1.

What are the major items under current account in the balance of payment
and explain India’s position with reasons for deficit?
Balance of Payments is a systematic and summary record of a country’s
economic and financial transactions with the rest of the world over a period of
time. Ie It is the difference between the money coming into a country and the
money leaving the same country.

It is determined by the exports and imports of goods, services,

and financial capital, as well as financial transfers.

o It reflects all payments and liabilities to foreigners (debits) and all

payments and obligations received from foreigners (credits).

o It is an important index, which reflects the true economic position

of a country, whether the country is a creditor country or a debtor
country, and whether its currency is rising or falling in its external
value.
 The balance of payments comprises the current account and the capital
account (or the financial account).
 The current account - goods and services account, the primary income
account and the secondary income account.
 The capital account - smaller than the other two and consists primarily
of debt forgiveness and assets from migrants coming to or leaving the
country.
 The financial account - asset inflows and outflows, such as international
purchases of stocks, bonds and real estate.
o Current Account = Capital Account + Financial Account +
Statistical Discrepancy
 “The Current Account includes all transactions which give rise to or use
up national income.”
Balance of Payments of India
Current Account Rupees in Crores
Credits Debits Net
I. Merchandise
(i) Private
(ii) Government
II. Non-monetary Gold Movements
III. Invisibles
(i) Travel
(ii) Transportation
(iii) Insurance
(iv) Investment Income
 (v) Govt. not included elsewhere
(vi) Miscellaneous
(vii) Transfer Payments
(a) Official
(b) Private
The current account consists of visible exports and imports. The visible
exports and imports are those, which are actually recorded at the ports.

 BOP DEFICIT : Latest trade statistics by Directorate General of

Commercial Intelligence and Statistics
 the deficit in India’s merchandise trade stood at $17431.2 million as
compared with $9728.5 during the corresponding period of the previous
year.
 The trade deficit has increased to $2.7 billion from $2.3 billion in the
quarter as merchandise exports and imports being at $14.6 billion and
$17.3 billion (on the payment basis) as compared to $12.3 billion and
$14.6 billion in the corresponding period in the previous year
 Reasons for deficit:
 The sharp increase in the international prices of oil,close to 37 per cent,
with the non-oil imports also rising by a similar 37 per cent.Widening of
the merchandise trade defecit.
 India’s relatively strong current account position is weakening rapidly
because a greater share of the net capital flows that India attracts in the
form of debt and foreign direct and portfolio investment would now be
needed to finance the current account deficit. That, however, is clearly
not happening. Though FII investments drive the current stock market
boom & foreign debt and direct investment inflows are indeed creating
new capacities, they are not generating export revenues to finance the
rising non-oil and oil import bill.

2. What are the various measures to correct the disequilibrium in balance of

payments?
3. Possible measures for deficit:
4. Automatic Correction
5. Flexible exchange rate
6. Fixed exchange rate
7. Price Adjustments
8. Interest Rate Adjustment
Income Adjustments
Deliberate Measures:
Monetary measures:
 Monetary Contraction
 Devaluation
 Exchange Control
 Trade Measures
 Absorption : A nation’s total expenditures on final goods and
services. Governments have incentives to fiddle with absorption by:
 changing the volume of the government expenditures
 limiting the absorption of the economy through taxes.
3. How will you advice a GPB (Global Power Brand) MNC in approaching an
emerging market and the Japanese market to adopt specific strategies?

Statistics over the years have shown that emerging markets in Asia, Latin
America and Eastern Europe are delivering some of the strongest revenue and
profit growth with much of the growth coming from the “BRICET” nations —
Brazil, Russia, India, China, Eastern Europe and Turkey. Statistics of market
leaders like Coca-Cola, Unilever, Colgate-Palmolive & PepsiCo show that
about 5% to 15% of their total revenues come from the three largest emerging
markets in Asia: China, India and Indonesia. The story is similar in Russia and
Eastern Europe.

As such, these statistics also show that majority of the Co’s fail due to improper
research of the country they plan to enter in.

Therefore, while approaching an emerging market, a GPB will have to adopt

these specific strategies;

1. Identify trends in purchasing products and services, for instance: travel

behavior and trends in business and leisure, purchasing power, brand
loyalty
2. How to develop brands in specific markets, consumer insights.-
consumer tracking studies – identify attributes consumers use to buy
products.
3. Understand where we stand, ie , the opportunities and the threats to your
Co.
4. Understanding the political status and influence in the target country.
5. Media habits and usage – how to effectively target consumers.
6. Manpower is a problem, as awareness is an issue & therefore good public
relations & local marketing efforts must be strong to establish the brand.
 7. The principles, though mostly transferable must be tweaked a little
according to the local culture, with strong emphasis on language and
cultural awareness for effective communication and conducting business
sensitively.
8. Efforts must be made to understand local courtesies, culture &
behaviours while doing business.
9. Loyalty programs carry a lot of weightage. Therefore, while launching
into new and emerging markets, good strategic partners have to be made
to build good brand associations for acquiring customers.
10. Plan the costs according to the above researches done and plan on
revenue- prices, brand and product positioning… - use people who are
very familiar with the market.

Strategies to be followed while entering the Japanese Market:

Starting business in Japan is not difficult and neither expensive, if you have a
unique and good quality product or service. But, the trick is in understanding
the Japanese business and the mentality of Japanese businesspeople well enough
to be able to control your costs.

Some of the strategies to be followed are;

1. To be properly prepared and thinking as a team from frontline sales-

marketing to Board director. A properly prepared entry into the Japanese
market will generate substantial levels of revenue, profit and all the
glories that go with them.
2. Able to deliver committed products and services on time. That means
having enough well-founded confidence in your ability and your team's
ability that you can make commitments to a Japanese customer or partner
and guarantee being able to deliver on those commitments on the
promised dates.
3. Contact Japan's government funded Japan External Trade Organization
for free initial Japanese office space in central Tokyo for upto 3 months.
4. Prepare a proper budget – all costs included, including those of transfer
employees accommodation.
5. Understand the Japanese market and decide on the most tax efficient
means to enter the market. Unless you are in a market with huge
untapped demand and no competitor in the Japanese market, it is far
easier and economically far more sensible to make a relatively low profile
and profitable entry into Japan business and then aggressively build to a
substantial and cost-controlled presence over a 3 - 5 year period
maintaining profitability and steadily climbing market-share as you
proceed
 6. During the first 3 months, the Co must network, decide the Japanese
market entry form (agent, distributor, direct sales etc.) ,negotiate
partnerships and hire key staff,educate and integrate the Japanese partners
and key staff into your corporate culture (of course a never ending
activity).
7. 80% of Japan’s influential persons and customers prefer to deal directly
with the source Co. Therefore, despite of having a home distributor,
contact and understand the customer behaviour . Listening carefully to
their descriptions about competitors product and salespersons will give
insights into targeting an influential distributor.
8. Evaluate previous decisions about your product value, based on above
data.
9. Decide on the distribution network and create powerful strategic alliances
with home companies.
10. They will help the Company in bypassing the Red tapes and Bureaucracy
very easily.

4. What is technology? Explain the role of technological changes in Global

Business?
Effects of Technological Developments on Globalization Process:

Technological developments are conceived as the main facilitator and driving

force of most of the globalization processes.

Technology can be defined as the socialized knowledge of producing goods and

services. The term technology with five important elements: production,
knowledge, instruments, possession and change.

globalization is the trend toward a more integrated global

economic system. Globalization has two faces:
Globalization of markets
Globalization of production

Both of which have been increasing at a rapid pace in the past few years.

