Unit – 5

Foreign Trade of India

Introduction

Business with foreign nations is not a new phenomenon in India. India is used to
trade with foreign nations even in BC. The Periplus of the Erythraean Sea is a
document (written by an anonymous sailor from Alexandria about AD 100)
describing trade between countries, including India. Since 1498, Europeans did
trade with the rulers of India using the sea route. The main export items then were
spices like pepper, ginger, cinnamon, cardamom, nutmeg, mace, and cloves. From
1947-1991, the Indian economy remained largely as a closed economy. High taxes
were levied on import of items. Foreign investments like FDI were restricted.
However, after the liberalisation in 1991, foreign trade improved significantly.

Exports and Imports

Now, India exports around 7500 commodities to about 190 countries, and imports
around 6000 commodities from 140 countries. Exports and Imports are not only
restricted to commodities (merchandise). Service is also a major export/import
item.
The summary of foreign trade of India can be as below:

 Export of goods (merchandise/commodities)

 Export of services
 Import of goods (merchandise/commodities)
 Import of services

Balance of Trade (BoT)

Balance of Trade (BoT) is also known as Trade Balance.

Balance of Trade (Merchandise) = Export of goods – Import of goods

Balance of Trade (Services) = Export of services – Import of services

In general, if someone mentions Balance of Trade, he/she is intending only the
Balance of Trade (Merchandise)

Exports of India

 Top Export Items: Petroleum products, precious stones, drug formulations &

biologicals, gold and other precious metals are the top exported commodities.
 India’s merchandise exports are less than its merchandise imports.
 Still, India’s merchandise trade balance has improved from 2009-14 to 2014-
19 although most of the improvement in the latter period was on account of
more than 50 per cent decline in crude prices in 2016-17.

Imports of India

 Top Import Items: Crude petroleum, gold, petroleum products, coal, coke &
briquettes constitute top import items.
 India’s service exports are more than its service imports. This means that
India has a net service surplus.
 However, India’s net services surplus has been steadily declining in relation
to GDP.
 Now, India’s service surplus finance about 50 per cent of the merchandise
deficit (the trade balance).

Top Trading Partners of India

India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia
and Hong Kong.

Top 10 Export Commodities

1. Petroleum Products
2. Pearl, Precious, Semiprecious Stones
3. Drug Formulations, Biologicals
4. Gold and Other Precious Metal Jewelry
5. Iron and Steel
6. Electric Machinery and equipment
7. Organic Chemicals
8. RMG Cotton including Accessories
 9. Motor Vehicles/ Cars
10.Marine Products

Top 10 Countries to which India exports the most

1. U S A
2. UAE
3. China PRP
4. Hong Kong
5. Singapore
6. United Kingdom
7. Netherland
8. Germany
9. Bangladesh PR
10.Nepal

Service Exports:

The composition of service exports has remained largely unchanged over the years.
Software services constitute the bulk of it at around 40-45 per cent, followed by
business services at about 18-20 per cent, travel at 11-14 per cent and
transportation at 9-11 per cent.

Top 10 Import Commodities

1. Petroleum: Crude
2. Gold
3. Petroleum Products
4. Coal, Coke and Briquettes, etc.
5. Pearl, Precious, Semiprecious Stones
6. Electronic Components
7. Telecom Instruments
8. Organic Chemicals
9. Industrial Machinery for Dairy etc.
10.Iron and Steel
Top 10 Countries from which India imports the most

1. China PRP
2. USA
3. UAE
4. Saudi Arabia
5. Iraq
6. Switzerland
7. Hong Kong
8. Korea RP
9. Singapore
10.Indonesia

Service Imports

Over the years, service imports in relation to GDP have been steadily rising putting
pressure on BoP to worsen. However, the increase in service imports to GDP ratio
is inevitable given a rising level of FDI and a gradual upscaling of the Make in
India program. Business Services, Travel, and Transportation are the three top
service imports.

Balance of Payments (BoP) Compositions

Balance of Payments (BoP) statistics systematically summarise, for a specific

period, the economic transactions of an economy with the rest of the world.
The compilation and dissemination of BoP data is the prime responsibility of RBI.
BoP = net credit in ( Current Account + Capital Account and Financial Account).
India’s Balance of Payments (BoP) position witnessed great improvement since
liberalisation in 1991.

India’s foreign reserves stood at US$ 572 billion as on November 2020.

Foreign Exchange (Forex) Reserves include Foreign Currency Assets,
Gold, Special Drawing Rights (SDRs), and Reserve Position in the IMF (Gold
Tranche or Reserve Tranche).

Global Trade

Global Trade was growing at 5.7 per cent in 2017. However, in 2019-20, it is
estimated to grow only at 1.0 per cent.

Ease of Doing Business: Performance of India

India now ranks 68 out of the 190 countries under the indicator “Trading across
Borders” in the Ease of Doing Business Report published by World Bank. (2019).

Logistics Industry in India

The logistics industry of India is currently estimated to be around US$ 160 billion
and is expected to touch US$ 215 billion by 2020.

Net Remittances from Indians employed overseas

Net Remittances are part of the Current Account in the Balance of Payments
statement published by RBI.

Net remittances from Indians employed overseas has been constantly increasing
year after year.

FDI Inflows and FPI Inflows

FDI and FPI are showing a positive trend in recent years.

External Debt
After witnessing significant decline since 2014-15, India’s external liabilities (debt
and equity) to GDP has increased at the end of June 2019 primarily driven by an
increase in FDI, portfolio flows and external commercial borrowings (ECBs).
External debt as at end of September 2019 remains low at 20.1 per cent of GDP.

Foreign Trade Policy of India

The Foreign Trade Policy, 2015-20, notified by Central Government, is an exercise

of powers conferred under Section 5 of the Foreign Trade (Development &
Regulation) Act, 1992 OR FT (D&R) Act.

The Regulator of Export Trade in India

Export trade is regulated by the Directorate General of Foreign Trade (DGFT) and

its regional offices, functioning under the Ministry of Commerce and Industry,
Department of Commerce, Government of India. Policies and procedures required
to be followed for exports from India are announced by the DGFT, from time to
time.

Composition of Indian Foreign Trade

A study of a country’s imports and exports of products and services is known as

the composition of trade. In another sense, it provides information on a country’s
imports and exports of commodities. As a result, it reveals a nation’s structure and
level of economic development. Raw resources, agricultural products, and
intermediate commodities are exported by developing countries, whereas
developed nations export finished goods, equipment, and machines. The Indian
Foreign Trade Policy boosts the economy by allowing India’s exports and imports
to rise significantly. 

Composition of Indian foreign trade: Imports

The composition of India’s import basket included oils, pulses, machinery,

chemicals, hardware, pharmaceuticals, dyes, yarns, paper, grains, non-ferrous
metals, cars, and other items at the time of independence. With the advent of
planning and the emphasis on establishing capital goods and engineering sectors,
the government was required to purchase a large number of capital equipment and
maintenance imports.
The top eight import items during April-February of FY22 were:

1. Petroleum crude & products (25.7 percent of total imports)

2. Plastic materials, artificial resins, etc. (3.3 percent)
3. Pearls, semi-precious & precious stones (5 percent)
4. Gold (8.2 percent)
5. Electronic goods (11.8 percent)
6. Electrical & non-electrical equipment (6.6 per cent)
7. Inorganic & organic chemicals (5 percent)
8. Coal, coke, etc. (4.9 percent).

In FY22, these main import items accounted for 70.6 percent of overall imports.
 The composition of India’s imports is segregated into three categories:
 raw materials,
 capital goods, and
 consumer products.

 Raw materials

Petroleum oil, lubricants, edible oil, iron and steel, fertilizers, non-ferrous metals,
precious stones, pearls, and other commodities fall into this category. The
percentage of total imports made up of all of these commodities skyrocketed
significantly from 47% in 1960-61 to nearly 80% in 1980-81.

Presently, concerns about supply disruptions have risen due to Russia’s invasion of
Ukraine, bringing oil prices to multi-year highs. Given that India imports roughly
80% of its oil, the current circumstance puts its trade deficit in jeopardy. Petroleum
imports increased from USD 13.1 billion in January to USD 15.3 billion on
February 22. Due to rising international oil prices, higher mobility, and a
corresponding increase in domestic and foreign oil consumption, petroleum
imports climbed significantly from USD 72.4 billion in FY21 to USD 141.7 billion
in FY22.
 
Capital goods

Non-electrical and electrical machinery, metals, locomotives, and other transport

equipment, among other things, fall into this category. These items are necessary
for the country’s industrial development. Capital goods imports accounted for
roughly 32% of overall imports in 1960-61, amounting to around INR 356 crore.
This gradually decreased, and in 1992-93, it was around 21%.
 Consumer products

It involves importing electrical items, food grains, medications, and paper, among
other things. Until the end of the Third Five-Year Plan, India had a severe food
grain shortfall. As a result, India would import enormous amounts of food grains.
Presently, India has become self-sufficient in food production.

Composition of Indian foreign trade: Exports

The top eight export items during the April-February period of FY22 were:

1. Engineering goods (26.9% of total exports)

2. Organic & inorganic chemicals (7.1%)
3. Gems & jewelry (9.4%)
4. Drugs & pharmaceuticals (5.9%)
5. Textiles (3.8%)
6. Electronic goods (3.7%)
7. Petroleum products (14.8%)
8. Cotton yarn/fabs/made-ups, handloom products etc. (3.7%).

These eight goods accounted for approximately 75 percent of overall exports in

FY22. 

India’s export composition can be classified into two categories: traditional exports
and non-traditional exports.

 Traditional products

Traditional items include the export of coffee, tea, jute goods, iron ore, animal
skin, cotton, minerals, fish and fish products, etc. These products accounted for
nearly 80% of our overall exports at the start of the planning era. However, these
items’ contribution is gradually decreasing, while non-traditional items’
contribution is increasing.

 Non-traditional products

Engineering goods, sugar, chemicals, electrical goods, iron and steel, leather
goods, gems and jewelry are among the non-traditional items exported. 
Engineering goods and petroleum products are the two major components of
India’s total exports. Exports of engineering goods have climbed to USD 101
billion in FY22, a 49.8% increase. Also, petroleum exports have skyrocketed from
USD 22.2 billion in FY21 to USD 55.5 billion in FY22.

