1.

BALANCE OF PAYMENT
2. EQUILIBRIUM AND DISEQUILIBRIUM IN BOP
3. TRENDS IN FOREIGN TRADE
4. DIRECTION OF INDIA'S FOREIGN TRADE
5. INDIAS TOP 10 EXPORTER
6. COMMODITIES GROUP
7. MAJOR IMPORTS AND EXPORTS OF INDIA
8. IMPORT AND EXPORT LICENCING PROCEDURE IN
INDIA

CHAPTER 14. STRUCTURE OF BALANCE OF PAYMENTS &

DISEQUILIBRIUM IN BOP
CHAPTER 14. STRUCTURE OF BALANCE OF PAYMENTS &
DISEQUILIBRIUM IN BOP
Q.
1:
Explain
the
Structure
of
Balance
of
Payments.
OR
Write note on Indias Balance of Trade.
Ans. A) STRUCTURE OF BALANCE OF PAYMENTS:The Balance of Payment (BOP) of a country is a systematic
account of all economic transactions between a country and the
rest of the world, undertaken during a specific period of time. BOP
is the difference between all receipts from foreign countries and
all payments to foreign countries. If the receipts exceed
payments, then a country is said to have favourable BOP, and
vice versa.
According to Charles Kindle Berger "The BOP of a country is a
systematic recording of all economic transactions between
residents of that country and the rest of the world during a given
period of time".
The Balance of payments record is maintained in a standard
double - entry book - keeping method. International transactions
enter into record as credit or debit. The payments received from
foreign countries enter as credit and payments made to other
countries as debit. The following table shows the elements of BOP.
BALANCE OF PAYMENTS ACCOUNT

Receipts (Credits)
1.

Export of goods.

Payments (Debits)

Imports of goods.
Trade Account Balance

2.
Export of services.
3.
Interest, profit and
dividends
received.
4. Unilateral receipts.

Import of services.
Interest, profit and dividends
paid.
Unilateral payments.

Current Account Balance (1 to 4)

5. Foreign investments.
Investments abroad.
6. Short term borrowings. Short term lending.
7. Medium and long term Medium and long term lending.
borrowing.
Capital Account Balance (5 to 7)
8.
9.

Errors and omissions.

Change in reserves. (+)
Total Reciepts

Errors and omissions.

Change in reserve (-)
=

Total

Payments
Total payments.

1.

Trade Balance :Trade balance is the difference between export and import of
goods, usually referred as visible or tangible items. If the exports
are more than imports, there will be trade surplus and if imports
are more than exports, there will be trade deficit. Developing
countries have most of the time suffered a deficit in their balance
of payments. The trade balance forms a part of current account.
In 2008-09, trade deficit of India was 118.6 US $ billion.
2.
Current Account Balance :-

It is the difference between the receipts and payments on

account of current account which includes trade balance. The
current account includes export of services, interest, profits,
dividends and unilateral receipts from abroad and the import of
services, profits, interest, dividends and unilateral payments
abroad. There can be either surplus or deficit in current account.
When debits are more than credits or when payments are more
than receipts deficit takes place. Current account surplus will take
place when credits are more and debits are less.
Current account balance is very significant. It shows a
country's earning and payments in foreign exchange. A surplus
balance strengthens the country's international financial position.
It could be used for development of the country. A deficit is a
problem for any country but it creates a serious situation for
developing countries. In 2009-10 Indias current account deficit
was 38.4 US $ billion.
3.
Capital Account Balance :It is the difference between receipts and payments on
account of capital account. The transactions under this title
involves inflows and outflows relating to investments, short term
borrowings I lending, and medium term to long term borrowings /
lending. There can be surplus or deficit in capital account. When
credits are more than debits surplus will take place and when
debits are more than credits deficit will take place. In 2009-10.
Indias capital account surplus was 51.8 US $ billion.
4.
Errors and Omissions :The double entry book - keeping principle states that for
every credit, there is a corresponding debit and therefore, there
should be a balance in BOP as well. In reality BOP may not
balance, due to errors and omissions. Errors may be due to
statistical discrepancies (differences) and omissions may be due
to certain transactions may not get recorded. For Eg., remittance
by an Indian working abroad to India may not get recorded etc. If
the current and capital account shows a surplus of 20,000 $, then
the BOP should show an increase of 20,000 $. But, if the
statement shows an increase of 22,000 $, then there is an error or
omission of 2,000 $ on credit side.
5.
Foreign Exchange Reserves :-

The balance of foreign exchange reserve is the combined

effect of current and capital account balances. The reserves will
increase when:a) The surplus capital account is much more than the deficit in
current account.
b) The surplus in current account is much more than deficit in
capital account.
c) Both the current account and capital account shows a surplus.
In 2009-10 Indias foreign exchange reserves increased by
13.4 US $ billion.
Q.2. Write note on Indias Balance of Trade
ANS. A. INDIAS BALANCE OF TRADE:Balance of trade is the difference between exports and
imports. Indias Balance of trade is mostly in deficit. This is due to
low share off Exports in world market. Imports are high due to
petroleum, oil andlubricant products.

INDIAS BALANCE OF TRADE (US $ Billion)

________________ I
Year
19902004200991
05
10
Exports
18.5
85.2
182.2
Imports
27.9
118.9
300.6
Trade Balance
-9.4
- 33.7
-118.4
Indias export performance is poor. At present, Indias share
off world export trade is 1%. The share of exports of other
developing countries is much more than India.
B.
REASONS FOR POOR PERFORMANCE OF INDIAS EXPORT
TRADE
There are Several reasons for Indias Poor performance.
Some off them are:
I. Export - Related Problems :1.
High Prices :-

As compared to other Asian Countries the price of Indian

goods is high. Prices are high due to documentation formalities,
high transaction costs & also to make higher profits.
2. Poor - Quality :Many Indian exporters do not give much importance
to quality control, so their products are of poor quality. Due to low
quality many times Indian goods are rejected & sent back to India
by foreign buyers.
3 Poor Negotiation Skills:Indian exporters lack Negotiation Skills due to poor
training in Marketing. They fail to Convince & induce the foreign
buyers to place orders.
4. Inadequate Promotion :For Export Marketing, Promotion is important.
Many Indian Exporters do not give much importance to
promotion. A good no. of Indian exporters are not professional in
advertising & Sales promotion. They do not take part in trade fairs
& exhibitions.
5. Poor follow-up of sales :Indian exporters are ineffective in providing after-saleservice. They do not bother to find out the reactions of buyers
after sale. This results in poor performance of Indias export trade.
II.
General Causes
1. Good Domestic Market
Sellers find a ready market for their goods within the country,
so they do not take patns to get orders from overseas markets.
2. Number of formalities
There are number of documentation & other formalities due to
which the some racketeers do not enter the export field. So there
is a need to simplify formalities.
3. Problem of Trading Blocs
Trading blocs reduce trade barriers on member nations, but
they impose trade barriers on non-members. As India is not a
member of some powerful trading blocs, it has to face some
problems.
4. Negative Attitude

