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http://mnmcommerce.blogspot.in/ Unit-XIII International Trade - B.O.P. – Tariffs, Quotas and Licences-Terms of Trade – World Lending Bodies – IMF, IBRD AND ADB – Impact of liberalizations, privatization and Globalisation. International Trade Trade may be classified into internal trade, external trade, wholesale and retail trade. The exchange of goods within the country is called Internal trade. The exchange of goods between the countries is called external or foreign trade. In wholesale trade, goods are sold to retailers in large quantities. In retail trade goods are sold in small quantities to the consumers. The exchange of goods and services between two or more countries is called foreign trade or international trade. Foreign trade is also termed as external trade. Foreign trade may be bilateral or multilateral. Trade between two countries is called as bilateral trade. Trade among many countries is called multilateral trade. The aims and Needs of International Trade: To raise national income and standard of living To enable even distribution of natural resources To enable even distribution of agricultural products To minimize hurdles in production To reduce differences in economic growth rate To share the benefit of low cost of production To enjoy the fruits of development of science and technology Benefits of International Trade Foreign trade leads to specialization and encourages the production of different types of goods in various countries It can import any commodity from other countries at lower costs. The advantages of large-scale production such as low cost, high quality, full utilization of factors of production etc can be achieved. Foreign trade improves quality of the commodities because of competition both within the nation and also at the international level. A developed foreign country can provide all types of technical know-how, machineries and equipments to the underdeveloped and developing countries Establishment of new industries with new modern technology under foreign collaborations creates employment opportunities in export –oriented and other industries. Demerits of International Trade Export and import procedures are more complicated and give more problems than internal trade
The underdeveloped country has to rely on the developed countries, which may lead to the exploitation by the developed countries International trade provides threat to the survival of the infant industries at home. 1
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http://mnmcommerce.blogspot.in/ Import of luxury goods and spurious drugs may hamper the well being of the people. Due to unhealthy competition in the international trade, enmity among the countries may increase
International trade may make one country a slave of other country. Types of Foreign Trade 1. Import Trade 2. Export Trade 3. Entrepot Trade Import trade : When goods are purchased from a foreign country it is called as import trade. Import trade policy: a) Proper use of foreign exchange, b) Restrictions on imports of non-essential and luxury goods and c) Developing indigenous industries. Import trade procedure: Trade enquiry: The first step the intending importer makes trade enquiry from the possible exporters Obtain import license and quota: As import of goods are controlled by the IMPORTS AND EXPORTS (CONTROL) ACT 1947,the person interested should get license for importing goods from the licensing authority. The general license permits the import of goods from any country whereas the specific license or individual license authorises to import from the specific countries only.
The import license is issued in duplicate. The first copy is presented to the customs authority at the time of clearance of goods and second copy is used for obtaining foreign exchange from the Reserve Bank Of India. Obtaining foreign exchange: In India the Reserve Bank of India is authorized to regulate the use of foreign exchange. Placing the indent or order a) Open indent: If the selection of goods and other details are left to the agent’s discretion in the foreign country it is called open indent. b) Closed indent: If an indent contains full particulars of the exact goods required it is called closed indent. c) Confirmatory indent: If the importer’s agent places an order subject to the conformation it is called confirmatory indent. Arranging letter of credit: It is an undertaking by the importer’s bank that the bills of exchange drawn by the foreign exporter on the importer will be honoured on presentation. Obtaining shipping documents: After receiving the order and the letter of credit, the exporter ships the goods. 2
