M.com Entrance

MID TERM REVIEW OF FOREIGN TRADE POLICY (2015-2020)

Recently the government has introduced the Mid Term review of foreign trade policy (FTP) 2015-2020.

Target:- Doubling the export both merchandise & service to $ 900 million and achieve 3.5% share of world export by 2019-2020.

It introduces two new schemes namely MEIS- Merchandise export from India scheme for export of specified goods to specified markets and SEIS- Service exports from India scheme increasing exports of notified services.

Effort of FTP will be drawn towards manufacturers exporters by facilitating them fast access to international markets through approved exporter system. It promoted simplification of procedure such as simplifying Aayat Niryat form self certification by status holder manufacturers in matter of bilateral & regional trade.

The council for trade & development and promotion was constituted in 2015 under the chairmanship of the union minister for commerce and industry in pursuance to the provisions of foreign trade policy statement 2015-2020.

The objective was to ensure a Continous dialogue with the government of states and union territories on measures for providing an international trade enabling environment in the states and to create a framework for making the states, active partners in boosting India’s exports.

The state ministers of commerce and industry, secretaries of concerned central department/ ministers and heads of other export related organizations trade bodies are members of the council.

DIFFERENT BOXES OF SUBSIDIY

• GREEN BOX SUBSIDIES– The subsidies which cause no, or at most minimal, trade distorting effects or effect on production. These subsidies are permitted under WTO regime, for instance, government services such as research, disease and food subsidies. 

• AMBER BOX SUBSIDIES OR AMS– All domestic support measures considered to distort production and trade fall into the amber box. For e.g MSP procurement price, sum total of subsidies on inputs like fertilizers, water, credit power.

• BLUE BOX SUBSIDIES– It contains direct payment subsidies which can be increased without limit so long as payment are linked to production limiting programs. This is the amber box with conditions, conditions designed to reduce distortion. Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production.

• Special & differential treatment box (S& DT) – The S& DT measures generally comprises of investment subsidies like tractors and pump sets to farmers, agricultural input services like fertilizers to farmers. These subsidies should be provided only to low income and resource poor produces in developing countries.

FOREIGN DIRECT INVESTMENT (FDI)

To attract FDI and promote ease of doing business, the government had abolished FIPB (Foreign Investment promotion Board). it was an inter ministerial body in the department of economic affairs under the finance ministry. All those FDI which came through government route, was processes and recommended by FIPB for approval to the finance minister (Investment below rs

3000 crore) and to the cabinet committee on Economic affairs, CCEA (Investment above rs 3000 crore).

NEW DEVELOPMENT

Department of Industrial Policy & promotion (DIPP) will issue the standard operating procedures for processing FDI applications, and the individual departments of the government have been empowered to clear FDI proposals in consultation with DIPP.

Time line will be fixed for FDI approval. Rejection of proposal by the individual department needs a mandatory concurrence of DIPP.

Proposals which require security clearance from the ministry of home affairs include investment in telecommunications, satellites and broadcasting and security agencies. FDI applications from Pakistan and Bangladesh would also need Home ministry nod besides investment in north eastern region & J&k.

The CCEA will continue to clear FDI proposals beyond 5000crore.

DIPP IS THE NODAL AGENCY FOR FDI

It monitors the industrial growth & production in general and selected industrial sectors. The Department is also responsible for intellectual property rights relating to Patents, Designs, trade mark and Geographical Indication of Goods & overseas the initiative relating to their promotion and protection.

In India FDI is approved through Automatic route, gov route & through the combination of both routes (especially for FDI beyond 49% and upto 74% or 100%)

Currently 91-95% of FDI flow through Automatic route only 11 sectors (including defence & retail) need government approval.

Venture capital fund registered under SEBI regulations 1996

100% FDI under automatic route for single Brand retail trading (SBRT) has been allowed.

100% FDI under automatic route in construction development in Townships, Housing, Built up Infrastructure and real estate booking services.

Foreign airlines allowed investing upto 49% under approval route in Air India.

FIIs/FPIs allowed to invest in Power Exchanges through primary market unlike earlier restriction to secondary market only.

RATIO ANALYSIS

• Relationship between two figures expressed in arithmetical terms is called a ratio.
• Relationship between two or more variables.
• Main objectives of ratio analysis are as follows-
• Liquidity
• Leverage/solvency ( strength of the firm)
• Activity ratio ( efficiency of assets)
• Profitability ( profit of the firm)

• Liquidity ratio – ability of firm to meet its current liabilities.
• Short term solvency
• It includes three ratio’s 1) current ratio 2) liquid ratio 3) working capital ratio
• Current ratio shows relationship between current assets and current liabilities.
• Its ideal ratio 2:1
• It is susceptible to window dressing
• Current ratio = current assets/ current liabilities
• Acid test/ quick ratio / liquid ratio – whether the firm is in a position to pay its current liabilities within a month or immediately.
• Most rigorous test of liquidity
• Ideal ratio 1:1
• Quick ratio = liquid assets/ current liabilities
• Liquid assets include all current assets except stock and prepaid expenses.
• Net working capital ratio = current assets – currents liabilities

FUND FLOW STATEMENT

• Depicts various sources of funds & their uses.
• ADD (+) Increase in liability, Decrease in assets. SUB (-) Decrease in liability, increase in assets.
• Statement of change in financial position 1) working capital basis i.e fund flow statement. 2) cash basis i.e cash flow statement
• Net working capital = current assets – current liabilities
• Fund flow statement shows the sources & uses of working capital between two balance sheet dates.
• Fund flow statement is a historical record of where the funds came from & how these were utilized during the period.
• When the net effect of a transactions is to increase or decrease the working capital by affecting any elements of current assets or current liability affect one current account & one non- current account.
• Working capital increase when increase in current assets/ decrease in current liability
• Working capital decrease when increase in current liabilities, decrease in current assets.
• Long term planning
• Based on accrual basis.
• Steps in Fund flow statement
• Change in working capital
• Fund from operations
• Sources of fund includes
• Fund from operations
• Issue of share capital
• Issue of debentures
• Long term borrowings
• Sales of assets / investment
• Non-operating income
• Profit
• Decrease in working capital
• Application of fund
• Loss from operations
• Redemption of share capital
• Redemption of debenture
• Repayment of loan
• Purchase of asset/ investment
• Payment of dividend
• Loss
• Increase in working capital

FIANCIAL STATEMENT

• Shows the financial performance & financial position
• Also called final account prepared from trial balance
• Trading account> profit & loss account> balance sheet
• In profit & loss account all gains& losses are collected in order to ascertain the excess of gains over the loss.
• Operating profit= net sales- operating cost.
• Balance sheet shows the financial position of the business on a certain date.
• A statement which sets out the assets & liabilities of a firm or an institution as at a certain date.
• In balance sheet ‘as at’ shows status of a business at a given point of time.
• Manufacturing account > trading account > profit and loss account > profit & loss appropriation account > balance sheet.