Histori

calBackgr oundofLaw
relati
ngt oFor eignExchange
I.ForeignExchangeRegul ati
onAct ,
1947 and For eign Exchange
Regul ati
onAct ,1973
Scarcity of For eign Ex change i n
Indi
al ed t
oi t
s cont rolsi nce t he
beginningofWor ldWarI I
.Ex change
control was i ntr
oduced i n I ndia
undert heDef enceofI ndi
aRul eson
September3,1939onat empor ary
basis. The st atutory power f or
exchangecont rolwaspr ov i
dedby
the For ei
gn Ex change Regul ati
on
Act(FERA)of1947.
Foreign Exchange Regul ati
on Act ,
1947 was enact ed i ni
ti
al l
yf ora
peri
od oft en y earsi nt empor ary
basis. Howev er, 10 y ears of
economi cdev elopmentdi dnotease
the f or ei
gn ex change const rai
nt,
FERA per manent ly ent ered t he
statue book i n t he y ear 1957.
Subsequent ly, For eign Ex change
Regul at ionAct ,1947wasr eplaced
byt heFor eignEx changeRegul ati
on
Act, 1973( FERA, 1973),whi chcame
i
nt of or cewi t hef fectf r
om Januar y
1,1974.FERA, 1973camei nt oforce,
for r egul ating cer t
ain pay ment s,
deal i
ngs i nf oreign ex change and
secur ities, t ransact ions i ndirectl
y
affectingf oreignexchangeandt he
i
mpor tandex por tofcur rency ,for
the conser v ation of t he f or ei
gn
exchanger esour cesoft hecount r
y
andt hepr operut il
izati
ont her eofin
the i nt er
est s of t he economi c
dev elopmentoft hecount ry.
II
.For ei gnExchangeRegul ationAct ,
1973, ‘TheMaj orConst r
ai nts’
a.I nt he y ear 1974,FERA was
compl etely ov erhaul ed wi th all
violations bei ng consi dered as
criminalof fences wi t h mens r ea.
The Enf orcementDi rectorate was
empower ed t o ar r estany per son
wi t
houtev enanar restwar r
ant .
b.I n 1991 gov ernmentof I ndia
i
ni t
iated t he pol icy of Economi c
Liberal i
zat i
on, Pr ivat i
zati
on and
Global izat i
on.For eign i nvestment s
i
n many sect or s wer e per mit
ted.
Thisr esul tedi ni ncr easedf l
ow of
foreign exchange i n I ndia and
foreign exchange reserves
i
ncr eased subst ant ially
,hence t he
gov ernment engaged i tself i n
frami ng a l aw cont aining a
compr ehensi ve f ramewor k f or
deal i
ng and r egul at i
ng t hef orei
gn
exchange i nfl
ow and out fl
ow i n
India.
c.I n1997,t heTar apor eCommi tt
ee
on Capi talAccount Conv ertibil
it
y
(CAC)const i
tuted byt he Reser ve
Bank,whi chr ecommendedchange
i
n t he l egislative f r
amewor k
gov erni
ng forei gn ex change
transactions.
d.Keepi ng i nv i
ew t he changed
env i
ronment ,theFor ei
gnEx change
Management Act ( FEMA) was
enact ed in1999 t or eplaceFERA.
FEMAbecameef fectivef r
om June
1, 2000.Thephi l
osophi calappr oach
was shi ft
ed f rom t hat of
conser vationoff oreignexchanget o
the management of f or ei
gn
exchange, f acil
itating t rade and
pay ment s as wel las dev eloping
orderlyfor ei
gnex changemar ket .
II
I. Aut hor i
ties gov erning t he
enf orcementofFEMA
a.For eignEx changeDepar tmentof
Reser ve Bank of I ndia ( RBI)–
fema. rbi.
or g.in
b. Di rector ate of Enf orcement ,
Depar tmentofRev enue,Mi nistryof
Financeht t
p:/ /dir
ect orat
eof enf orce
ment .gov .
in
c. Capi tal Mar kets Di v i
sion,
Depar tment of Economi c Af fai
rs,
Mi nistry of Fi nance – ht tp://
fi
nmi n.nic.in/ t
he mi nist
ry/depteco
affairs/
d.I nv estmentDi vi
sion,Depar tment
of Economi c Af f
airs,Mi nistry of
Finance –
https:/ /dea. gov .i
n/divisi
onbr anch/ i
n
vest ment -division#IT
e. For eign Tr ade Di v i
sion,
Depar tment of Economi c Af fai
rs,
Mi nistry of Fi
nance –
http:// fi
nmi n.ni
c.i
n/ theministr
y/dept
ecoaf fairs/
IV. Machi nery r esponsible f or
var i
ousaspect sofFEMA
a.Enf orcementDi rectorate
b.Adj udicatingAut hor i
ty
c.Speci al Dir
ector( Appeals)
d.Appel lateTr i
bunal
e.For eignEx changeDepar tmentof
RBI
f.For eign I nvestment Pr omot i
on
Boar d*
g.Depar tment f or Pr omot i
on of
Indust ryandI nternal Tr
ade( DIPP)**
*Erst whi le FIPB was mandat ed to
play an i mpor tant r ole in t he
admi nistrati
onandi mplement ati
on
oft heGov er
nment ’sFDIpol icy .The
Cent ral Gov ernment has si nce
abol i
shed t he For eign I nv estment
Promot ionBoar d,andt hewor kof
grant i
ng of appr ov alf or f or eign
i
nv est menthasbeen ent rust ed t o
the concer ned Admi ni strat i
ve
Mi nistry/Depar tment v i
de of f i
ce
Memor andum i ssuedbyMi ni stryof
Finance F. No. 01/ 01/FC12017
–FI PBdat ed5t hJune, 2017.
**TheDepar tmentf orPr omot i
onof
Indust ryandI nternalTr ade( DI PP)
wasest abl i
shed i n 1995 and has
beenr econst itutedi nt hey ear2000
witht hemer geroft heDepar t
ment
ofI ndust r
ialDev el
opment .DI PP i s
responsi bl
e f or f or mul ati
on and
i
mpl ement ati
onofpr omot ionaland
dev elopment almeasur esf orgr owt h
oft hei ndust ri
alsect or,keepi ngi n
view t he nat ional pr i
or i
ties and
soci o-economi c obj ectives. The
gov ernmenthas not i
fied changed
the name oft he Depar tmentof
Indust ri
alPol i
cy&Pr omot ion( DI PP)
tot heDepar tmentf orPr omot i
onof
Indust ryandI nternalTr ade( DPI I
T)
undert he Mi nistry ofCommer ce
andI ndust ry
.TheDPI IT shal lal so
ber esponsi blef or(a)t hepr omot ion
of i nternalt rade ( includi ng r etail
trade) ;(
b)t hewel fareoft rader sand
theirempl oyees;(c)mat tersr elating
to f acili
tati
ng Ease of Doi ng
Busi ness; and( d)mat t
er srel ati
ngt o
start-ups.
