Foreign trade or international trade refers to the trading of goods between countries. Thus foreign trade is just an extension of internal trade – trade between two different parts within a country. A nation itself cannot produce everything it need. It may be due to shortage of natural resources, human resources or difference of technology. So, it would be advantageous to indulge in trade with other nations, by exporting those commodities which it produces in a lower cost in exchange for what other nations can produce at a minimal cost.  Foreign trade also facilitates the sharing of technical knowledge, import of skills, transmission of newly developed ideas, managerial skills and talents and entrepreneurship. Also, foreign trade encourages movement of foreign capital both inward and outward. So, in total, foreign trade can have a significant impact on the growth of an economy in terms of production, management skills, employment, resource utilization, technology etc.

IndiaForeigntrade

Trading Trends

Origin of India’s foreign trade can be traced back to the age of India’s earliest civilization - Indus valley civilization. They traded to get gold, silver, precious stones, gems, copper, lead etc. Foreign trade gained real momentum in our country during the reign of British. During that period, many raw materials like cotton and food stuffs were exported to England and imported manufactured products later. However, organized attempts to promote foreign trade were made only after independence, particularly with the onset of economic planning which completed with five decades. Also, many significant changes have happened through the passage of time. It has come a long way since 1950-51 and both imports and exports have seen exponential increase over this period. The total value of imports has seen a super fast increase in figures – Rs.608 crore in 1950-51 to Rs.1,21647 crore in 1995-96. Same figures of exports for the years are Rs.606 crore and Rs.1,06465 crore respectively. Except two financial years, 1971-72 and 1976-77, India has always been a trade deficit country. i.e. Value of imports is always greater than exports. Also, the rates are always fluctuating.

Imports

During 1950’s there was a balance between imports and exports, almost the same. But within a decade, the value of imports increased about 60%. Raw material supply, rice, machinery and capital equipments were the major percentage of those imports. During second Five Year Plan, emphasis was given on heavy industries resulting in the more imports of both capital equipments and machinery. It was continued in the next Five Year Plan also, resulting in a sudden increase of imports of both. Bad weather conditions in the sixties prompted more addition of imports in the form of agricultural raw materials and food grains. Also, the devaluation of Indian rupee in the year 1966 caused the increase of value of imports. According to reports, value of imports rose by about 40% in that decade. With the hike of petroleum products in seventies, value of imports again went up sharply. Another factor was inflation of global market as a whole.

During 1980’s domestic production of crude oil in the country helped to slow down the increasing imports rate, a little. But, during the late eighties, price of petroleum products went up sharply which again contributed to the increasing rate of imports. Again, currency revaluation and Gulf crisis pulled down India further. Thus, though food materials and machinery increased imports just after independence, it was the import of petroleum and its products which determined the overall import goods rate from eighties onwards. It’s applicable till now, even in 2012 which is proportional to inflation also. However, in 1991, a liberalization program was initiated by Government reducing the import tariffs and taking off some import restrictions. It’s known as New Economic Policy and is seen as a part of globalization. Import licensing has been virtually scrapped for capital goods, intermediate components and new materials, which can now be freely imported, under constant review and subjected to a ‘negative list’.  As a result, imports of raw materials and capital goods went up particularly in 1993-94. But it saw a decline in 1996-97 due to the slow down of industrial growth.

Exports

In the decade of fifties, exports were more or less immobile around Rs.600 crore. In 1960’s exports were more promoted and as a result, an increase in exports was seen, particularly in the exports of engineering goods, readymade garments, gems and jewellery. After the devaluation of Indian rupee in the year 1966, exports of some materials abundant in our country was really boosted. Some of them include leather and leather products, iron ore, chemicals etc. That decade saw an increase of 10.2% in the value of exports. The next decade saw a significant increase of almost 19%. Again the main contributions came from the export commodities of sixties. Boom in the value of agro-based exports, increase of both unit value index and quantum index of exports and findings of new markets were some of the reasons among them. But, growth of exports began to slow down from next decade onwards. But it later picked up by increasing the export rate from 11% to 27%. During 1990-91, export growth again declined to about 18% but seen boosted up with currency devaluation in 1991 and liberalization programme. However, later trends saw only decrease in the export-import ratio since 1996-97. 

Composition

Composition of foreign trade refers to the type of goods both exported and imported by a country and it’s necessary to know about them, as it reveals the economic status of the country. Overall change in composition over a period of time summarizes the real economic transformation of a nation. In general, a developing country imports manufacturing goods like machinery, iron etc more while it exports agricultural products, iron ore, textiles, leather, processed food etc. It means, a developed nation imports primary commodities like food materials and light manufactures while it stress more on the exports of heavy manufactured goods like machinery, capital equipments etc.

Imports

Soon after independence, India’s imports mainly consisted of iron, food grains, machinery, petroleum products etc. Industrial Policy Resolution of 1956 made an impact on import composition. As a result an increase of import in capital goods and equipments was seen in late fifties. Also, agriculture was not well developed that time which demanded the import of cereals. During 70’s a significant portion of imports included raw materials and intermediates, thereby accounting 47% value of imports. Due to the rise of prices and quantum of petroleum products during 80’s, the percentage of petroleum products increased rapidly causing a lower percentage of raw materials and intermediates.

Exports

The structure of India’s exports has undergone several variations over the past six decades. After independence, it took a decade to gain momentum in exporting. As I have mentioned, major exports include agricultural products like tea, spices, fruits, raw cotton, vegetables etc, ores and minerals, some manufactured goods like readymade garments, gems, leather and jute products etc. So, major part of exports was agricultural products of which tea and spices were most exported. But, as decades passed by, it has seen declination only. 

Direction

India trades with almost all countries around. Countries can be broadly classified into 5 groups – Organization of Petroleum Exporting Countries (OPEC), Organization for Economic Co-operation and Development (OECD) countries, Eastern Europe, Developing countries and other.

Imports

Most of India’s imports originate from industrialized OECD countries which include EEC (UK, Germany, France and Belgium), Asia, Australia and North American countries USA and Canada. During early 60’s, four-fifths of the imports were from these countries which were seen a gradual deterioration. Petroleum products are imported from OPEC.  Eastern Europe was a significant source of India’s exports from 1965-1985. Major items included iron, steel, pharmaceuticals, chemicals and capital equipments. The imports generated from Asian countries have seen a significant increase since 1980’s. Rapid economic developments of Asia and trade co-operation among the members of SAARC were the main reasons.

Exports

Industrialized countries (OECD) are the major buyers of Indian products. When industrialized countries give stress to industrial goods, exporting them, they are importing food products, jewellery, readymade clothes etc. Today, India’s exports are not confined to America and Britain, but evenly spreading in other countries like Belgium, Japan and Netherlands etc. Here also, exports have decreased since early 90’s. Rapid economic development of Asian countries gave more markets to sell in Asia itself.  The other reason is trade co-operation of SAARC nations.

In this article, I have given a brief description about India's foreign trade over the past decades since  its independence.


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