Foreign trade in India includes all imports and exports to and from India.

At
the level of Central Government it is administered by the Ministry of
Commerce and Industry. As of 2014, India stood 19th among the leadin1991
economic reform
Prior to the 1991 economic liberalisation, India was a closed economy due to the average tariffs
exceeding 200 percent and the extensive quantitative restrictions on imports. Foreign investment
was strictly restricted to only allow Indian ownership of businesses. Since the liberalisation,
India's economy has improved mainly due to increased foreign trade.
g exporters in the world with merchandise exports worth $3.42 trillion

KES College

Page 1

Trends in India's Foreign Trade

Indias Trade Performance

Indias merchandise exports reached a level of US $ 251.14 billion during 2010-11 1.
registering a growth of 40.49 percent as compared to a negative growth of 3.53 percent
during the previous year. Indias export sector has exhibited remarkable resilience and
dynamism in the recent years. Despite the recent setback faced by Indias export sector
due to global slowdown, merchandise exports recorded a Compound Annual Growth
Rate (CAGR) of 20.0 per cent from 2004-05 to 2010-11.

World Trade Scenario

As per IMFs World Economic Outlook October, 2011, world trade recorded its largest
ever annual increase in 2010, as merchandise exports surged 14.4 per cent. The volume
of world trade (goods and services) in 2011 is expected to slow down to 7.5 per cent
compared to the 12.8 per cent achieved in 2010. Growth in the volume of world trade
is expected to decline in 2012 to 5.8 per cent as per IMF projections.
The IMF has moderated its growth projections of world output to 4 per cent in 2012.
The advanced economies are expected to grow at 1.9 per cent in 2012 while the
emerging and developing economies to grow at 6.1 per cent. The projected growth
rates in different countries are expected to determine the markets for our exports.
As per WTOs International Trade Statistics, 2010, in merchandise trade, India is the
20th largest exporter in the world with a share of 1.4 per cent and the 13th largest
importer with a share of 2.1 per cent in 2010.
The year 2011 has been a difficult year with Japan facing a major earthquake and
tsunami, the swelling of unrest in the Middle East oil producing countries, the slowing
down of US economy and the Euro area facing major financial turbulence. The current
global economic slowdown has its epicenter in the Euro-region but the contagion is
being witnessed in all major economies of the world. As a result, Indias short-term
growth prospects have also been impacted.

Exports
KES
College
Exports
recorded a growth of 40.49 per Page
cent 2during April-March 2010-11. The

Government has set an export target of US $ 300 billion for 2011-12. With
merchandise exports reaching US $ 217.66 billion in 2011-12(Apr-Dec), the export

Negative or Unfavourable Trade:

India had to import various items like heavy machinery, agricultural implements, mineral oil and
metals on a large scale after Independence for economic growth.
But our exports could not keep pace with our imports which left us with negative or
unfavourable trade.
2. Diversity in Exports:
Previously, India used to export its traditional commodities only which included tea, jute,
cotton textile, leather, etc. But great diversity has been observed in Indias export commodities
during the last few years. India now exports over 7,500 commodities. Since 1991, India has
emerged as a major exporter of computer software and that too to some of the advanced
countries like the USA and Japa3. Worldwide Trade:
India had trade links with Britain and a few selected countries only before Independence. But
now India has trade links with almost all the regions of the world. India exports its goods to as
many as 190 countries and imports from 140 countries.
4. Change in Imports:
Earlier we used to import food-grains and manufactured goods only. But now oil is the largest
single commodity imported by India. Both the imports as well as exports of pearls and precious
stones have increased considerably during the last few years. Our other important commodities
of import are iron and steel, fertilizers, edible oils and paper.
5. Maritime Trade:
About 95 per cent of our foreign trade is done through sea routes. Trade through land routes is
possible with neighbouring countries only. But unfortunately, all our neighbouring countries
including China, Nepal, and Myanmar are cut off from India by lofty mountain ranges which
makes trade by land routes rather difficult. We can have easy access through land routes with
Pakistan only but the trade suffered heavily due to political differences between the two
countries.
KES College

Page 3

6. Trade through a few Selected Ports Only:

We have only 12 major ports along the coast of India which handle about 90 per cent overseas
trade of India. Very small amount of foreign trade is handled by the remaining medium and small
ports.
7. Insignificant Place of India in the World Overseas Trade:
Although India has about 16 per cent of the worlds population, her share in the world overseas
trade is less than one per cent. This shows the insignificant place of India in the worlds overseas
trade. This is, however, partly due to very large internal trade, vast dimensions of the country
provide a solid base for inter-state trade within the country. Europe is divided into a large number
of smaller countries and the international trade is quite high (trade counted twice, first time as
exports and second times as imports).
8. State Trading:
Most of Indias overseas trade is done in public sector by state agencies and very little trade is
done by individuals.

