomes and consumption, as well as pro-poor policies,” he said. Deuba highlighted the need to empower people with better education and health services, widening of job market . While we seek to expand trade outside the region, efforts must be exerted to stimulate regional trade. To achieve that, we should finalise the South Asian Preferential Trade Arrangement (SAFTA)framework treaty, fix priority and sequence execution, he said. Deuba also took up the “visionary goal” of establishing South Asian Economic Union.

Globalization

Globalization is what we call the process of the world becoming a smaller place. This is happening more and more and in many different ways, with results both good and bad: people move around more than ever; our society is increasingly ethnically and culturally diverse; we have instant access to information from anywhere in the world via satellite television and the internet; we’re increasingly governed by international organizations and trade agreements rather than national governments; and most of our goods, and even many of our services, come from the other side of the world.It’s this last form of globalization – economic globalization – that is the most controversial. Unemployment is high in North America, while manufacturing jobs are continually outsourced to the developing world. Technical jobs and support services are increasingly moving to India and Southeast Asia. And endless boatloads of cheap goods, often produced in sweatshops in a modern equivalent of serfdom or even slave labour, flood into our stores at low prices. But even beyond the ethical arguments against sweatshop labour, I would argue that economic globalization is neither sustainable nor resilient.

Electronic commerce

The Internet is not the Wild West contrary to what many people think. It is in fact heavily regulated. This is due in the main because the existing laws relating to say for example the sale of goods will apply to sales over the internet as well as the possibility of two countries laws being applicable to a particular contract.Legislators were concerned. As a consequence a significant amount of legislation was introduced on a pan European basis which sought to provide a framework and safety net for ecommerce

Environment

Major controversy surrounding trade and the environment centers on the WTO Secretariat's current position that countries cannot put up barriers to products based on the process of how they were made. The primary concern is that if such exceptions were allowed, countries would make them very freely and thus create a barrier to trade. In PIPA’s 1999 and 2004 trade polls, strong majorities rejected the WTO Secretariat's position that, in general, countries should not be able to restrict imports based on the environmental effects of their production, even though the argument defending the WTO position also mentioned the potential costs to the economy and job.

The Recent Trends in World Trade:

World trade flows are continuing their recovery, building on the large gains of 2010, with slower but still slightly above average growth in 2011. However, recent events in the Middle East and Japan have raised the level of global economic uncertainty and tilted the balance of risk towards the downside.

WTO economists’ baseline projections for world merchandise trade in 2011 would see exports grow by 6.5%, with shipments from developed countries increasing by around 4.5% and those from developing economies and the CIS advancing 9.5%

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2. a) What do you mean by SEZ? Explain its salient features.

Solution:  Special Economic Zones (SEZs) in the country with a view to provide an internationally competitive and hassle free environment for exports was introduced on April 1, 2000. Units may be set up in SEZ for manufacturing of goods and/or rendering of Services. All the import/export operation of the SEZ units will be on self-certification basis. The units in the Zone have to be a net foreign exchange earner but they shall not be subject to any predetermined value addition or minimum export performance requirements.

INDIAN SEZ - Salient Features and Facilities

» A designated duty free enclave and to be treated as foreign territory for trade operations and duties and tariffs.

» No license required for import.

» Exemption from customs duty on import of capital goods, raw materials, consumables, spares etc.

» Exemption from Central Excise duty on procurement of capital goods, raw materials, consumable spares etc. from the domestic market.

» Supplies from DTA to SEZ units treated as deemed exports.

» Reimbursement of Central Sales Tax paid on domestic purchases.

»100% income tax exemption for a block of five years,50% tax exemptions for two years and upto 50% of the Profits ploughed back for next 3 years under section 10-A of Income tax Act.

»Supplies from DTA to SEZ to be treated as exports under 80HHC of the IT Act.

»carry forward of losses

»100% Income-tax exemption for 3 years & 50% for 2 years under section 80-LA of the Income-tax Act for off-shore banking units.

» Reimbursement of duty paid on furnace oil, procured from domestic oil companies to SEZ units as per the rate of Drawback notified by the Directorate General of Foreign Trade.

» SEZ units may be for manufacturing, trading or service activity.

» SEZ unit to be positive net foreign exchange earner within three years.

» Performance of the units to be monitored by a Committee headed by Development Commissioner and consisting of Customs.

» 100% Foreign Direct Investment in manufacturing, sector allowed through automatic route barring a few sectors.

» Facility to retain 100% foreign exchange receipts in EEFC Account.

» Facility to realize and repatriate export proceeds within 12 months.

