FOREIGN TRADE IN INDIA

INTRODUCTION: Post-World War II period most of the developing countries adopted inward-oriented policies that emphasized import substitution. Poor growth resulting from such a strategy led to policy reforms in the early 1960s : countries started giving more incentives to the export sector even as they pursued second-stage import substitution (for instance, Brazil, Argentina and Mexico) Some countries made a more fundamental shift towards a relatively outward-looking strategy (based on vigorous export promotion) in the early 1960s (for instance, Korea, Singapore and Taiwan). INTRODUCTION: Fast growth registered by these countries India has opted for a policy of trade liberalization in recent years. Massive trade policy reforms were announced in 1991 Open up the economy to foreign trade and to 'integrate' the Indian economy into the global economy in the new international order taking shape with the setting up of the WTO (World Trade Organization) in 1995. VALUE OF EXPORTS AND IMPORTS IN THE PLANNING PERIOD : Value of India's exports and imports has increased considerably over the period of planning. From $ 1,269 million in 1950-51, exports rose to $ 8,486 million in 1980-81 and further to $ 1,68,704 million in 2008-09. Imports during this period rose from $ 1,273 million to $ 15,869 million and further to $ 2,87,759 million. Country has faced substantial trade deficits during the period of planning. Trade balance was positive in only two years (1972-73 and 1976-77) during the entire period 1949-50 to 2008-09. INDIAS EXPORTS AND IMPORTS: The year 1990-91 saw a trade deficit of $ 5,932 million as imports rose by 13.5 per cent, rise of 9.2 per cent in exports in 1989-90. Strict import restrictions were imposed in 1991-92 and the trade deficit declined to $ 1,546 million. Next three years ( 1993-94 to 1995-96 ) saw a strong resurgence in export earnings. INDIAS EXPORTS AND IMPORTS: Average trade deficit during the Eighth Plan period (1992-97) was $ 3,456 million per annum less than the trade deficit recorded in the Sixth and Seventh Plan periods Ninth Five Year Plan (19972002), there was deterioration. Average trade deficit in this Plan was as high as $ 8,412 million. INDIAS EXPORTS AND IMPORTS: Tenth Plan - considerable revival of foreign trade . The rate of growth of exports in this Plan - above 20 per cent per annum Both external and domestic factors contributed to this satisfactory performance. Improved global growth and recovery in world trade Opening up of the economy enhanced the competitiveness of Indian industry. There is a far greater export- orientation of domestic manufacturers & economic reforms. INDIAS EXPORTS AND IMPORTS: Tenth Plan, imports increased from $ 61,412 million in 2002-03 to $ 1,85,735 million in 2006-07. Because of substantial increase in imports, the trade deficit rose considerably. The first year of the Eleventh Plan, 2007-08, saw a large trade deficit of $ 88.52 billion. The main reason for this was increase in oil import bill - a staggering 39.4 per cent rise in a single year due to a hike in global crude oil prices by nearly 53 per cent during 2007-08 (India meets more than 75 per cent of its crude oil requirement from imports). The situation deteriorated considerably in 2008-09 because of global recession . Exports could register a growth of only 3.4 per cent in this year while imports increased by 14.3 per cent. As a result, trade deficit rose to the unprecedented level of $119 billion.

