CHAPTER I INTRODUCTION AND DESIGN OF THE STUDY

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1 Chapter I xxvi

2 CHAPTER I INTRODUCTION AND DESIGN OF THE STUDY Chapter No. Description Page No. 1.2 INTRODUCTION STATEMENT OF THE PROBLEM OBJECTIVES OF THE STUDY SIGNIFICANCE OF THE STUDY LIMITATIONS OF THE STUDY OPERATIONAL DEFINITION OF CONCEPTS METHODOLOGY TOOLS OF ANALYSIS SAMPLE DESIGN PERIOD OF STUDY HYPOTHESES OF THE STUDY SCOPE OF THE STUDY CHAPTERIZATION 10 References 12 xxvii

3 CHAPTER I INTRODUCTION AND DESIGN OF THE STUDY 1.3 INTRODUCTION Global trade is more than 3000 years old. India was exporting its goods especially textiles even 2000 years back to Greece, Rome, Egypt, China and many other countries. Global trade has been expanding very fast in the last 250 years. After the Second World War, global trade has multiplied several times. There was an increase of 80 percent in global exports during and it was 90 percent during The annual growth rate of global income (Production) has been a little more than three percent and the annual growth of global trade has been more than six percent. The value of global exports has gone up from $ 55 billion in 1950 to more than $ 9,123 billion in India exports its commodities to well over 225 countries. The countries of exports are classified into seven regions based on geographical proximities 2. They are also further categorized into WTO members and observers. The present study is made with major objectives of studying the export exposure with respect to country, commodity and currency. Country exposure is studied based on geographical proximities, WTO members and observers, BRICS and SAARC countries. The commodities of exports are classified broadly into four categories. They are primary (Agriculture and Ores), manufactured, petroleum and other products. Pattern of commodity wise exports reveal commodity exposure. Currency exposure is studied based on four major currencies. They are USD, GBP, EURO and JPY. To substantiate the present study, Default pattern of export, Balance of payments, Transaction cost, Government of India policy initiatives are included. 1

4 1.2 STATEMENT OF THE PROBLEM All the countries in the world are continuously initiating various measures to increase the market share of its exports to augment their foreign exchange inflow and Gross Domestic Product (GDP) so that the living standards of their population will improve. India is no exception, but its efforts are yielding results and they are not good enough to realize their full potential. The present study is analyzing India s exports to various countries, components of commodities and four major currencies of invoices namely United States Dollar (USD), Great Britain Pound (GBP), European Currency (EURO) and Japanese Yen (JPY) to draw some meaningful conclusions. Impact of Indian exports to countries in various geographical regions, WTO members and observers, BRICS and SAARC countries is named as Country exposure. There are four categories of principal commodities of exports. They are Primary Products (Agriculture, Ores and Minerals), Manufacturing goods, Petroleum Products and Others. Each region of the world has a different composition of commodities and the present study analyzes the commodities of exports, pattern of export and any significant relationship that exist among the group of products is known as Commodity exposure 3. Exports are invoiced in foreign currencies and predominantly over 90 per cent of exports from India are invoiced in USD (United States Dollar), GBP (Great Britain Pound), EURO (Major Currency of Europe Region) and JPY (Japanese Yen). The present study tracks down movements of four currencies namely USD (United States Dollar), GBP (Great Britain Pound), EURO (Major Currency of Europe Region) and JPY (Japanese Yen) for a period of 12 years and explores to establish any correlation between the currency and export performance is expressed as Currency exposure. 2

5 An Attempt was made to conduct an exploratory study by collecting primary data relating to country, commodity and currency of export through a structured questionnaire from about 500 exporters in Tamil Nadu, for a period of 10 years from to exporters were targeted on the basis of information ascertained from the Office of the Director General of Foreign Trade, Chennai. Only about 113 responses could be received with full information. The reason for non-response from other exporters was inferred that they were not willing to disclose default details of their customers. The defaults in payment by the buyers were analyzed and the reasons for such default have been ranked. Country wise risk classification has been collected from Export Credit Guarantee Corporation for the relevant period to find out the default pattern with respect to the classification. Details of overall default in export realization for a period of 10 years from to period were collected from Reserve Bank of India, Mumbai. Result of Indian International Trade is measured through a study of Balance of Payment. Bottlenecks in the process of enhancing our export share from the present level to future projections are also studied taking into account Transaction cost of exports. Government of India has been taking various initiatives through policy directions 4 to remove the bottleneck in order to facilitate and compete with other countries to increase our market share. At the end of the tunnel there lies a light, a visionary leader recognizes with foresight. It has been aptly quoted in Thirukkural What clearly the eye discerns as right, with steadfast will and mind unslumbering, man should fulfil. 1.3 OBJECTIVES OF THE STUDY 1. To analyze India s exports to seven geographical regions of the world 3