Two key factors seem to underlie the trend towards the increasing
globalization of markets and production:
The decline of barriers to trade and investment and
Technological change

The role of technological change:

While lowering trade barriers has made the globalization of markets and
production a possibility, technological changes have made it a reality.

Improved information processing and communication allows firms to have

better
information about distant markets and coordinate activities worldwide. The
explosive growth of the World Wide Web and the Internet provide a means to
the
rapid communication of information and the ability of firms and individuals to
find out about what is going on worldwide for a fraction of the cost.

Microprocessor and telecommunications: The single most important

innovation has been the development of the microprocessor, which has enabled
the
explosive growth of high power, low cost computing, increasing the amount of
information that can be processed by individuals and firms. Over the past 30
years, global communications have been revolutionized by the developments in
satellites, optical fiber, and wireless technology, and internet and World Wide
Web.
The Internet and World Wide Web: It has more than 150 million users of the
Internet. Real time video conferencing and commercial transactions can be
transmitted through
WWW.This reduces the costs of global communications and has created a truly
global electronic market place of all kinds of goods and services, which has
made it easier for firms of all sizes to enter the global marketplace.

Transportation technology: Improvements in transportation technology,

including jet transport, temperature controlled containerized shipping, and
coordinated ship-rail-truck systems have made firms better able to respond to
international customer demands.

As a consequence of these trends, a manager in today’s firm operates in an

environment that offers more opportunities, but is also more complex and
competitive than that faced a generation ago. People now work with individuals
and companies from many countries, and while communications technology,
with the universality of English as the language of business, has decreased the
absolute level of cultural difficulties individuals face, the frequency with which
they face inter-cultural and international challenges has increased.

5. What is Turn-Key Project? What are its advantages and disadvantages?

In terms of a foreign market entry strategy, there are 6 different modes of entry
that a company can use; exporting, turnkey projects, licensing, franchising,
establishing joint ventures with a host-country firm, or setting up a wholly
owned subsidiary in the host county. Each method of entry has their advantages
and disadvantages, and companies need to weigh the reasons carefully
A turnkey project is method for a foreign company was to export its process and
technology to other countries by building a plant in that country. The company
hires a contractor in the desired country that they want to create an operation. In
terms of technical scope the turnkey contractor is responsible for the design,
construction and installation of a new plant and in some cases the maintenance
of the plant as well. It is called a turnkey project because at the completion of
the contract, the foreign company gives the “key” to the project and it is ready
for operation.

Turnkey projects are most typical in companies that specialize in expensive,

complex production technologies, such as the “chemical, pharmaceutical,
petroleum refining and metal refining industries”. While, there are advantages
for these types of companies, there are also risks.

Advantages of turnkey projects :

Advantages:
This is the best way of earning greater economic returns from that asset.
Obtain returns from know-how about a complex process.
Government restrictions may limit other options therefore; this strategy
is best in case where FDI is limited by government. (Middle East
countries and petroleum refining.)
Lower risk if unstable economic/political situation in country
Disadvantages:
The firm that enters into the turnkey deal will have no long-term interest
in the foreign country. Less potential to profit from success of plant.
Creating a competitor by transferring the technical know-how to a
foreign firm.
Give away technological know-how to potential competitor

6. State the objectives of EEC (European Economic Committee). What are its
achievements? Do you agree that ASEAN is next to EEC?
The European Economic Community (EEC) also referred to simply as
the European Community, was an international organization that existed
between 1958 and 1993 which was created to bring about economic
integration ,including a single market, between Belgium, France, Germany,
Italy, Luxemborg and Netherlands. It was enlarged later to include six
additional states and, from 1967, its institutions also governed the European
Coal and Steel Community (ECSC) and European Atomic Energy
Community (EAEC or Euratom) under the term European Communities. When
the European Union (EU) was created in 1993, the EEC was transformed into
the European Community, one of the EU's three pillars, with EEC institutions
continuing as those of the EU.
In 1951, the Treaty of Paris was signed. This was an international community
based on supranationalism and international law, designed to help the economy
of Europe and prevent future war by integrating its members. In the aim of
creating a federal Europe, on 25 March 1957,the Treaty of Rome was
signed, establishing a European Economic Community.

Objectives of the EEC:

The establishment of the EEC and the creation of the Common Market had two
objectives. The first was to transform the conditions of trade and manufacture
on the territory of the Community. The second, was the contribution of the EEC
towards the functional construction of a political Europe and constituted a step
towards the closer unification of Europe.

The other objectives are;

1. to ensure the economic and social progress of their countries by common

action to eliminate the barriers which divide Europe, affirming as the
essential objective of their efforts the constant improvements of the living
and working conditions of their peoples.
2. Recognizing that the removal of existing obstacles calls for concerted
action in order to guarantee steady expansion, balanced trade and fair
competition;
3. Anxious to strengthen the unity of their economies and to ensure their
harmonious development by reducing the differences existing between
the various regions and the backwardness of the less-favoured regions;
4. desiring to contribute, by means of a common commercial policy, to the
progressive abolition of restrictions on international trade;
5. intending to confirm the solidarity which binds Europe and the overseas
countries and desiring to ensure the development of their prosperity, in
accordance with the principles of the Charter of the United Nations.
6. resolved by thus pooling their resources to preserve and strengthen peace
and liberty, and calling upon the other peoples of Europe who share their
ideal to join in their efforts...".

These intentions were fleshed out by creating a common market and a customs
union and by developing common policies.
Aims and achievements
The main aim of the EEC, as stated in its preamble, was to "preserve peace and
liberty and to lay the foundations of an ever closer union among the peoples of
Europe".
Calling for balanced economic growth, this was to be accomplished through 1)
the establishment of a customs union with a common external tariff 2) common
policies for agriculture, transport and trade 3) enlargement of the EEC to the
rest of Europe. For the customs union, the treaty provided for a 10 % reduction
in custom duties and up to 20 % of global import quotas. Progress on the
customs union proceeded much faster than the twelve years planned, however
France faced some setbacks due to their war with Algeria.
No, the ASEAN is not equal to that of the EEC. In February 1977, when the
Special Meeting of ASEAN Foreign Ministers in Manila proposed that ASEAN
establish ties with the Council of Ministers of the EEC and the Committee of
Permanent Representatives (COREPER) through which ASEAN could make
representations against the growing protectionism of the EEC countries.
ASEANs relationship with the EEC was also formalized in that year
The potential of ASEAN as a market and a gateway to the rest of the Asia
Pacific was an important dimension, for the ASEAN-EU relationship to be
formed.
The links with the EEC were institutionalized on 7 March 1980 with the signing
of the EC-ASEAN Cooperation Agreement at the Second ASEAN-EEC
Ministerial Meeting in Kuala Lumpur. Under the Agreement, objectives for
commercial, economic and technical cooperation were established and a Joint
Cooperation Committee (JCC) was formed as a mechanism to monitor ASEAN-
EEC cooperation. ASEAN-EU relations was further intensified in 1994.Given
the current state of development and infrastructure development activities,
ASEAN has also became a major market for the EUs capital goods and
investments.
The EU's foreign direct investment (FDI) in the region increased by 13.1% from
US$35 billion in 1993 to US$ 39.5 billion in 1994.