V. Ty pe of t ransact ions under
FEMA
Capi talaccountt ransact ion( CAT)
These t ransact i
ons ar e ofcapi tal
nat ure.I tal t
ersasset sorl iabilities
i
ncl udi ng cont i
ngent l i
abi li
ties,
out sideI ndiaofper sonsr esidenti n
Indiaorasset sorl iabilit
iesi nI ndi a
ofper sonsr esidentout sideI ndi a,
.
CAT ar e r egul ated by For eign
Ex change Management
(Per mi ssible Capi t
al Account
Tr ansact ions)r egulat i
ons, 2000and
cov ers,amongot her s,thef ollowi ng
transact i
ons:
a.For eignDi rectInv estment( FDI );
b.Ov erseasDi rectInv estment( ODI )
;
c.Ex ternalCommer ci
alBor r
owi ngs
(ECBs) ;
d.Sal eandpur chaseofI mmov abl e
proper tyeitherinorOut si
deI ndi a;
e.I nvest menti nf ir
msorpr opriet ary
concer nsi nIndi a.
Cur rentaccountt ransact ion( CuAT)
-
These t ransactions ot her than
capi t
alaccountt ransactions.CuAT
arer egulat edbyFor eignEx change
Management ( Current Account
Transact ion)r ules,2000.Mostof
thecur rentaccountt ransacti
onsdo
notr equiret heReser veBank’ sprior
appr oval.Appr ovaloft heReser v e
Bank i s r equi red f or t hose
transact i
ons l i
sted i n Schedule–I I
I
to the Foreign Exchange
Management ( Current Account
Transact ions)Rul es,2000,wher e
the r emi ttance t o be made i s
bey ondt hest i
pulat edlimit.
VI.I mpor tantchangeunderFEMA
regulatinggov erningCAT
TheFi nanceAct ,amendedSect i
on
6 ( Capi t
alAccount Tr ansacti
on),
Sect ion 46 ( Power of Cent ral
Gov ernment t o make r ules) and
sect ion47( PowerofRBIt omake
rules) of t he For eign Ex change
Management Act , 1999 ( FEMA,
1999) .Theseamendment shast he
effectofal teri
ngthepower soft he
Cent ralGov er
nmentand Reser ve
BankofI ndia(RBI)
.
Int ermsofamended pr osionsof
FEMA,t heCent ralGov er
nmenthas
made Forei
gn Exchange
Management (Non- Debt
Instr ument s) Rules, 2019 ( “NDI
Rul es” ) on Oct ober 17, 2019
super seding the erstwhil
e For eign
Ex changeManagement( Transf erof
Issue of Secur it
y by a Per son
Resi dentout si
deIndia)Regul ati
ons,
2017 ( “TISPRO” )and t he For eign
Ex changeManagement( Acqui siti
on
andTr ansferofI mmov ableProper t
y
i
nI ndi a)Regul ations, 2018,wher eas
RBIhasnot ifi
edFor eignEx change
Management ( Debt I nstr
ument s)
Regul ations, 2019 super seding
TISPRO,andt he ForeignExchange
Management( Mode of Pay ment
and Repor ting of Non- Debt
Instrument s) Regul ations, 2019,
whi ch pr ovides f or r epor t
ing
requirement s i n r elati
on t o any
i
nv est ment made under t he NDI
Rules.
Non- DebtI nst rument s:
All i nvestment s i n equi ty i n
i
ncor por atedent ities(publi
c,private,
l
isted, unli
st ed)
Capi talparticipationinLLPs
Instrument sofi nv est
mentasi nFDI
policy
Investmenti n uni ts ofAl t
ernative
Investment Funds, Real Est ate
InvestmentTr ustandI nfr
astructure
InvestmentTr ust s;
Investmenti nuni tsofmut ualfunds
and Exchange- Tr aded Fund whi ch
i
nv estmor et hanf if
typercenti n
equity;
Juniormost l ay er ( e.
g. equi t
y
tranche)ofsecur iti
zationst r
ucture
Acquisiti
on,sal eordeal i
ngdi r
ect l
y
i
ni mmov ablepr operty
Cont r
ibutiontot rusts
Deposi t
oryr ecei ptsissuedagai nst
equityinstrument s
DebtI nstrument s
Debt I nst r
ument s means al l
i
nst r
ument s ot her t han non- debt
i
nst r
ument senumer atedabov e.
Hy brid Secur i
ties: A definition of
“hybr id secur ities ” has been
i
ncl udedi nt heNon- DebtRul es.
Hy brid secur it
ies means s
i
nst rument s such as opt i
onal lyor
partially conv erti
ble pr eference
shar es or debent ures and ot her
such i nstr
ument s as speci f i
ed by
theCent r
alGov ernmentf rom t ime
tot ime,whi chcanbei ssuedbyan
Indiancompanyort rusttoaper son
residentout sideI ndia.
Howev er,the Non DebtRul es,as
notifiedbyt heCent ralGov er nment
do not cont ain any pr ovisi on
regar ding FDI i n t he hy br i
d
secur iti
es. For t he r eason not
appar entl
y clearReser ve Bank of
India hav e y et f rame di rections
regar ding the Non Debt
i
ncor porated Rul es and Debt
Regul ations
VII. Key Changes i n Repor ting
Machani sm of For ei
gn Di rect
Invest menti nI ndiasince1973t i
ll
Mar ch2020
Phy sicalFor m
From t het imeofi ntr
oduct ionoft he
FERAandFEMA,1999andt il
l2016,
repor ti
ng was t o be made i n
phy si calform.
e-Bi zpl atform
Lat er ,wi t
hav iew topr omot et he
ease ofr epor t
ing oft ransactions
relat edt oFor eignDi rectInv est
ment
(FDI ),RBIhasenabl edonl inefili
ng
oft he r eturns t hr
ough t he e-Biz
por tal.On 1stFebr uar y2016,RBI
vide AP ( DIR)Ser ies CircularNo.
40  (RefNot i
ficati
on No.RBI /2015-
16/ 303)i ntroducedt heconceptof
onl i
nef il
ing/r epor tingt hroughe- Biz
plat f
orm ( http: //
www. ebiz .gov.i
n).
whi chwasmadeef fectiv
ef rom 8t h
Febr uary2016.
FIRMS (For eign Invest ment
Repor t
ing and Management
Sy stem)
Wi ththeobj ect iveofi ntegr atingthe
ext ant r epor ti
ng st ructur es of
var i
oust ypesoff oreigni nv estment
i
nI ndia,RBIv i
deA. P( DIR) Circular
No.30 dat ed 7t h June2018  (
Ref
Not ifi
cation No.RBI /2017- 18/194)
i
nt roduced Si ngl e Mast er For m
(SMF) ,whi chshal lbef il
edonl ine.
Thi s f orm pr ovi
des f aci li
ty f or
repor ti
ngoft ot alforeigni nv estment
i
nanI ndianent it
yasperFEMAFDI
Regul ations,2017.SMFi samast er
form cont aining9r epor ts.Theyar e
FC- GPR,FC- TRS,LLP- I,LLP- I
I,CN,
ESOP,DRR,DIandInVi.whichwas
madeeffect
ivef
rom 1stSeptember
2018.