Summary of Composition

To summaries, major changes in the scale, composition and course of the Indian
foreign trade have been noted over the last five decades. India’s transformation
from a largely primary commodities exporting country to a non-primary
commodities exporting country is remarkable. The nation’s reliance on importing
capital goods and food grains has also decreased. The majority of these
modifications have been in line with the economy’s development needs. The trend
implies that the Indian economy is undergoing structural changes. The features of
Volume, Composition and Direction of India’s Foreign Trade are as follows:

1) Increasing Share of Gross National Income:

India’s foreign trade plays an important role in the Gross National Income.
In 1990-91, share of India’s foreign trade (import export) in net national income
was 17 per cent which in 2006-07 rose to 25 per cent. In 2006-07 exports and
imports as percentage of GDP were 14.0 per cent and 21 per cent respectively.

2) Less Percentage of World Trade:

Share of India’s foreign trade in world trade has been declining. In 1950-51,
India’s share in total import trade of the world was 1.8 per cent and in export trade
it was 2 per cent. According to World Trade Statistics, India’s share in world trade
has gone-up from 1.4 per cent in 2004 to 1.5 per cent in 2006 and estimated to be 2
per cent in 2009.

3) Oceanic Trade:

Most of India’s trade is by sea, India has very little trade relations with its neighing
countries like Nepal, Afghanistan, Myanmar, Sri Lanka, etc. Thus, 68 per cent of
India’s trade is oceanic trade: Share of these neighing countries in our export trade
was 21.8 per cent and in import trade 19.1 per cent.
4) Dependence on a Few Ports:

For its foreign trade, India depends mostly on Mumbai, Kolkata, and Chennai
ports. These ports are therefore, over-crowded. Recently, India has developed
Kandla, Cochin, and Visakhapatnam ports to lessen the burden on former ports.

5) Increase in Volume and Value of Trade:

Since 1990-91, volume and value of India’s foreign trade has gone up. India now
exports and imports goods which are several times more in value and volume. In
1990-91, total value of India’s foreign trade was Rs 75,751 and in 2008-09, it rose
to Rs 22, 15,191 crore. Of it, value of exports was Rs 8, 40,755 crore and that of
imports was Rs 13, 74,436 crore.

6) Change in the Composition of Exports:

Since independence, composition of export trade of India has undergone a change.

Prior to independence, India used to export agricultural products and raw materials,
like jute, cotton, tea, oil seeds, leather, food grains, cashew nuts, and mineral
products. It also exported manufactured goods. But now in its export kitty are
included mostly manufactured items like, machines, ready-made garments, gems
and jewellery, tea, jute manufactures, Cashew Kernels, electronic goods, especially
hardware’s and software’s which occupy prime place in exports.

7) Change in the Composition of Imports:

Since Independence, composition of India’s import trade has also witnessed a sea
change. Prior to Independence, India used to import mostly consumption goods
like medicines, cloth, motor vehicles, electrical goods, iron, steel, etc. Now it has
been importing mostly petrol and petroleum products, machines, chemicals-,
fertilizers, oil seeds, raw materials, steel, edible oils, etc.

8) Direction of Foreign Trade:

It refers to the countries with whom a country trade. Main changes in the direction
of foreign trade are as under:
In the year 1990, in exports the maximum share, i.e., 17.9 per cent was that of
Eastern Europe, i.e., Romania, East Germany, and U.S.S.R., etc. In import trade,
maximum share, i.e., 16.5 per cent was that of OPEC, i.e., Iran, Iraq, Saudi Arabia,
Kuwait, etc. In 2008-09, the largest share in India’s foreign trade (both imports and
exports) was that of European Union (EU), i.e., Germany, Belgium, France, U.K.,
etc., and developing countries. Now, U.A.E., China and U.S.A. have occupied
important place in India’s foreign trade. The importance of England, Russia, etc.,
has declined.

9) Mounting Deficit in Balance of Trade:

Since 1950-51, India’s balance of trade has been continuously adverse except for
two years, viz., 1972-73 and 1976-77, besides it has been mounting year after year.
In 1950-51 balance of trade was adverse to the tune of Rs 2 crore and by 1990-
1991 it rose to Rs 16,933 crore. After the policy of liberalization, the country has
witnessed a rapid increase in it. In 1999- 2000 it rose to Rs 77,359crorc and in
2008-09 it amounted to 5, 33,680 crore. Fast rise in the value of imports and slow
rise in the value of exports accounted for this tremendous rise in balance of trade
deficit.

10) Trend towards Globalization:

Globalization and diversification mark the latest trend of India’s foreign trade.
India’s foreign trade is no longer confined or a few goods or a few countries.
Presently, India exports 7,500 items to about 190 countries and in its import- kitty
there are 6,000 items from 140 countries. It unveiled the changing pattern of
India’s foreign trade.

11) Changing Role of Public Sector:

Since 1991 the role of public sector in India’s foreign trade has undergone a
change. Prior to it, State Trading Corporation (STC), Minerals and Metals Trading
Corporation (MMTC), Handicraft and Handloom Corporation, Steel Authority of
India Ltd. (SAIL), Hindustan Machine Tools (HMT), Bharat Heavy Electrical
Limited (BHEL), etc., used to play significant role in India’s foreign trade. As a
result of implementation of the policy of liberalization, the importance of all these
public sector enterprises has diminished.
Export Import Policy or better known as Exim Policy is a set of guidelines and
instructions related to the import and export of goods. The Government of India
notifies the Exim Policy for a period of five years (1997 2002) under Section 5 of
the Foreign Trade (Development and Regulation Act), 1992. The current policy
covers the period 2002 2007. The Export Import Policy is updated every year on
the 31st of March and the modifications, improvements and new schemes becames
effective from 1st April of every year. All types of changes or modifications
related to the Exim Policy is normally announced by the Union Minister of
Commerce and Industry who coordinates with the Ministry of Finance, the
Directorate General of Foreign Trade and its network of regional offices.
Highlight of Various Exim Policies of India 2002 - 07

1. Service Exports
Duty free import facility for service sector having a minimum foreign exchange
earning of Rs. 10 lakhs. The duty-free entitlement shall be 10% of the average
foreign exchange earned in the preceding three licensing years. However, for
hotels the same shall be 5 % of the average foreign exchange earned in the
preceding three licensing years. Imports of agriculture and dairy products shall not
be allowed for imports against the entitlement. The entitlement and the goods
imported against such entitlement shall be nontransferable.

2. Status Holders

a. Duty free import entitlement for status holder having incremental growth of
more than 25% in FOB value of exports (in free foreign exchange). This
facility shall however be available to status holder having a minimum export
turnover of Rs. 25 crores (in free foreign exchange).

b. Annual Advance License facility for status holder to be introduced to enable

them to plan for their imports of raw material and component on an annual
basis and take advantage of bulk purchase.

c. Status holder in STPI shall be permitted free movement of professional

equipment like laptop/computer.
3. Hardware/Software

a) To give a boost to electronic hardware industry, supplies of all 217 ITA1

items from EHTP units to Domestic Tariff Area (DTA) shall qualify for
fulfillment of export obligation.

b) To promote growth of exports in embedded software, hardware shall be

admissible for duty free import for testing and development purpose.
Hardware up to a value of US$ 10,000 shall be allowed to be disposed off
subject to STPI certification.

c) 100% depreciation to be available over a period of 3 years to computer and

computer peripherals for units in EOU/EHTP/STP/SEZ.

4. Gem & Jewelry Sector

a) Diamonds & Jewelry Dollar Account for exporters dealing in purchase /sale
of diamonds and diamond studded jewelry.

b) Nominated agencies to accept payment in dollar for cost of import of

precious metals from EEFC account of exporter.

c) Gem & Jewelry units in SEZ and EOUs can receive precious metal
Gold/silver/platinum prior to export or post export equivalent to value of
jewelry exported. This means that they can bring export proceeds in kind
against the present provision of bringing in cash only.

5. Removal of Quantitative Restrictions

a) Import of 69 items covering animals’ products, vegetables and spice

antibiotics and films removed from restricted list

b) Export of 5 items namely paddy except basmati, cotton linters, rare, earth,
silk, cocoons, family planning device except condoms, removed from
restricted list.

6. Special Economic Zones Scheme

a) Sales from Domestic Tariff Area (DTA) to SEZ to be treated as export. This
would now entitle domestic suppliers to Duty Drawback / DEPB benefits,
CST exemption and Service Tax exemption.
 b) Agriculture/Horticulture processing SEZ units will now be allowed to
provide inputs and equipment to contract farmers in DTA to promote
production of goods as per the requirement of importing countries.

c) Foreign bound passengers will now be allowed to take goods from SEZs to
promote trade, tourism and exports.

d) Domestics sales by SEZ units will now be exempt from SAD.

e) Restriction of one-year period for remittance of export proceeds removed for

SEZ units.

f) Netting of export permitted for SEZ units provided it is between same

exporter and importer over a period of 12 months.

g) SEZ units permitted to take job work abroad and exports goods from there
only.

h) SEZ units can capitalize import payables.

i) Wastage for sub-contracting/exchange by gem and jewelry units in

transactions between SEZ and DTA will now be allowed.

j) Export/Import of all products through post parcel /courier by SEZ units will
now be allowed.

k) The value of capital goods imported by SEZ units will now be amortized
uniformly over 10 years.

l) SEZ units will now be allowed to sell all products including gems and
jewelry through exhibition and duty free shops or shops set up abroad.

m) Goods required for operation and maintenance of SEZ units will now be
allowed duty free.

7. EOU Scheme
Provision b,c,i,j,k and l of SEZ (Special Economic Zone) scheme , as mentioned
above, apply to Export Oriented Units (EOUs) also. Besides these, the other
important provisions are:
 a) EOUs are now required to be only net positive foreign exchange earner and
there will now be no export performance requirement.

b) Period of Utilization raw materials prescribed for EOUs increased from 1

years to 3 years.

c) Gems and jewelry EOUs are now being permitted sub-contracting in DTA.

d) Gems and jewelry EOUs will now be entitled to advance domestic sales.

8. EPCG Scheme

a) The Export Promotion Capital Goods (EPCG) Scheme shall allow import
of capital goods for preproduction and post production facilities also.

b) The Export Obligation under the scheme shall be linked to the duty saved
and shall be 8 times the duty saved.

c) To facilities upgradation of existing plant and machinery, import of spares

shall be allowed under the scheme.

d) To promote higher value addition in export, the existing condition of

imposing an additional Export Obligation of 50% for products in the higher
product chain to be done away with.

e) Greater flexibility for fulfillment of export obligation under the scheme by

allowing export of any other product manufactured by the exporter. This
shall take care of the dynamics of international market.

f) Capital goods up to 10 years old shall also be allowed under the Scheme.

g) To facilitate diversification in to the software sector, existing manufacturer

exporters will be allowed of fulfill export obligation arising out of import of
capital goods under the scheme for setting up of software units through
export of manufactured goods of the same company.

h) Royalty payments received from abroad and testing charges received in free
foreign exchange to be counted for discharge of export obligation under
EPCG Scheme.
9. DEPB Scheme

a) Facility for pro visional Duty Entitlement Pass Book (DEPB) rates
introduced to encourage diversification and promote export of new products.

b) DEPB rates rationalize in line with general reduction in Customs duty.

