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Recent Change in the Dimensions of Indias Foreign Trade

ByKishor Bhanushali

Assistant Professor - EconomicsMahatma Gandhi Labour Institute

Ahmedabad

Presented atInternational Seminar on

Impact of Intellectual Property Rights in Post WTO Era: India and Canada22_24 March 2007

Organised byCentre for Canadian StudiesM. S. University of Baroda

Vadodara

Abstract

Whole world has recognized India as super power of 21 st century. India is youngestcounty in the world growing a rate of more than 8 percent. Large population of Indiaprovides market to the countries of the world. At the same time it provides opportunitiesto India in terms of extracting the potentials of its manpower and other resources toemerge as real super power. Indias foreign trade should also reflect her potentials toemerge as a super power. Preset paper aims at analysing the recent changes in thepattern of foreign trade. Information on various dimensions on Indias foreign trades likeimports, exports, balance of payment, composition of trade by commodities andcountries, etc are collected and analyzed to find out trend and pattern and its impact onfuture. Indias trading relations with Canada are also analyzed. These types of analysis

assist in the formulation of international policies.

I. IntroductionPrior to independence the foreign trade of India was typically colonial. India was asupplier of raw materials and food stuff to the industrialized nations and importer ofmanufactured goods. England was the only major trading partner for India. Tradepolicies were framed in such a way to support the industrial development of England.This has resulted in poor industrial development in India and local industries suffered alot because of competition from machine made goods of England. With India gainingindependence the pattern of trade has changed to suit the development of Indianeconomy. In the initial period of development imports, both developmental andmaintenance has increased at a faster rate as compared to exports leading to balance of

payment deficits. But with industrialisation gaining momentum the exports sector hasalso taken a lead. The pattern of Indias foreign trade history can be summarized with itssalient features. Firstly, total value of Indias foreign trade has goneup from Rs. 1250 crores in 1950-51 to Rs. 63080109 crores in 2003-04. But much of thisincreased was concentrated in the last ten years. Secondly the value of Indias importshas increased because of rapid industrialisation, periodic hike in oil prices, policy ofimport liberalisation, and imports to control inflationary pressure within the country.Thirdly the exports have not grown due to primary product base, increased domesticconsumption, inadequate export promotion measures, business recessions in developed

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countries, etc. Fourthly the trade deficit has increased over a period of time primarilybecause of inadequate expansion of exports and continuous increasing imports. Exceptfor two year, when India experienced marginal trade surpluses in 1972-73 and 1976-77),she has experienced a deficit in trade balance throughout the period.

II. Foreign Trade

Indias foreign trade policies have undergone significant changes reflecting the changingperception towards external sector and development strategies. Policy towardsintegration of Indian economy with the world economy was initiated since late seventies.Liberalisation process remains slow in the beginning but gained momentum in secondhalf of eighties. But the comprehensive trade policy measures were initiated since 1991as a part of economic reform process. Reports of various committees includingCommittee on Import Export Policies and Procedures chaired by P. C. Alexander,Committee on Trade Policies chaired by Abid Hussain, Tax reform committee Chairedby Raja Challiah etc. has contributed a lot in the changing foreign trade policy of Indiaand integration of Indian economy with the world economy. Major recommendations ofAlexander committee were towards the simplifications of licensing procedures and shiftfrom controls to development. Abid Hussain committee recommended the policy of

growth led export rather than export led growth and emphasis on the harmonization offoreign trade policy with the other economic policies. Trade policy announced in 1991has been affected by the recommendations of Raja Challiah committee on tax reformwith suggested for the minimization of quantitative restrictions and reduction in tariffbarriers. In line with this, measures were undertaken to enhance the competitiveness ofthe export industries. Policies governing the foreign investments, and foreigncollaborations were also initiated. Foreign trade policy reform measures under neweconomic policy were focused towards liberalization, openness transparency, exportpromotion, and competitiveness enhancement of export industries. New Foreign TradePolicy (FTP) 2004-2009 takes an integrated view of the overall development of Indiasforeign trade and essentially provides a roadmap for the development of this sector. Themain objective of this policy is to double the share of global merchandised trade by 2009

and using foreign trade as an instrument of economic development and employmentgeneration. All these measures have a significant impact on the foreign trade of India.Table 1 proved information on the foreign trade of India since 1950-51. Indias exportshas increased form $US 1269 million in 1950-51 to US$ 80540 million in 2004-05.During the same period imports also increased from US$ 1273 million to US$ 109173million. Trade balance shows negative figure all around the period. Trade deficitincreased from US$ 4 million in 1950-51 to US$ 28633 million in 2004-05. If we comparethe growth rate in exports and imports as depicted in figure 1 below, it is evident thatsharp increased is observed after 1970-71 and 190-91 both in exports and imports. Stillsharp increased is observed after 2002-03. During this period imports have grown fasterthan exports, the gap between exports and imports i.e. trade balance shows sharpincreased after 2001-02. Trade deficit has increased sharply from US$ 7586 million in

2002-03 to US$ 28633 million in 204-05. Tis trend reflects increasing exports andimports but exports not matching with the imports. This increasing trade deficit should bea cause of concern for all associated with the policy making.