7. Discuss the origin and function of IMF. What is SDR? Whether IMF has
solved the problem of International Liquidity?

The International Monetary Fund (IMF) is an international organization. 185

countries are members of the International Monetary Fund. It has its
headquarters in Washington, D.C., USA.
Origin
In the 1930s, many countries faced economic problems. Some of such problems
were falling standard of living and unemployment by large number of people.
Trading between different countries also came down. Some countries reduced
the value of their currencies. All such factors combined and an economic
depression resulted.After the Second World War, many countries felt the need
to have an organization to get help in monetary matters between countries. To
begin with, 29 countries discussed the matter, and signed an agreement. The
International Monetary Fund thus came into being on December 1945.
Any country may apply to become a member of the IMF. However, before
joining, the country should fulfill legal requirements, if any, of its own country.
Every member has a different voting right. Likewise, every country has a
different right to draw funds. This depends on many factors, including the
member country’s first subscription to the IMF.
Functions
The IMF does a number of supervisory works relating to financial dealings
between different countries. Some of the works done by IMF are:

 Helping in international trade, that is, business between countries

 Looking after exchange rates
 Looking after balance of payments
 Helping member countries in economic development

SDR is an international type of monetary reserve currency, created by the

International
Monetary Fund (IMF) in 1969, which operates as a supplement to the existing
reserves of member countries. Created in response to concerns about the
limitations of gold and
dollars as the sole means of settling international accounts, SDRs are designed
to
augment international liquidity by supplementing the standard reserve
currencies.
SDRs could be regarded as an artificial currency used by the IMF and defined
as a
"basket of national currencies". The IMF uses SDRs for internal accounting
purposes.
SDRs are allocated by the IMF to its member countries and are backed by the
full faith
and credit of the member countries' governments.
SDRs were mainly created so that the emerging economies didn’t face any
liquidity crunch
If we consider briefly the few years back international economic situation. The
international economy was in the midst of a recession and the rate of growth of
international trade declined. Faced with a recession, major industrial countries
adopted expansionary fiscal or monetary policies or both to try to stimulate
recovery. In contrast, when demand for the exports of developing and emerging
market economies declined often with more than proportional effects on export
revenues—these countries retrenched and couldn’t resort to expansionary
policies to avoid a financial crises. Moreover, recently the two main sources of
international liquidity contracted, hindering recovery in these economies.
Financial market flows for developing countries declined or dried up, causing
capital flows in many of these countries to turn negative. The other main source
of international liquidity, the U.S. deficit on the current account, also contracted
significantly.
When faced with a recession, the authorities in industrial countries generally try
to expand demand, often by expanding liquidity. The international community
can also counter contractionary forces by expanding liquidity.

IMF’s focus on Expansion of International Liquidity by Allocating SDRs

In keeping with its purpose, the IMF could and perhaps should contribute to
financial stability and the promotion of international trade by allocating SDRs
to stimulate economic recovery during an international recession. Expansion of
international liquidity through the issue of SDRs requires an 85 percent majority
vote. In the past, some industrial countries have opposed even modest
allocations of SDRs on the grounds that they would be inflationary. Today, in
the face of a widespread recession, a decline in the rate of growth of
international liquidity, and the need to expand liquidity to support the expansion
of international trade, it would be very difficult to make that argument. There
would thus appear to be a strong case for supplementing the creation of liquidity
and meeting the needs of the international economy by allocating SDRs.
Under the Articles of the IMF, SDRs are allocated to member countries in
proportion to their quotas. Thus the G-7 would receive more than 47 percent of
any allocation, and industrial countries as a group would receive 61 percent.
However, recipient countries may donate their SDRs to developing and
emerging economy countries or to a trust fund to benefit eligible countries (that
is, countries that are prepared to invest the funds in capacity-building projects
and to adopt appropriate policies).

8. Explain the export procedures from preliminaries to the stage of

obtaining export incentives?
 Export procedure: There are 6 classified Stages under Export procedure.
Preliminaries, Offer and receipt of confirmed order, Production and clearance of
the products for exports, Shipment, Negotiation and documents and realization
of export proceeds obtaining various export incentives.

PRELIMINARIES: IEC code number – license from DGFT & Membership of

Promotion bodies, Registration with Export promotion councils Sales Tax
authorities and shop and establishment act.

INQUIRY, OFFER AND RECEIPT OF CONFIRMED ORDER : Inquiry is the

request made by a prospective buyer/importer regarding his wish to import
certain items/goods. Offer is a proposal submitted by an exporter expressing his
intention to export specific goods with specific terms and condition which is
made in the form of “Performa Invoice”

The Proforma invoice includes :The Proforma invoice includes Name of buyer
Description of the goods – technical, physical, chemical features Price , Unit
wise pricing of goods in internationally accepted currencies or mutually agreed
currencies. It will be in FOB, C&F, CIF, DOP, POD or credit advance ,
Condition of sale – Validity, Escalation clause – rising cost – Ex Truckers strike
which in India is a common phenomenon may result in elongated period of
goods lying at the Warehouse or trust Port which will escalate costs of
demurrage and eat into the profit margins of the exporter. Delivery schedules ,
Inspection, Payment terms – L/C, bills of exchange etc ,Other obligation like
Post sales service , Providing Spare parts , Warranty/Guarantee for the
equipment technology & Confirmed order – signing of the duplicate invoice and
reverting Export license – if required Procuring of finance .

PRODUCTION & PROCUREMENT OF GOODS : Packing and marking

Quality control and pre-shipment inspection under Excise duty rebates rule 12
of central excise rules of 1944.After its paid then Gate pass, GP-1, AR-4 form
are submitted.

SHIPMENT STAGE: Transportation of the goods by Ship is cheaper compared

to that of the air. In addition, Physical size of the products creates hurdles for
transporting by air.
1.Agents – Assist booking of space on the ship for cargo placement. The
shipping company issue shipping advice against a confirmed order.But when
the company issues Shipping order it is obligated to accept the cargo. Customs
clearance – the exporter has to get custom clearance of the goods before they
are loaded on the ship. Customs authorities accord their formal approval after
scrutinizing complete set of shipping documents, copies of shipping bills etc.
They include Proforma invoice in original and duplicate. GR-1 forms in
duplicate AR -4 forms (in original and duplicate) Export license (if required)
Letter of credit covering export, order, export contracts or order in original.
Certificate of inspection (where necessary) Form of declaration (in duplicate)
Shipping Bill (Five copies) Quality control Inspection certificate (if required)
Original contract wherever available Packing list Letter of registration
certificate (if applicable)

2. GR-1 Form: this form is an exchange control document required by the

RBI. The exporter has to realize the proceeds of the goods exported within 180
days from the date of the shipment from India. This form is not necessary in
case of export to Nepal and Bhutan. Shipping Bill: this is an exchange
document needed by the customs official for granting permission for
shipment .This bill contains the following information. Name of the
exporter/Shipper including his address and IEC number, Description and
quantity of goods to be shipped ,Value of goods, Number of packages and
markings on them, Amount of draw back claimed (draw back duty is allowed
when the goods are produced in India) ,Port of destination, Name of the ship
and its agent & 5 copies of the shipping bills to be provided to the customs
official

3. Export license: it is necessary for only certain categories of goods and can be
obtained from the DGFT office. Carting order: This is an order given by the
superintendent of the concerned Port Trust once the exporter is ready to move
goods physically inside the port area. This order gives permission to move
inside. Customs examination of cargo at docks - the customs authorities after
checking the documents, checks the products to be exported at the docks. The
exporter can arrange for the physical check of the products at his factory or
warehouse. Applications for this facility can be made to Assistant collector of
customs. Unless the exporters confides are doubtful the cargo is not checked
again at the port after the formal approval and the exporter can load it into the
ship.

