New Micro finance MCQs

1. Loans to poor people by banks have many limitations including lack of security and high operating cost. So to help them which type of finance system developed ?

(a) Ponzi schemes

(b) Micro Finance System***

(c) Money Laundering Schemes

(d) Money tampering finance


2. The following statements are related to Micro Finance System. Locate the wrong option ?

(a) It provides micro credit having scope for small savings and remittance of funds

(b) It based on the principle of livelihood creation

(c) The livelihood mission means engaging in activities in a routine fashion to generate cash or non-cash income

(d) None**


3. Who introduced the concept of Micro Finance in Bangladesh in the form of the "Grameen Bank"? He is the Nobel laureate known by many as the "father of micro finance systems".
(a) C. D. Deshmukh

(b) Amartya Sen

(c) Muhammad Yunus***

(d) Sheik Haseena

3. The beneficiaries of Micro finance business are _____________

(a) Land Less labour

(b) Marginal farmers

(c) Vendors in the small markets

(d) All the above***

4. The beneficiaries of Micro finance business are _____________

(a) Land Less labour

(b) Marginal farmers

(c) Vendors in the small markets

(d) All the above**

5. The Micro Finance Institutions (MFI) differ from one another in terms of

(a) Product offering

(b) Loan repayment Structure

(c) Product offerings

(d) All of these***

6. One of the delivery channel for Micro Finance is SHG model. SHG means ?

(a) Soar Help Group

(b) Sake Help Group

(c) Self Hope Group

(d) Self Help Group**

7. Indian Micro Finance Institutes (MFI) usually adopt the group-based lending models, which are of two types. SHG model and JLG model. SHG means Self Help Group and JLG means ?

(a) Joint Liability Game

(b) Josh Liability Group

(c) Joint Loan Group

(d) Joint Liability Group***


8. To control high rate interest rates, coercive collections and illegal insurance practices by the Micro Finance Institutes, Andhra Pradesh Government passed Andhra Pradesh Microfinance Institutions (Regulations of Money Lending) Act in  ?

(a) 2014

(b) 2013

(c) 2005

(d) 2011**

9. In the Not-For-Profit Micro Finance Institutes, which among the following are included ?

(a) Societies

(b) Public Trusts

(c) Non-Profit Companies

(d) All of these***


10. Co-operatives registered under state or National Acts and MACs come under Mutual benefit MFIs. MACS means ?

(a) Moral-Aided Co-Operative Societies

(b) Mint-Aided Co-Operative Societies

(c) Mutually-Aided Co-Operative Societies**

(d) Mutually-Aided Co-Operative Societies

11. Non-banking  financial companies, producer companies and LAB come under the category of For-Profit-MFIs. LAB means ?

(a) Loan Area Banks**

(b) Legal Area Banks

(c) Local Axis Banks

(d) Local Area Banks

12. SKS Micro-finance Ltd, the only listed micro lender in the country founded by ___________

(a) Sudipa Sen

(b) M. B. N. Rao

(c) Kunal Ghosh

(d) Vikram Akula**

13. Who launched an 'India Micro-finance Platform', a portal on micro-finance activities across the country, with the assistance of World bank funds on 28th June 2013 ?

(a) SBI

(b) ICICI

(c) SIDBI**

(d) Exim Bank

14. SIDBI related statements are given. Pick the wrong statement.

(a) SIDBI means Small Industries Development Bank of India

(b) It was established on 2nd April 1990

(c) It is the principal financial institution for the promotion, financing and development of industry in the small scale sector

(d) Its head office is in Nagpur**

15. Which committee has recommended creation of a separate category of NBFCs operating in the microfinance sector to be designated as NBFC-MFIs (Non-Banking Finance Company - Micro Finance Institutes) ?

(a) C. Ranga Rajan

(b) Chandra Sekhar

(c) Y. H. Malegam***

(d) Tarapore

16.Recommendations of Malegam committee on Micro Finance Sector do not include _______
1. MFI should not charge more than 24% of its disbursed loans
2. Processing fee on the loan amount must not be more than 1%
3. Margin of interest to be not more than 20 per cent***
4. MFIs should lend to an individual borrower only as a member of a JLG and should have the responsibility of ensuring that the borrower is not a member of another JLG
5. Bank advantages to MFIs should continue to enjoy 'priority sector lending status'.

17.Which committee has recommended creation of a separate category of NBFCs operating in the microfinance sector to be designated as NBFC-MFIs (Non-Banking Finance Company - Micro Finance Institutes) ?
1. C. Ranga Rajan
2. Chandra Sekhar
3. Y. H. Malegam**
4. Tarapore
5. R. K. Sundaram

18. SIDBI related statements are given. Pick the wrong statement.

1. SIDBI means Small Industries Development Bank of India
2. It was established on 2nd April 1990
3. It is the principal financial institution for the
promotion, financing and development of industry in the small scale sector
4. its head office is in Nagpur***
5. None


19. Who launched an 'India Micro-finance Platform', aportal on micro-finance activities across the country, with the assistance of World bank funds on 28thJune 2013 ?
1. SBI
2. ICICI
3. SIDBI***
4. Exim Bank
5. NABARD

20 . The beneficiaries of Micro finance business are_____________
1. Land Less labour
2. Marginal farmers
3. Vendors in the small markets
4. Hawkers
5. All the above**

Micro Finance – Current Status and Growing Concerns in India

Microfinance sector has grown rapidly over the past few decades. Nobel Laureate Muhammad Yunus is credited with laying the foundation of the modern MFIs with establishment of Grameen Bank, Bangladesh in 1976. Today it has evolved into a vibrant industry exhibiting a variety of business models. Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and other large lenders have played an important role in providing refinance facility to MFIs. Banks have also leveraged the Self-Help Group (SHGs) channel to provide direct credit to group borrowers.

With financial inclusion emerging as a major policy objective in the country, Microfinance has occupied centre stage as a promising conduit for extending financial services to unbanked sections of population. At the same time, practices followed by certain lenders have subjected the sector to greater scrutiny and need for stricter regulation.

This report, which contains only a part of the actual report is based on the research work done as a part of the summer internship project at Reserve Bank of India, Kanpur. The research involved study of the past literatures about the microfinance sector, related online research papers and journals. The study also involved survey of all MFIs in the state of Uttar Pradesh through field visits and online survey. The annual reports and the sector reports published by regulatory bodies, MFI associations and major microfinance players facilitated the study, especially in understanding the size, growth and past trends. Interactions with some of the industry experts helped in understanding and analysing the emerging concerns in the microfinance sector and also to look for some possible solutions.

