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Question Bank
Question
Explain the doctrine of "Reasonable Classification" under Article 14 of the Indian Constitution. What are the two essential tests to determine its validity?
Solution
The doctrine of "Reasonable Classification" is a cornerstone of the right to equality guaranteed under Article 14 of the Indian Constitution. Article 14 does not forbid classification but permits it if it is reasonable. The doctrine ensures that equals are treated equally, but it also recognizes that treating unequals equally would itself be a form of discrimination. For a classification to be considered reasonable and constitutionally valid, it must satisfy a two-pronged test. First, the classification must be founded on an intelligible differential that distinguishes persons or things that are grouped together from those who are excluded from the group. Second, this differential must have a rational nexus (a logical connection) to the object sought to be achieved by the statute or policy in question. This means the different treatment must be directly related to the purpose or goal of the law.
Question
Differentiate between the 'f.o.b. value of exports' and 'net foreign exchange earnings (NFE)' as bases for calculating export incentives. Why might a government shift its policy focus from one to the other?
Solution
The f.o.b. value of exports (Free On Board) refers to the total value of goods exported, calculated at the port of shipment, excluding insurance and freight. It is a gross figure that does not account for the costs incurred in generating those exports. In contrast, Net Foreign Exchange (NFE) earnings represent a more nuanced calculation. It is determined by taking the total f.o.b. value of exports and subtracting the c.i.f. (Cost, Insurance, Freight) value of any imported raw materials, components, or goods used in producing those exports. A government might shift its policy focus from f.o.b. value to NFE because the latter provides a more realistic appraisal of the actual economic benefit to the country. By focusing on NFE, the policy incentivizes exports that result in higher genuine earnings for the nation, rather than just high-volume trade that may rely heavily on imported inputs, thereby ensuring a more substantial positive impact on the country's foreign exchange reserves.
Question
What is an "Additional Licence" in the context of an Import-Export Policy, and what was the significant change in the basis for its grant as seen in different policy periods?
Solution
An Additional Licence is a specific type of import license granted to recognized Export Houses or Trading Houses as an incentive to promote exports. It allows them to import certain goods that are otherwise restricted. The significant change in the basis for granting these licenses across different policy periods reflects an evolution in economic strategy. Earlier policies granted these licenses based on a high percentage (e.g., one-third) of the gross f.o.b. value of exports. Later policies introduced a more stringent and economically focused criterion by linking the license value to a smaller percentage (e.g., 10-12%) of the net foreign exchange earnings (NFE). This change in basis fundamentally alters the entitlement, moving from a reward for gross export turnover to an incentive for generating substantial net foreign exchange for the country.
Question
What are "canalised items" in import policy, and how does their import regulation work?
Solution
Canalised items are specific goods whose import is restricted and channeled exclusively through designated public sector agencies. Private importers are generally prohibited from importing these items directly from foreign suppliers. The government maintains this canalisation process as a matter of high public policy, often to control the import of essential commodities, stabilize prices, or manage foreign exchange. While the general rule is that these items can only be imported by the canalising agency, the import policy prevailing at the time of import may provide specific exceptions. For instance, a policy might allow certain categories of license holders, under defined conditions, to import a limited quantity of a canalised item directly. Therefore, the permissibility of importing a canalised item always depends on the explicit terms of the import policy in force.
Question
In the context of a license issued under an old policy, how does the principle of "prevailing policy at the time of import" govern an importer's rights?
Solution
The principle that an importer's rights are governed by the import policy prevailing at the time of import is a crucial rule of interpretation. When a license is issued, it grants a right to import, but this right is not frozen in time. It is subject to the regulatory framework that exists when the importer actually seeks to bring the goods into the country. This means that even if a license was granted under a previous, more liberal policy, the importer must still comply with all restrictions, lists of banned items, and canalisation rules specified in the current, prevailing policy. The license itself is a conditional entitlement, and its exercise is always subordinate to the terms of the import policy that is in effect at the moment the import action takes place. This ensures that the government's current economic and regulatory objectives are not undermined by licenses issued in the past.
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