Rajasthan Board RBSE Class 11 Economics Notes Chapter 19 Foreign Trade of India
→ At present, every country is engaged in export-import with other countries. A country can avail benefit of division of labour, specialization, large scale production and large scale markets through foreign trade.
→ According to Adam Smith, a country should export a commodity of absolute non-relative profit and import a commodity of absolute non-relative loss. This benefits both the countries.
→ According to Richordo, the country should export a commodity of comparative profit and import a commodity of comparative loss.
→ India has been engaged in international trade since ancient times. There was a great demand for Indian textiles, handicrafts and spices in foreign countries and the precious metal was obtained in return.
→ During the colonial rule, handicraft and textiles industry of India were destroyed completely.
→ At the time of independence, India was an exporter of raw material and minerals. After Independence, India had to import food grains and essential commodities to fulfill domestic demand. As a result, imports grew rapidly, and to defray the cost of imports, there was no corresponding growth in exports, due to which trade deficit is on a continuous rise.
Size of Exports and Imports in India
→ If the value of exports is more than the value of imports, then the trade balance is positive, and if the value of imports is more than the value of exports, then the trade balance is negative.
→ In the year 1950-51, the value of commodity exports stood at 1.27 billion US dollars which increased to 314.4 billion US dollars in 2013-14.
→The value of Indian exports was 1.3 billion US dollars in 1950-51, which increased to 450.2 billion US dollars in2013-14.
→ In context to the expansion of the size of foreign trade of India, the growth of imports was more than the growth of exports, and on account of this, the negative trade deficit also kept on increasing.
Composition of Foreign Trade
→ The composition of trade means the import and export of a country. The development of a country is reflected by the composition of its trade.
→ In the year 2013-14, the category-wise major export heads of India were as follows-
- Agriculture and allied products had a 13.7 percent share in total exports. This included tea, coffee, food grains, spices, cashew, fruit and vegetables, seafood and cotton etc.
- The share of manufactured goods was 63.3 percent. This included leather and leather products, jewels and jewellery, medicine and chemicals, metal products, machinery and equipments, transportation equipment, electronic goods, handicrafts, readymade garments etc.
Categorywise, the country’s import heads are as follows-
- Food stuff and allied products- This includes food grains, pulses, cashew and edible oil imports. In this, the main head is edible oil. The share of edible oil in total imports was 2.1 percent in 2013-14.
- Fuel-Coal and petroleum imports are included under this head.
- Capital Goods-Under imports of capital goods, electrical machinery, other machinery, transportation equipment, and project-related goods are included.
- Other products include chemicals, pearls and jewels, iron and steel, non ferrous metals, commercial and electronic equipments and other goods.
Direction of Foreign Tirade
→ Before independence, India’s mainly conducted foreign trade with England. India was a British colony.
→ Trading partner countries are divided into 4 categories-
- Countries of Economic Cooperation organization (OECD), which include- European Union, US, Japan and Switzerland etc.
- Organization of Oil Exporting Countries (OPEC), which include- United Arab Emirates, Saudi Arabia, Iran etc.
- Russia and other countries are included in Eastern European Countries group.
- Developing Countries- It includes China, Hong Kong, South Korea, Singapore, Malaysia etc.
→ In Asia, India has mainly conducted exports to United Arab Emirates, China, Singapore, Hong Kong, Saudi Arabia, Iran and Japan. The countries to which India made exports in 2013-14 were- USA (12.5 percent), United Arab Emirates (9.7 percent), China (4.7 percent), Hong Kong (4 percent), Singapore (4 percent).
→ With the point of view of imports, the major partner countries of India in the Asian Continent include- China, Saudi Arabia, United Arab Emirates, Iraq, Kuwait, Indonesia, Qatar, South Korea and Japan. In 2013-14, the main import partners were China, Saudi Arabia, United Arab Emirates, United States of America and Iraq. The share in total imports of India of these countries was 11.3 percent, 8.1 percent, 6.4 percent, 5 percent, and 4.1 percent respectively.
Current Trends of Indian Foreign Trade
→ Indian foreign trade (commodities) in the year 2004-05 was 195.1 billion US dollars which grew to 764.6 billion US dollars in 2013-14.
→ Indian position in world’s leading importing countries was 23rd in 2004, and it rose to 12th in 2013.
→ Indian position in the world’s leading exporting countries was 23rd in 2004, and it rose to 19th ill 2013.
→ As component of GDP, the foreign trade of India grew from 29 percent in 2004-05 to 41.8 percent in 2013-14.
→ The value of imports in 2004-05 was 5,01,065 crore rupees, which increased to 27,15,434 crores in 2013-14.
→ In 2013-14, imports could only grow by 1.7 percent due to global factors that caused sharp devaluation in rupee and prohibition on gold imports.
→ In the years 2009-10 and 2013-14, the trade deficit was less as compared to the previous years. Apart from this, trade deficit has grown each year as compared to the previous years.