Although the microfinance sector is having a healthy growth rate, there have been a number of concerns related to the sector, like grey areas in regulation, transparent pricing, low financial literacy etc. In addition to these concerns there are a few emerging concerns like cluster formation, insufficient funds, multiple lending and over-indebtedness which are arising because of the increasing competition among the MFIs. On a national level there has been a spate of actions taken to strengthen the regulation of MF sector including, enactment of microfinance regulation bill by the Government of Andhra Pradesh, implementation of sector-specific regulation by Reserve Bank of India and most recently, release of Draft Microfinance Institutions (development and regulation) Bill, 2011 for comments.

Based on the research work, a few major recommendations made in the report include field supervision of MFIs to check ground realities and the operational efficiency of such institutions.  Offer incentives to MFIs for opening branches in unbanked villages, so as to increase rural penetration. Also MFIs be encouraged to offer complete range of products to their clients. Transparent pricing and technology implementation to maintain uniformity and efficiency are among the others which these institutions should adopt. Inability of MFIs in getting sufficient funds is a major hindrance in the microfinance growth and so these institutions should look for alternative sources of funds. Some of the alternative fund sources include outside equity investment, portfolio buyouts and securitization of loans which only a few large MFIs are currently availing.

Introduction to Microfinance

“Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.”

Microfinance is not just about giving micro credit to the poor rather it is an economic development tool whose objective is to assist poor to work their way out of poverty. It covers a wide range of services like credit, savings, insurance, remittance and also non-financial services like training, counseling etc.

Salient features of Microfinance:

Borrowers are from the low income group

Loans are of small amount – micro loans

Short duration loans

Loans are offered without collaterals

High frequency of repayment

Loans are generally taken for income generation purpose

Gaps in Financial system and Need for Microfinance

According to the latest research done by the World Bank, India is home to almost one third of the world’s poor (surviving on an equivalent of one dollar a day). Though many central government and state government poverty alleviation programs are currently active in India, microfinance plays a major contributor to financial inclusion. In the past few decades it has helped out remarkably in eradicating poverty. Reports show that people who have taken microfinance have been able to increase their income and hence the standard of living.

About half of the Indian population still doesn’t have a savings bank account and they are deprived of all banking services. Poor also need financial services to fulfill their needs like consumption, building of assets and protection against risk. Microfinance institutions serve as a supplement to banks and in some sense a better one too. These institutions not only offer micro credit but they also provide other financial services like savings, insurance, remittance and non-financial services like individual counselling, training and support to start own business and the most importantly in a convenient way. The borrower receives all these services at her/his door step and in most cases with a repayment schedule of borrower’s convenience. But all this comes at a cost and the interest rates charged by these institutions are higher than commercial banks and vary widely from 10 to 30 percent. Some claim that the interest rates charged by some of these institutions are very high while others feel that considering the cost of capital and the cost incurred in giving the service, the high interest rates are justified
Channels of Micro finance

In India microfinance operates through two channels:

1. SHG – Bank Linkage Programme (SBLP)

2. Micro Finance Institutions (MFIs)

SHG – Bank Linkage Programme

This is the bank-led microfinance channel which was initiated by NABARD in 1992. Under the SHG model the members, usually women in villages are encouraged to form groups of around 10-15. The members contribute their savings in the group periodically and from these savings small loans are provided to the members. In the later period these SHGs are provided with bank loans generally for income generation purpose. The group’s members meet periodically when the new savings come in, recovery of past loans are made from the members and also new loans are disbursed. This model has been very much successful in the past and with time it is becoming more popular. The SHGs are self-sustaining and once the group becomes stable it starts working on its own with some support from NGOs

SHG model – How it works

and institutions like NABARD and SIDBI.

Micro Finance Institutions

Those institutions which have microfinance as their main operation are known as micro finance institutions. A number of organizations with varied size and legal forms offer microfinance service. These institutions lend through the concept of Joint Liability Group (JLG). A JLG is an informal group comprising of 5 to 10 individual members who come together for the purpose of availing bank loans either individually or through the group mechanism against a mutual guarantee. The reason for existence of separate institutions i.e. MFIs for offering microfinance are as follows:

High transaction cost – generally micro credits fall below the break-even point of providing loans by banks

Absence of collaterals – the poor usually are not in a state to offer collaterals to secure the credit

Loans are generally taken for very short duration periods

Higher frequency of repayment of installments and higher rate of Default

Non-Banking Financial Companies (NBFCs), Co-operative societies, Section-25 companies, Societies and Trusts, all such institutions operating in microfinance sector constitute MFIs and together they account for about 42 percent of the microfinance sector in terms of loan portfolio. The MFI channel is dominated by NBFCs which cover more than 80 percent of the total loan portfolio through the MFI channel.

Money Transfer Service Scheme (MTSS) for Forex & Digital banking

1. Introduction

1.1 Money Transfer Service Scheme (MTSS) is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India. Only inward personal remittances into India such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible. No outward remittance from India is permissible under MTSS. The system envisages a tie-up between reputed money transfer companies abroad known as Overseas Principals and agents in India known as Indian Agents who would disburse funds to beneficiaries in India at ongoing exchange rates. The Indian Agents can in turn also appoint sub-agents to expand their network. The Indian Agent is not allowed to remit any amount to the Overseas Principal. Under MTSS the remitters and the beneficiaries are individuals only. This document covers the details regarding the entry norms, authorization, renewal and various operating instructions pertaining to the entities involved in this scheme.

1.2 Statutory Basis

In terms of the powers granted under Section 10(1) of the Foreign Exchange Management Act (FEMA), 1999, the Reserve Bank of India may accord necessary permission (authorization) to any person to act as an Indian Agent under the Money Transfer Service Scheme. No person can handle the business of cross-border money transfer to India in any capacity unless specifically permitted to do so by the Reserve Bank.

Financial Intelligence Unit – India (FIU-IND)

Financial Intelligence Unit – India (FIU-IND)

Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as
the central national agency responsible for receiving, processing, analyzing and disseminating
information relating to suspect financial transactions. FIU-IND is also responsible for
coordinating and strengthening efforts of national and international intelligence, investigation
and enforcement agencies in pursuing the global efforts against money laundering and related
crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence
Council (EIC) headed by the Finance Minister.

