A STUDY ON FOREIGN TRADE IN INDIA

Project Submitted in partial fulfillment of the requirements for the

Award of the Degree of
MASTER OF COMMERCE
Submitted by
D.PADMANABAN
P19BC016
Under the guidance of
M.M.SHANMUGAPRIYA M.E.,M.B.A.,
Assistant Professor
Department of Commerce & Economics
Bharath Institute of Higher Education and Research

DEPARTMENT OF COMMERCE AND ECONOMICS

FACULTY OF ARTS & SCIENCE
BHARATH INSTITUTE OF HIGHER EDUCATION AND RESEARCH
173, AGHARAM ROAD, CHENNAI 600 073
MAY – 2021
 DECLARATION

I declare that this Project entitled “A STUDY ON FOREIGN TRADE IN INDIA”

is an original and bonafide work done by me in the partial fulfillment of the requirement for

the award of the degree of Master of commerce submitted to the Department of Commerce

and Economics, Bharath Institute of Higher Education and Research, was carried out under

the supervision of Prof. M. M. SHANMUGAPRIYA, ASSOCIATE PROFESSOR,

DEPARTMENT OF COMMERCE & ECONOMICS, Bharath Institute of Higher

Education and Research, is entirely original and has not been submitted for any degree or

diploma earlier.

I further declare that this Project does not form of any other project or dissertations on

the basis of which a degree was awarded or conferred on earlier occasion on me or any other

candidate.

PLACE: CHENNAI SIGNATURE

DATE: PADMANABAN D
 BONAFIDE CERTIFICATE

This is to certify that the Project entitled “A STUDY ON FOREIGN TRADE IN

INDIA ” submitted by PADMANABAN D (P19BC016), for the degree of Master of

Commerce, Department of Commerce and Economics, Bharath Institute of Higher

Education and Research, Chennai – 600 073, is based on the results of studies carried out

by him / her under my guidance and supervision. This project or any part of the work has not

been submitted elsewhere for any other degree.

Place: Chennai Prof. M.M.SHANMUGAPRIYA,

Date : ( Research Supervisor)

 ACKNOWLEDGEMENT

I would like to thank the Honourable Chancellor Dr. J. Sundeep Aanand and
Honourable Managing Director Dr. E. Swetha Sundeep Aanand respected Vice Chancellor
Dr. V. Kanagasabai for giving me an opportunity to pursue research program in Bharath
Institute of Higher Education and Research.

I express my gratitude to Pro –Vice Chancellor in-charge Dr. Vijaya Bhaskar Raju,
Dr. M. Sundararajan (Academic) and Dean Arts and Science Dr. A. Muthukumaravel for
providing constant support to submit the project in time.

I would like to thank Dean R&D to Dr. M. Prem Jeyakumar, to facilitate

to submit the project of my research work successfully. I wish to
place on record my deep sense of gratitude and heart-felt thanks to Dr. R.M.
Suresh, Controller of examinations for giving valuable suggestions.

I express my thanks to Dr. D. Venkatarama Raju, Professor & Head of the

Department of Commerce & Economics, BIHER, for her encouragement and constant
support to carry out this work.

It is great pleasure to express my deep sense of gratitude to my supervisor

Prof. M. M. SHANMUGAPRIYA, ASSOCIATE PROFESSOR, DEPARTMENT OF
COMMERCE & ECONOMICS, Bharath Institute of Higher Education and Research, for
her / his valuable suggestion and guidance and encouragement at every stage of work.

I express my whole hearted thanks to people who directly or indirectly gave

me encouragement and support throughout the research work carried out by me.

PADMANABAN D
 ABSTRACT

All countries need goods and services to satisfy wants of their people. Production of goods and

services requires resources. Every country has only limited resources. No country can produce

all the goods and services that it requires. It has to buy from other countries what it cannot

produce or can produce less than its requirements. Similarly, it sells to other countries the goods

which it has in surplus quantities. India too, buys from and sells to other countries various types

of goods and services.Generally no country is self-sufficient. It has to depend upon other

countries for importing the goods which are either non-available with it or are available in

insufficient quantities. Similarly, it can export goods, which are in excess quantity with it and

are in high demand outside.

Foreign trade is exchange of capital, goods, and services across international borders or

territories. In most countries, it represents a significant share of gross domestic product (GDP).

While international trade has been present throughout much of history, its economic, social,

and political importance has been on the rise in recent centuries.

Imports and exports are the two important components of a foreign trade. Foreign trade is the

exchange of goods and services between the two countries, across their international

borders.'Imports' imply the physical movement of goods into a country from another country

in a legal manner. It refers to the goods that are produced abroad by foreign producers and are

used in the domestic economy to cater to the needs of the domestic consumers. Similarly,

'exports' imply the physical movement of goods out of a country in a legal manner. It refers to

the goods that are produced domestically in a country and are used to cater to the needs of the

consumers in foreign countries. Thus, the imports and exports have made the world a local

market. The country which is purchasing the goods is known as the importing country and the

country which is selling the goods is known as the exporting country. The traders involved in

such transactions are importers and exporters respectively.

 TABLE OF CONTENTS

CHAPTER NO PARTICULARS PAGE NO

1 INTRODUCTION
1.1 INTRODUCTION OF THE STUDY 1
1.2 COMPANY PROFILE 4
1.3 INDUSTRY PROFILE 7
1.4 OBJECTIVES TO KNOW 19
1.5 NEED OF FOREIGN TRADE 19
1.6 SCOPE OF FOREIGN TRADE 20
1.7 LIMITATIONS OF THE STUDY 20
1.8 FEATURES OF INDIA’S FOREIGN TRADE 20
1.9 ADVANTAGES OF FOREIGN TRADE 21
1.10 DISADVANTAGES OF FOREIGN TRADE 21
1.11 BALANCE OF TRADE 21
1.12 TYPES OF BALANCE OF TRADE 22
2 REVIEW OF LITERATURE 23
3 RESEARCH METHODOLOGY
3.1 MARKET RESEARCH 28
3.2 MARKET SELECTION 29
3.3 MARKET INTELLIGENCE 32
3.4 MARKET RESEARCH METHODS 33
3.5 MARKET ANALYSIS 34
4 DATA ANALYSIS AND INTERPRETATION 36
5 SUGGESTIONS AND CONCLUSION
5.1 SUGGESTION 48
5.2 CONCLUSION 49
6 BIBLIOGRAPHY 50
 1

CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION OF THE STUDY

Trade is the process of purchasing and procuring of goods and services with the object of selling

them at a profit. Trade means buying and selling of goods. It involves the exchange of

commodities for money or money’s worth. It is the means by which people sell those goods

which they do not need.Traders serve as the link between producers and consumers. They help

in directing the flow of goods to the most profitable markets.They, also bring about the

equitable distribution of goods. In the absence of traders, producers will have to go in search

of consumers. Trade is the nucleus of commerce. Other parts of commerce such as

transport,insurance, warehousing, banking and advertising revolve around trade.

Trade may be classified into home trade and foreign trade. Home trade may further be

subdivided into wholesale trade and retail trade. Similarly, foreign trade made by sub-divided

into import, export and entrepot

trade.International business operations at firm level are considerably influenced by various

policy measures employed to regulate trade, both by home and host countries. Exportability

and importability of a firm’s goods

are often determined by trade policies of the countries involved. Price-competitiveness of

traded goods is affected by import and export tariffs.The host country’s trade and FDI policies

often influence entry decisions in international markets. Policy incentives help exporters

increase their profitability through foreign sales. High import tariffs and other import

restrictions distort free market forces guarding domestic industry against foreign competition

and support indigenous manufacturing. Therefore, a thorough understanding of the country’s

trade policy and incentives are crucial to the development of a successful international business

strategy.Trade policy refers to the complete framework of laws, regulations, international

 2

agreements, and negotiating stances adopted by a government to achieve legally binding

market access for domestic firms. It also seeks to develop rules providing predictability and

security for firms. To be effective, trade policy needs to be supported by domestic policies to

foster innovation and international competitiveness. Besides, the trade policy should have

flexibility and pragmatism.

Trade in developing countries is characterized by heavy dependence on developed countries,

dominance of primary products, over-dependence on few markets and few products, and

worsening of terms of trade and global protectionism, all of which make formulation and

implementations of trade policy critical to economic development. The strategic options for

trade policy may either be inward or outward looking.

