jaiib-ie-and-ifs-paper-1-module-a-unit-8-foreign-trade-policy-foreign-investments-and-economic-development

  • kamal sir
  • 6/13/2023

JAIIB Paper 1 (IE and IFS) Module A Unit 8:Foreign Trade Policy Foreign Investments and Economic Development (New Syllabus) 

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 1 (Indian Economy & Indian Financial System) includes an important topic called “Foreign Trade Policy Foreign Investments and Economic Development ”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 1 (IE and IFS) Module A Unit 8:Foreign Trade Policy Foreign Investments and Economic Development
Aspirants must go through this article to better understand the topic, Banker Customer Relationship and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship. Unit 8: Foreign Trade Policy Foreign Investments and Economic Development

Foreign Trade Policy, Foreign Investments And Economic Development

  • Foreign trade policy refers to the economic policy that governs an economy’s export-import activity.
  • Economic policies, such as Foreign Trade Policy and Foreign Investment Policy, are critical components of the economic process.
  • A well-planned foreign policy adds to the local economy’s output and the nation’s prosperity. India has had special policies promoting trade and investment from its inception.

Foreign Trade Policy: 2015-2020

On April 1, 2015, the Indian government launched its Foreign Trade Policy 2015–20.

In line with the  ‘Make in India’ initiative, the FTP 2015-20 provides a framework for promoting goods and services  exports, as well as employment generation and value addition in the economy.

Aims

  • The new strategy aimed to help both the industrial and service sectors, with a specific emphasis on improving the ease of doing businesses. The FTP aimed to increase India’s merchandise and services exports from $465 billion in 2013-14 to $900 billion by 2019-20.
  • It also aimed to increase India’s share of global exports from 2% to 3.5 per cent. The strategy seeks to empower India to adapt to external challenges, while keeping in step with a rapidly evolving external trade environment, and to make trade a significant contributor to the nation’s economic growth and development.

The FTP 2015-20 included two new schemes:

i)The ‘Merchandise Exports from India Scheme (MEIS)’ for exporting defined products to designated destinations,

ii)The ‘Services Exports  from India Scheme (SEIS)’ for promoting exports of designated services.

Salient features of FTP 2015–20

Simplification & Merger of Reward Schemes

Earlier there were five different schemes for rewarding merchandise exports, with different kinds of duty scrips with varying conditions  attached to their use.

  • Focus Product Scheme,
  • Market Linked Focus Product Scheme, 
  • Focus Market Scheme,
  • Agricultural Infrastructure Incentive Scrip,
  • Vishesh Krishi Gram Udyog Yojana –  VKGUY

All these schemes have been merged into a single scheme, namely Merchandise  Export from India Scheme (MEIS), and there was no conditionality attached to the scrips issued under the  scheme.

  • Served from India Scheme (SFIS) has been replaced with Service Exports from India Scheme (SEIS).
  • SEIS was applied to “Service Providers located in India” instead of “Indian Service Providers” regardless of the constitution or profile of the service provider.
  • All scrips issued under MEIS, and SEIS and the goods imported against these scrips were fully transferable.

Scrips issued under Exports from India Schemes used for:

  • Payment of customs duty for import of inputs/ goods,
  • Payment of excise duty on domestic procurement of inputs or goods,
  • Payment of service tax on procurement of services,
  • Basic Customs Duty paid in cash or through debit under Duty Credit Scrip was  allowed to be taken back as Duty Drawback, if inputs so imported are used for exports.

Privilege to Business leaders:  Who have succeeded in international trade and effectively contributed  to their country’s overseas trade are recommended to be recognised as status holders and given special treatment and privileges to facilitate their trade transactions, reducing transaction costs and time. 

  • Boost to “Make in India” Special initiatives have been made to assist the indigenous capital goods manufacturing industry in order to boost the Make in India campaign.
  • Under the Export Promotion Capital Goods (EPCG) plan, if capital goods were purchased from domestic producers, the particular export obligation was decreased to 75%.
  • Export commodities with a strong domestic content and value addition had received greater levels of incentives, under the MEIS.
  • Less Hard Documents: Trade Facilitation & Ease of Doing Business Hard copies of applications and specified papers, which were formerly required for incentive programmes and duty exemption schemes, were no longer required.
  • Landing paperwork for export consignments were allowed to be submitted digitally as evidence, for designated markets.
  • Once permanent records/ documents are uploaded in the exporter/importer profile, there was no need to provide copies with each application.
  • Dedicated e-mail addresses were established for speedier and paperless contact with other DGFT groups, such as the Norms Committee and the Exim Facilitation Committee.

Highlights of the FTP 2015-2020 

  • FTP 2015-20 provided a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in line with the ‘Make in India’
  • The Policy aimed to enable India to respond to the challenges of the external environment, keeping in step with a rapidly evolving international trading architecture and make trade a major contributor to the country’s economic growth and development.