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http://mnmcommerce.blogspot.in/ The exporter then intimates the importer about the dispatch of goods by sending an advice note to the importer. The advice note informs the importer about the probable date of arrival of the ship at the destination port. The exporter then draws a bill of exchange on the importer’s bank for the invoice value of the goods
If bills of exchange is with the necessary documents it is called“ Documentary Bill”. It consists of: 1) The bill of exchange and 2) Shipping Documents. The shipping document consists of the bill of lading, insurance policy, certificate of origin, consular invoice etc., which are forwarded to the importer’s bank through a foreign exchange bank which has a branch or an agent in the importer’s country for collecting the payment of the bill. Under the letter of credit arrangement, the importer’s bank will handover the documents to the importer who would take steps for getting the goods cleared from the customs authorities In the absence of a letter of credit, the bank will follow the instructions of the exporter in the matter of delivering the documents to the importer If the bill of exchange is marked as Documents against acceptance, the documents will be delivered to the importer on the acceptance of the bill. Usually 30 to 90 days are allowed for the payment of the bill. If the bill is marked Documents against Payment the documents will be delivered to the importer only on payment of the amount noted in the bill. Clearing the goods: After taking the possession of the documents of title to goods, the importer arranges for the clearance of the goods from the customs office by paying unloading charges, import duty or customs duty and port trust dues etc., Intermediaries involved in import trade: 1. Indent house: These intermediaries are specialized in a particular trade. They collect some commission from the importers for the services rendered to them. If the importer wants to make use of the services of an indent house, he has to enter into an agreement with the indent house. The indent house may also be called as Indent firms or Import commission houses. Functions of indent houses: They act as a middleman between the importers and exporters.
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http://mnmcommerce.blogspot.in/ They import goods from a foreign country on orders received from the home traders. They furnish information on the availability of different types of commodities and arrange credit facilities to the importer. The indent houses maintain contacts with the exporters and get samples of products from them.
These samples are shown to the local dealers and the orders are booked through their representatives. They convey the grievances and complaints of the importers to the exporters etc. 2. Clearing Agents: The importer has to fulfill various formalities before taking the delivery of the goods. The importer may take delivery of goods by him or appoint clearing agents. The clearing agents are the specialized persons engaged in the work of performing various formalities required for taking delivery of goods on behalf of others. They charge a commission for providing such services. Export Trade: when goods are sold to a trader in any foreign country it is known as export trade. Export trade procedure: Imports and Exports (Control) Act 1947 regulates the exports of goods from India. Receiving enquiries Receipt of order or indent Obtaining letter of credit Obtaining Export License or Quota: The export trade is regulated by the Import and Export (Control) Act 1947and also by the Foreign Trade (Development and Regulation) Act 1992. The exporter should apply to the Director General of Foreign Trade (DGFT) Or Regional Licensing Authority in the prescribed form. The license will be issued if the authority is satisfied. Compliance of foreign exchange regulations: - As per Foreign Exchange Regulation Act 1947(FERA), every exporter has to furnish a declaration that the exporter will surrender the foreign exchange to the extent of full value of goods to the Reserve Bank of India within a prescribed time. - For this purpose the exporter has to prepare FOUR COPIES of GR FROMS.GR form is a form prescribed by the Reserve Bank of India to ensure that the foreign exchange receipts in respect of exports are received in India within 180 days of the shipment.
Obtaining the Shipping Order: - The shipping Order contains instructions to the captain of the ship to receive the specific quantity of goods from the exporter mentioned therein.
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http://mnmcommerce.blogspot.in/ - It is the responsibility of the exporter to arrange for the transport of goods by entering into an agreement with a shipping company or its agent for hiring space in a ship.
