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GNDU Question Paper-2021
Bachelor of Commerce
(B.Com) 3
rd
Semester
INTERNATIONAL BUSINESS
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt five questions in all, selecting at least one question from each section. The
fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Explain the importance of Globalization in World Economy.
2. Discuss the components of National Environment with examples.
SECTION-B
3. What are the recent trends in World Trade in Goods and Services ?
4. Explain Commercial Policy Instruments.
SECTION-C
5. What are the different forms of Commercial Policy Instruments ?
6. Explain the objectives and principles of WTO.
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SECTION-D
7. What do you mean by SEZs? Explain briefly.
8. Discuss in detail measures for promoting foreign investments into and from India.
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GNDU Answer Paper-2021
Bachelor of Commerce
(B.Com) 3
rd
Semester
INTERNATIONAL BUSINESS
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt five questions in all, selecting at least one question from each section. The
fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Explain the importance of Globalization in World Economy.
Ans: A Different Kind of Beginning…
It’s early morning in a small village in Punjab. A farmer is sipping tea while scrolling through
his smartphone — made in China, assembled in Vietnam, shipped through Singapore, and
sold by an Indian e-commerce company. His son is wearing a T-shirt designed in Italy,
stitched in Bangladesh, and branded by an American company. The tea leaves in his cup?
Grown in Assam, but exported worldwide.
Without even leaving his home, this farmer is connected to the world economy. This
invisible web of connections — where goods, services, ideas, and even cultures flow freely
across borders — is what we call Globalization.
1. What is Globalization?
In simple terms, Globalization is the process of increasing interconnectedness and
interdependence among countries — economically, socially, culturally, and politically.
It’s like the world has become a giant marketplace and a shared neighbourhood, where
what happens in one corner can affect lives thousands of kilometres away.
2. Why Globalization Matters in the World Economy
Globalization is not just a buzzword — it’s the engine that has reshaped how the world
trades, works, and grows. Let’s explore its importance through a humanised lens.
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A. Expanding Markets – The World as Your Customer
Before globalization, a business in India mostly sold to Indians. Now, a small handicraft
maker in Jaipur can sell to customers in London, New York, or Tokyo through online
platforms.
Impact:
• Businesses get a bigger customer base.
• Countries can specialise in what they do best and sell it globally.
• Consumers get more variety and better prices.
B. Flow of Investment – Money Without Borders
Globalization allows capital to move freely. A Japanese company can invest in an Indian tech
start-up; an Indian company can buy a factory in Europe.
Impact:
• Developing countries get access to funds, technology, and expertise.
• Creates jobs and boosts infrastructure.
• Encourages innovation through competition.
C. Technology Transfer – Sharing the Best Ideas
When companies operate globally, they bring advanced technology and know-how with
them.
Example: The entry of global car manufacturers in India brought modern manufacturing
techniques, safety standards, and design innovations.
Impact:
• Improves productivity.
• Raises quality standards.
• Helps local industries grow faster.
D. Employment Opportunities – Jobs Across Borders
Globalization has created millions of jobs in sectors like IT, manufacturing, tourism, and
services.
Example: The rise of India’s BPO industry is directly linked to globalization — companies in
the US and UK outsource customer service to India, creating employment for lakhs of young
professionals.
E. Cultural Exchange – A Richer World
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Globalization isn’t just about money — it’s also about ideas, art, music, and food crossing
borders.
Example: Sushi in Delhi, Bollywood in Canada, K-pop in Brazil — cultures mix, creating a
richer global experience.
F. Economic Growth – Rising Together
When countries trade and invest with each other, their economies grow faster.
• Exports bring in foreign currency.
• Imports give access to better goods and raw materials.
• Competition pushes industries to improve.
3. The Domino Effect – How Globalization Links Economies
One of the most fascinating aspects of globalization is how interconnected economies have
become.
Story Example: If there’s a slowdown in the US economy, American consumers buy fewer
goods from China. China’s factories reduce orders for raw materials from Australia.
Australia’s mining sector slows down, affecting its imports from India.
This chain reaction shows that in today’s world, no economy is truly isolated.
4. Benefits of Globalization in the World Economy
Let’s summarise the positives in a clear way:
Benefit
How It Helps the World Economy
Trade Expansion
Countries sell more goods/services globally.
Investment Growth
Foreign Direct Investment boosts infrastructure and jobs.
Technology Sharing
Improves productivity and quality.
Job Creation
Expands employment in multiple sectors.
Cultural Enrichment
Promotes understanding and diversity.
Economic Efficiency
Countries specialise in what they do best.
5. Challenges of Globalization
Of course, globalization isn’t perfect. It brings challenges too:
• Inequality: Benefits may be unevenly distributed.
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• Job Loss in Some Sectors: Cheaper imports can hurt local industries.
• Cultural Erosion: Local traditions may be overshadowed by global trends.
• Economic Vulnerability: A crisis in one country can spread quickly.
6. Why Globalization is Still Crucial
Despite its challenges, globalization remains vital for the world economy because:
• It encourages cooperation over isolation.
• It helps tackle global problems like climate change, pandemics, and poverty through
shared resources and knowledge.
• It drives innovation by exposing countries to new ideas and competition.
7. Real-Life Illustration – The Smartphone Story
Take your smartphone as an example of globalization in action:
• Design: California, USA
• Chipset: Taiwan
• Screen: South Korea
• Assembly: China or Vietnam
• Software Development: India, USA, Europe
• Sales: Worldwide
One single product connects multiple economies, millions of workers, and countless supply
chains.
8. The Future of Globalization
The world is now debating whether globalization will slow down due to geopolitical
tensions, trade wars, and pandemics. But even if the pace changes, the interconnected
nature of economies is here to stay.
