Foreign Trade Of India

Meaning
Foreign Trade refers to trade carried on by India with other countries. It comprises of : A) Export Trade :Sale of G/S by India to other countries (visible & invisible items) B) Import Trade :Purchase of G/S by India from other countries (visible & invisible items)

Importance In Economic Development

Foreign Trade plays an very important role in economic development. Following are the importance listed below :
1) Industrial (Raw Materials & Technology)

2) Good insufficient e.g. petroleum, metals like: Zinc Lead Copper.

3)Export good of surplus.

4) Widens Markets for our products 5) Our Exports Pay for Imports 6) Growth of NI 7) Civilization- economic well being 8) Co-operation between countries 9) Employment 10) Exploitation of untapped resources

Features of Foreign Trade

A) Sea Born 95% B) Increase in value of trade in cores 1950-51 2005-06 1,214 11,16,827 C) Change in Composition of trade Before independence Imports were Manufactured goods Exports were raw cotton & raw jute After independence Imports were raw materials Exports were commercial items

D) Invisible Imports After Independence better Growth E) Direction Of Trade

Before independence : UK After independence : Germany, Japan ,China

F) Adverse BOT- 1991-92 in cores 3,809

2005-06 2,03,991

G) Increase in Govt participation H) Bilateral Agreements : Russia, Germany I) Import Restrictions : Tariff & Quota

Composition & Direction Of Trade

Composition Of Trade
Items of Goods Imported/Exported in India.

Items of exports
Primary Plantation Crops Tobacco Spices Ores & Minerals Leathers Manufacture Cotton Textiles Jute Manufacture Gems & jewellery Handicrafts Others Sugar Sports goods Soaps Services Computer Sofware Service Tourist Service Banking Insurance

Primary
Plantation Crops (Traditional) 2676 in 2003 -UK USA Tobacco-(Un manufactured) UK ,JAPAN Spices (Traditional) pepper clove USA, Middle East Ores & Minerals: Iron Mica USA ,Iran, Japan Leathers 11,915 in 2005-2006 UK Russia Germany

Manufacture
CottonTextiles (Traditional) 55,408 in 2005-06 UK Japan Jute Manufactures (Traditional) 1,318 in 05-06 USA UK Gems & Jewellery 68,572 in 2005 - USA, Middle East Handicrafts 5,683 in 2005 -2006

Items of Imports
Commodities
Petroleum & products Pearls, precious stones Capital Goods Fertilisers (Agriculture) Metals Food Grains Edible oil Raw Cotton Raw Jute

2005-2006(crore)

Countries Iran Iraq Kuwait Increase in DD USA Japan USA Germany

1,94,640 40,441 1,04,142 8,815

68,93 (2003-04) Germany UK 88 (2003-04) 8961 USA Egypt 1 BANGLADESH USA Australia

Others Medicines, Chemicals, Coal, News Prints

Composition Of Trade
Countries with which India carries foreign trade. Before independence : UK After independence : Germany, Japan ,China
Today , India has trade with all major trading blocks and geographical regions of world. Region wise exports% Asia W-Europe America 46.35 24.02 Region wise exports% 34.54 23.58 21.10 8.59

Country wise India's Foreign Trade in Rs Crores

(2005-06)

Country Germany U.K USA Russia African Countries

Exports 15571 22783 76166 3232 24723

% 3.42 5.01 16.7 0.7 5.44

Imports 25760 17259 34436 8819 17156

% 4.09 2.74 5.46 1.40 2.72

Balance of payments
In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year.

Significance 1. Indicates international economic position. 2. Useful in economic analysis

Structure or components of BOP

The current account consists of the goods and services account, the primary income account and the secondary income account. (1) Visible (2) Invisible (3) Unilateral Transfers The capital account in the international accounts shows (1) capital transfers receivable and payable (Movements of SR &LR); and (2) change in foreign exchange reserve

CURRENT ACCOUNT (1) Visible - BOT covering all imports/exports (2) InvisibleServices like Transport & Banking (3) Unilateral Transfers Gifts ,Donations CAPITAL ACCOUNT (1) Movements of SR &LR Governmental Capital transactions including International Agencies & private capital transactions (2) change in foreign exchange reserve inflow and outflow of exchange reserve

