Trade Agreements in India - A study on India s Export and Import to the World Countries

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1 Trade Agreements in India - A study on India s Export and Import to the World Countries *, Ph.D, MBA Lucknow University, Lucknow, Associate Professor Rameshwaram Institute of Technology and Management ABSTRACT: Trade is a Foreign Trade Policy of India has always been made to focus on substantially increase the country's global merchandise trade. According to Government of India which has been taking various steps towards boosting its export import with the rest of the world by adopting policies and procedures which would help to increase and facilitate both India and the other countries of the world. India has trade agreements with various countries of the world with the objective of boosting its export and import trade. World trade has grown rapidly over the last three decades Trade is an important factor contributing to the growing economy like India which has been periodically successful multitrade negotiations which leads to a considerable reduction in tariffs on goods exporting to other countries. According to the Ministry of Commerce and Industry, the fifteen largest trading partners of India represent 59.37% of total trade by India in the financial year These figures include trade in goods and commodities, but do not include services or foreign direct investment. Trade in services (for March, 2017, as per the RBI Press Release dated 15th May, 2017), Exports (Receipts), Exports during March 2017 were valued at US$ Million (Rs Cr.) registering a positive growth of 8.57 per cent in dollar terms as compared to negative growth of 3.76 per cent during February 2017 (as per RBI s Press Release for the respective months). Imports (Payments),Imports during March 2017 were valued at US$ 8267 Million (Rs Cr.) registering a positive growth of 14.26per cent in dollar terms as compared to negative growth of 13.96per cent during February2017 (as per RBI s Press Release for the respective months). KEYWORDS: Foreign trade agreement (FTA), Trade policy of India, Tradingpartners of India, Most favoured nation (MFN), Export Import etc. OBJECTIVES: To Study the trend and growth of Foreign trade in India To analyse the foreign market share of Export and Import in India To study the impact of most favoured nation and word trade on Indian economy INTRODUCTION: India, a South Asian nation, is the seventh-largest country by area, the second-most populous country with over 1.33 billion people, and the most populous democracy in the world. India boasts of an immensely rich cultural heritage including numerous languages, traditions and people. The country holds its uniqueness in its diversity and hence has adapted itself to international changes with poise and comfort. While the economy has welcomed international companies to invest in it with open arms since liberalisation in 1990s, Indians have been prudent and pro-active in adopting global approach and skills. Indian villagers proudly take up farming, advanced agriculture and unique handicrafts as their profession on one hand while modern industries and professional services sectors are coming up in a big way on the other. Thus, the country is attracting many global majors for strategic investments owing to the presence of vast range of industries, investment avenues and a supportive government. Huge population, mostly comprising the youth, is a strong driver for demand and an ample source of manpower. The two largest goods traded by India are Mineral fuels (refined / unrefined) and gold (finished gold ware / gold metal). In the year , mineral fuels (HS code 27) are the largest traded item with billion US$ worth imports and billion US$ worth re-exports after refining. In the year , gold and its finished items (HS code 71) are the second largest traded item with billion US$ worth imports and billion US$ worth re-exports 54