Digital globalization — through e-commerce, remote work, and online services — is making
borders even less relevant.
Closing the Story
As our farmer in Punjab finishes his tea, he checks the weather forecast on his phone —
data from satellites operated by an international space agency. He then sells his crop to a
buyer in Dubai through an online platform.
Without stepping outside his village, he has participated in the global economy.
That’s the power and importance of globalization — it turns the world into one vast,
interconnected marketplace where opportunities, ideas, and resources flow freely, shaping
the destiny of nations and the lives of ordinary people.
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2. Discuss the components of National Environment with examples.
Ans : A Fresh Beginning…
Imagine you’re standing on a hilltop at sunrise. Below you stretches a vast landscape —
rivers glistening like silver ribbons, forests swaying in the breeze, cities waking up with the
hum of traffic, and farmers already at work in the fields.
Now, imagine that this entire view — the air you breathe, the soil under your feet, the
people you see, the factories in the distance, the laws that govern them, and the culture
that shapes their lives — is all part of something bigger: the National Environment.
It’s not just “nature” in the narrow sense. It’s the total setting in which a nation lives,
works, and grows — a blend of natural, economic, social, political, and cultural elements
that together shape the life of a country.
Let’s walk through its components like we’re exploring different neighbourhoods in the
same vast city called “India”.
1. Natural Environment – The Nation’s Physical Home
This is the foundation — the stage on which all other activities happen. It includes:
• Landforms: Mountains, plains, plateaus, deserts. Example: The Himalayas not only
protect India from cold winds but also feed rivers that support agriculture.
• Climate: Monsoons, seasons, temperature patterns. Example: The southwest
monsoon determines the fate of crops in large parts of India.
• Soil and Vegetation: Fertile Indo-Gangetic plains, arid desert soils, tropical forests.
• Water Resources: Rivers like Ganga, Yamuna, Brahmaputra; lakes, groundwater.
• Minerals: Coal in Jharkhand, iron ore in Odisha, oil in Assam.
Why it matters: The natural environment decides what crops can be grown, what industries
can thrive, and even where people choose to live.
2. Economic Environment – The Nation’s Wealth Engine
This is the machinery that keeps the country running in terms of production, trade, and
income.
Key elements:
• Economic System: Whether the economy is capitalist, socialist, or mixed. India
follows a mixed economy model.
• Industries: Agriculture, manufacturing, services. Example: IT hubs like Bengaluru
contribute to exports and employment.
• Infrastructure: Roads, ports, power supply, internet connectivity.
• Trade and Commerce: Domestic markets and international trade links.
• Financial Institutions: Banks, stock exchanges, insurance companies.
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Why it matters: A strong economic environment means more jobs, better living standards,
and resources for development.
3. Political and Legal Environment – The Nation’s Rulebook
This is the framework of laws, policies, and governance that shapes how the country
functions.
Key elements:
• Government Structure: Federal system with central and state governments.
• Policies: Industrial policy, trade policy, environmental policy.
• Laws: Labour laws, company laws, environmental protection acts. Example: The
Environment Protection Act, 1986, sets rules for pollution control.
• Stability: Political stability encourages investment and growth.
Why it matters: Even the best natural and economic resources can’t be used effectively
without a stable and fair political-legal system.
4. Social Environment – The Nation’s Human Fabric
This is about the people — their values, traditions, and social structures.
Key elements:
• Population: Size, growth rate, age distribution. Example: India’s large youth
population is a potential demographic dividend.
• Education and Literacy: Determines skill levels and productivity.
• Health and Living Standards: Access to healthcare, nutrition, housing.
• Social Institutions: Family, religion, caste, community organisations.
• Inequality and Inclusion: Gender equality, rights for marginalised groups.
Why it matters: A healthy, educated, and cohesive society is essential for national progress.
5. Cultural Environment – The Nation’s Soul
Culture shapes how people think, work, and interact.
Key elements:
• Languages: India has 22 scheduled languages and hundreds of dialects.
• Arts and Heritage: Music, dance, architecture, festivals. Example: Diwali boosts
economic activity through shopping, tourism, and cultural events.
• Beliefs and Values: Attitudes towards work, environment, and community.
• Lifestyle Trends: Urbanisation, consumer behaviour, food habits.
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Why it matters: Culture influences everything from marketing strategies to workplace
behaviour.
6. Technological Environment – The Nation’s Innovation Engine
This is about the tools and techniques that drive progress.
Key elements:
• Research and Development: Innovations in agriculture, medicine, engineering.
• Digital Infrastructure: Internet penetration, mobile connectivity.
• Automation and AI: Changing the nature of jobs.
• Technology Transfer: Learning from global best practices.
Example: The Aadhaar system — the world’s largest biometric ID programme —
transformed service delivery in India.
Why it matters: Technology increases efficiency, reduces costs, and opens new
opportunities.
7. International Environment – The Nation’s Global Neighbourhood
No country exists in isolation. The international environment includes:
• Global Trade: Export-import relations.
• Foreign Policy: Diplomatic ties, treaties.
• Global Issues: Climate change, pandemics, economic crises.
• International Organisations: UN, WTO, WHO.
Example: India’s participation in the Paris Climate Agreement shapes its renewable energy
policies.
Why it matters: Global trends and events can directly impact the national economy and
environment.
8. Interdependence of Components
These components don’t exist in silos — they constantly interact.
Story Example: A drought (natural environment) affects crop yields, which impacts farmers’
income (economic environment), leading to demands for government relief (political
environment), which may trigger debates on water management (social environment), and
push for better irrigation technology (technological environment).
