All Questions - MCO-15 - India’s Foreign Trade and Investment - IGNOU - MCOM - Assignment Solutions - 3rd semester

                            IGNOU ASSIGNMENT SOLUTIONS

        MASTER OF COMMERCE (MCOM - SEMESTER 3)

                            MCO-15 - India’s Foreign Trade and Investment                                                                                     MCO-15/TMA/2025

Question No.1 

How does foreign trade serve as an engine of growth. Distinguish between inward orientation and outward orientation as objectives of foreign trade policy. Also examine changes in India’s foreign policy in this context. 

Answer: 

1. Introduction

Foreign trade refers to the exchange of goods, services, and capital between countries. It is often considered an engine of growth because it stimulates production, facilitates technology transfer, creates jobs, and promotes economic efficiency through comparative advantage.

In modern economies, domestic markets alone are often insufficient to sustain high growth rates. Engaging in foreign trade enables a country to expand its production capacity, access better inputs, and diversify markets.

2. How Foreign Trade Serves as an Engine of Growth

Foreign trade acts as a growth driver in the following ways:

(A) Expansion of Market Size

• Domestic demand is often limited by the size of the population’s purchasing power.

• Foreign trade opens up global markets, enabling producers to scale up production.

• Example: Indian IT services find a much larger market in the USA and Europe than domestically.

(B) Exploitation of Comparative Advantage

• As per David Ricardo’s theory, countries should specialise in goods they can produce efficiently and import goods they produce less efficiently.

• This specialisation increases productivity and overall welfare.

(C) Technology Transfer and Innovation

• Foreign trade enables import of advanced technology, machinery, and know-how.

• Example: India’s automobile industry improved productivity and quality through technology collaboration with Japanese and Korean firms.

(D) Economies of Scale

• Producing for a larger market reduces per-unit costs.

• Export-oriented firms can achieve lower production costs and become more competitive globally.

(E) Employment Generation

• Expansion of trade-intensive industries creates direct and indirect jobs.

• Example: India’s textile and garment sector employs millions, partly due to export demand.

(F) Foreign Exchange Earnings

• Export earnings provide the foreign currency needed for importing essential goods like crude oil, defence equipment, and high-end technology.

(G) Encouragement of Competition

• Exposure to global competition forces domestic firms to improve quality and reduce costs.

3. Inward Orientation vs. Outward Orientation in Foreign Trade Policy

Foreign trade policy can follow two broad approaches:

3.1 Inward Orientation (Import Substitution Strategy)

Definition:
An inward-oriented strategy focuses on protecting domestic industries by reducing imports and encouraging production for the home market.

Features:

• High import tariffs and quotas.

• Import licensing requirements.

• Emphasis on self-reliance.

Advantages:

• Protects infant industries from foreign competition.

• Conserves foreign exchange reserves.

• Encourages domestic production capacity.

Disadvantages:

• Leads to inefficiency due to lack of competition.

• Slows down technological upgradation.

• Limits export competitiveness.

Example in India:

• Post-independence till 1991, India followed a protectionist inward-oriented policy under the import substitution industrialisation (ISI) model.

3.2 Outward Orientation (Export-Led Growth Strategy)

Definition:
An outward-oriented strategy encourages production for international markets and allows imports of intermediate goods and technology needed to boost exports.

Features:

• Lower trade barriers.

• Encouragement of export industries.

• Integration into global value chains.

Advantages:

• Promotes efficiency through competition.

• Expands market access.

• Facilitates technology transfer and FDI inflow.

Disadvantages:

• Vulnerable to global market fluctuations.

• Risk of over-dependence on foreign markets.

Example in India:

• Post-1991 liberalisation reforms shifted India’s trade policy towards export promotion and global integration.

3.3 Key Differences Table

Basis	Inward Orientation	Outward Orientation
Focus	Domestic market	International market
Trade Barriers	High	Low
Objective	Self-reliance	Global competitiveness
Technology	Slow adoption	Fast adoption via imports
Example	India pre-1991	India post-1991

4. Changes in India’s Foreign Trade Policy in This Context

India’s foreign trade policy has undergone three major phases in its evolution:

4.1 Phase I: Protectionist and Inward-Oriented (1947–1990)

• Strategy: Import substitution to achieve self-reliance.

• Policies:

  • High tariffs and quantitative restrictions.

  • Import licensing.

  • Public sector dominance in heavy industry.

• Rationale:

  • Protect infant industries.

  • Avoid dependence on foreign goods.

Outcome:

• Slow export growth.

• Low global competitiveness.

• Foreign exchange crises by late 1980s.

4.2 Phase II: Liberalisation and Outward Orientation (1991–2000)

• Trigger: 1991 Balance of Payments crisis.

• Policy Shift:

  • Reduction in tariffs and quotas.

  • Devaluation of rupee to boost exports.

  • Opening up to foreign investment.

  • Establishment of Export Processing Zones (EPZs).

Outcome:

• Increase in export volumes and diversity.

• Integration into global value chains in IT and manufacturing.

4.3 Phase III: Global Integration & Strategic Trade (2000–Present)

• Strategy: Make in India + Export-led growth.

• Initiatives:

  • Foreign Trade Policy (FTP) updates every 5 years.

  • GST to streamline internal trade.

