International Business: Globalisation, Trade Theories, Balance of Payments, Foreign Investment, WTO, Trade Procedures and Documentation, IMF and World Bank

The balance of payments (BoP) is a systematic record of all economic transactions between the residents of a country and the rest of the world in a period, kept by double entry so that it always balances in the accounting sense. The current account records trade in goods (the balance of trade, visible), trade in services (invisibles: software, travel, transport), primary income (interest, dividends, compensation of employees) and secondary income (current transfers, chiefly remittances). The capital and financial account records foreign direct investment, portfolio investment, loans and banking capital, and external assistance. Errors and omissions reconcile; the overall balance is met by a change in official reserves. A current-account deficit financed by capital inflows is the Indian norm; a BoP crisis arises when reserves cannot cover the gap, as in 1991 when India pledged gold and turned to the IMF. Disequilibrium is corrected by devaluation or depreciation, monetary and fiscal contraction, exchange controls, tariffs and export promotion; the Marshall–Lerner condition says devaluation improves the trade balance only if the sum of the export and import demand elasticities exceeds one, and the J-curve describes the initial worsening before improvement.

Foreign direct investment (FDI) is investment giving a lasting interest and control — by international convention 10% or more of voting stock — through greenfield projects, acquisitions or joint ventures; foreign portfolio investment (FPI) is a passive holding of securities with no control, quicker to enter and to flee. Dunning's eclectic (OLI) paradigm says a firm invests abroad when it has ownership advantages, the location offers advantages, and internalisation beats licensing. For the host country FDI brings capital, technology and managerial know-how, employment, exports and competition, but may crowd out local firms, repatriate profits, transfer-price away tax, and raise sovereignty and environmental concerns. India permits FDI through the automatic route (no prior approval; report to RBI under FEMA 1999) and the government route (prior approval of the administrative ministry after the FIPB was abolished in 2017); the Consolidated FDI Policy is issued by the Department for Promotion of Industry and Internal Trade (DPIIT). Sectoral caps run from 100% in most manufacturing to lower caps in sensitive sectors, and a few sectors — lottery, gambling, chit funds, real estate trading, tobacco manufacturing, atomic energy — are prohibited; Press Note 3 of 2020 requires government approval for investment from countries sharing a land border with India.

The General Agreement on Tariffs and Trade (GATT, 1947, 23 founding members including India) governed trade through eight negotiating rounds; the Uruguay Round (1986–94) concluded at Marrakesh created the World Trade Organization, which began on 1 January 1995 with headquarters in Geneva. The WTO had 164 members from 2016 and, with Comoros and Timor-Leste joining in 2024, has 166. Its principles are non-discrimination through most-favoured-nation treatment (a concession to one member extends to all) and national treatment (imported goods treated like domestic once inside), freer trade through negotiation, predictability through binding of tariffs, fair competition (rules on dumping and subsidies) and special treatment for developing countries. Its agreements cover goods (GATT 1994, Agreement on Agriculture, SPS, TBT, TRIMs, anti-dumping, safeguards), services (GATS) and intellectual property (TRIPS), with a Dispute Settlement Body whose panel and Appellate Body rulings are binding — though the Appellate Body has been non-functional since December 2019 for want of quorum. The Ministerial Conference, meeting at least every two years, is the top decision-making body: Doha 2001 launched the Doha Development Agenda; Bali 2013 the Trade Facilitation Agreement (in force 2017); Nairobi 2015 abolished agricultural export subsidies; Geneva MC12 in June 2022 agreed on fisheries subsidies, the pandemic response and a TRIPS waiver on vaccines; Abu Dhabi MC13 in February–March 2024 ended with the e-commerce moratorium extended and no agriculture deal. India's stands: the peace clause on public stockholding for food security, opposition to non-trade issues, and resistance to the e-commerce moratorium.

1. Registration — obtain an Importer-Exporter Code (IEC) from the DGFT (now the PAN itself, since 2017 under GST), register with an Export Promotion Council for a Registration-cum-Membership Certificate (RCMC), and with GST.
2. Enquiry, quotation and contract — the pro forma invoice is the quotation; the buyer's purchase order and the exporter's confirmation form the sale contract, fixing the Incoterm, payment term and delivery.
3. Payment security — a letter of credit (LC) opened by the importer's bank, governed by UCP 600 (ICC, 2007): the bank pays against compliant documents, not goods; types are revocable/irrevocable, confirmed, sight/usance, transferable, back-to-back, revolving, red clause; alternatives are advance payment, documents against payment (D/P), documents against acceptance (D/A) and open account, in decreasing safety for the exporter.
4. Pre-shipment — packing credit finance from a bank, pre-shipment inspection where required, marine insurance, and export credit insurance from ECGC (1957).
5. Customs clearance — the exporter (through a customs broker) files the shipping bill electronically on ICEGATE; customs give 'let export' order; for imports the equivalent is the bill of entry.
6. Shipment and documents — the carrier issues the bill of lading (sea) or airway bill (air); the exporter assembles the commercial invoice, packing list, certificate of origin (from a chamber of commerce or EPC; preferential certificates for FTA benefit), insurance policy, inspection certificate and bill of exchange, and presents them to the bank for negotiation under the LC.
7. Realisation and incentives — export proceeds must be realised and repatriated within nine months under FEMA; the exporter then claims duty drawback, RoDTEP or scheme benefits.

India's Foreign Trade Policy 2023 (notified 31 March 2023, effective 1 April 2023, no sunset date, amended as needed) rests on four pillars: incentive to remission, export promotion through collaboration (districts as export hubs, towns of export excellence), ease of doing business (paperless, automated approvals) and emerging areas (e-commerce exports, SCOMET). Its instruments are the Remission of Duties and Taxes on Exported Products (RoDTEP, from 1 January 2021, WTO-compatible replacement of MEIS, refunding embedded taxes not otherwise rebated), duty drawback, Advance Authorisation (duty-free inputs for export production), the Export Promotion Capital Goods (EPCG) scheme (zero-duty capital goods against an export obligation of six times the duty saved in six years), Special Economic Zones (SEZ Act 2005: duty-free enclaves treated as foreign territory for trade operations) and Export Oriented Units, and status holder recognition (one to five star). The Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce administers the policy under the Foreign Trade (Development and Regulation) Act 1992.

The Bretton Woods conference of July 1944 (New Hampshire, 44 nations, Keynes and White) created the International Monetary Fund and the International Bank for Reconstruction and Development, both headquartered in Washington and both with India as a founder member. The IMF, operating from 1945 with 190 members, promotes monetary cooperation, exchange stability and orderly exchange arrangements and lends to members in balance-of-payments difficulty; each member's quota (in SDRs) fixes its subscription, voting power and access to finance, and the Articles were amended in 1978 (Second Amendment) to legalise floating after the Bretton Woods par-value system collapsed in 1971–73. The Special Drawing Right (1969) is the IMF's reserve asset, valued on a basket of five currencies since 1 October 2016: the US dollar, euro, Chinese renminbi, Japanese yen and pound sterling; the largest ever allocation, SDR 456.5 billion (about US$650 billion), was made in August 2021. Lending facilities include the Stand-By Arrangement, Extended Fund Facility, Rapid Financing Instrument, and the Poverty Reduction and Growth Trust facilities for low-income countries; conditionality attaches. India drew on the IMF in 1981 and 1991 and repaid; its quota under the 14th review is about 2.75%, the eighth largest. The World Economic Outlook and the Global Financial Stability Report are its flagship publications.