4. Let Ship: Before loading the cargo into the ship the exporter’s forwarding
agent has to get permission from the Preventive officer of the customs
department. This is called Let ship order. Mates receipt: After the goods are
loaded into the ship, the captain of the ship furnishes a document to the Port
Superintendent. This is a certified document of the specifications of the loaded
cargo and its condition while loading, etc. Port trust dues: The port trust
authorities after getting the Mates receipt from the captain of the ship, issues the
“bill of lading” to the exporter. Bill of lading – The forwarding agent collects
the Mates receipt and submits the same to the authorities and collects in turn
“Bill of lading” from the port authorities. The forwarding agent supplies these
following documents at this final stage to the exporter. A copy of the invoice
duly attested by the customs ,Drawback copy of the shipping bill ,Export
promotion copy of the shipping bill, Full set of ‘clean on board’ bill of lading
together with the non negotiable copies. The original letter of credit, Customers
copy or contract Duplicate copy of the AR-4 form.

5. DOCUMENTS The exporter submits the relevant documents to his banker

for getting the payment for the goods exported. Submission of relevant
documents to the bank and the process of getting the payment from the bank are
called “Negotiating the documents, ” through the bank. These documents are
called ‘negotiable set of documents’ Bill of lading, Commercial invoice
together with the packing slip and bill of exchange Certificate of origin, GR-1
form (in duplicate), Letter of credit (in original).

6. EXPORT INCENTIVES: This includes The Duty Draw back and the Excise
Duty Refund. The Duty Draw back- The exporter is eligible to get back the
excise duty and central excise paid on all raw materials, Components and
consumables used in the production of good exported under this scheme. The
Excise Duty Refund- Exporter is eligible for refund of the excise duty .It can be
recovered after exports if paid in the beginning. He she also can execute a bond
with the excise authorities without making the payment.

9. What is dumping? What are the various measures taken by various countries
for anti-dumping?

Dumping is defined as the act of a manufacturer in one country exporting a

product to another country at a price which is either below the price it charges
in its home market or is below its costs of production.
A standard technical definition of dumping is the act of charging a lower price
for a good in a foreign market than one charges for the same good in a domestic
market. This is often referred to as selling at less than "fair value." Under
the World Trade Organization (WTO) Agreement, dumping is condemned (but
is not prohibited) if it causes or threatens to cause material injury to a domestic
industry in the importing country.

Countries may impose anti-dumping duties equal to the margin of dumping if it

is determined, through an investigation, that the dumped imports are causing
injury to domestic producers of the same product.

The WTO Anti-dumping Agreement sets out rules for the conduct of anti-
dumping investigations, including initiation of cases, calculation of dumping
margins, the application of remedial measures, injury determinations,
enforcement, reviews, duration of the measure and dispute settlement. The AD
Agreement applies to trade in goods only. Trade in services is not covered by
this agreement

The largest number of anti-dumping initiations in 2008 were by India,

which has had an increasing trend since 2005. Brazil and Turkey were the next
two largest for initiating anti-dumping investigations in 2008, however with less
than half the number of initiations by India. Argentina, European Community,
the United States and China, were next among those countries with relatively
more anti-dumping initiations than others, ranging from 14 by China and 19 by
Argentina and European Community. For the first half of 2009, though the data
are tentative, we see that India’s numbers of initiations are relatively down in
comparison to earlier years, and a few other developing countries have
relatively more initiations than earlier.

A large concentration of the anti-dumping initiations were against exports

from China. However, data for recent years do not show a major and
exceptional rise of initiations against China, unless we compare the situation
with 2005. In the last three and a half years, the ratio of initiations against
China in comparison to total initiations is within a range of 35% to 39%. Other
countries which were among those more subject to anti-dumping initiations in
2008 (but much less than China) include Thailand, Korea, Malaysia and
Indonesia (ranging between 9 to 13 initiations against their exports in 2008).
For them too the picture is broadly similar for past few years.

One significant aspect of the developments in anti-dumping and other trade

remedies is that developing countries feature prominently among the users as
well as those subject to these measures. This shows special significance of
these measures in terms of affecting South-South trade, i.e. affecting a part of
trade which has a substantial potential for growth in these difficult times.

The EU , takes anti- dumping measures when it receives a complaint from

the European manufacturers and if it finds that the dumping measures are
affecting at least 25% of the prices of the industries during investigations.
These anti-dumping measures, when imposed, are usually for a minimum of 5
years. These anti dumping measures can be for a wide range of products right
from agriculture to Electronics.

10. What are the Pro’s and Con’s of export strategy for International Business?

Any company, before committing its resources to venture in the export

business, must carefully assess the advantages and disadvantages of exporting
into a new market. While some companies enter the export business
unintentionally after receiving order to purchase from foreign buyer, others
make a deliberate move and conduct thorough research before entering new
market. Whether it is unintentional or deliberate move companies need to
evaluate and carefully assess the advantages and challenges of exporting before
committing resources.

Advantages of exporting

Increased Sales and Profits. Selling goods and services to a market the company
never had before boost sales and increases revenues. Additional foreign sales
over the long term, once export development costs have been covered, increase
overall profitability.

Enhance Domestic Competitiveness. Most companies become competitive in

the domestic market before they venture in the international arena. Being
competitive in the domestic market helps companies to acquire some strategies
that can help them in the international arena.

Gain Global Market Shares. By going international companies, will participate

in the global market and gain a piece of their share from the huge international
marketplace.

Diversification. Selling to multiple markets allows companies to diversify their

business and spread their risk. Companies will not be tied to the changes of the
business cycle of domestic market or of one specific country.
Lower Per Unit Costs. Capturing an additional foreign market will usually
expand production to meet foreign demand. Increased production can often
lower per unit costs and lead to greater use of existing capacities.
Compensate for Seasonal Demands. Companies whose products or services are
only used at certain seasons domestically may be able to sell their products or
services in foreign markets during different seasons.

Create Potential for Company Expansion. Companies who venture into the
exporting business usually have to have a presence or representation in the
foreign market. This might require additional personnel and thus lead to
expansion.

Sell Excess Production Capacity. Companies who have excess production for
any reason can probably sell their products in a foreign market and not be
forced to give deep discounts or even dispose of their excess production.

Gain New Knowledge and Experience. Going international can yield valuable
ideas and information about new technologies, new marketing techniques and
foreign competitors. The gains can help a company’s domestic as well as
foreign businesses.

Expand Life Cycle of Product. Many products go through various cycles

namely introduction, growth, maturity and declining stage that is the end of
their usefulness in a specific market. Once the product reaches the final stage,
maturity in a given market, the same product can be introduced in a different
market where the product was never marketed before.

Exporting Challenges

While the advantages of exporting by far outweigh the disadvantages, small and
medium size enterprises especially face some challenges when venturing in the
international marketplace.

Extra Costs. Because it takes more time to develop extra markets, and the pay
back periods are longer, the up-front costs for developing new promotional
materials, allocating personnel to travel and other administrative costs
associated to market the product can strain the meager financial resources of
small size companies.

Product Modification. When exporting, companies may need to modify their

products to meet foreign country safety and security codes, and other import
restrictions. At a minimum, modification is often necessary to satisfy the
importing country's labeling or packaging requirements.

