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Indian Economy - A Brief Study

If we want to understand Indian economy in a macroscopic perspective, we will have to overview it since Independence.

When India got freedom in the year 1947, Britishers left India in a state of complete shattered economy. Poverty was extreme with people dying due to drought, famine, hunger and different diseases. In such situation, the newly formed government had many challenges to address.

The world was divided into two types of economies, one United States of America and other European countries were advocating and following open type of economy. In which they were promoting Capitalism and encouraging cross border trade to have better economic development. On the other hand some countries like USSR (earlier Russia), China was following closed type of economy, in which they were focusing to make their country self-sufficient in all areas. They blocked trade and business co-operation with other countries.

Whereas India adopted policy of mixed economy, keeping maximum sectors under government control and allowing private players in some sectors. Main objective of the government was to focus on infrastructure and uplift people from huger and extreme poverty.

What was impact of Open, Closed and Mixed Economy?

Mainly the United States and European countries those who were pioneer of open & liberalized economy had a taste of development due to industrial revolution. They focused on capitalism to have sustained growth and development.

Besides, USSR and China mainly adopted policy of closed economy. They emphasized on to develop their country in all sectors without having dependence on other countries. This policy has long term impact on their economy, leading breakup of USSR due to acute economical crisis. Whereas China opened economy understanding the need of time

However, India was following mixed economy which gradually led India to have minimum foreign reserve which was only sufficient to feed this country for few days. At the time, Mr. Chandrashekar was the prime minister of India and India had to mortgage her gold reserves to have foreign currencies to meet import obligations of country.

Later on when Mr.P.V. Narsimharao became the Prime Minister and Mr. Manmohan Singh became Finance Minister of India , they took very audacious steps to liberalize Indian economy. Foreign investor were allowed in most of the sectors which was the turning point of Indian economy. India became a lucrative market for investors due to low labour cost and sizebale amount of population which was a huge market.

After this policy, India's development gradually started at a very good pace. Now, all the governments are following almost same economic policies for foreign investment in the country.

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“The author assumes no responsibility or liability for any errors or omissions in the content of this site and for this blog. The information contained in this site is provided on an "as is" basis with no guarantees of completeness, accuracy, usefulness or timeliness.”

Rice Export Ban

India, the second largest producer of Rice in the world after China has announce ban and imposed a 20 per cent duty on export of all varieties of rice, except basmati and parboiled rice, with effect from 9 September 2022.

This move was expected by most of the exporters that government will impose ban on broken rice completely, but imposing duty of 20 per cent on other varieties of rice which include mainly Raw rice was a shocking move.

In international rice export market, India faces competition mainly from Pakistan, Vietnam and Thailand and duty on Raw rice will make it almost uncompetitive in market and buyer will look purchasing from other our rice rival countries.

If we bifurcate total export of Indian Rice for FY 2021-22, it is like

Total export of Rice is 21.21 Million Tons

Export of Basmati Rice 3.95 Million Tons

Export of Non Basmati Rice 17.26 Million Tons (Which includes 7.43 Million Tons Parboiled Rice + 3.89 Million Tons Broken Rice + 5.94 Millon tons Non- Parboiled Rice i.e. Raw Rice)

Now, impact will be on Broken Rice and Non-parboiled Rice where Broken Rice is completely banned and there is a duty of 20% will on Non- Parboiled Rice i.e. Raw Rice. In quantitative term there will around fifty percent affect on total rice export.

Difference between Raw Rice and Parboiled Rice

Rice is produced after milling of paddy grain. Paddy grain constitute of Husk and Bran. Husk is the cover of grain which is not edible is around 20% of the Paddy grain and Bran the outer of Kernel which is in brown color is around 10% of the kernel.

When paddy is milled and husk and bran is removed white raw rice is obtain.

