UNIT III
The Economic Environment
Economic environment:
It is macroeconomic indicators that strategists study to influence their decisions. These indicators shape the health and well-being of the economy. These are determinants of a company's ability to make a profit and generate wealth. More important is the maximization of wealth, as it means maximizing profits and returning them to investments that generate more income.
The components of the economic environment are:
I. General economic situation:
The general economic situation that prevails in the economy is a determinant of economic prosperity and community well-being. These economic conditions are variables in which the amount of national income, per capita income, economic resources, income and wealth distribution, and economic development determine people's economic prosperity.
Revenue and its distribution determine the business outlook and therefore the business strategy. In an economy where it is low and per capita is relatively low, demand will decline. This pessimistic situation does not attract business people who invest in and execute manufacturing and marketing activities.
On the other hand, in an economy where the income of the economy is increasing, it leads to more and more investment and entry into industrial and marketing activities. In India, the backbone of the Indian economy, the Middle, is ready to increase income and invest in business.
Even NRI considers it beneficial to invest surplus income in this way, helping the Indian economy to become stronger and thus benefit from profits.
II. Economic system:
The economy is an arrangement that encourages the use of free resources to generate and distribute income, based on some accepted economic philosophies. Economy around the world is widely linked to Kabbalism, socialism, and communism as a hybrid economy called a pure variety or mixed economy.
India is the best example of a mixed economy, with the benefits of capitalism and socialism in one focus, eliminating the disadvantages of pure socialism or capitalism.
Capitalism gives maximum economic freedom in the management of economic activity, socialism talks about maximum domination by the state, mixed economy is freedom and the role of the state in which both the public and private sectors support each other. I have.
The collapse of the mighty nation formed in the early 20th century had to kick a bucket for a period of 100 years. Today, the Soviet Union is divided into small nations that were one of the greatest forces in the world linked to socialist ideology.
III. Economic policy:
It is the appropriate and timely economic policies adopted and implemented by the government that determine the fate of the state and its citizens. Think about India before 1991 and now. The Indian economy is on the verge of collapse and foreign exchange reserves were enough to pull another eight days.
It was a change in personality as a political leader and the brain behind them, together they freed India from control and opened the Indian economy to the whole world.
Private and public sector businesses that worked under the umbrella of protection were set up and faced the challenge of changing competition. Which foreign companies couldn't replace them as Indian players became global players?
IV. Economic growth:
Economic growth or development is the rise and maintenance of per capita income for all individuals who are members of the economy. It is economic growth, which represents increased consumer spending and lower pressure in the industrial sector, that provides more opportunities and enables businesses to withstand the severity of the threat. Other methods also apply. Declining economic growth and lower consumer spending will increase pressure and reduce profitability.
V. Interest rate:
Interest rates affect the demand for goods and services in the economy when they are purchased through borrowing. If interest rates are low, the demand for the product may be durable or non-durable. This gives Philip to a growing industry.
The opposite is true if the rate is high. Today, R.B.I is emerging at lowest interest rates to increase demand for durable and non-durable consumer goods, which will bring the Indian economy out of pessimism and tomorrow's rut.
The cost of capital also depends on interest rates. When they are getting capital at the lowest rates, the companies will encourage all companies to have ambitious plans and strategies in the case of borrowed funds.
VI. Exchange rate:
Exchange rates represent currency conversions to other currencies. It may be hard or soft. In 1991, the Indian Rupee was devalued to make Indian products cheaper in the global market to boost Indian exports. This was a great opportunity for all Indian exporters to export more commodities and reserves and earn forex.
Today, foreign exchange reserves are at a record high of Rs 200 billion, at least costly to boost quality production. Indian exporters do so only if they regularly understand and implement three strategies for export cost, export quality, and export volume. Therefore, it is the exchange rate that determines the fate of a country.
Strategy and planning in India
Constitution was formed on 26th January and committee was found out on 15 March 1950 and therefore the plan era started from 1 April 1951 with the launching of the primary Five-Year Plan (1951-56).