Functions of FIU-IND

The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them
and, as appropriate, disseminate valuable financial information to intelligence/enforcement
agencies and regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash
Transaction reports (CTRs) and Suspicious Transaction Reports (STRs) from various
reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns

of transactions suggesting suspicion of money laundering and related crimes.
Sharing of Information: Share information with national intelligence/law
enforcement agencies, national regulatory authorities and foreign Financial
Intelligence Units.
Act as Central Repository: Establish and maintain national data base on cash
transactions and suspicious transactions on the basis of reports received from
reporting entities.
Coordination: Coordinate and strengthen collection and sharing of financial
intelligence through an effective national, regional and global network to combat
money laundering and related crimes.
Research and Analysis: Monitor and identify strategic key areas on money
laundering trends, typologies and developments.


Organisational Set-up
FIU-IND is a multi disciplinary body headed by a Director. Personnel in this Unit are being
inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central
Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange
Board of India (SEBI), Department of Legal Affairs and Intelligence agencies
.
Authorities at FIU-IND

According to Section 48 of the Prevention of Money Laundering Act, 2002
there shall be the following classes of authorities for the purposes of this Act, namely:-
(a) Director or Additional Director or Joint Director,
(b) Deputy Director,
(c) Assistant Director, and
(d) such other class of officers as may be appointed for the purposes of this Act
.
Appointment of Authorities

As per Section 49 of the Prevention of Money Laundering Act, 2002:
(1) The Central Government may appoint such persons as it thinks fit to be authorities for the
purposes of this Act.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may
authorise the Director or an Additional Director or a Joint Director or a Deputy Director or an
Assistant Director appointed under that sub-section to appoint other authorities below the
rank of an Assistant Director.
(3) Subject to such conditions and limitations as the Central Government may impose, an
authority may exercise the powers and discharge the duties conferred or imposed on it under
this Act.


Director and officers subordinate to him deemed to be public servants


Section 40 of the Prevention of Money Laundering Act, 2002 declares the Chairperson,
Members and other officers and employees of the Appellate Tribunal, the Adjudicating
Authority, Director and the officers subordinate to him shall be deemed to be public servants
within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).


Powers of the Director
Section 13 of the Prevention of Money Laundering Act, 2002 confers following powers on
the Director to ensure compliance:
(1) The Director may, either of his own motion or on an application made by any authority,
officer or person, call for records referred to in sub-section (1) of section 12 and may make
such inquiry or cause such inquiry to be made, as he thinks fit.
(2) If the Director, in the course of any inquiry, finds that a banking company, financial
institution or an intermediary or any of its officers has failed to comply with the provisions
contained in section 12, then, without prejudice to any other action that may be taken under
any other provisions of this Act, he may, by an order, levy a fine on such banking company
or financial institution or intermediary which shall not be less than ten thousand rupees but
may extend to one lakh rupees for each failure.
(3) The Director shall forward a copy of the order passed under sub-section (2) to every
banking company, financial institution or intermediary or person who is a party to the
proceedings under that sub-section.

Powers of authorities regarding summons, production of documents and to give
evidence:
Section 50 of the Prevention of Money Laundering Act, 2002 confers following powers of
summons, production of documents and to give evidence etc.:
(1) The Director shall, for the purposes of section 13, have the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect
of the following matters, namely:-
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company,
financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed
(2) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director
shall have power to summon any person whose attendance he considers necessary whether to
give evidence or to produce any records during the course of any investigation or proceeding
under this Act.
(3) All the persons so summoned shall be bound to attend in person or through authorised
agents, as such officer may direct, and shall be bound to state the truth upon any subject
which they are examined or make statements, and produce such documents as may be

required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of
1860).
(5) Subject to any rules made in this behalf by the Central Government, any officer referred
to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit,
any records produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy Director shall not -
(a) impound any records without recording his reasons for so doing; or
(b) retain in his custody any such records for a period exceeding three months, without
obtaining the prior approval of the Director.
Assistance from other authorities for enforcement of the Act


Section 54 of the Prevention of Money Laundering Act, 2002 empowers and requires various
authorities to assist in the enforcement of the act. The following officers are empowered and
required to assist the authorities in the enforcement of this Act, namely:-
(a) officers of the Customs and Central Excise Departments;
(b) officers appointed under sub-section (1) of section 5 of the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985);
(c) income-tax authorities under sub-section (1) of section 117 of the Income-tax Act, 1961
(43 of 1961);
(d) officers of the stock exchange recognised under section 4 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(e) officers of the Reserve Bank of India constituted under sub-section (1) of section 3 of
the Reserve Bank of India Act, 1934 (2 of 1934);
(f) officers of Police;
(g) officers of enforcement appointed under sub-section (1) of section 36 of the Foreign
Exchange Management Act, 1973 (40 of 1999);
(h) officers of the Securities and Exchange Board of India established under section 3 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992);
(i) officers of any other body corporate constituted or established under a Central Act or a
State Act;
(j) such other officers of the Central Government, State Government, local authorities or
banking companies as the Central Government may, by notification, specify, in this behalf.
Agreements with foreign countries
Section 56 of the Prevention of Money Laundering Act, 2002 provides for agreements with
foreign countries to facilitate exchange of information with them:
(1) The Central Government may enter into an agreement with the Government of any
country outside India for-
(a) enforcing the provisions of this Act;
(b) exchange of information for the prevention of any offence under this Act or under the
corresponding law in force in that country or investigation of cases relating to any offence
under this Act.
and may, by notification in the Official Gazette, make such provisions as may be necessary
for implementing the agreement.
(2) The Central Government may, by notification in the Official Gazette, direct that the
application of this Chapter in relation to a contracting State with which reciprocal
arrangements have been made, shall be subject to such conditions, exceptions or
qualifications as are specified in the said notification.
Disclosure of information
Section 66 of the Prevention of Money Laundering Act, 2002 provides for disclosure of
information to other officers, authority or body:
The Director or any other authority specified by him by a general or special order in this
behalf may furnish or cause to be furnished to-
(i) any officer, authority or body performing any functions under any law relating to
imposition of any tax, duty or cess or to dealings in foreign exchange, or prevention of illicit
traffic in the narcotic drugs and psychotropic substances under the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985); or
(ii) such other officer, authority or body performing functions under any other law as the
Central Government may, if in its opinion it is necessary so to do in the public interest,
specify by notification in the Official Gazette in this behalf, any information received or
obtained by such Director or any other authority, specified by him in the performance of
their functions under this Act, as may, in the opinion of the Director or the other authority so
specified by him, be necessary for the purpose of the officer, authority or body specified in
clause (i) or clause (ii) to perform his or its functions under that law.
Recovery of fines
Section 69 of the Prevention of Money Laundering Act, 2002 refers to recovery of fines.
Where any fine imposed on any person under section 13 or section 63 is not paid within six
months from the day of imposition of fine, the Director or any other officer authorised by him
in this behalf may proceed to recover the amount from the said person in the same manner as
prescribed in Schedule 11 of the Income-tax Act, 1961 (43 of 1961) for the recovery of
arrears and he or any officer authorised by him in this behalf shall have all the powers of the
Tax Recovery Officer mentioned in the said Schedule for the said purpose.
The new network, called FINnet (Financial Intelligence Network), is a technology-based
secure platform for bringing together investigative and enforcement agencies to collect,
analyse and disseminate valuable financial information for combating money laundering and
related crimes.