6 2. To study the relationship of our export performance among WTO members and observers and the significance of export performance between the countries of our economic cooperation such as BRICS and SAARC. 3. To analyze the composition of various commodities of exports, their relative share and the direction of exports. 4. To analyze the relationship among four major foreign currencies of export namely USD, GBP, EURO and JPY and export performance to USA, UK, Germany and Japan. 5. To analyze the countries, commodities and currencies of export, default in payments and rank the reasons thereof. 6. To analyze India s Balance of Payment with its various components and Transaction Cost of export and Policy Initiatives of Government of India to accomplish better performance of export. 1.4 SIGNIFICANCE OF THE STUDY The need for the present study arises with an objective to provide some insights to the policy makers and various stakeholders in the area of export management to set the strategic measures to improve the export performance by focusing on country, commodity and currency exposure. There are two key deficit areas which hamper the growth of India. They are Trade Deficit 5 and Fiscal deficit. The present study attempts to show the components of Trade Deficit which is leading to Current Account Deficit (CAD). Foreign Trade Policies are initiated to improve the export performance, narrow down the trade deficit thereby reducing the Current Account Deficit. Improving export performance is as important as that of realization of entire export values. An attempt is necessitated to study the default pattern of export and also the transaction cost. 4

7 1.5 LIMITATIONS OF THE STUDY 1. The area of the study is broad and each area like Country, Commodity and Currency exposure of export management themselves has a wide scope for further research. 2. With respect to the exploratory study with the limited number of 113 samples, primary data were analysed. 3. Period of study has to be extended beyond the year 2009 as there has been constraints in collection of primary data from exporters as the details of default are sensitive. 4. Primary data have been collected from various predominant export locations of Tamil Nadu, as the area of operation of entire nation is very large. 1.6 OPERATIONAL DEFINITION OF CONCEPTS 1. Country Exposure: Country exposure is referred to in the research as the countries of export where India is exporting and they are classified based on geographical proximities, size of the economy and various economic cooperation for trade entered into by Indian Government with other countries. 2. Commodity Exposure: Commodity exposure is referred to in the research as the commodities namely the goods excluding services exported from India to the rest of the world and the composition of various commodities and its share in Indian export. 3. Currency Exposure: Currency exposure is referred to in the research as the currencies of invoices Indian exporters are making and the impact of the currency fluctuation in the export performance. 5

8 4. Trade Openness : Trade openness is referred to in the research as the openness of the country in its trade with the rest of the world. It is calculated by sum of export and import to GDP expressed as percentage. 5. Exporters Default: Exporters are earning foreign exchange to their countries and so they are precious. When the buyers default, exporters of the value of export that results in exporters default and the default percentage to a country is a loss of foreign exchange. 6. Balance of Payment: Balance of payment (BOP) is worked out from Balance of trade as one of the components. Balance of trade is the difference between export and import which may result either in a positive or negative value. There will be invisible receipts other than exports and also invisible payments other than imports. After adding/subtracting, inflow of capital/outflow of capital, constitute net balance of payment. Balance of payment is vital for any healthy economy. 7. Transaction cost: Transaction cost in export refers to various cost elements exporters have to incur in order to earn foreign exchange to their countries. They are cost of logistics, interest cost. 8. Government of India s Foreign Trade Policy: In order encourage the exporters and various stake holders in international trade, Commerce Ministry, Government of India is announcing Foreign Trade Policy once in five years and amendment to the policy every year is based on the midterm review of the performance. Research draws various policy initiatives of Government of India and their impact on the export performance. 1.7 METHODOLOGY The study comprises both primary and secondary data. Secondary data have been collected from the published sources such as Commerce Ministry, 6

9 Government of India, Reserve Bank of India, Word Trade Organization and various reports published in journals and reports. Primary data have been collected from exporters through structured questionnaire. 1.8 TOOLS OF ANALYSIS The secondary data were analyzed in SPSS 16.0 version. Descriptive statistics were used to find the distribution of collected data. Bi-variate analysis, independent t-test were used to find the significance between the two variables. Pearson s correlation was used to assess the strength of relationship between the variables. (ANOVA) and Post hoc Duncan s test used to find the difference in the means of variables. Regression analysis was used to find the model fit of the variables with enter method at the significance level of 0.05, kept for all the above statistical tools. The primary data were collected by using non probability sample and hence, the researcher has not used any parametric test. 1.9 SAMPLE DESIGN Exploratory study is made by collecting primary data through a structured questionnaire from exporters in Tamil Nadu, who have been exporters for a period of 10 year from to to establish the country, commodity and currency of exports and the pattern of default. Additionally, any defaults of payment from the buyers analyzed and the reasons for default have been ranked. Population is not ascertainable and however, through Joint director general of Foreign trade, Chennai who allocate Import Export Code (IEC) and there is no data available to ascertain the numbers exporters active for 10 years till Based on the formula it has been ascertained to obtain 113 samples and though 500 questionnaires administered to the respondents some of the sensitive data like default have deterred respondents to respond and the research was undertaken till the complete data were collected from 113 and 7