  • Signing of Free Trade Agreements (FTAs) with ASEAN, UAE, Australia.

  • Production-Linked Incentive (PLI) schemes for electronics, textiles, pharma.

Outcome:

• Significant growth in merchandise and service exports.

• India emerging as a global IT and pharmaceutical hub.

• Strategic focus on high-value exports and reducing dependency on low-tech goods.

5. Critical Analysis of the Shift

While outward orientation has brought significant benefits, certain challenges remain:

• Trade Deficit:
  Imports still exceed exports, especially due to oil and electronics imports.

• Unequal Gains:
  IT and pharma benefit disproportionately, while traditional sectors struggle.

• Dependence on Global Conditions:
  Global recessions, protectionism, or supply chain disruptions impact exports.

• Need for Infrastructure Upgradation:
  Ports, logistics, and power supply require improvement for export competitiveness.

6. Conclusion

Foreign trade acts as a powerful engine of economic growth by expanding markets, improving efficiency, enabling technology transfer, and creating jobs.
However, the orientation of trade policy—inward or outward—determines how effectively these benefits are realised.

India’s post-1991 shift towards outward orientation has been a positive step, resulting in stronger global integration and higher exports.
But continued reforms, diversification of export baskets, and strategic trade diplomacy are essential to sustain growth and ensure balanced development.

Question No. 2

a) Examine the need for foreign capital in the Indian economy and discuss critically the Government policy on foreign direct investment.

b) "Is it true that the Indian economy is such that domestic savings alone may not be sufficient for planned investment, and an import of foreign capital is needed for that purpose"? Elaborate your arguments.

Answer: 

a) Part

I. Introduction

Foreign capital plays a vital role in the economic development of a nation, especially for developing economies like India, where domestic savings and capital formation are often insufficient to meet investment needs.
In the Indian context, foreign capital comes in multiple forms — Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), External Commercial Borrowings (ECBs), and foreign aid.

Since the economic liberalisation of 1991, India has increasingly opened its economy to foreign capital flows, recognising that they can accelerate growth, modernise industry, and integrate the country into the global economy.

II. The Need for Foreign Capital in the Indian Economy

The need arises from several interlinked economic factors:

1. Investment–Savings Gap

• Economic growth requires investment in infrastructure, manufacturing, and services.

• India’s domestic savings, though improved over the decades, have not always been sufficient to finance the desired level of investment.

• Foreign capital bridges this gap, enabling higher capital formation without overburdening domestic resources.

2. Foreign Exchange Constraint

• Large imports of capital goods, crude oil, technology, and essential raw materials require foreign exchange.

• Foreign capital inflows strengthen foreign exchange reserves, enabling India to finance these imports and maintain a stable exchange rate.

3. Technology Transfer and Modernisation

• FDI often brings advanced production technology, better management practices, and R&D facilities.

• Example: The entry of global automobile companies like Hyundai, Suzuki, and Honda modernised India’s auto sector and made it globally competitive.

4. Employment Generation

• FDI inflows create direct jobs in manufacturing, IT, services, and indirect jobs in supply chains.

• Example: Expansion of electronics manufacturing in Tamil Nadu and Karnataka has boosted local employment.

5. Infrastructure Development

• Foreign capital supports large infrastructure projects that domestic investors may avoid due to high costs and long gestation periods.

• Example: Ports, airports, highways, and renewable energy projects often rely on foreign participation.

6. Integration with Global Value Chains (GVCs)

• FDI connects Indian firms to global production networks, improving export competitiveness.

• Example: Electronics assembly for companies like Apple in India is part of their global supply chain.

7. Improvement in Balance of Payments (BoP)

• While FDI initially increases outflow in terms of profit repatriation, it also boosts exports, tourism earnings, and services exports, thereby improving the BoP over the long term.

8. Sectoral Growth and Diversification

• Foreign capital helps develop high-potential sectors like renewable energy, e-commerce, defence manufacturing, and healthcare where domestic investment is limited.

III. Sources of Foreign Capital in India

Foreign capital inflows to India can be broadly categorised as:

1. Foreign Direct Investment (FDI) – Equity investment with management control.

2. Foreign Portfolio Investment (FPI) – Investment in stocks, bonds, and securities without control.

3. External Commercial Borrowings (ECBs) – Loans from foreign institutions.

4. Foreign Aid – Concessional loans and grants from bilateral/multilateral agencies.

While all have roles, this answer focuses mainly on FDI due to its long-term developmental impact.

IV. Government Policy on Foreign Direct Investment (FDI) – Historical Perspective

1. Pre-1991 Period (Restrictive Policy)

• FDI was discouraged; only allowed in selected industries with low equity caps (often 40% or less).

• Industrial licensing and bureaucratic approvals were major barriers.

• Objective: Self-reliance and protection of domestic industry.

• Result: Very low FDI inflows, outdated technology, low competitiveness.

2. 1991–2000: Liberalisation Phase

• Economic crisis in 1991 forced India to adopt structural reforms.

• New Industrial Policy 1991 dismantled licensing, allowed automatic FDI in many sectors, and raised equity caps.

• Entry of global players in automobiles, telecom, consumer goods.

• FDI inflows increased from less than $200 million in 1991 to around $3 billion by 2000.