Foreignexchangei sessent ialto

coordinategl obal business.For eign
exchangemanagementi s
associatedwi t
hcur rency
transacti
onsdesi gnedt omeetand
receiveov erseaspay ment s.Bey ond
theset r
ansact ions,foreign
exchangemanagementr equir
es
yout ounder standt her elevant
factorsthati nfl
uencecur rency
values.From t hatpoi nt,youmay
executet hepr operst rategyt o
manager isksandi mpr ovepot ential
earnings.
ManagementofFor
eignExchange
Foreignexchangemanagement
beginswi tht radingcurrenci est o
exchangegoodsandser vices
overseas.I nternati
onal businesses
conv ertov er seaspr ofi
tsbacki nto
theirdomest iccurrencyt ospendat
home.Meanwhi le,consumer s
exchangedomest i
ccur rencyf or
foreignbanknot est obuyov erseas
goods.Theset ransactionsoccur
withint hef or ei
gnexchange
mar kets, wher enetworksofpr i
vate
i
ndi viduals, banksandor gani zed
fi
nanci al exchangespr ov i
det he
i
nfrast ructur etot r
adei nternational
banknot es.
Foreignexchangeoccursatrat
es
thatareassociat
edwithcurr
ency
valuati
ons.Forei
gnexchangerates
describetheamountofone
currencythatmustbegivenupto
receiveoneuni tofanot hercur rency,
andt heyt endt opar all
el t
he
polit
icalandeconomi cenv ironment
ofapar ticularcount ry.Forexampl e,
domest icf or eignexchanger ates
appreciatewhent heeconomyi s
strongandt hecur rencyi sinhigh
demandt obuyt henat ion’sstocks
andr ealest at e.Conv ersely,
currencyv al uesf allami dstpoli
tical
andsoci al inst abi
lit
y.For ei
gners
gener al
lyliqui datebusi nessasset s
i
nwar -t
ornnat i
onst hatst r
uggle
withdev elopment .
Effectiveforei
gnexchange
managementr equir
esyout o
preser vepurchasingpowerby
stayingcur r
entonanyev ents
affectingratesandoper ati
ng
accor dingl
y.Youwi l
lexploitt
he
buy i
ngpowerofhi ghexchange
rat
est oacquireoverseasgoods.
Alt
ernati
vely
, l
owexchanger ates
areanoppor tuni
tytoboost
overseassales,asyourwares
becomer el
ativel
ycheaperov erseas.
For
eignExchangeExampl
esf
or
Government
s
Gov ernmentof ficialsmanage
foreignexchanger eservesto
i
nfluencet hedomest i
ceconomy .
Ont henational level ,l
owexchange
ratesarei deal forexpor ter
s,whil
e
str
ongcur rencyv aluat i
onsbenefit
consumer swi thi ncr eased
purchasi ngpowerf orimports.
Treasur yleader shipmayspend
domest iccur rencyt obuyl arge
amount soff oreignexchange,
whi cheffectivelydev aluesthe
homecur r
ency .AsofMay2019,
Chinahadpur chasedmor ethan
$1.11tr
il
li
oninU. S.Treasur
ies,
whichdevaluesitsyuanand
support
sitsexpor teconomy.
Forei
gnExchangeManagement
Str
ategi
es
Foreignexchanger isksincludelost
profi
tsandpur chasingpower
rel
atedt oadv ersecur rency
mov ement s.Canadi an
businessment hathol dreservesof
Japanesey ensuf f
erwhent heyen
fal
ls.Alter
natively,Canadi an
exportersloseoutonsal eswhen
Canadi andollarsstrengt henand
maket heirgoodsmor eexpensive
forforeignbuy ers.
For
eignexchangeri
skmanagement
cal
l
sf ordi
versi
fi
cat
ion.Large
cor
porati
onsexpandmul t
inat
ional
l
y
tobalancecur r
encyr i
sks.For
exampl e,el
ev atedener gycost s
benefitresource-ri
chnat ionsand
currencies,whileindust r
iali
zed
energyimpor t
ersar esubj ectto
recessionandi nflat i
on.Cat er
pil
lar
i
samul ti-
national cor poration
whosepr of
itsinoi l-r
ichRussi amay
exceedanyl ostsal esi nAmer i
caat
thatpoint.
Smal leri nvestorsthatlackt he
fi
nancest osetupmul t
inat
ional
ent erprisescandi v
ersify
accor dingl ywithglobal or
i
nt ernat i
onal mut ualfunds.Both
typesoff undsconsi stofapor tf
oli
o
ofsecur iti
esf r
om manydi ffer
ent
count ries, mini
mi zi
ngt herisks
associ at edwi t
haneconomi c
downt urnorcur rencydev aluati
onin
anyonecount ry
.Gl obalmut ual
fundsalsocontai
nsecur i
ti
esfr
om
theUnitedSt
ates, whi
le
i
nternati
onalmutual f
undsexcl
ude
Amer i
cansecurit
ies.
WhatI
sFor
exManagement
?
For eignexchange, orforex, i
s
essent ialtot ransactinggl obal
busi ness.Consumer smustconv ert
domest iccur rencyt omake
ov erseaspur chases, whi l
e
busi nessesar econcer nedwi th
tradingi nternationalpr ofi
tsf or
domest icbanknot es.Gl obal
commer ce,howev er,doescar r
y
distinctrisksofl osses.Ef fecti
ve
forexmanagementmi nimizest hese
economi cr i
sks, whi l
epr oviding
cashf l
owt omeetev eryday
expensesandi mpr oveear nings.
I
dent
if
icat
ion
Thef oreignexchangemar ketrefers
tothenet wor kofindiv i
dual s,banks
andor ganizedf i
nanci alexchanges
thatt radegl obalcurrenci es.Foreign
exchangemanagementr equir
esi t
s
participantst oentert hemar ketto
deliverandacceptcur renci esat
fl
uct uat i
ngexchanger ates.From
there, indiv
idualsmayei therhold
foreigncur rencyinr eser v etomake
pay ment sorreturnov er seaspr ofi
ts
backhomei nthefor m ofdomest i
c
banknot es.Properfor eign
exchangemanagementaccount s
fortheset ransacti
ons, whi l
e
anticipat i
ngshi f
tsincur rency
valuat i
onst hataffectt hebot t
om
l
ine.
Feat
ures
Forei gnexchangemanagement
requi resy out ofol l
owcur r
ent
event st hatt ransl atei nto
fl
uct uat i
ngexchanger atesfora
particularcount r
y .Sav erspr ef
erto
dobusi nessi nnat ionst hatf eatur
e
stabl egov ernment sandst rong
economi es.I nsti
t utionsandpr i
vate
i
ndi vidual smustt radef orthese
currenci es—i nor dert oest abl i
sh
busi nessesandpur chase
i
nv est ment st hatt heybel i
evewi ll
growi nv alue.Al ter nat ivel
y,
i
nv est orsl i
qui dateov erseas
holdi ngsi nt hecaseofeconomi c
recessi onandpol itical i
nstabili
ty
thati sat tri
but ablet oapar ti
cular
count ry
.Forexampl e, businesses
woul dqui cklysel l asset sand
retreatf rom anat iont hatis
under goingmi l
it
ar ycoup—wher e
t
henewr egi
mei
shost
il
etof
orei
gn
i
nvest
ors.
