Policy on Foreign Trade and Collaberations


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Policy on Foreign Trade and Collaberations - INDIA

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Policy on Foreign Trade and Collaberations

  2. 2. INTRODUCTION Foreign collaboration can be financial collaboration and technical collaboration, in case of financial collaboration inflow of foreign investment take place but in case of technical collaboration there is inflow of technologies , franchise, patents, for which foreign partner get lump sum fee or royalty for specified period or at specified rate . foreign collaboration Foreign investment Technological collaboration
  3. 3. FOREIGN INVESTMENT Broadly there are two types of foreign investment. They are Foreign Direct Investment (FDI) Foreign Institutional Investment (FII)
  4. 4. Foreign Direct Investment (FDI) FDI refers to investment in a foreign country where the investor retains control over the investment. It typically takes the form of starting a subsidiary, acquiring a stake in the existing firm or starting a joint venture in the foreign country . Direct investment and management of the firm concerned normally go together.
  5. 5. FDI takes on two main forms First is the Greenfield investment Second is acquiring or merging with an existing firm in the foreign country.
  6. 6. PORTFOLIO INVESTMENT If the investor has only a sort of property interest in investing the capital in buying equities ,bonds, or other securities abroad. It is referred to as portfolio investment. That is in case of portfolio investment the investor uses his capital in order to get a return on it ,but has no much control over the use of the capital
  7. 7. ADVANTAGES OF FOREIGN INVESTMENT 1. FDI shifts the burden of risk of an investment from domestic to foreign investors. 2. Repayment was linked to profitability of the underlying investment . 3. It helps to increase the investment level and thereby the income and employment in the host country. 4. Foreign investment may increase the tax revenue to the Govt.
  8. 8. 5.Direct foreign investment facilitates transfer of technology to the recipient country. 6.Foreign investment may stimulate domestic enterprise because to support their own operations ,the foreign investor may encourage domestic suppliers and consuming industries.
  9. 9. LIMITATIONS OF FOREIGN INVESTMENT 1. Absorptive capacity of the recipient countries. 2. Private foreign capital tends to flow to the high profit areas rather than to the priority sectors. 3. The technologies brought in by the foreign investor may not be adapted to the consumption needs , size of the domestic market, resource availabilities, stage of development of the economy etc.. 4. Foreign investment sometimes have unfavorable effect on the balance of payment of a country.
  10. 10. COMPARISON BETWEEN FDI AND FII 1. In the case of FDI the foreign investor is starting a company or acquiring or merging with an existing firm in the foreign country. But in case of FII the investor is buying the share or debentures of a company in a foreign country. 2. The objective of FDI is long term. But in case of FII the objective is short term in nature.
  11. 11. 3.FDIs are governed by long term considerations because these investments cannot be easily liquidated. But FII can be easily liquidated. 4.FDI investors have direct responsibility with the promotion and management of the enterprise. FII investors do not have such direct involvement with the promotion and management.
  12. 12. FOREIGN TECHNOLOGY COLLABORATION Foreign technology collaboration in India permits transfer of technology by means of Govt or automatic route delegated by RBI. The main aim of the foreign technology collaboration in India is its technological development . Efficiency an productivity of the Indian industries can be increased with the use of improved technology through foreign technology collaboration.
  13. 13. FOREIGN TECHNOLOGY COLLABORATION METHODS OF APPROVAL The approval technique follow two methods Automatic approval Government approval
  14. 14. AUTOMATIC ROUTE  Lump sum payment not exceeding us $ 2 million.  Royalty payable being limited to 5% for domestic sales and 8% for export subject to a total payment of 8% on sales over a period of 10 years.
  15. 15.  Payment of royalty up to 2% for export and 1%for domestic sale is allowed under the automatic route on use of trademark and brand name of the foreign collaborator without technology transfer.  The period for payment of royalty not exceeding 7 years from the date of commencement of commercial production or 10 years from the date of agreement whichever is earlier.
