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A quota direct restriction on the total quantity of a good or service that may be imported during a specified period. is a direct restriction on the total quantity of a good or service that may be imported during a specified period. Quotas restrict total supply and therefore increase the domestic price of the good or service on which they are imposed. Quotas generally specify that an exporting country’s share of a domestic market may not exceed a certain limit. In some cases, quotas are set to raise the domestic price to a particular level. Congress requires the Department of Agriculture, for example, to impose quotas on imported sugar to keep the wholesale price in the United States above 22 cents per pound. The world price is typically less than 10 cents per pound. A quota restricting the quantity of a particular good imported into an economy shifts the supply curve to the left, as in Figure 17.10, “The Impact of Protectionist Policies”. It raises price and reduces quantity. An important distinction between quotas and tariffs is that quotas do not increase costs to foreign producers; tariffs do. In the short run, a tariff will reduce the profits of foreign exporters of a good or service. A quota, however, raises price but not costs of production and thus may increase profits. Because the quota imposes a limit on quantity, any profits it creates in other countries will not induce the entry of new firms that ordinarily eliminates profits in perfect competition. By definition, entry of new foreign firms to earn the profits available in the United States is blocked by the quota.
1.2 DEFINITION :
A government-imposed trade restriction that limits the number, or in certain cases the value, of goods and services that can be imported or exported during a particular time period. Quotas are used in international trade to help regulate the volume of trade between countries. They are sometimes imposed on specific goods and services to reduce imports, thereby increasing domestic production. In theory, this helps protect domestic production by restricting foreign competition. Quotas are different than tariffs (or customs), which places a tax on imports or exports in and out of a country. Both quotas and tariffs are protective measures imposed by governments to try to control trade between countries. The U.S. Customs and Border Protection Agency, a federal law enforcement agency of the U.S. Department of Homeland Security, is in charge of regulating international trade, collecting customs and enforcing U.S. trade regulations. Smuggling - the illegal transfer of goods into a country is a negative side effect of quotas and tariffs. 1.3 TYPES OF QUOTAS
a) Absolute Quotas
Absolute quotas limit the quantity of certain goods that may enter the commerce of the United States in a specific period, usually a year. When an absolute quota is filled, further entries are prohibited during the remainder of the quota period. Some quotas are worldwide while others are allocated to specific foreign countries. Certain absolute quotas are invariably filled at or shortly after the opening of the quota period. For this reason, an absolute quota is officially opened at a specified time on the first workday of the quota period so that all importers may have an equal opportunity for the simultaneous presentation of entries. If the quantity of quota merchandise covered by entries presented at the opening of the quota period exceeds the quota, the commodity is released on a pro rata basis (i.e., the ratio between the quota quantity and the total quantity offered for entry).
If not filled at the official opening of the quota period, the quota is thereafter administered on a "first-come, first-served" basis, that is, in the order that each entry/entry summary is presented. Imports in excess of a specified quota may be held for the opening of the next quota period by placing it in a foreign trade zone or by entering it into a bonded warehouse, or it may be exported or destroyed under Customs supervision. No importer may offer for entry a quantity in excess of the quota. b) Tariff-Rate Quotas Tariff-rate quotas permit a specified quantity of imported merchandise to be entered at a reduced rate of Customs duty during the quota period. There is no limitation on the amount of the quota product that may be imported into the United States at any time, but quantities entered during the quota period in excess of the quota quantity for that period are charged a higher duty rate. Most of the tariff-rate quotas were proclaimed by the President under agreements negotiated under the Trade Agreements Act. Duties at the reduced rates provided for in the President's proclamation and the HTSUS are assessed on shipments entered under the quota. When the Commissioner of Customs determines that a quota is almost filled, Customs may require the deposit of estimated duties at the over-quota duty rates as of a specified date and to report the time of official acceptance of each entry/entry summary. When an official determination is made of the date and time the quota is filled, Customs field officers are authorized to make the required adjustments in the duty rates on that portion of the merchandise entitled to quota preference. 1.4 Tariff and Quota: Protection to domestic import-competing industries is made either through a tariff or a quota. A tariff has an immediate advantage for governments in that it will automatically generate tariff revenue (assuming the tariff is not prohibitive). Quotas may or may not generate revenue depending on how the quota is administered. If a quota is administered by selling quota tickets (i.e., import rights) then a quota will generate government
revenue, however, if the quota is administered on a first-come, first served basis, or if quota tickets are given away, then no revenue is collected. Tariff collection involves product identification, collection and processing of fees. Quota administration will also involve product identification and some method of keeping track, or counting, the product as it enters the country in multiple ports of entry. Tariffs types include ad valorem, specific, compound and alternative tariffs. The most important distinction between the two policies, however, is the protective effect the policy has on the import competing industries. In one sense, quotas are more protective of the domestic industry because they limit the extent of import competition to a fixed maximum quantity. The quota provides an upper bound to the foreign competition the domestic industries will face. In contrast, tariffs simply raise the price, but do not limit the degree of competition or trade volume to any particular level. In the original GATT, a preference for the application of tariffs rather than quotas was introduced as a guiding principle. Tariffs allowed for more market flexibility and were less protective over time. With a quota in place, it is very difficult to discern the degree to which a market is protected since it can be difficult to measure how far the quota is below the free trade import level. In situations where market changes cause a decrease in imports, a tariff is more protective than a quota. This occurs if domestic demand falls, domestic supply rises, the world price rises, or some combination of these changes occurs. A tariff rate quota (TRQ) combines two policy instruments that nations historically have used to restrict such imports: quotas and tariffs.
Nations can no longer impose temporary quotas to offset surges in imports from foreign markets. Import quotas once played a much greater role in global trade. government imposes quotas to protect domestic industries from foreign competition.S.T. 1700. usually a year. with 123 signatories. is the principal international multilateral agreement regulating world trade. T. An import quota fixes the quantity of a particular good that foreign producers may bring into a country over a specific period. an import quota that is introduced to protect a domestic industry from foreign imports is limited to at least the average import of the same goods over the last three years. No.I. Furthermore. A3.I. A2051. 308).A. This agreement became effective January 1.S.CHAPTER – 2. and the United States is still bound by it.1 INTRODUCTION: Import quotas are a form of protectionism.S.N. GATT members were required to sign the Protocol of Provisions Application of the General Agreement on Tariffs and Trades (61 Stat.S. IMPORT QUOTA 2. No. GATT has been renegotiated seven times since its inception. the 1995 GATT agreement identifies the country of an import's origin in order to prevent countries from exporting goods to another nation through a third nation that does not have the same import quotas. The Protocol of Provisions set forth the rules governing GATT and it also governs import quotas. 55 U. They also can raise prices for the consumer by reducing the amount of cheaper.A. T.S. the most recent version became effective July 1. 1947. GATT also requires that all 5 . foreign-made goods imported and thus reducing competition for domestic industries of the same goods. 187). The General Agreement on Tariffs and Trade (GATT) (61 Stat. but the 1995 renegotiation of GATT has made it increasingly difficult for a country to introduce them. 1700. 1948. In addition.N. which was opened for signatures on October 30. Import quotas are usually justified as a means of protecting workers who otherwise might be laid off.T. 55 U. The U. 1995.
