Uni

t3no
tes
:Indus
tri
alpo
lic
yandec
ono
micpo
lic
ies

1.Defi
nei
ndus
tri
alpo
lic
y?

Indus
tri
alpo
lic
ymeani
ng:anynat
ionalpo
lic
yofg
over
nmenti
nter
vent
iono
r
par
tic
ipat
ioni
n pr
ivat
eindus
try
,asfo
rthe pur
pos
eof pr
otec
ting do
mes
tic
c
ompani
esandj
obsfr
omfo
rei
gnc
ompet
iti
on
Defi
nit
ion

 
Itr
efer
sto“
anyt
ypeo
fsel
ect
ivei
nter
vent
iono
rgo
ver
nmentpo
lic
ythatat
tempt
s
t
oal
tert
hes
truc
tur
eofpr
oduc
tio
nto
war
dsec
tor
sthatar
eex
pec
ted t
ooffer
b
ett
erpr
ospec
tsfo
rec
ono
micg
rowt
hthan wo
uldo
ccuri
ntheab
senc
eofs
uch
i
nter
vent
ion”
 (Pac
kandS
agg
i,2006)
 

Ob
jec
tiv
eso
ftheIndus
tri
alPo
lic
yoft
heGo
ver
nmentar
e–

•Tomai
ntai
nas
ust
ainedg
rowt
hinpr
oduc
tiv
ity
;

•Toenhanc
egai
nfulempl
oyment
;

•Toac
hiev
eopt
imalut
il
is
ati
ono
fhumanr
eso
urc
es;

•Toat
tai
nint
ernat
ionalc
ompet
iti
venes
sand

•Tot
rans
for
mIndi
aint
oamaj
orpar
tnerandpl
ayeri
ntheg
lob
alar
ena.

Indus
tri
alPo
lic
yRes
olut
ion,1956

 
  
  
  
  
 IPR,1956i
sthenex
timpo
rtantpo
lic
yst
atement
.Thei
mpo
rtantpr
ovi
si
ons
ar
easfo
llo
ws:

(
1)New c
las
sifi
cat
iono
fIndus
tri
es:
 IPR,1956di
vi
ded t
hei
ndus
tri
esi
ntot
he
fo
llo
wingt
hreec
ateg
ori
es:

(
a)S
chedul
eA i
ndus
tri
es:
 Thei
ndus
tri
est
hatwer
ethemo
nopo
lyo
fst
ateo
r
Go
ver
nment
.Iti
ncl
uded17i
ndus
tri
es.Thepr
ivat
esec
torwasal
lowedt
ooper
atei
n
t
hes
eindus
tri
esi
fnat
ionali
nter
ests
orequi
red.

(
b)S
chedul
eB i
ndus
tri
es:
 In t
hisc
ateg
oryo
findus
tri
ess
tat
ewasal
lowed t
o
es
tab
lis
hnewuni
tsb
utt
hepr
ivat
esec
torwasno
tdeni
ed t
osetupo
rex
pand
ex
ist
inguni
tse.
g.c
hemi
cali
ndus
tri
es,fer
til
izer
,synt
het
ic,r
ubb
er,al
umi
numet
c.

(
c)S
chedul
eCi
ndus
tri
es:
 Thei
ndus
tri
esno
tment
ioned i
ntheab
ovec
ateg
ory
fo
rmedpar
tofS
chedul
eC.Thust
heIPR,1956emphas
izedt
hemut
ualex
ist
enc
eof
pub
licandpr
ivat
esec
tori
ndus
tri
es.

 
(2)Enc
our
agementt
oSmal
l-s
cal
eandCo
ttag
eIndus
tri
es:
 Ino
rdert
ost
reng
then
t
hes
mal
l-s
cal
esec
tors
uppo
rti
vemeas
ureswer
esug
ges
tedi
nter
mso
fcheapc
redi
t,
s
ubs
idi
es,r
eser
vat
ionet
c.

(
3) Emphas
ized o
n Reduc
tio
nof Reg
ionalDi
spar
iti
es:
 Fi
scalc
onc
ess
ionswer
e
g
rant
edt
oopeni
ndus
tri
esi
nbac
kwar
dreg
ions
.Pub
lics
ect
orent
erpr
iseswer
egi
ven
g
reat
err
olet
odev
elo
pthes
ear
eas
.

 
  
  
  
  Theb
asi
crat
ional
eofIPR,1956wast
hatt
hes
tat
ehadt
obeg
ivenpr
imar
y
r
olefo
rindus
tri
aldev
elo
pmentasc
api
talwass
car
ceandent
repr
eneur
shi
pwasno
t
s
tro
ng.
 Thepub
lics
ect
orwasenl
arg
ed dr
amat
ical
lys
oast
oal
lowi
ttoho
ld
c
ommandi
nghei
ght
soft
heec
ono
my.

 
Indus
tri
alPo
lic
ySt
atement
,1977:
 

Themai
nel
ement
soft
henewpo
lic
ywer
e:

1.Dev
elo
pmento
fSmal
l-S
cal
eSec
tor
: Themai
nthr
usto
fthenewi
ndus
tri
alpo
lic
y
wasaneffec
tiv
epr
omo
tio
nofc
ott
ageands
mal
lindus
tri
es.Go
ver
nmenti
nit
iat
ed
wi
de-s
preadpr
omo
tio
nalands
uppo
rti
vemeas
urest
oenc
our
ages
mal
lsec
tor
.The
s
mal
lsec
torwasc
las
sifi
edi
nto3c
ateg
ori
esv
iz.Co
ttag
eandho
useho
ldi
ndus
tri
es
whi
ch pr
ovi
de s
elf-empl
oyment
;ti
ny s
ect
or and s
mal
l-s
cal
eindus
tri
es.The
pur
pos
eoft
hec
las
sifi
cat
ionwast
ospec
ifi
cal
lydes
ignpo
lic
ymeas
uresfo
reac
h
c
ateg
ory.Thepo
lic
yst
atementc
ons
ider
abl
yex
pandedt
hel
is
tofr
eser
vedi
temsfo
r
ex
clus
ivemanufac
tur
eint
hes
mal
l-s
cal
esec
tor
.

2.Res
tri
cti
veAppr
oac
hto
war
dsLar
geBus
ines
sHo
uses
: 
Thel
arg
esc
ales
ect
orwas
al
lowed i
nbas
ic,c
api
talg
oodsand hi
gh-t
echi
ndus
tri
es.Thepo
lic
yemphas
ized
t
hatt
hefundsfr
omfi
nanc
iali
nst
itut
ionss
houl
dbemadeav
ail
abl
elar
gel
yfo
rthe
dev
elo
pmento
fsmal
lsec
tor
.Thel
arg
esec
tors
houl
dgener
atei
nter
nalfi
nanc
efo
r
fi
nanc
ingnewpr
ojec
tso
rex
pans
iono
fex
ist
ingb
usi
nes
s.

3.Ex
pandi
ngRo
leo
fPub
lics
ect
or:
 Thei
ndus
tri
alpo
lic
yst
ated t
hatt
hepub
lic
s
ect
orwo
uldb
eus
edno
tonl
yint
hes
trat
egi
car
easb
utal
soasas
tab
ili
zingfo
rce
fo
rmai
ntai
ninges
sent
ials
uppl
ierfo
rthec
ons
umer
.

4.
Foc
uso
nLab
our
−int
ens
iveTec
hno
log
y

In c
ont
ras
twi
thc
api
tali
ntens
ivei
ndus
tri
es,t
hispo
lic
yemphas
ized o
nspec
ial
effo
rtst
odev
elo
psmal
lando
rdi
nar
ymac
hinesandt
hei
ropt
imalus
etoenhanc
e
pr
oduc
tiv
ityandi
nco
meo
fthewo
rker
seng
agedi
nsmal
landc
ott
agei
ndus
tri
es.

5.Fo
cuso
nIndi
geno
usTec
hno
log
y

Thepo
lic
ycal
ledfo
rus
eofi
ndi
geno
ust
echno
log
yasfaraspo
ssi
blefo
rfut
ure
dev
elo
pmento
fIndus
try
.Ho
wev
er,fo
rso
phi
sti
cat
eds
ect
ors
,theg
over
nmentwo
uld
b
uyb
estav
ail
abl
etec
hno
log
yfr
omab
road.Thi
spo
lic
ycal
ledfo
rar
est
ric
tiv
eus
eof
fo
rei
gnt
echno
log
y.

6.Po
lic
yto
war
dsFo
rei
gnCapi
tal
:

Wi
thr
egar
dtofo
rei
gnc
api
talt
heIndus
tri
alPo
lic
y,1977s
tat
ed,“
asa r
ule,
maj
ori
tyi
nter
esti
nowner
shi
pandeffec
tiv
eco
ntr
ols
houl
dbei
nIndi
anhands
,
t
houg
hthe Go
ver
nmentmay make ex
cept
ionsi
n hi
ghl
y ex
por
tor
ient
ed and
s
ophi
sti
cat
edt
echno
log
yar
eas
.

Indus
tri
alPo
lic
y,1980

 
  
  
  
  
  
  
  
  

 
  
  
  
  
 Thei
ndus
tri
alpo
lic
y1980emphas
izedt
hatt
hepub
lics
ect
ori
sthepi
ll
aro
f
ec
ono
mici
nfr
ast
ruc
tur
e fo
rreas
onso
fit
sgr
eat
er r
eli
abi
li
ty,fo
rthe l
arg
e
i
nves
tment
srequi
redandt
hel
ong
erg
est
ati
onper
iodso
fthepr
ojec
tsc
ruc
ialfo
r
ec
ono
mic dev
elo
pment
.The IPR1956 fo
rmst
he b
asi
soft
hiss
tat
ement
.The
i
mpo
rtantfeat
ureso
fthepo
lic
ywer
e:

1.Effec
tiv
eManag
emento
fPub
licS
ect
or:
 
  
  
  
  Thepo
lic
yemphas
izedt
her
evi
valo
feffi
ci
enc
yofpub
lics
ect
orunder
taki
ng.

