Monday, May 22, 2017

International Business Notes - Unit 1

Unit – 1: India’s Foreign Trade (Trends and Developments)
Direction of Indian foreign trade since last 10 years or after liberalisation
The international environment is very important from the pint of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. An international marketer is required to understand, evaluate and work out various parameters before venturing into any country. These Parameters are called environmental factors and they determine the direction and purpose of the international business operation. Many decisions depend upon environmental factors right from selection of the country, location of the plant liaison with the government, and entry of investment from local bodies, product launch, channel management, promotion and opening of outlets. The first challenge for an organization is to navigate from its home country to the host country. Thereafter it has to develop a proper system so that the venture is successful in the host country; learn all about the regulatory bodies both in the host country and home country; understand the customer’s changing tastes and attitude towards foreign goods and finally obtain revenue and make the business effective with right people.
The severity of economic crisis of 1991 provided an opportunity to the Government to make far-reaching changes in macroeconomic policy. There was liberalisation of domestic investment by removing direct controls on private sector and adopted fiscal and monetary policies to promote growth. Besides, the New Economic Policy pursued since 1991 also liberalized foreign trade and investment. The growth strategy was made export-oriented. Not only quantitative restrictions on imports have been removed but also customs duties have been drastically reduced.

Thus efforts have been made to integrate the Indian economy with the global economy. Rupee was devalued in 1991 and from 1993 exchange rate of rupee was made market-determined. It is, therefore, important to know how India’s foreign trade sector has performed in response to these important changes in economic policy framework.
The performance of foreign trade since 1991 is shown in Table 27.6 which reveals that after a transition period of 2 years, merchandise exports grew at about 20 per cent a year in dollar terms for three successive years during 1993-94 to 1995-96. Then due to slowdown in world trade and recession in the USA which is India’s major trade partner, annual growth of exports slowed down from 1996-97 to 1999-2000.
However after 2000 up till 2007-08 with the exception of year 2001 -02 there was more than 20 per cent annual growth of exports on sustained basis for over eight years (2000 to 2008) and in 2007-08 average annual growth rate of our exports was around 29 per cent.
Table: The Performance of Foreign Trade Sector
Despite the sluggish performance of exports from 1996-97 to 1998-99 deficit in trade balance remained below 4 per cent of GDP (See Col. IV of Table 27.8) due to the equally subdued growth in imports during this period. During the four-year period, 2004-05 to 2007-08, India’s imports grew at a much higher rate due to robust industrial growth relative to growth in our exports and as a result deficit in our trade balance greatly increased; as a percentage of GDP it was 4.8 per cent in 2004-05, 6.8 per cent in 2006-07, and 7.8 per cent in 2007-08.
Due to global financial crisis and consequent economic slowdown in the US and European countries, the growth rate of our exports fell to 13.6 per cent in 2008-09, whereas imports grew at 26.7 per cent. As a result deficit in our trade balance rose to 12 per cent of GDP.
Bolstered by the measures taken by the government to help exports in the aftermath of the world recession of 2008 and also the low base effect, India’s export growth of 40.5 per cent in 2010-11 reached an all time high since Independence. Though it decelerated in 2011 -12 to 21.3 per cent, it was still above 20 per cent and higher than the compound annual growth rate (CAGR) of 20.3 per cent for the period 2004-05 to 2011-12.
After registering very high growth of 56.5 per cent in July 2011, export growth started decelerating with a sudden fall to single digits in November 2011 as a result of the emerging global situation and then to negative figures from March 2012. Export growth rate in 2012-13 was negative and equal to – 1.8%. For three months in 2012-13, exports declined YOY by double digits with the largest decline recorded in July 2012 at – 15.1 per cent.
Export growth in dollar terms was negative at-1.8 per cent in 2012-13, compared to 21.3 percent growth in 2011-12 (full year). In rupee India’s export growth has almost continuously been above world export growth in the 2000s decade and in 2011. One issue that has been a topic of debate is whether India’s export growth rate is dependent on world growth/trade or exchange rate. There is a strong correspondence between India’s export growth and world export growth.
COMMDITY-WISE AND DESTINATION-WISE EXPORTS (2011-12)
Commodity-wise exports data available upto March 2012, shows that the share of manufacturing sector in total merchandise exports declined marginally from 62.9% in 2010-11 to 61.3% in 2011-12. However, the respective share of petroleum products and primary products increased during the period (Table 2). Within exports of manufacturing sector, the share of engineering goods and textile & textile products declined while that of chemical and related products improved marginally.
Among the major sectors, growth in exports of manufacturing sector seems to have been affected significantly during 2011-12. Within manufacturing sector, growth in exports of engineering goods and textile products was lower as demand conditions in key markets like the US and Europe were sluggish. These two markets account for nearly 60% and 50% of total exports from engineering and textile sector. Within engineering sector, growth in exports of transport equipment, iron & steel, electronic goods and manufactures of metals was significantly hit while that of machinery and instruments moderated marginally. However, growth in exports of leather & manufactures and chemicals & related products witnessed higher growth during 2001-12 as compared with 2010-11.
Table 2: India’s Merchandise Trade
(US$ billion)
Item
2010-11
R
2011-12
P
2011-12
2012-13
April – March
April – June
1
2
3
4
Exports