Consi
der
ati
ons
Beyondbuy ingandsel li
nggoods,
currenciesmaybet radedf or
fi
nancial gain.For ei
gnexchange
managementanal yzest he
economi crecor dsofpr ospect i
ve
count r
ies—i nor dertouncov erand
buyunder v
al uedcur rencies.The
goal i
st ohol dt hesenot esunt i
l
exchanger at esimprov etomi rror
favorabledev elopment s,suchas
str
ongnat i
onal employ mentr eport
s
andf all
ingbudgetdef i
cits.
Successf ul currencyt r
ading
i
ncreasespr ofi
tabil
it
yandbuy ing
power .
Ri
sks
For eignexchangemanagement
mustal soi dent if
ythedi stinctr i
sks
oft ransact inggl obalbusi ness.
Adv er seshi ft
si ncur r
ency
valuat ionscant ranslateintol osses.
Forexampl e, exporterslosesal es
whendomest icexchanger at es
strengt hen.Att hatpoint ,expor t
ed
goodsbecomemor eexpensi veto
forei gnbuy ers.Fur ther,busi nesses
thathol dlar gef oreignexchange
reser vesal sol osepur chasi ng
powerathomewhent hedomest ic
curr encyv aluesappr eciate.
Meanwhi le, consumer sf acet he
ri
sksofdecl i
ningdomest i
c
exchanger atest hatincreaset he
cost sofi mpor tedgoodsand
over seaspur chases.
St
rat
egy
Foreignexchangemanagement
mayusedi versifi
cat ionand
currencyder i
vativest omanage
ri
sksandpr eservepr ofits.Cur r
ency
derivat
ivesar eboughtt oest abli
sh
predeterminedexchanger atesfor
setper i
ods.Theseder i
v at
ives
i
ncludef utures,opt ionsand
forwards.Cur rencyf ut uresand
optionstradeonor gani zed
exchanges, suchast heChi cago
Mer canti
leExchange.For war ds,
howev er,arecust omi zed
agreement sbet weent wopar ti
esto
negot i
atefutureexchanger ates
betweent hemsel v es.
Smalleri
nvestorsmayel ectto
div
ersif
ywithmut ualfunds
accordi
ngtogeogr aphy,inst
ead.
Forexample,highcommodi t
ycosts
mayleadJapani ntoeconomi c
recession,
whilemutualfunds
i
nv est
inginresour
ce-r
ichRussia
aremaki ngmoney.
HowForei
gnExchangeAf
fect
sthe
Economy
Foreignexchangei dent i
fi
est he
processofconv erti
ngdomest i
c
currencyi ntoint ernational
banknot esatpar t
icularexchange
rates.Theset ransact ionspr esent
disti
nctr amif i
cat i
onsf orthegl obal
economy .For eignexchanger ates
affecti nternational t
rade, capi t
al
fl
owsandpol i
tical sentiment .
Further ,youshoul dwor kto
under standt heeconomi crisks
associ atedwi thf oreignexchange
andgl obal i
zation, priorto
coordi nat i
ngf inanci aldeci sions.
I
dent
if
icat
ion
For eignexchanger atesdescr i
be
valuat ionsf ordomest i
ccur rency ,
whi chdescr ibet heeconomi cand
political standi ngofy ourhome
nat i
on.Lowexchanger atesmay
signal recessi onandpol it
ical
i
nst abi li
ty.Al ternatively,strong
exchanger atesof t
enser veasan
i
ndi cat oroff avor ablecommer cial
condi tionsf orapar ti
cularcount ry
.
Exchanger atesdi r
ect l
yimpact
i
nt ernat ional trade.Lowexchange
ratessuppor ttour i
sm andt he
expor teconomy .Att hatpoi nt,
domest icgoodsbecomel ess
expensi vef orf or ei
gnbuy ers.
Domest icconsumer s,howev er,
pref erhi gherexchanger ates.
Consumer st henhav emor e
pur chasi ngpowert ospendon
i
mpor tedgoods.
Feat
ures
Foreignexchanger atesi nf l
uence
capitalfl
ows, orinv estmentf unds
thatmov eint oandoutofacount r
y.
Nat i
onswi thr apidlydet er iorat i
ng
currencyv aluesar el essat t
ract iv
e
tofor ei
gni nv estor s.Att hatpoi nt,
foreignersl i
qui datet hei rst ocks,
bonds, andr eal est ate,because
theseasset sar el osingpur chasi ng
powerr elativet ocompet ing
i
nv estment si not hercur r enciesand
count ri
es.Int ernat i
onal sav ers
prefertopur chasei nv estment sin
count ri
est hatf eat urest abl eand
appreciatingexchanger at es.
Foreignersar emor ecomf ortabl e
maki ngov er seasf inanci al
commi tment swhent heyf eel that
valuewi l
lbepr eser ved--as
i
nternat i
onal profitsar eev ent ually
conver
tedbacki
ntot
hei
rhome
curr
ency.
Consi
der
ati
ons
Foreignexchanger atescar ry
i
mpor t
antpolit
icalimpl icat i
ons.
Citi
zensmaypoi ntt ounf avorable
exchanger atesandt rade
i
mbal ancesassi gnst hatpol iti
cians
currentlyi
nof f
icear emi smanagi ng
theeconomy .Voterswi l
l then
agit
at eforeconomi cr efor msand
changesi nleadership.Pol it
ici
ans
mayr eactbypr oposi ngdomest ic
taxcut s,whi
lelegislatingf orimpor t
duti
esandquot asdesi gnedt o
protecttheeconomyathome.
Benef
it
s
Theorderl
ydisseminat
ionof
exchangerat
est hr
oughorgani
zed
cur r
encymar ket sleadst o
i
ncr easedglobal izati
on.
Global i
zati
onr eferstothe
i
nt egrati
onofsepar atenations,
regionsandcul tureswithi
nt he
wor l
deconomy .Thistrend
i
mpr ovesthespr eadof
technologicalinnov ati
ons, expands
mar ketsandcr eat esjobsf orthe
i
nt ernati
onallaborpool .
Global i
zati
oncont ai
nsinflation-
-
becauset heincr easedcompet i
ti
on
forjobsandmar ketsharepl aces
downwar dpressur eonpr ices.
Ri
sks
Globali
zati
onisassociatedwith
contagion,
orthespreadoff i
nancial
panicandrecessi
ont hroughoutthe
world.Forexample,
thev alueofthe
Mexicanpesomaycol l
apseduet o
sov er eigndef aultandcr editcrisis
i
nt hatcount r
y .Internat i
onal
i
nv est or swoul dt henqui ckly
l
iqui dat et heirMexi canasset
holdi ngs.Thef alloutf rom Mexi co
reachesgl obal propor ti
onsas
sav ersspecul atet hatal li
nstituti
ons
doingbusi nesswi t
hinMexi coar ein
j
eopar dyofbankr uptcy .Foreigners
aret henl ikelyt osel loffallasset
holdi ngs, i
rrespect iveofgeogr aphic
origin, tomeetf inanci alobli
gat i
ons
andav oidpot entiallosses.The
selli
ngpr essur ecauseswor l
dwi de
assetv aluest ocr ash.
