IIFT

24 March 2025 08:32

Letter of Credit (LC)

A Letter of Credit (LC) is a financial guarantee issued by a bank on behalf of a buyer, ensuring that the
seller will receive payment upon fulfilling certain conditions. It is widely used in international trade to
minimize risks for both parties by ensuring that payments and goods are exchanged as agreed.

Key Parties Involved

• Applicant (Buyer): The party purchasing goods/services and requesting the LC.
• Issuing Bank: The bank that issues the LC on behalf of the buyer.
• Beneficiary (Seller): The party receiving the payment upon fulfilling LC conditions.
• Advising Bank: A bank in the seller’s country that informs the seller about the LC.
• Confirming Bank (if applicable): A second bank that guarantees payment if the issuing bank defaults.
• Negotiating Bank: The bank that verifies and processes the seller’s documents before forwarding them
to the issuing bank.

How a Letter of Credit Works

→ Buyer and seller agree on a trade transaction and decide to use an LC.
→ The buyer requests their bank (issuing bank) to issue an LC in favour of the seller.
→ The issuing bank sends the LC to the seller’s bank (advising bank).
→ The seller ships the goods and submits required documents (like a bill of lading, invoice, and insurance)
to the advising/negotiating bank.
→ The advising bank verifies and forwards these documents to the issuing bank.
→ If all conditions are met, the issuing bank releases payment to the seller.
→ The buyer repays the issuing bank as per agreed terms.

Pros and Cons of Letter of Credit

✅ Guaranteed Payment: Reduces default risk as the bank ensures payment.
✅ Protection Against Buyer Insolvency: Even if the buyer goes bankrupt, the issuing bank pays.
✅ Expedited Payments: With a sight LC, payment is received quickly upon document verification.
✅ Ensures Compliance: Payment is made only if the seller meets all conditions.
✅ Reduces Political and Currency Risks: Particularly useful in international trade.
❌ High Cost: Banks charge fees, including issuing fees, confirmation fees, and amendment charges.
❌ Complex Documentation: A single error in documents can lead to non-payment.
❌ Time-Consuming Process: Verification and approvals take time.

National Logistics Policy (NLP)

➢ Launched on 17th September 2022 to streamline logistics, reduce costs, and enhance global trade
competitiveness.
➢ India's logistics cost is 13-14% of GDP, significantly higher than China (8%), the US (8%), and European
nations (9-10%). High logistics costs increase product prices, reduce export competitiveness, and slow
economic growth.

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 economic growth.
➢ Aims to reduce logistics costs to 8% of GDP, improve multimodal connectivity, and promote digitization.
➢ Aligns with initiatives like PM Gati Shakti, Make in India, Atmanirbhar Bharat, and Ease of Doing
Business.

The primary goals of NLP are:

✅ Lower Logistics Costs – Reduce inefficiencies to cut costs to global standards (~8% of GDP).
✅ Enhance Efficiency – Minimize transit delays, reduce fuel wastage, and optimize transportation.
✅ Strengthen Multimodal Transport – Shift freight from road (60%) to rail (40-45%) and waterways
(10%).
✅ Boost Digital Integration – Enable real-time tracking, paperless approvals, and data-driven
decision-making.
✅ Improve Sustainability – Encourage green logistics, electric vehicles (EVs), and alternative fuels.
✅ Enhance Global Competitiveness – Reduce export costs and enhance India's share in global trade.

Key Features

Unified Logistics Interface Platform (ULIP) – A single-window platform integrating all transport
ministries for seamless operations.
Increase in Rail Freight Share – Targeting 40-45% freight transport via rail (currently ~30%) to
reduce costs.
–

Warehouse & Cold Storage Standardization – Establishing uniform standards to reduce losses and
improve storage efficiency.
Logistics Skill Development – Training programs to equip workers with supply chain management
expertise.

Expected Benefits of NLP

✅ Cost Reduction – Lower supply chain costs, boosting exports and reducing product prices.
✅ Attracting Investments – Increased private sector participation in warehousing, transport, and
logistics tech.
✅ Shift to Rail & Water Transport – Reducing dependence on road transport, cutting fuel consumption
and emissions.
✅ Promotion of Green Logistics – Encouraging electric trucks, green hydrogen, and battery-operated
logistics vehicles.
✅ Job Creation – New opportunities in logistics, warehousing, supply chain management, and
transport.

Challenges & The Way Forward

❌ State-Level Regulatory Bottlenecks – Need for uniform logistics policies across states.
❌ High Road Transport Dependence – Need to boost rail and water freight share.
❌ Land Acquisition Delays – Fast-tracking land approvals for logistics hubs and freight corridors.
–
–
.

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Foreign Trade Policy (FTP) of India
1. Introduction
• India’s Foreign Trade Policy (FTP) 2023 was launched on March 31, 2023, replacing FTP 2015-20.
• Aims to boost exports, ease trade regulations, and integrate India into global supply chains.
• Focuses on flexibility, automation, and sector-specific incentives to enhance trade
competitiveness.
• Unlike previous 5-year policies, FTP 2023 follows a dynamic approach, allowing continuous
updates based on global trends.

2. Objectives of FTP 2023

✅ Achieve $2 Trillion Exports by 2030 – $1 trillion in goods & $1 trillion in services.
✅ Enhance Ease of Doing Business – Reduce paperwork, enable online approvals, and fast-track
processes.
✅ Boost MSME & E-Commerce Exports – Promote small businesses in global markets.
✅ Strengthen Rupee-Based Trade – Reduce dependence on US dollar transactions.
✅ Develop New Trade Corridors – Expand exports to Africa, Latin America, and emerging markets.

3. Key Features of FTP 2023

A. Trade Facilitation & Digital Reforms
Paperless & Automated Approvals – Exporters can process applications online, reducing compliance
burdens.
E-Certificate of Origin – Simplifies documentation for exporters.
Online Export Benefits Transfer – Faster duty reimbursements and incentives.
Towns of Export Excellence (TEE) – Four new towns (Faridabad, Moradabad, Mirzapur, Varanasi)
added to boost regional exports.
B. Export Promotion & Incentives
–

Districts as Export Hubs (DEH) – Promotes local industry specialization to enhance exports from
smaller districts.
Special Focus on E-Commerce Exports – New framework for fast-tracking e-commerce shipments.
Reduced Bank Guarantees for Exporters – Easing capital flow for exporters under the Advance
Authorization scheme.
C. Sector-Specific Focus Areas
EVs, Green Hydrogen, & Semiconductor Exports – Incentives for sustainable industries.
–
E-Commerce – Simplified rules for small exporters & integration with international platforms like
Amazon, Alibaba.

4. Current Affairs & Global Trade Developments

Record High Exports in FY 2023-24 – ’ $775 billion despite global
slowdown.
Rupee Trade Agreements – Russia, UAE, and other nations exploring trade settlements in INR.
India-GCC Trade Talks – Ongoing FTA negotiations with Gulf nations to expand exports.
WTO Compliance Adjustments – Phasing out export subsidies to align with global trade norms.
PLI Scheme Impact – Production-Linked Incentive (PLI) schemes boosting electronics, pharma, and
textile exports.

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5. Challenges & The Way Forward
❌ Global Trade Uncertainties – Recession fears, geopolitical tensions (Russia-Ukraine, China-Taiwan)
affecting exports.
❌ Supply Chain Disruptions – Need for alternative sourcing & resilient supply chains.
❌ WTO Restrictions on Subsidies – Export-linked incentives under scrutiny; need for WTO-compliant
policies.
–

–
–

6. Conclusion
India’s Foreign Trade Policy 2023 is a strategic, flexible, and digital-first approach aimed at making
India a top global exporter. With a focus on ease of doing business, e-commerce, sustainability, and
rupee-based trade, FTP 2023 is designed to adapt to evolving global challenges. However, success
depends on resolving supply chain bottlenecks, negotiating FTAs, and enhancing logistics efficiency to
make Indian exports truly competitive worldwide.

U.S. Trade Policy

The U.S. trade policy in 2025 is shaped by a mix of protectionism, national security concerns, and
strategic diplomacy. While tariffs remain a primary tool, there are also efforts to negotiate trade
agreements and stabilize economic relations with key partners.

