Introduction to India's Foreign Trade ↓

Foreign Trade is one of the significant macro fundamental variable of an economy. India till recently was

predominantly a primary goods exporting and mainly an industrial goods importing country.

In 1950s, India's share in the world trade was 1.78% which was decline to 0.59% in 1990 and continues

to remain around 0.60% till now. India's share in world exports was 0.8% in 2006.

A. Composition of India's Exports ↓

Britishers strongly believed that India was a country well suited to supply raw materials and other primary

goods and a good market place for British manufacturers. So at the time of our independence our exports

were predominantly of primary goods and imports were of manufacturers. At the time of independence

agricultural commodities and light manufactured consumer goods dominated India's export basket. During

the post independence period India's composition of exports changed.

Now exports of India's are broadly classified into following four categories.

Table below shows composition of India's export from 1990-91 to 2005-06.

The composition of India's export can be summarised as follows :-

1. Agricultural and Allied Products

The share of agriculture items in the total exports of India has declined between 1990-91 to 2005-06. The

share of agriculture exports was 19.5% in 1990-91. It came down to about 10.2% in 2005-06.

The top items of agriculture exports include :-

1. Fish Products,

2. Rice,

3. Oil Cakes,

4. Fruits and Vegetables

The most important export item in 'Agriculture and Allied products' group over the period 1991-92 to 2005-

06 has been 'Fish and Fish Preparations'. From $ 585 millions in 1991-92 export earnings from fish and

fish preparations rose to $ 1,589 millions in 2005-06. However, in percentage terms, their share fell

slightly from 3.3 percent in 1991-92 to 1.5 percent in 2005-06.

As far as agricultural exports are concerned, a significant development during the period since 1991 has

been the considerable exports of rice in certain year. In fact, exports of rice were as high as $ 1,366

millions in 1995-96 which was 4.3 percent of total export earning in that year. In 2005-06, exports of rice

were worth $ 1,405 millions which was 1.4 percent of total export earning in that year.

2. Ores and Minerals

The overall export performance of ores and minerals is not satisfactory. In percentage terms, the export

performance of ores and mineral has increased from 4.4% in 199091 to 5.2% in 2005-06.

A major share of ores and minerals exports comes from the export of iron ore.

3. Manufactured Goods

The share of manufactured items in the total export earnings of India is on the increase. In 1990-91, the

share of manufactured items in the total export earnings was about 73% of the total export earnings.

In 2005-06, the share of manufactured items in the total export earnings of India remained stagnant at

72%.

The top manufactured export items include :-

1. Engineering Goods,
 2. Gems and Jewellery,

3. Chemicals and Allied products, and

4. Readymade Garments

The export of engineering goods increased from $ 2,234 millions in 1991-92 to $ 21,315 million in 2005-

06. In percentage terms the share of engineering goods rose from 12.5% in 1991-92 to 20.7% in 2005-06.

Over the period 1991-92 to 2002-03, engineering goods occupied the second position in India's export

earnings after gems and jewellery. However, thereafter engineering goods have occupied the first place.

In 2005-06 they contributed 20.7% (i.e. one-fifth) of total export earnings.

For most of the period since 1991, largest export earnings came from the exports of gems and jewellery.

The share of gems and jewellery in India's total export was 15.3% in 1991-92 and 15.1% in 2005-06.

However, gems and jewellery industry is a highly import intensive industry requiring large amount of

imports of pearls and precious stones.

Exports of chemicals and allied products rose significantly from $ 1,583 millions in 1991-92 to $ 11,935

millions in 2005-06. In percentage terms, their share stood at 11.6% in 2005-06 and they occupied the

third place in India's export earnings in this year.

In percentage terms, readymade garments maintained an almost constant share all through the period

since 1991. They contributed 12.3% of export earnings in 1991-92 and 12.5% of export earnings in 2000-

01. In 2003-04, their share fell to 9.8% and in 2005-06 to 8.3%.

4. Mineral Fuel and Lubricants

There has been an improvement in the export of mineral fuels and lubricants both in terms of value and in

terms of percentage. In percentage terms, its share has increased from less than 2.9% in 1990-91 to

11.5% in 2005-06.

Some other facts regarding structural change in India's export since 1991 are as follows :-

1. There are indication that during 1990s, some of Indian exports have moved upwards in value

addition chain whereby instead of exporting raw materials, the country has switched over to export of

processed goods.

2. There were significant compositional shift within the major manufactured product groups such as

engineering. goods, chemicals and allied products, etc.

B composition of India’s imports

In 1947-48 the main items of India's imports were machineries, oil, grains, cotton, cutlery, hardware

implements, chemicals, etc. They constituted 70% of India's imports. After that due to the emphasis on

industrialisation during the second 5-Year plan necessitated the imports of capital goods.

Now imports of India's are broadly classified into following four categories.

Table below shows composition of India's import from 1990-91 to 2005-06.

The composition of India's imports can be summarised as follows :-

1. Petroleum Products

Imports of petroleum oil and lubricants rose significantly from $ 5364 millions in 199192 to $ 43,963

millions i.e. more than eight times.

Due to high price of crude oil, the POL imports jumped to $ 15,650 millions in 2000-01. In 1990-91,

petroleum products accounted for nearly 25% of total imports of India. In 2005-06, it has further increased

to nearly 31% of the total import bill of India.

2. Capital Goods

The imports of capital goods was $ 3,610 millions in 1991-92. In 1995-96 due to sharp rise in non-

electrical machinery imports, the imports of capital goods jumped upto $ 8,458 millions. However due to

slowing domestic demand imports of capital goods fell subsequently. The capital goods and related items

were 24.1% of the total imports of India in 1990-91, which has come down slightly in 2005-06 to about

22.3%.

3. Pearls and Precious Stones

To meet the requirements of the gems & jewellery industry pearls and precious stones are imported in

large quantities. In 1990-91, the share of pearls and precibus stones was 8.7% which has reduced in

percentage terms to 6.4% in 2005-06.

4. Iron and Steel

The imports of iron and steel have declined over the years in percentage terms. In 1990-91, the share of

iron and steel imports was 5%, which has come down to 3% in 2005-06. This is because, a good amount

of iron ore is now extracted in India which has reduced imports.

5. Fertilizers

Import of fertilizers in 1991-92 stood at $ 954 millions. In 2003-04 expenditure on import of fertilizers was

$ 635 millions.

The import of fertilizers have declined, which indicates less dependence of India on imported fertilizers.

The share in total imports of fertilizers was 4.1% in 1990-91, which came down to 1.5% in 2005-06.

Composition of India's foreign trade has undergone a positive change. It is a remarkable

achievement that India have transformed itself from a predominantly primary goods exporting country into

a non-primary goods exporting country. Under import too India's dependence on food grains and capital

goods has declined.

The trend indicates structural transformation of Indian economy.