Pur
poseoft
heFor
eignExchange
Market
Forei
gnexchangetr
ansactionsar
e
centr
alt
ogl obal
commer ce.The
for
eignexchangemarketisthe
networ kofpr i
v atecit
izens,
corpor ati
onsandgov er
nment
offi
cialswhot radeov erseas
currenciesamongeachot her
.
Bey ondcoor dinatingpay ments,
foreignexchanger atesandmar kets
functionasl eadingeconomi c
i
ndi cators.I
nvest orsand
i
nst it
utionsanal yzethesef or
eign
exchangemar kettrendst ocreate
weal thandmanager isks.
I
dent
if
icat
ion
Consumer sacquireforei
gn
exchangesot heycanpur chase
overseasgoods.Alternat
ivel
y,
businessesmightreceiveforei
gn
exchangeandent erthemar ketto
convertthatmoneybacki nto
domest i
ccurrency.
Thef
orei
gnexchangemar
ketal
so
ser
vesthepur poseofatt
racti
ng
i
nvestor
s.Investor
sdiver
sifyand
i
ncreasethei
rassetholdi
ngswi t
h
cur
rencyreserves.
Feat
ures
Foreignexchanger at esdescr ibe
theamountofanot hercur rencyt hat
oneuni tofacer t
aincur rencycan
buy .Becauseoft hei rassoci ati
on
withspeci f
icnat i
ons, f
or eign
exchanger atesgaugeeconomi c
andpol it
icalsentiment .Low
exchanger atest ransl at eintoweak
demandf oracur r
ency , asf oreign
i
nv estorsli
quidat et hatcount r
y ’
s
stocks,bondsandr eal estat e.At
thatpoint,foreigner smi ghtf ear
recession,orpol i
ticst hatar e
host i
letoforeigni nv est ment .For
exampl e,hight axr atesonf oreign
pr
ofi
tscancausef
oreignersto
wi
thdr
awf r
om apart
icularcount
ry.
Conv ersely,highexchanger at
es
definest r
ongeconomi esand
effecti
vepol iti
calregimes.
Investorsar ethenencour agedto
tradefort hatcurrencyandt o
purchasei tshomenat ion’sassets.
Thei ncreaseddemandf ort he
currencysuppor t
sel evated
exchanger ates.
Consi
der
ati
ons
Gov ernmentof fi
cialscanmanage
theirhomeeconomi esthr
ough
foreignexchanget ransacti
ons.Low
exchanger at
esfort hedomestic
currencyimpr ovet heexpor t
economy ,becauset hesegoods
becomemor eaffor dabletofor
eign
buy ers.Howev er
,domest i
c
consumerspreferhigherexchange
rat
es,whichgrantsthem mor e
purchasi
ngpowerf orimported
goods.
Gov ernmentleadersusef oreign
exchanger eserv
est oinfluence
currencyexchanger ates.Nat ions
canbuyl argeamount soff oreign
exchanger eserv
est odev aluet he
homecur r
ency.Chinaowned$900
bil
li
onwor thofU. S.treasur iesasof
April2010,theU.S.Tr easur y
reported.Thesehol dingsl ower
exchanger atesfortheChi nese
yuanandsuppor tChi na’sexpor t
economy .
War
ning
For
eignexchangemarketsdo
i
ntr
oducedisti
nctr
isksoffi
nancial
l
ossesandcontagi
on.Insti
tut
ions
thatholdaparticularcurr
encylose
purchasingpowerwheni ts
exchanger at
esdet eri
orate.
Howev er,asahomecur rency
strengt
hens,mul t
inati
onal
corporati
onssuf f
ersalesdecli
nes
becauset hei
rwar esbecomemor e
expensiveoverseas.
"Contagion"ref er
st othepr ocessof
fi
nancial di
stressi noner egion
growingi ntoagl obalcrisis.For
exampl e,Mexi comi ghtdef aulton
i
tssov ereigndebt ,whichcauses
thepesot ocollapse.From t here,
forei
gnbusi nesspeopl ewi th
exposur etoMexi comi ghtbef orced
toselloffallasset stor aisecash.
Thesel l
ingcompounds, andi t
causesmar ketst ocrashgl obally
.
St
rat
egy
Foreignexchangemar ketsof f
er
currencyderivati
vest ohedge
againstri
sks.Cur rencyder ivati
ves,
suchasf utures,forwar dsand
optionsestablishpr edetermined
exchanger atesov ersetper iodsof
ti
me.Fut uresandopt ionstradeon
majorexchanges, suchast he
ChicagoMer cant i
leExchange.
Forwardsar epr i
vateagr eement s
betweent wopar ti
est onegot i
ate
exchanger atesatl aterpointsin
ti
me.
WhyLowerInt
erestRat
esResul
tin
Appr
eci
ati
onoftheCurrency
Insimpleterms,l
owerdomest i
c
i
nterestrat
esdepreci
atethe
curr
ency.Economicli
fe,however,i
s
neversosimple.Lowratescan,for
specif
icreasons,
appreci
atethe
curr
ency--thatis,causei tt
o
i
ncreaseinv alue.Thi
si sthecase
bothfordomest i
candf orei
gn
i
nterestr
ates.Thepoi ntisthat
anythi
ngcausi ngtheU. S.economy
toboom willmakedol larsmor ei
n
demand, t
her ebyincr
easingits
val
ue.
St
ocksandBonds
Ingener al
,lowerinterestratesl ead
toanexodusf rom thebondmar ket.
Thisisbecauset hatmar ketis
dependentonhi gherrates, because
higherratesonbondsmeangr eater
profi
tslater.Stocksseem mor e
attr
acti
v ewhendomest i
cr atesf all
.
Speakingi ngener alt
erms, an
exodusf rom thebondmar ketmi ght
makemoneymor edi f
fi
cultt oraise,
appreciati
ngt hedollar'
sv alueint he
l
ongr
un.
Spendi
ng
Lowr atesof t
enaccompany
economi cgoodt imes.Lowr ates
meanmoneyi scheap, and
businessesbegi ntobor row, risk
mor eandspuri nnov ation.Peopl e
buymor e, becausecr editi scheaper .
Thatincr easedspendi ngbecause
oflowr at eslowerst hesav ingsr ate.
This,overt ime,increasest hepr i
ce
ofthedol l
arbecausel i
qui dity
becomesmor escarce.Mar ket
watchersr eali
zethathi gh
borrowingandspendi ngr esulting
from l
owdomest i
cr atesmeans
fewerdol larsfortomor row’ s
borrowing.Hi ghbor rowi ngt oday
meansamor eexpensi v edol lar
tomor r
ow.
For
eignRat
es
Lowf oreignr atestypi
cal l
ymeana
strongerdol lar
.Thisisbecause
moneywi llleaveforei
gnmar kets
andcomet oAmer i
canmar kets,
i
ncr easingt hedemandf ordol lar
s,
henceappr eciati
ngitsv alue.Low
foreignr atesal sotakemoneyout
oft heAmer i
caneconomy ,because
thesel owr at esmakef oreigngoods
cheapert handomest icgoods.