In a market that has become overcrowded with U.S.S. bananas. companies headquartered in the United States rely on manufacturing facilities outside of the country to produce their goods.S. beef. insurance. Many U. and even under-wear—among other things. In a single session of Congress in 1985. their opposition argues that this is the price to be paid for giving away U. although a nation cannot seek to deter trade by imposing arbitrary import quotas. Import quotas are foreign trade policies undertaken by domestic governments that are intended to "protect" domestic production by restricting foreign competition. in 1996—even after the new version of GATT went into effect—Vietnam restricted the amount of cement.S. more than three hundred protectionist bills were introduced as U. the European Communities have chosen to enforce import quotas on U. 6 . leather.-made films and television in an effort to encourage Europe's own industries to become more competitive. Nearly every country restricts imports of foreign goods. employers often face hiring quotas for different demographic groups and sales representatives often have quotas for sales activities. some of these companies cannot get their own products back into the United States. automobiles. jobs to foreign countries. For example. a quota is simply a quantity restriction placed on a good.S.S. and computers. The import quotas of foreign countries can adversely affect U. Import quotas are then merely legal restrictions on the quantities of imports from the foreign sector that are imposed by the domestic government. economy has suffered because of foreign import quotas on canned fruit. In general.S. industries that try to sell their goods abroad. sugar. While such companies lobby Congress to change what they consider to be an unfair practice. or activity. fertilizer. the decade from the mid-1980s to the mid-1990s saw import quotas placed on textiles. For example. industries began voicing concern over foreign competition. and fuel and the number of automobiles and motorcycles it would import. cigarettes. it may increase the tariffs associated with a particular import. In the United States. Because of import quotas. Therefore. The U. entertainment.import quota trade barriers be converted into tariff equivalents. agricultural products. service.
It is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. are used to benefit the producers of a good in a domestic economy at the expense of all consumers of the good in that economy. then import quotas protect the "infant industry" while it matures and develops. 2.2 MEANING: An import quota is a limit on the quantity of a good that can be produced abroad and sold domestically. Quotas. as well as other foreign trade policies. 2. less of it is imported.The goal of import quotas is to increase the limit the availability of imports in the domestic economy and thus encourage domestic consumers to purchase domestic production. • Domestic Employment: Because foreign imports are produced in other countries by foreign workers. If a quota is put on a good. • Unfair Trade: The foreign imports might be sold at lower prices in the domestic economy because foreign producers engage in unfair trade practices. are commonly justified for at least five of reasons.3 Policy of Import Quotas The impositions of import quotas on foreign imports. decreasing imports and increasing domestic production also increases domestic employment. like other trade restrictions. • Infant Industry: If foreign imports compete with a relatively young domestic industry that is not mature enough nor large enough to benefit from economies of scale. • Low Foreign Wages: Restricting imports produced by foreign workers who receive lower wages "levels the competitive playing field" compared to domestic goods produced by higher paid domestic workers. such as 7 .
2. • National Security: Import quotas can also discourage imports and encourage domestic production of goods that are deemed critical to the security of the national economy. However. greater profits. a country unilaterally fixes a ceiling on the quantity of import of the commodity concern. d) MIXING QUOTA : Under the mixing quota."dumping" imports at prices below production cost.4 TYPES OF IMPORT QUOTA There are five important types of import quotas. and more income to resource owners. imports of a commodity up to specified volume are allowed duty free or at a special low rate. producers are obliged to utilized an domestic raw material up to a certain proportion in the production of finished products. or between the importing country and export groups within the supplier country. Domestic firms benefit with higher sales. Import quotas seek to prevent foreign producers such activity. Under a tariff quota. by increasing domestic prices and restricting accessing to imports. and thus most commonly promoted by. including import licensing. While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy they tend to be most beneficial. a) TARIFF QUOTA: A Tariff quota combines the features of tariff as well as of quota. c) BILATERAL QUOTA: A bilateral quota results from negotiation between the importing country and a particular supplier country. domestic firms facing competition from foreign imports. but any imports in excess of this limit are subject to duly/ a higher rate of duly. foreign trade policies also tend to be harmful to domestic consumers. 8 . b) UNILATERAL QUOTA: In the case of unilateral quota.
As the quantity of importing the good is restricted. and thus most commonly promoted 9 . the license holders import as much as they are permitted. as long as the price of the good is above the world price. Under the import licensing system. The quota causes the price of the good to rise above the world price. thus "protect" domestic production by restricting foreign competition. the price of the imported good increases thus encourages consumers to purchase more domestic products. domestic sellers are better off. service. In general. In addition. Thus. 2. Because the quota raises the domestic price above the world price. the import quota reduces the imports.6 Effects Because the import quota prevents domestic consumers from buying a imported good. the supply of the good is no longer perfectly elastic at the world price. In a large number of countries. import licensing has become a very powerful device for controlling the quantity of import commodities of aggregate import.e) IMPORT LICENSING : Quota regulation are generally administrated by means of import licensing. prospective importers are obliged to obtain an import license which is necessary to obtain the Foreign exchange to pay for the imports.5 Goals The primary goal of import quotas is to reduce imports and increase domestic production of a good. Instead. Thus. and the total supply of the good equals the domestic supply plus the quota amount. import quotas decrease consumer surplus while increasing producer surplus and license-holder surplus. While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy they tend to be most beneficial. The price of the good adjusts to balance supply (domestic plus imported) and demand. and domestic buyers are worse off. a quota is simply a legal quantity restriction placed on a good imported that is imposed by the domestic government. or activity. the license holders are better off because they make a profit from buying at the world price and selling at the higher domestic price. The imported quantity demanded falls and the domestic quantity supplied rises. 2.
by increasing domestic prices and restricting accessing to imports. Then if the tariff is supposed to make price of the good rise to allow domestic producers to sell at a higher price. increase welfare of domestic producers. and more income to resource owners. and the price paid domestically may not rise by much. if the supply curve of the foreign country is unknown. a quota can potentially cause an even larger deadweight loss. Also. profit per unit equals domestic price (at which imported good is sold) minus world price (at which good is bought) (minus any other costs). decrease welfare of domestic consumers. The entire profit of the firm with an import license is paid to the government.by. domestic firms facing competition from foreign imports. it allows a country to be sure of the amount of the good imported from the foreign country. whereas import quota generates surplus for firms that get the license to import. So why do countries use import quotas instead of always using a tariff? When an import quota is used. raise domestic price of good. However. the import quota works exactly like a tariff. greater profits. Total profit equals profit per unit times quantity sold. If world supply in the home country is upward-sloping and less elastic than domestic demand (as may be the case when the home country is the United States) then the incidence of the tariff may fall on producers. Thus government revenue is the same under such an import quota and a tariff. consumer surplus and producer surplus are the same under such an import quota and a tariff. Government may charge fees for import license.7 Import quotas vs tariffs : Both tariffs and import quotas reduce quantity of imports. depending on the mechanism used to allocate the import licenses. Domestic firms benefit with higher sales. If the government sets the import license fee equal to difference between domestic price and world price. A 10 . and cause deadweight loss. 2. the quantity of the good imported may not be predictable. When there is a tariff. For a firm that gets a license to import. foreign trade policies also tend to be harmful to domestic consumers. However. The difference between these tariff and import quota is that tariff raises revenue for the government. the tariff may not have much of the desired effect.