COMPOSITION OF IMPORTS: In 1947-48, the main items of imports in India (in order of importance were : machinery of all kinds; oils (vegetable, mineral and animal); grains, pulses and flour; cotton, raw and waste; vehicles (excluding locomotives); cutlery, hardware, pigments and instruments; chemicals, drugs and medicines; dyes and colors; other yarns and textile fabrics; paper, per board and stationery; and metals other than iron and steel and manufactured. These imports together constituted more than 70 per cent of all imports. The initiation of the planning process in the country in 1951-52, brought about a considerable change in the composition of imports. COMPOSITION OF IMPORTS: The Second Plan introduced a program of industrialization with heavy emphasis on the development of capital goods and basic industries. Necessary to import capital equipment in large quantities. Spare parts, materials and machinery had to be imported Thus, 'maintenance imports' entered into the import structure of the country in a big, way. COMPOSITION OF IMPORTS: Imports of the country have been divided into four broad groups: (i) Food and live animals (ii) Raw materials and intermediate manufactures, (iii) Capital goods and (iv) Other goods. COMPOSITION OF IMPORTS: There have been significant changes in the relative importance of these groups over time. Imports of food and live animals have declined sharply. Share of raw materials and intermediate manufactures has increased considerably primarily due to a sharp rise in the import of petroleum oil and lubricants, fertilizers and pearls and precious stones. Capital goods had accounted for about one-third of import expenditure in 1960- which fell to a little more than one-fifth in 1996-97. In 2007-08 , the share of capital goods in total imports was 28.1 %. COMPOSITION OF IMPORTS: Rise in the import expenditure on POL (petroleum, oil and lubricants) imports. POL imports accounted for only 6.1 per cent of import expenditure in 1960-61 and 8.3 per cent in 1970-71, increased to 41.9 per cent in 1980-81. This sharp increase was due to two hikes in oil prices in 1970s ,one in 1973-74 when the Oil and Petroleum Exporting Countries (OPEC) raised the price of oil and the other in 1978-79 when the price of oil was raised sharply to $ 35.00 per barrel In 2007-08, imports of POL were $ 79,645 million which was 31.6 percent of total import expenditure, i.e., a little less than one-third of total import expenditure. COMPOSITION OF EXPORTS: Trend over the years - a decline in the importance of agriculture and allied products , increase in the importance of manufactured products Share of agriculture and allied products in total exports declined from 44.2 per cent in 1960- 61 to 11.3 per cent in 2007-08 That of manufactured products increased from 45.3 per cent to 63.1 per cent over the same period. This clearly depicts the changing production structure of the economy and the march from an underdeveloped, backward, primary goods dependent economy to a more vibrant industrial economy. COMPOSITION OF EXPORTS: The most important export item in 1960-61 was jute and it contributed 21 per cent of total export earnings. Since then its share has continuously declined to 0.2 per cent in 2007-08 The second most important export item in 1960-61 was tea and it contributed 19.3 per cent of total export earnings. Its share has also declined consistently to 0.3 per cent in 2007- 38.

COMPOSITION OF EXPORTS: Due to industrialization the exports of engineering goods rose substantially. Their share in India's export earnings rose from 3. 4 per cent in 1960- 61 to 22.9 per cent in 2007-08. During recent years, increases in the exports of chemicals and allied products. Export of readymade garments, iron ore, leather and leather manufactures have also increased. DIRECTION OF TRADE : India's trading partners can be divided into five major groups: OECD (Organization for Economic Cooperation and Development - European countries plus the United States and Canada- 34 nations), Eastern Europe Developing Nations, and Others. DIRECTION OF TRADE : Imports: Importance of OECD as a group has declined considerably over the period 1960-61 to 200708. The share of this group in India's import expenditure was 78 per cent in 1960-61 which fell to 34.7 per cent in 2007-08 - import requirements of crude oil. Share of OPEC in India's import expenditure 30.2 per cent in 2007-08 as oil imports from this region increased markedly. DIRECTION OF TRADE: Share of Eastern Europe in imports also increased considerably from 3.4 per cent in 1960-61 to 7.8 per cent in 1990-91, declined to 2.1 per cent in 2007-08. Developing nations (particularly of Asia) have increased their share in India's imports. They accounted for 32.0 per cent (i.e., a little less than onethird) of India's import expenditure in 2007-08. DIRECTION OF TRADE: In the year 1950-51, the share of U.K in India's imports was 20.8 per cent and that of U.S.A. was 18.3 per cent. Thus, the combined share of these two countries was 39.1 per cent. Within a decade, the picture started showing some changes. New trading partners like West Germany, Canada and U.S.S.R. emerged . There was a change in the relative position of U.K. and U.S.A. as well, with the latter pushing down the former to the second place. DIRECTION OF TRADE: Planning period as a whole, India has obtained maximum imports from U.S.A ., - has imported large scale quantities of capital goods, intermediate products and foodgrains from that country . With the expansion of trading relations with Japan, West Germany and U.S.S.R., the dependence on the U.K. declined considerably. Share of U.K. in Indian imports declined from 19.4 per cent in 1960-61 to 2.0 per cent in 2007-08. Share of Japan increased from 1.5 per cent in 1950-51 to 2.5 per cent in 2007-08. Expansion in trading relations with the socialist countries especially the erstwhile U.S.S.R. DIRECTION OF TRADE: (2007-08) China occupied the first position in India's imports (share 10.8 per cent), USA (share 8.3 per cent), Saudi Arabia (share 7.7 per cent) UAE (share 5.3 per cent) Iran (share 4.3 per cent) Germany (share 3.92 per cent) Switzerland (share 3.90 per cent) Singapore (share 3.2 per cent). DIRECTION OF EXPORTS: OECD group accounts for a major portion of India's exports. The share of this group in 1960-61 was 66.1 per cent and in 2007-08 was 38.4 per cent. More than half of these exports were accounted for by the EU countries in 2007-08. The OPEC group accounted for 4.1 per cent of exports in 1960-61 and its share in 2007- 08 rose to 16.3 percent . In 2007-08, the share of Eastern Europe in total exports had slumped to 2.1 per cent.