Foreign Trade Policy
→ The Alexander Committee in 1978, the Tandon Committee in 1982 and the Hussain Committee in 1984 recommended import liberalization and export promotion. The following major efforts were made in the direction of import liberalization-
1. Efforts for import liberalization- Exporters earning foreign currency of more than 10 crore rupees in an year were given permission for imports for 1 year through Advance Licensing Policy.
- Apart from Open General License (OGL), imports, they were permitted import of raw materials.
- To liberalise import facilities for trading houses, star trading houses, and super star trading houses.
- Technical Development Fund was formed to facilitate the import of technology and specialised services.
- The pre-conditions of imports through government agencies were abolished.
2. Efforts for export promotion-
- For growth in exports, export promotion councils, Central Advisory Council, Indian Export Organization Federation, Indian Export Promotion Organization etc. were established.
- Schemes for export promotion, such as Cash Drawback Scheme, Duty Drawback Scheme, Import Replenishment Scheme, Export Promotion Zones and export oriented units were initiated.
Foreign Trade Policy, 2009-14
- The long-term objective of this policy was to double the exports of commodities and services by the year 2020.
- 26 new markets were included in the focus market programme.
- Under the Export Promotion Capital Goods Programme, duty free import of capital goods was allowed for production of engineering goods, electronic products, basic chemicals, textiles, plastics, handicrafts and leather goods.
- Export oriented units were permitted to sell upto 90 percent of their production in the domestic duty sector.
- Single window programme was initiated for exports of perishable agricultural products.
- Exporters were permitted to carry stock up to 5 lakh dollars along with them to participate in exhibitions abroad.
Foreign Trade Policy, 2015-20
→ This policy provides the framework for increase in specifications of commodities and services, employment creation, increase in value addition in India.
→ Target has been set to increase the share of India in global exports from 2 percent to 5 percent.
→ The new trade policy is in conformity with the “Make in India”, “Digital India” and “Skill India” programmes of the Prime Minister.
→ The benefits of Manufactured Goods Exports from India Scheme (MEIS), and service Export From India Scheme (SEIS) will also be available in Special Economic Zones (SEZs).
→ To promote domestic manufacturing, the export compulsion was reduced by 25 percent.
→ Under Export Promotion Capital Goods Scheme (EPCG), the export compulsion for domestic realization was reduced to 75 percent.
→ There will be an online process for digital signature.
→ The valid period for export authorization was increased from 12 months to 24 months.
Suggestions for Export Promotion
- There is a need to improve the infrastructure, including roads, rail transport, water transport, power etc.
- The availability of inputs to export industries should be better.
- Search for new markets for Indian products.
- Arrangement of an excellent credit system and import excise duty to provide encouragement to
exporters. - Rapid export-based growth should be done in the production of primary and manufactured products of the country.
Concept of Swadeshi
→ The meaning of “Swadeshi” is a tendency, which is revealed in all aspects of life with a feeling of “self’. It is not only a constant tendency; rather it integrates the challenge of favourable change with the conditions of country and society. It is not a reaction against the blind following of the west, rather it alerts us from blindly following it.
→ Maharishi Arvind had said the implication of Swadeshi is about the identity of a nation’s dignity and its willpower. The readiness of society to make the sacrifices for the country is reflected through Swadeshi.
→ According to Gopal Krishna Gokhale, the Swadeshi philosophy teaches sacrifice for the motherland. The country becomes prosperous and the feeling of brotherhood grows in the country. This thought of Swadeshi is prevalent in India since the very ancient times.
Foreign Trade of India Class 11 RBSE Notes Important Terms
• Composition of trade- Composition of trade means a study of the goods and services of imports and exports of a country. In other words, it tells about the commodities of imports and the commodities of exports of a country.
• GDP- Gross Domestic Product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time.
• Import Restriction- Methods employed in controlling the volume or value of goods coming into a country, usually to maintain the exchange rate of the country’s currency. .
• Import Substitution- Import substitution industrialization (ISI) is a trade and economic policy which advocates replacing foreign imports with domestic production.
• Liberalization- Liberalization is a general term for any process whereby a state lifts restrictions ’ from various sectors of the economy. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed.
• Cash Compensatory Scheme- Cash compensatory scheme is designed to compensate the exporters for unrelated indirect taxes and to provide resources for product development. This was initiated in 1996.
• Blanket Exchange Permit Scheme- This scheme was initiated in 1987. Large export organizations like export houses and all forms of trading houses are given the facility of blanker exchange permit, under which lumpsum foreign exchange is provided to meet expenses abroad.
• Depreciation- A decrease in the value of a currency relative to other currencies.
- OECD- Organization for Economic Co-operation and Development
- OPEC- Organization of the Petroleum Exporting Countries
- WTO- World Trade Organization
- OGL- Open General License
- MEIS- Merchandise Exports from India Scheme
- SEIS- Service Exports from India Scheme