Dollarsleav ingt hecount rymeans
ther emai ningdol l
arsar ewor t
h
mor e.
St
abi
l
ityandt
heDol
l
ar
Thedollari
sspeciali
ninternat
ional
markets,becauseiti
sconnected
wit
ht heeconomic,mili
tar
yand
pol
it
icalpoweroftheUni t
edStates.
Thedollaroft
enremainsstrong
regar dlessofr ates,becauset he
dollari sconsi der eda“ saf ebet ”by
i
nv est or s.Ifinterestratesr emai n
l
owandeconomi cact ivityint heU. S.
booms, invest orsf rom abr oadwi l
l
cont i
nuet odemanddol lars,
keepi ngi t
sv al
uehi ghr egar dlessof
domest icrat es.Thedol lar
concei vablycoul dgetst rongeras
ratesf al l,
becausef oreignmoney
want sadol larconnect edt oa
boomi ngeconomy .Ast he
Amer icaneconomymov esf orward,
foreignmoneydemandsdol lars,
andt hedol larremai nsst rong.
Ther ef ore,int hiscase, lowr ates
can, ov ert i
me, leadt oan
appr eci ateddol l
ar .
REFERENCES
Ri
sksWit
hBei
ngaMul
ti
nat
ional
Cor
por
ati
on
Mul ti
nat ionalcorporationsar eless
affectedbyl ocali
zedr ecessi ons
thancompani esthatonl yoper atein
onenat ion.Additionall
y ,compani es
thatoper ateinsev eralnationshav e
awi derpool ofpot enti
al customer s
whi chmeansmor eoppor t
uni t
yto
gener atepr ofi
ts.Howev er,
mul ti
nat ionalcorporationsal so
hav et ocont endwi thav arietyof
ri
skst hatcant hreatent he
prof i
tabilit
yandev enthecont i
nued
existenceoft hebusi ness.
Pol
i
tical
Risk
Everynati
onhasi t
sown
governmentandandest abl
ishesi
ts
ownl awsrel
atedtobusiness.
Multi
nati
onalcorporat
ionshaveto
ensuret hatcompanypol iciesar ein
compl iancewi thlocal l
aws, which
usuallymeansest ablishinga
dif
ferentsetofoper atingpr actices
foreachnat i
ont hatt hecompany
conduct sbusinessi n.Changesi n
thelawort hepol i
tical system can
putabusi nessinj eopar dyi fthe
controlli
nggov ernmentdeci dest o
nati
onal i
zecer tainindust r i
esorban
thepr oductionofcer taingoods.
Poli
ticaldisputesbet weennat i
ons
canal soleadt oincr easedt axeson
i
mpor tsandexpor ts.Thi scanhav e
anadv er
seef fectonamul tinat
ional
corpor at
ion.
Cur
rencyRi
sk
Amul t
inat
ional
corporat
ionhasto
paywagesandt axesinthelocal
cur
rencyofeachnationthatit
operatesi n.Cur rencyv aluationsare
subjecttoconst antchange, which
meanst hati fthev alueoft he
currencyi nt hecor porati
onsbase
count r
ylosesv al ue,itscost s
overseassuddenl yrise.Cur r
ency
fl
uctuationspar ticularlyimpact
compani est hatimpor tandexpor t
goodsasi tcansuddenl ybecome
prohibit
ivel yexpensi vetoimpor t
goodsf rom apar ticularnationifit
s
currencyr isesi nv alue.
Multinational cor porat i
onst ryto
predicthowf ut
ur ecur rency
mov ement si mpactbusi nesscost s.
Miscalcul ationscanpr ovev ery
costly.
Ener
gy
Mult
inat
ional
cor
porat
ionsof
ten
pr
oducegoodsinonenati
onand
sell t
hosegoodst hr oughretail
ersin
othernat ions.Thecostof
transpor tinggoodsbet ween
nat i
onscanr i
sesuddenl yi
fthe
priceofoi lri
ses.Thi soften
happenswhenoi lproducti
onsl ows
orwheni nvestorsf l
ockt obuyoi las
asaf ehav eninv estmentdur ing
stockmar ketcrashes.Thecostof
fuel totranspor tgoodsbyseaorai r
cansev erelydentamul t
inati
onal
cor poration'sprofitabil
it
y.Howev er,
compani esmustbal ancether i
skof
ener gypr icesagai nstthecostof
produci nggoodsi ncount r
ieswher e
wagesandt axesar ehigh.
Technol
ogy
Manybusi
nessesgaina
compet
it
iveedgeoverr
ival
sina
par
ti
cul
arindust
rybyembraci
ng
technol ogi caladv ancement s.
Howev er, communi cat i
onssy stems
varyf rom nat i
ont onat i
on.
Consequent l
y,amul t
inati
onal
corpor ationcannotnecessar il
yt ake
adv antageoft echnological
adv ancement sinapar ti
cularnat ion
i
ft hatnat iondoesnothav et he
necessar yi nfr
astructurei nter msof
tel
ephonesy stemsandsat elli
te
communi cat i
onssy stemst o
suppor tthisnewt echnol ogy .A
mul tinati
onal corporat i
oncoul dfall
behi ndi t
sf or
eigncompet i
tor sifit
cannotkeepupwi tht helatest
technol ogy .
WhatI
sPubl
i
cDebtManagement
?
Accor
dingtotheInternat
ional
MonetaryFund,publi
cdebt
managementr ef
erstostrategi
es
employedbyacount r
y'
snat i
onal
aut
hori
tytomanageext ernaldebt
.
Thi
sincludesl
oansgivent oa
gover
nmentbyot hercountri
es.
Si
gni
fi
cance
TheInternational Monet ar
yFund
stat
est hatanat ional gover
nmentis
usuall
yt helargestf inancial
borr
oweri naneconomy .A
governmentmustmanagei t
sdebt
port
foli
ot oensur ethatt he
country'
scapi tal mar ketisal
ways
vi
ableandt hatt heeconomy '
s
devel
opmentandgr owt hareata
sati
sfactorylev el.
Funct
ion
I
tisthefunct
ionofdebtmanager
s
i
neachcountry'
streasur
y
depart
menttoensurethatt
he
governmentdoesnoti ncurf i
nanci
al
oreconomi csetbacks.Thi s
i
ncludesmaki nggov ernment
authori
tiesawar eoff i
nanci al
l
iabil
it
iesandr i
sksaswel las
consolidati
ngbenef i
cialt
ermsof
debtmat ur
ity
,cur r
encyandshor t-
ter
m orf loati
ngr ateofinterest.
Consi
der
ati
ons
Ther ateofglobal i
zati
on, market
tur
bul enceandt echnol ogi
cal
advancementhasi ncreasedthe
dependenceofcount ri
esonone
another .Borr
owingf rom theprivat
e
sectororf rom othercount r
iesin
for
eigncur rencyhasbecome
common.
