1. What are the major items und er curre nt accou nt in the balance of payme nt and explain India’s position with reasons for deficit? Balance of Payments is a systematic and summary record of a country’s economic and financial transactions with the rest of the world over a period oftime. Ie It is the difference between the money coming into a country and the money leaving the same country. It is determined by the exports and imports ofgoods, services, and financial capital , as well as financial transfers. o It reflects all payments and liabilities to foreigners ( debits) and all payments and obligations received from foreigners ( credits ). o It is an important index, which reflects the true economic position of a country, whether the country is a creditor country or a debtorcountry, and whether its currency is rising or falling in its external value. The balance of payments comprises the current account and the capital account (or the financial account). The current account - goods and services account, the primary income account and the secondary income account. The capital account - smaller than the other two and consists primarily of debt forgiveness and assets from migrants coming to or leaving the country. The financial account - asset inflows and outflows, such as international purchases of stocks, bonds and real estate. o Current Account = Capital Account + Financial Account + Statistical Discrepancy “The Current Account includes all transactions which give rise to or use up national income.” Balance of Payments of India Current Account Rupees in Crores Credits Debits Net I. Merchandise (i) Private (ii) Government II. Non-monetary Gold Movements III. Invisibles (i) Travel (ii) Transportation (iii) Insurance (iv) Investment Income
1. What are the major items under current account in the balance of paymentand explain India’s position with reasons for deficit?
Balance of Payments is a systematic and summary record of a country’seconomic and financial transactions with the rest of the world over a period of time. Ie It is the difference between the money coming into a country and themoney leaving the same country.
It is determined by the exports and imports of goods, services,and financial capital, as well as financial transfers.
o It reflects all payments and liabilities to foreigners (debits) and all
payments and obligations received from foreigners (credits).
o It is an important index, which reflects the true economic position
of a country, whether the country is a creditor country or a debtor country, and whether its currency is rising or falling in its externalvalue.
The balance of payments comprises the current account and the capital
account (or the financial account).
The current account - goods and services account, the primary incomeaccount and the secondary income account.
The capital account - smaller than the other two and consists primarily
of debt forgiveness and assets from migrants coming to or leaving thecountry.
The financial account - asset inflows and outflows, such as international purchases of stocks, bonds and real estate.
o Current Account = Capital Account + Financial Account +
Statistical Discrepancy
“The Current Account includes all transactions which give rise to or useup national income.”Balance of Payments of India
Current Account Rupees in CroresCredits Debits NetI. Merchandise(i) Private(ii) GovernmentII. Non-monetary Gold MovementsIII. Invisibles(i) Travel(ii) Transportation
(v) Govt. not included elsewhere(vi) Miscellaneous(vii) Transfer Payments(a) Official
(b) PrivateThe current account consists of visible exports and imports. The visibleexports and imports are those, which are actually recorded at the ports.
BOP DEFICIT : Latest trade statistics by Directorate General of Commercial Intelligence and Statistics
the deficit in India’s merchandise trade stood at $17431.2 million ascompared with $9728.5 during the corresponding period of the previousyear.
The trade deficit has increased to $2.7 billion from $2.3 billion in thequarter as merchandise exports and imports being at $14.6 billion and$17.3 billion (on the payment basis) as compared to $12.3 billion and$14.6 billion in the corresponding period in the previous year
Reasons for deficit:
The sharp increase in the international prices of oil,close to 37 per cent,with the non-oil imports also rising by a similar 37 per cent.Widening of the merchandise trade defecit.
India’s relatively strong current account position is weakening rapidly
because a greater share of the net capital flows that India attracts in the form of debt and foreign direct and portfolio investment would now beneeded to finance the current account deficit. That, however, is clearlynot happening. Though FII investments drive the current stock market boom & foreign debt and direct investment inflows are indeed creatingnew capacities, they are not generating export revenues to finance therising non-oil and oil import bill.
2. What are the various measures to correct the disequilibrium in balance of payments?
Absorption : A nation’s total expenditures on final goods and
services. Governments have incentives to fiddle with absorption by:
changing the volume of the government expenditures
limiting the absorption of the economy through taxes.
3. How will you advice a GPB (Global Power Brand) MNC in approaching anemerging market and the Japanese market to adopt specific strategies?
Statistics over the years have shown that emerging markets in Asia, LatinAmerica and Eastern Europe are delivering some of the strongest revenue and
profit growth with much of the growth coming from the “BRICET” nations — Brazil, Russia, India, China, Eastern Europe and Turkey. Statistics of marketleaders like Coca-Cola, Unilever, Colgate-Palmolive & PepsiCo show thatabout 5% to 15% of their total revenues come from the three largest emergingmarkets in Asia: China, India and Indonesia. The story is similar in Russia and
Eastern Europe.
As such, these statistics also show that majority of the Co’s fail due to improper research of the country they plan to enter in.
Therefore, while approaching an emerging market, a GPB will have to adoptthese specific strategies;
1. Identify trends in purchasing products and services, for instance: travel
behavior and trends in business and leisure, purchasing power, brandloyalty2. How to develop brands in specific markets, consumer insights.-
consumer tracking studies – identify attributes consumers use to buy products.
3. Understand where we stand, ie , the opportunities and the threats to your Co.
4. Understanding the political status and influence in the target country.5. Media habits and usage – how to effectively target consumers.6. Manpower is a problem, as awareness is an issue & therefore good public
relations & local marketing efforts must be strong to establish the brand.
7. The principles, though mostly transferable must be tweaked a littleaccording to the local culture, with strong emphasis on language andcultural awareness for effective communication and conducting businesssensitively.
8. Efforts must be made to understand local courtesies, culture & behaviours while doing business.
9. Loyalty programs carry a lot of weightage. Therefore, while launchinginto new and emerging markets, good strategic partners have to be madeto build good brand associations for acquiring customers.
10. Plan the costs according to the above researches done and plan onrevenue- prices, brand and product positioning… - use people who arevery familiar with the market.
Strategies to be followed while entering the Japanese Market:
Starting business in Japan is not difficult and neither expensive, if you have aunique and good quality product or service. But, the trick is in understandingthe Japanese business and the mentality of Japanese businesspeople well enoughto be able to control your costs.
Some of the strategies to be followed are;
1. To be properly prepared and thinking as a team from frontline sales-
marketing to Board director. A properly prepared entry into the Japanesemarket will generate substantial levels of revenue, profit and all theglories that go with them.
2. Able to deliver committed products and services on time. That meanshaving enough well-founded confidence in your ability and your team'sability that you can make commitments to a Japanese customer or partner and guarantee being able to deliver on those commitments on the
promised dates.3. Contact Japan's government funded Japan External Trade Organization
for free initial Japanese office space in central Tokyo for upto 3 months.4. Prepare a proper budget – all costs included, including those of transfer
employees accommodation.5. Understand the Japanese market and decide on the most tax efficient
means to enter the market. Unless you are in a market with hugeuntapped demand and no competitor in the Japanese market, it is far easier and economically far more sensible to make a relatively low profileand profitable entry into Japan business and then aggressively build to asubstantial and cost-controlled presence over a 3 - 5 year periodmaintaining profitability and steadily climbing market-share as you
6. During the first 3 months, the Co must network, decide the Japanesemarket entry form (agent, distributor, direct sales etc.) ,negotiate
partnerships and hire key staff,educate and integrate the Japanese partnersand key staff into your corporate culture (of course a never ending
activity).7. 80% of Japan’s influential persons and customers prefer to deal directly
with the source Co. Therefore, despite of having a home distributor,contact and understand the customer behaviour . Listening carefully totheir descriptions about competitors product and salespersons will giveinsights into targeting an influential distributor.