3. 2000–2014: Gradual Expansion

• More sectors opened for 100% FDI under the automatic route (no prior government approval).

• Insurance, aviation, retail, and construction saw partial liberalisation.

• Inflows rose significantly due to a stable macroeconomic environment and market size.

4. 2014–Present: Aggressive Liberalisation

• The Government adopted an investor-friendly approach under the “Make in India” initiative.

• Higher sectoral caps: 100% FDI allowed in railways, coal mining, contract manufacturing; 74% in defence; 100% in single-brand retail.

• Streamlined procedures via Foreign Investment Facilitation Portal (FIFP).

• Introduction of FDI policy consolidation in one document, updated annually.

V. Current Framework of FDI Policy

Routes for FDI

1. Automatic Route – No prior government approval required (covers majority of sectors).

2. Government Route – Prior approval required for sensitive sectors like defence, telecom, media, and insurance.

Sectoral Caps (as of 2025)

• 100% – Agriculture, e-commerce marketplace, renewable energy, infrastructure, contract manufacturing.

• 74% – Defence manufacturing (automatic up to 74%, beyond that with government approval).

• 51% – Multi-brand retail (with conditions).

Prohibited Sectors

• Lottery, gambling, chit funds, real estate business (excluding construction), atomic energy.

VI. Critical Evaluation of Government’s FDI Policy

A. Strengths / Positive Aspects

1. Increased Capital Inflows

   • India is now among the top global FDI recipients; inflows exceeded $70 billion annually in recent years.

2. Ease of Doing Business Improvements

   • Streamlined approvals, online single-window clearances, and reduction of red tape.

3. Sectoral Modernisation

   • FDI has modernised telecom, automobiles, renewable energy, and e-commerce.

4. Employment Generation

   • Creation of millions of jobs directly and indirectly in manufacturing and services.

5. Integration into Global Value Chains

   • Export-oriented FDI in electronics, garments, and engineering goods.

B. Limitations / Concerns

1. Uneven Sectoral Distribution

   • Majority of FDI goes into services and e-commerce, with less in core manufacturing or agriculture.

2. Profit Repatriation

   • Large outflow of dividends and royalties reduces net foreign exchange gains.

3. Regional Disparities

   • FDI concentrated in a few states like Maharashtra, Karnataka, Gujarat, Tamil Nadu; less in eastern and northeastern states.

4. Over-dependence Risk

   • Heavy reliance on foreign capital can make the economy vulnerable to global shocks.

5. Policy Uncertainty

   • Sudden changes (e.g., e-commerce FDI rules) create uncertainty for investors.

C. Challenges Ahead

• Need to attract more greenfield investments (new projects) rather than brownfield acquisitions.

• Strengthen domestic supply chains to maximise spillover benefits.

• Align FDI policy with Atmanirbhar Bharat without creating protectionist barriers.

VII. Way Forward

1. Focus on Manufacturing FDI

   • Expand incentives under PLI schemes to attract high-tech manufacturing.

2. Balanced Regional Development

   • Develop infrastructure and ease of doing business in less-developed states to spread FDI benefits.

3. Technology and Skill Linkages

   • Make technology transfer clauses and skill training commitments part of FDI agreements.

4. Stable Policy Environment

   • Avoid abrupt regulatory changes; ensure transparency and investor confidence.

5. Sustainability and Green Investments

   • Encourage FDI in renewable energy, electric mobility, and sustainable infrastructure.

VIII. Conclusion

Foreign capital, particularly FDI, has been a key driver of India’s economic growth since liberalisation. It fills investment gaps, transfers technology, creates jobs, and enhances global competitiveness.

However, the government’s FDI policy must be strategic and inclusive, ensuring that inflows support long-term development goals, spread evenly across sectors and regions, and create strong linkages with domestic enterprises.

In an increasingly competitive global environment, India must strike a balance between openness to foreign capital and protection of national economic interests, ensuring that FDI serves as a catalyst for self-sustaining, inclusive, and sustainable growth.

b) Part

1. Introduction

The Indian economy, being one of the largest and fastest-growing economies in the world, has substantial investment needs to sustain high economic growth, modernize infrastructure, boost industrial production, and improve social welfare. While domestic savings play a critical role in funding investment, history and economic realities indicate that these savings have often been insufficient to meet the required level of planned investments.

In such cases, foreign capital—in the form of Foreign Direct Investment (FDI), Foreign Institutional Investment (FII), External Commercial Borrowings (ECBs), and Official Development Assistance (ODA)—becomes essential to bridge the savings-investment gap.

2. Understanding the Savings–Investment Gap in the Indian Context

Economic growth requires capital accumulation, which depends on the gross domestic savings rate. If the domestic savings rate is insufficient to fund investment needs, a current account deficit emerges, which must be financed by capital inflows.

2.1. Historical Savings Trends in India

• In the early decades after independence (1950s–1970s), India’s savings rate was below 15% of GDP.

• Post-economic reforms of 1991, savings rates improved and hovered around 30–35% of GDP during 2005–2011.

• In recent years, savings rates have fluctuated due to global slowdowns, inflation, and consumption-driven policies.

2.2. Why Domestic Savings Alone Are Often Insufficient

1. High Investment Targets in Five-Year Plans and modern economic strategies require more funds than domestic savings can provide.