FTP 2015-20 introduced two new schemes:

  1. ‘Merchandise Exports from India Scheme (MEIS)’ for export of specified goods to specified markets
  2. Services Exports from India Scheme (SEIS)’ for increasing exports of notified services.

EPCG scheme

  • Measures have been adopted to nudge procurement of capital goods from indigenous manufacturers under the EPCG scheme by reducing specific export obligation to 75% of the normal export obligation.
  • Measures have been taken to give a boost to exports of defense and hi-tech items.

E-Commerce

  • E-Commerce exports of handloom products, books/periodicals, leather footwear, toys and customised fashion garments through courier or foreign post office would also be able to get benefit of MEIS (for values up to INR 25,000).

Manufacturers

  • Manufacturers, who are also status holders, will now be able to self-certify their manufactured goods in phases, as originating from India with a view to qualifying for preferential treatment under  various forms of bilateral and regional trade agreements. This ‘Approved Exporter System’ will help  manufacturer exporters considerably in getting fast access to international markets.

EOU/EHTP/STPI/BTP Schemes

  • A number of steps have been taken for encouraging manufacturing and exports under 100% EOU/EHTP/STPI/BTP Schemes.
  • The steps include a fast track clearance facility for these units, permitting them to share infrastructure facilities, permitting inter unit transfer of goods and services, permitting them to set up warehouses near the port of export and to use duty free equipment for  training purposes.

Niryat Bandhu Scheme’

  • 108 MSME clusters have been identified for focused interventions to boost exports. Accordingly, Niryat Bandhu Scheme’ has been galvanised and repositioned to achieve the objectives of ‘Skill India’.

Facilitation

  • Trade facilitation and enhancing the ease of doing business are the other major focus areas in this new FTP. One of the major objective of new FTP is to move towards paperless working in 24×7 environment.

Challenges To Be Addressed In Upcoming FTP

The Government of India extended the FTP 2015-20 for the third time, till March 2022 to provide stability to exporters during the pandemic. Recent trade protectionist incidents, as well as the disruptions induced by the pandemic, have proven that India’s overdependence on a few items and fewer markets, has had a  more severe negative impact on the country’s international trade earnings.

Some of the issues that must be addressed in the new FTP are mentioned below. 

  • India’s high export orientation in a few large trading partners and a few products preclude its ability to fully offset any sharp decline in exports.
  • India needs to diversify its trading partners, both export markets and import sources, and find alternate high value products, due to scale, complementary economies and spreading risk. India may explore targeted geographies and product specific strategies.
  • Exploring opportunities in new markets in Africa, South-East Asia and Latin America through strategic investments, where receptiveness towards non-Chinese trading partners is more is important and needs to be explored
  • India may aim at diversifying its import suppliers. Products having high import orientation from few countries, especially China need to be diversified. The policy needs to ensure that product or market concentration of India’s trade should not go beyond specific levels.
  • Promoting efficacy of States in exports and exploring hitherto unexplored products are added areas to be considered for long  long-term export growth.

FDIs, FIIs AND RECENT TRENDS

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is an investment made in a country, by a foreign investor, often a company, to control the ownership of an entity. FDI is a key engine of economic growth, assisting in maintaining high growth rates, enhancing productivity, and generate employment.

 FDI Data

  • Net FDI has increased from $3.7 billion in 2004-05 to $36.6 billion by 2021-22.
  • However, in 2021-22 the Net Foreign Direct Investment in India reached $36.6 billion, 16.7 per cent lower compared to year earlier.

Note: FDI Data every year change (So Follow Ambitiousbaba.com Current affairs)

Routes of FDI in India 

FDI enters the domestic economy through two channels

i) The RBI’s automatic route

ii) The government route.

Automatic Route FDI

In the automatic route, the foreign entity does not require the prior approval of the government or the RBI.

Examples:

  • Medical devices: up to 100%
  • Thermal power: up to 100%

Government Route FDI

Under the government route, the foreign entity should compulsorily take the approval of the government. It should file an application through the Foreign Investment Facilitation Portal, which facilitates single-window clearance. This application is then forwarded to the respective ministry or department, which then approves or rejects the application after consultation with the DPIIT.