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Table 1India's Foreign Trade ($US Million)

Year Exports Imports TradeBalance

1950-51 1269 1273 -41960-61 1346 2353 -1007

1970-71 2031 2162 -1311980-81 8486 15869 -73831990-91 18413 24075 -56621999-00 36822 49671 -128492000-01 44560 50536 -59762001-02 43827 51413 -75862002-03 52719 61412 -86932003-04 63483 78149 -146662004-05 80540 109173 -28633

Source: Economic Survey, Government of India, Ministry of FinanceFigure1

India's Foreign Trade

0

20000

40000

60000

80000

100000

120000

1950-

51

1960-

61

1970-

71

1980-

81

1990-

91

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

Years

Foreing

Trade

Exports Imports

III. Composition of Foreign TradeThe structure of Indias foreign trade is typically of a developing economy. India hasbeen an exporter of agricultural raw materials agro based manufactured products. Therehas been a continuous decline in the share of agricultural raw materials and alliedproducts. One of the reasons for this trend is increased population and local demand forthese products. On the other side the exports of non-traditional items as gainingimportance. Engineering, handicrafts, iron ad steel, chemical, readymade garments, fishand fish products etc are gaining importance as exportable products. Two major itemsviz. electronics and software shows very sharp increased. This is really a welcome trend

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and needs to be strengthened further. Table 2 below shows the exports of principlecommodities along with their share in total exports.Table 2

Export of Principle Commodities from India 2004-05Commodities Value

(Rs. In crores)

Share

%Plantations 2792.14 0.78%Agriculture and Allied Products 27111.41 7.61%Marine products 5695.21 1.60%Ores & Mineral 18841.77 5.29%Leather & Mfrs. 10285.86 2.89%Gems & Jewellery 61580.58 17.29%Sports goods 440.8 0.12%Chemical and Related products 56960.62 16.00%Engineering products 65543.24 18.41%Electronics goods 8105.93 2.28%

Project goods 220.92 0.06%Textiles 53996.24 15.16%Handicrafts 1543.27 0.43%Carpets 2679.43 0.75%Cotton Raw materials 364.49 0.10%Petroleum Products 30518.1 8.57%Unclassified exports 9388.87 2.64%Grand Total 356068.88 100.00%Source:DGCI&S

It is evident from table that items worth Rs. 356068.88 crores were exported during theyear 2004-05. Engineering products worth Rs. 65543.24crores were exported which

constitutes the largest proportion (18.41 percent) of total exports. Engineering productswas followed by gems and jewellery 17.29 percent) and chemical related products(16.00 percent). These three products combined constitute more than 51 percent of totalexports.Imports are classified into bulk imports and non-bulk imports. Bulk imports are furthersub-divided into three components; (i) petroleum. crude and products, (ii) bulkconsumption goods which comprises of cereals, pulses, edible oil, and sugar (iii) otherbulk items comprising of fertilizers, non-ferrous metals, paper and paper boards, rubber,pulp and waste paper, metallic ores, iron ore and steel. Non-bulk imports are furtherclassified into three components (i) capital goods which includes metals, machine tools,electrical and non-electrical machinery, transport equipments, and project goods (ii)pearls, precious and semi precious stones, organic and inorganic chemicals, textiles,

yarn and fabrics, cashew nuts etc (iii) other items including artificial resins and plasticmaterials, professional and scientific instruments, coal and coke, chemicals, medical andpharmaceutical products, non-metallic mineral manufacture etc. Classifications of totalimports by their share in total imports are given in table below. It is evident that, out oftotal imports of Rs. 481064.44 crores bulk imports constitutes around 40 percent i.e. Rs.188042.83 crores. Within bulk imports petroleum crude product constitutes the largestproportion i.e. (50.27 percent). Other major item of bulk imports includes fertilizers,edible oil, non-ferrous metals, metaliferrous ores and metal products, and iron and steel.Among non-bulk import major items includes machinery which constitutes 10 percent of

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total imports and pearls and precious and semi-precious stones constituting 8.80 percentof total imports. Organic chemical, electronic goods, gold and silver etc are other majorimport items. Indias self-sufficiency on foods is visible from the imports of cereals andpulses.