When paddy is soaked in water, steamed and dried is called parboiling process. In milling husk is removed and the outcome is parboiled Rice

Destination of Indian Rice Export

Basmati Rice – India’s export to Basmati Rice is majorly consist of Arabian Countries, Iran, US, Canda, UK

Non- Basmati Rice – Major consumer of Indian Non-Basmati Rice is African Countries like Benin, Ivory Coast, Togo, Guinea, Madagascar, Djbouti, Somalia, Cameroon. Bangladesh and China are also importer of Indian Rice. Bangladesh and African countries are importer of Parboiled Rice where as China mainly imports broken rice from India. There are few African countries those who are importing broken and raw rice as well.

Various factors for placing restrictions

1. It is apprehended that rice production in India will go down sharply as the plantation for Kharif crop season is substantially less than previous year.

2. Broken rice is used for Ethanol production and cattle feed. There was a huge jump in export from India to China for broken rice year to year basis. Due to which a shortage of broken rice created in India. There was around 27 per cent rise in per kg broken rice from Jarnuary.

3. Blending of Petrol with ethanol is not sufficient with sugar based feedstock and substitute like maize and broken rice is required for this.

4. Increasing price of broken rice in Indian domestic market we putting impact on poultry and animal husbandry sectors.

Assuming above factors Government of India may have decided to put a total ban on broken rice and levying export duty 20 percent on Raw rice.

However, it is bound to impact domestic export companies which are mainly in export of Rice. Main concern of exporters are the good they have on Port and Warehouse. Such situation was seen in the time of wheat ban.

Disclaimer:

TYPES OF LETTER OF CREDIT

There are different types of letters of credit which can be considered by Exporters and Importers for International Trade.

REVOCABLE LETTER OF CREDIT

This type of letter of credit can be cancelled or amended by the issuing bank at any time and without prior notice to or consent of the beneficiary. This Letter of credit is not safe from the Exporter’s Point of View as issuing bank does not require beneficiary/exporter’s confirmation for making change in the L/c

Revocable LCs. However, if any bank has negotiated bills before receipt of notice of revocation, opening bank is liable to honour its commitments. The LC should clearly state that the same is revocable.

IRREVOCABLE LETTER OF CREDIT

In this type of letter of credit consent of all concerned parties are required for cancellation or making any amendment to the L/c

REVOLVING LETTER OF CREDIT

Under this letter of credit the L/c amount is reinstated without any specific amendments as per the terms and conditions. It can revolve in relation to time and value. Such type of credit is generally used in domestic trade and sometimes for Import. The Issuing bank has to confirm to the negotiating bank about the acceptance / payment of the documents for reinstatement of the amount in the LC.

TRANSFERABLE LETTER OF CREDIT

Transeferrable letter of credit can be transferred by the first i.e. original beneficiary to one or more other beneficiaries. Such type of L/cs are generally issued to middlemen/ dealers. It gives sellers the right to instruct the advising bank to make the credit available in whole or in part to one or more second beneficiaries. The LC can be transferred to more than one second beneficiary provided LC permits partial shipment and aggregate value of amounts so transferred does not exceed value of original LC. The LC can be transferred only once and only on terms stated in the credit, with the exception of :

- The amount of the Credit,

- Any unit price stated therein, - The expiry date, - The latest shipment date or given period for shipment, - The period for presentation of documents, any or all of which may be reduced or curtailed.

BACK TO BACK LETTER OF CREDIT

Back to back L/c is generally issued by the Middlemen where they do not want to reveal details of the buyer. In case of a transferrable LC, the beneficiary can ask the nominated Bank to transfer the credit in favour of his suppliers. But, where the credit is not transferrable and in cases where in a middle man enters into a contract to supply goods to be obtained from other suppliers but is unwilling to disclose the identity of the buyer and the buyer also is unwilling to open a Transferable Letter of Credit, such Back to Back credits are opened.

RED CLAUSE LETTER OF CREDIT

In this type of letter of credit, beneficiary may receive advance before doing shipment as per the terms and conditions stated in the L/c.

