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Deciphering the Economics

INDIA’S FOREIGN TRADE (1947 – 1990)

FOREIGN TRADE

Trade Policy refers to the complete framework of laws, regulations, and international agreements adopted by the government to affect the quantity and value of a nation’s exports and imports. Examples include tariffs, import and export quotas, and import and export subsidies.

FEATURES OF INDIA’S FOREIGN TRADE

The main features of India’s foreign trade during the period 1951- 1990 were as follows :

(i) Volume and value of Foreign Trade: Volume refers to the size of imports and exports of a nation. Since different types of goods are exported and imported and different types of goods are expressed in different units, it is not possible to find the aggregate sum of all physical units. Therefore, exports and imports are measured in money terms. The sum of these money values constitutes the value of trade. The value of India’s foreign trade increased fast during the period 1950 – 1991, as can be seen from the table below :

India’s Foreign Trade 1950 – 91 (ˆ crore)

YearExportsImportsBalance of Trade
1950 – 51606608–2
1960 – 616421122–480
1970 – 711,5351,634–99
1980 – 816,71112,549–5,838
1990 – 9132,55343,198–10,645

It can be seen from the above table :

  • There was a substantial increase in India’s Foreign trade :
  • Imports were increasing faster than exports. As a result, during the period 1950 – 91, the country had always been faced the problem of trade deficit. India’s exports and imports have tended to rise over the years.
  • India’s share of global trade has tended to decline. It declined from 1.8 per cent in 1950 – 51 to 0.5 per cent in 1991.
  • However, after the introduction of economic reforms, since 1991. India’s share in the world trade has improved. In 2013, India’s share in export trade was 1.7 per cent and in import trade it was

2.5 percent.

(ii) Composition of Trade: Composition of Trade refers to the type of goods that are exported and imported by a country.

  • During 1950 – 91, the share of manufactures in country’s exports increased, whereas that of agricultural and allied products declined. This is clearly seen form table below. This change in the composition of Indi’a trade is regardeed a healthy development.
  • This happened due to two reasons :
    1. India started using its farm products as raw material for its domestic industries and
    2. Growth in India’s population has led to an increase in domestic consumption of farm products.
  • A rise in percentage share of manufactured goods (from 45.5% in 1960 61 to 72.9% in 1991) in country’s exports indicates that our planned development programmes have started yielding results.

Composition of India’s exports (ˆ crore)



1960-611990-91
1.Agricultural Products284 (43.7%)6,317 (19.4%)
2.Manufactured Goods291 (45.5%)23,736 (72.9%)
3.Total (incl. others)642 (100 %)32,553 (100%)

Among the agricultural products, we may include our traditional goods like tea, coffee, spices, tobacco, oil cakes, etc. Among manufactured goods, our major export items were gems and jewelry, textile fabrics and manufacturers, and leather goods.

(iii) Direction of Trade: Direction of Trade indicates the countries with which a country trades. It indicates the destination where a

country’s export goes, and also the points of origin from where a country’s imports come.

  • In 1950 -51, the then USSR and East Europe, did not appear in our export or import basket.
  • In 1990 – 91, almost 25 percent of India’s foreign trade was with this group of countries.
  • India also expanded its trade contacts with other developed countries of the world especially the USA and West Europe.
  • India had little or no trade with other developing countries.

Pre-1991 Trade Policy

  1. From the beginning of the planning era India adopted an inward-looking development strategy, also known as import substitution strategy of industrial development. This strategy relied heavily on building up domestic production capacity and providing domestic producers a wide and assured market protected from external competition by very high tariff walls.
  2. As the programme of industrialisation started in the Second Plan, the foreign trade policy was made very restrictive. Only import of essential capital goods, machinery equipment, components, spare parts and technical know-how was allowed. Import of all inessential items was strictly reduced.
  3. As, the country developed, its industries needed spare-parts, raw material and other things for maintaining themselves. As a result, their imports were allowed but with certain conditions. After devaluation in 1996, imports were partly liberalised. In order to encourage industries to export a bigger portion of their output, they were allowed to import machinery and other essential inputs so as to improve the quality of their products. Moreover, import of fertilizers, pesticides, seeds, etc., on a large scale was allowed since these were necessary for the growth of agricultural sector which had adopted the Green Revolution programme. While import-substitution was given too much importance, export promotion was not given any importance. No efforts were made to diversify exports into new markets and no particular attention was given to improve the contents of our expert basket.
  4. In seventies, again the policy of liberalisation was carried forward.
  5. In eighties, special arrangements to promote export growth were made: like many export promotion schemes such as duty
  1. drawback scheme, cash compensatory scheme, market development assistance, etc. were started which aimed at providing concessions to exporters.