8. Evaluate previous decisions about your product value, based on abovedata.
9. Decide on the distribution network and create powerful strategic alliances
with home companies.10. They will help the Company in bypassing the Red tapes and Bureaucracyvery easily.
4. What is technology? Explain the role of technological changes in GlobalBusiness?
Effects of Technological Developments on Globalization Process: Technological developments are conceived as the main facilitator and driving
force of most of the globalization processes. Technology can be defined as the socialized knowledge of producing goods andservices. The term technology with five important elements: production,knowledge, instruments, possession and change.
globalization is the trend toward a more integrated global
economic system. Globalization has two faces:Globalization of markets
Globalization of production
Both of which have been increasing at a rapid pace in the past few years.
Two key factors seem to underlie the trend towards the increasing
globalization of markets and production:
The decline of barriers to trade and investment and
Technological change
The role of technological change:While lowering trade barriers has made the globalization of markets and
production a possibility, technological changes have made it a reality.
Improved information processing and communication allows firms to have better
information about distant markets and coordinate activities worldwide. Theexplosive growth of the World Wide Web and the Internet provide a means totherapid communication of information and the ability of firms and individuals tofind out about what is going on worldwide for a fraction of the cost.
Microprocessor and telecommunications: The single most importantinnovation has been the development of the microprocessor, which has enabledthe
explosive growth of high power, low cost computing, increasing the amount of information that can be processed by individuals and firms. Over the past 30years, global communications have been revolutionized by the developments insatellites, optical fiber, and wireless technology, and internet and World WideWeb. The Internet and World Wide Web: It has more than 150 million users of theInternet. Real time video conferencing and commercial transactions can betransmitted throughWWW.This reduces the costs of global communications and has created a trulyglobal electronic market place of all kinds of goods and services, which has
made it easier for firms of all sizes to enter the global marketplace.
Transportation technology: Improvements in transportation technology,including jet transport, temperature controlled containerized shipping, andcoordinated ship-rail-truck systems have made firms better able to respond tointernational customer demands.
As a consequence of these trends, a manager in today’s firm operates in anenvironment that offers more opportunities, but is also more complex and
competitive than that faced a generation ago. People now work with individualsand companies from many countries, and while communications technology,with the universality of English as the language of business, has decreased theabsolute level of cultural difficulties individuals face, the frequency with whichthey face inter-cultural and international challenges has increased.
5. What is Turn-Key Project? What are its advantages and disadvantages?
In terms of a foreign market entry strategy, there are 6 different modes of entrythat a company can use; exporting, turnkey projects, licensing, franchising,
establishing joint ventures with a host-country firm, or setting up a whollyowned subsidiary in the host county. Each method of entry has their advantagesand disadvantages, and companies need to weigh the reasons carefully
A turnkey project is method for a foreign company was to export its process andtechnology to other countries by building a plant in that country. The companyhires a contractor in the desired country that they want to create an operation. Interms of technical scope the turnkey contractor is responsible for the design,construction and installation of a new plant and in some cases the maintenanceof the plant as well. It is called a turnkey project because at the completion of the contract, the foreign company gives the “key” to the project and it is readyfor operation.
Turnkey projects are most typical in companies that specialize in expensive,
complex production technologies, such as the “chemical, pharmaceutical, petroleum refining and metal refining industries”. While, there are advantagesfor these types of companies, there are also risks.
Advantages of turnkey projects :
Advantages:This is the best way of earning greater economic returns from that asset.Obtain returns from know-how about a complex process.
Government restrictions may limit other options therefore; this strategyis best in case where FDI is limited by government. (Middle Eastcountries and petroleum refining.)Lower risk if unstable economic/political situation in countryDisadvantages:The firm that enters into the turnkey deal will have no long-term interestin the foreign country. Less potential to profit from success of plant.Creating a competitor by transferring the technical know-how to aforeign firm.
Give away technological know-how to potential competitor
6. State the objectives of EEC (European Economic Committee). What are itsachievements? Do you agree that ASEAN is next to EEC?
The European Economic Community (EEC) also referred to simply asthe European Community, was an international organization that existed
between 1958 and 1993 which was created to bring about economicintegration ,including a single market, between Belgium, France, Germany,
Italy, Luxemborg and Netherlands. It was enlarged later to include sixadditional states and, from 1967, its institutions also governed the European
Coal and Steel Community (ECSC) and European Atomic EnergyCommunity (EAEC or Euratom) under the term European Communities. Whenthe European Union (EU) was created in 1993, the EEC was transformed intothe European Community, one of the EU's three pillars, with EEC institutions
continuing as those of the EU.In 1951, the Treaty of Paris was signed. This was an international community
based on supranationalism and international law, designed to help the economyof Europe and prevent future war by integrating its members. In the aim of creating a federal Europe, on 25 March 1957,the Treaty of Rome wassigned, establishing a European Economic Community.
Objectives of the EEC:
The establishment of the EEC and the creation of the Common Market had twoobjectives. The first was to transform the conditions of trade and manufactureon the territory of the Community. The second, was the contribution of the EECtowards the functional construction of a political Europe and constituted a steptowards the closer unification of Europe.
The other objectives are;
1. to ensure the economic and social progress of their countries by common
action to eliminate the barriers which divide Europe, affirming as theessential objective of their efforts the constant improvements of the livingand working conditions of their peoples.
2. Recognizing that the removal of existing obstacles calls for concertedaction in order to guarantee steady expansion, balanced trade and fair competition;
3. Anxious to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing betweenthe various regions and the backwardness of the less-favoured regions;
4. desiring to contribute, by means of a common commercial policy, to the progressive abolition of restrictions on international trade;
5. intending to confirm the solidarity which binds Europe and the overseascountries and desiring to ensure the development of their prosperity, inaccordance with the principles of the Charter of the United Nations.
6. resolved by thus pooling their resources to preserve and strengthen peaceand liberty, and calling upon the other peoples of Europe who share their ideal to join in their efforts...".
These intentions were fleshed out by creating a common market and a customsunion and by developing common policies.
The main aim of the EEC, as stated in its preamble, was to "preserve peace andliberty and to lay the foundations of an ever closer union among the peoples of Europe".
Calling for balanced economic growth, this was to be accomplished through 1)the establishment of a customs union with a common external tariff 2) common
policies for agriculture, transport and trade 3) enlargement of the EEC to therest of Europe. For the customs union, the treaty provided for a 10 % reductionin custom duties and up to 20 % of global import quotas. Progress on thecustoms union proceeded much faster than the twelve years planned, however France faced some setbacks due to their war with Algeria.