1. "Fair and Reciprocal" Trade Policy

• Introduced by President Trump in February 2025 to counter trade imbalances.
• Higher tariffs on imports from countries with high barriers against U.S. goods.
• Key targets: China, EU, Mexico, focusing on steel, automobiles, and consumer electronics.
Recent Development:
• In March 2025, the U.S. imposed a 35% tariff on European steel due to EU subsidies.
• Further hikes on Chinese solar panels are under consideration.

2. Trade Policy for National Security

• Export controls on AI chips, 5G, and quantum computing to limit access for China and Russia.
• Foreign investment scrutiny expanded to prevent hostile takeovers in strategic industries.
Recent Development:
• The U.S. blocked a Chinese firm from acquiring a Texas-based AI startup, citing security risks.

3. U.S.-India Trade Agreement (April 2025 Deadline)

• Ongoing negotiations to avoid U.S. tariffs on Indian exports (textiles, pharma, IT services).
• Key issues: Tariff reduction, market access for U.S. goods, and investment regulations.
Recent Development:
• A successful deal could become a blueprint for U.S. trade agreements with emerging economies.

4. U.S.-China Trade Relations – Possible Reset?

• Despite tensions, there are signals of diplomatic engagement.
• A mid-2025 meeting between Trump and Xi Jinping could lead to partial tariff rollbacks if China
increases U.S. imports.

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 increases U.S. imports.
Recent Development:
• The U.S. eased restrictions on some Chinese auto parts, indicating a more flexible stance.

5. Domestic Trade Reforms & Industrial Policy

• Tax incentives for U.S. semiconductor and EV battery production to reduce reliance on Asia.
• Efforts to lower trade and fiscal deficits through spending cuts and boosting local industries.
Recent Development:
• The "Made in America Act 2025" provides tax breaks for companies reshoring manufacturing.

The overall approach remains protectionist but with room for selective trade diplomacy. While the
U.S. continues to push tariffs and restrictions, there are signs of pragmatic negotiations with India and
China to stabilize global trade.

Trade Barriers
1. Introduction
• Trade barriers are restrictions imposed by governments to regulate international trade.
• They can be tariff-based (taxes on imports/exports) or non-tariff-based (quotas, licensing,
standards, etc.).
• Used to protect domestic industries, ensure fair trade, and regulate foreign competition.
• However, excessive trade barriers can increase costs, reduce market access, and trigger trade
disputes.

2. Tariff Barriers (TBs) – Taxes on Trade

Definition: Tariffs are customs duties imposed on imports or exports to make foreign goods expensive
and protect local industries.
✅ Types of Tariffs:
1. Import Tariffs – Taxes on imported goods (e.g., India’s 40% tariff on dairy imports to protect
domestic farmers).
2. Export Tariffs – Taxes on exported goods (e.g., Indonesia’s 2022 palm oil export tax to control
domestic supply).
3. Specific Tariffs – Fixed tax per unit (e.g., $10 per smartphone imported).
4. Ad Valorem Tariffs – Percentage-based tax (e.g., India’s 150% tariff on imported liquor).
5. Protective Tariffs – High duties to shield local industries (e.g., US tariffs on Chinese steel).
Current Affairs Related to Tariffs (2024):
• India increased import tariffs on electronics (smartphones, semiconductors) to boost ‘Make in
India’.
• US imposed 100% tariffs on Chinese EVs, batteries, and chips to counter China’s subsidies.
• UK removed tariffs on Indian rice to secure stable food imports.
• India-EU FTA negotiations: EU pushing for tariff reduction on wine, dairy, and automobiles.

3. Non-Tariff Barriers (NTBs) – Trade Restrictions Without Taxes

Definition: NTBs are rules, regulations, or policies that restrict imports or exports indirectly.
✅ Types of NTBs:
1. Quotas – Limits on the number of imports (e.g., India’s sugar export quota to control domestic
prices).
2. Import Licensing – Special permissions required (e.g., India’s licensing system for laptop imports
to boost domestic production).
3. Subsidies – Government support to domestic producers (e.g., India’s PLI scheme for electronics,
semiconductors).

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 semiconductors).
4. Sanitary & Phytosanitary Measures (SPS) – Health & safety standards for imports (e.g., EU
banning Indian mangoes in 2014 due to fruit flies).
5. Technical Barriers (TBTs) – Strict standards for products (e.g., ’
Indian spices exports).
6. Anti-Dumping Measures – Tariffs on goods sold below cost (e.g., India imposing anti-dumping
duty on Chinese tires).
7. Currency Manipulation – Countries artificially lowering their currency to boost exports (e.g., China
accused of devaluing Yuan to make exports cheaper).
Current Affairs Related to Non-Tariff Barriers (2024):
• 2023 ‘
’.
• EU imposed carbon tax (CBAM) on steel, aluminium imports from India to promote green
production.
• India banned Chinese telecom equipment (Huawei, ZTE) due to security concerns.
• Saudi Arabia imposed halal certification rules for imported meat, affecting Indian exporters.

4. Impact of Trade Barriers

Positive Effects:
✅ Protects Domestic Industries – Shields local businesses from foreign competition.
✅ Encourages Local Manufacturing – Helps in industrial growth (e.g., PLI scheme in India).
✅ Regulates Quality & Safety – Ensures high product standards for consumers.
✅ Strengthens National Security – Controls imports of sensitive tech & defense equipment.
Negative Effects:
❌ Increases Product Costs – Higher import tariffs mean expensive consumer goods.
❌ Reduces Global Trade & Growth – Leads to trade wars & economic slowdowns.
❌ Invites Retaliation – Countries impose counter-tariffs (e.g., China-US trade war).
❌ Hurts Exporters – Limited market access for local businesses.

5. W ’ 2024
US-China Trade War – Tariffs on EVs, batteries, semiconductors increased tensions.
EU Carbon Border Adjustment Mechanism (CBAM) – ’ ‘ ’
steel imports.
India-UK FTA Talks – India resisting UK demands to cut liquor & automobile tariffs.
’ – Tesla seeking tariff cuts, while India wants local production first.
Ban on Chinese Goods – India restricted imports on telecom, solar panels, and pharma ingredients
from China.

6. Conclusion & The Way Forward

’ protecting domestic industries while ensuring global competitiveness.
While tariffs & non-tariff measures support ‘ ’ ‘ ’, excessive
restrictions can harm consumer choice, trade growth, and diplomatic ties. Moving forward, India must:

W
Trade barriers are necessary but should be used strategically to ensure economic growth, fair trade,
and sustainable global integration.

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U.S. Tariff Policy
1. Introduction
Tariffs are taxes imposed on imported goods to regulate trade, protect domestic industries, and
generate government revenue. The United States has historically used tariffs as an economic and
geopolitical tool to address trade imbalances, counter perceived unfair trade practices, and strengthen
domestic manufacturing. Recent developments in U.S. tariff policy reflect an aggressive approach
toward reducing dependence on foreign imports, particularly from key trade partners like China,
Canada, and Mexico.

2. Recent Tariff Announcements (2025)

In February 2025, the U.S. government announced a series of tariff hikes, impacting multiple trade
partners and industries:
• Higher Tariffs on Canada and Mexico
○ 25% tariff imposed on all goods imported from Canada and Mexico, effective February 4,
2025.
○ Justification: Address perceived trade imbalances and encourage domestic production.
○ Impact: Higher costs for U.S. consumers and manufacturers reliant on North American supply
chains.
• Tariff Increase on Chinese Imports
○ A 10% tariff imposed on all Chinese imports across various industries.
○ Targeted areas: Electronics, machinery, steel, and consumer goods.
○ Part of a broader strategy to reduce dependence on Chinese manufacturing and
counterbalance China’s trade surplus with the U.S.
• Sector-Specific Tariffs on Strategic Industries
○ Automobile Industry
▪ Higher tariffs on imported luxury electric vehicles (EVs) to promote U.S.-based EV
production.
▪ Increased duties on auto parts from China, Japan, and Germany, affecting global supply
chains.
○ Semiconductor & Tech Industry
▪ Additional tariffs on microchips and electronic components to support the U.S.
semiconductor industry.
▪ Tied to the U.S. CHIPS Act, aimed at boosting domestic chip manufacturing.
○ Pharmaceutical & Medical Supplies
▪ New tariffs on generic drugs and medical equipment imports, particularly from China
and India.