As a result of liberalization and integration of national policies with WTO agreements, there

has been a strategic shift in trade policies. Like other developing countries, India’s trade

policies have also made a gradual shift from highly restrictive policies with emphasis on import

substitution to more liberal policies geared towards export promotion.India’s foreign trade

policy is formulated under the Foreign Trade (Development and Regulation) Act, for aperiod

of five years by the Ministry of Commerce, Government of India. The government is

empowered to prohibit or restrict subject to conditions, export of certain goods for reasons of

national security, public order,morality, prevention of smuggling, and safeguarding balance of

payments.Policy measures to promote international trade, such as schemes and incentives for

duty-free and concessional imports, augmenting export production, and other export promotion

measures are discussed in-depth.The multilateral trading system under the WTO trade regime

significantly influences trade promotion measures and member countries need to integrate their

trade policies with the WTO framework. The WTO trade policy review mechanism provides

an institutional framework to review trade policies of member countries at regular

intervals.Foreign trade is exchange of capital, goods, and services across international borders
 3

or territories. In most countries, it represents a significant share of gross domestic product

(GDP). While international trade has been present throughout much of history, its economic,

social, and political importance has been on the rise in recent centuries.

All countries need goods and services to satisfy wants of their people. Production of goods and

services requires resources. Every country has only limited resources. No country can produce

all the goods and services that it requires. It has to buy from other countries what it cannot

produce or can produce less than its requirements. Similarly, it sells to other countries the goods

which it has in surplus quantities. India too, buys from and sells to other countries various types

of goods and services. Generally no country is self-sufficient. It has to depend upon other

countries for importing the goods which are either non-available with it or are available in

insufficient quantities. Similarly, it can export goods, which are in excess quantity with it and

are in high demand outside.

International trade means trade between the two or more countries. International trade involves

different currencies of different countries and is regulated by laws, rules and regulations of the

concerned countries. Thus, International trade is more complex.International trade allows

countries to exchange good and services with the use of money as a medium of exchange. The

benefits of international trade have been the major drivers of growth for the last half of the 20th

century.Nations with strong international trade have become prosperous and have the power to

control the world economy. The global trade can become one of the major contributors to the

reduction of poverty.
 4

1.2 COMPANY PROFILE

NICK IMPORT & EXPORT PVT LTD was founded in 2004 by Mr. Richard under the

banner of Confidence and Integrity . With highly qualified employees and long-term

professional experience, we have diversified our trading portfolio in 16 years of rapid growth,

supplying and exporting various products worldwide. We provide import & export procedure,

methods and activity services as well as consultancy that will guide you throughout the entire

process. We ensure cooperation with experienced professionals in their respective fields in

effort to provide the highest quality

Nick Import & Export Company is providing services to various international companies from

India. Our export – import services team examines the latest regulations frequently in order to

minimize paperwork, expedite transit and lower shipping costs. We provide customized quality

services to support customer shipment of goods from and to Thailand. Our partners include

different international companies, wholesalers and manufacturers that we introduce to existing

as well as potential customers in the Middle East, Africa and Central Asia, acting as a

middleman to help introduce various products and services in foreign markets. We ensure

accurate communication when planning orders together with our customers and suppliers, with

the aim of securing a consistent cooperation.

We are a highly regarded Import & Export Consultancy dedicated to providing various types

of products and services. . We provide efficient services due to our vast network, allowing us

to meet most of our customers’ demands with the highest quality possible. Our services include

sales, purchases and issuance of various types of license. In this domain, we are recognized as

a reliable, cost effective and a timely service provider. Our company is perceived as one of the

most well established and dependable suppliers of export documentation and consulting

services in Thailand. We provide access to various product suppliers and wholesalers, as well

as professional counselling in the field, preparation, monitoring and issuance of all necessary
 5

documents under Foreign Trade regulations. We incorporate a customer-focused

approach,ensuring effective communication and customer loyalty, while applying a service

program that serves the needs of both our suppliers and buyers.

Imports

➢ Cereals and Cereal Products:

➢ Petroleum Oil and Lubricants:

➢ Fertilizers and Chemical Products:

➢ Iron and Steel:

➢ Non-Ferrous Metals:

➢ Electrical Equipments and Transport Equipment:

➢ Pearls and Precious Stones:

➢ Edible Oil:

Exports

❖ Jute Manufactures

❖ Tea

❖ Iron Ore

❖ Tobacco

❖ Manufacturing of Textile Goods

❖ Gems and Jewellery

❖ Chemicals and Allied Products

❖ Textile Fabrics and Readymade Garments

❖ Miscellaneous

Import Trade Procedure

Stage 1 -» Obtaining import License

Stage 2 -> Making trade enquiry and receiving quotation/perform invoice

 6

Stage 3 -> Obtaining foreign exchange

Stage 4 -> Placing an Indent

Stage 5 -> Opening letter of credit

Stage 6 -> Receiving shipping documents

Stage 7 -> Appointing Clearing agent

Stage 8 -> Formalities by clearing agent

❖ Getting endorsement for delivery:

❖ Paying dock dues:

❖ Preparing bill of entry:

❖ Obtaining customs clearance:

❖ Getting delivery from the dock:

❖ Dispatching goods to the importer:

❖ Sending advice to the importer:

Stage 9 -» Taking Delivery of goods from railway/Carrier

Stage 10 -> Making payment

• Import license

• Indent

• Letter of Credit

• Documentary bill of exchange (D/A or D/P)

• Bill of Entry

• Bill of Sight

• Port Trust Dues Receipt

• Advice Note

• Bill of Lading

• Insurance policy
 7

1.3 INDUSTRY PROFILE

1. Size of State Territory:

The size of a state is an important factor of its Foreign Policy. Size influences the psychological

and operational environment within which the foreign policy-makers and public respond. It

includes, as Rosenau says, both human and non-human resources. Nations with large human

and non-human resources always try to be big powers and they have better chances of

becoming big powers in international relations.Foreign Policy of a big sized state is bound to

be different from the foreign policy of a small-sized state. Public and foreign policy-makers of

big sized states are definitely governed by their desire to be big powers in the World. Size has

been a factor in the foreign policies of the U.S.A., Russia, China, India, Brazil, France and

others. Large sized states, with few exceptions, always formulate and use an active Foreign

Policy and through it these play an active role in international relations.However, size alone is

not an independent determinant of foreign policy. Resources and capabilities of the state are

not always dependent upon size. The countries of the Middle East, even with small sizes but

with the largest quantity of oil resources, have been playing quite an active role in international

relations. Japan is relatively a small sized state and yet its role in international relations has

been active and influential.Israel, despite being a small sized state has been influencing the

course of politics among nations. Before 1945, Britain, with a small size, could play the role

of a world power. Large size poses the problem of defence, security and maintenance of

communications. In the absence of natural boundaries, the large size of a nation very often

creates the problem of relations with neighbouring states. Despite being the large sized states,

Australian and Canadian foreign policies have not been very active. Russia is a large sized state

but its role in contemporary international relations continues to be weak.

2. Geographical Factor:
 8

Geography of a state is relatively the most permanent and stable factor of its foreign Policy.

The topography of land, its fertility, climate and location are the major geographic factors

which influence the Foreign Policy of a nation. These factors determine both the needs as well

as the capability to fulfill the needs of the people of a nation.Suitable geographical factors can

help and encourage the nation to adopt and pursue higher goals. The role played by English

Channel in the development of Britain as a major naval power and consequently as an imperial

power is well known. The influence of the Atlantic Ocean on the US Foreign Policy has been

always there. Indian Foreign Policy now definitely bears the influence of the geographical

location of India as the largest littoral state of the Indian Ocean.The relatively unhelpful

geographical conditions of Canada have been a factor in the determination of its Foreign Policy.

The territorial expanse makes it difficult for other nations to think of securing an outright

military victory over Russia. The location of Pakistan too has influenced its relations with

India, China and the Central Asian republics. The geographical distance from Pakistan has been

a factor in the foreign policy of Bangladesh.The natural resources and the food production

capacity of a nation is directly linked with its geography. These factors are also important

factors in the formulation and implementation of foreign policy. Adequate existence of vital

natural resources—minerals, food and energy resources—have been helping factors of the US

and Russian foreign policies.

Food shortage was a source of limitation on Indian Foreign Policy in the 1950s & 1960s.

Consumer goods shortage have been hitting hard the foreign policy and relations of Russia.

Large quantities of oil have made it possible for the West Asian and Gulf nations to adopt oil

diplomacy as a means of their foreign policies.Geography, as such is an important and

permanent factor of foreign policy, yet it is not a deterministic factor. The revolutionary

developments in communications and modern warfare, and the ability of nations to overcome

geographical hindrances have tended to reduce the importance of geography.