10. DFRC Scheme

a) Duty Free Replenishment Certificate (DFRC) scheme extended to

deemed export to provide a boost to domestic manufacturer.

b) Value addition under DFRC scheme reduced from 33% to 25%.

11. Miscellaneous

a) Actual user condition for import of second hand capital goods up to 10 years
old dispensed with.

b) Reduction in penal interest rate from 24% to 15% for all old cases of default
under Exim policy

c) Restriction on export of warranty spares removed.

d) IEC holder to furnish online return of importers/exporters made on yearly

basis.

e) Export of free of cost goods for export promotion @ 2% of average annual

exports in preceding three years subject to ceiling of Rs. 5 lakhs permitted.

FTP 2015-2020 – Highs and Lows

‍

The trade policy of 2015 - 2020 – which focused on improving India’s

performance in existing markets/products and exploring new markets/products –
has been praised as “progressive” for the following reasons:  

 It consolidated a range of export incentives with different eligibility criteria

into two schemes – the Merchandise Exports from India Scheme (MEIS)
and Services Exports from India Scheme (SEIS).
  It offered export incentives under these two schemes in the form of duty
credit scrips, which can be used by exporters to pay import duties. The scrips
are fully transferable, which means that if an exporter has no need for them,
they can pass it on to another.
 It reduced export obligation from 90% to 75% for capital goods sourced
from local manufacturers under the Export Promotion Capital Goods
Scheme (EPCG).
 It allowed manufacturers who are “status holders” (entrepreneurs certified
by the DGFT as having helped India become a major export player) to self-
certify their manufactured goods as originating from India. This helps them
qualify for preferential treatment under various bilateral and regional trade
agreements. 
 It identified 108 micro, small and medium enterprise (MSME) clusters
for focused interventions with a view to boost exports.
 It promoted paperless processing of various DGFT licenses and
applications.     
However, the policy has also had its fair share of criticism. Some of its provisions
have been challenged at the World Trade Organization (WTO) by the United
States. Some sticking points:

 In 2019, a WTO dispute settlement panel, acting on Washington’s

complaint, said India’s export subsidy provisions violate WTO rules and
must be withdrawn. These included tax incentives under the popular MEIS
and SEIS. As India’s per capita gross national product is over $1,000 per
annum, it can no longer offer subsidies based on export performance, the
panel ruled. This controversy reinforces the growing view in India that the
country needs to move away from subsidies and think of other ways to help
its exporters.       
 There is a strong belief in India (bolstered by its trade policy) that free trade
agreements (FTAs) haven’t worked for it. One indication of this came in
November 2020 when India decided to not be a part of the Regional
Comprehensive Economic Partnership (RCEP), the world’s largest FTA.
Experts and economists believe this cost India a golden chance to be a major
player in exports. 
‍
Expectations from FTP 2021-2026
‍

Covid-19 was catastrophic for international trade. Indian exports fell by a record
60% and imports by 59% in April 2020. Though the situation has improved, the
road to recovery is long and hard. That is why the new trade policy must deliver
the goods. Based on inputs from traders, trade associations, members of Parliament
and a government-appointed high-level advisory group, some key expectations are:

 WTO-compliant tax incentives: With incentives under MEIS and SEIS

under a cloud, the need of the hour is WTO-compliant tax benefits. To this
end, the government has announced the Remission of Duties or Taxes on
Export Products (RoDTEP) scheme, effective January 1, 2021. It replaces
MEIS. Rates and conditions for the new scheme are yet to be announced. 
 Easy credit access: A long-standing demand of exporters, especially
MSMEs, is credit access. Formal financial institutions such as banks are
reluctant to lend to MSMEs due to their lack of adequate collateral. The
policy can help open up alternate credit avenues, such as finance technology
start-ups. The advisory group suggests raising borrowing limits at the Export
Import Bank of India.               
 Infrastructure upgrade: One reason why China is a manufacturing and
export powerhouse is its network of ports, highways and high-speed trains,
which are among the best in the world. India needs to learn from its
neighbour and improve its flagging infrastructure by upgrading existing
ports, warehouses, quality testing and certification centres and building new
ones. The Trade Infrastructure for Export Sector, a scheme for developing
infrastructure to promote exports, was launched in 2017 for a period of three
years. Many in the industry hope it will be extended.     
 Less subsidy, more support: In 2020, Commerce Minister Piyush Goyal
said quality, technology and scale of production were the answers to India’s
global ambitions, not subsidies. Many in the industry agree, saying
government support in the form of skill development programmes and
technological upgradation rather than subsidies would help them become
more competitive. Pharmaceuticals, biotechnology and medical devices are
some sectors that could do with upskilling. Similarly, the trade policy could
include incentives with a focus on research and development, something the
government has spoken of in the past. On the technology front, the Amended
Technology Upgradation Fund Scheme – which facilitates improvements in
investment, productivity, quality and exports in the textile industry through
technology upgrades – can be replicated for other sectors.
 Tax breaks: If India were to do away with subsidies, exporters would still
need some form of government support. Easier and lower taxes are a way of
filling this gap. The reduction of corporate tax rates and simplification of
duty structures are long-standing demands. The Confederation of Indian
Industry suggests simplifying the import duty structure by following “the
 general principle of higher duties on finished goods and lower/minimal
duties on intermediates and raw material”. There are also demands for an
overhaul/improvement of existing schemes such as the EPCG and Duty
Drawback Scheme.      
 Digitisation and e-commerce: With Covid-19 disrupting traditional supply
chains, India needs modern trade practices. Digitisation and e-commerce are
two ways to go about this. Digitisation can start with making common
import-export processes paperless. Trade body Nasscom, for example,
recommends an online mechanism for Importer Exporter Code (IEC) holders
to change their particulars (mobile numbers, e-mail IDs, etc). It also makes a
case for encouraging e-commerce exports by a) including e-commerce
export platforms under Niryat Bandhu (a scheme for mentoring
entrepreneurs in international trade), b) establishing e-commerce export
promotion cells within export promotion councils, and c) establishing e-
Commerce Export Zones to promote MSMEs.
 Export awareness: At times, Indian exporters are defeated not by a lack of
trade opportunities but by lack of awareness of the same. The trade policy
can make a provision for government workshops and awareness programmes
that educate and inform traders about international laws and standards,
global markets, intellectual property rights, patents and geographical
indication (GI). 
 Import wishlist: While most of the expectations might be geared towards
exports, India’s import community has its wishlist too, which includes
permission to import capital goods on self-certification basis and to import
prohibited items with the approval of the Central government-approved
Board of Approval or Inter-Ministerial Standing Committee. 
Road to $5 trillion by 2025
‍
India aspires to be a $5-trillion economy by 2025. To achieve this dream, it needs
to:

 Register a GDP growth rate of 8% or more in the next few years

 Triple its exports to $1 trillion by 2025

This is a tough task, considering Indian exports have hovered around the $300-
billion mark since 2011-2012. Battered by the pandemic, exports for the April-
November 2020 period stood at $304.25 billion. The country’s GDP reached $
2.88 trillion in 2019–2020.

In its 2019 report on what India must do for exports to reach $1 trillion by 2025,
the high-level advisory group suggested:

 Urgent reform of labour laws

 Easing of regulatory controls
 Lowering the cost of capital
 Selection of right trading partners (given India’s unhappy experience with
FTAs)
 Sector-specific strategies to drive exports, especially in pharmaceuticals,
biotechnology, textiles and electronics
  The formation of a special committee to take quick decisions on foreign
direct investment (FDI), including identifying and attracting potential
investors
The government, on its part, seems committed to seriously working towards its $5-
trillion dream. Briefing MPs about FTP 2021-2026 on January 12, the Ministry of
Commerce announced some of its plans for the new policy. These include:

 District Export Hubs: The government will identify potential products and
services in each district, identify agricultural and toy clusters, map GI
products, set up district export promotion panels and district export action
plans as part of this initiative targeted at small businesses and farmers.
 Correcting imbalances: A persistent demand of exporters/importers is
correcting the imbalances in India’s international trade processes. At the
meeting, the ministry committed to reducing “domestic and overseas
constraints related to the policy, regulatory and operational framework for
lowering transaction costs and enhancing ease of doing business”. It also
spoke of creating “efficient, cost-effective and adequate logistical and
utilities infrastructure”.   

If FTP 2021-2026 delivers on the government’s commitments and lives up to

industry’s expectations, India as a $5-trillion economy is not a dream too far.

Impact of Globalization on pattern of trade in India

Globalization has been defined as the process of rapid integration of countries and

happenings through greater foreign trade and foreign investment. It is the process
of international integration arising from the interchange of world views, products,
ideas and other aspects of culture.

Factors aiding globalization

1) Technology: has reduced the speed of communication manifolds. The

phenomenon of social media in the recent world has made distance insignificant.

The integration of technology in India has transformed jobs which required

specialized skills and lacked decision-making skills to extensively-defined jobs
with higher accountability that require new skills, such as numerical, analytical,
communication and interactive skills. As a result of this, more job opportunities are
created for people.
2) LPG Reforms: The 1991 reforms in India have led to greater economic
liberalisation which has in turn increased India’s interaction with the rest of the
world.

3) Faster Transportation: Improved transport, making global travel easier. For

example, there has been a rapid growth in air-travel, enabling greater movement of
people and goods across the globe.

4) Rise of WTO: The formation of WTO in 1994 led to reduction in tariffs and

non-tariff barriers across the world. It also led to the increase in the free trade
agreements among various countries.

5) Improved mobility of capital: In the past few decades there has been a general
reduction in capital barriers, making it easier for capital to flow between different
economies. This has increased the ability for firms to receive finance. It has also
increased the global interconnectedness of global financial markets.

6) Rise of MNCs: Multinational corporations operating in different geographies

have led to a diffusion of best practices. MNCs source resources from around the
globe and sell their products in global markets leading to greater local interaction.

These factors have helped in economic liberalization and globalization and have
facilitated the world in becoming a “global village”. Increasing interaction between
people of different countries has led to internationalization of food habits, dress
habits, lifestyle and views.

