This is a detailed report on foreign Trade of India. Critical analysis is done on the topic and recommendations are given.

1. FOREIGN TRADE AS AN
ENGINE OF INDIA’S GROWTH
MAE Assignment
MARCH 20, 2015
SubmittedBy:
Group B9
Group Members
Simoni Parmar (14153)
Sindhu S (14154)
Srinidhi K S (14161)
Sristi Roy (14162)
Suman Sadhukhan (14163)
Tony Sebastian (14171)
SubmittedTo:
Dr.Venkatraja.B
Professor, SDMIMD

2. Table of Contents
What is Foreign Trade?................................................................................................................. 1
Salient Features of International Trade.......................................................................................... 2
Foreign Trade of India................................................................................................................... 4
India’s Foreign Trade 2014-15 (April – September) .........................................................................4
Exports ....................................................................................................................................4
Composition of Exports.........................................................................................................7
Imports....................................................................................................................................7
Composition of Imports ........................................................................................................9
Balance of Trade of India............................................................................................................... 9
Foreign Trade as an Engine of Growth.......................................................................................... 10
1. SME Sector ..................................................................................................................... 10
2. GDP Growth.................................................................................................................... 10
3. Employment................................................................................................................... 11
Advantages of Foreign Trade....................................................................................................... 12
Disadvantage of Foreign Trade.................................................................................................... 13
Union Budget 2015-16: Impact on Foreign Trade.......................................................................... 14
Foreign Trade Policy 2009-14 Features......................................................................................... 15
Model for India’s Growth (In terms of foreign trade) .................................................................... 15
Recommendations...................................................................................................................... 16
References................................................................................................................................. 17
What is Foreign Trade?

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Foreign trade is exchange of capital, goods, and services across international borders or
territories. In most countries, it represents a significant share of gross domestic product (GDP).
While Foreign Trade has been present throughout much of history, its economic, social, and
political importance has been on the rise in recent centuries.
All countries need goods and services to satisfy wants of their people. Production of goods and
services requires resources. Every country has only limited resources. No country can produce
all the goods and services that it requires. It has to buy from other countries what it cannot
produce or can produce less than its requirements. Similarly, it sells to other countries the goods
which it has in surplus quantities. India too, buys from and sells to other countries various types
of goods and services.
Generally no country is self-sufficient. It has to depend upon other countries for importing the
goods which are either non-available with it or are available in insufficient quantities.
Similarly, it can export goods, which are in excess quantity with it and are in high demand
outside.
Foreign Trade means trade between the two or more countries. Foreign Trade involves different
currencies of different countries and is regulated by laws, rules and regulations of the concerned
countries. Thus, Foreign Trade is more complex.
Industrialization, advanced transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the Foreign Trade system. Increasing Foreign
Trade is crucial to the continuance of globalization. Without Foreign Trade, nations would be
limited to the goods and services produced within their own borders.
Foreign Trade is in principle not different from domestic trade as the motivation and the
behaviour of parties involved in a trade do not change fundamentally regardless of whether
trade is across a border or not. The main difference is that Foreign Trade is typically more
costly than domestic trade.
The reason is that a border typically imposes additional costs such as tariffs, time costs due to
border delays and costs associated with country differences such as language, the legal system
or culture. Foreign Trade consists of ‘export trade’ and ‘import trade’. Export involves sale of
goods and services to other countries. Import consists of purchases from other countries.
International or Foreign trade is recognized as the most significant determinants of economic
development of a country, all over the world. The foreign trade of a country consists of inward
(import) and outward (export) movement of goods and services, which results into outflow and
inflow of foreign exchange. Thus it is also called EXIM Trade.
Salient Features of International Trade