Restriction on Civil Court Jurisdiction

Section 41 of the Prevention of Money Laundering Act, 2002 says that no civil court shall
have jurisdiction to entertain any suit or proceeding in respect of any matter which the
Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this
Act to determine and no injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any power conferred by or under this Act."
Appeal to Appellate Tribunal
Section 26 of the Prevention of Money Laundering Act, 2002 deals with appeal to Appellate
Tribunal.
(1) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an
order made by the Adjudicating Authority under this Act, may prefer an appeal to the
Appellate Tribunal.
(2) Any banking company, financial institution or intermediary aggrieved by any order of the
Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate
Tribunal.
(3) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a
period of forty-five days from the date on which a copy of the order made by the
Adjudicating Authority or Director is received and it shall be in such form and be
accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may, after giving an opportunity of being heard,
entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within that period.
(4) On receipt of an appeal under sub-section (1), or sub-section (2), the Appellate Tribunal
may, after giving the parties to the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made
Right of Appellant

Section 39 of the Prevention of Money Laundering Act, 2002 provides for the right of the
appellant.
(1) A person preferring an appeal to the Appellate Tribunal under this Act may either appear
in person or take the assistance of an authorised representative of his choice to present his
case before the Appellate Tribunal.
Explanation - For the purposes of this sub-section, the expression "authorized
representative" shall have the same meaning as assigned to it under sub-section (2) of
section 288 of the Income Tax Act, 1961.
(2) The Central Government or the Director may authorise one or more authorised
representatives or any of its officers to act as presenting officers and every person so
authorised may present the case with respect to any appeal before the Appellate Tribunal.
Appeal to High Court
Section 42 of the Prevention of Money Laundering Act, 2002 provides for appeal to High
Court:
“Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal
to the High Court within sixty days from the date of communication of the decision or order
of the Appellate Tribunal to him on any question of law or fact arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a
further period not exceeding sixty days.
Explanation.-For the purposes of this section, "High Court" means-
(i) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or

< carries on business or personally works for gain; and
(ii) where the Central Government is the aggrieved party, the High Court within the
jurisdiction of which the respondent, or in a case where there are more than one respondent,
any of the respondents, ordinarily resides or carries on business or personally works for gain.
Offences which can be seen by Special Courts
Section 44 of the Prevention of Money Laundering Act, 2002 provides for trial by Special
Courts:
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of
1974),-
a. the schedule offence and the offence punishable under section 4 shall be tried only by the
Special Court constituted for the area in which the offence has been committed;
Provided that the Special Court , trying a schedule offence before the commencement of this
Act, shall continue to try such scheduled offence, or
b. a Special Court may, upon a complaint made by an authority authorised in this behalf
under this Act take cognizance of the offence for which the accused is committed to it for
trial.
(2) Nothing contained in this section shall be deemed to affect the special powers of the
High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of
1974) and the High Court may exercise such powers including the power under clause (b)
of sub-section (1) of that section as if the reference to "Magistrate" in that section includes
also a reference to a "Special Court" designated under section 43.

Role of the Ministry of Micro, Small & Medium Enterprises

Role of the Ministry of Micro, Small & Medium Enterprises

The primary responsibility of promotion and development of micro and small enterprises lies with the State Governments. However, the Government of India, in recognition of the potential of these sectors in both creation of wealth and employment and of the need for a countrywide framework of policies and measures for their promotion and development, has always taken active interest in supplementing the efforts of the State governments in several ways. The Government of India set up the Small Industries Development Organization (SIDO) [now Office of the Development Commissioner (Micro, Small & Medium Enterprises)] in 1954, a public sector enterprise called the National Small Industries Corporation Limited (NSIC) in 1955, and enacted the Khadi and Village Industries Commission Act in 1956. Establishment of Khadi and Village Industries Commission (KVIC), Coir Board and Micro, Small & Medium Enterprises-Development Institutes [formerly known as Small Industries Service Institutes (SISIs)] in nearly every State followed.

Over the years, the Central Government has formulated policy packages for the promotion and development of the sector and has been also implementing a large number of schemes and programmes. The policies and programmes implemented by the Ministry span across different areas of operations of MSMEs, covering credit, marketing, technology, skill developement, infrastructure development, fiscal matters and legal/regulatory framework. These programmes are implemented through various organisations under the Ministry, commercial banks, Small Industries Development Bank of India (SIDBI) and the State/UT Government.

Besides, the Ministry runs three training institutes, namely, National Institute for Micro, Small and Medium Enterprises (NIMSME), Hyderabad (successor to the Central Industrial Extension Training

Institute), National Institute for Entrepreneurship and Small Business Development (NIESBUD), NOIDA, and Indian Institute of Entrepreneurship (IIE), Guwahati, with the objective of training and development of human resource relevant to small industries as also entrepreneurship. It has also supported in setting up a large number of entrepreneurship development institutes (EDI) in various States.