Economic Planning in India – Five Year Plans
The term economic planning is employed to explain the future plans of the govt of India to develop and coordinate the economy with efficient utilization of resources. Economic planning in India started after independence within the year 1950 when it had been deemed necessary for economic process and development of the state .
Long term objectives of 5 Year Plans in India are:
The first eight five-year plans in India emphasized on growing the general public sector with huge investments in heavy and basic industries, but since the launch of Ninth five-year plans in 1997, attention has oriented towards making government a growth facilitator.
Objectives of Economic Planning in India-
The following were the first objectives of economic planning in India:
Key takeaways:
Introduction:
An economic system is a system of production, resource allocation, and distribution of goods and services within society or a particular geographical area. This includes a combination of different institutions, institutions, entities, decision-making processes, and consumption patterns that make up the economic structure of a particular community. In this way, the economic system is a kind of social system. Production mode is a related concept. Every economic system has three basic questions. It's what you produce, how and in what quantity you produce, and who receives the results of your production.
Research on economic systems includes how these various institutions and institutions are linked to each other, how information flows between them, and the social relationships within the system (ownership and management structure). Includes).
Analysis of the economic system has traditionally focused on the dichotomy and comparison of market and planned economies, and the distinction between capitalism and socialism. Since then, the classification of economic systems has expanded to include other topics and models that do not comply with traditional dichotomy. Today, the dominant form of economic organization at the world level is based on a market-oriented mixed economy.
Economic systems are a category of Journal of Economic Literature classification codes that include research on such systems. One area that crosses them is the comparative economic system, which includes the following subcategories of different systems.
Mixed economy:
There is no exact definition of "mixed economy". Theoretically, it may refer to an economic system that combines the three characteristics of public and private property of an industry, market-based allocation with economic planning, or free market with state interventionism.
In reality, a "mixed economy" generally refers to a market economy that has a significant public sector alongside substantive national interventionism and / or the dominant private sector. In fact, the mixed economy is even more drawn to one end of the spectrum. Notable economic models and theories that have been described as "mixed economies"
In countries like India, both the public and private sectors play a very effective relative role. The 1948 and 1956 industrial policy resolutions set out special provisions to secure spheres for both the public and private sectors, taking into account their relative role in the country's economy.
Industrial policy in 1948 laid the foundation for a mixed economy by classifying Indian industry into four major categories, involving both the public and private sectors. The 1956 Industrial Policy Resolution then categorized Indian industry into three schedules: the state-owned sector, gradually the state-owned sector and the private sector.
Following this policy of 1956, the state promoted private sector industry by securing infrastructure facilities such as electricity, transportation and other services and providing non-discriminatory treatment to both public and private owners. Promoted and encouraged.
In addition, the Philosophy and Action Plan for the Promotion of the Public Sector was incorporated into the 1948 and 1956 Industrial Policy Resolutions. The 1956 Industrial Policy Resolution properly observed that: As with the need for planned development, all industries of basic and strategically important or utility service nature must be in the public sector. Other industries that are essential and require investment on a current state-only scale
The situation can be provided, but it must also be in the public sector. Therefore, the state must take direct responsibility for the future development of the industry over a wider area. Therefore, the 1948 and 1956 Industrial Policy Resolutions articulate the relative roles of both the public and private sectors in countries like India.
While analyzing the role of the public sector in the Indian economy, then Indian Prime Minister Indira Gandhi correctly stated: Of social benefit or strategic value, rather than providing a commercial surplus to raise additional economic funding primarily in the interests Beloment. "
The 1977 Industrial Policy Statement also referred to the role of the public sector, thereby stipulating the expansion of the role of the public sector, especially with respect to strategic goods of a fundamental nature. The public sector was also encouraged to develop auxiliary industries and transfer technical and management expertise to the small and domestic industry sectors.
Given the growing problem of public sector illness, industrial policy in 1980 reaffirmed confidence in the public sector, despite the recent decline in confidence in the public sector. Therefore, this policy has introduced a time-limited program to restore the efficiency of public sector operations through an effective management system.
Again, industrial policy in 1980 attempted to integrate industrial development in the private sector by promoting the concept of economic federalism. Cottage unit as much as possible.
