Foreign Trade of India

EconomicsArticles / Tutorial Titles

Introduction

Foreign trade is the exchange of goods, capital, and services across international borders or territories. It is important to know about internal trade first to learn about foreign trade

Internal trade

The purchase and sale of goods and services within the borders of a nation are referred to as internal trade. Usually, no customs duty or import tax is levied on such trade. The reason for not levying any tax is that goods are part of domestic production and consumption. So, purchases and sales should be allowed to occur at no cost in a country.

Internal trade is an internal matter of a country. Businesses participating in internal trade are usually local firms that deal in goods and services produced within the country. Internal trade is important for the nation because it helps in the distribution of goods and services so that citizens can access them as and when needed.

Internal trade can be classified into two broad categories, namely:

  • Wholesale trade where goods are sold in large volumes at once.

  • Retail trade where purchase and sale occur at low volumes, such as one unit at a time.

Foreign Trade of India

When we talk about India's foreign trade, there are some special features that are considerable. Some of these are discussed below.

  • Negative or unfavorable trade: India had to import items like heavy machinery, mineral oil, and agricultural products on a large scale after getting freedom from colonial rule. However, the export was very low which created an unfavorable trade condition for India.

  • Increase in exports: Traditionally, India has been a major exporter of jute, tea, leather, textile, etc. However, in the last few years, India has become a major exporter with a portfolio of export of 7,500 commodities. India has taken a leading position as an exporter of computer software since 1991.

  • Trading worldwide: India has foreign trade relations with only Britain before freedom, but now it has foreign trade relations with more than 190 countries. India exports its products to 190 countries and imports from 140 countries.

  • Expansion in imports: In the past, India used to import only manufactured goods and food grains. However, India now imports a host of products among which oil is the single largest product. India’s export of pearls and precious stones has increased significantly in the recent past. Other major imports of India are iron and steel, edible oils, fertilizers, and paper.

  • Maritime trade: India’s foreign trade mainly takes place via sea routes. Large mountain ranges stop trade via land for India and India has to depend on Pakistan for trade via land routes. However, as political rivalry exists between the two countries, India has to resort to maritime routes for foreign trade.

  • Trade through only a few ports: India only has a dozen of major ports which handle most of India’s foreign trade. Other smaller and insignificant ports contribute very low to the country’s foreign trade.

  • Insignificant place in foreign trade: India has 16 percent of the world population but its foreign trade is less than one percent of global trade. Increased internal trading is also a reason for this.

  • State trading: Most of the trade in the public sector in India is done by state agencies and individuals rarely engage in foreign trade in India.

Types of Foreign Trade

Import

Import is the process of buying goods and services from other countries. Usually, countries having resources of goods which is too large to be consumed internally, sell to other nations. Other nations buy or import these goods for use in their countries. For example, Africa imports edible oils from China.

Export

The process of selling goods and services to other countries when there is a surplus of them in one country is called export. For example, India exports computer software to many countries in the world.

Re-export

If a good is already imported into a country and is again exported to either the same country or to some other country, such process of exchange of goods is called 'Re export'. For example, the United Arab Emirates may have engaged in the re-export of goods to Iran because Iran needs to avoid U.S. trade sanctions against it.

Role of foreign trade

Division of Labor and Specialization

Foreign trade is the reason for the division of labor and specialization at the world level. Some countries have abundant natural resources which can be exported to countries lacking the resources and skilled manpower can be imported in return.

Optimum Allocation and Utilization of Resources

Unproductive areas can be eliminated, and wastage of resources avoided due to specialization. Resources are channelized for producing goods with the highest returns. Therefore, rational allocation and optimum utilization of resources occur due to foreign trade.

Equality of Prices

As foreign trade keeps the demand and supply position stable, Prices can be stabilized by foreign trade.

Availability of Multiple Choices

Foreign trade offers better choices to consumers. It helps in making new varieties available to consumers all over the world.

Ensures Quality and Standard Goods

Foreign trade is very competitive. To increase the demand for goods and keep it intact, the exporting countries must maintain the quality of goods.

Raises Standard of Living of the People

Imports of better quality products can facilitate the standard of living of the people. People have a choice of new varieties of goods and services due to imports.

Generate Employment Opportunities

Foreign trade generates employment opportunities by employing labor and resources. Foreign trade is responsible for the generation of direct employment in the import sector.

Facilitate Economic Development

With the import of capital goods and numerous types of technology, a country can generate growth in all sectors of the economy, such as agriculture, industry, and service sectors.

Assistance During Natural Calamities

During natural calamities, countries may have a shortage of essential goods that may be fulfilled by foreign trade.

Maintains Balance of Payments

Due to imports which means expenditure and exports which means income, countries can maintain the balance of payment.

Brings Reputation and Helps Earning Goodwill

Countries involved in exports and imports can earn reputation and goodwill when their transactions are transparent and the quality of products is superior to others.

Promotes world peace

By bringing countries closer to one another, foreign trade improves the friendly atmosphere among nations. This helps in increasing world peace.

Conclusion

Foreign trade is an indispensable part of the modern world and no country can remain out of reach of foreign trade. By importing and exporting goods and services, countries tend to achieve economic growth as well. This helps the world economy keep running smoothly.

Having good foreign trade relations is a prerequisite for a developed nation and countries that engage in foreign trade understand the importance of it well enough. That is why countries now have a well-developed foreign trade strategy structured on thorough consideration of domestic as well as foreign situations.

FAQs

Q1. Name some of India’s most imported items.

Ans. India imports oil, gems, jewelry, and precious stones heavily.

Q2. Which country is the biggest exporter of pharmaceuticals?

Ans. India is the biggest exporter of pharmaceuticals.

Q3. Name some trade partners of India.

Ans. Some notable trade partners of India are Germany, UAE, and the US.

raja
Updated on 13-Oct-2022 11:19:47

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