BBA 3rd Year Recent Trends In India Foreign Trade Long Question Answer Paper Study Material Notes Sample papers examination papers Unit-wise division of the content
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BBA 3rd Year Recent Trends In India Foreign Trade Long Question Answer Paper
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(Long Answer Questions).
Q.1. Discuss the growth trade in India.
Ans. Trade as an Engine of Growth : Trade has been a common activity since Stone Age. From exchanging of grain and animal fur to the development of currencies and the first bonds in the Middle Ages, trade has increased throughout history along with transportation improvements. Trade development gained a new impetus after the Industrial Revolution. Between 1720 to 1971 world trade increased 460 times or 2.7 per cent annually.
Between 1948 and 1997, trade grew at an annual rate of 6 per cent while world production only increased at 3.7 per cent per annum. The ratio of imports and exports to GDP in developed and developing countries increased from 17 per cent to 24 per cent and from 23 per cent to 38 per cent respectively between 1985 and 1997. Trade also increased at a faster annual average rate than the world economy. The latter grew annually at a rate of 3.1 per cent and 2.0 per cent during 1980-90 and 1990-95 respectively while trade increased by 5.3 per cent and 6.8 per cent over the same periods. The increase in trade has been accompanied by a shift from bulk commodities to more processed commodities which have a greater share of value-added.
Reasons for Strong Trade Growth: Several reasons explain this increasing trend:
1. One explanation for this dramatic increase of trade is the extraordinary breakthrough that occurred in transport, communication and information technology. The new technologies made trading easier and reduced considerably trading costs. For example, between 1930 and 1960 the cost of air transport fell by more than 80 per cent and that of telecommunications by more than 98 per cent. The reduction in the cost of computing was comparable between 1960 and 1990.
2. This increase is also the result of intense and lengthy negotiations to improve the trading environment. Negotiations have taken place at the international level (UNCTADM, GATT and later WTO) and at the regional level (regional trade agreements). They have facilitated the continuous reduction of tariffs between 1976 and 1994 and the progressive reduction or elimination of non-tariff barriers to trade.
Structure of World Trade Flows: Trade between developed countries represents the bulk of Enternational exchange. Trade between United States, Japan and the European Union (EU) accounts For around one-third of world of world trade while one-fifth of world trade occurs among EU members. Asia has seen its share increase since the 1980s. Africa and Latin America have a much smaller share of trade than other continents. Internal rade within these continents is minimal; their trade takes place mostly with developed countries.
A large proportion of international exchange by transnational companies takes place inside an operation (or between branches of this corporation). It, therefore, does not use the mechanisms
appetitive international markets. The prices used in these transactions are often substantially different from market prices and can be used as an instrument to transfer income to countries where tax rules are more favorable.
Implications for WTO: A rapidly growing share of international trade is, therefore, the factor taking place outside the scope of WTO and may not be in conformity with the principles that determine its rules. Some WTO members have already raised this issue- several reports have been prepared by WTO experts – but no decision has yet been taken by the organization on this important matter.
It is estimated that there are around 40,000 transnational corporations. The first 500 are large companies and control 70 percent of world trade as well as 80 percent of the foreign investments of transnational. It is believed that 40 percent of world trade is conducted by transnational.
In 1995, 29 percent of world GDP was produced by the 200 largest transnational corporations. These corporations have succeeded in taking a leading position in a number of agricultural commodities: 20 control the coffee trade, six of them hold 70 percent of wheat trade, one controls 98 percent of the production of packed tea.
In recent years, transnational’s have changed their strategy and shifted from productions to financing, trading and research activities, subcontracting many productions stages.
The Liquidity Problem: Efficiency also calls for a certain quantity of official reserves in system, to act as a king of universal solvent in the adjustment process. Like money in the domestic economy, reserves in the international economy perform as a lubricant to reduce economic costs. Not all payments disequilibria actually require real adjustment. Some simply call for financing by accommodating flows of public and/or private funds. And indeed, even in those cases where real adjustment is required, the availability of financing can potentially reduce the total cost of the adjustment process. A second challenge to the monetary order, therefore, is to ensure a supply (and rate of growth) of reserves that is optimal for financing purposes. This is known as the liquidity problem.
Official government reserves are held, because financing requires that governments has access to some kind of stockpile need not be fully owned by each individual country.
National government could simply rely on induced movement of private short-term capital or on conditional access to public external credit facilities to finance payment imbalances. In practice, however, such sources have always been regarded as inferior, mainly for political reasons. Government traditionally prefers to put their faith in reserves that they themselves own. Reserves are generally defined to include total government holdings of gold, convertible foreign currencies, special drawing rights and net reserve positions in the International Monetary Fund. The common synonym for official reserves is international liquidity. Reserve assets play any or all of three monetary roles. They may be used as a medium of intervention in the foreign exchange market (the intervention role); as a common denominator for expressing currency values or as a means of holding wealth (the reserve role). Historically, few reserved assets have even monopolized all three of these roles of international liquidity for any significant length of time. More generally, each role tends to be shared, to a greater or lesser extent, by a variety or reserved assets. The importance of international liquidity in the monetary order is two fold-it firstly determines the ability of governments to finance disequilibria rather than to adjust and secondly, it affects the choices that are made between alternative policy options when real adjustment is undertaken.
The problem of liquidity is the task of designing rules and conventions to govern the supply (and rate of growth) of the monetary challenge to the monetary order to minimize total costs of adjustment in the event of payment disequilibria.