Financial Risk. Collections of payments using the methods that are available
(open-account, prepayment, consignment, documentary collection and letter of
credit) are not only more time-consuming than for domestic sales, but also more
complicated. Thus, companies must carefully weigh the financial risk involved
in doing international transactions.

Export Licenses and Documentation. Though the trend is toward less export
licensing requirements, the fact that some companies have to obtain an export
license to export their goods make them less competitive. In many instances, the
documentation required to export is more involved than for domestic sales
.
Market Information. Finding information on foreign markets is unquestionably
more difficult and time-consuming than finding information and analyzing
domestic markets. In less developed countries, for example, reliable information
on business practices, market characteristics, cultural barriers may be
unavailable.

Entering an export business requires careful planning, some capital, market

know-how, access to quality product, competitive pricing strategy, management
commitment and realizing the challenges and opportunities without them it is
almost impossible to succeed in the export business. While there are no hard-
and-fast rules that can help companies make decision to export and to become
successful, understanding the advantages and disadvantages of exporting can
help smooth entry into new markets, keep pace with competition and eventually
realize profit.

11.Explain the measures taken by Government under Foreign Trade Policy

for export promotion in recent years?

The Foreign Trade Policy of India is guided by the EXIM Policy of the Indian
Government and is regulated by the Foreign Trade Development and
Regulation Act, 1992. DGFT (Directorate General of Foreign Trade) is the
main governing body in matters related to Exim Policy. The main objective of
the Foreign Trade (Development and Regulation) Act is to provide the
development and regulation of foreign trade by facilitating imports into, and
augmenting exports from India.

EXIM Policy

Indian EXIM Policy contains various policy related decisions taken by the
government in the sphere of Foreign Trade, i.e., with respect to imports and
exports from the country and more especially export promotion measures,
policies and procedures related thereto. Trade Policy is prepared and announced
by the Central Government (Ministry of Commerce). India's Export Import
Policy also know as Foreign Trade Policy, in general, aims at developing export
potential, improving export performance, encouraging foreign trade and
creating favorable balance of payments position.

The Exim Policy is updated every year on the 31st of March and the
modifications, improvements and new schemes became effective from 1st April
of every year. All types of changes or modifications related to the EXIM Policy
is normally announced by the Union Minister of Commerce and Industry who
co-ordinates with the Ministry of Finance, the Directorate General of Foreign
Trade and network of Dgft Regional Offices.

Export promotional measures in recent yrs:

2004 -2009 : Promotional Measures of Exim Policy 2004-2009

The Government of India has set up several institutions whose main functions
are to help an exporter in his work. It would be advisable for an exporter to
acquaint himself with these institutions and the nature of help that they provide
so that he can initially contact them and have a clear picture of what help he can
expect of the organized sources in his export effort. Some of these institutions
are as follows.

Export Promotion Councils

Commodity Boards
Marine Products Export Development Authority

Agricultural & Processed Food Products Export Development Authority

Indian Institute of Foreign Trade
India Trade Promotion Organization (ITPO)
National Centre for Trade Information (NCTI)
Export Credit Guarantee Corporation (ECGC)
Export-Import Bank
Export Inspection Council
Indian Council of Arbitration
Federation of Indian Export Organizations
Department of Commercial Intelligence and Statistics
Directorate General of Shipping
Freight Investigation Bureau

Duty Exemption / Remission Schemes of Exim Policy 2004-2009

The Duty Exemption Scheme enables import of inputs required for export
production. It includes the following exemptions-

Duty Drawback: - The Duty Drawback Scheme is administered by the

Directorate of Drawback, Ministry of Finance. Under Duty Drawback scheme,
an exporter is entitled to claim
Indian Customs Duty paid on the imported goods and Central Excise
Duty paid on indigenous raw materials or components.

Excise Duty Refund: - Excise Duty is a tax imposed by the Central

Government on goods manufactured in India. Excise duty is collected at source,
i.e., before removal of goods from the factory premises. Export goods are totally
exempted from central excise duty.

Octroi Exemption: - Octroi is a duty paid on manufactured goods, when they

enter the municipal limits of a city or a town. However, export goods are
exempted from Octroi.

The Duty Remission Scheme enables post export replenishment/ remission of

duty on inputs used in the export product.

DEPB: Duty Entitlement Pass Book, DEPB Rate is basically an export

incentive scheme. The objective of DEPB Scheme is to neutralize the incidence
of basic custom duty on the import content of the exported products.

DFRC: Under the Duty Free Replenishment Certificate (DFRC) schemes,

import incentives are given to the exporter for the import of inputs used in the
manufacture of goods without payment of basic customs duty. This has been
replaced by the Duty free Import Authorization.

DFIA: Effective from 1st May, 2006, Duty Free Import Authorization or
DFIA is issued to allow duty free import of inputs which are used in the
manufacture of the export product, and fuel, energy, catalyst etc. which are
consumed or utilized in the course of their use to obtain the export product.
Duty Free Import Authorisation is issued on the basis of inputs and export items
given under Standard Input and Output Norms(SION).

Export Oriented Units

(EOUs), Electronics Hardware Technology Parks (EHTPs), Software Tech
nology Parks(STPs) And Bio-Technology Parks (BTPs) of Exim Policy
2004-2009
The Export Import Policies relating to Export Oriented Units
(EOUs) Electronics Hardware Technology Parks (EHTPs), Software Technolog
y Parks (STPs) and Bio-technology parks (BTPs) Scheme is given in Chapter 6
of the Foreign Trade Policy. Software Technology Park(STP)/Electronics
Hardware Technology Park (EHTP) complexes can be set up by the Central
Government, State Government, Public or Private Sector Undertakings.

12.How is WTO different from GATT? Describe the Organizational

Structure of WTO and explain the role of India in WTO.

The World Trade Organization is an international organization which was

created for the liberalization of international trade. The World Trade
Organization came into existence on January 1st, 1995 and it is the successor to
General Agreement on Trade and Tariffs (GATT). The World trade
organization deals with the rules of trade between nations at a global level.
WTO is responsible for implementing new trade agreements. All the member
countries of WTO have to follow the trade agreement as decided by the WTO.

Structure of the WTO:

Highest Level: Ministerial Conference

The Ministerial Conference is the top most body of the WTO, which meets in
every two years. It brings together all the members of WTO.

Second Level: General Council

The General Counsel of the WTO is the highest level decision making body in
Geneva, which meets regularly to carry out the functions of WTO.
Third Level: Councils for Trade
The Workings of GATT, which covers international trade in goods, are the
responsibility of the Council of Trade.

Fourth Level: Subsidiary Bodies

There are subsidiary bodies under the various councils dealing with specific
subjects such as agriculture, subsidies, market access etc.

Benefits Of WTO

• It helps promote peace and prosperity across the globe.

• Disputes are settled amicably.
• Rules bring about greater discipline in trade negotiations, thereby
reducing inequalities to a large extent.
• Free trade reduces the cost of living and increases household income.
• Companies have greater access to markets and consumers have wider
range of products to choose from.
• Good governance accelerates economic growth
India and WTO
India is one of the founding members of WTO along with 134 other countries.
India's participation in an increasingly rule based system for governance of
International trade, will ultimately lead to better prosperity for the nation.
Various trade disputes of India with other nations have been settled through
WTO. India has also played an important part in the effective formulation of
major trade policies. By being a member of WTO several countries are now
trading with India, thus giving a boost to production, employment, standard of
living and an opportunity to maximize the use of the world’s resources.