No, the ASEAN is not equal to that of the EEC. In February 1977, when the
Special Meeting of ASEAN Foreign Ministers in Manila proposed that ASEANestablish ties with the Council of Ministers of the EEC and the Committee of Permanent Representatives (COREPER) through which ASEAN could makerepresentations against the growing protectionism of the EEC countries.ASEANs relationship with the EEC was also formalized in that year The potential of ASEAN as a market and a gateway to the rest of the AsiaPacific was an important dimension, for the ASEAN-EU relationship to beformed.The links with the EEC were institutionalized on 7 March 1980 with the signing
of the EC-ASEAN Cooperation Agreement at the Second ASEAN-EECMinisterial Meeting in Kuala Lumpur. Under the Agreement, objectives for commercial, economic and technical cooperation were established and a JointCooperation Committee (JCC) was formed as a mechanism to monitor ASEAN-EEC cooperation. ASEAN-EU relations was further intensified in 1994.Giventhe current state of development and infrastructure development activities,ASEAN has also became a major market for the EUs capital goods andinvestments.The EU's foreign direct investment (FDI) in the region increased by 13.1% fromUS$35 billion in 1993 to US$ 39.5 billion in 1994.
7. Discuss the origin and function of IMF. What is SDR? Whether IMF hassolved the problem of International Liquidity?
The International Monetary Fund (IMF) is an international organization. 185countries are members of the International Monetary Fund. It has itsheadquarters in Washington, D.C., USA.
In the 1930s, many countries faced economic problems. Some of such problemswere falling standard of living and unemployment by large number of people.Trading between different countries also came down. Some countries reducedthe value of their currencies. All such factors combined and an economic
depression resulted.After the Second World War , many countries felt the needto have an organization to get help in monetary matters between countries. To
begin with, 29 countries discussed the matter, and signed an agreement. TheInternational Monetary Fund thus came into being on December 1945.
Any country may apply to become a member of the IMF. However, before joining, the country should fulfill legal requirements, if any, of its own country.Every member has a different voting right. Likewise, every country has adifferent right to draw funds. This depends on many factors, including themember country’s first subscription to the IMF.
Functions
The IMF does a number of supervisory works relating to financial dealings between different countries. Some of the works done by IMF are:
Helping in international trade, that is, business between countries
Looking after exchange rates
Looking after balance of payments
Helping member countries in economic development
SDR is an international type of monetary reserve currency, created by theInternationalMonetary Fund (IMF) in 1969, which operates as a supplement to the existingreserves of member countries. Created in response to concerns about thelimitations of gold anddollars as the sole means of settling international accounts, SDRs are designedto
augment international liquidity by supplementing the standard reservecurrencies.SDRs could be regarded as an artificial currency used by the IMF and definedas a"basket of national currencies". The IMF uses SDRs for internal accounting
purposes.SDRs are allocated by the IMF to its member countries and are backed by thefull faithand credit of the member countries' governments.
SDRs were mainly created so that the emerging economies didn’t face anyliquidity crunchIf we consider briefly the few years back international economic situation. Theinternational economy was in the midst of a recession and the rate of growth of
international trade declined. Faced with a recession, major industrial countriesadopted expansionary fiscal or monetary policies or both to try to stimulaterecovery. In contrast, when demand for the exports of developing and emergingmarket economies declined often with more than proportional effects on exportrevenues—these countries retrenched and couldn’t resort to expansionary
policies to avoid a financial crises. Moreover, recently the two main sources of international liquidity contracted, hindering recovery in these economies.Financial market flows for developing countries declined or dried up, causingcapital flows in many of these countries to turn negative. The other main source
of international liquidity, the U.S. deficit on the current account, also contractedsignificantly.When faced with a recession, the authorities in industrial countries generally tryto expand demand, often by expanding liquidity. The international communitycan also counter contractionary forces by expanding liquidity.
IMF’s focus on Expansion of International Liquidity by Allocating SDRs
In keeping with its purpose, the IMF could and perhaps should contribute tofinancial stability and the promotion of international trade by allocating SDRsto stimulate economic recovery during an international recession. Expansion of
international liquidity through the issue of SDRs requires an 85 percent majorityvote. In the past, some industrial countries have opposed even modestallocations of SDRs on the grounds that they would be inflationary. Today, inthe face of a widespread recession, a decline in the rate of growth of international liquidity, and the need to expand liquidity to support the expansionof international trade, it would be very difficult to make that argument. Therewould thus appear to be a strong case for supplementing the creation of liquidityand meeting the needs of the international economy by allocating SDRs.Under the Articles of the IMF, SDRs are allocated to member countries in
proportion to their quotas. Thus the G-7 would receive more than 47 percent of any allocation, and industrial countries as a group would receive 61 percent.However, recipient countries may donate their SDRs to developing andemerging economy countries or to a trust fund to benefit eligible countries (thatis, countries that are prepared to invest the funds in capacity-building projectsand to adopt appropriate policies).
8. Explain the export procedures from preliminaries to the stage of
Export procedure: There are 6 classified Stages under Export procedure.Preliminaries, Offer and receipt of confirmed order, Production and clearance of the products for exports, Shipment, Negotiation and documents and realizationof export proceeds obtaining various export incentives.
PRELIMINARIES: IEC code number – license from DGFT & Membership of Promotion bodies, Registration with Export promotion councils Sales Taxauthorities and shop and establishment act.
INQUIRY, OFFER AND RECEIPT OF CONFIRMED ORDER : Inquiry is the
request made by a prospective buyer/importer regarding his wish to importcertain items/goods. Offer is a proposal submitted by an exporter expressing hisintention to export specific goods with specific terms and condition which ismade in the form of “Performa Invoice”
The Proforma invoice includes :The Proforma invoice includes Name of buyer Description of the goods – technical, physical, chemical features Price , Unitwise pricing of goods in internationally accepted currencies or mutually agreed
currencies. It will be in FOB, C&F, CIF, DOP, POD or credit advance ,Condition of sale – Validity, Escalation clause – rising cost – Ex Truckers strikewhich in India is a common phenomenon may result in elongated period of goods lying at the Warehouse or trust Port which will escalate costs of demurrage and eat into the profit margins of the exporter. Delivery schedules ,Inspection, Payment terms – L/C, bills of exchange etc ,Other obligation likePost sales service , Providing Spare parts , Warranty/Guarantee for theequipment technology & Confirmed order – signing of the duplicate invoice andreverting Export license – if required Procuring of finance .
PRODUCTION & PROCUREMENT OF GOODS : Packing and markingQuality control and pre-shipment inspection under Excise duty rebates rule 12of central excise rules of 1944.After its paid then Gate pass, GP-1, AR-4 formare submitted.
SHIPMENT STAGE: Transportation of the goods by Ship is cheaper comparedto that of the air. In addition, Physical size of the products creates hurdles for transporting by air.
1.Agents – Assist booking of space on the ship for cargo placement. Theshipping company issue shipping advice against a confirmed order.But whenthe company issues Shipping order it is obligated to accept the cargo. Customsclearance – the exporter has to get custom clearance of the goods before they
are loaded on the ship. Customs authorities accord their formal approval after scrutinizing complete set of shipping documents, copies of shipping bills etc.They include Proforma invoice in original and duplicate. GR-1 forms induplicate AR -4 forms (in original and duplicate) Export license (if required)Letter of credit covering export, order, export contracts or order in original.Certificate of inspection (where necessary) Form of declaration (in duplicate)Shipping Bill (Five copies) Quality control Inspection certificate (if required)Original contract wherever available Packing list Letter of registrationcertificate (if applicable)
2. GR-1 Form: this form is an exchange control document required by theRBI. The exporter has to realize the proceeds of the goods exported within 180days from the date of the shipment from India. This form is not necessary incase of export to Nepal and Bhutan. Shipping Bill: this is an exchangedocument needed by the customs official for granting permission for shipment .This bill contains the following information. Name of theexporter/Shipper including his address and IEC number, Description andquantity of goods to be shipped ,Value of goods, Number of packages and
markings on them, Amount of draw back claimed (draw back duty is allowedwhen the goods are produced in India) ,Port of destination, Name of the shipand its agent & 5 copies of the shipping bills to be provided to the customsofficial
3. Export license: it is necessary for only certain categories of goods and can beobtained from the DGFT office. Carting order: This is an order given by thesuperintendent of the concerned Port Trust once the exporter is ready to movegoods physically inside the port area. This order gives permission to move
inside. Customs examination of cargo at docks - the customs authorities after checking the documents, checks the products to be exported at the docks. Theexporter can arrange for the physical check of the products at his factory or warehouse. Applications for this facility can be made to Assistant collector of customs. Unless the exporters confides are doubtful the cargo is not checkedagain at the port after the formal approval and the exporter can load it into theship.
