FOREIGN TRADE AND BALANCE OF PAYMENT

MEANING “ International trade is trade between residents of one country and residents of other countries of the world.” For example, Trade between India and United states is called international trade or Foreign Trade. Foreign trade helps a country to utilize its natural resources and to export its surplus production.

FOREIGN TRADE OF INDIA Volume of foreign trade. Composition of foreign trade. Direction of foreign trade. Balance of trade.

VOLUME OF FOREIGN INDIA’S TRADE (RSCRORE) YEAR IMPORTS EXPORTS TOTAL 1950-51 650 600 1,250 1960-61 1,122 642 1,764 1970-71 1,634 1,535 3,169 1980-81 12,549 6,711 19,260 1990-91 43,193 32,558 75,751 2000-2001 2,30,873 2,03,571 4,34,444 2007-2008 10,12,312 6,55,864 16,68,176 2008-2009 13,74,436 8,40,755 22,15,231 2009-2010 13,63,736 8,45,534 22,09,270 2010-11 16,83,467 1142649 2426116 2011-12 23,45,463 1465959 3811422

It is clear from the above table: Volume of foreign trade in 1950-51 was rs.1,250 crore. In 2011-12, it increased to rs. 38,11,422 crore. Volume of foreign trade increased by 3049 times. In 1950-51,total imports were rs.650 crore which rose to rs. 2545463 crore in 2011-12. Thus imports increased by 39.3% times. In 1950-51,value of total exports was rs.600 crore. It rose to rs.1465959 crore in 2011-12. Thus exports increased by 2443 times. Higher growth rate in exports than imports in recent years is a welcome sign in India’s foreign trade.

COMPOSITION OF FOREIGN TRADE (A) Change in composition of exports Decline in percentage share of agriculture products in total exports. Increase in percentage share of manufactured goods in total exports. Change in composition of agricultural exports. Exports of petroleum products. Increase importance of exports of gems and readymade garments.

CHANGE COMPOSITION OF INDIA’S EXPORTS (RS CRORE) Commodity 1950-51 2011-12 Tea 80 4079 Cotton Clothes 114 21624 Rice - 24109 Iron ore 18 22184 Coffee 10 4535 Chemicals 5 177872 Gems and precious stone 214889 Total Exports 600 1465959

(B) Change in composition of imports Decline in the imports of agricultural products. Petroleum products enjoy first place in imports. Increase in the imports of capital goods. Increase in imports of raw materials and intermediate goods. Increase in imports of chemical fertilizers.

CHANGE IN COMPOSITION OF INDIA’S IMPORTS (RS CRORE) Commodity 1950-51 2011-12 Iron and steel 20 57552 Machinery 91 158611 Transport equipment 41 67474 Food grains 100 5691 Chemicals .57 16595 Fertilizers 12 53311 Paper, paperboard 10 12305 Petroleum 87 743075 Total Imports 650 2345463

DIRECTION OF FOREIGN TRADE Changes in the direction of foreign trade Organisation of economic co-operation and development (OECD). Organisation of petroleum exporting countries (OPEC). Share of Eastern European countries. Trade with developing countries.

DIRECTION OF INDIA’S FOREIGN TRADE Country % of exports % of imports UK 3.5 1.5 USA 10.9 5.9 Japan 2.0 2.3 Russia .5 1.2 China 6.5 10.7 EU 20.2 13.3 OPEC 16.6 32.1 Developing Countries 42.5 33

BALANCE OF TRADE “ Balance of trade of a country is the relation over a period between the values of its exports and imports of physical goods.” Balance of trade may be of three kinds: Surplus or Favourable balance of trade: A country may have favourable or surplus balance of trade when the total value of the goods exported by its more than the total value of goods imported by it. (Exports > imports)

Deficit or Unfavourable balance of trade: A country may have unfavourable or deficit balance of trade when the total value of goods imported by it is more than the total value of goods exported by it. ( Imports > Exports) Equilibrium in Balance of trade: A country may have equilibrium in balance of trade when the total value of the goods exported by it is equal to the total value of the goods imported by it. ( Exports =Imports)

FEATURES OF INDIA’S FOREIGN TRADE Increasing share of gross national product. Less percentage in world trade. Increase in volume and value of foreign trade. Change in the composition of exports. Change in the composition of imports. Direction of foreign trade. Balance of trade. Foreign trade by government. State control over foreign trade.

BALANCE OF PAYMENTS Balance of payments refers to the recording of all economic transactions of a given country with rest of the world. Balance of payments is a statement of accounts of these receipts and payments. Difference in the value of imports and exports of all the three items ,i.e., visible, invisible, and capital transfers is taken into account, it is called Balance of payments.

FORMS OF BALANCE OF PAYMENTS Current Account: Balance of payments on current account includes the value of imports and exports of both visible and invisible items. Current account transactions are called account of actual transactions of import and export of goods and services. Capital Account: Capital accounts refers to financial transactions. It mainly includes foreign investment and external loans. All kinds of short term and long term international capital transfers, foreign debts, foreign investments etc. are also included in capital account. Overall Balance Of Payments: Total of a country’s balance of payments on current account and capital account is known as overall balance of payments.

DISEQUILIBRIUM IN BALANCE OF PAYMENTS Favourable Balance of Payments: When receipts are more than payments then balance of payments turns favourable. This situation increases foreign exchange reserves. It is also known as surplus balance of payments. Unfavourable Balance of Payments: Balance of payments is unfavourable when its payments are more than its receipts. This situation reduces foreign exchange reserves. It is also known as deficit balance of payments.

CAUSES OF UNFAVOURABLE BALANCE OF PAYMENTS Import of machinery. More demand of consumption goods. Price disequilibrium. Foreign competition. Less growth in exports. Expenditure on foreign embassies. Gulf war. Import of war equipments.

MEASURES TO CORRECT DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS Promotion of exports. Increase in production. Trade agreements. Attraction to foreign tourists. Devaluation of Indian currency. Deflation. Import substitution. Setting up of special economic zones. Less consumption of crude oil.