13. Explain the mode of FDI with and without alliances and FDI models in
recent years in the International Business.

Foreign Direct Investment: Foreign direct investment (FDI) is the direct

ownership
of facilities in the target country. It involves the transfer of resources including
capital, technology, and personnel. Direct foreign investment may be made
through the acquisition of an existing entity or the establishment of a new
enterprise. Direct ownership provides a high degree of control in the operations
and the ability to better know the consumers and competitive environment.
However, it requires a high level of resources and a high degree of commitment.
China, Taiwan, India, Brazil, Argentina and other developing countries have
started attracting huge foreign investment.

Explain the concept of Collective Bargaining and Participative

14.
Management in International Industrial Relations.

The debate over the appropriate role for workers in organizational decision
making is part of a larger debate over the extent of the firm’s responsibilities to
its community and society. This debate has been going on since the days of
the Industrial Revolution. Over the ages, employers took little or no personal
interest in their employees constraining themselves to have a relationship with
them, to pay for the services that they have offered. This total lack in interest in
their views or as human beings has led to the evolution of the theories of
“Participative Mgmt” and “Collective bargaining” over the yrs, by both the
workers & psychologists, with the employers constituting a poor share over the
years.

PARTICIPATIVE MANAGEMENT

Some of the most innovative thinking on management education and practice

was originated by management theorist Douglas McGregor in The Human Side
of Enterprise (1960). In this book McGregor challenged many of the prevailing
managerial assumptions about worker motivation and behaviour. According to
the prevailing view, which he labeled “Theory X,” workers were seen as
uninformed, lazy, and untrustworthy members of the organization.
Management’s task was to control workers and motivate them through a
combination of control systems, fear of discipline or dismissal, and
organizational rules. McGregor contrasted this with a “Theory Y” assumption,
namely, that workers are highly motivated and can be trusted to contribute to
the organization’s objectives if given the opportunity to participate in
organizational decision making. Out of the work of McGregor and others, such
as Rensis Likert, has evolved “participative management,” a process in which
managers consult with and involve employees at all levels of the organization in
organizational problem solving and decision making.

McGregor’s views were supplemented by theories that promoted innovations in

the design and implementation of new technologies and production systems that
would accommodate the physical and social needs of workers. These
sociotechnical concepts originated in Europe and had substantial impacts on the
design of innovative work systems in Scandinavia in the 1960s and ’70s. By the
early 1980s they had achieved significant acceptance and use in American
firms.

Sociotechnical theory and worker-participation models of decision making have

become essential to companies as they face global competition and rapid
technological change. Most contemporary organizational and industrial
relations scholars have concluded that the full potential of new information and
manufacturing technologies can only be realized through management processes
that support participation and communication across functional lines and
departments. This must be accompanied by effective problem solving and
flexibility in how work is organized. Yet there is still considerable debate
among practitioners over the feasibility, wisdom, and even the legal
consequences of involving workers in organizational decision making.
Therefore, vestiges of both Theory X and Theory Y can be found in the
concepts and practices of contemporary organizations.
Similarly noteworthy were the paternalistic steps Henry Ford took to help
workers make good use of their increasing affluence. Ford Motor Company
instituted a small legal department to help workers with the complicated
problem of home buying, and then Ford established what he called a sociology
department. It was staffed with social workers who made home visits to
workers’ families to provide advice and help on family problems. Members of
the department were also free to talk with workers within the plant during
working hours in efforts to straighten out family problems.
Company towns and the associated paternalistic view of the employment
relation are still important in Japan and some other countries. A classic
example is “Toyota City,” which provides housing and community services to
Toyota employees.

Yet company towns have also been centres of controversy. They have been the
locus of some of the most bitter strikes in the United States—from Pullman in
l894, through the Southern mill towns in the l930s, to Kohler, Wis., in the l950s.
Whatever grievances workers have had in these situations, it is clear that
economic issues do not offer a complete explanation of the bitterness of
the disputes, in part because any grievance a resident may have is seen to be the
fault of the company.

VOICING WORKERS’ INTERESTS

With broader expectations and higher levels of education also comes a more
assertive labour force—one composed of people willing to voice their demands
or expectations. The means chosen for expressing such demands will vary
according to laws, cultural preferences, the availability of collective forms of
representation, the degree of employer resistance, and employee preferences for
either individual or collective action. For example, the right to organize and
bargain collectively is provided by law in all industrialized democracies around
the world, but this is not always the case in developing nations or in totalitarian
states.

Individual and collective action

There are wide variations in the means workers prefer to use to assert their
interests at the workplace. Generally, workers with good educations and high
occupational status are more likely to assert their interests individually rather
than through collective bargaining. When organized, higher-
level professionals such as doctors, lawyers, engineers, scientists, and middle
managers tend to act through occupational associations rather than in broad-
based unions with blue-collar workers.

This occupational or professional approach helps to create and reinforce the

professional ties and status of these groups as well as to bring their special
needs to the attention of employers. Moreover, these groups tend to rely on the
power they derive from their labour market and geographic mobility along with
professional norms, licensing or certification procedures, and government-
passed standards as much as, if not more than, they rely on collective
bargaining. Teachers and other white-collar government employees represent a
significant exception to this tendency. In the United States and many European
countries, some of the fastest growing and most powerful unions represent
government employees (such as the American Federation of State, County
and Municipal Employees). Moreover, in some European countries an
increasing number of white-collar and professional employees in the private
sector have organized into unions and now negotiate collectively with their
employers.

It should be noted that blue-collar workers who have highly marketable skills
derive individual bargaining power from their potential mobility. In general,
however, blue-collar workers around the world are more likely to form unions
and bargain collectively to promote and protect their interests.
Participative decision making
How strongly do workers wish to take part in decisions that affect them? Do
they want to be coequals with management on issues, or are their interests more
limited? Such questions have been at the centre of historic debates among
industrial relations scholars, practicing managers, union leaders, and public
policymakers. The evidence is surprisingly robust over time and across national
boundaries: workers reveal the greatest interest in participating in decisions that
affect their immediate economic concerns and those that directly affect their
specific job.

Survey data collected from workers across 12 European and North American
countries show that the majority of employees want a say in workplace
decisions such as how they are to perform their jobs, how jobs are organized,
and how problems related to their immediate environment are solved. An
equally strong majority want a say on bread-and-butter economic issues such as
wages, benefits, and safety and health conditions. Only a minority favour direct
participation or indirect representation in the broad strategic business decisions
normally made by high-level executives or a firm’s board of directors. The one
strategic issue that workers demonstrate real interest in influencing, however, is
the role of new technologies at the workplace. When they can see a link
between strategic managerial decisions and their own long-term economic and
career interests, workers want to have a voice in those decisions.

15. Fdi with and without alliances

Foreign Direct Investment (FDI) is normally defined as a form of investment

made in order to gain unwavering and long-lasting interest in enterprises that
are operated outside of the economy of the shareholder/ depositor. In FDI, there
is a parent enterprise and a foreign associate, which unites to form a
Multinational Corporation (MNC). In order to be deemed as a FDI, the
investment must give the parent enterprise power and control over its foreign
affiliate.
Foreign Direct Investment in India
In India, Foreign Direct Investment Policy allows for investment only in case of
the following form of investments:

• Through financial alliance

• Through joint schemes and technical alliance
• Through capital markets, via Euro issues
• Through private placements or preferential allotments

Foreign Direct Investment in India is not allowed under the following

industrial sectors:

• Arms and ammunition

• Atomic Energy
• Coal and lignite
• Rail Transport
• Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold,
diamonds, copper, zinc

A foreign company can commence operations in India by incorporating a

company under the Companies Act,1956 through

• Joint Ventures; or
• Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the

requirements of the investor, subject to equity caps in respect of the area of
activities under the Foreign Direct Investment (FDI) policy. Details of the FDI
policy, sectoral equity caps & procedures can be obtained from Department of
Industrial Policy & Promotion, Government of India (http://www.dipp.nic.in ).

