Foreign Trade, Introduction And Composition
Introduction To Foreign Trade
Most of the third world countries have a colonial past marked by extensive and intensive exploitation of their economies by the colonial powers. One of the important instruments of this exploitation has been the instrument of foreign trade. Therefore many underdeveloped countries that won Independence in the post-World War II period viewed foreign trade and investment with a certain amount of suspicion. Therefore they turned their attention to the domestic markets. As far as the export sector is concerned, it was marked by extreme pessimism. for instance, after Independence, the widely prevalent view in Indian government circles was that the Indian exports faced a stagnant world demand and nothing much could be done to increase them. However, things have now radically changed. Many developing countries adopted programmes of import liberalisation and export promotion in the sixties and achieved remarkable successes. These included Japan, Singapore, Hong Kong, South Korea and Taiwan. The success of these countries has prompted many economists and international agencies (most prominent among them being the IMF and the World Bank) to advocate import liberalisation and export promotion as a panacea for many economic ills facing developing countries like India. Acting upon their advice, the Government of India has opted for a policy of trade liberalisation in recent years. Massive trade policy reforms were announced in 1991 to open up the economy to foreign trade and to ‘integrate’ the Indian economy into the global economy in the new international economic order that is taking shape with the setting up of the World Trade Organisation (WTO) in 1995.
Composition of foreign trade :
By the composition of foreign trade of any country, we imply the composition of exports and imports. An examination of the composition of foreign trade of a country enables us to analyse, the progress of that country and the rate and speed of structural changes operating in it. For example, if we find on scrutiny that the country in question imports food grains and raw materials but exports finished goods and capital equipment, we can safely conclude that it has reached a high level of economic development. On the other hand, if it exports primary commodities like jute, tea, raw cotton, sugar, etc., but imports capital equipment and machinery, finished goods, etc., we can conclude that the country is an underdeveloped one. The speed with which such a country changes its pattern of trade (leading to a percentage decline in imports of manufactured products and percentage increase in the exports of such products) is sometimes taken by some economists as an indication of the pace of development in the country. Composition of Imports: Important facts regarding the composition of different import items are as follows:
There has been a substantial rise in the import expenditure on POL ( Petroleum, Oil and Lubricants ) imports. For example, POL imports accounted for only 6.1 per cent of import expenditure in 1960-61 and 8.3 per cent in 1970-71. This increased dramatically to 41.9. per cent in 1980-81. This sharp increase was due to two hikes in oil prices in the 1970s – one in 1973-74 when the Oil and Petroleum Exporting countries (OPEC) raised the price of oil from around $ 250 to 3.00 per barrel to $ 11.65 per barrel and the other in 1978-79 when the price of oil was raised sharply to $ 35.00 per barrel. The period of the 1980s was marked by the substantial increase in domestic oil production on the one hand and a softening of international oil prices on the other hand. As a result, the share of POL imports in total import expenditure declined considerably to 25 per cent in 1991-92. In percentage terms. the share of POL imports in total imports varied between 25.0 per cent 30 per cent during 1990- In 2013-14. imports of POL were $ 1,65,154 million which was 36.7 per cent of total import expenditure. However, because of a fall in international crude prices, imports of POL fell to $82,880 million in 2015-16 which was 21.8 per cent of the import expenditure.
Due to the increasing demand of the gems and jewellery industry ( which has emerged as an important export earning industry ) the imports of “pearls, precious and semiprecious stones have increased significantly. In fact, this item accounted for 11.3 per cent of import expenditure in 1993-94 and occupied second place. Import of pearls, precious and semi-precious stones in 2015-16 stood at dollars 20,072 million which were 8.3 per cent of the total import expenditure.
Import expenditure on non-electrical machinery, apparatus and appliances rose considerably from $ 341 million in 1970-71 to $ 23,762 million in 2008-09. In percentage terms, its share was 15.8 per cent in 1970-71 while in the 1980s and 1990s, it has varied between 8 to 12 per cent. In 2015-16, the share of ‘non-electrical machinery, apparatus and appliances to total import expenditure was 7.7 per cent. Because of increasing domestic demand, edible oil also has had to import on a considerable scale in certain years.
In percentage terms, the share of fertilizers in total imports have varied between 3.5 to 6 per cent over the period 1970-71 to 1995-96. In 1995-96, its share in total import expenditure stood at 4.6 per cent. However, subsequently, the share of fertilizers in total import expenditure declined and stood at only 2.1 per cent in 2015-16. Foodgrains have had to be imported on a considerable scale for several years to meet these domestic requirements of the economy.
Composition of Exports
A clear trend over the years has been a decline in the importance of agriculture and allied products and a substantial increase in the importance of manufactured products. For instance, the share of agriculture and allied products in total exports declined considerably from 44.2 per cent in 1960-61 to 12.7 per cent in 2014-15 while that of manufactured products increased from 45.3 per cent to 66.8 per cent over the same period. This clearly depicts the changing production structure of the economy and the march from an underdeveloped, backward, primary goods dependent economy to a more vibrant industrial economy.
The second most important export item in 1960-61 was tea and it contributed 19.3 per cent (i.e. almost one fifth) of total export earnings. Its share has also declined consistently to 9.6 per cent in 1970-71 and 0.3 per cent in 2015-16. During recent years it has contributed more earnings as compared to jute.
Consequent to the programmes of industrialisation initiated during the planning period, the exports of engineering goods rose substantially. From $ 46 million in 1960-61, exports of engineering goods rose to $ 261 million in 1970-71 and further to $ 16,614 million in 200405. As a result, their share in Indian’s export earnings rose from 3.4 % in 1960-61 to 23.1 % in 2015-16. Engineering goods have occupied the first place in India’s export earnings since 2004-05.