The new industrial policy of 1991 radically liberalized the industrial policy itself and drastically deregulated both the public and private sector industries in line with the liberalization movement introduced in the 1980s. The new industrial policy of 1991 recognizes the relative roles of both the public and private sectors of the economy and frees both of the two industrial sectors from the spider web of unnecessary bureaucratic control, India. Introduced liberalization measures to integrate the economy with the world economy. Freed indigenous private enterprises from the restrictions of MRTP law in order to achieve sustainable growth of productivity and employment and also to achieve international competitiveness.
In addition, the new policies have also prepared to reduce the burden on the most public sector companies in their expansion programs. Public sector policies have helped them rebuild potentially viable units. In addition, priorities for future public sector enterprise growth will also be rescheduled to include products with critical infrastructure, mineral and oil exploration and development, technological development and strategic considerations.
Thus, it was found that the various industrial policies developed by the government since 1948 fully take into account the relative roles of both the public and private sectors in the Indian economy. Therefore, these policies have made serious attempts to develop both the public and private sectors at the same time and sustainably.
Relative role of Indian public sector:
The public sector has occupied a worthless place to achieve systematic and systematic development in developing countries like India. In a country like India, which suffers from multifaceted problems, the private sector is not in a position to make the necessary efforts to develop different sectors at the same time.
Therefore, in order to provide the support needed for a country's development strategy, the public sector provides the minimum impetus needed to guide the economy on a path of self-sustaining growth. Thus, it is now well recognized that the public sector plays an active role in national industrial development by laying a sound foundation for the industrial structure in the early stages of development.
Below are some of the important relative roles of the public sector in the economic development of countries like India.
(A) Promote economic development at a rapid pace by bridging the gap in the industrial structure.
(B) Promote appropriate infrastructure for economic growth.
(C) Conducting economic activity in strategically important areas of development where the private sector can distort the spirit of national goals.
(D) Check monopoly and concentration of power in the hands of a few people.
(E) Promote balanced regional development and diversify natural resources and other infrastructure facilities in these underdeveloped regions of the country.
(F) Close the gap in income and wealth distribution by bridging the gap between the rich and the poor.
(G) Create and enhance ample employment opportunities in various sectors by making large investments.
(H) Achieve independence with various technologies according to requirements.
(I) Eliminate dependence on foreign aid and technology.
(J) Enforce social control and regulation through various financial institutions.
(K) Manage delicate sectors such as distribution systems and rationally allocate rare imported goods.
(L) Reduce balance of payments pressure by promoting exports and reducing imports.
Relative Role of Indian Private Sector:
Key takeaways:
Overview:
Industrial policy is a formal declaration by the government, which outlines general policy for industry. There are two main parts to industrial policy. The first part generally deals with the ideology of current political power, while the other part provides a framework for specific rules / principles. The main purpose of industrial policy is to increase industrial production, thereby promoting industrial growth, which leads to economic growth through optimal use of resources. Modernization; Balanced industrial development; Balanced regional development (by providing concessions to the industrial development of underdeveloped regions); Balanced development of basic and consumer industries. Collaborative development of large companies, SMEs and cottage companies. Determination of areas of activity under the private and public sector. Strengthen the heartfelt relationship between workers and managers and the proper use of domestic / foreign capital.
Importance of industrialization:
Industrialization is the most important requirement for the country's rapid economic development. Industrialization not only helps the development of industry, but also promotes the social sector of agriculture, trade, transportation, foreign trade, services and economy. It improves employment opportunities, national income, per capita income, and the standard of living of the masses. Therefore, industrial policy is needed to establish a healthy tradition of industrialization and to guide, regulate and manage industrial development (if necessary). A country's industrial policy is influenced by the ideologies and principles of the governments involved. Industrial policy helps the country to prosper in a self-sufficient manner by laying the structure and foundation for industrial development. Therefore, the government's industrial policy. It must be clearly defined, clear and progressive. You also need to adhere to it and take it seriously.