Office of the Development Commissioner (Micro, Small & Medium Enterprises)

The Office of the Development Commissioner (Micro, Small & Medium Enterprises) assists the Ministry in formulating, co-ordinating, implementing and monitoring different policies and programmes for the promotion and development of MSMEs in the country. In addition, it provides a comprehensive range of common facilities, technology support services, marketing assistance, etc. through its network of

30 Micro, Small and Medium Enterprises-Development Institutes (MSME-DIs); 28 Branch MSME-DIs; 4 MSME Testing Centres (MSME-TCs); 7 MSME-Testing Stations (MSME-TSs); 2 MSME-Training Institutes (MSME-TIs); and 1 MSME-Technology Development Center-Hand Tools (MSME-TDC-Hand Tools). The O/o DC (MSME) also operates a network of Tool Rooms and Technology Development Centres (including 2 Footwear Training Institutes) which are autonomous bodies registered as Societies under the Societies Act. The Office implements a number of schemes for the MSME sector, the details of which have been duly incorporated in the booklet.

Khadi & Village Industries Commission

The Khadi & Village Industries Commission (KVIC), established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956), is a statutory organization engaged in promoting and developing khadi and village industries for providing employment opportunities in rural areas, thereby strengthening the rural economy. The Commission is headed by full time Chairman and consists of 10 part-time Members. The KVIC has been identified as one of the major organizations in the

decentralized sector for generating sustainable rural non-farm employment opportunities at a low per capita investment. This also helps in checking migration of rural population to urban areas in search of the employment opportunities.

The main functions of the KVIC are to plan, promote, organize and assist in implementation of the programmes/projects/schemes for generation of employment opportunities through development of khadi and village industries. Towards this end, it undertakes activities like skill improvement, transfer of technology, research & development, marketing, etc. KVIC co-ordinates its activities through State KVI boards, registered societies and cooperatives. It has under its aegis

a large number of industry-specific institutions spread in various parts of the country.

Coir Board

The Coir Board is a statutory body established under the Coir Board Industry Act, 1953 (No. 45 of 1953) for promoting overall development of the coir industry and improving the living conditions of the workers engaged in this traditional industry. The Coir Board consists of a full-time Chairman and 39 part-time Members. The activities of the Board for development of coir industries, inter-alia include undertaking scientific, technological and economic research and development activities; collecting statistics relating to exports and internal consumption of coir and coir products; developing new products and designs; organizing publicity for promotion of exports and internal sales; marketing of coir and coir products in India and abroad; preventing unfair competition between producers and exporters; assisting the establishment of units for manufacture of the products; promoting co-operative organization among producers of husks, coir fibre, coir yarn and manufactures of coir products; ensuring remunerative returns to producers and manufacturers, etc.

The Board has promoted two research institutes namely, Central Coir Research Institute (CCRI), Kalavoor, Alleppey, and Central Institute of Coir Technology (CICT), Bengalooru for undertaking research

activities on different aspects of coir industry which is one of the major agro based rural industries in the country. The two major strengths of the coir industry are it being export oriented and generating wealth out of the waste (coconut husk).

National Small Industries Corporation Limited (NSIC)

NSIC, established in 1955, is headed by Chairman-cum-Managing Director and managed by a Board of Directors.

The main function of the Corporation is to promote, aid and foster the growth of micro and small enterprises in the country, generally on commercial basis.

NSIC provides a variety of support services to micro and small enterprises catering to their different requirements in the areas of raw material procurement; product marketing; credit rating; acquisition of technologies; adoption of modern management practices, etc.

NSIC implements its various programmes and projects throughout the country through its 9 Zonal Offices, 39 Branch Offices, 12 Sub Offices, 5 Technical Services Centres, 3 Technical Services Extension Centres, 2 Software Technology Parks, 23 NSIC-Business Development Extension Offices and 1 Foreign Office.

Salient Features of Micro, Small &

Medium Enterprises Development

(MSMED) Act, 2006

Salient features of Micro, Small and Medium Enterprises Development Act, 2006 are as follows:

1. Classification of Enterprises

The earlier concept of ‘Industries’ has been changed to ‘Enterprises’.

Enterprises have been classified broadly into:

(i) Enterprises engaged in the manufacture/production of goods pertaining to any industry; and

(ii) Enterprises engaged in providing/rendering of services.

Manufacturing Enterprises have been defined in terms of investment in plant and machinery (excluding land & buildings) and further classified into:

- Micro Enterprises – investment up to Rs. 25 lakh.

- Small Enterprises – investment above Rs. 25 lakh and up to Rs. 5 crore

- Medium Enterprises – investment above Rs. 5 crore and up to Rs. 10 crore.

Service Enterprises have been defined in terms of their investment in equipment (excluding land & buildings) and further classified into:

- Micro Enterprises – investment up to Rs. 10 lakh.

- Small Enterprises – investment above Rs. 10 lakh and up to Rs. 2 crore.

- Medium Enterprises – investment above Rs. 2 crore and up to Rs. 5 crore.

2. Filing of Memoranda by MSMEs

INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

INTERNATIONALCOMMERCIAL TERMS (INCOTERMS)

The Incoterms 2010 rules

The Incoterms 2010 rules are standard sets of trading terms and conditions designed to assist traders when goods are sold and transported. INCOTERMS are generally used in both International trade and Domestic Trade . INCO terms are a series of international sales terms, published by International Chamber Of Commerce

(ICC) and widely used in international commercial transactions. These are accepted by governments, legal

authorities and practitioners worldwide for the interpretation of most commonly used terms in international

trade. This reduces or removes altogether, uncertainties arising from different interpretation of such terms

in different countries. They closely correspond to the U.N. Convention on contracts for the international

sale of goods. The first version of INCO terms was introduced in 1936. INCO terms 2010 (8th edition) were

published on Sept 27, 2010 and these came into effect wef Jan 1, 2011.

Main changes in  INCOTERMS 2010

1. Removal of 4 terms (DAF, DES, DEQ and

DDU) and introduction of 2 new terms (DAP - Delivered at Place and DAT - Delivered at

Terminal). As a result, there are a total of 11

terms instead of 13 (2 additions, DAP and DAT and 4 deletions, DAF, DDU, DEQ and DES).

2. Creation of 2 classes of INCOTERMS - (1)

rules for any mode or modes of transport and (2) rules for sea and inland waterway [INCOTERMS 2000

had 4 categories namely E (covering departure), F (covering main carriage unpaid), C (covering main carriage paid) and D (covering arrival)

Each Incoterms rule specifies:

*the obligations of each party (e.g. who is responsible for services such as transport; import and export clearance etc)

*the point in the journey where risk transfers from the seller to the buyer

So by agreeing on an Incoterms rule and incorporating it into the sales contract, the buyer and seller can achieve a precise understanding of what each party is obliged to do, and where responsibility lies in event of loss, damage or other mishap.