Current position Of India's Foreign Trade

1951-76 (deterioration ) 1977-1980( improvement) 1980-1990 (structural balance) 1991-96 (stabilization) 1996-2006(Surplus)

Causes for Disequilibrium in BOP Increase in Imports Slow growth of exports Growth of population Substitute Products Silk Oil Crises (300%) Increase expenditure on foreign loans Imports of Food Grains

Measure to correct Disequilibrium in BOP Export Promotion Publicity- Trade Fair Authority of India TFAI Exports Incentives Trade agreements Devaluation Tax Relief Credit Facilities Import Restriction Attract Foreign tourist Import Substitution

Differences between BOT & BOP

Balance Of Trade Balance Of Payments

Only visible items (Goods) Both visible & invisible (G/S) Narrow in scope Current Account No realistic Picture in economic position in international trade Border in scope Current & Capital Account Realistic Picture in economic position in international trade

Foreign exchange reserves

Foreign exchange process of converting one national currency into another and of transferring money from one country to another. Foreign exchange reserves official holding of foreign currency (central bank) by a nation Import cover Foreign exchange - amount of foreign currencies earned by nation by export of G&S to other country at a given point of time

Trade Sector Reforms

1. 2. 3. 4. Formulation of EXIM policy Measures for Export promotion Liberalized Import policy Removal of quantitative Restriction GATT- General Agreement on Tariffs and Trade GATS- General Agreement on Trade in service TRIPS- Trade Related aspects of Intellectual property
Rights

TRIMS- Trade Related Investment Measures WTO world Trade Organization

EXIM policy
Export and Import Policy for the five year period 2002-07 coinciding with the 10th Five year Plan. This Policy recognized that international trade is a vital part of development strategy and that it can be an effective instrument of economic growth. the policy adopted the goal for India to reach 1% share of global trade by the year 2007, up from the level of 0.67%.

Special Economic Zones (SEZ)

Export Oriented Units (EOU)

Measures for Export promotion

Packaging for Exports Role of packaging for exports has gained much significance in view of trends in the world markets. The need for better and scientific packaging for exports from small sector was recognised long back. With a view to acquaint SSI Exporters of the latest Packaging standards, techniques etc. Technical & Managerial Consultancy Services Marketing Development Assistance Setup of EXIM bank Bilateral tarde 100% EOUs were promoted Several duties have been abolished

Liberalized Import policy

One of the objective of GATT and WTO is to Liberalized Import among members In 2001 as per WTO, all quantitative restriction except a few related to defence and health have been fully removed.

Removal of quantitative Restriction

Since independence, India has been safeguarding Domestic industries. By Tariff and quotas. In 1999 2,700 items were not duty free. But WTO has taken a required step for the Removal of quantitative Restriction

GATT- General Agreement on Tariffs and

Trade
Launched in 1948 by 23 countries including India. OBJECTIVES To reduce trade Barriers To eliminate international discriminations To have mutual co-operation To develop full utilization of resources To increase world production by ensuring full employment

GATS- General Agreement on Trade

in service

Is one of the multilateral agreements of WTO. Services like banking, insurance, transportation, television, radio ,film etc are heavily protected through restrictions. The main obligation is that the member countries are prevented from discrimination among foreign suppliers

TRIPS- Trade Related aspects of Intellectual property Rights TRIMS- Trade Related Investment Measures
TRIPS To promote innovation and transfer of
technology. 1. Property rights 2. Trade marks 3. Industrial design

TRIMS
To meet trade balancing requirements Local contents Domestic sale requirements

WTO world Trade Organization

1 ST JAN 1995. LOCATED IN Geneva in Switzerland. An international organization that administers multi lateral agreements in relation to trade of G/S TRIPS . 132 members countries including develop and developing countries Its nature is to deal with rules of trade and it provides platform for better trade relations

Objectives
To administer multi lateral trade system Platform for multilateral trade negotiations To keep a track of national trade policy of member countries To resolve disputes among member countries.

Principles
Most favored nations Reduction in trade barriers Unfair practices such as Dumping More benefits to be give to less developed countries

WTO & India

Lowering of import duties close of industries Quantitative restriction member complains has forced to remove the Quantitative restriction has led to damage to industry 2nd hand cars are allowed to be imported.. Effected the automobile industry Small scale industries MNCs