11 . However in competitive markets there is always some tariff that raises the price as high as the quota does.quota may do more to raise price.
CHAPTER – 3. which covers only 25-40 per cent of the cost. official sources said. such companies could only import urea for industrial use.310 per tonne. taxed at full cost. these companies can directly import without involving canalizing agents. This is still the current price. and to remove customs duty on import of plant and machinery for fertilizer projects.1 UREA IMPORT RULES : • • • The government last week allowed private companies to import urea for preparation of complex fertilizers Used in agriculture. Till now. strict monitoring will be done for usage of imported urea in manufacturing of the fertilizer. • India produces about 22 million tons (mt) of urea in a year and consumes a little more than 30 mt. are allowed to import urea for agricultural purposes. Taxes and duties are levied on the maximum retail price fixed by the government. In 2010. the permission is given with a rider that the urea cannot be sold directly in the market. such as Indian Potash Ltd and state trading houses MMTC and STC. The inputs for urea production are. Two Indian companies. IMPORT QUOTA OF UREA IN INDIA 3. A company does not get a subsidy if its uses indigenously manufactured urea in preparation of complex fertilizers. in preparation of chemicals. which these companies can then sell. • Further. however. Coromondal International and Zara Industries. private companies used to source urea from imports made by government canalising agents. For agricultural purposes. • Meanwhile. A ministry report on the duty structure on fertilizer and its inputs says the government distributes urea much below the cost of import or production. Now. • However. 12 . say the rules. The imported urea is to be used only to make the NPK complex fertilizer. the government had increased the retail price of urea by 10 per cent to Rs 5. the ministry of chemicals and fertilizers has sought to exempt urea from the proposed Goods and Services Tax (GST).
This would block large amounts of input tax credit of fertilizer companies with the government on a recurring basis. Also. it notes. designated canalising agents are authorised by the Department of Fertilizers (DOF) to arrange for the imports.resulting in tax incidence on the inputs far in excess of that on the finished fertilizer. Urea is being imported to bridge the gap between its demand and indigenous availability in the country. The procedure for import of urea by the Department has three components: a) Assessment of import requirement: The requirement of urea imports is assessed by GOI in relation to the estimated demand. 13 . Besides. health and educational sectors 3. the sector (meaning. • Thus. under the proposed GST. meaning the input credits will be far more than what could ever be availed on the outputs. • • Hence.2 PROCEDURE FOR IMPORT OF UREA IN INDIA Presently. except for refunds on exports. indigenous production. even if there was provision of periodic cash refund. availability of stocks and pipeline requirement. goes the argument. there are no provisions for refund of unadjusted credits in GST. a number of crucial inputs for urea manufacturing like natural gas. Currently. the input tax credit will far exceed the tax payable on fertilizer. b) Contracting of Imports Based on the estimates of imports. urea) should be exempt from GST. the GST model seeks to exempt the food. electricity generation and petroleum products are out of the GST ambit. urea is the only fertilizer under the statutory price and movement control of the Government of India.
• • Procurement of Urea . The agencies are: • • • MMTC Ltd. which are designated by GOI to canalize the import on its behalf. imports are to be contracted only on FOB basis. 14 . • Imports are made only with the approval of the Board of Directors or the SalePurchase Committee (SPC) constituted by the Board. these authorizations are issued sufficiently in advance of the requirement.Canalising agencies At present. preference will be in favour of producers and accredited suppliers only. policy guidelines on Ocean Transportation. DOF authorises the canalizing agencies to contract and deliver specified quantities of urea in different months/quarters of the year. No single individual is permitted to take decisions relating to purchases. payments etc. In limited tendering. In cases wherein contracting on C&F basis is being cheaper. Long term contracting with producers is permitted with a view to ensure security of supplies at the internationally competitive prices most advantageous to the country. Indian Potash Limited (IPL) State Trading Corporation (STC) Based on GOI’s estimates of the urea import requirement. • As per the Govt. waiver from Transchart in accordance with the Government policy on Ocean Transportation is a pre-condition. c) Tendering: • The canalizing agencies may suitably combine open global tenders with limited tendering looking to the exigency of requirement. there are three agencies.
the reputed international producers and accredited suppliers of urea enjoy preference in respect of bid bond and performance bond conditions vis-à-vis new suppliers. transferable L/C’s can also be opened in special circumstances with the express approval of the Board or Sales Purchase Committee. These are laid down as under : Category of Suppliers Category I Producers as per IFA publication 'Survey of urea capacities.I) Payment by canalizing agencies: • All payments are to be made against Letter of Credit (L/C). divisible or assignable. However. which shall normally not be transferable. L/C shall be opened after receipt of the Performance Guarantee and a copy of the signed contract. shall render themselves to be placed on ‘holiday’ till such time as the outstanding disputes are resolved. a) Choice of Suppliers: • In procurement of urea.1995' or Any updated edition of the same Category II Accredited suppliers (who have successfully supplied to India for atleast two years in the last 5 years) Performance Bid Bond Bond (As % Credit Rating (In $ Of Contract Required PMT) Value) Bank Reference Required Nil 1% No No US $3 3% No No 15 . • • The Performance Guarantee will NOT be released till all claims have been settled by suppliers. Those suppliers who have not settled claims for the last one year.
b) Second stage: Balance 2% payment along with the bank/ service charges. are released on the basis of the expenditure sanction issued by the Department. 16 . • Payment of ocean freight including dispatch / demurrage with vessel owner and settlement with handling agencies: The ocean freight is payable in two stages: a) First stage: Advance 90% of the ocean freight is paid within 7 working days of the sailing of the vessel if it is less than 15 years of age.Category III All others not falling under Categories I & II US $10 10% 1. or less dispatch (if any).Standard &Poor 2. The supporting documents required for processing 98% advance and balance 2% payment are detailed at Part I of Annexure ‘A’. In case the vessel is over 15 years of age. Moody's or 3. b) Second stage: Balance 10% freight with demurrage (if any). load port inspection charges etc. is payable to charterers within 120 days of completion of discharge. it is made after safe arrival at the discharge port. Dun & Bradstreet Yes Release of payments to the canalising agencies: The cost of the cargo against the specified contract is released to the canalising agencies in two stages: a) First stage: Advance payment of 98% of the cost of cargo within10 working days after the receipt of the bill from the canalising agency. The documents required for processing the Ocean freight payment are detailed at Part II. of Annexure ‘A’.