War
ning
Di
sadv
ant
ageoust
erms,
suchas
i
nterestrat
e, l
oandur
ati
onandtype
ofcurrency
, canbecont
ri
buti
ng
fact
orsduringeconomiccri
ses.
Gui
del
i
nes
Publicdebtmanagementgui deli
nes
areestabli
shedandr evi
ewed
annuallybytheInt
ernati
onal
Monet aryFund.Theseguidel
ines
encompassal ldomesticand
externaldebt,
incl
udingfr
aminglow
i
nterestratesandtermsofloan
mat uri
ty.
Mult
inat
ional
Corpor
ati
ons&Thei
r
Ef
fectsontheHostCount
ri
es
Mul t
inationalcor porationsthat
i
nv estinhostcount riescani mpact
thosecount r
iesinsev eralways.For
exampl e, developingcount ri
esare
gener al
lychar acteri
zedbyweak,
technol ogicall
ybackwar ddomest i
c
enterprises.Theent ryofa
mul ti
nat i
onal corporationi
ntoa
backwar dmar ketwillr
esultinan
i
nf usionofi nvest mentcapital,
adv ancedt echnol ogyandexper t
knowl edge, whi chmaybenef i
tthe
dev el
opi ngcount r
yifthat
knowl edgeandt echnologyis
transferredt ot helocalpopulati
on.
Onenegat iveimpactofan
mul ti
nat i
onal corporationonahost
count rymaybet hatlocalfi
rmswi l
l
bef orcedoutofbusi nessbecause
theycan' tcompet e.
Tr
ansi
ti
onEconomi
es
Theevolvi
ngeconomi esof
devel
opingcountr
iesareattr
acti
ve
tomulti
nati
onalcorporat
ions
becauseofthei
rlowlaborcosts,
abundantr esourcesandl arge
customerbases.Hostcount ries
thataregrowi ng,opent hei
r
mar ketstoat t
ractf orei
gn
i
nv estmentt hatthecor porations
cansuppl y.Economi esintransiti
on
alsomaybenef itfrom theinfusion
ofintel
lectualcapital,fi
nancial
resources,bestpr acticesand
technologythatt heyot herwise
woul dnothav eaccesst o.
For
eignDi
rectI
nvest
ment
Forei
gndi rectinvestmentinhost
countri
escanhel ptoimpr ove
producti
vit
y ,growthandexpor ts,
buttherelationshipbetween
multi
nationalsandhosteconomi es
vari
esbasedont heindustryand
specif
iccount ry.Forexampl e,
Chinahasseensomeoft he
positi
vebenef it
soff oreigndirect
i
nvest ment.In1998, Chi naranked
32ndont heexpor ti
ngscal e,butby
2004, t
hecount r
ywasr ankedt he
3rdlargestexpor teri
nt hewor ld.
Thisexpor tboom hasbeencr edi
ted
tosubstant i
al i
nfl
owsoff orei
gn
dir
ectinvestmentf r
om
multinati
onal corporat
ionsdur ing
thi
sper i
od.
WageI
nequal
i
ty
Multi
nationalcompani es
sometimespayhi gherwagest o
thei
rempl oyeescompar edto
domest i
call
yownedf i
rms.
Multi
nationalsgener allytendtohi
re
bett
ereducat ed,highlyqual i
fi
ed
workers,payingtheirst affsmore
whil
est i
llbenefi
tingf rom lower
l
aborcost s,butthisv aries
si
gni fi
cant l
ybyi ndustry.Some
scholarshav efoundt hatthe
demandf orskill
edlaborby
mul ti
nationalsov erseashasl edtoa
shi
f tinthedemandf orlaborat
homeandabr oad.Thisint urnhas
l
edt oani mbal anceinear nings
betweenski l
ledandunski l
led
wor kers,leadingtowagei nequali
ty
i
nt hehostcount r
yandar educti
on
i
nt henumberofj obsneededi nthe
homecount ry.
Conf
li
ctsofI
nter
est
Profi
tisthemot i
vatingf orcet hat
dri
vesmul ti
nationalcor por at
ions,
whichalsoar edrivent ooccupy
l
argermar ketsharesandt oensur e
l
ong-term compet iti
venessi nthe
hostcount r
ies.Conf l
ictofi nterest
betweent hesecor porationsand
hostsoci etiesar i
seonar angeof
i
ssuesi ncludi ngintell
ectual
proper t
yr i
ght s,operati
onal
decisionst hatmayaf fectthe
environmentorhumanr ights,and
therepat ri
ationofpr ofit
s.Whi le
multinational corporati
onsbase
thei
rdeci sionsoneconomi cs,many
hostcount rieswantt hesedeci si
ons
tobei nsy ncwi ththecount r
y’s
socialandpol it
icalneeds.

Whati
sFor
eignTr
ade?
Forei
gnt radeist
hemut ual
exchangeofser vi
cesorgoods
betweeni nter
nat
ionalregionsand
borders.Therearevari
et i
essuchas
i
mpor tandex port
.Theyar e
i
mpor tantconceptsforthenational
economy .Countri
essetgoal s
basedont heseconcepts.The
deci
sions,measures,etc.thatthey
i
mpl ementtoachievetheirgoals
consti
tut
ef or
eigntr
adepol icy.
Foreignt radeingoodsandser v i
ces
i
st heol destandst il
lthemost
i
mpor t
antf orm ofthei nternat
ional
divi
sionofl abor.Trader el
ati
ons
withot hercountriesof fer
advant agest oallparti
cipants:
compani esgainaddi ti
onal mar kets,
i
ncr easet heirt
urnoverandt he
numberoft hei
rjobs.Thi sincreases
theincomeofpr i
vatehousehol ds,
whichamongot herthingscanbe
usedt opur chasef orei
gngoodst hat
arenotpr oduceddomest i
call
yin
thesamequal i
tyoronl yatahi gher
pri
ceorar enotav ail
abl eatall(raw
mat eri
als).Lastbutnotl east,
the
great ervarietyofgoodscont ri
butes
toincr easingpr osperi
tyandist he
basi sofconsumersov er
eignty.In
thepast ,f
or ei
gnt r
adewas
domi natedbyt heexchangeof
differentpr oducts("machines
agai nstbananas" ).Thi
sinter-
i
ndust ri
altradeisbeingdisplaced
mor eandmor ebyintr
a-i
ndustrial
trade.
 
WhatDoesFor
eignTr
adeMean?
Allcountri
esi nthewor ldhaveto
meett heneedsoft heir
communi ti
es.Goodsandser vi
ces
areneededt omeett heneeds.
Somer esourcesarer equi
redto
produceser vicesandgoods.
Howev er,notev er
ycount ryhas
suffi
cientresour
cesf orthe
productionofgoodsandser vices.
Therefore,i
tcannotmeeti ts
productionneedsalone.Fort his,i
t
receiv
essuppor tforprocurement
from othergeographi
es.Thi s
necessar yneedismetbyf oreign
trade.
