Unit 12
Indian economics
. Introduction of foreign trade:
There is no country within the world today which produces all the commodities it needs. Every country, therefore, tries to supply those commodities during which it's comparative advantage. It exchanges a part of those commodities with the commodities produced by other countries relatively more efficiently. The relative difference in factor endowments, technology, tastes etc, among the nations of the planet have greatly widened the idea of international trade.
Role of foreign trade economic development
The role of foreign trade are often judged by the subsequent faces:
• Foreign trade and economic development.
Foreign trade plays vital role within the economic development of any country. Pakistan also exports tons of agricultural product to other countries and imports the capital goods from other countries. Therefore, it's not wrong to mention that economic development of a rustic depends of foreign trade.
• Foreign exchange earning
Foreign trade provides exchange which may be wont to remove the poverty and other productive purposes.
• Market expansion
The demand factor plays vital role in increasing the assembly of any country. The foreign trade expands the market and encourages the producers. In Pakistan home market is extremely limited thanks to poverty. So it's necessary chat we should always sell our product in other countries.
• Increase in investment
Foreign trade encourages the investor to extend the investment to supply more goods. Therefore the rate of investment increases.
• Foreign investment
Besides the local investment, foreign trade provides incentives for the foreign investors to take a position in those countries where there's a shortage of investment.
• Increase in value
Foreign trade increases the size of production and value of the country. To satisfy the foreign demand we increase the assembly on large scale so GNP also increases.
• Decrease in unemployment
With the increase within the demand of products domestic resources are fully utilized and it increases the speed of development within the country and reduces the unemployment within the world.
• Price stability
Foreign trade helps to bring stability in price index . All those goods which are short and costs are increasing are often imported and people goods which are surplus are often exported. There by stopping fluctuation in prices.
• Specialization
There is a difference within the quality and quantity of varied factors of production in several countries. Each country adopts the specialization within the production of these commodities, during which it's comparative advantage. So all trading countries enjoy profit through international trade.
• Remove monopolies
Foreign trade also discourages the monopolies. Where every any monopolist increases the costs , government allows the import of products to scale back the costs within the country.
• Removal of food shortage
India is additionally facing the food shortage problem. To get rid of the food shortage India has imported the wheat repeatedly . So thanks to foreign trade we are solving this problem for several years.
• Agricultural development
Agricultural development is that the back bone in our economy. Foreign trade has played vital role for the event of our agriculture sector. Per annum we export rice, cotton, fruits and vegetables to other countries. The export of products makes our farmer more prosperous. It inspires the spirit of development in them.
• Import of commodity
India and Pakistan imports the varied commodity from other countries, which aren't produced inside the country. Today the shortage of any commodity are often removed through international trade.
• To improve quality of local products
Foreign trade helps to enhance quality of local products and extends market through changes in demand and provide as foreign trade can create competition with the remainder of the planet .
• External economics
External economics also can be achieved through foreign trade. The industries producing foods on large scale in Pakistan and India are enjoying the external economics thanks to international trade.
• Competition with foreign producers
We can compete with the foreign producers in foreign trade so it improves the standard and reduces the value of production. It's also a plus of foreign trade.
• Useful for the planet peace
Today all the countries are tied in trade relations with one another . So foreign trade also contribute to peace and prosperity within the world.
• Import of capital goods and technology
The inflow of capital goods and technology within the less developed countries has increased the speed of economic development, and this is often thanks to foreign trade.
• Import substitution
These countries not only produce import substitute, but also reduce deficit in balance of payment of their countries.
• Better understanding
Foreign trade provides a chance to the people of various countries to satisfy , discuss, and exchange views and concepts associated with their social, economic and political problems.
• Dissemination of data
Foreign trade is additionally liable for dissemination of data and learning from developed countries to under developed countries.
• Interdependence
Foreign trade is liable for creating economic depending and establishing economic interest within the economy of the countries having trade relations.
• Factors productivity
Through foreign trade the productivity of labour and capital and organization increases. Demand make them mobile on national also as international level which helps underdeveloped countries to develop and maintain a high level of growth of developed countries.
Foreign trade plays a crucial role within the economic development of country. It's said, “Foreign trade isn't simply a tool for achieving productive efficiency but is an engine of economic process .”
Many reasons certify this statement.
(i) Nation can optimally use its resources.
(ii) Technical know-how are often imported.
(iii) Surplus production are often exported.
(iv) Machinery and raw materials are often imported as and when needed.
(v) Food grains and necessary help are often imported during natural calamities like earthquake, & flood etc.
Keeping in mind of these reasons committee of India has emphasized the event of foreign trade plans.
Salient Features of Foreign Trade:
The following are the features of foreign trade:
(i) Change within the composition of exports:
After independence many changes happened in export trade. India exported tea, jute, cloth, iron, spices and leather before independence. Now chemicals, readymade garments, gems, jewellery, electronic goods, processed foods, machines. Computer software etc. are exported along side tea, jute and cotton textiles.
