19 - Deepak International Business

EXTERNAL SECTOR REFORMS-
REGULATION AND PROMOTION

OF FOREIGN TRADE
BY
SAI DEEPAK
MBA(ITLM)
1804305019
05/27/2020 1
EXTERNAL SECTOR REFORMS
To overcome balance of payments and restore economic

health to the external sector ,various measures of stabilisation
and structural reforms were undertaken by the government ,
such reforms are known as external sector reforms.
The external sector is the portion of a country’s economy that

interacts with the economies of other countries. In the goods
market ,the external sector involves exports and imports. In
the financial market it involves capital flows.
05/27/2020 2
External sector reforms in India and its success
India faced the crisis of detoriorating balance of payments in

the late 80’s and early 90’s . To rectify this situation
devaluation was carried out , which was followed by the
announcement of new foreign trade policies and foreign trade
reforms. Some of the measures taken to reform external sector
include ;
• Exchange rate stabilisation
• Foreign investment
• Import licensing
• Quantitative restrictions
• Tariff
05/27/2020 3
• Export subsidies
• Special economic zones
• Foreign exchange reserves
• FERA to FEMA
• Other measures
05/27/2020 4
• Exchange rate stabilisation : The rupee was devalued twice in
july 1991 amounting to a cumulative devaluation of 19% in
1994,various types of current account transactions were
libarelised from external control regulations with some
limits.There was some relaxation in exchange controls for
certain capital account transactions.
• Foreign investment : The new industrial policy and
subsequent policy announcements liberalised the existing
industrial policy which led to liberalisation of FDI with
foreign technology agreements.
• Import licensing : The EXIM policy allowed free trade of all
items except the negative list of exports and imports. The
EXIM policies of 1997-02,2002-07 and 2004-09 further
trimmed the list by removing certain items. There has also
been a reduction in the number of import licenses.
05/27/2020 5
• Quantitative restrictions : Quantitative restrictions have been
removed for all kinds of imported consumer goods except
defence goods, sensitive goods, environmentally hazardous
goods. QR’s were removed on 714 items in the EXIM policy
2000-01 and on remaining 715 items in the EXIM policy of
2001-02. The EXIM policies of 1997-02, 2002-07 and 2004-09
further trimmed the list making a very small number of
sensitive items subjected to QR’s.
• Tariff : India import tariff structure was among the highest in the
world till 1991. India lowered its average applied tariff rate
from 125% in 1990-91 to 41% in 1995-96 and to 10% in 2007-
08.
05/27/2020 6
• Export subsidies : Export subsidies are provided to Indian
exporters indirectly in the form of duty and tax concessions
export finance, export insurance and guarantee and export
promotion marketing assistance. The cash compensatory scheme
was abolished in july 1991. with the introduction of dual
exchange rate scheme , the EXIM scrip scheme was abolished. A
special scheme called the Export promotion capital goods
(EPCG) scheme was introduced in April 1990 and liberalised in
April 1992. This aimed at encouraging importing of capital
goods. Exporters avail additional benefits from the EPCG
scheme under the EXIM policy 2004-09 and 2009-14.
• Special economic zones ( SEZ’s) : It was introduced in the year
2000. SEZ ACT, supported by SEZ rules, came into effect in
2006 for the generation of additional economic activities
promotion of investment , creation of employement opportunities
and development of infrastructure facilities.
05/27/2020 7
• Foreign exchange reserves : Foreign exchange reserves have
been steadily built up from US $ 1.1 billion in july 1991 to
US $ 294 billion at the end of march 2012. The foreign
exchange reserves of India include foreign currency assets held
by RBI, gold holdings of RBI and special drawing rights.
• FERA to FEMA : Foreign exchange regulation act , which was
set up to facilitate external trade ended up discouraging it. Thus,
the Foreign exchange management act was enacted to facilitate
external trade and payment and promote the orderly
development and maintainance of foreign exchange market in
India.
• Other measures : ‘ Vishesh krishi upaj yojana’ has been started
to promote agricultural exports. Duty free Export Credit scheme
has been revamped and recast into the ‘served from india’
scheme.
05/27/2020 8
05/27/2020 9
REGULATION AND PROMOTION OF FOREIGN TRADE
• The foreign trade policy is implemented mostly by the means

