"FOREIGN EXCHANGE RATE"

                         The foreign exchange rate is the rate at which the currency of a country is exchanged against the currency of another country. It is the price of one currency in terms of another currency. the exchange between rupee and dollar refers to the number of rupees exchanged or are required to be given to obtain one dollar. When we say the exchange rate is Rs. 60 = 1$, it expresses the price of one dollar in terms of rupees. Like the price of any other commodity, it is the price of a currency which we would like to purchase. The difference is that in the commodity market there is one currency in terms of which the value of all other goods and services is expressed, where as in the foreign currency for one unit of domestic currency- e.g. Rs. 1 = 2C. For all practical purposes the expression is in terms of price of an internationally accepted currency i.e. a vehicle currency.

Vehicle Currency :-
                           It is a widely accepted currency in international market. US dollar, Euro and Pound Sterling are some of the vehicle currencies. Many countries express their foreign exchange rates in these currencies.
                           Since August 1991, the US dollar is used as vehicle currency for the Indian rupee. Exchange rate in India is quoted in USD/INR, for example 1 $ = Rs. 60 or INR/USD Rs. 60 = $ 1.
                           Exchange rate is determined by demand for and supply of foreign exchange. Let us discuss the factors that influence the demand and supply.

*  DEMAND FOR FOREIGN EXCHANGE :-

1. Import of Goods :-
                       Import of goods contribute a major part of total imports. Consumer as well as capita goods are imported from other countries. Raw material and intermediate goods too may be required to be imported. Foreign exchange is demanded by people who import these goods. Demand for foreign exchange for this purpose depends on the price of the imports. Higher the prices of imports lesser is the demand for foreign exchange.
   
2. Import of Services :-
                          Import of services have been increasing in recent years. Services rendered by other countries which include banking, insurance, transport, communication, tourist services, educational services etc. are required to be paid in foreign exchange.
   
3. Unilateral Payments :-
                          Donations, gifts, reparations are all one sided payments without corresponding returns. Such payments create demand for foreign exchange.
   
4. Export of Capital :-
                          Repayment of debt, purchase of assets in foreign countries, investment in financial assets or direct investment, all require foreign money.

                            All the above categories of demand add up to the aggregate demand for foreign exchange. The total demand is inversely related to the price i.e. the exchange rate. At a higher price (Rs.60 = 1$) the demand is less than say at Rs.50 = 1$. Figure 10.1 explains the demand for foreign exchange.
                       

"PROCEDURE FOR OBTAINING ISO CERTIFICATION"

          An Indian company can obtain ISO 9001 : 2008 certification from accredited agency recognized by International Organisation for Standardization. Indian exporters normally obtain ISO 9001 certification from a foreign accredited agency because of their professional approach in certification.

The following is the procedure to obtain ISO 9001 certification :

1. Evaluation of Existing Quality Procedures :-
   
   
                           The company wishing to obtain ISO 9001 certification should evaluate its existing quality procedures. This is because; a company cannot expect to get itself ISO certified, if is does not fulfill certain minimum standards of quality.
                           The company can appoint an ISO steering team to evaluate the existing quality procedures prevailing withing the firm.
   
   
2. Initiating Corrective Action :-
   
   
                           If  the company (ISO steering team) finds deficiencies in the exsting quality procedures, then there is a need to correct or overcome such deficiencies. Such correnction is required so as to conform to ISO series standards.
   The corrective action may include :
   *  Investigating causes of non-conforming products and identifying corrective action to prevent    recurrence.
   *  Analyzing processes, records, customer complaint, etc., to detect and to eliminate potential causes   of non-conforming products.
   *  Applying controls to ensure that corrective actions are taken and their effective implementation.
   *  Implementing changes in procedures, as corrective actions require.
   *  Initiate preventive action to eliminate potential problems.
   
   
3. Preparation of Quality Assurance Programme :-
   
   
                            Company should prepare a quality assurance programme. This programme would involve details regarding the various areas, departments, or products that require observance of quality control, training to be provided to the employees and other activities, which are required to maintain high quality standards.
   
   
4. Preparation of Quality Manual :-
   
   
                            Company must also prepare a quality manual. The quality manual would provide guidelines to the employees of the firm so as to maintain quality standards.
   The quality manual may include details in respect of:
   *  Purchase procedures.
   *  Quality control procedures.
   *  Maintenance and repairs of plant and machinery.
   *  Procedures relating to handling and storage of inventory.
   *  Procedures relating to packaging and delivery.
   *  Procedures relating to servicing of product, etc.
   
   
5. Selection of certification Agency :-
   
   
                               The Company must select an agency to provide  ISO 9001 certification. The company may select BIS or a foreign accredited agency. Normally, most Indian exporters prefer to appoint a foreign agency (although the expenses are more), as a certification by a reputed foreign agency carries more weight in the international markets.
                                 The company should make an application to the accredited agency along with necessary documents which includes quality manual, undertaking to pay the required fees, etc.
   
   
6. Pre-assessment Meeting :-
   
   
                              Company's representative would hold a pre-assessment (pre-inspectin) meeting with the registrar of the agency. The pre-assessment meeting is required to analyse the quality manual of fthe firm and to appraise the quality standards being adopted by the firem. The firm may also come to know of any specific arrangements required by the agency before certification. 
   
   
7. Preliminary Visit :-
   
   
                              The accredited agency, normally, arranges for a preliminary visit to the firm and notifies the company of any significant omissions or deviations from the prescribed requirements, so that any suitable modifications or changes can be made prior to the assessment visit.
   