Closing the Story
As you step down from that hilltop in our opening scene, you realise the “National
Environment” is like a giant orchestra. The natural environment is the stage, the economic
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environment is the rhythm section, the political-legal environment is the conductor, the
social and cultural environments are the melody, the technological environment adds
modern instruments, and the international environment brings in guest musicians from
around the world.
When all these components play in harmony, the nation produces a beautiful symphony of
growth, stability, and well-being. When one is out of tune, the whole performance suffers.
SECTION-B
3. What are the recent trends in World Trade in Goods and Services ?
Ans: A fresh beginning
Picture the Port of Mundra at dawn: cranes gliding, containers stacked like Lego, ships
easing in from Singapore, Rotterdam, and Jebel Ali. A few thousand kilometers away, a
coder in Nairobi pushes an update to a client in Berlin, while a radiologist in Bengaluru reads
a scan for a hospital in Boston. That’s world trade today — steel and code, ships and cloud,
containers and Zoom calls — moving in a single, pulsing rhythm. And the rhythm is
changing.
The pulse right now
• • Global trade is growing, but unevenly. In early 2025, the value of world trade in
goods and services ticked up modestly quarter-on-quarter (about 1.5% for goods and
roughly 1.7% for services in Q1), with a stronger annual pace in services than goods.
UNCTAD nowcasts suggested an increase of roughly US$300 billion in the first half of
2025 (about US$230 billion in goods and US$70 billion in services), even as risks
lingered.
• • Yet outlooks are cautious. The WTO’s 2025 view flagged drag in merchandise trade
(a projected 0.2% decline for goods) alongside a still-positive, if moderate, expansion
in services (around 4%), reflecting tariff frictions and policy uncertainty rippling
through transport, travel, and investment-linked services.
• • Imbalances are widening. The United States’ deficit expanded while China and the
EU posted rising surpluses in early 2025, underscoring persistent asymmetries and
the geopolitics behind them.
Trends shaping trade in goods
• • Fragmentation and “friend-shoring”: Many firms are diversifying suppliers away
from single-country dependencies toward trusted networks. The practical result is
not deglobalization so much as re-routing — more suppliers, more redundancy, and
more mid-points in supply chains. US-China tariff tensions continue to divert trade,
opening opportunities for alternate suppliers in Asia, Latin America, and parts of
Africa.
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• • Resilient, but slower expansion: After pandemic whiplash, goods flows are
stabilizing at a slower trend pace. Q1 2025 goods trade rose gently, but policy and
security risks (Red Sea disruptions, export controls, sanctions) keep a lid on
momentum and capex appetite.
• • Regional re-balancing: Developed-economy trade picked up more than many
developing peers in early 2025, driven by strong US import growth and improved EU
exports. Meanwhile, some developing regions lagged given weaker demand and
tighter financing, widening the gap between trade “winners” and “waiters”.
• • The rise of “midstream” manufacturing: To navigate tariffs and rules-of-origin,
firms increasingly place assembly and component work in third countries. This
spreads value chains wider and raises the importance of logistics quality, compliance,
and trade facilitation in “connector” economies — from Vietnam and Mexico to the
UAE and Türkiye.
• • Commodity sensitivity persists: Energy and metals prices, climate shocks, and
freight costs still sway goods trade volumes and values. Even as freight rates cooled
from their pandemic highs, geopolitics keeps volatility within reach.
Trends reshaping services
• • Services outpacing goods: Services continue to be the growth engine of global
trade. On a 12-month view, services’ annual growth remains robust relative to
goods, though quarter-on-quarter gains moderated. Transport and travel are
recovering unevenly; business and digital services are structurally stronger2.
• • Digital, remote, and “borderless” delivery: From software and design to diagnostics
and education, more services cross borders without crossing customs. This
“weightless trade” is less constrained by physical bottlenecks but still sensitive to
data rules, privacy, and standards — policy terrain that remains in flux.
• • Travel’s two-speed comeback: Leisure flows have revived faster than some
corporate travel segments. Where entry regimes normalized, tourism lifted local
service ecosystems; where visas, safety, or costs stayed restrictive, recovery lagged
— and virtual formats filled the gap.
• • Financial and professional services as stabilizers: Even with macro uncertainty,
demand for risk management, compliance, restructuring, and analytics has held up,
cushioning service export leaders. Still, tighter financing conditions earlier in the
cycle moderated investment-linked services demand.
• • Uneven benefits: Least-developed countries remain vulnerable to external shocks
and narrow export baskets; capturing services growth requires digital infrastructure,
skills, and supportive policy — gaps that many LDCs are still working to close.
Cross-currents affecting both goods and services
• • Policy uncertainty is the new baseline: Tariffs, industrial policy, tech export
controls, and carbon border measures are redrawing incentives. The WTO notes
tariff reactivations can materially dent goods growth, with spillovers into transport,
logistics, and investment services. Firms are responding with compliance muscle and
scenario planning.
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• • Supply chain resilience as strategy: Multi-sourcing, higher inventories of critical
inputs, nearer hubs, and dual-use logistics capacity are now standard practice. The
short-term cost is higher, but the long-term payoff is fewer stoppages and stronger
customer confidence.
• • The green pivot: Demand for clean-tech hardware (solar, batteries, EV
components) and resource-efficiency services is expanding. Carbon accounting,
sustainability reporting, and green-finance services are now trade enablers in their
own right — and compliance gateways to key markets.
• • Digital rails and trade finance innovation: E-invoicing, e-BLs (electronic bills of
lading), and interoperable trade platforms are reducing paperwork friction. That
shifts competitiveness toward countries and firms that invest in digital customs, KYC,
and secure data flows.