» Re-export imported goods found defective, goods imported from foreign suppliers on loan basis etc. without G.R. Waiver under intimation to the Development Commissioner.

» "Write-off" of unrealised export bills upto 5%.

» Commodity hedging by SEZ units permitted

» Capitilization of import payables

» No cap on foreign investment for SSI reserved items.

» Exemption from industrial licensing requirement for items reserved for SSI sector.

» Profits allowed to be repatriated freely without any dividend balancing requirement.

» Domestic Sales on full duty subject to import policy in force.

» No fixed wastage norms.

» Full freedom for subcontracting including subcontracting abroad.

» Subcontracting facility available to jewellery units

» Duty free goods to be utilized in 5 years.

» Job work on behalf of domestic exporters for direct export allowed.

» No routine examination by Customs of export and import cargo.

» No separate documentation required for customs and Exim Policy.

» In house customs Clearance.

» Support services like banking, post office clearing agents etc. provided in Zone Complex.

» Developed plots and ready to use built up space

» Exemption from Custom/Excise Duty on goods for setting up units in the zone.

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b) What are the objectives of Market Development Assistance (MDA)? Describe various

components of MDA.

Solution: The Market Development Assistance Scheme has been introduced by the Coir Board w.e.f. 2000-2001 in lieu of the Rebate Scheme that was in operation in the Coir Sector till 1999-2000. The MDA is linked with the sales performance of the concerned beneficiary organization and aims at providing incentives for better performance.

The Objectives of the Scheme are:

i)To promote the sale of coir and coir products manufactured by the Co- operatives and Public Sector Enterprises committed to payment of  minimum wages and other obligatory benefits to the coir workers and thereby encouraging sustained production and better  employment opportunities.

ii)  To provide financial support on a continuing basis rounded  the year to the Co-operatives and Public Sector Enterprises who undertake market development programme in Coir.

MDA components are made up of information allowing an application developer to master a particular usage context, and provide user documentation and technical documentation allowing their extension or use. MDA components also contain information concerning their version and the services they provide, as well as the different components they use. This information is used in their assembly.Like software components, MDA components are autonomous elements, which can be deployed in the UML Modeler tool.

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3. Describe the composition of gems and jewellery exported from India. What is its importance ingenerating foreign exchange and how can it be further increased?(10, 5, 5)

Solution: Gems and Jewellery is an important emerging sector in the Indian Economy. Ranked among the fastest growing sectors, it is also a leading sector for foreign exchange generation.The gems and jewellery industry is very much fascinating being traditionally glamorous and artistically modern. This business employees and engages millions; cover wide activities such as raw material procurement from far flung Africa, Australia, Canada and Russia, and transforming these into products in demand with the skills available in China, India, Italy and Turkey for the sophisticated markets in the USA, Europe, Far East, Middle East and Asia.

India's Position in Gems and Jewellery Sector

Gems and Jewellery is one of India 's leading foreign exchange earning sectors.

It accounted for 16.7 per cent of India 's total Merchandise Exports.

USA’s import of Gem & Jewellery from India increased by 50.5% in 2010 as compared to 2009.India Gems & Jewellery exports are expected to grow at a whopping 15 to 20 per cent in FY 2011-2012. At present India exports 95% of the world’s diamonds.

Gems and Jewellery Components

Diamonds:

Diamonds have always enjoyed a special place among precious gemstones. In the past, diamond jewellery was limited to a very small elite segment of the global population. However, over the past 50 years, diamonds have seen increasing democratisation. Diamond jewellery has, therefore, emerged as a segment showing significant growth in some of the emerging markets.

Gold:

Gold has always been the jewellers' favourite metal given its intrinsic lustre and ease of fabrication Gold jewellery enjoys the leading position in most markets across the world, and in many ways forms the backbone of the precious jewellery industry. Given the fact that gold is also one of the traded metals, gold jewellery consumption is also impacted by gold price movements.

Cut and polished diamonds: The export of cut and polished diamonds grew manifold in 2010-11 as compared to 2009-10. In 2010-11, the export of cut and polished diamonds was US$ 28251.92 million as compared US$ 18237.56 million, recording a growth of 54.91 per cent.

Coloured Gemstones: Export of coloured gemstones was registered at US$ 314.54 million in 2010-11 as compared to US$ 286.78 million in 2009-10, showing a growth of 9.68 per cent.

Gold Jewellery: Export of Gold jewellery also grew in 2010-11, registering US$ 12885.59 million as compared to US$ 9669.10 million in 2009-10. A growth of 33.27 per cent was recorded.

