FOREIGN TRADE

TRADE
MEANING
The process of buying and selling of goods
is called trade.
There are two types of trade:-
Internal trade or home trade
International trade or foreign trade
 INTERNAL TRADE

MEANING
The trade which is carried on within a nation is
called internal trade. It is the trade within the
boundaries of a country between different places
and different people.
 INTERNATIONAL TRADE

MEANING

International trade is the trade between

different nations of the world.

ADVANTAGES:
Import of necessary goods.
Maintaining stability in the price.
Industrial development.
Meeting emergencies.
Advantage of mobility of capital.
Expansion of market for goods.
International co-operation.
Achievement of specialisation in production.
Efficient use of resources.
Technology transfer.
Control of monopoly.
Maximisation of production.
 FOREIGN TRADE OF INDIA

Features:
Increase in volume
Change in direction of trade
Change in composition of trade
Diverse exports
Government intervention
Trade agreement
Export promotion
WTO membership
Deterioration in terms of trade
 EXPORTS AND IMPORTS OF INDIA

INDIA’S EXPORTS
Exports of India refers to the sale of goods
and services by India to other countries of
the world.
Growth of total export
The total exports have increased by more
than 1387 times during the last six decades.
 EXPORTS OF INDIA SINCE 1951(Rs. In crore)
year exports year exports

1950-51 606 1990-91 32553

1960-61 642 2000-01 203571

1970-71 1535 2007-2008 655864

1980-81 6711 2008-09 840755

 SELECTED INDICATORS OF EXPORT SECTOR
YEAR 1990-91 2000-01 2001-02 2007-08 2008-09

Growth of 9.0 21.1 -1.6 28.9 13.7

exports as
percent of
BOP
Exports as 5.8 9.9 9.4 13.5 15.4
per cent of
GDP
India’s 0.5 0.7 0.8 1.1 1.1
share in
world
exports
(percent)
The main factors responsible for slow growth of exports:
Shortage of supplies and inadequate exportable surpluses.
Lack of new technology goods.
Low quality of Indian goods.
High cost of production.
Low competitive strength.
Low productivity of Indian industries.
Limited foreign investment and collaborations in export
sector.
Inadequate transportation and shipping facilities.
Tariffs and quotas imposed by developed countries.
 Composition of Exports

Increase in manufactured items: The

dependence on conventional goods is
gradually declining and that of
manufactured goods is increasing. The
export of unconventional goods such as
chemicals, machinery and transport
equipment is increasing. The share of
manufactured items in our total exports was
66% in 2008-09.
Broad based expansion: The specific feature of
increase in our exports is that the export of
unconventional goods is increasing on a broad
base. There is a great increase in the export of
engineering goods, iron & steel, chemicals,
tobacco, coffee and sugar is increasing. The diverse
development of our economy has paved the way for
the export of new goods and services.
 Main items of exports

Primary commodities: They consist of agricultural and

allied products, ores and minerals. They include
coffee, tea, tobacco, oil, cashew, rice, fish etc. The total
value of exports was Rs. 77,783 crore in 2008-09. The
share of primary products in the total exports of India
was 9.1% in 2008-09.
Manufactured goods: cotton yarn, machinery,
transport vehicles, software and electronic goods,
handicrafts and gems comprise under this category.
The export of manufactured goods was 5,66,156 crore
and the share was 66% in 2008-09.
Services: With the growth in IT, IT-enabled
services and BPOs have a great potential for
growth. For India, services account for 53% of GDP
and 35% of total exports. Service exports grew by
22% in 2007-08 and the export value of services
reached US $102 billion in 2008-09
 Export of Principal commodities

Textile fabrics and manufactures: There is a great

demand for India's cotton fabrics and garments in
the foreign countries. The export of these items
fetched a foreign exchange of Rs.68,524 crore in
2008-09.
Engineering goods: The enormous progress achieved
after independence resulted in the increase of export
of engineering goods over the years. During 2007-08
the export of these goods reached 1,49,799 crore.
The share was 23.3% in 2006-07.
Handicrafts: These items occupy an important part
in our exports. The export of these items was
Rs.5,769 crore in 2007-08.
Jute items: The export of these items has
decreased due to various reasons. The total value
of exports was Rs.1377 crore during 2008-09.
Chemicals: In recent years the export of chemicals
has increased considerably. The total exports of
these goods was Rs.85,697 in 2008-09.
Leather goods: The total value of exports of leather
goods was Rs.15931 crore in 2008-09.
Minerals and ores: Iron ore, manganese and mica
are the important minerals and ores exported by
India. The export of these items was Rs. 35529
crore in 2008-09.
 Direction of India's exports