Main Advantages and Disadvantages of Foreign Trade in India are described below:
Advantages:
1. Optimal use of natural resources:
Foreign trade helps each country to make optimum use of its natural resources. Each country can
concentrate on production of those goods for which its resources are best suited. Wastage of
resources is avoided.
2. Availability of all type of goods:

KES College

Page 4

It enables a country to obtain goods, which it cannot produce or which it is not producing due to
higher costs, by importing from other countries at lower costs.
3. Specialisation:
Foreign trade leads to specialization and encourages production of different good in different
countries. Goods can be produced at comparatively low cost due to advantages of division of
labour.
4. Advantages of large-scale production:
Due to foreign trade, goods are produced not only for home consumption but for exports to other
countries also. Nations of the world can dispose of goods which they have in surplus in the
foreign markets. This leads to production at large- scale and the advantages of large-scale
production can be obtained by all the countries of the world.
5. Stability in prices:
Foreign trade irons out wild, fluctuations in prices. It equalizes the prices of goods throughout
the world (ignoring cost of transportation etc.).
6. Exchange of technical know-how and establishment of new industries:
Underdeveloped countries can establish and develop new industries with the machinery
equipment and technical know-how imported from developed countries. This helps in the
development of these countries and the economy of the world at large.
7. Increase in efficiency:
Due to the foreign competition the producers in a country attempt to produce better quality of
goods and at the minimum possible cost. This increases the efficiency and benefits the
consumers all over the world.
8. Development of the means of transport and communications:

KES College

Page 5

Foreign trade requires the best means of transport and communication. For the advantages of
foreign trade development in the means of transport and communication is also made possible.
9. International co-operation and understanding:
The people of different countries come in contact with each other. Commercial intercourse
amongst nations of the world encourages exchange of ideas and culture. It creates co-operation,
understanding and cordial relations amongst various nations.
10. Ability to face natural calamities:
Natural calamities such as drought, floods, famine, earthquake etc., affect the production of a
country adversely. Deficiency in the supply of goods at the times of such natural calamities can
be met by imports from other countries.
11. Other advantages:
Foreign trade helps in many other ways such as benefits to consumers, international peace and
better standard of living.
Disadvantages:
The important disadvantages of foreign trade that you might not know are listed below:
1. Impediment in the Development of Home Industries:
Foreign trade has an adverse effect on the development of home industries. It poses a threat to
the survival of infant industries at home.
Due to foreign competition and unrestricted imports the upcoming industries in the country may
collapse.

KES College

Page 6

2. Economic Dependence:
The underdeveloped countries have to depend upon the developed ones for their economic
development. Such reliance often-leads to economic exploitation. For, instance most of the
underdeveloped countries in Africa and Asia have been exploited by European countries.
3. Political Dependence:
Foreign trade often encourages subjugation and slavery. It impairs economic independence
which endangers political dependence. For example, the Britishers came to India as traders and
ultimately ruled over India for a very long time.
4. Mis-utilisation of Natural resources:
Excessive exports may exhaust the natural resources of a country in a shorter span of time than it
would have been otherwise. This will cause economic downfall of the country in the long run.
5. Import of Harmful Goods:
Import of spurious drugs, Luxury articles, etc. adversely affects the economy and well being of
the people.
6. Storage of Goods:
Sometimes the essential commodities required in a country and in short supply are also exported
to earn foreign exchange. This results in shortage of these goods at home and cause inflation. For
example, India has been exporting sugar to earn foreign exchange; hence the exalting prices of
sugar in the country.
7. Danger to Internal Peace:
Foreign trade gives an opportunity to foreign agents to settle down in the country which
ultimately endangers its internal peace.

