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Trends in Indias

Foreign Trade

Inward looking strategy

Domestic manufacturing
(High tariff barrier and high protection)
Uncompetitive domestic industrial production
Foreign Trade not as a engine of growth
Focus on minimize import and export as Forex earning
instrument

Share of world merchandise export


1948
India

1973

2.2%

China 0.9%
Japan

1963

1983

1993

0.5%
1.3%

2000
0.7%

1.0%

4.0%

0.4%

10%

Integration with Global Economy


(srinivasan,2003)
x+m
/GDP

India

China

Malays South
ia
Korea

Thaila
nd

1980

16.6%

22.3%

12.5%

54.4%

1999

24.2%

49.2%

75.5%

Indias international trade policy had the direct


effect on limiting its participation on world trade
Import tariff on the recommendation of tariff
commission
2nd five year plan- heavy industrialization-import
of capital equipment /machinery-BOP
problem(1957)
QRs on import
Graded import tariff to contain BOP
Persistent deficit in BOP were mitigated by tariff
level and not devaluation

Volume of world export increases by 7.9%(1950-1973)


India -2.7%(1950-1973)
x/GDP 7.3%(1951) , 3%(1965), <4%(until 1973)

Import composition of India's international trade reflect the


restrictions on import and confine import to essential consumer
goods , raw material and investment goods
1960-61
1980-81
1990-91
FOOD
GRAIN &
EDIBLE OIL

16%

1%

Gems

NEG

8%

Crude
petroleum
oil and
lubricant

6%

40%

23%

India's share of world export has fallen from 2%


(1950)to 0.5% in 1990. export grew in absolute terms
in spite of declining trends.
Shift in composition of India's export

Primary product to manufactured goods


Leather ,gems , garment, textile grew
Export of engineering goods grew at 20.5% between 1985-1990
Chemical export show a similar pattern

Export of Gems grown since early 1970


Export of textile and garments
During 1986-1991 India managed to keep pace with the
resumption of growth in the volume of world export
Depreciation in exchange rate to 26.9 % between to 1984-90
resumption of growth in the volume of world export after 86 when world
economy completed its adjustment to the two oil price hikes

Report of the committee on import export


policies and procedures ( chairman :P C
Alexender,1978)

Simplification of import licensing procedure


Selective import liberalization making import of capital good easier
OGL list for import of certain raw material
Special measures to boost the export of project goods

Report of the committee on Trade policies and


procedures ( chairman: Abid Hussain,1984)
Growth led export
Harmonization of FTP with economic policies
Announcement of policies for longer period ,import export policy
1985-1988
EXIM Policy 1992-1997

Foreign Trade
Performance

Import substitution to export promotion


Reach of export incentive widened to cover
large number of non traditional and non
manufactured export item
Direct export subsidy to indirect promotional
measures
Market based exchange rate system
During 1993-94 to 1995-96 both export and
import recording an increase of 20% per annum
1996-1997 to 1998-99 , Indias foreign trade
growth declined

Export growth during 1992-93 to 1998-99 at 9.8%


was higher than 8.2% during 1980-81-1990-91
Average import growth during 1990s at 12% higher
than 7.8% recorded during eighties
World trade has gone significant changes since
1996

Sharp fall in international price of manufactured goods


Emergence of economic crisis in certain parts of the world
Protectionist policy adopted by industralised nations in recent years
ie, SPS,TBT, and anti-dumping and CVD

These

factors have had their impact on


India's trade performance

During 1992-93 to 1995-1996, India's export and


import increased by 15.7 and 17.5 %, which were
higher than growth rate during eighties
Between 1996-1997 and 1998-99, India's export
and import decelerated at 2% and 4.5%
respectively

WDI and UN Comtrade


database

India's Foreign Trade Ratio


(Per Cent)
Period
Average

x/GDP

m/GDP

T/GDP

X/M

80-81 to 8990

4.6

7.2

11.8

64

90-91to 992000

9.5

17.4

84.1

90-91to 9495

7.3

8.4

15.7

86.9

1995-96 to
1999-00

8.5

10.4

18.9

81.8

2000-01to
2001-02

9.4

10.8

20.2

86.7

Trends in composition of Export


RBI, Macroeconomic and Monetary development in
2008-09)
Commodity

Group

US $ Billion

Primary product, of which

27.5

Agriculture and allied

18.4

Ores and minerals

9.1

Manufactured goods, of
which

102.9

Textile and readymade


garments

19.4

Gems and Jewellery

19.7

Engineering goods

37.4

Chemical and related products

21.2

Petroleum product

28.4

Total Export

162.9

Share of agriculture and allied product has been


declining
Ore and minerals steady
Manufactured goods increased
Indian Economy early ,1990s
Export product I&S, petroleum, pharmaceuticals gained

in growth as well as share in export basket


Cotton ,leather tea, ready made garments, lost in terms
of export share

Changing structure of India's export Demand


pattern and supply factor influencing India's
export

Nature and extent of export performance


structural pattern ,compositional shift , and
competitiveness
India's merchandise export- manufacturing sectormain driver chemical and allied product
,engineering goods ,ready made garments , textile
yarn, fabrics and gems and Jewellery
Primary product in export basket declining
Petroleum product rising since 2000-01
Maximum presence in export share are spices,
marine product, precious and semi-precious
stone , textile

Presently India's Export drivers


Project Export
IT sector
Gems and jewellery
Textile
Engineering goods
Chemicals
Ore and Minerals

Services export have imparted the fastest thrust


to overall export growth

DIRECTION OF TRADE

Over the last 60 years, India's foreign trade has


undergone a complete change in terms of
composition and direction. Traditionally, EU and
USA used to be the major trading partners of
India.
On the eve of independence in 1947, foreign
trade of India was typical of a colonial and
agricultural economy. Trade relations were mainly
confined to Britain and other commonwealth
countries . However, after the Look East policy of
1990s, the share of East Asian countries in
general and China in particular in recent years
has increased.
China is included in the other Asian developing
countries.