2. Infrastructure Gaps in transport, energy, housing, and digital networks demand huge capital expenditure.

3. Technological Upgradation Needs require capital-intensive imports and foreign collaborations.

4. Population Pressure demands investments in education, health, housing, and employment generation.

3. The Need for Foreign Capital in India

Foreign capital supplements domestic savings, provides technology, and integrates India into global markets. The major needs for foreign capital are as follows:

3.1. Bridging the Savings–Investment Gap

• Investment (I) must be higher than savings (S) for faster growth.

• Example: If GDP growth targets require investment of 35% of GDP but savings are only 28%, the 7% gap must be financed through foreign capital inflows.

3.2. Access to Advanced Technology

• Many sectors—such as renewable energy, automobiles, semiconductors, and healthcare—require technology unavailable domestically.

• FDI brings not only funds but also managerial skills and global supply chain access.

3.3. Infrastructure Development

• Mega infrastructure projects like Delhi–Mumbai Industrial Corridor, Smart Cities Mission, and High-Speed Rail need billions of dollars beyond domestic capacity.

3.4. Industrial Modernization and Competitiveness

• Foreign capital helps Indian firms upgrade production facilities, meet international quality standards, and compete in export markets.

3.5. Employment Generation

• FDI in sectors such as manufacturing, IT, e-commerce, and tourism creates direct and indirect jobs.

3.6. Balance of Payments Support

• Capital inflows finance the current account deficit caused by higher imports of machinery, raw materials, and oil.

4. Arguments Supporting the Statement

The statement argues that domestic savings alone are not sufficient for planned investment and foreign capital is necessary. This can be supported with the following arguments:

4.1. Empirical Evidence

• India’s Incremental Capital Output Ratio (ICOR) is around 4–4.5, meaning that for 1% GDP growth, 4–4.5% of GDP needs to be invested.

• For an 8% growth target, investment must be 32–36% of GDP. If savings fall short, foreign capital is the only option.

4.2. Experiences of Past Plans

• First to Seventh Five-Year Plans: Heavy reliance on foreign aid, concessional loans, and FDI for industrialization.

• Post-1991 Period: FDI became a major source for infrastructure, telecom, and services sector growth.

4.3. Global Integration

• Economies like China, Singapore, and South Korea attracted massive FDI to accelerate industrialization, showing that foreign capital can be a growth catalyst.

4.4. Risk Diversification

• Relying solely on domestic capital may overburden national savings; foreign investment shares the risk between domestic and global investors.

5. Critical Discussion: Potential Risks and Limitations of Foreign Capital Dependence

While foreign capital can bridge investment gaps, over-reliance may create vulnerabilities.

5.1. Repatriation of Profits

• Multinational corporations may remit large profits to their home countries, causing a net outflow over time.

5.2. External Debt Burden

• Excessive borrowing in foreign currency can create repayment pressures, especially if exports stagnate.

5.3. Economic Dependence

• Over-dependence on foreign capital can limit policy autonomy.

5.4. Market Volatility

• Portfolio investments (FII) are highly volatile and may exit during economic or political instability.

6. Indian Government Policy on Foreign Capital Inflows

To address the need for foreign capital while safeguarding national interests, India has gradually liberalized its foreign investment policy.

6.1. Foreign Direct Investment (FDI) Policy

• Automatic Route: No prior government approval required; majority of sectors open up to 100% FDI.

• Government Route: Approval required in strategic and sensitive sectors.

• Liberalization in sectors like defence (74%), insurance (74%), e-commerce, and space technology.

6.2. Incentives for Foreign Investors

• Special Economic Zones (SEZs) with tax benefits.

• Production Linked Incentive (PLI) schemes to attract manufacturing FDI.

6.3. Safeguards

• Screening of FDI from countries sharing land borders with India for security concerns.

• Sectoral caps to prevent monopolization.

7. Role of Foreign Capital in Recent Indian Growth

7.1. IT & Services

• Foreign capital enabled India’s software exports to exceed $200 billion annually.

7.2. Start-up Ecosystem

• Venture capital and private equity funds have financed unicorns like Flipkart, Paytm, and Byju’s.

7.3. Renewable Energy

• Large foreign investments in solar and wind energy projects to meet climate goals.

8. Conclusion

It is true that in the Indian context, domestic savings alone may not always be sufficient for planned investment, especially when the country aims for high growth rates, infrastructure expansion, and global competitiveness.

Foreign capital plays a vital role in:

• Bridging the savings-investment gap.

• Bringing in advanced technology and managerial skills.

• Strengthening global trade links.

• Supporting balance of payments stability.

However, policy prudence is essential to ensure that foreign capital complements domestic efforts without creating excessive dependence or economic vulnerability. The optimal approach is a balanced mix of domestic savings mobilization and strategic foreign capital inflows, supported by strong governance, transparent regulations, and long-term national interests.

Question No. 3 

Comment on the following statements:

a) There is no need to adopt appropriate policy and strategy for facilitating Indian firms to compete effectively in global markets.

b) Import plays a significant role in India’s economic development.

c) The Indian agriculture sector is rising low due to its natural strengths.

d) Indian textile industry is one of the newest and smallest industries of the

economy

Answer

a) Part

This statement is incorrect and overlooks the realities of today’s highly competitive and interconnected global economy.
Without appropriate policies and strategies, Indian firms would struggle to survive, let alone thrive, in global markets dominated by multinational corporations with advanced technology, brand strength, and financial power.

