Introduction:
Foreign trade is an exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has risen in recent centuries.
Commencing July 1991, the government of India has initiated several measures to 'open up' the foreign trade sector and has announced massive import liberalization measures over the last decade. These include the devaluation of the rupee in July 1991and subsequently its depreciation against the currencies of leading industrialized countries, the introduction of convertibility of rupee etc. In fact, the trade policy reforms initiated in 1991 have drastically changed the scenario. They have resulted in a shift from the inward-oriented policy of the past to an outward-oriented policy.
Expansion of India’s Foreign Trade:
India’s trade has increased significantly in the post-reform period. In absolute terms, the trade volume rose from US $42.2 billion ($18.1 billion exports and $24.1 billion imports) in 1990-91 to US $620.91 billion ($ 251.14 billion exports and $369.77 billion imports) in 2010-11.
Composition of India’s Foreign Trade:
Composition of India’s foreign trade means major commodities or sectors in which India is doing export and import.
Changes in Composition of Exports:
1. The share of agriculture and allied products in total exports was 19.4 % in 1990-91. This fell to 9.9% in 2010-11.
2. Manufactured products account for a major share in aggregate exports from 1990-91 to 2010-11.
3. Engineering goods occupied third place in India’s export earnings in 1990-91 with a share of 11.9%. In 2010-11, they occupied first place with a share of 27.4%.
4. Exports of petroleum products were only $528 million in 1990-91. However, they rose to as high as $ 42,203 million in 2010-11, which was 16.8% of total exports.
5. Gems and jewellery was the most important export item in 1990-91 with its share in total export earnings being 16.1%. With a 14.7% share in export earnings in 2010-11, gems and jewellery occupied the third position this year.
6. The second most important export item in 1990-91 was readymade garments, with their share in export earnings being 12.8%. However, it was soon pushed down to a third-place by engineering goods. In 2010-11, the share of readymade garments in export earnings was 14.4%.
Changes in Composition of Imports:
1. The most important import item in terms of expenditure is POL (petroleum, oil, lubricants). The share of POL in total import expenditure was 25.0 % in 1990-91 and 28.7% in 2010-11.
2. To meet the requirement of the gem and jewellery industry, pearls and precious and semi-precious stones are imported in large quantities.
3. The imports of capital goods at $5,833 million in 1990-91accounted for 24.2% import expenditure in 1990-91. In 2010-11, of the total imports of $369,769 million, imports of capital goods were $48,649 million, i.e., 13.1% of total imports.
4. As a result of liberalization of trade policy in the post-reform period and changing consumer taste, imports of electronic goods and computer goods have increased substantially during recent years. For example, during 1993-94, imports of electronic and computer goods were worth $930.4 million, just 4% of total import expenditure. In 2010-11, imports of electronic and computer goods were $22,247 million, which was 6.0% of total import expenditure.
5. The share of fertilizers in import expenditure fell from 4.1% in 1990-91 to only 1.9% in 2010-11. Likewise, the share of iron and steel in import expenditure fell from 4.9% to 2.8 % in 2010-11.
6. Data on imports of Gold and silver since 1999-2000 show that gold and silver were $4,706 million in 1990-2000, and these rose to $35,611 million in 2010-11.
Direction of India’s Foreign Trade:
The direction of foreign trade means the countries/region to which India exports its goods and the countries from which it imports/exports.
Direction of Imports:
The share of the OECD group of countries declined from 54.0% in India’s imports in 1990-91 to 29.9% in 2010-11. The main reason for this was a fall in the share of EU from 29.4% in 1990-91 to 12.0% in 2010-11. The share of Eastern Europe, which was 7.8% in 1990-91, fell drastically to only 1.6% in 2010-11. On the other hand, the share of OPEC countries, which was 16.3% in 1990, rose to as high as 33.8% in 2010-11. The share of developing countries in India’s imports was 18.6% in 1990-91 and 32.7% in 2010-11.
As far as the share of different countries in India’s imports is concerned, the USA occupied the first position in 1990-91, followed by Germany, Japan, UK, Saudi Arabia, and Belgium. On the other hand, in 2010-11, China occupied the first position in India’s imports, followed by UAE, Switzerland, Saudi Arabia, USA, Germany, and Iran.
Direction of Exports:
The OECD group of countries accounted for more than half of India’s export earnings during the 1990s. Their share in India’s exports was 53.5% in 1990-91, which fell to 32.2 % in 2010-11. The share of the OPEC group in India’s export earnings was 5.6% in 1990-91, which rose to 21.5% in 2010-11. The share of developing countries has risen considerably over the two decades period. In fact, the countries of Asia accounted for 30.9% of India’s export earnings in 2010-11.
As far as the share of different countries in India’s export earnings is concerned, USSR occupied the first position in 1990-91; the USA occupied the second position followed by Japan. In 2010-11, UAE occupied first place, followed by the USA, China, Hong Kong, Singapore, and the Netherlands.
Additional Notes:
OECD group of countries: The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental economic organisation with 36 member countries, founded in 1961 to stimulate economic progress and world trade.
European Union: The European Union consists of 28 countries that operate as a cohesive economic and political block. Nineteen of the countries use the euro as their official currency. The EU grew out of a desire to form a single European political entity to end the centuries of warfare among European countries that culminated with World War II and decimated much of the continent.
OPEC countries: The Organization of the Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq, with the signing of an agreement in September 1960 by five countries, namely the Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
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