2.Li
ber
ali
zat
iono
fIndus
tri
all
icens
ing
:

 
  
  
  
  Thepo
lic
yst
atementpr
ovi
dedl
iber
ali
zedmeas
uresi
nthel
ic
ens
ingi
nter
ms
o
faut
omat
icappr
ovalt
oinc
reas
ecapac
ityo
fex
ist
inguni
tsunderMRTPandFERA.
Theas
setl
imi
tunderMRTP wasi
ncr
eas
ed.Ther
elax
ati
on fr
oml
ic
ens
ingwas
pr
ovi
ded fo
rlar
ge numb
er o
findus
tri
es.The b
road-b
andi
ng c
onc
ept was
i
ntr
oduc
eds
othatfl
exi
bil
it
yisg
rant
edt
othei
ndus
tri
est
odec
idet
hepr
oduc
tmi
x
wi
tho
utappl
yingfo
ranewl
icens
e.

3.Redi
fini
ngS
mal
l-S
cal
eIndus
tri
es:

 
  
Thei
nves
tmentl
imi
ttodefi
neS
SIwasi
ncr
eas
edt
obo
ostt
hedev
elo
pmento
fthi
s
s
ect
or.Inc
aseo
fti
nys
ect
ort
hei
nves
tmentl
imi
twasr
ais
edt
oRs
.1l
akh;
  fo
rsmal
l
s
cal
euni
tthei
nves
tmentl
imi
twasr
ais
edfr
om Rs
.10l
akht
oRs
.20l
akhandfo
r
anc
ill
ari
esfr
omRs
.15l
akht
oRs
.25l
akh.

 Indus
tri
alpo
lic
y,1980fo
cus
edat
tent
iono
ntheneedfo
rpr
omo
tingc
ompet
iti
on
i
nthedo
mes
ticmar
ket
,tec
hno
log
icalupg
radat
ionandmo
der
niz
ati
on.Thepo
lic
y
l
aidt
hefo
undat
ionfo
rani
ncr
eas
ing
lyc
ompet
iti
veex
por
tbas
edi
ndus
tri
esand
fo
renc
our
agi
ngfo
rei
gni
nves
tmenti
nhi
gh-t
echno
log
yar
eas
.

 
Erao
fLi
ber
ali
zat
ionaft
er80’
s:

Aft
er1980,aner
aofl
iber
ali
zat
ions
tar
ted,andt
het
rendwasg
radual
lyt
odi
lut
e
t
hes
tri
ctl
icens
ings
yst
em andal
lowmo
refr
eedo
mtot
heent
repr
eneur
s.Thes
teps
t
hatwer
etakeni
nac
cor
danc
ewi
tht
hepo
lic
yinc
luded:

(
i)Re-endo
rsemento
fli
cens
es:
 Thec
apac
ityi
ndi
cat
edi
nthel
ic
ens
esc
oul
dber
e-
endo
rsed,pr
ovi
dedi
twas25per
centmo
ret
hant
hel
ic
ens
edc
apac
ity(
1984)
.

NewEc
ono
micPo
lic
y,1991?Ob
jec
tiv
eso
rfeat
ures?

Themai
nfeat
ureso
fnewEc
ono
micpo
lic
y
1.Del
icenc
ing
.Onl
ysi
xindus
tri
eswer
ekeptunderLi
cens
ings
cheme.

2.Ent
ryt
oPr
ivat
eSec
tor
.Ther
oleo
fpub
lics
ect
orwasl
imi
ted o
nlyt
ofo
ur
i
ndus
tri
es;r
estal
lthei
ndus
tri
eswer
eopenedfo
rpr
ivat
esec
toral
so.

3.Di
si
nves
tment
.Di
si
nves
tmentwasc
arr
iedo
uti
nmanypub
lics
ect
orent
erpr
ises
.

4.Li
ber
ali
sat
iono
fFo
rei
gnPo
lic
y.Thel
imi
toffo
rei
gnequi
tywasr
ais
edt
o100% i
n
manyac
tiv
iti
es,i
.e.
,NRIandfo
rei
gni
nves
tor
swer
eper
mit
tedt
oinv
esti
nIndi
an
c
ompani
es.

5.Li
ber
ali
sat
ioni
n Tec
hni
calAr
ea.Aut
omat
icper
mis
sio
n wasg
iven t
oIndi
an
c
ompani
esfo
rsi
gni
ngt
echno
log
yag
reement
swi
thfo
rei
gnc
ompani
es.

6.S
ett
ingupo
fFo
rei
gnInv
est
mentPr
omo
tio
nBo
ard(
FIPB)
.Thi
sbo
ardwass
etup
t
opr
omo
teandb
ringfo
rei
gni
nves
tmenti
nIndi
a.

7.S
ett
ingupo
fSmal
lSc
aleIndus
tri
es.Var
iousb
enefi
tswer
eoffer
edt
osmal
lsc
ale
i
ndus
tri
es.

NEWCOMPONENTSORBRANCHESOFNEWECONOMI
CPOLICY

 
Lib
eral
is
ati
on:

Li
ber
ali
sat
ionr
efer
stoend o
fli
cenc
e,quo
taand manymo
rer
est
ric
tio
nsand
c
ont
rol
s whi
ch wer
e put o
nindus
tri
es b
efo
re 1991.Indi
an c
ompani
es g
ot
l
iber
ali
sat
ioni
nthefo
llo
wingway:
(
a)Ab
oli
ti
ono
fli
cenc
eex
cepti
nfew.

(
b)Nor
est
ric
tio
nonex
pans
iono
rco
ntr
act
iono
fbus
ines
sac
tiv
iti
es.

(
c)Fr
eedo
minfi
xi
ngpr
ices
.

(
d)Li
ber
ali
sat
ioni
nimpo
rtandex
por
t.

(
e)Eas
yands
impl
ifyi
ngt
hepr
ocedur
etoat
trac
tfo
rei
gnc
api
tali
nIndi
a.

(
f)Fr
eedo
minmo
vemento
fgo
odsands
erv
ices

(
g)Fr
eedo
minfi
xi
ngt
hepr
iceso
fgo
odsands
erv
ices
.

Li
ber
ali
sat
ionadv
ant
ages

 Inc
reas
efo
rei
gni
nves
tment

 Inc
reas
efo
rei
gnex
chang
eres
erv
e

 Inc
reas
einc
ons
umpt
ion

 Reduc
tio
nindependenc
eonex
ter
nalc
ommer
cialb
orr
owi
ng.

2.
 Pr
ivat
isat
ion:

Pr
ivat
isat
ionr
efer
stog
ivi
ngg
reat
err
olet
opr
ivat
esec
torandr
educ
ingt
her
oleo
f
pub
lics
ect
or.Toex
ecut
epo
lic
yofpr
ivat
isat
iong
over
nmentt
ookt
hefo
llo
wings
teps
:

(
a)Di
si
nves
tmento
fpub
lics
ect
or,i
.e.
,tr
ans
fero
fpub
lics
ect
orent
erpr
iset
o
pr
ivat
esec
tor
(
b)S
ett
ingupo
fBo
ardo
fIndus
tri
alandFi
nanc
ialRec
ons
truc
tio
n(BIFR)
.Thi
s
b
oar
dwass
etupt
orev
ives
ickuni
tsi
npub
lics
ect
orent
erpr
isess
uffer
ingl
oss
.

(
c)Di
lut
iono
fSt
akeo
ftheGo
ver
nment
.Ifi
nthepr
oces
sofdi
si
nves
tment
spr
ivat
e
s
ect
orac
qui
resmo
ret
han51% s
har
est
heni
tres
ult
sint
rans
fero
fowner
shi
pand
manag
ementt
othepr
ivat
esec
tor
.

Adv
ant
ages

 Inc
reas
eineffi
ci
enc
y

 Pr
ofes
sio
nalmanag
ement

 Inc
reas
einc
ompet
iti
on

 Inl
inewi
thi
nter
nat
ionalt
rends

 Reduc
tio
ninec
ono
micb
urdeno
fgo
ver
nment

 Inc
reas
eini
ndus
tri
alg
rowt
h

 Inc
reas
einfo
rei
gni
nves
tment

 Enc
our
aget
onewi
nno
vat
ion.
3.Gl
obal
is
ati
on:

Itr
efer
stoi
nteg
rat
iono
fvar
iousec
ono
mieso
fwo
rld.Ti
ll1991Indi
ang
over
nment
wasfo
llo
wings
tri
ctpo
lic
yinr
egar
dtoi
mpo
rtandfo
rei
gni
nves
tmenti
nreg
ardt
o
l
icens
ingo
fimpo
rts
,tar
iff,r
est
ric
tio
ns,et
c.b
utaft
ernew po
lic
ygo
ver
nment
ado
ptedpo
lic
yofg
lob
ali
sat
ionb
ytaki
ngfo
llo
wingmeas
ures
:

(
i)Impo
rtLi
ber
ali
sat
ion.Go
ver
nmentr
emo
vedmanyr
est
ric
tio
nsfr
omi
mpo
rto
f
c
api
talg
oods
.

(
ii
)Fo
rei
gnEx
chang
eReg
ulat
ionAc
t(FERA)wasr
epl
aced b
yFo
rei
gnEx
chang
e
Manag
ementAc
t(FEMA)

(
ii
i)Rat
ional
is
ati
ono
fTar
iffs
truc
tur
e

(
iv)Ab
oli
ti
ono
fEx
por
tdut
y.

(
v)Reduc
tio
nofImpo
rtdut
y.

Adv
ant
ages:

 i
ncr
eas
eint
hefo
rei
gni
nves
tment

 Fo
rei
gnt
radepo
lic
y

 Ex
por
tpr
omo
tio
n

 Fr
eedo
mtor
epat
riat
e.

