Impact of Recent Economic Changes on

The External Trade of India: A Time

Series Analysis

Dr. Deepti
Dr. Deepa Rawat
• The Indian economy is now fully integrated with the global
economy, thanks to economic reforms initiated in 1990s and
continued till today.
• Indian economy sailed safely during the economic crisis in
south east Asian countries in 1997-98 and 2001-02 because
the degree of integration with affected counties was low.
However, the brunt of the Sub-prime crisis of US (2008-09)
and Eurozone debt crises (2009-2017) is being felt on Indian
economy since 2011-12 when annual growth rate of GNI at
constant prices (2011-12=100) declined to 6.9 per cent from
9.8 per cent in 2010-11.

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• Impact of global recession is deeply felt on external trade.
India’s exports grew by 40.5 per cent in dollar terms during
2010-11 and 21.8 per cent during the following year. Growth
rate of exports during 2012-13 was (-)1.8 per cent which
improved slightly in 2013-14(4.7 per cent) but again dipped to
(-) 1.3 per cent in 2014-15. Heavy shock was felt during 2015-
16 when growth of exports decreased to (-)15.5 per cent.
Almost similar trend was noticed in the imports.
• The only consoling factor was the continuous rise in the
foreign exchange reserves which increased from US$251.985
billion in 2008-09 to US$369.955 billion in 2016-17, primarily
due to the increasing inflow of FDI during these years
• The current account deficit came down to US$15.296 billion
in 2016-17 from US$88.163 billion in 2012-13.
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 Introduction
• . During the period 1950-1990, external trade of India
suffered from strict bureaucratic and discretionary controls.
• It was during the eighties that the government started
opening up the economy
• During the last two and a half decades India has transformed
from a closed economy to a considerable player in the global
market.
• Since 1991, India has followed an export promotion strategy
which geared up export from 13970 US $ million in 1988-89 to
22238 US $ million in 1993-94. Nevertheless, India’s export
performance has fluctuated according to global changes.

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• In 2001-02, India faced another setback, due to the
slowdown of the US economy. Again in 2008-09 the
collapse of large investment banks around the world
coupled with high oil prices and rising inflation led to a
global recession which severely affected India’s external
trade. Nevertheless, the resilience shown by our
economy was better than most economies of the world.
India’s GDP growth rate fell from 9 per cent in 2007-08 to
7.1 per cent in 2008-09. The impact of this crisis on the
export sector was that export growth which was
approximately 24.55 per cent between 2002-03 and 2007-
08 come down to (-) 3.5 per cent in 2009-10.

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 Trend of External trade
• During the last 25 years, India’s exports have increased
more than 17 times, from US$ 18143 million in 1990- 91 to
US$ 310338 million in 2014-15, and India’s imports have
increased 19 times, from US$ 24075 million to US$ 448033
million during the same period
• India’s exports are not much diversified, with top 20
countries accounting for more than 80 per cent of total
exports. During 1991-92, USA was the largest export
destination (16.4 per cent), followed by Japan (9.2 per cent),
Russia (9.2 per cent) and some European countries. Today,
top 20 export destinations for India account for 67 per cent
of total exports, reflecting greater diversification. A major
change in the direction of India’s exports during the last two
decades has been the increasing share of developing
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countries and decreasing share of developed economies.
• The composition of exports has also changed with time.
There is a definite shift in India’s exports from primary,
agricultural and traditional exports to manufactured and
technology based items. As regards the imports, India’s
imports have also continuously increased, they were US$
24075 million in 1990-91 and increased to US$ 111517
million in 2004-05.
• Petroleum has always remained the most important item
of import in India’s trade in the pre-as well as post reform
period. It had a share of 27 per cent in total imports in
1991-92, which currently stands at around 21.8 per cent in
2015-16. Gold is another important import item after
crude oil.

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For Imports

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• The value of r (growth rate) for exports is equal to 37.73 per
cent and for imports 42.22 per cent. We found that there is
no serially correlation, no heteroscedastic, residual is
normally distributed and no auto correlation in residual.
Thus, all result shows that this model is fitted.

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Impact of Recent Economic Changes
• During the last one year a number of economic and political
happenings have disturbed the globe. Economic crisis in Euro
Area, Brexit and uprisings in the Middle-east have all had an
effect on sensitive commodity prices and general uncertainty
has affected business environment world over and recovery
pace in both developed and emerging markets.
• In India various ongoing reforms are expected to reduce
domestic supply hindrances and increase productivity. The
“Make in India” initiative can support India’s manufacturing
sector. A benefit of ‘demonetization’ in the long run may ease
liquidity in the banking system, leading to lower lending rates
and boost economic activity
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• According to latest WTO reports, world trade will expand by
just 1.7 per cent in 2016.
• Global GDP growth is 2.2 per cent in 2016, this is the slowest
pace of trade and output growth since the financial crisis of
2009. Another important global event of 2016 was the Brexit.
• The intensity of the impact would depend on the measures
required to tackle uncertainty in trade such as impact on
preferential access to EU markets, the need for recalibration
of the Broad-based Bilateral Trade and Investment
Agreement and change in import-export tariff barriers, once
the process of separation of UK from EU is completed.
• Looking at the resilience of the Indian economy with strong
banking setup, macroeconomic stability, limited exposure to
global financial markets, the prospects of India’s external
trade Free
seem bright and it would be able to bear global
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crisis
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in
future also.
 Demonetization
• Besides the global events affecting India’s external trade,
there have been recent economic changes within the
country which are likely to affect trade in the long run.
One such event was demonetization
• Demonetization was announced on 8 November 2016 by
the Prime Minister Sh. Narendra Modi and still its
advantages and disadvantages are being debated.
• Economists predict that it’s negative impact on economic
activity and GDP would be temporary. The Reserve Bank
of India (RBI) has reduced the GDP growth rate forecast
for 2016-17 from 7.6% to 7.1% and the Asian
Development Bank from 7.4% to 7%.
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 GST
• Yet another important economic reform adopted in 2017
has been the introduction of GST on 1st July 2017 by the
government of India.
• It can be said that in the long run the impact of this major
tax reform on external trade would be positive.
• GST is a destination based tax on consumption of goods
or services. The policy of the Government of India is to
export the goods and/or services not the taxes out of
India. Thus, exports will become cheaper making Indian
products or services more competitive in the
international markets.
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 Conclusion
• An analysis of the various international and national happenings
in recent years reveals that India has fared much better than
most of the world economies due to its ability to absorb external
shocks.
• The threats are manifold covering political, economic and social
dimensions. India must take suitable measures to be stable in
the global unstable environment and improve it’s regulatory
framework, ease of doing business, transparency, infrastructure,
banking network and competitiveness in the world market.
• There are several threats and challenges around the world and
increasing protectionist attitude of advanced economies like
U.S. and U.K. However, India can take suitable measures as
outlined in the Foreign Trade Policy 2015-20 along with
improving its domestic trade environment, strong monetary
and fiscalFreepolicy, increasing digitization of the trade process,
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working on building the Brand and value promotion.

• To speed up the pace of economic development and to
attract foreign direct investment there is an urgent need
to ensure the protection of investors, their lives and
money through maintaining normalcy, law and order. The
protection of rural economy is essential for India.
• Only then would India be able to have all round growth
and be able to withstand global fluctuations with greater
ease and continue on its growth track.

Thank You

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