- In that case the agreement with the shipping company is known as Charter Party agreement. - If it is the buyer’s responsibility to arrange for the transport, he should be advised of the date on which the goods would be ready for dispatch. Packing, marking and forwarding Preparation of Invoice and Consular invoice - The Invoice contains details about the name of the ship, particulars about the shipments, destination, indent numbers, details regarding packing and marking, price of the goods and other expenses. - It is prepared as per the terms and conditions agreed between the parties. In case of levy of ad valorem duties on the basis of value of goods, the consular invoice is sent by the exporter to the importer to be presented to the customs authorities. - This form is received from the consul of the importing country stationed in the exporter’s country. - In this form the exporter enters all the details of goods and certifies the value of the goods and afterwards the Consul issues the certificate. Obtaining customs clearance: - The exporter should present an application to export along with three copies of shipping bill and export license to the customs office. - On payment of duty if any, the customs authorities return two copies of the shipping bill along with license and G.R Forms to the exporter. - The second copy is left in the customs office. The customs authorities issue an export pass after going through all the formalities. Paying dock dues: - After paying the export duty, arrangement is made to carry the goods to the docks. Dock is a place in the harbor where the goods are loaded into the ship. - At this stage two copies of “dock challan” are submitted to the dock authorities along with one copy of shipping bill and shipping order. - The authorities retain one copy and return the second copy of dock receipt to the exporter or his agents. Verification of goods to be shipped Mate’s receipt: - When goods are loaded, the captain of the ship or his mate would issue a receipt known as Mate’s receipt. - This receipt contains details relating to the quantity of goods, number of packages, condition of packing etc., - If the Mate is satisfied a clean receipt is issued else a foul receipt is issued. Obtaining Bill of Lading Effecting insurance Obtaining certificate of origin Receiving payments 5
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Entrepot trade: If goods are imported from one country with the purpose of re-exporting to another country. It is called Entrepot trade. Import duty is not levied on these goods. Features of Entrepot Trade: No import duty is imposed on such goods. These goods are processed and re-packed for re-export. Such goods are kept in the Bonded warehouses till they are Reexported. Need of Entrepot Trade: When adequate banking facilities are not available in the importing country When the volume of trade does not justify to have regular foreign trade When it is difficult to establish direct link between the exporting country and the consuming country.
BLANCE OF PAYMENTS (BOP) Balance of payments (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. If the inflow of money into a country is more than the outflow, the balance of payments would be in surplus. If more money has gone out of the country and is more than the inflow, then it has a deficit in it balance of payments. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. Parts of BOP: Vertically the BOP is divided into debits and credits. 1. Debit –current international Expenditure 2. Credit – current international income Horizontally the BOP is divided into Current A/c and Capital A/c 1. Current A/c –The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It covers transactions in the "here and now" 6
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http://mnmcommerce.blogspot.in/ It includes
i) Commodity Import and Export ii) Service Import and Export 2. Capital A/c - The capital account records the net change in ownership of foreign assets. It includes the reserve account capital with loans and investments between the country and the rest of world. The term "capital account" is also used in the narrower sense that excludes central bank foreign exchange market operations: Sometimes the reserve account is classified as "below the line" and so not reported as part of the capital account. It is concerned with changes in the claims of resident on overseas residents and changes in the liabilities of residents to overseas resident. Here 1. Cash out flows - debit 2. Cash inflows - credit - It sub dived into 1) Long-Term Capital and 2) Short Term capital [ Real Transaction – Income creating Transaction] [Financial Transactions – Transactions involving, Transfer of Money (or) currency
(or) Claims to money (or) Titles of Investments – Also Known as Capital Transaction] Current A/c Transaction’s are again divided into 1. Visible items – we can see and touch when they cross the border 2. Invisible items – we cannot see and touch when they cross the border. IMF includes following are invisibles: 1. International transport of goods while in transit 2. Travel for reasons of business, education, health, international conventions (or) pleasure.