Inor dertoknowt heconceptof
“Whati sForeignTr ade”better,we
mustf ir
stunder standtheconcept
oft r
ade.Tr adei ngener ali
st he
exchangeofonegoodorser v i
cefor
anot hergood, servi
ceormoney .I
tis
historical
lyv eryold.Theconceptof
trade, whichbeganwi ththemet hod
ofexchange, hascomet othisday
wi t
ht hegr adual devel
opmentoft he
conceptofpur chase.
Foreignt radeist hef l
owofser vi
ces
orcapi talproducedout sidenat ional
border s.Thepur chaseandsal e
transact i
onst hatenabl et he
producedgoodsandser vicest obe
offeredt oconsumer srepr esentthe
conceptoft rade.Maki ngt hese
purchasesandsal est ransact i
ons
wi t
hf orei
gncount ri
esr epr esents
theconceptoff oreignt rade.
Foreignt radet akespl acei nthe
form ofi mpor tandexpor ti nterms
ofdel i
v er
yofpur chaseandsal e
transact i
ons.
Thisconceptcanbesi mplysaidto
bet hewhol eofimportandex por
t
oper at
ions.Exporthasanimpor t
ant
placefordev el
opmenti nt
ermsof
thenat i
onaleconomy .Oft
en
count r
iessetuppol i
ciest
oincrease
exportsandr educei mpor ts.Forei
gn
tr
adet akesplacebet weenmul t
ipl
e
countri
es.Her ewi thpr oductsar e
i
mpor tedandex por ted.Cust oms
areatthecent eroft het r
ansact i
ons.
Detail
edlegislationand
i
mpl ement at
ionpr ocessesar e
carr
iedoutf ori t
sr ealizat
ion.
Measur esshoul dbet akenagai nst
all
risksthatmayoccurdur i
ngthe
tr
ansact i
ons.Al lthischai nofev ent
s
constit
utesfor eignt rade.
I
NDI
A’SFOREI
GNTRADEPOLI
CY
TheDepar tmentofCommer cehas
themandat et omakeIndi
aamaj or
playeri
nglobalt r
adeandassumea
role ofleadershi
pi nint
ernati
onal
tradeorganizati
onscommensur ate
wi t
hI ndi
a’s growing i
mpor t
ance.
TheDepar tmentdev i
sescommodi ty
andcount ry-speci f
icst rategyi nt he
medi um t erm and st r
at egic
plan/ vi
sion and I ndia’s For ei gn
Tr adePol i
cyi nthel ongr un.
India’sFor eignTr adePol i
cy( FTP)
prov i
des t he basi cf ramewor k of
pol i
cyand st rategyf orpr omot ing
expor tsandt rade.I ti sper iodical ly
rev i
ewedt oadaptt ot hechangi ng
domest icandi nternational scenar io.
TheDepar tmenti sal sor esponsi ble
for mul ti
lateral and bi later al
commer ci
al r elati
ons, speci al
economi c z ones ( SEZs) , st ate
trading,expor tpr omot ionandt rade
facili
tati
on,and dev elopmentand
regulationofcer tainexpor tor ient ed
i
ndust r
iesandcommodi ti
es.
The cur rentFor eign Tr ade Pol i
cy
(2015- 20)f ocusses on i mpr ov i
ng
India’s mar ket shar ei n ex isti
ng
mar ket s and pr oduct s as wel las
explor i
ng new pr oduct s and new
mar ket s. I ndia’s For ei
gn Tr ade
Pol i
cy al so env i
sages hel pi
ng
expor terslev eragebenef itsofGST,
closely moni toring expor t
per f
or mances,i mpr oving ease of
trading acr oss bor ders,i ncreasing
realizationf rom I ndia’sagr iculture-
based ex por t
s and pr omot i
ng
expor tsf r
om MSMEs and l abour
i
nt ensiv esect ors.TheDoChasal so
sought t o make st ates act i
v e
par t
ner s i n expor ts. As a
consequence, st ate gov ernment s
arenow act ivelydev el
opi ngexpor t
strategiesbasedont hest rengt hsof
theirrespect ivesect or s.
Whi let heex ternalenv ironmenthas
amaj orr olet opl ayint hesuccess
ofexpor tpol icies,iti sal socr itical
toaddr essconst rai
nt swi t
hinI ndi a
i
ncl udingi nfrastructur ebot tl
enecks,
high t ransact i
on cost s, compl ex
procedur es, const r
ai nts in
manuf act uring and i nadequat e
diversificat i
on i nI ndi a’s ser vices
expor ts.I ndiai sasi gnat orytot he
TradeFaci li
tat i
onAgr eement( TFA)
att heWTO,whi chwi l
lcont r
ibutet o
the si mpl ifi
cat i
on and l ower i
ng of
transact ioncost s.
Accor dingt ocur rentWTO r ul
esas
wel las t hose under negot iation
Indianeedst oev entuallyphaseout
subsi dies and mov e t owar ds
fundament alsy stemi cmeasur esi n
thef utur e.Undert heAgr eementon
Subsi dies,I ndiahasmov edonf rom
Annex VI Icount ries of WTO on
breachi ngt heUS$1, 000percapi ta
i
ncome benchmar k f
or 3
consecut ivey earsi n2015.
Thepr esentCommer ce& I ndust r
y
Mi ni
st erShr iPiyushGoy alhasal so
asser tedt hatI ndianeedst oev olve
from adependenceonsubsi dies,“ I
donott hinkt hatanypr ogrammeor
ambi tiousschemecanr unonl yon
subsi diesandgov ernmenthel p.We
hav et omov eoutoft hiscont inuous
effortand demand and makeour
i
ndust ryt rulycompet i
ti
veandsel f-
reli
ant .”
Thegov ernmenti sl ookingtof ocus
onpr omot i
ngex portsofhi ghv alue-
addedpr oduct s,wher eI ndiahasa
strong domest ic manuf acturing
base,i ncludingengi neeringgoods,
elect ronics, drugs and
phar maceut icals, t exti
les and
agr i
cul t
ur e.Thi si sapar tf rom t he
cont inuedpusht oAYUSH andt he
Indianser vi
cessect or.
Around 70% of I ndia’
s ex ports
const i
tutepr oductst hathav ej ust
30% shar ei n gl obalt rade.The
gov er nment i sl ooking at some
mor epr omi singpr oductgr oupsl ike
def ence equipment , medi cal
dev ices,agr o-processing,t echnical
textilesandchemi cals.
In2018,t henCommer ce&I ndust r
y
Mi nister Shr i Sur esh Pr abhu
envi
saged a st rategy t o doubl e
Indi
a’s ex port
s by 2025. The
approach i ncluded dev ising a
commodi t
y-specificstrategyf orkey
sectorsl i
ke gems and j ewel l
er y
,
l
eather , t exti
le & appar el
,
engineeri
ng sect or, el ect ronics,
chemi cal
s and pet rochemi cals,
pharma,agr iand al li
ed pr oduct s
and mar ine pr oducts. Ter r
it
or y
specifi
c strategy wi llcov erNor th
Amer i
can Fr ee Tr ade Agr eement
(NAFTA) ,Eur ope,Nor thEastAsi a,
ASEAN,Sout hAsi a,LatinAmer ica,
Afri
ca and WANA,Aust ralia,New
Zealand,andCI S.