• • Geographies of momentum: UNCTAD flagged stronger Q1 2025 trade momentum
in the United States and the EU relative to many developing economies; Asia still
anchors global manufacturing, but performance is increasingly differentiated across
economies based on logistics, policy predictability, and market access.
What this means for businesses and policymakers
• • For exporters:
o Diversify markets and inputs: Don’t let one lane define your future. Build
second-best routes before you need them2.
o Invest in compliance and traceability: Rules-of-origin, ESG disclosures, and
carbon footprints are market tickets, not add-ons.
o Lean into services: Bundle after-sales support, monitoring, and analytics with
goods; or, if you’re purely digital, upgrade data security and cross-border
delivery capabilities.
• • For logistics and ecosystems:
o Upgrade nodes, not just roads: Ports, ICDs, digital customs, and cold chains
matter as much as highways. The economies winning trade diversion are
those that made the “boring” investments years ago.
o Build resilience contracts: Flexible capacity agreements with carriers and
3PLs help ride rate spikes and chokepoint disruptions.
• • For policymakers:
o Predictability over perfection: Clear, stable rules crowd in private investment
better than complex, shifting incentives.
o Digital public goods: Identity, payments, e-signatures, and paperless trade
cut friction for SMEs to export services.
o Skills and standards: Align training with globally tradable services; adopt
interoperable standards that lower the cost of compliance for exporters.
A simple way to remember the moment
Think of world trade as a two-engine aircraft. The goods engine is humming again, but with
occasional turbulence and a flightpath curving around storms. The services engine is
stronger, lighter, and increasingly carrying more of the weight — yet it, too, feels headwinds
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when policy clouds gather. Pilots (governments and firms) can’t control the weather, but
they can chart smoother routes: diversify, digitize, decarbonize, and de-risk.
4. Explain Commercial Policy Instruments.
Ans: A different kind of opening…
Imagine you’re the captain of a bustling medieval port city. Ships from far-off lands arrive
daily — some carrying silk, others spices, some bringing strange gadgets you’ve never seen
before. As captain, you have a big decision: Do you let every ship dock freely, or do you set
rules, taxes, and limits to protect your city’s economy?
That decision — in the modern world — is what we call Commercial Policy. And the tools
you use to make it happen? Those are Commercial Policy Instruments.
They’re the levers and switches a government pulls to control how goods and services flow
across its borders — deciding what comes in, what goes out, and under what conditions.
The Big Picture: What is Commercial Policy?
Commercial policy (also called trade policy) is a country’s official stance on international
trade — the strategies, rules, and measures it uses to regulate imports and exports.
It answers questions like:
• Should we encourage more exports?
• Should we protect local industries from foreign competition?
• Should we open our markets completely or keep some barriers?
And to put these decisions into action, governments use instruments — think of them as
the “weapons” or “tools” in their trade arsenal.
Two Main Categories of Instruments
Just like a port captain can either charge a docking fee or outright refuse entry, commercial
policy instruments fall into two broad categories:
1. Tariff Measures – These involve putting a price on trade (taxes, duties).
2. Non-Tariff Measures – These involve rules, limits, and other non-price restrictions.
Let’s walk through them like characters in our story.
1. Tariff Instruments – The Toll Gates of Trade
Tariffs are like tolls on a bridge — if you want to cross, you pay. In trade, a tariff is a tax on
imported (and sometimes exported) goods.
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Types of Tariffs:
• Specific Tariff – A fixed amount per unit (e.g., ₹50 per kg of imported coffee).
• Ad Valorem Tariff – A percentage of the value (e.g., 10% of the car’s price).
• Compound Tariff – A mix of both (e.g., ₹100 per TV + 5% of its value).
Purpose in the story:
• Protect local industries from cheaper foreign goods.
• Raise revenue for the government.
• Sometimes, retaliate against another country’s trade barriers.
Example: If India imposes a 40% tariff on imported apples, foreign apples become more
expensive, making Indian apples more competitive in the market.
2. Non-Tariff Instruments – The Invisible Walls
Sometimes, instead of charging a fee, the port captain might say: “Only 10 ships of silk may
enter this month” or “Your cargo must meet our city’s safety standards.”
These are non-tariff measures — they don’t involve a tax, but they still control trade.
Key Non-Tariff Instruments:
a) Import Quotas
A fixed limit on the quantity of a product that can be imported.
• Example: Only 1 million tonnes of sugar can be imported in a year.
• Purpose: Protect domestic producers from being overwhelmed by imports.
b) Export Quotas
Limits on how much of a product can be exported.
• Example: To ensure enough wheat for local consumption, a country caps wheat
exports.
c) Voluntary Export Restraints (VERs)
An exporting country agrees (often under pressure) to limit exports to a particular country.
• Example: Japan limiting car exports to the US in the 1980s.
d) Subsidies
Financial support to domestic producers so they can sell goods cheaper in foreign markets.
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• Example: Government gives cash incentives to textile exporters.
e) Import Licensing
Importers must get permission before bringing in certain goods.
• Example: Medicines, weapons, or high-tech equipment often require licenses.
f) Standards and Technical Regulations
Rules about quality, safety, packaging, or environmental impact.
• Example: EU bans certain chemicals in cosmetics; India requires BIS certification for
electronics.
g) Exchange Control
Restricting the amount of foreign currency available for imports.
• Example: Limiting US dollar availability to curb luxury imports.
h) Embargoes
A complete ban on trade with a specific country or product.
• Example: Sanctions on certain nations for political reasons.
Why Use These Instruments?
In our port city analogy, you might use these tools for:
• Protection – Shielding local industries from foreign competition.