 9

3. Level and Nature of Economic Development:

One of the main reasons why the US Foreign Policy has been very often successful in securing

its national objectives, particularly in relation to the poor and economically lowly placed states

of the world is the high degree of its economic development. The developed countries of our

times are highly industrialized and economically developed states. These can use foreign aid

as a tool for securing their foreign policy goals.The global perspectives and policies of the two

super-powers (1945-90) were again governed by their vast economic and industrial resources

and their needs for foreign markets and trade. In fact, all economically and industrially

developed nations (Group of seven plus one, countries in particular) are now playing a more a

vigorous role in international relations than the lowly developed and developing countries.The

strong commitment of the foreign policies of the lowly developed and developing countries to

the cause of a New International Economic. Order is again a proof of the role of economic

factors of international relations.The level of economic development also determines the scope

of relations that a nation wishes to establish with other nations. The Foreign Policy of Japan in

the contemporary times is directly and fundamentally related to its economic development. The

military preparedness and military capability of a nation is again directly related to the factor

of economic development and industrialization. Only industrially and economically developed

nations can hope to become major and stable military powers.Economic power constitutes a

fundamental dimension of national power in contemporary times and at present; it can be used

more effectively for securing foreign policy goals. The US economic power has been a major

instrument of its foreign policy. Economic weakness of Russia has forced it to change its policy

towards the U.S.A. and other countries. Steadily developing India economy has definitely

given a boost to India’s foreign relations. Thus, the level and nature of economic development,

industrialization and modernization are important factors of foreign policy.

4. Cultural and Historical Factors:

 10

The cultural heritage and the history of a nation are again important and valuable factors of its

Foreign Policy. The norms and traditions that characterize the life of the people of a state are

highly influential factors of its foreign policy. During the process of interpreting and

formulating the objectives of national interest, the decision makers are always governed by

their cultural links, historical traditions and experiences.Strong cultural unity of the people is

always a source of strength for them. It materially influences their ability to secure the

objectives of national interest during the course of international bargaining. Historical

experiences and cultural links further help them to analyze and assess the nature and scope of

relations with other nations. Indeed, the weakness of the foreign policies of most of the Asian

and African states has been largely due to the presence of internal dissensions and conflicts

among their peoples.Bitter experiences with the policies of imperialism and colonialism have

been a determining factor of the anti-imperialist and anti-colonial contents of the foreign

policies of most of the new sovereign states. History is an important factor in determining the

relations among the neighbouring nations. Foreign policy interactions between India and

Pakistan are mostly the legacies of past history. The shadow of the history of 1962 still

influences the course of Sino- Indian relations.However, cultural values and links are always

subject to perpetual changes and adjustments. Historical experiences too are forgotten in the

face of national interest. The existence of conflict among the European nations, despite their

cultural links and the development, and continuance of strong US—Japanese friendship and

relations bear ample proof that cultural and historical factors have to have combination with

other factors before influencing the course of Foreign Policy.

5. Social Structure:

The structure and nature of the society for which the foreign policy operates is also an important

element. The nature of social groups and the degree of conflict and harmony that characterize

their mutual relations are determined by the social structure. A society characterised by strong
 11

internal conflict and strife acts as a source of weakness for the foreign policy.A society of

united, enlightened and disciplined people with a high degree of group harmony is always a

source of strength. The democratization of the process of policy-making in recent times has

increased the importance of social structure as an element of foreign policy. The linkages

between the domestic and international environments have tended to strengthen the role of this

element.

6. Government Structure:

The organisation and structure of government i.e. the organisational agencies which handle the

foreign policy-making and implementation is another important element of foreign policy. The

shape of the foreign policy is also determined by the fact as to whether the government agencies

handling it are democratically constituted or not.Whether the authority relations are centralized

or decision-making is free and open. The government officials also act as decision makers and

this factor always influences the formulation of foreign policy. Foreign policy of a nation has

to adapt to the environment. In a centralized and authoritarian system, the foreign policy can

remain and often remains isolated from the domestic environment.The nature of legislature-

executive relations is also an influential factor in Foreign Policy decision-making. The

harmony between the two, as is there in a parliamentary system, can be a source of strength

and lack of harmony between the two can be a source of hindrance for the foreign policy

makers. Similarly, the nature of party system, elections and electorate are other influential

factors. The continuity in Indian Foreign Policy has been also due to the nature of government-

making in India.

7. Internal Situation:

Like the external situational factors, sudden changes, disturbances or disorders that occur

within the internal environment of a nation also influence the nature and course of foreign

policy. The resignation of President Nixon over the issue of Watergate Scandal considerably
 12

limited the foreign policy of USA under President Ford.The internal opposition to the military

regime in Pakistan during 1947-89 was a determinant of Pakistani foreign policy. Similarly,

the declaration of emergency in India in 1975 did materially affect the relations of India with

other countries particularly the super powers. A change of government is always a source of

change in the foreign policy of a state.The rise of new leadership in China is now an important

input of Chinese Foreign Policy. The rise of Congress-led UPA Government in India in 2004

acted as a source of some changes in relations with India’s neighbours.The internal situation

of Pakistan—a military dominated state trying to be a democratic political system has always

been a factor of Pakistan’s Foreign Policy.

8. Values, Talents, Experiences and Personalities of Leaders:

Since the Foreign Policy of a nation is made and implemented by leaders, statesmen and

diplomats, naturally it bears an imprint of their values, talents, experiences and personalities.

The ideas, orientations, likings, disliking, attitudes, knowledge, skill and the world-view of the

national decision-makers are influential inputs of Foreign Policy. The differences among the

leaders are also influential inputs of a foreign policy.The differences between the Foreign

Policy decisions of various U.S. Presidents and their Secretaries of States have been due to the

differences in their attitudes and personalities. The Indian Foreign Policy till 1964 was often,

and rightly so, described as Nehru’s Foreign Policy. The support at home and the popularity

that PM Nehru enjoyed acted as imputes of foreign policy.Pakistani Foreign Policy, under the

influence of the ideas of General Musharraf, has undergone a big change. India’s decision to

develop nuclear weapons was definitely made under the influence of the ideas and the world-

view of BJP leaders, who came to be power holders in 1998. The foreign policy of each nation

is influenced by the personalities of its leaders. The change in leadership often produces a

change in the foreign policy of a nation.However, this does not mean that this factor is an

independent determinant of Foreign Policy. Leaders are always guided by the dictates and
 13

demands of national interest. Each leader is committed to the securing of national interests of

the nation. The vital interests of the nations are a source of continuity if the personalities and

attitudes of the leaders are a source of change. The two have to be balanced before these serve

as foreign policy inputs.

9. Political Accountability:

In the words of Rosenau, “the degree to which public officials are accountable to the citizenry,

either through elections, party competitions, legislative oversight, or other means, can have

important consequences for the timing and contents of the plans that are made and the activates

undertaken in foreign affairs.”A political system which is both responsive to and responsible

before the people, works in a different environment than the political system which is a closed

system i.e., a system which is neither open nor accountable to the people. As such foreign

policy of an open political system is more responsive to public opinion and public demands

than the foreign policy of a closed political system. The difference between the foreign policies

of democratic and totalitarian/authoritarian states is always largely due to his factor.

10. Ideology:

Foreign Policy is a set of principles and a strategic plan of action adopted by a nation to fulfill

the goals of national interest. It has always an ideological content. For securing support for its

goal as well as for criticizing the foreign policy goals of other nations, it needs and adopts an

ideology or some ideological principles.It, therefore, always tries to use the ideology as well

as to popularize its ideology. The ideology of communism remained an important factor of the

foreign policies of communist nations during 1945-90. Anti- Communism and Pro-Liberal

Democracy ideologies have always influenced the shape and course of foreign policies of non-

communist Western nations. Ideological conflict remained determining factor in the cold war

policies (1945-90) of both the super powers.The drive in favour of democratisation,

decentralisation and liberalisation in the socialist states of Europe, the new states of Central
 14

Asia, Russia and Mongolia has given a new direction to international relations of post-1990

period. Similarly, ideological commitments have been a source of affinity in the foreign

policies of Islamic nations.

11. Diplomacy:

Diplomacy is the instrument by which foreign policy of a nation travels beyond its borders and

establishes contacts with other nations. It is diplomacy which tries to secure the goals of foreign

policy during the course of relations with other nations. Besides being a means, diplomacy is

also an input of foreign policy. The world view sketched by diplomacy and the reports prepared

by the diplomats are valuable sources of foreign policy-making.The modes of operation and

quality of diplomacy always affect the operational quality and efficiency of a foreign policy.

In the late 1960s the contacts between India and Chinese diplomats helped the emergence of a

definite trend towards normalization of Sino- Indian relations. It has been through diplomacy

that India and Pakistan have been trying to initiate and adopt confidence building measures.

Morgenthau regards Diplomacy as the best instrument of power management among states.

