Hi Friends! To continue growing knowledge about the foreign trades of Import and Export as I mentioned in my last blog there are several steps to learn. Today I am going to explain about the first step “Understanding Import & Export Regulations” which are necessary to understand before starting this business.

International trade in India is regulated by the Foreign Trade (Development and Regulation) Act, 1992. Though this act, the federal government has the power to make the certain provisions include those linked to the regulation and the development of foreign trade. The current provision fall under the Foreign Trade Policy, 2015-20.

There are two types of policies. 

1. Protection Trade Policy :- Protection trade policy means no incoming and no outgoing. We will consume whatever is produced within our country.

2. Free Trade Policies :- Our country has Policy of Free Trade which means our country’s economy is open for International Trade either incoming or outgoing. 

The government impose rules and regulations for BOP (balance of trade). For example when the production is in excess then export is allowed. Production is less than the consumption then import is allowed. No one should unnecessary import for the balance of import exports of goods and services.

Essential legal measures too have impact on the volume, composition and direction of foreign trade or to fulfill certain specified objectives.

Why to do we need Regulations :-

• To discourage non essential import – When there is no basic need or requirement of such items then import is not allowed.
• Make protection policy successful – To save our industry from competition, restrictions are imposed on import & Export. When a country is capable enough to face the competition and challenges from the international market then trade should be allowed.
• To correct dis-equilibrium in BOP – Export is less than import then stop import and equal both trades. We should maintain the Balance of trade.
• To improve terms of trade – National security – self dependent. Safety of our security is important. For example defective material can be imported which is harmful for our country. Developing country can fix their terms and when you import then they may ask to pay in advance. When you export then they may ask for credit facilities. Government impose own terms for trades for the safety of traders.
• To check dumping – Developed country can make a policy to sell in low price. Demand becomes high and countries keep purchasing in excess on low rates. Many international brands started dumping on low rates. They setup MNC in our country and we become habitual of consuming it rather than using our local produces.
• To make optimize use of Natural and Human Resources  of country – Better utilization of our resources rather than using from other countries.
• War Condition  – For example our country depends on other countries for certain goods which are having war with other countries. In that Situation there will be a shortage.  Our economy can suffer and rates will go high. We should have provision of those goods production with in our country too. Same is with export, we will not be able to send and our earnings will be impacted.
• To promote Foreign trade – Control on import, priority is to consume produce with in country. Only Export will be allowed so that economy will continue grow.
• To make desire of change in import and export – We control commodities which can be traded. For example we are doing trade of Jute, Leather and Cloth however now our country decide to change it and want to trade Engineering goods, sugar etc. This implies on both trades.
• To protection from exploitation – India is rich in natural and human resources. They are available on lower rates and the exploitation can be started by the developed countries. Because they know in India the production is on high level in lower rates.  
• To make the desire change in the direction of composition – For certain goods Instead of USA and China we want to start with Gulf and Asian countries.  
• To check the import of luxury goods – Unnecessary goods are being consumed and waste of income is high.
• Retaliation – Some countries impose duties on import and export. So the style they follow same India will follow with them.
• Restriction – of certain items which does not have any demand in our country then no import if surplus production then allow more export.

Method of Regulations:- Regulations are depending on Country. Below mentioned are the methods used commonly.  

• Tariff wall – Pay while export duty and pay while import duty & taxes.
• Quota system – Fix quantity will be given and taken from other countries.
• Licensing system – For Export and import this is mandatory.  Sometime quota is fixed while the license is being issued.
• Foreign Exchange Control – Countries can ask for payments in their own currency. To full fill that government has Forex banks  to regulate the balance of payments.
• Devaluation or appreciation of domestic currency – Appreciate means currency value is high, export will reduce. Devaluation will reduce import and increase export. Government use devaluation more than appreciation for the growth of economy.

• Most favored countries – Developed country accord the status and to promote trade with low duty in export and import. For example like USA has given most favored nation award to China by which trade is promoted of China. Trade procedures will be easier.

I hope you have understood regulations and methods. Please share your feedbacks and comments and let me know a topic you want to cover in my next blog. 

Have a safe trade! Signing off Nipun Bansal.