Di
sadv
ant
ages:

 Inequal
it
ieswi
thi
nco
unt
ries

 Fi
nanc
ialIns
tab
ili
ty

 Badi
mpac
tonImpac
tonEnv
iro
nment

 Do
minat
ionb
yMNCs

2.Mo
net
arypo
lic
y?o
bjec
tiv
est
ool
sandadv
ant
agesanddi
sadv
ant
ages?
Thi
sist
hePo
lic
ymadeb
ythec
ent
ralb
ankt
oco
ntr
olmo
neys
uppl
yint
heec
ono
my.
Thati
ncl
udes
 cr
edi
t,
 cas
h,c
heque 
and mo
neymar
ket
 mut
ualfunds
. 
Themo
st
i
mpo
rtanto
fthes
eisc
redi
t.Iti
ncl
udesl
oans
,bo
ndsandmo
rtg
ages
. 

Ob
jec
tiv
eso
fmo
net
arypo
lic
y:

 Ful
lEmpl
oyment
:

Ful
lempl
oymenthasb
een r
anked amo
ngt
hefo
remo
sto
bjec
tiv
eso
fmo
net
ary
po
lic
y.Iti
sani
mpo
rtantg
oalno
tonl
ybec
aus
eunempl
oymentl
eadst
owas
tag
eof
po
tent
ialo
utput
,butal
sob
ecaus
eoft
hel
osso
fso
cials
tandi
ngands
elf-r
espec
t.

 Pr
iceS
tab
ili
ty:

Oneo
fthepo
lic
yob
jec
tiv
eso
fmo
net
arypo
lic
yist
ost
abi
li
set
hepr
icel
evel
.Bo
th
ec
ono
mis
tsand l
aymen fav
ourt
hispo
lic
ybec
aus
efl
uct
uat
ionsi
n pr
icesb
ring
unc
ert
aint
yandi
nst
abi
li
tyt
otheec
ono
my.

 Ec
ono
micGr
owt
h:

Oneo
fthemo
sti
mpo
rtanto
bjec
tiv
eso
fmo
net
arypo
lic
yinr
ecentyear
shasb
een
t
her
api
d ec
ono
micg
rowt
hofanec
ono
my.Ec
ono
micg
rowt
hisdefi
ned as“
the
pr
oces
swher
ebyt
her
ealperc
api
tai
nco
meo
fac
ount
ryi
ncr
eas
eso
veral
ong
per
iodo
fti
me.
”

 Bal
anc
eofPayment
s:

Ano
thero
bjec
tiv
eof mo
net
ary po
lic
ysi
ncet
he 1950shasb
een t
o mai
ntai
n
equi
li
bri
umi
ntheb
alanc
eofpayment
s.

To
olso
rtec
hni
queso
rins
trument
sofmo
net
arypo
lic
y:

Cas
hRes
erv
eRat
io

CRRi
sthemi
nimum per
cent
ageo
fdepo
sit
swi
thc
ommer
cialb
ankst
hatt
heyneed
t
o depo
sitwi
tht
he c
ent
ralb
ank o
f RBI
.The c
ashr
eser
ver
ati
o mi
nimum
per
cent
agei
s4% .

S
tat
uto
ryl
iqui
dit
yrat
io

Thi
sist
heper
cent
ageo
fli
abi
li
ti
esandt
imedepo
sit
sthatc
ommer
cialb
anksneed
t
okeepwi
tht
hemi
nfo
rmo
fcas
h,g
oldo
rgo
ver
nmentappr
oveds
ecur
iti
es.

Repor
ate

Iti
sther
ateatwhi
chRBIl
endsmo
neyt
oco
mmer
cialb
anksag
ains
tsec
uri
ti
esi
n
c
asec
ommer
cialb
anksfal
lsho
rto
ffunds
.

Rev
ers
eRepoRat
e

Rat
eatwhi
chRBIb
orr
owsmo
neyfr
omc
ommer
cialb
anks
.

Impac
t 

Ifc
ommer
cialb
anksg
etmo
remo
neyt
heywi
lll
endmo
remo
neyt
opeo
plewhi
chwi
ll
l
eadmo
redemandi
nec
ono
my.Thuspr
iceswi
lli
ncr
eas
e

Openmar
keto
per
ati
ons

Buyi
ngands
ell
ingg
over
nments
ecur
iti
esandb
ondsi
nor
dert
omanag
eli
qui
dit
yin
t
heec
ono
my.

Mar
ginalS
tandi
ngFundi
ng

Byt
hismec
hani
smc
ommer
cialb
anksc
ang
etl
oansfr
om RBIfo
rthei
remer
genc
y
needs
.Co
mmer
cialb
anksc
ant
akel
oano
nlyupt
o1% o
fthei
rli
abi
li
ti
esandt
ime
depo
sit
s. 

Aso
f6Dec
emb
er2017,t
hekeyi
ndi
cat
or e[10][11]
sar

Cur
rent
Indi
cat
or
r
ate

Infl
ati
on 3.
36%

CRR 4%

S
LR 19.
5%
 [13]
Repor
ate 6.
0% 

Rev
ers
erepor
ate 5.
75%

Mar
ginalS
tandi
ngfac
ili
ty
25%[14
6.
r
ate

Adv
ant
agesanddi
sadv
ant
ageso
fMo
net
orypo
lic
y

Adv
ant
ages
:

 Ex
pans
ionar
ymo
net
arypo
lic
ymakesi
tpo
ssi
blefo
rmo
rei
nves
tment
sco
me
i
nandc
ons
umer
sspendmo
re.

 Lo
wer
edi
nter
estr
atesal
sol
owermo
rtg
agepaymentr
ates
.

 Itpr
omo
tespr
edi
ctab
ili
tyandt
rans
par
enc
y

 TheFeder
alRes
erv
ecanmakeus
eoft
hispo
lic
ytopr
into
rcr
eat
emo
re
mo
neywhi
chenab
lesi
ttopur
chas
ego
ver
nmentb
ondsfr
omb
anks

 Ital
lowst
heCent
ralBankt
oappl
yquant
itat
iveeas
ing
.

Di
sadv
ant
ageso
fMo
net
aryPo
lic
y

 Des
pit
eex
pans
ionar
ymo
net
arypo
lic
y,t
her
eiss
til
lnog
uar
ant
eedec
ono
my
r
eco
ver
y.

 Cut
tingi
nter
estr
atesi
sno
tag
uar
ant
ee.

 Itwi
llno
tbeus
efuldur
ingg
lob
alr
eces
sio
n.

 Co
ntr
act
ionar
ymo
net
arypo
lic
ycandi
sco
urag
ebus
ines
sesfr
omex
pans
ion
Uni
t4no
tes:LPGandWTO

1Q;Defi
neLPGandIt
sAdv
ant
agesanddi
sadv
ant
ages
?

A:wr
itet
heb
ranc
heso
fec
ono
micpo
lic
yfr
omuni
t3

2Q.Defi
neWTOandi
tsfunc
tio
nsando
bjec
tiv
es?

A:TheUr
uguayr
oundo
fGATT(
1986-93)g
aveb
irt
htoWo
rldTr
adeOr
gani
zat
ion.
Thememb
erso
fGATTs
ing
edo
nanag
reemento
fUr
uguayr
oundi
nApr
il1994i
n
Mo
roc
co fo
r es
tab
lis
hing a new o
rgani
zat
ion named WTO.It was o
ffi
ci
all
y
c
ons
tit
utedo
nJanuar
y1,1995whi
cht
ookt
hepl
aceo
fGATTasaneffec
tiv
efo
rmal
,
o
rgani
zat
ion.

Ob
jec
tiv
es:

Thei
mpo
rtanto
bjec
tiv
eso
fWTOar
e:

1.Toi
mpr
ovet
hes
tandar
dofl
ivi
ngo
fpeo
plei
nthememb
erc
ount
ries
.

2.Toens
ureful
lempl
oymentandb
roadi
ncr
eas
eineffec
tiv
edemand.

3.Toenl
arg
epr
oduc
tio
nandt
radeo
fgo
ods
.

4.Toi
ncr
eas
ethet
radeo
fser
vic
es.

5.Toens
ureo
pti
mumut
il
izat
iono
fwo
rldr
eso
urc
es.
6.Topr
otec
ttheenv
iro
nment
.

7.Toac
ceptt
hec
onc
epto
fsus
tai
nab
ledev
elo
pment
.

Func
tio
ns:

Themai
nfunc
tio
nso
fWTOar
edi
scus
sedb
elo
w:

1.Toi
mpl
ementr
ulesandpr
ovi
si
onsr
elat
edt
otr
adepo
lic
yrev
iewmec
hani
sm.

2.Topr
ovi
deapl
atfo
rmt
omemb
erc
ount
riest
odec
idefut
ures
trat
egi
esr
elat
edt
o
t
radeandt
ari
ff.

3.To pr
ovi
de fac
ili
ti
esfo
rimpl
ement
ati
on,admi
nis
trat
ion and o
per
ati
ono
f
mul
ti
lat
eralandb
ilat
eralag
reement
soft
hewo
rldt
rade.

4.Toadmi
nis
tert
her
ulesandpr
oces
sesr
elat
edt
odi
sput
eset
tlement
.

5.Toens
uret
heo
pti
mumus
eofwo
rldr
eso
urc
es.

6.Toas
sis
tint
ernat
ionalo
rgani
zat
ionss
uchas
,IMFand IBRDfo
res
tab
lis
hing
c
oher
enc
einUni
ver
salEc
ono
micPo
lic
ydet
ermi
nat
ion.

S
truc
tur
eofWTO:
Thes
truc
tur
eoft
heWTOi
sdo
minat
ed b
yit
shi
ghes
taut
hor
ity,t
heMi
nis
ter
ial
Co
nfer
enc
e,c
ompo
sedo
frepr
esent
ati
veso
fal
lWTOmemb
ers
,whi
chi
srequi
redt
o
meetatl
eas
tev
eryt
woyear
sandwhi
chc
ant
akedec
isi
onso
nal
lmat
ter
sunder
anyo
fthemul
ti
lat
eralt
radeag
reement
s.