4. Let Ship: Before loading the cargo into the ship the exporter’s forwardingagent has to get permission from the Preventive officer of the customsdepartment. This is called Let ship order. Mates receipt: After the goods are
loaded into the ship, the captain of the ship furnishes a document to the PortSuperintendent. This is a certified document of the specifications of the loadedcargo and its condition while loading, etc. Port trust dues: The port trustauthorities after getting the Mates receipt from the captain of the ship, issues the
“bill of lading” to the exporter. Bill of lading – The forwarding agent collectsthe Mates receipt and submits the same to the authorities and collects in turn“Bill of lading” from the port authorities. The forwarding agent supplies thesefollowing documents at this final stage to the exporter. A copy of the invoiceduly attested by the customs ,Drawback copy of the shipping bill ,Export
promotion copy of the shipping bill, Full set of ‘clean on board’ bill of ladingtogether with the non negotiable copies. The original letter of credit, Customerscopy or contract Duplicate copy of the AR-4 form.
5. DOCUMENTS The exporter submits the relevant documents to his banker for getting the payment for the goods exported. Submission of relevantdocuments to the bank and the process of getting the payment from the bank arecalled “Negotiating the documents, ” through the bank. These documents arecalled ‘negotiable set of documents’ Bill of lading, Commercial invoicetogether with the packing slip and bill of exchange Certificate of origin, GR-1form (in duplicate), Letter of credit (in original).
6. EXPORT INCENTIVES: This includes The Duty Draw back and the ExciseDuty Refund. The Duty Draw back- The exporter is eligible to get back theexcise duty and central excise paid on all raw materials, Components andconsumables used in the production of good exported under this scheme. TheExcise Duty Refund- Exporter is eligible for refund of the excise duty .It can berecovered after exports if paid in the beginning. He she also can execute a bondwith the excise authorities without making the payment.
9. What is dumping? What are the various measures taken by various countriesfor anti-dumping?
Dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it chargesin its home market or is below its costs of production.
A standard technical definition of dumping is the act of charging a lower price
for a good in a foreign market than one charges for the same good in a domesticmarket. This is often referred to as selling at less than "fair value." Under
the World Trade Organization (WTO) Agreement, dumping is condemned (butis not prohibited) if it causes or threatens to cause material injury to a domesticindustry in the importing country.
Countries may impose anti-dumping duties equal to the margin of dumping if itis determined, through an investigation, that the dumped imports are causinginjury to domestic producers of the same product.
The WTO Anti-dumping Agreement sets out rules for the conduct of anti-dumping investigations, including initiation of cases, calculation of dumpingmargins, the application of remedial measures, injury determinations,enforcement, reviews, duration of the measure and dispute settlement. The ADAgreement applies to trade in goods only. Trade in services is not covered bythis agreement
The largest number of anti-dumping initiations in 2008 were by India,which has had an increasing trend since 2005. Brazil and Turkey were the nexttwo largest for initiating anti-dumping investigations in 2008, however with lessthan half the number of initiations by India. Argentina, European Community,the United States and China, were next among those countries with relativelymore anti-dumping initiations than others, ranging from 14 by China and 19 byArgentina and European Community. For the first half of 2009, though the dataare tentative, we see that India’s numbers of initiations are relatively down in
comparison to earlier years, and a few other developing countries haverelatively more initiations than earlier.
A large concentration of the anti-dumping initiations were against exportsfrom China. However, data for recent years do not show a major andexceptional rise of initiations against China, unless we compare the situationwith 2005. In the last three and a half years, the ratio of initiations againstChina in comparison to total initiations is within a range of 35% to 39%. Other countries which were among those more subject to anti-dumping initiations in2008 (but much less than China) include Thailand, Korea, Malaysia andIndonesia (ranging between 9 to 13 initiations against their exports in 2008).For them too the picture is broadly similar for past few years.
One significant aspect of the developments in anti-dumping and other traderemedies is that developing countries feature prominently among the users aswell as those subject to these measures. This shows special significance of these measures in terms of affecting South-South trade, i.e. affecting a part of trade which has a substantial potential for growth in these difficult times.
The EU , takes anti- dumping measures when it receives a complaint fromthe European manufacturers and if it finds that the dumping measures are
affecting at least 25% of the prices of the industries during investigations.These anti-dumping measures, when imposed, are usually for a minimum of 5years. These anti dumping measures can be for a wide range of products rightfrom agriculture to Electronics.
10. What are the Pro’s and Con’s of export strategy for International Business?
Any company, before committing its resources to venture in the export business, must carefully assess the advantages and disadvantages of exporting
into a new market. While some companies enter the export businessunintentionally after receiving order to purchase from foreign buyer, othersmake a deliberate move and conduct thorough research before entering newmarket. Whether it is unintentional or deliberate move companies need toevaluate and carefully assess the advantages and challenges of exporting beforecommitting resources.
Advantages of exporting
Increased Sales and Profits. Selling goods and services to a market the companynever had before boost sales and increases revenues. Additional foreign salesover the long term, once export development costs have been covered, increaseoverall profitability.
Enhance Domestic Competitiveness. Most companies become competitive inthe domestic market before they venture in the international arena. Beingcompetitive in the domestic market helps companies to acquire some strategiesthat can help them in the international arena.
Gain Global Market Shares. By going international companies, will participatein the global market and gain a piece of their share from the huge internationalmarketplace.
Diversification. Selling to multiple markets allows companies to diversify their business and spread their risk. Companies will not be tied to the changes of the business cycle of domestic market or of one specific country.Lower Per Unit Costs. Capturing an additional foreign market will usuallyexpand production to meet foreign demand. Increased production can often
lower per unit costs and lead to greater use of existing capacities.
Compensate for Seasonal Demands. Companies whose products or services areonly used at certain seasons domestically may be able to sell their products or services in foreign markets during different seasons.
Create Potential for Company Expansion. Companies who venture into theexporting business usually have to have a presence or representation in theforeign market. This might require additional personnel and thus lead toexpansion.
Sell Excess Production Capacity. Companies who have excess production for any reason can probably sell their products in a foreign market and not beforced to give deep discounts or even dispose of their excess production.
Gain New Knowledge and Experience. Going international can yield valuableideas and information about new technologies, new marketing techniques andforeign competitors. The gains can help a company’s domestic as well asforeign businesses.
Expand Life Cycle of Product. Many products go through various cyclesnamely introduction, growth, maturity and declining stage that is the end of their usefulness in a specific market. Once the product reaches the final stage,maturity in a given market, the same product can be introduced in a differentmarket where the product was never marketed before.