2 after value addition. These two goods are constituting 53% total imports, 34% total exports and nearly 100% of total trade deficit (136 billion US$) of India in the financial year The services trade (exports and imports) are not part of commodities trade. The trade surplus in services trade is US$ 73 billion in the year FOREIGN TRADE AGREEMENT- FTA FTA is the leading business association of global commerce that promotes the values of international trade and sustainable supply chains. FTA represents retailers, importers and brands to promote and defend international trade and supports their business by providing information and practical solutions towards sustainability in the global supply chain. Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and to increase trade of goods and services with each other. United States has changed its policy by imposing high import duties. Import duty 45% United States imposing on products from China will reduce the trade deficit. But one might wonder why nothing tangible has been done on the import duty issue so far.usa has already surrendered its flexibility to increase import duty at the WTO. Any further increase in duty now will go against WTO commitments. There is bound duty, crossing which would violate WTO commitments. Binding coverage is the number of products on which a country notifies bound duties. The more products under binding coverage, the less flexibility there is on increasing duty. India has bound only 75% of tariff lines for remaining it can raise tariffs to any level without violating WTO commitments. In the WTO, when countries agreed to open their markets for goods or services, they bind their commitments, these bindings amount to ceilings on customs tariff rates on goods. In developing countries sometimes tax imports at rates that are lower than the bound rates. In developed countries the rates actually charged and the bound rates tend to be the same. A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. United States has always blames China, Mexico, and South Korea for its trade deficit and loss of jobs. The USA consumers depend on China for the supply of most daily use products. Most Chinese goods will be cheaper even after the imposition of 45% tariffs because of high American wages. Duty increase will not lead to local manufacturing. Till last year, it looked almost certain that the three mega free trade agreements (FTAs) under negotiation would gradually morph into WTO-like institutions. With the US withdrawal under Trump two of these, the Transpacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) are already dead. Regional Comprehensive Economic Partnership (RCEP) remains the only remaining mega FTA under negotiation. So today India can increase import duty on a product without violating WTO commitments, but China or Japan cannot. Signing of an FTA will take away our flexibility to raise duties on imports from these countries. This is because the import duties once reduced under an FTA cannot be increased, even if they are below the bound rates. In most developing countries, this may be the time to rejoice.according to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April 2016-March 2017 rose 8 per cent year-on-year to US$ billion, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results. TRADE POLICY OF INDIA: India s trade policy has been undergoing rapid and drastic changes since Some of these changes are the result of economic reforms initiated by the Government while some others are also influenced by the requirements of the World Bank and the IMF from whom India has received structural adjustment loans. The most important element of the new policy is the increasing use of exchange rate. Rupee was adjusted downwards by 18 per cent in July 1991 to make the rupee s external value more realistic. Simultaneously, the system of cash compensatory support which has so far been the most important instrument of export promotion was abolished. These steps were supposed to improve export incentives and make them uniform. Few months later, in March, 1992, Rupee was made partly convertible, under a system known as Liberalised exchange Rate Management System (LERMS). In March 1993, the rupee was made fully convertible on trade account. 55

