1. (a) Describe the salient features of Indias balance of payment.

Ans. The following are the salient features of Indias balance of payment:

India has always faced trade deficits except in 1972-73 and 1976-77 where there was a small
surplus.
Trade deficit has been rising from plan to plan with the exception of the fourth plan when the
trade deficit declined.
The rate of growth of exports has been fluctuating from plan to plan.
Net invisible receipts have been positive.
The crisis in the balance of payments during 1990-91 and in the first quarter of 1991-92
necessitated the mobilization of additional external funds to fill the gap. The task of the
government became particularly difficult in the context of the dwindling international faith in our
economy. In the end, the Government could mobilize substantial additional financial resources
from the IMF, the World Bank and the bilateral donors, specially Japan.
Fiscal deficit not only affects the prospects for growth and stability but has a vital bearing on the
balance of payment strategy. A strategy for ensuring a viable balance of payments requires
correction in fiscal imbalance well.
There has been a low level of utilisation of external assistance, resulting in a substantial part of
authorised loans being in the pipeline. The main factor for under utilisation of assistance is due to
the time lag between commitments and conclusions of specific credit arrangements, time
consuming procedures and domestic budgetary constraints in providing counterpart funds.
The emergence of a number of independent states out of erstwhile USSR are bound to affect the
country's exports adversely. Thus, India's balance of payments continued to be under strain.
'The underlying weakness of the balance of payments remained. The falling support from net
invisible receipts resulting from interest payments, the poor industrial and export performance
and high rate of inflation stood in the way of achieving a sustainable balance of payments.

(b) Describe the changing pattern of Indias Foreign Trade with reference to markets.
Ans.: The export has been gradually increasing but the import has increased at a faster rate. As a result,
the trade balance has been negative over the years. The table shows that India's Trade Balance was Rs.-2
Crores during 1950-51 and it has gone up to Rs. -20, 103 crores during 1996-97. It has further gone up to
-34495 in the year 1998-99.
A reduction in trade deficit is possible either by a deduction in imports or by an increase in exports. A
reduction is not only necessary to curtail the trade deficit but also because, quite often, imported supplies
are costlier than domestic supplies. Some of our imports consist of essential consumer goods which are
necessary to maintain the domestic price stability. Any cut in these imports would adversely affect
production leading to unutilised capacities and a cut in exportable surplus. Capital goods which have
shown a significant increase in the last few years because of the need for technology upgradation now
account for (22%) of the total imports for the year 1996-97. Fuel accounts for (26%) of the total imports
for the year 1996-97. For the year 1998-99 the share of capital goods has been reduced to 16.16%. A
similar reduction has been witnessed in petroleum & lubricants which has come down to 15.4%. It may
be very difficult to curtail these imports because they contribute to the economic development of the
nation.
In the past, we depended on foreign aid, largely consisting of loans, to finance our import surplus India's
total debt was US $ 98.87 billion at till end of September 1999. The debt service ratio was about 18% in
the year 1998-99. Of late India's external indebtedness position has also improved in the global context.

India ranks eighth among developing countries in terms of total indebtedness. India's external debt is very
high. Thus, there is no alternative but to intensify export effort. The expansion in export sector will be
able to generate the revenue for meeting the import requirement.