Oil Exports

Non-Oil Exports

Imports

Oil imports

Non-oil imports

Non-oil gold imports

Trial Balance
Oil Trade Balance
Non-Oil Trade Balance
251.1
(40.5)
41.5
(47.1)
209.6
(39.2)
369.8
(28.2)
106.0
(21.6)
263.8
(31.1)
223.3
(29.3)
-118.7
-64.5
-54.2
304.6
(21.3)
55.6
(34.0)
249.0
(18.8)
489.4
(32.4)
154.9
(46.2)
334.5
(26.8)
278.3
(24.6)
-184.8
-99.3
-85.5
76.5
(36.4)
15.3
(76.2)
61.2
(29.1)
122.7
(36.3)
39.4
(52.5)
83.3
(29.7)
67.2
(18.9)
-46.2
-24.1
-22.1
75.2
-(1.7)
-

-

115.3
-(6.1)
41.6
(5.5)
73.7
-(11.6)
65.3
(-2.9)
-40.1
-
-
Table 3: India’s Exports of Principal Commodities
(Percentage Share)
Commodity Group
2010-11
2011-12
April – March
1
2
I. Primary Products
Agriculture and Allied Products.
Ores and Minerals
II. Manufactured Goods
Leather and Manufactures
Chemicals and Related Products
Engineering Goods
Textiles and Textile Products
Gems and Jewellery
III. Petroleum Products
IV. Others
Total Exports
13.1
9.6
3.4
62.9
1.6
11.5
23.1
9.6
16.1
16.5
7.5
100
15.0
12.3
2.7
61.3
1.6
12.2
22.0
9.2
15.4
18.3
5.4
100
An analysis of the shift in the composition of India’s commodity exports reveals some interesting facts. Before the reforms, India’s exports were significantly driven by exports of primary agricultural commodities and a few manufacturing commodities such as textiles, and gems and jewellery; whole the commodity composition at the global level was shifting to technology-intensive manufacturing commodities such as engineering goods and chemicals. The reforms and favourable trade policy brought a shift in the composition of India’s commodity exports. Technology-intensive exports comprising engineering goods such as metals, machinery and transport equipment, and chemicals, including pharmaceuticals emerged as the leading export sector for the country, signifying rising prominence of exports in India’s GDP growth. Besides a shift towards technology-intensive exports, exports of petroleum products (which showed spectacular growth) emerged as a major contributor to total exports, reflecting the impact of India becoming the sixth largest refinery in the world.
India’s Foreign trade in global context
Most countries have managed the political process of keeping protectionism at bay despite growing unemployment and shrinkage of employment opportunities. Over the past few years, the number of restriction on international trade has dropped sharply. Member countries of the WTO have resorted to emergency measures to block imports on fewer occasions. Such measures included anti-dumping levies, recourse to special safeguards mechanism, and imposition of countervailing duties. However, cities of the report contend that protectionism exists but in less traditional forms. For instance, the bailout of financial institutions and car companies, and “Buy American” procurement rules in the US are cited as examples of protectionism. The failure to move ahead with the Doha round of trade talks is perhaps the most relevant example of lack of commitment among industrialized countries to free trade.
India and other select countries (2000-09)

Value
(US$ billion 2008
Growth rate %
Share in world
Exports (%)
Change in
Share (%)
CAGR
Annual
2000-06
2007
2008
2009
(Jan-Jun)
2000
2007
2008
2009
(Jan-Jun)
2008/2000
China
Hong Kong
Malaysia
Indonesia
Thailand
Singapore
India
Brazil
Mexico
Russia
Korea
Emerging &
Developing Economies
1429
363
210
148
173
338
177
198
292
472
422