Globalization and India:

Developed countries have been trying to pursue developing countries to liberalize

the trade and allow more flexibility in business policies to provide equal
opportunities to multinational firms in their domestic market. International
Monetary Fund (IMF) and World Bank helped them in this endeavour.
Liberalization began to hold its foot on barren lands of developing countries like
India by means of reduction in excise duties on electronic goods in a fixed time
frame.

Indian government did the same and liberalized the trade and investment due to the
pressure from World Trade Organization. Import duties were cut down phase-wise
to allow MNC’s operate in India on equality basis. As a result globalization has
brought to India new technologies, new products and also the economic
opportunities.
 Despite bureaucracy, lack of infrastructure, and an ambiguous policy framework
that adversely impact MNCs operating in India, MNCs are looking at India in a big
way, and are making huge investments to set up R&D centers in the country. India
has made a lead over other growing economies for IT, business processing, and
R&D investments. There have been both positive and negative impacts of
globalization on social and cultural values in India.

IMPACTS OF GLOBALISATION IN INDIA

Economic Impact:

1. Greater Number of Jobs: The advent of foreign companies and growth in

economy has led to job creation. However, these jobs are concentrated more in the
services sector and this has led to rapid growth of service sector creating problems
for individuals with low level of education. The last decade came to be known for
its jobless growth as job creation was not proportionate to the level of economic
growth.
2. More choice to consumers: Globalisation has led to a boom in consumer products
market. We have a range of choice in selecting goods unlike the times where there
were just a couple of manufacturers.
3. Higher Disposable Incomes: People in cities working in high paying jobs have
greater income to spend on lifestyle goods. There has been an increase in the
demand of products like meat, egg, pulses, organic food as a result. It has also led
to protein inflation.

Protein food inflation contributes a large part to the food inflation in India. It is

evident from the rising prices of pulses and animal proteins in the form of eggs,
milk and meat.

With an improvement in standard of living and rising income level, the food habits
of people change. People tend toward taking more protein intensive foods. This
shift in dietary pattern, along with rising population results in an overwhelming
demand for protein rich food, which the supply side could not meet. Thus resulting
in a demand supply mismatch thereby, causing inflation.

In India, the Green Revolution and other technological advancements have

primarily focused on enhancing cereals productivity and pulses and oilseeds have
traditionally been neglected.

 Shrinking Agricultural Sector: Agriculture now contributes only about 15% to

GDP. The international norms imposed by WTO and other multilateral
 organizations have reduced government support to agriculture. Greater integration
of global commodities markets leads to constant fluctuation in prices.
 This has increased the vulnerability of Indian farmers. Farmers are also
increasingly dependent on seeds and fertilizers sold by the MNCs.
 Globalization does not have any positive impact on agriculture. On the contrary, it
has few detrimental effects as government is always willing to import food grains,
sugar etc. Whenever there is a price increase of these commodities.
 Government never thinks to pay more to farmers so that they produce more food
grains but resorts to imports. On the other hand, subsidies are declining so cost of
production is increasing. Even farms producing fertilizers have to suffer due to
imports. There are also threats like introduction of GM crops, herbicide resistant
crops etc.
 Increasing Health-Care costs: Greater interconnections of the world has also led
to the increasing susceptibility to diseases. Whether it is the bird-flu virus or Ebola,
the diseases have taken a global turn, spreading far and wide. This results in
greater investment in healthcare system to fight such diseases.
 Child Labour: Despite prohibition of child labor by the Indian constitution, over
60 to a 115 million children in India work. While most rural child workers are
agricultural laborers, urban children work in manufacturing, processing, servicing
and repairs. Globalization most directly exploits an estimated 300,000 Indian
children who work in India’s hand-knotted carpet industry, which exports over
$300 million worth of goods a year.

Socio-Cultural Impact on Indian Society

Nuclear families are emerging. Divorce rates are rising day by day. Men and
women are gaining equal right to education, to earn, and to speak. ‘Hi’, ‘Hello’ is
used to greet people in spite of Namaskar and Namaste. American festivals like
Valentines’ day, Friendship day etc. are spreading across India.

 Access to education: On one hand globalisation has aided in the explosion of

information on the web that has helped in greater awareness among people. It has
also led to greater need for specialisation and promotion of higher education in the
country.

 On the flip side the advent of private education, coaching classes and paid study
material has created a gap between the haves and have-nots. It has become
increasingly difficult for an individual to obtain higher education.
 Growth of cities: It has been estimated that by 2050 more than 50% of India’s
population will live in cities. The boom of services sector and city centric job
creation has led to increasing rural to urban migration.

 Indian cuisine: is one of the most popular cuisines across the globe. Historically,
Indian spices and herbs were one of the most sought after trade commodities.
Pizzas, burgers, Chinese foods and other Western foods have become quite
popular.

 Clothing: Traditional Indian clothes for women are the saris, suits, etc. and for
men, traditional clothes are the dhoti, kurta. Hindu married women also adorned
the red bindi and sindhur, but now, it is no more a compulsion. Rather, Indo-
western clothing, the fusion of Western and Sub continental fashion is in trend.
Wearing jeans, t-shirts, mini skirts have become common among Indian girls.

 Indian Performing Arts: The music of India includes multiples varieties of
religious, folk, popular, pop, and classical music. India’s classical music includes
two distinct styles: Carnatic and Hindustani music. It remains instrumental to the
religious inspiration, cultural expression and pure entertainment. Indian dance too
has diverse folk and classical forms.

 Bharatanatyam, Kathak, Kathakali, Mohiniattam, Kuchipudi, Odissi are popular
dance forms in India. Kalarippayattu or Kalari for short is considered one of the
world’s oldest martial art. There have been many great practitioners of Indian
Martial Arts including Bodhidharma who supposedly brought Indian martial arts to
China.

 The Indian Classical music has gained worldwide recognition but recently, western
music is too becoming very popular in our country. Fusing Indian music along
with western music is encouraged among musicians. More Indian dance shows are
held globally. The number of foreigners who are eager to learn Bharatanatyam is
rising. Western dance forms such as Jazz, Hip hop, Salsa, Ballet have become
common among Indian youngsters.

 Nuclear Families: The increasing migration coupled with financial independence
has led to the breaking of joint families into nuclear ones. The western influence of
individualism has led to an aspirational generation of youth. Concepts of national
identity, family, job and tradition are changing rapidly and significantly.
 Old Age Vulnerability: The rise of nuclear families has reduced the social
security that the joint family provided. This has led to greater economic, health and
emotional vulnerability of old age individuals.

 Pervasive Media: There is greater access to news, music, movies, videos from
around the world. Foreign media houses have increased their presence in India.
India is part of the global launch of Hollywood movies which is very well received
here. It has a psychological, social and cultural influence on our society.

 McDonaldization: A term denoting the increasing rationalization of the routine
tasks of everyday life. It becomes manifested when a culture adopts the
characteristics of a fast-food restaurant. McDonaldization is a reconceptualization
of rationalization, or moving from traditional to rational modes of thought, and
scientific management.

 Walmartization: A term referring to profound transformations in regional and
global economies through the sheer size, influence, and power of the big-box
department store WalMart. It can be seen with the rise of big businesses which
have nearly killed the small traditional businesses in our society.

Psychological Impact on Indian Society

 Development of Bicultural Identity: The first is the development of a bicultural

identity or perhaps a hybrid identity, which means that part of one’s identity is
rooted in the local culture while another part stems from an awareness of one’s
relation to the global world.

 The development of global identities is no longer just a part of immigrants and
ethnic minorities. People today especially the young develop an identity that gives
them a sense of belonging to a worldwide culture, which includes an awareness of
events, practices, styles and information that are a part of the global culture. Media
such as television and especially the Internet, which allows for instant
communication with any place in the world, play an important part in developing a
global identity.

A good example of bicultural identity is among the educated youth in India who
despite being integrated into the global fast paced technological world, may
continue to have deep rooted traditional Indian values with respect to their personal
lives and choices such as preference for an arranged marriage, caring for parents in
their old age.
1. Growth of Self-Selected Culture: means people choose to form groups with like-
minded persons who wish to have an identity that is untainted by the global culture
and its values. The values of the global culture, which are based on individualism,
free market economics, and democracy and include freedom, of choice, individual
rights, openness to change, and tolerance of differences are part of west
2.
3. ern values. For most people worldwide, what the global culture has to offer is
appealing. One of the most vehement criticisms of globalization is that it threatens
to create one homogeneous worldwide culture in which all children grow up
wanting to be like the latest pop music star, eat Big Macs, vacation at Disney
World, and wear blue jeans, and Nikes.

4. Emerging Adulthood: The timing of transitions to adult roles such as work,

marriage and parenthood are occurring at later stages in most parts of the world as
the need for preparing for jobs in an economy that is highly technological and
information based is slowly extending from the late teens to the mid-twenties.
Additionally, as the traditional hierarchies of authority weaken and break down
under the pressure of globalization, the youth are forced to develop control over
their own lives including marriage and parenthood. The spread of emerging
adulthood is related to issues of identity.

5. Consumerism: Consumerism has permeated and changed the fabric of

contemporary Indian society. Western fashions are coming to India: the traditional
Indian dress is increasingly being displaced by western dresses especially in urban
areas. Media- movies and serials- set a stage for patterns of behavior, dress codes
and jargon. There is a changing need to consume more and more of everything.

Globalisation is an age old phenomenon which has been taking place for centuries
now. We can experience it so profoundly these days because of its increased pace.
The penetration of technology and new economic structures are leading to an
increased interaction between people. As with other things there have been both
positive and negative impacts on India due to it.

The impact of globalization has been totally positive or totally negative. It has been
both. Each impact mentioned above can be seen as both positive as well as
negative. However, it becomes a point of concern when, an overwhelming impact
of globalization can be observed on the Indian culture.

Every educated Indian seems to believe that nothing in India, past or present, is to
be approved unless recognized and recommended by an appropriate authority in
the West. There is an all-pervading presence of a positive, if not worshipful,
attitude towards everything in western society and culture, past as well as present
in the name of progress, reason and science. Nothing from the West is to be
rejected unless it has first been weighed and found wanting by a Western
evaluation. This should be checked, to preserve the rich culture and diversity of
India.

Capital and Current Account Convertibility in India

Convertibility in India

The International movement of capital is not always free; countries restrict flows
of capital as and when needed to safeguard their markets from erratic flows of
capital. In India, for example, there are restrictions on the movement of foreign
capital and the rupee is not fully convertible on capital account.