Theday-t
o-daywo
rko
ftheWTO,ho
wev
er,fal
lst
oanumb
ero
fsub
sidi
aryb
odi
es;
pr
inc
ipal
lyt
he Gener
alCo
unc
il,al
soc
ompo
sed o
f al
lWTO memb
ers
,whi
chi
s
r
equi
redt
orepo
rtt
otheMi
nis
ter
ialCo
nfer
enc
e.Aswel
lasc
onduc
tingi
tsr
egul
ar
wo
rko
nbehal
foft
heMi
nis
ter
ialCo
nfer
enc
e,t
heGener
alCo
unc
ilc
onv
enesi
ntwo
par
tic
ular fo
rms- ast
he Di
sput
eSet
tlementBo
dy,t
oov
ers
ee t
he di
sput
e
s
ett
lementpr
ocedur
esand ast
heTr
adePo
lic
yRev
iewBo
dyt
oco
nduc
treg
ular
r
evi
ewso
fthet
radepo
lic
ieso
findi
vidualWTOmemb
ers
.

TheGener
alCo
unc
ildel
egat
esr
espo
nsi
bil
it
ytot
hreeo
thermaj
orb
odi
es-namel
y
t
heCo
unc
ilsfo
rTr
adei
nGo
ods
,Tr
adei
nSer
vic
esandTr
ade-Rel
atedAs
pec
tso
f
Int
ell
ect
ualPr
oper
ty.TheCo
unc
ilfo
rGo
odso
ver
seest
hei
mpl
ement
ati
on and
func
tio
ningo
fal
ltheag
reement
sco
ver
ingt
radei
ngo
ods
,tho
ugh manys
uch
ag
reement
shav
ethei
rowns
pec
ifi
cov
ers
eei
ngb
odi
es.Thel
att
ert
woCo
unc
il
shav
e
r
espo
nsi
bil
it
yfo
rthei
rres
pec
tiv
eWTOag
reement
sand mayes
tab
lis
hthei
rown
s
ubs
idi
aryb
odi
esasnec
ess
ary.
Thr
eeo
therb
odi
esar
ees
tab
lis
hedb
ytheMi
nis
ter
ialCo
nfer
enc
eandr
epo
rtt
othe
Gener
alCo
unc
il
.TheCo
mmi
tteeo
nTr
adeandDev
elo
pmenti
sco
ncer
nedwi
thi
ssues
r
elat
ingt
othedev
elo
pingc
ount
riesand,es
pec
ial
ly,t
othe"l
eas
t-dev
elo
ped"
amo
ng t
hem. The Co
mmi
ttee o
n Bal
anc
eof Payment
sisr
espo
nsi
ble fo
r
c
ons
ult
ati
onsb
etween WTOmemb
ersand c
ount
rieswhi
cht
aket
rade-r
est
ric
tiv
e
meas
ures
,underAr
tic
les12and17o
fGATT,i
nor
dert
oco
pewi
thb
alanc
e-o
f-
payment
sdi
ffi
cul
ti
es.Fi
nal
ly,i
ssuesr
elat
ingt
oWTO'
sfi
nanc
ingandb
udg
etar
e
deal
twi
thb
yaCo
mmi
tteeo
nBudg
et.

Eac
hoft
hefo
urpl
uri
lat
eralag
reement
soft
heWTO-t
hos
eonc
ivi
lai
rcr
aft
,
g
over
nmentpr
ocur
ement
,dai
rypr
oduc
tsandb
ovi
nemeat-es
tab
lis
hthei
rown
manag
ementb
odi
eswhi
char
erequi
redt
orepo
rtt
otheGener
alCo
unc
il
.

2.Reg
ionalt
radi
ngb
loc
kso
fWTO?

Tr
adi
ngb
loc
s

Ar
egi
onalt
radi
ngb
loci
sag
roupo
fco
unt
rieswi
thi
nag
eog
raphi
calr
egi
ont
hat
pr
otec
tthems
elv
esfr
omi
mpo
rtsfr
om no
n-memb
ers
.Tr
adi
ngb
loc
sar
eafo
rmo
f
ec
ono
mic
,andi
ncr
eas
ing
lys
hapet
hepat
ter
nofwo
rldt
rade.Ther
ear
esev
eral
t
ypeso
ftr
adi
ngb
loc
:

Preferent
ialTradeArea

Pr
efer
ent
ialTr
adeAr
eas(
PTAs
)ex
istwhenc
ount
rieswi
thi
nag
eog
raphi
calr
egi
on
ag
reet
oreduc
eorel
imi
nat
e t
ari
ff 
bar
rier
sons
elec
tedg
oodsi
mpo
rtedfr
omo
ther
memb
erso
fthear
ea.Thi
siso
ftent
hefi
rsts
mal
lst
ept
owar
dst
hec
reat
iono
fa
t
radi
ngb
loc
.

FreeTradeArea

Fr
eeTr
adeAr
eas(
FTAs
)ar
ecr
eat
edwhent
woo
rmo
rec
ount
riesi
nar
egi
onag
ree
t
oreduc
eorel
imi
nat
ebar
rier
stot
radeo
nal
lgo
odsc
omi
ngfr
omo
thermemb
ers
.

Cus
tomsUni
on

Ac
ust
omsuni
oni
nvo
lvest
her
emo
valo
ftar
iffb
arr
ier
sbet
weenmemb
ers
,pl
ust
he
ac
cept
anc
eofa c
ommo
n(uni
fied)ex
ter
nalt
ari
ffag
ains
tno
n-memb
ers
.Thi
s
meanst
hatmemb
ersmayneg
oti
ateasas
ing
leb
locwi
th3rd 
par
ties
,suc
haswi
th
o
thert
radi
ngb
loc
s,o
rwi
tht
he 
WTO.

Themai
nadv
ant
agesfo
rmemb
erso
ftr
adi
ngb
loc
s

 Freet
radewi
thi
nthebl
oc

Kno
wingt
hatt
heyhav
efr
eeac
ces
stoeac
hot
her
'smar
ket
s,memb
ersar
e
enc
our
agedt
ospec
ial
is
e.Thi
smeanst
hat
,att
her
egi
onall
evel
,ther
eisa
wi
derappl
icat
iono
fthepr
inc
ipl
eofc
ompar
ati
veadv
ant
age.

 Marketacces
sandt
radecreat
ion

Eas
ierac
ces
stoeac
hot
her
’smar
ket
smeanst
hatt
radeb
etweenmemb
ersi
s
l
ikel
ytoi
ncr
eas
e. 
Tradec
reat
ion 
exi
stswhenfr
eet
radeenab
leshi
ghc
ost
do
mes
ticpr
oduc
erst
ober
epl
acedb
ylo
werc
ost
,andmo
reeffi
ci
enti
mpo
rts
.
Bec
aus
elo
wco
sti
mpo
rtsl
eadt
olo
werpr
icedi
mpo
rts
,ther
eisa'
cons
umpt
ion
effec
t',wi
thi
ncr
eas
eddemandr
esul
ti
ngfr
oml
owerpr
ices
.

 Economi
esofs
cal
e

Pr
oduc
ersc
anb
enefi
tfr
omt
heappl
icat
iono
f s
cal
eec
ono
mies
,whi
chwi
ll
l
eadt
olo
werc
ost
sandl
owerpr
icesfo
rco
nsumer
s.

 Jobs

Jo
bsmayb
ecr
eat
edasac
ons
equenc
eofi
ncr
eas
edt
radeb
etweenmemb
er
ec
ono
mies
.

 Prot
ect
ion

Fi
rmsi
nsi
det
heb
locar
epr
otec
tedfr
omc
heaperi
mpo
rtsfr
omo
uts
ide,s
uch
ast
hepr
otec
tio
noft
he 
EUs
hoei
ndus
try 
fro
mcheapi
mpo
rtsfr
om Chi
na
andVi
etnam.

Themai
ndi
sadv
ant
ageso
ftr
adi
ngb
loc
s

 Los
sofbenefi
ts
 Theb
enefi
tso
ffr
eet
radeb
etweenc
ount
riesi
ndi
ffer
entb
loc
sar
elo
st.

 Di
stort
ionoft
rade

Tr
adi
ngb
loc
sar
eli
kel
ytodi
sto
rtwo
rldt
rade,andr
educ
etheb
enefi
ci
al
effec
tso
fspec
ial
is
ati
onandt
heex
plo
itat
iono
f c
ompar
ati
veadv
ant
age.

 Ineffi
cienci
esandt
radedi
vers
ion

Ineffi
ci
ent pr
oduc
ers wi
thi
n t
he b
loc c
an b
e pr
otec
ted fr
om
mo
re 
effi
ci
ent
 oneso
uts
idet
heb
loc
.

Ret
ali
ati
on

Thedev
elo
pmento
foner
egi
onalt
radi
ngb
loci
sli
kel
ytos
timul
atet
hedev
elo
pment
o
fot
her
s.Thi
scanl
eadt
otr
adedi
sput
es,s
uchast
hos
ebet
weent
heEUandNAFTA,
i
ncl
udi
ngt
her
ecentBo
eing(
US)
/Ai
rbus(
EU)
 di
sput
e

3.Maj
ort
radi
ngb
loc
kso
fWTO?

As
soc
iat
iono
fso
utheas
tAs
iannat
ions
:AS
EAN

Es
tab
lis
hedo
nAug
ust8,1967,i
nBang
kok/Thai
land.

Memb
er S
tat
es: Br
unei Dar
uss
alam, Camb
odi
a, Indo
nes
ia, Lao
s, Mal
ays
ia,
Myanmar
,Phi
li
ppi
nes
,Si
ngapo
re,
 Thai
land,andVi
etnam.
.

Go
als
:

(
1)Ac
cel
erat
eec
ono
micg
rowt
h,s
oci
alpr
ogr
essandc
ult
uraldev
elo
pmenti
nthe
r
egi
onand

(
2)Pr
omo
te 
reg
ionalpeac
eands
tab
ili
tyandadher
etoUni
tedNat
ionsChar
ter
.