   
8. Actual Assessment Visit :-
   
   
                              The Actual Assessment visit is a practical evaluation to check that the company's systems are functioning effectively. If there are any discrepancies, which indicate a systems failure, the company is given a period to rectify the deficiencies. Corrective action programmes are also agreed upon for rectifying any discrepancies detected. 
   
   
   
   
9. Certification :-
   
   
                              If the assessment agency is satisfied with the quality systems of the company, then it would certify or grant ISO 9001 : 2008 certification to the firm. The firm can use the ISO 9001 : 2008 in their advertisements, products packages, letterheads, etc.
   
   
10. Surveillance :-
    
    
                               The accredited agency's registrar normally performs periodic surveillance to assure that the certified company's qualilty system is being maintained. Many agencies may undertake a complete review of the firm's quality systems of teh certified firms. If the firm fails to maintain the quality system, the agency's registrar will suspend or cancel the registration or certification. 

"P. Chidambaram calls for probity in capital market"

                                   Finance Minister P. Chidambaram on Saturday said Indian capital markets are facing many concerns, including low level of retail participators, which needed to be addressed urgently.

                                   “It is important that all our institutions maintain the highest ethics and highest standards of probity. An ethics deficit can bring down the entire financial system as we have seen in the past.

                                   “Some recent incidents have alerted us and we must never take such chances again. We must demand the highest standards of probity from the owners and managers of financial markets infrastructure institutions,” he said at the 20th anniversary of National Stock Exchange (NSE) in Mumbai.

                                  Mr. Chidambaram further said rising volumes of rupee trade in NDF (non-deliverable forward) market abroad is a major concern.

                                    NDF is a Forex derivative instrument, traded over the counter and operated in currencies that are freely convertible unlike the rupee. The rising volumes of rupee trade in the NDF abroad could adversely affect value of the domestic currency.

                                  Listing out other concerns like low retail participation, lack of financial literacy and financial inclusion, Mr. Chidambaram said such issues need to be addressed urgently.

                                  Improvement of financial sector competitiveness and optimal use of exchange infrastructure for investment classes are other areas which need urgent attention, he added.

                                  Referring to the recommendations of the Financial Sector Legislative Reforms Council (FSLRC), he said as passing legislation on the suggestions will take time; it has been decided to implement the non-legislative ones first.

                                      On the ordinance giving more powers to SEBI, Mr. Chidambaram said if the Standing Committee does not submit its report by end of the current session, the government will have to promulgate the ordinance for the third time.

India’s trade deficit with China nears record $30 b

* Causes for the slump in trade are more structural :-

                          India’s trade deficit with China after 11 months of this year has reached a record $29.5 billion, exceeding last year’s annual figure, according to newly released trade data.
The numbers underline the sharp decline in once-burgeoning trade, which reached $74 billion in 2011 when China became India’s biggest trading partner.
                          The following year, a 20 per cent slump in India’s exports, largely on account of iron ore mining bans, coupled with the global slowdown, resulted in a 10 per cent decline as trade fell to $66.50 billion, even as both countries announced an ambitious $100 billion target for 2015.

* Doubts over achieving target :-

                       The latest figures have cast doubt on whether that target may be achieved. During the period under reference, even as China’s trade with the rest of Asia as well as with its major Western trading partners has picked up, trade with India has remained in a slump, suggesting that causes were more structural rather than a reflection of global trends.
                          After 11 months of this year, India’s exports to China reached only $14.87 billion out of total bilateral trade of $59.24 billion, according to data released this week by the China’s General Administration of Customs.
                         Trade between the two countries was down by 2.7 per cent year-on-year, even as China’s overall global trade rose 7.7 per cent. This was driven by an export sector that has continued to show signs of revival, growing 12.7 per cent and marking the second straight month of rising exports.
                          Among China’s biggest trading partners, trade with the U.S. was up by 7.6 per cent. China’s trade with Southeast Asian countries showed the biggest growth, growing 10.9 per cent.
                           Border trade up 23 per cent, still minuscule India’s border trade with China, while still at a minuscule $14 million, grew 23.3 per cent last year, local authorities in the Tibet Autonomous Region (TAR) were quoted as saying by the official Xinhua news agency this week.
                          Trade has grown more than 50 times since 2006, when the Nathu La pass, between Sikkim and the Shigatse prefecture in Tibet, was reopened. Most of the trade is made up of imports of Indian goods into Tibet, which reached $12 million last year. Authorities said the border market is open for only six months of the year — opening on May 1 and closing on November 30.

"INDIAN TRADE SERVICE"

                      The Indian Trade Service (ITS), Group ‘A’ Civil Service, was created as a specialized cadre to handle India's international trade & commerce on the basis of the recommendations of the Mathur Committee (Study Team on the Import and Export Trade Control Organization headed by Sri H.C. Mathur, Member of Parliament) in 1965. At present Directorate General of Foreign Trade (DGFT), Ministry of Commerce is the cadre controlling authority of the ITS, has many regional offices across India, and plays a significant role in India's foreign trade with its policy formulation and implementation.

                   

                  The Department is headed by a Secretary who is assisted by a Special Secretary & Financial Adviser, three Additional Secretaries, thirteen Joint Secretaries and Joint Secretary level officers and a number of other senior officers. Keeping in view the large increase in workload in matters related to World Trade Organization (WTO), Regional Trade Agreements (RTAs), free trade agreements (FTAs), Special Economic Zones (SEZs), joint study groups (JSGs) etc., two posts each of Joint Secretaries and Directors were created in the Department during 2008-09.

The Department is functionally organized into the following eight Divisions:

• Administration and General Division
• Finance Division
• Economic Division
• Trade Policy Division
• Foreign Trade Territorial Division
• State Trading & Infrastructure Division
• Supply Division
• Plantation Division.