3. Insurance premium and payment of claims 4. Miscellaneous service items such as advertisement, film rental, pension, patent fees, royalties and membership fees. 5. Donations, migrant remittance. 6. Repayment commercial credits. 7. Contractual amortization and depreciation of direct investment. Deficit and surplus in Balance of Payments: Transaction - 1. Autonomous Transaction –Undertaken for their own sake, normally for the profit. 2.Induced Transaction – Movement of reserves (International Reserves)
[International Reserve – serve the purpose of filling up gaps in BOP] Deficit – Autonomous payments increased then autonomous receipts ( Payments – Imports and Receipts – Exports) Surplus – Receipts exceeds payments 7
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Some transaction: 1. A man in abroad sent money to his family in India 2. A man received gift from abroad 3. A company buys foreign Treasury Bills 4. A foreigner invests equity capital in our country 5. India lends to another country 6. Sale of goods by India 7. Drawing down official foreign exchange resource 8. Purchase of gold 9. Addition to official resource 10.Using SDR facility
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+ve entry, Inflow +ve entry, Inflow -ve entry, Out flow +ve entry, Inflow +ve entry, Out flow -ve entry, Out flow +ve entry, In flow -ve entry, Out flow -ve entry, Out flow +ve entry, In flow
Elimination of surplus / Deficit from BOP Surplus – Eliminated by lending to foreigners (i.e) by deficit in the capital A/c Deficit - Eliminated by purchasing gold (or) Addition to reseve. Accommodation / Balancing Transaction – any transaction intended to eliminate surplus or deficit. Equilibrium and Disequilibrium in Balance of Payments Equilibrium in BOP – Autonomous Receipts = Autonomous Payments Two kinds – 1. Static Equilibrium - Long term BOP Equilibrium 2.Dynamic Equilibrium – Short term BOP equilibrium Disequilibrium – they are three types of disequilibrium 1. Cyclical Disequilibrium – Caused by Trade cycles, Income elasticity, Price elasticity etc.,
2. Secular disequilibrium - Long term viz., Population, technological etc., 3. Structural disequilibrium - On account of structural changes. Sources of disequilibrium 1. Unavoidable and unforeseen causes, Ex: Failure of corps. 2. Change in consumer tastes, technological innovations and political changes. 3. Instability of foreign resources. 4. Polices of government. Theories of Disequilibrium 1. Classical Theory – Disequilibrium in terms of relative cost and price strecture. 2. Income Theory - Joan robinson, Harrod and Haballes, Disequilibrium in terms of relative income.
3. Demonstration effect Theory – Ragnar Nuke – standard of living of advanced countries served as “Demonstration Model” Measures of correcting disequilibrium: 1. Expenditure – Reducing Policies. 8
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http://mnmcommerce.blogspot.in/ Aim at reducing the domestic demand and income levels in order to curtail the demand for imports depressing prices and encouraging exports in order to correct the disequilibrium
2. Expenditure – Switching Policies Aim at shifting expenditure to goods produced at home and away from foreign countries. a) Devaluation – Reduction of the domestic value of the currency. b) Protection - Tariffs. QRs, Export subsidies etc.. to boost exports and curtail imports.
BOP – Summary of International transaction of a country and its citizens during a specified period of time B = R – P [ R-Receipt, P- Payments] B = Rf – Pf [ Rf – Receipts of Foreigners, Pf – Payments of Foreingers] When B = R – P (domestically) them Rf > Pf --- Surplus Rf < Pf --- Deficit BOP is one of the Economic barometer which measures the countries economic life. But BOP Surplus -- Not an indication of economic prosperity. BOP Deficit -- Not an indication of economic degradation. BOP – i) Market BOP - current / on going inflows and out flows ii) Acknowledge Balance of BOP – Statistical summary of all transaction in a year. Meaning of TARIFFS Tariffs is none of the classical methods of regulating trade. Tariffs referred to the taxes / duties imposed on internationally traded commodities when they cross the national boundaries. Tariffs, which are taxes on imports of commodities into a country or region, are among the oldest forms of government intervention in economic activity. They are implemented for two clear economic purposes. First, they provide revenue for the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports. High tariffs provide additional revenue to the government and also give protection to home industries by providing domestic markets to them. Tariffs are widely used to protect domestic producers' incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for import- competing goods, and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore, since 1948, when average tariffs on manufactured goods exceeded 30 percent in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of negotiations under the General Agreement on Tariffs Trade (GATT). Only in the most recent Uruguay Round of negotiations were trade and tariff Given current U.S. commitments under the WTO restrictions in agriculture addressed. 9
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http://mnmcommerce.blogspot.in/ In the past, and on market access, options are limited for U.S. policy even under GATT, tariffs levied on some agricultural innovations in the 2002 Farm Bill vis a vis tariffs on commodities by some countries have been very large agricultural imports from other countries.