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The following are the distinguishing features of international trade:
1. Immobility of Factors
The degree of immobility of factors like labour and capital is generally greater between
countries than within a country. Immigration laws, citizenship, qualifications, etc. often restrict
the international mobility of labour. International capital flows are prohibited or severely
limited by different governments. Consequently, the economic significance of such mobility
of factors tends to equality within but not between countries.
2. Heterogeneous Markets
In the international economy, world markets lack homogeneity on account of differences in
climate, language, preferences, habit, customs, weights and measures, etc. The behaviour of
international buyers in each case would, therefore, be different.
3. Different National Groups
International trade takes place between differently cohered groups. The socio-economic
environment differs greatly among different nations.
4. Different Political Units
International trade is a phenomenon which occurs amongst different political units.
5. Different National Policies and Government Intervention
Economic and political policies differ from one country to another. Policies pertaining to trade,
commerce, export and import, taxation, etc., also differ widely among countries though they
are more or less uniform within the country. Tariff policy, import quota system, subsidies and
other controls adopted by governments interfere with the course of normal trade between one
country and another.
6. Different Currencies
Another notable feature of international trade is that it involves the use of different types of
currencies. So, each country has its own policy in regard to exchange rates and foreign
exchange.

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Foreign Trade of India
Foreign trade in India includes all imports and exports to and from India. At the level of Central
Government it is administered by the Ministry of Commerce and Industry. There are records
throughout history of India's trade with foreign countries. Prior to the 1991 economic
liberalisation, India was a closed economy due to the average tariffs exceeding 200 percent and
the extensive quantitative restrictions on imports. Foreign investment was strictly restricted to
only allow Indian ownership of businesses. Since the liberalisation, India's economy has
improved mainly due to increased foreign trade.
For providing, regulating and creating necessary environment for its orderly growth, several
Acts have been put in place. The foreign trade of India is governed by the Foreign Trade
(Development & Regulation) Act, 1992 and the rules and orders issued there under. Payments
for import and export transactions are governed by Foreign Exchange Management Act, 1999.
Customs Act, 1962 governs the physical movement of goods and services through various
modes of transportation.
To make India a quality producer and exporter of goods and services, apart from projecting
such image, an important Act – Exports (Quality control & inspection) Act, 1963 has been in
vogue. Developmental pace of foreign trade is dependent on the Export-Import Policy adopted
by the country too. Even the EXIM Policy 2002-2007 lays its stress to simplify procedures,
sharply, to further reduce transaction costs.
India’s Foreign Trade 2014-15 (April – September)
India’s trade performance improved significantly in Q1 of 2014-15, building on the growth in
exports and compression in imports in 2013-14. However, in Q2 of 2014-15 export growth lost
momentum with the weakening of activity in major trade partner economies and also due to
persistence of supply-side constraints in certain export industries/sectors domestically.
Alongside, there was a pick-up in import growth, particularly non-oil non-gold imports, with
anecdotal evidence suggesting that imports are substituting for production shortfall in certain
sectors within the economy.
Exports
A sharp rise in exports in May-July 2014 more than outweighed the deceleration characterising
subsequent months. Notwithstanding export growth roughly halving in Q2, the overall increase
in exports in April September 2014 was 6.5 per cent, up from 6.3 percent in April-September
2013. Even though the overall export growth was a shade better in April-September 2014 than
the corresponding period of 2013-14, it was concentrated in a few major sectors. Growth

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impulses mainly emanated from four sectors, viz., engineering goods, petroleum products,
readymade garments and basic chemicals and pharmaceuticals which accounted for 58 per cent
of the total value of exports. Other sectors, viz., gems and jewellery, electronic goods, oil meals
and iron ore.
Destination-wise analysis shows that exports to the US, the UAE, China and South Korea
gained momentum during April-September 2014 on a y-o-y basis. However, exports to Saudi
Arabia, Hong Kong, Singapore and countries in the European Union (except Germany) either
decelerated or turned negative (Chart 4). Weaker demand conditions in most of these trade
partner countries seem to have weighed on India’s exports.

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In terms of share in total exports, the US continues to be the largest market for Indian goods
with a share of 13.8 per cent, followed by the UAE (10.5 per cent), Saudi Arabia (4.4 per cent),
Hong Kong (4.2 per cent) and China (3.7 per cent). Notwithstanding a decline in exports of
gems and jewellery, rise in exports to US was mostly driven by a rise in exports of drugs,
marine products and products of iron and steel. As growth in exports to most European
countries either decelerated or turned negative, the EU lost its share in India’s exports albeit
marginally.