Meaning of industrial policy:
Industrial policy refers to such a formal declaration by the government through the general policies of the industry adopted by the government. It will be published. Any industrial policy can initially consist of two main parts: the ideology of government. This is the governing rules and principles that determine the nature of industrialization and, secondly, provide a particular framework behind existing ideologies. In this way, industrial policy is a comprehensive concept that provides policy guidance and overview for the establishment and functioning of industry.
Need, purpose and importance of industrial policy:
The necessity, purpose and importance of industrial policy can be explained in the following points.
Industrial policy helps to fully develop the country's natural resources. Helps identify, collect, and use resources properly. It promotes an increase in the national income of the country.
2. To boost industrial production:
The main purpose of industrial policy is to increase the country's industrial production. It provides the impetus for the rapid development of the industry and the growth of the industry.
3. Modernization:
Industrial policy encourages modernization to increase industrial production and productivity. It envisions the use of modems and the latest production technology in the industrial sector. Promote maximum production with minimum production cost.
4. Balanced industrial development:
Industrial policy envisions a country's balanced industrial development. It also promotes balanced development in various sectors of the economy.
5. Balanced regional development:
Industrial policy helps the country to develop a balanced region. Industrial policy may include provisions regarding the provision of facilities or concessions for the rapid development of an industrially backward region / region of a country.
6. Coordination between basic and consumer industries:
Balanced development of basic and consumer industries is essential for economic growth. Industrial policy, on the one hand, encourages the development of basic and major industries, and on the other hand, attention is also paid to the development of the consumer industry. Therefore, with balanced and collaborative development of both types of industry, it provides a pace for economic growth.
7. Coordination between small and large industries:
Industrial policy plays an important role in the coordinated development of small or domestic and large industries. These industries can help each other through the provisions of industrial policy.
8. Area determination:
Industrial policy determines the areas of business under the public and private sectors. Through national industrial policy, we can set the right direction for the private sector.
9. Heartfelt labour-management relations:
Comprehensive industrial policy is needed to build a heartfelt relationship between workers and managers. Heartfelt labour-management relations are essential for rapid and sustainable industrialization.
10. Appropriate use of foreign aid / investment:
Appropriate industrial policy is supposed to attract foreign capital and entrepreneurs. It helps the country's rapid industrial development. If you think carefully about industrial policy, the disadvantages of "foreign assistance" will be confirmed. Foreign aid can be used for national interests if the country implements appropriate industrial policies.
Key takeaways:
Recent Developments in the Indian Economy:
The economic environment of Indian business is changing rapidly, mainly due to changes in government economic policy. At the time of independence, the Indian economy was basically agriculture and its industrial base was weak. To accelerate industrial growth and solve a variety of economic problems, the government has taken several steps, including state ownership, economic planning and a reduction in the role of the private sector for certain categories of industry. The government has adopted several controls on the functioning of private sector enterprises. All these efforts have resulted in different reactions. Gross national product, per capita income, capital goods sector and infrastructure development increased. However, industry growth was slow, inflation increased, and the government faced a serious foreign exchange crisis in the 1980s.
As a result, the Government of India introduced a fundamental change in economic policy in 1991. This policy in most cases abolished industrial licenses, allowed private participation in most industries, withdrew investment in many public sector industrial enterprises, and was fairly economical. The Foreign Investment Promotion Commission was established to channel foreign investment in India. Let's talk about development under three heads.
(A) Liberalization, (b) Privatization, and (c) Globalization.
(A) Liberalization:
Liberalization refers to the process of eliminating unnecessary controls and restrictions on the smooth functioning of a company. Included:
(I) Abolition of industrial license requirements in most industries.
(II) Freedom to determine the scale of business activities.
(III) Freedom of price fixing of goods and services.
(IV) Simplify import / export procedures.
(V) Tax rate reduction. And
(VI) Simplified policy to attract foreign capital and technology to India.
Through this liberalization process, the Indian economy was opened and began to interact extensively with the world. This has made it easier for foreign companies to enter India. This has resulted in even more fierce competition and efficiency. Ultimately, liberalization includes high growth rates, easy availability of goods at competitive prices, healthy and prosperous stock markets, high foreign exchange reserves, low inflation rates, strong rupees, good labour relations, etc. Helped to achieve.