KES College

Page 7

8. World Wars:
Foreign trade breeds rivalries amongst nations due to competition in the foreign markets. This
may event fully lead to wars and disturbs world peace.
9. Hardships in times of wars:
Foreign trade promotes lopsided development of a country as only those goods which have
comparative cost advantage are produced in a country. During wars or when good relations do
not prevail between nations, many hardships may follow.
Some of the objectives of foreign trade policy of India are as follows:
Trade propels economic growth and national development. The primary purpose is not the mere
earning of foreign exchange, but the stimulation of greater economic activity. The foreign trade
policy of India is based on two major objectives, they are as follows:
1) To double the percentage share of global merchandise trade within the next five years.
2) To act as an effective instrument of economic growth by giving a thrust to employment
generation.
Agriculture and industry has shown remarkable resilience and dynamism in contributing to a
healthy growth in exports. In the last five years the exports witnessed robust growth to reach a
level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. Our share of global
merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. Our share
of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. Indias total
share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the
employment front, studies have suggested that nearly 14 million jobs were created directly or
indirectly as a result of augmented exports in the last five years.
The short term objective of the policy is to arrest and reverse the declining trend of exports and
to provide additional support especially to those sectors which have been hit badly by recession
in the developed world. The policy is empowered with objective of achieving an annual export
KES College

Page 8

growth of 15% with an annual export target of US$ 200 billion by March 2011. In the remaining
three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back
on the high export growth path of around 25% per annum. By 2014, policy expects to double
Indias exports of goods and services.
The long term objective of policy for the Government is to double Indias share in global trade
by 2020. In order to meet these objectives, the Government would follow a mix of policy
measures including fiscal incentives, institutional changes, procedural rationalization, and
enhanced market access across the world and diversification of export markets. Improvement in
infrastructure related to exports; bringing down transaction costs, and providing full refund of all
indirect taxes and levies, would be the three pillars, which will support us to achieve this target.
Endeavour will be made to see that the Goods and Services Tax rebates all indirect taxes and
levies on exports.
Global Scenario

In 2014, the world crude steel production reached 1665 million tonnes (mt) and showed a
growth of 1% over 2013.

China remained the worlds largest crude steel producer in 2014 (823 mt) followed by
Japan (110.7 mt), the USA (88.2 mt) and India (86.5 mt) at the 4 th position.

WSA has projected Indian steel demand to grow by 6.2% in 2015 and by 7.3% in 2016 as
compared to global steel use growth of 0.5% and 1.4% respectively. Chinese steel use is
projected to decline in both these years by 0.5%.

Per capita finished steel consumption in 2014 is estimated at 217 kg for world and 510 kg
for China by WSA.

(Note: 2014 data source is provisional and sourced from World Steel in Figures 2015,
published by WSA in June 2015)
KES College

Page 9

Domestic Scenario

The Indian steel industry has entered into a new development stage from 2007-08, riding
high on the resurgent economy and rising demand for steel.

Rapid rise in production has resulted in India becoming the 3 rd largest producer of crude
steel in 2015 and the country continues to be the largest producer of sponge iron or DRI in the
world.

As per the report of the Working Group on Steel for the 12 th Five Year Plan, there exist
many factors which carry the potential of raising the per capita steel consumption in the
country. These include among others, an estimated infrastructure investment of nearly a
trillion dollars, a projected growth of manufacturing from current 8% to 11-12%, increase in
urban population to 600 million by 2030 from the current level of 400 million, emergence of
the rural market for steel currently consuming around 10 kg per annum buoyed by projects
like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Awaas Yojana among
others.

At the time of its release, the National Steel Policy 2005 had envisaged steel production
to reach 110 million tonnes (mt) by 2019-20. However, based on the assessment of the current
ongoing projects, both in greenfield and brownfield, the Working Group on Steel for the 12 th
Five Year Plan has projected that domestic crude steel capacity in the county is likely to be
140 mt by 2016-17 and has the potential to reach 149 mt if all requirements are adequately
met.

The National Steel Policy 2005 is currently being reviewed keeping in mind the rapid
developments in the domestic steel industry (both on the supply and demand sides) as well as
the stable growth of the Indian economy since the release of the Policy in 2005.

Production

KES College

Page 10

Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively.

Today, India is the 3 rd largest producer of crude steel in the world.

In 2014-15, production for sale of total finished steel (alloy + non alloy) was 91.46 mt, a
growth of 4.3% over 2013-14.

Production for sale of Pig Iron in 2014-15 was 9.7 mt, a growth of 22% over 2013-14.

India is the largest producer of sponge iron in the world with the coal based route
accounting for 90% of total sponge iron production in the country.