Some of the overseas buyers have a negative attitude towards

Indian goods. They feel that Indian goods are inferior goods. Thus
there is a need to correct this attitude.
5. Poor Infrastructure
Indian infrastructure is poor. Indian exporters find it difficult to
get orders & also to deliver them at time.
Equilibrium of balance of payment
Balance of Payments Equilibrium:
Before we analyse the conditions of disequilibrium, we would like
to explain what is meant by equilibrium balance of payments.
Equilibrium is that state of the balance of payments over the
relevant time period which makes it possible to sustain an open
economy without severe unemployment on a continuing basis.
The essentials in this definition are:
(a) Relevant time period,
(b) Open-ness of economy (i.e., no undue restrictions on imports),
(c) Absence of unemployment, and
(d) Continuing basis of the equilibrium (i.e.; it is capable of being
sustained).
The period is generally one year. Thus, seasonal inequality
between exports and imports is not a sign of disequilibrium. When
the balance of payments of a country is in equilibrium, the
demand for domestic currency is equal to its supply.
The demand and supply situation is thus neither favourable nor
unfavorable. If the balance of payments moves against a country,
adjustments must be made by encouraging exports of goods,
services or other forms of exports, or by discouraging imports of

all kinds. No country can have a permanently unfavorable balance

of payments, though it is possibleand is quite common for some
countriesto have a permanently un-favourable balance of trade.
Total liabilities and total assets of nations, as of individuals, must
balance in the long run.
This does not mean that the balance of payment of a country
should be in equilibrium individually with every other country with
which she has trade relations. This is not necessary nor is it the
case in the real world. Trade relations are multilateral. India, for
instance, may have an active (i.e. surplus) balance of payments
with the United States and passive balance with the United
Kingdom and/or other countries. But each country, in the long
run, cannot receive more value than she has exported to other
countries taken together.
Equilibrium in the balance of payments, therefore, is a sign of the
soundness of a countrys economy. But disequilibrium may arise
either for short or long periods. A continued disequilibrium
indicates that the country is heading towards economic and
financial bankruptcy. Every country, therefore, must try to
maintain balance of payments in equilibrium.
4. Equilibrium of Balance of Payments:
Equilibrium is that state of the balance of payment over the
relevant time period which makes it possible to sustain an open
economy without severe unemployment on a continuing basis.
Whether the Balance of Payments is in equilibrium or not,
it can be justified with this help of the three following
test:
(i) Decrease in Foreign Exchange:
If gold continuously flows from the country, it may be assumed
that the balance of payments is in disequilibrium. At present the

decrease in foreign exchange reserves of our country indicate

such a situation.
(ii) Increase in Foreign Debts and Loans:
If the amount of foreign debts and loans increase, that indicates
the balance of payment of the country is in disequilibrium i.e.,
exports are less than imports,
(iii) Decrease in Foreign Exchange Rates:
If the foreign exchange rates of a country decrease, it may be
said that the country is suffering from the disequilibrium in the
balance of payments position.

Q.What are the Types of

BOP
Disequilibrium?
OR
Write note on Types of Disequilibrium in Balance of
Payments.
Ans. A. EQUILIBRIUM AND DISEQUILIBRIUM IN BOP :Balance of payments is the difference between the receipts
from and payments to foreigners by residents of a country. In
accounting sense balance of payments, must always balance.
Debits must be equal to credits. So, there will be equilibrium in
balance of payments.
Symbolically, B = R - P
Where : - B = Balance of Payments
R = Receipts from Foreigners

P = Payments made to Foreigners

When B = Zero, there is said to be equilibrium in balance of
payments.
When B is positive there is favourable balance of payments;
When &. B is negative there is unfavourable or adverse balance of
payments.' When there is a surplus or a deficit in balance of
payments there is said : to be disequilibrium in balance of
payments. Thus disequilibrium refers to imbalance in balance of
payments.
B.

TYPES OF DISEQUILIBRIUM IN BOP

The following are the main types of disequilibrium in the
balance of payments:1.
Structural Diseguilibrium :Structural disequilibrium is caused by structural changes in
the economy affecting demand and supply relations in commodity
and factor markets. Some of the structural disequilibrium are as
follows :a. A shift in demand due to changes in tastes, fashions, income
etc. would
decrease or increase the demand for imported goods thereby
causing a
disequilibrium in BOP.
b. If foreign demand for a country's products declines due to
new and cheaper substitutes
abroad, then the country's exports will decline causing a
deficit.
c. Changes in the rate of international capital movements may
also cause structural
disequilibrium.
d. If supply is affected due to crop failure, shortage of rawmaterials, strikes, political instability
etc., then there would
be deficit in BOP.
e. A war or natural calamities also result in structural changes
which may affect not only goods
but also factors of production causing disequilibrium in BOP.

f.
Institutional changes that take place within and outside the
country may result in BOP
disequilibrium. For Eg. if a trading block imposes additional import
duties on products imported in member countries of the block,
then the exports of exporting country would be restricted or
reduced. This may worsen the BOP position of exporting country.
2.
Cyclical Disequilibrium :Economic activities are subject to business cycles, which
normally have four phases Boom or Prosperity, Recession,
Depression and Recovery. During boom period, imports may
increase considerably due to increase in demand for imported
goods. During recession and depression, imports may be reduced
due to fall in demand on account of reduced income. During
recession exports may increase due to fall in prices. During boom
period, a country may face deficit in BOP on account of increased
imports.
Cyclical disequilibrium in BOP may occur because
a. Trade cycles follow different paths and patterns in different
countries.
b. Income elasticities of demand for imports in different countries
are not identical.
c. Price elasticities of demand for imports differ in different
countries.
3.
Short - Run Disequilibrium :This disequilibrium occurs for a short period of one or two
years. Such BOP disequilibrium is temporary in nature. Short - run
disequilibrium arises due to unexpected contingencies like failure
of rains or favourable monsoons, strikes, industrial peace or
unrest etc. Imports may increase exports or exports may increase
imports in a year due to these reasons and causes a temporary
disequilibrium exists.
International borrowing or lending for a short - period would
cause short - run disequilibrium in balance of payments of a
country. Short term disequilibrium can be corrected through short
- term borrowings. If short - run disequilibrium occurs repeatedly
it may pave way for long - run disequilibrium.
4.
Long - Run I Secular Disequilibrium :-