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Compositionof Exports
Imports
After recording a decline for twelve successive months, India’s imports have begun to pick up
since June 2014. As a result, India’s imports grew by 1.6 per cent during April-September 2014
as against a contraction of 2.5 per cent in the corresponding period last year. Commodity-wise
analysis shows that Petroleum, Oil and Lubricants (POL) imports, accounting for nearly 35 per
cent of total imports, increased modestly during April-September 2014. Although the
international crude oil prices (Indian basket) were higher during April-July 2014 (y-on-y basis),
the subsequent softening in prices helped stem POL import growth. In quantum terms, there
has been a marginal growth in POL imports. Although gold imports surged in the second
quarter, overall gold imports in the first half of 2014-15 continued to be lower than in the
corresponding period last year. In quantum terms, gold imports stood at 365 tonnes during
April-September 2014, about 20 per cent lower than the level during April-September 2013.
Even though the increase in non-oil non-gold imports appears to be indicative of gradual
recovery in the domestic economy, supply-side bottlenecks in certain sectors may also have
induced substitution through imports. In particular, import demand for basic and intermediate
goods including iron and steel, nonferrous metals, metal ferrous ores and other minerals,
artificial resins, plastic materials and electronic components has picked up in April-September
2014.

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The direction of trade shows that there were lower imports from the EU, the US, Switzerland,
Iraq, Kuwait, Saudi Arabia and the UAE. The sharp decline in imports from oil exporting
countries was largely due to fall in international oil prices in August and September 2014. The
decline in imports from Switzerland by 17.1 per cent was mainly due to contraction in gold
imports.

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Compositionof Imports
Balance of Trade of India
Year Exports Imports Trade Balance
2013-14 19050.11 27154.34 -8104.23
2012-13 16343.19 26691.62 -10348.43
2011-12 14659.59 23454.63 -8795.04
2010-11 11429.22 16834.67 -5405.45
2009-10 8455.34 13637.36 -5182.02
2008-09 8407.55 13744.36 -5336.8
2007-08 6558.64 10123.12 -3564.48
2006-07 5717.79 8405.06 -2687.27
2005-06 4564.18 6604.09 -2039.91
2004-05 3753.4 5010.65 -1257.25
2003-04 2933.67 3591.08 -657.41
2002-03 2551.37 2972.06 -420.69
2001-02 2090.18 2452 -361.82
All values in Rupees Billion.

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Foreign Trade as an Engine of Growth
1. SMESector
India has nearly three million SMEs, which account for almost 50 percent of industrial output
and 42 percent of India’s total exports. However, as a result of globalization and liberalization,
coupled with WTO regime, SMEs have been passing through a transitional period. With
enhanced competition from China and a few low cost centres of production from abroad many
units have of late been facing a tough time. However, those SMEs who had a strong
technological base, international business outlook, competitive spirit and willingness to
restructure themselves withstood the current challenges and came out successful to make their
own contribution to the Indian economy. Foreign trade will help the SME sector greatly.
Because of Foreign trade they can find new customers around the world. Through foreign trade
the sector will be more exposed to new technologies and innovations which can be
implemented here. Foreign trade also increases competition. With rise in competition the
companies will innovate more to remain competitive thus forms superior products and services.
2. GDP Growth
Merchandise trade as a share of GDP is the sum of merchandise exports and imports divided
by the value of GDP, all in current U.S. dollars. The below given is in percentages.
1995-1999 2000-2004 2005-2009 2010-2014
India 33.7 40.8 42.3 41.5
-15000
-10000
-5000
0
5000
10000
15000
20000
25000
30000
Exports Imports Trade Balance

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From 1995 to 2014 the percentage contribution is showing an increasing trend. Close to half
of the GDP is contributed by foreign trade, if we consider the time period of 2010 – 2014. This
shows the importance of foreign trade for our country.
3. Employment
As foreign trade increases the number of jobs also increases automatically. Foreign trade
influences employment directly as well as indirectly. When exports increases the production
also increases. As production increases more people are employed to do the work. But import
adversely affects the employment within the country. Because as more and more goods are
imported the production within the country decreases. So the number of employment also
decreases.