are mitigated by providing support under the New Pricing Scheme for Urea units and the concession Scheme for decontrolled Phosphate and Potassic fertilizers. However. The problems faced by the manufactures in earning a reasonable return on their investment with reference to controlled prices. and decontrolled Phosphate and Potassic fertilizes are sold at indicative maximum retail prices (MRPs). is deducted from the second stage payment to the vessel owner and is paid to the broker at the time of release of balance freight. financial support is also given on imported urea and decontrolled Phosphatic and Potassic fertilizers. urea being the only controlled fertilizer. if any. • The demurrage on vessels on account of pre-berthing detention and detention before commencement of the discharge at the ports is borne by the DOF. 17 . brokerage commission on demurrage. 3.• The total brokerage commission due to Indian broker under the Charter Party Agreement is deducted from the first stage payment and is paid to the broker direct in Indian rupees converted at the exchange rate prevailing at that time. • The Settlement of dispatch/ demurrage with the Handling agency is made on the advice of shipping cell in DOF and after seeking necessary approval. As the consumer prices of both indigenous and imported fertilizers are fixed uniformly. is sold at statutory notified uniform sale price. With this objective. it is imperative that fertilizers are made available to farmers at affordable prices. The statutorily notified sale price and indicative MRP is generally less than the cost of production of the irrespective manufacturing unit. • The Settlement of dispatch / demurrage with ship owner is done by DOF on the basis of the lay time calculations given the Transchart at the time of settlement of 10% balance freight. The difference between the cost of production and the selling price/MRP is paid as subsidy/concession to manufacturers.3 Fertilizer Policy For sustained agricultural growth and to promote balanced nutrient application.
the difference between retention price (cost of production as assessed by the Government plus 12% post tax return on net worth) and the statutorily notified sale price was paid as subsidy to each urea unit. • Amendments to New Pricing Scheme Stage .P. The limitation on reduction of fixed cost will be applicable w.e.f. 1st April. With the Stage-III of NPS being implemented w. The approved amendments will help the indigenous urea units reduce their losses due to the group averaging under New Pricing Scheme Stage .f 1st April. a buffer stocking scheme for urea is under 18 .III and help them to generate resources for reinvestment in their plants towards modernization and increased efficiency. the ERC recommended.Urea Pricing Policy: Until 31. To maintain stocks of urea in case there is either a shortfall in production due to disruption in supplies of feed-stocks or delay/ disruption in imports and to tide over the sudden spurt in demand/shortages. 2009. In its report submitted on 20th September. inter-alia. The Stage.2003.3. 2004 and Stage-II was of two year duration from 1st April to 31st March. Following amendments in NPS III have been made It has been decided that the reduction in the fixed cost of each Urea units strictly due to Group Averaging principle under the New Pricing Scheme III will be restricted to 10% of the Normated Fixed Cost computed under the base concession rates. headed by Shri K. Under RPS. Capacity utilization of Post – 1992 Naphtha based Group Average will be considered as 95% instead of 98% for calculating the base concession rates of urea units provided no cost towards conversion is recognized under NPS III.2006. the subsidy to urea manufacturers was being regulated in terms of the provisions of the erstwhile Retention Price Scheme (RPS). The expenditure Reforms Commission (ERC). 1st October. 2000.I of NPS was of one year duration from 1 April.III for Urea Units. the Stage-II of NPS stands extended upto 31st September.e. Geethakrishnan. dismantling of existing RPS and in its place the introduction of a Concession Scheme for urea units based on feedstock used and the vintage of plants. 2006. New Pricing Scheme (NPS) for urea was introduced w. 2006.f. 2003. had also examined the issue of renationalizing fertilizer subsidies.e. 2003 to 31st March.
• Concession scheme/nutrient based subsidy policy for decontrolled phosphatic & potassic fertilizers Government of India decontrolled Phosphatic and Potassic (P&K) fertilizers with effect from 25th August 1992 on the recommendations of Joint Parliamentary Committee. It led to an imbalance in the usage of the nutrients 19 . which exercised an adverse impact on the demand and consumption of the same. from the plant to the buffer stocking point and then on to consumption points. freight from the buffer stocking warehouse to the block in case of movement outside the district in which buffer stocking go-down is located. Member. the prices of the Phosphatic & Potassic fertilizers registered a sharp increase in the market. In case of cooperatives. The company will be paid warehousing and insurance charges at the rate of23 per tonne per month on the quantity carried as buffer. will also be paid to the company. The company operating the buffer stock will be entitled to Inventory Carrying Cost (ICC) at a rate 1 percentage point less than the PLR of SBI as notified from time to time.e. additional handling charges at the rate of30 per MT will be paid to the Fertilizer Company on the quantity sold from the buffer stock. In addition. Consequent upon the decontrol.4830-180) for the quantity and the duration for which the stock is carried as buffer. The companies are reimbursed buffer stocking expenses on following parameters. in accordance with the provisions under the Uniform policy for freight subsidy announced by the Government with effect from 1st April. 2008.e. This rate would be applicable at4650 per MT (MRP less than the dealer’s margin i. • Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri.implementation in major States. Planning Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable recommendations. it will be at4630 per MT as dealers margin in this case is200 per MT. Since the material will be moved in two stages i.
1. Then the Government introduced Nutrient Based Subsidy Policy w.2008. the difference in the delivered price of fertilizers at the farm gate and the MRP was compensated by the Government as subsidy to the manufacturers/importers for 20 . which continued upto 31. The Government introduced the system of releasing 80% 'On Account' payment of concession in 1997-98 to the fertilizer companies month-wise.f. which was finally settled based on the certificate of sales issued by the State Government. P & K (Nitrogen.2010 with changed parameters from time to time. NPK Complex fertilizers.3. Initially. The responsibility of indicating MRP in respect of SSP rested with the State Governments.e. The basic purpose of the Concession Scheme and Nutrient Based Subsidy Policy has been to provide fertilizers to the farmers at the subsidized prices. During 1997-98.f. Concession was disbursed to the manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on the grants provided by Department of Agriculture & Cooperation.4.f.2010 (w.now called Tariff Commission). DAC started releasing payment of concession to the fertilizer companies based on the certificate of sales issued by the State Governments on 100% basis. Subsequently.5.e.2010 for SSP) in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers.e. Department of Agriculture & Cooperation introduced Concession Scheme for decontrolled Phosphatic & Potassic (P&K) fertilizers on ad-hoc basis w. Keeping in view the adverse impact of the decontrol of the P&K fertilizers. Based on the cost price study of DAP and MOP conducted by Bureau of Industrial Costs & Prices (BICP . the ad-hoc Concession Scheme was introduced for subsidy on DAP.3. The Special Freight Subsidy Reimbursement Scheme was also introduced in 1997 for supply of fertilizers in the difficult areas of J&K and North-eastern States. which has been allowed to continue by the Government of India upto 31. 1. MOP.of N.10. This scheme was also extended to SSP from 1993-94.f. The total delivered cost of fertilizers being invariably higher than the MRP indicated by the Government. 1. Phosphate and Potash) and the productivity of the soil.4.e. Department of Agriculture & Cooperation started announcing rates of concession based on the cost plus approach on quarterly basis w.1992. 1.1999. Department of Agriculture & Cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP.