Countr
y

198788

199091

199596

19992000

200001

200102

I.OECD

58.9

56.5

55.7

57.3

52.7

49.3

a.EU

25.1

27.5

27.4

25.5

23.4

22.5

b.North
America

19.7

15.6

18.3

24.4

22.4

20.8

Of which US

18.6

14.7

17.4

22.8

20.9

19.4

c.Asia &
Oceania

11.6

10.4

8.3

5.8

5.1

4.5

d.Other OECD
countries

2.5

3.0

1.6

1.6

1.9

1.6

II.OPEC

6.1

5.6

9.7

10.6

10.9

11.9

III.E.Europe

16.5

17.9

4.2

3.5

3.0

2.9

IV>Deveopin
g countries

14.2

17.1

28.9

28.4

29.2

30.9

Asia

11.9

14.4

23.0

22.3

22.5

23.6

Africa

2.0

2.2

4.8

4.2

4.4

5.2

L.Amerca

0.3

0.5

1.2

1.9

2.3

2.1

Trends in Destination of India's Export:07-08


(RBI macro & monetary development in 200809)
Group/country

US $ Billion

OECD countries , of which

62.6

EU

32.9

North America

22.0

US

20.7

OPEC ,of which

26.7

UAE

15.6

Developing countries , of
which

69.6

Asia

51.5

China

10.8

Singapore

7.4

Total Export

162.9

USA, Germany, Japan, Russia and Middle East


have emerged major trade partners of India
10th plan observed
Share of OECD declining especially EU and Japan
Export to US, OPEC,Latin American countries increased
Share gone down in E. Europe
Share of export to LDC in Africa and Asia remain

stagnant

Indias Import
:composition and origin

After

independence restrictive import


policy
Dividing import in 3 categories
Free
Import of food ,capital good, raw material of industry,
certain essential consumer goods
Restricted
Not absolutely essential-licensed on quota basis
Prohibited
Totally unessential and luxury import

Inward

looking development strategy import


substitution
Import substitution prime objective Indias trade
policy till mid 1970s
Import substitution in area of industrial
machinery, paper, chemical, I&S and non ferrous
metals
9th ,5 year plan import growth-10.8%,
Actual:3.3%
POL :6.4%. Non POL:4.9%
Low non POL reflect slow down in domestic
industrial activity

Trends in composition of
import
Commodity

wise analysis

Petroleum has a dominant presence


Within petroleum import ,shift from import of
petroleum pro duct towards crude import refining
capacity
Indias transformation from net importer to net
exporter of finished petroleum product
Capital goods and other intermediary product for
export purpose

Bulk

Vs Non bulk item

Share of POL has increased


Share of food item in imports fluctuating according
to domestic demand

COMPOSITION OF
IMPORTS

Import in India consists of bulk and non-bulk


imports.

Bulk imports include Petroleum, oil and lubricants


POL and non-POL items like fertilizers, iron and
steel.

Non-bulk imports include gems, pearls, electrical


and non-electrical goods. The other principal
imports consists of pearls, precious and semiprecious stones, machinery, project goods,
medicinal and pharmaceutical products, organic
and inorganic chemicals, coal, artificial resins,
etc.

COMPOSITION OF IMPORTS

Share

of capital good has shown a


consistent declining trend
Share of export related item ie.
chemicals, pearl and precious stone,
cashew, textile yarn and fabric
leather, raw cotton, silk , wool, jute
has remained steady

Import intensity of export in India


Gems

and jewellery, chemicals and allied


product, textile yarn and fabric
Eight SEZs of India contribute about 4% of
Indias export , have high import intensity
Compositional shift in structure of India's
import towards high technology intensive
and export oriented product
Import liberalization policies in
conjunction with structural reform
strengthened the country external sector

Import Intensity of export in India


(RBI, Macroeconomic and Monetary
development in 2008-09)
Commodity Group

US $ Billion

Petroleum, petroleum product


and related material

79.6

Edible oil

2.6

Iron and steel

8.7

Capital goods

70.8

Pearl ,precious and semi precious


stone

8.0

Chemicals

9.9

Gold and silver

17.9

Total Import

262.9

Trends in origin of
import
Traditionally

important partner like


Germany,Japan,UK,Australia have subsided
New import partner from East Asia(Including China)
have emerged
In recent years Belgium has emerged as principle
source of import
Gradual decline of CIS countries as major source of
Indias import
OECD countries and EU in particular have been major
supplier of import item
Share of import from Russia and OPEC has declined
Share of import from Africa, Asia, and latin america
has remained more or less constant

Reduction in Tariff and NTBs


Report

of Tax reform committee ,


1991(Raja Chelliah)
Indias custom tariff have been
declining since 1991
After successive downward revision ,
the peak rate of duty for 2007-08 is
10%
The average tariff rate also declined
over1990s
NTB- Import licensing Requirement

Unlike

major tariff liberalization


initiative in east Asian and Latin
American due to RTAs ,trade
liberalization in India result of its own
unilateral initiative rather than
multilateral commitments or RTA.
In most item in India custom tariff
rate is lower than bound rate
stemming from obligation
undertaken in WTO

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