DIRECTION OF EXPORTS: Developing nations of Africa, Asia and Latin America accounted for more than 40 per cent of India's export earnings in 2007-08. Most important in this group have been the countries of Asia. In fact, exports to Asian countries accounted for 31.6 per cent of India's total export earnings in 2007-08. DIRECTION OF EXPORTS: At the start of the planning process in India in 1950-51, the share of U.K. in India's total exports was as high as 23.3 per cent. This came down 4.1 per cent in 2007-08. DIRECTION OF EXPORTS: In 2007-08 U.S.A. with a share of 12.7 per cent occupied the top position. U.A.E. (share 9.6 per cent) China (share 6.6 per cent) Singapore (share 4.5 per cent) U.K. (share 4.1 per cent) Hong Kong (share 3.9 per cent) Germany (share 3.1 per cent). POST REFORM PERIOD (AFTER 1991) GROWTH AND STRUCTURE OF INDIA'S FOREIGN TRADE SINCE 1991 : Commencing July 1991, India initiated a number of measures to 'open up' the foreign trade sector , massive import liberalization measures These include devaluation of the rupee in July 1991 Introduction of the convertibility of rupee first on trade account and then for all current account transactions, Liberalization of import regime, substantial reduction in customs tariff rates, decanalising of many items of trade Wide ranging measures to give a thrust to exports , etc. Shift from the inwardoriented policy of the past to an outward-oriented policy. EXPANSION OF FOREIGN TRADE: India's trade has increased significantly in the post-reform period . In absolute terms, the trade volume rose from US $ 42.2 billion ($ 18.1 billion exports and $ 24.1 billion imports) in 1990-91 to US $ 456.46 billion ($168.70 billion exports and $ 287.76 billion imports) in 2008-09 . However, since 1992-93 the rate of increase of imports has been consistently higher than the rate of increase of exports excepting 1993-94, 2000-01 and 2002-03. As a result, trade deficit increased substantially from $ 1.5 billion in l991-92 to $ 119 billion in 2008-09. EXPANSION OF FOREIGN TRADE: Reflecting the liberalization of trade regime and the increasing external openness of the economy India's trade- GDP ratio showed substantial improvements during the 1990s as compared with the earlier decades. The Export-GDP ratio: 4.5 per cent in 1970s 4.6 per cent in 1980s 7.8 per cent in 1990s 15.1 per cent in 2008-09. The import-GDP ratio 5.3 in 1970s 7.2 per cent in 1980s 9.3 per cent in 1990s. 25.5 per cent in 2008-09. The overall trade-GDP ratio increased 9.8 per cent in 1970s 11.8 per cent in 1980s 17.1 per cent in 1990s. These data indicate an increasing openness of the Indian economy in 1990s. EXPANSION OF FOREIGN TRADE: The export-import ratio (which indicates the proportion of imports that can be financed from export earnings) increased from 64.0 per cent during 1980s to 84.9 per cent during 1990s and stood at 81.7 per cent in 2003- 04. However, it deteriorated thereafter and fell to 59 per cent in 2008-09. Both export growth and import growth rates registered an increase in the post reform period vis-a-vis 1980s. For instance, the average annual export growth rate rose from 8.1 per cent in 1980s to 8.6 per cent in 1990s Average annual import growth rate rose from 7.2 per cent to 9.6 per cent over the same period.