Net Exports of Gems and Jewellery items during April-October 2011

The summary of export of gems and jewellery items during April 2010-March 2011 as compared to same period last year

Items	April-October 2011	April-October 2010 (Same ports as current year)	% Growth/decline over previous Year
	US$ in Million	US$ in Million	US$
Cut & Pol Diamonds	15195.08	14807.71	2.62
Gold Jewellery-D.T.A	1357.28	1209.24	12.24
SEZ/EPZ (included Gold Jewellery & Gold Medallions and coins)	7968.97	5535.29	43.97
Total	9326.25	6744.53	38.28
Coloured Gemstones	187.17	158.45	18.13
Silver Jewellery	386.92	284.18	36.15
Others *	17.52	9.08	92.95
Net Exports	25112.94	22003.95	14.13
Exports of Rough Diamonds	995.65	580.44	71.53
Others	51.45	31.96	---
Total Exports	26160.04	22616.35	15.67

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4. Write short notes on the following :

a) BPO services

Solution: Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain.[1] In the contemporary context, it is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing in-house services with labor from an outside firm.

BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact centre services.

BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called nearshore outsourcing.

Often the business processes are information technology-based, and are referred to as ITES-BPO, where ITES stands for Information Technology Enabled Service.[2] Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry

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b) India’s trade with CIS countries (10, 10)

Solution: CIS stands for Commonwealth of Independent States and all republics of central Asia are its members, including Armenia, Georgia, Ukraine, Moldova, Baltic of Latvia, Estonia, and Lithuania. During the Soviet era, all links with the USSR republics happened only through Moscow. As a result, a lot depended on the Indo-Soviet relationship since its nature determined India's relation with its republics. But after the fall of the Soviet Union, India's trading relations with the republics of central Asia have declined considerably. Only US$ 100 million worth of bilateral trade has taken place between India and central Asia. The main items being exported from India are tea, woolen goods, cosmetics, ready made garments, leather goods, chemicals, jute manufacture, cotton yarns, machine tools, machinery, pharmaceuticals, plastic products, rice, electronic goods, instruments, and chemicals. To increase bilateral relations between India and central Asia, joint commissions have been set up in the various countries. Delegations have also done their bit by taking part in talks in order to increase trade value.

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5. Briefly comment on the following statements:

a) India’s export emphasis is slowly shifting from agro-based commodities to the manufactured goods.

Solution: Yes India’s export emphasis is slowly shifting from agro-based commodities to the manufactured goods. India exports were worth 22322 Million USD in November of 2011. Exports amount to 22% of India’s GDP. Gems and jewelry constitute the single largest export item, accounting for 16 percent of exports. India is also leading exporter of textile goods, engineering goods, chemicals, leather manufactures and services. India’s main export partners are European Union, United States, United Arab Emirates and China. This page includes: India Exports chart, historical data and news.

For the month of December, India's net diamond account -- the total of polished and rough exports less the total of polished and rough imports -- registered a deficit of $825.09 million, compared with a deficit of $871.01 million one year ago.

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b) The preamble to the WTO agreement includes direct references to the objective of sustainable development.

Solution: Yes the preamble to the WTO agreement includes direct references to the objective of sustainable development as given the recent acknowledgement by the international community of the importance of concerted bilateral or multilateral action to protect living natural resources, and recalling the explicit recognition by WTO Members of the objective of sustainable development in the preamble of the WTO Agreement, we believe it is too late in the day to suppose that of the GATT 1994 may be read as referring only to the conservation of exhaustible mineral or other non-living natural resources.”

while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development. We note once more that this language demonstrates a recognition by WTO negotiators that optimal use of the world’s resources should be made in accordance with the objective of sustainable development.

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c) India has managed to occupy a quasi-“top of mind” slot among foreign investors.

Solution: Coming soooon !!

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d) USA is India’s largest trading partner. (4 × 5)

Solution: USA, China, UAE, Saudi Arabia, Singapore and Germany have been the top trading partners of India for the past 3 years. USA was the top trading partner for the last 2 years until China came along. For the fiscal of 2008-09 China became the top trading partner of India beating the US. India-China trade stands at 1,63, 202 crores. "India is the United States' 12th largest trading partner. It could be number one or two if the conditions for trade between these two giant economies continue to improve

Top exports to the US are Pearls, articles of iron or steel, apparel and clothing. The recent export ban from GAP would sure hurt the industry the textile industry which now receives a stimulus package from government of India.

Top imports from US are Fertilizers, Nuclear reactors, Electrical machinery and Mineral Fuels. Heavy industries is gearing up for the joint ventures with many American and European companies for the nuclear pie which is estimated at $100 bn. With the new nuclear targets set by India this trade will only increase.