(ii) Change within the composition of imports:
India imported commodity , medicines, textiles, automobiles and electrical goods before independence. After independence, imports are fertilizers, petroleum, steel, machines, industrial raw materials, edible oils and unfinished diamonds.
(iii) Direction of foreign trade:
Direction of foreign trade means those countries with which India has trade ties. Before independence, India has trade relations with England and Commonwealth Nations Now India has trade relations with U.S.A, Russia, Japan, European Union and Organization of Petroleum Exporting Countries (OPEC).
(iv) Balance of trade:
Simply speaking balance of trade means the difference between value of exports and imports. Balance of payments is favourable if exports exceed imports and un-favourable if imports exceeds export. India’s balance of payment was favourable before Independence. It had been favourable to Rs. 42 crore, but after independence it becomes un-favourable. It was Rs. 65741 crore adverse in 2003-04.
(v) Dependent trade:
Before independence, Indian foreign trade was hooked in to foreign shipping, insurance and banking companies. After independence, cargo ships are being inbuilt India. Banks and insurance companies have started taking interest in foreign trade.
(vi) Trade through sea routes:
India’s foreign trade is thru sea routes. India has little or no trade relations with neighbouring countries like Nepal, Afghanistan, Pakistan, Bhutan and Sri Lanka etc.
(vii) Dependence on a couple of Ports:
Indian foreign trade is thru Chennai, Kolkata and Mumbai ports. These ports are always over-crowded. After independence ports like Kandla, Cochin and Vishakhapatnam are developed.
(viii) Less percentage of world trade:
India’s share in world trade has been diminishing. It was 1.8% of world’s total imports and a couple of of world’s total exports in 1950-51. In 2003-04 India’s share in total world imports was 1% and in total world exports was 0.8%.
(ix) Increased Share in Gross National Income:
Foreign trade has significant contribution in Indian value . In 1950-51, India’s foreign trade contribution into value was 12% and rose is 29% in 2003-04.
(x) Increae in value and volume of trade:
The value and volume of imports and exports increased many fold. In 1950-51 imports were Rs. 608 crores and exports were Rs. 606 crores. So total value was Rs. 1214 crores. In 2003-04, it increased to Rs. 6, 52,475 crore. Value of exports 2, 93,367 crore and of imports 3, 59,108 crore.
1. Huge Growth within the Value of Trade:
The entire value of foreign trade which was Rs. 1,972 crore in 1950-51, gradually increased to Rs. 2,835 crore in 1960-61 then to Rs. 3,487 crore in 1965-66. Then the worth of trade increased at a quicker pace from Rs. 3,169 crore in 1970-71 to Rs. 9,301 crore in 1975.-76 then rose significantly to Rs. 19,260 crore in 1980- 81.
Thereafter, the entire value of trade rose significantly to Rs. 30,553 crore in 1985-86 to Rs. 63,097 crore in 1989-90 and to Rs. 91,893 crore in 1991-92 then to Rs. 1,17,063 crore in 1992-93 and eventually to Rs. 22.15,191 crore in 2008-09.
Value of India's Foreign Trade
Thus during the amount from 1950-51 to 1970-71 total value of trade rose by only 60.9 percent. Again during the amount 1970-71 to 1980-81, total value of foreign trade rose significantly by 597 per cent, i.e., by nearly 6 times. But during the amount 1980-81 to 1990-91, total value of trade rose by 293.3 per cent, i.e., by nearly 4 times. In 2008-09 the worth of trade recorded a rise of 32.79 per cent over the previous year.
2. Higher Growth of Imports:
Another peculiarity which will be seen from this trend is that there has been consequential higher growth in respect of imports of the country since 1951. Thus the entire value of imports which was Rs. 1,025 crore in 1950-51 gradually rose to Rs. 1,634 crore in 1970- 71, i.e., by only 59 per cent. Since then the worth of imports began to rise at a really faster pace and thus reached the extent of Rs. 12,549 crore in 1980-81 then to Rs. 43,193 crore in 1990-91 showing a rise of 667 per cent and 244 per cent during the last 20 years respectively.
The factors which were largely liable for this phenomenal increase in imports include: huge import of commercial inputs, regular import of food grains under P.L. 480 rising anti-inflationary imports, liberal imports of non-essential items, periodic hike on oil prices and therefore the initiation of liberal import policy by the govt during 1985-86 to 1991-92. In 2008-09, the worth of imports rose significantly to Rs. 13,74,436 crore, showing a rate of growth of 33.77 per cent over the previous year.
3. Inadequate Growth of Exports:
Another very peculiar situation that the country has been facing may be a very slow growth in respect of its exports. Within the initial period, total value of exports in India rose marginally from Rs. 947 crore in 1950-51 to Rs. 1,535 crore in 1970-71, showing a rise of only 62 per cent. But since then the expansion of exports within the country couldn't keep step with the expansion in imports.