* Work Profit :-

• Formulating the foreign trade policy which looks at the gamut of trade promotion and facilitation activities intended to streamline the chain of economic activities which would boost India's external trade.
• Implementing of the foreign trade policy through the regional offices of the Directorate General of Foreign Trade which include cognate activities such as remission of the duties levied on exports, issuance of permissions for imports/ exports, trade facilitation, interface with various trade agencies and apex chambers of commerce, interaction with Customs and State governments, interaction with SEZs, grievance redressal etc.  
• Trade policy negotiations for India at the multilateral forum of the World Trade Organization. These negotiations call for a deft balancing of the needs of the domestic industry for ensuring adequate protection and those intended to boost exports not merely for earning foreign exchange but also to invigorate economic growth and ensure wider employment opportunities.
• Negotiating bilateral and multilateral trade agreements with trading partners including the formulation and implementation of FTAs, PTAs, TTTs[disambiguation needed], EHPs[disambiguation needed] etc.
• Investigating dumping by trading nations and computation of the anti dumping duties. Officers of the Indian Trade Service manning the Directorate General of Anti Dumping (DGAD) have been effectively controlling dumping by the trading nations and India is the second largest imposer of anti-dumping duties.
• Export promotion activities under the purview of the Export Promotion Councils and the apex chambers of export promotion like FIEO, FICCI etc. These include expertise in organizing the Buyer-Seller meets, Open Houses, Exhibitions, Participation in Fairs, providing policy inputs to the government etc.
• Creating an effective interface mechanism between the government and the primary stakeholders through institutions such as the Board of Trade.
• Laying the framework for Electronic Data Interchange (EDI) in trade transactions in order to impart transparency, save time and ensure economy.
• Quality management and quality assurance though effective inspection and risk assessment of export consignments.

* The Service has been utilized in the following areas also :-

• Ministries and departments having significant trade related activities.
• Foreign commercial missions
• Special Economic Zones

IMPORTANCE OF ISO CERTIFICATION

The ISO 900 certification benefits the company both internally as well as externally.

*  The Internal benefits include :

1. Improvement in Efficiency :-
                                  ISO 900 certification facilitates improvement in efficiency of the organisation. The organisation can get higher returns at lower costs. ISO 900 certification firms make every possible effort to improve quality and to reduce costs.
   
   
2. Lower Rejects :-
                            ISO 900 certified firms get the benefits of low or no rejects. This is because; they conform to high quality standards. Naturally, the defects in the final products would be either nil or negligible.
   
   
3. Better Relations :-
                           ISO 900 facilitates better relations in the organisation, i.e., between the management and the employees, superior and subordinates, between different departments, and so on. This is because; ISO 900 certified firms have to work in a systematic manner with clear plans and policies.
   
   
4. Team Work :-
                        There can be good teamwork between the various departments, employees, and the managers. This is because of good relations prevailing in the organisation, Secondly, the rewards of good performance are shared with the employees throughout the organisation, which in turn can facilitate teamwork.
   
   
5. Optimum Use of Resources :-
                         There can be optimum utilization of resources-physical resources, human resources, and financial resources. The optimum utilization of resources is possible due to clear plans and policies, and also due to the harmonized relations and teamwork in the organisation. 
   
   
6. Motivation of Personnel :-
                          The employees of ISO 900 certified firms are motivated. This is because; they get proper incentives-monetary incentives, and non-monetary incentives.
   
   

*  The external benefits includes :

1. Customer Satisfaction :-
                         There can be customer satisfaction. This is because; the customers are provided with better quality goods and at right prices. This is because of higher efficiency of the firm.
   
   
2. Corporate Image :-
                         Firms obtaining ISO 900 certification earn a good corporate image in the domestic as well as international markets. The customers, suppliers, investors, and others trust ISO 900 certified firms.
   
   
3. Effectively Facing of Competition :-
                         ISO 900 certified firms could face the competition effectively in the market. This is because of high quality goods at right prices, and also efficient delivery and after-sale-service.
   
   
4. Increase in Sales :-
                         Due to customer satisfaction, and good corporate image, the company can face effectively the competition in the market. This in turn helps the firm to increase the market share and sales.

TOWNS OF EXCELLENCE

          Industrial clusters are given recognition as 'Towns of Excellence' is order to maximize their export potential. In August 2006, 11 towns as the country have emerged as dynamic industrial clusters contributing significantly to India's exports. They were given the status of 'Towns of Excellence' These 11 towns include :

• Tirupur, Tamil Nadu for hosiery.
• Karur, Tamil Nadu - Handlooms
• Madurai, Tamil Nadu - Handlooms
• Ludhina, Punjab - Woolen knitwear
• Panipat, Haryana - Woolen blankets
• Kanoor, Kerala - Handlooms
• Alleppey, Kerala - Coir products
• Aroor, Ezhupunna, Kodanthuruthu, & Kuthiathodu, (AEKK), Kerala - Seafood
• Kekhra, UP - Handlooms
• Dewas, MP - Phamaceuticals
• Jodhpur, Rajasthan - Handicrafts.

              In the FTP 2004-09, the Government of India announced the threshold limit of designed 'Towns of Export Excellence'. The limit has been reduced from Rs.1000 crores to Rs. 250 crore for the thrust sectors such as agriculture, handlooms, handicrafts, gems and jewellery, leather goods, and marine products.