Long run or fundamental disequilibrium refers to a

persistent deficit or a surplus in the balance of payments of a
country. It is also known as secular disequilibrium. The causes of
long - term disequilibrium are
a. Continuous increase in demand for imports due to increasing
population.
b. Constant price changes - mostly inflation which affects exports
on continuous basis.
c. Decline in demand for exports due to technological
improvements in importing countries, and as
such the importing countries depend less on imports.
The long run disequilibrium can be corrected by making
constant efforts to increase exports and to reduce imports.
5.
Monetary Diseguilibrium
Monetary disequilibrium takes place on account of inflation
or deflation. Due to inflation, prices of products in domestic
market rises, which makes exports expensive. Such a situation
may affect BOP equilibrium. Inflation also results in increase in
money income with people, which in turn may increase demand
for imported goods. As a result imports may turn BOP position in
disequilibrium.
6.
Exchange Rate Fluctuations :A high degree of fluctuation in exchange rate may affect the
BOP position. For Eg. if Indian Rupee gets appreciated against
dollar, then Indian exporters will receive lower amounts of foreign
exchange, whereas, there will be more outflow of foreign
exchange on account of higher imports. Such a situation will
adversely affect BOP position. But, if domestic currency
depreciates against foreign currency, then the BOP position may
have positive impact.
Q. 4 : What are the main causes of BOP
Disequilibrium?
OR
Discuss the causes of disequilibrium in Balance
of Payments? (M.11)
Ans. A. CAUSES OF DISEQUILIBRIUM IN BOP

1.

2.

3.

4.

5.

6.

Any disequilibrium in the balance of payment is the result of

imbalance between receipts and payments for imports and
exports. Normally, the term disequilibrium is interpreted from a
negative angle and therefore, it implies deficit in BOP.
The disequilibrium in BOP is caused due to various factors.
Some of them are
I.
Import - Related Causes
The rise in imports has been the most important factor
responsible for large BOP deficits. The causes of rapid expansion
of imports are :Population Growth
Population Growth may increase the demand for imported
goods such as food items and non food items, to meet their
growing needs. Thus, increase in imports may lead to BOP
disequilibrium.
Development Programme
Increase in development programmes by developing
countries may require import of capital goods, raw materials and
technology. As development is a continuous process, imports of
these items continue for a long time landing the developing
countries in BOP deficit.
Imports Of Essential Items
Countries which do not have enough supply of essential
items like Crude oil or Capital equipments are required to import
them. Again due to natural calamities government may resort to
heavy imports, which adversely affect the BOP position.
Reduction Of Import Duties
When import duties are reduced, imports becomes
cheaper as such imports increases. This increases the deficit in
BOP position.
Inflation
Inflation in domestic markets may increase the demand
for imported goods, provided the imported goods are available at
lower prices than in domestic markets.
Demonstration Effect
An increase in income coupled with awareness of higher
living standard of foreigners, induce people at home to imitate the

foreigners. Thus, when people become victims of demonstration

effect, their propensity to import increases.
II.
Export Related Causes :Even though export earnings have increased but they have
not been sufficient enough to meet the rising imports. Exports
may reduce without a corresponding decline in imports. Following
are the causes for decrease in exports
1.
Increase In Population :Goods which were earlier exported may be consumed by
rising population. This reduces the export earnings of the country
leading to BOP disequilibrium.
2.
Inflation :When there is inflation in domestic market, prices of export
goods increases. This reduces the demand of export goods which
in turn results in trade deficit.
3.
Appreciation Of Currency :Appreciation of domestic currency against foreign currencies
results in lower foreign exchange to exporters. This demotivates
the exporters.
4.
Discovery Of Substitutes :With technological development new substitutes have come
up. Like plastic for rubber, synthetic fibre for cotton etc. This may
reduce the demand for raw material requirement.
5.
Technological Development :Technological Development in importing countries may
reduce their imports. This can be possible when they start
manufacturing goods which they were exporting earlier. This will
have an adverse effect on exporting countries.
6.
Protectionist Trade Policy :Protectionist trade policy of importing country would
encourage domestic producers by giving them incentives,
whereas, the imports would be discouraged by imposing high
duties. This will affect exports.
III.
Other Causes :1.
Flight of Capital
Due to speculative reasons, countries may lose foreign
exchange or gold stocks. Investors may also withdraw their
investments, which in turn puts pressure on foreign exchange
reserves.

2.

Globalisation
Globalisation and the rules of WTO have brought a liberal
and open environment in global trade. It has positive as well as
negative effects on imports, exports and investments. Poor
countries are unable to cope up with this new environment.
Ultimately they become loser and their BOP is adversely affected.
3.
Cyclical Transmission
International trade is also affected by Business cycles.
Recession or depression in one or more developed countries may
affect the rest of the world. The negative effects of trade cycle
(low income, low demand, etc.) are transmitted from one country
to another. For eg. The current financial crisis in U.S.A. is affecting
the rest of the world.
4.
Structural Adjustments
Many countries in recent years are undergoing structural
changes. Their economies are being liberalised. As a result,
investment, income and other variables are changing resulting in
changes in exports and imports.
5.
Political factors
The existence of political instability may result in disrupting
the productive apparatus of the country causing a decline in
exports and increase in imports. Likewise, payment of war
expenses may also serious affect disequilibrium in the countrys
BOP. Thus political factors may also produce serious
disequilibrium in the countrys BOPs.
Q. 5 : Explain the different measures to correct
disequilibrium in BOP.
OR
Examine the measures taken by government to
overcome the BOP crisis.
OR
What are the measures to be undertaken to correct
BOP disequilibrium.
Ans. A. MEASURES TO CORRECT DISEQUILIBRIUM IN BOP :Any disequilibrium (deficit or surplus) in balance of
payments is bad for normal internal economic operations and
international economic relations. A deficit is more harmful for a
countrys economic growth, thus it must be corrected sooner than
later. The measures to correct disequilibrium can be broadly
divided into four groups

MEASURES

Monetary
Rate
Policy

I.
1)

Fiscal
Nonmonetary
Policy
Policy

Exchange
Policy

Monetary Measures :Monetary Policy :The monetary policy is concerned with money supply and
credit in the economy. The Central Bank may expand or contract
the money supply in the economy through appropriate measures
which will affect the prices.
A.
Inflation :If in the country there is inflation, the Central Bank through its
monetary policy will make an attempt to reduce inflation. The
Central Bank will adopt tight monetary policy. Money supply will
be controlled by increase in Bank Rate, Cash Reserve Ratio,
Statutory Ratio etc.
The monetary policy measures may reduce money supply,
and encourage people to save more, which would reduce inflation.
If inflation is reduced, the prices of domestic market will decrease
and also that of export goods. In foreign markets there will be
more demand for export goods, which would correct BOP
disequilibrium.
B.
Deflation :During deflation the Central Bank of the country may
adopt easy monetary policy. It will try to increase money supply
and
credit
in
the
economy,
which
would
increase
investment. More investment leads to more production. Surplus
can be exported, which in turn may improve BOP position.

