Indian Economy 1950-90 (Part - 6)

CHAPTER 2

INDIAN ECONOMY 1950-90

(PART - 6)

FOREIGN TRADE OF INDIA

FEATURES AND POLICIES

What is Foreign Trade – Export and import of goods and services cross different countries is called international trade.

• ·        Domestic Production > Domestic Consumption = Exports
• ·        Domestic Production < Domestic Consumption = Imports
• ·        International trade is based on international specialization and specialisation based on principle of comparative cost advantages;
• ·        International trade facilitates exports of goods to rest of the world at a higher price than domestic market.
• ·        International trade facilitates imports of goods from rest of the world at a lower price than domestic market.
• ·        By offering much wider size of market, international trade enhances opportunities of investment for trading partners.
• ·        Higher investments lead to higher GDP growth. Thus, it can be said that international trade serves as an engine of growth.

India’s Foreign Trade at the Time of Independence –

• ·        Colonial govt. exploited through using natural resources and raw material.
• ·        They used Indian market for the British industrial goods.
• ·        On the eve India’s Balance of Trade (BoT) was favorable.
• ·        In 1946-47 export surplus was Rs. 31 Crores.
• ·        Nearly 50 percent international trade was restricted with Britain.
• ·        Composition of trade indicates backwardness. (Exporter of raw material and importer of finished goods)

India’s Foreign Trade After Independence –

Volume of Foreign Trade during different plan periods-      (Cr. Rs.)

Plan (Year)	Imports	Exports	Total
1st Plan (1951-56)	3651	3109	6760
2nd Plan (1956-61)	5402	3063	8465
3rd Plan (1961-66)	6119	2735	8854
4th Plan (1969-74)	10035	9426	19461
5th Plan (1974-79)	20882	17937	38819
6th Plan (1980-85)	17134	11744	28878
7th Plan (1985-90)	35412	27681	63093
8th Plan (1992-97)	470445	420351	890796
9th Plan (1997-2002)	1175975	859530	2035505
10th Plan (2002-07)	2658294	1952041	4610335
11th Plan (2007-12)	7868723	4944356	12813079
12th Plan (2012-17)	13189647	9001485	22191132

Source – Economic Survey 2017-18

• ·        India’s exports and imports have tended to rise, but India’s share in global trade has tended to decline. It declined from 1.8% in 1950-90 to 0.5% in 1991.
• ·        After economic reforms, India’s share in the world trade has tended to rise. In 2015-16, India’s share in export trade was 2.0% and in import trade it was 2.4%.

 COMPOSITION OF FOREIGN TRADE

1. Decline in the percentage share of agricultural products – (i) India started using its farm product as raw material for its industrial base; (ii) Rise in the population, raised the domestic consumption of farm products.

2. Decline percentage share of conventional items – As there is a rise in demand for conventional items like jute, coffee, cotton, spices, food grains, minerals etc., their share in total exports tended to fall.

3. Increase in percentage share of manufactured goods – Presently Gems and jewellery is India’s highest exporting category of goods.  

Direction of Trade – It refers to the countries to which a country exports its goods and services and the country from which it imports.

India’s Top trading partners till 1991-

Exports		Imports
U.S.A.	16.35%	Unspecified	10.78%
Japan	9.24%	U.S.A.	9.69%
Soviet Union	9.18%	Germany	7.95%
Germany	7.11%	Belgium	7.15%
U.K.	6.37%	Japan	6.99%

Source – RBI Publication

INWARD LOOKING TRADE STRATEGY /

(IMPORT SUBSTITUTION STRATEGY)

In the first seven plans, trade was characterised by what is commonly called an inward looking trade strategy. Technically, this policy is called Import Substitution Policy.

Import Substitution - It refers to a policy of replacement or substitution of imports by domestic production. In other words, it is a process to produce the alternate or close substitute of imported goods in the country itself.

Export Promotion – It is a strategy to earn foreign exchange by promoting domestic exports and making domestic industry competitive in the international market.

Need for Import Substitution –

1. Scarcity of foreign exchange,

2. Un-favourable balance of Trade,

3. Devaluation of rupee,

4. Scarcity of foreign aid,

5. Shortage of essential commodities,

6. Need for industrial development,

Objectives of ILTS - The three definite objectives of this policy was:

1. Savings of Foreign Exchange Reserve;

2. Increase in self-sufficiency.

3. Utilisation of Foreign Exchange Reserves in importing developmental goods.

Protection from imports through Tariffs and Quotas –

Tariffs – It refers to taxes imposed on imported goods. The basic aim for imposing heavy duty on imported goods was to make them more expensive and discourage their use.

Quotas – it refers to fixing maximum limit (quantity) on the imports of a commodity by a domestic producer.

Impact of Inward Looking Trade Strategy -

Good Impact –

1. High rate of industrial growth with structural reforms – Contribution of industrial sector in GDP rises from 11.8% in 1950-51 to 25% in 1991.

2. Diversification of industrial growth – India’s modern industries was no longer restricted to cotton and jute. Now India is producing a variety of engineering goods and wide range of consumer goods. Electronic industry (then sunshine industry) noticed remarkable growth.

3. Opportunities of investment – Protection to Small Scale Industries opened new opportunities of investment for those who do not have much money.

Bad Impact –

1. Growth of inefficient public monopolies –

2. Lack of competition implied lack of modernization – In absence of competition PSEs never tried to update themselves.

3. Indiscriminate spread of public sector enterprises – Those sectors, where private industrialist can be given responsibility,  PSUs started production. It was the misuse of public resources.

4. Economically unviable state enterprises – Due to political influence, many industries were continue in operation with great loss.

Role and Importance of Foreign Trade –

1. Advantage of advance technology,

2. Increases consumption capacities,

3. Benefits to participating countries,

4. Increases production capacity,

5. Serves as a transmission belt for capital,

6. Creates fair competition.

Features of India’s Foreign Trade –

1. Increase in the value and volume of trade,

2. Increasing share in the gross national product,

3. Increasing share in the world trade,

4. Changes in the composition of exports,

5. Changes in the composition of import,

6. Export-Import ratio,

7. Changes in the direction of foreign trade,

8. Adverse balance of trade.

Problems of India’s Foreign Trade –

1. Adverse balance of trade,

2. Rapid increase in imports,

3. Comparatively lower growth in exports,

4. Increase in domestic demand,

5. Rising Prices,

6. Increasing foreign debt.

(For more data please watch video)

VIDEO REFERENCE  

Indian Economy (1950-90) - PART 6

(FOREIGN TRADE)

https://youtu.be/80jL4vU7Rns

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Regards 

Dr. Asad Ahmad

KV IIM, Lucknow

##pls share other educational / official school group, so that more students will get benefit. Thanks a lot.

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