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Advantages of Foreign Trade
 A Competitive Edge
Trading your products internationally can give you an advantage over competition. If the
domestic market is already flooded with similar products, then overseas markets may just be
the answer to better profitability. This holds especially true for products that aren’t widely
available overseas. As the international market for your good gets bigger, sales increase, giving
you an advantage over others in your industry.
 Economies of Scale in Production
Companies engaging in international trade experience improved efficiency brought on by the
presence of economies of scale in production. This can bring about significant trade gains due
to the reallocation of resources that can raise productive efficiency. Simply put, more output
can be created at lower costs bringing about major savings.
 New Markets
International trade can give you the opportunity to understand the varied market trends that can
affect your business. It is common business saying that 95% of a company’s prospective market
is situated out of the country. And it just won’t be wise to forego such a huge potential for
business, leads, profits and thus business growth.
So, the function of international trade is to capitalize on profitable opportunities for owners,
which is the single most significant directive for corporations and many other businesses.
 Insulation from Seasonal Domestic Sales
For business concerns that offer season specific services or products, expanding operations to
overseas is a perfectly viable way of staying busy and making money all year around. And
staying in business all year round is a great way of outmanoeuvring competitors. International
trade can introduce a company to whole new foreign markets.
 Improved Return on Investments
Spreading your risk in foreign markets and companies means that your organization won’t only
be subjected to the tribulations of the U.S economy. This diversification can shield their
businesses from the investment risk of putting all their eggs in one basket. Similarly,
international traders are also ideally poised to take advantage of the higher than usual potential
for growth of some foreign economies. It is important to do your research right to find the right

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emerging markets for your kind of business. Of course, it is also important to balance these
advantages against the likelihood for high costs and abrupt changes that are the special risks of
investing internationally.
 Gains of Specialisation
Each trading country gains when the total output increases as a result of division of labour and
specialisation. These gains are in the form of more aggregate production, larger number of
varieties and greater diversity of qualities of goods that become available for consumption in
each country as a result of international trade.
Disadvantage of Foreign Trade
 Economic dependence:
Too much dependence on imports may undermine the economy of a country. Developed
countries may economically exploit the underdeveloped countries which have to depend for
their economic development on the former. There may be colonisation of weak nations.
 Restricted growth of home industries:
Foreign trade may discourage the growth of domestic industries. Unrestricted imports and
foreign competition might pose a threat to the survival of infant and upcoming industries in the
country. Dumping policy of developed nations may cause harm to underdeveloped nations.
 Misuse of natural resources:
Excessive exports may cause quick depletion of natural resources of a country. Foreign trade
may promote lopsided development if only those goods which have comparative cost
advantage are produced in a country.
 Political exploitation:
Foreign trade may create economic dependence which may threaten political independence.
For example, the Britishers came to India as traders and ultimately ruled the country for
centuries.
 Import of harmful goods:
Import of luxury goods, spurious drugs, etc., may cause harm to the well-being of people.
Exports of essential commodities may result in shortage of these goods at home and people
suffer due to inflation.

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 Rivalry among nations:
Intense competition for exports may lead to rivalry among nations. It may hamper international
cooperation. Foreign trade creates rivalry amongst nations due to competition in foreign
markets. Unhealthy competition may lead to conflict of interest and eventually to wars between
nations.
 Invasion of culture:
Foreign trade may lead to invasion of a country's culture. Young citizens of poor nations get
accustomed to foreign consumption pattern and lifestyles.
 Dumping:
Dumping tactics resorted to by advanced countries may harm the development of poor
countries.
Union Budget 2015-16: Impact on Foreign Trade
 Corporatization of state-run ports
The corporatisation of ports and subsequent converting of them into companies will pave the
way for more efficient ports adhering to international norms in services.
 Tariff rate on iron & steel and articles of iron or steel has been increased from
10% to 15%
The steel industry in India is passing through difficult phase with falling prices, decline in
demand and surge in imports. With a view to provide a little protection to domestic industry,
Government has increased the tariff from 10% to 15% which will also augment to Government
revenue.
 The Union Budget has talked about facilitating of manufacturing hubs in CMLV
(Cambodia, Myanmar, Laos, and Vietnam) countries which will help India to enter into
Regional Value Chain besides strengthening our relation with them. This will also
support exports from India as part manufacturing will be done in India and part in
CMLV countries for exports to such countries with whom CMLV have Free Trade
Agreements while India does not have particularly countries like China.
 Movement of exports goods from factory to ports/airport/land customs station through
road has been exempted from Service Tax.
 A definite road map for GST will help the export sector to get some relief on state taxes
which are at the moment rebated only in respect of VAT. The extension in availment
of CENVAT facility from 6 months to 12 months, a demand of export sector, will help