Exporting Challenges
While the advantages of exporting by far outweigh the disadvantages, small andmedium size enterprises especially face some challenges when venturing in theinternational marketplace.
Extra Costs. Because it takes more time to develop extra markets, and the pay
back periods are longer, the up-front costs for developing new promotionalmaterials, allocating personnel to travel and other administrative costsassociated to market the product can strain the meager financial resources of small size companies.
Product Modification. When exporting, companies may need to modify their products to meet foreign country safety and security codes, and other importrestrictions. At a minimum, modification is often necessary to satisfy theimporting country's labeling or packaging requirements.
Financial Risk. Collections of payments using the methods that are available
(open-account, prepayment, consignment, documentary collection and letter of credit) are not only more time-consuming than for domestic sales, but also morecomplicated. Thus, companies must carefully weigh the financial risk involvedin doing international transactions.
Export Licenses and Documentation. Though the trend is toward less exportlicensing requirements, the fact that some companies have to obtain an exportlicense to export their goods make them less competitive. In many instances, thedocumentation required to export is more involved than for domestic sales.Market Information. Finding information on foreign markets is unquestionablymore difficult and time-consuming than finding information and analyzingdomestic markets. In less developed countries, for example, reliable information
on business practices, market characteristics, cultural barriers may beunavailable.
Entering an export business requires careful planning, some capital, marketknow-how, access to quality product, competitive pricing strategy, managementcommitment and realizing the challenges and opportunities without them it isalmost impossible to succeed in the export business. While there are no hard-and-fast rules that can help companies make decision to export and to becomesuccessful, understanding the advantages and disadvantages of exporting canhelp smooth entry into new markets, keep pace with competition and eventually
realize profit.
11. Explain the measures taken by Government under Foreign Trade Policyfor export promotion in recent years?
The Foreign Trade Policy of India is guided by the EXIM Policy of the IndianGovernment and is regulated by the Foreign Trade Development and
Regulation Act, 1992. DGFT (Directorate General of Foreign Trade) is the
main governing body in matters related to Exim Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide thedevelopment and regulation of foreign trade by facilitating imports into, andaugmenting exports from India.
EXIM Policy
Indian EXIM Policy contains various policy related decisions taken by thegovernment in the sphere of Foreign Trade, i.e., with respect to imports and
exports from the country and more especially export promotion measures, policies and procedures related thereto. Trade Policy is prepared and announced
The Exim Policy is updated every year on the 31st of March and themodifications, improvements and new schemes became effective from 1st Aprilof every year. All types of changes or modifications related to the EXIM Policyis normally announced by the Union Minister of Commerce and Industry whoco-ordinates with the Ministry of Finance, the Directorate General of Foreign
Trade and network of Dgft Regional Offices.
Export promotional measures in recent yrs:
2004 -2009 : Promotional Measures of Exim Policy 2004-2009
The Government of India has set up several institutions whose main functionsare to help an exporter in his work. It would be advisable for an exporter toacquaint himself with these institutions and the nature of help that they provideso that he can initially contact them and have a clear picture of what help he canexpect of the organized sources in his export effort. Some of these institutionsare as follows.
Export Promotion CouncilsCommodity BoardsMarine Products Export Development Authority
Agricultural & Processed Food Products Export Development AuthorityIndian Institute of Foreign TradeIndia Trade Promotion Organization (ITPO)
National Centre for Trade Information (NCTI)
Export Credit Guarantee Corporation (ECGC)Export-Import Bank Export Inspection CouncilIndian Council of ArbitrationFederation of Indian Export OrganizationsDepartment of Commercial Intelligence and StatisticsDirectorate General of ShippingFreight Investigation Bureau
Duty Exemption / Remission Schemes of Exim Policy 2004-2009
The Duty Exemption Scheme enables import of inputs required for export
Duty Drawback: - The Duty Drawback Scheme is administered by theDirectorate of Drawback, Ministry of Finance. Under Duty Drawback scheme,
an exporter is entitled to claimIndian Customs Duty paid on the imported goods and Central Excise
Duty paid on indigenous raw materials or components.
Excise Duty Refund: - Excise Duty is a tax imposed by the CentralGovernment on goods manufactured in India. Excise duty is collected at source,i.e., before removal of goods from the factory premises. Export goods are totallyexempted from central excise duty.
Octroi Exemption: - Octroi is a duty paid on manufactured goods, when theyenter the municipal limits of a city or a town. However, export goods areexempted from Octroi.
The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product.
DEPB: Duty Entitlement Pass Book, DEPB Rate is basically an exportincentive scheme. The objective of DEPB Scheme is to neutralize the incidenceof basic custom duty on the import content of the exported products.
DFRC: Under the Duty Free Replenishment Certificate (DFRC) schemes,import incentives are given to the exporter for the import of inputs used in themanufacture of goods without payment of basic customs duty. This has beenreplaced by the Duty free Import Authorization.
DFIA: Effective from 1st May, 2006, Duty Free Import Authorization or
DFIA is issued to allow duty free import of inputs which are used in themanufacture of the export product, and fuel, energy, catalyst etc. which are
consumed or utilized in the course of their use to obtain the export product.Duty Free Import Authorisation is issued on the basis of inputs and export itemsgiven under Standard Input and Output Norms(SION).
Export Oriented Units
(EOUs), Electronics Hardware Technology Parks (EHTPs), Software Tech
nology Parks(STPs) And Bio-Technology Parks (BTPs) of Exim Policy
2004-2009
The Export Import Policies relating to Export Oriented Units
(EOUs) Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-technology parks (BTPs) Scheme is given in Chapter 6
of the Foreign Trade Policy. Software Technology Park(STP)/ElectronicsHardware Technology Park (EHTP) complexes can be set up by the CentralGovernment, State Government, Public or Private Sector Undertakings.
12. How is WTO different from GATT? Describe the OrganizationalStructure of WTO and explain the role of India in WTO.
The World Trade Organization is an international organization which wascreated for the liberalization of international trade. The World TradeOrganization came into existence on January 1st, 1995 and it is the successor toGeneral Agreement on Trade and Tariffs (GATT). The World tradeorganization deals with the rules of trade between nations at a global level.WTO is responsible for implementing new trade agreements. All the member countries of WTO have to follow the trade agreement as decided by the WTO.
Structure of the WTO:
Highest Level: Ministerial ConferenceThe Ministerial Conference is the top most body of the WTO, which meets inevery two years. It brings together all the members of WTO.
Second Level: General CouncilThe General Counsel of the WTO is the highest level decision making body in
Geneva, which meets regularly to carry out the functions of WTO.Third Level: Councils for TradeThe Workings of GATT, which covers international trade in goods, are theresponsibility of the Council of Trade.
Fourth Level: Subsidiary BodiesThere are subsidiary bodies under the various councils dealing with specificsubjects such as agriculture, subsidies, market access etc.
Benefits Of WTO
• It helps promote peace and prosperity across the globe.• Disputes are settled amicably.• Rules bring about greater discipline in trade negotiations, thereby
reducing inequalities to a large extent.• Free trade reduces the cost of living and increases household income.• Companies have greater access to markets and consumers have wider
range of products to choose from.• Good governance accelerates economic growth
India is one of the founding members of WTO along with 134 other countries.India's participation in an increasingly rule based system for governance of International trade, will ultimately lead to better prosperity for the nation.