3. Impact on Global Trade & Domestic Markets

A. U.S. Economy & Domestic Industries

✔ Short-term benefits
• Boost for U.S. manufacturing in targeted sectors.
• Increased government revenue from tariffs.
✔ Potential long-term challenges
• Higher costs for businesses relying on imported raw materials and components.
• Risk of inflation due to increased consumer prices.

B. Impact on U.S. Consumers

❌ Higher prices on imported electronics, vehicles, household goods, and essential medicines.
❌ Increased production costs for automakers, tech companies, and pharmaceutical firms.

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❌ Increased production costs for automakers, tech companies, and pharmaceutical firms.
✔ Possible job creation in domestic manufacturing sectors.

C. Global Trade Disruptions & Retaliatory Tariffs

China's Response – Potential retaliatory tariffs on U.S. agricultural products, rare earth metals, and
high-tech exports.
’ – Likely to increase tariffs on U.S. agricultural and industrial
goods, affecting U.S. farmers.
EU & WTO Reactions – The European Union may file disputes at the World Trade Organization
(WTO), challenging the legality of broad-based U.S. tariffs.

4. International Trade Negotiations & Shifting Alliances

• ’ . .
○ India is actively negotiating a limited trade agreement with the U.S. to prevent its key
exports from facing increased tariffs.
○ Sectors under discussion: IT services, pharmaceuticals, and textiles.
• ’ . .
○ Expanding trade ties with Russia, Africa, and Latin America to offset losses from U.S. tariffs.
○ Offering subsidies to Chinese manufacturers to remain competitive in the U.S. market.
• ’
○ Possible alignment with Canada and Mexico to challenge the tariffs at WTO.
○ Increased focus on self-reliance in semiconductors, EVs, and green energy technology.

5. Long-Term Implications & Challenges

✅ Reshoring of U.S. Industries – Encourages investment in domestic manufacturing, particularly in
semiconductors, EVs, and defense-related sectors.
✅ Boost to U.S. Employment – More incentives for local production, increasing job opportunities in
automotive, steel, and electronics.
❌ Risk of Trade War – If major economies impose retaliatory tariffs, global trade tensions could
escalate, affecting economic growth.
❌ Inflationary Pressures – Higher import costs may lead to rising prices across essential goods and
services, impacting American households.
❌ Supply Chain Disruptions – Businesses may face challenges in sourcing critical raw materials and
components, leading to delays and inefficiencies.

6. Conclusion
The latest U.S. tariff measures reflect a strategic push to strengthen domestic industries and reduce
reliance on foreign imports, particularly from China, Canada, and Mexico. While these policies may
benefit certain sectors, they also pose significant risks, including trade retaliation, inflation, and supply
chain disruptions. The coming months will reveal whether these tariffs achieve economic security or
escalate global trade tensions, with potential long-term impacts on the U.S. economy and international
trade relations.

Free Trade Agreement (FTA)

1. What is a Free Trade Agreement (FTA)?
A Free Trade Agreement (FTA) is a pact between two or more countries to reduce or eliminate trade
barriers like tariffs, import quotas, and other restrictions on goods and services. FTAs aim to promote
seamless trade, economic growth, and market integration by ensuring fair and open competition
between nations.

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 2. Key Features of FTAs
• Tariff Reduction/Elimination – Lower or remove customs duties on imports and exports.
• Market Access – Increased access to foreign markets for goods, services, and investments.
• Rules of Origin – Guidelines that ensure only products from member countries benefit from lower
tariffs.
• Intellectual Property Protection – Safeguards for patents, copyrights, and trademarks across
borders.
• Investment Protections – Guarantees fair treatment for foreign investors.

3. Importance of FTAs
✅ Boosts Trade and Economic Growth – Encourages cross-border business and industrial
collaboration.
✅ Attracts Foreign Investment – Provides stability and legal protections for investors.
✅ Enhances Competitiveness – Enables domestic industries to integrate into global value chains.
✅ Promotes Job Creation – Expands economic opportunities by increasing exports and investments.
✅ Strengthens Diplomatic Ties – Encourages strategic partnerships between countries.

4. Recent Developments in FTAs (2024–2025)

➢ India-UK Free Trade Agreement (Under Negotiation)
• India and the UK have been negotiating a comprehensive Free Trade Agreement (FTA) for the past few
years. The deal aims to increase bilateral trade beyond $100 billion, with a strong focus on sectors such as
IT, pharmaceuticals, textiles, and automobiles.
• Key sticking points include tariff reductions on whiskey, automobiles, and agricultural products, as well as
issues related to services trade and easier mobility for Indian professionals in the UK.
• Both sides are optimistic about concluding the deal in 2025, but political and regulatory concerns remain.
➢ India-EU Trade & Investment Agreement (Under Negotiation)
• The India-EU FTA negotiations resumed in 2022 after being stalled for nearly a decade. The European
Union is India's third-largest trading partner, and an FTA is expected to increase trade volumes and
investment flows significantly.
• The discussions focus on reducing tariffs on industrial goods, simplifying agricultural trade regulations,
and establishing digital trade rules.
• A major challenge is India's high tariffs on European cars and wine, while India seeks greater access for its
professionals in EU countries.
➢ Indo-Pacific Economic Framework (IPEF) Agreement (Ongoing)
• The Indo-Pacific Economic Framework (IPEF) is a U.S.-led trade initiative involving 14 countries, including
India, Japan, Australia, and South Korea.
• Unlike traditional FTAs, IPEF does not focus on tariff reductions but rather aims to strengthen supply chain
resilience, promote clean energy adoption, and tackle corruption.
• India opted out of the trade pillar of IPEF, citing concerns over unfavorable digital trade and labor
standards, but remains engaged in discussions on supply chain resilience and infrastructure cooperation.
➢ US-China Trade Relations (Ongoing Tensions)
• The U.S. and China remain locked in a trade dispute, with the Biden administration recently imposing fresh
tariffs on Chinese imports, including electric vehicles (EVs), semiconductors, and solar panels.
• The tariffs are part of a broader strategy to protect American industries from an influx of cheaper Chinese
goods, especially in the high-tech sector.
• China has responded with retaliatory measures, imposing trade restrictions on U.S. agricultural products
and rare earth materials. The tensions raise concerns over global supply chains and economic stability.
➢ RCEP (Regional Comprehensive Economic Partnership) Progress
• RCEP is the ’ , covering ASEAN nations, China, Japan, South Korea,
Australia, and New Zealand. It focuses on tariff reductions, uniform trade rules, and enhanced regional
supply chains.
• Despite RCEP's expansion, India has chosen to stay out, fearing a surge in Chinese imports that could harm
domestic industries.
• However, RCEP continues to deepen economic integration in Asia, benefiting export-driven economies like

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 • However, RCEP continues to deepen economic integration in Asia, benefiting export-driven economies like
Vietnam and Malaysia. Some experts believe India may reconsider joining in the future if the terms
become more favourable

5. Challenges & Criticism of FTAs

❌ Job Loss in Some Sectors – Certain industries face job cuts due to increased foreign competition.
❌ Dependency on Foreign Goods – Could weaken local industries if domestic companies cannot
compete.
❌ Loss of Tariff Revenue – Governments may face reduced income from import duties.
❌ Disputes & Trade Imbalances – Countries may experience deficits or policy disputes.

6. Conclusion
Free Trade Agreements play a crucial role in shaping global commerce, fostering economic
interdependence while posing challenges for certain industries. As nations negotiate new trade deals
and adjust to shifting geopolitical landscapes, the future of FTAs will depend on balanced policies that
ensure both economic benefits and domestic industry protection.

PORTS
India has 12 major ports and over 200 minor ports, but these six are the most strategically and
economically significant:

1. Jawaharlal Nehru Port (Nhava Sheva) – Maharashtra

• Location: Near Mumbai, Maharashtra
• Significance:
○ Largest container port in India, handling over 50% of the country's total containerized cargo.
○ Key hub for trade with Europe, the Middle East, and Asia.
○ Supports automobile exports, especially for companies like Maruti Suzuki and Tata Motors.

