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FOREIGN TRADE IN
INDIA
International Trade Law
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INTRODUCTION
There is a huge disparity in Geographic as well as climatic conditions in the World every
country cannot produce everything due to this reason and does not possess every human skill
as well. The quality of production of service may get compromised because of inappropriate
conditions in the country. Moreover, manufacturers have to bear extra costs for production.
Therefore, countries trade with each other to exchange the commodities or services that they
cannot produce or which may not be viable for production this is what is known as Foreign
Trade. Most of the countries in the world are engaged in this and thereby known as external
trade. Countries enter into this trade if they have a surplus amount of commodity. They sell a
part of their domestic production to foreign individuals and firms. Thereby, the exchange of
goods and services on a global level has a significant impact on a national economy as
exports grow, thus increasing the balance of international payments and significantly
contributing to the GDP of the country.
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FOREIGN TRADE IN INDIA

INDIA’S FOREIGN TRADE AT THE TIME OF INDEPENDENCE 1

The Foreign Trade conditions of India were worst at the time of Independence. Before
Colonial rule, India’s Trade was in very good condition but the British spoiled all the foreign
countries’ relations. The conditions of the foreign trade of India were limited Britain was
only as the Britishers ruled. To increase the quantum of import for Britishers’ Industries, they
not only export the Natural resources of India but also spoiled the international relation of the
other countries. On the eve of Independence, the balance of trade of India was favorable
which means the export was more but the import was less. The direction of trade was
restricted to Britain only as the Indian Economy was the market for the finished goods and a
large exporter of raw material for them. In 1946 -47, exports of the Indian Economy were
more than imports but during 1947-48, this shifted and the shrink in the exports of Indian
Economy was there visible at that period. From the point of view of the composition of trade,
India was the large exporter of raw material while the big importer of finished goods
manufactured in Britain.

State of India’s Foreign Trade:

- Exporter of Primary Products and Importer of Finished Goods: India became an exporter
of primary products such as raw silk, cotton, wool, sugar, indigo, jute, etc., and an importer of
finished consumer goods like cotton, silk, and woolen clothes and capital goods like light
machinery, produced in the British Industries.

- Monopoly Control of British Rule: British Government maintained monopoly control over
India’s exports and imports. More than half a percentage of India's foreign trade was
restricted to Britain while the rest was allowed with a few other countries like China, Ceylon
(Sri Lanka), and Persia (Iran). The opening of the Suez Canal in 1869 served as a direct route
for the ships Operating between India and Britain.

- Trade through Suez Canal: 2Suez Canal is an artificial waterway running from north to
south across the Isthmus of Suez in north-eastern Egypt. The opening of the Suez Canal in

2
Fletcher, Max E. “The Suez Canal and World Shipping, 1869-1914.” The Journal of Economic History, vol.
18, no. 4, [Economic History Association, Cambridge University Press], 1958, pp. 556–73,
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1869 reduced the cost of transportation and made access to the Indian market easier. The
canal provided a direct trade route for ships operating between Britain and India and avoided
the need to sail around Africa. Strategically and economically, it is one of the most important
waterways in the world.
- Drain of Indian wealth during British Rule: India became an exporter of primary products
(raw material) and an Indian Economic Develop importer of finished goods. There was a
huge export surplus due to excess exports. However, the export surplus was used: To make
payments for expenses incurred by an office set up by the colonial government in Britain. To
meet expenses on the war fought by the British government. To import invisible items.

INDIA’S FOREIGN TRADE AFTER INDEPENDENCE 3

In the initial years after independence, India had to set up its administrative, economic, and
state functions in the interest of the nation. After experiencing a long period of foreign rule
which was established after the East India Company came to India for trade, India was not
ready for many imported goods. At the same time, because of poverty and scarcity of foreign
exchange, India was compelled to regulate imports. Exports were also limited. India adopted
a mixed economic system after independence and steered strategic development through
planning. India started setting up basic industries of large scale and to establish such huge
industries, we had to import costly machinery, technology, and spare parts. Thus, scarcity of
foreign exchange emerged, and restrictions were imposed on imports of consumer goods.
Hence, in the foreign trade policy in the initial year emphasis was laid upon measures of
protection for the domestic industry against foreign competition, various import restrictions
were imposed and export promotion measures were introduced

Hence, in the foreign trade policy in the initial year emphasis was laid upon measures
of protection for the domestic industry against foreign competition, various import
restrictions were imposed and export promotion measures were introduced. Later on, along
with the traditional items of exports like agricultural produce, handicrafts, gems, and jewelry,
the exports of non -traditional industrial goods were also promoted. 4 With devaluation,
imports did become costly but since the items of imports were necessary for India's

3
Malik Shawal, History of India’s Foreign Trade, available at:
https://www.yourarticlelibrary.com/notes/history-notes/history-of-indias-foreign-trade/69166
4
Direction and Composition of India’s Foreign Trade, Pg. no. 110, available at:
https://nios.ac.in/media/documents/318courseE/L33%20DIRECTION%20AND%20COMPOSITION%20OF
%20INDIAS%20FOREIGN%20TRADE.pdf
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industrialization there was no significant decline in imports. Import bills increased and there
was a deficit in India's Balance of Payments. A policy of import substitution was also
adopted. Import substitution is a policy of substituting imports for domestically produced
goods. That is, imports are reduced and replaced by domestic goods.

Foreign Trade Condition in India after Globalization

India's economic policies were modified after 1991 to promote trade and investment. A
restrictive inward-looking foreign trade policy was transformed into an outward-looking one.
The Indian rupee was allowed to be translated into foreign currencies at market rates rather
than the former government conversion, and import-export licensing was simplified; today
only crude, edible oils, and chemical fertilizers are subject to severe licensing. Foreign
enterprises can now sell a variety of commodities in India thanks to the promotion of FDI and
privatization. India's commerce with non-traditional trading partners or new nations expanded
as a result of globalization, and new trade policies aimed at expanding India's share of global
trade. India joined the World Trade Organization (WTO) in 1995, and trade policy
adjustments were implemented by WTO guidelines.
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CONCLUSION

Foreign trade is critical to a country's growth and development. Natural resources are not
distributed equally throughout nations, and there is a disparity in terms of minerals, oil wells,
topography, vegetation, and cattle richness. Imports from other countries will help to
replenish the shortfall. It has been significant since antiquity. Exports, on the other hand, are
critical in order to export a surplus of products and services. As a result, certain rare things
are imported. This will be a bilateral or multilateral trade between nations that promotes
understanding and amicable ties in the exchange of goods and services, resulting in the
accumulation of foreign exchange reserves. As a result, foreign trade has always played a
critical role in the growth of any country.