SUBHARTI UNIVERSITY
BCOM - 203
SUBJECT - INTERNATIONAL BUSINESS
SEM - 02
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Q1. Describe the impact of WTO on India.
heWorld Trade Organization (WTO)was established in 1995, replacing the General
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Agreement on Tariffs and Trade (GATT). India, being a founding member of the WTO, has seen
both positive and negative impacts since joining.
Positive Impacts:
1. Increased Market Access:
○ W
TO rules opened up global markets for Indian exports, especially in textiles,
pharmaceuticals, and IT services.
○ India’s software and service exports grew substantially due to liberal trade
policies.
2. Boost to Agricultural Exports:
○ India benefited from the Agreement on Agriculture (AoA), allowing it to export
rice, wheat, and spices more freely.
3. Foreign Investment:
○ T
rade liberalization encouraged FDI in sectors like telecom, retail, and
manufacturing, enhancing economic growth.
4. Dispute Settlement:
○ India used WTO's dispute resolution mechanism to protect its trade interests. For
example, it won a case against the US on steel duties and poultry import bans.
5. Improved Standards:
○ W
TO norms led to improvements in product standards, competitiveness, and
quality.
Negative Impacts:
1. Pressure on Domestic Industries:
○ S
mall and medium industries faced tough competition from cheaper imports due
to tariff reductions.
2. Agricultural Challenges:
○ D
eveloped nations continued to subsidize their agriculture, putting Indian farmers
at a disadvantage.
3. TRIPS Agreement Issues:
○ T
he Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
raised concerns regarding patent protection and access to affordable medicines.
4. Limited Gains in Services:
○ T
hough India excels in services, developed countries have been reluctant to
liberalize this sector fully.
Conclusion:
TO has helped India integrate into the global economy, expand exports, and attract
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investment. However, challenges remain in protecting domestic industries and achieving
equitable gains in global trade.
Q2. Discuss the role of Foreign Policy in India’s economy.
oreign policy plays a crucial role in shaping a country's economic environment, especially in a
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globalized world. In India, foreign policy is closely aligned with economic development, trade,
and investment.
Role of Foreign Policy in India's Economy:
1. Trade Expansion:
○ India's foreign policy has aimed to strengthen trade relations with countries like
the US, EU, ASEAN, and Middle East.
○ B
ilateral trade agreements and Free Trade Agreements (FTAs) are tools for
economic diplomacy.
2. Foreign Direct Investment (FDI):
○ F
riendly foreign relations have helped attract FDI in sectors like telecom, IT,
retail, and manufacturing.
○ E
xample: Economic diplomacy with Japan resulted in investments in metro and
infrastructure projects.
3. Energy Security:
○ India’s foreign policy focuses on securing oil and gas supplies from countries like
Iran, Russia, and Saudi Arabia.
4. Technology Transfer and Innovation:
○ C
ollaborations with developed nations have enabled access to modern
technology in defense, agriculture, and space.
5. Diaspora Engagement:
○ India's policy of engaging with the Indian diaspora has helped promote
remittances, which are vital for foreign exchange.
6. Multilateral Engagement:
○ A
ctive participation in WTO, BRICS, G20, and UN enhances India’s global
economic influence.
Challenges:
● G
eopolitical tensions (e.g., with China or Pakistan) sometimes affect trade and
investment.
● Trade deficits and protectionist policies of other nations impact India’s exports.
Conclusion:
India’s foreign policy is increasingly focused on economic goals. Strategic partnerships, global
positioning, and trade agreements reflect its commitment to leveraging foreign relations for
economic prosperity.
Q3. Explain the meaning, nature, aim and scope of international trade.
Meaning:
International traderefers to the exchange of goodsand services between countries. It allows
nations to specialize in production where they have a comparative advantage and import goods
they cannot efficiently produce.
Nature of International Trade:
1. Global Exchange: Involves transactions across borders.
2. S
pecialization and Comparative Advantage: Nationsfocus on producing goods they
can make efficiently.
