(Sample Material) IAS PRE GS Online Coaching : Economic & Social Development - Foreign Trade

Subject: Economic & Social Development
Topic: Foreign Trade

No country is self—sufficient in all the goods and services that it requires. It has to depend on other countries for what it lacks. For example, India depends on other countries for crude oil, edible oil, pulses and so on. That is, we import them. Similarly, India has many surplus items- both goods and services that it can export to other countries. For example, agricultural goods, software services and so on. The exports and imports that a country makes together make up its foreign trade. If exports are more than imports, it is called trade surplus and if imports are more, it is called trade deficit. India almost every year since Independence had a trade deficit.
Exports are foreign exchange earners. They stabilise and strengthen the exchange rate, if they grow. They may be necessary for some imports- for example, jems and jewellery industry imports stones and carves them into jewelry in India. Experts make the domestic economy efficient as international market requires high quality low price goods and services.

Imports are important for exports, domestic capital formation and consumption. They make domestic producers competitive.

Exports 2011-12

Trade Composition

Export Composition

Great changes in the sectoral compostion of India’s export basket seen in the 2000s decade have accelerated in the beginning of this decade. While the share of petroleum crude and products increased by 11.8 percentage points during the 10-year period from 2000-1 to 2009-10, it further increased by 4.8 percentage points from 2009-10 to the first half of 2011-12. The share of the other two sectors, i.e. manufactures and primary products fell almost proportionately by 11.6 and 1.1 percentage points respectively during 2000-1 to 2009-10 and 1.4 and 2.2 percentage points from 2009-10 to the first half of 2011-12. The inter-sectoral composition changes within manufactures exports have also been great with the bigest losers being labour-intensive manufactures like textiles, leather and leather manufactures, and handicrafts from 23.6, 4.4, and 2.8 per cent respectively in 2000-1 to 8.7, 1.6, and 0.3 per cent in the first half of 2011-12. The biggest gainer is the engineering goods sector with its share increasing from 15.7 per cent in 2000-1 to 22.2 per cent in the first half of 2011-12. Another sector is electronics, the share of which increased from 2.5 per cent of 3.5 in 2010-11, but fell to 2.9 per cent in the first half of 2011-12. While the share of chemicals and related products increased marginally from 10.4 per cent to 11.6 per cent, that of gems and jewellery fell marginally from 16.6 per cent to 16.1 per cent during 2000-1 to the first half of 2011-12. A point to be noted is that most of the petroleum exports of India are refined exports and qualify for the category of manufactures. Similarly there are many items in the agricultural and allied sector like marine exports and processed foods whichare manufactured items. If these are ncluded under the definition of manufactures, then the share of manufactures in total exports has not fallen.

Export growth was high in 2010-11 and the first half of 2011-12 in case of agriculture and allied products due to export growth in cereals, meat preparations, oil meals, and coffee. Among manufactured exports, engineering goods, gems and jewellerly, and chemicals and related products registered high growth, while textiles export growth was moderate. Export growth of petroleum, crude, and products was also very high due to the high prices of crude oil and also due to increase in refining capacity. Ores and minerals is the only item withnegative growth in the first half of 2011-12 due to a ban on export of iron ore by the state governments of Karnataka and Orisha.

The compositional change from 2000-1 to the first half of 2011-12 can also be seen in the destination-wise exports of major items. While the gain share of petroleum, crude and products in India’s export to the EU has been higher than to US with an increase of around 17 percentage points, the decrease in share of manufactured goods in India’s exports to the EU is also high at around 13.7 percentage points. However, there has been a dramatic rise in the share of petroleum, crude and products in India’s exports to China. The share of ores & minerals has started falling in India’s exports to China since 2008-109 reaching 30 per cent in the first half of 2011-12 resulting in rise in share of manufactured goods. Among manufactures, the fall in share of textiles to EU and US and ‘Others’ from 2000-1 to the first half of 2011-12 has been more or less the same at above 10 percentage points. There has been a rise in share of India’s exports of enginnering goods to all the four markets. While thee has ben a big jump in the share of this item in India’s export to China in 2010-11 and then a moderation, in the case of the other three markets, the share is at a uniform 21-22 per cent range in the first half of 2011-12. While the share of gems and jewellery exports to the US and EU markets have falen, it has increased in the case of ‘Others’ China’s share is insignificant in this item. The share of chemicals and related products in India’s exports registered a near 10 percentage point increase to the US market and around 3.5 percentage point increase to the EU market.

Similar to 2009, India had a global export share of 1 per cent or more in 148 out of a total of 99 commodities at the two-digit harmonized system (HS) level. However, its share of 5 per cent or more in 12 items in 2009 has declined to 10 items with the categories ‘bird skin, leather, artificial flowers, human hair’ and ‘ores, slag, and ash’ moving out of the list. Except pearls, precious stones, metals, coins, etc. all the other nine items witnessed an increase in global share in 2010 over 2009, with cotton being at the top of the list. However, most of these 10 items except pearls, precious stones, metals, coins, etc. have a very small share in total world exports.

While India has made major strides in its diversification of export markets, a lot needs to be done to not only diversify the export basket but also have a perceptible share in the top items of world trade.