              The Towns of Excellence get the benefits of ASIDE scheme for developing infrastructure in the industrial clusters. The units in the Towns of Excellence also get the facility of common service and EPCG scheme. They also get the benefit of MAI scheme for creating focused technological services.
              In the FTP 2009-14, about 7 Towns of Export Excellence are announced by the Govt :

• Jaipur, Srinagar and Anantnag for handicrafts.
• Kanpur, Dewas and Ambur for leather products.
• Malihabad for horticultural products.

TRENDS IN WORLD EXPORTS

          The years 2008 and 2009 were tumultuous ones for global trade. The sub-prime crisis of USA in 2007 led to the global financial crisis in September 2008. The financial crisis resulted in full blown global recession which resulted in considerable fall in global trade. World trade volume (goods and services) grew by only 2.8% in 2008 compared to 7.3% in 2007. The world trade growth tumbled down month after month from September 2008 onwards. While the fall seems to have been stalled with the recovery in the later part of 2009, but the world trade continues to vulnerable given the nature of recovery and the EU crisis (beginning with Greece Crisis in the beginning of 2010).

*  IMF Estimates :-

           The world recession in 2008-09 had deep impact on world trade. The global trade of about 16U$ trillion in 2008 collapsed. In the first half of 2009, the world trade was 5.8 US $ trillion compared to 8.2 US $ trillion in the corresponding first half of 2008. According to IMF, growth of world output and trade volume of goods and services fell to (-) 0.8% and (-) 12.3% respectively in 2009. 

            The crisis seems largely to have petered out in the second half of 2009 with global trade recovering from the downtrend. The IMF projects a better-than-expected growth in world trade volume of 5.8% for 2010 and 6.3% for 2011. Consequently, world output growth is estimated to increase to 3.9% in 2020 and 4.3% in 2011.

*  WTO Estimates :-

              In March 2009, WTO estimated a decline of 9% in global trade for 2009, the largest in over 60 years. 

*  World Bank Estimates :-

              The World Bank estimates world real GDP growth to fall by 2.2% and world trade volume to fall by 14.4% in 2009. As per World Bank, the dollar value of world trade plummeted by 31% between August 2008 and its low point in March 2009.

              Examination of the month- wise exports and imports for the world, India and some major trading partners of India from 2008 onwards indicate a recovery in trade with export growth becoming positive in November 2009 over November 2008.

              The following table indicates export growth and import growth of some of the leading countries between November 2008 and November 2009 (per cent).

              The export and import growth has become less negative in the countries mentioned above. For instance, the export growth of India has increased by 18.2% and the import growth has become less negative by (-) 2.6% between November 2008 and November 2009.

*  Conclusion :-

              Though we are still not our of the crisis, there is greater degree of confidence, particularly in countries with strong fundamentals like India and China which have weathered the crisis with great dexterity and spearheaded the recovery. 

PROBLEM FACED BY INDIAN EXPORTERS

           In recent times, Indian exporters face a number of problems. The problems demotivate the business firms to enter into foreign marketers. Some of the problems are as follows :

1. Recession in World Markets :-
                              The world markets faced recession in 2008 and in the first half of 2009. The recession was triggered due to sub-prime crisis of USA in Sept 2007. Due to recession, the demand for several Indian items such as gems and jewellery, textiles and clothing, and other items were badly hit. During recession, exporters get low orders from overseas markets, and they have to quote lower prices. Therefore, exporters get low profits or suffer from losses.
   
2. Protectionist Measures by Developed Countries :-
                                The developing countries like India have to face the problem of protectionist measures by developed countries. For instance, in 2009, USA Govt provided a bailout package to General Motors and other firms to overcome from financial crisis. The bailout package contained 'Buy American Clause' which means the firms getting financial assistance from the Govt have to use domestic content rather than importing from other countries. Since USA is the major importer from India, some of the exporters such as auto parts suppliers have to face problems.
   
3. Reduction in Export Incentives :-
                                  Over the years, the Govt of India has reduced export incentives such as reduction in DBK rates, withdrawal of income tax benefits for majority of exporters, etc. The reduction in export incentives demotivates exporters to export in the overseas markets.
   
4. Competition from China :-
                                   India is facing stiff competition form China in the world markets, especially in the OECD markets. As a result, India's share of exports to OECD markets has declined from 53% of total exports in 2001-01 to about 38% in 2007-08. Some of the Indian exporters have lost their overseas contracts due to cheap Chinese goods and supplies.                            
   
5. Problem of Product Standards :-
                                    Developed countries insist on high product standards from developing countries like India. The products from developing countries like India are subject to product tests in the importing countries. At times, the importing countries items on the grounds of excessive toxic content. Therefore, Indian exporters lose markets especially in developed countries.    
   
6. Problem of Anti-dumping Duties :-
                                     Developed countries impose anti-dumping duties on certain goods imported from developing countries like India, Brazil, China and so on. For instance, USA had imposed anti-dumping duties on Indian steel items in 2008. Quite often, the anti-dumping duties are also justified. Therefore, India has to approach the dispute settlement body of WTO to resolve the dispute regarding anti-dumping duties. Till the dispute is resolved, Indian exporters lose business opportunities.
   
7. Problem of Sea Pirates Attacks :-
                                    A major risk faced by international trade is attack by pirates in the Gulf of Aden. More than half of India's merchandise trade (exports and imports) passes through the piracy infested Gulf of Aden. New exporters and importers are facing problems because of increased pirate attacks as they find it difficult to get insurance cover.
   
8. Problem of Subsidies by Developed Countries :-
                                        The developed countries like USA provide huge subsidies to their exporters. For instance, in case of agriculture exporters. USA, UK and others provide huge subsidies to their exporters. Therefore, the exporters of developing countries like India find it difficult to face competition in the wold markets.
   
