For centuries, international trade (or foreign trade as it is sometimes called) has been an important component of the world’s economy. The Indian economy has benefited from foreign trade. The article provides examples and statistics to support the exploration of various aspects of Indian foreign trade.
Table of contents
- Introduce Foreign Trade
- The History of Indian Foreign Trade
- Present Scenario in Foreign Trade
- Initiatives and policies of government
- Major Export and Import Commodities
- Incidence of the Foreign Trade on Indian Economic Situation
- Challenges in Foreign Trade
- Future Perspectives
- Case Studies
- FAQs
Introduce Foreign Trade
In foreign trade, capital and goods are exchanged across national borders. This allows for countries to trade and specialize in certain products or services while promoting economic growth and interdependence.
Foreign trade in India has played a major role in the economic transformation of the nation, helping it integrate into the world market, and increasing its stature.
The History of Indian Foreign Trade
The Ancient and Medieval Ages
- Indus Valley CivilizationIndia’s long-standing history of trading dates back to 3000 BCE, when the Indus Valley civilisation was founded. This civilization traded textiles, beads, pottery and other goods with Egypt and Mesopotamia.
- Silk Road and Spice RouteIndia, during medieval times was an important hub of trade routes. It exported spices, precious stones, and silk to Europe, Africa and Asia.
Colonial Era
- British East India CompanyDuring the British colonial era, trade changed dramatically. The British East India Company was the monopoly of Indian trade. They exported raw materials, such as indigo or cotton, while importing goods made by Britain.
- Exploitation & DeindustrializationThis period saw India’s traditional industrial industries deindustrialized as they were unable compete with British made goods.
Post-Independence
- Protection and Import Substitution, 1947-1991India’s trade policies after independence were protectionist, with a focus on import substitution and self-reliance. To protect the domestic industry, the government implemented high import tariffs.
- Economic Liberalization (Pre-1991)India began its economic liberalization in 1991 after a serious balance of payment crisis. The Indian government reduced trade barriers and devalued the rupee. It also opened up foreign investment.
Present Scenario in Foreign Trade
India’s trading policy has become increasingly open, and it is now more integrated into the global economy. The current situation is summarized in the following key points:
The Trade Volume and Growth
- Trade VolumeIndia has become one of the largest economies on earth in terms of nominal GDP and purchasing power parity. India’s merchandise trade total (exports & imports) will reach $700 billion in 2021.
- Growth RateExports and imports have grown rapidly due to the liberalized policies of trade and participation in global economies.
Major Trading Partners
- United States of America and ChinaUS and China have been India’s most important trading partners. Both countries are involved in large import/export transactions.
- European UnionGermany, UK and Belgium are key trading partners in the EU.
- Regional PartnersASEAN, Japan and South Korea play important roles in India’s international trade.
Trade Agreements
- Free Trade AgreementsIndia has signed FTAs, Comprehensive Economic Partnership Agreements, (CEPAs), and other agreements with many countries including Japan, South Korea and ASEAN.
- Regional Comprehensive Economic PartnershipIndia has opted out from the Regional Comprehensive Economic Partnership (RCEP), but this is a sign of its selective, yet strategic approach towards regional trade agreements.
Initiatives and policies of government
Indian Government has implemented several initiatives and policies to promote international trade including
Made in India
- You can also view the website at:The Make in India initiative was launched in 2014. Its goal is to turn India into a manufacturing hub for the world.
- Effect on tradeThis encourages the foreign firms to invest in India. They can then manufacture their products there, thereby increasing exports of raw material and machinery.
Foreign Trade Policy (FTP)
- Plan Five Years AheadEvery five years, the FTP provides a framework to promote exports while regulating imports.
- IncentiveIncluded in the list are duty-free schemes, schemes of export promotion for capital goods, as well as marketing assistance programs.
Special Economic Zones (SEZs)
- PurposeSEZs (Special Economic Zones) are areas that have special economic laws and regulations, different than the rest of country. These zones were created to encourage foreign investment.
- BenefitsSEZs offer tax breaks, free imports and subsides to companies that are export-oriented.
Atmanirbhar Bharat
- India Self-ReliantIntroduced in the year 2020, it aims to reduce India’s dependency on imports by encouraging domestic manufacturing and decreasing its dependence on foreign trade.
- Sectors StrategicInsist on indigenous production, especially in sectors such as defense, electronic, and medical equipment.
Major Export and Import Commodities
Export Commodities
- Petroleum ProductsIndia exports a large amount of petroleum products.
- Jewellery and GemsExports are mainly aimed at the US market, Europe and the UAE.
- Pharmaceuticals: India is known as the "pharmacy of the world," exporting generic medicines to over 200 countries.
- Textiles, GarmentsAn important contributor to exports and employment.
- Information TechnologyCompanies like TCS Infosys and Wipro are leading in the IT exports and services.
Import Commodities
- Crude OilIndia’s largest energy import.
- GoldIndia is the biggest consumer and importer of gold.
- ElectronicsThis includes smartphones, computers and other consumer electronics.
