Foreign trade/global trade
Foreign trade is the exchange of capital, goods, and services across international borders or territories, which involves the activities of the government and individuals. In most countries, it represents a significant share of gross domestic product (GDP). Foreign trade in India includes all imports and exports to and from India. At the level of central Govt, it is administered by the ministry of commerce.
The exchange of goods among people, states, and countries is referred to as trade. Trade between two countries is called international trade. Export and import are the components of trade.
The balance of trade of a country is the difference between its export and import. There is a favorable balance of trade and an unfavorable balance of trade.
Beginning in mid-1991, the GOVT of India introduced a series of reforms to liberalize and globalize the Indian economy. Reforms in the external sector of India were intended to integrate the Indian economy with the world economy which depends upon achieving preconditions to ensure an orderly process of liberalization and ensuring macroeconomic stability.
This approach leads to a significant change in the liberalization policy in India. The import policies prior to 1992 contained an open general License under which specific goods could be imported and exported by specific categories of importers and exporters subject to fulfillment of certain conditions.
See also EVOLUTION OF GLOBALIZATION AND ITS TREMENDOUS IMPACT ON THE WORLD.
In 1992 the policy was amended to open general license and allow imports and exports of all goods without a license, except those specifically mentioned in a small negative list.
In the 1950s, India’s share in world trade was 1.78% which declined to 0.59% in 1990 and remained low for many years. India’s share in world trade is currently around 2%(2015) and an ambitious target of gaining 3.5% of world trade by 2020.
As per the rankings of WTO for the year 2015, India was the 19th largest exporter(with a share of 2.34%) of merchandise trade in the world.
In commercial services, India is the 8TH largest exporter (with a share of 3.27%) and 10th largest importer (with a share of 2.65%). Service plus financed around53% of merchandise trade deficit during 2013-14.
India pursuing market diversification policy export promotions – in Asia and Latin America and Africa (market initiatives and bilateral agreement).
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COMPOSITION OF INDIA’S FOREIGN TRADE
The composition of Indian foreign trade means major commodities in which India is export and import.
Imports
India’s imports are classified into Bulk Imports and Non- bulk imports.
Bulk imports
1. Petroleum, crude, and products.
2. Bulk consumption goods- cereals, pulse, edible oils, and sugar.
3. Fertilizers, metals, paper and paper boards, rubber, pulp, waste paper, iron, and steel.
Non–bulk imports
1. Capital goods- metals, machine tools, electrical and non-electrical machinery, transport equipment, and project goods.
2. Pearls, precious and semi-precious stones, organic and inorganic chemicals, textile, fabrics, and cashew nuts.
3. Artificial and plastic materials, professional and scientific instruments, coal and coke, chemicals,non-metallic mineral manufacturers, etc.
See also Largest Economies in the World 2022.
Exports
Exports from India are broadly classified into four categories;
1. Agriculture and allied products
2. Ores and minerals
3. Manufactured goods
4. Mineral fuels and lubricants.
CURRENT DATA
India’s overall exports (Merchandise and Services combined) in April-June 2019-20* are estimated to be USD 137.26 billion, exhibiting a positive growth of 3.14 percent over the same period last year.
Overall imports in April-June 2019-20* are estimated to be USD 164.50 billion, exhibiting a positive growth of 3.57 percent over the same period last year
MERCHANDISE TRADE
EXPORTS (including re-exports)
Exports in June 2019 were USD 25.01 billion, as compared to USD 27.70 billion in June 2018, exhibiting a negative growth of 9.71 percent. In Rupee terms, exports were Rs. 1,73,682.55 crore in June 2019, as compared to Rs. 1,87,800.20 crore in June 2018, registering a negative growth of 7.52 percent.
In June 2019, major commodity groups of export showing positive growth over the corresponding month of last year are
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IMPORTS
Imports in June 2019 were USD 40.29 billion (Rs. 2,79,771.07 crore), which was 9.06 percent lower in Dollar terms and 6.85 percent lower in Rupee terms over imports of USD 44.30 billion (Rs. 3,00,351.83 crore) in June 2018.
Major commodity groups of import showing negative growth in June 2019 over the corresponding month of last year are
Global economic crisis
The financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial crisis, was a severe
The worldwide economic crisis is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s.
CAUSES
Subprime crisis
A situation starting in 2008 affected the mortgage industry due to borrowers being approved for loans they could not afford. The financial crisis in the mortgage industry also affected the global credit market resulting in higher interest rates and reduced availability of credit.
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Growth of the housing bubble
Between 1998 and 2006, the price of the typical American house increased by 124%. In contrast, during the 1980s and 1990s, the national median home price ranged from 2.9 to 3.1 times the median household income. This ratio increased to 4.0 in 2004, and 4.6 in 2006. This housing bubble resulted in many homeowners refinancing their homes at lower interest rates or financing consumer spending by taking out second mortgages secured by the price appreciation.
Easy credit conditions
Lower interest rates encouraged borrowing. From 2000 to 2003, the Federal
Reserve lowered the federal funds rate target from 6.5% to 1.0%.
Predatory lending
Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into “unsafe” or “unsound” secured loans for inappropriate purposes.
Commodities boom
Rapid increases in commodity prices followed the collapse of the housing bubble. The price of oil nearly tripled from $50 to $147 from early 2007 to 2008, before plunging as the financial crisis began to take hold in late 2008.
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Impact of the global crisis on the Indian economy
The impact of the global crisis has been transmitted to the Indian economy through three distinct channels, viz., the financial sector, exports, and exchange rates.
Depreciation of the Indian rupee
When foreign institutional investors (FIIs) sold their shares in India they got rupees. They had to convert their rupees into dollars to send them abroad. This led to an increase in demand for dollars.
Liquidity crunch in the banking sector
To prevent the fast depreciation of the rupee and maintain relative exchange rate stability, RBI intervened and supplied dollars from its foreign exchange reserves.
Exports and Balance of Payments
Our foreign trade balance worsened during 2008-09. India’s foreign trade balance registered a deficit of $ 60 billion in the first half of 2008-09 as against $ 30 billion in the first half of 2007-08. Actually, our exports in Oct. 2008 were not just down but declined 12.8% as compared to the same month of the previous year 2007.
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The slowdown in economic growth
When the powerful US economy witnessed a slowdown in economic growth and ultimately experienced recessionary conditions as a result of the financial crisis, its effect spilled over to Europe, Japan, and other Asian countries including INDIA. Britain, Germany, Italy, and 15 nations sharing Euro slumped into recession for the first time after several years.
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