9. Documentation Formalities :-
                                         There are a number of documents to be prepared in export trade. In India, there are as many as 2.5 documents (16 commercial documents and 9 regulatory documents) to be filled in. However, aligned documentation system (ADS) has simplified export documentation procedure.
   
10. Foreign Exchange Regulations :-
                                            Export marketing is subject to foreign exchange regulations. For instance, in India, the exporters have to give a declaration in Form GR to the Reserve Bank of India (RBI) that they will realise the full value of exports within a period of 180 days.

REASONS FOR INDIA'S POOR SHARE IN WORLD TRADE

                 India's export performance is poor. Over the years, since Independence, India's share of the world export trade has been very low. At present, India's share of the world export trade is 1%. The share of export of other developing countries of Asia, namely China, South Korea, Malaysia, Singapore and Thailand is much more than of India.
                 There are several reasons for poor performance of India's export trade. The reasons or causes can be broadly divided into two groups, as shown below :

*   CAUSES OF POOR SHARE OF INDIA'S EXPORTERS :-

   I.  Exporter-Related Problems                                  

• Poor Quality 
• High Prices 
• Inadequate Promotion
• Poor Follow-up of Sales 
• Poor Negotiation Skills 

  II.  General Causes

• Poor Infrastructure 
• Presence of Good Domestic Market 
• Documentation and Formalities
• Negative Attitude of Overseas Buyer
• Problem of Trading Blocs

 
I.  EXPORTER-RELATED PROBLEMS :

1. Poor Quality :-
                     One of the main reasons for poor performance of India's exporter trade is due to the poor quality of products. A good numbers of Indian exporters, especially, the small-scale exporters do not give much importance to quality control. Due to problems in quality, the Indian exporters do not get orders from foreign buyers. There are also cases, where Indian goods are rejected and sent back to India by foreign buyers.
   
2. High Prices :-
                     The price of Indian goods is higher as compared to other Asian countries. The price of Indian exports is high due to :
    (i)   Higher value of Indian rupee is vis-a-vis the value of some of the other Asian countries such as            Malaysia, Thailand, Philippines, etc.
    (ii)  Some of the Indian exporters quote higher prices in order to make higher profits per unit sold.
    (iii) The price of Indian goods is also affected by high transaction costs, and documentation        
          formalities.
   
3. Inadequate Promotion :-
                         Promotion is vital for export marketing. However, a good number of Indian exporters do not give much importance to promotion. Apart from advertising, and sale promotion, Indian exporters must participate in trade fairs and exhibitions. But in reality, a good number of Indian exporters are not professional in advertising and sale promotion. They also do not take part in trade fairs and exhibitions, and if they do so, they lack professional approach in handling the visitors at the trade fairs and exhibitions.
   
4. Poor Follow-up of Sales :-
                         There is often poor follow-up of sales. The Indian exporters do not bother to find out the reactions of the buyers after the sale. They are also ineffective in providing after-sale-service. As a result, there is poor performance of India's exporter trade.
   
5. Poor Negotiation Skills :-
                            Indian exporters, especially the small exporters lack negotiation skills. Due to poor negotiation skills, they fail to convince and induce the foreign buyers to place orders. The lack of negotiation skills is mainly due to poor training in marketing and negotiation skills.
   

 II.  GENERAL CAUSES :

1. Poor Infrastructure :-
                            The infrastructure required for export of goods is poor. Due to poor infrastructure facilities, Indian Exporters find it difficult to get orders, and also to deliver the goods at the right time. The poor infrastructure facilities include :
     (i)   Poor port-handling facilities.
     (ii)  Inadequate warehousing facilities.
     (iii) Poor transport facilities, etc.
   
2. Presence of Good Domestic Market :-
                          In India, there is a good domestic market. Sellers find a ready market for their goods within the country. Therefore, they do not take pains to get orders form overseas markets. However, from the long-term point of view, India marketers should look beyond domestic markets, and enter in the export markets.  
   
3. Documentation and Formalities :-
                         In India, there are number of documentation and other formalities. Due to the various formalities, some of the marketers do not enter the export field. Therefore, there is a need to simplify and reduce formalities and documentation work on the part of government authorities.
   
4. Negative Attitude of Overseas Buyers :-
                         Some of the overseas buyers, especially from developed nations have a negative attitude towards Indian goods. They are of the opinion that Indian goods are of inferior quality, and that the Indian exporters provide poor service after sales. Therefore, there is a need to correct this negative attitude through effectively promotion and good marketing practices.
   
5. Problem of Trading Blocs :-
                        Indian exporters are affected due to the presence of trading blocs. There are some powerful trading blocs in the world such as NAFTA, European Union and ASEAN. The training blocs reduce or eliminate the trade barriers on non-members. Since India is not a member of the powerful trading blocs, Indian exporters do face problems to export good to the member countries of the trading blocs. 

INDIAN COUNCIL OF ARBITRATION (ICA) New Delhi

               

                              ICA was set up in 1965. It is an autonomous non-profit organisation registered under the Societies Registration Act. It was set up for promoting and encouraging amicable settlement of commercial disputes between exporters and importers. The main objectives are :

1. To develop arbitration consciousness in foreign trade.
2. To provide facilities for the amicable settlement of commercial disputes by arbitration.
3. To settle trade complaints arising out of non-compliance with arbitration awards between Indian and foreign parties.
4. To conduct tradinding courses and seminars on commercial arbitration and international law.
5. To publish information of commercial arbitration and allied matters.
6. To collaborate with such international organisations and arbitral bodies in matters concering internatioanl commercial arbitrations.