• Revenue – Earning money through tariffs.
• Balance of Payments – Reducing imports to avoid trade deficits.
• Retaliation – Responding to unfair trade practices by others.
• Strategic Goals – Encouraging certain industries (like green tech) or discouraging
harmful goods (like tobacco).
The Balancing Act
Here’s the twist in our story: If you make your port too closed, traders will go elsewhere,
and your city might miss out on exotic goods and innovation. If you make it too open, local
craftsmen might be crushed by cheaper imports.
That’s why commercial policy is always a balancing act — finding the sweet spot between
openness and protection.
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Bringing It Back to the Examiner’s Desk
If you were explaining this in an exam, you’d want it to feel like a living system, not a dry list.
The examiner should see the ships, the toll gates, the invisible walls, and the bustling market
inside the port.
By turning “tariffs” into toll gates and “quotas” into ship limits, you make the concept stick
— not just for marks, but for memory.
Final Takeaway
Commercial policy instruments are the rules of the game in global trade. They can be as
visible as a tax on imported wine or as subtle as a safety standard that foreign producers
must meet. Used wisely, they protect and promote a nation’s interests; used poorly, they
can isolate and harm it.
Just like our port city captain, governments must constantly adjust these tools — opening
the gates when opportunity knocks, and closing them when danger looms.
SECTION-C
5. What are the different forms of Commercial Policy Instruments ?
Ans: A fresh opening…
It’s a bright morning in the grand “Global Bazaar” — a sprawling marketplace where every
country has its own stall. Some stalls are piled high with electronics, others with spices,
textiles, cars, or software. Traders shout prices, customers haggle, and ships unload goods at
the docks nearby.
But here’s the twist: this bazaar isn’t a free-for-all. At every stall, there’s a gatekeeper — the
government — deciding what comes in, what goes out, and under what rules.
Those rules, my friend, are Commercial Policy Instruments — the tools a country uses to
shape its trade with the world. And just like in our bazaar, these tools come in different
forms, each with its own personality and purpose.
What Are Commercial Policy Instruments?
In simple terms: They are the methods, measures, and rules a government uses to regulate
imports and exports. They decide:
• How much tax to charge on foreign goods.
• How many units of a product can enter or leave.
• What quality standards must be met.
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• Which industries get special support.
Think of them as the “traffic lights” and “toll booths” of international trade — guiding,
slowing, or speeding up the flow of goods and services.
The Two Big Families
All commercial policy instruments fall into two main families:
1. Tariff Measures – These are price-based tools (taxes, duties).
2. Non-Tariff Measures – These are rule-based tools (limits, standards, permissions).
Let’s meet them one by one — as if they were characters in our bazaar story.
I. Tariff Instruments – The Toll Collectors
Tariffs are like the toll booths at the entrance to the bazaar. If a foreign trader wants to sell
goods inside, they must pay a fee.
Forms of Tariff Instruments:
1. Specific Tariff – A fixed fee per unit.
o Example: ₹100 per imported smartphone.
o Story role: The strict guard who charges the same fee whether the phone is
cheap or luxury.
2. Ad Valorem Tariff – A percentage of the product’s value.
o Example: 20% of the car’s price.
o Story role: The guard who peeks at your invoice and charges more if your
goods are expensive.
3. Compound Tariff – A mix of both.
o Example: ₹50 per bag of rice + 5% of its value.
o Story role: The guard who says, “I’ll take a flat fee and a cut of the value.”
Why use tariffs?
• Protect local producers from cheaper imports.
• Raise government revenue.
• Retaliate against unfair trade practices.
II. Non-Tariff Instruments – The Invisible Walls
These are trickier. They don’t charge you money directly, but they can still control what
enters or leaves the bazaar.
Forms of Non-Tariff Instruments:
1. Import Quotas – A strict limit on how much of a product can be imported.
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o Example: Only 500,000 tonnes of sugar allowed per year.
o Story role: The gatekeeper who says, “Only this many sacks of sugar can pass
— no more.”
2. Export Quotas – Limits on how much can be exported.
o Example: Restricting wheat exports to ensure local supply.
o Story role: The guard who says, “Save enough for our own people before
selling outside.”
3. Voluntary Export Restraints (VERs) – The exporting country agrees to limit sales to
another country.
o Example: Japan limiting car exports to the US in the 1980s.
o Story role: The polite trader who says, “I’ll bring fewer goods so we stay
friends.”
4. Import Licensing – Needing official permission to import certain goods.
o Example: Medicines, arms, or high-tech equipment.
o Story role: The clerk who stamps your papers before you can enter.
5. Subsidies – Government financial help to local producers so they can compete
better.
o Example: Cash incentives for textile exporters.
o Story role: The bazaar owner secretly slipping coins to local sellers so they can
lower prices.
6. Standards and Technical Regulations – Rules about quality, safety, packaging, or
environmental impact.
o Example: EU bans certain chemicals in cosmetics.
o Story role: The inspector who checks if your goods meet the bazaar’s health
and safety rules.
7. Exchange Controls – Limiting access to foreign currency for imports.
o Example: Restricting US dollar availability to curb luxury imports.
o Story role: The banker who says, “You can’t buy more foreign currency for
that yacht.”
8. Embargoes – A complete ban on trade with a country or product.
o Example: Sanctions on arms trade with certain nations.
o Story role: The locked gate with a “No Entry” sign.
Special Forms in Modern Trade
In today’s digital and interconnected world, some newer forms are emerging:
• Digital Trade Rules – Data privacy laws, cross-border data flow restrictions.
• Carbon Border Taxes – Charging imports based on their carbon footprint.
