INDIAN FOREIGN TRADE

ASSIGNMENT

• TRADE PERFORMANCE OF INDIA DURING PRE INDEPENDENCE

Foreign trade means the exchange of Goods and services between two or more
countries/borders or territories. From the time of independence, India has been one
of the important trading countries, exporting primary items like cotton, raw silk,
sugar, wool, jute, and indigo, etc. Moreover, importer of finished consumer goods
like woolen clothes, cotton, silk, and capital goods like light machinery
manufactured in Britain.

During this period, Britain held the monopoly of over India’s imports and exports.
Therefore, most of the foreign trade was restricted only to Britain and other was
while the rest half was allowed to trade with other countries like Ceylon (Sri
Lanka), China, and Persia (Iran).
India was a large exporter in the colonial period. However, it did not affect the
country’s economy. Commodities like food grains, clothes, kerosene hit the
country hard with its scarcity.
 • INDIA’S TRADE AFTER INDEPENDENCE (POST- INDEPENDENCE);

After independence, as a result of the changing requirements of the process of

industrialisation, there has been a shift in India’s import trade from primary
products to capital goods and other intermediate manufactures. Previously, during
the first two plans (i.e., from 1950-51 to 1960-61), India’s major imports consisted
of food grains, cotton, jute, etc. But, after that the trend has changed.

As a result of industrial progress during the planning period, there has been an
increasing diversification of Indian exports over the years. Before independence
and during the initial years of planning, India’s major exports were primary
products like tea, jute, cotton, and textile.

As the economy progressed, a large number of finished goods, like capital goods
and other engineering items, chemical and chemical products, leather and leather
manufactures, readymade garments, handicrafts, etc. have entered the export list
and their share has increased considerably.

Since the beginning of 1980’s crude petroleum has emerged as a significant item in
Indian exports. The transformation in the composition of India’s exports has been
made possible because of rapid growth and diversification of Indian industries.
The pattern of India’s foreign trade before independence was that of a colonial and
agricultural country. Most of the trade occurred with England and Common-
Wealth countries. The Exports were mostly confined to a few primary
commodities. The imports, on the other hand, consisted of manufactured articles.

Though the balance of trade was favourable, but it concealed a low level of
industrialisation in the country. After independence, the pattern, of India’s foreign
trade has undergone medical changes mainly as a result of industrial progress
during five year plans.

The changes can be studied under the following headings:

➢ Volume of Trade:
The volume of India’s foreign trade has increased considerably during the
planning period. It has increased from Rs. 1250 crores in 1950-51 to Rs. 3169
crores in 1970-71, Rs. 19260 crores in 1980-81 and Rs. 2286500 crores in 2009-
10. The expansion was particularly very fast after 1970-71. The pattern of India’s
foreign trade was completely change as a result of economic development and
industrialisation during the planning period.

It is no longer confined to a few countries or few commodities. Now India has

trade relations with almost all the countries of the world. Exports cover over 9300
commodities to about 220 countries. Imports from about 180 countries accounts
for over 8200 commodities.
 ➢ Balance of Trade:

After independence, India has been constantly experiencing an adverse balance of

trade (i.e., the difference between the value of exports and the value of imports)
during most part on the planning period.

There were, however, two exceptional years, i.e., 1972-73 and 1976-77, when the
balance of trade has shown small surplus, (i.e., of Rs. 104 crores and Rs. 72 crores
respectively). The trend of India’s balance of trade is clear from Table 1. The
balance of trade deficit which was Rs. 50 crores in 1950-51, rose to Rs. 10640
crores in 1990-91.

What is more significant is that during the recent years, the deficit in India’s
balance of trade has reached enormous heights and there is no improvement in the
situation in sight. Since 1980-81, the trade deficit has exceeded Rs. 5000 crores
every year. In 1995-96, the balance of trade deficit was Rs. 16325 crore. It rose to
Rs. 27302 crore in 2000-01 and Rs. 367664 crore in 2007-08.

However, trade deficit started increasing sharply since 2004-05. This is clearly
indicated by a continuous fall in the export-import ratio over the year. The export-
import ratio, which was 88.2% in 2000-01, decreased to 75.8% in 2005-06 and
further to 60.7% in 2011-12. This increase in the trade deficit is mainly due to the
sharp increase in imports and prices of petroleum and petroleum products.

➢ Composition of Trade:

Composition of foreign trade refers to the composition of imports and exports. A

study of the changes in the composition of foreign trade helps us to analyse the rate
and direction of economic progress in the economy.

➢ New economic policy 1991

LPG reforms of 1991 is a strategic shift in Indian economy , by the former Finance
Minister Shri. Manmohan Singh(Indian Economist) , which changed the very
Nature of Indian reality today. This topic forms the foundation for Indian
Economy today. Having a fair idea about the change it brought in Indian economy
and international events which lead to it is important for the Mains across
disciplines.

Indian economy was a closed one. License Raj was prevalent to set up business
in India. The Indian rupee was inconvertible and high tariffs and import
licensing prevented foreign goods reaching the market.

The central pillar of the policy was import substitution, the belief that India needed
to rely on internal markets for development, not international trade. There
was restriction of foreign investment and technology and government controlled
finance and capital markets.

There were high duties and taxes with multiple rates and large dispersion. PSUs
were considered as the engine of growth. There were restrictions on Foreign Direct
Investment (FDI) and Multinational corporations (MNCs).