Various trade disputes of India with other nations have been settled throughWTO. India has also played an important part in the effective formulation of major trade policies. By being a member of WTO several countries are nowtrading with India, thus giving a boost to production, employment, standard of living and an opportunity to maximize the use of the world’s resources.
13. Explain the mode of FDI with and without alliances and FDI models in
recent years in the International Business.
Foreign Direct Investment: Foreign direct investment (FDI) is the directownershipof facilities in the target country. It involves the transfer of resources includingcapital, technology, and personnel. Direct foreign investment may be madethrough the acquisition of an existing entity or the establishment of a newenterprise. Direct ownership provides a high degree of control in the operationsand the ability to better know the consumers and competitive environment.However, it requires a high level of resources and a high degree of commitment.China, Taiwan, India, Brazil, Argentina and other developing countries havestarted attracting huge foreign investment.
14. Explain the concept of Collective Bargaining and Participative
Management in International Industrial Relations.
The debate over the appropriate role for workers in organizational decisionmaking is part of a larger debate over the extent of the firm’s responsibilities toits community and society. This debate has been going on since the days of the Industrial Revolution. Over the ages, employers took little or no personalinterest in their employees constraining themselves to have a relationship with
them, to pay for the services that they have offered. This total lack in interest intheir views or as human beings has led to the evolution of the theories of “Participative Mgmt” and “Collective bargaining” over the yrs, by both theworkers & psychologists, with the employers constituting a poor share over theyears.
PARTICIPATIVE MANAGEMENT
Some of the most innovative thinking on management education and practice
was originated by management theorist Douglas McGregor in The Human Sideof Enterprise (1960). In this book McGregor challenged many of the prevailing
managerial assumptions about worker motivation and behaviour. According tothe prevailing view, which he labeled “Theory X,” workers were seen asuninformed, lazy, and untrustworthy members of the organization.Management’s task was to control workers and motivate them through a
combination of control systems, fear of discipline or dismissal, andorganizational rules. McGregor contrasted this with a “Theory Y” assumption,namely, that workers are highly motivated and can be trusted to contribute tothe organization’s objectives if given the opportunity to participate inorganizational decision making. Out of the work of McGregor and others, suchas Rensis Likert, has evolved “participative management,” a process in whichmanagers consult with and involve employees at all levels of the organization inorganizational problem solving and decision making.
McGregor’s views were supplemented by theories that promoted innovations inthe design and implementation of new technologies and production systems thatwould accommodate the physical and social needs of workers. Thesesociotechnical concepts originated in Europe and had substantial impacts on thedesign of innovative work systems in Scandinavia in the 1960s and ’70s. By theearly 1980s they had achieved significant acceptance and use in Americanfirms.
Sociotechnical theory and worker-participation models of decision making have become essential to companies as they face global competition and rapid
technological change. Most contemporary organizational and industrialrelations scholars have concluded that the full potential of new information andmanufacturing technologies can only be realized through management processesthat support participation and communication across functional lines anddepartments. This must be accompanied by effective problem solving andflexibility in how work is organized. Yet there is still considerable debateamong practitioners over the feasibility, wisdom, and even the legalconsequences of involving workers in organizational decision making.Therefore, vestiges of both Theory X and Theory Y can be found in the
concepts and practices of contemporary organizations.Similarly noteworthy were the paternalistic steps Henry Ford took to helpworkers make good use of their increasing affluence. Ford Motor Companyinstituted a small legal department to help workers with the complicated
problem of home buying, and then Ford established what he called a sociologydepartment. It was staffed with social workers who made home visits toworkers’ families to provide advice and help on family problems. Members of the department were also free to talk with workers within the plant duringworking hours in efforts to straighten out family problems.
Company towns and the associated paternalistic view of the employmentrelation are still important in Japan and some other countries. A classicexample is “Toyota City,” which provides housing and community services toToyota employees.
Yet company towns have also been centres of controversy. They have been thelocus of some of the most bitter strikes in the United States—from Pullman inl894, through the Southern mill towns in the l930s, to Kohler, Wis., in the l950s.Whatever grievances workers have had in these situations, it is clear thateconomic issues do not offer a complete explanation of the bitterness of the disputes, in part because any grievance a resident may have is seen to be thefault of the company.
VOICING WORKERS’ INTERESTS
With broader expectations and higher levels of education also comes a moreassertive labour force—one composed of people willing to voice their demandsor expectations. The means chosen for expressing such demands will varyaccording to laws, cultural preferences, the availability of collective forms of representation, the degree of employer resistance, and employee preferences for either individual or collective action. For example, the right to organize and
bargain collectively is provided by law in all industrialized democracies aroundthe world, but this is not always the case in developing nations or in totalitarian
states.
Individual and collective action
There are wide variations in the means workers prefer to use to assert their interests at the workplace. Generally, workers with good educations and highoccupational status are more likely to assert their interests individually rather than through collective bargaining. When organized, higher-level professionals such as doctors, lawyers, engineers, scientists, and middlemanagers tend to act through occupational associations rather than in broad-
based unions with blue-collar workers.
This occupational or professional approach helps to create and reinforce the professional ties and status of these groups as well as to bring their specialneeds to the attention of employers. Moreover, these groups tend to rely on the
power they derive from their labour market and geographic mobility along with professional norms, licensing or certification procedures, and government- passed standards as much as, if not more than, they rely on collective bargaining. Teachers and other white-collar government employees represent asignificant exception to this tendency. In the United States and many Europeancountries, some of the fastest growing and most powerful unions represent
government employees (such as the American Federation of State, County
and Municipal Employees). Moreover, in some European countries anincreasing number of white-collar and professional employees in the privatesector have organized into unions and now negotiate collectively with their
employers.
It should be noted that blue-collar workers who have highly marketable skillsderive individual bargaining power from their potential mobility. In general,however, blue-collar workers around the world are more likely to form unionsand bargain collectively to promote and protect their interests.
Participative decision making
How strongly do workers wish to take part in decisions that affect them? Dothey want to be coequals with management on issues, or are their interests morelimited? Such questions have been at the centre of historic debates amongindustrial relations scholars, practicing managers, union leaders, and public
policymakers. The evidence is surprisingly robust over time and across national boundaries: workers reveal the greatest interest in participating in decisions thataffect their immediate economic concerns and those that directly affect their specific job.
Survey data collected from workers across 12 European and North Americancountries show that the majority of employees want a say in workplace
decisions such as how they are to perform their jobs, how jobs are organized,and how problems related to their immediate environment are solved. Anequally strong majority want a say on bread-and-butter economic issues such aswages, benefits, and safety and health conditions. Only a minority favour direct
participation or indirect representation in the broad strategic business decisionsnormally made by high-level executives or a firm’s board of directors. The onestrategic issue that workers demonstrate real interest in influencing, however, isthe role of new technologies at the workplace. When they can see a link
between strategic managerial decisions and their own long-term economic and
career interests, workers want to have a voice in those decisions.
15. Fdi with and without alliances
Foreign Direct Investment (FDI) is normally defined as a form of investmentmade in order to gain unwavering and long-lasting interest in enterprises thatare operated outside of the economy of the shareholder/ depositor. In FDI, thereis a parent enterprise and a foreign associate, which unites to form aMultinational Corporation (MNC). In order to be deemed as a FDI, the
investment must give the parent enterprise power and control over its foreignaffiliate.