3 The Government of India outlined the policy framework for a broad-based, rapid and sustained growth of exports in the next four years. 1. Reduction in domestic excess demand: The balance of payments deficit represents the excess of domestic demand for goods and services over domestic supply. In order to correct it domestic demand will have to be restrained and supply increased. It will be necessary to restrain the degree of excess spending by the Government to correct the balance of payments. At the same time, it will be necessary to ensure that any reduction in aggregate demand is brought about without hurting production and that it is shared demand is brought about without hurting production and that it is shared equitably by different sections of the population. 2. Enhanced Competitiveness: By mid-1991, domestic prices had become seriously misaligned with international prices. This required two changes. A change in the exchange rate of the Rupee was made by means of a downward adjustment of about 18 per cent in the external value of the Rupee in July The second step would require a phasing down of import restrictions and a reduction in this high levels of protection which characterize Indian industries. Progress in this regard is at present constrained by the grave balances of payments position as well as by the importance of import duties as a source of government revenue; however, it will be necessary to bring down trade restrictions as payments and fiscal conditions permit. 3. Deregulation: One of the obstacles to exports lies in the cumbersome administrative procedures involved, arising from controls over imports (and on inputs required for exports) and exports, exchange control and also customs procedures. Simplification of trade-related produces must continue; the aim should be to make international trade as easy as domestic trade in respect of procedures. 4. Capability for self-improvement: World markets are more competitive than some hitherto sheltered domestic markets. If agricultural and industrial products are to compete internationally, their producers will have to improve their own competitive position continuously through technological and managerial improvements and adapt themselves rapidly to changes in international market conditions. This capacity for unceasing adaptation and innovation would need to be developed. LARGEST TRADING PARTNERS OF INDIA: Foreign direct investment (FDI) inflows into India in 2016 calendar year jumped 18% to a record $46.4 billion, at a time global FDI inflows fell. Data released by the Department of Industrial Policy and Promotion (DIPP) showed FDI inflows in 2016 were strongest in October with $6.2 billion inflows followed by $5.1 billion in September. Global flows of FDI fell 13% in 2016 to an estimated $1.52 trillion as global economic growth remained weak and world trade volumes posted anemic gains, according to the latest UNCTAD Global Investment Trends Monitor. FDI recovery continues along a bumpy road. Particularly of concern is the sharp drop-off in manufacturing investment projects, which play such an important role in generating badly needed productivity improvements in developing economies, UNCTAD secretary-general MukhisaKituyi said in a statement on 1 February. UNCTAD said FDI inflows into India fell 5% to $42 billion in 2016, yet India stood as the 10th most attractive destination in the world for FDIs. In comparison, China and Brazil received $139 billion and $50 billion FDI inflows respectively during The US remained the top source of FDI inflows in 2016 at $385 billion. Looking ahead, economic fundamentals point to a potential increase in FDI flows by around 10% in 2017, Dr.Kituyi said. However, significant uncertainties about the shape of future economic policy developments could hamper FDI in the short-term. The Economic Times first reported that India s FDI in April-December period rose 22% to $35.8 billion from the same period a year ago, quoting official DIPP data. Mauritius remained India s top source of FDI inflows at $12.8 billion followed by Singapore at $7.1 billion during April-December period. Services sector continued to attract highest investment of $7.5 billion followed by telecommunications sector which attracted $5.5 billion inflows during the first nine months of the financial year The two largest goods traded by India are Mineral fuels (refined / unrefined) and gold (finished gold ware / gold metal). In the year , mineral fuels (HS code 27) are the largest traded item with billion US$ worth imports and billion US$ worth re- 56

4 exports after refining. In the year , gold and its finished items (HS code 71) are the second largest traded item with billion US$ worth imports and billion US$ worth re-exports after value addition. These two goods are constituting 53% total imports, 34% total exports and nearly 100% of total trade deficit (136 billion US$) of India in the financial year [2] The services trade (exports and imports) are not part of commodities trade. The trade surplus in services trade is US$ 73 billion in the year Mauritius remained India s top source of FDI inflows at $12.8 billion followed by Singapore at $7.1 billion during April-December period. Services sector continued to attract highest investment of $7.5 billion followed by telecommunications sector which attracted $5.5 billion inflows during the first nine months of the financial year INDIA S EXPORT COUNTRY WISE Values in US$ Million Sorted on year , India's Total Export in 2016 is 2,62, and in 2017 is 2,76, [SOURCE:MINISTRY OF COMMERCE ] S.No. Country %Share %Share %Growth 1 U S A 40, , U ARAB EMTS 30, , HONG KONG 12, , CHINA P RP 9, , U K 8, , SINGAPORE 7, , GERMANY 7, , SAUDI ARAB 6, , BANGLADESH 6, , SRI LANKA DSR 5, , VIETNAM SOC 5, , BELGIUM 5, , NETHERLAND 4, , JAPAN 4, , FRANCE 4, , ITALY 4, , TURKEY 4, , NEPAL 3, , MALAYSIA 3, , SOUTH AFRICA 3, , KOREA RP 3, , AUSTRALIA 3, , SPAIN 3, , KENYA 3, , THAILAND 2, , MEXICO 2, , ISRAEL 2, ,