16. 15 | P a g e
the exporters. However, the non-withdrawal of DDT and MAT has been a dampener
for SEZ units.
Foreign Trade Policy 2009-14 Features
 $ 200 billion or Rs 98,000 crore is the export target for 2010-11.
 100% growth of India’s export of goods and services by 2014.
 15% growth target for next two years; 25% thereafter.
 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%.
 Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export
excellence.
 26 new markets added to focus market scheme.
 Provision for state-run banks to provide dollar credits.
 Duty entitlement passbook scheme extended till Dec. 2010.
 Tax sops for export-oriented and software export units extended till March 2011.
 New directorate of trade remedy measures to be set up.
 Plan for diamond bourses.
 New facility to allow import of cut and polished diamonds for grading and certification.
 Export units allowed to sell 90% of goods in domestic market.
 Export oriented instant tea companies can sell up to 50% produce in domestic market.
 Single-window scheme for farm exports.
 Number of duty-free samples for exporters raised to 50 pieces.
 Value limits of personal carriage increased to $5 million (Rs 24.5 core) for participation
in overseas exhibitions.
Model for India’s Growth (In terms of foreign trade)
Over the years, India's foreign trade has come to occupy a pivotal position in the economic
scenario and prosperity of the country. India exports a huge number of products and imports
equally a good number of required products. India must evolve an appropriate framework to
wrest maximum benefits out of international trade and investment.
This framework should include:
 Making explicit the list of demands that India would like to make on the multilateral
trade system,
 Steps that India should take to realize the full potential from international trade.
 Establishing symmetry as between the movement of capital and natural persons.

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 Delinking environmental standards and labour related considerations from trade
negotiations.
 Zero tariffs in industrialized countries on labour intensive exports of developing
countries.
 Effective restraint on industrialized countries in initiating anti-dumping and
countervailing action against exports from developing countries.
 Adequate protection to genetic or biological material and traditional knowledge of
developing countries.
Recommendations
1. India has nearly three million SMEs, which account for almost 50 percent of industrial
output and 42 percent of India’s total exports. So it is very important to develop this
sector. The government should organise international conferences where industrialist
from different parts of the world will take part. This will help them to understand what
is happening around the word and about the emerging markets. The government should
also give them financial assistance to participate in different trade fares and
conferences.
2. Dependency on only few economies like America or European Union should be
reduced. The imports should be diversified among different countries. This will help
during difficult times. Economic slowdown in one economy can be compensated by
depending on other countries.
3. Changes should be made to encourage FDI. If more and more export oriented
companies setup their manufacturing units in India, it will help to increase export to a
large extend.
4. Industries of the country are still lagging behind the international standard. A country
can achieve sustainable growth only through the growth of their industries. Industrial
goods should form the major part of the country’s export.

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References
 http://www.quickmba.com/strategy/global/diamond/
 http://commerce.nic.in/publications/anualreport_chapter2-2011-12.asp
 http://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=15068
 http://pib.nic.in/newsite/PrintRelease.aspx?relid=117041
 http://en.wikipedia.org/wiki/Economy_of_India
 http://commerce.nic.in/annual2006-07/html/chapter2.html
 http://business.gov.in/trade/foreign_trade.php
 http://www.moneycontrol.com/sme-
stepup/news/decoding_the_budget_2015_for_smes__exporters-1319170.html
 https://www.academia.edu/5450799/GLOBALIZATION_AND_INDIAS_FOREIGN
_TRADE_INTRODUCTION