Importance of Foreign Trade in the Indian Economy

Trade of a country is of two kinds: (a) internal trade, and (b) external trade. Internal trade implies a trade among different persons or among different -regions within the boundary of a country. For example, trade between the people of Delhi and Calcutta or between the people of Jaipur and Lucknow or trade among different persons within the Delhi, is internal trade. However, when the people of a country trade with the people of some other country. it is foreign (external) trade. In this chapter we shall study the foreign trade of India.

Importance of Foreign Trade in the Indian Economy

Before independence, foreign trade was colonial in nature. In those days the aim of foreign trade was to serve the British interests rather than India’s interests. India had exported food grains and raw materials to England and in return imported finished goods of British industries. India, thus, suffered double exploitation through that trade. But in the post- independence era the situation has altogether changed. Now the main aim of our foreign trade is to serve the interests of India. Now we plan foreign trade in a way so that it may be helpful in India’s economic development. In this modern age we cannot progress without foreign trade. Foreign trade is very important for the Indian economy.

No country can produce all goods of its requirements. Foreign trade provides the opportunity to exchange and consume the goods of other countries. It also increases the efficiency and productivity of the country’s productive sector through a vision of labour and specialisation. With the help of foreign trade we can buy from the rest of the world goods that are relatively cheaper in the world market and can sell to the rest of the world goods that we can produce move efficiently.

Imports and exports both are essential and important for the economy. This is explained below:

(A) Importance of Imports

(i) It is essential for India to import some important capital equipments and high technology for her industrialisation and development. They are called developmental imports.

(ii) India’s developing economy requires the import of scarce raw-, materials and intermediate goods with a view to maximum utilisation of her productive capacity. They are known as maintenance imports.

(iii) There are some essential consumption goods which are in short supply in our country. Import of such commodities, therefore, becomes essential. For example, after independence India had imported foodgrains and other foodstuffs. Such imports are anti-inflationary in nature because they reduce the scarcity of consumer goods.

(B) Importance of Exports

(i) India has to expand her exports to pay back for her essential imports.

(ii) Exports are essential to earn foreign exchange.

(iii) Exports also act as stimulus to domestic growth and industry.

Thus, foreign trade has an important place in the developing economy of India which is moving in the direction of industrialisation.

Since independence, India’s foreign trade has undergone a complete change. Some of the salient features of independent India’s foreign trade are discussed below.