1. Why Policies & Strategies are Necessary

(A) Fierce International Competition

• Indian companies face competition from countries with lower production costs (e.g., Vietnam, Bangladesh) and advanced technology (e.g., USA, Germany, Japan).

• Without strategic support, Indian firms risk losing market share.

(B) Need for Technology Upgradation

• Competing globally requires modern production techniques, R&D investment, and innovation.

• Policies like tax incentives for R&D, subsidies for tech imports, and skill development programmes help bridge the gap.

(C) Market Access & Trade Agreements

• Strategic trade agreements and diplomatic efforts help reduce tariffs and open new markets.

• Example: India’s Free Trade Agreements (FTAs) with ASEAN, UAE, and Australia.

(D) Quality & Standards Compliance

• Global markets demand strict quality, safety, and environmental standards.

• Government and industry bodies must guide firms in certifications like ISO, HACCP, and eco-labels.

(E) Brand Building & Marketing Support

• Many Indian products are of high quality but lack global brand recognition.

• Export promotion councils and marketing campaigns (e.g., Incredible India, Make in India) help boost brand image.

2. Consequences of No Policy or Strategy

• Loss of competitiveness due to outdated technology and low productivity.

• Market exit for small and medium exporters unable to bear compliance costs.

• Falling exports, leading to reduced foreign exchange earnings.

• Stunted industrial growth and fewer employment opportunities.

3. Examples of Effective Policy Impact

• IT Sector: Government incentives, SEZs, and skill training helped Indian IT firms become global leaders.

• Pharmaceuticals: Policy support for generic drug exports made India the “Pharmacy of the World”.

• Textiles: PLI Scheme and Mega Textile Parks aim to strengthen India’s position in global apparel trade.

Conclusion:
Appropriate policies and strategies are essential for Indian firms to compete globally.
They provide a framework for technology adoption, quality improvement, cost efficiency, market access, and brand building.
In the absence of such measures, India risks losing opportunities in global trade and investment, slowing down economic growth.

b) Part 

Imports are often viewed negatively because they represent an outflow of foreign exchange.
However, for a developing economy like India, imports are not merely a sign of dependency — they are also a critical driver of growth by meeting production, consumption, and technological needs that cannot be fulfilled domestically.

1. Importance of Imports in Economic Development

(A) Supporting Industrial Growth

• India imports capital goods, machinery, and advanced technology that help modernise industries.

• Example: Import of high-tech equipment for electronics, automobiles, pharmaceuticals, and renewable energy sectors.

(B) Ensuring Energy Security

• India imports a large share of its crude oil, LNG, and coal, which are essential for power generation, transportation, and manufacturing.

• Without these imports, industrial production would face serious disruptions.

(C) Meeting Raw Material Needs

• Certain raw materials like coking coal, special-grade steel, fertilisers, and precious metals are not sufficiently available domestically.

• Imports ensure smooth production in key sectors like steel, fertilisers, gems & jewellery.

(D) Enhancing Consumer Choice & Quality of Life

• Imports provide variety and quality in goods like electronics, apparel, luxury items, and food products, raising living standards.

(E) Boosting Export Competitiveness

• Many exports depend on imported components and raw materials.

• Example: India’s gems & jewellery exports rely on imported rough diamonds for cutting and polishing.

(F) Technology Transfer

• Import of advanced technology goods leads to knowledge spillovers and domestic skill development.

2. Possible Concerns

• Excessive imports can widen the trade deficit.

• Over-dependence on imports for essential goods can create economic vulnerability.

3. Policy Perspective

• India follows a balanced trade approach:

  • Encourages import of capital goods and technology.

  • Restricts unnecessary imports through tariffs and quality standards.

• Initiatives like Make in India, PLI Schemes, and Atmanirbhar Bharat aim to reduce import dependency while ensuring critical imports are available for growth.

Conclusion:
Imports are not merely an economic leakage; they are an investment into India’s productive capacity, technology base, and industrial modernisation.
When strategically managed, imports complement domestic production, create jobs, and help India integrate into the global economy — thereby playing a vital role in economic development.

c) Part 

The statement is contradictory in its wording.

• Natural strengths normally act as a supporting factor for growth, not a reason for slow growth.

• In the case of Indian agriculture, the natural strengths are indeed many, but structural and technological constraints are the real reasons why the sector’s growth rate has been relatively low compared to its potential.

1. Natural Strengths of Indian Agriculture

India has several natural advantages:

• Fertile land: Large cultivable area — about 156 million hectares (second largest in the world).

• Diverse climate: Supports cultivation of a wide range of crops — cereals, pulses, fruits, vegetables, spices.

• Long growing season: Many regions allow multiple crops per year.

• Abundant manpower: Large rural workforce engaged in farming.

• Rich biodiversity: Variety of crop species, horticultural products, and livestock.

2. Reasons for Slow Growth Despite Strengths

The low rise in agricultural productivity is not because of natural strengths, but due to structural weaknesses such as:

1. Over-dependence on Monsoon

   • Only about 50% of cultivated area is irrigated; droughts cause major crop losses.