Capital Account Convertibility

CAC means the freedom to convert rupee into any foreign currency (Euro, Dollar,
Yen, Renminbi etc.) and foreign currency back into rupee for capital account
transactions. In very simple terms it means, Indian’s having the freedom to convert
their local financial assets into foreign ones at market determined exchange rate.
CAC will lead to a free exchange of currency at a lower rate and an unrestricted
movement of capital.
Capital Account Convertibility and Current Account Convertibility

Current Account Convertibility allows free inflows and outflows of foreign

currency for all purpose including resident Indians buying foreign goods and
services (imports), Indians selling foreign goods and services (exports), Indians
receiving and sending remittances, accessing foreign currency for travel, study
abroad, medical tourism purpose etc.

On the other hand, Capital Account Convertibility is widely regarded as the

hallmark of developed countries. It is also seen as the major comfort factor for
foreign investors since it allows them to reconvert local currency back into their
own currency and move out from India.

To attract foreign investment, many developing countries went in for CAC in the
1980s, not realizing that free mobility of capital leaves countries open to both
sudden and huge inflows and outflows, both of which can be potentially
destabilizing. More important, unless you have the institutions, particularly
financial institutions capable of dealing with such huge flows, countries may not be
able to cope as was demonstrated by the East Asian crisis of the late 90s.

Present Situation in India

 In India, the Tarapore committee had laid down a three-year road-map, ending 1999-
2000, for CAC. It also cautioned that this time-frame could be speeded up, or
delayed, depending on the success achieved in establishing the pre-conditions
primarily fiscal consolidation, strengthening of the financial system and low rate of
inflation. With the exception of the last, the other two preconditions have not been
achieved. The Capital Account Convertibility in India will depend on how fast the
country meets the preconditions put forward by Tarapore Committee such as fiscal
consolidation, inflation control, low level of Non-Performing Assets, low Current
account deficit and strengthen financial markets. Sound policies, robust regulatory
framework promoting a strong and efficient financial sector, and effective systems
and procedures for controlling capital flow greatly enhanced the chances of
ensuring that such flows fostered sustainable growth and did not lead to disruption
and crisis.

 Current Account Convertibility: Current account is today fully convertible

(operationalized on August 19, 1994). It means that the full amount of the foreign
exchange required by someone for current purposes will be made available to him
at the official exchange rate and there could be an unprohibited outflow of foreign
exchange (earlier it was partially convertible). India was obliged to do so as per
Article VIII of the IMF which prohibits any exchange restrictions on current
international transactions (keep in mind that India was under pre-conditions of the
IMF since 1991).

 Capital Account Convertibility: After the recommendations of the S.S. Tarapore

Committee (1997) on Capital Account Convertibility, India has been moving in the
direction of allowing full convertibility in this account, but with required
precautions. India is still a country of partial convertibility (40:60) in the capital
account, but inside this overall policy, enough reforms have been made, and to
certain levels of foreign exchange requirements, it is an economy allowing full
capital account convertibility.

 Following steps have been taken in the direction of capital account convertibility.

 Indian corporate is allowed full convertibility in the automatic route up to

$ 500 million overseas ventures (investment by Ltd. companies in foreign
countries allowed).

 Indian corporate is allowed to prepay their external commercial borrowings

(ECBs) via automatic route if the loan is above $ 500 million.
  Individuals are allowed to invest in foreign assets, shares, etc., up to the
level of $ 2,50,000 per annum.

 Unlimited amount of gold is allowed to be imported (this is equal to

allowing full convertibility in the capital account via current account route,
but not feasible for everybody) which is not allowed now.

The Second Committee on the Capital Account Convertibility (CAC)— again

chaired by S.S. Tarapore— handed over its report in September 2006 on which the
RBI/the government is having consultations.

Pros and cons of Capital account Convertibility

Advantages Disadvantages
Market determined exchange rates being
Availability of large funds by
higher than officially fixed exchange rates can
improved access to international
raise import prices and cause Cost-push
financial markets.
inflation.
Improper management of CAC can lead to
Reduction in cost of capital. currency depreciation and affect trade and
capital flows.
The advantages have been found to be short
The incentive for Indians to acquire
lived as per studies, and also International
and hold international securities and
financial institutions are skeptical about CAC
assets.
post-2008 crisis.
Speculative activity can lead to capital flight
Greater financial competitiveness. from the country as in case of some South
East Asian economies during 1997-98.
Will help Indian corporate to use
Imposing control would become difficult in a
External commercial borrowing
globalized environment once CAC is
route without RBI or Govt
introduced.
approval.
Indian residents can hold and  
transact foreign currency
denominated deposits with Indian
banks.
A Certain class of financial
institutions and later NBFCs can  
access global financial market.
Banks and financial institutions can
trade in Gold globally and issue
loans.

South Asian Association for Regional Cooperation (SAARC)

The South Asian Association for Regional Cooperation (SAARC) is an economic
and political organization of eight countries in South Asia. It was established in
1985 when the Heads of State of Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan and Sri Lanka formally adopted the charter. Afghanistan joined as the 8th
member of SAARC in 2007. To date, 18th Summits have been held and Nepal’s
former Foreign Secretary is the current Secretary General of SAARC. The 19th
Summit will be hosted by Pakistan in 2016.

Objectives
SAARC aims to promote economic growth, social progress and cultural
development within the South Asia region. The objectives of SAARC, as defined
in its charter, are as follows:

 Promote the welfare of the peoples of South Asia and improve their
quality of life
 Accelerate economic growth, social progress and cultural development in
the region by providing all individuals the opportunity to live in dignity
and realise their full potential
 Promote and strengthen collective self-reliance among the countries of
South Asia
 Contribute to mutual trust, understanding and appreciation of one
another’s problems
 Promote active collaboration and mutual assistance in the economic,
social, cultural, technical and scientific fields
  Strengthen co-operation with other developing countries
 Strengthen co-operation among themselves in international forms on
matters of common interest; and
 Cooperate with international and regional organisation with similar aims
and purposes.

Structure and Process

Cooperation in SAARC is based on respect for the five principles of sovereign
equality, territorial integrity, political independence, non-interference in internal
affairs of the Member States and mutual benefit. Regional cooperation is seen as a
complement to the bilateral and multilateral relations of SAARC Member States.
SAARC Summits are held annually and the country hosting the Summit holds the
Chair of the Association. Decisions are made on an unanimity basis while bilateral
and contentious issues are excluded from the deliberations of SAARC. In addition
to the eight Member States, nine Observer States join SAARC Summits: China, the
US, Myanmar, Iran, Japan, South Korea, Australia, Mauritius and the European
Union.

Areas of Cooperation
The Member States agreed on the following areas of cooperation:

 Agriculture and rural development

 Education and culture
 Biotechnology
 Economic, trade and finance
 Energy
 Environment
 Tourism
 Science and Technology
 Information, Communication and Media
 Poverty alleviation
 Security aspects
 People-to-People Contacts
  Funding mechanism
 Social development

Latest Developments
The 18th SAARC Summit held in Kathmandu in 2014 concluded with the adoption
of the SAARC Declaration. The Declaration recognizes labour migration as an
issue in need of collective action. Article 21 states that SAARC countries agree to
collaborate to ensure the protection of migrant workers from South Asia. During
the Summit, SAARC leaders also called for authorities to tackle and prevent the
trafficking in women and children.
In regards to the Post-2015 Development Agenda, participating countries aim to
initiate an inter-governmental process to appropriately contextualize the
Sustainable Development Goals at the regional level.

G 20

The Group of Twenty (G20) is the premier forum for international economic
cooperation. The members of the G20 are: Argentina,
Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, 
Republic of Korea, Mexico, Russia, Saudi Arabia, South
Africa, Türkiye, the United Kingdom, the United States, and the European Union.
Each year, the presidency invites guest countries to participate. Spain is invited as
a permanent guest.

The G20 brings together the world's major economies. Its members account for
more than 80 per cent of world GDP, 75 per cent of global trade and 60 percent of
the population of the planet.

The forum has met every year since 1999, with leaders meeting for an annual G20
Leaders' Summit since 2008

In addition to the Summit, ministerial meetings, sherpa meetings, working groups

and special events are organised throughout the year.

 Indonesia holds the G20 presidency in 2022; an events calendar can be

found on the official website.
 Italy hosted the G20 Leaders' Summit in October 2021 and leaders released
the G20 Rome Leaders' Declaration.
  India will host the G20 in 2023, followed by Brazil in 2024.

BRICS

BRICS is an acronym for Brazil, Russia, India, China, and South Africa. Goldman
Sachs economist Jim O'Neill coined the term BRIC (without South Africa) in
2001, claiming that by 2050 the four BRIC economies would come to dominate
the global economy. South Africa was added to the list in 2010.1

This thesis became conventional market wisdom in the aughts. But there were
always skeptics, including some who claimed the phrase was Goldman marketing
hype. Indeed, few talk about BRICS much anymore—at least not in terms of their
global domination. Goldman closed its BRICS-focused investment fund in 2015,
merging it with a broader emerging markets fund.

The leaders of BRIC (Brazil, Russia, India, and China) countries met for the first
time in St. Petersburg, Russia, on the margins of G8 Outreach Summit in July
2006. Shortly afterwards, in September 2006, the group was formalised as BRIC
during the 1st BRIC Foreign Ministers’ Meeting, which met on the sidelines of the
General Debate of the UN Assembly in New York City.

After a series of high level meetings, the 1st BRIC summit was held in
Yekaterinburg, Russia on 16 June 2009.

BRIC group was renamed as BRICS (Brazil, Russia, India, China, South Africa)
after South Africa was accepted as a full member at the BRIC Foreign Ministers’
meeting in New York in September 2010. Accordingly, South Africa attended the
3rd BRICS Summit in Sanya, China on 14 April 2011.

BRICS is an important grouping bringing together the major emerging economies

from the world, comprising 41% of the world population*, having 24% of the
world GDP* and over 16% share in the world trade*. BRICS countries have been
the main engines of global economic growth over the years. Over a period of time,
BRICS countries have come together to deliberate on important issues under the
three pillars of political and security, economic and financial and cultural and
people to people exchanges.