FDI In India Across Different Sectors

Hotel & Tourism

Hotels include restaurants, beach resorts and business ventures providing
accommodation and food facilities to tourist. Tourism would include travel
agencies, tour operators, transport facilities, leisure, entertainment, amusement,
sports and health units.

100 per cent FDI is permitted for this sector through the automatic route.

Trading
For trading companies 100 per cent FDI is allowed for
 • Exports
• Bulk Imports
• Cash and Carry wholesale trading.

Power
For business activities in power sector like electricity generation, transmission
and distribution other than atomic plants the FDI allowed is up to 100 per cent.

Drugs & Pharmaceuticals

For the production of drugs and pharmaceutical a FDI of 100 per cent is
allowed, subject to the fact that the venture does not attract compulsory
licensing, does not involve use of recombinant DNA technology.

Private Banking
FDI of 49 per cent is allowed in the Banking sector through the automatic route
provided the investment adheres to guidelines issued by RBI.

Insurance Sector
For the Insurance sector FDI allowed is 26 per cent through the automatic route
on condition of getting license from Insurance Regulatory and Development
Authority (IRDA).

Telecommunication

• For basic, cellular, value added services and mobile personal

communications by satellite, FDI is 49 per cent.
• For ISPs with gateways, radio-paging and end to end bandwidth, FDI is
allowed up to 74 per cent. But any FDI above 49 per cent would require
government approval.
• Foreign companies can also to set up wholly-owned subsidiary in sectors
where 100% foreign direct investment is permitted under the FDI policy.

Business Processing Outsourcing

FDI of 100 per cent is permitted provided such investments satisfy certain
prerequisites.

NRI's And OCB's

They can have direct investment in industry, trade and infrastructure

Up to 100 per cent equity is allowed in the following sectors

• 34 High Priority Industry Groups

• Export Trading Companies
• Hotels and Tourism-related Projects
• Hospitals, Diagnostic Centers
• Shipping
• Deep Sea Fishing
• Oil Exploration
• Power
• Housing and Real Estate Development
• Highways, Bridges and Ports
• Sick Industrial Units

Industries Requiring Compulsory Licensing

Industries Reserved for Small Scale Sector

FDI WITHOUT ALLAINCES: Greenfield strategy is to enter into a new

market without the help of another business who is already there. An
acquisition is the opposite of a greenfield entry.

Very recently overseas acquisition and outward greenfield foreign

investment have emerged as the two important modes of
internationalization of the Indian pharmaceutical enterprises. This study
examines the relative strengths and weaknesses of these strategies so as
to suggest which between the two is a more effective internationalization
strategy for the Indian pharmaceutical firms, given the nature of their
ownership advantages. This analysis has been conducted in three stages.
First, the nternationalization process of the Indian pharmaceutical
industry has been embedded into a four stage theory emphasizing on the
emergence of different modes of internationalization like inward foreign
investment, imports, exports, outward greenfield investment, overseas
acquisition and contract manufacturing including inter-firm strategic
alliances. Second, theoretical perspectives have been developed with
regard to the different ways in which greenfield investment and overseas
acquisition can maximize the revenue productivity of pharmaceutical
firms’ competitive advantages and/or to strengthen their competitive
position. Third, case study of Ranbaxy Laboratories has been undertaken
to empirically assess its experience with overseas acquisitions. The
analysis indicates that the growth and internationalization of Indian
pharmaceutical enterprises was critically dependent upon strategic
government policies pursued in the past. The Indian experience offers a
number of policy lessons to other developing countries wanting to build
their domestic base in the pharmaceutical sector. Theoretical
understandings indicate that acquisition is a more effective
internationalization strategy than greenfield investment since the former
 not only provides all the benefits that the latter gives, but also several
other competitive advantages important for firms’ performance in world
market. The experience of Ranbaxy shows that overseas acquisitions
have augmented its intangible asset bundle including distribution and
market networks and have provided access to an existing market.

Procedure for availing Foreign Currency Loan : In exercise of the powers

conferred by clause (d) of Sub-Section (3) of Section 6, sub- section (2) of
Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the
Reserve Bank makes the following regulations for borrowing or lending in
foreign exchange by a person resident in India; namely:

1. Short Title and Commencement:-

(i) These Regulations may be called the Foreign Exchange Management

(Borrowing or Lending in Foreign Exchange) Regulations, 2000.

(ii) They shall come into force on 1st day of June, 2000.

2. Definitions:-

In these regulations, unless the context otherwise requires -

a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of

1999);.

b) 'authorised dealer' means a person authorised as an authorised dealer

under sub- section (1) of section 10 of the Act;

c) 'EEFC account', 'RFC account' mean the accounts referred to in the

Foreign Exchange Management (Foreign currency accounts by a person
resident in India) Regulations, 2000;

d) 'FCNR (B) account', 'NRE account' mean the accounts referred to in the
Foreign Exchange Management (Deposit) Regulations, 2000;

e) 'Indian entity' means a company or a body corporate or a firm in India;

f) 'Joint Venture abroad' means a foreign concern formed, registered or

incorporated in a foreign country in accordance with the laws and
regulations of that country and in which investment has been made by
an Indian entity;
 g) 'Schedule' means the Schedule to these Regulations;

h) 'Wholly owned subsidiary abroad' means a foreign concern formed,

registered or incorporated in a foreign country in accordance with the
laws and regulations of that country and whose entire capital is owned
by an Indian entity;

i) the words and expressions used but not defined in these Regulations
shall have the same meaning respectively assigned to them in the Act.

3. Prohibition to Borrow or Lend in Foreign Exchange:-

Save as otherwise provided in the Act, Rules or Regulations made

thereunder, no person resident in India shall borrow or lend in foreign
exchange from or to a person resident in or outside India:

Provided that the Reserve Bank may, for sufficient reasons, permit a person
to borrow or lend in foreign exchange from or to a person resident outside
India.

4. Borrowing and Lending in Foreign Exchange by an Authorised dealer:-

(1) An authorised dealer in India or his branch outside India may lend in
foreign currency in the circumstances and subject to the conditions
mentioned below, namely:

i) A branch outside India of an authorised dealer being a bank

incorporated or constituted in India, may extend foreign currency
loans in the normal course of its banking business outside India;

ii) An authorised dealer may grant loans to his constituents in India for
meeting their foreign exchange requirements or for their rupee
working capital requirements or capital expenditure subject to
compliance with prudential norms, interest rate directives and
guidelines, if any, issued by Reserve Bank in this regard;

iii) An authorised dealer may extend credit facilities to a wholly owned

subsidiary abroad or a joint venture abroad of an Indian entity;

Provided that not less than 51 per cent of equity in such subsidiary
or joint venture is held by the Indian entity subject to compliance
 with the Foreign Exchange Management(Transfer and Issue of
Foreign Security) Regulations, 2000;

iv) An authorised dealer may, in his commercial judgment and in

compliance with the prudential norms, grant loans in foreign
exchange to his constituent maintaining EEFC Account or RFC
Account, against the security of funds held in such account.

v) A branch outside India of an authorised dealer may extend foreign

currency loans against the security of funds held in NRE/FCNR
deposit accounts maintained in accordance with the Foreign
Exchange Management (Deposit) Regulations, 2000.

vi) Subject to the directions or guidelines issued by the Reserve Bank

from time to time, an authorised dealer in India may extend foreign
currency loans to another authorised dealer in India.