depending upon the source of Nitrogen. imported ammonia.2000. With the passage of time. the Tariff Commission made a fresh Cost Price Study and submitted its report in February 2003. Based on the examination of the Tariff Commission Report and the longterm approach suggested by the Expert Group under the Chairmanship of Prof. gas. naphtha. Tariff Commission conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. The recommendations of the Expert Group were considered by an Inter-Ministerial Group (IMG).2010 with certain modifications. Subsequently. which continued upto 31. The 21 . The Expert Group under Prof.4.selling the fertilizers at the MRP indicated by the Government. naphtha. Accordingly. 1. Abhijit Sen. such as gas.e.2002 based on the recommendations of the Tariff Commission. The complex manufacturers were divided into groups based on feedstock for sourcing Nitrogen.4. submitted its report in October 2005. Department of Fertilizers framed a proposal suggesting methodology to link phosphoric acid price with international DAP price.2008. Concession for indigenous DAP was the same as that of imported DAP (on the basis of import parity price).10. imported Urea-ammonia mixture and imported Ammonia. the structure of DAP industry also changed as some of the new DAP manufacturing plants were established using the Rock Phosphate for manufacturing indigenous Phosphoric acid/DAP. The administration of the scheme was transferred from Department of Agriculture & Cooperation to Department of Fertilizers w. Based on the decisions of the Government in 2004-05.e.f. 1. Payment of concession to the DAP manufacturing units from 2003-04 to 2007-08 was made as per two groups depending upon the source of the raw materials (Rock Phosphate/ Phosphoric acid).3.f. Concession on complex fertilizers was based on the methodology recommended by Tariff Commission with certain modifications. The NPK complex industry was divided into 4 groups. 1.e. the Government approved the Concession Scheme with effect from 1. the matter was referred to the Expert Group.f. vis-à-vis. The Government introduced a new methodology for working out subsidy to complex fertilizers w.2008 for DAP/MOP/NPK Complexes/ MAP.4. The final rates of concession were worked out on monthly basis. Abhijit Sen. A separate cost of 'S' for Sulphur containing complex fertilizers was recognized w.
f. The rates of concession during 200910 under the Concession Scheme for decontrolled P & K fertilizers (except SSP) were as per Annexure-X.2010. 1. The MRPs of the NPK complexes were reduced w. Mono. has been constant since 2002 till 31. The MRPs of the P&K fertilizers. In order to enhance the basket of fertilizers in the Concession Scheme. there was a lag of one month. The MRP of the fertilizers remained 22 .e.2008 and Ammonium Sulphate (AS) manufactured by M/s FACT and M/s GSFC was inducted w. In case of raw materials/ inputs for complex fertilizers.2009 to adjust parameters of concession scheme to International pricing dynamics and rationalize 'N' pricing groupwise as well as payment system. which has been indicated by the Government/State Government. whichever lower with respect to DAP and MOP. Triple Super Phosphate (TSP) was inducted into the Concession Scheme w. Modifications in certain elements of the Concession Scheme were also carried out with effect from 1. 1. Agricultural productivity did not register increase in commensurate with the increase in the subsidy bill.7.4.5 Lakh MTs for DAP and 1 Lakh MTs for MOP as buffer. w.e. Certain changes were effected in the existing policy for P &K Fertilizers.3. From 1.2007.f.input/fertilizer prices for Concession Scheme was derived on the basis of an outlier methodology.2008.f.e.f.6. 1. 1.2008. The Buffer Stocking Scheme was allowed to continue with 3.4.Ammonium Phosphate (MAP) was included into the Concession Scheme w.2009 final rates of concession were worked out on monthly basis. it has been experienced that no investment has taken place in last decade.f. taking into account the average international price of the month preceding the last month or the actual weighted average C&F landed price at the Indian ports for the current month.2008.4.e.e. The subsidy outgo increased exponentially by 530% during 2004 to 2009 with about 90% of the increase due to rise in the international prices of fertilizers and inputs. Accordingly. (A) Nutrient Based Subsidy Policy for decontrolled Phosphatic & Potassic fertilizers In the implementation of Concession Scheme.12. payment of concession has been made to the manufacturers/importers of the Decontrolled fertilizers (except SSP) on the basis of arrival/ receipt of fertilizers and certificate of receipt by the State Government/statutory auditor of the company subject to final settlement on the basis of sale of the quantity.4. 18.
2010 for SSP). as provided for under FCO. The IMC also recommends a per tonne additional subsidy on fortified subsidized fertilizers carrying secondary (other than 'S') and micro-nutrients.e. Triple Super Phosphate (TSP. The Committee considers and recommends inclusion of new 23 .2010 in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers (w. 'K' and 'S' before the start of the financial year for decision by the Government (Department of Fertilizers). An Inter-Ministerial Committee (IMC) has been constituted with Secretary (Fertilizers) as Chairperson and Joint Secretary level representatives of Department of Agriculture & Cooperation (DAC). 1. 11-52-0).f. The details of Nutrient Based Subsidy Policy are as under: NBS is applicable for Di Ammonium Phosphate (DAP. 18-46-0).f. 'P'. improving agricultural productivity and ensuring the balanced application of fertilizers. 1. namely Nitrogen 'N'. A Group of Ministers (GoM) constituted to look into all aspects of the fertilizer regime. Planning Commission and Department of Agricultural Research and Education (DARE). 0-46-0). which were covered under the earlier Concession Scheme for Phosphatic and Potassic (P&K) fertilizers up to 31st March 2010 and Single Super Phosphate (SSP). This Committee recommends per nutrient subsidy for 'N'. The secondary and micro-nutrients (except 'S') in such fertilizers attracts a separate per tonne subsidy to encourage their application along with primary nutrients. Phosphate 'P' and Potash 'K' and nutrient Sulphur 'S' contained in the fertilizers mentioned above are eligible for NBS. The Hon'ble Finance Minister in its Budget Speech 2009 announced for introduction of Nutrient Based Subsidy Policy for Phosphatic & Potassic fertilizers with the objective of ensuring Nation's food security. Mono Ammonium Phosphate (MAP. recommended that Nutrient Based Subsidy (NBS) may be introduced based on the contents of the nutrients in the subsidized fertilizers. 12 grades of complex fertilizers and Ammonium Sulphate (AS . The Government introduced the Nutrient Based Subsidy (NBS) Policy w. Department of Expenditure (DOE).5.e.constant from 2002 onwards. is also eligible for subsidy.4.(Caprolactum grade by GSFC and FACT). Primary nutrients. Any variant of the fertilizers mentioned above with secondary and micro-nutrients (except Sulphur 'S'). Muriate of Potash (MOP).