Composition of Foreign Trade

The composition of foreign trade refers to the items of exports and imports.

Exports :

  1. Agriculture and allied products have lost their significance in foreign trade because of declining share of jute, tea, foodgrains and minerals, etc.
  2. Substantial increase is seen in the manufactured products such as engineering goods, gems and jewellery, chemicals and allied products, readymade garments, cotton yarns, fabrics, etc.
  3. Export of iron ore, leather and leather manufactures (including footwear) have contributed a great amount in exports of India.

Imports :

The maximum share is that of ‘others’, which includes chemicals, pearls, precious and semi-precious stones, etc,


FOREIGN TRADE

Direction of Foreign Trade

The direction of foreign trade refers to the countries from which we are importing and the countries to which we are exporting, Region-wise, over half of Indias’ export were to Asia and ASEAN. The share of Europe and USA fell in 2011-12. The UAE displaced the USA as the topmost destination of Indias’ exports in 2011-12.

Asia and ASEAN continue to be the major source of Indias’ imports. China remains the largest source of followed by the UAE and Switzerland.

Import Substituting Industrialisation/Inward Looking Trade Strategy

The import-substituting industrialization was the objective of the second FYP (1956-61) till the Seventh FYP (till 1990). The Mahalanobis strategy of development was based on import substitution. The rationale of the import substitution strategy is based on the infant industry argument. The argument says that in the initial stages of industrialization, it is essential to protect domestic industries from foreign competition by imposing high import tariffs or imposing quantitative restrictions on imports. Such a strategy will help the developing countries to develop their industrial base.

Reasons of having import substituting industrialisation were:

  1. It helped to save foreign exchange by drastically reducing import of goods. The foreign exchange saved was to be used for the developmental imports such as capital goods, sophisticated technology etc.
  2. It created a protected market and large demand for domestically produced goods.
  3. It helped in solving the unemployment problem as industrialisation takes place at a fast rate and absorbs unemployed people.
  4. It helped to build a strong industrial base in our country which directly led to economic growth.

The criticism of import-substituting strategy was:

  1. It ignored the potential of export sector.
  2. Outward-oriented economies performed better than inward-oriented economies in almost all respect. Inward-oriented strategy did not lead to efficiency.
  3. It did not lead to growth.
  4. It is proved to be wasteful.

Meaning of occupational structure

Occupational structure refers to the distribution of the working force into various sectors of economic activity. An occupation is defined as an economic activity that provides means of livelihood to those engaged in it. All these occupations are usually grouped under three broadheads. These are:

  1. Primary sector : It indudes agriculture and allied activities like forestry, fisheries, poutry, dairy farming etc.
  2. Secondary sector : It includes manufacturing industry, (both largescale and small-scale) and construction activity.
  3. Tertiary Secctor : It includes transport, storage communications, trade and direct serices.

The number and the proportion of workers engaged in these various sectors of an economy are known as the occupational structure of that country. The contribution made by each of these sectors to the GDP of a country is called the sectoral composition of the economy.

Economic Development and Occupational Structure

There is a close interlink between the occupational structure of a country with its economic development i.e.

  1. as a country develops, there is a shift of workers from the primary sector to the secondary and teritary sectors.
  2. as a country develops, the absolute number of people engaged in primary sector declines, while that in secondary and tertiary sector rises. Change in occupational structure

Changes in the occupational distribution of working force from 1951 to 2001 – 02

  1. The rate of structural change in occupational distributes appears to be very slow. The share of primary sector in the total workforce has declined from 72.1% in 1951 to 60.8% in 2001-02. The occupational structure in India reflects its underdeveloped nature since there is excessive dependence on agriculture.
  2. The share of secondary sector increased from 10.7% in 1951 to 17.1% in 2001-02.
  3. The share of tertiary sector increased from 17.2% in 1951 to 22.1% in 2001-02.
  4. It is clear that secondary and tertiary sectors have not been adding much to employment opportunities due to use of modern capital intensive technology.

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