2. What are the objectives of new industrial policy? Do you think that the new industrial
Policy has a favorable impact on the economy discuss.
Ans. Even though, India attained self-sufficiency in a wider range of consumer goods, the industrial
growth was not rapid enough to generate sufficient employment to reduce regional disparities and to
alleviate poverty. Lack of adequate competition resulted in inadequate emphasis on reduction of costs,
upgradation of technology and improvement of quality standards. It is to reorient and accelerate industrial
development to achieve international competitiveness that the industrial policy 1991 was announced.
Industrial policy of 1991 reviewed its emphasis an removal of poverty, attaining social and economic
justice, the need to integrate the domestic economy with that of international economy and building a
prosperous India. This policy aimed at self-reliance but with grater stress on the ability to pay far balance
of trade. It has recognised the need for development of indigenous technology and manufacturing
capabilities to world standards. It also assigned importance for development and promotion of SSI
through technology upgradation
and efficiency improvement.
In the light of these issues, Industrial Policy 1991 has the following objectives:
to build on the gains already made
to maintain a sustained growth in productivity and employment
to correct the distortions or \weaknesses that have crept in, and
to attain international competitiveness.
The Policy de-regulated the industries in a substantial manner. The main features of the policy are as
follows:
Domestic Regulatory Reforms: The Industrial Policy, 1991, reduced the number of reserved industries.
Industries which continue to be reserved for the Public Sector are in areas where security and strategic
concerns predominate.
Abolition of Industrial Licensing: The new policy has abolished all industrial licensing, irrespective of
the level of investment, except for certain industries related to security and strategic concerns, social
concerns, related to safety, overriding environmental issues, and manufacture of products of hazardous
nature.
Removal of Mandatory convertibility Clause: A substantial portion of industrial investment in India is
financed by loans from banks and financial institutions. These institutions have so far followed a
mandatory practice of including a convertibility clause in their lending operations for new projects, with
Industrial Policy, 1991, financial institutions will not impose this mandatory convertibility clause.
Removal of Investment Controls on Large Business House: Since the enactment of the Monopolies
and Restrictive Trade Practices Act (MRTP Act) in 1969 all firms with assets above a certain size were
classified as MRTP firms. This assets limit has been applied to the sum of the assets of firms
interconnected through equity shares for management control. Such firms were permitted to enter selected

industries only and that also on a case-by-case approval basis. In the new policy this clause has been
removed.
Foreign Investment: As with domestic industrial investment, foreign investment has also been
traditionally regulated tightly in India. Now in the case of foreign investment, automatic permission will
be available for foreign equity up to 5 1 per cent in the high priority industries. Foreign investment policy
so far has also
generally discouraged foreign equity holdings in service areas except for hotels. The government has
decided to invite foreign equity holding up to 51 per cent by international trading companies also. In
addition to hotels, now 51 per cent equity will also be allowed in other tourist related areas.
Evaluation of New lndustrial Policy
The new industrial policy has opened the door of the Indian economy. The major impact may be
evaluated in the following way:
It has altered the industrial scenario of India. In extent and scope, the policy is a watershed which has
been significant for the economic development of the country. The working of industrial enterprise,
efficiency, productivity and market has become important determinants of industrial advances.
The delicensing of a host of industries and the abolition of all registration schemes has enabled
entrepreneurs to quicken decision-making and more quickly to siege the business opportunities.
The involvement of foreign participation in industry and external trade has been instrumental the
economic growth of the country. Easier facilitation of foreign technology agreements and other related
measures has a favourable impact on the industry. It requires further effort to create conducive
environment for attracting
foreign investment in India.
As far as the policy related to public sector is concerned, the policy evaluate the role of the public sector
in the economy. The public sector has also entered in those areas in which no commercial logic is served
nor is there broader concrete welfare mechanism that is being met. Therefore, it makes sense to disinvest
the governments holding in these industries. This will bring competition and the commercial logic would
dictate their functioning.
The policy on phased manufacturing programme has been scrapped. In this way the case by case
approach has been removed. The suitable financial incentives for indigenisation have been built into the
external value of rupee and the trade policy.
The new policy is a step towards globalisation. The removal of restrictions and creation of competitive
environment may be helpful in improving the productivity of the industry.
3) What are the export prospects of handicrafts and gems and jewellery export. Explain the measures for
developments of exports of handicrafts and gems and jewellery.
Ans.: Handicraft and Gems and Jewellery are very important items for India's export. They contribute
substantially towards the export revenue of the country.
Exports of Handicrafts:

After having experienced a sluggish growth in exports during 1950s, and 1960s, the handicrafts
(excluding gems and jewellery) exports witnessed phenomenal growth during the last three decades
escalating from a total exports of Rs. 38 crores in 1970-71 to 7072 crores in 1998-99. The phenominal
growth with of export was mainly on account of the market boom, the handicraft experienced throughout
1970s and especially from the middle of 1980s in most of the developed countries.
A part from the overseas market boom, the favourable Government policy and incentives introduced
during 1970s helped in accelerating the growth in handicraft export. About five group of handicraft
namely carpets, art metal wares, hard printed textiles, embroidered and crocheted goal and wood wares
accounting for over 80 per cent of the total handicraft export during the period constituted the most
dynamic and major growth items for export. These five items experienced varying degrees of export
growth of during 1980-81 and 1998-99. The first two most important items namely carpets and art metal
wares accounting for about 50 percent of the other handicraft exports in 1998-99, registered nearly 12
folds and 18 fold increase in export respectively during 1980-81 and 1998-99. The hand printed textiles
and wood wares exports; on the other hand, registered nearly 30 fold and 15 fold increase respectively.
While the embroidered and crocheted goods exports registered nearly 100 fold increase during this
period. These five items however continued to perform well, with the share of over 80 per cent in the
export of other handicraft from India.
Exports of Gems and Jewellery
The gems and jewellery industry provides a shining example of achieving international competitiveness.
Gems and jewellery exports from India were modest at Rs. 2 crore in 1960-61 and Rs. 22 crore in 196667, the year in which the industry's export promotion body, The Gem & Jewellery Export Promotion
Council (GJEPC), was set up. The exports of the commodity group gems and jewellery more than
doubled to Rs. 45 crore (US$ 59 million) in 1970-71. The years thereafter were all milestones in the
growth of exports of gems and jewellery.
Table India's Net Exports of Gems and Jewellery (US $ In Million)
Items
Cut & Polished Diamonds
Coloured Gem Stones
Gold Jewellery
Pearls
Non-Gold Jewellery
Synthetic Stones
Costume Fashion Jewellery
Sale To Foreign Tourists
Sub-Total
Exports of Rough Diamonds
Total

1990-91 1995-96
2641
4662
116
147
203
569
5
6
8
24
4
1
5
13
10
2987
5427
31
2987
5458

There were leaps in exports in the years to follow, with the figure rising to about Rs. 25,790 crore (US$
6.131 billion) in 1998-99. This represented a growth of 573 times in gems and jewellery exports as
compared to the growth of 92 times in the countrys total exports from Rs. 1,535 crore (US$ 2.031
billion) in 1970-71 to Rs. 141,604 crore (US$ 33.641 billion) in 1998-99.

The gems and jewellery industry, representing more than 7000 exporters, had a share of 11% in world
exports and a share of 18% in India's exports in 1998-99. Over 70% of the world exports of cut and
polished diamonds in caratage are processed in India. In value terms, Indias share is about 50% in world
exports of cut and polished diamonds. The expansion in the mining of rough diamonds in various
countries and the increase in world trade in cut and polished diamonds and diamond studded jewellery are
attributed to the growth of the diamond industry in India during the last four decades.