10 these data only supplement the study to find out the default pattern and compare with the All India default pattern. The formula applied is given below: The Sample size was calculated with Open Epi Software with the confidence interval of 95 per cent Hypothesized % frequency of outcome factors in the Population (p). 50% +/- 5 Confidence limit as % of 100(absolute +/-%)(a) 5% Design effect (for cluster surveys DEFF). Sample Size(n) for Various Confidence Levels Confidence Level (%) Sample Size 95% % 81 90% % % % % 144 Equation : Sample size n = [DEFF*Np(1-p)]/[(d 2 /Z 2 1-a/2*(N+1)+p*(1-p)] 8

11 1.10 PERIOD OF STUDY All the required secondary data were collected between April 1999 and March The reference period for the primary data collected pertained to the year from to HYPOTHESES OF THE STUDY 1. There is no significant difference in the pattern of exports to seven regions of the world during the period of study. 2. There is no significant relationship between WTO members and WTO observers of seven regions of the world in regard to Indian exports during the period of study. 3. There is no significant difference of export performance among the countries of economic cooperation such as BRICS and SAARC during the period of study. 4. There is no significant difference among various commodities exported from India to different parts of the world during the period of study. 5. There is no significant relationship between volatility of foreign currencies (USD, GBP, EURO and JPY) and export performance to USA, UK, Germany and Japan during the period of study. 6. There is no significant relationship between export and import performance of oil and non-oil in Balance of Trade SCOPE OF THE STUDY Present study has set three major objectives on important areas of export management in India namely country, commodity and currency exposure. Further, the present study has also been made an attempt through an exploratory study by interfacing with exporters who have been in the business of exports for 9

12 over 10 years prior to 2009 to analyze export performance, the default pattern and rank the reasons thereof. Components of exports to various countries have been classified into seven geographical regions, WTO members and observers, BRICS and SAARC countries. Commodities of exports can be reconstituted periodically over a period of time due to the ecosystem of the respective countries, competitiveness of export and policy initiatives of respective Government. The product mix may periodically change and the scope can be extended to study different strategies of export management in the changing scenario. The present study has made an observation about the relationship between currency volatility and export performance. They are correlated at different degrees for the four currencies during the study period. An explorative study has been made to find out the exporters performance, default pattern and ranking the defaults during the 10 year period from to The performance of good export management will have to reflect comfortable balance of payment position, reduction in transaction cost and proactive policy measures. The present study is an attempt to make a comprehensive appraisal of export management in India by collating various data pertaining to the period from to from secondary data and to from primary data CHAPTERIZATION This thesis contains nine chapters. Chapter I deals with introduction and design of the study. Chapter II provides the review of literature. 10

13 Chapter III describes theoretical framework of Country, Commodity and Currency Exposure. Chapter IV analyses Country Exposure with respect to India s exports to various countries based on geographical proximities, WTO members and observers, BRICS and SAARC countries. Chapter V focuses on Commodity Exposure commodities such as primary, manufactured, petroleum and other products. Chapter VI throws light on Currency Exposure and the four major currencies of India s export namely USD, GBP, EURO and JPY and its exchange fluctuations and the impact of corresponding export performance. Chapter VII portrays Exporters Default in receiving export payment, default pattern, ranking thereof. Chapter VIII elaborates Balance of Payment, Transaction Cost and Policy Initiatives of Government of India. Chapter IX concludes with the Research Findings, Suggestions and Conclusion. 11

14 References 1. M. Victor Louis Anthuvan s, The Dynamics and the Impact of Globalisation - A subaltern perspective, Amirtham Publications, May 2006, p International Trade Statistics, WTO secretariat, 2011, pdf_3d/guide-075ch2.pdf. 3. Hand book of Statistics on Indian Economy, RBI, 2011, pp Foreign Trade Policies from Ministry of Commerce, Government of India, since 2000, 5. Foreign Trade Statistics, Government of India, Ministry of Commerce and Industries announced since 2000, default.asp. 12