'K' and 'S' has been decided by the Government for 2010-11 on recommendation of IMC. In addition to NBS. including 13 grades of complex fertilizers has been placed under Open General License (OGL). 24 . NBS is available for imported complex fertilizers also. Import of all the subsidized P&K fertilizers. no concession was available for imported complex fertilizers.f.4.fertilizers under the subsidy regime based on application of manufacturers/ importers and its need appraisal by the Indian Council for Agricultural Research (ICAR). except Urea is determined based on demand-supply balance. Distribution and movement of fertilizers along with import of finished fertilizers. both Public Sector entities. Any sale above the printed net MRP is punishable under the EC Act.2010 and is ' 5310 PMT.f 1st April 2010 has been announced. Now. 'P'. as NBS is applicable only to Ammonium Sulphate produced by FACT and GSFC. Import of Urea is canalized during the first phase of NBS Policy and Urea continues under Government control. 20% of the price decontrolled fertilizers produced/imported in India is now in the movement control under the Essential Commodities Act 1955 (ECA). 'N'. for decision by the Government. MRP of Urea has been increased by 10% w. freight for the movement and distribution of the decontrolled fertilizers by rail and road is being provided to enable wider availability of fertilizers in the country.e.e. However. NBS to be paid annually on each nutrient namely. 1. Earlier. the fertilizer companies are required to print Maximum Retail Price (MRP) along with applicable subsidy on the fertilizer bags clearly. Department of Fertilizers will regulate the movement of these fertilizers to bridge the supplies in under-served areas. per kg NBS and per tonne NBS for each subsidized fertilizer w. fertilizer inputs and production by indigenous units continues to be monitored through the online web based "Fertilizer Monitoring System (FMS)" as being done under the outgoing Concession Scheme for P&K fertilizers. For 201011. subsidy will not be applicable on imported Ammonium Sulphate (AS). Though the market price of subsidized fertilizers.
The payment of NBS to the manufacturers/ importers of DAP/MOP/Complex Fertilizers/ MAP/TSP. SSP and AS is released as per the procedure notified by the Department 3. The NBS is being released through the industry during the first phase. The quantum of additional subsidy will be finalized by Department of Fertilizers in consultation with DOE. 1955 by the Department of Agriculture and Cooperation (DAC) and the movement orders issued individually in the case of each shipment by DOF. 25 . • Prequalification of the handling agencies is made by the DOF as per the procedure outlined at Part I. this will be for a maximum period of two years during which the units will have to convert to gas or use imported Ammonia.4 Handling of Imported Urea by Handling Agencies at Indian Ports a) Handling of Imports: • On arrival of vessels at the nominated Indian ports. urea imports are handled by agencies appointed by GOI every year on contract. A separate additional subsidy is provided to the indigenous manufacturers producing complex fertilizers using Naphtha based captive Ammonia to compensate for the higher cost of production of 'N'. The prequalification is for a period of three years. Manufacturers of customized fertilizers and mixture fertilizers are eligible to source subsidized fertilizers from the manufacturers/ importers after their receipt in the districts as inputs for manufacturing customized fertilizers and mixture fertilizers for agricultural purpose. based on study and recommendations by the Tariff Commission. There is no separate subsidy on sale of customized fertilizers and mixture fertilizers. of Annexure ‘B’. However. The handling agencies are also responsible for undertaking the distribution in accordance with the allocations made for each crop season under the Essential Commodities Act (ECA).
• The DOF invites tenders from pre-qualified handling agents for the handling of urea vessels at the ports. distribution and marketing of imported urea in the various States/UTs within the country on an annual basis. priority ousting priority berthing charges. (The detailed procedure for establishment of Letter of Credit towards the cost of Cargo is at Annexure ‘C’. transportation. b) Inland Transportation & Delivery of Imported Urea This is payable in two stages: • 75% inland freight is adjusted by the handling agency at the time of establishment of the irrevocable LC. (iii) Additional ICC on stock-flow basis for the quantities handled during the financial year but which were not covered by the ECA allocation or remained unsold. • The balance 25% of the inland freight is reimbursed on submission of Debit Note by handling agents after completing the actual movement of the cargo. 26 . (ii) Turnover tax. • • Miscellaneous expenses reimbursable to the handling agencies The expenses reimbursed on actuals by the DOF to the handling agencies as per the Handling & Distribution Contract are : (I) Cargo related berth hire charges. bagging. standardisation.Currently. there are 22 pre-qualified agencies whose details are at Part II. as payable by the charterers/consignees on their agents. in Annexure ‘B’.
c) Certificate from banker that no credit facility has been availed against the L/C. Balance 2% payment: a) Bank advice for full payment to foreign supplier in US$ with relevant exchange rate b) Copy of B/L invoice c) Supplier’s invoice d) Certificate of origin and e) Pre-shipment inspection report f) Storage plan 27 . The supporting documents required for processing of payment to canalizing agencie 98% advance payment: a) Copy of contract b) A certificate from the bank in support of the opening of the Letter of Credit by the canalising agency in favour of the foreign supplier. quantity loaded and lay days of the vessel at the load port.o Annexure ‘A’ Part – I I. d) Confirmation of the fixture of the vessel.
b) Copy of bill of lading c) Copy of Debit Note d) Copy of important provision of C/P Agreement e) Sailing advice f) Copy of purchase contract. Balance 10% freight: I) Transchart authorization ii) Copy of debit note iii) Copy of bill of lading 28 .It is mandatory for the canalising agency to submit the balance 2% bill within 30 days from the date of drawls of 98% advance payment failing which canalising agency is liable to pay interest at the commercial rate of interest from the 31st day till the date of submission of the certificates. The documents required for ocean freight payment Advance 90% freight payment: a) Transchart Authorisation confirming date and time of arrival of vessel. Part – II II.
iv) Charter party agreement v) Statement of facts at load port vi) Notice of readiness vii) Port trust authorization certificate viii) Exchange control copy of bill of entry ix) Time sheets. The criteria for pre-qualification as it is in force currently are : i) The bidder should have experience of handling 1 lakh MTs of imported bulk urea in any of the Indian ports during any of the preceding five calendar years. ii) It should have experience of transporting and marketing mass consumption articles of the value of at leat Rs. The owners are to confirm the receipt of funds within 10 days from the remittance of initial and final payments.25 crores with any of the scheduled Indian banks. o Annexure ‘B’ Procedure for Prequalification of Handling Agencies Part – I Agencies are pre-qualified by the DOF on the basis of response to national advertisement for a period of 3 years. 50 crores in a year. It would be an 29 . iii) It should have a sound financial background and should be able to organise credit facilities of at least Rs.
copies of the sales tax assessment orders and audited accounts for the last three years. 4. marketing of mass consumption goods. Ltd. Rashtriya Chemicals & Fertilizers Ltd.25 crores. Part – II List of pre-qualified handling agencies for 1998-2001: Public Sector 1. Hindustan Fertilizer Corpn. 30 . The supporting documents which are required to be furnished alongwith the application for pre-qualification are documentary evidence of the bulk cargo handled during last 5 years. 6. Pyrites. Paradeep Phosphates Ltd. Phosphates & Chemicals Ltd. Fertilizers & Chemicals Travancore Ltd. bank solvency certificate for minimum Rs. Cooperative Societies 1. Madras Fertilizers Ltd. Indian Farmers Fertilizers Cooperative Ltd. 5. 3.25 crores. income tax assessment orders and list of clients to verify the authenticity.added qualification if the average credit facilities availed of during the last three years is not less than Rs. 2. evidence of cash credit limits extended.