EU(
Eur
opeanUni
o  
n)

Fo
unded i
n 1951 b
ysi
xnei
ghb
our
ings
tat
esast
he Eur
opean Co
aland S
teel
Co
mmuni
ty(
ECS
C).Ov
ert
ime ev
olv
edi
ntot
heEur
opeanEc
ono
micCo
mmuni
ty,t
hen
t
heEur
opeanCo
mmuni
tyand,i
n1992,wasfi
nal
ly 
trans
for
medi
ntot
heEur
opean
Uni
on.
Reg
ionalb
loc
kwi
tht
hel
arg
estnumb
ero
fmemb
erss
tat
es(
28)
.Thes
einc
lude
Aus
tri
a,Bel
gium,Bul
gar
ia,
 Cr
oat
ia,Cypr
us,Cz
ech Repub
lic
,Denmar
k,Es
toni
a,
Fi
nland,Fr
anc
e,Ger
many,Gr
eec
e,Hung
ary,Ir
eland,
Ital
y,Lat
via,Li
thuani
a,
Lux
emb
our
g, Mal
ta, Po
land, Po
rtug
al, Rmani
a, S
lov
aki
a, S
lov
eni
a, S
pai
n,
S
weden,
TheNet
her
lands
,andt
heUni
tedKi
ngdo
m

Go
als
:Ev
olv
edfr
om ar
egi
onalfr
ee-t
radeas
soc
iat
iono
fst
atesi
ntoauni
ono
f
po
lit
ical
,ec
ono
micandex
ecut
ive 
connec
tio
ns.

MERCOS
UR(
Mer
cadoCo
mundelCo
noS
ul-S
out
her
nCo
neCo
mmo
nMar
ket
) 

Es
tab
lis
hedo
n26Mar
ch1991wi
tht
heTr
eat
yofAs
sunc
ión.

Ful
lmemb
ersi
ncl
udeAr
gent
ina,Bo
liv
ia,Br
azi
l,Par
aguay,Ur
uguay,andVenez
uel
a.

As
soc
iat
ememb
ersi
ncl
ude 
Chi
le,Co
lomb
ia,Ec
uado
r,andPer
u.

As
soc
iat
ememb
ershav
eac
ces
stopr
efer
ent
ialt
radeb
utno
ttot
ari
ff b
enefi
tso
f
ful
lmemb
ers
.

Go
als
:Int
egr
ati
ono
f memb
ers
tat
esfo
rac
cel
erat
iono
fsus
tai
ned ec
ono
mic
dev
elo
pmentb
ased o
nso
cialj
ust
ice,env
iro
nment
alpr
otec
tio
n,and c
omb
ati
ng
po
ver
ty.

NAFTA(
Nor
thAmer
icanFr
eeTr
adeAg
reement
) 

Ag
reements
ignedo
n1Januar
y1994.

Memb
ers
:Canada,Mex
ico
,andt
heUni
tedS
tat
eso
fAmer
ica.
.
Go
als
:

 El
imi
nat
etr
adeb
arr
ier
samo
ngmemb
ers
tat
es

 pr
omo
tec
ondi
ti
onsfo
rfr
eet
rade,i
ncr
eas
einv
est
ment
 oppo
rtuni
ti
es

 Pr
otec
tint
ell
ect
ualpr
oper
tyr
ight
s.

S
AARC(
Sout
hAs
ianAs
soc
iat
ionfo
rReg
ionalCo
oper
ati
on)

Memb
ers
:Afg
hani
stan,Bang
lades
h,Bhut
an,Indi
a,Mal
div
es,Nepal
,Paki
stan,
andS
riLanka.

Di
si
nves
tmentpo
lic
yofpub
lics
ect
ors
:

Meani
ngo
fDi
si
nves
tment
:

An i
mpo
rtantas
pec
tofpr
esenti
ndus
tri
alpo
lic
yoft
heGo
ver
nmenti
sthati
t
s
houl
dno
toper
atec
ommer
cialent
erpr
ises
.TheGo
ver
nmentc
ans
elli
tsent
erpr
ises
c
ompl
etel
ytot
hepr
ivat
esec
toro
rdi
si
nves
tapar
tofi
tsequi
tyc
api
talhel
dbyi
tto
t
hepr
ivat
esec
torc
ompani
eso
rint
heo
penmar
ket
.

OBJECTIVEOFDIS
INVES
TMENTPOLICY:
(
i)Tor
educ
ethefi
nanc
ialb
urdeno
ntheGo
ver
nment
.

(
ii
)Toi
mpr
ovepub
licfi
nanc
es.

(
ii
i)Toenc
our
agewi
ders
har
eofo
wner
shi
p.

(
iv)Toi
ntr
oduc
e,c
ompet
iti
onandmar
ketdi
sci
pli
ne.

(
v)Todepo
lit
ici
sees
sent
ials
erv
ices
.

(
vi)Tohel
ppub
licent
erpr
isesupg
radet
hei
rtec
hno
log
ytob
eco
mec
ompet
iti
ve.

(
vii
)Tor
ati
onal
is
eandr
etr
aint
hei
rwo
rkfo
rce.

(
vii
i)Tob
uil
dco
mpet
enc
eands
treng
thent
hei
rR&D.

(
ix)Toi
nit
iat
edi
ver
sifi
cat
ionandex
pans
ionpr
ogr
ammes
.

FDIININDIA

Fo
rei
gndi
rec
tinv
est
ment(
FDI)i
sani
nves
tmentmadeb
yac
ompanyo
rindi
vi
dual
i
nonec
ount
ryi
nbus
ines
sint
eres
tsi
n ano
therc
ount
ry,i
nthefo
rmo
fei
ther
es
tab
lis
hingb
usi
nes
soper
ati
onso
rac
qui
ri
ngb
usi
nes
sas
set
sint
heo
therc
ount
ry,
s
uchaso
wner
shi
porc
ont
rol
li
ngi
nter
esti
nafo
rei
gnc
ompany

Li
sto
fAdv
ant
ageso
fFo
rei
gnDi
rec
tInv
est
ment

1.Ec
ono
micDev
elo
pment

Fo
rei
gndi
rec
tinv
est
mentc
ans
timul
atet
het
arg
etc
ount
ry’
sec
ono
micdev
elo
pment
,
c
reat
ingamo
rec
onduc
iveenv
iro
nmentfo
ryo
uast
hei
nves
torandb
enefi
tsfo
rthe
l
ocali
ndus
try.

2.Eas
yInt
ernat
ionalTr
ade.

Co
mmo
nly,ac
ount
ryhasi
tso
wni
mpo
rtt
ari
ff,andt
hisi
soneo
fther
eas
onswhy
t
radi
ngwi
thi
tisqui
tedi
ffi
cul
t.Al
so,t
her
ear
eindus
tri
est
hatus
ual
lyr
equi
ret
hei
r
pr
esenc
eint
hei
nter
nat
ionalmar
ket
stoens
uret
hei
rsal
esand g
oal
swi
llb
e
c
ompl
etel
ymet
.Wi
thFDI,al
lthes
ewi
llb
emadeeas
ier
.

3.Empl
oymentandEc
ono
micBo
ost
. 
Fo
rei
gndi
rec
tinv
est
mentc
reat
esnewj
obs
,asi
nves
tor
sbui
ldnewc
ompani
esi
nthe
t
arg
etc
ount
ry,c
reat
enewo
ppo
rtuni
ti
es.Thi
sleadst
oani
ncr
eas
eini
nco
meand
mo
reb
uyi
ngpo
wert
othepeo
ple,whi
chi
ntur
nleadst
oanec
ono
micb
oos
t.

4.Dev
elo
pmento
fHumanCapi
talRes
our
ces
. 

Oneb
igadv
ant
ageb
roug
htab
outb
yFDIi
sthedev
elo
pmento
fhuman c
api
tal
r
eso
urc
es,whi
chi
sal
soo
ften under
stat
ed asi
tisno
timmedi
atel
yappar
ent
.
Humanc
api
tali
sthec
ompet
enc
eandkno
wledg
eoft
hos
eab
let
oper
for
mlab
or,
mo
rekno
wnt
ousast
hewo
rkfo
rce.Theat
tri
but
esg
ainedb
ytr
aini
ngands
har
ing
ex
per
ienc
ewo
uldi
ncr
eas
etheeduc
ati
onando
ver
allhumanc
api
talo
fac
ount
ry.
It
sres
our
cei
sno
ta t
ang
ibl
eas
sett
hati
sowned b
yco
mpani
es,b
uti
nst
ead
s
omet
hingt
hati
sonl
oan.Wi
tht
hisi
nmi
nd,ac
ount
rywi
thFDIc
anb
enefi
tgr
eat
ly
b
ydev
elo
pingi
tshumanr
eso
urc
eswhi
lemai
ntai
ningo
wner
shi
p.

5.TaxInc
ent
ives
. 

Par
entent
erpr
iseswo
uldal
sopr
ovi
defo
rei
gndi
rec
tinv
est
mentt
ogetaddi
ti
onal
ex
per
tis
e,t
echno
log
yandpr
oduc
ts.Ast
hefo
rei
gni
nves
tor
,yo
ucanr
ecei
vet
ax
i
ncent
ivest
hatwi
llb
ehi
ghl
yus
efuli
nyo
urs
elec
tedfi
eldo
fbus
ines
s.

6.Res
our
ceTr
ans
fer
. 

Fo
rei
gn di
rec
tinv
est
mentwi
llal
lowr
eso
urc
etr
ans
ferand o
therex
chang
eso
f
kno
wledg
e,wher
evar
iousc
ount
riesar
egi
venac
ces
stonewt
echno
log
iesands
kil
ls
.

7.Reduc
edDi
spar
ityBet
weenRev
enuesandCo
sts
. 

Fo
rei
gndi
rec
tinv
est
mentc
anr
educ
ethedi
spar
ityb
etweenr
evenuesandc
ost
s.
Wi
ths
uch,c
ount
rieswi
llb
eab
let
omakes
uret
hatpr
oduc
tio
nco
stswi
llb
ethes
ame
andc
anb
eso
ldeas
il
y.