• Anti-Dumping Duties – Extra tariffs on goods sold below fair market value to protect
local industries.
These are like new “security scanners” at the bazaar gates — checking not just what you
bring, but how you made it.
Why So Many Forms?
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Because trade is like a river — if you block it in one place, it finds another path.
Governments need different tools for different situations:
• Tariffs for direct price control.
• Quotas for quantity control.
• Standards for safety and quality.
• Subsidies for boosting competitiveness.
The Balancing Act
In our bazaar, if the gates are too tight, traders leave and variety disappears. If they’re too
open, local sellers might be crushed by foreign competition.
That’s why the art of commercial policy is in balance — using the right mix of instruments to
protect, promote, and participate in global trade without isolating the economy.
Final Takeaway
Commercial policy instruments are not just dry economic terms — they’re the living rules of
the world’s biggest marketplace. They decide who gets to sell, who gets to buy, and under
what terms.
And just like in our Global Bazaar, the smartest gatekeepers know when to open the gates
wide… and when to keep them just a little narrower.
6. Explain the objectives and principles of WTO.
Ans: A Different Kind of Beginning…
Imagine a vast international fair — the kind that stretches across continents. Each country
has its own stall: India is selling textiles and software, Brazil offers coffee and aircraft parts,
Germany displays precision machinery, and Kenya showcases tea and flowers.
But here’s the twist: without a common rulebook, chaos breaks out. Some countries charge
unfair entry fees, others dump cheap goods, and a few block competitors entirely. Disputes
erupt, trust erodes, and trade slows.
That’s when a group of nations gather and say, “Let’s create a system that’s fair,
predictable, and transparent — where everyone plays by the same rules.”
And so, the World Trade Organization (WTO) is born.
What is the WTO?
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The World Trade Organization, established in 1995, is a global institution that oversees the
rules of international trade. It’s not a bank, not a court, and not a government — but it’s a
forum, a referee, and a rulebook rolled into one.
With 164 member countries (as of 2025), it governs over 98% of global trade, making it one
of the most influential economic bodies in the world.
Objectives of the WTO — The Mission Behind the Marketplace
Let’s walk through the WTO’s objectives as if we’re touring its headquarters in Geneva,
where every room represents a goal.
1. Promote Free and Fair Trade
The WTO’s primary mission is to reduce barriers — tariffs, quotas, and unfair restrictions —
so that goods and services can flow freely across borders.
Story lens: Think of it as removing toll booths from the global highway so that trucks
carrying rice, cars, or software can move faster and cheaper.
2. Create a Rule-Based Trading System
The WTO provides a legal and institutional framework for trade agreements. It’s like a
constitution for global commerce — ensuring that countries follow agreed rules and don’t
change them arbitrarily.
Story lens: Imagine a cricket match where the umpire ensures no team changes the rules
mid-game. That’s what WTO does for trade.
3. Settle Trade Disputes Peacefully
When countries disagree — say, over tariffs or subsidies — the WTO offers a structured
dispute resolution mechanism.
Story lens: Instead of shouting across stalls at the global fair, countries can walk into a quiet
room, present their case, and let neutral experts decide.
4. Encourage Economic Growth and Employment
By making trade smoother and more predictable, the WTO helps countries grow their
economies, create jobs, and raise living standards.
Story lens: A small business in Jaipur can now export to Europe with fewer hurdles, creating
jobs locally and earning foreign exchange.
5. Ensure Transparency in Trade Policies
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Members must publish their trade regulations and notify the WTO of any changes. This
builds trust and predictability.
Story lens: It’s like every stall at the fair displaying its price list clearly — no hidden charges,
no surprises.
6. Support Developing and Least-Developed Countries
The WTO provides technical assistance, training, and special provisions to help poorer
nations integrate into the global trading system.
Story lens: It’s like giving smaller stalls better lighting, signage, and marketing support so
they can compete with the big players.
Principles of the WTO — The Golden Rules of Global Trade
Now let’s explore the core principles that guide the WTO’s functioning — the values that
keep the global fair running smoothly.
1. Non-Discrimination
This is the heart of WTO’s philosophy, split into two key ideas:
• Most-Favoured-Nation (MFN): If a country gives a trade benefit to one member, it
must give the same to all.
• National Treatment: Once a product enters a country, it must be treated the same
as domestic products.
Story lens: If India lowers tariffs on Japanese cars, it must offer the same deal to all WTO
members. And once those cars are in India, they must compete fairly with Indian cars.
2. Reciprocity
Trade liberalisation should be mutual — if one country opens its market, others should do
the same.
Story lens: If you remove the fence around your stall, your neighbour should do the same —
otherwise, it’s not fair.
3. Transparency
Countries must clearly communicate their trade policies and changes.
Story lens: No secret rules. Everyone knows what to expect before they trade.
4. Binding and Enforceable Commitments
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Once a country agrees to reduce a tariff or remove a barrier, it’s bound by that
commitment.
Story lens: If you promise to sell your goods at a fixed price, you can’t raise it mid-fair.
5. Safety Valves
While the WTO promotes free trade, it allows exceptions — like protecting public health,
national security, or responding to unfair trade practices.
Story lens: If a country faces a flood of cheap imports that threaten local jobs, it can
temporarily raise tariffs — but only within WTO rules.
6. Special and Differential Treatment
Developing countries get more time, flexibility, and support to implement WTO agreements.
Story lens: A new stall owner gets extra time to set up, lower rent, and training — so they
can eventually compete on equal footing.
Why the WTO Still Matters in 2025
In a world of trade wars, digital disruption, and climate challenges, the WTO remains a vital
anchor.
• It’s the only global body where all countries — big and small — have a voice.