12. International Power Structure (Global Strategic Environment):

The relations that nations establish among themselves are backed by their respective national

interests and powers. In fact, such relations involve struggle for power among them. The net

effect is that international relations constitute a power structure in which the more powerful

nations—the super powers and the major powers—play a more vigorous and leading role than

the relatively less powerful nations.The foreign policy of every nation is influenced by the

nature of power structure that prevails at a particular time in the international environment. The

power vacuum caused by the weakened power of the formerly powerful European states,

because of their involvement in two World Wars compelled the U.S.A. to come out of its

isolationism and assume a new global role in international relations.The change in the U.S.

Foreign Policy and its attempt to influence the European states brought into operation a Soviet
 15

Foreign Policy of keeping close the East European friendly socialist nations. The emergence

of the U.S.A. and the U.S.S.R. as the two super powers with cold war in between them, made

it imperative for the newly independent states like India, to adopt a policy of keeping away

from the cold war and yet attempt to have friendly co-operation with both the super powers.The

bipolar system that emerged after World War II and its transformation into a Multi-polar or

Polycentric system were very influential in the making of foreign policy decisions of all the

nations. Uni-polar power structure which emerged after the disintegration of the erstwhile

U.S.S.R., (1917-1991) became a major factor of the foreign policies of several nations. In fact,

it still continues to be a factor of foreign policy of every nation. All states now want to secure

a multi-centric world.

13. Public Opinion:

Public Opinion, (national as well as international) is another important input of Foreign Policy.

Decision-makers of each nation have to accept and give due place to the opinion of the people

they represent as well as to the World Public Opinion. Undoubtedly, the decision-makers as

leaders have to lead the public yet they also have to accommodate the demands of public

opinion.The American Senate’s refusal to ratify the American membership of the League of

Nations, and the opposition of Vietnam War by the Americans and other peoples, had a big

impact on the Foreign Policy of the U.S.A.The real strength behind the objectives of

Disarmament, Arms Control and Nuclear Disarmament, Anti-colonialism, Anti-apartheid

policies of various nations, has been the World Public Opinion. The rise of several peace and

development movements in the World has decidedly acted as a check against foreign policies

of war, aggression and destruction. No one is now prepared to talk and act as Hitler and

Mussolini did in 1930s.

14. Technology:
 16

The application of the knowledge of scientific inventions to practical and useful purposes leads

to technology. The level of technological development and the nature of technical know-how

are important elements of foreign policy. Highly advanced technology has been a major factor

of the strength of the foreign policies of the major powers.The ability to provide technical

know-how to lowly developed and developing nations has been an instrument of influence,

rather power, of the foreign policies of the developed nations. India’s dependence on developed

nations for getting advanced dual use technology has been a limiting factor of Indian Foreign

Policy.However a steady progress in the sphere of technological advancement has been a

source of strength for Indian Foreign Policy. The U.S.A. has always used the technology factor

for putting pressure on the foreign policies of developing nations.The level and nature of

industrial output and military preparedness of a nation are dependent upon technology. These

in turn are important components of Foreign Policy.

“Technological changes can alter the military and economic capabilities of a society and thus

its status and role in the international system.” —Rosenau The rise of France, China, Germany,

Japan and India are the classic examples of the change that technological development can

bring about in the role of a nation in international relations.Technology is, however, a relatively

less stable element of foreign policy because technological changes always and continuously

take place in every society. Moreover, it is only in relation to scientific and industrial

development that technology becomes a factor of foreign policy.

15. External Environment:

Foreign Policy has to operate in the international environment which is subject to many

frequent and important situational changes. Consequently, it has always to adapt according to

these changes. These situational changes act as foreign policy inputs.For example, socialist

revolution in a neighbouring state or a military coup, or the emergence of dispute between two

friendly nations or the rise of a controversy in the United Nations or the nationalisation of
 17

industry by a major nation or the devaluation of a popular currency, or the aggression or

intervention by a nation against another nation etc., are some of the situational changes that

keep on taking place in the international environment.Such external changes always affect the

formulation and behaviour of the foreign policies of all the nations. The emergence of Sino-

Soviet rift was a factor in changing the U.S. Foreign Policy towards China. The Bangladesh

war and its impact on the power structure in South Asia, the Afghanistan crisis, the supply of

advanced technology and weapons to Pakistan by China, a Pakistan oriented US foreign policy

etc., have been the external situational inputs of Indian Foreign Policy.The collapse of the

USSR and the liquidation of socialist bloc acted a source of big changes in the foreign policy

of almost every state. The presence and activities of terrorist outfits in several countries have

compelled all the nations to undertake a collective fight against the menace of international

terrorism.Further, the Foreign Policy of a nation is always made and implemented with an eye

on the situation in various

regions of the world. A situational change in West Asia or South-East Asia or Africa

necessitates a change or modification of the foreign policies of many nations.Similarly,

international issues and crises are also important factors of Foreign Policy. The issue of New

International Economic Order, the energy crisis, the problem of distribution of international

resources, the issue of proliferation, protection of human rights, elimination of international

terrorism and others has been major factors in the foreign policy decisions of India and other

developing nations.

16. Alliances and International Treaties (Bilateral and Multilateral):

Alliance is a means by which some nations pool their powers or agree to pool their powers in

the event of a particular situation. Alliances serve as instruments of foreign policies. The

extensive and intensive system of alliances that emerged in the Post-1945 period had a big
 18

impact on the foreign policies of all the nations. During 1945-90 both the United States and the

USSR, recognized and used alliances as the means for consolidating their respective positions.

Their foreign policies, as well as the foreign policies of their allies were always governed by

the goal to secure new partners in their respective alliances and to maintain and consolidate the

alliance partnerships. Even now, after the demise of Warsaw Pact, the U.S.A. continues to

consider NATO as the mainstay of its foreign policy in Europe.NATO’s support to the US

decision to declare a war against Taliban’s Afghanistan decidedly gave strength to the US

foreign policy. However, many other nations, the Non-aligned nations, still continue to regard

alliances as a source of tension and distrust and their foreign policies are still governed by the

anti-alliance principle.Recently, another factor has become an influential factor in Foreign

Policy- making. The realization for mutual inter-dependence has given birth to a large number

of regional organisations, arrangements, agreements and trading blocs. European Union,

ASEAN, SAARC NAFTA, APEC, SCO and several others have been major players in

international economic relations. The foreign policy of every nation is now becoming

conscious of these organisations, trading blocs and economic and trade agreements. The

pressures of NPT & CTBT and the decisions of WTO on every foreign policy is a well known

fact.Hence, international treaties, pacts, trading blocs and alliances also constitute a factor of

foreign policy. All these are the major inputs or factors of foreign policy. These are popularly

called the determinants of Foreign Policy. One thing must be, however, clearly understood that

all these factors are inter-related and interdependent. These act together or in combination for

influencing the making and implementation of a foreign policy. None of these is an independent

determinant of Foreign Policy. All these factors have to be analyzed together for understanding

the nature and objective of Foreign Policy of each nation.

 19

1.4 OBJECTIVES TO KNOW

Foreign trade refers to trade with foreign countries. It means buying and selling of goods by

one country with other countries. Foreign trade or international trade means the trade which is

spread beyond the boundaries of a country.

It involves exchange of goods and services between the citizens of two or more countries. For

example, India’s trade with UK, USA, and Japan is foreign trade.

1. Import Trade:

It implies purchase of goods from a foreign country. Buying of oil by India from Kuwait is an

example of import trade. India imports goods which it does not produce or which are in short

supply. In import trade, goods are brought from abroad to the home country.

2. Export Trade:

It means sale of goods to a foreign country Selling of tea by India to England is an example of

export trade. In export trade goods are sent from the home country for sale abroad.

3. Entrepot Trade:

It refers to purchase of goods from abroad for the purpose of sale to some other country. It

involves both import and export of goods. For example, India may import oil from Iraq and

export a part of it to Bhutan. Entrepot trade is also known as ‘Re exports.’

1.5 NEED OF FOREIGN TRADE

➢ Human wants and countries’ resources do not totally coincide. Hence, there tends to be

interdependence on a large scale.

➢ Factor endowments in different countries differ.

➢ Technological advancement of different countries differs. Thus, some countries are

better placed in one kind of production and some others superior in some other kind of

production.

➢ Labour and entrepreneurial skills differ in different countries.

 20

➢ Factors of production are highly immobile between countries.

1.6 SCOPE OF FOREIGN TRADE

The aim of foreign trade is to increase production and to raise the standard of living of the

people. Foreign trade helps citizens of one nation to consume and enjoy the possession of goods

produced in some other nation.

