Export promotion vs import substitution
- 3. MEANING OF ‘EXPORT’ The commodities (goods & services) sold to a foreign country is called export MEANING OF ‘PROMOTION’ Encouragement of the progress, growth or acceptance of something. MEANING OF “EXPORT PROMOTION” Refers to the policy of the govt that offers encouragement to the exporters with a view to enhance the exports of the country.
- 5. Devaluation of rupee by 36.5% in gold in June 1965 Govt. expressed hope for expansion in export earnings because Indian goods would be cheaper in International market Lasted upto 1972-73
- 6. This phase began in 1973 and lasted upto a decade Import substitution could not bring viability in BOP Govt undertook steps to increase exports
- 7. Recent phase The govt. of India has framed various schemes so as to promote exports & improve the country’s exchange earnings
- 8. The Export Promotion Council Of India was established under Companies Act 1956 Focuses on promotion of exporters and producers to export goods To achieve higher level of export performance & foreign exchange earnings
- 9. To promote & develop the exports of the country Each council is responsible for the promotion of a particular group: 1. Products 2. Projects 3. Services 4. Assistance Assists members in taking advantage of opportunities Helps in expansion & diversifying exports
- 10. JUTE IRON ORE TEA TOBACC O TEXTILES ; COTTON & SILK GEMS & JEWELLE RY MISCELLANEO US
- 12. Neglect of factors other than price Other factors like quality of product Ability of the exporters Delivery schedule & other imp factors are more imp influencing foreign buyers Wasteful formalities Availing of promotional measures & procedural formalities are long, complicated & time consuming Wrong focus We often focus on selected products Other products should be promoted.
- 13. Trading problems Developing countries find problems due to tarrifs Tarriif rates become higher as one moves from raw material to manufactured products Production problems Lack of sophisticated technology Inspite of changes in industrial & trade policy Indian firms continue to produce outdated products by outdated technology
- 14. Cash compensatory support Duty drawback system Advanced license & duty exemption scheme Replenishment licenses Organizational structure for export promotion
- 15. Government built up various organizational structures to promote exports such as: EPCs Commodity Boards The Trade development authority Indian Institute of Packaging Trade Fair Authority of India
- 17. Growth can be thought of as expanding the size of the community through the use of land and other natural resources. Development, on the other hand, can be thought of as improving liveability through, jobs, education, cultural preservation, public safety, and sense of community. Fortunately, there exist ways for communities to develop without growing. One of those ways is through Import Substitution.
- 18. Import substitution is a trade policy aimed to promote economic growth by restricting imports that competed with domestic products in developing countries. The import substitution approach substitutes externally produced goods and services with locally produced ones. Import substitution can also be discussed as a policy strategy that attempts to utilize underused capacities, reduce regional unemployment or protect infant industries.
- 19. leaky bucket” model. Money circulates within the region when money that is earned locally is also spent locally. This requires that some money exists in the bucket to begin with —one way this happens is when local goods and services are purchased by consumers outside the region. — Another source of inflow comes from businesses which decide to set up shop locally and generate jobs that pay local workers. The “leak” in the bucket that allows money to escape from the community is created when goods and services from outside the region are purchased with local money
- 20. Plugging the Leaks One way to prevent money from leaving the local economy is to connect local demand for goods and services with the local suppliers of those goods and services. Many of the things that individuals or businesses need can be found from suppliers within the area but, due to lack of adequate information or convenience, those things are often purchased from the outside. This represents another flow of capital leaving the system. By substituting demand for externally produced things with locally produced things, communities can retain capital for use within the community.
- 21. The notion of import substitution was popularized in the 1950s and 1960s as a strategy to promote economic independence and development in developing countries This initial effort failed due in large part to the relative inefficiency of 3rd world production facilities and as a result their inability to compete in a globalizing marketplace. Thus an export oriented approach has became the norm.
- 22. Promotion of Domestic Industry Employment Generation Promotion of Industrialization Production of consumer’s goods Improvement in Balance of Payment
- 23. Advantages • Increase in domestic employment. • Reduced dependence on labor non intensive industries. • Resilience in the face of global economic shock (recessions & depreciations) • Less long distance transportation of goods. Disadvantages • The IS industries are inefficient as they are not exposed to internationally competitive industries. • Increase in unemployment internationally as world GDP decreases through promotion of inefficiency.
- 24. Import Licenses: - Import license is an important instrument. There can be a large variety of licenses- for users or for wholesalers they can be obtained by direct permission from some ministry or the central bank. They can be combined with specific import programs and they might be combined with lists of prohibited import products. Guarantee Deposits: - Other means are guarantee deposits which have to be made by the importer for the right to import an item. Foreign firms can be restricted in their right to repatriate dividends and profits. Domestic exporters, on the other hand may be allowed to resell part of their foreign earnings at advantageous exchange rates.
- 25. Tariff Walls: - Tariffs and surcharges are common protection devices. Tariff rates differ between countries and also vary over time. It is convenient to characterize a country’s control over foreign trade according to the policy implemented. Physical Restrictions:- The method of physical restriction on import or even outright banning of import is used in cutting out imports. Reduction in imports is brought out by such devices as quotas, licensing, ban on certain imports etc. It is a sure way of protecting the domestic producers from the foreign competition.