The clause used to be printed in red, hence the LC is called Red Clause LC. The nominated bank provides the pre-shipment credit to the beneficiary as per the authority given by the issuing Bank. In case the beneficiary fails to export the goods or fails to repay the advance the nominated bank gets the amount paid by the issuing bank.

GREEN CLAUSE LETTER OF CREDIT

In Green Clause letter of credit, it provides not only facility to supplier receive advance for purchase of raw material, processing and packing as in red clause letter of credit but also includes warehousing, insurance and port space booking charges.

PAYMENT LETTER OF CREDIT

It is a sight credit which is available on presentation of required documents under letter of credit.

In a payment credit, beneficiary may or may not be called upon to draw a Bill of Exchange. In many countries, because of stamp duties even on sight bills, drawing Bill of Exchange is dispensed with.

DEFERRED PAYMENT LETTER OF CREDIT

It is a usance credit under which issuing bank makes payment on the due dates as per letter of credit terms without drawing bill of exchange but it must specify the maturity at which payment is to be made and how such maturity is to be determined.

ACCEPTANCE LETTER OF CREDIT

Acceptance Credit is similar to deferred payment credit except for the fact that in this credit drawing of a usance Bill of Exchange is a must.

Under this credit, Bill of Exchange must be drawn on the specified bank for specified tenor, and the designated bank will accept and honour the same, by making payment on the due dates.

SAMPLE LETTER OF CREDIT

BELOW IS THE STANDARD FORMAT OF LETTER OF CREDIT

Swift Input : FIN 700 Issue Of A Documentary Credit

Sender :

Receiver :

---------------------------- Message Text --------------------------- 27: Sequence Of Total

1/1

40A: Form Of Documentary Credit IRREVOCABLE

20: Documentary Credit Number

31C: Date Of Issue

40E: Applicable Rules

UCP LATEST VERSION

31D: Date And Place Of Expiry

50: Applicant

59: Beneficiary

32B: Currency Code ,Amount

39A: Percentage Credit Amount Tolerance

41A: Available With...By...

43P: Partial Shipments

43T: Transhipment

44E: Port Of Loading/Airport Of

44F: Port Of Discharge/Airport Of Destination

44C: Latest Date Of Shipment

45A: Description of Goods and/or Services

46A: Documents Required

47A: Additional Conditions

+ L/C IS AVAILABLE BY PAYMENT AT SIGHT.

+ THIRD PARTY DOCUMENTS ARE ACCEPTABLE EXCEPT INVOICE AND PACKING LIST.

+ NEGOTIATION UNDER RESERVE(S) AND/OR BANK GUARANTEE PROHIBITED .

+ DOCUMENTS TO BE SENT BY SPECIAL COURIER SERVICES IN ONE LOT

(ON BENEF. ACCOUNT) TO OUR ADDRESS:

71D: Charges

ALL CHARGES AND COMMISSIONS

OUTSIDE FRANCE ARE ON

BENEFICIARIES' ACCOUNT

48: Period for Presentation in Days

21FROM B/L DATE WITHIN L/C VALIDITY

49: Confirmation Instructions WITHOUT

78: Instructions to the Paying/Accepting/Negotiating Bank

WE UNDERTAKE TO COVER THE PRESENTING/NEGOTIATING BANK AS PER THEIR INSTRUCTIONS AFTER RECEIPT OF THE COMPLYING PRESENTATION.

NEGOTIATING BANK MUST CERTIFY ON THEIR SCHEDULE THAT ALL CHARGES OF ADVISING BANK HAVE BEEN SETTLED .

WE CONFIRM THAT L/C IS SUBJECT TO UCP 600

57A: 'Advise Through' Bank

72Z: Sender To Receiver Information

PLEASE ACKNOWLEDGE RECEIPT BY

RETURN SWIFT

-------------------------- Message Trailer ---------------------------

Indian Economy - A Brief Study

Rice Export Ban

TYPES OF LETTER OF CREDIT

SAMPLE LETTER OF CREDIT

Buyer/Supplier search in International Market and trust worthiness