❖ Uneven Distribution of Natural Resources

❖ Division of Labour and Specialization

❖ Differences in Economic Growth Rate

❖ Theory of Comparative Cost

1.7 LIMITATIONS OF THE STUDY

• Rapid Depletion of Exhaustible Natural Resources

• Import of Harmful Goods

• It may Exhaust Resources

• Over Specialization

• Danger of Starvation

• One Country Gains at the Expense of Other

• May Lead to War

• Language Diversity

1.8 FEATURES OF INDIA’S FOREIGN TRADE

• More Share of GNP

• Less Percentage of World Trade

• Change in Composition of Exports

• Change in the Composition of Imports

• Dependence on Few Ports

 21

• Balance of Trade

• Foreign Trade by Government

• Oceanic Trade

• Export Import Ratio

• Dependent Trade

1.9 ADVANTAGES OF FOREIGN TRADE

➢ Geographical specialization

➢ Optimum use of resources

➢ Economic development

➢ Economies of scale

➢ Generation of employment

➢ Higher standard of living

➢ Price equalization

1.10 DISADVANTAGES OF FOREIGN TRADE

1. Economic dependence

2. Restricted growth of home industries

3. Misuse of natural resources

4. Political exploitation

5. Import of harmful goods

6. Rivalry among nations

7. Invasion of culture

1.11 BALANCE OF TRADE

1. Exports and Imports:

The elements of the balance of trade are exports and imports. Export of goods means movement

of goods from domestic country to foreign country. The vis-a-vis is known as Imports.
 22

2. Visible Goods:

Balance of trade constitutes imports and exports of goods. The important features of the goods

are that it must be visible, have physical structure, size, shape and form. The goods must be

seen and touched, counted, measured and weighed.

3. Material Goods:

Goods constitute our imports and exports must be material. It means that non- material goods

and services will not constitute imports and exports.

1.12 TYPES OF BALANCE OF TRADE

1. Favourable Balance of Trade:

The situation, wherein country’s exports exceed imports is a situation of favourable or surplus

balance of trade.

2. Unfavourable/Deficit Balance of Trade:

Excess of total value of goods, imported over the total value of goods exported is termed as

unfavourable or adverse or deficit balance of trade.

 23

CHAPTER 2

2.1 REVIEW OF LITERATURE

Adam Smith's model Adam Smith describes trade taking place as a result of countries

having absolute advantage in production of particular goods, relative to each other. Within

Adam Smith's framework, absolute advantage refers to the instance where one country can

produce a unit of a good with less labor than another country.

In Book IV of his major work the Wealth of Nations, Adam Smith, discussing gains from trade,

provides a literary model for absolute advantage based upon the example of growing grapes

from Scotland. He makes the argument that while it is possible to grow grapes and produce

wine in Scotland, the investment in the factors of production would cost thirty times than more

than the cost of purchasing an equal quantity from a foreign country. The minimization of

aggregate real costs and efficient resource allocation through trade without strong

consideration for comparative costs form the basis of Adam Smith's model of absolute

advantage in international trade.

Ricardian model The Ricardian theory of comparative advantage became a basic constituent

of neoclassical trade theory. Any undergraduate course in trade theory includes a presentation

of Ricardo's example of a two-commodity, two-country model. For the modern development,

see Ricardian trade theory extensions The Ricardian model focuses on comparative advantage,

which arises due to differences in technology or natural resources. The Ricardian model does

not directly consider factor endowments, such as the relative amounts of labor and capital within

a country.
 24

Specific factors model The specific factors model is an extension of the Ricardian model. It was

due to Jacob Viner's interest in explaining the migration of workers from the rural to urban areas

after the Industrial revolution.

In this model labor mobility among industries is possible while capital is assumed to be

immobile in the short run. Thus, this model can be interpreted as a short-run version of the

Heckscher-Ohlin model. The "specific factors" name refers to the assumption that in the short

run, specific factors of production such as physical capital are not easily transferable between

industries. The theory suggests that if there is an increase in the price of a good, the owners of

the factor of production specific to that good will profit in real terms

Heckscher–Ohlin model In the early 1900s, a theory of international trade was developed by

two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory has subsequently

become known as the Heckscher–Ohlin model (H–O model). The results of the H–O model

are that the pattern of international trade is determined by differences in factor endowments. It

predicts that countries will export those goods that make intensive use of locally abundant

factors and will import goods that make intensive use of factors that are locally scarce.

The H–O model makes the following core assumptions:

• Labor and capital flow freely between sectors equalising factor prices across sectors

within a country.

• The amount of labor and capital in two countries differ (difference in endowments)

• Technology is the same among countries (a long-term assumption)

• Tastes are the same upon countries

 25

Stolper-Samuelson theorem According to the Stolper-Samuelson theorem, the export of a

product which is relatively cheap, abundant resource makes this resource more scarce in the

domestic market. Thus, the increased demand for the abundant resource leads to an increase in

its price and an increase in its income. Simultaneously, the income of the resource used

intensively in the import-competing product decreases as its demand falls.

Simply put, this theorem indicates that an increase in the price of a product rises the income

earned by resources that are used intensively in its production. Conversely, a decrease in the

price of a product reduces the income of the resources that it uses intensively. The abundant

resource that have comparative advantage realizes an increase in income, and the scarce

resource realizes a decrease in its income regardless of industry. This trade theory concludes

that some people will suffer losses from free trade even in the long-term.

Empirical Evidences of the Heckscher–Ohlin model In 1953, Wassily Leontief published a

study in which he tested the validity of the Heckscher-Ohlin theory.[10] The study showed that

the United States was more abundant in capital compared to other countries, therefore the

United States would export capital-intensive goods and import labor-intensive goods. Leontief

found out that the United States' exports were less capital intensive than its imports. The result

became known as Leontief's paradox.

After the appearance of Leontief's paradox, many researchers[who?] tried to save the

Heckscher-Ohlin theory, either by new methods of measurement, or by new

interpretations.[citation needed]

New trade theory New trade theory tries to explain empirical elements of trade that

comparative advantage-based models above have difficulty with. These include the fact that

most trade is between countries with similar factor endowment and productivity levels, and the

large amount of multinational production (i.e., foreign direct investment) that exists. New trade

theories are often based on assumptions such as monopolistic competition and

 26

increasing returns to scale. One result of these theories is the home-market effect, which asserts

that, if an industry tends to cluster in one location because of returns to scale and if that industry

faces high transportation costs, the industry will be located in the country with most of its

demand, in order to minimize cost.

New new trade theory New new trade theory is a theory of international trade inaugurated by

Marc Melitz in 2003. It discovered that efficiency of firms in a country changes much and those

firms engaged in international trade have higher productivity than firms which produce only

for domestic market. As it is fitted to big data age, the research produced many follows and the

trend is now called New new trade theory in comparison to Paul Krugman's new trade theory.

Gravity model The Gravity model of trade presents a more empirical analysis of trading

patterns. The gravity model, in its basic form, predicts trade based on the distance between

countries and the interaction of the countries' economic sizes. The model mimics the

Newtonian law of gravity which also considers distance and physical size between two objects.

The model has been shown to have significant empirical validity.

Ricardian trade theory extensions According to Eaton and Kortum,[13] in the 21 century,

"the Ricardian framework has experienced a revival. Much work in international trade during

the last decade has returned to the assumption that countries gain from trade because they have

access to different technologies. ... This line of thought has brought Ricardo's theory of

comparative advantage back to center stage." The Ricardian trade theory was expanded and

generalized multiple times: notably to treat many-country many-product situation and to

include intermediate input trade, and choice of production techniques. In Ricardian framework,

capital goods (comprising fixed capital) are treated as goods which are produced and consumed

in the production.
 27

The Periplus of the Erythraean Sea is a document written by an anonymous sailor

from Alexandria about 100CE describing trade between countries, including India.In

1498 Portuguese explorer Vasco da Gama landed in Calicut (modern

day Kozhikode in Kerala) as the first European to ever sail to India. The tremendous profit

made during this trip made the Portuguese eager for more trade with India and attracted other

European navigators and tradesmen.

Pedro Álvares Cabral left for India in 1500 and established Portuguese trading posts at

Calicut and Cochin (modern day Kochi), returning to Portugal in 1501 with pepper, ginger,

cinnamon, cardamom, nutmeg, mace, and cloves. The profits made from this trip were huge.

The Companies Act, 1956 The foremost law of Indian business industry which control &

legalize every aspects of a company is known as Companies Act, 1956. It includes so many

important aspects & some of them are role & responsibilities of managerial boards &

directorial boards, establishment of company, rebuilding of company & even winding up a

company.