Table 3

Principle Import by Commodities 2004-05Commodities Imports

(Rs. Crores)Percentage

A Bulk Imports 188042.83 (39.09)1 Cereals and preparations 111.76

(0.06)2 Fertilizers 3312.1

(1.76)3 Edible oil 11683.24

(6.21)4 Petroleum crude and products 94520

(50.27)5 Non-ferrous metals 5630.3

(2.99)6 Metalliferrous ores & metal scrap 10650.53

(5.66)7 Iron & Steel 11669.62

(6.21)8 Other bulk imports 78415.73

(41.70)B Pearls, Precious and Semi-precious stones 42340.96 (8.80)C Machinery 48121.06 (10.00)D Project goods 2613.65 (0.54)

E Others 199945.94 (41.56)1 Organic &Inorganic chemicals 23971.38(11.99)

2 Electronic goods 43758.96(21.89)

3 Gold & Silver 48635.54(24.32)

4 Other Commodities 83580.06(41.80)

Total Imports A+B+C+D 481064.44 (100.00)Source:DGCI&S

IV. Direction of Indias Foreign Trade

In order to study the direction of Indias foreign trade world is classified into six broadgroup viz. West Europe, East Europe, C.I.S. & Baltic States, Asian &Oceania, Africa,and America. Major training players within the groups are also classified. Asia & Oceaniaare major trading partner for India as far as exports are concerned. 47.45 percent of totalexports from the India during the year 2004-2005 were made to this region followed byWest Europe, and America. Major destinations for Indian products within Asia & Oceaniaregion include China, Hong Kong, Japan, Singapore, and U.A.E. 18.89 percent of totalexports to Asia & Oceania regions are to U.A.E followed by China and Singapore. Majorexport destinations for India goods in West Europe are U.K. (18.80 percent) Germany

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(14.02 percent), Belgium (12.95 percent), and Italy (11.46 percent). Exports made toAmerican regions are mainly concentrated in North America (87.04 percent). Indiasexports to East Europe and C.I.S. & Baltic States shows very low figure of 0.22 percentand 1.31 percent of total exports.

Export by Regions and Countries 2004-2005Region and Countries Export Value

(Rs. Crores)Percentage

I West Europe 84736.77 (23.81)1 Germany 11880.32

(14.02)2 Belgium 10972.69

(12.95)3 Italy 9708.93

(11.46)4 U.K. 15926.84

(18.80)II East Europe 795.06 (0.22)III C.I.S. & Baltic States 4662.55 (1.31)IV Asia & Oceania 168822.8 (47.45)

1 China P.R. 20606.84(12.21)

2 Hong Kong 16405.99(9.72)

3 Japan 8885.62(5.26)

4 Singapore 17053.79(10.10)

5 U A E. 31893.01(18.89)V Africa 24093.07 (6.77)VI America 72707.08 (20.43)

1 North America 63282.74(87.04)

2 Latin American Countries 9357.25(12.87)

3 Rest of America 67.09(0.09)

Total Exports 355817.3 (100.00)

Source:DGCI&S

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Imports by Regions and Countries 2004-2005

Regions & Countries Imports Value(Rs. In Crores)

Percentage

I West Europe 108711.4 (31.49)1 Belgium 20517.02

(18.87)

2 Germany 17380.88(15.99)

3 United Kingdom 15417.56(14.18)

4 Switzerland 26140.78(24.05)

II East Europe 856.38 (0.25)III C.I.S.& Baltic States 8320.43 (2.41)

1 Russia 5685.53(68.33)

2 Ukraine 2208.39(26.54)

IV Asia & Oceania 170287.1 (49.33)

1 Australia 16000.54(9.40)

2 China P.R. 30313.73(17.80)

3 Indonesia (6.62)4 Japan 13506.22

(7.93)

5 Korea Republic of 14351.54(8.43)

6 Malaysia 9979.43(5.86)

7 Singapore 11602.05

(6.81)

8 U.A.E. 20587.41(12.09)

V Africa 16807.94 (4.87)1 South Africa 9648.31

(57.40)

VI America 40200.35 (11.65)1 U.S.A. 28268.63

(70.32)

2 Latin American Countries 8553.11(21.28)

Total imports 345183.6 (100.00)Source:DGCI&S

Classification of imports by regions and countries as given in table above showsconcentration of Indias imports from Asia & Oceania and West Europe. More than 80percent of Indias imports are from these two regions. Within these two regions thestructure of imports is fairly well diversified. In West Europe, Singapore is leading with24.05 percent of total imports followed by Belgium (18.87 percent) and Germany (15.99percent). Within Asian &Oceania region largest imports are from China (17.80 percent)followed by U.A.E. (12.09 percent) and Australia (9.40 percent). In African regions the

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largest imports are from South Africa (57.40 percent) and within America, U.S.A. is thelargest exported to India (70.32 percent).