2. Mumbai Port – Maharashtra

• Location: Mumbai, Maharashtra
• Significance:
○ One of India's oldest and busiest ports.
○ Handles general cargo, petroleum products, and chemicals.
○ Supports industries in Maharashtra, Gujarat, and Madhya Pradesh.

3. Kandla Port (Deendayal Port) – Gujarat

• Location: Gulf of Kutch, Gujarat
• Significance:
○ Largest port by cargo volume (handling dry cargo, crude oil, and chemicals).
○ Major gateway for oil imports and exports, serving northern and western India.
○ Crucial for trade with Middle Eastern and African countries.

4. Visakhapatnam Port – Andhra Pradesh

• Location: Visakhapatnam, Andhra Pradesh
• Significance:
○ Deepest natural port in India.
○ Handles coal, iron ore, and petroleum.
○ Key port for defense and naval activities in the eastern region.

5. Chennai Port – Tamil Nadu

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5. Chennai Port – Tamil Nadu
• Location: Chennai, Tamil Nadu
• Significance:
○ Second-largest container port in India.
○ Major hub for automobile exports (Hyundai, Nissan, Ford).
○ Supports trade with Southeast Asia and East Asia.

6. Paradip Port – Odisha

• Location: Paradip, Odisha
• Significance:
○ Specializes in coal, iron ore, and crude oil exports.
○ Important for steel and energy industries, particularly for Odisha, Chhattisgarh, and
Jharkhand.
○ Strategically located near mineral-rich regions.

1. What is the Red Sea Crisis?

The Red Sea crisis refers to the ongoing attacks on commercial vessels by Houthi rebels in the Bab-el-
Mandeb Strait, a crucial chokepoint connecting the Red Sea and the Gulf of Aden. These attacks, initially
targeting ships linked to Israel and its allies, have now expanded to neutral vessels, forcing global
shipping firms to reroute their vessels, increasing transit times and costs.
This crisis is disrupting global supply chains, affecting oil prices, and posing serious challenges for
countries heavily reliant on maritime trade—including India.

2. Why is the Red Sea Important for India?

The Red Sea is critical for India because it serves as a gateway to Europe and North America, handling a
significant portion of India’s exports and imports.
Key Trade Statistics:
• 12% of global trade flows through the Suez Canal, which is accessed via the Red Sea.
• 30% of India’s total trade passes through this route.
• 80% of India’s crude oil imports come from the Middle East, much of it via the Red Sea.
India’s Key Trade Dependence on This Route:
• Exports: Petroleum products, textiles, pharmaceuticals, automobiles.
• Imports: Crude oil, electronics, machinery, chemicals.
Any disruption in this region has direct economic consequences for India, impacting trade volumes, fuel
prices, and supply chain stability.

3. How is the Red Sea Crisis Affecting India?

A. Trade Disruptions & Higher Costs
• Shipping companies are avoiding the Suez Canal and taking the longer Cape of Good Hope route
(via Africa), adding 7–14 extra days to shipments.
• Freight rates and insurance costs have surged, making Indian exports less competitive.
• Port congestion and supply delays are impacting businesses relying on global supply chains.
Industries Most Affected:
○ Textiles & Apparel: India exports large volumes to Europe; delays and higher costs are hitting
margins.
○ Pharmaceuticals: India is a major supplier of generic drugs, but increased shipping costs and
longer delivery times are affecting global clients.
Automobiles: Car manufacturers rely on just-in-time supply chains; disruptions in imported

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 ○ Automobiles: Car manufacturers rely on just-in-time supply chains; disruptions in imported
components are slowing production.
○ Electronics & Machinery: Many components come from China, Germany, and South Korea;
delays are raising production costs in India.
B. Rising Oil Prices & Inflation Risks
• India imports over 80% of its crude oil, much of it transported through the Red Sea and the Suez
Canal.
• The crisis is triggering global oil price fluctuations, which could lead to:
○ Higher fuel and transportation costs for Indian businesses.
○ Increased inflation, impacting consumer goods prices.
○ Pressure on the ’ , possibly increasing subsidies.
C. Security & Geopolitical Risks
• The Indian Navy launched Operation Sankalp to escort Indian merchant ships and ensure
maritime security.
• India is engaging diplomatically with the US, EU, and Gulf nations to stabilize the region.
• If the crisis escalates, India may need to diversify energy sources and trade routes to reduce
dependence on this corridor.

4. ’ j
A. Suez Canal Route (Most Affected)
• Path: India → A → → zC →E &U
• Why It Matters: ’ EU, UK, and North
America.
• Current Status: Severely disrupted due to Houthi attacks, forcing rerouting.
B. Cape of Good Hope Route (Alternative, But Costly)
• Path: India → A →A A →E &U
• Why It Matters: Current alternative to the Suez route.
• Challenges: Adds 7–14 extra days, increases fuel and insurance costs, reduces trade efficiency.
C. Strait of Hormuz Route (Oil Trade Route - Indirectly Affected)
• Path: Middle East → A →
• Why It Matters: K ’
• Current Status: Still operational, but tensions in the Gulf could pose risks.
D. Malacca Strait Route (Unaffected, But Increasing in Importance)
• Path: China, Japan, ASEAN → B B →
• Why It Matters: Key route for India’s trade with East Asia.
• Current Status: Not affected but may see increased traffic as companies explore alternative trade
corridors.

5. How is India Responding?

A. Maritime Security & Diplomatic Efforts
• Operation Sankalp: The Indian Navy is escorting merchant ships to ensure safe passage.
• Engagement with Global Powers: India is actively discussing solutions with the US, UK, Gulf
nations, and the EU.
• Regional Stability Initiatives: India supports a rules-based maritime order in collaboration with
international bodies.
B. Exploring Alternative Trade Routes
• International North-South Transport Corridor (INSTC):
○ India → → ( )
○ Reduces reliance on the Suez Canal.
• Direct shipping agreements with alternative ports in Africa, Europe, and the Middle East.
C. Managing Economic Impact
• Increasing strategic oil reserves to counter price shocks.
• Government support for exporters to offset rising logistics costs.

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 • Government support for exporters to offset rising logistics costs.
• Encouraging investment in domestic energy production to reduce import dependency.

6. Conclusion
The ’ , especially exports to Europe and North America
and crude oil imports from the Middle East. While rerouting via the Cape of Good Hope provides an
alternative, it is significantly costlier and slower.
India is responding with strong naval security measures, diplomatic engagement, and trade
diversification efforts. However, long-term solutions require greater energy self-sufficiency,
infrastructure investments, and alternative trade corridors to minimize dependence on high-risk
maritime routes.

BRICS
BRICS is an acronym for Brazil, Russia, India, China, and South Africa. It's an informal grouping of
countries that work together to promote economic cooperation, security, and development.

Brazil, Russia, India, China and South Africa (BRICS)

Added Later = Egypt, Ethiopia, Indonesia, Iran, Indonesia and the United Arab Emirates

Total = 11

Expansion of BRICS

1. Introduction to BRICS Expansion

• BRICS (Brazil, Russia, India, China, South Africa) expanded in August 2023 by adding six new
members: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and UAE.
• This move aims to enhance the bloc’s geopolitical and economic influence.
2. Strategic and Economic Implications
• Diversification of Global Influence: Expansion challenges the Western-dominated global financial
order (IMF, World Bank).
• Energy Security: Addition of Saudi Arabia, UAE, and Iran strengthens BRICS’ control over global oil
supply.
• Trade and Investment Boost: New members enhance intra-BRICS trade and investment
opportunities.
• Global South Representation: Strengthens BRICS’ position as a voice for developing economies.
3. Challenges in Expansion
• Internal Differences: Varied political and economic systems among new and existing members
may create coordination issues.
• Geopolitical Rivalries: China-India tensions and conflicting interests of new members may hinder
decision-making.
• Institutional Structure: BRICS lacks a formal framework like the EU, making cohesive action
difficult.
4. India's Perspective on Expansion
• Diplomatic Balancing: India supports BRICS expansion while maintaining ties with the West.
• Economic Opportunities: Strengthens India’s trade partnerships, particularly with energy-rich
nations.
• Strategic Concerns: Growing Chinese influence in BRICS could impact India's positioning.
5. Conclusion
• BRICS expansion is a strategic shift in global geopolitics, providing opportunities and challenges.
• Success depends on economic cooperation, political alignment, and institutional strengthening.
IIFT Specific (Nikk) Page 13
 • Success depends on economic cooperation, political alignment, and institutional strengthening.

