Volume and Value of Foreign Trade in India

After independence both value and volume of India’s foreign trade have substantially increased. The total value of foreign trade (Imports + Exports) of India in 1950-51 was only Rs. 1214 crores. This increased to nearly Rs. 257800 crores in 1996-97. In other words, our foreign trade in 1996-97 has become more than 212 times to the 1950-51 level. The part of this increase in the value of foreign trade, is undoubtedly, due to price hike. But only price hike cannot explain this phenomenon. This suggests that the volume of foreign trade has also increased. It means that the total amount of goods which we either import or export has also increased. However, when we compare the share of India’s foreign trade in world’s total foreign trade we find that India’s share is continuously declining. It indicates that India’s foreign trade has increased but this increase is at a very low rate in comparison to world’s foreign trade.

Whatever increase we find in India’s foreign trade, it is both in the field of imports and exports. But our imports have increased at a much faster rate than our exports. The high increase in our imports is mainly because of two reasons : (a) to achieve economic development through rapid industrialization made it necessary for us to import machinery and equipments, industrial raw materials, technical know-how etc., and (b) to fulfill the increasing demands for essential mass consumption goods. Our exports have increased as a result of increase in overall production of export goods. However, increase in export is much below to our expectations.

Direction of India’s Foreign Trade

Direction of trade implies the source-countries for India’s imports and destination of India’s exports. As we know that before independence, India’s foreign trade was mainly confined to Britain and other Commonwealth countries. In the post-independence era, the share of U.K. has declined sharply while the shares of U.S.A., U.S.S.R. (Now Russia and other countries), Canada, Japan, Germany and petroleum exporting countries have gone up. Moreover, now we have trade relations with a greater number of countries, than before. It will be better to know the changes that have occurred both in the direction of imports and exports, separately.

(A) Changes in the Direction of Imports

Direction of imports means the source-countries for India’s import. United Kingdom was the most important source of our imports in the preindependence  period but after the independence it has steadily lost its ground. Besides this, the other countries whose share has declined are Pakistan, China, Burma, Sri Lanka, Australia etc. On the other, the shares of U.S.A., Russia, Japan and Germany have increased substantially. Moreover, with the increase in demand for petroleum, the share of petroleum exporting countries has also gone up. The countries which have dominant place today as a source-country for our imports include U.S.A., Germany, Japan, United Kingdom, Russia and OPEC (Organisation of Petroleum Exporting Countries). Nearly half of our imports come from developed countries, one-fourth from petroleum exporting countries and. rest from Eastern Europe and other developing countries.

(B) Changes in the Direction of Exports

The number of countries to whom we export has increased considerably since independence. Yet a major portion of our exports is concentrated in a few countries. Here again U.K. was the principal trading partner in our exports before independence but its share has declined sharply after independence. Besides this, there has been marked decline in the shares of Sri Lanka, Burma, China and Pakistan. The main countries whose shares have increased in our export trade are America, Canada, East European countries, Germany, Japan and Russia. Now Iran and other petroleum exporting countries are becoming important markets for our export trade.
The countries which have dominating position, at present, in India’s export trade are U.S.A., Japan, Germany, U.K., and the countries belonging to the group LDCs (Less Developed Countries excluding OPEC). At present more than half of our exports go to the developed countries, nearly one-third to the Eastern Europe and other developing countries and rest to the petroleum exporting countries.

Taking an overall view, it can be said that India has now a more spatially dispersed pattern of foreign trade. This is a welcome development both from the economic and political point of view.

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.