  16. 16. GOVT APPROVAL Proposals attracting compulsory licensing. Items of manufacture reserved for small scale sector. Proposals involving any previous joint ventures or technology transfer/trademark agreement in the same or allied fields in India. Extension of foreign technology collaboration agreement (including those cases ,which may have received through automatic approval in the first instance)
  17. 17.  Proposals not meeting any or all of the parameters for automatic approval.
  18. 18. GOVT OF INDIAS POLICY ON FOREIGN COLLABORATION We can classify it into Pre liberalization period Post liberalization period
  19. 19. Pre liberalization period Foreign collaboration was permitted only in fields of high priority and in areas where the import of foreign technology was considered necessary. The Govt had issued lists of industries where foreign investment may be permitted, only foreign Collaboration may be permitted, and no foreign collaboration was considered necessary Foreign equity participation was limited to 40%,although exceptions were allowed on merit.
  20. 20. The govt policy on foreign equity participation had to be justified with regard to factors such as nature of technology involved whether it would promote export which might not otherwise take place and the alternative terms available for securing the same or similar technology transfers. Technical collaboration were to be considered on the basis annual royalty payments which were linked with the value of actual production. The FERA 1973 served as the tool for implementing the national policy on foreign private investment in India
  21. 21.  According to FERA non residents (including Indian citizens) foreign citizens resident in India and foreign companies required the permission of RBI to accept the appointment as agents or technical management advisors in India of any person or company or permit the use of their trademark.  The trading ,commercial and industrial activities in India of persons resident abroad ,foreign citizens in India and foreign companies were regulated by FERA. They have to obtain permission from RBI
  22. 22. Post liberalization period  The new policy has followed majority foreign equity with automatic approval in a large number of industries.  Until December 1996 only 36 industries were eligible for automatic approval of FDI up to 51% of the total equity, it was subsequently expanded.
  23. 23. In case of technology collaboration there are two procedural routes Automatic approval by RBI is available for any proposals with lump sum payment not exceeding us$2 million and royalty of up to 5%on domestic sales and 8%on export In all other cases the Project Approval Board (PAB) considers the proposals and makes recommendations to the industry ministry regarding approval.
  24. 24. COUNTER TRADE Counter trade is a form of international trade in which certain imports are export transactions are directly linked each other and in which import of goods are paid for by export of goods instead of money payments. The counter trade can take the form of barter ,buyback, compensation counter trade etc…
  26. 26. BARTER It is the exchange of goods services of equivalent values between the seller in one country and the buyer in another. suitable payment guarantees are obtained so as to complete these transactions over an agreed period .this is the oldest form of international trade and the source of origin of present day counter trade. In India private organizations are not allowed to enter into barter without the [ermission of the authorities.
  27. 27. COUNTER PURCHASE It is a reciprocal buying agreement . It occurs when a firm agrees to purchase a certain amount of material back from a country to which a sale is made. These transactions amount to selling and purchasing by two countries on specific precisely agreed time frames ,depending upon products, consumption pattern and seasonal fluctuations. These amount to one separate contract for exporting and one separate contract for importing.
  28. 28. OFFSET It is similar to counter purchase in so far as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that this party can fulfill the obligations with any firm in the country to which the sale is being made .
  29. 29. SWITCH TRADING It refers to the use of a specialized third party trading house in a counter trade arrangement. When a firm enters a counter purchase or offset agreement with a country ,it often ends up with what are called counter purchase credits which can be used to purchase goods from that country. Switch trading occurs when a third party trading house buys the firm’s counter purchase credits and sells them to another firm that can better use them.
  30. 30. COMPENSATION COUNTER TRADE Under this arrangement the exporter agrees to accept a part of export consideration in cash and the balance in kinds. These exporter then enters into an arrangement with the third party who may be an end user of the product or an export house to take over goods received by them in part payment of goods exported .
  31. 31. CONCLUSION