2)

Fiscal Policy
Fiscal policy is government's policy on income and
expenditure. Government incurs development and non development expenditure,. It gets income through taxation and
non - tax sources. Depending upon the situation governments
expenditure may be increased or decreased.
a)
Inflation
During inflation the government may adopt easy fiscal
policy. The tax rates for corporate sector may be reduced, which
would encourage more production and distribution including
exports. Increased exports will bring more foreign exchange there
by making the BOP position favourable.
b)
Deflation
During deflation the government would adopt restrictive
fiscal policy.It may impose additional taxes on consumers or may
introduce tax saving schemes. This may reduce the consumption
of citizens, which in turn may enable more export surplus.
To restrict imports the government may also impose
additional tariffs or customs duties which may improve the BOP
position.
3)
Exchange Rate Policy
Foreign exchange rate in the market may directly or
indirectly be influenced by the Government.
a)
Devaluation
When foreign exchange problem is faced by the country, the
government tries to reduce imports and .increase exports. This is
done through devaluation of domestic currency. Under
devaluation, the- government makes a deliberate effort to reduce
the value of home country. If devaluation is carried out, then the
exports will become cheaper and imports costlier. This is turn will
help to reduce imports and increase exports.
b)

Depreciation
Depreciation like devaluation lowers the value of domestic
currency or increases the value of foreign currency. Depreciation
of a country's currency takes place in free or competitive foreign
exchange market due to market forces. Depreciation and
devaluation have the same effect on exchange rate. If there is
high demand for foreign currency than its supply, it will

appreciate and vice versa. However, in several countries the

system of managed flexibility is followed. If there is more demand
for foreign exchange, the central bank will release the foreign
currency in the market from its reserves so as to reduce the
appreciation of foreign currency. If there is less demand for
foreign exchange, it will purchase the foreign currency from
market so as to reduce the depreciation of foreign country and
appreciation of domestic currency.
Due to devaluation and depreciation of domestic currency,
the exports become cheaper and imports become expensive. This
helps to increase exports.
I)

Non-Monetary / General Measures :

A deficit country along with monetary measures may
adopt the following non-monetary measures too, which will either
restrict imports or promote exports.
1)
Tariffs :Tariffs refer to duties on imports to restrict imports. Tariff is a
fiscal device which may be used to correct an adverse balance of
payments. The imposition of import duties will raise the prices of
imports. This will lead to a reduction in demand for imports
thereby improving the balance of payments position.
2)
Quotas :Under Quota System, the government may fix and permit
the maximum quantity or value of a commodity to be imported
during a given period. By restricting imports through quota
system, the deficit is reduced and the balance of payments
position is improved.
3)
Export Promotion :The government may introduce a number of export
promotion measures to encourage exporters to export more so as
to earn valuable foreign exchange, which in turn would improve
BOP Situation. Some of the incentives are Subsidies, Tax
Concessions, Grants, Octroi refund, Excise exemption, Duty
Drawback, Marketing facilities etc.
4)
Import Substitution
Governments, especially, that of the developing countries
may encourage import substitution so as to restrict imports and
save valuable foreign exchange. The government may encourage

domestic producers to produce goods which were earlier

imported. The domestic producers may be given several
incentives such as Tax holiday, Cash Subsidy, Assistance in
Research & Development, Providing technical assistance,
Providing Scarce inputs etc.
A. CONCLUSION :-From the above measures it is clear that
more exports with import substitution based on economic
strength of the country are the real effective solutions to
correct the disequilibrium in the balance of payments.
5 Major Current Trends in Foreign Trade
Major current trends in foreign trade are as follows:
Current trends are towards the increasing foreign trade and
interdependence of firms, markets and countries.
Intense competition among countries, industries, and firms on a
global level is a recent development owed to the confluence of
several major trends. Among these trends are:
1) Forced Dynamism:
International trade is forced to succumb to trends that shape the
global political, cultural, and economic environment. International
trade is a complex topic, because the environment it operates in
is constantly changing. First, businesses are constantly pushing
the frontiers of economic growth, technology, culture, and politics
which also change the surrounding global society and global
economic context. Secondly, factors external to international
trade (e.g., developments in science and information technology)

are constantly forcing international trade to change how they

operate.
2) Cooperation among Countries:
Countries cooperate with each other in thousands of ways
through international organisations, treaties, and consultations.
Such cooperation generally encourages the globalization of
business by eliminating restrictions on it and by outlining
frameworks that reduce uncertainties about what companies will
and will not be allowed to do. Countries cooperate:
i) To gain reciprocal advantages,
ii) To attack problems they cannot solve alone, and
iii) To deal with concerns that lie outside anyones territory.
Agreements on a variety of commercially related activities, such
as transportation and trade, allow nations to gain reciprocal
advantages. For example, groups of countries have agreed to
allow foreign airlines to land in and fly over their territories, such
as Canadas and Russias agreements commencing in 2001 to
allow polar over flights that will save five hours between New York
and Hong Kong.
Groups of countries have also agreed to protect the property of
foreign-owned companies and to permit foreign-made goods and
services to enter their territories with fewer restrictions. In
addition, countries cooperate on problems they cannot solve

alone, such as by coordinating national economic programs

(including interest rates) so that global economic conditions are
minimally disrupted, and by restricting imports of certain products
to protect endangered species.
Finally, countries set agreements on how to commercially exploit
areas outside any of their territories. These include outer space
(such as on the transmission of television programs), non-coastal
areas of oceans and seas (such as on exploitation of minerals),
and Antarctica (for example, limits on fishing within its coastal
waters).
3) Liberalization of Cross-border Movements:
Every country restricts the movement across its borders of goods
and services as well as of the resources, such as workers and
capital, to produce them. Such restrictions make international
trade cumbersome; further, because the restrictions may change
at any time, the ability to sustain international trade is always
uncertain. However, governments today impose fewer restrictions
on cross-border movements than they did a decade or two ago,
allowing companies to better take advantage of international
opportunities. Governments have decreased restrictions because
they believe that:
i) So-called open economies (having very few international
restrictions) will give consumers better access to a greater variety
of goods and services at lower prices,

ii) Producers will become more efficient by competing against

foreign companies, and
iii) If they reduce their own restrictions, other countries will do the
same.
4) Transfer of Technology:
Technology transfer is the process by which commercial
technology is disseminated. This will take the form of a
technology transfer transaction, which may or may not be a
legally binding contract, but which will involve the
communication, by the transferor, of the relevant knowledge to
the recipient. It also includes non-commercial technology
transfers, such as those found in international cooperation
agreements between developed and developing states. Such
agreements may relate to infrastructure or agricultural
development, or to international; cooperation in the fields of
research, education, employment or transport.
5) Growth in Emerging Markets:
The growth of emerging markets (e.g., India, China, Brazil, and
other parts of Asia and South America especially) has impacted
international trade in every way. The emerging markets have
simultaneously increased the potential size and worth of current
major international trade while also facilitating the emergence of
a whole new generation of innovative companies. According to A
special report on innovation in emerging markets by The

Economist magazine, The emerging world, long a source of

cheap la, now rivals the rich countries for business innovation.
Introduction to Direction of India's Foreign Trade

By direction of trade we mean the countries with which India

keeps international trade relations. It also helps us to understand
the diplomatic relations maintained by India with other countries
in direction of trade.
For the purpose of direction of trade, the countries to which India
exports are broadly divided into following five groups.