Large outlets for exports: After independence the

number of countries importing goods from India has
been increasing significantly. Before independence
Britain had a major share but now India is exporting
goods to developed nations such as America, Japan,
Russia and European countries.
Large exports to few countries: Though the number of
countries of our exports has increased, major parts of
exports go to few countries. 52% to Asia and Oceania,
24% to Europe and 17% to American countries.
Various outlets for various goods: As large number
of countries are buying goods from India, we have
opportunities to export goods to such countries
depending on their requirements. India is
exporting engineering goods, ready made
garments, precious stones etc. to the OECD and tea
and leather goods to the East European countries.
 Region wise exports of India

Asia and ASEAN region: This is the first major

source of exports for India. In 2008-09 the total
exports was 52%. This region mainly consists of
Australia, New Zealand, ASEAN (association of
South East Asian nations) like Singapore, Malaysia
and Thailand, WANA countries like UAE, Iran and
Kuwait, NEAN countries like China, Japan and
Korea, SEAN countries like Sri Lanka, Bangladesh
and Nepal.
 American Region: North American nations (USA,
Canada) and 43 Latin American nations like Brazil,
Argentina, Bolivia, Jamaica etc. are the third major source
of exports for India. The total exports to this region was
worth 15.5% in 2008-09, in USA alone was 11.4%.
European Region: This is the second major source of
India’s exports. The total exports to this region was 22.7%.
The region consists of 27 European union member
countries like UK, Germany, France, Italy, Spain etc., 5
other western European countries like Turkey,
Switzerland etc. and 5 other Eastern European countries.
African countries: This region mainly consists of 9
Southern African nations, 23 Western African
nations and 10 East African nations. The total
exports to this region was 6.1% in 2008-09.
CIS and Baltic's region: This region consists of 5
CAR countries like Kazakhstan, Uzbekistan etc.
and 7 other CIS countries like Russia, Ukraine etc.
The total exports to this region was 1% in 2008-09.
 Indian Imports

Imports of India refers to buying of goods

and services from abroad.
Imports of India before independence were
Machinery of all kinds,oils,grains,drugs and
medicines, dyes and colors etc
Imports at present are fertilizers, edible
oil,medicines,chemicals,rubber,electronic
goods etc
Main item of import today in india are
petroleum products
 Growth of total imports

Imports of India since 1950-51

YEAR imports YEAR imports

1950-51 608 1990-91 43198

1960-61 1122 2000-01 230873

1970-71 1634 2007-08 1012312

1980-81 12549 2008-09 1305503

 Indicators of import sector

year 1990-91 2000-01 2001-02 2003-04 2007-08

Growth of 14.4 4.6 -2.8 24.1 35.2

imports as
percent of
BOP

Import 2.5 8.8 11.5 16.9 14.4

cover of
FER
(No. of
months)

Imports as 8.8 12.6 11.8 13.3 2.9

percent of
GDP
 Composition of imports

The structure or shape of imports is known as

composition of imports it indicates the type
of goods and services imported by the
country
Important trends in the composition of
India’s exports
Industrial imports
*development imports
*maintenance imports
 Capital intensive goods
 Import substitution
 Main items of imports

The commodities imported by india can be

classified into four groups
 food and live animals chiefly for food
Raw materials and intermediate
manufacturers
Capital goods
Other goods
 Important items of India’s IMPORTS.

Petroleum products
Capital goods
Pearls and precious metals
Fertilizers
Edible oils
Other items
 DIRECTION OF INDIAN IMPORTS

Large sources of imports

Large imports from a few country
Various sources for varied goods
Asia and ASEAN region
European region
American region
African region
 CIS and Baltics region
 Unspecified region
 Balance of payment

MEANING:
Balance of payment refers to the difference between total value of
visible and invisible exports and the total value of visible and invisible
imports in a given period of time.

It is the list of all the economic transactions carried on by a country

with other countries of the world in a specified period.
If the value of import is more than the value of exports then it results
in ADVERSE BALANCE OF PAYMENT.
If the value of exports is more than imports then leads to
FAVOURABLE BALANCE OF PAYMENT.
If the exports and import value are equal it results in the
EQUILIBRIUM or BALANCED BALANCE OF PAYMENT.
STRUCTURE OF INDIA’S BALANCE OF PAYMENT

CURRENT ACCOUNT:
It refers to a statement of a country’s trade in
goods and services with the rest of the world over a
particular period of time.
It includes three items:
Visible or merchandise account
Invisible account
Unilateral transfer
CAPITAL ACCOUNT:
The capital account in the balance of payment of a
country consists of the transactions in financial
assets in the form of short term and long term
lending and borrowings and private and official
investments.