Trump vs BRICS: Threats, Tariffs & De-Dollarisation

1. Trump's Warning to BRICS:

○ Former U.S. President Donald Trump has threatened to impose 100% tariffs on BRICS nations
(Brazil, Russia, India, China, and South Africa) if they attempt to introduce a new currency
that could challenge the U.S. dollar's dominance as the global reserve currency.
○ This reflects concerns in the U.S. over de-dollarisation, a process where countries reduce
their dependence on the dollar for trade and financial transactions.
2. Concept of Dollarisation:
○ Definition: Dollarisation refers to the use of the U.S. dollar by a country instead of or
alongside its local currency.
○ Why it Happens: Some countries adopt the U.S. dollar to stabilize their economies, especially
in cases of high inflation, currency depreciation, or financial crises.
○ Types of Dollarisation:
▪ Complete Dollarisation: The foreign currency (e.g., U.S. dollar) fully replaces the local
currency as legal tender.
▪ Partial Dollarisation: Both the foreign currency and local currency coexist in the
economy.
▪ Official Dollarisation: The government formally adopts a foreign currency.
▪ Unofficial Dollarisation: Citizens informally hold savings in foreign currency to protect
wealth from inflation.
3. Reasons for Dollarisation:
○ Countries adopt the U.S. dollar for:
▪ Stability: It helps control hyperinflation and economic volatility.
▪ Foreign Investment: A stable currency attracts more global capital.
▪ Trade Benefits: Since most international trade is settled in U.S. dollars, using it
simplifies transactions.
▪ Crisis Management: In economic downturns, dollarisation can help prevent financial
collapses.
4. Advantages & Disadvantages of Dollarisation:
○ Advantages:
▪ Eliminates currency risk: Reduces fluctuations and prevents devaluation.
▪ Encourages investment: Foreign investors prefer economies with stable currencies.
▪ Reduces transaction costs: No need for currency conversion in trade.
○ Disadvantages:
▪ Loss of monetary control: The country cannot control its own interest rates or print
money.
▪ Dependence on U.S. policies: The country's economy becomes highly influenced by
U.S. economic decisions.

Importance of BRICS for India

1. Economic & Trade Expansion – BRICS contributes significantly to global GDP and trade, offering
India access to large markets, investments, and economic diversification.
2. Geopolitical Leverage – ’
counterbalance Western dominance and assert influence in multilateral institutions.
3. Financial & Infrastructure Development – The New Development Bank (NDB) funds key Indian
infrastructure projects, reducing dependency on Western financial systems.
4. Energy & Technology Collaboration – Partnership with BRICS nations enhances India's energy

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 4. Energy & Technology Collaboration – Partnership with BRICS nations enhances India's energy
security, technology exchange, and innovation in areas like AI, space research, and digital
economy.

QUAD
• Definition & Members
• The Quadrilateral Security Dialogue (Quad) is a strategic forum consisting of India, the US, Japan,
and Australia.
• It aims to ensure a free, open, and rules-based Indo-Pacific C ’
in the region.
• Objectives & Key Focus Areas
• Security & Defense Cooperation: Strengthening military ties, conducting joint naval exercises
(e.g., Malabar Exercise), and enhancing maritime security.
• Economic & Trade Partnerships: Building resilient supply chains for semiconductors, critical
minerals, and emerging technologies like 5G & AI.
• Maritime Security & Freedom of Navigation: Ensuring the Indo-Pacific remains open for trade and
free from Chinese territorial aggression.
• Technological Collaboration: Partnerships in cybersecurity, artificial intelligence, and quantum
computing.
• Infrastructure Development: Q ’ (Partnership for Global Infrastructure and
) C ’ Belt and Road Initiative (BRI).
• Climate Change & Sustainability: Investments in clean energy, green shipping, and carbon-neutral
technologies.
• Public Health & Vaccine Diplomacy: Quad Vaccine Partnership (2021) to provide 1 billion
COVID-19 vaccine doses to developing nations.
• Strategic Importance for India
• ’ : ’ naval and economic presence in the Indian
Ocean Region.
• Defense & Security Boost: Access to advanced military technologies and intelligence sharing.
• Economic Growth & Investment: Greater trade, investment, and technology transfer from Quad
nations.
• Diplomatic Leverage: ’ z
G20, BRICS, and UNSC.
• Challenges & Criticism
• ’ : China views Quad as an attempt to contain its rise and has called it an “
.”
• Lack of Formal Structure: Quad is not a military alliance like NATO and lacks binding
commitments among members.
• Diverging National Interests: Each member has different priorities; India maintains strategic
autonomy, while the US has a more aggressive stance against China.
• Concerns from ASEAN & Other Nations: Southeast Asian countries fear Quad might undermine
regional groupings like ASEAN.
• Economic Implications for Global & Indian Businesses
• Supply Chain Diversification: Quad nations aim to reduce dependency on China by developing
alternative supply chains.
• Investment & Trade Opportunities: Increased focus on infrastructure, digital economy, and
sustainable development in Indo-Pacific nations.
• Business Risk Management: Companies must align strategies with geopolitical shifts, particularly
in sectors like technology, defence, and logistics.

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Russia-Ukraine Conflict
Why in News?
• Ongoing War: The conflict, which began in February 2022, continues with escalating military
engagements.
• Western Aid & Sanctions: The US, EU, and NATO nations increase military aid to Ukraine while
tightening sanctions on Russia.
• Geopolitical Shifts: The war has reshaped global alliances, strengthening NATO and straining
’ W .
• Energy & Food Crisis: Disruptions in oil, gas, and grain exports impact global supply chains and
inflation.
• Peace Talks & Stalemate: Diplomatic negotiations remain stalled, with both sides unwilling to
compromise on territorial claims.
Background
• Ukraine and Russia share deep historical, cultural, and familial ties, making their relationship an
emotional and political issue.
• Ukraine was the second-most powerful Soviet republic, crucial for Russia strategically,
economically, and culturally.
Causes of Conflict
• Geopolitical Influence: Post-Soviet split, both Russia and the West compete for influence in
Ukraine to maintain the regional balance of power.
• Buffer Zone: The US and EU see Ukraine as a buffer against Russian expansion and aim to keep it
away from Russian control.
• Black Sea Strategy: Russia values the Black Sea for its strategic military positioning, trade routes,
and energy transit.
Major Events
1. Euromaidan Protests (2013-14): Protests erupted after Ukraine suspended an EU agreement in
favor of closer ties with Russia.
2. Donbass Separatist Movement (2014-Present): Pro-Russian separatists, allegedly backed by
Russia, fight against the Ukrainian government in Donetsk and Luhansk.
3. Crimea Annexation (2014): Russia annexed Crimea, gaining strategic maritime control, marking the
first European land grab since WWII.
4. NATO Expansion Tensions: Ukraine seeks NATO membership, but Russia sees this as a "red line,"
fearing US-led military presence on its borders.
5. Black Sea Flashpoint: With NATO-aligned states bordering the Black Sea, it remains a zone of
strategic and military tensions.
Current Situation
1. Geopolitical Developments
• US-Russia Talks: President Trump initiated direct peace negotiations with Russia, side-lining
Ukraine and Europe.
• European Concerns: EU nations fear exclusion from talks, stressing the need for a comprehensive
approach.
2. Military Situation
• Russian Advances: Russia has made significant territorial gains, intensifying humanitarian crises.
• Ukrainian Resistance: Ukraine continues to defend key areas, including Kharkiv.
3. International Relations & Strategic Implications
• NATO Stance: The US is hesitant about Ukraine’s NATO membership, urging Europe to take more
responsibility.
• Western Strategy Risks: Analysts warn that engaging Russia without securing concessions could
embolden its aggression.
4. Possible Outcomes
• Military Defeat or Ceasefire: Scenarios range from Ukraine losing ground to a temporary truce

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 • Military Defeat or Ceasefire: Scenarios range from Ukraine losing ground to a temporary truce
without a long-term solution.
’ -Ukraine Conflict
1. Neutral & Balanced Approach – India has avoided taking sides, advocating for dialogue and
diplomacy while maintaining ties with both Russia and the West.
2. UN Abstentions – India has consistently abstained from UN resolutions against Russia,
emphasizing peaceful conflict resolution and strategic autonomy.
3. Energy & Defense Interests – India continues importing Russian oil for energy security and relies
on Russia for key defense supplies like the S-400 missile system.
4. Humanitarian & Evacuation Efforts – India provided medical aid to Ukraine and successfully
evacuated Indian citizens under Operation Ganga.