The group of countries to which India Exports are :Organisation for Economic Co-operation & Development (OECD)
comprising of USA, Canada, European Union (EU), Australia and
Japan.
Organisation of Petroleum Exporting Countries (OPEC) which
includes Kuwait, Iran, Iraq, Saudi Arabia and others.
Eastern Europe which includes Romania, Russia and others.
Developing Nations which includes China, Hong Kong, South
Korea, Singapore and Malaysia.
A. Direction of India's Exports

The above table reveals following changes in India's Exports :1. OECD
The OECD group accounted for a major portion of India's exports.
The share of this group was 56.4% in 1990-91 & 44.3% in 200506. About 45% of these exports have been to European Union
(EU) countries.
2. OPEC
The share of OPEC which was 5.6% in 1990-91. In 2005-06 it has
increased to 14.8% i.e. share of OPEC has been showing an
upward trend since 1990-91.
3. Eastern Europe
There was a rapid decrease in the share of Eastern Europe
particularly U.S.S.R. Due to political problems & disintegration of
the U.S.S.R, the share of Eastern Europe decreased from 17.9% in
1990-91 to 1.9% in 2005-06.
4. Developing Countries
The share of developing nations increased from 17.1% in 1990-91
to 38.7% in 2005-06. Asian countries now account for 1/4 th of
India's export earnings. Among the Asian countries the major
export destinations have been Hong Kong, Singapore & Thailand.

5. Other Countries
The share of other countries has declined from 3.00% in 1990-91
to 0.3% in 2005-06.
Important Facts of India's Country Wise Exports
The share of U.K in India's exports declined from 26.9% in 196061 to 4.5% in 2004-05.
The share of USA in India's exports was 16% in 1960-61 and it
rose to 16.7% in 2004-05. India was dependent on U.K and U.S.A
for 43% of its export earnings in 1960-61. US to be the single
largest trading partner for India but with a declining trend.
The share of U.S.S.R. (Russia) rose from 4.5% in 1960-61 to 18.3%
in 1980-81 but declined to 0.8% in 2004-05 due to the
disintegration of U.S.S.R. Between 1986-90, the first position was
occupied by U.S.A, second position by U.S.S.R and the third
position by Japan. The position changed markedly after the
disintegration of U.S.S.R.
In the recent years, export to East Asian Countries has increased,
mainly Hong Kong, Singapore and Thailand.
There has been a healthy growth of bilateral trade between India
and China. In the first seven months of 2002-03, Indo-China
bilateral trade expanded by 43.4%. China is the second largest
trading partner for India next to USA.
B. Direction of India's Imports
Since the last decade, there has been a distinct shift in the
direction of trade. The share of OECD countries both in exports &
imports is on the decline. Eastern Europe is no more a major
partner in our trade. Its share has reached the lowest among the
group. The Asian developing countries are becoming important
trade partners.

The above table reveals following changes in India's Imports :1. OECD - Organisation for Economic Co-operation and
Development
The share of OECD in India's import expenditure declined from
54% in 1990-91 to 32.73% in 2005-06. Thus the importance of
OECD declined over the period 1990-91 to 2005-06.
2. OPEC - Organisation of Petroleum Exportinq Countries
OPEC mainly include Iran, Iraq, Kuwait and Saudi Arabia. The
share of OPEC countries decreased from 16.3% in 1990-91 to
7.7% in 2005-06 mainly because of crude oil. There has been a
change in the source of oil imports from OPEC to other countries.
3. Eastern Europe
This includes mainly the former USSR. India's share of imports
from Eastern Europe has also declined from 7.8% in 1990-91 to
2.6% in 2005-06. This is mainly due to decline in imports from
Russia.
4. Developing Nations
This includes the developing countries of Africa, Asia, Latin
America and Caribbean. The share of developing nations in India's
import expenditure increased from 18.4% in 1990-91 to 25.9% in
2005-06.

5. Other Countries
The share of other countries increased from 3.5% in 1990-91 to
31.1% in 2005-06.
Important Facts of India's Country Wise Imports
The share of U.S.A in India's imports was 29.2% and that of U.K
was 19.4% in 1960-61. U.S.A. ranked first and U.K ranked the
second. During the whole planning period, India has obtained
maximum imports from U.S.A.
With the emergence of new trading partners like Japan, Germany
and Canada the dependence on U.K. declined. The share of U.K. in
Indian imports declined from 19.4% in 1960-61 to 3.2% in 200405.
Trade with Japan increased in absolute terms and India has now
entered in to a number of collaborations with Japan. The
percentage share of Japan has decreased from 5.4% in 1960-61 to
2.8% in 2004-05.
Trade with USSR occupied the second place next to USA, during
1984. The share of USSR increased from 1.4% in 1960-61 to
10.4% in 1984-85. With the disintegration of USSR, the share of
Russia fell to 1.2% in 2004-05. The directions has now changed
markedly.
The share of developing countries has constituted more than
1/4th of total imports in 2004-05 of these imports from Asian
countries are most important.
Conclusion on Direction of India's Foreign Trade

Significant changes have taken place in the direction of India's

foreign trade since 1991, and more particularly during the last

two-three years. What's most significant is the emergence of

China, Singapore, Hong Kong, South Korea & Malaysia as
important trading partners of India from the Asian region,
Switzerland from OECD countries, and UAE & Indonesia (which left
OPEC in 2008) from OPEC countries.
However, India should cultivate more trade relations with Africa,
South America and Middle-East Asian Countries as these rich
countries would offer huge markets for India's export.
The diversification of India's exports has fetched a cheaper source
of imports and a bigger market for exports. India has established
herself in the highly competitive world market in the recent years .
Indias Top 10 Exports
The following export product groups represent the highest dollar
value in Indian global shipments during 2015. Also shown is the
percentage share each export category represents in terms of
overall exports from India.
1. Gems, precious metals: US$38.8 billion (14.7% of total
exports)
2. Oil: $30.9 billion (11.7%)
3. Vehicles: $14.1 billion (5.3%)
4. Machines, engines, pumps: $13.2 billion (5%)
5. Pharmaceuticals: $12.5 billion (4.7%)
6. Organic chemicals: $11.2 billion (4.3%)
7. Clothing (not knit or crochet): $9.4 billion (3.5%)
8. Electronic equipment: $7.9 billion (3%)
9. Knit or crochet clothing: $7.8 billion (2.9%)
10. Cotton: $7.5 billion (2.8%)
Pharmaceuticals were the fastest-growing among the top 10
export categories, up 51.7% for the 5-year period starting in
2011.
In second place for improving export sales were vehicles which
gained 36.7% led by cars.
Indian unknit and non-crocheted clothing posted the third-fastest
gain in value at 34%.