The Contract Act, 1872 The Contract Act, 1872 is also an indispensable legislation which

deals with various sorts of contracts including basic doctrine related to the formation &

enforceability of the contracts. So for the establishment of any company & its proper

functioning, its important to know all the legal & technical aspects.
 28

CHAPTER 3

RESEARCH METHODOLOGY

3.1 MARKET RESEARCH

Market research is any organized effort to gather information about target markets or

customers. Market research is the process by which market intelligence is derived. Market

research process specifies the information required to address the issues, designs the method

for collecting information, manages and implements the data collection process, analyzes the

results, and communicates the findings and their implications. Market research provides

important information to identify and analyze the market need, market size and competition. It

is a very important component of business strategy. Market research techniques encompass

both qualitative techniques such as focus groups, in-depth interviews, and ethnography, as well

as quantitative techniques such as customer surveys, and analysis of secondary data. It is the

systematic gathering, recording, and analysis of qualitative and quantitative data about issues

relating to the market characteristics. The term is commonly interchanged with marketing

research. However, there is a difference that market research is concerned specifically with

markets, while marketing research is concerned specifically about marketing processes. The

goal of marketing research is to identify and assess how changing elements of the marketing

mix impacts customer behavior. Market research is a key factor to maintain competitiveness

over competitors. Market research provides important information to identify and analyze the

market need, market size and competition. Market research, which includes social and opinion

research, is the systematic gathering and interpretation of information about individuals or

organizations using statistical and analytical methods and techniques of the applied social

sciences to gain insight or support decision making.

 29

3.2 MARKET SELECTION

Market selection plays a crucial role at the international level. Market selection is based on a

thorough evaluation of the different markets with reference to certain well-defined criteria,

given the company resources and objectives. Target marketing tailors a marketing mix for one

or more segments identified by market segmentation. Target marketing contrasts with mass

marketing, which offers a single product to the entire market. Two important factors to consider

when selecting a target market segment are the attractiveness of the segment and the fit between

the segment and the firm's objectives, resources, and capabilities.Attractiveness of a Market

Segment

The following are some important aspects that may be considered when evaluating the

attractiveness of a market segment.

❖ Size of the segment (number of customers and/or number of units)

❖ Growth rate of the segment

❖ Competition in the segment

❖ Brand loyalty of existing customers in the segment

❖ Attainable market share given promotional budget and competitors' expenditures

❖ Required market share to break even

❖ Sales potential for the firm in the segment

❖ Expected profit margins in the segment

Suitability of Market Segments to the Firm

Market segments also should be evaluated according to how they fit the firm's objectives,

resources, and capabilities. Some aspects of fit include:

Whether the firm can offer superior value to the customers in the segment

▪ The impact of serving the segment on the firm's image

▪ Access to distribution channels required to serve the segment

 30

▪ The firm's resources vs. capital investment required to serve the segment

▪ The better the firm's fit to a market segment, and the more attractive the market

▪ segment, the greater the profit potential to the firm.

Market research and analysis is instrumental in obtaining this information. The impact of

applicable micro-environmental and macro-environmental variables on the market segment

also needs to be considered. It, sometimes, may be more profitable to serve one or more smaller

segments that have little competition.

Target Market Strategies

There are several different target-market strategies that may be followed. Targeting strategies

usually can be categorized as one of the following:

Single-segment strategy: It is also known as a concentrated strategy. One market segment is

served with one marketing mix. A single-segment approach often is the strategy of choice for

smaller companies with limited resources. Selective specialization: This is a multiple-segment

strategy, also known as a differentiated strategy. Different marketing mixes are offered to

different segments. The product itself may or may not be different - in many cases only the

promotional message or distribution channels alone vary. Product specialization: The firm

specializes in a particular product and tailors it to different market segments. Market

specialization: The firm specializes in serving a particular market segment and offers that

segment an array of different products.Full market coverage: The firm attempts to serve the

entire market. This coverage can be achieved by means of either a mass market strategy in

which a single undifferentiated marketing mix is offered to the entire market, or by a

differentiated strategy in which a separate marketing mix is offered to each segment.

The following are the steps involved in the market selection process:

The first step in market selection process is to determine or ascertain the export marketing

objectives of the organization. The market selected to serve a particular international marketing
 31

objective need not necessarily be the best suited to achieve some other international marketing

objective.

Parameters for Selection

For proper evaluation and selection of the markets, it is essential to clearly lay down the

parameters and criteria for evaluation. The different parameters for the selection of a market

are firm's resources, international environment, market situation, nature of competition,

government policy, etc.

Preliminary Screening

The objective of the preliminary screening is to eliminate the markets which are not potential.

The parameters used for the preliminary screening may vary from product to product. However,

parameters like the size of population, per capita income, structure of the economy,

infrastructural factors and political conditions are commonly used.

Short Listing of Markets

Preliminary screening enables to eliminate markets which obviously do not meet consideration

at the very outset. There would be a large number of markets left even after the preliminary

screening. They are further screened with the help of more information than was used at the

preliminary screening stage.

Evaluation and Selection

The short listed markets are further evaluated with reference to the cost-benefit analysis and

feasibility study. They are then, ranked on the basis of their overall attractiveness. Of the

markets, the best one is chosen for the launching of product considering the company‘s

resources and external environment

Test Marketing

Initially, the market is tested on a smaller scale by launching the product in a part of the

markets. This provides a feedback to the producer about the market. At the same time, it helps
 32

the producer in assessing overall response of the consumers from a specific market, after tested

success, the production can be undertaken on a mass scale.

Commercial Production

Once the product is tested, in the selected market, the company goes ahead with mass

production. Minor modifications, if any, are introduced in the product mix during this stage.

3.3 MARKET INTELLIGENCE

Business Intelligence refers to skills, processes, technologies, applications and practices

used to support decision making. Market intelligence is the information relevant to a

company‘s markets, gathered and analyzed specifically for the purpose of accurate and

confident decision-making in determining strategy in areas such as market opportunity,

penetration strategy, and market development matrices. Market Intelligence (MI), can be

defined as ―the process of acquiring and analyzing information in order to understand the

market (both existing and potential customers); to determine the current and future needs and

preferences, attitudes and behavior of the market; and to assess changes in the business

environment that may affect the size and nature of the market in the future.Market intelligence

includes gathering of data from the company‘s external environment,

whereas the Business intelligence process primarily is based on internal recorded events – such

as sales, shipments and purchases. The purpose of incorporating Market Information or

intelligence into the Business Intelligence process is to provide decision makers with a more

complete picture of

▪ market and customer orientation

▪ new opportunities

▪ new trends in markets and competitors

▪ competitor moves to enable counter measures

▪ detecting threats and early market trends

 33

▪ intensified customer market view

▪ market selection & positioning, and

▪ untapped or under-served potential

Effective market intelligence needs accurate market information that is gathered with right

tools and methods. To gather information companies can conduct surveys, interviews, visit and

monitor competitors‘ outlets or gather and buy data from different sources. Traditional

interviews and surveys can be done either in-house or by using specialist agencies. Now-a days,

the advanced tools using the services of internet have been developed to collect data relating

to the market. Market Intelligence is gathered through internal analysis, competition analysis,

and market analysis about the total environment forming a broad spectrum of assembled

knowledge.

The Market Intelligence Model provides a missing link present in organizations at the highest

levels. Market intelligence services are required increase the participation of all importing and

exporting organizations any country. Thus these services are likely to bring more awareness

among exporters and importers all over.

3.4 MARKET RESEARCH METHODS

The research may require either quantitative or qualitative data in either primary or secondary

type for analyzing the market. Primary data are collected through surveys, direct observations,

interviews and focus groups using predefined schedule. Secondary data are gathered from

existing information through available sources like internet, existing market research results,

existing data from the stock lists and customer database, information from agencies such as

industry bodies, government agencies, libraries and local councils. Quantitative research

requires data in numerical form like customer return frequency, sales figures, and financial

trends. Quantitative research often produces a lot of statistics. Qualitative research gathers

views and attitudes like the feelings and attitudes towards the products, satisfaction with the
 34

product / business, and competitors‘ strategies and customer expectation. Market research

analyses the size and growth of a market, seasonal or cyclical trends and competitor analysis,

financial and economic conditions (pricing practices and payment terms, tariffs and other

barriers to trade, foreign exchange and currency stability, terms of concessional finance),

Cultural, political and legal factors, quality issues, foreign investment and

consumer/environmental legislation, registration and licensing procedures local labour laws,

and Intellectual property protection.

3.5 MARKET ANALYSIS

Market analysis studies the attractiveness and the dynamics of a special market within a special

industry. It is part of the industry analysis and thus in turn of the global environmental analysis.

Through all of these analyses, the strengths, weaknesses, opportunities and threats (SWOT) of

a company can be identified. Finally, with the help of a SWOT analysis, adequate business

strategies of a company will be defined. The market analysis is also known as a documented

investigation of a market that is used to inform a firm's planning activities, particularly around

decisions of inventory, purchase, work force expansion/contraction, facility expansion,

purchases of capital equipment, promotional activities, and many other aspects of a company.