5 28 INDONESIA 2, , IRAN 2, , BRAZIL 2, , UNSPECIFIED 2, , EGYPT A RP 2, , NIGERIA 2, , OMAN 2, , PAKISTAN IR 2, , CANADA 2, , TANZANIA REP 1, , RUSSIA 1, , TAIWAN 1, , PHILIPPINES 1, , KUWAIT 1, , MOZAMBIQUE 1, , GIBRALTAR 1, , MYANMAR 1, , POLAND 1, , IRAQ 1, , INDIA S IMPORT COUNTRY WISE Values in US$ Million Sorted on year ,India's Total Import in 2016 is and in 2017 is [SOURCE:MINISTRY OF COMMERCE] S.No. Country %Share %Share %Growth 1 CHINA P RP 61, , U S A 21, , SAUDI ARAB 20, , U ARAB EMTS 19, , SWITZERLAND 19, , INDONESIA 13, , KOREA RP 13, , GERMANY 12, , IRAQ 10, , NIGERIA 9, , JAPAN 9, , MALAYSIA 9, , QATAR 9, , AUSTRALIA 8, , UNSPECIFIED 8, ,

6 16 BELGIUM 8, , SINGAPORE 7, , IRAN 6, , HONG KONG 6, , S. AFRICA 5, , VENEZUELA 5, , THAILAND 5, , U K 5, , KUWAIT 4, , RUSSIA 4, , CANADA 4, , ITALY 4, , BRAZIL 4, , FRANCE 3, , TAIWAN 3, , GHANA 2, , ANGOLA 2, , VIETNAM SOC 2, , ARGENTINA 2, , MEXICO 2, , ISRAEL 2, , CHILE 1, , NETHERLAND 1, , UKRAINE 1, , OMAN 1, , SPAIN 1, , SWEDEN 1, , EGYPT A RP 1, , MOROCCO 1, FINLAND 1, , MOST FAVOURED NATION: MFN The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system.a country should not discriminate between its trading partners at the time of giving them equally most-favoured-nation or MFN status and it should not discriminate between its own and foreign products, services or nationals freer barriers coming down through negotiation; predictable foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are bound in the WTO; more competitive discouraging unfair practices such as export subsidies and 59

7 dumping products at below cost to gain market share; more beneficial for less developed countries giving them more time to adjust, greater flexibility, and special privileges. It suggests special treatment, but in the WTO it actually means non-discrimination treating virtually everyone equally. This is what happens. Each member treats all the other members equally as most-favoured trading partners. If a country improves the benefits that it gives to one trading partner, it has to give the same best treatment to all the other WTO members so that they all remain most-favoured.most-favoured nation (MFN) status did not always mean equal treatment. The first bilateral MFN treaties set up exclusive clubs among a country s most-favoured trading partners. Under GATT and now the WTO, the MFN club is no longer exclusive. The MFN principle ensures that each country treats its over 140 fellow-members equally. INDIA S FOREIGN TRADE in 2017 MERCHANDISE TRADE EXPORTS (including re-exports) In continuation with the double digit growth exhibited by exports during March 2017, exports during April 2017have shown growth of per cent in dollar terms valued at US$ million as compared to US$ million during April,2016. In Rupee terms, duringapril 2017 exports were valued at Rs crore as compared to Rs crore during April,2016, registering a positive growth of per cent. Non-petroleum and Non Gems & Jewellery exports in April 2017 were valued at US$ million against US$ million in April 2016, an increase of %. The growth in exports is positive for all major economies, USA (4.74%), EU (0.16%),Japan (13.30%) except for China ( -1.56%)for February 2017 over the corresponding period of previous year as per latest WTO statistics. IMPORTS Imports during April 2017 were valued at US$ million (Rs crore) which was per cent higher in Dollar terms and per cent higher in Rupee terms over the level of imports valued at US$ million (Rs crore) in April, CRUDE OIL AND NON-OIL IMPORTS: Oil imports during April, 2017 were valued at US$ million which was percent higher than oil imports valued at US$ million in April In this connection it is mentioned that the global Brent prices ($/bbl) have increased by 25.40% in April 2017 vis-à-vis April 2016 as per World Bank commodity price data (The pink sheet). Non-oil imports during April, 2017 were estimated at US$ million which was per cent higher than non-oil imports of US$ million in April, TRADE IN SERVICES (for March, 2017, as per the RBI Press Release dated 15th May, 2017) EXPORTS (Receipts) Exports during March 2017 were valued at US$ Million (Rs Crore) registering a positive growth of 8.57 per cent in dollar terms as compared to negative growth of 3.76 per cent during February 2017 (as per RBI s Press Release for the respective months). IMPORTS (Payments) Imports during March 2017 were valued at US$ 8267 Million (Rs Crore) registering a positive growth of 14.26per cent in dollar terms as compared to negative growth of 13.96per cent during February2017 (as per RBI s Press Release for the respective months). TRADE BALANCE MERCHANDISE: The trade deficit for April 2017 was estimated at US$ million which was % higher than the deficit of US$ million during April