3. Use of Foreign Exchange: Payments are made in foreigncurrencies.
4. Regulated by International Bodies: Subject to WTOrules and bilateral treaties.
5. Complex Documentation: Requires customs, shipping,and insurance paperwork.
Aim of International Trade:
1. Economic Growth: Boosts GDP through exports and imports.
2. Employment Generation: Increases job opportunitiesin export-oriented industries.
3. Access to Resources: Enables countries to obtain resourcesnot available domestically.
4. Technology Transfer: Facilitates flow of technologyand innovation across borders.
5. Improving Relations: Strengthens diplomatic and economicties between nations.
Scope of International Trade:
1. Export and Import Activities: Includes raw materials,finished goods, and services.
2. Trade in Services: IT, tourism, education, and healthcare services form a growing part.
3. F
oreign Investments: International trade is oftenlinked with foreign investments and
joint ventures.
4. E-Commerce: Digital platforms have expanded the reach of international trade.
Conclusion:
International trade is an essential driver of global economic integration, offering countries the
opportunity to grow, innovate, and improve living standards through mutual exchange.
4. What are the steps taken by the government for export promotions? Explain with
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examples.
xport promotion refers to policies and actions aimed at increasing a country's exports. The
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Government of India has implemented several initiatives to boost exports and improve the
country’s global trade competitiveness.
Major Steps Taken:
1. Foreign Trade Policy (FTP):
○ Updated every 5 years to provide guidelines and incentives.
○ FTP 2023 emphasizes digitization, ease of doing business, and new markets.
2. Export Promotion Councils (EPCs):
○ S
pecialized councils for different sectors (e.g., textiles, engineering, gems) help
exporters find markets.
3. Incentive Schemes:
○ MEIS(Merchandise Exports from India Scheme): Providedduty credit scrips.
○ R
oDTEP(Remission of Duties and Taxes on Exported Products): Replaced
MEIS, ensuring refund of duties.
4. Special Economic Zones (SEZs):
○ Areas with tax benefits and simplified procedures for exporters.
○ Example: SEZs in Gujarat and Tamil Nadu support textile and IT exports.
5. Financial Support:
○ EXIM BankandECGCprovide credit and insurance toexporters.
6. Infrastructure Development:
○ Initiatives like Sagarmala and Bharatmala for better port and road connectivity.
7. Market Diversification:
○ F
ocus on expanding exports to Africa, Latin America, and ASEAN, reducing
dependency on traditional markets.
8. Ease of Doing Business:
○ S
implification of documentation, online portals, and customs reform to reduce
transaction time.
Example:
India’s pharmaceutical sector grew significantly with government help in gaining approval from
international drug regulators like the USFDA.
Conclusion:
hese measures have played a key role in enhancing India's export potential. Continued
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support and policy reforms are necessary to compete in the evolving global trade landscape.
5. Write the limitations of Classical theory. How Ricardian theory differs from Classical
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theory of international trade.
Limitations of Classical Theory (Adam Smith’s Absolute Advantage):
1. Assumes Only Two Countries and Two Goods:
○ The model oversimplifies the real-world trade scenario.
2. Ignores Cost of Transport:
○ Assumes free movement of goods, which is not practical.
3. Neglects Factor Mobility:
○ Assumes labor is immobile internationally but freely mobile domestically.
4. No Role for Money:
○ It considers only barter-style exchange.
5. Ignores Demand Factors:
○ Focuses only on supply-side efficiency, ignoring demand and market conditions.
6. Unrealistic Assumptions:
○ Assumes full employment, perfect competition, and constant returns to scale.
Ricardian Theory (Comparative Advantage):
avid Ricardo introduced the concept ofcomparative advantage, which extended classical
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theory by showing that even if a country has no absolute advantage, it can still benefit from
trade.
Differences between Classical and Ricardian Theory:
Basis Classical Theory Ricardian Theory
Core Idea Absolute advantage Comparative advantage
Productivity country should produce what it A country should specialize in goods with
A
is most efficient at the least opportunity cost
rade
T nly when one country is better
O ossible even if a country is less efficient
P
Possibility in at least one good in both goods
Example If India is better in rice and USA ven if USA is better in both, India should
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in wheat, each should specialize still produce what it's relatively better at
Conclusion:
icardo’s theory made international trade more inclusive by showing mutual benefit through
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comparative advantage. It remains a cornerstone in modern trade theory, overcoming the
rigidities of the classical model.