Examples:

  • Broadcasting Content Services: 49%
  • Food Products Retail Trading: 100%

Sector wise FDI Flow routes and Limits to India

Types of FDI 

FDI Prohibited Sectors 

FDI in India is prohibited and not allowed to function in the following sectors: 

  • Lottery Business, which includes Government/private lottery, online lotteries, etc.
  • Gambling, Betting as well as casinos, etc.
  • Chit funds
  • Nidhi company
  • Trading in Transferable Development Rights (TDRs)
  • Real Estate Business
  • Construction of Farmhouses (Real estate business does not include development of townships, construction of residential/commercial premises, roads or bridges)
  • Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  • Activities/sectors not open to private sector investment, e.g., Atomic Energy and Railway operations (other than permitted activities)

Foreign Institutional Investment (FII)

  • FII refers to short-term capital invested in stocks or hedge funds. It is generally volatile, and the possibility of capital flight is always there in the case of an economic slump, political turmoil, or herd behaviour of short-term capital outflow. Foreign institutional investors are companies, based outside India that offer investment proposals in India.
  • The portfolio investment programme allows Foreign Institutional Investors, Non-Resident Indians, and Persons of Indian Origin to invest in India’s primary and secondary capital
  • Under this arrangement, FIIs/NRIs can acquire shares/debentures in Indian companies through Indian stock exchanges. They are registered as FIIs with SEBI and play an essential part in a country’s capital market performance.

FII Recent Data

  • FPIs/FIIs (Foreign Portfolio Investors/Foreign Institutional Investors) have been a major driver of India’s financial markets.
  • In the financial year 2021-22, net FPIs were negative $11.97 billion (FII outflows were $9.34 billion, and portfolio investment by India was $2.63 billion), compared to a net inflow of $ 14 billion in the previous year ($14.03 billion). Because of its well-developed primary and secondary markets, India has attracted FIIs/FPIs. However, geopolitical instability, the Russia-Ukraine dispute, and COVID-related uncertainties have resulting in a capital flight during 2021-22.

Note: FII Data every year change keep update

Difference Between FDI and FII

BASIS FOR COMPARISON FDI FII
Meaning When a company situated in one country makes an investment in a company situated abroad, it is known as FDI. FII is when foreign companies make investments in the stock market of a country.
Entry and Exit Difficult Easy
What it brings? Long term capital Long/Short term capital
Transfer of Funds, resources, technology, strategies, know-how etc. Funds only.
Economic Growth Yes No
Consequences Increase in country’s Gross Domestic Product (GDP). Increase in capital of the country.
Target Specific Company No such target, investment flows into the financial market.
Control over a company Yes No

 

Economic Development vs Economic Growth

Economic Development 

  • Economic development is defined as a sustained improvement in a society’s material well-being. Apart from national income growth, it encompasses social, cultural, political, and economic developments that contribute to material progress.
  • It includes changes in available resources, capital formation rates, population size and composition, technology, skills and efficiency, and organisational and institutional architecture.

Economic Growth 

  • Economic growth is defined as the process by which, an economy’s actual national and per capita income grows over time. When compared to economic development, economic growth is a restricted term.
  • It entails a rise in output in quantitative terms, but it also includes qualitative changes such as social attitudes and behaviours, in comparison with the quantitative growth in output or national income.

Difference Between Economic Development and Economic Growth

Economic Growth Economic Development

Definition
It refers to the increase in the monetary growth of a nation in a particular period. It refers to the overall development of the quality of life in a nation, which includes economic growth.

 Span of Concept 
It is a narrower concept than that of economic development. It is a broader concept than that of economic growth.
                                                                                Scope
It is a uni-dimensional approach that deals with the economic growth of a nation. It is a multi-dimensional approach that looks into the income as well as the quality of life of a nation.
                                                                                Term
Short-term process Long-term process
                                                                        Measurement
Quantitative Both quantitative and qualitative
                                                                        Applicable to
Developed economies Developing economies
                                                                 Government Support
It is an automatic process that may or may not require intervention from the government It requires intervention from the government as all the developmental policies are formed by the government
                                                              Kind of changes expected
Quantitative changes Quantitative as well as qualitative changes
                                                                         Examples
GDP, GNP, per capita Income • Human Development Index (HDI)  • Human Poverty Index (HPI)  • Gini Coefficient  • Gender Development Index (GDI)  • Balance of trade  • Physical Quality of Life Index (PQLI)

 

Importance Of Economic Development As A Dimension, Etc.

Economic development

  • Economic development is defined as a persistent increase in the material well-being of society. Economic development refers to a larger set of ideas than economic growth.
  • It comprises social, cultural, political, and economic developments that contribute to material advancement, in addition to national income growth.
  • Economic development includes the human capital growth, elimination of socioeconomic inequalities, and structural changes that improve the public’s quality of life. To assess economic development, qualitative indicators such as the HDI (Human Development Index), gender-related indexes, Human Poverty Index (HPI), infant mortality, literacy rate, etc., are used.

Economic growth

  • Economic growth includes increases in income, savings, and investment, as well as progressive changes in the country’s socioeconomic structure, including both institutional and technical developments.

UNIT 8 – FOREIGN TRADE POLICY, FOREIGN INVESTMENTS AND ECONOMIC DEVELOPMENT (Ambitious Baba ) PDF

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