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Foreign Trade Policy of India - Chapter 2

I had given an introduction on Foreign Trade Policy (FTP) of India here . This post will concentrate on the second chapter of the foreign trade policy. The second chapter of FTP covers the general provisions regarding exports and imports.  FTP says that all exports and imports are 'free' unless otherwise specified. Free to import doesn't imply no import duties. It just means that one can import by paying required duties and after completing the formalities. The exports and imports of merchandise is organized as per the International trade classification (harmonized system) . DGFT on its website, maintains a link to the policy, based on the ITC HS code under the heading 'downloads'. One can easily look up to check if the good in question can be freely imported/exported here. The other categories listed are 'restricted' and 'prohibited'. Restricted implies that one needs a license from concerned authorities to trade, and prohibited implies th

Foreign Trade Policy of India

Foreign Trade Policy of India An Introduction Foreign Trade Policy (FTP) document is the key document that announces the policy intent regarding international trade. It is the apex document that prescribes the broad outlines for imports and exports of goods and services, to and from India. Foreign Trade Policy is generally a five yearly document, and an annual supplement is released every year. Foreign Trade Policy of India is accompanied with  handbook of procedures in two volumes, that supplement and elaborate the details.  In India, Foreign Trade Policy preparation is managed chiefly by Directorate General of Foreign Trade (DGFT) , under Ministry of Commerce. I shall 'briefly' review the content of FTP in this blog. FTP is divided into several chapters as outlined below: Chapter 1: This chapter has three sub-sections and covers the legal framework under which Foreign Trade Policy of India is created. It also mentions some of the special schemes which ha

Optimum foreign currency reserves and India

Rupee crossed 60/USD yeterday. It splashed across newspapers. RBI, the central bank of India, gave up any efforts to intervene during the slide, giving up meekly. India has a forex reserves of around 290 Billion USD currently, which is around 15% of the GDP. RBI could have deployed the war chest but it chose not to, logically so. The size of the INR forex market is around 50 to 70 Billion USD per day and to influence it significantly, the player must enter with a quiver of around 4 to 5 Billion USD and if RBI decides to deploy its forex reserves to this effect, it might run out of reserves in around 2 months. And the speculators will have an exponential run sooner than later, as the reserves dwindle, hastening the process of currency crisis. A breach of psychological benchmark of Rs 60/USD is better than a currency crisis.  A floating exchange regime need not have any forex reserves, theoretically. But a forex reserve is required nevertheless. The reserves can be used to influenc

India's foreign trade May 2013 - The gloom continues

The foreign trade data (merchandise) was released today . It paints a gloomy picture of trade. The exports declined: Exports during May, 2013 were valued at US $ 24505.66 million (Rs. 134807.62 crore) which was 1.11 per cent lower in Dollar terms (0.13 per cent lower in Rupee terms) than the level of US $ 24779.72 million (Rs. 134983.82 crore) during May, 2012. Cumulative value of exports for the period April-May 2013 -14 was US $ 48670.03    million (Rs. 266203.05 crore) as against US $ 48568.66 million (Rs. 258239.33 crore) registering a growth of 0.21 per cent in Dollar terms and growth of 3.08 per cent in Rupee terms over the same period last year. The imports increased: Imports during May, 2013 were valued at US $ 44649.26 million (Rs.245619.14 crore) representing a growth of 6.99 per cent in Dollar terms and 8.04 per cent in Rupee terms  over the level of imports valued at US $ 41733.45 million ( Rs. 227336.72 crore) in May, 2012. Cumulative value of imports for the

Rupee slide, CAD , current happenings and some unwanted advise

Rupee has depreciated above Rs 57/USD. The current account deficit (CAD) has gone above 5% of GDP during previous quarters. It had reached 6.7% for the Oct-Dec quarter last year. In simple terms, we are importing more and exporting less. The difference is being financed currently by  capital inflows into markets, direct investments into India and borrowings. The investments flows in recent quarters were helpful due to the quantitative easing (QE) at US and Japan. The excess global liquidity found its way into India too, helping our cause of financing the deficit.  In coming months, the QE from the US will taper off, most likely by Dec this year. There has been indications from US Fed regarding this in the news. The expectation of this event itself has caused the USD to strengthen across the world. The effect has started playing on Rupee too.  However, that's not the only factor. Global investors have noticed the gap in our financing. Our major imports, petroleum products,

Bitcoins, SDRs and BitSDR

The idea of Bitcoins  is more than 4 years old. The idea of special drawing rights (SDRs) by IMF is more than 44 years old. Both are attempts at creating alternative currencies for different purposes.  SDR was created to help international trade tide away the exchange difficulties. SDR is not actually a currency, but a claim on currency, or a basked of currencies. Being internationally acceptable and with the ability to act as a medium of exchange, it has the potential to work as international reserve currency for trade. SDRs draw the legitimacy from the backing of IMF. How much backing the IMF has, especially when it comes to bringing SDRs to the center-stage of international trade, is moot.  Probably the idea needs some development, and, the backing of USD supporters.  Bitcoin is virtual currency based on open source cryptographic protocol. It was introduced during Jan 2009. It is a peer to peer electronic cash system, and depends only on mathematical crypto-algorithms f

EU Timber Regulation - Trade barrier that we didn't fight?

Illegal timber logging is a problem. It is identified as a problem in all civilized countries. Most of them have domestic laws to deal with the issue of timber logging. E.g. India has extensive forest laws to stop illegal timber logging. It is argued that corruption and fraud is rampant in timber trade and the extent of illegal logging might vary from 25% to 50% of all timber logged (anecdotal evidence from Wikipedia ). The same illegal timber enters international trade too, and efforts are on to stop such activities. Good intentions.  European Union has come up with a regulation sometime ago called the EU Timber Regulation (EUTR) applicable from 3rd March 2013. The stated obligations run thus: The regulation counters the trade in illegally harvested  timber and timber products through three key  obligations:  1) It prohibits the placing on the EU market of illegally  harvested timber and products derived from such  timber; 2) It requires EU traders who place timber p

Secondary economic/trade sanctions on Iran, some thoughts

Economic sanctions primarily consists of one nation preventing its citizens and corporations from doing business with the other targeted nation. Such basic economic sanctions are commonly called primary sanctions. However, if the first nation also tries to block foreigners or foreign organizations from dealing with the target nation, it becomes secondary sanctions. There are very few countries that can threaten with secondary sanctions today. In fact, only US can issue a credible threat with secondary sanctions, as things stand. And US has done it in the recent case with Iran when it imposed secondary sanctions on Iran's petroleum trade.  Ideally, a non cooperating player in the international arena, can be brought to terms with  multilateral sanctions or actions. However, in case of Iran, US is not sufficiently happy with the UN imposed sanctions, mainly because the UN sanctions target only the nuclear program and not the overall economy in general. US believes that breaking