* Based on World Bank data (2019)

41% of world population with 3.14 billion people
Total combined area of 29.3% of the total land surface of the world
24% of global GDP
16% of world trade

IMF
Background

The International Monetary Fund (IMF) was established at a United Nations

Monetary and Financial Conference, also known as Bretton Woods Conference, on
22 July 1944 as an organ under the UN System. The IMF headquarters is located in
Washington D.C., U.S.A.
the IMF is responsible for promoting international monetary cooperation;
facilitating the expansion and balanced growth of international trade; promoting
exchange stability; assisting in the establishment of a multilateral system of
payments; and providing resources available to members experiencing balance of
payments difficulties.

2. Main Functions

The IMF employs three main functions – surveillance, financial assistance, and
technical assistance – to promote the stability of the international monetary and
financial system.
Surveillance :  The IMF closely monitors each member country's economic and
financial developments and holds a policy dialogue with a member country on a
regular basis (also known as Article IV Consultation), usually once each year, to
assess its economic conditions with a view to providing policy recommendations. 
The IMF also reviews global and regional developments and outlook based on
information from individual consultations.  The IMF publishes such assessment on
the multilateral surveillance through the World Economic Outlook and the Global
Financial Stability Report on a semi-annual basis.
Financial Assistance : The IMF lends to its member countries facing balance of
payments problems in order to facilitate the adjustment process and restore
member countries' economic growth and stability through various loan instruments
or "facilities".  An IMF loan is usually provided under an "arrangement," requiring
a borrowing country to undertake the specific policies and measures to resolve its
balance of payments problem as specified in a "Letter of Intent."  Most IMF loans
are primarily financed by its member countries through payments of quotas.  Thus,
the IMF's lending capacity is mainly determined by the total amount of quotas. 
Nevertheless, if necessary, the IMF may borrow from a number of its financially
strongest member countries through the New Arrangements to Borrow (NAB) or
the General Arrangements to Borrow (GAB) to supplement the resources from its
quotas.
Technical Assistance : The IMF provides technical assistance to help member
countries strengthen their capacity to design and implement effective policies in
four areas, namely, 1) monetary and financial policies, 2) fiscal policy and
management, 3) statistics and
4) economic and financial legislation.  In addition to technical assistance, the IMF
also offers training courses and seminars to member countries at the IMF Institute
in Washington D.C., and other regional training institutes (Austria, Brazil, China,
India, Singapore, Tunisia and United Arab Emirates).

3. Organizational Structure

The Board of Governors, comprising one governor from each member country, is
the highest decision-making body of the IMF.  The Board of Governors usually
meets once each year at the IMF/World Bank Annual Meetings.  The International
Monetary and Financial Committee (IMFC), consisting of 24 members, which
reflects the composition of the IMF's Executive Board, acts as the advisor to the
Board of Governors.  It meets twice each year to review issues relating to the
Board of Governors' functions in supervising the management of the international
monetary and financial system as well as make recommendations to the Board of
Governors.  The day-to-day work of the IMF, as guided by the IMFC, is carried
out by the Executive Board and IMF staff.  The Managing Director is Chairman of
the Executive Board and Head of IMF staff.
Membership : IMF's members have grown from 29 at its inception in 1945 to 185
at present.  The latest member country is Montenegro who joined the IMF in
January 2007.  Countries must first join the United Nations to be eligible for IMF
membership.  
Quotas : Upon joining the IMF, each member country is assigned an initial quota
comparable to its relative economic size to the global economy and those of
existing member countries Quotas are denominated in Special Drawing Rights
(SDRs) 1/ General quota reviews are conducted at regular intervals – usually every
five years, allowing the IMF to assess the adequacy of quotas in terms of members'
needs for liquidity and its ability to finance those needs. 
A member's quota determines its voting power and access to IMF financing.  The
quota largely determines a member's voting power in IMF decisions.  Each IMF
member has 250 basic votes plus one additional vote for each SDR 100,000 of
quota.  In general, a member can borrow up to 100 percent of its quota annually
and 300 percent cumulatively.

The purposes of the International Monetary Fund are as follows:

1. To promote international monetary cooperation through a permanent

institution which provides the machinery for consultation and collaboration
on international monetary problems.
2. To facilitate the expansion and balanced growth of international trade, and to
contribute thereby to the promotion and maintenance of high levels of
employment and real income and to the development of the productive
resources of all members as primary objectives of economic policy.
3. To promote exchange stability, to maintain orderly exchange arrangements
among members, and to avoid competitive exchange depreciation.
4. To assist in the establishment of a multilateral system of payments in respect
of current transactions between members and in the elimination of foreign
exchange restrictions which hamper the growth of world trade.
5. To give confidence to members by making the general resources of the Fund
temporarily available to them under adequate safeguards, thus providing them
with opportunity to correct maladjustments in their balance of payments
without resorting to measures destructive of national or international
prosperity.
6. In accordance with the above, to shorten the duration and lessen the degree of
disequilibrium in the international balances of payments of members. 
7. In addition to financial assistance, the IMF also provides member countries
with technical assistance to create and implement effective policies,
particularly economic, monetary, and banking policy and regulations.

Special Drawing Rights (SDRs)

A Special Drawing Right (SDR) is basically an international monetary reserve

asset. SDRs were created in 1969 by the IMF in response to the Triffin Paradox.
The Triffin Paradox stated that the more U.S. dollars were used as a base reserve
currency, the less faith that countries had in the ability of the US government to
convert those dollars to gold. The world was still using the Bretton Woods system,
and the initial expectation was that SDRs would replace the U.S. dollar as the
global monetary reserve currency, thus solving the Triffin Paradox. Bretton Woods
collapsed a few years later, but the concept of an SDR solidified. Today the value
of an SDR consists of the value of four of the IMF’s biggest members’ currencies
—the U.S. dollar, the British pound, the Japanese yen, and the euro—but the
currencies do not hold equal weight. SDRs are quoted in terms of U.S. dollars. The
basket, or group of currencies, is reviewed every five years by the IMF executive
board and is based on the currency’s role in international trade and finance. The
following chart shows the current valuation in percentages of the four currencies.

Currency Weighting

U.S. dollar 44 percent

Euro 34 percent

Japanese yen 11 percent

British pound 11 percent

The SDR is not a currency, but some refer to it as a form of IMF currency. It does
not constitute a claim on the IMF, which only serves to provide a mechanism for
buying, selling, and exchanging SDRs. Countries are allocated SDRs, which are
included in the member country’s reserves. SDRs can be exchanged between
countries along with currencies. The SDR serves as the unit of account of the IMF
and some other international organizations, and countries borrow from the IMF in
SDRs in times of economic need.

The IMF’s Current Role and Major Challenges and Opportunities

Criticism and Challenging Areas for the IMF

The IMF supports many developing nations by helping them overcome monetary
challenges and to maintain a stable international financial system. Despite this
clearly defined purpose, the execution of its work can be very complicated and can
have wide repercussions for the recipient nations. As a result, the IMF has both its
critics and its supporters. The challenges for organizations like the the IMF and the
World Bank center not only on some of their operating deficiencies but also on the
global political environment in which they operate. The IMF has been subject to a
range of criticisms that are generally focused on the conditions of its loans, its lack
of accountability, and its willingness to lend to countries with bad human rights
records.

These criticisms include the following:

1. Conditions for loans. The IMF makes the loan given to countries conditional
on the implementation of certain economic policies, which typically include
the following:
 Reducing government borrowing (higher taxes and lower spending)

 Higher interest rates to stabilize the currency

 Allowing failing firms to go bankrupt
 Structural adjustment (privatization, deregulation, reducing corruption
and bureaucracy)

The austere policies have worked at times but always extract a political toll as
the impact on average citizens is usually quite harsh. The opening case in
Chapter 2 “International Trade and Foreign Direct Investment” presents the
current impact of IMF policies on Greece. Some suggest that the loan
conditions are “based on what is termed the ‘Washington Consensus,’
focusing on liberalisation—of trade, investment and the financial sector—,
deregulation and privatisation of nationalised industries. Often the
conditionalities are attached without due regard for the borrower countries’
individual circumstances and the prescriptive recommendations by the World
Bank and IMF fail to resolve the economic problems within the countries.
IMF conditionalities may additionally result in the loss of a state’s authority
to govern its own economy as national economic policies are predetermined
under IMF packages.” 

2. Exchange rate reforms. “When the IMF intervened in Kenya in the 1990s,

they made the Central bank remove controls over flows of capital. The
consensus was that this decision made it easier for corrupt politicians to
transfer money out of the economy (known as the Goldman scandal). Critics
argue this is another example of how the IMF failed to understand the
dynamics of the country that they were dealing with—insisting on blanket
reforms.”
 3. Devaluations. In the initial stages, the IMF has been criticized for allowing
inflationary devaluations.
4. Free-market criticisms of the IMF. “Believers in free markets argue that it
is better to let capital markets operate without attempts at intervention. They
argue attempts to influence exchange rates only make things worse—it is
better to allow currencies to reach their market level.” They also assert that
bailing out countries with large debts is morally hazardous; countries that
know that there is always a bailout provision will borrow and spend more
recklessly.
5. Lack of transparency and involvement. The IMF has been criticized for
“imposing policy with little or no consultation with affected countries.”

6. Supporting military dictatorships. The IMF has been criticized over the

decades for supporting military dictatorships.

Opportunities and Future Outlook for the IMF

The 2008 global economic crisis is one of the toughest situations that the IMF has
had to contend with since the Great Depression.

For most of the first decade of the twenty-first century, global trade and finance
fueled a global expansion that enabled many countries to repay any money they
had borrowed from the IMF and other official creditors. These countries also used
surpluses in trade to accumulate foreign exchange reserves. The global economic
crisis that began with the 2007 collapse of mortgage lending in the United States
and spread around the world in 2008 was preceded by large imbalances in global
capital flows. Global capital flows fluctuated between 2 and 6 percent of world
GDP between 1980 and 1995, but since then they have risen to 15 percent of GDP.
The most rapid increase has been experienced by advanced economies, but
emerging markets and developing countries have also become more financially
integrated.

The founders of the Bretton Woods system had taken for granted that private
capital flows would never again resume the prominent role they had in the
nineteenth and early twentieth centuries, and the IMF had traditionally lent to
members facing current account difficulties. The 2008 global crisis uncovered
fragility in the advanced financial markets that soon led to the worst global
downturn since the Great Depression. Suddenly, the IMF was inundated with
requests for standby arrangements and other forms of financial and policy support.
The international community recognized that the IMF’s financial resources were as
important as ever and were likely to be stretched thin before the crisis was over.
With broad support from creditor countries, the IMF’s lending capacity tripled to
around $750 billion. To use those funds effectively, the IMF overhauled its lending
policies. It created a flexible credit line for countries with strong economic
fundamentals and a track record of successful policy implementation. Other
reforms targeted low-income countries. These factors enabled the IMF to disburse
very large sums quickly; the disbursements were based on the needs of borrowing
countries and were not as tightly constrained by quotas as in the past.