David A. Aaker outlined Market size (current and future); Market trends; Market growth rate;

Market profitability; Industry cost structure; Distribution channels; and Key success factors

as the dimensions of market analysis. Christina Callaway classifies the dimension of market

analysis as four parts namely environmental analysis, competitive analysis, target audience

analysis, and SWOT analysis. Market analysis strives to determine the attractiveness of a

market, currently and in the future. Organizations evaluate future attractiveness of a market by

understanding evolving opportunities and threats as they relate to that organization's own

strengths and weaknesses. A good marketing analysis can improve organization investment

decision accurately.
 35

Organizations use these findings to guide the investment decisions they make to advance their

success. The findings of a market analysis may motivate an organization to change various

aspects of its investment strategy like inventory levels, work force expansion/contraction,

facility expansion, purchases of capital equipment, and promotional activities.Market analysis

need to be understood as both with internal dimension and external dimension. The internal

dimension is the company's internal position such as employees, department structure, budget

and other related compenents and the external dimension include Political issues, social

potential force, competition and local economy. SWOT is strengths, weakness, opportunities,

and threats. It matches internal strengths and weaknesses up against opportunities and threats.

Strengths and weakness are internal factors which the company can control. And opportunities

and threats are external factors that businesses could not control. Businesses can get

information on its internal and external factors through various means like customer feedback,

employee surveys, internal auditing, etc.Businesses also may get information from secondary

data like environmental information, industry information and competitive data.

 36

CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

4.1 Analysis of Foreign Trade of a Country: Volume of Trade, Composition and Direction

A country’s analysis of foreign trade can be made in terms of its three main profiles: Volume

of trade, Composition and Direction.

Volume of Trade:

It relates to the size of international transactions. Since a large number of commodities enter in

international transaction, the volume of trade can be measured only in terms of money value.

The trends in the value of trade over time help to identify the basic forces that may be operating

at different periods in the economy.However, mere absolute changes in the value of trade is

not a satisfactory guide. Hence, it is necessary to find

the changes in the value of trade by relating them to two variables, viz.

i. Share of exports/imports in GDP, and

ii. Share of exports/imports in world trade.

The share of exports/imports in GDP indicates the degree of outward-orientation or openness

of an economy in regard to its trade. This, in a broad way also reflects the nature of trade

strategies adopted in the country.

The ratio of exports to GDP could also be interpreted to reflect the average supply capability

of the economy in terms of its exports.It can therefore be called as average propensity to export.

A similar ratio between imports and GDP gives the average propensity to import. However,

the relative share of exports in output under an efficient allocation of resources will be less in

bigger economies than in smaller economies.The share of exports in the world trade indicates
 37

the importance of the country as a nation in the world economy. It reflects the market thrust

that the country is able to realise in the presence of the various competitors in the world market.

Changes in this ratio, thus, indicate the shift in the position of the comparative advantage of

the country.Further, changes in the exports may be compared to the changes in the value of

imports. It is the relationship between two variables, which is known as the terms of trade (TT),

i.e. the terms at which exports exchange for imports.

Terms of trade can be defined in respect of

(i) Net barter terms of trade,

(ii) Gross barter terms of trade,

(iii) Income terms of trade.

Net Barter Terms of Trade:

Also called as the commodity terms of trade, this measures the relative changes in the import

and export prices.

This is expressed as:

N = Px/Pm

Where Px and Pm are price index numbers of exports and imports respectively. A rise in N

indicates that a larger volume of imports could be received in exchange for a given volume of

exports. However, the net barter terms are relevant only when nothing enters into the trade

between countries except sales and purchases of merchandise.

Gross Barter Terms of Trade:

This is the ratio of the physical quantity of imports to the physical quantity of exports.

This is expressed as:

 38

Gt = Qm / Qx

Where Qm and Qx are the quantity of volume index numbers of imports and exports

respectively. A rise in G, is regarded as a favourable change in the sense that more imports are

given volume of exports.

Income Terms of Trade:

This is expressed as:

I=Px .Qx /Рm

A rise in I indicates that the nation’s capacity to import, based on exports, has increased, i.e. it

can obtain a larger volume of imports from the sale of its exports.

Composition of Trade:

It is indicative of the structure and level of development of an economy. For instance, most of

the developing countries depend for their export earnings on a few primary commodities (PCs).

These countries export raw materials of agricultural origin and import manufactured industrial

products, thus, denying themselves the benefits of value added.As an economy develops, its

trade gets diversified. It no more remains dependent on a few primary commodities for its

export as it begins to export more of manufactured industrial goods importing industrial raw

materials, capital equipment and technical know-how.Manufactured exports create greater

value addition than the PCs as they go through more stages of processing. The manufacturing

sector has greater linkages with the rest of the economy and hence, the downstream effects on

exports from these sectors are likely to be greater than primary exports.

Direction of India’s Foreign Trade:

The main Ganges in the direction of India’s foreign trade can be mentioned as follows:
 39

(1) New Trading Partners:

Prior to independence, India’s foreign trade was concentrated around U.K. while after

independence it has opened id expanded trade channels throughout the length id the breadth of

the country. India has also versified its export, with specialization in certain good and securing

new market for her products.

(2) Larger Sources of Import:

The import of India’s industrial products could not be met by U.K or U.S.A. alone. Hence it

has to import capital goods from a large number of developed countries furthering aid and

grants from some countries willing to help India in her planning effort. The concessional

assistance and aid from international monetary institutions helped India to purchase its import

from cheaper sources through global tenders.

(3) Larger and Attractive Outlets for Export:

India has diversified her exports to various new countries in order to match her imports.

Germany, Japan along with U.S.A. and U.K. constituted the four major countries absorbing

43% of her export. The demands for both traditional and non-traditional items of exports have

increased in these countries over the period. Recently Middle East countries have provided a

good market for India’s export and it has absorbed 22% of India’s exportable items.
 40

4.2 TRADE RELATIONS WITH THE U.S.A.

Over the last few years, the trade between India and the USA has increased significantly.

U.S.A which once considered India as a “basket case” is now one of the major trade partners

of India(Gould and Ganguly,2019)14. It is evident from the fact that more than trade with

the USA constitutes more than 10% of the total trade of India in 2018-19. As depicted in

table 1, the trade between India and USA has grown from 39,284,811.83 lakhs in 2014-15

to 61,503,416.73 in 2018-19 which is a massive growth of more than 56%. However, one

area of concern is the growth of imports from the USA and the resultant decline in

favourability of the balance of trade as the USA import grew at more than 44 % for the year

2018-19. This may indicate the rising pressure of the USA government to improve the terms

of trade with India as they are looking for a free trade agreement.

Table 1: India’s Trade with USA

40,000,000.00

35,000,000.00

30,000,000.00

25,000,000.00

20,000,000.00

15,000,000.00

10,000,000.00

5,000,000.00

0.00
2014-15 2015-16 2016-17 2017-18 2018-19

Export Import Trade Balance

 41

4.3 TRADE RELATIONS WITH CHINA

Indo-Chinese relations have always been full of suspicions and disbelief. The main reason

is the border dispute which resulted in the war of 1962 in which India suffered heavy losses.

The dispute between these countries has been termed as the “Clash of civilizations” by some

scholars(Guha, 2007)15. However, the manufacturing advantage of china and India’s

inability to produce low-cost manufacturing goods has resulted in a significant increase in

imports from China. The rise of consumerism in India due to increased liquidity has also

been a reason for this growth. To counter this threat, the government of India launched

“Make in India” initiative which has yet to display the desired result as the manufacturing

sector is currently facing contraction.

Another challenge from the Chinese side has been its ambitious belt & road initiative as a

part of which it has already signed trade agreements with Myanmar and Pakistan and has

improved its relations with the neighbouring countries of India such as Nepal, Srilanka etc

in order to gain geopolitical supremacy. However, the problem of trade deficit has been

increased to an alarming level as in 2018-19 India was at a trade deficit of 37,479,017.44

Lakhs with China.

Table 2: India’s Trade with China

60,000,000.00
50,000,000.00
40,000,000.00
30,000,000.00
20,000,000.00
10,000,000.00
0.00
-10,000,000.00 2014-15 2015-16 2016-17 2017-18 2018-19
-20,000,000.00
-30,000,000.00
-40,000,000.00
-50,000,000.00

Export Import Trade Balance

 42

4.4 Trade Relations With The United Kingdom

India is having an old relationship with the United Kingdom. As pre-independent India was

a colony of Britain with parts of the country being under Portugal as well as France. The

European Union has been facing a significant crisis after the decision of Britain to exit the

arrangement, which has been popularly termed as “Brexit”. In the matter of this context, it

is imperative to have an understanding of trade between India and the U.K. since 2014 From

Table 3, we can analyze that the trade growth between the two countries has been

significantly slow with the growth rate being only 2% for 2018-19. The focus of the U.K.

government on Brexit along with a growing sense of de-globalization might have

contributed in this regard.