                 At the international level, the International Chamber of Commerce through its Court of Arbitration, is the most important organisation that provides facilites for settling disputes in international business through conciliation and arbitration. Exporters in their own interest should take core to ensure that specific provisiions are made in the contracts for amicable and quick settlement of disputes. In India, the help of ICA can be taken only if there is a clause in the contract that in case of dispute the matter would be referred to the ICA, otherwise both parties should agree to refer the dispute to ICA.

*  Importance Features of ICA :-

1. Membership :-
                        The council's membership comprises of Foundation members, Ordinary Associates, Individual and Honorary members.
    
2. Initiation and Arbitration :-  
                       The either party or any party can apply for dispute settlement. The applicant allong with application should pay the registration fee and furnish to the secretary a statement containing. (a) the names and address of the parties to the disputes, (b) full details of the case, (c) original or certified copy of documents and relevant information.
3. Fees/Expenses :-  
                       The fees, costs and expenses incidental to the reference and award shall include
   (i) registration fee
   (ii) admission fee
   (iii) arbitration fee.
                  The amount of registration fee is fixed whereas, the amount involved and the time that would be spent to decide it. In addition, any travelling expenses incurred by arbitrator or secretary of the council as determined by the Bench shall be payable.
4. Constitution of Bench :-  
                        Secretary of ICA makes arrangement on the recept of application to constitute a Bench consisting of one or three arbitrators selected from a panel of Arbitration.
5. Venue :-   
                       The proceeding shall be held at place (s) in India as the Bench may decide.
6. Awards :-  
                       When arbitrator (s) sign (s) the award, the secretary sahll give notice in writing to the parties concerned in respect of fees and chrges payable and true copy of the award is supplied to the partes on receipt of fees/charges. The award is binding on both the parties, if not ICA do follow legal remedies to enforce the award. 

                        

INDIAN INSTITUTE OF PACKAGING (IIP) MUMBAI

                         With a view to improve the packaging and packing standards, the IIP was set up in 1996 at Mumbai. The main functions of IIP are :

    1.   Training Programme :-
                              IIP is primarily engaged in training programmes relating to packaging industry. This institutes makes the trainees familiar with packaging technology, packaging materials, and current trends in packaging in the world markets.

    2.   Improvement in Quality of Packaging :-

                               IIP makes constant efforts to upgrade and improve the design and quality of packaging, so as to promote India products abroad.

    3.   Collection of Information :-

                                IIP collects information on latest trends in the packaging in respect of raw materials, design etc.

    4.   Supply of Information :-

                                The information collected on packaging is provided to the exporters by IIP, so that exporters can upgrade their packaging standards.

    5.   Organizing Seminars and Workshops :-

                                 IIP organised seminars and workshops on packaging designs and quality. Exporters can take the advantage of such seminars and workshops.

    6.   Consultancy Services :-

                                  It provides consultancy services to the exporters in the field of packaging .

    7.   Develops Packaging Consciousness :-

                                   Export packaging is vital as it not only protects and preserves the product, but also promotes the product in international markets. Therefore, IIP develops consciousness of the need for good packaging among Indian exporters.

    8.   Publications :-

                                   It publishes two quarterly magazines, one devoted to the technological aspects of packaging and the other to techno economic aspects of packaging.

    9.   Testing Facilities :-

                                   It provides testing facilitates in respect of packages and packaging material to the exporters.

                             The IIP is one of the founder members of the Asian Packaging Federation established for exchange of all information of packaging and for chalking out common programmes for the development of packing standards in the Asian region.

EUROPEAN UNION (UA)

                     The European Union was formerly called as European Common Market(ECM). The ECM was formed by signing the Treaty of Rome in March 1957 by six countries - France, Italy, Germany, Belgium, Netherlands, and Luxembourg.  It came into force form 1.1.1958. Between 1973 and 1995, another 9 countries joined ECM - such as Denmark, Ireland, UK, Finland, Austria, Sweden, Greece, Spain and Portugal. In 2004, another 10 countries joined the group. The 10 countries belonged to the former communist bloc - Hungary, Poland, Czech Republic, Slovenia, Slovakia, Lithuania, Latvia, Cyprus, Malta and Estonia. In 2007, two more countries are likely to join EU, i.e., Bulgaria and Romania. At present, there are 27 members nations of EU.

*  The Main Objectives of EU are :

• To eliminate trade barriers on member nations.
• To assist member nations during the times of emergencies.
• To develop cultural and social relations. 
• To promote free transfer of labour and capital among member nations. 
• To bargain collectively with the non-members by means of collective strength.
• To impose common external barriers on non-member.

*  Policies of European Union :

1. Common Agriculture Policy :-

                                           It aims at improving the agricultural productivity, and to improve the position of the EU farmers. It also aims to make available food products at reasonable rates. It allows free movement of food products among member nations.

2. Common Fisheries Policy :-
                                      It provides equal access to fishing areas to all nationals of EU. It adopts common market standards for marine products.

3.  Common Transport Policy :-
                                      It aims at integration of transport facilities of the entire community. It monitors organisation and control of transport system within the community.

4.  Fiscal Policy :-
                   It aims at unification of tax rates, and other fiscal matters. It common value added tax on products in the member states.

5.  Industrial Policy :-
                      It facilitates research and development among member nations. It aims at improving international competitiveness of industries of EU member states.

6.  Competition Policy :-
                      It prohibits agreements which lead to prevention, or restriction of competition within the EU. It aims to promote competition within the EU by restricting anti-competitive practices.