Data on production for sale of pig iron, sponge iron and total finished steel (alloy + nonalloy) are given below for last five years:

Indian steel industry : Production for Sale (in million tonnes)

Category

2010-11 2011-12 2012-13 2013-14 2014-15

Pig Iron

5.68

5.371

6.870

7.950

9.694

Sponge Iron

25.08

19.63

14.33

18.20

20.38

Total Finished Steel (alloy + non alloy)

68.62

75.70

81.68

87.67

91.46

Source: Joint Plant Committee

Demand - Availability Projection

KES College

Page 11

Demand availability of iron and steel in the country is projected by Ministry of Steel in
its Five Yearly Plan documents.

Gaps in availability are met mostly through imports.

Interface with consumers by way of a Steel Consumers Council exists, which is

conducted on regular basis.

Interface helps in redressing availability problems, complaints related to quality.

Steel Prices

Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are
determined by the interplay of market forces.

Domestic steel prices are influenced by trends in raw material prices, demand supply
conditions in the market, international price trends among others.

An Inter-Ministerial Group (IMG) is functioning in the Ministry of Steel, under the

Chairmanship of Secretary (Steel) to monitor and coordinate major steel investments in the
country.

As a facilitator, the Government monitors the steel market conditions and adopts fiscal
and other policy measures based on its assessment. Currently, basic excise duty for steel is set
at 12.5% and there is no export duty on steel items. The government has also imposed export
duty of 30% on all forms of iron ore except low grades which carry a duty of 10% while iron
ore pellets have a export duty of 5% in order to control ad-hoc exports of the items and
conserve them for long term requirement of the domestic steel industry. It has also raised
import duty on most steel imports by 2.5%, taking the import duty on carbon steel flat
products to 10% and that on long products to 7.5%.

For ensuring quality of steel several items have been brought under a quality control
order issued by the Government.

KES College

Page 12

Further, a Steel Price Monitoring Committee has been constituted by the Government
with the aim to monitor price rationalization, analyze price fluctuations and advise all
concerned regarding any irrational price behaviour of steel commodity.

Imports

Iron & steel are freely importable as per the extant policy.

Data on import of total finished steel (alloy + non alloy) is given below for last five
years:

Indian steel industry : Imports (in million tonnes)

Category

2010-11 2011-12 2012-13 2013-14 2014-15

Total Finished Steel (alloy + non alloy)

6.66

6.86

7.93

5.45

9.32

Source: Joint Plant Committee

Exports

Iron & steel are freely exportable.

Data on export of total finished steel (alloy + non alloy) is given below for last five years:

Indian steel industry : Exports (in million tonnes)

Category
KES College

2010-11 2011-12 2012-13 2013-14 2014-15

Page 13

Total Finished Steel (alloy + non alloy)

3.64

4.59

5.37

5.98

5.59

Source: Joint Plant Committee

Levies on Iron & Steel

SDF levy

This was a levy started for funding modernisation, expansion and development of steel
sector. The Fund, inter-alia, supports :
Capital expenditure for modernisation, rehabilitation, diversification,

renewal & replacement of Integrated Steel Plants.

Research & Development

Rebates to SSI Corporations

Expenditure on ERU of JPC

The SDF levy was abolished on 21.4.94

Cabinet decided that corpus could be recycled for loans to Main Producers

Interest on loans to Main Producers is set aside for promotion of R&D on steel etc.

An Empowered Committee has been set up to guide the R&D effort in this sector.

KES College

Page 14

EGEAF Was a levy started for reimbursing the price differential cost of inputs used for
engineering exporters. Fund was discontinued on 19.2.96.