Shriram Fertilizers & Chemicals Ltd. Duncan Industries Ltd. 10. Chambal Fertilizers & Chemicals Ltd. 6. Gujrat State Fertilizers & Chemicals Ltd. Ltd. Company 1. Private Sector 1. 2. 31 . Zuari Agro Chemicals Ltd. Corpn. 11. Godavari Fertilizers & Chemicals Ltd. Ltd.State Govt. 7. Mangalore Chemicals & Fertilizers Ltd. 5. 9. 4. Southern Petrochemicals Inds. EID Parry (I) Ltd. Nagarjuna Fertilizers & Chemicals Ltd. Indo Gulf Fertilizers & Chemicals Corpn. 13. Deepak Fertilizer & Petro Chemicals Corpn. 8. 3. 12. M/s Indian Potash Ltd. Coromandal Fertilizers Ltd.
The handling agent is required to establish an irrevocable Letter of Credit (valid for 3 months) for the B/L quantity through a scheduled bank at New Delhi in favour of the DOF within 3 working days from the date of issue of Movement Order or a maximum of 10 days from the date of issue of nomination cable of the vessel.000/. the handling agencies are required to furnish the equivalent value of quantity received in excess at the pool issue price. For the difference exceeding 1% B/L quantity. Gujrat Narmada Valley Fertilizers Co.14. The DSR/Port outturn report is required to be submitted invariably to the DOF by the handling agent. DOF will levy liquidated damages (LD) @ Rs. o Annexure ‘C’ • Procedure for establishment of Letter of Credit LC is established by the handling agency after deducting lump sum charges quoted for handling port charges. whichever is earlier. In the event of handling agency fails to comply with it. along with the Statement of Facts (SOF) and time sheet within 30 days after completion of discharge of the vessel. The handling agencies are required to handle imported fertilizers on the basis of ownership of the material.1% over the quantity shown in the Bill of Lading. This is computed at the pool issue price of urea prevalent on that date.per day. The ownership is transferred to the handling agency while the vessel is on high seas. Ltd. ICC for 2 months and 75% of the inland freight charges based on movement plan besides port dues from the total amount worked out on the cargo carried by the vessel in accordance with the B/L quantity.25. The LC is encased on the 30th day from the date of completion of discharge of the vessel except where the Joint Draught Survey Report indicates a difference of more than +/. 32 . The delay beyond the commencement of discharge is charged at penal rate of interest.
the new equilibrium price is set at P1M1 (or OP1). Hence. DD is the domestic demand curve. Thus. If the importing country imports a fixed quota to the amount OM1. the intensity or elasticity of demand for the commodity in the importing country.e. the price change due to quotas is far less predictable. less any decrease in price abroad. the range of the price change due to tariff can well be circumscribed. the equilibirum price settles at PM (or OP ). the QS1 segment of the import supply curve implies that supply in excess of the quota limit is perfectly inelastic. tend to raise the prices of commodities to which they apply. While this is generally. The effect of an import quota upon the price of commodity may be illustrated diagrammatically as in. a quota can raise price to any extent. by limiting physical quantities. The price effect of quotas is. 33 . true also of a tariff. Under free trade. In contrast. Thus. the degree to which the supply of imported commodity is restricted. Mostly. thus. the quantity traded being OM.3. In. the extent of the price rise will be different under different conditions of demand and supply. i. and (iii) the nature of the demand. since it places an absolute limit upon the volume of imports and leaves price determination in the domestic market to the interaction of supply and demand force. i. then the relevant import supply schedule assumes the form IQS1 Thus. (ii) the degree of elatisticity of domestic and foreign supply of the commodity. related to: (i) the restrictiveness of the quota.5 What are the Economic Effects of Import Quotas? a) The Price Effect: Import quotas..e. there is one important difference in the impact of quotas. it is obvious that. the rise in price caused by a tariff is limited to the amount of the duty imposed..
By restricting imports. Under free trade. in drawing. to the extent that the foreign offer curve is elastic. OP is the offer curve of Portugal. If the foreign exporters of the commodity are well-organised and the offer curve is less elastic. the terms of trade may move favourably to the country imposing the quota. exporting wine. depending upon the degree of elasticity of the offer curve of Portuguese wine. there is a greater expansive income effect of quotas. the terms of trade would change.b) The Terms of Trade Effect : As a result of the fixing of import quotas. the terms of trade of a country change. exporting cloth. OA represents the terms of trade. if we assume that England limits her imports of Portuguese wine to OB. The new terms of trade may be either more or less favourable to the country importing the quota. Obviously. we may follow Kindleberger. quotas seek to eliminate deficit and influence the balance of payments situation favourably. The terms of trade are generally improved by a quota. In. the terms of trade may move against the country imposing quota. considered important for underdeveloped countries which usually suffer from balance of payment difficulties resulting from domestic inflation. through import quotas. The new terms of trade between English cloth and Portuguese wine may be OA or OA or any price in between. To illustrate the point. the marginal propensity to 34 . would be a less harmful measure for correcting disequilibrium in the balance of payments than such microeconomic measures like deflation or devaluation. Now. Moreover. OA is favourable to England while OA terms of trade are unfavourable to it. But. OE is the curve of England. Due to import quotas. if the foreign offer curve is more elastic. c) The Balance of Payments Effect : It has been argued that import quotas can also serve as a useful means for safeguarding the balance of trade. it is usually assumed that administrative reduction of imports. Further.
and an import quota is fixed upto M2M3 the foreign offer price remains unaffected but the home price of the commodity would rise from OP1 to OP2 assuming it to be equal to a tariff imposition of P1P2. can be depicted in a partial equilibrium diagram originated by Kind leberger. causing reduction in overall consumption. import quotas may tend to be absolutely protective. since the prices of these goods rise due to the artificial scarcity created by import restriction. In. consumption and redistribution effects... They stimulate home production. Hence. All these effects. there is a redistribution effect.import becomes zero after the quota limit is reached. d) Other Miscellaneous Effects : Another important effect of quotas is that they have a protective effect. If. the country imports and we assume that OP1 is the price settled. reduces leakages and increase the value of income multipliers in the country. irrespective of supply and demand conditions or prices in the domestic or foreign markets. When prices rise. By limiting imports to a fixed amount. The domestic producers' receipts increase when prices of goods rise and the consumers' surplus in these goods decreases. which thus. viz. equating domestic demand (DD) and is supply (SS) in a closed economy. If we assume that the foreign supply of imports is perfectly elastic. Another effect of quota is found to be the redistribution effect. however. there is redistribution of income from consumers to producers. OP3 is the equilibrium price. then OM4 demand is satisfied by OM1 domestic supply and M1M4 import of goods. import quotas raise domestic prices. This rise in price (P1P2) is the price effect of quota (same as tariff) 35 . Further. This is the consumption effect of quotas. protective. They tend to discourage consumption of imported goods as also domestic consumption of goods involving foreign raw materials.