Meaning of balance of trade(BOT) – The balance of

trade deals only with exports and imports of
merchandise or visible items.
 Foreign exchange reserves

Foreign exchange refers to the system of external and

international payments.
Foreign exchange is a collective term that embraces all kinds
of negotiable claims expressed in foreign money as seen by
the domestic buyer and seller.
According to Paul Einzig, foreign exchange is”the system or
process of converting one national currency into another ,and
of transferring money from one country to another.”
It is the mechanism through which the payments are effected
between two countries having different currency system.
Foreign exchange is the direct off shoot of international trade.
Import cover of foreign exchange reserves

year 1990 1998- 1999- 2000- 2001- 2002- 2007- 2008-

-91 99 00 01 02 03 08 09

No. of 2.5 8.2 8.2 8.8 11.5 14.2 14.4 9.8

month
 BALANCE OF PAYMENT

Balance of Payment of a country is one of the important

indicators for International trade, which significantly
affect the economic policies of a government.
As every country strives to a have a favourable balance of
payments, the trends in, and the position of, the balance
of payments will significantly influence the nature and
types of regulation of export and import business in
particular.
Balance of Payments is a systematic and summary
record of a country’s economic and financial transactions
with the rest of the world over a period of time.
The balance of payments is a statistical statement that
systematically summarizes, for a specific time period, the
economic transactions of an economy with the rest of the
world.
Transactions, for the most part between residents and
non-residents, consist of those involving goods, services,
and income; those involving financial claims on, and
liabilities to, the rest of the world; and those (such as gifts)
classified as transfers, which involve offsetting entries to
balance—in an accounting sense—one-sided transactions.
CURRENT POSITION OF BALANCE OF PAYMENTS

India’s balance of payments position has remained

comfortable during 2007- 08 so far. The merchandise trade
deficit, on balance of payments basis, increased from US$
16.9 billion in April-June 2006 to US$ 21.6 billion in April-
June 2007.
Net surplus on the invisibles account exhibited buoyancy
during the first quarter of 2007-08, led by exports of
software, business services and private remittances, and
continued to finance a large part (78.2 per cent) of the
merchandise trade deficit.
 Despite large merchandise trade deficit, higher net
invisible surplus contained the current account
deficit (US$ 4.7 billion) during the first quarter of
2007-08 at broadly the same level (US$ 4.6
billion) as in the first quarter of 2006-07.
The current account deficit was financed by capital
flows that have remained large during 2007-08 so
far.
During 2007-08 (up to October 19, 2007), net inflows by
FIIs amounted to US $21.2 billion as compared with
outflows of US $ 933 million in the corresponding period of
2006-07. FDI inflows were US $ 6.6 billion during April-
July 2007 (US $ 3.7 billion a year ago).

On the other hand, non-resident Indian deposits registered

net outflows amounting to US $ 148 million during April-
July 2007 as against net inflows of US $ 1.6 billion during
April-July 2006.
During 2007-08 so far (April-August), growth of merchandise exports
moderated, while imports posted a high growth rate. Non-oil imports
registered high growth due to robust growth in capital goods. Oil
imports registered a sharp deceleration from the strong growth
recorded during the corresponding period of the previous year.
Net surplus under invisibles (services, transfers and income
taken together) exhibited buoyancy during the first quarter of
2007-08, showing an increase of 36.4 per cent. Exports of
services and higher transfer receipts comprising mainly
remittances remained the key drivers of the net surplus.
Amongst services, both software and business services
continued
INDIA’S MERCHANDISE TRADE (IN $ BILLION)

ITEMS 2005-06 2006-07 2007-08 APRIL

AUGUST
EXPORTS 103.1 126.4 50.3 59.4

IMPORTS 149.2 185.7 70.2 92.0

OIL 44.0 57.1 24.4 25.9

NON-OIL 105.2 128.6 45.8 66.1

TRADE -46.1 -59.4 -19.9 -32.5

BALANCE
NON-OIL -13.8 -20.9 -03.9 -0.6
TRADE
BALANCE
 Source: Reserve Bank of India
India's Foreign Trade: 2006-07 (In $ million)
Exports 2005-06 00606.92

2006-07* 124629.48

Y-O-Y Growth 23.88

Imports 2005-06 140237.65

2006-07* 181368.26

Y-O-Y Growth 39.00

TRADE BALANCE 2005-2006 -39630.72

2006-07* -56738.77
 POSITION AFTER INDEPENDENCE

Before independence our country was at the mercy

of her foreign rulers. They did whatever they
liked for the good of their own country. After
independence much has been done to improve
the condition of the masses.