Opportunities for growth of Iron and Steel in Private Sector

The New Industrial Policy Regime
The

New

Industrial

policy

opened

up

the

Indian

iron

and

steel

industry

for

private investment by (a) removing it from the list of industries reserved for public sector and
(b) exempting it from compulsory licensing. Imports of foreign technology as well as foreign
direct investment are now freely permitted up to certain limits under an automatic route. Ministry
of Steel plays the role of a facilitator, providing broad directions and assistance to new and
existing steel plants, in the liberalized scenario.
The Growth Profile
(i) Steel : The liberalization of industrial policy and other initiatives taken by the Government
have given a definite impetus for entry, participation and growth of the private sector in the steel
industry. While the existing units are being modernized/expanded, a large number of new steel
plants have also come up in different parts of the country based on modern, cost effective, state
of-the-art technologies. In the last few years, the rapid and stable growth of the demand side has
also prompted domestic entrepreneurs to set up fresh greenfield projects in different states of the
country.
Crude steel capacity was 109.85 mt in 2014-15 and India, which emerged as the 3 rd largest
producer of crude steel in the world in 2015 as per ranking released by the WSA, has to its credit,
the capability to produce a variety of grades and that too, of international quality standards. The
country is expected to become the 2 nd largest producer of crude steel in the world soon,
provided all requirements for creation of fresh capacity are adequately met.
(ii) Pig Iron: India is also an important producer of pig iron. Post-liberalization, with setting up
several units in the private sector, not only imports have drastically reduced but also India has
turned out to be a net exporter of pig iron. The private sector accounted for 91% of total
KES College

Page 15

production for sale of pig iron in the country in 2014-15. The production for sale of pig iron has
increased from 1.6 mt in 1991-92 to 9.7 mt in 2014-15.
(iii) Sponge Iron: India is the worlds largest producer of sponge iron with a host of coal based
units, located in the mineral-rich states of the country. Over the years, the coal based route has
emerged as a key contributor and accounted for 90% of total sponge iron production in the
country. Capacity in sponge iron making too has increased over the years and stood at 46.23 mt
in 2014-15.
Some of the major Iron and Steel Plants of India are as follows:

1. Tata Iron and Steel Company (TISCO):

This is the oldest iron and steel centre of India. It is a private sector enterprise. It was established
in 1907 by Jamshedji Tata at Sakchi in Singhbhum district of Jharkhand. Later on, it was
renamed as Jamshedpur after Jamshedji. It started producing pig iron in 1911 and steel in 1912.

KES College

Page 16

The plant initially had capacity of producing 1.21 million tonnes of pig iron and 1.1 million
tonnes of steel per annum. This capacity has been enhanced to 3.9 million tonnes of pig iron, 2
million tonnes of ingot steel and 3 million tonnes of saleable steel. Currently it produces about 3
million tonnes of saleable steel. Following facilities are available to this centre:
(i) High grade haematite iron ore is available from Noamundi mines of Singhbhum in Jharkhand
and Gurumahisani mines of Mayurbhanj in Orissa. These mines are located at a distance of 75100 km from Jamshedpur.
(ii) Coal is available from Jharia and Raniganj coal mines located 160 to 200 km from
Jamshedpur.

KES College

Page 17

(iii) Manganese comes from Joda mines of Kendujhar district in Orissa.

(iv) Dolomite, limestone and fire clay used as flux material are available from Sundargarh
district of Orissa.
(v) Kolkata, located at a distance of 250 km, provides port facilities and its industrialised
hinderland provides market for the products.
(vi) Sufficient water for cooling purposes is obtained from Subamrekha River. In addition to this,
the storage dam on Kharkai River also provides water.
(vii) Jamshedpur is well connected with Kolkata, Mumbai and Chennai by road and rail and
enjoys good transport facilities.
(viii) Densely populated regions of Jharkhand, Bihar and Orissa provide cheap labour. Major part
of labour is drawn from tribal areas of Chota Nagpur plateau.
2. Indian Iron and Steel Company (IISCO):
Three plants at Kulti, Hirapur and Bumpur in West Bengal were set up in 1864, 1908 and 1937
respectively. These plants have been merged together and are known as Indian Iron and Steel
Company (IISCO).
It was brought under government control and management in July 1972. The three plants are
linked by Kolkata-Asansol railway line. Hirapur plant produces pig iron which is sent to Kulti
for making steel. The rolling mills are located at Bumpur. IISCO enjoys the following
advantages:

KES College

Page 18

(ii) It used to receive coal from Jharia, located at a distance of 137 km but now the power from
the Damodar Valley Corporation is extensively used.
(iii) Dolomite and limestone are obtained from Sundargarh district of Orissa which is 327 km
away. Limestone is also available from Gangpur and Paraghat areas of Orissa.
(iv) Rail and road links connect it to Kolkata which is just 200 km away.
(v) Cheap labour is readily available from the neighbouring areas.
IISCO has annual capacity of producing 10 lakh tonnes of steel. Currently it produces over 4
lakh tonnes of pig iron, more than 3.5 lakh tonnes of crude steel and around 3.8 lakh tonnes of
saleable steel.

KES College

Page 19