(B) Privatization:
Privatization refers to reducing the role of the public sector by involving the private sector in most activities. The policy reforms announced in 1991 literally stopped the expansion of the public sector, and the private sector recorded rapid growth during the post-liberalization period. The issues of privatization are:
(I) Reduce the number of industries reserved for the public sector from 17 to 8 (later reduced to 3) and introduce selective competition in the reserved areas.
(II) Stop investing in shares of selected public sector industrial enterprises to procure resources and encourage broader participation of the general public and workers in ownership of businesses.
(III) Improving business performance through the Ammo system, which gives management greater autonomy while taking responsibility for specific outcomes. In India, as a result of these steps, India's private sector business has expanded significantly in the post-liberalization phase. You can see the expansion as the total capital of the top 500 private companies has risen from RS. Rs from 1,39,806 rupees in 1992-93. 2,34,751 chlores in 1994-95 (68% increase in just two years).
In other words, it is a reduction in ownership of the owners of state-owned enterprises. Government-affiliated companies can be converted to private companies in two ways:
Form of privatization
Purpose of Privatization:
(C) Globalization:
Globalization means "integrating" a country's economy with the world economy. This means a free flow of goods and services, capital, technology and labour across borders. To achieve these globalization objectives, the government has adopted a variety of measures, including reducing tariffs, eliminating quantitative restrictions or quotas on imports and exports, promoting foreign investment, and encouraging foreign technology. These measures are expected to achieve higher growth rates, increased employment potential, and reduced regional inequality.
Outsourcing as a result of globalization:
The most important outcome of the globalization process is outsourcing. In the outsourcing model, a company in one country hires an expert from another country to do the job. This was previously done by domestic internal resources.
The best part of outsourcing is the ability to work at lower rates from great sources available from anywhere in the world. Services such as legal advice, marketing and technical support. As information technology has grown over the past few years, outsourcing of contract operations from one country to another has increased significantly. All economic activity has expanded globally as the means of communication have expanded its reach.
Various business process outsourcing companies or call centres have been developed in India that have voice-based business process models. Activities such as accounting and bookkeeping services, clinical advice, banking services and even education are outsourced from developed countries to India.
The most important advantage of outsourcing is that even large multinationals and SMEs have access to superior services at lower rates compared to their own standards. Skills set in India are considered to be the most dynamic and effective in the world. Indian professionals are the best in their work. Low wages and highly skilled professionals make India the most lucrative destination for global outsourcing in the later stages of reform.
Key takeaways:
Fiscal policy:
Meaning:
Fiscal policy is associated with increased government revenues and the generation of government spending. To generate income and bear spending, governments formulate policies called budgetary or fiscal policies. Therefore, fiscal policy is related to government spending and government revenue. Fiscal policy determines the size and pattern of government-to-economy and economy-to-government spending flows. So, broadly speaking, fiscal policy is
"That part of national economic policy, which is mainly related to the balance of the central government."
In other words, fiscal policy refers to government policy on taxation, public spending, and public borrowing.
Main objectives of India's fiscal policy:
1. Effectively mobilize resources to ensure development:
An important purpose of fiscal policy is to ensure rapid economic growth and development. This goal of economic growth and development can be achieved by mobilizing resources in the right way. India's central and state governments have used fiscal policy to mobilize resources. Financial resources can be mobilized by:-
2. Taxation:
Through effective fiscal policy, the government aims to mobilize resources with both direct and indirect taxes.
3. Public savings:
Resources can be mobilized through public savings by reducing government spending and increasing the surplus of businesses in the public sector.
4. Personal savings:
Through effective financial measures, such as tax incentives, governments can source resources from the private sector and households. Financial resources can be mobilized through government bonds, government loans by issuing government bonds, loans from domestic and foreign stakeholders, and deficit finance.