Providing When coupled with other barriers to trade they have higher prices to domestic producers by increasing often constituted formidable barriers to market access tariffs on agricultural imports is not permitted I n from foreign producers. In fact, tariffs that are set addition, particularly because the U.S. is a net high enough can block all trade and act just like exporter of many agricultural commodities, import bans. Aim and kinds of tariffs: The aim of tariffs is to raise the prices of imported goods in domestic market, reduce their demand and thereby discourage their imports. It’s kinds are:Revenue tariffs - Protective tariffs Specific duties of tariffs - Ad valorem tariffs. Quotas: An quota implies a fixed quantity or value of a commodity that has been allowed to be imported in the country during a given period of time. In practice, quotas may be fixed either in terms of the physical volume or monetary value of imports or a combination of the two. Further, the time period to which quotas apply varies from country to country, the longest being a year, and the shortest a month. Quotas assigned in quantitative terms are referred to as direct quotas and those expressed in value units implying exchange control are called indirect quotas. WORLD LENDING BODIES: Co-operation in the monetary field refers to the joint efforts by a group of countries are regional or international level or both to resolve the problem of international payment either through bilateral or multilateral agreement (or) by setting up an international bodies.
INTERNATIONAL MONETARY FUND ( IMF ) Even before the second word war ended, monetary experts in the U.S.A and the U.K. began planning to solve the monetary problems likely to be faced after the war. Two different plans were chalked out, one by Mr.Keyne, American author and the other by Mr.White, a British author, and were named after them as Keynes plan and white plan. The two sets of proposals were subjected to intensive discussion and served as the basis for the Betton Woods Conference. The conference decided to set up tow organizations. 1. International Monetary fund (IMF) 10
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http://mnmcommerce.blogspot.in/ 2. Internationals Bank for Reconstruction and Development (IBRD) IMF is an international monetary organization. It was established on December 27, 1945 in Washington on the recommendations of Bretton Woods Conference. IMF started its operations on March 1. 1947 and the firse transactions were made in May 1947.
India is one of the founder members of IMF. The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Organization: -- Board of Governors: IMF is controlled and managed by a Board of Governors. Each member country nominates a Governor and one alternative Governor who casts his vote in the absence of the Governor. All he nominated Governors make the Board of Governors Each Governors is allotted a number of votes which is determined by the quota allotted to the respective country in the capital of IMF Executive Board: Most powerful organ of the fund, 21 directors, 5 from UA,UK, Germany, France and Japan, 6th from Saudi and other 15 directors, One non-voting chairman for executive board Interim committee set up – October 1974. QUOTA: When a country joins the fund, it is assigned a quotas that governs the size of its subscription, its voting power and it drawing rights. The main source of IMF resources is the quotas allotted to member countries. Till 1971, all the amounts of quotas and the assistance provided were denominated in US dollar, but since Dec.1971 all the quotas and transaction of IMF are expressed in SDR (Special Drawing Right) which is also known as Paper Gold. Since January 1, 1981 the value of SDR is being determined by the basket of currencies of 5 largest exporting member countries: US Dollar, Deutsche Mark, Yen, Franc and Pound Sterling. Functions: Regulatory Functions – Regulating the fund activities. 1. Consultative functions – Technical and other advices to member countries. 2. Lending operations – offers medium-term loans to the national monetary authorizes. The IMFs financing facilities are called as credit Tranches, there are four credit tranches as follows
1. Compensatory Financial Facility (CFF): Adopted on 1963 and modifies on 1975. To meet balance of payment difficulties arising out of temporary short falls in export earning for reasons beyond the control of the member. 11