2. Small and Fragmented Land Holdings

   • Average landholding size is less than 1.1 hectares, reducing economies of scale.

3. Low Use of Modern Technology

   • Limited mechanisation, slow adoption of precision farming and modern irrigation techniques.

4. Inadequate Infrastructure

   • Poor storage facilities, transport bottlenecks, and lack of cold chains lead to post-harvest losses.

5. Price Fluctuations & Market Issues

   • Farmers face unstable incomes due to volatile market prices and dependence on middlemen.

6. Soil Degradation & Overuse of Chemicals

   • Declining soil fertility and water table levels impact long-term productivity.

3. Government Measures to Boost Growth

• PM-KISAN, PM Fasal Bima Yojana, e-NAM for market access.

• Pradhan Mantri Krishi Sinchai Yojana to expand irrigation.

• National Mission on Sustainable Agriculture for climate-resilient farming.

Conclusion:
India’s natural strengths in agriculture provide a solid base, but institutional, infrastructural, and technological challenges have slowed its rise. If these weaknesses are addressed through reforms, innovation, and investment, the sector can achieve sustained high growth and strengthen the rural economy.

d) Part

The Indian textile industry is neither new nor small — in fact, it is one of the oldest, largest, and most significant sectors of the Indian economy.

1. Historical Perspective

• The textile industry in India has a history going back several thousand years.

• Ancient centres like Varanasi, Surat, Dhaka, and Kanchipuram were famous for silk, muslin, and cotton fabrics.

• India was a major exporter of textiles even in the ancient and medieval periods, with products like calico, chintz, and fine muslin in demand worldwide.

2. Present Size and Significance

• It is one of the largest industries in terms of employment and production.

• Contributes about 2% to India’s GDP, 7–8% to total exports, and about 13–14% of industrial production.

• Employs over 45 million people directly and many more indirectly — making it the second-largest employer after agriculture.

3. Diversity of the Industry

• Includes both organised (spinning mills, garment factories) and unorganised sectors (handlooms, handicrafts).

• Produces a wide range of products — cotton, silk, wool, jute, synthetic fibres, readymade garments, carpets, technical textiles.

4. Export Power

• India is one of the largest exporters of cotton yarn, garments, and home textiles.

• Major markets include the USA, EU, UAE, Japan, and Australia.

5. Government Support

• Schemes like Technology Upgradation Fund Scheme (TUFS), Mega Textile Parks, and Production-Linked Incentives (PLI) are promoting growth.

Conclusion:
The statement is factually wrong. The Indian textile industry is not new, but one of the oldest in the world, and not small, but a core pillar of the Indian economy with deep historical roots, massive employment generation, and significant export earnings.

Question No. 4

Difference between the following:

a) Import substitution and Export promotion

b) Heavy Engineering industry and Light Engineering industry

c) Intangible service and Inseparable service

d) Balance of Payments on Current Account and Balance of Payments on Capital Account

a) Part

Difference Between Import Substitution and Export Promotion

Basis of Difference	Import Substitution	Export Promotion
Meaning	An economic policy aimed at reducing imports by producing goods domestically that were previously imported.	An economic policy aimed at increasing exports to foreign markets to earn more foreign exchange.
Objective	To achieve self-reliance and reduce dependence on foreign goods.	To improve trade balance and strengthen the economy through foreign exchange earnings.
Approach	Focuses on protecting domestic industries through tariffs, quotas, and restrictions on imports.	Focuses on enhancing competitiveness of domestic goods in international markets.
Market Orientation	Inward-looking strategy — targets the domestic market.	Outward-looking strategy — targets the global market.
Impact on Industries	Encourages growth of local industries but may reduce competition and innovation over time.	Encourages industries to improve quality, efficiency, and innovation to compete internationally.
Foreign Exchange	Saves foreign exchange by reducing imports.	Earns foreign exchange by selling goods abroad.
Examples in India	1950s–1980s: Heavy import tariffs on foreign goods; emphasis on domestic manufacturing of automobiles, electronics, and machinery.	Post-1991: IT services, pharmaceuticals, textiles, and engineering goods promoted for exports.
Advantages	- Protects infant industries. - Reduces import dependency.	- Generates foreign currency. - Boosts economic growth and employment.
Limitations	- May lead to inefficiency due to lack of competition. - Limited variety for consumers.	- Vulnerable to global market fluctuations. - Requires strong international marketing and quality standards.

---

In short:

• Import Substitution = Make at home what you used to buy from abroad.

