IMPACT OF GOVERNMENT POLICIES ON TRADE IN INDIA Trade policies determine the size of markets for the output of firms and hence strongly influence both foreign and domestic investment.

1. IMPACT OF GOVERNMENT
POLICIES ON TRADE IN INDIA
INTRODUCTION-
In general, any type of domestic tax or subsidy policy, or any type of
government
regulation that affects the behaviour of firms or consumers, can be
classified as a domestic policy.
There are a wide variety of these policies, any of which can have an
impact on international trade.
For example, income taxes are levied on wages and capital incomes of
individuals.
Profit taxes are levied on the profits of businesses. Sales taxes are generally
levied as a percentage of retail sales.
Excise taxes are specific taxes on particular commodities such as gasoline,
alcohol, or cigarettes.
Governments also provide subsidies for many purposes. They disburse research
and development (R&D) subsidies to high-technology industries and encourage
R&D through their defence spending contracts. Governments also give out
educational subsidies (grants) and subsidise student loans. In agriculture,
governments often have elaborate programs designed to raise the incomes of
farmers, including the use of price floors, subsidised loans, payments to
encourage fallow acreage, and so on.

2. HOW
GOVERNMENT
INTERVENE
IN
TRADE

3. TARIFFS & SUBSIDIES
▪ TARIFFS – Tariffs are the taxes levied on imports that
effectively raise the cost of imported products relative to
domestic products.
Two types –
1. Special Tariffs – levied as a fixed charge for each
unit of a good imported($/kilo)
2. AD Valorem Tariffs – levied as a proportion of the
value of the imported good (%)
▪ SUBSIDIES – Subsidies are the government payments to
domestic producers. Subsidies basically help the
domestic producers and motivates them to produce.

4. IMPORT QOUTAS AND VOLUNTARY
EXPORT RESTRAINTS
 Import qoutas
 An import quota is a type of trade restriction that se ts a physical limit on
the quantity of a good that can be imported in,to a country in a given
period of time. Quotas, like other trade restrictions, are typically used to
benefit the producers of a good in that economy.
 Voluntary Export Restraints
 A voluntary export restraint (VER) or voluntary export restriction is a
government-imposed limit on the quantity of some category of goods
that can be exported to a specified country during a specified period of
time. They are sometimes referred to as 'ExportVisas'.

5. WHY
GOVERNMENT
INTERVENE
IN
TRADE -

6. JOBS
 The most common political
reason for trade restrictions.
 Basically Trade reduces the
number of jobs available
domestically.
 Protecting the interests of
certain groups within a nation
(normally producers), often at
the expense of other groups
(normally consumers).

7. National Security
National security is one of the political reasons why the Government
intervenes in the markets.
Each nation protects some industries to guard it’s national security.
The most obvious examples are weapons, aerospace, advanced
electronics, semiconductors, and strategic minerals (example: exotic ores
used in jet aircraft), etc.
National security is important not only to the government, but to the
nation as a whole. National security serves many purposes. First of all,
the armed forces are a very important aspect of national security.
In addition, when threats are directed at our country there is an attempt
to keep these threats isolated. National security is also concerned with
emergency preparedness among many other things.

8. Consumers
Consumers again cover up the political aspect of why the Government intervenes
in markets.
A consumer is defined as someone who acquires goods or services for direct use
or ownership rather than for resale or use in production and manufacturing.
Consumer protection is a group of laws and organisations designed to ensure the
rights of consumers, as well as fair trade, competition, and accurate information
in the marketplace.
Consumer protection is linked to the idea of consumer rights, and to the
formation of consumer organizations, which help consumers make better choices
in the marketplace and get help with consumer complaints.
In India, consumer protection is specified in The Consumer Protection Act, 1986.
Under this law, Separate Consumer Dispute Redress Forums have been set up
throughout India in each and every district in which a consumer can file his
complaint on a simple paper with nominal court fees and his complaint will be
decided by the Presiding Officer of the District Level. The complaint can be filed
by both the consumer of a goods as well as of the services.

9. Foreign Policy and Environment
 Foreign Policy - Preferential trade terms may be granted
to countries that a government wants to build strong
relations with. The foreign policy of the Modi
government (also referred to as the Modi
Doctrine) concerns the policy initiatives made towards
other states by the current Modi government after he
assumed office as Prime Minister of India on 26 May 2014.
 Environment - The link between trade and environmental
protection — both the impact of environmental policies
on trade, and the impact of trade on the environment.

10. TRADE BARRIERS
 Trade barriers are government-induced restrictions on international
trade.
 Most trade barriers work on the same principle: the imposition of
some sort of cost on trade that raises the price of the
traded products. If two or more nations repeatedly use trade
barriers against each other, then a trade war results.
 Trade barriers obstruct free trade. Before exporting or importing to
other countries, firstly, they must be aware of restrictions that the
government imposes on the trade.
 Trade barriers are often criticized for the effect they have on the
developing world. Because rich-country players call most of the
shots and set trade policies, goods such as crops that developing
countries are best at producing still face high barriers.

11. FDI And FII
 Foreign Direct Investment (FDI)- FDI and trade are often seen as
important catalysts for economic growth in the developing
countries.
 FDI is an important vehicle of technology transfer from developed
countries to developing countries.
 Even though past studies show that FDI and trade have a positive
impact on economic growth, the size of such impact may vary
across countries depending on the level of human capital, domestic
investment, infrastructure, macroeconomic stability, and trade
policies.
 Foreign Institutional Investment (FII)- FII is an investor or Investment
fund registered in a country outside of the one in which it is
investing. Institutional investors most notably include insurance
companies, pension funds and mutual funds.

12. IMPACT OF GST ON TRADE
 Going forward, as a consequence of the makeover of
FTP under GST, Indian exporters-importers will see less of
DGFT and rely more on open market forces on the path
of international trade.
 India’s foreign trade policy (FTP) is undergoing a bold
makeover under GST. Comprehensive customs duty
exemption on export-linked imports, a cornerstone of the
export incentive schemes under the FTP, is being
replaced by reduced exemptions, limited to basic
customs duty exemptions only.
 The exporting community in India is in a state of shock
because of the expected change in business behaviour
triggered by the no-IGST exemption regime.

13. THANK YOU