4. Evaluate the advantages and disadvantages of Indian electronics commodities. How

can you make them competitive in the global market.
Ans. To fight and survive in the present international scenario, any industry needs to be competitive, ,
both price and quality wise. India enjoys certain advantages that make the electronic commodities pricecompetitive, the main being the low labour cost compared to international standards having a favourable
impact on assembly cost, and thus price. But the small domestic market leading to low scale production
has come in the way of enjoying the economies of scale. This coupled with the high tax regime kept the
prices a bit on the higher side. However, the potential domestic market is quite large and a rapid growth of
the same is also
expected. FDI is also trickling in and this can help in providing necessary resources for expansion and
large-scale operation. Moreover, the tax regime is also getting rationalised. Coming to the quality aspect,
the product design capabilities, R&D and technology development have been poor. However, the
domestic consumers becoming more and more quality conscious will induce for quality upgradation. The
Indian Electronic industry is quite matured in case of conventional TV and audio products. Large
exportable surplus available primarily in the B/W segment and India is expected to emerge as a major
international player. Production being geared up in CTV while such efforts are underway in other
segments of consumer electronics (i.e., audio/video cassettes, audio systems and electronic watches).
Colour- picture tube units are also undergoing expansion and upgradation to cater to domestic CTV
companies. Recently, new technologies and products are being inducted in the industry. Laser technology
based products are still at a nascent stage. However, it has to be kept in mind that Indian brand for
consumers electronics is unknown in the international market and price competition is severe in the
unbranded world consumer electronics market.

In the area of advanced technology products like large screen high definition CTV, VCPNCR. Compacts
Disk Systems and latest hi-fi Systems, India is not having large production base and modern technology
to become competitive in the world market. The taste and preferences 01' electronic items have been
changing Very fast, The demand for the advanced technology products have been growing fast. Hence,
India requires developing adequate infrastructure and expertise to enhance the production base for the
advanced technology bar products to cater to the growing world market. A proper policy and strategy
framework should take into consideration all these factors.
5. Write Short Notes on:
a) General Agreement on Trade in Service

This Agreement applies to measures by Members affecting trade in services. For the purposes of this
Agreement, trade in services is defined as the supply of a service:

from the territory of one Member into the territory of any other Member;
in the territory of one Member to the service consumer of any other Member;
by a service supplier of one Member, through commercial presence in the territory of any other
Member;
by a service supplier of one Member, through presence of natural persons of a Member in the
territory of any other Member.

For the purposes of this Agreement:

(a) "measures by Members" means measures taken by:
(i) central, regional or local governments and authorities; and
(ii) non-governmental bodies in the exercise of powers delegated by central, regional or local
governments or authorities;
In fulfilling its obligations and commitments under the Agreement, each Member shall take such
reasonable measures as may be available to it to ensure their observance by regional and local
governments and authorities and non-governmental bodies within its territory;
(b) "services" includes any service in any sector except services supplied in the exercise of
governmental authority;
(c) "a service supplied in the exercise of governmental authority" means any service which is supplied
neither on a commercial basis, nor in competition with one or more service suppliers.
b) Trends in Indo-US Trade
Indo-US trade, which shot up almost three-fold from $13.7 billion in 2001 to $41.4 billion in 2007,
suffered a sharp setback after the global slowdown with growth slowing down from 30.5% in 2007 to
7.4% in 2008. While initial trends show that Indian imports from the US bore the brunt of the recession,
recent numbers show that Indian exports have dropped more sharply than imports indicating some
resonance in domestic demand.
Numbers show that the growth of Indian exports to the US slowed down from 10.1% in 2007 to 8.4% in
2008, while that of Indian imports dropped from 74.3% to 6.1%. But most recent figures for the first two
months of 2009 show that Indian exports have dropped by 23.2%, while imports declined by 18.9%.
Indias exports to the US markets are concentrated across 12 major products, which account for three of
the total exports. The major Indian exports include jewellery (21.7%), non-knitted clothing and apparel
(6.9%), iron and steel products (6.5%), pharmaceuticals (5.7%), non-electrical machinery and appliances
(5.7%), organic chemicals (5.6%), electrical machinery (5.4%), knitted apparel and clothing (5.1%),
textile made ups (4.9%), iron & steel (3.6%), vehicles (2.5%), and carpets (2.2%).
In 2008, nine of these 12 products registered positive growth with the highest increase in iron and steel
(105.1%), followed by pharmaceuticals (75.7%), iron & steel (36.8%), non-electrical machinery and
appliances (30.2%), organic chemicals (16.3%) and electrical machinery (12.2%), all of which posted a

