Introduction:
A quota is a restriction or an upper limit fixed for use or availability or consumption of goods. The restriction can be for a variety of purposes including import and export of goods to meet domestic demand or encourage domestic production of goods.
Factors impacting quota:
- A quota may be based on the monetary value of the goods or the physical quantity of the goods. Quota may be imposed to restrict the use of any particular commodity. Also, quotas may be placed for a limited period over certain goods depending on the industry requirements. The quantity of import or export of a particular commodity may be under restriction.
- A quota is different from tariffs or duties imposed on goods and commodities. For example, the hike in gold import duty by India in the budget of 2019 is to curb excessive import of gold and drain on the foreign exchange.
- A Government may impose both quotas and tariffs to promote or curb trade with any other country. The purpose may be to protect the domestic trade of a country. While quotas control the volumes, the aim of tariffs is to increase the overall cost of the goods to a producer or supplier seeking to sell goods into the country.
Industry impact:
- Quotas are quite effective in placing restrictions on external trade in case of goods whose demand is not price-sensitive. Quotas are more harmful and cause disruptions in international trade in comparison to tariffs. Tariffs and quotas in international trade can act as coercive economic weapons.
- High trade tariffs or extremely restrictions through quotas can cause trade disputes and also escalate into a global trade war.
Conclusion
Each country has its own trade regulatory authorities. These include foreign trade regulations. In India, the Foreign Trade (Development and Regulation) Act, 1992 and Foreign Trade Policy regulates the foreign trade by way of import and export out of India. The current Foreign Trade Policy is 2015-2020 (1 April 2016 to 31 March 2020).