Table 3: India’s Trade with United Kingdom

7,000,000.00

6,000,000.00

5,000,000.00

4,000,000.00

3,000,000.00

2,000,000.00

1,000,000.00

0.00
2014-15 2015-16 2016-17 2017-18 2018-19

Export Import Trade Balance

 43

4.5 TRADE RELATIONS WITH RUSSIA

There was a time when Russia (under erstwhile USSR) used to be the largest trade and

strategic partner of India. However since the economic reforms of 1991, and the subsequent

destruction of USSR, the trade partnership between Russia and India has been taken aback.

The same is evident from the fact that trade with Russia has been less than 1% of the total

trade of India for the financial year 2018-19. India is a net importer of Russian goods with

major import items being Pitch or pitch-coke obtained from coal-tar. One major reason for

lack of trade between these two countries with India opening its economy whereas Russia

still persisting with socialism and trade protectionism and is considered as anti-thesis for

free trade(Heing,2017)16.

Table 4: India’s Trade with Russia

8,000,000.00

6,000,000.00

4,000,000.00

2,000,000.00

0.00
2014-15 2015-16 2016-17 2017-18 2018-19

-2,000,000.00

-4,000,000.00

-6,000,000.00

Export Import Trade Balance

 44

4.6 TRADE RELATIONS WITH FRANCE

Strategic relationship with France has been gathering momentum ever since 2014. The

defence agreement with Dassault regarding the purchase of Rafale fighter air crafts is one

of the indicators of the growing partnership between the two governments. However, if we

analyze the overall trade data, there has been stagnation. In fact, since 2016-17 the trade

balance between the two countries has been unfavourable to India with trade deficit for

2018-19 being -1,002,385.97. The share of trade with France of the overall trade of India

has also been less than 2% continuously. The massive trade deficit has resulted because of

the increased purchase of aircraft from France. Therefore, although, India is in the trade

deficit, the increased purchase of aircraft has been significant for the country in civil as well

as defence front.

Table 5: India’s Trade with France

5,000,000.00

4,000,000.00

3,000,000.00

2,000,000.00

1,000,000.00

0.00
2014-15 2015-16 2016-17 2017-18 2018-19

-1,000,000.00

-2,000,000.00

Export Import Trade Balance

 45

4.7 COMPOSITE TRADE OF INDIA

The composite trade scenario of India has been a matter of “work in progress” since 2014.

The global trade environment has hit the country’s trade also. Currently, India is expecting

a trade agreement with the USA as well as European Union. However, the country is

negotiating hard for better terms of trade and has recently opted out of RCEP due to the

fear of agriculture dumping. In 2014, the country launched “Make in India” and has recently

emphasized on “Assemble in India”. However, presently the problem of huge trade deficit

remains unsolved. The sanctions on Iran and Venezuela have also increased the import

bills. Although the total trade of India has increased from 463,343,499.59 Lakhs in 2014-

15 to 590,240,080.57 Lakhs in 2018-19, the phenomenon is import driven as imports have

risen from 273,708,657.84 Lakhs in 2014-15 to 359,467,461.19 Lakhs in 2018-19. As a

result, the trade deficit has increased from -84,073,816.08 Lakhs to -128,694,841.81 Lakhs

for the same duration (Table 6).

Table 6: Composite trade data of India

700,000,000.00

600,000,000.00

500,000,000.00

400,000,000.00

300,000,000.00

200,000,000.00

100,000,000.00

0.00
2014-15 2015-16 2016-17 2017-18 2018-19
-100,000,000.00

-200,000,000.00

Total Export Total Import Total Trade Trade Balance

 46

India exports approximately 7500 commodities to about 190 countries, and imports around

6000 commodities from 140 countries. India exported US$318.2 billion and imported $462.9

billion worth of commodities in 2014.

The Government of India's Economic Survey 2017–18 noted that five states — Maharashtra,

Gujarat, Karnataka, Tamil Nadu and Telangana — accounted for 70% of India's total exports.

It was the first time that the survey included international export data for states. The survey

found a high correlation between a state's Gross State Domestic Product (GSDP) per capita and

its share of total exports. With a high GSDP per capita but low export share, Kerala was the

only major outlier because the state's GSDP per capita was heavily influenced by remittances

The survey also found that the largest firms in India contributed to a smaller percentage of

exports when compared to countries like Brazil, Germany, Mexico, and the United States. The

top 1% of India's companies accounted for 38% of total exports.

The provisional data for March exports, released by the Ministry of Commerce at the end of

April, reveals a grim situation. As per the data, India’s exports during March 2020 accounted

for a little over $21.4 billion, despite a promising performance in just the previous month. This

fall of approximately 35% year-on-year, as compared to March 2019 ($32.72 billion), is

touching a multi-year low, and the figures are bound to fall further. A key thing to note is that

exports have fallen across almost all of the commodity groups. Some commodities have

registered a decline by over 30-40%, particularly engineering goods, textiles, meat, cereals,

plastics and chemicals, which have been the major growth drivers of exports in recent years.

As an immediate aftermath of the spread of the COVID-19 pandemic to multiple countries,

global demand has fallen significantly and many orders have been cancelled. Further, the

disruption of supply chains due to the ongoing lockdown has aggravated the poor performance

of Indian exports -- and the situation is likely to worsen in the coming months, before recovery

starts. India's electrical machinery and equipment has 40 per cent dependence on imports from
 47

China. However this number has reduced from 59.5 per cent in FY18 to 40 per cent in FY19.

Although India has increased production of low-end electronic components. Import

dependency on China is its major limitation. The automobile sector, which accounts for 7.5 per

cent of India's GDP and a massive 49 per cent of the manufacturing GDP, is already facing

slowdown. The coronavirus lockdown has made the situation worse for the auto sector as 10

to 30 per cent of automotive components are supplied from China. If factories do not resume

activity in China, it could adversely affect the sector.

Summary table of recent India foreign trade (in billion)

600

500

400

300

200

100

0
19992000200120022003200420052006200720082009201020112012201320142015201620172018
-100

-200

-300

Export Import Trade Deficit

 48

CHAPTER 5

5 1 SUGGESTION

❖ Industrial Licensing Policy

❖ Foreign Investment and Technology Agreements

❖ Public Sector Policy

❖ MRTP Act

❖ Exit Policy

❖ Prevention of concentration of economic power to the common detriment,

❖ Control of monopolies

❖ A prohibition of monopolistic and restrictive and unfair trade practices.

❖ Essential infrastructure goods and services,

❖ Exploration and exploitation of oil and mineral resources,

❖ Technology development and building of manufacturing capabilities in

areas which are crucial in the long term development of the economy and

where private sector investment is inadequate,

❖ Manufacture of products where strategic considerations predominate such

as defense equipment.
 49

5.2 CONCLUSION

Export-led growth is the current strategy of India’s economic policy towards globalisation of

the economy.Indian exports should acquire a high degree of competitiveness in the world

markets. For this, adequate supplies of exportable need to be assured, besides the pursurance

of sound fiscal and monetary policies. To push up exports India needs a further diversification

of foreign trade. Over 40 per cent of India’s exports have been concentrated among a few

countries such as USA, Japan, UK and West Germany, while, over 60 per cent of our imports

are from 10 countries, including France, Hong Kong, Singapore, Iraq, Iran and Saudi Arabia.

Asia and Oceanic, which continue to be the largest market for our exports accounting for over

30 percent.Trade statistics reveal that India depends more on the developed countries for its

major proportion of exports as well as imports. India’s exports and imports from developing

countries do not grow at a significant rate. Further, while trading with developed countries,

India’s terms of trade are mostly unfavourable. Hence, India is rather a losing partner in its

trade with developed countries. As such, larger trade with developed countries would mean

more exploitation or resource drain and this cannot be an engine of growth. What is wanted is

that India should concentrate more on improving trade relations with the developing countries.

In fact, developing countries do possess problems like non-tariff barriers, inadequate tariff-

concessions and with a strong political will for economic integration. India can succeed in

developing good trade relations with developing countries of the south and neighbouring areas.
 50

BIBLIOGRAPHY

REFERENCES:

RAMA GOPAL C. 2008 “Export-Import Procedures, Documentation and

Logistics”

Kenneth D. Weiss 2007 Building an Import/Export Business

Thomas A. Cook, Rennie Alston, Kelly Raia 2012 Mastering Import & Export

Management

Thomas E. Johnson 2002 Export/import procedures and documentation

Ministry of Commerce and Industry India, "Welcome to department of

commerce, Government of India". commerce.gov.in.