1. In the economic field, unprecedented

progress has been made. Our five year plans have
been successfully completed.
2. Power –generation has also been increased several folds. A
net-work of ordinance factories has been established and
most sophisticated weapons for the defence of the country
are being produced.

3. Free India has also made rapid advance in the field of

science and technology. Atomic energy has been
successfully used for power generation.

4. Revolutionary changes have also been brought about in

the political field. Our country is now sovereign
Democratic Republic.
5. Achievements in the social sphere are also clearly
visible.

6.Social security schemes have been introduced in

some big industrial towns.

7. India has successfully followed the policy of noon

alignment. As a result of India’s efforts, the non-
alignment movement has become a force in the
world affairs.
But this long list of free India’s achievements should not
make us proud. We should not feel satisfied by looking at
our achievements. We should keep in mind the problems
which are yet to be solved. The masses of country are still
poor and backward. Many social evils still prevail.
Corruption is widespread. Terrorism is raising its ugly
head in several parts of the country. The balance of
payment position is difficult and threat sanctions are
looming large.
Above all the appeal of democracy has depended over the years. This
style of governance has neatly fitted the lifestyle of a majority of Indians.
Democracy now cuts across the parties, educational levels, classes,
castes, religions, and gender and ethnics divisions. Indeed India
democracy today despite all its institutional problems is stronger in the
minds of people then it ever was.

The social and territorial spread of legitimacy has survived even the
sharp decline in the peoples trust in politicians in recent years.

However with faith in our leaders and our capacity for works, we are
sure to overcome our present difficulties. The present difficulties should
not discourage us. Free India is destined to become a powerful nation of
the world.
 India-vision 2020:

 Planning commission has released India

vision -2020 on January 23, 2003 which
presents pre-assessment of the progress of
Indian economy for the Indian economy for
the next two decades. This document is
prepared by Mr. Shyam Prasad gupta, a
member of planning commission.
 MAIN TRENDS IN BOP

Increase in importing capacity

Structural changes
Negative current account
Reduced dependence on external assistance
Reduced debt burden
Surplus balance in invisible account
Liberalised Foreign Exchange Sector
Surplus in balance of payment
 Trade sector reforms

EXIM POLICY 2002-07

The export-import policy was announced by the central
government on march 31, 2002. The main thrust of this policy
was to push India’s exports aggressively by undertaking various
measures.
OBJECTIVES:
To accelerate the country’s transition to globally oriented
vibrant economy to derive maximum benefits from expanding
global market.
To stimulate sustained economic growth by providing access to
essential raw material, intermediates, components,
consumables and goods required for augmenting production.
To enhance the technological strength and efficiency
of Indian agriculture , industry and service, thereby
improving their competitiveness, and
encouragement of internationally accepted standards
of quality.
To provide consumers with good quality products at
reasonable prices.
PRINCIPLES:
There has been a clear shift in emphasis from import
substitution to export promotion.
The reach of the export incentives has been broadened to
cover a large number of non-traditional and non-
manufactured export items.
It makes a move away from the provision of direct
export subsidy to indirect promotional measures.

EXIM POLICY 2004-09

This new policy has replaced the hitherto
nomenclature of EXIM policy by foreign trade policy. It
aims at providing a roadmap for the development of this
sector.
OBJECTIVES:
Doubling India’s share of global merchandise trade by
2009.
Using trade policy as an effective instrument of economic
growth with a thrust on employment generation.
Key strategies to achieve the objectives of FTP:
Unshackling of controls and creating an atmosphere of
trust and transparency.
Simplifying procedures and bringing down tranaction
cost.
Neutralizing incidence of all levies on inputs used in export
products.
Facilitating development of India as a global hub for
manufacturing, trading and services.
Generate additional employment opportunities.
Facilitating technological and infrastructural upgradation
Avoiding inverted duty structure
Upgrading the infrastructure network
Revitalizing the board of trade
Activating Indian embassies as key players in the export
strategy.
 EXPORT PROMOTION