8.Inc
reas
ed Pr
oduc
tiv
ity.
 The fac
ili
ti
es and equi
pment pr
ovi
ded b
y fo
rei
gn
i
nves
tor
scani
ncr
eas
eawo
rkfo
rce’
spr
oduc
tiv
ityi
nthet
arg
etc
ount
ry.

9.Inc
rementi
nInc
ome.
 

Ano
therb
igadv
ant
ageo
ffo
rei
gndi
rec
tinv
est
menti
sthei
ncr
eas
eoft
het
arg
et
c
ount
ry’
sinc
ome.Wi
thmo
rej
obsandhi
gherwag
es,t
henat
ionali
nco
meno
rmal
ly
i
ncr
eas
es.As a r
esul
t,ec
ono
micg
rowt
hiss
pur
red.Take no
tet
hat l
arg
er
c
orpo
rat
ionswo
uldus
ual
lyo
fferhi
ghers
alar
ylev
elst
hanwhatyo
uwo
uldno
rmal
ly
fi
ndi
nthet
arg
etc
ount
ry,whi
chc
anl
eadt
oinc
rementi
ninc
ome.

Li
sto
fDi
sadv
ant
ageso
fFo
rei
gnDi
rec
tInv
est
ment

1.Hi
ndr
anc
etoDo
mes
ticInv
est
ment
. 

Asi
tfo
cus
esi
tsr
eso
urc
esel
sewher
eot
hert
hant
hei
nves
tor
’sho
mec
ount
ry,fo
rei
gn
di
rec
tinv
est
mentc
ans
omet
imeshi
nderdo
mes
tici
nves
tment
.

2.Ri
skfr
omPo
lit
icalChang
es.
 

Bec
aus
epo
lit
icali
ssuesi
not
herc
ount
riesc
an i
nst
ant
lyc
hang
e,fo
rei
gn di
rec
t
i
nves
tmenti
sver
yri
sky.Pl
us,mo
sto
fther
iskfac
tor
sthatyo
u ar
ego
ingt
o
ex
per
ienc
ear
eex
tremel
yhi
gh.

3.Neg
ati
veInfl
uenc
eonEx
chang
eRat
es.
 

Fo
rei
gn di
rec
tinv
est
ment
scan o
ccas
ional
ly affec
t ex
chang
erat
es t
othe
adv
ant
ageo
fonec
ount
ryandt
hedet
rimento
fano
ther
.

4.Hi
gherCo
sts
. 

Ifyo
uinv
esti
nso
mefo
rei
gnc
ount
ries
,yo
umi
ghtno
tic
ethati
tismo
reex
pens
ive
t
hanwhenyo
uex
por
tgo
ods
.So
,iti
sver
yimper
ati
vet
opr
epar
esuffi
ci
entmo
neyt
o
s
etupyo
uro
per
ati
ons
.

5.Ec
ono
micNo
n-Vi
abi
li
ty

Co
nsi
der
ingt
hatfo
rei
gn di
rec
tinv
est
ment
smayb
ecapi
tal
-int
ens
ivefr
omt
he
po
into
fvi
ewo
fthei
nves
tor
,itc
ans
omet
imesb
ever
yri
skyo
rec
ono
mic
all
yno
n-
v
iab
le.

6.Ex
pro
pri
ati
on.
 

Rememb
ert
hatpo
lit
icalc
hang
esc
anal
sol
eadt
oex
pro
pri
ati
on,whi
chi
sas
cenar
io
wher
etheg
over
nmentwi
llhav
eco
ntr
olo
veryo
urpr
oper
tyandas
set
s.

7.Neg
ati
veImpac
tont
heCo
unt
ry’
sInv
est
ment
. 
The r
ulest
hatg
over
n fo
rei
gn ex
chang
erat
esand di
rec
tinv
est
ment
smi
ght
neg
ati
vel
yhav
eani
mpac
tont
hei
nves
tingc
ount
ry.Inv
est
mentmayb
ebannedi
n
s
omefo
rei
gn mar
ket
s,whi
ch meanst
hati
tisi
mpo
ssi
blet
opur
suean i
nvi
ti
ng
o
ppo
rtuni
ty.

8.Mo
der
n-DayEc
ono
micCo
loni
ali
sm.

Manyt
hir
d-wo
rldc
ount
ries
,oratl
eas
ttho
sewi
thhi
sto
ryo
fco
loni
ali
sm,wo
rryt
hat
fo
rei
gn di
rec
tinv
est
mentwo
uldr
esul
tins
omeki
nd o
fmo
der
n dayec
ono
mic
c
olo
nial
is
m,whi
chex
pos
esho
stc
ount
riesandl
eav
ethemv
ulner
abl
etofo
rei
gn

UNIT5No
tes
:DIRECTANDINDIRECTTAXES:
Fi
scalpo
lic
yob
jec
tiv
est
ool
sadvanddi
dadv
ant
ages
?

Meani
ngo
fFi
scalPo
lic
y↓

Thefi
scalpo
lic
yisc
onc
ernedwi
tht
her
ais
ingo
fgo
ver
nmentr
evenueandi
ncur
ring
o
fgo
ver
nmentex
pendi
tur
e.Tog
ener
ater
evenueandt
oinc
urex
pendi
tur
e,t
he
g
over
nmentfr
amesapo
lic
ycal
ledb
udg
etar
ypo
lic
yorfi
scalpo
lic
y.S
o,t
hefi
scal
po
lic
yisc
onc
ernedwi
thg
over
nmentex
pendi
tur
eandg
over
nmentr
evenue.

Ob
jec
tiv
eso
ffi
scalpo
lic
y:

1.
Ful
lempl
oyment

2.Pr
ices
tab
ili
ty

3.Ac
cel
erat
ingt
her
ateo
fec
ono
micdev
elo
pment

4.Opt
imumal
loc
ati
ono
fres
our
ces

5.Equi
tab
ledi
str
ibut
iono
finc
omeandweal
th

6.Ec
ono
mics
tab
ili
ty

7.Capi
talfo
rmat
ionandg
rowt
h

8.Enc
our
agi
ngi
nves
tment

Tec
hni
queso
fFi
scalPo
lic
y 

1.Tax
ati
onPo
lic
y 

Iti
soneo
fthepo
wer
fuli
nst
rument
soffi
scalpo
lic
yint
hehandso
fpub
lic
aut
hor
iti
eswhi
chg
reat
lyaffec
tsc
hang
esi
ndi
spo
sab
lei
nco
me,
cons
umpt
ionand
i
nves
tment
.Tax
ati
onpo
lic
yisr
elat
est
onewamendment
sindi
rec
ttaxandi
ndi
rec
t
t
ax.Ev
eryyearGo
vt.o
fIndi
a pas
sest
hefi
nanc
ebi
ll.In t
hispo
lic
ygo
vt.
det
ermi
nest
her
ateo
ftax
es.Go
vt.c
ani
ncr
eas
eordec
reas
ethes
etaxr
atesand
amendpr
evi
ousr
uleso
ftax
ati
on.
Gov
t.'
sear
ning
'smai
nso
urc
eist
axat
ion.But
mo
ret
axo
npub
licwi
lladv
ers
eeffec
tont
hedev
elo
pmento
fec
ono
my.
IfGo
vt.wi
ll
i
ncr
eas
etax
es,mo
reb
urdenwi
llb
eont
hepub
licandi
twi
llr
educ
epr
oduc
tio
nand
pur
chas
ingpo
wero
fpub
lic.
IfGo
vt.wi
lldec
reas
etax
es,t
henpub
lic
'spur
chas
ing
po
werwi
lli
ncr
eas
eand i
twi
lli
ncr
eas
ethei
nfl
ati
on.
Gov
t.anal
yzes 
bot
hthe
s
ituat
ionandwi
llmakehi
stax
ati
onpo
lic
ymo
repr
ogr
ess
ive.

2.Go
vt.Ex
pendi
tur
ePo
lic
y 

Ther
ear
elar
genumb
ero
fpub
licex
pendi
tur
eli
keo
peni
ngo
fgo
vts
cho
ols,c
oll
eges
anduni
ver
sit
ies,maki
ngo
fbr
idg
es,r
oadsandnewr
ail
wayt
rac
ks.Fo
rtheab
ove
pr
ojec
tsg
ovthaspai
dlar
geamo
untfo
rpur
chas
ing 
andpayi
ngwag
esands
alar
ies
,
howev
er,
allt
hes
eex
pendi
tur
esar
epai
daft
ermaki
ngg
ovt
.ex
pendi
tur
epo
lic
y.
Go
vt.c
ani
ncr
eas
eordec
reas
etheamo
unto
fpub
licex
pendi
tur
ebyc
hang
ingg
ovt
.
b
udg
et.S
o,g
ovt
.ex
pendi
tur
eist
echni
queo
ffi
scalpo
lic
ybyus
ingt
his,g
ovt
.us
e
hi
sfund 
fir
sto
nver
ynec
ess
arys
ect
orando
therwi
llb
edo
neaft
ert
his.

3.Defi
ci
tFi
nanc
ingPo
lic
y 

IfGo
vt.
'sex
pendi
tur
esar
emo
ret
hanhi
srev
enue,t
heng
ovt
.sho
uldhav
etoc
oll
ect
t
hisamo
unt.Thi
samo
unti
sdefi
ci
tandi
tcanb
eful
fil
ledb
yis
sui
ngnewc
urr
enc
y
b
ycent
ralb
anko
fco
unt
ry.But,i
twi
llr
educ
ethepur
chas
ingpo
wero
fcur
renc
y.
Mo
renewc
urr
enc
ywi
lli
ncr
eas
einfl
ati
onandaft
eri
nfl
ati
onv
alueo
fcur
renc
ywi
ll
 
dec
reas
e.S
o,defi
ci
tfi
nanc
ingi
sver
yser
iousi
ssuei
nthefr
onto
fgo
vt.Go
vt.
s
houl
dus
eit,i
fther
eisnoo
thers
our
ceo
fgo
vt.ear
ning.

