FOREIGN TRADE IN INDIA

Submitted to: Submitted by:

Prof. Kewal Raj Ajiteshwar Sharan Shukla
Ishaan Chadha
 MEANING AND TYPES

• Foreign Trade means trade between the different countries of the world. It can
be divided into following three groups :-
• Import Trade: It refers to purchase of goods by one country from another
country or inflow of goods and services from foreign country to home country.
• Export Trade: It refers to the sale of goods by one country to another country
or outflow of goods from home country to foreign country.
• Entrepot Trade: It is also known as Re-export. It refers to purchase of goods
from one country and then selling them to another country after some
processing operations.
 NEED AND IMPORTANCE

1. Division of Labour and Specialization

Foreign Trade leads to division of labour and specialization at the world level.
Some countries have abundant natural resources. They should export raw
materials and import finished goods from countries which are advanced in skilled
manpower. This gives benefits to all the countries and thereby leading to division
of labour and specialization.
2. Optimum Allocation and Utilization of Resources
Due to specialization, unproductive lines can be eliminated and wastage of
resources avoided. In other words, resources are channelized for the production of
only those goods which would give highest returns. Thus, there is rational
allocation and utilization of resources at the international level due to foreign
trade.
 CONTD…

3. Availability of Multiple Choices

Foreign Trade helps in providing a better choice to the consumers. It helps in
making available new varieties to consumers all over the world.
4. Ensures Quality and Standard Goods
Foreign Trade is highly competitive. To maintain and increase the demand for
goods, the exporting countries have to keep up the quality of goods. Thus, quality
and standardized goods are produced.
5. Raises Standard of Living of the People
Imports can facilitate standard of living of the people. This is because people can
have a choice of new and better varieties of goods and services. By consuming
new and better varieties of goods, people can improve their standard of living.
 CONTD…

6. Generate Employment Opportunities

Foreign Trade helps in generating employment opportunities, by increasing the
mobility of labour and resources. It generates direct employment in import sector
and indirect employment in other sectors of the economy such as industry and
service sector (insurance, banking, transport and communication).
7. Facilitate Economic Development
Imports facilitate economic development of a nation. This is because with the
import of capital goods and technology, a country can generate growth in all
sectors of the economy, i.e., agriculture, industry and service sector.
 FEATURES OF INDIA’S FOREIGN TRADE

• It is administered by the Ministry of Commerce and Industry.

• India had to import various items like heavy machinery, agricultural
implements, mineral oil and metals on a large scale after Independence for
economic growth.
• Previously, India used to export its traditional commodities only which
included tea, jute, cotton textile, leather, etc. But great diversity has been
observed in India’s export commodities during the last few years. India now
exports over 7,500 commodities. Since 1991, India has emerged as a major
exporter of computer software and that too to some of the advanced countries
like the USA, Europe and Japan.
 CONTD…

• India had trade links with Britain and a few selected countries only before
Independence. But now, India has trade links with almost all the regions of
the world. India exports its goods to as many as 190 countries and imports
from 140 countries.
• Earlier, we used to import food-grains and manufactured goods only. But
now, oil is the largest single commodity imported by India. Both the imports
as well as exports of pearls and precious stones have increased considerably
during the last few years. Our other important commodities of import are iron
and steel, fertilizers, edible oils and paper.
• Most of India’s overseas trade is done in public sector by state agencies and
very little trade is done by individuals.
 CONTD…

• About 95 per cent of our foreign trade is done through sea routes. Trade
through land routes is possible with neighboring countries only. But
unfortunately, all our neighboring countries including China, Nepal and
Myanmar are cut off from India by lofty mountain ranges which makes
trade by land routes rather difficult. We can have easy access through land
routes with Pakistan only but the trade suffered heavily due to political
differences between the two countries.
• Although India has about 16 per cent of the world’s population, her share in
the world overseas trade is dismissal. This shows the insignificant place of
India in the world’s overseas trade. This is, however, partly due to very large
internal trade, vast dimensions of the country provide a solid base for
inter-state trade within the country.
The Direction of Trade is referred to describe the statistical analysis of the set of a country’s trading partners and their
significance in trade.
In short, the set of countries where the goods are traded to their significance on a country’ trade is known as the Direction of
Trade.
1. Direction of India’s Trade-Exports:
It is the analysis of group of countries to which India exports its goods. There has been an ever-expanding geographical
diversification of India’s exports since independence. The number of countries purchasing India’s exports and the quantity of
exports to these countries are continuously increasing.