5. Efficient allocation of limited financial resources:
Central and state governments have attempted to efficiently allocate available resources. These resources will be allocated to development activities, including spending on railroads and infrastructure. Non-development activities, on the other hand, include spending on defence, interest payments, subsidies and more. Socially desirable service. Therefore, India's fiscal policy is designed in a way that encourages the production of desirable commodities and discourages socially undesirable commodities.
6. Reducing income and wealth inequality:
Fiscal policy aims to achieve equity or social justice by reducing income inequality between different sectors of society. Direct taxes, such as income tax, are levied more on the wealthy than on the low-income. Indirect taxes are also high for semi-luxury and luxury items that are mainly consumed by the upper middle class and upper class. The government is investing a significant portion of its tax revenues in implementing poverty alleviation programs to improve the condition of the poor in society.
7. Price stability and inflation control:
One of the main goals of fiscal policy is to curb inflation and stabilize prices. This requires monetary action, and the government is constantly aiming to curb inflation by reducing budget deficits, introducing tax-saving schemes, and productive use of financial resources.
8. Job creation:
Responsible governments make every possible effort to increase employment in the country through effective fiscal measures. Investing in infrastructure has resulted in direct and indirect employment. Lowering taxes and tariffs on small industry (SSI) units encourages more investment and, as a result, creates more jobs. The Government of India is implementing various rural employment programs to solve problems in rural areas. Similarly, the self-employed system is adopted to provide employment to technically qualified people in urban areas.
9. Balanced regional development:
Another main purpose of fiscal policy is to bring about balanced regional development. From the government, there are various incentives to launch projects in the underdeveloped areas, such as cash subsidies, tax concessions, obligations in the form of tax exemptions, and loans at concession rates.
10. Reduce the balance of payments deficit:
Fiscal policy seeks to encourage exports through financial measures such as income tax exemption on export income, central customs exemption, sales tax and octroi exemption. Forex is also protected by providing financial benefits to import substitutions, such as imposing tariffs on industries and imported goods.
Foreign exchange obtained from exports and saved by import substitution helps solve the balance of payments problem. In this way, balance of payments disadvantages can be corrected by imposing tariffs on imports or subsidizing exports.
There are three sources from where the government makes money. The first two are sources of income and the last one is the sale of debt and capital assets.
1. Income or tax revenue:
This is a tax that the government collects in the form of corporate tax, personal income tax, customs duty, excise tax, etc.
2. Tax-exempt income:
These include interest on bonds held, dividends from PSUs, and grants. They are a source of income, meaning they do not have to be repaid and are less than tax revenue.
3. Receipt of capital:
These are government loans such as market loans, short-term loans, external commercial receipts, etc.
Union budget structure-
The government is accountable to Congress for financial management and efficient use. Due to the bicameral parliament, especially the constitutional advantage, all financial acts are processed and passed by national representatives. However, proposals for budget tax development, government accounting and expenditure decisions are made by government ministries and integrated into the Treasury. The federal budget submitted to Congress consists of a general and rail budget, a grant request, an account vote, a supplementary grant request, an expenditure bill, and a financial bill.
The annual financial statements are the main budget document. It details receipts and payments that hold government accounting: integrated funds, reserves, and public accounting.
The Emergency Fund, on the other hand, is freely available to the President of India in case it could occur if the government had to bear urgent and unexpected spending. Parliamentary approval is then obtained for such expenditures and repayments from the Integrated Fund, and the amount spent is recovered in reserves. In addition to the normal government spending associated with the integrated fund, certain other transactions go into the government account. In this regard, the government overlooks transactions related to funded funds, small savings, and other deposits and acts like a banker.
Monetary Policy:
Monetary policy concerns the steps taken to regulate the money supply, costs, and credit availability in the economy. It also deals with the distribution of credit between users and between users, and deals with both bank lending and borrowing rates. In developed countries, monetary policy has been effectively used as an anti-circular policy to overcome depression and inflation. Various means of monetary policy are changes in the supply of currencies, fluctuations in banking and other interest rates, open market operations, selective credit management, and fluctuations in reserve requirements.