the area abed would be collected as governmental revenue in the importing country (for import duty (PlP2) x import quantity (M2M3) is equal to abed). When the domestic demand and supply curves of a commodity are not particularly inelastic. Thus. Thus. these effects of an import quota are similar to tariff effects. However. by auctioning off import licences. Thus. it makes no difference whether a country imposes a tariff or a quota. there is one possbility. for issuing the import licence. instead of tariff. Hence. quota becomes equal to tariff in revenue effect also.. To see the revenue effect of tariff we have to multiply the quantity imported by the duty imposed per unit. MM2 reduction is the consumption effect. Obviously then it is the importer who gets this high domestic price for the commodity and enjoys extra profit. benefit most under quota system and the government under tariffs. Further. Thus. the domestic producers' receipts increase by the area P1 ea P2 which is derived by subtraction from consumers' surplus. the effects would be the same. There is. in the above diagram. This is the revenue effect. however. Importers. the government. However. in the above diagram. M1M2 is the protective effect. In such a case. the government does not get any revenue. therefore. one significant distinction between a tariff and a quota in regard to revenue effect.which stimulates domestic production of the commodity to increase from OM1 to OM2. But usually auction of import licences is not widely used. if a quota M2M3 is imposed. can obtain this extra price and profit as its revenue. instead of import quota M2MV if a tariff of P1P2 per unit were imposed on imports. 36 . under such a situation. except what may be received by way of licence fee. P1 ea P2 is the redistribution effect. the prices of imports rise to OP2. Now. it reduces home consumption from OM4 to OM3 Thus.
5318 0. 7.77 397.464. 16.35 26.4810 1.72 20.336.02 7.63 168.46 20.619.108.684.17 36.089. according to a World Bank report published in 2012.018.109.250.63 38.9796 1.850.34 558.188.6684 0.690.57 41.95 -72.5873 0.277.45 0.773.2363 1.0550 1.GCC Other West Asia NE Asia South Asia CARs Countries Other CIS Countries Unspecified India's Total Import 2010-2011 %Share 2011-2012 %Share %Growth 38.858.58 48.928.39 10. 4.61 8.167.5277 6.710.654.326.1525 8. 17.45 6.23 45.No.91 7.6987 0.1565 1.0105 0.45 5.59 6.08 3.930.73 20.0522 1.670. Lacs S. 5.7077 48.6540 34.82 13.583.24 39.324.695.351.465.92 24.2888 3.538. 20.615.1108 1.371.87 263.587.131.675. 19.15 37.98 11.2382 3.109.25 44.2226 2.53 3.546.907.17 12.55 2.0453 11.490.16 522.0123 0.943.48 35. 6.820.57 36.346.67 44.38 121.28 18.146.493.5229 3.216.393.82 5.3.7 Imports of goods and services (% of GDP) in India The Imports of goods and services (% of GDP) in India was last reported at 29.391.5903 988.19 20. Region EU Countries European Free Trade Associatipn (EFTA) Other European Countries Southern African Customs Union (SACU) Other South African Countries West Africa Central Africa East Africa North Africa North America Latin America East Asia (Oceania) ASEAN West Asia.81 2. 9.11 14. 18.90 56.101.877.6 ) Department of Commerce Import:: Region-wise Dated: 12/10/2012 Values in Rs. 13.663.317.700.016.00 234.247.065.2788 3.783.32 20.0517 1.45 7.74 29.1952 47.63 3.1273 3.35 33. 10.2614 11.85 in 2011.490.297. 8.1510 1.385.4144 3.96 -1.930.738.036.332.5275 18. 14. 11.27 259.37 5.292.2829 28.070.9457 15.15 4.7304 34. Imports of goods and services represent the value of all goods and other market services received from the rest of the 37 . 3.11 2. 1.341.62 20.932.5946 6.913. 15.50 2.157.307.397.4220 3.012.2635 8.7920 0.92 87.4752 0.60 6.531.063.9559 0. 2.263.29 3.63 20.460. 12.57 0.15 60.04 31.
transport. They include the value of merchandise. information. news and forecasts for Imports of goods and services (% of GDP) in India. royalties. license fees. Services are the major source of economic growth. and other services. This page includes a historical data chart. such as communication. travel. business. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments. handicrafts. modern agriculture.world. India's diverse economy encompasses traditional village farming. freight. and government services. The economy has posted an average growth rate of more than 7% in the decade since 1997. accounting for more than half of India's output with less than one third of its labor force. insurance. construction. 38 . reducing poverty by about 10 percentage points. and a multitude of services. personal. a wide range of modern industries. financial.
We have looked at several different cases. In addition. the government collects revenue from the tariff. and government revenue collected. A second reason is politics: the government might care more about protecting firms than avoiding losses for consumers. and government revenue collected—we still get a net loss for the Importing country. since these prices include the tariff. The fact that a small importing country always has a net loss from a tariff explains why most economists oppose the use of tariffs. but they rise by less than the full amount of the tariff. there is a gain in producer surplus. we have studied the effect of tariffs on consumers and producers in both Importing and exporting countries. consumer and producer prices in the importing country still go up. Still. we assumed that the importing country is so small that it does not affect the world price of the imported good. this result leaves open the question of why tariffs are used. With a rise in the consumer price. there is a drop in consumer Surplus. When we add together all these effects—the drop in consumer surplus. One reason that tariffs are used. In this large-country case. Of course. We have shown that if we add up the drop in consumer surplus. A third reason is that the small-country assumption may not hold in practice: countries may be large enough importers of a product so that a tariff will affect its world price. the decrease in imports demanded due to the tariff causes foreign exporters to lower their prices. the price faced by consumers and producers in the importing country will rise by the full amount of the tariff. First. despite their deadweight loss. and with a rise in the producer price. is that they are an easy way for governments to raise revenue.1 CONCLUSION : A tariff on imports is the most commonly used trade policy tool. gain in producer surplus. We have referred to that loss as the deadweight loss resulting from the tariff. FINDING & CONCLUSION 4. gain in producer surplus. 39 . In that case. especially in developing countries. In this chapter.CHAPTER – 4. it is possible for a small tariff to generate welfare gains for the importing country.
asp 40 .2) BIBLOGRAPHY: Through Books :- Through Internet:http://en.4.wikipedia.in/importexport/procedure_import_urea_india.org/wiki/Quota http://en.gov.fert.wikipedia.org/wiki/Import_quota http://www.