2. Direction of India’s Trade-Imports:

Group of Countries from which India imports its goods. Formerly, there were many countries with whom we had no or
insignificant trade. But, at present we have trade relations with most of the countries in the world. There has been rapid increase
in the imports from almost all the countries with spectacular increase in case of a few countries. Prior to our independence our
import trade was primarily with OECD countries particularly with U.K. The share of OECD countries has declined rapidly after
independence and also U.K.
At present, India’s biggest suppliers are Germany, Belgium, UK, France, Italy, Netherland, Spain.
The Statistical analysis of a country’s product groups in its international trade is referred to as Composition of Trade. The
analysis carried out for product groups exported is known as the Composition of Exports. As a result of industrial progress
during the planning period, there has been an increasing diversification of Indian exports over the years.
 BALANCE OF TRADE

• Balance of Trade refers to the difference between the total value of goods imported and exported
over a given period of time, usually one year. It refers to merchandise account of exports and imports
only. It includes only visible items.
• Favourable Balance of Trade: If the value of visible exports is greater than the value of visible
imports, then the balance of trade is said to be favourable.
• Unfavourable Balance of Trade: If the value of visible imports exceeds the value of visible exports,
the balance of trade is said to be unfavourable.
• Balanced Balance of Trade: If the value of visible exports is exactly equal to the value of visible
imports, the balance of trade is said to be balanced.
 BALANCE OF PAYMENT

• Balance of Payment is the systematic records of the economic transactions between the residents and
Government of a particular country and the residents and Governments of the rest of the world during
a certain given period of time, usually a year. Economic transactions include exports and imports of goods
and services, capital inflows and outflows, gifts and other transfer payments.
Components of BOP
• Current Account (Receipts and payments on account of Visible items, Travel, Transportation, Insurance,
Investment income, Government transactions and Gifts grants and donations)
• Capital Account (Transactions in financial assets in the form of short-term lending and borrowings and
private and official investments. It refers to the inflow and outflow of capital an account of capital
transactions like loans and investments, inflow and outflow of foreign capital, repayment of past debts,
interest payment on foreign debts etc)
• Official Reserves Account (Gold stock, changes in the official foreign exchange holdings and Special
Drawing Rights (SDR) holdings of the Government))
 TOP 10 COMMODITY EXPORTS

Rank Commodity Value (US$ billion) Share (%)

1 Refined Petroleum 61.2 19.2
2 Gems, Precious Metals and Coins 41.2 13
3 Vehicles 14.5 4.6
4 Machines, Engines and Pumps 13.6 4.3
5 Organic Chemicals 12.1 3.8
6 Pharmaceuticals 11.7 3.7
7 Cereals 10.1 3.2
8 Iron and Steel 9.1 2.9
9 Clothing 9.1 2.9
10 Electronics 9.1 2.8
 TOP 10 COMMODITY IMPORTS

Rank Commodity Value (US$ billion) Share (%)

1 Oil 177.5 38.3
2 Gems, Precious Metals and Coins 60 13
3 Electronics 32 6.9
4 Machines, Engines and Pumps 31.2 6.7
5 Organic Chemicals 18.3 4
6 Plastics 11.8 2.6
7 Iron and Steel 11.4 2.5
8 Animal / Vegetable Fats and Oils 10.7 2.3
9 Ores, Slag and Ash 7.4 1.6
10 Medical and Technical Equipment 7.1 1.5
 INDIA’S FOREIGN TRADE (DECEMBER 2017)

EXPORTS (including re-exports)

• Cumulative value of exports for the period April-December 2017-18 was US $
2,23,512.58 million (Rs. 14,41,419.91 crore) as against US $ 1,99,467.14 million (Rs.
13,38,341.51 crore) registering a positive growth of 12.05 per cent in Dollar terms and
7.70 per cent in Rupee terms over the same period last year.

• During December 2017, major commodity groups of export showing positive growth
over the corresponding month of last year are Engineering Goods (25.32%), Petroleum
Products (25.15%), Gems and Jewellery (2.38%), Organic and Inorganic Chemicals
(31.36%) and Drugs and Pharmaceuticals (6.95%).
 CONTD…

IMPORTS
• Cumulative value of imports for the period April-December 2017-18 was US $ 3,38,369.63
million (Rs. 21,82,289.84 crore) as against US $ 2,77,899.32 million (Rs. 18,65,151.87 crore)
registering a positive growth of 21.76 per cent in Dollar terms and 17.00 per cent in Rupee terms
over the same period last year.

• Major commodity groups of import showing high growth in December 2017 over the
corresponding month of last year are Petroleum, Crude and Products (34.94%), Electronic Goods
(19.2%), Pearls, Precious and Semi-Precious Stones (93.98%), Gold (71.52%) and Machinery,
Electrical and Non-Electrical (11.21%).
 THE ROAD AHEAD

• India is presently known as one of the most important players in the global economic landscape.
Its trade policies, Government reforms and inherent economic strengths have attributed to its
standing as one of the most sought after destinations for foreign investments in the world. Also,
technological and infrastructural developments being carried out throughout the country predict
well for the trade and economic sector in the years to come.

• Boosted by the forthcoming Foreign Trade Policy (FTP), India's exports are expected to reach
US$ 750 billion by 2018-2019 according to Federation of India Export Organisation (FIEO).
Also, with the Government of India striking important deals with the Governments of Japan,
Australia and China, the external sector is increasing its contribution to the economic
development of the country and growth in the global markets. Moreover, by implementing the
FTP 2014-19, by 2020, India's share in world trade is expected to double from the present level
of three per cent.