The Incoterms rules are created and published by the International Chamber of Commerce (ICC) and are revised from time to time. The most recent revision is Incoterms 2010 which came into force on 1st January 2011.

The definitive publication on the Incoterms 2010 rules is the ICC publication number 715, which is available from various national bookshops.

This is essential reading for those with responsibility for setting a corporate policy or negotiating contracts with trading partners or service providers.

The logic of the Incoterms 2010 rules

The eleven rules are divided into two main groups

Rules for any transport mode

• Ex Works EXW

• Free Carrier FCA

• Carriage Paid To CPT

• Carriage & Insurance Paid to CIP

• Delivered At Terminal DAT

• Delivered At Place DAP

• Delivered Duty Paid DDP     

Rules for sea & inland waterway only

• Free Alongside Ship FAS

• Free On Board FOB

• Cost and Freight CFR

• Cost Insurance and Freight CIF


In general the “transport by sea or inland waterway only” rules should only be used for bulk cargos (e.g. oil, coal etc) and non-containerised goods, where the exporter can load the goods directly onto the vessel. Where the goods are containerised, the “any transport mode” rules are more appropriate.A critical difference between the rules in these two groups is the point at which risk transfers from seller to buyer. For example, the “Free on Board” (FOB) rule specifies that risk transfers when the goods have been loaded on board the vessel. However the “Free Carrier” (FCA) rule specifies that risk transfers when the goods have been taken in charge by the carrier.

Another useful way of classifying the rules is by considering:

Who is responsible for the main carriage – the buyer or the seller?

If the seller is responsible for the main carriage, where does the risk pass from the seller to the buyer – before the main carriage, or after it?

This gives us these four groups:



Buyer responsible for all carriage – EXW

Buyer arranges main carriage – FAS; FOB; FCA

Seller arranges main carriage, risk passes after main carriage – DAT; DAP; DDP

Seller arranges main carriage, but risk passes before main carriage – CFR; CIF; CPT; CIP

Eleven terms



Group-1 INCO terms

1. EXW means that a seller has the goods ready for collection at his premises (works, factory,

warehouse, plant) on the date agreed upon. The buyer pays transportation costs and bears the risks for

bringing the goods to their final destination. This term places the greatest responsibility on the buyer and

minimum obligations on the seller.

2.FCA — Free Carrier (named places) : The seller hands over the goods, cleared for export, into the

custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of

transport, including carriage by air, rail, road, and containerized / multi-modal sea transport.

3. CPT — Carriage Paid To (named place of destination): (The general/containerized/multimodal

equivalent of CFR) The seller pays for carriage to the named point of destination, but risk passes when

the goods are handed over to the first carrier.

4. CIP — Carriage and Insurance Paid (To) (named

place of destination): The containerized transport/multimodal equivalent of CIF. Seller pays for carriage

and insurance to the named destination point, but risk passes when the goods are handed over to the first

carrier,

5. DAP : delivered at place

6. DAT I. delivered at terminal

7. DDP — Delivered Duty Paid (named destination place): This term means that the seller pays for all

transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used

interchangeably with the term "Free Domicile". It is the most comprehensive term for the buyer. In most of

the importing countries, taxes such as (but not limited to) VAT and excises should not be considered

prepaid being handled as a "refundable" tax. Therefore VAT and excise usually are not representing a

direct cost for the importer since they will be recovered against the sales on the local (domestic) market.



Group-2 INCO terms



8. FAS — Free Alongside Ship (named loading port): The seller must place the goods alongside the ship

at the named port. The seller must clear the goods for export. Suitable for maritime transport only but NOT

for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk cargo.

9. FOB — Free on board (named loading 'port): The seller must themselves load the goods on board the

ship nominated by the buyer, cost and risk being divided at ship's rail. The buyer must instruct the seller

the details of the vessel and port where the goods are to be loaded, and there is no reference to, or

provision for, the use of a carrier or forwarder.

10.CFR or CNF — Cost and Freight (named destination port): Seller must pay the costs and freight to

bring the goods to the port of destination. The risk is transferred to the buyer once the goods have

crossed the ship's rail. Maritime transport only and Insurance for the goods is NOT included. Insurance is

at the Cost of the Buyer.

11.CIF — Cost, Insurance and Freight (named destination port): Exactly the same as CFR except that theseller must in addition procure and pay for insurance for the buyer (Maritime transport only).







Ten common mistakes in using the Incoterms rules



Here are some of the most common mistakes made by importers and exporters:

•           Use of a traditional “sea and inland waterway only” rule such as FOB or CIF for containerised goods, instead of the “all transport modes” rule e.g. FCA or CIP. This exposes the exporter to unnecessary risks. A dramatic recent example was the Japanese tsunami in March 2011, which wrecked the Sendai container terminal. Many hundreds of consignments awaiting despatch were damaged. Exporters who were using the wrong rule found themselves responsible for losses that could have been avoided!

•           Making assumptions about passing of title to the goods, based on the Incoterms rule in use. The Incoterms rules are silent on when title passes from seller to buyer; this needs to be defined separately in the sales contract

•           Failure to specify the port/place with sufficient precision, e.g. “FCA Chicago”, which could refer to many places within a wide area

•           Attempting to use DDP without thinking through whether the seller can undertake all the necessary formalities in the buyer’s country, e.g. paying GST or VAT

•           Attempting to use EXW without thinking through the implications of the buyer being required to complete export procedures – in many countries it will be necessary for the exporter to communicate with the authorities in a number of different ways

•           Use of CIP or CIF without checking whether the level of insurance in force matches the requirements of the commercial contract – these Incoterms rules only require a minimal level of cover, which may be inadequate.

•           Where there is more than one carrier, failure to think through the implications of the risk transferring on taking in charge by the first carrier – from the buyer’s perspective, this may turn out to be a small haulage company in another country, so redress may be difficult in the event of loss or damage

•           Failure to establish how terminal handling charges (THC) are going to be treated at the point of arrival. Carriers’ practices vary a good deal here. Some carriers absorb THC’s and include them in their freight charges; however others do not.

•           Where payment is with a letter of credit or a documentary collection, failure to align the Incoterms rule with the security requirements or the requirements of the banks.

•           When DAT or DAP is used with a “post-clearance” delivery point, failure to think through the liaison required between the carrier and the customs authorities – can lead to delays and extra costs

International Finance - Translation Exposure

Translation exposure, also known accounting exposure, refers to a kind of effect occurring for an unanticipated change in exchange rates. It can affect the consolidated financial reports of an MNC.