In India, following the recommendations of the Urgit Patel Commission report, the Reserve Bank has launched a disinflationary "glide path" targeting CPI inflation of less than 8% and CPI inflation of less than 6% by January 2015. Was officially announced. The agreement on the monetary policy framework between the Government and the Reserve Bank of India dated February 20, 2015 is a combination of the consumer price index (CPI-C) – in the medium term, (a) until January 2016. Less than 6%, (b) 4% (+/-) 2% after fiscal year 2016-17. Price stability is a necessary (if not sufficient) prerequisite for sustainable growth and financial stability. The relative emphasis assigned to price stability and growth goals in the implementation of monetary policy changes from time to time in response to the evolving macroeconomic environment. Financial stability is important for the smooth transmission of monetary policy, and therefore regulatory and monetary market policies, including macro-health policies, are often published with monetary policy under Part B of the Monetary Policy Statement14.
There are several direct and indirect means used to implement monetary policy.
Market Stabilization Scheme (MSS): This financial control instrument was introduced in 2004. The more permanent nature of excess liquidity resulting from large capital inflows is absorbed by the sale of short-term government bonds and government bonds. The mobilized cash is stored during a government account break away the Federal Reserve Bank. Therefore, this device has both SLR and CRR capabilities
Foreign Trade Policy
What is foreign trade? Meaning of foreign trade
Foreign trade is nothing more than trade between different countries in the world. Also known as international trade, foreign trade, and interregional trade. It consists of imports, exports, and distribution centers. The inflow of goods into a country is called import trade, and the outflow of goods from another country is called export trade. Goods are often imported for re-export after some processing operations. This is called the distribution trade. Foreign trade is basically done for the mutual satisfaction of resource needs and utility.
3 types of trade :
Foreign trade can be divided into three groups: -
1. Import trade: Import trade refers to the purchase of goods from one country or the influx of goods and services from a foreign country into one's own country.
2. Export trade: Export trade refers to the sale of goods from one country to another, or the outflow of goods from one's own country to another.
3. Trade in the distribution center: Trade in the distribution center is also known as re-export. This means buying goods from one country and selling them to another country after some processing operations.
Necessity and importance of foreign trade:
The following points explain the necessity and importance of foreign trade for the nation.
1. Division of labor and specialization:
Foreign trade leads to world-class division of labor and specialization. Some countries have abundant natural resources. They need to export raw materials and import finished products from countries where skilled personnel are advanced. This benefits all countries, which leads to division of labor and specialization.
2. Optimal allocation and use of resources:
Specialization eliminates unproductive lines and avoids wasting resources. In other words, resources are channelled to produce only the products that give the highest returns. Therefore, there is a rational allocation and use of resources at the international level through foreign trade.
3. Price equality:
Prices can be stabilized by foreign trade. It helps stabilize the position of supply and demand, which stabilizes prices and takes into account transportation and other marketing costs.
4. Availability of multiple choices:
Foreign trade helps to provide consumers with better choices. This helps consumers around the world make new varieties available.
5. Guarantee quality and standard products:
Foreign trade is very competitive. In order to maintain and increase the demand for goods, the exporting country must maintain the quality of the goods. Therefore, quality and standardized goods are produced.
6. Raise people's standard of living:
Imports can improve people's standard of living. This is because people can choose new and better types of products and services. By consuming new and better types of products, people can improve their standard of living.
7. Create employment opportunities:
Foreign trade helps create employment opportunities by increasing the liquidity of the workforce and resources. It creates direct employment in the import sector and indirect employment in other sectors of the economy. Industry, service sector (insurance, banking, transportation, telecommunications), etc.
8. Promote economic development:
Imports promote the country's economic development. This is because the import of capital goods and technology allows a country to generate growth in all sectors of the economy: agriculture, industry and services.
9. Support in the event of a natural disaster:
During natural disasters such as earthquakes, floods and famines, affected countries face the problem of a shortage of essentials. Foreign trade allows countries to import edible grains and medicines from other countries to help affected people.
10. Maintain the balance of payments:
All countries must maintain their balance of payments. Since each country has to import and as a result foreign exchange flows out, we also handle exports due to the inflow of foreign exchange.