The only declining category among the top 10 Indian exports was
oil which was down by -45.3% particularly refined petroleum
products.
Exports by Principal Commodities
Disaggregated data on exports by Principal Commodities, in $ terms, available for the
period 2009-10 (AprilSeptember) as compared with the corresponding period of the
previous year are given in Table 2.2. Exports during the period registered a decline of (-)
29.67 per cent mainly due to significant fall in the exports of Engineering Goods, Gems &
Jewellery, Petroleum Products, Agriculture and allied products, Chemical & related
products and Ores & Minerals.

The share of top five Principal Commodity Groups in Indias total

exports during 2009-10 (April-September) is given at Chart 2.2.
The export performance (in terms of growth) of top five
commodities
during
2009-10
(April-September) vis-a-vis the corresponding period of the
previous year is shown at Chart 2.3.
Plantation Crops
Export of plantation crops during 2009-10 (AprilSeptember),
decreased by 25.8 per cent in US $ terms compared with the
corresponding period of the previous year. Export of Coffee
registered a negative growth of 34.6 per cent, the value
increasing from US $ 610.1 million to US $ 452.4 million. Export of
Tea also decreased by 17.7 per cent.

Agriculture and Allied Products

Agriculture and Allied Products as a group include Cereals, Pulses,
Tobacco, Spices,Nuts and Seeds, Oil Meals, Guargum Meals,
Castor Oil, Shellac, Sugar & Molasses,Processed Food, Meat &
Meat Products, etc. During 2009-10 (AprilSeptember), exports of
commodities under this group registered a negative growth of
34.1 per cent with thevalue of exports falling from US $ 8613.8
million in the previous year to US $ 5675.2 million during the
current year.

Ores and Minerals

Exports of Ores and Minerals were estimated at US $
2884.1million during 2009-10 (April-September) registering a
negative growth of 35.5 per cent over the same period of the
previous year. Sub groups viz. Processed Minerals, has recorded a
negative growth of 28.9 per cent and Coal a positive growth of
40.4 per cent respectively. Mica has registered negative growth of
27.7per cent.
Leather and Leather Manufactures
Export of Leather and Leather Manufactures recorded a negative
growth of 24.0 per cent during 2009-10 (April-September). The
value of exports decreased to US $ 1531.0 million from US $
2013.0 million during the same period of the previous year.
Exports of Leather and Manufactures have registered a negative

growth of 28.5 per cent and Leather Footwear also registered a

negative growth of 18.2 per cent.
Gems and Jewellery
The export of Gems and Jewelry during 2009-10 (April-September)
decreased to US $ 13608.4 million from US $ 17387.7million
during the corresponding period of last year showing a negative
growth of 21.7 per cent.
Chemicals and Related Products
During the period 2009-10 (April-September), the value of exports
of Chemicals and Allied Products decreased to US $ 10550.0
million from US $ 13228.1 million during the same period of the
previous year registering a negative growth of 20.2 per cent.
Rubber, Glass & Other Products; Residual Chemicals & Allied
Products and Basic Chemicals, Pharmaceuticals & Cosmetics and
Plastic & Linoleum have also registered a negative growth.
Engineering Goods
Items under this group consist of Machinery, Iron & Steel and
Other Engineering items. Export from this sector during the period
2009-10 (April-September) stood at US $ 15143.7million
compared with US $ 23214.0 million during the same period of
the previous year, registering a negative growth of 34.8 per cent.
Export of Machine Tools and Transport Equipments have
registered negative growth of 42.6 and 19.1 per cent respectively.
Electronic Goods
During the period 2009-10 (April-September), exports of
Electronic Goods as a group were estimated at US $3086.8 million
compared with US $ 3828.2 million during the corresponding
period of last year, registering a negative growth of 19.4 per cent.
Textiles
During the period 2009-10 (April-September), the value of Textiles
exports was estimated at US $ 8657.3 million compared with US $

10151.5 million in the corresponding period of the previous year,

recording a negative growth of 14.7 per cent. The export of
Natural Silk Textiles registered a negative growth of 31.0 per cent
and Manmade Textiles & Made Ups has shown a positive growth of
2.4 per cent.
Handicrafts and Carpets
Exports of Handicrafts declined to US $ 94.6 million during 200910 (April-September), from US $ 167.2 million during the
corresponding period of the previous year registering a negative
growth of 43.4 per cent. Export of carpets increased marginally to
US $ 437.8 million from US $ 427.9 million during the same period
last year registering a positive growth of 2.3 per cent.
Project Goods
During 2009-10 (April-September), the export of Project Goods
were estimated at US $ 63.5 million compared with US $ 118.6
million during the corresponding period of last year registering a
negative growth of 46.4 per cent.
Petroleum Products
Export of Petroleum Products decreased to US $ 10579.8 million
during 2009-10 (April-September), as compared with US $
18721.4 million during the same period of last year recording a
negative growth of 43.5 per cent.

Cotton Raw including Waste

There was a negative growth in the exports of Cotton Raw
including waste by 35.3 per cent from US $ 400.3 million in 200809 (April-September) to US $ 259.0 million during 2009-10 (AprilSeptember).
Imports by Principal Commodities
Disaggregated data on imports by principal commodities, in $
terms, available for the period 2009-10 (AprilSeptember), as
compared to the corresponding period of the previous year are
given in Table 2.3. Imports during the period

registered a decline of (-) 23.7 per cent due to a significant fall in

the import of commodities such as Petroleum crude & products,
Gold, Electronics Goods, Machinery (except electrical &
electronics) and Pearls Precious and semi-precious stones, etc.
The share of top five Principal Commodity in Indias total imports
during 2009-10 (April-September) is given at Chart 2.4.
The import performance by top five Principal commodities during
2009-10 (AprilSeptember) vis-a-vis the corresponding period of
the previous year is shown at Chart 2.5.