CHANGES IN COMPOSITION OF EXPORTS : The share of agriculture and allied products in total exports was 19.4 per cent in 1990-91. This fell to 11.3 per cent in 2007-08. Manufactured products account for a major share of the increase in aggregate exports over the period 1990-91 to 2007-08. Exports of manufactured goods accounted for 61.9 per cent of total exports. CHANGES IN COMPOSITION OF EXPORTS : Exports of petroleum products accounting for 19.2 per cent of the increase in exports over the period. Gems and jewellery in 1990-91 - share in total export earnings - 16.1 per cent. 12.1 per cent in 200708. CHANGES IN COMPOSITION OF EXPORTS : 1990-91 - readymade garments share in export earnings - 12.8 per cent. In 2007-08 it was 5.9 per cent. Engineering goods share of 11.9 per cent. In 2007-08 share of 22.9 % Percentage share of chemicals and allied products - 6.5 per cent in 1990-91 13.0 per cent in 2007-08. An important reason for this improved performance has been an increase in the exports of drugs, pharmaceuticals and fine chemicals. CHANGES IN COMPOSITION OF EXPORTS : India's manufacturing exports are showing tendencies of shifting away from traditional exports towards relatively manufactured products. An encouraging trend - exports of electronic goods and computer goods have shown good performance Rise in service exports since 1991 and changes in the composition of service exports . Between 1992 and 2008-09, India's exports of services increased from $ 4.9 billion to $ 101.2 billion. CHANGES IN COMPOSITION OF EXPORTS : As far as composition of service exports is concerned, the relative share of travel and transportation in India's exports which was as high as 64 per cent in 1995-96 fell to 21.7 per cent in 2008-09 Share of software services rose from 10 per cent to 46.4 per cent over the period. Exports of software services reached a level of $ 47 billion in 2008-09, recording a growth of 16.6 per cent. Software export growth was consistently around 30.0 per cent over the period 2003-04 to 2007-08 but fell to 16.6 per cent in 2008-09 due to global recession. CHANGES IN COMPOSITION OF IMPORTS: The most important import item in terms of expenditure is POL (petroleum, oil and lubricants). The share of POL in total import expenditure was 25.0 per cent in 1990-91 and 31.6 per cent in 2007-08. All through the post-reform period, imports of capital goods have accounted for 28.2 per cent of total imports. CHANGES IN COMPOSITION OF IMPORTS: As a result of liberalization in the post-reform period and changing consumer tastes , imports of electronic goods and computer goods have increased substantially during the recent years The share of fertilizers in import expenditure fell from 4.1 per cent in 1990-91 to only 2.1 per cent in 2007-08. Over the same period, the share of iron and steel in import expenditure fell from 4.9 per cent to 3.4 per cent. The share of chemical elements and compounds in total import expenditure remained stable at 5-6 per cent. DIRECTION OF IMPORTS: As far as the share of different countries in India's imports is concerned, USA occupied the first position in 1990-91 with a share of 12.1 per cent Germany (share 8.0 per cent) Japan (share 7.5 per cent) UK (share 6.7 per cent) Saudi Arabia (share 6.7 per cent) Belgium (share 6.3 per cent).

DIRECTION OF IMPORTS: In 2007-08 China occupied the first position with a share of 10.8 per cent USA (share 8.3 per cent) Saudi Arabia (share 7.7 per cent) UAE (share 5.3 per cent) Germany (share 3.92 per cent) Switzerland (share 3.90 per cent) Singapore (share 3.2 per cent). DIRECTION OF EXPORTS: The OECD group of countries share in India's exports was 53.5 per cent in 1990-91 which fell to 38.4 per cent in 2007-08. Taken separately, EU accounted for 21.8 per cent of India's export earnings in 1990-91 and 20.1 per cent in 2007-08. The share of OPEC group in India's export earnings was 5.6 per cent in 1990-91 which rose to 16.3 per cent in 2007-08. DIRECTION OF EXPORTS: Share of developing nations of Africa, Asia and Latin America has risen considerably over the eighteen-year period 1990-91 to 2007-08 from 17.1 per cent to 42.6 per cent. Countries of Asia accounted for 31.6 per cent of India's export earnings in 2007-08. USSR with a share of 16.1 per cent occupied the first position in 1990-91. USA occupied the second position with a share of 14.7 per cent Japan (share 9.3 per cent). The position changed markedly thereafter due to the disintegration of the USSR. DIRECTION OF EXPORTS: In 2007-08 USA (share of 12.7 per cent) occupied the first place UAE (share 9.6 per cent) China (share 6.6 per cent) Singapore (share 4.5 per cent) UK (share 4.1 per cent) Hong Kong (share 3.9 per cent) Germany (share 3.1 per cent). RECENT TRENDS Increasing Value and Volume of Foreign Trade Rapid Increase in Imports Slow Increase in Exports Mounting Deficit in Balance of Trade Trend Towards Globalisation Changing Composition of Trade Changing Direction of Trade Lower Share in World Exports Changing Role of Public Sector Trade Policy Reforms.