"Features of Special Economic Zones(SEZ)"

                           

                         With a ciew to enable hassle free export activity, Special Economic Zone are being set up. The units in these zones shall not be subjected to any pre-determined value addition, export obligation and input/output wastage norms. Sale in domestic tariff area by the units in such zones will be permitted on payment of full customs duty. Such SEZs has been selected, one each in Gujarat and Tamil Nadu. The existing EPZs are also being converted in SEZs.

Features :-

1.  Domestic Sales/Purchases :- 
                               Goods going in to the SEX areas from DTA (Domastic Tariff Area) shall be treated as deemed exports and goods coming from the SEZ area into DTA shall be treated as if the goods are being imported.
   
2. Export and Import of Goods :-
                             SEZ units may export goods and services including agro-products, partly processed jewellery, sub-assemblies ad components. It may also export by-producs, rejects, waste-scrap arising out of the production process.    
                         
3. Net Foreign Exchange Earning (NFE) :-
                             A SEZ unit shall be a positive net foreign exchange earner. NFE shall be calculated cumulatively for a period of five years from the commencement of commercial production.            
   
4. Domestic Tariff Area (DTA) Sales & Supplies :-
                             Sales to SEZs from DTA are to be treated as exports. Sales to DTA from SEZ are to be exempted from special additional duty (SAD) from SEZ 4% cheaper than imports. DTA sale by service/trading units shall be subject to achievement of positive NFE.
   
5. Export through Status Holder :-
                             A SEZ unit may also export goods manufactured by it through a merchant exporter / status holder or any other EOU / EPZ / SEZ unit.
   
6. Inter-limit Transfer :-
                             Transfer of manufactured goods or imported goods from one SEZ unit to another EPZ / EOU / SEZ unit is allowed, but not counted towards export performance.
   
7. Administration and Setting up of SEZ :-
                              SEZ will be under the administrative control of Development Commissioner. A SEZ may be set up in the public, private or joint sector. The existing EPZs may also be converted into SEZ by the Ministry of Commerce and Industry.
   
8. Export Proceeds :-
                              Units in SEZ can bring back their export proceeds in 360 days as against normal period of 180 days and can retain 100% of the proceeds in the EEFC Account.                                                                                     

"World Trade Organization(WTO)"

                       The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on 1 January 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments:fol.9–10 and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

                           The organization is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. As of June 2012, the future of the Doha Round remains uncertain: the work programmed lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round is still incomplete. The conflict between free trade on industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sector (requested by developed countries) and the substantiation of the international liberalization of fair trade on agricultural products (requested by developing countries) remain the major obstacles. These points of contention have hindered any progress to launch new WTO negotiations beyond the Doha Development Round. As a result of this impasse, there has been an increasing number of bilateral free trade agreements signed.  As of July 2012, there are various negotiation groups in the WTO system for the current agricultural trade negotiation which is in the condition of stalemate.

                         WTO's current Director-General is Roberto Azevêdo, who leads a staff of over 600 people in Geneva, Switzerland.

                               The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation – notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect.

                         In the absence of an international organization for trade, the GATT would over the years "transform itself" into a de facto international organization.

"COMPUTATION OF INCOME"

                 Let us take a quick survey of the steps involved fin the assessment (computation) of income under the Act.

1)   Determine Scope of Total Income :-      

                                          The "scope" of income means - What items are to be included in the income, and what items are to be excluded. The scope of income depends upon three factors - (a)  whether the  person earning the income is resident in India or not, (b)  whether the income arises during the previous 

     year and   (c) whether the income arises in India or outside. 

          

            (a)  Residence :  What items are to be included in the income depends upon whether a person is a  "resident"in India or not. A person is said to be "resident" in India, if, broadly speaking, he has stayed in India for the major part of the previous year (i.e. 6 moths or more); otherwise he is called a "non-resident".

            (b)  Year :  The income to be taxed must have arisen during the previous year only, i.e. neither before nor after the previous year.

             (c)  Place :  What items are to be included in the taxabbles income of a person, depends, next, upon whether the income is Incian of Foreign, i.e. arising within or outside India. Broadly speaking, a Resident has to pay Income-tax only on Indian as well as Foreign income, while a Non-Resident is liable to pay Income-tax only on the Indian income.

                 

2)   Classify Income Under Different Heads :-     

                                            After determining what is to be included, the next step is to classify the income under different "heads of income" prescribed under the Act. The major heads of income are - Salary,  Income from Property, Profits from Business, Capital Gains, and Income from Other Sources.

      

3)   Compute Income Under Each Head :- 

                                            The rules for computing income under each head are different. Such rules prescribe as to what is to be included under each head, what are the deductions allowed under each head and so on. This is the most important step in the computation of income. The Act grants exemption from tax, on certain items of income, such as agricultural income, or Leave Travel Allowance; or to certain persons such as Foreign Technicians, Foreign Teachers etc. Such exempted items are to be totally ignored and excluded while computing the taxable income.

4)   Determine Gross Total Income :-

                                           Though income is classified and computed under different heads, in the end, the income under all the heads is added together to arrive at the "Gross Total Income" of the assesses.

5)   Deduct Claims For Deductions :-

                                           The Income-tax Act allows certain deductions from the Gross Total Income.Such deductions are given to encourage savings in National Savings Certificates, PPF, etc. Deductions are also given on income earned by a handicapped person etc.           

6)   Compute Net Taxable Income :-

                                           Net Taxable Income is equal to Gross Total Income Less Deductions Allowed.This is the final step in the computation of income. Income-tax is charged on such bet taxable income.