In India, Foreign Direct Investment Policy allows for investment only in case of the following form of investments:
• Through financial alliance• Through joint schemes and technical alliance• Through capital markets, via Euro issues• Through private placements or preferential allotments
Foreign Direct Investment in India is not allowed under the following
industrial sectors:
• Arms and ammunition• Atomic Energy• Coal and lignite• Rail Transport• Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold,
diamonds, copper, zinc
A foreign company can commence operations in India by incorporating acompany under the Companies Act,1956 through
•
Joint Ventures; or • Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on therequirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI
policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India (http://www.dipp.nic.in ).
FDI In India Across Different Sectors
Hotel & Tourism
Hotels include restaurants, beach resorts and business ventures providingaccommodation and food facilities to tourist. Tourism would include travelagencies, tour operators, transport facilities, leisure, entertainment, amusement,sports and health units.
100 per cent FDI is permitted for this sector through the automatic route.
TradingFor trading companies 100 per cent FDI is allowed for
• Exports• Bulk Imports• Cash and Carry wholesale trading.
PowerFor business activities in power sector like electricity generation, transmissionand distribution other than atomic plants the FDI allowed is up to 100 per cent.
Drugs & Pharmaceuticals
For the production of drugs and pharmaceutical a FDI of 100 per cent isallowed, subject to the fact that the venture does not attract compulsorylicensing, does not involve use of recombinant DNA technology.
Private Banking
FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the investment adheres to guidelines issued by RBI.
Insurance Sector
For the Insurance sector FDI allowed is 26 per cent through the automatic routeon condition of getting license from Insurance Regulatory and DevelopmentAuthority (IRDA).
Telecommunication
• For basic, cellular, value added services and mobile personalcommunications by satellite, FDI is 49 per cent.
• For ISPs with gateways, radio-paging and end to end bandwidth, FDI isallowed up to 74 per cent. But any FDI above 49 per cent would requiregovernment approval.
• Foreign companies can also to set up wholly-owned subsidiary in sectorswhere 100% foreign direct investment is permitted under the FDI policy.
Business Processing OutsourcingFDI of 100 per cent is permitted provided such investments satisfy certain prerequisites.
NRI's And OCB's
They can have direct investment in industry, trade and infrastructure
Up to 100 per cent equity is allowed in the following sectors
• 34 High Priority Industry Groups• Export Trading Companies
• Hotels and Tourism-related Projects• Hospitals, Diagnostic Centers• Shipping• Deep Sea Fishing•
Oil Exploration• Power • Housing and Real Estate Development• Highways, Bridges and Ports• Sick Industrial Units
Industries Requiring Compulsory Licensing
Industries Reserved for Small Scale Sector
FDI WITHOUT ALLAINCES: Greenfield strategy is to enter into a newmarket without the help of another business who is already there. Anacquisition is the opposite of a greenfield entry.
Very recently overseas acquisition and outward greenfield foreigninvestment have emerged as the two important modes of internationalization of the Indian pharmaceutical enterprises. This studyexamines the relative strengths and weaknesses of these strategies so asto suggest which between the two is a more effective internationalization
strategy for the Indian pharmaceutical firms, given the nature of their ownership advantages. This analysis has been conducted in three stages.First, the nternationalization process of the Indian pharmaceuticalindustry has been embedded into a four stage theory emphasizing on theemergence of different modes of internationalization like inward foreigninvestment, imports, exports, outward greenfield investment, overseasacquisition and contract manufacturing including inter-firm strategicalliances. Second, theoretical perspectives have been developed withregard to the different ways in which greenfield investment and overseas
acquisition can maximize the revenue productivity of pharmaceuticalfirms’ competitive advantages and/or to strengthen their competitive position. Third, case study of Ranbaxy Laboratories has been undertakento empirically assess its experience with overseas acquisitions. Theanalysis indicates that the growth and internationalization of Indian
pharmaceutical enterprises was critically dependent upon strategicgovernment policies pursued in the past. The Indian experience offers anumber of policy lessons to other developing countries wanting to buildtheir domestic base in the pharmaceutical sector. Theoreticalunderstandings indicate that acquisition is a more effectiveinternationalization strategy than greenfield investment since the former
not only provides all the benefits that the latter gives, but also severalother competitive advantages important for firms’ performance in worldmarket. The experience of Ranbaxy shows that overseas acquisitionshave augmented its intangible asset bundle including distribution and
market networks and have provided access to an existing market.
Procedure for availing Foreign Currency Loan : In exercise of the powersconferred by clause (d) of Sub-Section (3) of Section 6, sub- section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), theReserve Bank makes the following regulations for borrowing or lending inforeign exchange by a person resident in India; namely:
1. Short Title and Commencement:-
(i) These Regulations may be called the Foreign Exchange Management(Borrowing or Lending in Foreign Exchange) Regulations, 2000.
(ii) They shall come into force on 1st day of June, 2000.
2. Definitions:-
In these regulations, unless the context otherwise requires -
a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999);.
b) 'authorised dealer' means a person authorised as an authorised dealer under sub- section (1) of section 10 of the Act;
c) 'EEFC account', 'RFC account' mean the accounts referred to in theForeign Exchange Management (Foreign currency accounts by a person
resident in India) Regulations, 2000;
d) 'FCNR (B) account', 'NRE account' mean the accounts referred to in theForeign Exchange Management (Deposit) Regulations, 2000;
e) 'Indian entity' means a company or a body corporate or a firm in India;
f) 'Joint Venture abroad' means a foreign concern formed, registered or incorporated in a foreign country in accordance with the laws and
regulations of that country and in which investment has been made byan Indian entity;
g) 'Schedule' means the Schedule to these Regulations;
h) 'Wholly owned subsidiary abroad' means a foreign concern formed,
registered or incorporated in a foreign country in accordance with thelaws and regulations of that country and whose entire capital is owned
by an Indian entity;
i) the words and expressions used but not defined in these Regulationsshall have the same meaning respectively assigned to them in the Act.
3. Prohibition to Borrow or Lend in Foreign Exchange:-
Save as otherwise provided in the Act, Rules or Regulations madethereunder, no person resident in India shall borrow or lend in foreignexchange from or to a person resident in or outside India:
Provided that the Reserve Bank may, for sufficient reasons, permit a personto borrow or lend in foreign exchange from or to a person resident outsideIndia.
4. Borrowing and Lending in Foreign Exchange by an Authorised dealer:-
(1) An authorised dealer in India or his branch outside India may lend inforeign currency in the circumstances and subject to the conditionsmentioned below, namely:
i) A branch outside India of an authorised dealer being a bank incorporated or constituted in India, may extend foreign currencyloans in the normal course of its banking business outside India;
ii) An authorised dealer may grant loans to his constituents in India for meeting their foreign exchange requirements or for their rupeeworking capital requirements or capital expenditure subject tocompliance with prudential norms, interest rate directives andguidelines, if any, issued by Reserve Bank in this regard;
iii) An authorised dealer may extend credit facilities to a wholly ownedsubsidiary abroad or a joint venture abroad of an Indian entity;
Provided that not less than 51 per cent of equity in such subsidiaryor joint venture is held by the Indian entity subject to compliance
with the Foreign Exchange Management(Transfer and Issue of Foreign Security) Regulations, 2000;
iv) An authorised dealer may, in his commercial judgment and in
compliance with the prudential norms, grant loans in foreignexchange to his constituent maintaining EEFC Account or RFCAccount, against the security of funds held in such account.
v) A branch outside India of an authorised dealer may extend foreigncurrency loans against the security of funds held in NRE/FCNR deposit accounts maintained in accordance with the ForeignExchange Management (Deposit) Regulations, 2000.
vi) Subject to the directions or guidelines issued by the Reserve Bank from time to time, an authorised dealer in India may extend foreigncurrency loans to another authorised dealer in India.