1. Merger
A merger occurs when two or more companies combine to form a single entity, usually to improve
competitiveness, expand market share, or achieve operational efficiencies.
Key Features:
✅ Involves mutual agreement between companies.
✅ Creates a new legal entity by combining existing ones.
✅ Typically occurs between companies of similar size and strength.
Types of Mergers:
1. Horizontal Merger – Two companies in the same industry and market merge (e.g., Vodafone &
Idea in India).
2. Vertical Merger – A company merges with its supplier or distributor (e.g., Reliance acquiring a
logistics firm).
3. Conglomerate Merger – Companies from unrelated industries merge (e.g., Tata acquiring various
businesses).
4. Market-Extension Merger – Companies in different geographical markets merge (e.g., Indian
company merging with a U.S. firm to expand presence).
5. Product-Extension Merger – Companies selling related products merge to expand offerings.
Example:
• HDFC Bank & HDFC Ltd. (2023) – A major Indian merger combining banking and housing finance.

2. Acquisition
An acquisition occurs when one company buys another, gaining control over its assets, operations, and
U q ’
be hostile.
Key Features:
✅ One company dominates the other (buyer takes control).
✅ The acquired company may or may not retain its name.
✅ Can be friendly (mutual agreement) or hostile (without consent).
Types of Acquisitions:
1. Friendly Acquisition – Both companies agree to the deal (e.g., Facebook acquiring Instagram).
2. Hostile Takeover – The acquiring company forces the purchase, often by buying a majority stake
(e.g., Mittal Steel acquiring Arcelor).
3. Reverse Takeover – A smaller company acquires a larger company but retains the bigger brand
name.
Example:
• Tata Group Acquiring Air India (2021) – The Indian government sold its airline to Tata.

3. Joint Venture (JV)

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3. Joint Venture (JV)
A joint venture occurs when two or more companies create a separate legal entity to pursue a specific
business goal while maintaining their individual independence.
Key Features:
✅ A new company is formed by combining resources from existing firms.
✅ Partners share ownership, risks, and profits.
✅ Used for expanding into new markets, sharing expertise, or joint R&D efforts.
✅ Temporary or long-term partnerships, depending on the agreement.
Types of Joint Ventures:
1. Equity Joint Venture – Both partners invest capital and share ownership.
2. Contractual Joint Venture – No new entity is created; companies collaborate through an
agreement.
Example:
• Maruti Suzuki (JV between Maruti and Suzuki in India, 1982) – A successful collaboration
between an Indian and a Japanese company.

Introduction
Starlink, a satellite-based internet service by ’ X, aims to provide high-speed internet
globally through low-Earth orbit (LEO) satellites. Unlike traditional fiber broadband, Starlink can deliver
internet access to remote and underserved areas, making it a potential game-changer for India.

Why Is It Important for India?

Bridging the Digital Divide – Rural and remote regions lack proper broadband infrastructure.
Starlink can bring high-speed internet to these areas.
Enhancing Education & Healthcare – Enables e-learning, telemedicine, and online government
services for millions.
Boosting Economic Growth – Supports startups, small businesses, and MSMEs by improving
connectivity.
Strengthening Defense & Security – Provides reliable communication for military and border areas.

Current Status
✅ Regulatory Approvals: Starlink is in the final stages of obtaining a license from the Indian
government.
✅ Competition: Faces strong competition from JioSpaceFiber (Reliance), OneWeb (Airtel-backed),
and BSNL in the satellite broadband sector.
✅ Pricing Concerns: ’ too high for mass adoption in
India.

Recent Developments
A. Regulatory Progress
○ 2021: The Indian government blocked Starlink from accepting pre-orders due to the lack of a
telecom license.
○ 2024-25: T T ( T) ’
application for spectrum allocation.
B. Strategic Partnerships
○ Discussions with Reliance Jio & Bharti Airtel for potential distribution of Starlink hardware.
Possible collaboration with ISRO to improve satellite broadband infrastructure in India.
IIFT Specific (Nikk) Page 18
 ○ Possible collaboration with ISRO to improve satellite broadband infrastructure in India.

Impact of Starlink on India

✅ Positive Impact
✔ Expands Internet Access – Bridges the digital divide in rural areas.
✔ Improves Education & Healthcare – Enables online learning and telemedicine.
✔ Supports Economic Growth – Boosts digital businesses and e-commerce.
✔ Enhances National Security – Strengthens communication in remote military zones.
✔ Encourages Private Space Investment – B ’

❌ Negative Impact & Challenges

⚠ Regulatory Delays – Government approvals and policy restrictions may ’
entry.
⚠ High Costs –
○ Expensive setup (~₹50,000) may limit rural adoption.
○ Competing players like Jio & Airtel could offer cheaper alternatives.
⚠ Data Security Concerns –
○ Indian government may impose data localization requirements on Starlink.
○ Concerns over foreign control of internet infrastructure.
⚠ Telecom Disruptions –
○ Indian telecom operators (Jio, Airtel, BSNL) may lobby against Starlink.
○ Risk of monopoly concerns if Starlink dominates the satellite broadband sector.

Conclusion
✅ ’ z , especially in rural and
remote regions.
✅ However, high pricing, government regulations, and competition from Indian telecom players
could slow down its adoption.
✅ Key factors for success:
• Affordable pricing & local partnerships to compete with Jio & Airtel.
• Regulatory compliance to avoid delays in approvals.
• Government collaboration for national security and rural connectivity projects.
Conclusion: If Starlink can overcome regulatory and pricing challenges, it could play a
transformative role in India's digital future.

GDP
Gross Domestic Product (GDP) is the total monetary value of all goods and services produced within a country's
borders in a specific period. It is the ’ and helps
policymakers, businesses, and investors assess economic health.

Methods of GDP Calculation

1. Production Method (Gross Value Added - GVA Method)

Measures GDP as total output across sectors. In another words it measures GDP as the total
value of goods and services produced in different sectors (agriculture, industry, services).

Formula:

IIFT Specific (Nikk) Page 19

 Formula:
GDP= ∑(Gross Value Added) + Taxes − Subsidies

India Example (FY 2024):

• Agriculture: 18%
• Industry: 30%
• Services: 52%

2. Expenditure Method
Measures GDP by adding up total spending in the economy.

Formula:
GDP = C + I + G + (X - M)

C (Consumption) : Household spending (e.g., food, electronics, services)

I (Investment) : Business and government investment (e.g., factories, infrastructure)
G (Government Spending) : Public sector expenses (e.g., salaries, defense, education)
(X - M) (Net Exports) : Exports minus imports

3. Income Method
Measures GDP by adding up all incomes earned in the economy (wages, profits, rents).

Formula:
GDP = Wages + Rent + Interest + Profit

Nominal vs. Real GDP

Type Definition Formula Example (India, FY
2023-24)
Nominal Measures GDP at current market Sum of all goods & ₹293 lakh crore (~$3.7
GDP prices, without adjusting for services at current trillion)
inflation. prices
Real GDP Adjusted for inflation, reflects the Nominal GDP ÷ ₹174 lakh crore (~$2.3
true value of output. Inflation Index trillion)
Key Nominal GDP can rise due to Uses constant prices Real GDP growth shows
Difference inflation, even if real output to show actual actual economic
doesn’t increase. growth. expansion.

✔ Example: If India’s nominal GDP grows by 10% but inflation is 6%, real GDP growth is only 4%.

Factors Influencing Growth

✅ Positive Drivers
▪ Government Investment: PM GatiShakti, National Infrastructure Pipeline.
▪ Manufacturing Push: PLI schemes, Make in India, semiconductor incentives.
▪ Digital & Services Growth: IT exports, fintech, AI-driven economy.