4.Pub
licDeb
tPo
lic
y

IfGo
vt.t
hinkst
hatdefi
ci
tfi
nanc
ingi
sno
tsuffi
ci
entfo
rful
fil
li
ngt
hepub
lic
ex
pendi
tur
eori
fgo
vt.do
esno
tres
ortt
odefi
ci
tfi
nanc
ing,t
heng
ovt
.cant
ake
l
oan fr
om 
wor
ldb
ank,o
rtakel
oan fr
om pub
licb
ythewayo
fis
sui
ngg
ovt
.
s
ecur
iti
esand b
onds.Buti
twi
llal
soi
ncr
eas
ethec
osto
fdeb
tint
hefo
rmo
f
i
nter
estwhi
chg
ovt
.hast
opayo
n t
heamo
unto
flo
an.S
o,g
ovt
.hast
onec
ess
ari
ly
makes
oli
dbudg
etfo
rthi
sandaft
ert
aki
ngi
ntoc
ons
ider
ati
ont
heamo
untwhi
chi
s
t
akenasdeb
t.Thi
spo
lic
y c
anal
sous
east
het
echni
queo
ffi
scalpo
lic
yfo
rinc
reas
e
t
het
reas
ureo
fgo
vt.Int
ernals
our
ceso
fdeb
tinc
ludemar
ketl
oans
,co
mpens
ati
on
b
onds
,15year
'sannui
tyc
ert
ifi
cat
es,
smal
lpr
ivat
esav
ing
sthr
oug
hvar
iouss
avi
ng
s
chemes
.Ex
ter
nals
our
cesi
ncl
udesi
nbo
rro
wingfr
omt
heex
ter
nalmar
ket,
fro
m
i
nter
nat
ionali
nst
itut
ions s
uch as t
he Wo
rld b
ank, IMF IDA et
c and t
he
g
over
nment
sofo
therc
ount
ries
.
TAXS
TRUCTUREININDIA:

Br
oadl
y,t
her
ear
etwot
ypeso
ftax
est
hatt
heIndi
ang
over
nmentl
evi
eso
nit
s
c
iti
zens–di
rec
ttaxandi
ndi
rec
ttax
.

Defi
nit
iono
r Meani
ng:
 Di
rec
ttax
esar
etho
se whi
ch ar
e pai
d di
rec
tlyt
othe
g
over
nmentb
ythet
axpayer
. Thes
etax
esar
eno
tpai
d deduc
ted and pai
don
b
ehal
foft
het
axpayer
.It
’si
mpo
sedo
nthepeo
pleando
rgani
zat
ionsdi
rec
tlyb
y
t
heg
over
nment
.Thi
staxl
iab
ili
tyhast
obepai
dbyt
het
axpayeri
nques
tio
nand
c
anno
tbet
rans
fer
redt
oanyo
therent
ityfo
rpayment
.

Di
rec
ttax
esar
e

 Inc
omet
ax

 Weal
tht
ax

 Co
rpo
rat
iont
ax

INCOMETAX:

o Inc
omet
axi
sthemo
stc
ommo
n and mo
sti
mpo
rtantt
axt
hatan
Indi
anmus
tpay.
o Iti
schar
geddi
rec
tlyo
nthei
nco
meo
faper
son.
o Ther
ateatwhi
chi
tisc
har
ged v
ari
es,dependi
ngo
nthel
evelo
f
i
nco
me.
o It
’sc
har
gedt
oindi
vidual
s,c
o-o
per
ati
ves
oci
eti
es,fi
rms
,co
mpani
es,
Hi
nduUndi
videdFami
li
es(
HUFs
),t
rus
tsandanyar
tifi
ci
alj
udi
ci
al
per
son.
o Inc
omet
axi
schar
gedo
nani
nco
mekno
wnas“
tax
abl
einc
ome”
,whi
ch
i
s:
Tax
abl
einc
ome=(
tot
ali
nco
me)–(
appl
icab
lededuc
tio
nsandex
empt
ions
).

Thedi
ffer
entheadso
finc
omeunderwhi
chi
nco
met
axi
schar
geab
lear
e:

o Inc
omefr
omho
useandpr
oper
ty.
o Inc
omefr
omb
usi
nes
sorpr
ofes
sio
n.
o Inc
omefr
oms
alar
ies
.
o Inc
omei
nthefo
rmo
fcapi
talg
ains
.
 o Inc
omefr
omo
thers
our
ces
.
Iti
slev
ieddi
ffer
ent
lyfo
rdi
ffer
entpeo
pledependi
ngo
nthei
rres
idenc
yst
atus
.

 Co
rpo
rat
eTax
o Lev
ied o
nco
mpani
es who ex
ist as s
epar
ate ent
iti
es fr
om t
hei
r
s
har
eho
lder
s.
o Fo
rei
gnc
ompani
esar
etax
edo
ninc
omet
hatar
ises
,ori
sdeemedt
o
ar
ise,i
nIndi
a.
o Iti
schar
gedo
nro
yal
ti
es,i
nter
est
,gai
nsfr
oms
aleo
fcapi
talas
set
s
l
ocat
edi
nIndi
a,feesfo
rtec
hni
cals
erv
icesanddi
vi
dends
.
o Inc
ludesMi
nimum Al
ter
nat
iveTax(
MAT)whi
chwasi
ntr
oduc
ed t
o
b
ringZer
oTaxc
ompani
esundert
hei
nco
met
axnet
,who
seac
count
s
wer
emadei
nac
cor
danc
ewi
tht
heCo
mpani
esAc
t.
o Inc
ludesFr
ing
eBenefi
tTax(
FBT)whi
chi
sat
axt
hatc
ompani
espay
o
nthefr
ing
ebenefi
tspr
ovi
ded(
ordeemedt
ohav
ebeenpr
ovi
ded)t
o
empl
oyees
.
o Inc
udesDi
videndDi
str
ibut
ionTax(
DDT)whi
chi
sat
axl
evi
edo
nany
amo
untdec
lar
ed,di
str
ibut
edo
rpai
dasdi
vi
dendb
yanydo
mes
tic
c
ompany
.Int
ernat
ionalc
ompani
esar
eex
emptfr
omt
hist
ax.
o Inc
ludesS
ecur
iti
esTr
ans
act
ion Tax(
STT)whi
chi
sat
axl
evi
ed o
n
t
axab
les
ecur
iti
est
rans
act
ions
.Ther
eisno
tsur
char
geappl
ic
abl
eon
t
his
.
 Weal
thTax
o Weal
tht
ax i
schar
ged o
nthe b
enefi
ts der
ived fr
om pr
oper
ty
o
wner
shi
p.
o Thes
amepr
oper
tywi
llb
etax
edev
eryyearo
nit
scur
rentmar
ketv
alue.
o Weal
tht
axi
schar
gedwhet
hert
hepr
oper
tyi
near
ningani
nco
meo
r
no
t.
o Thet
axi
slev
iedo
nthei
ndi
vidual
s,HUFs
,andc
ompani
esal
ike.
o Char
geab
ili
tydependso
nres
ident
ials
tat
us.
Thefo
llo
wingwi
llno
tbet
axedast
heyar
e“wo
rki
ngas
set
s”:

o As
set
shel
dass
toc
kint
rade.
o Pr
oper
tyhel
dasac
ommer
cialc
ompl
ex.
o Go
lddepo
sitb
onds
.
 o Ho
usepr
oper
tyhel
dfo
rbus
ines
sorpr
ofes
sio
n.
o Ho
usepr
oper
tyl
eto
uto
ver300daysi
nayear
.
 Capi
talGai
nsTax
o Tax
edo
nthei
nco
meder
ivedfr
omt
hes
aleo
fas
set
sori
nves
tment
s.
o Capi
tali
nves
tment
sco
verho
mes
,far
ms,b
usi
nes
ses
,wo
rkso
far
t,et
c.
o Capi
talg
ains= (
money r
ecei
ved fr
om s
ale) – (
cos
tofc
api
tal
i
nves
tment
).
o Cat
ego
riz
ed ass
hor
t-t
erm g
ains(
gai
nso
n as
set
sso
ld wi
thi
n 36
mo
nthso
fac
qui
si
ti
on)and l
ong
-ter
mgai
ns(
gai
nso
n as
set
sso
ld
aft
er36mo
nthso
fac
qui
si
ti
onandho
ldi
ng)
.
o Vo
lunt
aryt
axt
hati
spai
dbyt
het
axpayerwhent
heas
seti
tso
ld.

INDIRECTTAXS
TRUCTURE:

Indi
rec
tTax
es

InIndi
a,i
ndi
rec
ttax
esi
sav
asto
ceanast
her
ear
enumb
ero
ftax
est
obepai
don
manufac
tur
e,i
mpo
rt,s
aleandev
enpur
chas
einc
ert
ainc
ases
.Fur
thert
hel
awi
s
g
over
ned l
essb
ytheAc
tsand mo
reb
ydayt
odayno
tifi
cat
ions
,ci
rcul
arsand
o
rder
sbyt
heGo
ver
ningb
odi
es

S
erv
icet
ax
.Thi
stypeo
findi
rec
ttaxi
slev
iedb
ythes
erv
icet
axpr
ovi
derandpai
dbyt
he
r
eci
piento
fthes
erv
ices
.Ho
wev
er,i
nso
mec
asest
hel
iab
ili
tyfo
rthet
axi
sdi
vi
ded
b
etweent
her
eci
pientaswel
last
hepr
ovi
dero
fser
vic
e.

Ther
eisal
soapr
ovi
si
onfo
rab
atemento
fser
vic
etaxi
fthefi
nalpr
icei
sami
xtur
e
o
fser
vic
esaswel
lasmat
eri
al,s
uchasr
est
aur
antb
ill
s.

Manufac
tur
edGo
ods
:

Thec
ent
ralg
over
nmentc
oll
ect
sex
cis
edut
ieso
nmanufac
tur
eofg
oodss
ubj
ectt
o
c
lear
anc
eoft
hepr
oduc
tsfr
om war
eho
useo
rfac
tor
y.Ass
uch,t
hist
axc
anb
esai
d
t
oappl
yonc
lear
anc
eofg
oodsfr
oms
tor
ager
athert
hanb
eingappl
iedo
nthes
ale
o
fthemanufac
tur
edg
oods
.Ex
cis
edut
iesar
efur
therdi
vi
dedi
nto4c
ateg
ori
es,o
f
whi
chb
asi
cex
cis
edut
yisl
evi
edfo
rthemo
stpar
twhi
let
heo
ther
sar
elev
iedo
nlyi
n
s
pec
ialc
ases
.