• Export Promotion = Sell more abroad what you make at home.

b) Part 

Difference Between Heavy Engineering Industry and Light Engineering Industry

Basis of Difference	Heavy Engineering Industry	Light Engineering Industry
Meaning	Industry that manufactures large, complex, and heavy machinery or equipment requiring huge capital investment and advanced technology.	Industry that manufactures small, less complex, and light machinery or equipment, often with lower capital investment.
Nature of Products	Produces heavy machines and equipment used for further production in industries (producer goods).	Produces smaller machines, tools, and consumer goods for direct use or industrial use.
Capital Requirement	Very high; needs large-scale investment in plants, machinery, and infrastructure.	Relatively low; smaller plants and less costly equipment.
Raw Materials Used	Requires heavy raw materials like steel, iron, non-ferrous metals, and large components.	Uses lighter raw materials like aluminium, plastic, light alloys, and small parts.
Technology & Skill Level	Requires highly advanced technology, specialized engineers, and skilled labour.	Requires moderate technology and general technical skills.
Examples of Products	Shipbuilding, heavy electrical equipment, industrial machinery, locomotives, turbines.	Sewing machines, bicycles, watches, small electrical appliances, agricultural tools.
Infrastructure Requirement	Needs large factories, heavy transport facilities (rail, ship), and high power supply.	Needs smaller factory space and less complex infrastructure.
Market Orientation	Primarily caters to industrial and infrastructural sectors.	Primarily caters to consumer markets and small industries.
Economic Impact	Plays a crucial role in industrialization and infrastructure development of a country.	Plays a key role in everyday consumer needs and supporting other industries.

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Summary:

• Heavy Engineering = Large, capital-intensive, high-tech production for industries.

• Light Engineering = Small-scale, less capital-intensive, often consumer-oriented production.

c) Part

Difference Between Intangible Service and Inseparable Service

Basis of Difference	Intangible Service	Inseparable Service
Meaning	Refers to the fact that a service cannot be touched, seen, tasted, or physically possessed before it is purchased or consumed.	Refers to the fact that a service is produced and consumed at the same time and cannot be separated from its provider.
Nature	Emphasizes the non-physical nature of services.	Emphasizes the simultaneous production and consumption of services.
Physical Existence	Does not exist in a tangible or physical form — it can only be experienced or felt.	Exists only at the time of delivery; provider and consumer must be present (physically or virtually).
When Consumption Occurs	Consumption can occur during or after service delivery, but the customer cannot see the product beforehand.	Consumption happens at the exact moment the service is being produced.
Evaluation of Quality	Quality is often judged after the service experience (based on satisfaction, trust, and results).	Quality is judged during the service delivery because the customer is part of the process.
Example	Education, insurance policy, financial consultancy — all are intangible before use.	Haircut, surgery, taxi ride — production and consumption occur together.
Marketing Challenge	Must rely on branding, trust, and demonstrations to convince customers before purchase.	Must focus on service delivery skills, customer interaction, and timing.

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Summary:

• Intangibility = You can’t touch it before buying (non-physical nature).

• Inseparability = You can’t separate the service from the person or system delivering it (produced & consumed together).

d) Part

Difference Between Balance of Payments on Current Account and Capital Account

Basis of Difference	Balance of Payments on Current Account	Balance of Payments on Capital Account
Meaning	Records transactions related to trade in goods & services, income, and current transfers between residents and the rest of the world.	Records transactions that cause a change in ownership of assets or liabilities between residents and the rest of the world.
Nature of Transactions	Short-term in nature; recurring transactions.	Long-term in nature; involves creation or liquidation of assets/liabilities.
Main Components	1. Balance of Trade (exports & imports of goods) 2. Services (tourism, banking, shipping, IT services, etc.) 3. Income (interest, dividends, wages) 4. Current Transfers (remittances, gifts, grants)	1. Foreign Direct Investment (FDI) 2. Portfolio Investment 3. External Commercial Borrowings (ECBs) 4. Loans and Banking Capital 5. Foreign Exchange Reserves movement
Impact on Assets/Liabilities	Does not directly affect ownership of assets or liabilities.	Directly affects ownership of assets/liabilities (e.g., buying foreign property, receiving foreign investment).
Purpose	Reflects a country’s net income and expenditure with the rest of the world in the current period.	Reflects a country’s financial transactions to fund current account deficits or invest abroad.
Frequency	Transactions occur regularly (daily, monthly, yearly).	Transactions are less frequent and often one-time or occasional.
Example	Export of textiles from India to USA; NRI sending money to family in India; payment for foreign consultancy services.	Japanese company invests in an Indian automobile plant; Indian government borrows from the World Bank.
Significance	Indicates whether a country is a net earner or spender internationally in the short term.	Indicates the financial strength and investment position of the country in the long term.

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Summary:

• Current Account = Trade + Services + Income + Transfers (short-term transactions).

• Capital Account = Investments + Loans + Asset ownership changes (long-term capital flows).

Question No. 5

Write short notes on the following:

a) Board of Trade

b) Wool and Woollen Export Promotion Council (WWEPC)

c) Strengths of Gems & Jewellery Sector

d) SAMRIDH scheme

Answer: 

a) Part 

Board of Trade (BOT)

Establishment & Nature:

• Originally set up as an advisory body by the Government of India.

• Reconstituted from time to time, most recently in 2019.

• Functions under the Department of Commerce, Ministry of Commerce & Industry.

Purpose:

• To advise the government on measures to enhance foreign trade.

• Acts as a platform for continuous dialogue between the government and trade/industry bodies.

Composition:

• Chaired by the Union Minister of Commerce & Industry.

• Members include:

  • Union Ministers from relevant ministries (Finance, Textiles, MSME, Agriculture, etc.).

  • Chief Ministers / Ministers of States with significant export potential.

  • Senior government officials (e.g., Commerce Secretary, Revenue Secretary).