Total value of exports rose gradually to Rs. 6,711 crore in 1980-81 showing a rise of 337 per cent over 1970-71 then to Rs. 32,553 crore in 1990-91, showing a rise of 385 per cent over the worth of 1980-81. In 1993-94, the worth of exports rose considerably to Rs. 69,751 crore showing a growth of 29.9 per cent over the previous year.
In 2008-2009, the worth of exports rose to Rs. 8,40,755 crore showing a rate of growth of 28.2 per cent over the previous year. Again in 2009-2010 (Apr.-Jan.) the worth of exports stood at Rs. 3,72,096 crore showing a negative growth of 19.9 per cent over the previous year. Thanks to the introduction of varied export promotion measures since the devaluation of rupee in 1966, the worth of Indian exports recorded some increase but this increase in exports was totally inadequate considering the sizeable growth within the value of imports.
This has resulted during a persistent and widening deficit within the country. The factors which were mostly liable for this low growth of exports include un-favourable terms of trade for Indian primary (agro-based) goods, inadequate export surplus, adoption of the policy of protectionism by developed countries and long period of business recession in developed country in recent years.
Reasons of Slow Export growth:
Survey Findings. Recently a survey conducted by the Delhi School of Business on 150 export organizations revealed that the most reasons for the slow growth of exports in India were that 65 per cent of the export establishments weren't using ITPO, MMTC and other such institutions.
Moreover, a majority of the establishments weren't inclined to form use of coaching and education in international marketing. Clearly, lack of adequate professionally trained manpower in export organizations is one among the important reasons for slow growth of exports within the country and failure to compete effectively in global markets.
Some of the important factors which were found liable for reduction in growth of exports from 20 per cent to a mere four per cent during the last two years (1996-98) were Government policies, quality of production, tariffs, internal control and management, institutional finance, banks, export procedures and participation in trade fairs.
It was also observed that as many as 47 per cent of the exporters wouldn't wish to avail of the services of personnel trained in export and would manage their operations through relations or others not professionally trained. The study also highlighted an attitudinal disinclination towards professionalism. Thereby, as many as 56 per cent of the respondents weren't inclined to sponsor a candidate for training international marketing.
As per this survey, the foremost dominant constraints and problems faced by the exporters were lack of export marketing information, inadequate infrastructural facilities, procedural complications, monetary loss thanks to low export prices and delay in clearance in ports. Therefore, immediate improvement or upgrading was required in port handling facilities, road transportation, rail transport and power sectors.
Regarding shipments, the most important constraints were high incidence of warehousing cost, delay in customs clearance, inadequate warehousing facilities, low frequency of sailing, high incidence of port expenses and inadequate shipping space.
It is quite disturbing to notice that India’s share in world trade was 1.78 per cent in 1950 and in-spite of all the efforts made it's come right down to 0.61 per cent in 1994. Immediately after liberalization, there have been positive signs up to 1995 but in 1996 and 1997 there had been a reversal of the trend. But during the present period, i.e., in 2001-02 and 2002-03, the export has recorded a rate of growth of 19.7 per cent respectively. In-spite of the constraints and inadequacies faced by the exporters it had been heartening to notice that the exporting community, as observed by the survey, was optimistic about the longer term scenario.
4. Mounting Trade Deficit: Deficit within the Balance of Trade:
As a results of higher growth of imports and slow growth of exports the country has been experiencing a mounting deficit since 1980-81. During the last 45 years period, the country has recorded alittle surplus in its trade only in two years (viz., in 1972-73 and in 1976-77).
Due to adverse balance of trade situation, the extent of deficit in India gradually rose from Rs. 78 crore in 1950-51 to Rs. 949 crores in 1965-66. Recording a decline to Rs. 99 crore in 1970-71, the extent of deficit rose from Rs. 1,229 crore in 1975-76 to Rs. 5,838 crore in 1980-81 then considerably to Rs. 10,640 crores in 1990-91. But after the introduction of some changes within the national trading policy and thanks to considerable import compression the extent of deficit declined remarkably to Rs. 3,809 crore in 1991-92.
Accordingly, the annual average deficit in balance of trade which was Rs. 108 cu.re during the primary Plan gradually rose to Rs 747 crore during the Third Plan. But thanks to import compression and boosting exports, the annual average deficit declined to Rs. 167 crore during the Fourth Plan. But since then the annual average deficit in balance of trade rose significantly from Rs. 810 crore during the Fifth decide to Rs. 5,716 crore during the Sixth Plan then to Rs. 7,720 crore during the Seventh Plan.
In 1992- 93 the extent of deficit again rose to Rs. 9,687 crore thanks to huge increase in import. But during 1993-94, the extent of deficit declined to Rs. 3,350 crore thanks to considerable increase in exports. But during 2008-2009, the extent of deficit again rose to Rs. 5,33,681 crore. Again during 2009- 2010, the extent of deficit further rose to Rs. 2,31,110 crore (April-Sept.).
References
1. Indian Economy - Rudra Dutt & Sundarram
2. Bhartiya Arthashastra – L. M. Roy
3. Indian Economy – Uma & Kapila
