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HISTORICAL BACKGROUND
Indias foreign trade begin to gain importance during late 19 century. There was a significant
growth in Indias foreign trade during the period of 1900-1914. As export was flourishing due
to which demand of crops like cotton, tea and jute was heavily increasing due to which there
was a jump in its production. India was a country producing labour- intensive products but
due to World War I Indian foreign trade suffered a lot. But as the war ended there was a
sudden increase in demand for raw materials which led to increase in exports. The great
depression of 1930 hurt India very adversely as it was doing all over the world. This setback
was due to many reasons but most importantly due to: commodity prices had fallen
drastically and adoption of discriminatory policy by the colonial government (Bhat, 2011).
India achieved a huge of export surplus, during the period of 2nd world war.
The partition of country led to a sharp deficit in export of raw cotton and raw jute. On
the other hand there was a large demand of products like pig iron as industrialisation was at
peak. This shortage of export was maintained by the increase in exports of spices and
vegetable oil. In 1938-39, jute manufactures, cotton manufactures and tea accounted for only
about 35 per cent increased dependence on a few commodities and brought an element of
instability in the export prospects (Mathur, 2006) . Before independence, Indias foreign trade
mainly consisted exports of raw material goods and crops, on the other hand import was of
consumer goods. Which is very wrong as a suitable condition would be opposite of this and
this clearly showed that we were getting exploited by the foreign rule.
There were two main tendencies of export in India during the years of 1950-1960:
1) there was no increase in traditional exports of India; 2) there was an increase in exports of
iron ore but it was not significant to counter the exports of agricultural products. In these
years traditional exports contributed up to 34% to total exports (Bhagwati & Srinivasan,
1975). In 1950 India begin to experience a shortening in balance of payments and also the
surplus that India had earned during the Second World War was also being exhausted.
Imports were getting higher than the exports which was not a favourable condition. There
was a huge shortage in foreign exchange reserves of India which was a major setback for our
economy
The general extent of such motivating forces has been improved, bringing about more
unequivocal fare situated approaches, which have expanded the conceivable outcomes of
asset misallocation. Then again, since 1996-97, mean duties gradually expanded. The
evacuation of quantitative confinements occurred in 2000 and 2001, after India fizzled in its
endeavour to guard them on equalization of instalments grounds at the WTO.
India has opened up most of sectors for foreign direct investment. In manufacturing
foreign companies can participate up to 51 to 74 per cent and with the virtue of changes made
in 1993 up to 50% can be invested in mining activities by the foreign investors. And they also
provide some tax holidays so that production can be increased in these certain areas. FDI
policy has been liberalized. Investment is allowed in greater number of sectors and made
eligible for automatic investment procedures (india r. b., 1994).
Import weighted means tariffs have slowly increased from 24.6@ in 1996-97 to 30.2
% in 1999-2000 (Bhat, 2011). The government of India played a very dirty game by
imposing a high bound tariffs on the agricultural products as to decrease the imports of these
goods. Thus flying tariffs to their limits in effect would practically shut of any imports
(Srinivasan, 2001). India started taking all measures they can possibly take to safeguard
domestic economy. War room has been set up to keep a check on imports of over 300
goods which were termed as sensitive.
India still remain to be traditional in approaching to exports. Rules and regulations are
intact since 2002 regarding exports. To promote exports in relation to increasing imports a
number of duty exemption schemes are being provided to exporters. Tax holidays are provide
to certain sectors such as farm products, export processing zones, special economic zones,
electronics, services and export-oriented units.
Recent foreign trade policy passed by India tells us the importance of increase in
exports and concentrate on facilitating those imports which are necessary to stimulate the
economy. The two main objectives of foreign trade policy of India are: (A) to double the
share in global economy in next five year; (B) by generating employment facilities try to be
an important part of economic growth.
The key strategies assigned to achieve these are:
Foreign trade is an integral part for the development of a country. This can be
shown by these points.
1. Product specialization: due to foreign trade one can achieve specialization
in the production of the goods which a country can produce efficiently. This
will lead to increase in living standards of life.
2. Quality goods at lower price: due to foreign trade only we can import
cheap and quality goods from outside the country.
3. In the absence of foreign trade there would be no flow of technological
know-how between two countries and development would be restricted to
certain parts of the world.
4. Foreign trade improves both industrial and agricultural sectors of the
economy. The inputs which are not easily available in one country can be
imported from another country where these are available in abundant
quantity.
5. There cant be a build of local monopolies as there is a fear that consumer
would jump to low price imports as soon as any local company tries to
exploit them.
6. International trade makes a country efficient in using its resources. A
country having export oriented policy tries to use its resources in an
optimized manner so that more exports can be done.
7. Foreign trade open the door for foreign investors to invest in where they
can get high returns and which have shortage of funds.
8. Foreign trade brings stability in price level. As goods which are in shortage
can be imported and goods which are abundant can be exported. This
keeps the balance of the economy
9. Foreign trade increase competition which in turn motivates local producers
to improve their quality of products or else there products will remain
unsold.
References
Ahluwalia, I. (1999). inida's economic reforms: an appraisal. new delhi: oxford
university press .
Balasubramanyam, V. (2003). india trade policy review. the world economy,
1357-68.
Bhagwati, J. N., & Srinivasan, T. (1975). foreign trade regimes and economic
development:india . national bureau of economic research, 1-32.
Bhat, T. (2011). structural changes in india's foreign trade. indian council of
social science research, 104.
Golder, B., & ranganathan, v. (1990). liberalization of capital goods imports in
india. new delhi: national institute of public finance and policy.