                  

"Working Capital"

*   Introduction :

                       Every organisation commercial as well as non-commercial requires some amount of fixed capital for procurement of fixed assets viz. land and building, plant and machinery, furniture's and fixtures, vehicles etc. In addition to fixed capital an organisation requires additional capital for financing day to day activities. Such capital which is required for financing day to day activities is called as working capital. Working capital is required for smooth conduct of business activities. It is the working capital which decides success or failure of an organisation. It is the life blood of an organisation.

                      Shortage of working capital has always been the biggest cause of business failure. Lack of considerable foresight in planning working capital needs of the business has forced even profitable business entities, the so called 'blue-chip' companies, to the brink of insolvency.

                      Working capital is the warm blood passing through the arteries and veins of the business and sets it ticking. New firms wind up for want of working capital. Even gains tumble like pack of cards through the drying up of working capital reservoirs. 

                      Liquidity & profitability are the two aspects of paramount importance in a business. Liquidity depends on the profitability of business activities and profitability is hard to achieve without sufficient liquid resources. both these aspects are closely inter-related. 

                     In this chapter, we shall study the vital aspects such as concepts of working capital, its importance in business activities and decision-making process and calculation of required working capital with practical illustrations.

*   Definitions :

                    Working Capital, like many other financial and accounting terms, has been used by different people in different senses.

                    One school of thought believes, as all capital resources available to a business organisation - from shareholders. bondholders, and creditors (secured and unsecured) - 'works' up in the business activities to generate revenues and facilitate future expansion and growth, they are to be considered as 'working capital'.

                  Hoagland defines working capital as follows :

                  "Working Capital is descriptive of that capital which is not fixed. But, the more common use of working capital is to consider it as the difference between the book calue of the current assets and the current liabilities."

                  Gerestenberg defines working capital as follows:

                  "Circulating Capital means current assets of a company that are changed in the ordinary course of business from one to another, as for example, from cash to inventories, inventories to receivables and receivables to cash."

"Nature & Characteristics of Financial Statements"

*   Nature Financial Statements :

                               Financial Statements are plain statements based on historical recorded facts and figures. They are uncompromising in their objectives, nature and truthfulness. They reflect a judicious combination of recorded fact's, accounting principles, concepts and connections, personal judgement and sometimes and sometimes estimate.
                               Thus, financial statements are affected by three factors i.e., recorded facts, accounting conventions and personal judgement.

1. By recorded facts is meant the data contained in statements, which have been already recorded in accounting recorded.                                                                            Example : Cash in hand and at bank, cost of fixed assets, amounts due from customers and due to suppliers of goods are all recorded facts represented numerically.                                                               
2. Financial Statements are prepared by adhering to certain concepts and established conventions.                  
3. In agreement with the recorded facts and accounting concepts and conventions the role of personal judgement, estimates and opinions, are to be emphasized especially when two or more alternative procedures are available and which are equally acceptable.                        Example : An asset could be depreciated under several methods, and inventory could be valued under different methods. Under such circumstances, personal opinion and judgement play and important role as to which of the methods are in closer conformity with the accounting standards and concepts in a particulars circumstance or case.

*   Characteristics  Financial Statements :

                                       Financial Statements are regarded as indices of an enterprise's performance and position. As such, extreme care and caution should be exercised while preparing these statements. Financial Statements generally reflect the following observable characteristics :

1.   Internal Audience :-

                                 Financial Statements fare intended for those who have an interest in a given business enterprise. They have to be prepared on the assumption that the user is generally familiar with business practices as well as the meaning and implication of the terms used in that business. 

2.   Articulation :-

                               The basic financial statements are interrelated and therefore are said to be 'articulated'.

 Example :   Profit & Loss Account shows the financial results of operations and represents an increase or decrease in resources that is reflected in the various balances din the Balance Sheet.

3.   Historical Nature :-

                               Financial Statements generally report what has happened, in the past. Though they are used increasingly as the basis for the future by prospective investors and creditors, they are not intended to provided estimates of future economic activities and their effects on income and equity. 

4.   Legal and Economics Consequences :-

                               Financial Statements reflect elements of both economics and law. They are conceptually oriented towards economics, but many of the concepts and conventions have their origin in law.

Example :    Conventions of Disclosure and Materiality. 

5.   Technical Terminology :-

                                Since financial statements are products of a technical process called "Accounting", they involve the use of technical terms. It is therefore, important that the users of these statements should be familiar with the different terms used therein and conversant with their interpretations and meanings.

6.   Summarization and Classification :-

                                 The volume of business transactions affecting the business operations are so vast that summarization and classification of business events and items alone will enable the reader to draw out useful conclusions. 

7.   Money Terms :-

                              All business transactions are quantified, measured and related in monetary terms. In the absence of this monetary unit of measurement, financial statements will be meaningless. 

8.   Various Valuation Methods :-

                                       The valuation methods are not uniform for all items found in a Balance Sheet.

9.   Accrual Basis :-

                              Most financial statements are prepared on accrual basis rather than on cash basis i.e., taking into account all incomes due but not received, and all expenses due but not paid.

10.  Need for Estimates and Judgments :-

                                 Under more than one circumstance, the facts and figures to be presented through financial statements are to be based on estimates, personal opinions and judgments. 

Example :   Rate of depreciation, the useful economic life of a fixed assets, provision for doubtful debts is all instances where estimates and personal judgments are involved. 

11.  Verifiability :-

                          It is essential that the facts presented through financial statements are susceptible to objective verification, so that the reliability of these statements can be improved.

12.  Conservatism :-

                          Wherever and whenever estimates and personal judgments become essential during the course of preparation of financial statements, such estimates, should be based moderately on a conservative basis to avoid any possibility of overstating the assets and incomes.