2) An authorised dealer in India may borrow in foreign currency in the

circumstances and subject to the conditions mentioned below, namely:

i) An authorised dealer may borrow from his Head Office or branch or

correspondent outside India upto fifteen per cent of his unimpaired
Tier I capital or US$ 10 million, whichever is more, subject to such
conditions as the Reserve Bank may direct.

Explanation:

For the purpose of clause (i), the aggregate loans availed of by all
branches in India of the authorised dealer from his Head Office, all
branches and correspondents outside India, shall be reckoned.

ii) An authorised dealer may borrow in foreign currency without limit

from his head Office or branch or correspondent outside India for
the purpose of replenishing his rupee resources, provided that -

a) the funds borrowed are utilised for his own business operations
and are not invested in call money or similar other markets;

b) no repayment of the loan is made without the prior approval of

Reserve Bank, which may be granted only if the authorised dealer
has no borrowings outstanding either from Reserve Bank or other
bank or financial institution in India and is clear of all money
market borrowings for a period of at least four weeks prior to the
 week in which the repayment is made.

iii) A branch outside India of an authorised dealer being a bank

incorporated or constituted in India, may borrow in foreign currency
in the normal course of its banking business outside India, subject to
the directions or guidelines issued by the Reserve Bank from time
to time, and the Regulatory Authority of the country where the
branch is located.

iv) An authorised dealer may borrow in foreign currency from a bank

or a financial institution outside India, for the purpose of granting
pre-shipment or post-shipment credit in foreign currency to his
exporter constituent, subject to compliance with the guidelines
issued by the Reserve Bank in this regard.

5. Borrowing and Lending in Foreign Exchange by

persons other than authorised dealer:-

(1) An Indian entity may lend in foreign exchange to its wholly owned
subsidiary or joint venture abroad constituted in accordance with the
provisions of Foreign Exchange Management (Transfer or issue of
foreign security) Regulations, 2000.

(2) A person resident in India may borrow, whether by way of loan or

overdraft or any other credit facility, from a bank situated outside India,
for execution outside India of a turnkey project or civil construction
contract or in connection with exports on deferred payment terms,
provided the terms and conditions stipulated by the authority which has
granted the approval to the project or contract or export in accordance
with the Foreign Exchange Management (Export of goods and services)
Regulations, 2000.

(3) An importer in India may, for import of goods into India, avail of
foreign currency credit for a period not exceeding six months extended
by the overseas supplier of goods, provided the import is in compliance
with the Export Import Policy of the Government of India in force.

(4) A person resident in India may lend in foreign currency out of funds
held in his EEFC account, for trade related purposes to his overseas
importer customer:

Provided that,-
 a) the aggregate amount of such loans outstanding at any point of time
does not exceed US$ 3 million; and

b) where the amount of loan exceeds US$ 25,000, a guarantee of a bank

of international repute situated outside India is provided by the overseas
borrower in favour of the lender.

(5) Foreign currency loans may be extended by Export Import Bank of

India, Industrial Development Bank of India, Industrial Finance
Corporation of India, Industrial Credit and Investment Corporation of
India Limited, Small Industries Development Bank of India Limited. or
any other institution in India to their constituents in India out of foreign
currency borrowings raised by them with the approval of the Central
Government for the purpose of onward lending.

6. Other borrowings in foreign exchange with prior approval of

Reserve Bank or Government of India:-

(1) A person resident in India who desires to raise foreign currency loans of
the nature or for the purposes specified in the Schedule and who
satisfies the eligibility and other conditions specified in that Schedule,
may apply to the Reserve Bank for approval to raise such loans.

(2) The Reserve Bank may grant its approval subject to such terms and
conditions as it may consider necessary;

Provided that while considering the grant of approval, the Reserve Bank
shall take into account the overall limit stipulated by it, in consultation
with the Central Government, for availment of such loans by the
persons resident in India.

(3) Any other foreign currency loan proposed to be raised by a person

resident in India, which falls outside the scope of the Schedule, shall
require the prior approval of the Central Government.

(P.R. GOPALA RAO)

Executive Director

SCHEDULE

[ See Regulation 6 ]

1. The borrowing in foreign exchange by a person resident in India may be

 under any of the Schemes set out in this Schedule.

2. The application for the approval of the Reserve Bank under Regulation 6 for
borrowing under any of the Schemes shall be made in Form ECB annexed
to these Regulations.

3. The borrowing in foreign exchange may be from an overseas bank/export

credit agency/supplier of equipment or foreign collaborator, foreign equity
holder, NRI, OCB, corporate/institution with a good credit rating from
internationally recognised credit rating agency, or from international capital
market by way of issue of bonds, floating rate notes or any other debt
instrument by whatever name called.

4 The borrower shall not utilise the funds borrowed under any of these
Schemes for investment in stock market or in real estate business.

(i) Short term loan scheme

a) Foreign currency credit extended by the overseas supplier of goods to

an importer of goods for financing import of goods into India, provided
the period of maturity of credit is more than six months but less than
three years.

b) Foreign currency loan/credit extended to an importer in India for

financing imports into India, by any bank or financial institution outside
India, provided the period of maturity of loan/credit is less than three
years.

(ii) Borrowing under US dollar Five Million Scheme

Borrowing in foreign exchange upto US$ Five Million or its equivalent by

an Indian entity for general corporate purposes at a simple minimum
maturity of three years.

(iii) Borrowing under US dollar Ten Million Scheme

Borrowing in foreign exchange not exceeding US$ Ten Million or its

equivalent by an Indian entity for the following purposes :

a) Borrowing for Financing of Infrastructure Projects

(i) Borrowing in order to finance equity investment in a subsidiary/joint

venture company promoted by the Indian entity for implementing
 infrastructure projects, provided that the minimum average maturity of
loan is three years. In case the loan is to be raised by more than one
promoter entity for a single project, the aggregate of loan by all
promoters should not exceed US$ 10 million.

(ii) Foreign currency loan raised by an Indian entity for financing

infrastructure project, provided that the minimum average maturity of
loan is not less than three years.

b) Borrowings by Exporter/Foreign Exchange Earner

Borrowing in foreign exchange by an exporter/foreign exchange earner

upto three times of the average amount of his annual foreign exchange
earnings during the previous three years subject to a maximum of US$
Ten million or its equivalent, with a minimum average maturity of three
years.

c) Long term Borrowings

Borrowing for general corporate purposes at the minimum average

maturity of eight years.

(iv) Scheme for raising loans from NRIs on repatriation basis

Borrowings not exceeding US$ 2,50,000 or its equivalent in foreign

exchange by an individual resident in India from his close relatives resident
outside India, subject to the conditions that -

a) the loan is free of interest;

b) the minimum maturity period of the loan is seven years;

c) The amount of loan is received by inward remittance in free foreign

exchange through normal banking channels or by debit to the
NRE/FCNR account of the non-resident lender;

d) The loan is utilised for the borrower's personal purposes or for carrying
on his normal business activity but not for carrying on
agricultural/plantation activities, purchase of immovable property or
shares/debentures/bonds issued by companies in India or for re-lending.

Explanation:
'Close relative' means relatives as defined in Section 6 of the Companies
Act, 1956.