Many observers credit the IMF’s quick responses and leadership role in helping
avoid a potentially worse global financial crisis. As noted in the Chapter 5 “Global
and Regional Economic Cooperation and Integration” opening case on Greece, the
IMF has played a role in helping countries avert widespread financial disasters.
The IMF’s requirements are not always popular but are usually effective, which
has led to its expanding influence. The IMF has sought to correct some of the
criticisms; according to a Foreign Policy in Focus essay designed to stimulate
dialogue on the IMF, the fund’s strengths and opportunities include the following

Flexibility and speed. “In March 2009, the IMF created the Flexible Credit Line
(FCL), which is a fast-disbursing loan facility with low conditionality aimed at
reassuring investors by injecting liquidity…Traditionally, IMF loan programs
require the imposition of austerity measures such as raising interest rates that can
reduce foreign investment…In the case of the FCL, countries qualify for it not on
the basis of their promises, but on the basis of their history. Just as individual
borrowers with good credit histories are eligible for loans at lower interest rates
than their risky counterparts, similarly, countries with sound macroeconomic
fundamentals are eligible for drawings under the FCL. A similar program has been
proposed for low-income countries. Known as the Rapid Credit Facility, it is front-
loaded (allowing for a single, up-front payout as with the FCL) and is also intended
to have low conditionality.”

1. Cheerleading. “The Fund is positioning itself to be less of an adversary and

more of a cheerleader to member countries. For some countries that need
loans more for reassurance than reform, these changes to the Fund toolkit are
welcome.” This enables more domestic political and economic stability.
2. Adaptability. “Instead of providing the same medicine to all countries
regardless of their particular problems, the new loan facilities are intended to
aid reform-minded governments by providing short-term resources to
 reassure investors. In this manner, they help politicians in developing
countries manage the downside costs of integration.”

3. Transparency. The IMF has made efforts to improve its own transparency

and continues to encourage its member countries to do so. Supporters note
that this creates a barrier to any one or more countries that have more
geopolitical influence in the organization. In reality, the major economies
continue to exert influence on policy and implementation.

To underscore the global expectations for the IMF’s role, China, Russia, and other
global economies have renewed calls for the G20 to replace the U.S. dollar as the
international reserve currency with a new global system controlled by the IMF.

The Financial Times reported that Zhou Xiaochuan, the Chinese central bank’s

governor, said the goal would be to create a reserve currency that is disconnected
from individual nations and is able to remain stable in the long run, thus removing
the inherent deficiencies caused by using credit-based national currencies. “‘This is
a clear sign that China, as the largest holder of US dollar financial assets, is
concerned about the potential inflationary risk of the US Federal Reserve printing
money,’ said Qu Hongbin, chief China economist for HSBC.” Although Mr. Zhou
did not mention the U.S. dollar, the essay gave a pointed critique of the current
dollar-dominated monetary system: “The outbreak of the [current] crisis and its
spillover to the entire world reflected the inherent vulnerabilities and systemic risks
in the existing international monetary system,”
China has little choice but to hold the bulk of its $2,000bn of foreign exchange
reserves in U.S. dollars, and this is unlikely to change in the near future. To replace
the current system, Mr. Zhou suggested expanding the role of special drawing
rights, which were introduced by the IMF in 1969 to support the Bretton Woods
fixed exchange rate regime but became less relevant once that collapsed in the
1970s…. Mr Zhou said the proposal would require “extraordinary political vision
and courage” and acknowledged a debt to John Maynard Keynes, who made a
similar suggestion in the 1940s. 

China is politically and economically motivated to recommend an alternative

reserve currency. Politically, the country whose currency is the reserve currency is
perceived as the dominant economic power, as Section 6.1 “What Is the
International Monetary System?” discusses. Economically, China has come under
increasing global pressure to increase the value of its currency, the renminbi.
The World Bank and the World Bank Group

History and Purpose

The World Bank came into existence in 1944 at the Bretton Woods conference. Its
formal name is the International Bank for Reconstruction and Development
(IBRD), which clearly states its primary purpose of financing economic
development. The World Bank’s first loans were extended during the late 1940s to
finance the reconstruction of the war-ravaged economies of Western Europe. When
these nations recovered some measure of economic self-sufficiency, the World
Bank turned its attention to assisting the world’s poorer nations. The World Bank
has one central purpose: to promote economic and social progress in developing
countries by helping raise productivity so that their people may live a better and
fuller life:

[In 2009,] the World Bank provided $46.9 billion for 303 projects in developing
countries worldwide, with our financial and/or technical expertise aimed at helping
those countries reduce poverty.

The Bank is currently involved in more than 1,800 projects in virtually every
sector and developing country. The projects are as diverse as providing microcredit
in Bosnia and Herzegovina, raising AIDS-prevention awareness in Guinea,
supporting education of girls in Bangladesh, improving health care delivery in
Mexico, and helping East Timor rebuild upon independence and India rebuild
Gujarat after a devastating earthquake. 

Today, the World Bank consists of two main bodies, the International Bank for
Reconstruction and Development (IBRD) and the International Development
Association (IDA), established in 1960. The World Bank is part of the broader
World Bank Group, which consists of five interrelated institutions: the IBRD; the
IDA; the International Finance Corporation (IFC), which was established in 1956;
the Multilateral Investment Guarantee Agency (MIGA), which was established in
1988; and the International Centre for Settlement of Investment Disputes (ICSID),
which was established in 1966. These additional members of the World Bank
Group have specific purposes as well. The IDA typically provides interest-free
loans to countries with sovereign guarantees. The IFC provides loans, equity, risk-
management tools, and structured finance. Its goal is to facilitate sustainable
development by improving investments in the private sector. The MIGA focuses
on improving the foreign direct investment of developing countries. The ICSID
provides a means for dispute resolution between governments and private investors
with the end goal of enhancing the flow of capital.

The current primary focus of the World Bank centers on six strategic themes:

1. The poorest countries. Poverty reduction and sustainable growth in the

poorest countries, especially in Africa.
2. Postconflict and fragile states. Solutions to the special challenges of
postconflict countries and fragile states.
3. Middle-income countries. Development solutions with customized services
as well as financing for middle-income countries.
4. Global public goods. Addressing regional and global issues that cross
national borders, such as climate change, infectious diseases, and trade.
5. The Arab world. Greater development and opportunity in the Arab world.
6. Knowledge and learning. Leveraging the best global knowledge to support
development. 

The World Bank provides low-interest loans, interest-free credits, and grants to
developing countries. There’s always a government (or “sovereign”) guarantee of
repayment subject to general conditions. The World Bank is directed to make loans
for projects but never to fund a trade deficit. These loans must have a reasonable
likelihood of being repaid. The IDA was created to offer an alternative loan option.
IDA loans are free of interest and offered for several decades, with a ten-year grace
period before the country receiving the loan needs to begin repayment. These loans
are often called soft loans.

Since it issued its first bonds in 1947, the IBRD generates funds for its
development work through the international capital markets. The World Bank
issues bonds, typically about $25 billion a year. These bonds are rated AAA (the
highest possible rating) because they are backed by member states’ shared capital
and by borrowers’ sovereign guarantees. Because of the AAA credit rating, the
World Bank is able to borrow at relatively low interest rates. This provides a
cheaper funding source for developing countries, as most developing countries
have considerably low credit ratings. The World Bank charges a fee of about 1
percent to cover its administrative overheads.

World Bank’s Current Role and Major Challenges and Opportunities

Like the IMF, the World Bank has both its critics and its supporters. The criticisms
of the World Bank extend from the challenges that it faces in the global operating
environment. Some of these challenges have complicated causes; some result from
the conflict between nations and the global financial crisis. The following are four
examples of the world’s difficult needs that the World Bank tries to address:

1. Even in 2010, over 3 billion people lived on less than $2.50 a day.
2. At the start of the twenty-first century, almost a billion people couldn’t read a
book or sign their names.
3. Less than 1 percent of what the world spends each year on weapons would
have put every child into school by the year 2000, but it didn’t happen.
4. Fragile states such as Afghanistan, Rwanda, and Sri Lanka face severe
development challenges: weak institutional capacity, poor governance,
political instability, and often ongoing violence or the legacy of past conflict. 

The World Bank is criticized primarily for the following reasons:

 Administrative incompetence. The World Bank and its lending practices are

increasingly scrutinized, with critics asserting that “the World Bank has
shifted from being a ‘lender of last resort’ to an international welfare
organization,” resulting in an institution that is “bloated, incompetent, and
even corrupt.” Also incriminating is that “the bank’s lax lending standards
have led to a rapidly deteriorating loan portfolio.” 

 Rewarding or supporting inefficient or corrupt countries. The bank’s

lending policies often reward macroeconomic inefficiency in the
underdeveloped world, allowing inefficient nations to avoid the types of
fundamental reforms that would in the long run end poverty in their
countries. Many analysts note that the best example is to compare the
fantastic growth in East Asia to the deplorable economic conditions of Africa.
In 1950 the regions were alike—South Korea had a lower per capita GDP
than Nigeria. But by pursuing macroeconomic reforms, high savings,
investing in education and basic social services, and opening their economies
to the global trading order, the “Pacific Tigers” have been able to lift
themselves out of poverty and into wealth with very little help from the
World Bank. Many countries in Africa, however, have relied primarily on
multilateral assistance from organizations like the World Bank while
avoiding fundamental macroeconomic reforms, with deplorable but
predictable results. 
Conservatives point out that the World Bank has lent more than $350 billion over a
half-century, mostly to the underdeveloped world, with little to show for it. One
study argued that of the sixty-six countries that received funding from the bank
from 1975 to 2000, well over half were no better off than before, and twenty were
actually worse off. The study pointed out that Niger received $637 million between
1965 and 1995, yet its per capita GNP had fallen, in real terms, more than 50
percent during that time. In the same period Singapore, which received one-
seventh as much World Bank aid, had seen its per capita GNP increase by more
than 6 percent a year.

