Indian Economy
General Knowledge

Foreign Trade

Foreign Trade

» Before independence, the foreign trade of India was being operated on the principles of colonialism. But after independence, there have been huge changes in its state and direction.
» After independence, inward looking foreign trade policies were accepted and the policy of import replacement was its base.
» Efforts were made for trade liberalisation during the decade of 1980 and the comprehensive policy of liberalisation and globalisation was made in the decade of 1990s (after the year 1991).

Volume of India's Foreign Trade

» After independence, Indian foreign trade has made cumulative progress both qualitatively and quantitatively. Though the size of foreign trade and its value both have increased during post-independence era, this increase in foreign trade cannot be said satisfactory because Indian share in total foreign trade of the world has remained remarkable low.
» In 1950, the Indian share in the total world trade was 1.78%, which came down to 0.6% in 1995. According to the Economic Survey 2001-02 this share percentage of 0.6% continued in years 1997 and 1998. Since 1970, this share has remained around 0.6% which clearly indicates that India has failed to increase its share in the total world trade.
» India's total external trade (exports + imports including re-exports) in the year 2009-10 reached a level of Rs. 8,45,534 crore registering a growth of 0.57%. In US $ terms, exports reached a level of US $ 178.8 billion, registering a negative growth of -3.5% as compared to a growth of 13.6% during the previous year.

Composition of India's Foreign Trade

» Imports have been classified into Bulk imports and Non-bulk imports.
» Bulk imports are further sub-divided into Petroleum, oil and lubricants (POL) and non-POL items such as consumption goods, fertilizers and iron and steel.
» Non-bulk items comprise capital goods (which include electrical and non-electrical machinery), pearls, precious and semiprecious stones and other items.

The structural changes in imports since 1951 show :
(a) rapid growth of industrialisation necessitating increasing imports of capital goods and raw materials;
(b) growing imports of raw materials on the basis of liberalisation of imports for export promotion; and
(c) declining imports of food grains and consumer goods due to the country becoming self- sufficient in food grains and other consumer goods through agricultural and industrial growth.

Exports of India are broadly classified into four categories :
(i) Agriculture and allied products which include coffee, tea, oil cakes, tobacco, cashew kernels, spices, sugar, raw cotton, rice, fish and fish preparations, meat and meat preparations, vegetable oils, fruits, vegetables and pulses;
(ii) Ores and minerals which include manganese ore, mica and iron ore;
(iii) Manufactured goods which include textiles and ready-made garments, jute manufactures, leather and footwear handicrafts including pearls and precious stones, chemicals, engineering goods and iron steel; and
(iv) Mineral fuels and lubricants.

» Exports of India over the years show a clear decline in the importance of agriculture and allied products and a substantial increase in the importance of manufactured goods. This has been due to changing production structure of the economy and the overall growth of this economy.

Direction of Foreign Trade

» India is having maximum trade with OECD countries (mainly the USA, EU and Japan).
» The direction of Indian trade registered a change during recent past years. Indian trade has been partially shifted from West-Europe to East Asia and OECD countries.
» The high growth rate in Japan and ASEAN countries gave a high demand and favourable market to Indian exports. This has been one of the major reasons responsible for increasing Indian exports to East-Asian region of the world.