higher growth than average. Indian exports that declined included jewellery (9.7%), non-knitted clothing
and apparel (6.2%) and carpets (8%).
In case of Indian imports from the US, bulk of the earnings came from a dozen products that accounted
for 85% of the total imports into the country. Topping the list of Indian imports from the US were
fertilisers, which accounted for 16% of the total Indian imports, followed by aircraft (14.7%), nonelectrical machinery and appliances (13%), jewellery (11.2%), electrical machinery and equipments
(6.3%), mineral fuels (5%), optical and precision equipment (4.8%), organic chemicals (3.4%), iron &
steel products (3.3%), plastic articles (2.9%), chemical products (2.1%), and inorganic chemicals (2.1%).
The highest increase in Indian imports from the US markets in 2008 were from inorganic chemicals
(275.5%), fertilisers (258.1%), mineral fuels (121.4%), jewellery (65.5%), aircraft (57.1%), chemical
products (39.5%), plastic products (34.7%), iron and steel (13.8%), and non-electrical machinery and
appliances (6.3%). Indian imports that declined in the year included aircraft (57.1%) and organic
chemicals (2.8%).
c) Objectives of SAARC

Objectives of SAARC include promotion of socio-economic developments within SAARC countries and
also develop a productive relationship with regional and international organizations. Based on this,
objectives can be categorized as under:
1)

Inter-SAARC

To promote the welfare of the people of South-Asia and to improve their quality of life.
To accelerate economic growth.

To promote active collaboration and mutual assistance in the economic, social, cultural, technical
and scientific fields.

To promote and strengthen collective self-reliance among the countries of South Asia.

To contribute to mutual trust, understanding and appreciation of one anothers problems.

2)

Intra-SAARC

To strengthen cooperation among themselves in international forums and with other developing
countries.
To strengthen cooperation with other developing countries.

To cooperate with international and regional organizations.

d) Indias Foreign Trade with West Asia

The selected countries of West Asia have a total population of more than one billion. Most of these West
Asian countries are quite rich in natural gas, oil and petroleum products. The per capita income in these
countries is as high as US$20,500 per annum in respect of United Arab Emirates, US$14,800 per annum
in respect of Kuwait, US$14,000 per annum in respect of Qatar, US$9,000 per annum in respect of
Bahrain and.US$7,000 per annum in respect of Saudi Arabia. As a result of high per capita income, these
countries offer immense potential as export markets for India. Moreover, there is a good number of
Indians settled in these countries.
Since West Asian countries are rich in natural gas, oil and petroleum products it may be a good idea for
lndia to enter into agreement with some of these countries for setting up refineries. One such agreement is
expected to be clinched by Indian Oil Corporation with Kuwait Petroleum Corporation (KPC) to build the
9 million tonnes Paradip refinery. State-owned KPC is a super-rich oil giant which accounts for 70 to 80
per cent of the total budget revenue of its country. KPC management are keen to invest in the refinery in
India. ICPC is expected to invest $200 million in the Paradip refinery. There have been some failures on
this account as is the case of Saudi Ararnco backing out of the Punjab refinery project for which it had
signed n memorandum of understanding with Hindustan Petroleum Corporation (HPCL). It is necessary
that the Government of India removes the bottlenecks for establishing joint venture refineries in the
country. It is particularly important at this point of time because with the turmoil in South East Asia, no
new refineries are being set up in that region.
As a result India is the right place at present for such a venture. The fact that any refinery I being set up
now world go on stream four years from hence when there would be a shortage of refining capacity to
meet the increased demand at the time when the economies of the Asian tigers would be on the upswing.
This would make the venture that much more profitable.
India's exporters can concentrate on the following items for increasing their business with
the select West Asian countries:

Clothing and textiles

Fruits and vegetables
ten
coffee
spices
machinery & equipment
computer software
high-end consumer goods