• It’s the referee that prevents trade disputes from turning into economic battles.
• It’s the platform where future rules — on e-commerce, sustainability, and AI-driven
trade — are being shaped.
SECTION-D
7. What do you mean by SEZs? Explain briefly.
Ans: A fresh opening…
It’s late evening in a coastal city. The sun is dipping into the sea, but the port is still alive —
cranes swing, trucks rumble, and warehouses glow with activity. You notice something
unusual: inside a fenced-off area, the rules seem… different. Goods are moving in and out
without the usual customs delays, foreign companies have set up sleek offices, and workers
are speaking in a mix of languages.
You’ve just stepped into a Special Economic Zone — or SEZ — a place inside a country, but
with its own special set of economic rules designed to make trade and investment faster,
easier, and more profitable.
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What Exactly is an SEZ?
In simple terms: A Special Economic Zone is a specifically demarcated area within a country
where businesses enjoy special privileges — such as tax breaks, simpler customs
procedures, and relaxed regulations — to encourage investment, exports, and job creation.
Think of it as a “fast-track lane” in the economy: while the rest of the country follows the
normal speed limit of rules and taxes, SEZs allow certain businesses to zoom ahead with
fewer roadblocks.
The Core Idea
The logic is simple:
• If you make it easier and cheaper for companies to operate, they will invest more.
• If they invest more, they will produce more goods and services.
• If they produce more, they will export more, earn foreign exchange, and create jobs.
So, an SEZ is like a magnet — pulling in both domestic and foreign investors by offering
them a better deal than they’d get outside the zone.
Key Features of SEZs
Let’s walk through an SEZ as if we’re on a guided tour:
1. Customs and Tax Benefits
o Goods coming into the SEZ aren’t charged the usual import duties.
o Companies often get income tax holidays for a certain number of years.
o Exemptions from central excise, service tax, and other indirect taxes.
2. Simplified Procedures
o A “single-window clearance” system — meaning all approvals and paperwork
can be done in one place, instead of running from office to office.
o Faster customs checks and less red tape.
3. Infrastructure
o High-quality roads, power supply, internet connectivity, and logistics
facilities.
o Often located near ports, airports, or major highways for easy export access.
4. Separate Economic Treatment
o Legally, an SEZ is treated almost like a foreign territory for trade operations.
o This means goods entering from outside the country into the SEZ aren’t taxed
like normal imports — until they enter the domestic market.
A Short History in India
India’s SEZ journey began earlier than many realise:
• 1965 – Asia’s first Export Processing Zone (EPZ) was set up in Kandla, Gujarat.
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• 1970s–80s – More EPZs came up in Mumbai, Noida, and other cities.
• 2000 – A formal SEZ policy was announced to attract bigger investments.
• 2005 – The SEZ Act was passed, giving a clear legal framework.
• Today – India has hundreds of approved SEZs, with major hubs in IT, manufacturing,
and multi-product sectors.
Why Countries Create SEZs
Imagine you’re the mayor of a city that wants to attract global companies. You could:
• Offer them cheaper land.
• Promise faster approvals.
• Give them tax breaks.
• Build world-class infrastructure.
That’s exactly what SEZs do — but on a national scale.
Main objectives:
• Boost exports.
• Earn foreign exchange.
• Create jobs.
• Transfer technology and skills.
• Develop infrastructure.
Types of SEZs
Not all SEZs are the same. In India, for example, you’ll find:
• IT/ITeS SEZs – Focused on software, BPO, and tech services.
• Multi-Product SEZs – Large zones with multiple industries (e.g., manufacturing +
services).
• Sector-Specific SEZs – Dedicated to one industry, like textiles, pharmaceuticals, or
electronics.
How SEZs Work in Practice
Let’s say a company from Germany wants to set up a solar panel manufacturing unit in
India:
1. They choose an SEZ near a port for easy export.
2. They import machinery without paying customs duty.
3. They get a 5-year income tax holiday on profits from exports.
4. They hire local workers, train them, and start production.
5. They export panels to Europe, earning foreign exchange for India.
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The company benefits from lower costs and faster operations. The country benefits from
jobs, technology, and export earnings.
The Indian SEZ Snapshot (2025)
• 278 operational SEZs across the country.
• Over 3.19 million jobs created.
• Exports worth $163.69 billion in 2023-24.
• Major export destinations: UAE, USA, UK, Australia, Singapore.
• IT & ITeS dominate, but manufacturing SEZs are growing fast.
Advantages of SEZs
• For Businesses: Lower costs, faster approvals, better infrastructure.
• For the Economy: More exports, more jobs, better infrastructure, technology
transfer.
• For Workers: Employment opportunities, skill development.
Criticisms and Challenges
Of course, SEZs aren’t perfect:
• Some zones remain under-utilised.
• Land acquisition can be controversial.
• Benefits sometimes concentrate in certain states or sectors.
• Global demand fluctuations can hit export-oriented units hard.
A Simple Analogy to Remember
Think of a country’s economy as a big city. SEZs are like special “business parks” inside that
city — with better roads, cheaper rents, and faster permits — designed to attract the best
companies from around the world.
They don’t replace the rest of the city, but they act as high-energy hubs that can power the
whole system.
Final Takeaway
A Special Economic Zone is a carefully designed space where the rules of business are tilted
in favour of speed, efficiency, and profitability — all to attract investment, boost exports,
and create jobs.
In our opening scene, that fenced-off, buzzing port area wasn’t just a random industrial park
— it was a living example of how a country can carve out a small piece of land and turn it
into a global trade magnet.
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8. Discuss in detail measures for promoting foreign investments into and from India.
