The document discusses India's regulation and promotion of foreign trade and investments. It outlines key changes made in the 1990s and 2000s to liberalize and encourage foreign direct investment, including allowing up to 100% FDI in many industries and easing restrictions on foreign technology agreements. It also discusses the objectives of the Foreign Trade Act and India's EXIM policies in promoting exports and reducing trade barriers.

1. Regulation & Promotion
of Foreign Trade
•Globalization
•Significance of foreign
investments
•Foreign Trade Act

2. Foreign Investments
Ratio of world FDI inflows to global gross
domestic capital formation was 14% in
1999 compared to 2 % 20 years ago.
Grown from $21.5 billion in 1973 to $1271
billion in 2000

3. Significance of Foreign Direct
Investments
• Shifts burden of risk to foreign investors
• Repayments are linked to profitability
unlike debt financing
• Strongly associated with higher GDP
since 1970
• TYPES OF FOREIGN INVESTMENTS
– FDI
– Portfolio Investment - FII

4. Factors affecting Foreign
Investments
• Stable, predictable, macroeconomic policy
• Effective and honest govt.
• Large and growing market
• Freedom of activity in the market
• Minimal government regulations
• Property rights and protection
• Reliable infrastructure
• Availability of high quality factors of production
• Strong local currency
• Ability to remit profits, dividends and interests
• Favorable tax climate
• Freedom to operate between markets

5. As indicated earlier ,foreign investment
and foreign technology agreements
were regulated in India. Prior approval
from the Government was required for
each such project involving foreign
exchange and /or technology .This
caused undue delays and also affected
business decision-making. Therefore
NIP has made suitable policy changes
to enable almost free flow of foreign
technology.

6. • The 1990s have seen a marked increase in
private capital flows to India, a trend that
represents a clear break from the two
decades before that . Fresh foreign
investment was invited in a range of
industries.
• In the 1970s there was hardly any new
foreign investment in India: indeed, some
firms left the country.
• Inflows of private capital remained meager in
1980s.

8. • To put these figures in perspective , note that
the total stock of private of foreign equity
capital in Indian Industry was about $ 2
billion in 1990.
• India was not unique as a recipient of
increased inflows in the 1990s.
• The question then is not, why have inflows to
India grown so much , but why they remain
low compared to other emerging markets ?

9.  Foreign equity holding up to 51 per cent by
international trading companies is also now
allowed.
 The new policy also provides for automatic
approval to foreign technology agreements
in case of priority industries(34 industries)
within certain guidelines.
 No permission will be required for hiring
foreign technicians and testing
indigenously developed technology abroad.

10. Changes in the FDI policy(1992-
2003)
 100 per cent FDI with automatic approval
has been allowed in many industries.
 Important among these are metallurgical
industries , business to business E-
Commerce , oil refining , certain activities of
telecom industries (with some conditions) ,
drugs and pharmaceuticals , hotels and
tourism , courier service , mass rapid
transport system etc.

11.  Certain sectors have allowed 74 per cent
FDI with automatic approval.
These includes , airports ( FDI up to 74 per
cent would get cleared via automatic
route ,while FIPB permission would be
required for 100 per cent foreign investment )
etc.
 Apart from these certain industries are
eligible for automatic approval up to 51 per
cent foreign equity.

12.  Certain sectors have been allowed 49 per
cent foreign equity. For example , the
banking sector is being opened up to 49 per
cent foreign equity , subject to clearance
from the Reserve Bank. Similarly , in basic
and cellular services , the sectoral cap is 49
per cent .
 For the first time in India , foreign
investments (up to 26 per cent ) have been
permitted in defence production ( subject to
certain conditions and approvals).

13.  The foreign Investment Promotion Board
(FIPB) and the Foreign Investment
Promotion Council (FIPC) have been
constituted respectively to make rules and
regulations relating to the foreign
investment more transparent.
 Foreign Institutional Investors have been
allowed to make equity investment in
unlisted companies and the limit of
investments of 5 per cent of total equities
in a single company has been raised to 10
per cent.

14.  The guidelines on Euro issues and External
Commercial Borrowing have been
liberalised to ease the access of Indian
Companies to international capital markets.
 Host country economic determinants
 Resources seeking
 Markets seeking
 Efficiency seeking

15. Is foreign capital a pain or is it a
panacea to India’s problems?
• To a large extent , the answer depends on
the nature of foreign direct investment
(FDI) and its motivations.
• Some FDI is motivated by high rates of
return in a vibrant economy, and aims to
benefit from better international
organization of production and location.

16. Regulation and promotion of foreign
trade
• Imports and exports (Control) act, 1947
• Replaced by Foreign Trade (Development and
Regulation) Act, 1992 – FTDRA
Objectives of FTDRA
• Development and regulation
• Prohibition and restriction
• Director general of foreign trade – DGFT
• Importer-Exporter Code no.
• Issue and suspension/cancellation of license
• Search, inspection and seizure
• Penalty for contravention

17. EXIM Policy
• Announced under FTDRA post 1991
• 2002-2007 coincided with 10th 5 yr plan
• Mission – to increase India’s share in global
exports to 1% from .67%
• SEZ
• Agricultural exports
• Towns of export excellence
• Special focus on cottage sector/handicrafts
• Reduction in transaction time and costs
• Assistance to states for infrastructure
developments for exports