8 SERVICES: As per RBI s Press Release dated 15th May2017, the trade balance in Services (i.e. net export of Services) for March, 2017 was estimated at US$ 5912 million. The net export of services for April- March, was estimated at US$ million which is lower than net export of services of US$ 69419million during April- March, (The data for April-March and has been derived by adding April-March 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- March is estimated at US$ million which is percent lower in Dollar terms than the level of US$ million during April-March MERCHANDISE TRADE EXPORTS & IMPORTS : (US $ Million) (PROVISIONAL) APRIL EXPORTS(including re-exports) %Growth / IMPORTS %Growth / TRADE BALANCE EXPORTS &IMPORTS : (Rs. Crore) (PROVISIONAL) APRIL EXPORTS(including re-exports) %Growth / IMPORTS %Growth / TRADE BALANCE [SOURCE: MINISTRY OF COMMERCE, PRESS INFORMATION BUREAU] 61

9 SERVICES TRADE EXPORTS & IMPORTS (SERVICES) : (US $ Million) (Provisional) March 2017 EXPORTS (Receipts) IMPORTS (Payments) 8267 TRADE BALANCE 5912 EXPORTS & IMPORTS (SERVICES): (Rs. Crore) (Provisional) March 2017 EXPORTS (Receipts) IMPORTS (Payments) TRADE BALANCE Source: RBI Press Release dated 15 th May,2017 CONCLUSION: India has been assuming a new role within the Asian and the global economy since the liberalization plan in 1991 of Dr.Manmohan Singh. The international community has become increasingly interested in developing awareness in this complex Indian culture. India is currently one of the main receptors of foreign direct investment in Asia. In the second half of the 20th century, the world economy entered an unprecedented period of rapid growth together with rapid advances in science and technology. Countries and regions have formed ever- closer trade and economic relations, and their economic interests are more and more intertwined. Big nations are engaged in competition in comprehensive national strength, with the economy as the basis and science and technology as the lead, and they all give priority to invigorating the economy and striving for a most advantageous position in the world economy. With rapid economic growth, India s market has kept expanding, and its contribution to the world s economic growth is on the rise. There should be set up to identify and address various Non-Tariff Trade barriers existing in bilateral trade. The important issue is the the non-tariff trade barriers and then their removal in time. There must be technology driven standards for all trade. There should be a clear definition of free trade Rules which should ensure that their rules of origin are transparent and are defined such that they do not have any biased restricting, distorting, or disruptive effects on bilateral In world trade direct shipping routes must be increased. and also of transportation expansion of air cargo facilities between the two countries need to be improved. Direct banking links and bilateral confirmation of Exim banks of India and China and other issues of co-operation in this field should be strengthened. Mauritius remained India s top source of FDI inflows at $12.8 billion followed by Singapore at $7.1 billion during April-December period. Services sector continued to attract highest investment of $7.5 billion followed by telecommunications sector which attracted $5.5 billion inflows during the first nine months of the financial year Overall the trade balance has improved. Taking merchandise and services together, overall trade deficit for April- March is estimated at US$ million which is percent lower in Dollar terms than the level of US$ million during April-March REFRENCES: Indian web directory list- govt, industry & states ministry Ministries &Departments,States,Regulatory Authorities, Associations and Councils Government of India Directory,IndianMissions,State Investment Promotion Agencies Export Promotion Councils 62

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