Ans: A fresh opening…
It’s early morning at Mumbai’s Bandra-Kurla Complex — the financial heart of India. Glass
towers glint in the sun, coffee carts hum with chatter in multiple languages, and in one
corner, a group of suited executives from Tokyo are shaking hands with a young Indian
startup founder.
A few blocks away, in a conference room, another team is on a video call with partners in
Nairobi, finalising an investment in an African solar energy project.
This is the two-way dance of foreign investment:
• Inbound — money, technology, and expertise flowing into India.
• Outbound — Indian capital, brands, and ideas flowing out into the world.
The government’s role? Like a skilled choreographer, it sets the stage, clears the floor, and
ensures the music is right so that both dances happen smoothly. The “steps” in this
choreography are the measures — policies, incentives, and reforms — that make India
attractive for investors coming in, and empower Indian businesses to invest abroad.
Why This Dance Matters
Foreign investment isn’t just about money changing hands. It’s about:
• Technology transfer — bringing in know-how we don’t yet have.
• Job creation — from factories to fintech hubs.
• Market access — opening doors for Indian goods and services abroad.
• Skill development — training workers in global best practices.
• Economic resilience — diversifying sources of growth.
Part I: Measures for Promoting Foreign Investments into India
Let’s walk through the “arrival gate” — where foreign investors step into India.
1. Liberalising the FDI Policy
• Automatic Route Expansion – Many sectors now allow 100% Foreign Direct
Investment without prior government approval (e.g., telecom, insurance
intermediaries, coal mining).
• Higher Sectoral Caps – Defence manufacturing up to 74% under automatic route,
insurance up to 74%, and 100% in certain infrastructure sectors.
• Opening New Frontiers – Gradual liberalisation in space tech, drones, and digital
infrastructure.
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Story lens: Imagine a foreign aerospace company that once needed months of approvals to
invest in India. Now, with relaxed rules, they can set up a satellite assembly unit in
Bengaluru in record time.
2. Tax and Fiscal Incentives
• Corporate Tax Cuts – New manufacturing units pay just 15% corporate tax.
• SEZ Benefits – Export-oriented units in Special Economic Zones enjoy income tax
holidays and duty exemptions.
• Incentives for Sovereign Funds – Tax exemptions for long-term infrastructure
investments.
Story lens: A Singapore-based fund sees India’s renewable energy sector as a goldmine.
With tax breaks and duty exemptions, their solar park project in Rajasthan becomes far
more profitable.
3. Production-Linked Incentive (PLI) Schemes
• Targeted at electronics, pharma, textiles, semiconductors, EVs, and more.
• Rewards companies for increasing domestic production and exports.
Story lens: A South Korean electronics giant expands its smartphone plant in Noida,
knowing every extra phone exported earns them a government incentive.
4. Infrastructure and Logistics Upgrades
• Gati Shakti Master Plan – Integrating roads, rail, ports, and airports to cut logistics
costs.
• Industrial Corridors – Delhi-Mumbai, Chennai-Bengaluru, and others with
plug-and-play facilities.
• Smart Ports – Faster cargo handling and digital customs clearance.
5. Ease of Doing Business Reforms
• Single-Window Clearance – All approvals in one place.
• Decriminalisation of Minor Offences – Reducing compliance fear.
• Digitisation – E-contracts, e-invoicing, AI-driven customs.
6. Legal and Regulatory Stability
• Bilateral Investment Treaties (BITs) – Protecting investor rights.
• Stable Tax Regime – Avoiding retrospective taxation.
Part II: Measures for Promoting Foreign Investments from India
Now, let’s move to the “departure gate” — where Indian companies take their ambitions
abroad.
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1. Liberalised Remittance Scheme (LRS)
• Individuals can remit up to USD 250,000 per year for permitted overseas
investments.
2. Overseas Direct Investment (ODI) Reforms
• Simplified Rules – New ODI framework (2022 onwards) makes it easier for Indian
entities to invest abroad.
• Automatic Route Expansion – More sectors and destinations without prior approval.
Story lens: An Indian pharma company acquires a small biotech firm in Germany without
months of bureaucratic delay.
3. Export Credit and Financing Support
• EXIM Bank Lines of Credit – Financing Indian companies’ overseas projects.
• ECGC – Risk cover for overseas ventures.
4. Trade Agreements and Market Access
• FTAs – With UAE, Australia, and talks with UK, EU, GCC.
• MRAs – Mutual recognition of standards and certifications.
5. Global Branding Support
• India Brand Equity Foundation (IBEF) – Promoting Indian brands abroad.
• Government-backed Trade Delegations – Showcasing Indian products at global
expos.
6. Strategic Resource Investments
• Encouraging Indian firms to acquire mines, oil fields, and tech companies abroad to
secure supply chains.
Recent Push (2025)
• FDI Liberalisation – Further opening in space, defence, and digital sectors.
• BharatTradeNet – AI-driven trade facilitation platform.
• Green Investment Incentives – Tax breaks for renewable energy and clean tech.
The Balancing Act
Promoting inbound and outbound investment is like running a two-way bridge:
• Too many restrictions, and investors won’t cross.
• Too few safeguards, and domestic interests may be harmed.
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India’s strategy is to open the gates wide enough to attract capital, while building the
capacity of domestic firms to compete globally.
A Simple Analogy to Remember
Think of India as a world-class airport:
• Inbound flights bring in tourists (foreign capital), chefs (technology), and business
travellers (expertise).
• Outbound flights carry our own travellers (Indian companies), chefs (innovators),
and entrepreneurs to the world.
The government’s job is to keep the runways smooth, the air traffic well-managed, and the
airport attractive enough that everyone wants to fly through it.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