1.Bas
icex
cis
edut
y: 
Thi
sist
hemo
stc
ommo
ntypeo
fex
cis
edut
ywhi
chi
slev
ied
o
ngo
odsmanufac
tur
ingandfal
lsundert
heCent
ralEx
cis
eAc
t,1944.Thi
s
t
axi
sex
empt
edi
nspec
ialc
asess
uchasmanufac
tur
eofs
alto
rex
por
tof
manufac
tur
edg
oodso
fles
sthanRs
.1.
5cr
oreso
ver
allv
alueperyear
,amo
ng
o
ther
s.Theex
cis
edut
yrat
esv
aryfr
ompr
oduc
ttopr
oduc
t.

2.S
pec
ialex
cis
edut
y: 
Lev
iedo
nas
mal
lli
sto
fit
emsandfal
lsunderCent
ral
Ex
cis
eTar
iffAc
t,1985.

3.Tex
til
edut
ies
: 
Ast
henames
ugg
est
s,o
nlyappl
ic
abl
eons
pec
ifi
ctex
til
ego
ods
andfal
lsundert
heAddi
ti
onalDut
ieso
fEx
cis
eAc
t,1978.

4.Go
odso
fspec
iali
mpo
rtanc
e: 
Thi
sisl
evi
edaspert
heAddi
ti
onalDut
ieso
f
Ex
cis
eAc
t,1957o
nspec
ifi
cgo
odsment
ionedundert
hear
tic
le.

5.Nat
ionalc
alami
tyc
ont
ing
entdut
y(NCCD)
: Thi
sisl
evi
ed o
ngo
odsl
ike
c
igar
ett
es,c
hewi
ngt
obac
co,panmas
ala,mo
bil
epho
nesandc
rudeo
il,andi
s
appl
icab
leU/S135o
ftheFi
nanc
eAc
t,2001.

Impo
rtedGo
ods
:

Impo
rtedg
oodsar
echar
gedt
axesasperex
cis
edut
ies
.Thi
sisfur
therdi
vi
desi
n
s
pec
ifi
cdut
iesandad-v
alo
remdut
ies
.
 1.S
pec
ifi
cdut
ies
: 
Thes
ear
eappl
icab
leo
nal
lindi
vi
dualc
ompo
nent
sofag
ood
i
mpo
rtedi
ntot
hec
ount
ry,fo
rins
tanc
eac
lot
himpo
rtedfr
omab
roadwi
llb
e
c
har
gedex
cis
epermet
ero
fthemat
eri
al,o
rlapt
opsi
mpo
rtedwi
llb
echar
ged
ex
cis
eoneac
huni
toft
heo
rder
.

2.Ad-v
alo
rem dut
ies
: 
Thes
ear
elev
iedo
ntheo
ver
allv
alueo
fgo
odsex
por
ted
o
rimpo
rted.Fo
rins
tanc
e,10% o
ftheo
ver
allb
illo
fimpo
rtedc
lot
heso
r10%
o
ftheo
ver
allo
rderv
aluefo
rlapt
ops
.

3.Ant
i-dumpi
ngdut
ies
: 
Thes
ear
elev
ieds
oast
oshi
eldt
hedo
mes
ticmar
ket
ag
ains
tfo
rei
gng
oodsdumpedatv
eryl
owo
rbel
owc
ostpr
ices
.Fo
rins
tanc
e,
pl
ast
icpr
oduc
tsi
mpo
rted fr
om Chi
na,whi
chc
an b
echeapert
han t
he
do
mes
ticmar
ketr
ates
.

4.Co
unt
erv
ail
ingDut
yofCus
toms
: 
Thi
sisano
thert
ypeo
fex
cis
edut
yus
edt
o
hel
pIndi
anpr
oduc
edg
oodss
ello
nal
evelpl
ayi
ngfi
eld.Thi
sisaddi
ti
onalt
o
t
head-v
alo
remo
rspec
ifi
cdut
iesal
readyappl
iedo
ngo
ods
.

Go
odsS
old:

Fi
nal
ly,g
oodss
olddi
rec
tlyt
oco
nsumer
sar
elev
iedVal
ueAddedTax
es(
VAT)
,whi
ch
i
sco
llec
ted b
yther
espec
tiv
est
ateg
over
nmento
nint
ra-s
tat
esal
es,aswel
las
Cent
ralS
alesTax
,whi
chi
sco
llec
tedb
ythec
ent
ralg
over
nmento
nint
er-s
tat
esal
es.
Ev
erys
tat
elev
iesi
tso
wnVATfi
gur
e,whi
chus
ual
lyl
iesb
etween5% and12.
5%.
Ther
emayb
eso
meex
cept
ionst
othi
staxaspers
tat
elaws
.

Apar
tfr
omal
lthet
ypeso
findi
rec
ttax
esdi
scus
sedab
ove,Oc
tro
iorLo
cal

GS
TININDIA:

Fi
rsto
fal
l,whati
sGS
T?Ful
lfo
rmo
fGS
Tis
 GOODSandS
ERVICESTAX.

Iti
sac
ompr
ehens
ive,mul
ti
-st
age,des
tinat
ionb
asedt
ax,whi
chwi
llb
elev
iedo
n
ev
eryv
alueaddi
ti
on.Iti
sto
utedt
obet
heb
igg
estt
axr
efo
rm andwi
lls
impl
ifyt
he
c
urr
entt
axat
ions
yst
em.Itwi
llr
epl
aceal
lindi
rec
ttax
es(
li
kes
erv
icet
ax,v
alue
addi
ti
ont
ax,c
ent
rals
alest
ax,ex
cis
edut
y)l
evi
edo
ngo
odsands
erv
icesi
nIndi
a.

PMNar
endr
aMo
dic
all
edGS
Ta“
Goo
dandS
impl
eTax
”.
ADVANTAGESOFGS
T

 Po
ssi
bler
educ
tio
ninpr
ices
.

 Inc
reas
eing
over
nmentr
evenues
.

 Les
sco
mpl
ianc
eandpr
ocedur
alc
ost
.

 Remo
valo
fcur
rentc
asc
adi
ngeffec
t.

Ther
ear
etwot
ypeso
fGS
Tst
ruc
tur
eint
hewo
rld.Thes
ear
e:

i
.Si
ngl
eGS
T

i
i.DualGS
T

Indi
ahasado
ptedt
heDUALGS
Tsys
tem wher
ebya 
CGS
TandS
GST 
wil
lbel
evi
edo
n
t
het
axab
lev
alueo
fev
eryt
rans
act
iono
fsuppl
yofg
oodsand s
erv
ices
.Iti
s
t
he 
Canadi
anmo
delo
fDualGS
T (
cent
ralands
tat
e)i
mpl
ement
edi
n1991t
hatt
he
Indi
anmo
delo
fthei
ndi
rec
ttaxr
efo
rmfi
ndss
imi
lar
iti
eswi
th.

Theg
over
nmenthasdec
ided5di
ffer
entt
axs
labr
ates
- 0%,5%,12%,18%,28%.
Theg
over
nmenthasc
ateg
ori
zed 
1211 
it
emsundert
axs
lab
s.

Whi
let
hei
mpl
ement
ati
ono
fthet
axr
efo
rmi
nIndi
amayb
ehi
sto
ricfo
rthes
cal
e
o
fchang
ethati
tenv
isag
es,Indi
aisno
tthefi
rstc
ount
ryt
omo
vet
oauni
fied
i
ndi
rec
ttax
ati
ons
yst
em.Fr
anc
ewast
hefi
rstc
ount
ryt
oado
ptGS
Tin1954.

CGS
T: 
CGS
Trefer
stoCent
ralGo
odsandS
erv
iceTax
.Iti
slev
iedo
nthei
ntr
ast
ate
mo
vemento
fgo
odsand s
erv
ices
.Ther
evenuec
oll
ect
ed underCGS
Tisfo
rthe
c
ent
ralg
over
nment
.Ho
wev
er,Inputt
axc
redi
tonCGS
Tisg
ivenpar
tlyt
othec
ent
re
andpar
tlyt
othes
tat
esasi
twi
llb
eut
il
izedag
ains
tthepaymento
fbo
thCGS
Tand
IGS
T.

S
GST:
 SGS
Trefer
stoS
tat
ego
odsands
erv
icet
ax.S
GSTfal
lsunderS
tat
eGo
odsand
S
erv
ice Tax Ac
t 2016. The r
evenue c
oll
ect
ed under
 SGS
T i
sco
llec
ted S
tat
e
Go
ver
nment
.TheS
tat
eGo
ver
nmentl
evi
esi
tont
hei
ntr
ast
atemo
vemento
fgo
ods
ands
erv
ices
.
OMEFACTSABOUTGS
T

 ONENATION–ONETAXREGIME

 Ithasb
een17year
ssi
nceGS
Twasfi
rstc
onc
ept
ual
izedi
nIndi
a.

 Ab
out160c
ount
riesi
nthewo
rldhav
eGS
T.

 Indi
a,aft
erCanadai
sonl
ysec
ondc
ount
ryi
nthewo
rldt
oado
ptdualGS
T
mo
del
.

 GS
Tisar
guab
lyo
neo
fIndi
a’smo
sts
igni
fic
antandamb
iti
ousr
efo
rmsev
er
at
tempt
ed.

 Ti
llno
w,33GS
TAc
tshav
ebeenpas
sed.

 Li
quo
rhasb
eenkepto
uts
idet
hes
copeo
fGS
T.

 GS
Taswel
last
hefo
rmert
axeswi
llb
eappl
ic
abl
eonTo
bac
co.

 ITwi
llg
ener
atemanyempl
oymento
ppo
rtuni
ti
es.