Fertilizers
During 2009-10 (April-September),
import of Fertilizers
(manufactured) decreased to US $ 2781.0 million from US $
6947.0 million in April-September 2008 recording a negative
growth of 60.0 per cent.
Petroleum Crude & Products
The import of Petroleum Crude & Products stood at US $ 37386.3
million during April - September, 2009 against US $ 63284.7
million during the same period of the previous year registering a
negative growth of 41.0 per cent.
Pearls, Precious and Semi-Precious Stones
Import of Pearls and Precious and Semi-Precious Stones during
2009-10 (April-September) decreased to US $ 5430.1 million from
US $ 10430.1 million during the corresponding period of the
previous year registering a negative growth of 48.0 per cent.
Capital Goods
Import of Capital Goods, largely comprises of Machinery, including
Transport Equipment and Electrical Machinery. Import of Machine
Tools, Non-Electrical Machinery, Electrical Machinery and
Transport Equipment registered a negative growth of 41.1 per
cent, 22.6 per cent, 29.2 per cent, and 57.3 per cent respectively.
Organic and Inorganic Chemicals
During 2009-10 (April-September), import of Organic and
Inorganic Chemicals decreased to US $ 5628.6 million from US $
7644.5 million during the same period of last year, registering
Direction of Indias Foreign Trade
The value of Indias exports to and imports from major regions/
countries are given in Table 2.4 & 2.5. Share of major destinations
of Indias Exports and sources of Imports during 2009-10 (AprilSeptember) are given in Chart 2.6 and 2.7 respectively.

Chart 2.6

Chart 2.7

During the period 2009-10 (April-September), the share of Asia

and ASEAN region comprising South Asia, East Asia, Mid-Eastern
and Gulf countries accounted for 55.0 per cent of Indias total
exports. The share of Europe and America in Indias exports stood
at 21.4 per cent and 15.3 per cent respectively of which EU
countries (27) comprises 20.0 per cent. During the period, United
Arab Emirates (14.4 per cent) has been the most important
country of export destination followed by USA (11.5 per cent),
China (5.1 per cent), Hong Kong (4.5 per cent), Singapore (4.3 per
cent), Netherland (3.7 per cent), U.K. (3.7 per cent), Germany (3.1
per cent), Saudi Arabia (2.7 per cent) and Belgium (2.1 per cent).

Asia and ASEAN accounted for 61.3 per cent of Indias total
imports during the period followed by Europe (19.1 per cent) and
America (9.4 per cent). Amongindividual countries the share of
China stood highest at (12.0 per cent) followed by USA (6.0 per
cent), UAE (6.0 per cent), Saudi
Arabia (5.5 per cent), Iran (4.5 per cent), Switzerland (4.4 per
cent), Germany (3.8 per cent), Kuwait (2.9 per cent), Nigeria (2.5
per cent) and Iraq (2.3 per cent).
Import of Sensitive Items during April 09- September 09
The total import of sensitive items for the period April-September
2009-10 has been Rs.29256.29 crore as compared to Rs.21186.61
crore during the corresponding period of last year thereby
showing an increase of 38.1%. The gross import of all
commodities during same period of current year was Rs.790644
crore as compared to Rs 605075 crore during the same period of
last year. Thus import of sensitive items constitutes 2.7% and
4.8% of the gross imports during last year and current year
respectively. The summary of import of Sensitive items is given in
the Table 2.6.
Imports of automobiles, cotton & silk, products of SSI alcoholic
beverages and food grains have shown a decline at broad group
level during the period. Imports of all other items viz. edible oil,
Pulses, fruits & vegetables (including nuts), rubber, spices, marble
& granite, tea & coffee and milk & milk products have shown
increase during the period under reference.
In the edible oil segment, the import has increased from Rs
6265.69 crore last year to Rs 11831.43 crore for the
corresponding period of this year. The imports of both crude
edible oil as well as refined oil have gone up by 97% and 55%
respectively. The increase in edible oil import is mainly due to
substantial increase in import of crude palm oil and its fractions.
Imports of sensitive items from Indonesia, Myanmar, Brazil,
Malaysia, United States of America, Japan, Canada, Ukraine,
Argentina, Australia, Benin, Guinea Bissau etc. have gone up

while those from China P RP, Korea RP, Germany, Thailand, Cote
D Ivoire, Czech Republic etc. have shown a decrease .
Q:
What are the major imports and exports of India?
A:
QUICK ANSWER
As of 2014, the major exports from India are engineering goods,
refined petroleum, gems, jewelry, chemicals, agricultural products
and textiles. As of 2012, the major Indian imports were crude
petroleum, gold, coal briquettes, diamonds and petroleum gas.
India's main export partners are the United States, the United
Arab Emirates, China, Singapore and the Netherlands.

FULL ANSWER
During 2012, India's main import partners were China, United
Arab Emirates, Saudi Arabia, Switzerland and the United States.
During this time, India was the leading exporter of jewelry, rice,
non-retail pure cotton yarn, vegetable saps, other oily seeds,
essential oils, tug boats and cyclic alcohols; however, these
products were not its main export goods. The total value of India's
export trade for 2012 was $275 billion, while the import trade was
valued at $448 billion. The import and export trade in India is
regulated by the government of India by means of the Foreign
Trade (Development and Regulation) Act of 1992. This law allows
the Indian government to have complete control over India's
imports and exports. Oversight of the import and export trade is
conducted by the Director General of Foreign Trade from within
the Ministry of Commerce and Industry. The Department of
Commerce within the Ministry has jurisdiction over the offices of
the Director General of Foreign Trade.

Import and Export Licensing Procedures in India

Editors Note: Please find an updated July 2014 version of
this article linked here.
Indias import and export system is governed by the Foreign Trade
(Development & Regulation) Act of 1992 and Indias Export Import
(EXIM) Policy. Imports and exports of all goods are free, except for
the items regulated by the EXIM policy or any other law currently
in force. Registration with regional licensing authority is a
prerequisite for the import and export of goods. The customs will
not allow for clearance of goods unless the importer has obtained
an Import Export Code (IEC) from the regional authority.
Import Policy
The Indian Trade Classification (ITC)-Harmonized System (HS)
classifies goods into three categories:
1. Restricted
2. Canalized
3. Prohibited
Goods not specified in the above mentioned categories can be
freely imported without any restriction, if the importer has
obtained a valid IEC. There is no need to obtain any import license
or permission to import such goods. Most of the goods can be
freely imported in India.
Restricted Goods
Restricted goods can be imported only after obtaining an import
license from the relevant regional licensing authority. The goods
covered by the license shall be disposed of in the manner
specified by the license authority, which should be clearly
indicated in the license itself. The list of restricted goods is

provided in ITC (HS). An import license is valid for 24 months for

capital goods, and 18 months for all other goods.
Canalized Goods
Canalized goods are items which may only be imported using
specific procedures or methods of transport. The list of canalized
goods can be found in the ITC (HS). Goods in this category can be
imported only through canalizing agencies. The main canalized
items are currently petroleum products, bulk agricultural
products, such as grains and vegetable oils, and some
pharmaceutical products.
Prohibited Goods
These are the goods listed in ITC (HS) which are strictly prohibited
on all import channels in India. These include wild animals, tallow
fat and oils of animal origin, animal rennet, and unprocessed
ivory.
Export Policy
Just like imports, goods can be exported freely if they are not
mentioned in the classification of ITC (HS). Below follows the
classification of goods for export:
Restricted
Prohibited
State Trading Enterprise
Restricted Goods
Before exporting any restricted goods, the exporter must first
obtain a license explicitly permitting the exporter to do so. The
restricted goods must be exported through a set of
procedures/conditions, which are detailed in the license.