 Focusing on large projects rather than local initiatives. Some critics claim

that World Bank loans give preference to “large infrastructure projects like
building dams and electric plants over projects that would benefit the poor,
such as education and basic health care.” The projects often destroy the local
environment, including forests, rivers, and fisheries. Some estimates suggest
“that more than two and a half million people have been displaced by projects
made possible through World Bank loans.” Failed projects, argue
environmentalists and anti globalization groups, are particularly illustrative:
“The Sardar Sarovar dam on the Narmada River in India was expected to
displace almost a quarter of a million people into squalid resettlement sites.
The Polonoroeste Frontier Development scheme has led to large-scale
deforestation in the Brazilian rain forest. In Thailand, the Pak Mun dam has
destroyed the fisheries of the Mun River, impoverishing thousands who had
made their living fishing and forever altering the diet of the region.” Further,
the larger projects become targets for corruption by local government
officials because there is so much money involved. Another example was in
2009, when an internal audit found that the IFC had “ignored its own
environmental and social protection standards when it approved nearly $200
million in loan guarantees for palm oil production in Indonesia…Indonesia is
home to the world’s second-largest reserves of natural forests and peat
swamps, which naturally trap carbon dioxide—the main greenhouse gas that
causes climate change. But rampant destruction of the forests to make way
for palm oil plantations has caused giant releases of CO2 into the atmosphere,
making Indonesia the third-largest emitter of greenhouse gases on the
planet…‘For each investment, commercial pressures were allowed to
prevail,’ auditors wrote.”  However, as this article goes on to point out, such
issues are not always as clear-cut as they may seem. The IFC responded to
the audit by acknowledging “shortcomings in the review process. But the
lender also defended investment in palm oil production as a way to alleviate
poverty in Indonesia. ‘IFC believes that production of palm oil, when carried
 out in an environmentally and socially sustainable fashion, can provide core
support for a strong rural economy, providing employment and improved
quality of life for millions of the rural poor in tropical areas,’ it said.” 

 Negative influence on theory and practice. As one of the two Bretton

Woods Institutions, the World Bank plays a large role in research, training,
and policy formulation. Critics worry that because “the World Bank and the
IMF are regarded as experts in the field of financial regulation and economic
development, their views and prescriptions may undermine or eliminate
alternative perspectives on development.” 
 Dominance of G7 countries. The industrialized countries dominate the
World Bank (and IMF) governance structures. Decisions are typically made
and policies implemented by these leading countries—the G7—because they
are the largest donors, some suggest without sufficient consultation with poor
and developing countries. 

Opportunities and Future Outlook for the World Bank

As vocal as the World Bank’s critics are, so too are its supporters. The World Bank
is praised by many for engaging in development projects in remote locations
around the globe to improve living standards and reduce poverty. The World
Bank’s current focus is on helping countries achieve the Millennium Development
Goals (MDGs), which are eight international development goals, established in
2000 at the Millennium Summit, that all 192 United Nations member states and
twenty-three international organizations have agreed to achieve by the year 2015.
They include reducing extreme poverty, reducing child mortality rates, fighting
disease epidemics such as AIDS, and developing a global partnership for
development. The World Bank is focused on the following four key issues:

1. Increased transparency. In response to the criticisms over the decades, the

World Bank has made progress. More of the World Bank’s decision making
and country assessments are available publicly. The World Bank has
continued to work with countries to combat corruption both at the country
and bank levels.
2. Expanding social issues in the fight on poverty. In 2001, the World Bank
began to incorporate gender issues into its policy. “Two years later the World
Bank announced that it was starting to evaluate all of its projects for their
effects on women and girls,” noting that “poverty is experienced differently
by men and women” and “a full understanding of the gender dimensions of
 poverty can significantly change the definition of priority policy and program
interventions.” 
3. Improvements in countries’ competitiveness and increasing exports. The
World Bank’s policies and its role as a donor have helped improve the ability
of some countries to secure more of the global revenues for basic
commodities. In Rwanda, for example, reforms transformed the country’s
coffee industry and increased exports. Kenya has expanded its exports of cut
flowers, and Uganda has improved its fish-processing industry. World Bank
efforts have also helped African financial companies develop. 
4. Improving efficiencies in diverse industries and leveraging the private
sector. The World Bank has worked closely with businesses in the private
sector to develop local infrastructure, including power, transportation,
telecommunications, health care, and education. In Afghanistan, for example,
small dams are built and maintained by the locals themselves to support small
industries processing local produce. 

The World Bank continues to play an integral role in helping countries reduce
poverty and improve the well-being of their citizens. World Bank funding provides
a resource to countries to utilize the services of global companies to accomplish
their objectives.

IBRD

The International Bank for Reconstruction and Development (IBRD) is a global

development cooperative owned by 189 member countries. As the largest
development bank in the world, it supports the World Bank Group’s mission by
providing loans, guarantees, risk management products, and advisory services to
middle-income and creditworthy low-income countries, as well as by coordinating
responses to regional and global challenges. 

Created in 1944 to help Europe rebuild after World War II, IBRD joins with IDA,
our fund for the poorest countries, to form the World Bank.  They work closely
with all institutions of the World Bank Group and the public and private sectors in
developing countries to reduce poverty and build shared prosperity.

The World Bank Group engages with middle-income countries (MICs) both as
clients and shareholders. These countries are major drivers of global growth, home
to major infrastructure investments, and recipients of a large share of exports from
advanced economies and poorer countries. Many are making rapid economic and
social progress, and they play an ever larger role in finding solutions to global
challenges.  

But MICs also have more than 70% of the world’s poor people, often in remote
areas. And limited access to private finance makes these countries vulnerable to
economic shocks and the crises that cross borders, including climate change,
forced migration, and pandemics. The World Bank is an essential partner to MICs,
which represent more than 60% of IBRD’s portfolio. 

 We provide a combination of financial resources, knowledge, and technical

services. 

 Our strategic advice helps governments reform to improve services, encourage

more private investment, and innovate and share solutions.  

 We partner with countries as challenges emerge and evolve, through innovative

financial products and a wide range of global forums. 

Above all, we help ensure that progress in reducing poverty and broadening
prosperity can be sustained. We place special emphasis on supporting lower-
middle-income countries as they move up the economic chain, graduating from
IDA to become clients of IBRD. We are also expanding capacity to help countries
dealing with fragility and conflict situations. And as a long-term partner, we step
up our support to all MICs in times of crisis.

IBRD’s Services

Through our partnership with MICs and creditworthy poorer countries, IBRD
offers innovative financial solutions, including financial products (loans,
guarantees, and risk management products) and knowledge and advisory services
(including on a reimbursable basis) to governments at the national and subnational
levels.

IBRD finances investments across all sectors and provides technical support and
expertise at each stage of a project.  IBRD’s resources not only supply borrowing
countries with needed financing, but also serve as a vehicle for global knowledge
transfer and technical assistance.  

Advisory services in public debt and asset management help governments, official

sector institutions, and development organizations build institutional capacity to
protect and expand financial resources.
IBRD supports government efforts to strengthen public financial management as
well as improve the investment climate, address service delivery bottlenecks, and
strengthen policies and institutions.

IBRD on Finance
IBRD raises most of its funds in the world's financial markets. This has allowed it
to provide more than $500 billion in loans to alleviate poverty around the world
since 1946, with its shareholder governments paying in about $14 billion in capital.

IBRD has maintained a triple-A rating since 1959. This high credit rating allows it
to borrow at low cost and offer middle-income developing countries access to
capital on favorable terms — helping ensure that development projects go forward
in a more sustainable manner, while often complementing or catalyzing private
financing.

IBRD earns income every year from the return on its equity and from the small
margin it makes on lending. This pays for World Bank operating expenses, goes
into reserves to strengthen the balance sheet, and provides an annual transfer of
funds to IDA, the fund for the poorest countries.

World Trade Organization (WTO)

Created in 1995, the World Trade Organization (WTO) is an international

institution that oversees the rules for global trade among nations. It superseded the
1947 General Agreement on Tariffs and Trade (GATT) created in the wake of
World War II

The WTO is based on agreements signed by a majority of the world’s trading

nations. The main function of the organization is to help producers of goods and
services, as well as exporters and importers, protect and manage their businesses.

As of 2021, the WTO has 164 member countries, with Liberia and Afghanistan
the most recent members, having joined in July 2016, and 25 “observer” countries
and governments.

Understanding the World Trade Organization (WTO)

The WTO is essentially an alternative dispute or mediation entity that upholds the

international rules of trade among nations. The organization provides a platform
that allows member governments to negotiate and resolve trade issues with other
members. The WTO’s main focus is to provide open lines of communication
concerning trade among its members.

The WTO has lowered trade barriers and increased trade among member countries.
It also has also maintained trade barriers when it makes sense to do so in the global
context. The WTO attempts to mediate between nations in order to benefit the
global economy.

Once negotiations are complete and an agreement is in place, the WTO offers to
interpret the agreement in case of a future dispute. All WTO agreements include a
settlement process that allows it to conduct neutral conflict resolution.

WTO Leadership

On Feb. 15, 2021, the WTO’s General Council selected two-time Nigerian finance
minister Ngozi Okonjo-Iweala as its director-general. She is the first woman and
the first African to be selected for the position. She took office on March 1, 2021,
for a four-year term.

No negotiation, mediation, or resolution would be possible without the

foundational WTO agreements. These agreements set the legal ground-rules
for international commerce that the WTO oversees. They bind a country’s
government to a set of constraints that must be observed when setting future trade
policies.

The agreements protect producers, importers, and exporters while encouraging

world governments to meet specific social and environmental standards.1

In recent years, the U.S. relationship with the WTO has been cool. The feeling is
that the WTO is not doing enough to counteract China's unfair trade practices.6
Advantages and Disadvantages of the WTO

The history of international trade has been a battle between protectionism and free
trade, and the WTO has fueled globalization, with both positive and adverse
effects. The organization’s efforts have increased global trade expansion. There
are side effects to globalization, including a negative impact on local communities
and human rights.
Proponents of the WTO, particularly multinational corporations, believe that the
organization is beneficial to business, seeing the stimulation of free trade and a
decline in trade disputes as beneficial to the global economy.

Skeptics believe that the WTO undermines the principles of organic democracy

and widens the international wealth gap. They point to the decline in domestic
industries and increasing foreign influence as negative impacts on the world
economy.

As part of his broader attempts to renegotiate U.S. international trade deals, when
he was in office, then-President Donald Trump threatened to withdraw from the
WTO, calling it a “disaster.” A U.S. withdrawal from the WTO could have
disrupted trillions of dollars in global trade. However, he didn’t withdraw the U.S.
from the WTO during his time in office.

The Importance of World Trade Organization

The World Trade Organization (WTO) is the body that keeps global trade running
smoothly. It oversees the rules and mediates disputes among its member nations.
It now has 164 member nations and 25 observer nations (out of a total 195 nations
in the world).