6218
25.4
7.8
8.5
7.9
11.3
12.0
19.1
16.5
7.1
19.3
11.2

17.3
25.6
8.7
9.6
14.7
17.0
10.1
21.4
16.6
8.6
16.6
14.1

15.2
17.3
5.3
19.1
24.4
12.9
13.0
20.4
23.2
7.3
33.1
13.6

25.7
-21.7
-16.7
-31.2
-28.3
-23.4
-31.7
-18.4
-22.8
-30.3
-46.8
-22.7

-27.6
3.9
3.2
1.5
1.0
1.1
2.2
0.7
0.9
2.6
1.7
2.7

25.9
8.8
2.5
1.3
0.9
1.1
2.2
1.1
1.2
2.0
2.6
2.7

35.9
8.9
2.3
1.3
0.9
1.1
2.1
1.1
1.2
1.8
2.9
2.6

38.9
9.1
2.5
1.2
0.9
1.2
2.1
1.2
1.2
1.8
2.2
2.9

38.4
5.0
-0.9
-0.2
-0.1
0.0
-0.1
0.4
0.4
-0.8
1.3
-0.1

12.9
World
16001
11.2
14.1
16.2
-29.5
100
100
100
100
-

Recent Trends and Developments in India’s Foreign Trade
I. Trade in Merchandise
EXPORTS (including re-exports)
In consonance with the revival exhibited by exports in the last four months, during January,2017 exports continue to show a positive growth of 4.32 per cent in dollar terms (valued at US$ 22115.03 million) and 5.61 per cent in Rupee terms (valued at Rs. 150559.98 crore) as compared to US$ 21199.02 million (Rs. 142568.31 crore) during January,2016.
Cumulative value of exports for the period April-January 2016-17 was US$ 220922.78 million (Rs. 1484473.55 crore) as against US$ 218532.64 million (Rs. 1420572.68 crore) registering a positive growth of 1.09 per cent in Dollar terms and positive growth of 4.50 per cent in Rupee terms over the same period last year.
Non-petroleum exports in January 2017 were valued at US$ 19422.86 million against US$ 19111.38 million in January 2016, an increase of 1.6 %. Non-petroleum exports during April - January 2016-17 were valued at US$ 196254.10 million as compared to US$ 192071.50 million for the corresponding period in 2016, an increase of 2.2%.
The growth in exports is positive for USA (2.63%),EU(5.47%) and Japan(13.43%) but China has exhibited negative growth of (-1.51%) for November 2016 over the corresponding period of previous year as per latest WTO statistics.
IMPORTS
Imports during January 2017 were valued at US$ 31955.94 million (Rs. 217557.32 crore) which was 10.70 per cent higher in Dollar terms and 12.07 per cent higher in Rupee terms over the level of imports valued at US$ 28866.53 million (Rs. 194134.02 crore) in January, 2016. Cumulative value of imports for the period April-January 2016-17 was US$ 307311.86 million (Rs. 2065656.42 crore) as against US$ 326277.38 million (Rs. 2120158.57 crore) registering a negative growth of 5.81 per cent in Dollar terms and 2.57 per cent in Rupee terms over the same period last year.
CRUDE OIL AND NON-OIL IMPORTS:
Oil imports during January, 2017 were valued at US$ 8140.83 million which was 61.07 percent higher than oil imports valued at US$ 5054.29 million in January 2016. Oil imports during April-January, 2016-17 were valued at US$ 69062.66 million which was 5.81 per cent lower than the oil imports of US$ 73321.66 million in the corresponding period last year.
Non-oil imports during January, 2017 were estimated at US$ 23815.11 million which was 0.01 per cent higher than non-oil imports of US$ 23812.24 million in January, 2016. Non-oil imports during April-January 2016-17 were valued at US$ 238249.20 million which was 5.81 per cent lower than the level of such imports valued at US$ 252955.72 million in April-January, 2015-16. 
II. TRADE IN SERVICES (for December, 2016, as per the RBI Press Release dated 15th February 2017)
EXPORTS (Receipts): Exports during December 2016 were valued at US$ 13804 Million (Rs. 93729.71 Crore) registering a positive growth of 3.49 per cent in dollar terms as compared to positive growth of 1.72 per cent during November 2016 (as per RBI’s Press Release for the respective months).
IMPORTS (Payments): Imports during December 2016 were valued at US$ 8294 Million (Rs. 56316.59 Crore) registering a negative growth of 0.35 per cent in dollar terms as compared to positive growth of 8.37 per cent during November 2016 (as per RBI’s Press Release for the respective months).
III.TRADE BALANCE
MERCHANDISE: The trade deficit for April-January, 2016-17 was estimated at US$ 86389.08 million which was 19.82% lower than the deficit of US$ 107744.74 million during April-January, 2015-16.
SERVICES: As per RBI’s Press Release dated 15th February 2017, the trade balance in Services (i.e. net export of Services) for December, 2016 was estimated at US$ 5510 million. The net export of services for April- December, 2016-17 was estimated at US$ 48316 million which is lower than net export of services of US$ 53557 million during April- December, 2015-16. (The data for April-December 2015-16 and 2016-17 has been derived by adding April-December month wise QE data of RBI Press Release).

OVERALL TRADE BALANCE: Overall the trade balance has improved. Taking merchandise and services together, overall trade deficit for April- January 2016-17 is estimated at US$ 38073.08 million which is 29.7 percent lower in Dollar terms than the level of US$ 54187.74 million during April-January 2015-16. (Services data pertains to April-December 2016-17 as December 2016 is the latest data available as per RBI’s Press Release dated 15th February 2017)

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