V. Trade between India and Canada

This section is devoted to the foreign trade between India and Canada. Availableinformation on the exports and imports form Canada are analysed to know the trend.Growth rate in Indias exports and imports from Canada is also compared with that ofworld trade to have much realistic picture. Following picture shows the details of Indiastrade with Canada in recent times.

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

Exports Imports Total Trade

Exports 337927.63 350700.25 389467.72 452287.03

Imports 274058.16 333556.75 348543.47 407258.03

Total Trade 611985.79 684257 738011.19 859545.06

2002-03 2003-04 2004-05 2005-06

Indias total trade with Canada has increased from Rs. 611985.79 lacks in the year2002-2003 to Rs. 859545.06 lacks in the year 2005-2006 showing the growth of 40percent. During the same period Indias foreign trade increased from Rs. 55234314.00lacks to Rs. 111682676.00 lacks showing the growth rate of 102 percent. Thus growth inIndias trade with Canada is less than growth in trade with the world.Indias exports to Canada has increased from Rs. 337927.63 lacks in the year 2002-2003 to Rs. 452287.03 during the year 2005-2006 which shows growth rate of 33.84percent and annual growth rate of more than 8 percent. During the same period Indiasexports to the world increased from Rs. 25513728.00 lacks in to 45641788.00 lacksshowing the growth rate of 78 percent and annual growth rate of 19 percent. Thus

growth in Indias exports to Canada though satisfactory in very less compared to growthin total exports.Indias imports from Canada has increased from Rs. 274058.16 lacks in the year 2002-2003 to Rs. 407258.03 lacks in the year 2005-2006 showing a growth rate of 48.60percent. During the same period Indias total imports increased from Rs. 29720586.00lacks to Rs. 66040888.00 lacks showing the growth rate of 122 percent. Thus Growth inIndias imports from Canada is lower than growth rate in Indias total imports.

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A closer look at Indias foreign trade with Canada shows that share of Canada in Indiasforeign trade shows declining trend in recent times. Share of Canada in Indias totaltrade has declined form 1.11 percent in the year 2002-2003 to 0.77 percent in 2005-2006. Share of Canada in Indias total exports declined from 1.32 percent to 0.99percent and in imports from 0.92 percent to 0.62 percent during the same period.

Share of Canada in India's Foreign TradeYear Exports Imports Trade

2002-03 1.32 0.92 1.112003-04 1.20 0.93 1.052004-05 1.04 0.70 0.842005-06 0.99 0.62 0.77

Source: Department of commerce, government of India

VI. Conclusions

The volume of Indias foreign trade has increased in recent times, but the gap betweenimports and exports showing trade deficit is increasing in recent times. Exports of non-traditional items, especially electronics and software are gaining more and moreimportance. Our focus on theses items will help us in increasing the Indias share inworld trade and good source of foreign earnings. Indias export basket is concentratedwith gems and jewellery, engineering and chemical products. We need to diversify infavour of other products where we have comparative advantage. An import of crude andpetroleum products constitutes the largest share in Indias imports. Development ofnon-conventional energy sources can help Indias to become more independent andalso saves foreign exchange which can be used for other developmental imports. Thedirection of Indias foreign trade shows concentration of exports and imports to thecountries of Asia and Oceania regions, especially China, Hong Kong, Japan, Singapore,U.A.E., Korea, Malaysia, etc. Indias trade with Canada shows a declining trend in recenttimes both in terms of exports and imports. There is an urgent need to explore theopportunities to increase the trading relations between two countries.

References:

1. Department of commerce, Government of India website www.commerce.nic.in2. Canadian Government website www.canada.gc.ca3. Canada official statistics www.statcan.ca4. World trade organisation website www.wto.org5. Director General of Commercial Intelligence and Statistics, Ministry of commerce

and Industry, government of India.6. Uma Kapila (Ed) , 2006-07, Indias Economics Development Since 1947,

Academic Foundation, New Delhi.

7. Economic Survey, Government of India