11. Bringing reputation and helping to earn goodwill:
Exporting countries earn goodwill in the international market. For example, Japan has gained a lot of credit in overseas markets by exporting high quality electronic products.
12. Promote world peace:
Foreign trade brings countries closer. Promote technology transfer and other assistance from developed to developing countries. It brings different countries closer because of the economic relationships that result from trade agreements. In this way, foreign trade creates a friendly atmosphere for avoiding wars and conflicts. It promotes world peace as such countries seek to maintain friendly relations between them.
Preface:
With India's GDP reaching the rupee, the integration of the domestic economy through the two channels of trade and capital flow has accelerated over the last two decades. 203.39 trillion (US $ 2.88 trillion) * in 2019-20. At the same time, per capita income has almost tripled during these years. India's trade and external sectors have had a significant impact on GDP growth and per capita income growth.
According to data from the Ministry of Commerce and Industry, total exports from India (goods and services) were US $ 304.25 billion between April and November 2020, and imports were US $ 290.66 billion. In 2020-21, commodity exports amounted to US $ 173,660 million and imports reached US $ 215,690 million. Estimates of service imports and exports for 2020-21 were $ 130.66 billion and US $ 74.98 billion, respectively. India recorded a trade surplus of US $ 13.59 billion between April and November 2020.
According to Minister of Commerce and Railways Piyush Goyal, the Government of India will expand exports and provide more jobs to the semi-skilled and unskilled workforce of India, as well as young, talented and well-educated people. I am enthusiastic about it.
Capital inflow:
India's foreign exchange reserves were rupees. According to RBI data, it was 42.75 trillion (US $ 581.13 billion) as of December 18, 2020.
External sector:
On December 16, 2020, the Federal Cabinet will conclude a Memorandum of Understanding (MoU) between India's Central Power Regulatory Commission (CERC) and the US Federal Energy Regulatory Commission (FERC). Approved the proposal. Strengthen cross-border cooperation in the power sector.
On December 9, 2020, the Federal Cabinet approves the Securities and Exchange Commission's (SEBI) proposal to sign a bilateral memorandum of understanding between the Securities and Exchange Commission of India and the Securities and Exchange Commission of Luxembourg (CSSF). Did. Cross-border cooperation in the securities sector.
On December 9, 2020, the Ministry of Road Transport signed a memorandum of understanding with the Ministry of Climate Behavior, Environment, Energy, Mobility, Innovation and Technology of the Republic of Austria on technical cooperation in the road infrastructure sector.
On October 29, 2020, the Federal Cabinet approved a memorandum of understanding between India and Cambodia on cooperation in the areas of health and health care. The MoU is valid for 5 years.
October 6, 2020, India's Sign Language Research and Training Center-ISLRTC (National Institute under the Ministry of Social Justice and Empowerment's Department of Empowerment for the Disabled) and NCERT (Ministry of Education) for children with hearing impairment Make it accessible.
Bilateral trade between India and Mexico in October 2020 between India's Electronic Computer Software Export Promotion Council (ESC) and the Mexican Electronic Communication Information Technology Council (CANIETI) through cooperation in the following areas: MoU has been signed to further strengthen. As pharmaceuticals, medical devices, healthcare, agricultural products, fisheries, food processing, aerospace.
Foreign trade policy
On December 2, 2020, a meeting of the Board of Trade (BOT) was held under the chairmanship of Minister of Commerce and Industry Piyush Goyal. The focus of the conference was on the new Foreign Trade Policy (2021-26), which outlined policies and steps to promote domestic production and exports. Piyush Goyal said: People around the world need to trust that they can buy real estate, get all the approvals they need, participate in India's trade and industry, and expand their manufacturing and services network. "
In an interim review of Foreign Trade Policy (FTP) 2015-20, the Ministry of Commerce and Industry expanded the scope of the Commodity Export Scheme (MEIS) from India and the Service Export Scheme (SEIS) from India, raising MEIS incentives. Ready-made garments and make-up increased by 2%, SEIS incentives increased by 2%, and Duty Credit Scrips validity period increased from 18 months to 24 months. In April 2020, the government extended FTP for another year until March 31, 2021.
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