Prohibited Goods
These are the items which cannot be exported at all. The vast
majority of these include wild animals, and animal articles that
may carry a risk of infection.
State Trading Enterprise (STE)
Certain items can be exported only through designated STEs. The
export of such items is subject to the conditions specified in the
EXIM policy.
Types of Duties
There are many types of duties that are levied in India on imports
and exports. A list of these duties follows below:
Basic Duty
Basic duty is the typical tax rate that is applied to goods. The
rates of custom duties are specified in the First and Second
Schedules of the Customs Tariff Act of 1975. The First Schedule
contains rates of import duty, and the second schedule contains
rates of export duties. Most of the items in India are exempt from
custom duty, which is generally levied on imports.
The first schedule contains two rates: Standard rate and
preferential rate. The preferential rate is lower than the standard
rate. When goods are imported from a place specified by the
central government (CG) for lower rates, the preferential rate is
applicable. In any other case, the standard rate will be applicable.
If the CG has signed a trade agreement with the country of origin,
then the CG may opt to charge a lower basic duty than indicated
in the first schedule.
Additional Customs Duty (Countervailing Duty)
In addition to the basic duty on imported goods, a countervailing
duty is also applicable to imported goods. The rate of duty is
equal to the rate of excise applied to goods manufactured in

India. If the article is not manufactured in India, then goods of a

similar nature are used to determine the correct duty amount. If
there are different rates of duty on similar goods, then the highest
rates of the known products will be applied to the article in
question.
Additional Duty (VAT)
The CG may levy an additional duty equivalent to sales tax or VAT
charged on sale/purchase in India. The rate cannot exceed 4
percent. However, the additional duty shall be refunded when the
imported goods are sold if the following conditions are satisfied:
1. The importer pays all the custom duties;
2. The sale invoice shall bear the indication that the credit of
such duty shall not be allowed; and
3. Importer shall pay VAT/sales tax on the sale of these goods.
Anti-Dumping Duty
The CG may impose an anti-dumping duty if an article is imported
to India at less than its normal price, and will notify the importer if
they decide to do so. The amount of duty cannot exceed the
margin of dumping. The margin of dumping means the difference
between the export price and the normal price.
The notification issued by CG in this regard shall be valid for five
years. The period can be further extended. However, the total
period cannot exceed 10 years from the date of first imposition.
Countervailing Duty on Subsidized Articles
A countervailing duty is a tariff applied to imported goods to
neutralize the effect of a subsidy from the country of origin. If any
country grants subsidies on any article to be imported to India,
whether directly from the same country or otherwise, then the CG
may impose a countervailing duty equal to or less than the

subsidy itself. However, the duty will not be imposed if the the
article is subsidized for the following reasons:
1. Research activities conducted by person engaged in
manufacturing or export
2. Assistance to disadvantaged regions in destination country
3. Assistance in adaptation of existing facilities to new
environment requirements.
The notification issued by CG in this regard shall be valid for five
years and possibly subject to further extension. However, the
total period cannot exceed 10 years from the initial date of
imposition.
Safeguard Duty
A safeguard duty is a tariff designed to provide protection to
domestic goods, favoring them over imported items. If the
government determines that increased imports of certain items
are having a significantly detrimental effect on domestic
competitors, it may opt to levy this duty on those imports to
discourage their proliferation. However, the duty does not apply
to articles imported from developing countries. The CG may
exempt imports of any article from this duty. The notification
issued by CG in this regard is valid for four years, subject to
further extension. However, the total period cannot exceed 10
years from the date of first imposition.
Protective Duties
In addition to safeguard duties, the CG also bolsters domestic
industries using protective duties. Should the Tariff Commission
issue a recommendation for a protective duty, the CG may
impose on any goods imported to India a protective duty to
provide protection to domestic industry.

The duty cannot exceed the amount proposed in the

recommendation. The CG may specify the period up to which
protective duty shall be in force, reduce or extend the period, and
adjust the effective rate.
Education and Higher Education Cess
The education cess, simply put, is a tax designed to fund
education and healthcare initatives. An education cess at the rate
of 2 percent and higher education cess of 1 percent are levied on
the aggregate of duties of customs. However, the aggregate of
customs duties does not include the safeguard duties,
countervailing duty on subsidized articles, anti-dumping duty, or
countervailing duty equivalent to VAT.
Valuation
Customs duty is payable as a percentage of Value which is
known as Assessable Value or Customs Value. The Value may
be either:
Value as defined in Section 14 (1) of the Customs Act; or
Tariff Value described under Section 14 (2) of the Customs
Act.
Tariff Value the Tariff Value is fixed by the Central Board of
Excise & Customs (CBEC) for any class of imported goods or
export goods. Authorities will consider the trend of value of the
goods in question while fixing tariff value. Once fixed, the duty is
payable as a percentage of this value.
The value of imported goods for the assessment of duty is
determined in accordance with the provisions of Section 14 of
1962 and the Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007. According to the rules, the

assessable value equal the transaction value of goods as adjusted

for freight and cost of insurance, loading, unloading and handling
charges.
In the assessable value, the following criteria are included:
Commission and brokerage;
Cost of container, which are treated as being one with the
goods for customs purposes;
Cost of packing labour or materials;
Materials, components, tools, etc. supplied by buyer;
Royalties and license fees;
Value of proceeds of subsequent sales;
Other payment as condition of sale of goods being valued;
Cost of transport up to place of importation;
Landing charges; and
Cost of insurance
The following costs are excluded from the assessable value:
Charges for construction, erection, assembly, maintenance
or technical assistance undertaken after importation of plant,
machinery or equipment;
Cost of transport after importation;
Duties and taxes in India; and

Types of duties on exports and imports in India are covered

in the Customs Tariff Act 1975. The Act provides all the laws
and regulations related to customs in India .