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http://mnmcommerce.blogspot.in/ 2. Buffer Stock Facility (BSF) Created in 1969 for financing commodity buffer stock by member countries. This facility is equalent to 50 % of borrowing members quota. (co-op. Commodity price)
3. Extended Financing Facility (EFF) Created in 1974, provides credit to member countries to meet their BOP deficits for a longer periods and in amounts larger than their quotas under normal credit facilities. It provides credit up to a period of 10 years. ( It got loan in 1981 under EFF)
4. Supplementary financing Facility (SFF) Created in 1977, providing supplementary financing under extended or stand by arrangements to meet serious MOP deficits that are large in relation to their economy and their quota. From 1978 IMF is adopted fund Scheme (SDRs) instead of Gold Scheme. The IMF’s financial year is from 1 May to 30 April. Indian Finance Minister is ex-officio Governor in IMF Board of Governors. Till 1970, India was among the first five nations having the highest quota with IMF and due to this status India was allotted a permanent place in executive Board of Directors. Managing Director, Christine Lagarde, a French national, joined the IMF as Managing Director in July 2011. Before coming to the IMF, she was France's Minister for Economy, Finance and Industry International Bank for Reconstruction and Development (IBRD) • IBRD and its associate institutions as a group are known as the World Bank. • IBRD was established in 27 December 1945 with the IMF on the the basis of the recommendation of the Bretton Wood conference. • That is the reason why IMF and IBRD are called ‘Bretton Wood Twins’ • The IBRD is an international organization whose original mission was to finance the reconstruction of nations devastated by World War II. • Now, its mission has expanded to fight poverty by means of financing states • Aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. Highly Contributing member countries: USA , Japan, Germany, France, UK, Saudi Arabia, Chinna ,India, Netherlands and Australia. Organization: 1. Board of Governors 2. Executive Directors – 21, 6 of them appointed by USA, Japan, Germany, France, UK,India President is appointed by Executive directors. 3. Advisory committee – 7 members 4. Loan committee. 12
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http://mnmcommerce.blogspot.in/ World Banks Lending Proceedure: 1. Loans out of its own fund. 2. Loans out of borrowed fund 3. Loand through bank gurantee ( in such case commission 1 to 1.2%) It has two separate wings viz. 1. IFC 2. IDA International Finance Corporation (IFC) Started on 20th July 1950 – affiliate to world bank. Providing loans as well as risk capital to the private industrial under takings in developing countries. Membership: It is optional to World Bank members. Non-world Bank member cannot become member of IFC President of IBRD is the ex-officio chairman of the Board of Governors of IFC. Forms of Assistance: 1. Providing long term loans 2. Risk capital [Loans to be repaid only on American dollars] International Development Association: (IDA) Started on September 1960 – subsidiary of IBRD’s providing soft loan to its member countries.
As much as 50 years are allowed to repay its loan with lower interest the IMF. Loans can be repaid on its own currencies. It is considered as “Soft Loans Window” of the world Bank. IDA also sometimes provides loans to private industries undertaking without any guarantee from the government, provided such project is to be means of economic development of the country. Third window of the world bank: In 1975, the IMF & IBRD pooled their resources together and started “the third window” for the benefit of developing countries. The loans given under this window is intermediate (i.e) Not stringent as IMF nor soft as IDA.
To feed this window a “special subsidy Account “ has been set up by world bank. It also opened “Special Interest subsidy A/c” opened by world bank which was to be utilized to provide financial countries to enable them to pay interest on loans obtained through third window ( 4% of Int. given as subsidy) India is a member of four constituents of the World Bank Group i.e IBRD, IDA, IFC,MIGA (Multilateral Investment Guarantee Agency - 1988) But not of its fifth Institure ICSID ( International Centre for the settlement of Investment disputes- 1956) On July 1, 2007, Robert B. Zoellick became the 11th President of the World Bank Group 13
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http://mnmcommerce.blogspot.in/ Difference between IMF and World Bank:
• Before a country applies for membership in world Bank it must first be a member of IMF.