2) An authorised dealer in India may borrow in foreign currency in thecircumstances and subject to the conditions mentioned below, namely:
i) An authorised dealer may borrow from his Head Office or branch or correspondent outside India upto fifteen per cent of his unimpairedTier I capital or US$ 10 million, whichever is more, subject to such
conditions as the Reserve Bank may direct.
Explanation:
For the purpose of clause (i), the aggregate loans availed of by all branches in India of the authorised dealer from his Head Office, all branches and correspondents outside India, shall be reckoned.
ii) An authorised dealer may borrow in foreign currency without limit
from his head Office or branch or correspondent outside India for the purpose of replenishing his rupee resources, provided that -
a) the funds borrowed are utilised for his own business operationsand are not invested in call money or similar other markets;
b) no repayment of the loan is made without the prior approval of Reserve Bank, which may be granted only if the authorised dealer has no borrowings outstanding either from Reserve Bank or other
bank or financial institution in India and is clear of all moneymarket borrowings for a period of at least four weeks prior to the
iii) A branch outside India of an authorised dealer being a bank incorporated or constituted in India, may borrow in foreign currency
in the normal course of its banking business outside India, subject tothe directions or guidelines issued by the Reserve Bank from timeto time, and the Regulatory Authority of the country where the
branch is located.
iv) An authorised dealer may borrow in foreign currency from a bank or a financial institution outside India, for the purpose of granting
pre-shipment or post-shipment credit in foreign currency to hisexporter constituent, subject to compliance with the guidelines
issued by the Reserve Bank in this regard.
5. Borrowing and Lending in Foreign Exchange by
persons other than authorised dealer:-
(1) An Indian entity may lend in foreign exchange to its wholly ownedsubsidiary or joint venture abroad constituted in accordance with the
provisions of Foreign Exchange Management (Transfer or issue of foreign security) Regulations, 2000.
(2) A person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India,for execution outside India of a turnkey project or civil constructioncontract or in connection with exports on deferred payment terms,
provided the terms and conditions stipulated by the authority which hasgranted the approval to the project or contract or export in accordancewith the Foreign Exchange Management (Export of goods and services)Regulations, 2000.
(3) An importer in India may, for import of goods into India, avail of foreign currency credit for a period not exceeding six months extended
by the overseas supplier of goods, provided the import is in compliancewith the Export Import Policy of the Government of India in force.
(4) A person resident in India may lend in foreign currency out of fundsheld in his EEFC account, for trade related purposes to his overseasimporter customer:
a) the aggregate amount of such loans outstanding at any point of timedoes not exceed US$ 3 million; and
b) where the amount of loan exceeds US$ 25,000, a guarantee of a bank
of international repute situated outside India is provided by the overseas borrower in favour of the lender.
(5) Foreign currency loans may be extended by Export Import Bank of India, Industrial Development Bank of India, Industrial FinanceCorporation of India, Industrial Credit and Investment Corporation of India Limited, Small Industries Development Bank of India Limited. or any other institution in India to their constituents in India out of foreigncurrency borrowings raised by them with the approval of the Central
Government for the purpose of onward lending.
6. Other borrowings in foreign exchange with prior approval of
Reserve Bank or Government of India:-
(1) A person resident in India who desires to raise foreign currency loans of the nature or for the purposes specified in the Schedule and whosatisfies the eligibility and other conditions specified in that Schedule,may apply to the Reserve Bank for approval to raise such loans.
(2) The Reserve Bank may grant its approval subject to such terms andconditions as it may consider necessary;
Provided that while considering the grant of approval, the Reserve Bank shall take into account the overall limit stipulated by it, in consultationwith the Central Government, for availment of such loans by the
persons resident in India.
(3) Any other foreign currency loan proposed to be raised by a person
resident in India, which falls outside the scope of the Schedule, shallrequire the prior approval of the Central Government.
(P.R. GOPALA RAO)
Executive Director
SCHEDULE
[ See Regulation 6 ]
1. The borrowing in foreign exchange by a person resident in India may be
under any of the Schemes set out in this Schedule.
2. The application for the approval of the Reserve Bank under Regulation 6 for borrowing under any of the Schemes shall be made in Form ECB annexed
to these Regulations.
3. The borrowing in foreign exchange may be from an overseas bank/exportcredit agency/supplier of equipment or foreign collaborator, foreign equityholder, NRI, OCB, corporate/institution with a good credit rating frominternationally recognised credit rating agency, or from international capitalmarket by way of issue of bonds, floating rate notes or any other debtinstrument by whatever name called.
4 The borrower shall not utilise the funds borrowed under any of theseSchemes for investment in stock market or in real estate business.
(i) Short term loan scheme
a) Foreign currency credit extended by the overseas supplier of goods toan importer of goods for financing import of goods into India, providedthe period of maturity of credit is more than six months but less thanthree years.
b) Foreign currency loan/credit extended to an importer in India for financing imports into India, by any bank or financial institution outsideIndia, provided the period of maturity of loan/credit is less than threeyears.
(ii) Borrowing under US dollar Five Million Scheme
Borrowing in foreign exchange upto US$ Five Million or its equivalent byan Indian entity for general corporate purposes at a simple minimum
maturity of three years.
(iii)Borrowing under US dollar Ten Million Scheme
Borrowing in foreign exchange not exceeding US$ Ten Million or itsequivalent by an Indian entity for the following purposes :
a) Borrowing for Financing of Infrastructure Projects
(i) Borrowing in order to finance equity investment in a subsidiary/jointventure company promoted by the Indian entity for implementing
infrastructure projects, provided that the minimum average maturity of loan is three years. In case the loan is to be raised by more than one
promoter entity for a single project, the aggregate of loan by all promoters should not exceed US$ 10 million.
(ii) Foreign currency loan raised by an Indian entity for financinginfrastructure project, provided that the minimum average maturity of loan is not less than three years.
b) Borrowings by Exporter/Foreign Exchange Earner
Borrowing in foreign exchange by an exporter/foreign exchange earner upto three times of the average amount of his annual foreign exchange
earnings during the previous three years subject to a maximum of US$Ten million or its equivalent, with a minimum average maturity of threeyears.
c) Long term Borrowings
Borrowing for general corporate purposes at the minimum averagematurity of eight years.
(iv) Scheme for raising loans from NRIs on repatriation basis
Borrowings not exceeding US$ 2,50,000 or its equivalent in foreignexchange by an individual resident in India from his close relatives residentoutside India, subject to the conditions that -
a) the loan is free of interest;
b) the minimum maturity period of the loan is seven years;
c) The amount of loan is received by inward remittance in free foreignexchange through normal banking channels or by debit to the
NRE/FCNR account of the non-resident lender;
d) The loan is utilised for the borrower's personal purposes or for carryingon his normal business activity but not for carrying onagricultural/plantation activities, purchase of immovable property or shares/debentures/bonds issued by companies in India or for re-lending.