From a firm’s point of view, when exchange rates change, the probable value of a foreign subsidiary’s assets and liabilities expressed in a foreign currency will also change.

There are mechanical means for managing the consolidation process for firms that have to deal with exchange rate changes. These are the management techniques for translation exposure.

We have discussed transaction exposure and the ways to manage it. It is interesting to note that some items that create transaction exposure are also responsible for creating translation exposure.

Translation Exposure – An Exhibit
The following exhibit shows the transaction exposure report for Cornellia Corporation and its two affiliates. Items that produce transaction exposure are the receivables or payables. These items are expressed in a foreign currency.

From the exhibit, it can be easily understood that the parent firm has mainly two sources of a probable transaction exposure. One is the Canadian Dollar (CD) 200,000 deposit that the firm has in a Canadian bank. Obviously, when the Canadian dollar depreciates, the deposit’s value will go down for Cornellia Corporation when changed to US dollars.

It can be noted that this deposit is also a translation exposure. It is a translation exposure for the same reason for which it is a transaction exposure. The given (Peso) Ps 3,000,000 accounts receivable is not a translation exposure due to the netting of intra-company payables and receivables. The (Swiss Franc) SF 375,000 notes for the Spanish affiliate is both a transaction and a translation exposure.

Cornellia Corporation and its affiliates can follow the steps given below to reduce its transaction exposure and translation exposure.

Firstly, the parent company can convert its Canadian dollars into U.S. dollar deposits.

Secondly, the parent organization can also request for payment of the Ps 3,000,000 the Mexican affiliate owes to it.

Thirdly, the Spanish affiliate can pay off, with cash, the SF 375,000 loan to the Swiss bank.

These three steps can eliminate all transaction exposure. Moreover, translation exposure will be diminished as well.

Hedging Translation Exposure
The above exhibit indicates that there is still enough translation exposure with changes in the exchange rate of the Mexican Peso and the Euro against the U.S. dollar. There are two major methods for controlling this remaining exposure. These methods are: balance sheet hedge and derivatives hedge.

Balance Sheet Hedge
Translation exposure is not purely entity specific; rather, it is only currency specific. A mismatch of net assets and net liabilities creates it. A balance sheet hedge will eliminate this mismatch.

Using the currency Euro as an example, the above exhibit presents the fact that there are €1,826,000 more net exposed assets than liabilities. Now, if the Spanish affiliate, or more probably, the parent firm or the Mexican affiliate, pays €1,826,000 as more liabilities, or reduced assets, in Euros, there would be no translation exposure with respect to the Euro.

A perfect balance sheet hedge will occur in such a case. After this, a change in the Euro / Dollar (€/$) exchange rate would not have any effect on the consolidated balance sheet, as the change in value of the assets would completely offset the change in value of the liabilities.

Derivatives Hedge
According to the corrected translation exposure report shown above, depreciation from €1.1000/$1.00 to €1.1786/$1.00 in the Euro will result in an equity loss of $110,704, which was more when the transaction exposure was not taken into account.

A derivative product, such as a forward contract, can now be used to attempt to hedge this loss. The word “attempt” is used because using a derivatives hedge, in fact, involves speculation about the forex rate changes.

International Finance - Transaction Exposure

There are various techniques available for managing transactional exposure. The objective here is to shun the transactions from exchange rate risks. In this chapter, we will discuss the four major techniques that can be used to hedge transactional exposure. In addition, we will also discuss some operational techniques to manage transactional exposure.

Financial Techniques to Manage Transaction Exposure
The main feature of a transaction exposure is the ease of identifying its size. Additionally, it has a well-defined time interval associated with it that makes it extremely suitable for hedging with financial instruments.

The most common methods for hedging transaction exposures are −

Forward Contracts − If a firm has to pay (receive) some fixed amount of foreign currency in the future (a date), it can obtain a contract now that denotes a price by which it can buy (sell) the foreign currency in the future (the date). This removes the uncertainty of future home currency value of the liability (asset) into a certain value.

Futures Contracts − These are similar to forward contracts in function. Futures contracts are usually exchange traded and they have standardized and limited contract sizes, maturity dates, initial collateral, and several other features. In general, it is not possible to exactly offset the position to fully eliminate the exposure.

Money Market Hedge − Also called as synthetic forward contract, this method uses the fact that the forward price must be equal to the current spot exchange rate multiplied by the ratio of the given currencies' riskless returns. It is also a form of financing the foreign currency transaction. It converts the obligation to a domestic-currency payable and removes all exchange risks.

Options − A foreign currency option is a contract that has an upfront fee, and offers the owner the right, but not an obligation, to trade currencies in a specified quantity, price, and time period.

Note − The major difference between an option and the hedging techniques mentioned above is that an option usually has a nonlinear payoff profile. They permit the removal of downside risk without having to cut off the profit from upside risk.

The decision of choosing one among these different financial techniques should be based on the costs and the penultimate domestic currency cash flows (which is appropriately adjusted for the time value) based upon the prices available to the firm.

Transaction Hedging Under Uncertainty
Uncertainty about either the timing or the existence of an exposure does not provide a valid argument against hedging.

Uncertainty about transaction date
Lots of corporate treasurers promise to engage themselves to an early protection of the foreign-currency cash flow. The key reason is that, even if they are sure that a foreign currency transaction will occur, they are not quite sure what the exact date of the transaction will be. There may be a possible mismatch of maturities of transaction and hedge. Using the mechanism of rolling or early unwinding, financial contracts create the probability of adjusting the maturity on a future date, when appropriate information becomes available.

Uncertainty about existence of exposure
Uncertainty about existence of exposure arises when there is an uncertainty in submitting bids with prices fixed in foreign currency for future contracts. The firm will pay or receive foreign currency when a bid is accepted, which will have denominated cash flows. It is a kind of contingent transaction exposure. In these cases, an option is ideally suited.

Under this kind of uncertainty, there are four possible outcomes. The following table provides a summary of the effective proceeds to the firm per unit of option contract which is equal to the net cash flows of the assignment.

Operational Techniques for Managing Transaction Exposure
Operational strategies having the virtue of offsetting existing foreign currency exposure can also mitigate transaction exposure. These strategies include −

Risk Shifting − The most obvious way is to not have any exposure. By invoicing all parts of the transactions in the home currency, the firm can avoid transaction exposure completely. However, it is not possible in all cases.