IIFT Specific (Nikk) Page 20

 ▪ Digital & Services Growth: IT exports, fintech, AI-driven economy.
▪ Rising Middle Class: Increasing demand for goods & services.
❌ Challenges
▪ Inflation & Interest Rates: High inflation slows consumption & investment.
▪ Global Slowdown: Weak exports impact industries.
▪ Unemployment & Inequality: Urban-rural divide, jobless growth concerns.

India's Trade Performance (April-Dec 2024)

• Total Exports
○ Merchandise Exports: USD 321.71 billion
○ Services Exports: USD 280.94 billion
○ Total Exports: USD 602.64 billion
• Total Imports
○ Merchandise Imports: USD 532.48 billion
○ Services Imports: USD 149.67 billion
○ Total Imports: USD 682.15 billion
• Balance of Trade
○ Trade Deficit: USD 79.50 billion

Top 5 Exported Commodities

Rank Commodity Description
1 Engineering Goods Machinery, automobiles, transport equipment
2 Petroleum Products Refined petroleum, energy products
3 Gems & Jewellery Diamonds, gold jewellery, precious stones
4 Pharmaceuticals Generic medicines, formulations
5 Textiles & Garments Cotton yarn, fabrics, readymade garments

Top 5 Imported Commodities

Rank Commodity Description
1 Crude Oil & Petroleum Major import for energy needs
2 Gold & Precious Stones Domestic consumption, jewellery industry
3 Electronics Mobile phones, semiconductors, components
4 Machinery Industrial & capital goods
5 Organic Chemicals Essential for pharmaceuticals, industries
Top 5 Import Partners
Top 5 Export Partners Rank Country
Rank Country 1 China
1 United States 2 United States
2 United Arab Emirates 3 United Arab Emirates
3 China 4 Saudi Arabia
4 Bangladesh 5 Iraq
5 Netherlands

IIFT Specific (Nikk) Page 21

5 Netherlands

Key Observations & Trends

• Strong Services Exports – IT, telecom, and financial services are key drivers.
• Rising Import Dependence – High dependency on crude oil, electronics, and machinery.
• Trade Deficit Concerns – Widening deficit despite export growth.
• PLI Scheme Impact – Government initiatives aim to boost manufacturing & reduce imports.
• Global Supply Chain Shifts – Geopolitical factors influencing trade policies & strategies.

Free Trade vs. Protectionism

Criteria Free Trade Protectionism
Definition A trade policy with minimal government A trade policy where the government
interference, allowing goods and services imposes restrictions such as tariffs, quotas,
to move freely across borders without and subsidies to limit imports and protect
tariffs, quotas, or restrictions. domestic industries from foreign competition.
Objective To promote global trade, economic To shield domestic industries, protect jobs,
integration, efficiency, and innovation by and ensure national security by reducing
allowing each country to specialize in its dependence on foreign goods and services.
comparative advantage.
Role of The government has a minimal role; The government plays an active role by
Government market forces (supply and demand) implementing trade barriers, offering
determine trade flows and industry subsidies, and regulating imports/exports to
success. support local industries.
Tariffs & Little to no tariffs, quotas, or other High tariffs (taxes on imports) and quotas
Quotas barriers, ensuring unrestricted trade. (limits on imported goods) to discourage
foreign competition.
Consumer Consumers benefit from lower prices due Consumers often face higher prices as they
Impact to increased competition and access to a must buy more expensive domestic products
wide range of international products. with limited choices.
Industry Industries with a competitive advantage Domestic industries are shielded from
Growth thrive, but weaker industries may decline competition, but they may become inefficient
if they cannot compete globally. and less innovative due to a lack of global
pressure.
Employment Jobs grow in industries that are Protects jobs in the short term by reducing
competitive globally, but workers in foreign competition, but in the long run,
uncompetitive sectors may face job industries may fail to modernize, leading to
losses. stagnation and job losses.
Innovation & Encourages efficiency, innovation, and Industries become less competitive over time
Efficiency technological advancements, as due to reduced external pressure to innovate
companies compete globally. and improve productivity.
Trade Deficit Can lead to trade deficits if imports Aims to reduce trade deficits by limiting
& Surplus exceed exports, but also attracts foreign imports, though it may lead to retaliatory
investment. trade barriers from other nations.
Economic Promotes long-term economic growth by Can boost short-term domestic production
Growth increasing market access, efficiency, and but may slow long-term growth due to
specialization. inefficiencies and higher costs.

IIFT Specific (Nikk) Page 22

 specialization. inefficiencies and higher costs.
Global Strengthens international cooperation Can lead to trade wars and strained
Relations and economic ties, reducing trade diplomatic relations if countries retaliate with
conflicts. their own protectionist measures.
Examples The European Union (EU) and Countries like India, China, and the US have
agreements like NAFTA (now USMCA) used tariffs and industrial policies to protect
promote free trade among member certain industries.
nations.

Conclusion
• Free Trade fosters economic growth, efficiency, and innovation but may hurt domestic industries
that struggle to compete globally.
• Protectionism provides short-term job security and shields local businesses but often leads to
inefficiencies, higher consumer prices, and potential trade disputes.
• Most countries adopt a mixed approach, balancing free trade and protectionist policies to
safeguard key industries while benefiting from global markets.

Current Account
The Current Account is a major part of a country's Balance of Payments (BoP), which tracks all
international financial transactions. It reflects the country's trade in goods and services, net income
(such as remittances and dividends), and current transfers (foreign aid, grants, etc.).
Types of Current Account Balances
1. Current Account Deficit (CAD)
○ Occurs when a country's total imports (goods, services, income, transfers) exceed total
exports.
○ Indicates a net outflow of domestic currency to foreign markets.
○ Countries finance CAD through foreign debt, foreign direct investment (FDI), or drawing
down reserves.
○ Persistent CAD can lead to currency depreciation, inflation, and external vulnerability.
2. Current Account Surplus
○ Happens when a country’s total exports exceed total imports.
○ Suggests a net inflow of foreign currency.
○ A sustained surplus strengthens a country's foreign exchange reserves, but can lead to trade
tensions with deficit nations.
Current Status & Recent Trends
• ’ : Recently, India reported a CAD of around 1.2% of GDP, driven by a
widening trade deficit but partially offset by strong service exports and remittances.
• Global Trends: The US continues to run a high CAD, while countries like China and Germany
maintain large surpluses due to strong exports.

Balance of Trade (BoT)

The Balance of Trade (BoT) is the difference between a country's exports and imports of goods and
services. It is the largest component of the current account and directly influences the deficit or
surplus.
Types of Trade Balances
1. Trade Surplus – When exports exceed imports, leading to an inflow of foreign currency.
2. Trade Deficit – When imports exceed exports, requiring financing through capital inflows or forex
reserves.

IIFT Specific (Nikk) Page 23

 reserves.
Current Status & Recent Developments
• ’ : February 2025 saw an unexpected trade surplus, driven by lower imports
and strong service exports. This could help reduce the annual CAD.
• Global Trade Shifts: The US trade deficit is widening, while China maintains a surplus, sparking
trade tensions.

Challenges & Policy Measures

Challenges of a High Current Account Deficit

• Currency Depreciation – Higher CAD puts pressure on the rupee and increases import costs (e.g.,
oil, electronics).
• Inflationary Pressures – Imported inflation can rise due to higher raw material costs.
• Dependence on Foreign Capital – FDI and external borrowing are needed to finance deficits,
increasing debt vulnerability.
Government & RBI Measures to Manage CAD
• Promoting Exports – Incentives for manufacturing, IT, and service sectors.
• Reducing Import Dependence – Policies like PLI schemes, Atmanirbhar Bharat, and local
production of electronics and defense goods.
• Managing Capital Flows – Encouraging FDI and remittances to fund CAD sustainably.
• Forex Reserve Management – RBI intervenes in currency markets to prevent excessive
depreciation.