• World Bank aims at long term economic growth. IMF aims to oversee the international monetary system and help members to overcome short term financial problems. • World Bank lends only to poor countries. IMF lends to all who run short of foreign currency to cover short term financial obligation. • Disqualification in IMF automatically disqualifies the membership of IDBI Asian Development Bank The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia HQManila in the Philippines The ADB started is functioning on January 1st 1967. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly known as the United Nations Economic Commission for Asia and the Far East) and non-regional developed countries. From 31 members at its establishment, ADB now has 67 members - of which 48 are from within Asia and the Pacific and 19 outside. ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with member's capital subscription India is the third larges successful after Japan and USA. Organization The highest policy-making body of the bank is the Board of Governors composed of one representative from each member state. The Board of Governors, in turn, elect among themselves the 12 members of the Board of Directors and their deputy. Eight of the 12 members come from regional (Asia-Pacific) members while the others come from non-regional members. The Board of Governors also elect the bank's President who is the chairperson of the Board of Directors and manages ADB. The president has a term of office lasting five years, and may be reelected. Traditionally, and because Japan is one of the largest shareholders of the bank, the President has always been Japanese. Mr. Haruhiko Kuroda is the President of ADB and the Chairperson of ADB’s Board of Directors. Mr. Kuroda was first elected in November 2004, and was subsequently reelected for a full five-year term beginning November 2006. He has been reelected by ADB’s Board of Governors for a further five years beginning November 2011. Banks lending operations: 1. Ordinary operations – financed through Ordinary capital of the bank. The loan is of two forms viz., 14
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http://mnmcommerce.blogspot.in/ In the form of foreign resources In the form of national currency of the borrowing country. 2. Special operations. Lending operations of the bank which are financed out of the various special funds of the bank such as, technical Assistance special fund, multipurpose special fund etc.
It enmark 10% of its paid to creation of special fund. It also give high priority for forestry, environment and water shed. “Asian Development fund” is the soft window of ADB. India itself refrained form borrowing any from ADB for its own development. LPG (Liberalizations, Privatization and Globalisation) Rajiv Gandhi’s government initiated the policy of liberalization since mid-80s. The liberalization initiatives have been undertaken in India with a view to increase a production, improve quality and get access to market for products and service abroad. Radical liberalization or globalization measures have been brought in since July 1991 to make the Indian economy progressively market oriented and integrate it with the emerging global economy structure. There has been impressive growth in FDI inflows to India with the introduction of policy reforms.
As compared to a near total concentration in manufacturing till 1991, the bulk of new inflow has come in the energy and service sector. Liberalizations The New Industrial Policy, 1991 In this background, the Government of India announced its New Industrial Policy (NIP or IP) on July 24, 1991. The important objectives are: (a) to correct the distortions that may have crept in, and consolidate the strengths built on the gains already made, (b) to maintain sustained growth in the productivity and gainful employment, (c) to attain international competitiveness. Therefore, the basic philosophy of the New IP, 1991 has been the continuity with change. Industrial Licensing This is one of the areas in which substantial change has been made by the government. With a view to give effect to these changes, the government issued a notification [viz., Notification No. 477 (E)] on July 25, 1991 and this notification has exempted the industrial undertakings from the operation of the following Sections of Industries Development and Regulations Act, 1951 subject to the fulfillment of certain conditions. (a) Section 10 (which deals with registration of existing industrial undertakin[gs); (b) Section 11 (which is concerned with the licensing for new industrial undertakings); and (c) Section 13 (which is concerned with the licensing requirements for substantial expansion). 15