- The following are some examples of machinery that you can useVarious manufacturing industries rely on industrial machinery and equipment.
- ChemicalsIncluded are organic chemicals, fertilisers, and industrial chemicals.
Incidence of the Foreign Trade on Indian Economic Situation
Economic Growth
- GDP ContributionThe ratio of trade to GDP has been increasing steadily.
- Job CreationThe industries that are export-oriented, such as the textiles industry, IT and pharmaceuticals, generate a large number of jobs.
Technological Advancements
- Technology TransferIndia gains from the introduction of new technologies, practices and products through foreign trade.
- InnovationIndian companies are more innovative and competitive because they have access to the global market.
Foreign Exchange Reserves
- Reserve AccumulationExport revenues contribute to foreign exchange reserves and provide stability for the Indian rupee.
Challenges in Foreign Trade
Trade Deficit
- Persistent DeficitIndia’s heavy crude oil imports and gold pose a threat to its balance of payments.
Non-Trade Barriers
- Standards and RegulationsExporters from India may find it difficult to comply with the international regulations and standards.
Infrastructure bottlenecks
- Port and LogisticsUnsuitable port infrastructures, as well as inadequate logistics services can increase costs of transactions and lower competitiveness.
Protectionism
- Global TrendsIndia’s exports could be negatively affected by rising protectionism and wars on trade.
Key markets are dependent on
- Market ConcentrationIndia’s over-dependence on key markets leaves it vulnerable to changes in the political and economic climates of these areas.
Future Perspectives
Diversification export markets
- New MarketsExplore new markets in Africa and Latin America to decrease dependence on partners.
Enhancing Manufacturing Capabilities
- Value-Added ProductConcentrate on increasing the production of products with added value to increase exports.
Trade Digital
- E-CommerceLeveraging E-Commerce Platforms to Reach Global Consumers Directly, Especially for Small and Medium Enterprises (SMEs).
Green Trade
- The Sustainability of the EconomyPromote the trade of environmentally-friendly products, and use sustainable trade practices.
Case Studies
Pharmaceuticals: A Global Leader
- Initiatives and growthIndia’s pharmaceutical sector, driven by generics of high quality, has captured an important share of the world market.
- The following is an example of how to useIndia’s reputation as an important player in the global health care industry was cemented during the COVID-19 epidemic, when it supplied vaccines and hydroxychloroquine to several countries.
Exporting Information Technology Services to Worldwide
- IT and ITeSIndia’s export-oriented economy has always been built on the IT sector and ITeS.
- The following is an example of how to useTata Consultancy Services and Infosys are global leaders in software development and consulting services.
Textile industry: traditional and modern
- Histories of the RootsThe textile industry in India has roots in ancient arts, but it has been modernized considerably.
- The following is an example of how to use: Export of garments to global fashion brands like Zara, H&M, and Walmart.
FAQs
1. What are India’s top export goods?
AnswerIndia’s main export products are petroleum products and pharmaceuticals. They also include textiles and apparel, gemstones and jewellery, and information technology services.
Which are India’s major trading partners?
AnswerIndia’s main trading partners include the United States (especially Germany), China, Europe (especially the UK and Belgium), as well as regional countries like ASEAN, Japan and South Korea.
3. What are India’s key foreign trade policies?
AnswerOther important policies are the Make in India program, Foreign Trade Policy and Special Economic Zones.
4. What impact does the foreign trade have on Indian Economy?
AnswerForeign trade is important for economic stability, growth and job creation. It also contributes towards technological advances, the development of new jobs and the accumulation and management of reserves.
5. What is the current state of India’s foreign trade?
AnswerThe challenges include persistent trade deficits, non-tariff barrier compliance, insufficient port and logistic infrastructure, global protectionism on the rise, and an over-reliance upon key markets.
6. What are Special Economic Zones and their significance?
AnswerTax holidays, duty-free imported goods, and many other incentives are offered by SEZs to promote investment and export-oriented manufacturing. This boosts exports and creates job opportunities.
7. What role does Free Trade Agreements play in India’s trade policy.
AnswerFTAs are a great way to reduce trade barriers and facilitate the access of goods and services on markets. They also enhance economic collaboration with other countries and increase bilateral trade.
8. Why did India withdraw from the Regional Comprehensive Economic Partnership?
AnswerIndia opted to leave the RCEP because it was concerned about protecting its domestic industries from imports at low prices, particularly in agriculture and dairy. It also feared that this could have a negative effect on trade deficit.
9. How have the COVID-19 outbreaks affected India’s international trade?
AnswerThe pandemic has disrupted supply chains globally, reduced temporary trade volumes and brought to light the importance of diversification and resilience when it comes to trade. Nevertheless, some sectors such as IT and pharmaceuticals saw an increased demand.
10. What is the outlook for India’s future foreign trade?
AnswerTo drive future growth, the company will diversify its export markets, enhance manufacturing capabilities, leverage digital trade and focus on products with added value and sustainability.
These aspects will help you to understand the impact of India’s foreign trade on its economy.