  • Heads of Export Promotion Councils (EPCs), commodity boards, trade associations, and leading exporters.

Key Functions:

1. Policy Advisory:

   • Suggests policy measures for promoting exports and imports.

   • Provides inputs for the Foreign Trade Policy (FTP).

2. Trade Facilitation:

   • Identifies procedural bottlenecks in trade and recommends simplifications.

3. Market Expansion:

   • Advises on strategies to enter new international markets.

4. Sectoral Development:

   • Recommends steps for the growth of specific export sectors (agriculture, manufacturing, services).

5. Regional & Global Competitiveness:

   • Suggests measures to enhance competitiveness of Indian goods and services globally.

Significance:

• Serves as the highest-level advisory body on trade policy in India.

• Strengthens public-private partnership in trade matters.

• Plays a crucial role in shaping a favourable export ecosystem.

b) Part 

Wool and Woollen Export Promotion Council (WWEPC)

Establishment:

• Set up in 1964 by the Ministry of Textiles, Government of India.

Nature:

• A non-profit organisation working under the administrative control of the Ministry of Textiles.

• Functions as an Export Promotion Council (EPC) for the wool and woollen industry.

Head Office:

• New Delhi (with regional offices in major wool manufacturing and exporting centres like Ludhiana and Mumbai).

Primary Objective:

• To promote the export of Indian wool and woollen products in global markets.

• To act as a link between Indian exporters and importers abroad.

Key Functions:

1. Export Promotion:

   • Organises participation in international trade fairs, exhibitions, buyer-seller meets.

   • Provides opportunities for exporters to showcase Indian woollen products.

2. Market Intelligence & Information:

   • Shares market trends, buyer requirements, and export statistics with members.

   • Identifies potential international markets for Indian products.

3. Policy Advocacy:

   • Represents industry issues to the Government for policy formulation and export incentives.

4. Product Coverage:

   • Wool tops, yarn, fabrics, blankets, carpets, knitwear, shawls, and other woollen items.

5. Skill & Quality Development:

   • Works with manufacturers to improve product quality as per global standards.

   • Encourages innovation in design and production techniques.

6. Membership Services:

   • Provides Registration-Cum-Membership Certificate (RCMC) required for exports.

   • Offers guidance on export documentation, procedures, and compliance.

Significance:

• Enhances India’s competitiveness in the global wool market.

• Supports employment generation in wool processing and handicraft sectors.

• Plays a role in preserving traditional wool weaving and knitting crafts.

c) Part 

Strengths of the Gems & Jewellery Sector in India

1. Global Leadership in Diamond Cutting & Polishing

   • India processes over 90% of the world’s diamonds by volume.

   • Surat is known as the “Diamond City of the World”.

2. Rich Traditional Craftsmanship

   • India has centuries-old skills in jewellery making, including kundan, meenakari, jadau, filigree, and temple jewellery.

   • Handcrafted designs are globally admired.

3. Large Domestic Market

   • India is one of the largest consumers of gold jewellery in the world.

   • Gold plays a vital role in cultural traditions, weddings, and investments.

4. Strong Export Performance

   • Major contributor to India’s foreign exchange earnings.

   • Gems & jewellery exports account for around 7–8% of India’s total merchandise exports.

5. Skilled Workforce

   • Abundant trained artisans and skilled labour available at competitive costs.

   • Government and industry bodies run training institutes for quality enhancement.

6. Government Support

   • Policies like 100% FDI under the automatic route, SEZs, and export incentives boost the sector.

   • Promotion through schemes like Gold Monetization Scheme and India Jewellery Park.

7. Global Reputation for Quality

   • Indian diamonds and jewellery are valued for precision cutting, polishing, and intricate designs.

   • Certified products meet international standards.

8. Emerging Technology Adoption

   • Increasing use of CAD/CAM, 3D printing, and laser cutting in jewellery manufacturing.

   • Helps blend tradition with modern designs.

d) Part 

SAMRIDH Scheme – Startup Accelerators of MeitY for Product Innovation, Development, and Growth

Launched by:

• Ministry of Electronics and Information Technology (MeitY), Government of India

• Year: August 2021

Objective:
The SAMRIDH scheme aims to support startups in the software product sector by providing them with necessary funding, mentoring, and market access to help them scale rapidly.

Key Features:

1. Funding Support:

   • Provides seed funding up to ₹40 lakh per startup, on a matching fund basis with accelerators.

   • Helps startups with early-stage investment to scale their products.

2. Accelerator Partnerships:

   • Works with existing and new accelerators across India.

   • These accelerators mentor startups in business models, technology adoption, and go-to-market strategies.

3. Focus Areas:

   • Primarily for IT and software product startups with high growth potential.

   • Encourages innovations in emerging technologies such as AI, IoT, cybersecurity, blockchain, and cloud computing.

4. Capacity Building & Market Access:

   • Supports skill development, investor connect, and access to international markets.

   • Aims to make Indian startups globally competitive.

5. Duration & Target:

   • Envisions to support 300+ startups over 3 years.

   • Each startup is expected to achieve a minimum 2x growth in valuation.

Expected Impact:

• Strengthening the startup ecosystem in India.

• Creating more unicorns in the IT sector.

• Generating employment opportunities and promoting innovation-led entrepreneurship.