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Public Sector Policy A large number of Public Sector Enterprises have failed to achieve at least a reasonable rate of success. Some of the factors which have contributed to this situation are over staffing and over managing, price and distributions controls, etc. Hence, the government, in its Industrial Policy, 1991, introduced the number of significant changes pertaining to the PSEs. As a result, only six industries are now reserved for the public sector. They are: (a) Arms and ammunition and allied items of defence equipment, aircraft and warships, (b) Atomic energy, (c) Coal and lignite, (d) Mineral oils, (e) Minerals specified in the schedule to the Atomic Energy Order, 1953, and (f) Railway transport Foreign Investment As far as the direct foreign investment is concerned, the New Policy proposes to give automatic approval up to 51% of equity in the case of high priority industries and it has also identified 34 such industry groups. Further, the policy proposes to allow majority foreign equity holdings up to 51% of equity for the trading companies which are engaged in export activities. This is to enable the domestic companies an easy access to international markets. With a view to negotiate with the large international financial institutions and to approve the direct foreign investments proposals in selected areas, the New Policy proposes to constitute a special committee. Privatization In the sixties and seventies, the public sector policy has been largely guided by Industrial Policy Resolution, 1956 which gave the public sector a strategic role in the economy. During the last four decades, massive investments have been made to build a public sector which has a commanding role in the economy. Today, many key sector of the economy are dominated by the mature public sector enterprises that have successfully expanded the production. In the early post-Independence years, there was virtual consensus about the need for the government intervention in economic activities. Pandit Jawaharlal Nehru described the public sector as Temples of Modern India. At that time, virtually neither questioned the strategy nor raised any doubts about its implementation. The revolution of privatization started in 1980 and spread to many parts of the world. Several countries are privatizing their public sector enterprises. India is no exception to it. Privatization was meant to improve the performance of public enterprises.
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http://mnmcommerce.blogspot.in/ Privatization techniques have been tried in countries like Great Britain, China, US, Turkey, Brazil, Mexico, Japan, etc. Privatization, in the narrow sense, means transfer of ownership, or sale of public enterprises. However, privatization has been used in different ways as detailed below: 1. Liberalization Approach 2. Relative Share Enlargement Approach 3. Association of Private Sector Management Approach 4. Transfer of Complete Ownership Approach 5. Transfer of Minority Equity Ownership Approach In India, privatization is taking place by adopting two common methods viz., (a) Having fewer controls and regulations by the state in economic activities, and (b) Transferring ownership of state equity in PSUs to private individuals and institutions. Benefits of Privatization It is expected that privatization will ensure the following benefits: 1. Increasing overall efficiency: 2. Improvement in the quality of management and decision making: 3. No government financial backing, and therefore, capital market will compel these enterprises to be more efficient; 4. Substantial reduction in government’s budgetary support resulting in reduction in budgetary deficit; 5. Recovery of government fund which could more productively be used in development activities; 6. Reduction in political and bureaucratic interferences; & Better industrial relations management; etc. Methods of Privatization There are four important modes of privatization. They are: (a) Franchising, (b) Contracting, (c) Leasing, and d) Disinvestment. Globalisation The term Globalization as such denotes adjustment of national economy with that of the world economy.
It is conversion of a national market into international mobility of factors of production. In others words, it may be described as the integration of national economy with that of global economy.
An important attribute of Globalization is the increasing degree of openness, which has three dimensions, i.e.; international trade, international investment and international finance.
According to World Development Report, Globalization reflects the progressive integration of world’s economies. 17
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http://mnmcommerce.blogspot.in/ Factors contributing to Globalization: Technological Advances In communication: Improvements In Transportation And Technology: Rising educational levels, technological innovations Trends in Globalization: International Trade: International Migration: International Financial Flows: Advantages of Globalization: Promise of Increase Productivity And Higher Living Standards: Increase In Trade In Goods And Services: Provide New Opportunities For Growth: Globalization of Financial Markets: Increased Flow Of foreign Market Capital: Impact on Poverty: Increase The Level Of Interdependence And Competitiveness: Induce Domestic Firms To Improve Technology: Disadvantages of Globalization: Widens The Disparity: Ruin of Traditional Crafts And Industries: Brings Instability: Takeover of National Firms: The roots of education are bitter, but the fruit is sweet. - Aristolle
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