Currency risk sharing − The two parties can share the transaction risk. As the short-term transaction exposure is nearly a zero sum game, one party loses and the other party gains%

Leading and Lagging − It involves playing with the time of the foreign currency cash flows. When the foreign currency (in which the nominal contract is denominated) is appreciating, pay off the liabilities early and collect the receivables later. The first is known as leading and the latter is called lagging.

Reinvoicing Centers − A reinvoicing center is a third-party corporate subsidiary that uses to manage one location for all transaction exposure from intra-company trade. In a reinvoicing center, the transactions are carried out in the domestic currency, and hence, the reinvoicing center suffers from all the transaction exposure.

Reinvoicing centers have three main advantages −

The centralized management gains of transaction exposures remain within company sales.

Foreign currency prices can be adjusted in advance to assist foreign affiliates budgeting processes and improve intra affiliate cash flows, as intra-company accounts use domestic currency.

Reinvoicing centers (offshore, third country) qualify for local non-resident status and gain from the offered tax and currency market benefits.

Policy Framework for International Trade

1. Introduction to India’s Foreign Trade:
International business operations at firm level are considerably influenced by various policy measures employed to regulate trade, both by home and host countries. Exportability and importability of a firm’s goods are often determined by trade policies of the countries involved. Price-competitiveness of traded goods is affected by import and export tariffs.
The host country’s trade and FDI policies often influence entry decisions in international markets. Policy incentives help exporters increase their profitability through foreign sales. High import tariffs and other import restrictions distort free market forces guarding domestic industry against foreign competition and support indigenous manufacturing.
Therefore, a thorough understanding of the country’s trade policy and incentives are crucial to the development of a successful international business strategy.
Trade policy refers to the complete framework of laws, regulations, international agreements, and negotiating stances adopted by a government to achieve legally binding market access for domestic firms. It also seeks to develop rules providing predictability and security for firms. To be effective, trade policy needs to be supported by domestic policies to foster innovation and international competitiveness.
Besides, the trade policy should have flexibility and pragmatism.
Trade in developing countries is characterized by heavy dependence on developed countries, dominance of primary products, over-dependence on few markets and few products, and worsening of terms of trade and global protectionism, all of which make formulation and implementations of trade policy critical to economic development.
The strategic options for trade policy may either be inward or outward looking. As a result of liberalization and integration of national policies with WTO agreements, there has been a strategic shift in trade policies. Like other developing countries, India’s trade policies have also made a gradual shift from highly restrictive policies with emphasis on import substitution to more liberal policies geared towards export promotion.
India’s foreign trade policy is formulated under the Foreign Trade (Development and Regulation) Act, for a period of five years by the Ministry of Commerce, Government of India. The government is empowered to prohibit or restrict subject to conditions, export of certain goods for reasons of national security, public order, morality, prevention of smuggling, and safeguarding balance of payments.
Policy measures to promote international trade, such as schemes and incentives for duty-¬free and concessional imports, augmenting export production, and other export promotion measures are discussed in-depth
The multilateral trading system under the WTO trade regime significantly influences trade promotion measures and member countries need to integrate their trade policies with the WTO framework. The WTO trade policy review mechanism provides an institutional framework to review trade policies of member countries at regular intervals.

Trade Policy Options for Developing Countries:

There exists a huge gap in per capita income between the developed and the developing countries. Most of the world’s population lives in countries that are considerably poor.
Efforts to bridge the income gap between developed and developing countries, to raise living standards by increasing income levels, and to cope with the uneven development in the domestic economy, remain the central concern of economic and trade policies of developing countries. With low production base and constraints in value addition, most developing countries remain marginal players in international trade
Key characteristics of developing countries’ trade include the following:
(i) Heavy Dependence Upon Developed Countries:
Developing countries’ trade is often dependent upon developed countries which form export destinations for the majority of their goods. Moreover, developing countries also heavily depend on developed countries for their imports. Trade among developing countries is relatively meagre.
(ii) Dominance of Primary Products:
Exports from developing countries traditionally comprised primary products, such as agricultural goods, raw materials and fuels or labour-intensive manufactured goods, such as textiles. However, over recent years, dependence on primary products has considerably decreased, especially for newly industrialized countries, such as South Korea and Hong Kong.
India’s dependence on agro exports has also declined considerably from 44.2 per cent in 1960-61 to about 10 per cent in 2006-07.
(iii) Over-dependence on a Few Markets and a Few Products:
A large number of developing countries are dependent on just a few markets and products for their exports. For instance, Mexico is heavily dependent on the US which is the destination for 89 per cent of its total exports whereas the Dominican Republic exports 80 per cent and Trinidad and Tobago 68 per cent of its goods to the US.
In terms of product composition, petroleum accounts for 96 per cent of total exports from Nigeria, 86 per cent of total exports from Saudi Arabia, and 86 per cent of total exports from Venezuela. Over the years, India’s basket of export products has widened remarkably with decreased dependence on any single product category

(iv) Worsening Terms of Trade:
Distribution of gains from trade has always been disproportionate and therefore, a controversial issue. Developing countries often complain of deterioration in their terms of trade, mainly due to high share of primary products in their exports.
(v) Global Protectionism:
Developed countries often provide heavy subsidies to their farmers for agricultural production and shield them from competition from imported products, besides imposing tariffs. Moreover, a number of non-tariff barriers such as quality requirements, sanitary and phytosanitary measures, and environmental and social issues, such as child labour offers considerable obstacles to products emanating from developing countries.
Trade Policy Strategic Options for International Trade:
‘Economic dualism’, where a high-wage capital-intensive industrial sector co-exists with a low-wage unorganized traditional sector, prevails in most developing countries. Promoting indigenous industrialization and employment generation become key concerns of their economic policies. A country may adopt any of the following strategic options for its trade policy
i) Inward Looking Strategy (Import Substitution):
Emphasis is laid on extensive use of trade barriers to protect domestic industries from import competition under the import-substitution strategy. Domestic production is encouraged so as to achieve self-sufficiency and imports are discouraged.
Import- substitution trade strategy is often justified by the ‘infant industry argument’, which advocates the need of a temporary period of protection for new industries from competition from well-established foreign competitors.
Most developing countries, such as Brazil, India, Mexico, Argentina, etc., during the 1950s and 1960s employed an inward-looking trade strategy.