Future Outlook & Strategic Importance for India

• Sustainable Growth Focus – India must balance economic growth with a manageable CAD.
• Trade Agreements & Export Growth – FTAs with Europe, UAE, and Australia can boost exports.
• Resilient Forex Reserves – ’ strong forex reserves act as a cushion against external shocks.
• Global Economic Conditions – Oil price fluctuations, geopolitical tensions, and global demand
’

WTO, IMF, and World Bank

Introduction
The World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank are three
key international financial institutions that play a major role in global trade, economic stability, and
development. Established after World War II, their primary goal was to promote economic cooperation,
prevent financial crises, and reduce poverty.
• WTO focuses on global trade regulations and dispute resolution.
• IMF manages global financial stability, provides economic surveillance, and extends financial
assistance.
• World Bank supports long-term development projects in infrastructure, health, and education.
India, being a developing economy and a major global player, has significant stakes in all three
T ’ trade, foreign exchange reserves, investment climate, and
economic growth.

World Trade Organization (WTO)

Overview
• Established: 1995 (Replaced GATT – General Agreement on Tariffs and Trade)
• Headquarters: Geneva, Switzerland
• Members: 164 countries (India is a founding member)

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 • Members: 164 countries (India is a founding member)
• Director-General: Ngozi Okonjo-Iweala (as of 2024)
Role & Significance
1. Trade Negotiations – Facilitates global trade agreements to reduce tariffs and other trade barriers.
2. Dispute Resolution – Acts as a mediator in trade disputes between countries. Example: ’
case against the US over steel tariffs.
3. Ensuring Fair Trade – Prevents unfair practices like dumping and subsidies.
4. Supports Developing Countries – Provides technical assistance and capacity-building programs.
Current Status & Developments
• The WTO is under pressure due to rising protectionism (e.g., US-China trade war).
• The Appellate Body (Dispute Resolution Panel) has been non-functional since 2019 due to the US
blocking judge appointments.
• Discussions on digital trade, agricultural subsidies, and climate-related trade policies are ongoing.
• At the WTO Ministerial Conference 2024, India pushed for fair agricultural trade policies and
better market access for developing nations.
Challenges
• Failure to reform dispute settlement – Major powers like the US block its functioning.
• Developed vs. Developing Country Divide – Countries like India demand fair treatment for their
farmers and industries.
• Rise of trade blocs (e.g., RCEP, EU, USMCA) – WTO’
Future Prospects
• Reforming the Dispute Resolution Body to make it effective again.
• Including digital trade regulations to address e-commerce and data privacy.
• Strengthening developing nations' participation in decision-making.
Importance for India
• Supports Indian exports by preventing unfair trade restrictions.
• Helps India negotiate better trade deals (e.g., WTO agreements on fisheries, agriculture).
• ’ WTO’

International Monetary Fund (IMF)

Overview
• Established: 1944 (Bretton Woods Conference)
• Headquarters: Washington, D.C., USA
• Members: 190 countries (India is a founding member)
• Managing Director: Kristalina Georgieva (as of 2024)
Role & Significance
1. Financial Assistance – Provides emergency loans to countries facing a financial crisis (e.g., IMF
bailout for Sri Lanka in 2023).
2. Global Economic Surveillance – Monitors economic trends and issues policy recommendations
( ’ )
3. Currency Stability – Helps countries manage exchange rate fluctuations and prevent financial
crises.
4. Technical & Policy Support – Advises governments on monetary and fiscal policies.
Current Status & Developments
• The IMF has been helping debt-ridden countries like Pakistan, Sri Lanka, and Argentina stabilize
their economies.
• Recent focus on climate finance and debt restructuring for developing nations.
• India has been advocating for reforms in IMF voting rights to give emerging economies more say.
Challenges
• ’ , leading to public backlash (e.g., protests in Pakistan over
IMF-mandated reforms).
• Western dominance – The US and Europe hold the most voting power.
• Slow response to crises in developing nations compared to rich countries.

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 • Slow response to crises in developing nations compared to rich countries.
Future Prospects
• Reforming voting rights to better represent economies like India, China, and Brazil.
• More flexible financial aid policies for struggling economies.
• Stronger role in climate finance to help countries transition to clean energy.
Importance for India
• India has a strong relationship with IMF, using its reports to guide policy decisions.
• The IMF has ’ and recommended infrastructure investment.
• India has been pushing for a greater role in IMF decision-making.

World Bank
Overview
• Established: 1944 (Bretton Woods Conference)
• Headquarters: Washington, D.C., USA
• Members: 189 countries (India is a founding member)
• President: Ajay Banga (Indian-origin, as of 2024)
Role & Significance
1. Provides Long-Term Loans – Funds projects in infrastructure, healthcare, education, etc. (e.g.,
metro projects in India).
2. Reduces Poverty – Supports programs for financial inclusion and rural development.
3. Climate & Sustainability Projects – Funds renewable energy projects.
4. Helps in Crisis Recovery – Assisted India during COVID-19 with financial aid.
Current Status & Developments
• The W $1 ’ j .
• Shift towards green financing and climate resilience projects.
• Increasing focus on digital financial inclusion ( ’ U )
Challenges
• High debt burden for recipient countries – Many struggle to repay loans.
• Influence of Western countries in project selection.
• Slow fund disbursement delays crucial projects.
Future Prospects
• More investment in renewable energy projects.
• Better representation for developing nations in decision-making.
• Stronger focus on digital infrastructure and AI-driven development.
Importance for India
• India is one of the largest borrowers from the World Bank, using funds for metro rail, highways,
and rural development.
• The W ’ ’ initiatives is crucial.
• India is pushing for more concessional loans to finance its sustainability goals.

Conclusion
WTO, IMF, and World Bank play a crucial role in shaping global trade, financial stability, and
development. However, they face growing criticism for favoring developed nations and need urgent
reforms.
For India, these institutions are both opportunities and challenges. While they provide trade benefits,
financial support, and development assistance, India must continue pushing for a greater voice in global
decision-making. The future of these institutions will depend on how well they adapt to global shifts,
including the rise of India as a major economic power.

FDI vs. FPI: Key Differences

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FDI vs. FPI: Key Differences
Feature Foreign Direct Investment (FDI) Foreign Portfolio Investment (FPI)
Definition Long-term investment in physical assets like Short-term investment in financial assets
factories, infrastructure, and businesses. like stocks and bonds.
Nature Strategic & long-term investment with Speculative & short-term investment
ownership/control. with no control.
Investor High – Investors have management influence Low – Investors do not influence business
Involvement or control. decisions.
Risk Lower – Stable returns but exposed to Higher – Volatile due to market
business risks. fluctuations.
Liquidity Low – Difficult to sell assets quickly. High – Can be sold quickly in financial
markets.
Regulatory Heavily regulated by the government (FDI Less regulated, but monitored by SEBI &
Control policies, sectoral caps, approvals). RBI.
Impact on Boosts employment, infrastructure, and Provides liquidity to financial markets but
Economy technology transfer. has limited direct economic impact.
Examples - Apple setting up a manufacturing unit in - Foreign investors buying shares of
India. Indian companies like Reliance or TCS.
- Amazon investing in warehouses & - Foreign hedge funds investing in Indian
logistics. government bonds.

Globalization vs. Glocalization

Aspect Globalization Glocalization

Definition The process of increasing interconnectivity The adaptation of global products,
and interdependence among countries services, and business strategies to fit local
through trade, technology, investment, and cultural, economic, and regulatory
culture. conditions.
Approach Standardized approach – "One size fits all." Hybrid approach – "Think global, act local."
Objective To create a borderless world where goods, To ensure that global products and ideas
services, and ideas flow freely across nations. resonate with local cultures and consumer
preferences.
Business Companies expand internationally with the Companies modify global
Strategy same product or service offering. products/services to suit local markets
while maintaining a global presence.
Examples - Apple selling the same iPhone worldwide. - McDonald's India offering McAloo Tikki
- Nike selling the same shoes globally with burger instead of beef burgers.
minimal changes. - Netflix creating region-specific content
(e.g., Indian web series).
Cultural Promotes a uniform global culture, Blends global trends with local traditions,
Impact sometimes at the cost of local traditions. preserving cultural uniqueness.
Economic Encourages free trade, foreign investment, Strengthens local economies by allowing
Impact and economic integration but may also lead global firms to cater to local needs while
to economic inequalities. still benefiting from international
expansion.

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