MEANING:
export promotion refers to measures taken by the
government to build up, raise and promote exports through a
number of special concessions and programmes.
Measures taken by the government
Export credit and finance
pre-shipment credit provided for production, processing
and packing and post-shipment credit to foreign buyers. Short
term credit in the form of pre-shipment and post- shipment
finance are provided by the commercial banks at a
concessional rate of interest. To cover export risk export
credit and guarantee corporation(ECGC) has been created.
The RBI has introduced the gold card scheme in may 2004 to supply
easy credit to card holders. The government has also permitted the
setting up of offshore or overseas banking units to supply non-rupee
loans in special economics zones at internationally competitive
interest rates.
EXPORT PRODUCTION:
government has introduced several schemes and measures:-
Priority treatment
Establishment of EOUs, EPZs, and SEZs
Industrial parks
Quality control
Harmonised import code
packaging
EXPORT INCENTIVES
export incentives provided by the government to
promote exports:-
Fiscal incentives
Financial incentives
Special incentives

ORGANISATIONAL SET-UP:
the government has set up several specialised
organisations for export promotion:-
Central advisory board of trade
The trade development authority
The federation of Indian export organisation
Export promotion councils
State trading corporation
Minerals and metals trading corporation
UNCTAD sponsored trade points
Commodity boards like rubber board , coffee board,
tea board etc.
PUBLICITY OF EXPORT GOODS
the trade fair authority of India has been established
by the government to give wide publicity to Indian
goods abroad.
TRADE AGREEMENT
measures taken to promote Indian exports:
Establishing a separate administrative se up for export
Encouraging export entrepreneurship
Use of appropriate technology in production
Providing warehousing facilities for exporters
Supply of trade information
Supply of basic industrial inputs
Building up a stable and viable export producyion
base
Re-organisation of export council
Participation in global system of production
Joining of free trade blocs
Effective quality control
 IMPORT LIBERALIZATION

In pursuance of this policy, imports tariffs and

import quota restrictions were imposed on foreign
goods.But this policy was reversed for the first time
in July 1991, when the tariff ceilings were lowered.
About 3000 tariff lines that covered raw material ,
intermediates and capital goods were freed from
licensing restrictions due to liberalisation policy.
Since then, the peak rates of tariff have been
progressively reduced.
 REMOVAL OF QUATITATIVE RESTRICTION
ADVANTAGE:
Indian consumers will access to higher quality
goods.
Indian producers using inputs will face expanded
choice and access to better inputs.
Smuggling will come under control
It will improve efficiency, and the economy as a
whole will gain
DISADVANTAGE:
It could lead to a complete domination of the Indian
market by imported products.
It would hurt the interests of all including consumers
Free imports may hurt the growth rate of the
economy.
 WORLD TRADE ORGANISATION

The WTO started functioning from January 1,1995. its

headquarters is located at Geneva,Switzerland. It has 153
member countries. It is a watchdog of international trade and
it regularly examines the trade regime of individual members.
OBJECTIVES:
Its relations in the field of trade and economics Endeavour
shall be conducted with a view to raising standard of living,
ensuring full employment, expanding production and trade,
optimal use of world’s resources and expanding the
production and trade in goods and services.
To allow for the optimal use of the world’s resources in
accordance with the objective of sustainable development.
To make positive efforts designed to ensure that
developing countries, especially the least developed
among them, secure a share in the growth in
international trade commensurate with needs of their
economic development.
To achieve these objectives by entering into reciprocal
and mutually advantageous arrangements directed
towards substantial reduction of tariffs and other
barriers to trade and the elimination of discriminatory
treatment in international trade relations.
To develop an integrated more viable and durable multilateral
trading system encompassing the GATT.
To ensure linkages between trade policies, environmental policies
and sustainable development.
MEMBERSHIP AND ORGANISATION
At present 153 countries are its members. India is one of the
founder members of theWTO.The organisation of the WTO is
headed by the ministerial conference composed of representatives
of all members which meet at least once every year. It also acts as a
dispute settlement body and a trade policy review body. The
secretariat of the WTO is headed by the director general who is
appointed to a four year term. Mr. Pascal Lamy is the present
director general of WTO.
FUNCTIONS
It facilitates the implementation, administration, and
operation of the objectives of the agreement
It provides the framework for the implementation,
administration and co-operation of the plurilateral trade
agreements.
It provides the forum for negotiations among its members.
It administers the understanding on rules and procedures
The WTO shall administer the ‘trade review mechanism’.
It cooperates with the IMF and the world bank.
 COMPOSITION OF MULTILATERAL AGREEMENT

Multilateral agreement on trade in goods

General agreement on trade in services
Agreement on trade related aspects of intellectual
property rights
Agreements on trade related aspects of investment
measures
Plurilateral trade agreement
Trade policy review mechanism

WTO AND INDIA

THANK U