of regulatory framework provided by the Foreign Trade
(Development and Regulation ) act,1992.
• The Foreign Trade Act came in place of Exports Control Act
1947.
• The Foreign Trade act 1992 has been significantly amended in
the year 2010 by the parliament of India.
• The Foreign Trade policy is regulated every 5 years by the
central government. The current Foreign Trade policy is
[1stApril ,2015- 31 March,2020].
• With the primary objective of conserving the foreign exchange
reserves and restricting physical imports Import Control was
introduced in 1940.
05/27/2020 10
Besides the Foreign Trade Development Regulation act, there are
some other laws which control the trade in certain items
• The export of antiquities is regulated under the Antiquities and
Art Treasures Act,1972.
• Export of coffee is regulated by the Coffee Board under the
Indian Coffee Act ,1942.
• Export of tea is regulated under Tea Act, 1953.
• The export and import currency notes, bank notes and coins
have been controlled by the Reserve Bank of India under
Foreign Exchange Regulation Act , 1997.
05/27/2020 11
The Foreign Trade ( Development and Regulation) Act,1992
• This act came into force on 19th June 1992.

• No export or import shall be made by any person except in
accordance with the provision of this Act , the orders and rules
made under this act and the export and import policy.
Objective
The objective of the Act is to provide for the development and
regulation of foreign trade by facilitating imports into and
augmenting exports from India and for matters connected
therewith or incidental thereto.
05/27/2020 12
Main provisions
The main provisions of FTDR Act are the following:

• Development and Regulation : The FTDRA empowers the central
government to make provisions for the development and regulation
of foreign trade by facilitating imports and increasing exports.
• Prohibition and restriction : The Act also empowers the central
government to make provision for prohibiting , restricting or
otherwise regulating the import or export of goods as and when
required. All the goods which are so regulated under this sub-
section shall be deemed to be goods the import or export of which
has been prohibited under section 11 of the Customs Act 1962, and
all the provisions of the act shall have effect accordingly.
• EXIM policy : The Act lays down that the central government may,
from time to time, formulate and announce the export and import
policy and may also amend that policy.
05/27/2020 13
• Director general of foreign trade : The DGFT shall advise
the central government in the formulation of import and
export policy and shall be responsible for carrying out
that policy. [The corresponding authority under the Imports
and Exports control Act 1947, was called the Chief
Controller of Imports and Exports ]
• Importer – exporter code number : The act lays down that
no person shall make any import or except under an IEC
numbers granted by the DGFT or the officers authorised by
him in his behalf. The director general is empowered to
suspend or cancel the IEC number granted to any person if
there is a valid reason , like contravention of law relating to
central excise or customs or foreign exchange or having
conducted import/export in a manner gravely prejudicial to
the trade relations of India with any foreign country.
05/27/2020 14
• Issue and suspension/ cancellation of licence: The Director
general is empowered to suspend or cancel a licence issued
for export or import of goods in accordance with this Act for
good and sufficient reasons, after giving the licence holder a
reasonable opportunity of being heard
• Search ,inspection and seizure : Where any contravention of

any condition of the licence of authority under which any goods
are imported is suspected , any person authorised by the central
government may search , inspect and seize such goods ,
documents, things, etc.
• Penalty for contravention : Where any person makes or
attempts to make any export or import in contravention of any
provisions of this act or any rules or orders made under this act,
he shall be liable to pay a penalty not exceeding 1000 rupees or
5 times the value of the goods involved, whichever is more.
05/27/2020 15
Reference
 Francis Cherunilam – INTERNATIONAL BUSINESS ( fifth

edition)
 http://gradestack.com/CA-CPT/Economic-Reforms-in-India/R
eforms-in-the-external/22657-4557-54901-study-wtw
 https://www.lawfarm.in/blogs/legislations-and-regulations-rela
ting-to-foreign-trade-in-india
05/27/2020 16
THANK YOU
05/27/2020 17

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EXTERNAL SECTOR REFORMS-

REGULATION AND PROMOTION

To overcome balance of payments and restore economic

The external sector is the portion of a country’s economy that

India faced the crisis of detoriorating balance of payments in

• The foreign trade policy is implemented mostly by the means

• This act came into force on 19th June 1992.

The main provisions of FTDR Act are the following:

• Search ,inspection and seizure : Where any contravention of

 Francis Cherunilam – INTERNATIONAL BUSINESS ( fifth

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